Since Draghi’s pledge, the Israeli shekel has been gradually strengthening. As such, Israel has been forced to join the worldwide currency war (aka printapalooza). During May, countries representing over one-quarter of the world’s GDP have cut rates. Add in the printing by the U.S. and Japan, and you see that over half the world’s economy is now engaged in the race to debase. As long as the inflation rate for consumer goods remains low, the race will continue.
The latest “good news” from the housing market is that prices are rising at the fastest pace since prior to the bursting of the bubble. Despite this exuberance, the average price from the 20 largest markets has yet to reach the frothy highs of those bubblicious days. Chairman Ben has yet to tell us what happens after he succeeds in reflating old bubbles and creating some new ones.
The theme of today’s Around the Globe is money printing. In fact, money printing is usually the theme. It is the single most important factor driving the world economy today. Rising nominal prices have created the illusion that consumers’ economic lives are improving, but the labor market remains moribund. Job creation continues at a replacement level pace, and incomes are either stagnant or falling. As long as the labor market remains sluggish, there is no recovery for the vast majority of Americans for whom the fruits of their toils is their greatest asset.
This article attributes the fall in Parisian real estate prices to anecdotal evidence that Frenchmen are moving to avoid high taxes. The more likely reason for the swoon in French housing is the parlous state of the French economy. Prices have been declining steadily since the first quarter of 2010, which is two years before Hollande’s tax increase on the wealthy. Blaming the economy would counter the Eurozone recovery narrative repeated ad nauseam by the mainstream financial press.
Contrary to this article’s theme, there has been no shift in Germany’s crisis fighting efforts. The ECB is using monetary policy to allow the peripheral countries time for a wrenching internal devaluation to enable them to compete with Germany. This is still the plan. There is only a cosmetic difference as Germany allows its Eurozone partners more time to cut their budget deficits. Since these countries will never meet their deficit targets anyway, nothing has changed.
Note the red ink on the chart above. Contained within that scarlet ellipse is the reason that the Fed will never taper and printapalooza is permanent. Just the mere mention of tapering was enough to cause a temporary halt in the eternal stock market rally. Now that the world central banks have assured markets that the printing and rate cutting will continue, the party gets going again.
If you willingly purchase shares in Spain’s bad banks, then you deserve whatever happens to you and your money, but most of the investors in Bankia did not willingly buy the stock. Their bonds and preferred stocks were converted to equity shares during the bank restructurings. The chart above shows what has happened to their forced investment. To make matters worse, it seems that insiders were able to dump shares prior to the recent price fall.
These banks may appear to be stronger, but looks can be deceiving. Healthy banks make loans, and European banks are still decreasing their lending. If the reserves are not being loaned to businesses, then what are the banks doing with the extra cash? They are speculating in peripheral sovereign debt, and this action is actually making the banks weaker. The longer they remain in bed with these sick governments, the more likely they are to catch something.
Astute readers of Dareconomics remember that we have been calling out Spain’s budget deficit forecasts for months now. The Spanish government predicted a 5.4% budget deficit for 2013, which was laughable at the time. I predicted a more realistic 8%
but even my figures have proven to be optimistic. After a 2.38% deficit for just the first quarter, Spain is on track to exceed a 9% budget deficit for the fourth year in a row. Sometime in the first quarter of 2014, Spain’s debt to GDP ration will exceed 100% just as we predicted at the beginning of the year. Fortunately for the Spanish, world money printing will postpone the day of reckoning.