Converging crises
Monetary policy
No easy fixes
Showing posts with label crisis. Show all posts
Showing posts with label crisis. Show all posts
Thursday, September 29, 2022
Thursday, August 27, 2015
The Haiku of Finance for 08/27/15
Crisis planning team
Preserve enterprise from threat
Protect life and wealth
Preserve enterprise from threat
Protect life and wealth
Hip-Pocket Ruminations For Crisis Management Teams
I participated in a crisis management tabletop exercise today courtesy of the San Francisco Bay Area InfraGard Chapter. The local chapter of the Business Recovery Managers Association (BRMA) joined the fun. I was familiar with the structure of facilitated scenario-based role playing from many years of US Army Reserve staff training. The injects kept us thinking about how unpredictable a crisis gets for an enterprise. My genius ruminations are below.
Knowing how critical business processes will cross functional silos is a key to assembling the crisis management team (CMT). Prioritizing the processes that the enterprise must immediately sustain helps determine the resources the team will allocate in its earliest decisions. Having a single senior person designated as the communications manager ensures that all messaging themes are centrally routed before release and that all senior executives stay on message.
Outsourcing some of the response effort in public relations (PR), third party logistics (3PL), or business intelligence (BI) means the enterprise gains a surge capacity to meet an existential threat. One outsourcing risk is friction if the hired partners' IT systems are incompatible with the enterprise's systems, but the risk is worth taking.
The rehearsed crisis management plan should have escalation triggers in place so the CMT knows when decisions are beyond its authority. Sending the big decisions to the C-suite keeps the enterprise's strategy in mind. The business process recovery (BPR) team activates after the CMT has begun its work. The CMT minimizes damage from ongoing problems, and the BPR team fixes what is broken as the crisis passes.
Crisis managers have plenty of resources for planning and training. ISO standard 22301 governs business continuity. Several competing organizations offer certifications in business continuity planning, so the choice may come down to which one adheres most to the ISO standards and is the least costly. Having some members of a CMT get a couple of affordable certifications would not hurt. Joining the US government's public-private partnerships like InfraGard, the Domestic Security Alliance Council (DSAC), US-CERT, and the National Council of ISACs (NCI) allows access to open-source threat intelligence. Searching Google for case studies of the 1982 Tylenol crisis provides managers with the gold standard response.
Preserving an enterprise from a surprise threat is what boards pay executives to do. Protecting employee lives and shareholder investments means designated crisis managers must write plans and run drills for multiple scenarios. I no longer work for large enterprises but this InfraGard/BRMA joint exercise reminded me of how teams should work together. The Alfidi Capital crisis management plan is to be as brilliant as possible while Armageddon rages all around.
Knowing how critical business processes will cross functional silos is a key to assembling the crisis management team (CMT). Prioritizing the processes that the enterprise must immediately sustain helps determine the resources the team will allocate in its earliest decisions. Having a single senior person designated as the communications manager ensures that all messaging themes are centrally routed before release and that all senior executives stay on message.
Outsourcing some of the response effort in public relations (PR), third party logistics (3PL), or business intelligence (BI) means the enterprise gains a surge capacity to meet an existential threat. One outsourcing risk is friction if the hired partners' IT systems are incompatible with the enterprise's systems, but the risk is worth taking.
The rehearsed crisis management plan should have escalation triggers in place so the CMT knows when decisions are beyond its authority. Sending the big decisions to the C-suite keeps the enterprise's strategy in mind. The business process recovery (BPR) team activates after the CMT has begun its work. The CMT minimizes damage from ongoing problems, and the BPR team fixes what is broken as the crisis passes.
Crisis managers have plenty of resources for planning and training. ISO standard 22301 governs business continuity. Several competing organizations offer certifications in business continuity planning, so the choice may come down to which one adheres most to the ISO standards and is the least costly. Having some members of a CMT get a couple of affordable certifications would not hurt. Joining the US government's public-private partnerships like InfraGard, the Domestic Security Alliance Council (DSAC), US-CERT, and the National Council of ISACs (NCI) allows access to open-source threat intelligence. Searching Google for case studies of the 1982 Tylenol crisis provides managers with the gold standard response.
