The euro is a currency area based on politics and not economics. This is the reason that it is failing. Latvia wishes to join the Eurozone, and its main reason for joining is political. Euro membership supposedly brings the country closer to Europe and further away from Russia. The irony here is that Latvia struggled for fifty years to leave the USSR only to join the new USSR, the Eurozone. If you don’t agree with the comparison, witness how the periphery has been bullied by the dominant country in the EU, Germany, just like the dominant country in the USSR, Russia, pushed around the other “equal” SSRs.
The FANG (Finland, Austria, Netherlands, Germany) is supposed to pay for everything in the Eurozone, but exactly one of those countries is not currently in a recession. Germany has avoided the recession but is not growing either. Congratulations on having your Euro application approved, Estonia. This is your future.
The latest market to have a taper tantrum is residential real estate mortgages. Applications to purchase new homes and to refinance existing mortgages are plummeting. Fortunately, the market is being propped up by Wall Street firms using cheap Fed financing to buy homes to bundle into investment packages for suckers. By the way, it is okay to mention the irony of the Fed reflating the housing bubble by using the same firms that required bailouts after the prior one burst.
The hot money fueling the Japanese rally was not domestic but international, and the Nikkei 225 is the latest market to exhibit signs of a taper tantrum. People are calling the end to the Abenomics rally, but I am not so sure. If the Fed moves away from its tapering message, this market could resume its upward march.
What I find curious is the yen’s recent strength. The Bank of Japan currently has the loosest money policy in the industrialized world, so the currency should still be moving downward. Perhaps, other countries are secretly intervening in the FX markets to keep the yen from sliding further.
The real had been weakening since March, but the currency’s slide picked up speed last week plunging to a low for the last year. To prevent further capital flight from nervous foreigners, the Brazilian central bank intervened in FX markets to support the value of the real. It is hoped that the intervention combined with more favorable tax treatment of foreign holdings will help reverse recent outward capital flows.