- Le huard à 93 cents US d'ici la fin de l'année, prévoit la BMO


La Banque de Montréal s'attend à ce que la valeur du dollar canadien chute à 93 cents US d'ici la fin de l'année.
L'institution croit que le ralentissement économique mondial fera baisser le prix des ressources naturelles, qui joue sur la valeur de la devise canadienne.
Les économistes de BMO s'attendent à ce que le huard se maintienne un peu au-dessus de 90 cents US pendant le premier semestre de 2012, puisqu'il remonte à la parité quand la croissance de l'économie mondiale s'accélérera.
La valeur du dollar canadien a beaucoup fluctué récemment. La semaine dernière, la devise a perdu 5 cents US. Mercredi matin, le huard se valait 97,66 cents, en baisse de 0,42 cent.


- CRISE DE L'EURO Prêt à exploser

C'est la quatrième fois en 2011 que l'hebdomadaire allemand Der Spiegel titre en Une sur la mort imminente de l'euro. Cette fois-ci, la monnaie unique est représentée en charge explosive. "La bombe monétaire – comment une grande idée a pu se transformer en danger pour l'Europe", lit-on sur la couverture. Sur 20 pages, le magazine hambourgeois explique en quatre actes la naissance, la vie, la crise et l'avenir incertain de l'euro, "la monnaie la plus dangereuse du monde, construite sur des dettes et des mensonges, sans fondement ni leadership."

- [Don’t count on Markozy to save you as Greece falls -
Commentary: Europe’s leaders have done nothing to prepare for the end->http://www.marketwatch.com/story/dont-count-on-markozy-to-save-you-as-greece-falls-2011-09-28]


By Matthew Lynn
LONDON (MarketWatch) — The imminent Greek default is now the only issue that matters to the financial markets. The country is running out of money to pay its bills. It can no longer borrow on the markets. It has missed the deficit-reduction targets in the bailout package, and unless the euro area’s political leaders can come up with a fresh rescue package it will soon have no choice but to renege on it debts.
The real question is what happens next. Will Portugal, Spain and then Italy face a run on their banks as people rush to get their money out? Will a series of European banks fail, starting a fresh credit crunch? No one really knows, but the signs are hardly encouraging. The pressure on other high-indebted nations once Greece goes down will be intense. So will the pressure on the banking system.
Reuters
Investors must hope that Markozy — France's President Nicolas Sarkozy and German Chancellor Angela Merkel — will find a painless solution to the debt crisis.
The only force that can avert catastrophe is that strange double-headed beast known to bond traders as Markozy — the French President Nicolas Sarkozy and the German Chancellor Angela Merkel. Neither shows any signs of getting to grips with the scale of the challenge they face, nor have they done so at any point since this drama started 18 months ago. Anyone staying in the markets now is taking a massive gamble that they suddenly get their act together over the next few weeks. They are almost certainly going to be disappointed.
The Greek drama is hurtling towards a denouement — and probably not before time. Under the terms of the bailout package agreed with its European partners, it was due to receive another chunk of money next month. Whether it gets the cash or not depends on Greek Prime Minister George Papandreou coming up with a deal with the International Monetary Fund and the European Union that fudges the terms of the rescue package. If it can’t, it will default. Even if it does, the next round of cash, and the round after that, are just as delicately poised. The debate now is no longer about whether Greece defaults, but how and when.
That is a crisis, to be sure, but handled the right way it should be a manageable one. Greece’s entire outstanding government debt is 250 billion euros, according to High Frequency Economics. In the context of the global financial markets, that is a relatively trivial sum — slightly less than the market value of Apple. The European Central Bank could simply buy up all the debt, and put it on its own balance sheet, and gradually deal with the inevitable losses on the paper once the whole crisis had passed. No one thinks Apple going bust would cause the downfall of Western Civilization. There is no reason why Greece should either.
There’s a snag, however. Europe is stuck with two incompetent leaders. Markozy have neither the authority nor the imagination to cope with the scale of the challenge they face.
There are three key problems.
One, no one leveled with the electorates. The euro EURUSD +0.11% was not sold as a debt union, and it was never explained to the Germans and the French and the Dutch that they would end up having to pay the debts of Greece, Italy or Spain. In the 18 months since this crisis started, politicians have been in denial all along. If the euro was to be a fiscal union, the leaders of the continent should have started arguing for that two decades ago, when monetary union was first being planned. It is too late to start building the political support for a rescue package now. Anything they come up with this month is simply going to get thrown out at the ballot box, either now, or in a few month’s time. If they try and sneak a fiscal union in through the back door, they will simply face a worse backlash later on.
Two, the mechanisms haven’t been created. There have been nearly two years to come up with a plan for what happens if Greece goes down. All that has been put in place is the European Financial Stability Fund, and even that isn’t fully operational yet. Nor does it have anything like the funding in place to deal with the scale of the emergency it is likely to confront. In Washington last weekend, there were briefings the EFSF would be increased to 2 trillion euros. But the money isn’t there yet. All anyone actually agreed to was to go home and have a think about a rescue plan. There is a big — not to say alarming — difference between that and actually having one. When Lehman went bust, there were governments and institutions with the authority to act. Those simply don’t exist for this crisis.
Three, the solutions don’t work anyway. Bailing out Greece is only a short-term fix. So is a 50% default on its debts. It will get it through a few weeks or months but then it will have to come back for more money. In the medium term Greece will need to exit the euro, along with Portugal, and perhaps Spain and Italy as well. Again, it needn’t be a catastrophe for anyone. If you can create a monetary union, you can take it apart again. But there is no sign of anyone planning for that. The debate hasn’t even begun — and won’t until it is too late. All the politicians can suggest is throwing good money after bad — and not even very much good money at that. It is hardly surprising neither their electorates nor the bond markets are convinced.
In reality, the Greek default is going to be ugly. Every kind of asset you can think of is going to get hit. With the possible exception of cash buried in the back garden, there will be no safe havens (and even then, make sure it is the right kind of cash). Equities will take the worst pain, but corporate bonds will slump, so will commodity prices, and emerging markets which are already getting caught up in the storm. Even gold will weaken. Only the dollar may strengthen as money flees for safety.
Maybe Markozy can come up with something at the last moment to stave off disaster. But do you really want your portfolio to be at the mercy of that remote possibility? The answer is certainly no.
Matthew Lynn is chief executive of Strategy Economics, a London-based consultancy. His most recent book is ‘Bust: Greece, The Euro and The Sovereign Debt Crisis’



- "La cause de la crise ? Le court-termisme !"

Pour le philosophe Bernard Stiegler, la crise financière mondiale a révélé l'incapacité de nos dirigeants à penser sur le long-terme. Selon lui, ce court-termisme symbolise l’ère du consumérisme et d'une démocratie quasi-moribonde.

Le problème central de la crise, c’est à dire sa cause, est précisément le court-termisme.
Atlantico : La crise financière, de l'euro, de la dette... Autant de problèmes auxquels les décideurs n'ont pas été capables pour l'instant d'apporter de solutions à long terme. En quoi la crise révèle-t-elle une tendance court-termiste chez nos dirigeants ?
Bernard Stiegler : Le problème central de la crise, c’est à dire sa cause, est précisément le court-termisme. Or, au lieu de se projeter sur un autre plan, les dirigeants politiques et économiques aggravent cette « inflation court-termiste ». Ils pensent essentiellement à être réélus ou à préserver leurs parts de marché, mais ils aggravent la situation en persistant ainsi dans le court-termisme. C’est malheureusement toujours le cas en période de crise : cela rend les gens idiots, tout simplement. La peur d’être viré par ses actionnaires, la peur de ne pas être réélu, la peur d’être mal évalué par l’ANR (Agence nationale de la recherche), la lâcheté généralisée sont autant de raisons qui peuvent renforcer et aggraver le court-termisme structurel à quoi le consumérisme nous a conduits.
Quatre ans après le début de la crise économique, la situation est bien pire… le monde entier est au bord de l’effondrement. Ce n’est pas une situation qui peut durer très longtemps : cela va conduire certains hommes politiques et décideurs économiques à changer d’avis sur la question. Certains, des dirigeants très haut placés, le savent déjà et me l’ont fait savoir…

La transition d’une vision court-termiste à une vision de long-terme est-elle possible en temps de crise ?
Pour aller vers le long-terme, il faut passer par le court-terme. Dans une période comme celle-ci, où il y a des divergences majeures entre les intérêts du court-terme et ceux du long-terme, il faut trouver le “chemin critique”. Il faut avoir le courage d’expliquer aux gens la situation, leur dire : « Nous savons que vous avez besoin de travailler, de manger, etc.; mais, en même temps, vous savez aussi bien que nous que cela ne peut plus fonctionner durablement sur les bases actuelles. »
Il ne faut surtout pas les prendre pour des imbéciles : ils comprennent beaucoup mieux que ce que l’on imagine. Il faut être clair et dire à la fois ce que l’on va faire demain matin, ce que l’on imagine possible de faire dans dix ans, dans vingt ans, et ce que l’on propose de faire dans ces laps de temps.

Alors pourquoi les dirigeants politiques et économiques ne mettent pas en œuvre de telles propositions ?
Aujourd’hui, il y a très peu de gens qui ont le courage de le faire : ils ne se posent même pas la question. Les hommes politiques ont peur des électeurs, de leur soi-disant bêtise, alors que ce sont eux qui sont devenus bêtes : ils ont renoncé à penser, à se poser des questions, à imaginer et vouloir un autre monde, bien qu’il y ait d’immenses possibilités de transformer la situation. Les électeurs sont à l’image des solutions qu’on leur propose. Si les propositions sont débiles, les électeurs seront débiles. Aujourd’hui, nous n’avons que des propositions débiles.
Sur le plan économique, dans tous les secteurs, on retrouve le même problème. Un actionnaire représente des intérêts intrinsèquement court-termistes. Depuis qu’ils peuvent se retirer quand ils veulent d’une entreprise, les shareholders ont adopté un comportement de pirate. Du coup, les patrons d’entreprises, qui sont évalués par les actionnaires, n’osent pas s’élever contre ce système, même quand ils savent qu’il conduit à la catastrophe. Certains me l’ont dit, mais ils ne le diront jamais publiquement, ils craignent d’être remerciés.