Preserving an enterprise from a surprise threat is what boards pay executives to do. Protecting employee lives and shareholder investments means designated crisis managers must write plans and run drills for multiple scenarios. I no longer work for large enterprises but this InfraGard/BRMA joint exercise reminded me of how teams should work together. The Alfidi Capital crisis management plan is to be as brilliant as possible while Armageddon rages all around.
Monday, December 22, 2014
Friday, October 17, 2014
The Haiku of Finance for 10/17/14
Warn systemic risk
Top elites see huge bubble
Falling on deaf ears
Top elites see huge bubble
Falling on deaf ears
Thursday, July 17, 2014
Gold Price Responds to Disaster News
Gold is a really old metal. It's been around longer than any of us and it has a mind of its own in the markets. Forget for a moment the recent news about bankers fixing the daily spot price of gold. Daily spots can't suppress market pressures forever. Headline news is still a demand factor when something happens to spook traders.
Today's shoot-down of a Malaysian airliner over the Russia-Ukraine conflict zone was bad news. Some idiots with too much firepower and not enough brainpower have just escalated a local conflict into a global incident. Forbes noted that the airliner incident drove up the spot price of gold. In a similar vein, CNN notes that Israel's ground attack in Gaza made the VIX volatility indicator move up. Escalating conflicts in more than one global hot-spot drive investors away from risky equities and towards hard assets, at least for the short term.
Real-world drivers of sharp moves in commodity prices make me discount other commentators' claims of ongoing gold price conspiracies. Paul Craig Roberts wrote yesterday about how big banks supposedly collude to drive down the gold price with COMEX futures contracts. I'd like to see how he explains today's rising gold price in light of his conspiracy theory. GATA also has some explaining to do.
A real conspiracy would be able to smack down the gold price immediately. The contract volume on COMEX would have to rise appreciably to indicate this counteraction was in the works. Come on, gold bugs, there's more to price action than paper claims on COMEX traders' bullion repositories. Surprises in the real world count for much more than hedging.
Monday, June 16, 2014
Financial Sarcasm Roundup for 06/16/14
Fixed income investors deserve some sarcasm today. Low interest rates have lulled them into thinking that bond valuations can only go up. The search for total return in the bond market is going to end with a bunch of sleepwalkers getting smacked in the face.
Central bank intervention has brought the world's fixed income markets into periods of illiquidity. Bond owners can't sell if buyers won't buy. The Fed is now considering imposing exit fees on bond funds to prevent panic selling that crashes the entire market and drives up real interest rates. I fully expect the Fed to put an instant lock-up on bond funds in a crisis, with rolling exceptions for politically connected pension funds (read: unions) that need to meet distributions immediately. Lots of retirees will wail about liquidity. Stanley Fischer is earning his pay at the Fed already.
I'm absolutely certain I'm going to get the last laugh at the expense of a whole bunch of fixed income investors. I'll LOL even harder at money managers who bought derivative bets on low yields and high valuations that they thought would last forever. I don't know if there's enough bond collateral in existence to cover those derivative bets. If not, then a whole bunch of futures contracts will be worthless as bond investors try to exit the market in a panic. The investment banks that wrote those contracts on future debt issues will be unable to make good on delivery if central banks continue to buy the lion's share of sovereign debt issuance. Some banks and insurance companies will get to relive 2008 all over again.
The buy-side investment management firms would love rules preventing sudden exits from bond funds, up to a point. The tipping point comes if high inflation degrades their bonds so much that their balance sheets are impaired and they face insolvency. Central banks and finance ministries would face a multi-faceted crisis. Should the Fed and other central banks stop buying sovereign debt, leaving inventory in the market to fill those derivatives? If so, they would have to backstop their primary dealers anyway just to ensure those investment banks have the liquidity to buy bonds that will make their derivative exposure whole. Or should the central banks buy bond holdings from the buy-side firms that may face uncontrolled liquidations? The discussion of a policy freeze is just the first consideration for financial regulators facing a global bond market at its peak.
