Lenders and borrowers vs savers

The disappearance of a middle class is a common theme in modern western politics. In certain circles, it is a truism that the middle class is being squeezed out of existence by a de-facto alliance between the super-rich and the underclass.

It has just occurred to me to think of this, in terms of an alliance between lenders and borrowers versus savers. Something the lenders and borrowers have in common is that they ask for bailouts: borrowers if they get into so much debt that they can't pay it back, lenders if they have too many bad loans. The resulting bailouts diminish the value of the currency or create a government debt that will be repaid by future taxes, so either way the savers lose.

No doubt I read analyses like this back in the heyday of the subprime crisis (remember "subprime"?), but I couldn't say where.

Real risks

Christine Lagarde, head of the IMF, remarked that the global economy faces "three key risks": the US "fiscal cliff", the eurozone crisis, and "medium-term public financing". Presumably she meant that there was a risk of public financing becoming expensive, not that public financing itself is a risk. (It might be fun to construct the anti-Lagarde perspective for all three "risks" at once, e.g. to argue that the real risks are that the US will not balance its budget, that the eurozone will be artificially kept alive, and that governments of the world continue to borrow cheaply.) 

I thought "Chinese slowdown" would be on the list, but maybe that's just an Australian perspective. Besides, it's just going to be a "soft landing" (definition), right?

QE3

A short timeline: QE1, QE2, QE3.

European bailout politics

Somehow I stopped paying attention to the European financial crisis a while ago; as if the election of Hollande in France had resolved the uncertainty for a while. But via arivero, an Evans-Pritchard article with a new detail on who the players are:

We have known for weeks that the `Draghi Plan' for mass purchases of Spanish and Italian bonds requires the political trigger of an EFSF bail-out, with supplicant states signing a "Memorandum". The EFSF is the enforcer. The ECB is the cash cow. One unlocks the other.

Coalition against austerity

It seems that the opponents of "austerity" in Europe are beginning to coordinate across borders. Spain gets another loan from the central European financiers, pundits say this means victory for Syriza in Greece, Ireland calls and says it wants to renegotiate terms. One of the big issues now is the future of politics inside France and Germany, and in Franco-German relations. It seems Hollande's allies are winning the parliament as well. I am vaguely aware that some of Merkel's opponents have talked of making common cause with Hollande.

Conventional wisdom says that the German public don't want to hand out free money to their insolvent southern neighbors. The situation has appeared to be one in which Germany works hard and makes money, while southern Europe borrowed too much and now doesn't want to pay it back, instead asking for even more money from the productive part of Europe. I don't know how true that is, but it does seem that resistance to one type of EU policy has firmed up since Sarkozy's departure, and so the other side may get a chance to try out their nostrums, whatever those happen to be.

My intuition tells me that we're in a period of political solidification, after a period of fluid crisis in which everyone with power appeared helpless. We had the period in which new governments were appointed in Greece and Italy, but we just had a big change in France produced by election, and probably that will happen in Greece as well. The EU may be approaching an overall regime change - or as much as that can ever occur, in a geopolitical entity which is a loose association of over 20 countries.

Someone at ZH said that as 2008 was for America, 2012 is for Europe. In America, 2008 brought in Obama, but economically there has been no progress. In mid-2012, we still await to learn the form of Europe's new political configuration.

And now Spain

Where "#stopmerkel" is the new "Occupy Wall Street".

Rejection of austerity in France and Greece

I have nothing much to say; at the moment I have more of a life than usual. But as this may be another inflection point in the evolution of Europe's political response to the financial crisis, I should at least mention it.

Greece in negotiated default

Zero Hedge, Reference Frame.

US debt to GDP ratio at 101%

Via Zero Hedge.

The bar graph tells us that a year ago, China held the most US Treasury bonds, then the Fed, then Japan. Now the Fed is clearly number one, and China is cutting back a little while Japan is increasing its holdings, to the point that Japan may overtake China on the rankings.

My naive reading of this: China is cutting its losses (after all, the main gain of being such an enthusiastic lender to America was technological and strategic, an opportunity for ten years of "peaceful rise"), America is devaluing its way out of its debts, and also following the Japanese path. The fates of China and America are still tied together, but there is finally some decoupling occurring, after a decade of the unsustainable "vendor financing" relationship, whereby China lent America the money to buy the things that China makes.

Raising the US debt limit again

I started this blog back in May 2011, the last time the US ran up against its debt ceiling. Now it's doing so again.