We’d almost lost track of Europe since the newspapers went mum on the subject in late December, after auction rates for Spanish and Italian debt receded sharply from the 7% threshold. That’s officially the danger zone, at least to the extent that the business pages usually headline the story, albeit on an inside page. And now, in an apparent effort to keep all of us euroskeptics off balance, news sources often refrain from mentioning certain auction details, including the specific rate demanded by lenders. Here, for example, is an everything’s-coming-up-roses story from a Wall Street Journal report that ran yesterday under the sunshiney headline Europe Debt Auctions Find Demand:
“Spain sold 4.88 billion euros in 12-month and 18-month treasury bills amid strong demand, at interest rates well below those at its previous auction [emphasis ours]. It’s hard to say whether the Journal was being coy.
To give them the benefit of the doubt, it’s possible the paper’s editors made a decision to downplay the mention of specific rates because the rates have been fluctuating so wildly in recent months as to be meaningless. Perhaps. For the record, we believe that anything above 2% subjects sovereign borrowers to a deflationary burden capable of snuffing the life from an economy. So how have the PIIGS managed to survive nonetheless? Answer: They haven’t. Fiscally and economically speaking, they are all Dead Countries Walking. But it seems clear that they will be able to continue to borrow at rates that imply the near absence of risk. That’s because the local banks that are sucking up all of the paper, most of it short-dated and backed by “full faith and credit” boilerplate, are so flush with cash that they don’t know what to do with it all. A Dutch banker succinctly summed up the auction picture thus: “A captive audience in the form of domestic banks rolling over collateral for liquidity-management purposes was always going to limit the scope for a poor outcome.”
Just so. Under the circumstances, and with respect to the commodity markets, one of the great mysteries of the day is why the price of an ounce of gold is not bounding energetically above $2000. It’s a crazy world, for sure, but stupid-crazy if you ask us.
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Stock markets are defended by CBs primarily to protect existing pension funds, which anchor existing politics.
Outdated metrics can be made to look good on paper, but to what real benefit, and outcome?
see http://bilbo.economicoutlook.net/blog/?p=17816&utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+economicoutlook%2FFYvo+%28billy+blog%29
People used to want a pension so they either wouldn’t be a burden on their grandchildren, or be dependent upon them. Now, a pension is something to be sought, at the expense of what’s going to happen to your grandchildren.
We’re at a point where doing what we thought was right, is now exactly wrong. Doing evil by preaching what feels right?
There is a better way. Pursue sane operations, rather than just comforting but abstract political metrics, which also get outdated.