The handwriting is on the wall and so many investors don't want to read it. Fixed income investors who start liquidating now can rotate their wealth into other assets that can still generate yield after the bond market freezes worldwide. Hard asset stocks, REITs, and ETFs await their turn at end of the global fixed income bull run. Bond fund managers can pivot to hard asset yields a lot faster than individual investors. Chair Yellen probably knows this but she can't time the exit. No one wants the secret to get out until individual investors are securely in their fixed income policy straitjackets. The average folks got handed a pile of bull once again.
Central bank intervention has brought the world's fixed income markets into periods of illiquidity. Bond owners can't sell if buyers won't buy. The Fed is now considering imposing exit fees on bond funds to prevent panic selling that crashes the entire market and drives up real interest rates. I fully expect the Fed to put an instant lock-up on bond funds in a crisis, with rolling exceptions for politically connected pension funds (read: unions) that need to meet distributions immediately. Lots of retirees will wail about liquidity. Stanley Fischer is earning his pay at the Fed already.
I'm absolutely certain I'm going to get the last laugh at the expense of a whole bunch of fixed income investors. I'll LOL even harder at money managers who bought derivative bets on low yields and high valuations that they thought would last forever. I don't know if there's enough bond collateral in existence to cover those derivative bets. If not, then a whole bunch of futures contracts will be worthless as bond investors try to exit the market in a panic. The investment banks that wrote those contracts on future debt issues will be unable to make good on delivery if central banks continue to buy the lion's share of sovereign debt issuance. Some banks and insurance companies will get to relive 2008 all over again.
The buy-side investment management firms would love rules preventing sudden exits from bond funds, up to a point. The tipping point comes if high inflation degrades their bonds so much that their balance sheets are impaired and they face insolvency. Central banks and finance ministries would face a multi-faceted crisis. Should the Fed and other central banks stop buying sovereign debt, leaving inventory in the market to fill those derivatives? If so, they would have to backstop their primary dealers anyway just to ensure those investment banks have the liquidity to buy bonds that will make their derivative exposure whole. Or should the central banks buy bond holdings from the buy-side firms that may face uncontrolled liquidations? The discussion of a policy freeze is just the first consideration for financial regulators facing a global bond market at its peak.
The handwriting is on the wall and so many investors don't want to read it. Fixed income investors who start liquidating now can rotate their wealth into other assets that can still generate yield after the bond market freezes worldwide. Hard asset stocks, REITs, and ETFs await their turn at end of the global fixed income bull run. Bond fund managers can pivot to hard asset yields a lot faster than individual investors. Chair Yellen probably knows this but she can't time the exit. No one wants the secret to get out until individual investors are securely in their fixed income policy straitjackets. The average folks got handed a pile of bull once again.
Thursday, November 21, 2013
ACA Problems Call For Corporate Crisis Management
The ACA debacle keeps getting worse. Backtracking on promises makes the optics even worse. California operates its own exchange but still denies plans that don't meet federal standards. Some hospitals are opting out of other state exchange plans. Sticker shock is spreading to older demographics that were supposed to benefit from better coverage. Doctors are increasingly alarmed at the financial disincentives they'll face in providing care to more patients. The federal ACA exchange and its supporting mandates for state plans are the equivalent of a private corporation's major product rollout. This product is not delivering affordable value and its entire supply chain among care providers is gradually shutting down.
A corporate CEO facing multiple problems from a single product roll-out would have a crisis management plan in motion. The best crisis management case in corporate history was Johnson & Johnson's response to the Tylenol poisonings of 1982. The company issued a nationwide recall of its entire product line for that brand and went public with messaging not to consume its product. That decisive action saved the brand in the minds of consumers.
Business theory doesn't match government reality. I don't get the sense that the federal government is treating the ACA's national exchange rollout as a product crisis to be solved. Contractors are working hard on fixes to the website but the messaging has reverted to clarifying past promises. The messaging on how the product fix is progressing is overwhelmed by noise on who promised what way back when. No amount of messaging can overcome a poorly performing product. A malfunctioning exchange website that does not deliver service, process payment, or protect against fraud will harm the consumers it was meant to help.
A corporate CEO facing multiple problems from a single product roll-out would have a crisis management plan in motion. The best crisis management case in corporate history was Johnson & Johnson's response to the Tylenol poisonings of 1982. The company issued a nationwide recall of its entire product line for that brand and went public with messaging not to consume its product. That decisive action saved the brand in the minds of consumers.
