World markets appear to be increasingly transmogrifying into zombie markets.
This from the New York Times,
``A week after rattling global bourses and annoying allies with a unilateral ban on some forms of financial market speculation, Germany went much further Tuesday, proposing a law that would greatly broaden restrictions on several instruments that investors use to bet against stocks, bonds and currencies.
``Despite criticism that market regulation will be toothless unless it is enacted globally, the German finance minister, Wolfgang Schäuble, on Tuesday proposed extending a ban on what the draft legislation called “certain transactions that amplify the crisis.”
``There is broad support for such measures among leaders on both sides of the Atlantic, and some of the proposed rules are already in effect in the United States. Other European nations, however, have complained about Germany’s decision to act alone.
``“What the Germans are doing would be all the more effective if it were done at a coordinated European level,” Chantal Hughes, a spokeswoman for Michel Barnier, the European Union internal markets commissioner, said Tuesday.
``The draft law, released Tuesday by the German Finance Ministry, expands a ban on so-called naked short-selling to all stocks that have their primary listing in Germany, as well as on government bonds issued by euro countries.
``The law, which will take at least until September to win passage in Parliament, would also ban naked short-selling of the euro, and enshrine a ban on use of so-called credit default swaps to bet against European government bonds."
What the news reveals is how mainstream politicians think. They believe they can:
1.control or manipulate the markets at will, with no unintended effects. (yes, they seem to think that as deified entities, they are far superior to market forces and above the laws of scarcity)
2. prevent markets from revealing their natural state by controlling price signals. Thus, a market collapse markets isn't in their books. (yet the markets have been collapsing)
3. paper over solvency issues with massive liquidity injections and price control measures.
More demand for zombification...
From BCA Research,
``History shows that whenever authorities limit the commitment to a particular value, it encourages investors to quantify their worst case scenario (which during times of financial sector strains can be horrific), leading to a panic and meltdown. It is only once policymakers provide a credible unconditional commitment to put an end to the turmoil that investors’ fears calm, allowing financial markets to stabilize. Unfortunately, the “open-ended” nature of European policmakers’ commitment has come into question: German authorities moved to prevent speculative attacks by banning naked short selling for 10 German bank stocks as well as for CDS on regional government debt. Similarly, the ECB continues to reiterate their intent to sterilize purchases of public and private debt securities, i.e. not quantitative easing. The decision on short selling should not be a large surprise given that the primary motive of German politicians to participate in any rescue package has been to protect their domestic banks. The only good news is that German lawmakers have approved its country’s share of the $1 trillion bailout package. Still, the ECB will need to be much more forceful in its reflationary efforts. Bottom line: The ECB should reassure markets that any expansion of its balance sheet will be unwound in an orderly fashion once the economy is on a stable footing. In the meantime, substantial quantitative easing must be undertaken."
First of all, the claim of "history" as reference is dubious. That's because all these debt binges, rescue efforts and reflationary measures, have been unprecedented in scale and in scope, so there is basically no basis for comparison.
Besides in our own Asian crisis, an open-ended rescue was not an option, instead we were prescribed to adapt "austerity" programs via structural adjustment programs (SAP).
Only today, do we see the "need" for massive or aggressive substantial quantitative easing. In short, money printing as a policy is selective and conveniently applied, where it involves the developed nations. It becomes not only a fashion but a false sense of entitlement.
Yet as we keep pointing out, even Keynesian Hyman Minsky believes that massive government intervention leads to systemic bubbles by engendering the moral hazard conditions that sow the seeds of a bubble.
And likewise, as noted above, substantial QE's or money printing won't solve the solvency issues. They merely "kick the can" or defer and even aggravate the day of reckoning. Yet, history has never been quite digested, but misrepresented.
In the words of Thomas Paine, ``I remember a German farmer expressing as much in a few words as the whole subject requires; "money is money, and paper is paper."
``All the invention of man cannot make them otherwise. The alchemist may cease his labors, and the hunter after the philosopher's stone go to rest, if paper can be metamorphosed into gold and silver, or made to answer the same purpose in all cases."
If printing money is, indeed, the elixir to the world's problem, then Zimbabwe should have been the most prosperous and the world's largest exporter.
Besides, based on this line of reasoning, why do we or anyone need to work, if, at all, money printing can solve the issue of scarcity? Why do we even need the markets?