La mise en place du quinquennat en 2000 a-t-elle contribué à cette tendance court-termiste de nos dirigeants politiques ?
Je ne pense pas que le quinquennat soit un problème. Un septennat, ce n’est guère plus que deux ans supplémentaires : ce n’est pas cela qui va changer la donne. Au contraire, ce qui serait bien, ce serait que le président de la République ne puisse être élu plus d’une fois. Cela l’obligerait à préparer sa relève un petit plus intelligemment, et à ne pas « délirer » comme le fait Nicolas Sarkozy aujourd’hui, anéantissant son propre camp.
Je pense que le présidentialisme est une catastrophe. Il faut reconstruire un parlement fort. Pour cela, il faudrait d’abord reconstruire un débat public. Et pour reconstruire un débat public, il faudrait en finir avec les partis/PME. Que ce soit à l’UMP, au PS, au FN ou au PC, tous semblent gérer leurs partis dans l’intérêt de leurs salariés : les professionnels de la politique qui ont tué la politique. Ils ne proposent à leur élus, députés et autres sénateurs du parti qu’une stratégie pour garantir leur emploi ou trouver un point de chute s’ils viennent à perdre leurs sièges.
Quelles solutions préconisez-vous alors pour sortir de ce court-termisme ambiant?
Le problème est la mort de la démocratie. L’idée que nous sommes aujourd’hui en démocratie est une illusion . Quand Jacques Rancière dit qu’il faut protéger la démocratie contre ceux qui la haïssent, il ne comprend rien : lui-même protège quelque chose qui n’est pas la démocratie. La haine de la démocratie, c’est la démocratie elle-même qui l’a suscitée lorsque, phagocytée par le consumérisme, elle a transformé le citoyen en consommateur. Aujourd’hui il n’y a plus de citoyens. A partir de là, il n’y a plus de débat digne de ce nom à l’Assemblée nationale. C’est ce qui nous a conduit à un présidentialisme néo-monarchique digne d’une république bananière qui nous ridiculise face au monde (comme l’Italie avec Berlusconi et les Etats-Unis à l’époque de Bush junior, car la tendance est mondiale).
Il faudrait inventer une véritable vie politique, une véritable vie démocratique. Mais c’est la responsabilité des citoyens, des militants. Il faut que les militants arrêtent de seulement “s’indigner”. C’est peut-être bien de s’indigner, mais ce n’est pas suffisant. Il faut qu’Edgar Morin et Stéphane Hessel arrêtent de dire qu’il faut refaire le programme du Conseil national de la résistance de 1944… Nous ne sommes pas en 1944, mais en 2011. Ils feraient mieux de se pencher sur le sens du succès des Jeunes Pirates à Berlin. Il faut que ces gens se remettent à réfléchir, travailler, penser, au lieu de répéter toujours les mêmes choses. Il ne s’agit pas de reconstruire la France après l’occupation Nazi : il s’agit de reconstruire la France après sa destruction par Valéry Giscard d’Estaing, François Mitterrand, Jacques Chirac et Nicolas Sarkozy.
D’ailleurs, les politiciens et les décideurs en général feraient bien d’y réfléchir pour leur intérêt le plus immédiat. L’exaspération ne cesse de croître, et pas seulement du côté des “protestataires” traditionnels : il se pourrait que les peuples demandent des comptes à des Ben Ali européens, pas seulement pour le Karachigate ou l’affaire Servier, mais pour tout ce qui apparaît de plus en plus comme une immense incurie des pouvoirs sous toutes leurs formes.



- Quand les économistes plaident pour effacer la dette de la Grèce


"Les créanciers devraient renoncer environ à la moitié de la valeur nominale de leurs obligations grecques", estiment mardi dans une tribune des conseillers politiques français et allemands.
Il faut permettre à la Grèce d'effacer la moitié de sa dette et dans le même tempsapporter un soutien supplémentaire aux banques qui l'ont financée, estiment, mardi 27 septembre, dans une tribune, des conseillers politiques français et allemands. Les décisions prises le 21 juillet dernier pour maîtriser la crise de la dette grecque ne sont pas suffisantes, juge dans le Financial Times Deutschland un groupe comprenant un comité de "sages" économiques allemands, un conseiller au gouvernement français et un responsable de la revue économique du Fonds monétaire international (FMI). "Les créanciers devraient renoncer environ à la moitié de la valeur nominale de leurs obligations grecques, écrivent-ils. Alors il serait possible pour la Grèce de ramener son endettement à un niveau viable par ses propres moyens."
L'INTÉRÊT DE L'ALLEMAGNE
Les dirigeants de la zone euro sont convenus le 21 juillet d'une décote de 21 % sur les obligations grecques par un échange de dette, donnant à Athènes plus de temps pour rembourser ses emprunts. Mais de nombreux intervenants jugent toujours inévitable un défaut plus étendu d'Athènes sur sa dette. Les auteurs de la tribune du Financial Times Deutschland demandent qu'il soit possible pour les banques d'échanger des titres grecs contre des obligations émises par le Fonds européen de stabilité financière (FESF), afin de garantir le bon déroulement du processus de restructuration.
"En outre, les banques détenant de larges montants d'obligations souveraines grecques ont besoin d'un soutien particulier", lit-on dans la tribune. "Ceci est particulièrement vrai pour les banques grecques." Les actions des banques grecques ont chuté lundi de plus de 6 %, à un plus bas de dix-neuf ans, après des informations de presse signalant une décote plus importante que prévu sur la dette d'Athènes, et malgré le démenti du gouvernement grec.
"En tant que nation exportatrice, nous avons particulièrement besoin d'une monnaie commune stable. La croissance à venir et de nombreux emplois en dépendent, ici même en Allemagne", affirme mardi au quotidien populaire Bild le ministre de l'économie, Philipp Rösler, du parti libéral FDP, qui compte de nombreux opposants au sauvetage de la Grèce. Les entreprises sont sur la même longueur d'onde. "Un effondrement de la zone euro sera bien plus coûteux que son sauvetage", a ainsi mis en garde le patron du groupe Bosch, Franz Fehrenbach, l'un des plus grands groupes allemands, dans le Handelsblatt. "Cela entraînerait une grave crise économique et des conséquences incalculables sur les marché financiers", ajoute-t-il.






- [The World from Berlin -
Obama's Euro-Crisis Lecture Is 'Pitiful and Sad' -
Obama slammed the Europeans at an event in Mountain View, California on Monday.->http://www.spiegel.de/international/world/0,1518,788807,00.html]


Obama slammed the Europeans at an event in Mountain View, California on Monday.
US President Obama has given the Europeans a harsh lecture on the dangers of their ongoing debt crisis. Offended by the unsolicited advice, Europeans have suggested the US get its own house in order first. Obama's remarks were "arrogant" and "absurd," German commentators say on Wednesday.
Info
Europeans are well aware of the seriousness of their ongoing debt crisis. But they don't, it seems, like to receive lectures from other countries -- especially the United States, which is struggling to deal with its own mountain of debt.

On Tuesday, German Finance Minister Wolfgang Schäuble curtly rejected recent American criticism of Europe's approach to solving its debt crisis. "I don't think Europe's problems are America's only problems," said Schäuble, who has becomeincreasingly sharp-tongued as the euro crisis deepens. "It's always easier to give other people advice."

Schäuble was referring to strongly worded comments made by US President Barack Obama and US Treasury Secretary Timothy Geithner in recent days. At an event in California on Monday, Obama warned Europeans that their inaction was "scaring the world." The Europeans, he said, "have not fully healed from the crisis back in 2007 and never fully dealt with all the challenges that their banking system faced. It's now being compounded by what's happening in Greece." He continued: "They're going through a financial crisis that is scaring the world, and they're trying to take responsible actions, but those actions haven't been quite as quick as they need to be."
Distracting From Problems at Home
Those comments came hot on the heels of Geithner's remarks over the weekend. Speaking in Washington Saturday at the annual meeting of the International Monetary Fund and the World Bank, Geithner warned that the European debt crisis represents "the most serious risk now confronting the world economy." He said Europeans needed to do more to create a "firewall" against further contagion and talked of the threat of "cascading default" and runs on banks. "Decisions as to how to conclusively address the region's problems cannot wait until the crisis gets more severe," he said.

German observers have reacted angrily to the comments, saying that the US is in no position to criticize other countries, given its own $14-trillion pile of national debt and ongoing wrangling over the country's debt ceiling. Others claim that Obama is just trying to distract attention from the US's problems and point out that the US president was in California to raise funds and voter support ahead of his reelection campaign next year.

But perhaps the Europeans simply don't like a taste of their own medicine. When a US default was looming back in July when Congress was unable to agree on raising the debt ceiling, European commentators were quick to weigh in and give Obama and the US unsolicited advice. "The global economy needs an American agreement," said a French government minister at the time.
On Wednesday, German media commentators slam Obama's criticism of Europe.
The mass-circulation Bild writes:
"Obama's lecture on the euro crisis … is overbearing, arrogant and absurd. … In a nutshell, he is claiming that Europe is to blame for the current financial crisis, which is 'scaring the world.' Excuse me?"
"The American president seems to have forgotten a few details. The most important trigger of the financial and economic crisis was US banks and their insane real-estate dealings. The US is still piling up debt … The American congress is crippled by a battle between the right and the left. The banks are gambling just as recklessly as they did before the crisis. The president's scolding is a pathetic attempt to distract attention from his own failures. How embarrassing."
The center-left Süddeutsche Zeitung writes:
"One needs to remember the context within which Obama's scolding of the Europeans took place. It was an event where the president was raising money for the Democrats and where he wanted to explain to voters why the US economy is much worse off than he and his economic experts had believed until recently. Hence his criticism of the EU was simple electioneering."
"The problem, however, is that the US president is absolutely right. For far too long, the Europeans -- including the Germans -- treated the financial crisis as a purely American problem. They have still found no solution for their own debt crisis. Now Europe's problems are having a negative impact on growth and jobs around the world, including in the US. It would not be an exaggeration to say that Europe is threatening Obama's already precarious chances of reelection in 2012. That is something that surely does not leave Obama cold. In that respect, it doesn't help much to point out that, once the Europeans have got their house in order, the financial markets will return their attention to America's debt crisis and its ailing political system. Financially, Europe is currently the most dangerous place in the world."
The center-right Frankfurter Allgemeine Zeitung writes:
"Dark clouds have gathered over the American president. The gloomy state of the economy is putting a dampener on Obama's future prospects. The optimism of the past is gone, replaced by a cheap search for a scapegoat."
"Obama thinks he has found one. He blames the Europeans for reacting too late to the debt crisis. We Europeans are apparently taking on too little new debt to get out of the crisis. But we are already feeling the wonderful effects of borrowing too much money."
The financial daily Handelsblatt writes:

"That's not how friends talk to each other. That applies particularly to friends who have themselves failed to get a handle on their own, self-made crisis. Barack Obama governs a country where, despite billions in state aid, the economy is stagnating, companies refuse to invest despite calls for patriotism, and which gets embroiled in one political trench war after another … Now this country is dispensing advice, suggestions and finger-pointing."

"These are suggestions that have already failed to work in the US: Money is supposed to save Europe -- quickly and in the largest quantities possible. US Secretary of Treasury Timothy Geithner has been trying for more than two-and-a-half years to suffocate his crisis with money. But aside from the lack of success, the collateral damage is immense. It manifests itself in a loss of government credibility, a loss of trust in the currency and the paralysis of any sort of dynamism -- because the crushing debt mountain is robbing the famously optimistic Americans of their confidence."
"The fact that Barack Obama, who is a brilliant thinker, knows full well that things are much more complicated in reality does not help. Indeed, it does the opposite. In the desperate battle for his re-election he'd rather construct myths, such as claiming that the Europeans alone are responsible for the American mess. Not only is this fundamentally wrong, but -- coming as it does from a friend -- it's downright pitiful and sad."


- U.S. on "knife edge" of contraction: Fed economist



By Jim Forsyth
SAN ANTONIO | Tue Sep 27, 2011 11:15am EDT
(Reuters) - The U.S. economy is on a 'knife edge' between growth and contraction and monetary policy tweaks do not seem to be helping, the Dallas Federal Reserve's top economist said on Tuesday.
The U.S. jobs engine has lost momentum and could be set for further "backtracking," Dallas Fed chief economist Harvey Rosenblum told a forum sponsored by the greater San Antonio Chamber of Commerce. Meanwhile, he said, there is also a "credible" risk of rising inflation.
"We are in the midst of the Second Great Contraction," Rosenblum said, demonstrating the economy's predicament with a picture of a place on the Appalachian Trail known as "Knife's Edge."
"Economic growth has slowed; it may have stalled," he said. "The patient isn't responding well to the medicine."
The grim assessment of the economic outlook came a week after a majority of the Fed's policy-setting panel backed further monetary policy easing to help support a faltering U.S. recovery.
Dallas Fed President Richard Fisher was one of three policymakers to dissent.
Fisher is due to explain the reasoning behind his objections in a speech in Dallas on Tuesday.
In San Antonio, Rosenblum said that there is a better than even chance the United States will return to more than 2 percent growth. But he said that if he had to guess whether the economy was more likely to get worse in the future than expected, or better, the answer would be worse.




