Sovereign Bond Buying by ECB No Longer Taboo

Reuters reports that the governor of Belgium’s central bank and ECB council member Luc Coene has come out in support of full-fledged quantitative easing by the ECB in the form of sovereign bond purchases. Not surprisingly, he too is singing from the “deflation danger” hymn sheet:


“The European Central Bank should start buying government bonds to tackle poor investor confidence and low inflation in the euro zone, governing council member Luc Coene said in an interview published on Saturday.

The Belgian central bank chief said the bank had already waited too long, and that this could be one tool to spur economic activity in the 18-country euro zone and fight off deflationary pressures.

“In this context, the purchase of sovereign bonds could prove to be an effective tool,” he told La Libre Belgique.

“Since the beginning of 2014, we have systematically underestimated deflationary effects…if we were to find ourselves at the beginning of next year with negative inflation and fall into a deflationary spiral, the effects on the behavior of households and businesses could be very negative.”

Inflation in the single currency area was 0.3 percent year-on-year in November, well below the ECB’s headline target of inflation below, but close to 2 percent.


(emphasis added)

As we pointed out last week, the only central banker in Europe who hasn’t yet completely lost his mind over the alleged “danger” of the prospect of ever so slightly declining consumer prices is BuBa chief Jens Weidmann (see: “Mr. Nein” for details).

Moreover, prices are in fact not (yet) declining in the euro area overall. There are of course differences from country to country, with mildly declining prices recorded in several of the “crisis countries” – which is to say, precisely the countries that most urgently need lower prices – while prices are rising rather rapidly in others (e.g. in Austria, the annual change rate in CPI is close to the 2% target that allegedly produces economic bliss).

There are several more signs that the ECB is getting ready to crank up the printing presses for real. Not only is it clear that the securities purchase programs currently underway won’t suffice to blow up its balance sheet by the planned amount of € 1 trillion, but it seems that Germany’s central bank may give its nod to sovereign bond “QE” if the peripheral countries agree to take on relatively more risk.


Luc-CoeneLuc Coene stands ready to grab imaginary deflation by the throat.

Photo credit: Belga


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Going the Other Way

Even while newspaper headlines are still full about the ruble’s panic sell-off last week, the ruble has actually risen by 39% from last week’s intra-day lows near 80 to the dollar over the past five trading days (1 ruble was 0.0125 dollars at one point on December 16, while at the time of writing early on Monday, 1 ruble was 0.0174 dollars. That is an increase in the currency’s value of more than 39%). In the traditional notation USDRUB it’s a decline from 80 to 57.48. In early trading on Monday, the ruble has moved back to the level it inhabited on December 5. Anyone shorting the ruble between December 5 and December 16 or selling his rubles for foreign currency during this time period is now deeply underwater:


USDRUB-short termThe Russian ruble goes the other way – click to enlarge.


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The Problem of Contingent Data

Have you ever been in an argument about whether we should raise taxes and then someone tosses out a real whopper? “The top tax rate for decades after World War II was over 90% and look how the economy boomed!”

Or perhaps you read a Paul Krugman column where he said that, “there’s a big problem with the claim that monetary policy has been too loose: where’s the inflation [he means rising prices]?”

Both the Internet troll and Professor Krugman are making the same mistake. Let me explain.

Economists love to use the Latin phrase ceteris paribus. It means all else being equal. It’s great in a thought experiment. For example, what would happen if we made a change in America today? Suppose we criminalized all use of fossil fuels. We can’t really do that (I hope!) but it can serve a pedagogic purpose.

It should be pretty obvious that the consequence of shutting off the motors is to shut off production, and people will soon starve. If this isn’t obvious, then you don’t need my blog entry on economic argumentation. You need The Moral Case for Fossil Fuels by Alex Epstein.

Every economist is aware that in comparing a historical time to the present, or comparing two different countries all else is not equal. There is not one difference between the immediate postwar period and today. There are innumerable differences. You can’t just assume that the one difference you’re debating is the only one that matters.


supply and demand

Cartoon via Washington Post


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What Did She Mean?

