A Short Press Review 2/3…

Between travelling, household things to do and taking care of the kids while my wife had some professional fairs to attend, I have been struggling a bit over the past weeks to find time to write, but as I still collected some topics from various news sources, I thought it would be best to simply give you a little compilation of my thoughts on them… here goes (split in three posts):


IMF sees Euro-Zone Countries Missing deficit Targets (WSJ Oct. 9th):

Gee, are those guys at the IMF smart or what? France, Spain and basically everybody will be off target (though Italy of all countries might be ok)…. the article mentions the 75% tax in France, as one of the measures to hit the target – proving that even the WSJ writers do not bother to spend just a few minutes checking the relevance of such a measure (see Short Press Review 1/3)….

The most worrying country though is clearly the UK, which is miles off target. The deficit is forecasted to be at 8.2% of GDP this year and 7.3% next year. So what is the IMF message for the UK? A “warning that the UK should slow the pace of its austerity measures if economic growth falls considerably below forecast in coming months” (sic!). Okaaaay, but then what? The only consequence would be that things would get worse, and then what….?

Was just thinking that though my many British friends got “a bit upset” that the first major country to go bust in my book is the UK, I might have gotten that one right! (Note that they all forgive me as “we do win the World Cup in 2022”)


IMF: Euro Zone Could Spell Global Disaster:

No kidding? It seems that the IMF was getting even “starker in their remarks” regarding the “very fragile” confidence in the global financial system. They estimate that banks in Europe would have to get rid of USD 2.8 trillion of assets (read “bad loans” and that is not a typo, it is trillions) over the next two years. We are only seeing the beginning of the days of reckoning… 


The ECB 500 billion EURO “Bazooka”:

So here’s another one that was commented as marvelous, had Markets go up in euphoria for a day or so, while once again no one gives perspective. The ECB would have up to EUR 500 billion to buy bonds of distressed EURO-Zone States.

All commentators do point out that there are conditions, though yet undefined and especially no detail whatsoever as to how they would be enforced – very foggy indeed. But, hey they did come up with a fancy name, the “ECB’s Bazooka” (swell, no?)….

What does this mean anyway? Well, the idea of strong ECB action is progressing, but we’re still nowhere regarding the politics for such a move to be anywhere close to feasible (see previous postings on this blog). Furthermore, EUR 500 billion represents just over 6% of the EURO-Zone Governments’ debt or more or less one year of annual deficits (average 2009-2011). So we’re not exactly out of the woods. 

One detail mentionned is of far greater concern: “To ensure that the bond-buying program does not fuel inflation, the ECB’s purchases will be “sterilized.” That means that for every dollar in bonds that the central bank buys, it will withdraw an equal amount elsewhere in the financial system, thus keeping the money supply constant.”

What does this mean? Well, good money will be taken out of the money supply, replaced by bad money…. remember the “bad money drives out good” quote from Copernicus in my book? And you know what? Copernicus formulated that theory back in 1526……


Have a great weekend!

Simon Q.

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