- More Gloom Lies Ahead for Cities, Report Says

By MICHAEL COOPER

Nearly a third of the nation’s cities are laying off workers this year. More than half have canceled or delayed infrastructure projects. And two out of five have raised their fees.
The catalog of service cuts and fee increases comes as America’s cities are bracing for what they expect will be their fifth straight year of declining revenues, according to a survey of city finance officers to be released on Tuesday by the National League of Cities.
One of the main culprits is the property tax, which many cities and local governments rely on heavily. Property tax collections, which are usually quite resilient, are projected to fall by 3.7 percent this year — their second year in a row of declines — as tax assessments belatedly catch up with the lower property values left behind by the battered real estate market. Sales tax collections are projected to be slightly higher this year, but income tax collections are projected to be slightly lower, as unemployment and lower wages take their toll in many places.
“For cities, the collective impact of property values continuing at levels far below their 2007 peaks, consumer spending slowing, consumer confidence eroding and markets possibly entering a double-dip recession is the worst since the Great Depression,” according to the survey, a copy of which was obtained by The New York Times. The report raises the possibility that “lower property values and declining sales may portend something entirely new, a ‘new normal.’ ”
In what passes for a bright spot in an overwhelmingly gloomy report, the number of city finance officers who said their cities would be less able to meet their fiscal needs has dropped. This year 57 percent of the 272 finance officers surveyed said their cities would be less able to meet their needs than they were last year. In 2010, 87 percent said so. But the number was still high this year when it came to cities that rely heavily on property taxes: nearly three quarters said they were less able to meet their needs.
One of the report’s authors, Christopher W. Hoene, said many cities were still unsure if the worst was over. “The question is, are we going into the low point or are we emerging out of it?” said Mr. Hoene, director of the Center for Research and Innovation at the league of cities. “Right now, in the early fall of 2011, the answer to that question is unclear.”
Cities have been unable to look for help in some of the traditional places. Half of the cities reported that their state aid has been cut since 2009, as states struggled to balance their own budgets.
So many cities have resorted to service cuts. Two in five report cutting things like libraries and parks and recreation programs. Nearly a fifth are making cuts to public safety. Nearly three-quarters are cutting their personnel costs through hiring freezes, wage freezes or reductions, layoffs or reduced health benefits for their workers.
In recent days mayors from both parties have gone to Washington to speak in support of President Obama’s proposal to increase infrastructure spending and give more aid to states and cities, but the proposal is still deeply unpopular with Republicans in Congress.
With cities and states required to balance their budgets, city officials see the federal government as the one entity that can spend more money now to get them through the lingering downturn. The survey finds that the outlook for cities next year was not much brighter. “The effects of depressed real estate markets, low levels of consumer confidence and high levels of unemployment,” the report said, “will continue to play out in cities through 2011, 2012 and beyond.”


- [Concert de voix discordantes en zone euro -
Les uns envisagent de renflouer le Fonds de secours, les autres s'y refusent->http://www.ledevoir.com/economie/actualites-economiques/332250/concert-de-voix-discordantes-en-zone-euro]


Bruxelles — La zone euro a une nouvelle fois étalé hier ses dissensions sur la réponse à apporter à la crise de la dette et sur les moyens de muscler son Fonds de secours (FESF), alors que les discussions sur le versement d'un nouveau prêt international à la Grèce traînent en longueur.
Face à des rumeurs de presse évoquant un renflouement massif de cet instrument d'aide aux pays en difficulté, Berlin a adressé une fin de non-recevoir. «Nous lui donnons les instruments pour qu'il puisse agir en cas de besoin, après nous allons l'utiliser efficacement, mais nous n'avons pas l'intention de le renflouer», a déclaré le ministre allemand des Finances, Wolfgang Schäuble.
Plus tôt, le porte-parole du commissaire européen aux Affaires économiques, Olli Rehn, avait pourtant évoqué cette éventualité. «L'augmentation des moyens (du FESF) fait partie des discussions», avait reconnu Amadeu Altafaj.
Doté d'une capacité effective de prêts de 440 milliards d'euros, le Fonds créé en 2010 n'a pas les reins assez solides pour venir en aide à l'Italie ou l'Espagne, aujourd'hui menacées par la crise de la dette.
Si augmenter sa capacité de prêts semble quasiment impossible à mettre en place, au vu des réticences de certains, dont l'Allemagne, d'autres options sont à l'étude pour renforcer sa force de frappe. «Nous réfléchissons à la possibilité de doter le Fonds de soutien européen (FESF) d'un effet de levier plus important pour lui conférer plus de force», a déclaré Olli Rehn, dans un entretien hier au quotidien allemand Die Welt.
«Si on trouve des formules techniques permettant d'augmenter l'efficacité du FESF tout en restant dans le cadre de l'accord du 21 juillet [qui a renforcé les pouvoirs du Fonds] pourquoi pas? Mais si cela nous fait sortir du cadre de l'accord, pas question», a confié une source diplomatique européenne.
L'idée d'augmenter la puissance de feu du FESF est fortement suggérée par les États-Unis, de plus en plus impatients devant les atermoiements européens. Le secrétaire américain au Trésor, Timothy Geithner, a réitéré ses appels du pied à l'occasion des réunions du FMI et du G20 à Washington le week-end dernier.
Piste évoquée: accorder une licence de banque traditionnelle au FESF. Il pourrait alors emprunter de l'argent frais auprès de la Banque centrale européenne (BCE) pour ensuite aider des pays en difficulté, dont il rachète la dette sur le marché obligataire dit «secondaire», où s'échangent les titres déjà en circulation.
En garantie des emprunts auprès de la BCE, le Fonds fournirait justement de la dette publique de ces pays fragiles rachetés sur le marché.
Cette hypothèse n'est pas sans poser de problème. Cela reviendrait à transformer la BCE en «bad bank», ou structure de défaisance pour obligations dépréciées, et constituerait un pas vers une mutualisation des pertes des États, ce que Berlin refuse catégoriquement.
Dans l'immédiat, l'Allemagne et la France jugent qu'il faut d'abord entériner l'accord de juillet, un processus qui ne devrait pas être achevé avant la mi-octobre. Trois pays doivent se prononcer cette semaine, notamment l'Allemagne qui est le premier contributeur aux plans d'aide en Europe.
Autre urgence: le colmatage de la Grèce. Athènes attend toujours le retour promis cette semaine des chefs de mission de la troïka de ses principaux bailleurs de fonds (UE, BCE et FMI).


- Merkel: «mauvaise idée de combattre les dettes par des dettes»


La chancelière allemande Angela Merkel a répété mardi son opposition à de nouveaux plans de relance pour contrer le ralentissement de l'économie mondiale, jugeant que c'était «une mauvaise idée de combattre les dettes avec de nouvelles dettes».
Les États-Unis ont appelé à plusieurs reprises déjà les Européens à stimuler leur économie, mais l'Allemagne notamment y est fermement opposée, mettant en avant la nécessité de redresser les finances publiques.
«Nous ne voulons pas de nouveaux programmes de conjoncture», a-t-elle asséné.
«L'un des programmes de conjoncture les moins coûteux serait de boucler le cycle de Doha», a aussi dit la chancelière, en référence aux négociations entamées il y a plus de dix ans par les pays de l'Organisation mondiale du commerce (OMC) sur les prochaines étapes de la libéralisation des échanges mondiaux. Les discussions sont au point mort depuis plusieurs années.
Les importants déficits et l'endettement de certains pays, notamment au sein de la zone euro, mais aussi des États-Unis, sont la source même de la crise actuelle, que la chancelière a qualifiée de «troisième phase» de la crise d'abord financière puis économique qui a démarré en 2008.
«Ce n'est pas une crise de l'euro, c'est une crise de la dette», a-t-elle martelé, devant un parterre d'industriels allemands. Le seul moyen de la combattre est de prendre le problème «à la racine», en remettant en ordre les finances publiques et les économies des pays concernés, a-t-elle dit.
«La façon de mener l'économie doit profondément changer», a-t-elle enjoint.
À cet égard Mme Merkel a exprimé son «respect absolu» pour la Grèce qui s'est lancée dans un ambitieux programme de réformes pour empêcher la faillite qui la menace. Le premier ministre grec Georges Papandréou s'était adressé lui aussi aux industriels allemands un peu plus tôt, et doit dîner avec son homologue allemande à la chancellerie dans la soirée.
La semaine est cruciale pour le sort du pays. Athènes a fait lundi de nouvelles promesses de réformes et d'accélération des privatisations, alors que les experts de la «troïka» (Banque centrale européenne, Fonds monétaire international, Commission européenne) chargée d'évaluer les progrès des réformes grecques doivent reprendre leur travail dans les prochains jours.
De leur avis dépendra le versement le mois prochain d'une sixième tranche d'aide consentie au pays par ses partenaires et le FMI, et sans lequel il ne pourrait plus faire face à ses échéances.




- [The World from Berlin - 'Sarkozy Has Lost the Heart of France' -
French President Sarkozy's popularity continues to slide.->http://www.spiegel.de/international/europe/0,1518,788608,00.html]