Janet Yellen made headlines yesterday. She promised the Fed would be “patient” in raising interest rates. Investors must not have known what she meant.

With the Dow tearing more than 421 points – or 2.4% – higher, half of investors must have thought she meant higher rates later than expected. The other half must have thought she meant higher rates sooner than expected. Treasury bond prices fell. And the yield on the 10-year T-note completed its biggest two-day move higher in 17 months.

Investors give Ms. Yellen far too much credence either way. Will she raise rates sooner… or later? She probably doesn’t know. She is just reading the newspapers as we do, and wondering when she can get away with it.

She looks in the mirror in the morning and gasps… incredulous of the way people overestimate her. She knows – at least before putting on her makeup – that the whole thing is nothing but face paint and false accounting.

Yellen just doesn’t want to be the Fed chief who has to admit it. And she certainly doesn’t want to be remembered as the one who finally popped the biggest credit bubble in history and ushered in a global depression.



Janet Yellen – official portrait

Photot credit: Federal Reserve – OPA


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Just Call it “Enhanced Interrogation” and it is OK

In recent days, unknown Senate staffers have attempted to edit the Wikipedia page on the CIA torture report at least two times, trying to edit out the term “torture” so as to replace it with the Orwellian euphemism du jour, “enhanced interrogation”. If a normal interrogation is good, an enhanced one must be even better, right?

The Pew Research Centre has recently lobbed the following questions at American tax cows with surprising results (at least, they were surprising to us):



If you call it an “interrogation method” instead of calling it what it actually is, this is the result you get.


Mish has some more details and color on this particular survey. Certainly the framing of the questions has a strong influence on the replies one gets in such surveys. This has prompted many to try to explain this poll result away, and to some extent their arguments have merit.

However, we actually don’t want to make excuses for the intellectual laziness and moral turpitude of those who are fine with torture. Anyone supporting torture is both woefully uninformed and needs to urgently re-examine his moral compass. It is quite stunning how many people of this sort are apparently running around. We recommend looking at the comment sections of articles on the torture report in a number of mainstream media in this context, which are often quite revealing.

One widely supported view is that since Islamist radicals are merciless and brutal, they don’t deserve any better (never mind that a number of perfectly innocent people were incarcerated without trial and tortured as well, with many of them “rendered” to lawless and tyrannical countries). However, two negatives only cancel each other out in mathematics. In the realm of ethics and morals, you either have ethical and moral principles, or not. It doesn’t matter what your perceived enemies are doing, or as is all too often the case, are allegedly doing.


landing soon

Steve Bell on “rendering”


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Creator of Stammered Works Becomes EU’s Red Tape Whacker

The European Commission seems to be serious about wanting to cut some of the mountain of red tape it has imposed over the years. Only a truly giant weed-whacker can be expected to do the job. In our paperless age, it would probably be best if someone just walked past their servers with a very big magnet.

Anyway, Reuters informs us that JC Juncker has found the right man for the job: former Bavarian premier Edmund Stoiber. We have previously remarked that jobs in the EU are sinecures for political has-beens, and one might at first suspect that to be the case here as well. However, Stoiber actually does appear to be qualified for the task – at the very least, he seems well prepared for it and comes equipped with the proper mindset.


“European Commission President Jean-Claude Juncker appointed Germany’s Edmund Stoiber as special adviser on better regulation on Thursday, to help the EU executive fight over-regulation and red tape.

Stoiber, a former premier of the German state of Bavaria who sought to become German chancellor in 2002, has for the past seven years chaired a group advising the Commission on administrative burdens and on how to make EU law simpler and cheaper.

In October, he proposed exempting small- and medium-sized firms from a wide range of business rules with a “bonfire of red tape” aimed at reversing a public perception of Brussels as a “bureaucratic monster”.

“EU citizens need the EU to focus on where it can make a real difference to their lives, not to interfere in every detail. EU businesses need the space to innovate and grow, not get tied up in red tape,” Juncker said in a statement

Stoiber will work closely with Juncker’s deputy, First Vice-President Frans Timmermans, who is also charged with improving regulation.


