Euro on path to crash and burn

The scenes of mob rule in our cities will I fear trickle on until George Floyd's funeral on Tuesday. I will refrain from comment today as the near-riots are still too fresh.  

It was AEP who nudged my thoughts. I take his column with a pinch of salt, but he is right to anticipate problems from our response to the crisis.  People are saving and paying down card debt, using the furlough splurge as an opportunity to retrench. Consumer demand is down, and the whole supply side constrained by the virus closures. In the autumn this will turn into full blown recession as unemployment will rise to maybe 10%. And all the while we're printing money by the tanker-load and pumping it into assets that are inflated like a Peking duck. The stock market should be crashing, so should property prices. Well, what do you think will happen when too much money chases too few goods?

It may of course be a cunning plan. There are three ways of dealing with debt; pay it down, inflate it away or default on it. Inflation of 5% - 10% a year for three or four years would certainly make a massive dent in the national debt, but would leave millions of ordinary folk in dire straits. The effect on the Euro nations would be the same, as AEP writes

Prof Polleit said the ECB is walking in the steps of the German Reichsbank in the early Twenties. “We’re not heading for hyperinflation of course but in some ways it is similar. The Reichsbank started buying a little, and then a bit more, until they realised that it was out of control,” he said.

Weimar inflation was a diabolic disturbance of the settled social order. Speculators made fortunes overnight. Diligent law-abiding citizens were pauperised, losing their bank savings and paper securities. The sense of injustice drained the Weimar Republic of its legitimacy.

So here's a question for you. If anyone has a few bob in the bank, what should they buy with it now, to ensure they're one of the speculators that does well, rather than one of the paupers?

Source: Zerohedge

Teds and Target 2 - the coming news agenda

Slang is fascinating. A bottom-up generated change in language reflects a substantial forming or modification of outlook. I'm surprised we don't have chairs in Slang at the new universities. I write this as I found this week two new slang terms for the Germans, both words born of common parents here in the trans-Alpine region. The first is Italian. Tudro is not a kind word; it means oafish, unimaginative, lacking feeling or sensibility and is pure Italian. The second is from the British army stationed in southern Austria at the war's end, guarding hundreds of thousands of broken, dispirited, rumpled, at-heel German troops. A score could be herded by one man with a loosely carried Lee-Enfield. They were no longer Huns, Krauts or Jerries - the swagger, the insolence, the arrogance had been beaten out of them in battle. So for their British guards they became Teds, from the Italian Tedeschi. I like Teds.

With the news agenda swinging round like an oil tanker at bow-anchor to Italy, AEP starts the move with a piece in the Telegraph (£)  on how the new Italian government's finance proposals have 'enraged' the Teds. It's all about Target 2, or T2 as we shall say. There are some useful papers on T2 about - Here from FT Alphaville, and Here from Forbes, if, like me you need a crash course. I suspect over the next year we'll all be hearing a lot more about T2 in the news. The headline is that the Bundesbank is owed nearly a trillion Euros by the rest of the Eurozone, whilst Spain and Italy have heavy T2 debts. Martin Selmayr is turning his death-gaze from West to South. A couple of interesting points, if I've read the briefings right -

- National banks are given an allocation of Euros to print. Printing more than the allocation creates a debit with the ECB. Germany's Bundesbank has been printing hundreds of billions of excess Euros possibly to offset their trillion-Euro T2 credit with the ECB 

- QE money created by the Bank of Italy has been substantially invested by the Italian market in, erm, Germany, substantially increasing Italy's T2 liability and Germany's T2 credit

- Germany's huge T2 credit now forms by far the biggest asset of the Bundesbank, having overtaken in the early noughties the previous biggest Bundesbank assets of loans to German banks. 

- Germany is not quite alone in having a substantial T2 credit; the Netherlands and Luxembourg are also in the creditors club. So expect some commensurate alignments. 

Right. Off to the Herrenfriseur, then.