French President Sarkozy's popularity continues to slide.
French President Sarkozy suffered a stinging defeat this weekend, losing his majority in the upper house of parliament. The loss of the previously unbeatable conservative stronghold should be a stern warning for Sarkozy to re-examine his policy, German commentators say on Tuesday.
Info
For more than half a century, the French Senate has been dominated by conservatives. That reign, though, has now come to an end. On Sunday, control of the body, which serves as France's upper house of parliament, was handed to the Socialists for the first time since 1958, an election result which reflects widespread discontent with President Nicolas Sarkozy and his conservative Union for a Popular Movement (UMP).
Some 177 of the 348 Senate seats were up for vote on Sunday. The body is elected by 150,000 officials from throughout France.
Sarkozy's popularity has been sinking steadily amid economic uncertainty sparked by unemployment, slow growth and a huge budget deficit -- not to mention an ongoing corruption scandal recently linked to some of his aides. Though the UMP still maintains an edge in the National Assembly, the embarrassing loss of support in the upper house not only threatens the progress of Sarkozy's 2012 budget bill and a plan to insert a debt brake into the French constitution, but also casts doubt on his chances for re-election in presidential elections next spring.
"This clearly weakens Sarkozy. He was working to try and win back public opinion and this has undermined any progress there. It will handicap him," analyst Francois Miquet-Marty at Viavoice pollsters told news agency Reuters. "It raises doubts over whether he should even be the UMP's candidate next year."
Working on His Image
Even Sarkozy's grandstanding over the NATO victory in Libya and his unilateral efforts to rekindle Middle East peace negotiations before the United Nations have not helped him regain lost ground among the French. Economic concerns back home are too great, and opinion polls show the Socialist Party -- still licking its wounds after a sex scandal brought down their great hope Dominique Strauss Kahn -- would win a presidential race if it were held today.
Sarkozy is also at the mercy of ongoing efforts to prop up the euro. Both he and German Chancellor Angela Merkel have much at stake as euro-zone parliaments consider a plan to enlarge the bailout fund, the European Financial Stability Fund (EFSF) this month and next. France has already passed the bill and German lawmakers are set to vote on it on Thursday in a highly anticipated parliamentary session.
On Tuesday, German commentators weighed in, with many saying the French president should look at the election defeat as a clear warning.
Center-left daily Süddeutsche Zeitung writes:
"The election results show a dramatic shift in France: President Sarkozy has lost the heart of France.... Sarkozy can continue laboring on the international stage, freeing Libya, stirring up Middle Eastern policy and together with Angela Merkel, trying to save the euro -- none of that will do any good.... The man in Élysée Palace must ask himself what happened to all the political capital he possessed in 2007. Back then Sarkozy won not only the presidential election, but he also had a clear majority in both houses of parliament. He dominated the Gaullists and inspired great hope with his promise to modernize France."
"Right now it looks like the Socialists will win both the presidential and National Assembly elections. They would then have greater power in France than even (former Socialist President Francois) Mitterrand.... Still Sarkozy's fate must be a warning to the leftists against being too arrogant. The French could quickly withdraw their favor again -- and France will remain conservative at heart."
The left-leaning daily Die Tageszeitung writes:
"The left now has seven months to test out just how much clout the Senate has when it comes to blocking the president. The temptation to trip up Sarkozy at every chance is great."
"But systematic obstruction could quickly prove to be counterproductive for the left-wing opposition. If the new Senate majority is not in a position to make its own constructive suggestions, they are only helping the unpopular leader save face. Then he will simply say that his plans were sabotaged."
"If the Socialists think they can just sit back without positioning themselves personally, strategically and programmatically, then Sarkozy has nothing to be afraid of."
Berlin daily Die Tagesspiegel writes:
"The fact that the Socialists now have a majority (in the Senate) is not only interesting because it demonstrates an historical move to the left in France. The election debacle also means that Sarkozy must now bury every plan that he championed ... through August -- including the introduction of a debt brake based on the German model. With the Senate majority, the Socialists could also force corrections to the budget for the coming year, which Sarkozy had actually hoped to cut by some €11 billion. For Sarkozy it could become difficult to present himself to voters as a strongman who can continue governing in a cavalier manner."
The conservative daily Die Welt writes:
"The conservatives' historic Senate election loss is a slap in the face for Sarkozy.... Since Sarkozy was elected in 2007, the conservatives have lost every election, with the exception of the European Parliament election."
"Above all, the election result is a signal of country-wide irritation with Sarkozy.... If Sarkozy thought he could change this trend through foreign policy actionism, he was deceived. Neither the Libyan war nor his fervent proposals for a quick resolution to the Middle East conflict at the United Nations were able to perceptively increase his popularity. And now he has the problem that his last big project -- anchoring a debt brake in the constitution -- can't be passed because of the new majority in the Senate. If the president can't manage to convince his countrymen that he the best person to lead them through the crisis, then France will be governed by a Socialist come May 2012."
--Kristen Allen


- 'Made in Washington’ Plan For EU ‘Too Little, Too Late’?


The latest proposal aimed at amping up the European bailout found as "Made in Washington" stamped all over it, according to one economist.
Stephen Lewis, chief economist at Monument Securities, said that with rich European Union governments like Germany unable to sell their voters on the idea of more bailout funds for Greece or the banks, the latest proposal to use leverage to increase the European Financial Stability Fund has a distinctly American ring to it.
“If it is accepted that massive expansion of the EFSF through contributions by member-states is a non-starter on account of the near-impossibility of gaining parliamentary approval for such an approach, then the EFSF would need to have recourse to leverage,” Lewis said in a research note.
On Monday CNBC reported that EU officials are considering providing seed money for a special purpose vehicle that would be able to issue bonds and buy up euro zone sovereign debt.
Sources told CNBC of as much as an 8-to-1 leverage ratio, depending on how much capital comes from the EFSF.
“It is because (the Americans) do not recognize the limits of what may be politically possible in Europe, that they consistently underestimate the seriousness of the euro threat to global stability,” Lewis said.
“Even now, they seem to believe that introducing more leverage into the euro-based financial system will solve the severe problems of zone-wide economic imbalance that have developed under the toxic euro regime.” Believing a finite fund, however large, will simply stave off catastrophe for a while, Lewis believes the only real solution to the crisis is a European —rather than an American — solution.
“If the euro is to be defused as a source of global economic disruption, it will only be if the zone’s member-states are willing to afford each other open-ended fiscal support,” he said.
Such an outcome is highly controversial in Europe and seen by many as fiscal union via the backdoor.
“US policymakers, who are so loud in their support of democratic rights in other parts of the world, might find they have to make an exception for the euro zone, if they are to preserve a semblance of order in the Western financial system.” Lewis said.
Plans for levering the EFSF are already well advanced, sources said.
How the EFSF is leveraged higher is likely to be hotly debated in the coming days, and Lewis worries about the legal ramifications of the European Central Bank lending to the EFSF in order to by-pass national governments and voters, given the quasi-fiscal role the central bank would then play.
“To suppose that these matters will be ironed out in time for the G20 meeting in Cannes is, to say the least, highly optimistic,” said Lewis, adding that by the time it is agreed upon, it could already be overtaken by events.
“Even if the ratification of this package is completed, which seems highly likely though not a foregone conclusion, it is liable now to appear as ‘too little, too late,’” he said.
Officials in the United States have become increasingly frustrated with the EU as the debt crisis has rumbled on, but Lewis believes this is due to a lack of understanding of the practicalities facing EU lawmakers.



- Investors depart stock market in crisis of confidence

By Martha C. White
Investors are telling the stock market, "We're just not that into you."
From June through August, $104 billion was withdrawn from equity funds worldwide, and investment in U.S. equity funds dropped by $61.3 billion during the same time period, according to Emerging Portfolio Fund Research Inc. For the past four weeks ending Sept. 14, investors pulled $6.4 billion out of long-term U.S. equity mutual funds, according to the Investment Company Institute.
"This is a particularly hard moment to get a fix on things because there's an unusual number of wild cards out there," says Cameron Brandt, director of research at EPFR. Individual investors and fund managers have concluded that sitting on the sidelines is better than trying to play when the rules of the game are in flux.
The drumbeat of bad news about the U.S. economy — high unemployment, soft manufacturing and a stagnant housing market — is a big reason, as is fear of a contagious eurozone crisis. Our own political leaders aren't helping, either. The protracted wrangling over the debt ceiling shook confidence in lawmakers' ability to come up with solutions to our economic problems. Now the prospect of a showdown between members of the deficit "supercommittee" have investors bracing for more volatility.
Joe Saluzzi, co-head of equity trading at Themis Trading, says Federal Reserve policy intended to bolster the economy may also be contributing to investors' aversion to the stock market. "The Fed thinks if you get the equities market higher that will build confidence and people will spend," but two rounds of so-called quantitative easing may have had the unintended consequence of skewing stock values, which has kept value investors on the bench.
Pervasive market volatility along with events like the so-called "flash crash" in May 2010, in which the Dow Jones industrial average plummeted around 1,000 points in minutes before recovering, also have made investors gun-shy, Saluzzi says.
Where's the money going?
Short-term Treasuries are the default option for investors who want to park their money somewhere safe. EPFR's Brandt says emerging market bond funds have picked up some of the falloff. German equities have also benefited, on the grounds that all of those emerging markets are clamoring to buy the kinds of things that German factories export — exports that are now cheaper, thanks to a lower euro.
Investors also are gravitating towards funds that specialize in dividend-paying stocks, a reflection of long-term pessimism. "Dividend-paying stocks by their nature are somewhat conservative investments," Brandt says.
Analysts are most alarmed by the prospect that some of this "lost" money is simply being spent by Americans who have exhausted all of their other sources of income, effectively cannibalizing their future wealth-building potential. "Are they pulling money out of a 401(k) because they're unemployed and they need to live?" suggests Saluzzi.
"That is definitely a factor," Brandt says.



- Familiar refrain: Wall Street protest lacks leaders, clear message

John W. Schoen / msnbc.com
Several hundred protestors have vowed to remain in lower Manhattan
By John W. Schoen, Senior Producer
It’s messy. It’s disorganized. At times, the message is all but incoherent.
All of which makes Occupy Wall Street, the loosely organized protest in lower Manhattan now in its second week, a lot like the rest of the current American political discourse.
"It's democracy - real democracy," said Micah Chamberlain, 23, from Columbus, Ohio, who sat behind a makeshift table where organizers maintain a schedule of daily events. “It’s slow and it's tedious and it's complicated, but everyone has a voice. No one’s voice gets marginalized.”
The organizing theme, such as it is, centers on the influence of large corporations in shaping government policy. Many here blame the paralysis in Washington on a campaign finance system run amok. In that sense, the Occupy Wall Street movement seeks to “take back the country” no less than its Tea Party counterparts on the other end of the political spectrum. The two movements (if that's what this is) also share a common sense of despair and disgust with the two-party system now gearing up for another election cycle.
Like the Tea Party, the origins of Occupy Wall Street are a bit murky. The idea for the protest apparently originated with a Vancouver-based magazine called Adbusters, which in a July 13 blog post called on a handful of unaffiliated groups to “flood into lower Manhattan, set up tents, kitchens, peaceful barricades and occupy Wall Street for a few months.” The purpose of the protest, according to the post, is to end “the influence money has over our representatives in Washington.”
On Sept. 17, hundreds of protesters heeded the call to Occupy Wall Street, though they've missed the target by a few blocks. Denied permanent access to pavement outside the New York Stock Exchange, the symbolic heart of capitalism at 11 Wall St., the group has fallen back to a space formerly known as Liberty Park. Sitting in the shadow of One World Trade Center, the skyscraper rising at Ground Zero formerly known as Freedom Tower, the three-quarter-acre rectangle of pavement, granite benches and tables is a carefully manicured urban landscape that includes a grove of honey locust trees illuminated nightly by hundreds of in-ground lights.
'Bad for business'
The New York Police Department, meanwhile, has set up a maze of barricades along the sidewalks for several blocks near the stock exchange itself, blocking street access and forcing pedestrians to make long detours. For Swili Rally, a newsstand operator across the street from the exchange, the barricades have killed foot traffic.
“This is usually a very busy time of day, but everything is blocked off,” he said. “These protesters are really bad for business.”
For most of the past ten days, the police made only a handful of arrests. But on Saturday, as protesters marched on nearby Union Square, police tried to corral demonstrators using waist-high lengths of orange plastic netting. Some 80 people were arrested, mostly on charges of blocking traffic, disorderly conduct and resisting arrest.
By Monday morning, the protester's weekend reinforcements were back at work and the ranks of hard core park occupiers had thinned. As the stock market opened, a parade of protesters, corralled by cops on motorcycles, wound through the barricade maze up Wall Street, waving signs, shouting slogans, blowing horns, banging drums and tambourines while tourists snapped pictures of loved-ones posing in front of the throng. The parade made its way back to the park, which has been transformed into a makeshift staging area, campground and media center where a few occupiers, huddled over laptops, maintain a live video stream of events on the Internet.
John W. Schoen / msnbc.com
Protestors in Zucotti Park in lower Manhattan are streaming coverage of the demonstration live over the Internet.
John W. Schoen / msnbc.com
Occupy Wall Street demonstrators marched in front of the New York Stock Exchange Monday through a tight maze of barricades set up by police.
So who are these people? Some are day-trippers from the suburbs and five boroughs. Others are out-of-towners staying in the relative comfort of a friend or family member's apartment. But many have come from all over the country to live in the park more or less full-time: sleeping on the ground, sharing a buffet of donated food and availing themselves of the facilities at a handful of nearby fast-food restaurant in a city famous for limited access to public rest rooms.
They’ll tell you, almost to a person, that they’re here for “as long as it takes.” But there’s far less consensus about just how they’ll measure the success of their occupation. Or know when it's time to leave.
“We haven’t quite gotten our unified message together,” said Chamberlain, who is taking a quarter off from studying political science at Ohio State University.
While the message may not be unified, there are common themes reflecting the harsh economic realities confronting a generation that came of age during the worst recession since the 1930s. Many of the people here were in middle school during the 2001 recession and entered high school about the time the housing market collapsed. If they made it to college, they were greeted by the Panic of 2008 and the deepest recession - and weakest economic recovery - in generations.
Unemployment is another unifying theme: a lot of people are here because they don’t have a job. While the unemployment rate for all U.S. workers stood at 9.1 percent in August, some 14.8 percent of those aged 20–to 24 were out of work.
“I used to a have great construction job, and (now) I can't find a job for more than $10 a hour,” said Brandon Szalay, 28, from Boulder, Colo. “I can pay my rent, but I can’t buy my groceries and I can’t pay my electric bill. It’s not good. I’ve got all sorts of skills, but they tell me I’m either overqualified or underqualified. “
Some here talk vaguely about the evils of “corporate greed." But most of the issues cited are familiar themes of progressive politics: the need for tighter regulation of the financial services industry; the devastating impact of the recession on middle class and poor households; a need to restore cuts in public services like education; the widening wealth gap; and the government’s apparently inequitable response to support bankers who made ruinous mortgage loans while all but abandoning homeowners facing foreclosure.
John W. Schoen / msnbc.com
The government's bailout of the banking industry is one of the common targets of the protest.
“People are hungry, we’ve got schools and hospitals closing, cops are getting laid off,” said Ed Delgado, 60, a former investigator with the Department of Housing and Urban Development. "Our corporations have a stranglehold over government. They are reaping all the benefits and not taking any of the responsibilities.”
Though the protesters are still working to hone their message, it’s apparently getting through to some observers, including Jim Farley, 45, a construction worker enjoying a break in the morning sunshine.
“God Bless them,” he said. "I’ve been a union guy for years. Corporations don’t care about workers like us. That’s the bottom line.”
The occupation of the park, renamed Zucottti Park in 2006, could prove problematic. The property is maintained by Brookfield Properties, a publicly traded corporation with more than $20 billion in assets, whose CEO, Richard Clark, earned $5.1 million last year, according to Forbes.com. Some protesters Monday said they had heard the company was getting ready to ask them to leave or otherwise impose restrictions on their activities.
In response to a request for comment, the company said Monday that the park “is intended for the use and enjoyment of the general public for passive recreation. We are extremely concerned with the conditions that have been created by those currently occupying the park and are actively working with the city of New York to address these conditions and restore the park to its intended purpose.”
Though the protesters are aware of the need for a more focused agenda, it is, at best, a work in progress. The current vehicle is a series of loosely organized meetings - called General Assemblies – designed to let anyone contribute to a list of the group’s goals, called Working Principals. But you’d be hard-pressed to find anyone here asserting leadership.
It’s a process that professional elected officials in Congress and the White House might find familiar.
“Consensus is a very time-consuming process, and that’s the problem were working on,” said Jesse Cooper Levy, 24, from Fairlawn, N.J. “It can be discouraging to people."



