Global Recession

The Never Ending European Implosion Update

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eurozoneSpain today was suddenly imploding. We should say suddenly with a bit of sarcasm, after all, we've been watching Europe put their fingers in the never ending European financial dike for years now.

What happened was Germany has demanded Spain be liable for their loans, 100% from last month's Spanish bail out.

The German Bundestag voted Thursday to approve the $122 billion banking bailout, but only if the Spanish government accepted full liability for the loans. “There will be no direct bank financing,” said Volker Kauder, head of the Christian Democratic delegation in the Bundestag.

Truth be told this is just another day in the adventures of Eurozone financial crises. U.S. Treasury bonds are hitting record lows as a mass exodus from Europe seeks safe assets.

U.S. Treasuries yields fell to new record lows on Monday as concern that the euro zone's debt crisis is spiraling out of control led investors to seek out the relative safety of U.S. debt.

Germany and U.K. bonds yields are also hitting record lows as the flight to safe haven continues.

Could there be a China crisis? Has the China's economy really survived the global financial crisis?

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Originally published by QFINANCE

By political commentator Ian Fraser

Last year very few commentators saw a doomsday scanario developing for the Middle Kingdom. These few included some lonely hedge fund managers such as Eclectica's Hugh Hendry and Kynikos's Jim Chanos. The country’s property bubble, troublesome banking sector and credit tide caused the most concern.

The China-bashers were given a pause for thought when second quarter data showed that China's economy grew at 9.5% in the second quarter -- meaning its economic engine has shown unexpected consistency over the past 12 months. However, wrapped up in the figures were warning signs, including that consumer price inflation reached 6.4% for the year to June. And, as The Economist pointed out, despite a state-sponsored slowdown on bank lending, overall credit availability has actually increased thanks to increased use of "social financing", including corporate bonds and some loans repackaged by “trust” companies. The Economist said:

"China seems to be getting less bang for its financial buck. In 2007, Fitch reckons, it took 1.28 yuan of extra financing to produce an additional yuan of GDP. Now it takes 2.38. China’s growth may be remarkably even. But its financial system is having to pump harder to maintain the pace."

It's fair to say scepticisim about China, its post-crisis success and the nature of its economic miracle has been growing in recent weeks.

Ben Bernanke Loses Control of the Fed

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Originally published on The Agonist

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It took a while, but the financial markets are starting to realize that Quantitative Easing will end next month, possibly once and for all. The unprecedented amount of monetary stimulus being pumped into the global economy by the Federal Reserve will come to a sudden halt. Commodity markets have enjoyed a bubbly expansion since the QE2 program was announced, and they were the first to crumble when the Fed began removing the monetary supports. Stock markets are now slowly beginning to follow suit.

One reason the markets took the news sanguinely was because the Fed engineered it that way. After the May meeting of the Fed Open Market Committee, at which it was decided not to renew QE2 when it expires in June, Ben Bernanke gave a first-ever press conference by a Fed Chairman following an FOMC meeting. The media thought it was a masterful performance – which it was, but not for the reasons cited in the press. Bernanke made it sound as if the end of Quantitative Easing was the most natural thing in the world, and that all the voting members of the FOMC agreed with him. The fact is, the FOMC decision was a defeat for Bernanke and his allies, which included the two other officers of the FOMC, Janet Yellen (Vice Chair of the Fed Board) and William Dudley (NY Fed President). Dudley, just a week before the meeting, had gone public with his desire to have a QE3 program standing by, ready to aid a struggling economy.