Author: admin

Following Joerg Asmusen’s somewhat surprisingly short 2-year stay at the ECB, stepping down as board member to become Germany’s secretary of state for labor, the voice of economic reason in Europe has proposed 49-year-old female Sabine Lautenschlaeger to the ECB. Filling Asmussen’s shoes among the ECB’s “whatever it takes” crowd will be hard and while little is known of Lautenschlaeger’s policy perspective, Reuters notes, she has been among those who have warned about potential conflicts of interest when the ECB has responsibility for both monetary policy and banking supervision, and argued against treating government bonds as risk-free assets in bank books.

 

 

Sabine Lautenschlaeger

Curriculum Vitae

1964-06-03
Born in Stuttgart, Baden-Württemberg; married to Thomas Peiter, one daughter

1984 – 1990
Studied law at the Rheinische Friedrich-Wilhelms University Bonn

1990
First state examination in law; period abroad in Chicago, USA

1994
Second state examination in law

1995 – 1998
Federal Banking Supervisory Office (Bundesaufsichtsamt für das Kreditwesen), Berlin; supervision of major banks

1999 – 2002
Federal Banking Supervisory Office, Berlin; Head of Press and Public Relations

2002 – 2004
Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin), Bonn; Head of Press and Public Relations/Internal Communication

2005 – 2008
Federal Financial Supervisory Authority (BaFin), Bonn; Head of the Supervision of Major Banks and Selected Commercial Banks/ Qualitative Supervisory Standards Department

2007 – 2008
Member of the Senior Supervisors Group

2008 – 2011
Member of the Executive Board of the Federal Financial Supervisory Authority (BaFin), Bonn; Chief Executive Director of Banking Supervision

Since 2008
Basel Committee on Banking Supervision (BCBS), Basel

January – May 2011
Management Board of the European Banking Authority (EBA), London

Since 2011-06-01
Deputy President of the Deutsche Bundesbank

Responsible for the Department of Banking an Financial Supervision, Department of Audit
Person accompanying the president at the ECB Governing Council
Member of the Basel Committee on Banking Supervision (BCBS)
Co-chair of the Core Principles Group (CPG of the BCBS)

 

Via Reuters,

Germany will propose Sabine Lautenschlaeger, a vice president at the German Bundesbank, to take the board seat at the European Central Bank that is being vacated by Joerg Asmussen, according to two sources familiar with the matter.

 

Asmussen announced on Sunday that he would be returning to Berlin after just two years on the ECB’s six-member executive board, to become state secretary in the labour ministry.

 

…

 

Little is known about Lautenschlaeger’s views on monetary policy, but she has a solid track record in banking supervision, having worked at German financial supervisor Bafin before joining the Bundesbank in 2011.

 

She has been among those who have warned about potential conflicts of interest when the ECB has responsibility for both monetary policy and banking supervision, and argued against treating government bonds as risk-free assets in bank books.

 

…

 

In the 15-year history of the ECB, only two women, Finland’s Sirkka Hamalainen and Austria’s Gertrude Tumpel-Gugerell, have served on the board.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/DHtXhtaC2u8/story01.htm Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Neofeudal financialization and unproductive State/corporate vested interests have bled the middle class dry, yet we accept the officially sanctioned narratives. Why?

Let's cut to the chase and generalize "what's fake": everything that is officially sanctioned: narratives, policies, statistics, you name it–all fake– massaged, packaged, gamed or manipulated to serve the interests of the ruling Elites.

Anything that might introduce a shadow of skepticism or doubt about the sustainability, fairness and transparency of the status quo (i.e. anything authentic and genuine) is recast or repackaged into a fake that can be substituted for the authentic when everyone's gaze is distracted by the latest fad/media sensation/scandal.

ObamaCare: fake, a simulacrum of insurance and healthcare.

The National Security State: fake, a cover for global Empire.

The Patriot Act: Orwellian cover for state-corporate fascism.

Student loans: parasitic, exploitive loan-sharking enforced by the Central State for often worthless "higher education."

And so on.