- Split Opens Over Greek Bailout Terms


By: Peter Spiegel in Brussels and Quentin Peel in Berlin, Financial Times
A split has opened in the eurozone over the terms of Greece’s second €109 billion bailout with as many as seven of the bloc’s 17 members arguing for private creditors to swallow a bigger writedown on their Greek bond holdings, according to senior European officials.
Euro
The divisions have emerged amid mounting concerns that Athens’ funding needs are much bigger than estimated just two months ago. They threaten to unpick a painfully negotiated deal reached with private sector bond holders in July.
While hardliners in Germany and the Netherlands are leading the calls for more losses to be imposed on the private sector, France and the European Central Bank are fiercely resisting any such move. They fear re-opening the bond deal could spark renewed selling of shares in European banks, which have significant holdings of Greek and other peripheral eurozone debt.
Shares in French banks have rallied in recent days following signs that eurozone officials are preparing to increase the financial firepower of the bloc’s €440 billion bailout fund, which could within months be able to inject capital into eurozone banks and purchase sovereign bonds.
On a visit to Berlin, George Papandreou, the Greek prime minister, urged Germans to recognise the "superhuman effort" his country was making to impose drastic austerity measures in a deepening recession. "I can guarantee that Greece will live up to all its commitments," he said.
Senior European said there was significant division over the move to re-open the bondholders’ deal, which could trigger a bigger and earlier restructuring of Greek debt. Even within Germany, officials are split over whether to press for a bigger "haircut" for private sector creditors.
"In Germany, there are the hardliners and there are the moderates," said one senior European official. "This is the hardliners’ stance."
Because of the recent economic downturn and Greece’s slow implementation of austerity measures, officials estimate Athens’ funding needs over the next three years have grown beyond the €172 billion forecast this summer. The scale of the shortfall will be determined by international lenders over the next few weeks.
Berlin has long wanted bondholders to make a bigger contribution to a new bail-out, a point reiterated publicly in recent days by Wolfgang Schäuble, Germany’s finance minister.
German insistence has recently intensified, according to people briefed on the talks. Eurozone finance ministers had originally hoped to sign off on the next aid tranche to Greece on Monday, but a decision is now expected to delay the next €8 billion payment until an emergency meeting in two weeks.
Berlin is expected to back the disbursement eventually. But a senior official said some German policymakers then want the banks to take a larger haircut on their bond holdings or renegotiate bond swaps, reflecting the sharp fall in Greek bond values since July.
Under the terms of the July bailout, bondholders agreed to trade about €135 billion in bonds that come due through 2020 for new, European Union-backed bonds that would not be repaid for decades. This deal implied a haircut of 21 percent for bondholders, but many German officials say they were forced to agree to a deal that was too beneficial for the banks.
On Tuesday, eurozone banks and German and French stock markets had their biggest gains since the first Greek bail-out was unveiled in May 2010.
France’s Société Générale surged 17 percent, BNP Paribas was up 14 percent and Crédit Agricole gained 13 percent while the broader eurozone bank sector increased 9 percent. BNP and SocGen shares have now risen by a third in the past three days.


- Europe Readies Plan for Tax on Financial Transactions


By: Stephen Castle

The European Commission is expected to unveil a detailed plan on Wednesday to create a financial transaction tax, despite the opposition of several member countries and a formal acknowledgement that it could have a significant negative impact on the European Union’s gross domestic product.
The plan, which has the strong support of France and Germany, will be discussed in a speech before the European Parliament in Strasbourg, France, by José Manuel Barroso, the president of the commission, the executive arm of the European Union.
The measure will probably include taxes on the purchase of stocks and bonds; derivatives are likely be taxed at a lower rate. Transactions on the currency markets are not likely to be included.
Critics are expected to highlight a formal study regarding the proposal’s economic effects.
‘‘With a tax rate of 0.1% the model shows a drop in G.D.P. (-1.76 percent) in the long run,’’ according to a draft of the plan.
One European Union official, who asked not to be identified because the proposal had yet not been published, said the actual effect would be less significant, because the assumptions used in the final proposal differed from those in an impact study.
He also suggested that the tax rate proposed on at least some transactions might be lower than 0.1 percent, and that the proposal would exempt the purchase of stocks and bonds when they are first issued. The impact study had assumed the tax applied to all transactions, he said.
Nevertheless, the proposal is highly divisive. France and Germany see it as a method of requiring the financial sector to provide compensation for some of the damage sustained in the economic crisis. They also think the tax can help deter more speculative transactions, which may provide little benefit to the real economy.
‘‘The basic idea is that taxes could improve financial sector stability and the functioning of the market,’’ the draft proposal says.
But Sweden and Britain are among those in opposition, saying that unless the levy can be implemented globally, the measure would simply drive financial institutions away from the European Union.
‘‘Introducing a financial transaction tax in Europe only will force financial institutions out: it’s like squeezing sand in your hand,’’ said one European diplomat who asked not to be identified because of the sensitivity of the issue.
Prospects of a global deal were quashed earlier this month when the United States Treasury secretary, Timothy F. Geithner, told European finance ministers he would not agree to such a tax in the United States.
After Mr. Geithner’s comments, Belgium’s finance minister, Didier Reynders, called for Europeans to press ahead with their own proposal, perhaps including only the 17 nations that use the euro, if all 27 members of the European Union could not agree.
If a euro zone agreement is impossible, a smaller group of countries could go ahead with their own low-level tax.
The Swedish finance minister, Anders Borg, explained this month the opposition of his country, which does not use the euro.
‘‘We have substantial experience in Sweden,’’ he said. ‘‘Basically, most of our derivative and bond trading went to London during the years we had a financial transaction tax, so if you don’t get a solution that is universal, it is very likely to be detrimental for European financial markets.’’
The European Union official declined to say what tax rate would be proposed. In the past, the European Commission has suggested a rate of 0.1 percent for trading stocks and bonds and 0.01 percent for derivatives.


- Germany slams 'stupid' US plans to boost EU rescue fund


By Ambrose Evans-Pritchard

German finance minister Wolfgang Schauble said it would be a folly to boost the EU's bail-out machinery (EFSF) beyond its €440bn lending limit by deploying leverage to up to €2 trillion, perhaps by raising funds from the European Central Bank.
"I don't understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense," he said.
Mr Schauble told Washington to mind its own businesss after President Barack Obama rebuked EU leaders for failing to recapitalise banks and allowing the debt crisis to escalate to the point where it is "scaring the world".
"It's always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the US government," he said.
The comments risk irritating the White House. US Treasury Secretary Tim Geithner has been a key driver of plans to give the EFSF enough firepower to shore up Italy and Spain, fearing a drift into "cascading default, bank runs and catastrophic risk" without dramatic action.
The danger for Germany is that America will lose patience, with unpredictable consequences. The US Federal Reserve is currently propping up the European banking system in a variety of ways, including dollar swaps.
Markets across the world ignored the mixed signals about the true scope of EU rescue measures, convinced that EU leaders have a "grand plan" up their sleeves and will unveil the details after the Bundestag has voted on Thursday on the earlier July deal to revamp the fund.
France's CAC-40 surged by 5.7pc, led by a 17pc rise for Societe Generale. Germany's Dax was up 5.3pc. The FTSE 100 jumped 4pc in London, the biggest one-day rise this year. Oil jumped almost $4 in New York to $88 a barrel.
In Berlin, Chancellor Angela Merkel was fighting for her political life as the rump of lawmakers from her coalition vowed to reject the EFSF package, though the latest tally suggests she may squeeze by with her own majority. Angry dissidents suspect that secret plans are being withheld until after the vote.
Greek premier George Papandreou told German business leaders that his country would honour its austerity pledges, but also issued a veiled warning. "The persistent criticisms levelled against Greece are deeply frustrating, not only at the political level, where a superhuman effort is being made to meet stringent targets in a deepening recession, but frustrating also for the Greeks, who are making these painful sacrifices."
"Drastic measures have had a dramatic impact on the living standards of our citizens. Many Greeks feel they have little left to give. If people feel only punishment and scorn, this crisis will become a lost cause," he said.
Mr Papandreou's Pasok party passed a crucial vote on Tuesday to raise property taxes, but at a high political price. The party's approval rating has fallen to 15pc in the latest Mega poll.
However, Greece was confronted with a new threat as it emerged that several eurozone members are demanding the private sector absorb bigger losses than originally agreed as part of a second bail-out.
A deal struck in July would see creditors taking 21pc losses on their Greek debt holdings, adding around €45bn to the €109bn proposed second rescue. However, more than a third of the 17-member single currency bloc are now said to be demanding bigger haircuts for the private sector. Talk of revisions to the second bail-out may renew default fears as the IMF has yet to re-engage with Greece over the latest €8bn tranche of its initial €110bn rescue. Greece is at risk of running out of money by October 8, though analysts say the payment is almost certain to be made whether or not Greece has complied fully with the terms.
Greece has a trump card in rescue talks with the IMF-EU "Troika". If it opts for a "hard default", it could set off a chain reaction. Lorenzo Bini-Smaghi, an ECB board member, said those arguing that Europe's banks could withstand a Greek default are misguided. "Similar views were held before Lehman. Those who say this have no idea how contagion works," he said.
Analysts say the Troika will have to approve the next €8bn tranche of aid for Athens in October whether or not Greece has complied fully with the terms. It cannot risk a showdown before Europe's banks have beefed up their capital base, or before the EFSF is fully equipped to defend the rest of the system.
Like a forced marriage, Europe and Greece must kiss and pretend.



