Results for “zerohedge”
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Assorted links

1. What are the consequences of late marriage?

2. A closer look at the health care cost slowdown.

3. Update on Chinese plans for Iceland.

4. The black box that is Google (a redo of “I, Pencil,” arguably).

5. Bostridge on Britten.

6. ZeroHedge speculates on Cyprus.  I don’t see how even the “good bank” will be able to survive under the plan in the works.  The key question is whether any enacted plan has a deposit guarantee backed by the EU as a whole and right now that looks quite unlikely.  Capital controls will sever the “Cypriot euro” from the euro more generally and de facto end the euro era in Cyprus.  It will be very hard to ever take them off (how soon can you imagine Cyprus rebuilding its credibility?)  Another question is what Cypriot legislators actually will vote for, given their connections to Russia and perhaps also their fear of Russian reprisals against their persons.  There is a very good Cyprus post here, and another here.  Here is a very good post on what is in the capital controls, lots.

What does a Cyprus deal look like?

Felix Salmon considers some possible scenarios, some of which involve the EU giving ground.  (Sadly the “sell northern Cyprus” option won’t be seriously debated.)  Daniel Davies offers numerous complex scenarios, some of which end badly.  Zero Hedge offers options.

How much is Cyprus per capita gdp lower if the country has no future as a financial center?  That is likely the case anyway.

If this is one of those waiting/bargaining games, for whom does the situation worsen most as time passes?  For how long can the Cypriot banks stay closed?  Can they ever really reopen again without a major bailout?  Germany seems to hold most of the cards.  Maybe Cyprus wins the stare-down game only if the costs of Cypriot collapse — to the Germans — appear higher as time passes.  That’s a difficult scenario to foresee, since it seems that only by having a Cypriot collapse do we get a much better sense of what those costs would be.

The broader problem of course is that Italy, Spain, and Portugal all have their eyes on any possible renegotiations.  It is very costly for the EU to give serious ground because then further and much larger demands come out of the woodwork.  Italian voters and political parties are encouraged too and I don’t have to tell you in which direction.

Christopher Balding on the real risk in China

In the past 5-8 years, and especially the past 3, China has built an enormous amount of stuff that nobody wants, needs, or uses.  Fueled by a lending boom that began in late 2008 and tripled total lending in 2009, Chinese government at all levels has been spending money like a drunken sailor on leave.  What should scare people however, is just how poorly this money has been spent.  To give you a few examples:

  • The Beijing government admits that 50% of apartments sit empty.  A similar number is found in most major cities in China, not to mention the entire cities that sit empty.
  • After major investment in wind power generation, most wind power capacity was incapable of generating power because…..it was not hooked up to the grid.
  • Housing price to income ratios that would make a California real estate bubble blush.  The average home price to income ratio peaked around 12 in California.  The China Daily (the Communist party mouth piece) speaks regularly of ratios in excess of 25.  One recent article noted that the average price per square foot in Beijing was nearly $300 while monthly per capita GDP was only $435.  That means using the long term global average for the income to housing price ratio, the average Beijinger should be able to buy a 7.6 square foot apartment.
  • Industrial capacity utilization that is officially at 60%.  (If you believe the official numbers I have a 7.6 square foot apartment I’d like to sell you)  This is driven by state owned banks and enterprises that over invested in 2009 due to the stimulus fueled lending boom.

His full post is here.

Quick Spain thoughts

Is there actually any news in the “deal”, summarized here?  It’s long been known that Spain would end up getting a chunk of ESM and/or ESFS (indeed they had a quota of 93 billion euros and this is barely more at 100 billion euros), and now they have, although the details still are not announced.  And Spain already had been given an extension on their austerity target, so not attaching “austerity conditionality” to this deal isn’t quite news either.  Their obligations are already “floating” in this regard, because even the previous target could not be met.

Did I mention there were already a trillion euros lent from the ECB since December (not all to Spain)?

Is the deal in some way a new signal?  I would think the new signal is that if you play a bit tough with the Germans you get a more relaxed deal, at least nominally in a way that you can take to your citizens.  Maybe you think the more relaxed deal is a better outcome, but in the longer run does this keep the Germans on board?  Does it keep Ireland on board?  Do Greece and Portugal now wish to renegotiate?  One hundred billion euros is unlikely to be enough, so what precedent is created when Spain negotiates for the next round?

Doesn’t this all mean that Netherlands, Finland, and Slovakia are getting somewhat rolled?  They feel less responsible for the rest of the eurozone than Germany does.

