Euro House of Cards to Collapse, Warns ECB Prophet
Here is the opening and also a latter section of this article by Ambrose Evans-Pritchard for The Telegraph:
The European Central Bank is becoming dangerously over-extended and the whole euro project is unworkable in its current form, the founding architect of the monetary union has warned.
"One day, the house of cards will collapse,” said Professor Otmar Issing, the ECB's first chief economist and a towering figure in the construction of the single currency.
Prof Issing said the euro has been betrayed by politics, lamenting that the experiment went wrong from the beginning and has since degenerated into a fiscal free-for-all that once again masks the festering pathologies.
“Realistically, it will be a case of muddling through, struggling from one crisis to the next. It is difficult to forecast how long this will continue for, but it cannot go on endlessly," he told the journal Central Banking in a remarkable deconstruction of the project.
Many would say the crisis mushroomed precisely because the ECB was unable to act as a lender-of-last resort. Prof Issing and others from the Bundesbank were chiefly responsible for this design flaw.
Jacques Delors, the euro's "political" founding father, issued his own candid post-mortem last month on the failings of EMU but disagrees starkly with Prof Issing about the nature of the problem.
His foundation calls for a supranational economic government with debt pooling and an EU treasury, as well as expansionary policies to break out of the "vicious circle" and prevent a second Lost Decade.
"It is essential and urgent: at some point in the future, Europe will be hit by a new economic crisis. We do not know whether this will be in six weeks, six months or six years. But in its current set-up the euro is unlikely to survive that coming crisis," said the Delors report.
Prof Issing is not a German nationalist. He is open to the idea of a genuine United States of Europe built on proper foundations, but has warned repeatedly against trying to force the pace of integration, or to achieve federalism "by the back door".
He decries the latest EU plan for a "fiscal entity" in the Five Presidents' Report, fearing that such move would lead to a rogue plenipotentiary with unbridled powers over sensitive issues of national life, beyond democratic accountability.
Such a system would erode the budgetary sovereignty of the member states and violate the principle of no taxation without representation, forgetting the lessons of the English Civil War and the American Revolution.
Prof Issing said the venture began to go off the rails immediately, though the structural damage was disguised by the financial boom. "There was no speed-up of convergence after 1999 – rather, the opposite. From day one, quite a number of countries started working in the wrong direction."
David Fuller's view
It sounds to me as if architects of the ‘United States of Europe’ concept, from Germany and France’s old guard, are exonerating themselves from blame for the EU’s failure. I would not be surprised to hear more of this.
A PDF of AE-P's article is posted in the Subscriber's Area.
Where to Invest $10,000 Right Now
Here is the introduction to this interesting article from Bloomberg, featuring five experts: Barry Ritholtz, Sarah Ketterer, Mark Mobius, Rob Arnott, and Francis Kinniry:
Successful investors take risks. The trick is to take smart ones, in a diversified portfolio.
First, make sure you’re covered on the financial basics. Then start scouting out powerful places to invest any excess cash that's making you next to nothing in a savings account. With the holidays and perhaps a raise or bonus on the horizon, it’s a good time to make that money work for you and your retirement.
To help, we asked five leading investors to share their best ideas on where to invest $10,000 right now. (It makes sense for smaller sums, too.) We first quizzed them back in June, when we also asked exchange-traded-fund analyst Eric Balchunas of Bloomberg Intelligence to choose ETFs that came closest to the strategies and themes they highlighted. Some of the experts also run mutual funds that employ their strategies.
Among their summer favorites were out-of-favor emerging markets, and many ETFs tracking those markets have seen double-digit gains. How did our panel of experts do last quarter, exactly? Very well, thank you. Check out the results that follow each new entry below. For comparison, the Standard & Poor’s 500-stock index was up 3.3 percent from June 30 to Sept. 30.
So is it too late to get into emerging markets now? Is China still promising or just too messy? We’ll let the panel answer, and share its new ideas, ranging from opportunities in floating-rate bank loans to consumer-related stocks in China.
You can toggle between last quarter’s and this quarter’s advice with a quick click, or just check out the panel’s advice for the here and now. Either way, as we emphasized in June’s “Where to Invest $10,000 Right Now” and above, take a look at these financial musts first.
Then see if you can profit from our experts’ latest ideas.
David Fuller's view
There is plenty of interest in emerging markets among the five distinguished names mentioned by Bloomberg above. Only one favoured Europe, as I recall, and not that enthusiastically. No one recommended US stocks. No one mentioned commodities, including precious metals.
What should we make of this?
Federal Reserve Vice Chairman Stanley Fischer Says Fiscal Policy Could Help Fight Low Growth
Here is the opening of this topical article from Bloomberg:
Federal Reserve Vice Chairman Stanley Fischer said government policies could partly counteract the impact of lower productivity and an aging population that are holding back the U.S. economy and weighing on interest rates.
“Some combination of more encouragement for private investment, improved public infrastructure, better education, and more effective regulation is likely to promote faster growth of productivity and living standards,” Fischer said in the text of a speech Monday to the Economic Club of New York. Such policies could also “reduce the probability that the economy and, particularly, the central bank will in the future have to contend with the effective lower bound” for interest rates.
Fischer said an increase in government spending by 1 percent of gross domestic product would lead to a rise in the equilibrium level of interest rates -- the rate that neither stimulates nor holds back the economy -- by 0.5 percentage point, according to Fed research. An equivalent tax cut would lift the equilibrium rate by 0.4 percentage point.
David Fuller's view
This is an obvious point and there was a paucity of back slapping among the old boys at the Economic Club of New York for this meeting. No wonder as Stanley Fischer cited slower domestic growth, an aging population, lower investment and slower foreign growth as reasons for the current problem.
This item continues in the Subscriber’s Area.
What OPEC Oil U-Turn Missed: Peak Demand Keeps Getting Closer
Here is the opening of this interesting article from Bloomberg:
OPEC’s decision last month to reverse its policy of unfettered production and cut oil output to boost prices may be at odds with the industry’s most important long-term trend: demand for what they produce could start falling within 15 years.
If rapid improvements continue in renewable energy, electric vehicles and other disruptive technologies, petroleum consumption will peak in 2030 and decline thereafter, according to a report from the World Energy Council. As the globe’s largest producers gather in London this week for the Oil and Money conference, they might want to check their assumption that the market will grow for decades to come.
The plunging cost of renewable energy -- with solar-module costs falling 50 percent since 2009 -- is already upending the business model of utilities. Disruption could spread to the oil industry as electric vehicles become more economic than gasoline or diesel cars, potentially displacing millions of barrels of daily fuel use by the late 2020s. Projections for decades of demand growth that underpin investments in oil projects could be misplaced.
“The longer-term outlook, beyond 10 years, is certainly less rosy,” said Alex Blein, London-based energy-portfolio manager at Amundi, which holds more than $1 trillion of assets. “Given the advances in battery technology, by 2030 carbon-powered vehicles will be the exception rather than the norm. This will inevitably impact on oil demand.”
David Fuller's view
Whether OPEC actually reduces production, other than by accident, war or strikes, remains to be seen. However, OPEC is guaranteed to face more competition from countries which follow the USA lead by developing their fracking potential. Additionally, renewable technologies are likely to develop even more rapidly than forecast. Energy independence will be the ambition of every successful nation, and many will achieve it within the next fifteen to twenty years.