Some Tolstoyan advice for the UK on debt

Unindebted countries are all alike; overindebted countries are overindebted in their own way

By Martin Wolf

The UK’s debt problem has been exaggerated. That was the thesis of a provocative speech on “deleveraging” by Ben Broadbent, a member of the Bank of England’s Monetary Policy Committee, in March. Is this convincing? What does it imply?

Japan shrinks

Japan is now a "net mortality society"

By Nicholas Eberstadt

In 2006, Japan reached a demographic and social turning point. According to Tokyo's official statistics, deaths that year very slightly outnumbered births. Nothing like this had been recorded since 1945, the year of Japan's catastrophic defeat in World War II. But 2006 was not a curious perturbation. Rather, it was the harbinger of a new national norm.

A euro parable

The couple with a joint account

By Kenneth Rogoff
Perhaps the following parable is not entirely fair to the euro, but nevertheless the parallels seem striking.

Consider a young couple who is contemplating marriage, but unsure whether to take the big step. So instead they decide to test things out by opening a joint bank account. At first things go remarkably smoothly. Heady with success, they get the inspiration of extending the arrangement to her brother and his sister. Not only do they hope to show their siblings how well they can cooperate, but with four people, the total size of the account reaches the critical threshold needed to receive exorbitant privileges normally accorded to the bank’s larger customers.

Thanks to a cleverly designed constraint to limit imbalances between each sibling’s contributions and withdrawals, the innovative experiment continues to flourish. There is no real enforcement mechanism, but the two sets of siblings are determined to make the arrangement succeed. Forced to interact routinely, the couple and their siblings start becoming closer. They even start having dinners together on a routine basis.

North Korea redefines 'minimum' wage

North Korea as a Modern Day Nuclear Sparta

By Andrei Lankov 

When one talks about virtually any country, wages and salaries are one of the most important things to be considered. How much does a clerk or a doctor, a builder or a shopkeeper earn there? What is their survival income, and above what level can a person be considered rich? 

Such questions are pertinent to impoverished North Korea, but this is the Hermit Kingdom, so answering such seemingly simple questions creates a whole host of problems. 

We could look first at official salaries but this is not easy since statistics on this are never published in North Korea. Nonetheless, it is known from reports of foreign visitors and sojourners that in the 1970s and 1980s, most North Koreans earned between 50 to 100 won per month, with 70 won being the average salary. 

Vive La Resistance?

France votes to throw down the gauntlet to Europe

By Gideon Rachman

The battle for France has a couple of weeks to run. After that, the battle for Europe will begin. Both Nicolas Sarkozy and his challenger in the French presidential election, François Hollande, are promising to save the “French exception” by radically changing the direction of the European Union.

Most of France’s European partners are inclined to dismiss the two candidates’ rhetoric as cynical sloganeering, as they gear up for the final round of voting on May 6. It is assumed that, at the conference table in Brussels, France will be “reasonable”. But that is complacent. In Sunday’s first round of voting, the far right and far left scooped up about one-third of the votes. This election has already revealed a deep French anxiety about globalisation, austerity and national identity to which all the candidates pandered to. That will be reflected in France’s behaviour in Europe.

Russia's Greek Gambit

Yusufov fights to keep bid for Greek DEPA alive

By Robert M Cutler 

An investment vehicle created by a former Russian energy minister and Gazprom director has appealed against its exclusion from bidding for the Greek public gas utility DEPA. Igor Yusufov's Fund Energy has been suspected of being Gazprom's "Plan B" in the stakes for DEPA, which is being privatized as a result of the crisis in Greek government finances. Yusufov is "part of Russian Prime Minister Vladimir Putin's inner circle, and has already been active in Cyprus", according to the Athens newspaper Kathimerini. 

Gazprom's interest in DEPA stems from the Greek utility's participation in the Interconnector Greece-Italy (IGI) project, a planned natural gas pipeline that has lost out against the Trans-Adriatic Pipeline (TAP) in the competition for candidacy for the "western route" for Azerbaijan's offshore Shah Deniz gas to Europe. 

The French road to perdition

Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back

By Martin Hutchinson 

The French presidential election vote on May 6 is important not only to France; on it rests the future of the euro. Spain, about which the markets have been agonizing for the last few weeks, is merely a sideshow; it has only moderate levels of international debt and could at a pinch be bailed out by its European partners if necessary. 

France is however both considerably larger, and when looked at closely, in poorer shape. If it gets into trouble, it also leaves a rather small group of nations with the "duty" of supporting it. If Nicolas Sarkozy is re-elected, France will probably muddle through, but his opponents' policies are sufficiently bad that if one of them is elected the collapse of both French public finances and the euro system are very likely. 