How senior will the debt be from this new package?  That seems like the key question to me.  Very senior debt will kill the Spanish bond yields, but very junior debt will make this pure aid.  How many eurozone countries are up for supporting pure aid on this scale?

The money pump (sentences to ponder)

Let’s say the run on Greek banks continues or accelerates.  Then this sentence will become more relevant:

Importantly, Greek banks ONLY run out of Euros if the ECB can justify a shut down in funding to the BoG ELA facility or the Greek banks directly.

In other words, the ECB has to pull the plug at some point or simply finance Greece ad infinitum.  Read the whole thing, ignore the hyperbole toward the end, and study up on brinksmanship.

Here is a useful discussion of ELA [Emergency Liquidity Assistance], excerpt:

ELA is a subject on which the ECB is deeply reluctant to provide information – even on where or when it is provided.

“You don’t say when you are in an emergency situation, because then you make the situation worse. So I really don’t see the usefulness of being more transparent,” Luc Coene, Belgium’s central bank governor, explained in a Financial Times interview this month.

And here is yet further detail, excerpt:

Some of Europe’s central bankers are nevertheless no longer willing to allow themselves to be endlessly tapped for cash. Belgian Luc Coene has already openly warned that even the ELA payments must “absolutely” be stopped if the Greek banks are actually hopelessly bankrupt, and not merely illiquid.

If you read through these sources, it will help answer the question — which I receive frequently — “why can’t Greece default and yet not leave the eurozone?”

Youth unemployment across Europe

Here is more, hat tip goes to Greg Ip.

Addendum: Do read the excellent comment by Peter Whiteford, for instance:

The unemployment ratio – that is, the number of unemployed people over the population rather than the labor force is arguably a more consistent indicator across countries.

Have a look at http://epp.eurostat.ec.europa.eu/statistics_explained/index.php?title=File:Youth_unemployment_rates,_2008-2011Q3,_%28%25%29.png&filetimestamp=20120127135533

This shows that while in Greece for example, the unemployment rate for youth was around 46% the unemployment ratio was around 10% – nearly half of those in the labour force were unemployed, but only a little over 20% of all the people in the age group were in the labour force.

Assorted links

1. n = 3, any takers for n = 4?

2. Betting odds for the Nobel Prize in literature, and the Harvard economics pool in the Nobel Prize.

3. Greece: scarier than I had thought, and this too.

4. Videos from The Economist’s Ideas Summit, including Martha Stewart, and also me.

5. Princeton bans its academics from handing over copyright to journal publishers.

6. The Ponzi scheme felon who blogs financial crises; one of his early works is here (pdf).

Assorted links

1. Vote winners for best conservative books.

2. Suicide bomber markets in everything.

3. Prince Twins Seven-Seven passes away.

4. People’s reasons for not having children.

5. Anthony Painter reviews TGS.

6. The largest holders of Greek debt.

7. Read the “Tree of Life” dialogue or better yet watch the Leo Kottke video.  Here is my favorite Malick review so far; oddly I find New World to be his masterpiece.

“Why work?”

Here's a claim, with concrete numbers, that:

"a one-parent family of three making $14,500 a year (minimum wage) has more disposable income than a family making $60,000 a year."

That's after various government benefits and taxes, but the calculation seems incorrect to me.  For instance, should the Medicaid and CHIP benefits of the poorer household actually be valued — to the user — at $16,500 a year?  (Is that number coming from some kind of cost basis?  If so, is it adjusted for the age of the Medicaid recipients to rule out nursing home expenditures?)  Is the $60,000 per year family receiving employer-supplied health insurance?  The assumption seems to be that they do not.

Still, even if you make adjustments this is a scary comparison.  I'd like to see a more exact calculation of the implicit marginal tax rates of the poor, as they climb from say 15k a year through the 60k range.  Does anyone know of such a table?

For the pointer I thank CC.

Addendum: Andrew Gelman comments.

Not in a liquidity trap

Hyperinflation in Zimbabwe, the former Rhodesia, was a quadrillion times worse than it was in Weimar Germany.

That's via Jason Kottke (source here).  There's also this bit:

The cumulative devaluation of the Zimbabwe dollar was such that a stack of 100,000,000,000,000,000,000,000,000 (26 zeros) two dollar bills (if they were printed) in the peak hyperinflation would have be needed to equal in value what a single original Zimbabwe two-dollar bill of 1978 had been worth. Such a pile of bills literally would be light years high, stretching from the Earth to the Andromeda Galaxy.