Yesterday I explored the peculiar dynamic that motivates us to accept forgeries, fakes and illusions as authentic: What's Real? What's Fake?. If the fake enables our fantasy (of free money, of owning an authentic canvas by a famous artist, that rising wealth inequality is just a side-effect of freewheeling capitalism, etc. etc. etc.), then we wantto believe it so badly that we overlook all the evidence of chicanery, forgery, illusion and fakery.

Consider our willingness to accept the conventional narrative about why the Great American Middle Class has been in decline since 1973: rising energy costs, globalization, and the declining purchasing power of the U.S. dollar.

While these trends have certainly undermined middle-class wealth and income, there are five other more politically combustible dynamics at work:

1. The divergence of State/corporate vested interests and the interests of the middle class
2. The emergence of financialization as the key driver of profits and political power
3. The neofeudal “colonization” of the “home market” by ascendant financial Elites
4. The increasing burden of indirect “taxes” as productive enterprises and people involuntarily subsidize unproductive, parasitic, corrupt, but politically dominant vested interests
5. The emergence of crony capitalism as the lowest-risk, highest-profit business model in the U.S. economy

The non-fake narratives are considerably different from the status quo ones. Please consider two: The Neofeudal Colonization of Home Markets and the Happy Marriage of the Parasitic Central State and Crony Capitalist Cartels.

The Neofeudal Colonization of Home Markets

The use of credit to garner outsized profits and political power is well-established in Neoliberal Capitalism.  In what we might call the Neoliberal Colonial Model (NCM) of financialization, credit-poor developing world economies are suddenly offered unlimited credit at very low or even negative interest rates. It is “an offer that’s too good to refuse” and the resultant explosion of private credit feeds what appears to be a “virtuous cycle” of rampant consumption and rapidly rising assets such as equities, land and housing.

Essential to the appeal of this colonialist model is the broad-based access to credit: everyone and his sister can suddenly afford to speculate in housing, stocks, commodities, etc., and to live a consumption-based lifestyle that was once the exclusive preserve of the upper class and State Elites (in developing nations, this is often the same group of people).

In the 19^th century colonialist model, the immensely profitable consumables being marketed by global cartels were sugar (rum), tea, coffee, and tobacco—all highly addictive, and all complementary:   tea goes with sugar, and so on.  (For more, please refer to Sidney Mintz’s landmark study, Sweetness and Power: The Place of Sugar in Modern History).

In the Neoliberal Colonial Model, the addictive substance is credit and the speculative consumerist fever it fosters.

In the financialization model, the opportunities to exploit “home markets" were even better than those found abroad, for the simple reason that the U.S. government itself stood ready to guarantee there would be no messy expropriations of capital or repudiation of debt by local authorities who decided to throw off the yokes of credit colonization.

In the U.S. “home market,” the government guaranteed lenders would not lose money, even when they loaned to marginal borrowers who could never qualify for a mortgage under any prudent risk management system.  This was the ultimate purpose of Freddie Mac, Fannie Mae, and now the FHA, which is currently guaranteeing the next wave of mortgages that are entering default.

In my analysis, the Status Quo of “private profits, public losses” and the incentivization of gargantuan household debt amounts to a modern financialized version of feudalism, in which the middle class now toils as debt-serfs.  Their debt cannot be repudiated (see student loans), their stagnating disposable income is largely devoted to debt service, and their assets have evaporated as the phantom wealth created by serial credit bubbles vanishes as soon as the asset/credit bubble du jour bursts.

The Status Quo: A Happy Marriage of the Parasitic Central State and Crony Capitalist Cartels

In broad brush, financialization enabled the explosive rise of politically dominant cartels (crony capitalism) that reap profits from graft, legalized fraud, embezzlement, collusion, price-fixing, misrepresentation of risk, shadow systems of governance and the use of phantom assets as collateral.  This systemic allocation of resources and the national income to serve their interests also serves the interests of the protected fiefdoms of the State that enable and protect the parasitic sectors of the economy.