Feeding Europe's Drug Addiction

Banks Gorging on Sovereign Bonds Shifts Risk

A drug addict lays on the ground in central Athens. Addicts have been a presence in Athens city center for more than 20 years, but with the recent crisis, things are getting worse for them, according to Philippos Dragoumis, president of a municipal center for prevention.

By Yalman Onaran

Spanish, Italian and Portuguese banks are loading up on bonds issued by their own governments, a move that shifts more of the risk of sovereign default to European taxpayers from private creditors.

Holdings of Spanish government debt by lenders based in the country jumped 26 percent in two months, to 220 billion euros ($289 billion) at the end of January, data from Spain’s treasury show. Italian banks increased ownership of their nation’s sovereign bonds by 31 percent to 267 billion euros in the three months ended in February, according to Bank of Italy data.

Spain, Land of Magical Financial Realism

Spanish banks are going to lend the fund that is supposed to bail out the banks, the money to bail them out

By Raoul Ilargi Meijer

These days when I read about Spain I'm wondering more and more how and why it is that the country has any access at all left to international finance markets. The bond auction this week was even sort of bearable, even as yields rose. I'm guessing that either investors have a hard time reading the news or they're going double or nothing in a risk-on bet that Germany and the IMF (China?!) will come to the rescue.

There's certainly a lot of humor in the stories. Which defy even the most imaginative minds; and don't try telling me you could have made this up. Pater Tenebrarum at the Acting Man blog has a few choice bits:

Miserere Nobis – More Pain In Spain

 [..] every time a bank merger is consummated, it turns out that the losses of the weaker banks are far greater than was previously assumed (or rather, admitted to). As a result, Spain's deposit guarantee fund (DGF) has run out of money.

In Britain, the bill comes due

Leniency and Its Costs

by Theodore Dalrymple

The principal cause of the riots in England that astonished the world (but not me) last year was revealed recently, when a man named Gordon Thompson was sentenced to 11 and a half years’ imprisonment at the Old Bailey for arson. That cause is the laxity of the British criminal-justice system.

It was Thompson who, last August, set fire to a family-owned furniture store in Croydon that had stood as a landmark for 140 years. The blaze spread quickly and people, some lucky to survive, had to be evacuated from nearby houses. The photo of a woman leaping from her window to escape the flames became for a time as emblematic of London as the Houses of Parliament.

Thompson, now 34, was heard to boast of his exploit immediately afterward; but, arraigned in court, he thought better of it and, through his lawyer, apologized to “everyone involved” but especially to the store’s owners.

Merkel’s Back is Against the Wall…

Time for Germany’s “Plan B”?

Politics, not economics, rule Europe. What I mean by this is that most major decisions in Europe are determined by political agendas that ignore economic and financial realities.

This is at the core of the “welfare state” mentality that permeates Europe as a whole. The EU in general is comprised of an aging population that is more concerned about receiving the pensions/ health benefits/ social payouts that were promised to them by the system than anything else.

As a result of this, EU voters, who determine EU elections, don’t take action until what has promised to them comes under threat.

For this reason, EU political leaders will maintain their agendas regardless of whether said agendas go against financial or economic realities (or common sense for that matter) until these agendas begin to have real negative consequences for their political careers.

Skeletons are getting out of the Chinese closet

The Paranoid Style in Chinese Politics

By Minxin Pei

Henry Kissinger, who learned a thing or two about political paranoia as Richard Nixon’s national security adviser and Secretary of State, famously said that even a paranoid has real enemies. This insight – by the man who will be known forever for helping to open China to the West – goes beyond the question of whether to forgive an individual’s irrational behavior. As the scandal surrounding Bo Xilai’s dramatic fall from power shows, it applies equally well to explaining the apparently irrational behavior of regimes.

Separated at Birth

Does it Matter if Obama Beats Romney? Does it Matter if Hollande Beats Sarkozy?

By Mike "Mish" Shedlock

Does it really matter who wins the French presidential election between socialist François Hollande and incumbent president Nicolas Sarkozy?

What about the race in the US between President Obama and Mitt Romney? Let's discuss those questions one at at time.

Does it Matter if Hollande Beats Sarkozy?

In spite of alleged differences, both candidates are in support of Eurobonds, both candidates want immigration controls, both candidates want the ECB to be more proactive, both candidates want to protect French farms from import threats.

To varying degrees both candidates are against free trade. Most importantly, both candidates want Germany to take on more risk and pony up more money to "save" the euro.

