Wednesday, November 23, 2011

Et tu, Deutschland? Bund auction fail

Is the bond market figuring out that EZ sovereigns aren't actually sovereign, and the Germany's head is on the block too? German CDS rise as 35% of the offering of 10 year's go without a bid.

Bloomberg: German Auction "Disaster" Stirs Crisis Contagion Concern

Goldman recommended closing out a losing bet on EUR/USD with about a 2.3% loss.

Bloomberg: Goldman Closes Out Money-Losing Euro Bet On Stability

Where is that money seeking safety? Gold? Nah. Gold has broken 1700. USD and Treasuries up as the traditional risk off haven.

Looks like the MMT scenario is tracking correctly.


Detroit Dan said...

Off Topic, but I discovered an MMT writer at CNBC -- John Carney at CNBC

GLH said...

It figures, CNBC finds MMT in order to defend tax cuts for the rich. This will probably not go over well with the people here, but although I agree with MMT, I cannot help but believe any tax cuts have to go to the consumers. In my mind, tax cuts for the wealthy just go back to Treasuries and to financial companies that use it to gamble with. Why do you think the banks want the governmnent to issue debt, so they will have a store for their wealthy clients who have gotten all those huge tax cuts. That is dead money except that the rich will feel better about their digits in the system. Somebody please give a logical explanation of how just having a budget deficit can help if the money just goes to the banks who use it to run up the prices of commodities and bonds and not to the people who really need the help. Sheer FOOLISHNESS.

Tom Hickey said...

Over at Warren's place today, John Carney said that he agreed with Warren about extending the payroll tax holiday.

Detroit Dan said...

Good for him (John Carney supporting payroll tax holiday)! It's so refreshing to read an economics column written by somebody who understands MMT. Everything is much simpler when I don't have to translate story. I just decided to ignore Krugman's comment about taxes paying for government spending, for example, because it seemed like too much trouble to explain that that's not how it works. Kudos to Carney for clearly describing the underlying issues...

bosscauser said...

Let's not confuse politics and economics. On one hand you have people vying for votes and eyeballs and saying what their constituents want to hear, which is if I have to balance my budget so does the government!

And on the other hand, you have the facts that the consumer is broke and can't sustain the purchasing necessary to rev up the world economy. therefor, proposing we need a pay cut, tax increases or slashing our infrastructural spending is beyond ridiculous.

Obviously,saving the criminals and the incompetent is good for campaign contributions but has proven as blogged here and elsewhere to have been detrimental to our economy.

So, we must listen to nonsense about the burden our children will have to suffer under if we don't cut granny's check so the elites who got us into this mess continue living in Camelot.

At least the pygmies in the Republican party are self destructing and no real cuts are feasible at this time since a re-elected Obama will be rendered neutered in deal making with these clueless self-serving nobodies.

P.S I'm an equal opportunity name caller because the left has been loony too. Just listen to them advocating the destruction of Social Security and closing down whole industries to save their pet project of the week!

reslez said...

I'll be savoring the Schadenfreude with my turkey gravy tomorrow, Tom! Couldn't happen to a nicer bunch of neoliberal technocrats.

SchittReport said...

the article from carney is actually quite well written.

thanks dan.

Anonymous said...

November 23, 2011: The day before the Thanksgiving holiday brought three extraordinary news items. One was the report on the Republican presidential campaign debate. One was the Russian President’s statement about his country’s response to Washington’s missile bases surrounding his country. And one was the failure of a German government bond auction.

As the presstitute media will not inform us of what any of this means, let me try...

Why would Germany, the only member of the EU with financial rectitude, not be able to sell 35 per cent of its offerings of 10-year bonds? Germany has no debt problems, and its economy is expected by EU and US authorities to bear the lion’s share of the bailout of the EU member countries that do lack financial rectitude.

I suspect that the answer to this question is that the failure of the German government’s bond auction was orchestrated by the US, by EU authorities, especially the European Central Bank, and private banks in order to punish Germany for obstructing the purchase of EU member countries’ sovereign debt by the European Central Bank.

The German government has been trying to defend the terms on which Germany gave up control over its own currency and joined the EU. By insisting on the legality of the agreements, Germany has been standing in the way of the ECB behaving like the US Federal Reserve and monetizing the debt of member governments.

From the beginning the EU was a conspiracy against Germany. If Germany remains in the EU, Germany will be destroyed. It will lose its political and economic sovereignty, and its economy will be bled in behalf of the fiscally irresponsible members of the EU.

If Greeks will not submit to the tyranny, why should Germans?

Calgacus said...

Anonymous, Paul Craig Roberts is quite confused. Germany does not have "financial rectitude". "Financial rectitude" for a nation is a recipe for poverty. Germany has deficit-spent far more than "financial rectitude" dictates. So it has a huge debt problem. But not because of sensible spending, but because it does not issue its own currency. And because it is insisting that the ECB not backstop sovereign debt, including its own!

If Germany remains in the EU, Germany will be destroyed.
It will not be "bled" by the others, as the Germans & Roberts imagine. It will be destroyed along with them, for the same reason, insolvency.

Germany insisting on the legalities, on not "monetizing debt" is cutting its own throat (last, after it cuts everyone else's). What the Fed does in "monetizing debt" that Roberts criticizes is unimportant, because to all intents & purposes, US debt is monetized already, by being monetarily sovereign debt.

Germany & the rest of Europe are like weakened, fighting conjoined twins who can only get enough water & food for one of them in their present state without cooperating. They could cooperate - have the ECB fund debt in an equitable manner - fiscal union essentially. They could separate themselves & individually save themselves, both the stronger one, Germany & the weaker one. End the euro.
No problem.

But Germany thinks they are being tyrannized by the weak twin. And they think that if they cut the weak twin's throat, and let him bleed to death, or prevent him from eating & drinking, even while still conjoined, there will be plenty of food & water for Germany. BIG problem with that.

Tom Hickey said...

I think that the very simple explanation for the bund auction failure is capital flight from the EZ as savers seek greater safety. Investors in government bonds are relatively risk adverse and money is beginning to realize that the same disease that affected the periphery so morbidly is also capable of affecting the core.

There is no lender of last resort to provide liquidity and no fiscal authority to underwrite solvency. That's the way the EMU was designed. Apparently that is becoming a concern.

Anonymous said...

@Calgacus and Tom Hickey

Thank you for your comments! MMT makes it much clearer. It is truly amazing and absurd that a former Asst. Sec. of the Treasury doesn't fully understand the monetary system. I suppose he also has the whole Reaganomics era wrong as well, imagining that they saved the day. Roberts is a brave and upright person, he cannot be accused of intellectual dishonesty or subterfuge as in the case of Goldman Sachs types, who are morally rotten. It really does seem to be a case of ideological fossilization. He is also an admirer of Ron Paul--again a case of a decent person but an Austrian ideologue and, frankly, a man of only mediocre intelligence, but of course infinitely preferable to the likes of a Gingrich or a Cain--or an Obama.

Matt Franko said...

Where is Santelli?