Around the Globe 08.20.2013

Fear of Fed Retreat Roils India –

India’s Economic Woes Spread to Southeast Asia – Businessweek.

India Central Bank Intervenes to Ease Liquidity –

USDINR 08.20.2013

The Reserve Bank of India decided to ease liquidity issues by purchasing $1.5bn in rupee denominated bonds from the banking system.  While the bond purchase should provide sufficient liquidity for banks in the short-term, the RBI has paved the way for additional drops in the rupee.   India is moving towards a full-scale financial panic, and the RBI should raise interest rates before the situation runs away from it.

Greece will need third aid deal: German finance minister.

UPDATE 1-Greece will need third aid deal, German Finance Minister admits | Reuters.

Greece - with policy change

Greece does not require a 3rd bailout, because it has already had three.  The next will be the fourth.

The first bailout occurred in May of 2010, and everyone believed that the Greek problem was solved.  Within a year, this aid package proved to be short, so the troika approved a new bailout plan that most economists outside the official halls of central banks, governments and the IMF deemed insufficient from the get-go.  This plan, the second bailout, was eventually implemented in March of 2012.

By the summer, it was obvious that Greece was in need of more aid.  ELA approved by the ECB kept the Greeks afloat until a third bailout package could be arranged in November of 2012.  As you can see for yourself above, the same wildly optimistic projections of revenues from GDP growth and privatization doomed this plan from the start, but the troika’s goal here was not to save Greece but to keep it quiet until after German elections.  They failed, and I wrote

The 3rd Greek bailout was not designed to place Greek finances on a sustainable path; rather, the troika was primarily concerned with kicking the can down the road past German elections.  Once Angie was safely seated in the Chancellor’s throne, she could return to the Bundestag with a request for more German money to throw down the Hellenic Hole. (Greece Requires 4th Bailout | DARECONOMICS.)

The fourth bailout will occur sometime in the winter of 2013/2014.  Additional German money will be politically covered with a deposit tax à la Cyprus.  Anyone who is maintaining funds in a Greek bank deserves whatever happens to him.

Bubbles Bloom Anew in Desert as Buyers Wager on Las Vegas – Bloomberg.

Las Vegas Housing vs Unemployment Rate

Unemployment has remained high in Las Vegas at 2.4 points, about 33% greater than the national average.  Yet, look at that rise in housing prices. Since regular folk are not participating in the market, the increase has been caused by flippers buying and selling houses to each other.  Cash deals account for just about two-thirds of house transactions in the Las Vegas market.  Eventually, those flippers will need to sell their investments to regular people who require a home and realize that there aren’t any at the posted sales price.  Until that moment, the bubble will continue to inflate.

Dubai Sees Need for Tallest Office Tower Amid 45% Vacancy – Bloomberg.

Skyscraper Index Image

Amidst dizzying office vacancy rates approaching 50%, Dubai continues to add to its skyscraper inventory.  The longer cheap money is available, the higher the levels of malinvestment.  Not included in the image above are the Freedom Tower in New York and SkyOne in Shanghai.  When this bubble bursts, the central banks will not be able to ride to the rescue.  There is a decreasing marginal return with additional liquidity.  At this point in the cycle, new money is barely maintaining current levels of frothiness let alone causing another leg up.

Skyscraper Index

Norway Krone Slumps as GDP Data Revives Rate Bets – Bloomberg.

USDNOK 08.20.2013

When I originally selected this article for inclusion in today’s edition of Around the Globe, my thesis was that even Norway was feeling the effects of Europe’s malaise.  Then, I examined the figures and have come to conclusion that Norway is actually doing quite well for itself even though industrial production is not growing as quickly as some would like.


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