The productive, efficient private sectors of the economy are in effect subsidizing the most inefficient, unproductive parts of the economy.  Productivity has been siphoned off to financialized corporate profits, politically powerful cartels, and bloated State fiefdoms.  The current attempts to “restart growth” via the same old financialization tricks of more debt, more leverage and more speculative excess backstopped by a captured Central State are failing.

Neofeudal financialization and unproductive State/corporate vested interests have bled the middle class dry.

Yet we accept the officially sanctioned narratives as authentic and meaningful. Why? Perhaps the truth is simply too painful to accept, so we will reject it until we have no other alternative.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/gBN43nvUlEA/story01.htm Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Neofeudal financialization and unproductive State/corporate vested interests have bled the middle class dry, yet we accept the officially sanctioned narratives. Why?

Let's cut to the chase and generalize "what's fake": everything that is officially sanctioned: narratives, policies, statistics, you name it–all fake– massaged, packaged, gamed or manipulated to serve the interests of the ruling Elites.

Anything that might introduce a shadow of skepticism or doubt about the sustainability, fairness and transparency of the status quo (i.e. anything authentic and genuine) is recast or repackaged into a fake that can be substituted for the authentic when everyone's gaze is distracted by the latest fad/media sensation/scandal.

ObamaCare: fake, a simulacrum of insurance and healthcare.

The National Security State: fake, a cover for global Empire.

The Patriot Act: Orwellian cover for state-corporate fascism.

Student loans: parasitic, exploitive loan-sharking enforced by the Central State for often worthless "higher education."

And so on.

Yesterday I explored the peculiar dynamic that motivates us to accept forgeries, fakes and illusions as authentic: What's Real? What's Fake?. If the fake enables our fantasy (of free money, of owning an authentic canvas by a famous artist, that rising wealth inequality is just a side-effect of freewheeling capitalism, etc. etc. etc.), then we wantto believe it so badly that we overlook all the evidence of chicanery, forgery, illusion and fakery.

Consider our willingness to accept the conventional narrative about why the Great American Middle Class has been in decline since 1973: rising energy costs, globalization, and the declining purchasing power of the U.S. dollar.

While these trends have certainly undermined middle-class wealth and income, there are five other more politically combustible dynamics at work:

1. The divergence of State/corporate vested interests and the interests of the middle class
2. The emergence of financialization as the key driver of profits and political power
3. The neofeudal “colonization” of the “home market” by ascendant financial Elites
4. The increasing burden of indirect “taxes” as productive enterprises and people involuntarily subsidize unproductive, parasitic, corrupt, but politically dominant vested interests
5. The emergence of crony capitalism as the lowest-risk, highest-profit business model in the U.S. economy

The non-fake narratives are considerably different from the status quo ones. Please consider two: The Neofeudal Colonization of Home Markets and the Happy Marriage of the Parasitic Central State and Crony Capitalist Cartels.

The Neofeudal Colonization of Home Markets

The use of credit to garner outsized profits and political power is well-established in Neoliberal Capitalism.  In what we might call the Neoliberal Colonial Model (NCM) of financialization, credit-poor developing world economies are suddenly offered unlimited credit at very low or even negative interest rates. It is “an offer that’s too good to refuse” and the resultant explosion of private credit feeds what appears to be a “virtuous cycle” of rampant consumption and rapidly rising assets such as equities, land and housing.

Essential to the appeal of this colonialist model is the broad-based access to credit: everyone and his sister can suddenly afford to speculate in housing, stocks, commodities, etc., and to live a consumption-based lifestyle that was once the exclusive preserve of the upper class and State Elites (in developing nations, this is often the same group of people).

In the 19^th century colonialist model, the immensely profitable consumables being marketed by global cartels were sugar (rum), tea, coffee, and tobacco—all highly addictive, and all complementary:   tea goes with sugar, and so on.  (For more, please refer to Sidney Mintz’s landmark study, Sweetness and Power: The Place of Sugar in Modern History).

In the Neoliberal Colonial Model, the addictive substance is credit and the speculative consumerist fever it fosters.