- Le rouble victime des spéculateurs boursiers


Par Vlad Grinkevitch, RIA Novosti

Le rouble russe a chuté jusqu’à son niveau minimal d’il y a deux ans. Jeudi 22 septembre, 1 dollar valait 32 roubles. La raison de la fièvre sur le marché monétaire russe a été l’effondrement des marchés boursiers d’Asie, d’Europe et de Russie. Les experts prédisent la poursuite de l’affaiblissement de la monnaie russe – rien ne contribue au renforcement du rouble, que ce soit les facteurs internes ou externes.
La chute des bourses a entraîné celle du rouble
L’état pré-crise de l’économie mondiale maintient les spéculateurs boursiers sous tension permanente. L’atmosphère fébrile contraint les acteurs boursier à toute information, quelle soit bonne ou mauvaise. En pratique cela conduit à des chutes et des bonds sur les marchés boursiers.
Cette fois le pessimisme des spéculateurs boursiers est dû à l’annonce le 21 septembre du nouveau plan de la Réserve fédérale des Etats-Unis destiné à stimuler l’économie.
"Les investisseurs attendaient des démarches plus décisives de la part de la Fed, mais elles n’ont pas suivi", a expliqué à RIA Novosti Kirill Tremassov, directeur du département d’analyse de la Banque de Moscou.
C’est la raison pour laquelle les indices boursiers d’Asie à la clôture des marchés ce jeudi
22 septembre ont chuté de 2-4,9%, et l’indice phare de la Bourse de Hong Kong a perdu 4,85%. En milieu de journée l’indice boursier russe MICEX a perdu 5,8% par rapport à la clôture dernière en s'établissant à 1420,63 points. L’indice RTS a perdu 6,4%.
Le cours de la monnaie russe a été entraîné par la chute des bourses. Le phénomène est classique: craignant un nouveau cycle de crise, ou au moins un ralentissement de l’économie mondiale, les investisseurs s’empressent de sortir des actifs à risques, dont font partie les titres des pays émergents et les monnaies matières premières (dont le rouble russe). D’autant plus que dans le contexte des prévisions tout aussi négatives et du plan annoncé la veille par la Fed, les cours du pétrole se sont également effondrés. En milieu de journée du 22 septembre, le pétrole WTI a perdu près de 3,5%.
Les facteurs internes contribuent également à la chute de la monnaie russe. Selon Elena Matrossova, directrice du Centre d’études macroéconomiques de BDO, le rouble est surestimé par rapport au panier bimonétaire, comme en témoigne le rapport entre le cours calculé
(sur le rapport entre la masse monétaire et les réserves internationales de la Banque centrale) et réel du rouble. On estime qu’il est normal si le cours calculé est supérieur de 10-12% au nominal mais, comme le fait remarquer Elena Matrossova, début août cet écart était déjà de 29%.
"Depuis la fin de l’été le rouble était sur le point de chuter, ce qui aurait pu être provoqué par l'instabilité sur le marché", résume Elena Matrossova.
La question grecque
Il ne faut pas s’attendre prochainement à un changement brusque des tendances économiques.
La cause fondamentale de l’instabilité de l’économie et de la tension sur les marchés boursiers, selon Kirill Tremassov, est la question grecque qui demeure irrésolue. Tant que les fonctionnaires européens ne sauront pas comment agir avec l’économie de la Grèce, comment sauver le pays, l’économie mondiale restera au bord d’une nouvelle crise. Autrement dit, les actifs et les monnaies matières premières ne seront pas très attractives pour les spéculateurs boursiers.
Le dollar, qui reprend du poids, exercera une forte pression sur le rouble et sur l’euro. Le fait est que les Etats-Unis cherchent à renoncer progressivement à la politique de l’assouplissement quantitatif. Gâtées par l’abondance des liquidités en dollars et en craignant la pénurie de cette monnaie, les banques commenceront à vendre les actifs pour renflouer les réserves de devises américaines.
La prévision des experts concernant l'accroissement de la demande de dollars et d'euros au sein de la population russe, et la croissance des dépenses budgétaires de l’Etat, traditionnellement constatée en fin d’année, pourraient contribuer à la poursuite de l’affaiblissement du rouble. Même les querelles politiques à la veille de la présidentielle, selon Elena Matrossova, pourraient provoquer un reflux supplémentaire du capital russe, ce qui affaiblirait d’avantage le rouble.
Toutefois, les experts espèrent que les autorités empêcheront une chute trop vertigineuse du rouble. "A mon avis, si le rouble perdait encore 5% dans le panier bimonétaire, l’activité de la Banque centrale pourrait s’accroître", déclare Elena Matrossova, tout en rappelant que la priorité principale du régulateur n’était pas le maintien du cours du rouble, mais le ciblage de l’inflation.



- [Without a growth plan, the EU faces financial Waterloo
The latest eurozone rescue scheme may save Greece for now, but it fails on a basic rule of classical economics->http://www.guardian.co.uk/commentisfree/2011/sep/27/eu-financial-waterloo-eurozone#history-link-box]

Simon Jenkins

Greek finance minister Evangelos Venizelos and aides
Eurozone finance ministers, including Greece's Evangelos Venizelos, have drawn up a plan to halve Greece's debts to German and French banks. Photograph: Louisa Gouliamaki/AFP/Getty Images
This really matters. It matters more than party conferences or Libyan wars or terrorist scares or Olympic games. Europe faces a Waterloo moment, perhaps even a Munich one, as 17 of its finance ministers dither over whether to rescue its economy from the financial wreckage of the past three years, or let it plunge into renewed depression.
A bad-tempered weekend at the IMF in Washington has reportedly led to a ghost of a plan that makes sense. It involves halving Greece's debts to German and French banks, repeating the 21% "haircut" default of last July. This in turn will hurt the banks more than they might stand, so the second part of the plan props them with urgent subsidies. In a third part,some 2 trillion euros would be tipped into the European central bank, somehow to "firewall" the sovereign debts of Portugal and Ireland and perhaps even Italy and Spain.
This plan is first aid at the scene of the accident. But when all bad options have failed, desperate men turn to worse ones. The summer's stress tests, bail-outs, Greek promises and quantitative easings are dead in the water. Europe's weaker governments have gone on spending and borrowing, and banks lending. Greece's chief paymaster, Germany, is fed up and Greece is on the brink of bankruptcy. Its workers will soon not get paid and its government might fall – an echo of Weimar.
Yet even this plan may not happen. It needs the 17 eurozone countries to agree, and this they cannot do. It is the nightmare scenario of Euro-enthusiasts down the ages, of a supposedly united continent collapsing in chaotic indecision, as in 1914 and 1939, and Germany emerging waving the key. The trouble today is that Germany, however benign, is ruled by a coalition crafted by the post-war allies so as never to exercise strong, united leadership. Even if Germany's government is willing to rescue the euro, its divided assemblies can refuse. They vote on the new bail-out fund tomorrow, and the coalition's Free Democrats say they will vote against it.
What if plan A fails? There is always our old friend plan B, which exists in every crisis. Plan B is no plan, anarchy, the apocalypse, the mob, the opportunity. It is never less than interesting. If the euro-17 are unable to make up their minds and Germany refuses to play ball, the system defaults to jungle. The peripheral euro countries find their debts unsustainable and pass into "administration". They drop out of the common currency, devalue their debts, inflate their economies and proceed (as Britain used to do) to adjust to their true competitive balance with their neighbours. Europe having failed to discipline them, the market does the job instead.
Plan A is kinder. It attempts to correct the "category error" of a single currency at least with reference to Greece and for a time. Plan B is a short, sharp shock. It defies the high priests of Euro-centralism and their straitjacket for Europe's diverse economies. Banks and bond markets would lie in ruins. The rules of "sovereign debt" would need rewriting. Greece, which has been living as if it were Germany, would start living like Bulgaria.
Europe was never going to be another America or Soviet Union, with one constitution imposing national homogeneity over vast distances, and with people and investment migrating ceaselessly in search of employment. This has been tried in Europe and has failed. There should be a negotiated return to a nuanced relationship between countries and economies. Silesia cannot be forced into the same polity as Cornwall. Europe remains a confederacy of wildly differing habits, cultures and political traditions.
Just as the credit crunch revealed the financial scandals of New York and London, so it revealed the risks in the borrow-and-spend habits of Britain and Greece. It also showed how brittle was the fiscal balance of the eurozone. Sooner or later the different voters of Europe would draw a line at the colossal cross-subsidies of the EU's financial regime. The only question now is whether that line will be drawn in parliaments or in the streets.
The plan currently in circulation makes short-term sense. But it is a rescue plan, not a growth plan. The frightening realisation is that, at a time of recession, the economic conversation is back to the 1930s, as if Keynes had never preached the woes of austerity. In the past three years, 20 million people have lost their jobs worldwide. This staggering waste of human resources is entirely due to human error, to the political mismanagement of economies, which makes Ed Balls' boasting in his conference speech on Monday the more inexcusable.
The western economy is in the grip of a textbook liquidity squeeze. There is cash everywhere. British companies alone have some £700bn on deposit, which they are unable or unwilling to invest for lack of demand. The Bank of England has printed some £200bn of quantitative easing, mendaciously claiming it will "kick-start the economy". It has merely added to the pile, and is proposing to add more. It cannot explain where the money has gone, or show one constructive idea as to how to boost demand to mop up this lake of liquidity. The bank is back in the dark ages, starving today to inflate tomorrow.
Where have the government's Tory monetarists gone? Where are their graphs of M1, M2 and M3 and their equations of the velocity of cash in circulation? The liquidity squeeze is nothing to do with George Osborne's public sector cuts, which are mild, but with the laws of classical economics. In a recession, you do not save, you spend. Why is Osborne building a cash mountain? If nothing is done to ease the constipation in the British economy, when the rest of Europe recovers it will grow and Britain will merely stumble into stagflation.
The worst feature of this crisis is ignorance. People understand military catastrophe. They know guns, bombs, tanks and missiles. Economic catastrophe is silent. Apart from the stock footage of screaming dealers, few people have a clue what bankers do in the office each morning. They have no understanding of bond yields, savings ratios and quantitative easing. They are encouraged to leave economics to the experts. Look where that has got them.


