Tag Archives: Economics

Things are turning increasingly ugly in Venezuela between President Maduro and the opposition MUD. The core political problem after December 2015 elections is the PSUV are now using the courts to neuter any opposition voices that formally hold a legislative majority to start holding the government to account. Right on cue, Mr. Maduro just railed a decree through the Supreme Court (TSJ) giving him total control over budgetary measures, utilize any property, suspect constitutional rights...

Things are turning increasingly ugly in Venezuela between President Maduro and the opposition MUD. The core political problem after December 2015 elections is the PSUV are now using the courts to neuter any opposition voices that formally hold a legislative majority to start holding the government to account. Right on cue, Mr. Maduro just railed a decree through the Supreme Court (TSJ) giving him total control over budgetary measures, utilize any property, suspect constitutional rights...

Italy is big enough to matter (it is the eight largest economy on the planet), but so uneventful that most does not pay any attention to what is going on there. We contend that Italy will, during the next year or two, be on everyone’s radar screen as it has the potential to derail the European project for real. Greece, Portugal and Ireland were mere test subjects for what will come. Spain would have been a challenge, but were narrowly avoided. Italy will drag the whole structure down if...

Italy is big enough to matter (it is the eight largest economy on the planet), but so uneventful that most does not pay any attention to what is going on there. We contend that Italy will, during the next year or two, be on everyone’s radar screen as it has the potential to derail the European project for real. Greece, Portugal and Ireland were mere test subjects for what will come. Spain would have been a challenge, but were narrowly avoided. Italy will drag the whole structure down if...

When looking at the current state of the Chinese economy it is important to note what happened leading up the ongoing predicament. By managing the USD/CNY exchange rate the Chinese factory worker was essentially funding excess consumption in the United States. One of the many perks enjoyed by global reserve issuer. The factory worker obviously did not do this out of his own volition; on the contrary, he was duped into it by swallowing the propaganda spewed out by party apparatchiks in...

Since 2009, Europe’s peripheral economies – Greece, Ireland, Italy, Portugal, and Spain – have tried to dig their way out of a debt crisis by cutting public spending and raising taxes. This year, however, will be different. Fiscal policy in the euro zone is expected to ease for the first time since 2010.   The European economists in Credit Suisse’s Global Markets division say it’s high time fiscal policy loosened in the Eurozone. Had it done so earlier, the region might now be...

We will not spend much time discussing what the FOMC did as tons of ink have been spilled on that already. We will rather spend more time on what the FOMC did not do. A short recap will suffice; the FOMC did raise the interest rate band by 25 basis points to 0.25 – 0.5 per cent from the seven yearlong band of 0 – 0.25 per cent. No surprise there as this move was well communicated weeks in advance. As discussed in Unintended Consequences of Liftoff the recent move to secure a floor in the...

We have argued for a long time that 2016 will probably be a year of recession in the US and the Federal Reserve’s intent on raising rates will only help expedite it. We believe the current rate cycle will be short lived as the Federal Reserve is constrained by the heavy debt load weighing on the US economy. Or more specifically, the large share of unproductive and counterproductive debt that drain the US economy for resources.  Source: Federal Reserve – Financial Accounts of the United...

Bar a disastrous NFP print this coming Friday the US Federal Reserve will change the target range for the Federal Reserve (Fed) Bank’s Funds rate from the current level of zero – 25bp to 25 – 50bp on December 16th.  The Fed will effectively raise the overnight interbank rate of interest to around 30bp from an average of only 12bp in 2015. Ironically, that will be seven years, to the day, when the Fed first lowered rates to the current band. During the period of ZIRP madness, the Fed’s...

SWAP spreads recently took a nosedive and are once again trading at negative levels, even for shorter maturities. As can be seen from the chart below, treasury yields, here represented by the 10 year maturity, rose during QE policies programs contradicting the very raison d’être spouted by the central bankers. Interestingly enough we also see the same pattern in SWAP spreads. As QE programs were enacted SWAP spreads started to move upwards, just to rollover as the central bank program...