In the financialization model, the opportunities to exploit “home markets" were even better than those found abroad, for the simple reason that the U.S. government itself stood ready to guarantee there would be no messy expropriations of capital or repudiation of debt by local authorities who decided to throw off the yokes of credit colonization.

In the U.S. “home market,” the government guaranteed lenders would not lose money, even when they loaned to marginal borrowers who could never qualify for a mortgage under any prudent risk management system.  This was the ultimate purpose of Freddie Mac, Fannie Mae, and now the FHA, which is currently guaranteeing the next wave of mortgages that are entering default.

In my analysis, the Status Quo of “private profits, public losses” and the incentivization of gargantuan household debt amounts to a modern financialized version of feudalism, in which the middle class now toils as debt-serfs.  Their debt cannot be repudiated (see student loans), their stagnating disposable income is largely devoted to debt service, and their assets have evaporated as the phantom wealth created by serial credit bubbles vanishes as soon as the asset/credit bubble du jour bursts.

The Status Quo: A Happy Marriage of the Parasitic Central State and Crony Capitalist Cartels

In broad brush, financialization enabled the explosive rise of politically domina
nt cartels (crony capitalism) that reap profits from graft, legalized fraud, embezzlement, collusion, price-fixing, misrepresentation of risk, shadow systems of governance and the use of phantom assets as collateral.  This systemic allocation of resources and the national income to serve their interests also serves the interests of the protected fiefdoms of the State that enable and protect the parasitic sectors of the economy.

The productive, efficient private sectors of the economy are in effect subsidizing the most inefficient, unproductive parts of the economy.  Productivity has been siphoned off to financialized corporate profits, politically powerful cartels, and bloated State fiefdoms.  The current attempts to “restart growth” via the same old financialization tricks of more debt, more leverage and more speculative excess backstopped by a captured Central State are failing.

Neofeudal financialization and unproductive State/corporate vested interests have bled the middle class dry.

Yet we accept the officially sanctioned narratives as authentic and meaningful. Why? Perhaps the truth is simply too painful to accept, so we will reject it until we have no other alternative.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/gBN43nvUlEA/story01.htm Tyler Durden

In last month’s 2 Year bond auction we highlighted that the end of the declining Bids to Cover trend has arrived for good, after the 3.54 BTC priced at the second highest since February. Today’s just concluded 2 Year slammed the door shut on any fears that there may be declining broad bid side demand, after the Bid to Cover of 3.767 printed at nearly the same level as January’s 3.675, but well higher, making it the highest BTC since last November’s 4.07. The market demand at the time of auction confirmed this, with the When Issued trading at 0.352% at 1 PM, only to see the final yield on the $30 billion auction cross at a very strong 0.345%. Finally, the internals were just as strong, with Direct bidders taking down 30.24%, well above the November 27.3% and the TTM average of 23.5%, while Indirects took a slightly softer 21.55%, leaving Dealers with their usual fare of just around half, or 48.21% to be precise. Bottom line: if there was some concern in the recent 3 Year auction, the complete lack of market jitteryness today showed that the market is certainly not worried about any Fed rate hikes until after 2015.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/WTUzzPBAhJI/story01.htm Tyler Durden

Current price levels and related trends are similar today, Bloomberg’s Rich Yamarone warns, to recent periods when deflation fears forced the Federal Reserve to ease policy. To determine the course of monetary policy, the Fed, Yamarone notes, looks at a number of indicators. What is worrying today is that several of them – production and employment – are moving in a somewhat softer direction (despite MSM propaganda). For those optimists leaning toward the potential for a more vibrant economic recovery, a word of caution: Comparisons to month-ago or even year-ago levels may be deceiving.

Via Bloomberg’s Rich Yamarone,

Commodity prices have been on a steady decline since mid-2011 and non-petroleum import prices have contracted at a 1.2 percent pace during the last 12 months. Given personal consumption expenditure (PCE) inflation of only 0.7 percent and an associated core PCE of 1.1 percent – both of which are important in policy deliberations – Fed officials would be justified in their concern.