(emphasis added)

We must admit, the fact that the EU hires a guy who has accused it of being a “bureaucratic monster” for the express purpose of cutting down on unnecessary EU regulations is a positive surprise for once.

JC Juncker himself apparently seems eager to establish his anti-bureaucratic credentials as well: this is not the first time he has made remarks to this effect. A little while ago he thundered that he was “not the leader of some gang of bureaucrats” when Italy’s prime minister Matteo Renzi complained about Brussels interfering too much with Italy’s budgetary plans.

Naturally, we were dismissive of this claim, given the fact that bureaucracy and politics are deeply intertwined in Brussels (this is to say, most European politicians are often at the same time bureaucrats, i.e., they have usually been life-long employees of the State).


stoiberStoiber (right) meets Juncker. Will red tape really be cut? We are waiting with bated breath.

Photo credit: Stephanie Lecocq / EPA

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The Dow rose 288 points on Thursday, or 1.7%. Gold was flat, despite further dithering from the Fed on when it will raise interest rates.

Last night, we dined with the head of the SEC. Actually, Ms. White dined at the table next to us. But it made us feel as though we were among the movers and shakers in the zombie capital.

The Occidental Grill & Seafood is a landmark restaurant in D.C. For about $120, you can eat reasonably well and spot the powers that be in the room.


The Occidental GrilleThe Occidental Grill & Seafood – ideal powers-that-be spotting spot.

Photo credit:


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EU Backtracking, US Belligerent

The EU is recently backtracking somewhat from its confrontational stance against Russia. Not only has JC Juncker recently announced that he is actually for building South Stream after all, the German language version of Reuters reports that “Berlin is sending conciliatory signals to Moscow”.

The reasons for this more conciliatory stance are easy to discern. For one thing, the truce in Eastern Ukraine is holding up quite well now. A complete split of Donetsk and Lugansk from the Ukraine is no longer on the agenda, at least it doesn’t appear to be. At the same time, we can be absolutely certain that Ms. Merkel has been getting more than an earful from German industrialists and bankers, all of whom are suffering Russia-related losses now and are afraid that more losses are in the pipeline. The sanctions have destroyed what was a major new market for many companies in Europe, and especially in Germany. German capitalists have been major investors in Russia during Czarist times already, and commercial relations have smoothly resumed and expanded greatly after the collapse of the Soviet Union.

The exact opposite is happening in the US, which isn’t suffering economically from Russia sanctions. We refer you to this report on how another round of sanctions has just been imposed due to actions taken by a mere three Congressmen:


“Late Thursday night, the House of Representatives unanimously passed a far-reaching Russia sanctions bill, a hydra-headed incubator of poisonous conflict. The second provocative anti-Russian legislation in a week, it further polarizes our relations with Russia, helping to cement a Russia-China alliance against Western hegemony, and undermines long-term America’s financial and physical security by handing the national treasury over to war profiteers.

Here’s how the House’s touted “unanimity” was achieved: Under a parliamentary motion termed “unanimous consent,” legislative rules can be suspended and any bill can be called up. If any member of Congress objects, the motion is blocked and the bill dies.

At 10:23:54 p.m. on Thursday, a member rose to ask “unanimous consent” for four committees to be relieved of a Russia sanctions bill. At this point the motion, and the legislation, could have been blocked by a single member who would say “I object.”  No one objected, because no one was watching for last-minute bills to be slipped through.

Most of the House and the media had emptied out of the chambers after passage of the $1.1 trillion government spending package.

The Congressional Record will show only three of 425 members were present on the floor to consider the sanctions bill. Two of the three feigned objection, creating the legislative equivalent of a ‘time out.’ They entered a few words of support, withdrew their “objections” and the clock resumed. 

According to the clerk’s records, once the bill was considered under unanimous consent, it was passed, at 10:23:55 p.m., without objection, in one recorded, time-stamped second, unanimously. Then the House adjourned.


