Unintended Consequences: Economic and Monetary Union 'is Turning Europe's Nations Against Each Other'

So Ambrose Evans-Pritchard here, writing about Hans-Olaf Henkel's remarks in the Financial Times:

Hans-Olaf Henkel, former head of Germany's industry federation (BDI), wrote in the Financial Times that his support for the euro had been "the biggest professional mistake I have ever made". He described EMU as an unworkable experiment that is turning Europe's nations against each other.

America, Europe and Japan are in a Mini-Depression

So says Robert Mundell, here, during a nice little chat with Ambrose Evans-Pritchard, who isn't quite willing to eat the entire meal.

China Lectures America While Failing To Comply With The Rules

From Ambrose Evans-Pritchard, here, who points out there is a dwindling supply of growth to steal from the future:

China has already pushed credit to 200pc of GDP. It cannot repeat the trick. ...

As for China's bluster, it is chutzpah and self-delusion. We all agree that the US needs to "cure its addiction to debts", but so will China soon.

China buys US debt in order to recycle $200bn a quarter in foreign reserves, hold down the yuan, and continue its mercantilist export strategy. If China had not distorted world trade in this fashion, the US would not be in such a mess.

So What if We Become Japan!

"What matters is whether investors really believe that they will be stiffed. In Japan they did not, and still do not."

-- Ambrose Evans-Pritchard, here

The thing is, ZIRP has been stiffing us for quite some time now. And the dollar is down nearly 25 times since 1971 alone.

The phrase "Federal Reserve policy" has been a synonym for screwing the American taxpayer . . . since 1913.

'The US Remains Trapped in Depression'

Ambrose Evans-Pritchard is back at it, here:

The calamitous US jobs data released last Friday leave no doubt that the US remains trapped in depression. Broad U6 unemployment rose from 15.8 to 16.2pc in June; the numbers in work fell by a quarter million to 153.4m; the average time without a job reached a fresh record of 39.8 weeks; hourly pay fell; hours worked fell; the employment/population ratio crashed to new lows of 58.2pc.

The Most Dangerous Combination of Four Words in the English Language

"Debt draws forward prosperity."

-- Ambrose Evans-Pritchard, here

China Moves Forward on Discarded American Thorium Reactor Technology

Ambrose Evans-Pritchard had the story over a week ago for The UK Telegraph here, and promptly headed for the hills afterwards:

A few weeks before the tsunami struck Fukushima’s uranium reactors and shattered public faith in nuclear power, China revealed that it was launching a rival technology to build a safer, cleaner, and ultimately cheaper network of reactors based on thorium. ...

China’s Academy of Sciences said it had chosen a “thorium-based molten salt reactor system”. The liquid fuel idea was pioneered by US physicists at Oak Ridge National Lab in the 1960s, but the US has long since dropped the ball. Further evidence of Barack `Obama’s “Sputnik moment”, you could say. ...

Norway’s Aker Solution has bought Professor Rubbia’s patent. It had hoped to build the first sub-critical reactor in the UK, but seems to be giving up on Britain and locking up a deal to build it in China instead, where minds and wallets are more open.

The World Owes More Money to Japan Than to Any Other Country

So what happens if they cash in all their chips to pay for this mess?

Ambrose Evans-Pritchard asks us to think about that, here:

We are discovering once again that [Japan] is the world's top creditor by far with nearly £2 trillion of net assets overseas. ...

HSBC said the pattern after the 1987 crash, the 1998 Asia crisis, and Lehman's collapse, was that Japanese repatriation kicked in violently with a lag of a week. The impact may be greater this time given the trauma, and power-rationing as 11 nuclear reactors are shut down.

Labor Participation Rate For Men The Lowest Since 1948

So says Ambrose Evans-Pritchard, here:

The “labour participation rate” for working-age men over 20 dropped to 73.6pc, the lowest the since the data series began in 1948. My guess is that this figure exceeds the average for the Great Depression (minus the cruellest year of 1932). ...

Multinationals are exploiting “labour arbitrage” by moving plant to low-wage countries, playing off workers in China and the West against each other. The profit share of corporations is at record highs across ... America and Europe.

Men with nothing to do eventually find it, but it is called "trouble."

Spain's Property Bubble Sounds Familiar: 6 Years of Supply

Reported here by Ambrose Evans-Pritchard:

We can argue whether the overhang of unsold properties in Spain will reach 1.5m, or six years’ supply, as claimed by Madrid consultants RR de Acuna, but there is little doubt that the "Cajas" and smaller banks have played a game of “extend and pretend” to disguise the true scale of losses on their property loans.

Roubini: Corporate Profits Came on Backs of Unemployed

Ambrose Evans-Pritchard reports on the Ambrosetti conference at Lake Como, where Nouriel Roubini made the remark:

Dr Roubini said US companies have plenty of cash but are boosting profits by a policy of “slash and burn” on labour costs. “We’ve lost 8.4m jobs and if you include the loss of hours worked it is equivalent to another 3m. We need to generate an extra 450,000 jobs every month for three years to get it back,” he said.