Other than the obvious 2008 contraction in the general price level, which coincided with a depression and a banking crisis, the two most recent bouts of deflation worries were in 1998 and 2002. In 1998, fears of deflation among policy makers escalated throughout the year. Then-Dallas Fed President Bob McTeer noted during the Sept. 29 FOMC meeting: “Our most recent Beige Book report shows that the price picture has turned deflationary in several sectors. Weak international demand has continued to add to growing supplies and falling prices. We see price declines in gasoline, petrochemicals, oil and gas services, semiconductors, computers, primary metals, paper and paper products, and softwood lumber.” The Fed then went on to ease three times for a total of 75 basis points, bringing the target rate down to 4.75 percent.

Deflation fears picked up again in the third quarter of 2002 when PCE inflation sank to 0.7 percent and the core PCE was lingering around 1.5 percent. We are essentially at those same levels today. Ultimately, the Fed cut its borrowing target rate by 50 basis points to 1.25 percent.

 

To determine the course of monetary policy, the Fed of course looks at a number of indicators. What is worrying today is that several of them – production and employment – are moving in a somewhat softer direction. The industrial production index climbed 1.1 percent in November from a lowly 0.1 percent increase during October. The year-over-year pace currently stands at 3.2 percent. While that may seem desirable, it is a far stretch from the better than 8 percent gains posted in mid-2010. Employment growth has also taken on a flatter pattern.

For those optimists leaning toward the potential for a more vibrant economic recovery, a word of caution: Comparisons to month-ago or even year-ago levels may be deceiving.

Month-to-month changes are going to be elevated since the government shutdown of Oct. 1-17 reduced output and activity.

Similarly, October and November levels versus year-ago activity are deceptively strong due to the impact of Hurricane Sandy, which crippled the entire eastern seaboard leaving millions without power or transportation. For example, total retail sales in October last year were flat from the previous month and up a scant 0.1 percent in November from October. That makes the current year-over-year gains of 4.7 percent and 4.1 percent in November and October, respectively, appear better than they really were.

Given the fragility of the economy and the Fed’s unprecedented policy actions, a renewed threat of deflation leaves policy makers with few options.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/4QAn_Bias7I/story01.htm Tyler Durden

Current price levels and related trends are similar today, Bloomberg’s Rich Yamarone warns, to recent periods when deflation fears forced the Federal Reserve to ease policy. To determine the course of monetary policy, the Fed, Yamarone notes, looks at a number of indicators. What is worrying today is that several of them – production and employment – are moving in a somewhat softer direction (despite MSM propaganda). For those optimists leaning toward the potential for a more vibrant economic recovery, a word of caution: Comparisons to month-ago or even year-ago levels may be deceiving.

Via Bloomberg’s Rich Yamarone,

Commodity prices have been on a steady decline since mid-2011 and non-petroleum import prices have contracted at a 1.2 percent pace during the last 12 months. Given personal consumption expenditure (PCE) inflation of only 0.7 percent and an associated core PCE of 1.1 percent – both of which are important in policy deliberations – Fed officials would be justified in their concern.

Other than the obvious 2008 contraction in the general price level, which coincided with a depression and a banking crisis, the two most recent bouts of deflation worries were in 1998 and 2002. In 1998, fears of deflation among policy makers escalated throughout the year. Then-Dallas Fed President Bob McTeer noted during the Sept. 29 FOMC meeting: “Our most recent Beige Book report shows that the price picture has turned deflationary in several sectors. Weak international demand has continued to add to growing supplies and falling prices. We see price declines in gasoline, petrochemicals, oil and gas services, semiconductors, computers, primary metals, paper and paper products, and softwood lumber.” The Fed then went on to ease three times for a total of 75 basis points, bringing the target rate down to 4.75 percent.

Deflation fears picked up again in the third quarter of 2002 when PCE inflation sank to 0.7 percent and the core PCE was lingering around 1.5 percent. We are essentially at those same levels today. Ultimately, the Fed cut its borrowing target rate by 50 basis points to 1.25 percent.

