Have Some Irish Coffee
Yesterday afternoon, Ireland finalized terms of a bailout valued at 85 billion euros, from the ECB, the IMF, a government pension fund, and several European states. (Details here.) So far, the bailout is NOT having a calming effect on Europe’s capital markets. Credit spreads on so-called “peripheral” European sovereigns are blowing out this morning, and government bonds of Portugal and Spain are falling sharply. Italy | Read More »
QE2: Is Bernanke Treating the Infection? Or Just the Fever?
I’ve been asked to give some basic perspective on what the Fed’s “quantitative easing” actually is. Since writing this piece, I’ve become more convinced that I was on the right track. So far, three different QE models have been observed in the wild: the Japanese (2001-06), the British (2008-09), and Bernanke I (2008-10). We’re about to see Bernanke II. All of them are forms of | Read More »
Decoding the Objectives of the Fed’s QE2
It’s been clear enough to everyone with eyes that the most visible effect of the Fed’s QE2 program would be to inflate the stock market, and possibly (because of the weaker dollar) commodities too. A view is starting to emerge that this is what Bernanke actually had in mind. Creating a huge amount of new "bank money" obviously did nothing to stimulate the creation of | Read More »
How Does the Republican Tide Affect the Business and Financial Outlook?
If you’re a Republican partisan, tonight was a very, very good night. If you’re an ordinary person trying to suss out the business and financial outlook, tonight was basically a non-event. Nothing that happened on Election Day 2010 was a surprise. The results basically match what non-political junkies been expecting for months. We’re going to get no fundamental change in the overall approach to policy. | Read More »
Yves Smith Blames the Large Banks for the Foreclosure Mess
Pretty much everything Yves Smith says in this New York Times op-ed piece is true, although she elides a lot of details, probably to fit in the available space. (It’s not for lack of knowledge. She’s totally up on this situation and has been from nearly the beginning.) She doesn’t really tie all the threads together, though. Mechanically, the problem is that many people who | Read More »
What Does It Really Mean to be Middle-Class?
Paul Krugman is on again today about the disappearing middle class, and how the Bush tax cuts are and always have been a huge, unfair giveaway to “the rich,” whoever they are. Because I happen to remember that the Bush tax cuts actually were an across-the-board cut in marginal rates, together with strong reductions in taxes on capital, I wondered how Krugman gets from there | Read More »
Has the New Great Depression Started Already?
Paul Krugman has just declared the onset of another Great Depression. To him a Depression is characterized by a long-term deflationary trap, but that’s not the reason Depressions are to be avoided. Depressions are bad because of long-term unemployment, which tears at people’s lives and at the fabric of society. So far, I’m with him. After all, to the best of my knowledge, I’m the | Read More »
Why I’m Not Fighting the Tax Treatment of Carried Interest
In regard to the battle over changing the tax treatment of carried interest: I don’t want to see capital gains taxes raised under any circumstances, and in fact I think they should go all the way to zero. But I’m not inclined to fight too hard to keep carried interest taxed as capital gains rather than ordinary income. For one thing, the carried interest to | Read More »
Europe Faces a Financial Crisis
Most European stock markets have opened down almost 3%, with some down almost 4%. US stocks are down about 3.5% there, the equivalent of almost 400 Dow points. The 30-year bond yield is now a hair above 4%. I heard people yesterday speaking of a bit more calm in US credit markets than has been the case in recent days. There are good signs here | Read More »
Euro-TARP: The Euphoria Didn’t Last
As I wrote here yesterday, we ‘ve just seen the remarkable spectacle of more than a dozen fractious finance ministers come together to puncture the risk of a Lehman-style market debacle. Taking a page out of Ben Bernanke’s playbook, they cobbled together and announced a package of 750 billion euros (nearly a trillion dollars) in liquidity guarantees. Think about that number. It’s twice the size | Read More »
Europe: A TARP of Their Own [Updated]
Holy smokes, people. They said it couldn’t be done. But it looks like the European finance ministers decided to get together and disprove everyone who has been saying for days now that they couldn’t even come close to acting in a coordinated way. They pulled 440 billion euros out of a hat, as a bailout fund for sovereign states. The IMF kicked in another 250 | Read More »
Caution Lights Flashing in Europe
The situation in Europe in regard to Greek debt may be entering a new phase, and I’m talking about something more serious than tear gas and Molotov cocktails. Now that the EU and the IMF have agreed on (and the key legislatures have ratified) a 110 billion euro bailout for Greece, the question has become: will it be enough? Greece faces unusually severe austerity budgets, | Read More »
Trouble In Greece, And Contrary Market Indicators
We’ve had a remarkable run in US notes and bonds over the past several weeks. The economically-sensitive 10-year note briefly yielded more than 4% in mid April. After an astounding rally yesterday, buying in the 10-year continues this morning, and its yield is down to 3.57 as I write. I’m at a loss to convey the magnitude of this move in such a short time. | Read More »
Bond Market Distress: Updated
I’ve been telling people privately to watch the bond market for about a week now. Since last Thursday, we’ve seen a very sharp, fast drop in prices for medium and long-term US Treasury securities, which (in consequence) increases yields. The yield of the 10-year note, which is a critical indicator for mortgage rates, has leapt up above 3.70%, from below 3% just a few weeks | Read More »