Europe heading into recession
Discussion
JamesD74 said:
Joey Deacon said:
The government want everyone in debt, consuming as much as they can and living on printed money. The greatest trick they ever pulled was renaming debt to credit and convincing everyone that having credit was the new being rich.
That basically sums up the life average joe bloggs. Born in debt.
It's what makes the world go round.
JamesD74 said:
Joey Deacon said:
The government want everyone in debt, consuming as much as they can and living on printed money. The greatest trick they ever pulled was renaming debt to credit and convincing everyone that having credit was the new being rich.
Excellent summary and fully agreed.The governbankment won't be happy until almost everyone (bar perhaps the wealthiest 10%) are disenfranchised, obedient, compliant lifelong debt slave worker drones, achieved through a combination of inflated asset prices, suppressed wages and easy availability of credit.
mike74 said:
JamesD74 said:
Joey Deacon said:
The government want everyone in debt, consuming as much as they can and living on printed money. The greatest trick they ever pulled was renaming debt to credit and convincing everyone that having credit was the new being rich.
Excellent summary and fully agreed.The governbankment won't be happy until almost everyone (bar perhaps the wealthiest 10%) are disenfranchised, obedient, compliant lifelong debt slave worker drones, achieved through a combination of inflated asset prices, suppressed wages and easy availability of credit.
They all drive to work in their aggressive German metal while wearing designer clothes even though when you talk to them they will admit they live pay cheque to pay cheque.
I prefer to keep my head down and live as simply as I can, avoiding debt at all costs (I don't even have a phone contract) and stashing as much money as I can. In my mind, the more money I have in the bank, the less I am indebted to the slave masters. I have a mortgage unfortunately, but that was preferable to renting or living on the streets.
My plan is to keep my head down, pay off the mortgage, keep a few years take home in a bank account and then go and find a job with the least amount of responsibility possible.
However, if everybody lived like me the economy would be screwed and we would be in a massive recession.
fblm said:
bongtom said:
fblm said:
mike74 said:
...printing money out of thin air....
Thats where all money has come from for 100 years...And, it’s linked to treasury deposits and before that...oh never mind. Google it.
Seems to be a new ruse being floated in Can Kicking land right now. ECB is making noises about adding senior bank debt to its asset purchase program. Previously only covered / secured (bank) debt has been allowed; now this could be widened to unsecured debt is fairly astonishing for a number of reasons.
1) The ECB is the main supervisory body for these banks
2) In a default scenario, the bond holders get "bailed-in" - like Equity holders so the ECB is holding a near first loss asset class
3) It allows banks access to unsecured funding
4) Its dialling-in another rate cut (certaintity must be approaching 100% now from 85%)
5) Its an admission that peripheral nation banks are having trouble raising funds / rolling over debt
There simply isn't a plan B in thr Euro area other than more loose Monetary Policy. Given the already elvated risks a of a sovereign debt crisis; the ECB has just added bank defaults as an extra kick in the sponge.
It has to be nearing the point where some one smart @ the EC has to realise that the Euro is the largest existential threat to the European Union.
1) The ECB is the main supervisory body for these banks
2) In a default scenario, the bond holders get "bailed-in" - like Equity holders so the ECB is holding a near first loss asset class
3) It allows banks access to unsecured funding
4) Its dialling-in another rate cut (certaintity must be approaching 100% now from 85%)
5) Its an admission that peripheral nation banks are having trouble raising funds / rolling over debt
There simply isn't a plan B in thr Euro area other than more loose Monetary Policy. Given the already elvated risks a of a sovereign debt crisis; the ECB has just added bank defaults as an extra kick in the sponge.
It has to be nearing the point where some one smart @ the EC has to realise that the Euro is the largest existential threat to the European Union.
Edited by stongle on Tuesday 16th July 15:21
fesuvious said:
What I can't fathom however is why central banks haven't / didn't years ago say the following;
'righty, we've had enough of low rates, it's got to change. From next month 10basis points will go on every month for exactly 36months. Should inflation take off, or indeed should we fall into recession we reserve the right to review. Should neither happen we will stick to the plan and review again in month 37'.
If any learned person can inform me why this can't happen please do. For me however this just seems like the perfect 'forward guidance' and would get us back to normal rates.
Because we are at peak interest rates. Of the top 23 Central banks globally, only 1 is expected to raise rates this year (by 25bps). Every other Central bank is expected to reduce or hold (from a poll of economists by BBG). Here are the expectations for the top 10. Only Norway is expected to raise given increasing demand and investment in oil sector.'righty, we've had enough of low rates, it's got to change. From next month 10basis points will go on every month for exactly 36months. Should inflation take off, or indeed should we fall into recession we reserve the right to review. Should neither happen we will stick to the plan and review again in month 37'.
If any learned person can inform me why this can't happen please do. For me however this just seems like the perfect 'forward guidance' and would get us back to normal rates.