- [Explaining Dissent on the FOMC Vote for Operation Twist (With Reference to Jan Mayen Island, Paul Volcker and Thor’s Hammer)
Remarks before the Dallas Assembly->http://www.dallasfed.org/news/speeches/fisher/2011/fs110927.cfm]

Richard W. Fisher - Dallas, Texas September 27, 2011
Thank you, Anne [Motsenbocker]. I was privileged to have been a member of the Dallas Assembly before I aged into being “mature.” Being here today with you young folks brings back very fond memories and is wonderfully energizing. Thank you for inviting me to lunch today.
Jan Mayen Island
I am going to start by taking you far away from Dallas, near the Arctic Circle, where, were you to visit Jan Mayen Island, you would see this sign:
Jan Mayen is a desolate volcanic island located about 600 miles west of Norway’s North Cape. It is the home of a meteorological and communications station manned in the harshest of winters by 17 hearty members of the Norwegian Armed Forces. If you read Tom Clancy’s Hunt for Red October, you would know it as “Loran-C,” a NATO tracking and transmissions station. In the video game Tomb Raider: Underworld, Lara Croft visits Jan Mayen in search of Thor’s Hammer, considered the most awesome of weapons in Norse mythology, capable of leveling mountains and performing the most heroic feats.
My brother Mike recently visited this station on Jan Mayen. This is the sign that greeted him.
In norsk, it reads as follows:
“Theory is when you understand everything, but nothing works.”
“Practice is when everything works, but nobody understands why.”
“At this station, theory and practice are united, so nothing works and nobody understands why.”
My wry brother implied that this about summed it up for monetary policy. Drawing on theory and practice, the 17 members of the Federal Open Market Committee (FOMC) have been working in the harshest economic environment to harness monetary theory and lessons learned from practice to revive the economy and job creation without forsaking our commitment to maintaining price stability. But the committee’s policy has yet to show evidence of working and nobody seems to quite understand why.
Today, I am going to quickly summarize the action taken by the FOMC at our meeting last week. I am going to explain at greater length why I dissented from the consensus of the committee, incorporating why I believe the monetary accommodation we have thus far implemented has failed to deliver.
I remind you that conducting monetary policy in today’s economy is not for the faint of heart. All 17 of us who have the privilege of serving on the FOMC are working toward the same end. We devote ourselves to crafting the right monetary policy for the nation. When we meet, each of us lays out our arguments calmly, with great respect for each other and without acrimony―an approach that is sadly rare elsewhere in government. As I represent the Dallas Fed at the FOMC table, I want you and others to know what my views are so that you might have a better understanding of the difficult trade-offs involved in our decisionmaking.
Last Week’s FOMC Meeting
After meeting for two days last week, the committee announced that its outlook for the economy was less sanguine than it had previously anticipated. It foresaw “significant downside risks to the economic outlook, including strains in global financial markets.” Realizing that resolution of the European situation depends on European authorities, we focused on policy alternatives that might bolster the U.S. economy. The committee decided that it would “purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and ... sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program,” the committee stated, “should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.” In addition, the FOMC also reaffirmed the expectation it expressed at the August meeting, “that economic conditions … are likely to warrant exceptionally low levels for the federal funds rate”―the interest rate we set for overnight interbank lending―“at least through mid-2013.”
Concurrently, the committee decided it would depart from its previous decision to invest the proceeds from the roll-offs from its substantial portfolio of mortgage-backed and agency―Fannie Mae and Freddie Mac―securities into Treasuries and would instead “reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.”[1]
In the interest of time, I will not dwell on the decision to reinvest proceeds in the agency and mortgage-backed markets. Since the beginning of this year, the spreads between mortgage-backs and Treasuries have been widening and have accelerated, especially lately, to levels last seen in early 2009. This decision, while not expected by the markets, was acceptable for me as a tactical way to provide limited assistance to the mortgage market at little cost. The decision to embark on an “Operation Twist,” however, was a strategic decision where I did not feel the benefits outweighed what I perceived to be the costs. So, I will dwell on that difficult decision.
The Rationale Behind Operation Twist
As the minutes of last week’s meeting will not be released until Oct. 12, it would be inappropriate for me to provide you a fulsome recital of the discussion that took place at the table. When you do read the minutes, however, it might help to recall a little history.
The original Operation Twist was announced by President Kennedy on Feb. 2, 1961. It was actually the idea of my mentor, Robert Roosa, who later hired me out of Stanford Business School in 1975 to be his assistant, following in the footsteps of other “Roosa Boys”―the first of whom was a fellow named Paul Volcker. In the original Operation Twist, the Federal Reserve sold a portion of the short-term Treasuries held in its System Open Market Account (SOMA) portfolio and invested the proceeds in longer-dated Treasuries. The goal was to decrease long-term rates and increase investment, while increasing short-term rates so as to prop up the dollar.
The purpose of Operation Twist II is similar: The FOMC seeks to drive down the cost of capital for businesses in order to induce them to invest more in expansion and create more jobs. Implicitly, the program may also lift short-term rates, albeit mildly given the expectation that rates at the short end will remain at “exceptionally low levels” through mid-2013, perhaps providing some relief to money market funds that, in searching for yields sufficient to cover their costs, have been invested in foreign bank paper now considered by many analysts to be somewhat toxic.
As background to my take on this newer version of Operation Twist, I want to make it crystal clear that I am as eager as anyone on the committee to see greater job creation. It is true that I am an inflation hawk: I believe the foremost duty of any central banker is to ensure price stability. Indeed, I believe that the Fed cannot deliver on its congressionally mandated task of seeking full employment unless it delivers first on its mandated duty of warding off both inflation and deflation.
The Dallas Fed tracks 178 items in the consumer basket through a constantly updated series dating back to 1977. Using this data, we calculate what we call a “trimmed mean” analysis of personal consumption expenditures (PCE) in order to ascertain the level of inflation affecting real consumers.[2] This is my preferred compass for charting the direction of inflation. It presently suggests that headline inflation will decline from its current level—just shy of 3 percent as measured by the PCE and 3.75 percent as measured by the Consumer Price Index—to 2 percent, a level that the majority of the committee believes a tolerable target. Thus, while I remain on constant watch for signs of inflationary impulses, I believe the most urgent issue is job creation and the reduction of the scourge of unemployment.
I believe, however, that there is significant risk that the policies recently undertaken by the FOMC are likely to prove ineffective and might well be working against job creation.
Previous Dissents
In the interest of time, I will neither repeat the reason for my opposition to the round of accommodation known as QE2 nor discuss my dissenting vote in August, when the committee indicated its expectation that rates would remain exceptionally low through mid-2013. I have explained my logic in previous speeches, which are located on our website.[3]
I’ll focus here on Operation Twist and the decisions announced last Wednesday. There is a common theme running through my dissenting views on Operation Twist, QE2 and what has come to be viewed as a commitment by the market that we will hold the fed funds rate “extremely low” for the next two years. My fundamental concern is about the efficacy of these initiatives.
Efficacy Questions
The efficacy of the original Operation Twist has been vigorously debated through time. Bob Roosa once confided in me that he considered it “too clever by half” and “not (his) brightest brainchild.” Bob’s self-deprecation was recently quantified in a study by Eric Swanson of the San Francisco Fed. Swanson estimated that the impact of the 1961 program resulted in a 15-basis-point reduction―remember, 15 basis points is 15 one-hundredths of 1 percent―in long-term Treasury yields and a 2- to 4-basis-point―2 to 4 one-hundredths of 1 percent―reduction in corporate bond yields.[4] Swanson’s paper follows upon an insightful study by two top economists at Northwestern University who estimated that QE2―the previous round of accommodation―lowered Treasury yields by roughly 20 basis points and investment grade corporate bond yields by about 7 to 12 basis points.[5]
To nonfinancial market types, this may seem a tad bit esoteric. The point is that the direct benefit of QE2 seemed small relative to the cost, including the complications arising from the expansion of our balance sheet and the stirring of suspicions among our critics that the FOMC is influenced too heavily by the financial interests that make more money from trading than from lending to job-creating businesses.
For me, Swanson’s study begged questions about the cost/benefit trade-offs of a modern Operation Twist from a theoretical perspective. From a practical perspective, I had other concerns.
Before every FOMC meeting, I survey a select group of 30 or so private business and banking operators, imparting no information about monetary policy but listening carefully to their perspectives on developments in the economy as seen at the ground level. For weeks leading up to the meeting, there was speculation in the financial markets and in the press that an Operation Twist was being contemplated. I received an earful of opinions on these rumors. What I gleaned from those conversations was as follows:
Embarking on an Operation Twist would provide an even greater incentive for the average citizen with savings to further hoard those savings for fear that the FOMC would be signaling the economy is in worse shape than they thought. They might view an Operation Twist as setting the stage for a new round of monetary accommodation―a QE3, if you will. Such a program was considered redundant by business operators given their surplus of undeployed cash holdings and bankers’ already plentiful excess reserves. In addition, such a program might frighten consumers by further driving down the yields they earn on their savings and/or lead to long-term inflation that would erode the value of those savings;
The earning power of banks, both large and small, would come under additional pressure by suppressing the spread between what they can earn by lending at longer-term tenors and what they pay on the shorter-term deposits they take in;
Pension funds would have to reassess their potential returns, with the consequence that public and private direct-benefit plans would have to set aside greater reserves that might otherwise have gone to investments stimulating job creation;
Expanding the holdings of the Fed’s book of longer-term debt would likely compound the complexity of future policy decisions. Perversely, the stronger the economy, the greater the losses the Fed would incur as interest rates rise in response and the prices of those longer-term holdings depreciate. The political incentive to hold rates down might then become stronger precisely when we want to initiate tighter monetary policy. This concern, of course, would be a good news/bad news issue: The good news is that it would stem from a stronger economy; the bad is that might hurt our maneuverability and, in doing so, might undermine confidence in the Fed to conduct policy independently.
One other factor gave me pause and that was, and remains, the moral hazard of being too accommodative. For years, I have been arguing that monetary policy cannot solve the problem of substandard economic performance unless it is complemented by fiscal policy and regulatory reform that encourages the private sector to put to work the affordable and abundant liquidity we are able to create as the nation’s monetary authority. These actions are not within the Fed’s purview; they are the business of Congress and the president. Chairman (Ben) Bernanke said it well in his recent speech at Jackson Hole (Wyo.): “Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank.”[6] Both within the FOMC and in public speeches, I have argued that until our fiscal authorities get their act together, further monetary accommodation―be it in the form of quantitative easing or performing “jujitsu” on the yield curve through efforts such as Operation Twist―will represent nothing more than pushing on a string.
Of course, I am only a single voice at the FOMC table. I presented my views, as did other participants. All views were given a fair hearing. In the end, the decision taken by the FOMC is that of the majority, and the majority supported the initiatives that were announced. We must now hope that they will work.
The Siren Call of Inflation
I might conclude by sharing my concerns about the prospect of temporarily allowing more inflation as a means of unlocking expansion in final demand.
I understand the theoretical basis for entertaining that thesis: If businesses and consumers believe prices will rise, they will rush out to invest and consume now. But the practical aspects of this approach appear to counter the theoretical.
Paul Volcker, who has the scars on his back from his Herculean effort to rein in inflation in the 1980s, wrote of this in the New York Times on Sept. 18.[7] He reminded us that once unleashed, inflation combines with stagnation to make stagflation, the most painful of all combinations for the poor, for workers, for job seekers, for bond and stock holders and for businesses trying to navigate the economy.
His words from that article should be engraved on the foreheads of every central banker: “The siren song [of inflation] is both alluring and predictable. … After all, if 1 or 2 percent inflation is O.K. and has not raised inflationary expectations―as the Fed and most central banks believe―why not 3 or 4 or even more? Let’s try to get business to jump the gun and invest now in the expectation of higher prices later … and maybe wages will follow. … Well, good luck. Some mathematical models spawned in academic seminars might support this scenario. But all of our economic history says it won’t work that way. I thought we learned that lesson in the 1970s. … What we know, or should know, from the past is that once inflation becomes anticipated and ingrained―as it eventually would―then the stimulating effects are lost. Once an independent central bank does not simply tolerate a low level of inflation as consistent with ‘stability,’ but invokes inflation as a policy, it becomes difficult to eliminate.”
To that I say, “Amen.”
Thor’s Hammer
I return to where I began―Jan Mayen Island. Paul Volcker understands better than most the limitations of theory and the harsh lessons of practice. I have nowhere near the wisdom or the experience of Volcker. But as the son of a Norwegian mother, I do know a little about Norse mythology. The legend holds that with his hammer in hand, Thor “would be able to strike as firmly as he wanted … and the hammer would never fail … and never fly so far from his hand that it could not find its way back.”[8] Monetary policy is not Thor’s hammer. It is an awesome weapon. But it has limitations. We must carefully harbor its power. If we deploy it incorrectly, we might level more than interest rates and destroy that which we seek to create. And if we let it fly too far from our grasp, we may never get it back. In conducting policy going forward, we must constantly bear this in mind.
About the Author
Richard W. Fisher is president and CEO of the Federal Reserve Bank of Dallas.
Notes
The views expressed by the author do not necessarily reflect official positions of the Federal Reserve System.
See Federal Open Market Committee statement, Sept. 21, 2011, www.federalreserve.gov/newsevents/press/monetary/20110921a.htm.