(emphasis added)

This is how “democracy” works in practice? Interesting. Allow us to point out that this fits well with the hysterical NATO announcements we received a few months ago almost on a weekly basis. Readers may remember that NATO spokespersons from Anders Fogh Rasmussen down (a well known liar and war propagandist as anyone who recalls his statements prior to the Iraq war knows) a “Russian invasion of Ukraine” was allegedly “imminent” at any moment. Obviously assorted hawks were gravely disappointed by Russia’s steadfast refusal to invade.

We imagine they are equally disappointed by the fact that the truce in Eastern Ukraine seems to be holding. So their aim is evidently to undermine it by any means possible. If Putin is playing nice and this is what he gets in return, how is he supposed to react? This is the calculation behind this odious piece of legislation, which will only serve to enrich political cronies (i.e., the military industrial complex) to the detriment of tax payers.


Petro Poroshenko,Arseniy Yatsenyuk

Pragmatist Poroshenko and US backed “technocrat” Yatsenyuk (i.e., the chocolate king and the rabid chihuahua). Just before the recent election, Yatsenyuk has allied himself with some of the worst right-wing nationalists in Ukraine. The two may be in the same government, and they probably agree on a great many issues, but there are clearly also important differences between them. If not for Poroshenko, there would probably be no Minsk agreement and no truce in Eastern Ukraine.

Photo credit: Sergei Chuzavkov / Associated Press


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Is the Panic Low In?

Below is a daily chart of the Russian ruble. When we recently wrote about the currency’s collapse (see “The Russian Rubble”) we noted:


“It is a good bet that the ruble is by now egregiously undervalued, even in light of the oil price decline and economic sanctions”


We also opined that the Russian central bank may well feel forced to implement further rate hikes in the short term in order to halt speculation against the ruble. It appears that may actually not happen given the evolution of the chart picture over the past three trading days:


Russian Rubble-dailyThe Russian ruble vs. the USD, daily – click to enlarge.


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December FOMC Decree

Prior to the announcement of the FOMC decision on Wednesday, it was widely expected that the verbiage in the statement would be changed so as to convey an increasingly hawkish stance. Specifically, it was expected that the following phrase, which has been a mainstay of FOMC statements for many moons, would finally be given the boot and no longer appear:


“…it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time”  


It is inter alia this bizarre focus on little turns of phrase in the FOMC statement that has caused us to compare the analysis of the actions of the monetary bureaucracy with the art of “Kremlinology” of yore. The Committee is indeed reminiscent of the Soviet Politbureau in many respects. It is unelected, it is engaged in central planning, and its pronouncements are cloaked in an aura of mysticism, akin to decrees handed down from Olympus.

While it is fairly easy (and in our opinion, absolutely necessary) to make fun of this, it is unfortunately affecting the lives of nearly everyone on the planet. The only exceptions that come to mind are Indian tribes in remote areas of the rain forest, since they don’t use money and possess no capitalistic production structure.



Fed chair Janet Yellen: “A couple. You know, a pair. What the Russians call “dva”, although I hear the Russians are no longer as familiar with such low numbers as they once used to be. My dictionary says it means “two”. One less than the number one is supposed to count to before throwing the holy hand grenade of Antioch after its pin has been removed. Not one, definitely not five, absolutely not four and not three either. Two.”

Photo credit: Agence France-Presse / Getty Images


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The days left to us in 2014 are dwindling to a precious few. It gets darker and darker. The Fed doesn’t seem to be able to do anything about it.

Less than a week from today: the shortest day in the Northern Hemisphere. Then Sol Invictus (“Unconquered Sun”) will have its day… growing day by day until June 21.

But today is the first day of the ancient Roman festival of Saturnalia; the sun fades.

In Rome, it was a time for free speech and role reversals. Masters served their slaves and all enjoyed gambling and drunkenness.


saturnalia-2Woo-hoo! Saturnalia!


