Category Archives: economy

The cheap money era ending?

image-508200-galleryV9-ttntSpiegelOnline asks the big question of the day: Can the World Handle Higher Interest rates? It was always going to happen, of course. Part of the strategy of central bank’s around the world has been to cut interest rates to the bone in an effort to spark growth. It’s debatable what sort of impact this has had, but bond buying programs by the treasuries of the big nations are huge. Spiegel cites the Japanese example, in which 70% of demand for bonds is from the Bank of Japan.

It’s the topic of the moment because the American Federal Reserve has begun to hint that the days of easy money and huge bond buying programs could be numbered. And as you’ll have noticed, when the Fed makes hints, markets go haywire. It’s an interesting read, for starters, but you have to wonder what the long-term impact on real estate financing will be. Especially for existing loans. We’d welcome any thoughts on the issue you might have, anonymously or otherwise.

When the financial crisis escalated in 2008, the Fed, the European Central Bank and other central banks began their cash therapy. Almost in lockstep, they reduced prime rates to close to zero and began buying up bonds on a large scale. To this day, the leading central banks have inflated their balance sheets with such practices to $10 trillion (€7.5 trillion).

But now something is changing. “For the first time, it looks as though one country, namely the United States, is leaving the crisis behind,” says Ulrich Kater, chief economist at DekaBank. “And, also for the first time, a central bank, the Fed, is showing that it is thinking about normalization.” …

 

FT: Spain jobless to pass 30%

SpainUnemployAt what point does Europe (meaning Angela M) decide that massive unemployment in Spain is more of a threat to the European project than a bit of stimulus? Can anyone actually imagine things not blowing up on the Iberian peninsula by 2015, when Societe Generale figures that about one in three adults will be out of a job? There’s conservative economic theory, and then there’s real life and things like common sense. Enough is sometimes enough.

Hungary on the IMF track now?

It wasn’t long ago at all now that supposedly well-placed observers were warning that Budapest was hunkering down for a long bout of negotiations that they might not even be interested in. The perception was that the Hungarian government thought it either didn’t need more money from the IMF and the EU, or it figured it could do a nationalist/populist pirouette in order to ride out the consequences if the deal fell through.

So what’s changed? The world’s financial markets aren’t generally very forgiving in such matters, so it seems unlikely the world has capitulated. More likely is that Budapest is sending a very different message now. The Wall Street Journal blog says

A senior Hungarian official welcomed that Budapest submitted next year’s draft budget early, saying this allows lawmakers enough time to make necessary changes to ensure the debt-laden country will meet its deficit target for 2013, a pre-requisite to get much needed financial aid from the EU.

“There are unresolved issues in next year’s budget but there’s still time to amend them thanks to the early discussion,” Arpad Kovacs, head of the Fiscal Council, told the Wall Street Journal in an interview Monday. The fiscal council is an independent body, which monitors the country’s fiscal policy with a veto right on the budget.

That’s a very different mood from just a few weeks ago.

Treichl: Bring on fiscal union

Erste Group is making its feelings known about what should be done about the euro. Its CEO Andreas Treichl says regulation should be handled centrally, adding that deposit insurance should be treated the same way.  “If we want to keep the common currency, we need a fiscal union in Europe,” he said. “And that must also mean that the states are prepared to subordinate their banking supervision to a European regulator.”

Meanwhile, Hospodarske noviny reports that Pavel Kysikla, Ceska sporitelna’s boss, says Greece, Spain and Portugal should leave the Eurozone. “If it’s communicated well, leaving the euro is manageable,” he says. “There are only a few months left to take this decision.”

“Greece [leaving] is bearable, Spain and Portugal would mean a bigger hit,” says his colleague on the Czech government’s economic council, Pavel Kohout. “But the expenses of these countries leaving would be lower than them staying in the eurozone.”

Readings: China’s property bubble is bursting

This is a fascinating, in-depth account about how the loud revving of China’s real estate engine in recent years has probably been the last roar of a mad party. The economist Patrick Chovanec says Q1 real estate investment rose 23%, but RE sales fell 14% in April…and that was a 17% decline for residential properties, which make up 80% of the market. It’s a great analysis that makes sense of other stories that have been coming out of the country about ghost towns and empty shopping malls.

Meanwhile, the contraction in sales, new starts, and land sales deepened even further in April.  Although the decline in sales appeared to moderate slightly for the sector as a whole (-4.5%) and for housing (-2.9%), this was again largely due to a lower base effect from last April, when sales contracted month-on-month by nearly RMB 100 billion.  Continue reading

The pain stays mainly in Spain

There’s good news, and bad news. The more hopeful signals are coming from the United States, where the economy now appears to be gaining strength. Not only is the car sector picking up steam, according to economists, but even the housing market, which had been dragging the country down, is producing enough ouput to start giving even the pessimists pause for thought. On the other side of the coin, we have Spain, which is doing its best to ruin what slender hopes of recovery there were for Europe. Its central bank says the country is back in recession, basing the statement on the country’s performance in Q1 2012, as GDP slid 0.3%.

There’s that light again

Every now and then, someone spots a faint glow in the darkness, and wonders out loud if it’s the light at the end of the tunnel…or if it’s a train. Somehow, that joke continues to get laughs, though that’s always a surprise. It’s as if people were fooled, again, into thinking the good times were finally coming back. This now reflexive defense mechanism against getting one’s hopes up has gotten a good deal of exercise in the past 18 months, thanks to the heavy hammer you’ve got to lift to bash them down again.

And yet, hope springs anew. It’s not just the great weather and the sun and everything, mixed with a bit of Cannes. The American economy has for several months been tracking up into “suspicious optimism” leaving behind “mild despair”. The first signal for us were predictions that the housing market would hit bottom in 2012. Sure, there are tons of foreclosures to go through yet, and the banks still (unbelievably) can’t find the paperwork on a bunch of them. But more and more analysts are climbing on board the bottom of the market argument. Now, monthly employment numbers have surprised analysts yet again, giving a horrible fright to Republican presidential candidates who never dreamed the economy might be on President Obama’s side come November.

It could all still go pear-shaped, of course. Pessimists will set their sights on Europe, where few believe Athens won’t need more money and there’s concern about the rest of the PIGS. And, sorry to say, you could do worse than add Hungary to your list of concerns. But anyone listen to Bloomberg on-line sometimes? You’re starting to hear some analysts there say recession might bottom out at the end of this year. Yeah, we know the joke, and yes it might be a train. But you don’t know that yet.

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