Around the Globe Weekend Edition September 28-29


Italian president hopes to solve political crisis without new vote | Reuters.

Italy’s Coalition Teeters as Berlusconi Allies Walk Out – Bloomberg.

Italian Minister Resignations Spark Government Crisis –


Italy has had 61 different governments since 1946 and is about to try for a 62nd.  While the financial press is attempting to whip everyone into a state of frenzy over the “crisis”, this situation is fairly typical of Italian politics.  Governments in Italy only last about 13 months on average, and this one is already six months old.  Usually Italy can get by without anyone ruling the country because the civil service is running the country.   This time is different because Italy requires its duly elected government to enact budgetary and economic reforms.

While political instability is not good news, the current situation is overhyped.  In a few days, there will be a deal, because there is always a deal.  In the meantime, European markets are in store for a bumpy ride.


Greek Party Leader Arrested –

Greek police arrest leader, lawmakers of far-right Golden Dawn | Reuters.

Golden Dawn

Greece is on the verge of civil war.  Rumors of a coup by the special forces dominated the news coverage in Greece this week but were rarely mentioned in the mainstream media.  The latest instability is garnering coverage.  In response to the politically motivated murder of a anti-fascist murder by a Golden Dawn party member.  The party member probably acted on his own volition, but the government is using this as an excuse to arrest the Golden Dawn party leadership.

This is a huge gamble on Samaras’ part.  While support for Golden Dawn has dropped in the wake of the violence, the neo-fascists are probably the most popular party among the military and police forces, who will be protecting the government from any unrest during this critical juncture in Greek politics.

From Friday’s Edition:

Albert Edwards accuses Fed of inequality cover up.

Income Growth 99 vs 1

Hanlon’s razor admonishes us to, “Never attribute to malice that which is adequately explained by stupidity.” The Federal Reserve’s monetary policy is promoting income inequality as our table above illustrates, but I do not believe that the Fed’s action are malevolent.

Standard monetary procedure in the U.S. has been to loosen the money supply in the wake of a recession.  The Fed went to this well one too many times and was forced to embark upon its novel money printing experiment.  Today, it is stuck.  Surely some Fed officials have figured out that their actions are making the rich richer and the poor poorer, but the present policy cannot be terminated.  Even discussing the end of the program causes market distress.

Once money printing begins it must continue until either the printing or the lack thereof causes a crisis.  As we learned two weeks ago, the Fed cannot and will not taper.  The new plan is to keep printing while hoping that an economic miracle takes place before the inevitable consequences of incessant money printing.

From Thursday’s Edition:

U.S. Pending Home Sales Fall for Third Month in a Row –

Pending Sales of Existing Homes in U.S. Decreased 1.6% in August – Bloomberg.

Pending home sales fall 1.6 percent in August.

Pending Home Sales Through August 2013

Rising mortgage rates have stopped the housing “recovery” in its tracks, which should come as no surprise for astute readers of Dareconomics.  Houses have become more unaffordable since May crimping sales.  In my opinion, we have witnessed a peak.  Downward pressure on sales volumes will be a major headwind against more price increases going forward.

From Wednesday’s Edition:

Millionaire optimism hits 9½-year high, Spectrem Group says.

Consumer Confidence by Income Group

Millionaires are actually doing quite well for themselves and are completely out-of-touch with workers.  Cheap money enriches those closest to it, and this “recovery” is proof.  Let’s follow the money:

  • The Federal government is the closest to the printing press, and it is performing better than any other entity.  The Fed is printing cash to finance the Feds at record low rates while it simultaneously runs record high deficits.
  • TBTF banks are the next in line at Ben’s cafeteria, and they are the beneficiaries of the Fed’s largesse in numerous ways.  Their financing costs are low due to financial repression and the implicit TBTF guarantee from the government.  Furthermore, the Fed has been purchasing their holdings of treasuries and MBS raising prices to ensure profits and gains in their investment portfolios.
  • Corporations get their money from the TBTF banks who are busy underwriting a record amount of bond deals.  The corporations are also using the cheap money to buy back shares and raise dividends, but not to expand much to the chagrin of the American worker.
  • The rich derive their wealth primarily from their investment and real estate holdings, so they are doing very well, too.  Cheap money has inflated asset prices, and they are the main beneficiaries of the cash as it trickles down from the corporations.
  • Meanwhile, the middle class is earning 8% less than it did in 2007:

Median Income Performance in the U.S. Since 2007

Remember, money printing does little to improve the labor market, but it does manage to significantly improve the lots of the feds, banksters, corporatists and the rich.  The Fed equitably distributes the benefits and burdens of the program: the well-off get the money, and the rest of us will get the bill at some future date.

From Monday’s Edition:

China’s Data Suggest Rebound –

HSBC China Flash PMI 09.2013

Fox News likes to tell us that they report and we decide; not that it works this way in practice, but at least the issue is on their radar.  On the other hand, the affiliated Wall Street Journal does not offer a similar claim.  This is probably why it has reported that China flash PMI has risen to a six month high and decided that the number indicates an economic rebound.

Well, you’re not the boss of me, Wall Street Journal! I am deciding that the six month high in Chinese data represent easy money shenanigans courtesy of your PBOC.  The green arrow indicates the July low in PMI that was cured by record injections of liquidity into the Chinese financial system.  Some of this money is being used to inflate export receipts to create additional funds to invest outside the country, and that is why PMI is rising.  In reality, Chinese manufacturing remains stagnant, not good but not bad either, more like meh.



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