Business theory doesn't match government reality. I don't get the sense that the federal government is treating the ACA's national exchange rollout as a product crisis to be solved. Contractors are working hard on fixes to the website but the messaging has reverted to clarifying past promises. The messaging on how the product fix is progressing is overwhelmed by noise on who promised what way back when. No amount of messaging can overcome a poorly performing product. A malfunctioning exchange website that does not deliver service, process payment, or protect against fraud will harm the consumers it was meant to help.
Wednesday, June 06, 2012
Hot Summer 2012 Looks Like Economic Annihilation
Holy canole, things are starting to slide. Spain gave the world a gentle hint today that it can no longer borrow in world bond markets and would pretty please like Germany to put its good credit behind eurobonds. You'll have to speak up, Spain, because Germany is still pretending not to hear you give notice of default. They get that way sometimes.
Germany is also going to get an earful from Greece, again. The Greeks are one month away from going broke, again. The death spiral of austerity has a firm grip on Greece and cuts in government spending are generating positive feedback loops that are sinking the economy and tax revenue. I've had personal experience drinking German beer and Greek ouzo and can attest that both are sufficiently strong for the leaders of those respective countries to self-medicate their way through tough times.
Germany should stop listening to these deadbeats anyway. Its economy is really hurting now that its client states can't afford to buy German-made stuff after implementing their austerity measures. Oh well, less German beer exported means more German beer available at home for volks to self-medicate.
The G-7 pledged to do something. Their finance ministers have burned up lots of frequent flier miles and free long distance minutes this year with no progress toward getting Europe off the floor. I'll hazard a guess that they agreed to let the Fed do the heavy lifting since Europe can't get its act together. The only things I need to know are the size of the Fed's dollar swaps with leading European banks and whether the U.S. will push some inflationary transmission mechanism onto the U.S.'s systemically risky banks.
Speaking of systemically risky U.S. banks (and you know that turn of phrase is one of my favorite segues), the TBTF banks still don't take risk seriously. The OCC can't figure out whether JPMorgan's risk management controls are real or imaginary. The controls are probably as real as you can get when writing them with a stick on a wet clay tablet. TBTFs won't have much time for controls anyway if they get busy pushing hyperinflated dollars into weird new loan programs for Americans. All the Fed needs to do is give the banks the "go" codes. The Fed is already thinking about whether things are bad enough to require QE3, Operation Twist, or whatever. Helicopter Ben can't wait. The Fed's June meeting can't come soon enough for him. Hyperinflation is the most likely policy option with Washington too paralyzed to enact the requisite tax and spending fixes.
I really have to hand it to those hedge fund managers who were stupid enough to go long the euro, European sovereign debt, European bank shares, U.S. sovereign debt, and U.S. bank shares in 2012. These preppies take stupidity to a whole new level.
Germany is also going to get an earful from Greece, again. The Greeks are one month away from going broke, again. The death spiral of austerity has a firm grip on Greece and cuts in government spending are generating positive feedback loops that are sinking the economy and tax revenue. I've had personal experience drinking German beer and Greek ouzo and can attest that both are sufficiently strong for the leaders of those respective countries to self-medicate their way through tough times.
Germany should stop listening to these deadbeats anyway. Its economy is really hurting now that its client states can't afford to buy German-made stuff after implementing their austerity measures. Oh well, less German beer exported means more German beer available at home for volks to self-medicate.
The G-7 pledged to do something. Their finance ministers have burned up lots of frequent flier miles and free long distance minutes this year with no progress toward getting Europe off the floor. I'll hazard a guess that they agreed to let the Fed do the heavy lifting since Europe can't get its act together. The only things I need to know are the size of the Fed's dollar swaps with leading European banks and whether the U.S. will push some inflationary transmission mechanism onto the U.S.'s systemically risky banks.