For more go here.

"Bond Markets Tell Us We Are Already In Depression"

Ambrose Evans-Pritchard had a memorable line in a posting July 27th which is apropos after Friday's stock market rally despite so much bad GDP news yesterday:

As David Rosenberg at Gluskin Sheff reminds us eloquently every week, the bond markets are telling us that we are already in a deep and intractable depression – which does not preclude Japanese-style rallies, technical recoveries, and bursts of growth, all within a Kondratieff Winter.

Epic Warning Signals Echo 1931

The "Keynesian" prescription aside, the depth of appreciation for the problem posed by mounting debt stands in stark contrast to much American reporting on the subject. The whole country is starting to resemble Illinois. What a shock.

The article, "Don't Go Wobbly On Us Now, Ben Bernanke" by Ambrose Evans-Pritchard, originally appeared here, appended by vigorous and juicy comments, many of which recognize the need for governments to slash, not cut, spending, meaning, for starters, fat public sector union employees must take a haircut just like the rest of us.

Some excerpts follow:

Barack Obama's home state of Illinois is near the point of fiscal disintegration. "The state is in utter crisis," said Representative Suzie Bassi. "We are next to bankruptcy. We have a $13bn hole in a $28bn budget." ...

The Economic Policy Institute says states face a shortfall of $156bn in fiscal 2010. Most are banned by law from running deficits, so they must retrench. Washington has provided $68bn in federal aid, but that depletes the Obama stimulus package. ...

Bank loans in the US have fallen at a 14pc rate this year, caused in part by Basel III rules pushing banks to raise capital ratios.

The M3 money supply has fallen at a 5.6pc rate since September. The Fed's Monetary Multiplier dropped to an all-time low of 0.809 last week.

The contraction of eurozone bank credit to firms accelerated to 2.7pc in January, while M3 fell by a further €55bn. Japan's GDP deflator has dropped to a record low of -3pc.

These are epic warning signals, with echoes of 1931. ...

Don't go wobbly on us now, Ben. If the governments of America, Europe, and Japan are to retrench – as they must – their central banks must stay super-loose to cushion the blow.

Otherwise we will all sink into deflationary quicksand.

Follow the link for more.

Of "Large Loans Between Vulnerable States" in Europe

A credit expert from Frankfurt is quoted painting a very grave picture of Euroland:

"Economically, we are in a very risky situation. Greece is close to default. We face systemic risk like the Lehman collapse and unless there is a bail-out for Greece, there will have to be a bail-out for the whole European banking system within two or three months," he said.

Yet they are damned if they don't, and damned if they do. "A Greek bail-out increases the risk of EMU break-up, because monetary union can only work if everybody sticks to the rules," Mr Felsenheimer said.

French banks have $76bn of exposure to Greece, the Swiss $64bn, and the Germans $43bn. But this understates cross-border links. There are large loans between vulnerable states. The exposure of Portuguese banks to Spain and Ireland equals 19pc of Portugal's GDP. Interlocking claims within the eurozone zone are complex. Contagion can spread fast.

To read more of this story by Ambrose Evans-Pritchard, go here.

And then consider this, from March 2009:

Contrary to public perception, the Wall Street Crash of 1929 was not the major catastrophe of the Great Depression; it was merely the precipitating event. In fact it was the bankruptcy of Credit-Anstalt in 1931 that made the Depression truly global, and crippled banks throughout Europe and North America. The resulting run on banks throughout the world, with numerous banking failures, was the catalyst that accelerated the rise in global unemployment.

The rest of that is available here.

The crisis which came to the fore in September of 2008 is not over, not by a long shot.

Depression Caliber Statistics

From Ambrose Evans-Pritchard at The UK Telegraph:

The broad U6 category of unemployment rose to 17.3pc. . . .

Realtytrac says defaults and repossessions have been running at over 300,000 a month since February. One million American families lost their homes in the fourth quarter. Moody's Economy.com expects another 2.4m homes to go this year. . . .

The fuse has yet to detonate on the next mortgage bomb, $134bn (£83bn) of "option ARM" contracts due to reset violently upwards this year and next. . . .

David Rosenberg from Gluskin Sheff said it is remarkable how little traction has been achieved by zero rates and the greatest fiscal blitz of all time. The US economy grew at a 2.2pc rate in the third quarter (entirely due to Obama stimulus). This compares to an average of 7.3pc in the first quarter of every recovery since the Second World War. . . .

For the record, manufacturing capacity use at 67.2pc, and "auto-buying intentions" are the lowest ever. . . .

The Fed's own Monetary Multiplier crashed to an all-time low of 0.809 in mid-December. Commercial paper has shrunk by $280bn ($175bn) since October. Bank credit has been racing down a hair-raising black run since June. It has dropped from $10.844 trillion to $9.013 trillion since November 25. The MZM money supply is contracting at a 3pc annual rate. Broad M3 money is contracting at over 5pc. . . .

To read the whole thing, go here.