This from the New York Times,
``A week after rattling global bourses and annoying allies with a unilateral ban on some forms of financial market speculation, Germany went much further Tuesday, proposing a law that would greatly broaden restrictions on several instruments that investors use to bet against stocks, bonds and currencies.
``Despite criticism that market regulation will be toothless unless it is enacted globally, the German finance minister, Wolfgang Schäuble, on Tuesday proposed extending a ban on what the draft legislation called “certain transactions that amplify the crisis.”
``There is broad support for such measures among leaders on both sides of the Atlantic, and some of the proposed rules are already in effect in the United States. Other European nations, however, have complained about Germany’s decision to act alone.
``“What the Germans are doing would be all the more effective if it were done at a coordinated European level,” Chantal Hughes, a spokeswoman for Michel Barnier, the European Union internal markets commissioner, said Tuesday.
``The draft law, released Tuesday by the German Finance Ministry, expands a ban on so-called naked short-selling to all stocks that have their primary listing in Germany, as well as on government bonds issued by euro countries.
``The law, which will take at least until September to win passage in Parliament, would also ban naked short-selling of the euro, and enshrine a ban on use of so-called credit default swaps to bet against European government bonds."
What the news reveals is how mainstream politicians think. They believe they can:
1.control or manipulate the markets at will, with no unintended effects. (yes, they seem to think that as deified entities, they are far superior to market forces and above the laws of scarcity)
2. prevent markets from revealing their natural state by controlling price signals. Thus, a market collapse markets isn't in their books. (yet the markets have been collapsing)
3. paper over solvency issues with massive liquidity injections and price control measures.
More demand for zombification...
From BCA Research,``History shows that whenever authorities limit the commitment to a particular value, it encourages investors to quantify their worst case scenario (which during times of financial sector strains can be horrific), leading to a panic and meltdown. It is only once policymakers provide a credible unconditional commitment to put an end to the turmoil that investors’ fears calm, allowing financial markets to stabilize. Unfortunately, the “open-ended” nature of European policmakers’ commitment has come into question: German authorities moved to prevent speculative attacks by banning naked short selling for 10 German bank stocks as well as for CDS on regional government debt. Similarly, the ECB continues to reiterate their intent to sterilize purchases of public and private debt securities, i.e. not quantitative easing. The decision on short selling should not be a large surprise given that the primary motive of German politicians to participate in any rescue package has been to protect their domestic banks. The only good news is that German lawmakers have approved its country’s share of the $1 trillion bailout package. Still, the ECB will need to be much more forceful in its reflationary efforts. Bottom line: The ECB should reassure markets that any expansion of its balance sheet will be unwound in an orderly fashion once the economy is on a stable footing. In the meantime, substantial quantitative easing must be undertaken."
First of all, the claim of "history" as reference is dubious. That's because all these debt binges, rescue efforts and reflationary measures, have been unprecedented in scale and in scope, so there is basically no basis for comparison.
Besides in our own Asian crisis, an open-ended rescue was not an option, instead we were prescribed to adapt "austerity" programs via structural adjustment programs (SAP).
Only today, do we see the "need" for massive or aggressive substantial quantitative easing. In short, money printing as a policy is selective and conveniently applied, where it involves the developed nations. It becomes not only a fashion but a false sense of entitlement.
Yet as we keep pointing out, even Keynesian Hyman Minsky believes that massive government intervention leads to systemic bubbles by engendering the moral hazard conditions that sow the seeds of a bubble.
And likewise, as noted above, substantial QE's or money printing won't solve the solvency issues. They merely "kick the can" or defer and even aggravate the day of reckoning. Yet, history has never been quite digested, but misrepresented.
In the words of Thomas Paine, ``I remember a German farmer expressing as much in a few words as the whole subject requires; "money is money, and paper is paper."
``All the invention of man cannot make them otherwise. The alchemist may cease his labors, and the hunter after the philosopher's stone go to rest, if paper can be metamorphosed into gold and silver, or made to answer the same purpose in all cases."
If printing money is, indeed, the elixir to the world's problem, then Zimbabwe should have been the most prosperous and the world's largest exporter.
Besides, based on this line of reasoning, why do we or anyone need to work, if, at all, money printing can solve the issue of scarcity? Why do we even need the markets?
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