Speaking of systemically risky U.S. banks (and you know that turn of phrase is one of my favorite segues), the TBTF banks still don't take risk seriously. The OCC can't figure out whether JPMorgan's risk management controls are real or imaginary. The controls are probably as real as you can get when writing them with a stick on a wet clay tablet. TBTFs won't have much time for controls anyway if they get busy pushing hyperinflated dollars into weird new loan programs for Americans. All the Fed needs to do is give the banks the "go" codes. The Fed is already thinking about whether things are bad enough to require QE3, Operation Twist, or whatever. Helicopter Ben can't wait. The Fed's June meeting can't come soon enough for him. Hyperinflation is the most likely policy option with Washington too paralyzed to enact the requisite tax and spending fixes.
I really have to hand it to those hedge fund managers who were stupid enough to go long the euro, European sovereign debt, European bank shares, U.S. sovereign debt, and U.S. bank shares in 2012. These preppies take stupidity to a whole new level.
Tuesday, June 05, 2012
Sunday, June 03, 2012
The Limerick of Finance for 06/03/12
Germany wants EU plan that's bold
Spain's in debt and chimes in as it's told
This plan just won't fly
Voters need to ask why
Fiscal union is what they'll be sold
Spain's in debt and chimes in as it's told
This plan just won't fly
Voters need to ask why
Fiscal union is what they'll be sold
Wednesday, April 18, 2012
Wednesday, March 14, 2012
Baloney News In Institutional Finance This Week
My news feeds are sending me more baloney this week than I bargained for when I logged on. I have very little patience for this kind of thing but I can't let it go unanswered.
Germany and France think the worst of the euro crisis is behind them. I say they are wrong. Portugal, Spain, and Italy await their funding crises (most likely in that order, with the kick-off time and event unknown).
The Fed thinks most U.S. banks are in good shape. Yeah, right. Defining "good" as "good enough to be made whole by another taxpayer bailout and emergency Fed swap line" is the only way that assessment makes sense. Citigroup's failure of its stress test only means it will be first in line for the next bailout.
Fitch upgraded Greece's debt rating after its bond swap. This one makes even less sense than the first two articles. The swap increased Greece's overall sovereign debt by 30% and the deal's required austerity measures will depress economic growth, hurt tax revenue and make debt repayment even more difficult.
Reading these three news stories in sequence shows a progressive decline in critical thinking skills when comparing European finance ministers to Fed analysts to credit rating analysts. No wonder gold keeps rising in price. Investors just don't believe qualified finance professionals anymore, so they'd rather trust a shiny metal with easily recognizable value.
Full disclosure: No positions in banks or Eurozone debt at this time. Long GDX with covered calls.
Germany and France think the worst of the euro crisis is behind them. I say they are wrong. Portugal, Spain, and Italy await their funding crises (most likely in that order, with the kick-off time and event unknown).
The Fed thinks most U.S. banks are in good shape. Yeah, right. Defining "good" as "good enough to be made whole by another taxpayer bailout and emergency Fed swap line" is the only way that assessment makes sense. Citigroup's failure of its stress test only means it will be first in line for the next bailout.
Fitch upgraded Greece's debt rating after its bond swap. This one makes even less sense than the first two articles. The swap increased Greece's overall sovereign debt by 30% and the deal's required austerity measures will depress economic growth, hurt tax revenue and make debt repayment even more difficult.
Reading these three news stories in sequence shows a progressive decline in critical thinking skills when comparing European finance ministers to Fed analysts to credit rating analysts. No wonder gold keeps rising in price. Investors just don't believe qualified finance professionals anymore, so they'd rather trust a shiny metal with easily recognizable value.
Full disclosure: No positions in banks or Eurozone debt at this time. Long GDX with covered calls.
Monday, November 07, 2011
Italy Worries Mount As Silvio Eyes Exit Sign Above Door
Italy's timing is absolutely perfect. Greece's ruling elite is just now wrapping up the cute show it put on for its populace to deflect all blame for implementing austerity measures. That dance ensured it will get to empty out the EFSF and leave not a drop for other deadbeat countries. Now Italy is trying its best to copy Greece's dance moves, but no one told Rome that the EFSF will run dry just as the music stops. Maybe the Italians are taking cargo cults to a whole new level, thinking that money will fall from the sky if they just go through the motions they've witnessed in Greece.