Ich Bin Ein Athener

The Big Fat Greek Wedding is coming up on May 6

 “The only relevant test of the validity of a hypothesis is comparison of prediction with experience”                                                   -Milton Friedman

by Mark J. Grant

It was on January 13, 2010 that I first predicted that Greece would default. The yield on their ten year was 4.38%. I took a lot of flak for that call at the time. Vindication was mine in the end and Greece may be the spark that lights the fuse by the time we all look back and marvel at the way the European Union played out. Yesterday as we all watched the Holland and Hollande Show; Greece was scarcely on the radar. That act was behind us now we think and we are off to different adventures. Not so fast my friends, a moment’s respite; nothing more.

Living Above and Beyond Market Forces

See tomorrow today?

Bret Stephens in the WSJ:

“ … the mystery of France is how a nation can witness what happens to countries that live beyond their means and yet insist on living beyond its means. France’s debt-to-GDP ratio will rise to 90% this year from 59% a decade ago. It spends more of its GDP on welfare payments (28.4%) than any other state in the developed world. It has an employment rate of 62.8%, as compared to Germany’s 76.5% or Switzerland’s 82.9%…Americans should also take note that we aren’t so different from France, either: in our debt-to-GDP ratio, our employment rate, our credit rating. Above all, both in France and in America there’s a belief that, as exceptional nations, we are impervious to the forces that make other nations fall. It’s the conceit that, sooner or later, brings every great nation crashing to earth.”

Still, France looks relatively sane compared to some of the things that are happening in the US.

Utopia in action

With Venezuelan Food Shortages, Some Blame Price Controls

By WILLIAM NEUMAN

CARACAS, Venezuela — By 6:30 a.m., a full hour and a half before the store would open, about two dozen people were already in line. They waited patiently, not for the latest iPhone, but for something far more basic: groceries.

“Whatever I can get,” said Katherine Huga, 23, a mother of two, describing her shopping list. She gave a shrug of resignation. “You buy what they have.”

Venezuela is one of the world’s top oil producers at a time of soaring energy prices, yet shortages of staples like milk, meat and toilet paper are a chronic part of life here, often turning grocery shopping into a hit or miss proposition.

Debt Reckoning for Europe

Country-by-country and bank-by-bank, the good must be disentangled from the bad

By Amar Bhidé

Saving the euro, say the sages of the global economy, requires radical steps.& The OECD recently called for a large European firewall – a mega-bailout fund for troubled governments and banks. Others argue for integrating taxes and borrowing in the eurozone and shedding weak members, like Greece, that struggle with a strong currency.

But tall firewalls, fiscal union, or homogeneity of membership are neither necessary nor desirable. What is needed are mechanisms that recognize and accommodate differences, rather than new top-down efforts to impose uniformity.

What Happens When All the Money Vanishes Into Thin Air?

Paper money is an abstract representation of the real world

Issuing debt and printing money do not create wealth. All they can create is a temporary illusion of wealth.

by Charles Hugh Smith

I could have written "if all the money vanishes," but that would be misleading, for all unbacked money will most certainly vanish into thin air. The only question is when, not if. Frequent contributor Harun I. explains why:

Those who fail to understand that the Status Quo is impossible to maintain will be shocked when the disintegration is undeniable. But the whole thing was perverse to begin with. Words like capitalism and meritocracy are thrown around to make people feel good when, in reality, we have never owned anything, not even ourselves.

The New War Games

The General's Dystopia

BY ROBERT HADDICK

On April 12, Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, discussed what he called the "security paradox" at Harvard's Kennedy School of Government. The good news in the world today, according to Dempsey, is that interstate conflict is currently minimal, human violence is at an all-time low, and the United States faces "no obvious existential threat." Yet Dempsey insisted that "I'm chairman at a time that seems less dangerous but it's actually more dangerous." Why?

The New Narco State

Mexico's drug war is turning Argentina into the new Wild West of the global narcotics trade

BY HALEY COHEN

Last September, Argentine Judge Carlos Olivera Pastor emerged from his courthouse in the northwestern province of Jujuy to find a box next to his parked car. Numbered as if it held judicial files, Pastor removed the box's top and found instead a decapitated head, the eyes glassy and open. In October, two men savagely assaulted a penal secretary from the same district, warning that the next time they would murder him. According to officials at SEDRONAR, a government agency that fights addiction and drug trafficking, most of the drugs that enter Argentina pass through the sparsely populated northwest of the country, and the judges, who frequently handle drug-related cases, avowed narco-traffickers were responsible for the incidents.