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Pictures of Commissar Öttinger as a Young Man Discovered

One of our readers has done some detective work and has found out who the EU’s digital commissar was when he was young. It seems he has undergone a name change, because in an earlier life, he was known as “Beavis”. Judge for yourself:

Exhibit A) Öttinger now:



Photo credit: DPA


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The Good, the Bad and the Plain Crazy

The EU Commissariat has just made an announcement that is both good and bad. Let us start with the good: According to European press reports, Chief Commissar Barroso left the commission with an inheritance of 452 legislative initiatives, including the “harmonization of standards of maternity protection”, “uniform energy taxation and environmental protection legislation” and “forcing all nations to implement waste recycling” (if you want to know why waste recycling, which superficially sounds like a great idea, is yet another complete etatiste charade, read this article in which Per Bylund deconstructs the recycling myth using socialist paradise Sweden as an example).

Anyway, the new commissariat under JC Juncker has decided to simply strike 83 of Barroso’s initiatives legacy completely, put a large part of it on hold, and instead concentrate only on a handful – 23 to start with. Also, among the things to be tackled is an endeavor to actually cut red tape (we will believe it when we see it). According to the commissariats own words:


“When laws are no longer fit for purpose, or impose too much burden, they will be reviewed and amended to make EU law lighter, simpler and less costly.”


So much for the “good”.

However, it is very unfortunate that many of the remaining initiatives they have decided to concentrate on (the bad) mainly consist of bureaucratic nonsense of the finest. Among the top initiatives we find for example: The “€315 billion investment offensive”, an “ambitious digital single market package” (under the leadership of the economically and technologically illiterate digital commissar Mr. Öttinger, whom we have profiled before), and “fair taxation” (the term “fair” in conjunction with the term taxation always means only one thing: higher taxes).


We want to once again focus on the bizarre “investment initiative” on this occasion. This project is one we would term both “bad” and “plain crazy”, although the political cronies who stand to be enriched by it would of course disagree.

Passenger stairs are seen in front of the airport in Lodz

The “ghost airport” at Lodz

Photo credit: Reuters

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A Visit to Zombie Town

Dow down 99 points on Monday. Gold fell $28 an ounce – its fourth straight day of losses. Stock markets have been slipping all over the world, especially in Europe. But outside of Russia, and maybe Greece, so far there is no sign of real panic. That will come later.

We’re spending this week in Washington, zombie watching. Yesterday, we spent the evening in the lobby of The Willard hotel. A choir sang carols.


“Hark the herald angels sing,

“Glory to the newborn King!”


In one corner a group of cronies sat negotiating a deal; whose ox they were goring we don’t know. Pairs of women sipped their champagne and nibbled their cookies. A few tourists gawked at the splendor of it: a Christmas tree worthy of Yosemite… ceilings rivaling those of the Louvre.


dre-blog2 Photo credit: Andrew Bossi


Your editor – his laptop in one hand and a glass of Cabernet in the other – sat in another corner, enjoying the singing and inconspicuously recording events.

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From Ruble to Rubble in a Heartbeat

The Russian ruble has been in panicked free-fall, not unlike the oil price. Last night the Russian central bank reacted by hiking its interest rates, not in baby steps, but rather in giant strides. This was incidentally the second rate hike in just four days and the fifth this year. From the press release:


“From 16 December 2014 the Bank of Russia Board of Directors decided to raise the Bank of Russia key rate to 17.00 percent per annum. This decision is aimed at limiting substantially increased ruble depreciation risks and inflation risks.

From 16 December 2014 in order to strengthen the efficiency of monetary policy loans secured by non-marketable assets or guarantees for 2 to 549 days will be provided at a floating interest rate, set at the Bank of Russia key rate level, increased by 1.75 percentage points (up to the present these loans for 2 to 90 days were provided at fixed rate).

Moreover, for further expanse of credit institution ability to manage their foreign exchange liquidity it was decided to increase maximum allotment amount for28-day FX REPO auctions from 1.5 to 5.0 billion USD and to conduct 12-month FX REPO auctions on weekly basis.”


To help readers to appreciate what a giant move in rates this was, here is a table showing the rates after the last rate hike on December 12 compared with those instituted yesterday:


Bank of RussiaOvernight liquidity provision goes from 11.5% to 18%, 3 month rates go from 10.75% to 17.25% – click to enlarge.

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THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future