Silvio Berlusconi may lose his job over Italy's deteriorating credit situation. If I were him, I'd relish the chance to return to a career running a media conglomerate. It beats running around Europe hat in hand asking China and Germany for dough while trying to explain to investment banks that they really shouldn't worry about insolvency.
Let's get real. Greece and Italy can't pay their debts. Key players in the credit markets have known this for years. They are now trying to decide whether to dump European sovereign debt or arrange flights to some island in Oceania where they can hide from the rampaging mobs at home. The Occupy movement will figure out how to track them if they don't get moving soon.
Nota bene: I don't own any European sovereign debt. I really am too smart for that.
Silvio Berlusconi may lose his job over Italy's deteriorating credit situation. If I were him, I'd relish the chance to return to a career running a media conglomerate. It beats running around Europe hat in hand asking China and Germany for dough while trying to explain to investment banks that they really shouldn't worry about insolvency.
Let's get real. Greece and Italy can't pay their debts. Key players in the credit markets have known this for years. They are now trying to decide whether to dump European sovereign debt or arrange flights to some island in Oceania where they can hide from the rampaging mobs at home. The Occupy movement will figure out how to track them if they don't get moving soon.
Nota bene: I don't own any European sovereign debt. I really am too smart for that.
Sunday, October 23, 2011
The Limerick of Finance for 10/23/11
There's not enough cash to save Greece
The markets will not be at peace
Italy's next to go
Then yield spreads will blow
Taxpayers, hold onto your fleece
The markets will not be at peace
Italy's next to go
Then yield spreads will blow
Taxpayers, hold onto your fleece
Saturday, October 22, 2011
Thursday, August 11, 2011
European Short Sale Ban Signals Imminent Crunch
This is how it starts. Banning short sales in Europe is the first step in a trans-Atlantic replay of the credit crunch of Sept. 2008. The next vector is a liquidity crunch that will start in Europe as funding sources for European banks dry up. American investors need to pay attention. The first hint of Asian or American banks' unwillingness to lend to European banks will probably spark a run on deposits in France.
The venerable banks that have served as fronts for the remnants of Europe's aristocracy may be about to lose their patina of invincibility. Nobles with their backs against the wall can turn desperate. If they have any remaining levers over the supposedly democratic governments of Europe, they will lean on regulators to initiate financial repression against depositors. Freezes on withdrawals will be the obvious first move, followed by stronger tactics like requirements to deposit paychecks in the least solvent banks at zero interest. The next couple of weeks will reveal whether it really gets that bad over there.
The venerable banks that have served as fronts for the remnants of Europe's aristocracy may be about to lose their patina of invincibility. Nobles with their backs against the wall can turn desperate. If they have any remaining levers over the supposedly democratic governments of Europe, they will lean on regulators to initiate financial repression against depositors. Freezes on withdrawals will be the obvious first move, followed by stronger tactics like requirements to deposit paychecks in the least solvent banks at zero interest. The next couple of weeks will reveal whether it really gets that bad over there.
Saturday, August 06, 2011
Eurozone Phone Calls Give Peek At U.S. Future
Yesterday's U.S. debt rating downgrade opens the door to the kind of chaos we've seen for the past couple of years in Europe. The latest round of European crisis talks over debt relief give us a preview of what the future holds for us on this side of the Atlantic. There is of course no relief possible from a 100% or greater debt-to-GDP ratio aside from that provided by an immediate default. European central bankers are about to find that out the hard way when this round of conference calls breaks up.
"Hello, operator? I'd like to dial 9 for a bailout."
Sorry, but we cannot complete your call. Please check the number and dial again, but this time make sure you're calling the Fed for another $16 trillion.
"Hello, operator? I'd like to dial 9 for a bailout."
Sorry, but we cannot complete your call. Please check the number and dial again, but this time make sure you're calling the Fed for another $16 trillion.
Monday, June 20, 2011
Greece, Oil, And Stuff In The Headlines for 06/20/11
This week is off to a really great start. European ministers can't agree on how to structure the next iteration of wasted money for a bankrupt Greece. At least they provided enough breathing room for a very important no-confidence vote to take place in the Greek parliament. That will give Germany the pretext to say "told ya so" and refuse to back a bailout. The Group of Seven wants to get in on the action if only to go on record with bold assertions that yes, we all really must do something about this whole dreadful Greek crisis thing. The growing danger to the world economy of daisy-chained bank implosions from a Greek default hasn't gone unnoticed by the IMF. Nothing gets by those wily IMF wizards, except of course a massive cyberattack on its databases from an adversary with deep resources.
