Stories of 2015: Yanis Varoufakis – in The Guardian, 24th DEC 2015

Submitted by Yanis Varoufakis  –  The Yanis Varoufakis Blog

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Screen Shot 2015-12-25 at 08.58.43Screen Shot 2015-12-25 at 08.58.53The year 2015 did not begin – or end – as Yanis Varoufakis might have predicted. This time last year, having finished a busy academic term at the University of Texas in Austinwhere he was a visiting professor in economics, he had flown to Australia for a holiday. Varoufakis has a teenage daughter with his first wife – the pair now live in Sydney – and he was hoping, as he puts it, “to have a quiet time”.

For the Guardian’s site, click here. Or…

The Fates, or the European Central Bank, or the Greek electorate, had other plans. Five years after a collapse in confidence over Greece’s ability to repay its debts plunged the country into a calamitous economic crisis, the weakened government of prime minister Antonis Samaras called a surprise January general election.

The telegenic Varoufakis had a certain profile in his home country as an academic economist and TV pundit, though he had no party-political background. But he had privately agreed with members of the radical leftwing party Syriza that if it was elected, he would serve in their government. Varoufakis had been convinced, however, that nothing could happen before March – and even then believed Samaras might do enough to hang on. Continue reading

Russian Sanctions and the EU – Subcontractor of the Empire

Submitted by Pater Tenebrarum  –  The Acting Man Blog

A Vile Policy

The EU recently decided to shoot itself into the foot some more, by extending economic sanctions against Russia by another six months. The pretext offered for this utterly idiotic decision was that Russia had failed to fulfill the Minsk agreement because Ukraine’s eastern borders are not yet back under Kiev’s control.

 

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As Bavarian politician Horst Seehofer pointed out, the EU neglected to mention the fact that Ukraine’s government has actually failed to fulfill the Minsk agreement as well – in fact, it has yet to implement its by far most important demand. This in turn is the very reason why the Eastern Ukrainian separatists are refusing to relinquish control of the border. The core of the Minsk agreement – the necessary precondition for a political solution – is that the Eastern Ukrainian regions are to be given a large degree of political autonomy. This is precisely the part of the agreement Kiev has so far failed to implement.

In other words, the EU expects the separatists to play dumb and simply hand over control of their most important supply routes in spite of having been left twisting in the wind with respect to the political promises they have been given. Right.

 

locoWhat EU bureaucrats and politicians apparently believe other people to be like.

Photo via artezblai.com

 

Germany’s bilateral trade with Russia has plunged by €17 billion in 2015 – compared to 2012, that is (we suspect the y/y data are even worse). Representatives of industry in Europe have manned the barricades against the senseless sanctions, complaining that they are “hostages of an anti-Russia policy”, alas to no avail. In order to fully understand how vile this policy is, one only has to consider who is actually paying for it – and who isn’t. Continue reading

The Seven Fat Years of ZIRP

“The Fed’s emergency policies since 2008 have in one sense been a huge success, though we will never know the counter-factual. A great depression was averted. Output is 10pc above its previous peak. Employment is up by 4.7m.

“Yet zero rates and QE set off torrid credit bubbles in the emerging world, pushing up the global debt ratio by 30pc of GDP beyond their previous record in 2008. The Bank for International Settlements calls this a “Pareto sub-optimal” for the world as a whole. The chickens have not yet come home to roost.”

– Ambrose Evans-Pritchard, The Telegraph

For seven long years, under two presidents and two chairpersons, the Federal Reserve kept its key policy rate effectively at zero. Now those years are over. We’re entering a new era – but new isn’t necessarily better.

Just for fun, I looked back to Thoughts from the Frontline for December 19, 2008 – right after the Fed first dropped rates to zero. You can read it here: “I Meant to Do That.” The theme with which I opened that issue could have worked just as well today, although we now have a different circumstance: rising rates.

The Fed has taken interest rates to zero. They have clearly started a program of quantitative easing. What exactly does that mean? Are we all now Japanese? Is the Fed pushing on a string, as Japan has done for almost two decades? The quick answer is no, but the quick answer doesn’t tell us much. We may not be in for a two-decades-long Japanese malaise, but we will experience a whole new set of circumstances.

Indeed, we now face that whole new set of circumstances. The Federal Reserve has created a series of debt and credit bubbles all over the world. The Bank for International Settlements terms this a “Pareto sub-optimal” for the global economy.

On the other hand, to say that the Fed “tightened” this week amounts to a very generous use of the word. They still own a multi-trillion-dollar Treasury and mortgage-bond portfolio in which they continue to reinvest anything that matures or pays interest. Last week’s FOMC statement pledged to “maintain accommodative financial conditions.” No one should call this crew hawkish – just marginally less dovish now.

In today’s letter we are going to examine the problematic credit markets, and I want to focus on something that is happening off the radar screen: the continuing rise of credit in private lending. I predicted the rise of private credit back in 2007 and said that it would become a major force in the world, but I got strange looks from audiences when I talked about the arcane subject of private credit. Today the shadow banking system is taking significant market share from traditional banking. Thus the market is gaining greater control over many of the traditional levers that central banks like to push and pull. While I think that trend is generally a good thing, it means that central banks are going to have to lean even harder in their policy directions if they want to affect the markets. And since they do like to interfere, it won’t be long before we embark on a “whole new set of circumstances.”

But before we turn to the ups and downs of credit, in keeping with my pre-Christmas tradition, I want to commend to you a most worthy cause that will pay fabulous dividends in the future and help bring peace to our troubled world.

My friend Niall Ferguson introduced me to a young former hedge fund manager, Jonathan Starr, who in 2009 started a prep school called the Abaarso School of Science and Technology in Somaliland with a sizable personal donation and the investment of his time. When Jonathan first went there, he and the completely volunteer staff of foreigners did not know the local customs, did not speak the language, and were not professional educators. To say their task was challenging is a huge understatement. The local Muslim community looked on them with suspicion, and there were efforts to close them down. But they persevered and have been wildly successful. If you meet Jonathan and his team, you quickly understand why they have prevailed. Jonathan has invested 100% of his time in Abaarso and has had no other job for 6+ years. Continue reading

The Daily Debt Rattle

 Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

$1.7 Trillion of Sub-Zero Euro Debt Shows ECB Outlook for 2016 (BBG)
Deutsche Bank Sees Taper Tantrum Echo Ahead for US Treasuries (BBG)
Pound Is ‘Most Overvalued Currency In The World’, Analysts Claim (Telegraph)
In Sweden, a Cash-Free Future Nears (NY Times)
Dutch City Plans To Pay All Citizens A ‘Basic Income’ (Guardian)
The Man Who Exposed The Lie Of The War On Drugs (Observer)
More Than 100,000 Flee El Niño Flooding In South America (Reuters)
Britain Overwhelmed By Widespread ‘Worst in Decades’ Flooding (DM)
Czech President: Migrants Should Be Fighting Isis, Not ‘Invading’ Europe (AFP)
German Navy Says It Rescued Over 10,000 Refugees In 2015 (AFP)
Flow Of Refugees To Greek Islands Continues Over Christmas (Kath.)