 

To determine the course of monetary policy, the Fed of course looks at a number of indicators. What is worrying today is that several of them – production and employment – are moving in a somewhat softer direction. The industrial production index climbed 1.1 percent in November from a lowly 0.1 percent increase during October. The year-over-year pace currently stands at 3.2 percent. While that may seem desirable, it is a far stretch from the better than 8 percent gains posted in mid-2010. Employment growth has also taken on a flatter pattern.

For those optimists leaning toward the potential for a more vibrant economic recovery, a word of caution: Comparisons to month-ago or even year-ago levels may be deceiving.

Month-to-month changes are going to be elevated since the government shutdown of Oct. 1-17 reduced output and activity.

Similarly, October and November levels versus year-ago activity are deceptively strong due to the impact of Hurricane Sandy, which crippled the entire eastern seaboard leaving millions without power or transportation. For example, total retail sales in October last year were flat from the previous month and up a scant 0.1 percent in November from October. That makes the current year-over-year gains of 4.7 percent and 4.1 percent in November and October, respectively, appear better than they really were.

Given the fragility of the economy and the Fed’s unprecedented policy actions, a renewed threat of deflation leaves policy makers with few options.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/4QAn_Bias7I/story01.htm Tyler Durden

From Ben Hunt of Epsilon Theory

Whatever It Takes

A few observations on what to look for in the language of the FOMC announcement tomorrow from a game theoretic perspective…

Ever since Mario Draghi ad-libbed the lines “whatever it takes” in his July 2012 speech in London, a speech that together with the equally fabulistic OMT program rescued Europe and the Euro from the clutches of Spanish and Italian sovereign debt woes, this has been the go-to phrase for any politician or central banker seeking to imply unlimited resolve in bringing the firepower of the State down on an unruly market. Angela Merkel and Nicolas Sarkozy immediately seized on Draghi’s line once they saw what a salutary influence it had … Barack Obama now uses the phrase in the context of everything from budget fights to immigration reform to community college funding … Ben Bernanke is much more reticent to use the phrase directly (he’s smart enough to see it as the psychological weapon that it is, a weapon that diminishes from overuse), but his words are constantly interpreted by the media as implying a “whatever it takes” stance. In fact, I’m hard-pressed to come up with a more prevalent  — or powerful — policy language meme than “whatever it takes.”

Why is it so popular? Because it works like a charm in the Common Knowledge game. Underpinning the CK game is a vast array of forward looking expected utility calculations that each and every one of us makes regarding our expectation of everyone else’s expectations of everyone else’s expectations. I know that’s a mouthful, and for some background on the mechanics of the CK game and Fed communications you can look here and here and here in prior Epsilon Theory notes, but essentially you’re playing what Keynes called the Newspaper Beauty Contest. The drivers of the CK game are public statements by famous people like Mario Draghi, and the expected utility calculations we unconsciously make in our heads are based on Who and What … Who is making the statement and how likely is it that he or she will deliver on the statement, and What is the likely impact of the policy if it comes to pass.

The power of “whatever it takes” is in the What. Expected utility calculations cannot handle an unlimited result, and there’s a little piece of our brain that goes on tilt when it tries to process that phrase, particularly if it’s being said by a powerful Who. That little piece of our brain returns a Does Not Compute result when it hears “whatever it takes” in a policy context, which leaves the rest of our brain floundering. Luckily for us, we have no shortage of media messengers who are only too happy to tell us what it means and repeat the message ad infinitum, because it makes those media messengers relevant and useful. And if they’re more relevant they can sell more newspapers or ads or whatever. Everyone wins!

So what does this have to do with the FOMC announcement tomorrow? There’s a lot of chatter out there that the Fed will hold off on a taper announcement, but will put some sort of limit on the overall size of this latest round of QE launched in September 2012. In other words, monthly purchases will continue at the current rate, but this will no longer be a QE-forever program. From a CK game perspective, placing a limit on the QE program is a more market-negative statement than a taper. This is what I’m going to be watching for tomorrow, along with whatever dovish (market-positive) language is inserted around forward guidance on rates. And then the battle for meaning and interpretation will be joined …

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/lbfnjeK16sE/story01.htm Tyler Durden