The IMF isn't the only acronymic organ of nascent global governance that's suddenly gone impotent. The IEA is asking the world's oil producers to pretty-please raise their oil output so prices can come down and the developed world can start spending its way to prosperity again. Nice try. Better luck next millennium. Russia isn't about to fall in line just to save the West from insolvency. It's too busy consolidating its stock exchanges and preventing capital flight prior to elections to take requests right now.
The IEA can start to relax with oil futures headed down anyway thanks to decelerating GDP growth in the developed world. The free market takes care of these things without jawboning.
The world is in for a new golden age provided it avoids financial implosion in Europe, stagflation in the U.S., and North vs. South resource wars. Fun times ahead! Life just keeps getting better for everyone.
The IMF isn't the only acronymic organ of nascent global governance that's suddenly gone impotent. The IEA is asking the world's oil producers to pretty-please raise their oil output so prices can come down and the developed world can start spending its way to prosperity again. Nice try. Better luck next millennium. Russia isn't about to fall in line just to save the West from insolvency. It's too busy consolidating its stock exchanges and preventing capital flight prior to elections to take requests right now.
The IEA can start to relax with oil futures headed down anyway thanks to decelerating GDP growth in the developed world. The free market takes care of these things without jawboning.
The world is in for a new golden age provided it avoids financial implosion in Europe, stagflation in the U.S., and North vs. South resource wars. Fun times ahead! Life just keeps getting better for everyone.
Wednesday, June 08, 2011
U.S. Offers To Subsidize Greek Default
It isn't enough for the U.S. government to throw money at underwater homeowners to prevent them from walking away from crushing debt burdens. Now it feels compelled to offer a subsidy to Greece to stave off a sovereign default. Can't we just let people and countries go bankrupt so they can start over? Uncle Sam sure is getting nervous about something.
It's easy to draw an inference that the European banks exposed to Greek debt are also counterparties in interest rate swaps and other deals with U.S. banks. A Greek bond restructuring will pull down banks on both sides of the Atlantic in a cataclysmic daisy chain. Alternatively, if Greece and other bankrupt countries leave the euro to hyperinflate their debts away, the euro's collapse would drive currency investors into the U.S. dollar. A resurging dollar would make U.S. exports more expensive and make a double-dip recession unavoidable for the U.S. economy.
This Greek melodrama really poses a Scylla-and-Charybdis dilemma for monetary policymakers. The Scylla of debt default can compete with the Charybdis of currency destruction to see which will do greater damage to the U.S. economy in the near future. European bankers may be ready to throw in the towel and let Scylla devour some of Greece's bond holders in exchange for stability. Scylla has fans on this side of the Atlantic too; U.S. leaders are openly flirting with a temporary default on U.S. financial obligations.
Dear readers, we may be weeks or even days away from a replay of the credit crunch of September 2008.
It's easy to draw an inference that the European banks exposed to Greek debt are also counterparties in interest rate swaps and other deals with U.S. banks. A Greek bond restructuring will pull down banks on both sides of the Atlantic in a cataclysmic daisy chain. Alternatively, if Greece and other bankrupt countries leave the euro to hyperinflate their debts away, the euro's collapse would drive currency investors into the U.S. dollar. A resurging dollar would make U.S. exports more expensive and make a double-dip recession unavoidable for the U.S. economy.
This Greek melodrama really poses a Scylla-and-Charybdis dilemma for monetary policymakers. The Scylla of debt default can compete with the Charybdis of currency destruction to see which will do greater damage to the U.S. economy in the near future. European bankers may be ready to throw in the towel and let Scylla devour some of Greece's bond holders in exchange for stability. Scylla has fans on this side of the Atlantic too; U.S. leaders are openly flirting with a temporary default on U.S. financial obligations.
Dear readers, we may be weeks or even days away from a replay of the credit crunch of September 2008.
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