Fed: 50bps cut
ECB: 10bps cut PLUS other easing measures (bank relief PLUS restaring QE)
Japan: stable BUT may need more easing given inflationary pressures from $ weakness - although Japan is less concerned about inflation
BOE: Stable IF there is a BREXIT deal. But no one really knows. There is an expectation of going to parity with the $
Canada: Stable
PBOC (China): 7bps cut (deflationary pressures on Core inflation)
India: 10bps cut
Brazil: 100bps cut
Russia: 60bps cut
South Africa: 25bps cut
When there are more borrowers than savers, rates are simply not going up. Monetary stimulus is the most expedient way to stimulate growth in an economy. The other option would be fiscal policy (tax and spend) - but with over indebted economies / political suicide - no one wants to go for that option (despite pretty much every central banker saying - Monetary Policy is done - government needs to step in).
In fact the cuts required to stimulate demand might be significantly more than expectations. Look at German car maker data - 8% drop in demand YoY - consumers are reigning in spending. If they feel that their primary assets are under threat (houses etc); they tighten their belt.
Making this more thread specific, only Germany could do any form of fiscal stimulus without raising taxes (and its possible UK could do this as we've been running a reduction in deficit - but with such low rates we should increase debt by issuing more gilts). France has no chance politically and is already a basket case. Ditto Italy and Spain. Given a single currency system that only benefits certain Northern European states; and creates massive credit build up - the system could implode (no one will give a f**k about a European federal superstate when they can't eat). Its a doom loop.The tiny minority living of interest income are going to have to take one for the team (or invest in another asset class for income).
The only way out of the hole, is to admit to the entire populace that we f**ked it, either you all pay more tax (to fund growth); or massive debt lift. Whether that would actuially work is questionable as public sector is largely useless on these things. With a diminishing marginal rate of return on anything you attempt - you need to get it right (like not come in over budget by 150%).
Edited by stongle on Wednesday 17th July 13:45
This looks ominous; https://www.zerohedge.com/news/2019-07-16/bank-run...
(OK, its Zerohedge but it smells true. Anyone here knowledgeable on this?
(OK, its Zerohedge but it smells true. Anyone here knowledgeable on this?
s2art said:
This looks ominous; https://www.zerohedge.com/news/2019-07-16/bank-run...
(OK, its Zerohedge but it smells true. Anyone here knowledgeable on this?
Well, its kinda true - BUT offloading is Prime Brokerage business is the smart thing to do. Its balance sheet, capital and liquidity drain (even its mainly synthetic Prime Bro - its still heavy given margin requirements). It will improve the regulatory leverage and liquidity profile, and improve their overall capital position. its only really bad for profitability.(OK, its Zerohedge but it smells true. Anyone here knowledgeable on this?
Interestingly the main US PBs have been offloading weaker Hedge Fund clients for a while - so I'd be suspicious if these clients are that profitable. Being a successful PB is as much about getting teh right client profile (and fees) VS very strict cost control and marginal gains.
Even if you are charging the hedge Funds 150, 200bps for leverage - its costing you huge amounts in regulatory costs / buffers:
Supplementary Leverage Ratio - 70-80bps (if US prime - European is lower around 45bps)
Liquidity Costs: 25bps
RWA: (Risk Weighted Assets): 3-8bps
Margin provision: 5bps
Bank Levy: 4-8bps
Associated liability costs (TLAC / MREL)- ???
The margin on this business is thin as f**k. If you can't work at the margins or be super creative you're just draining your resources (which looked to be one of DBs problems). Whether BNP can do any better is to be seen (if you look at ethe above SLR costs you can see an obvious regulatory arbitrage so US banks are spinning out their balances sheets to European peers and saving 40bps odd).
Its also demonstrating a paradox between Central Bank policy - of reducing rates / stimulus is counter to post crisis banking response (to make banks hold increasiing safety nets). What is happening is the stimulus measures are getting eaten up by increasing bank costs. And the more you reduce rates and make money cheaper, the more pressure you put on bank profitibility.The response to the banking crisis (caused by opague liquidity and leverage practices) was to create more of it - but just stick it all in a central bank balance sheet rather than a bank - although in reality its everywhere.
Edited by stongle on Wednesday 17th July 14:35
s2art said:
Thanks stongle, Is this primarily a DB problem, or is more to come?
Personnally, I think the issue is profitibility, which is in the sh*tter for European banks. They can't make the fee's of their US peers and they can't manage costs either. To think that the 2 biggest German banks - Deutsche and Commerzbank do (or will in DB's case) not have an equity offering is highlighting a weakness in the system. With rates in a downard spiral, profitibility is further under pressure and the banks are supporting a public sector debt balloon. I think we'll see some Italian banks under extreme pressure; but the main risk is a sovereign defualt and contagion event. The problem is if the ECB / EC tinker with regs (i.e. they want to reduce capital buffers for the banks - which are for loss absorption); the banks go bust. There is going to be a very special place in hell reserved for Margrethe Vestegar given her kamikaze protectionist policies.
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