The Trimmed Mean Personal Consumption Expenditure Index, complete with an analysis by Senior Economist Jim Dolmas, is available on the Federal Reserve Bank of Dallas’ website at www.dallasfed.org/data/pce/index.html.

See “Recent Decisions of the Federal Open Market Committee: A Bridge to Fiscal Sanity?” speech by Richard W. Fisher before the Association for Financial Professionals, Nov. 8, 2010,www.dallasfed.org/news/speeches/fisher/2010/fs101108.cfm, and “Connecting the Dots: Texas Employment Growth; a Dissenting Vote; and the Ugly Truth,” speech by Richard W. Fisher at the Midland Community Forum, Aug. 17, 2011, www.dallasfed.org/news/speeches/fisher/2011/fs110817.cfm.

See “Let’s Twist Again: A High-Frequency Event-Study Analysis of Operation Twist and Its Implications for QE2,” by Eric T. Swanson, Brookings Papers on Economic Activity, Spring 2011.

See, “The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy,” by Arvind Krishnamurthy and Annette Vissing-Jorgensen, Brookings Papers on Economic Activity, Fall 2011.

See “The Near- and Longer-Term Prospects for the U.S. Economy,” address by Chairman Ben S. Bernanke at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyo., Aug. 26, 2011.

See “A Little Inflation Can Be a Dangerous Thing,” by Paul A. Volcker, New York Times, Sept. 18, 2011.
See “The Prose Edda: Tales from Norse Mythology,” by Snorri Sturluson, Oxford, U.K.: Oxford University Press, 1916.


- The Economy is On the Ropes and Going Down

The risk faced by those who are analyzing macro trends is sounding like a broken record. For those younger readers who have no idea what that phrase means, imagine an mp3 song that will stick on and endlessly repeat a random segment of the song you are listening to until you give your device a sharp knock on the side. That's what a broken record sounded like.
The world economy is on the ropes, and it won't ever recover, at least not to anything resembling its recent past. Neither the gleeful housing bubble nor the free-flowing credit that enabled that side bubble to emerge will return. The resources simply do not exist to repeat that final orgy of consumption. A new reality is upon us, and while -- fortunately -- more and more people are choosing to face our predicament rather than pretend the current risks and challenges do not really exist, the absolute numbers of such forerunners are still small, and for the most part they don't include any of our political leaders.
The macro trends of worsening public and private debt loads, a looming and unaddressed Peak Oil threat, exponentially increasing global population, resource depletion, and an all-too-human tendency to use the money printing machine to deal with tough economic problems all remain pointed firmly towards an uncomfortable conclusion: There's a future of less in store for most people.
Our best hope is for a negotiated decline to lower levels of economic activity that allow us to gracefully adjust our expectations to a new and lower level consumption that offers an even more enjoyable and purpose-filled existence. Our worst fear is that a stubborn insistence on business-as-usual by our leadership leads to a future shaped by disaster rather than design.
The fundamental Issue is this: You can't solve a problem rooted in too much debt with more debt. It just doesn't pencil out.
"Here we go again…solving a debt problem with more debt has not solved the underlying problem. ...Can the US continue to depreciate the world's base currency?"
~ Goldman strategist Alan Brazil (Source)
Yet we now see that both Europe and the US are busily conceding to banker demands and coming up with all manner of fancy schemes, in an attempt to hide the fact that old debt is simply being replaced with new debt.
Consider the confusing news about the European EFSF, the so-called rescue facility for the Eurozone, which is currently conceived to use leverage (to solve a debt problem!) and is thought to look something like this:
(Source)
We could analyze the details of that flowchart and opine on the structure, but that really won't aid anything. Additional complexity and Jell-O redistribution will not change the basic fact that the debts simply cannot be paid back under current terms or out of any imaginable future economic growth.
As far as I can tell, the complexity serves one main purpose, and that is to baffle enough of the populace for long enough to allow a significant transfer of public wealth to occur in broad daylight into private pockets. In this regard, Europe and the United States seem to be identical.
A Bad Reaction
On September 21, 2011, the Fed disappointed the world equity and commodity markets by announcing Operation Twist, which is nothing more than monetary Jell-O being moved from one side of the plate to another, instead of more QE stimulus (representing additional Jell-O in this metaphor).
The reaction was swift and negative.
Beginning with stocks, we see that a couple of severe down days (the red bars in the green circle) ensued, following the Operation Twist announcement.
We also note that the S&P 500 is down year to date (YTD, blue dotted line) and that it is bouncing between the 1120 and 1220 marks (purple lines) with a lot of volatility but not much direction. The simplest explanation for this is that tensions exist between what the fundamental data is telling us about the state of the global economy (not good; more below) and the hope that more central bank money will soon be flooding the world.
As always, this is not a good sign. Any time you read the word "investors" being used in an article about who is driving these price movements, I invite you to replace that word with "speculators," as that's what we all are now. We are left speculating wildly about when and how much thin-air money will next be injected by one central bank or another.
Gold had particularly tough going after the Twist announcement, getting clobbered for ~$100 on a couple of days (green circle) following:
These price drops had nothing to do with an improved outlook on the viability of the world's fiat money systems or a reduction in overall systemic risk. Neither were appreciably altered by the Fed decision although systemic risk was probably elevated. Without the Fed absorbing additional existing debt the entire system is at greater risk of slipping into a deflationary spiral that could get out of control.
If that happens, you want to be sure to have gold, in hand.
Silver was especially slammed, and was the undisputed loser of the entire commodity complex losing as much as 25% in a single session (before recovering):
I have always held that the risk for silver in this current rout would be that it behaves more like an industrial metal than a monetary asset and therefore could slip in price regardless of systemic stress. For a while there throughout July and August I began to think that silver was displaying some money-like qualities but the recent slam dispelled those thoughts.
I continue to think that this rout is not yet over and am waiting better prices for silver before I remove some of my dry powder and accumulate some more.
The 'off note' in this story is the price of oil:
Until and unless oil, the main lubricant of commerce and a feed-in to the price of everything, slips and plummets a long way from here, I remain bullish on commodities in general. The macro story for oil is simply that a marginal new barrel of oil costs at least $70 in today's world and quite a bit more in some cases.
If oil falls below that $70-$80 level then you can forget about new supply coming on line. In many respects we are living in an 'oil shadow' created by the plunge in oil to $38 in 2009 which delayed a large number of oil development projects that would otherwise be yielding supply today.
Should oil fall below the marginal cost again here in 2011 or 2012 then we'll have another oil shadow to contend with a few years down the line.
Of course I should point out here that the above chart is for US oil only (WTIC) and that the world price for oil is roughly $20 higher as indicated by the price of Brent crude at $104/bbl.
Slip Sliding Away
Presently, the global economy is not doing all that well. There are troubling signs from Japan, the US Europe and now China that the economy is stalling out and in serious danger of slipping back into recession. If that happens, all of the debt rescue plans will both have additional headwinds with which to contend and new debt implosions to rescue.
Any analysis of the global economy has to begin with Dr. Copper, the most trusted source for an accurate economic diagnosis. Used in an enormous variety of commercial applications from houses to cars to electronics to electricity cables, copper prices usually provide a useful early read on the direction of the economy.
That tale is one of weakness:
Copper prices are now back to where they were in 2008, although still considerably up off the lows of late 2008 and early 2009, and are in negative territory YTD by more than 20%.
Consistent with the weakness in copper prices are recent reports of Chinese manufacturing activity slipping into contraction:
China manufacturing data paint weak picture (Sept 22, 2011)
HONG KONG (MarketWatch) — HSBC’s preliminary China Manufacturing Purchasing Managers’ Index, or “flash” PMI, fell to a two-month low in September, indicating a broadening slowdown in the Chinese economy, with industrial output swinging from a modest expansion to a deterioration.
The weak data were a factor in the broad equities sell-off in Hong Kong Thursday.
The headline preliminary PMI for the month was 49.4, down from 49.9 in August, HSBC said in a statement Thursday.
The PMI’s output index fell to 49.2 in September, down from 50.2 in August and below the 50 level dividing expansion from contraction.
China is addicted to rapid rates of growth and its banking system is heavily exposed to a wildly over-priced real estate market, especially in their major urban centers. If the Chinese property bubble busts then expect major banking stress to follow suit.
Perhaps one nearby indicator is the health of the Hong Kong real estate market which is now entering a dangerous phase:
Hong Kong’s Tsang Sees Property ‘Soft Landing,’ Backs Peg (September 27, 2011)
(Bloomberg) -- Hong Kong Financial Secretary John Tsang predicted a “soft landing” for the real estate market and said the city will keep its currency peg to the U.S. dollar, blamed for helping drive home prices up about 70 percent.
“The residential market has basically frozen as a result of the curbs and the global downturn,” said Alva To, head of consulting for North Asia at DTZ, a property broker. “Our surveyors are seeing almost a 60 percent drop in the number of valuation queries from banks compared with normal times.”
Hong Kong’s used home sales have slowed, with prices falling for the first time in seven months in July. That’s not a “very violent reaction,” Tsang said. Prices have jumped about 70 percent since the start of 2009. New loans approved fell 10.3 percent in August from a month ago.
A 70% jump in prices in two years is not a healthy sign; it is an indication of a bubble. The basic trajectory is simple enough; falling sales then lead to falling prices. Once the dynamic is underway it will not stop until prices again reach affordability for the median household (at best) and may even badly overshoot to the downside (at worst).
More directly, Chinese real estate developers are encountering a slump in both sales and prices:
China Developers Face More ‘Severe’ Credit Outlook, S&P Says
Sept. 27 (Bloomberg) -- Chinese developers face an “increasingly severe” credit outlook, which may force them to cut prices and turn to costlier funding sources as sales weaken, Standard & Poor’s said.
A 30 percent decline in sales may leave many developers facing a liquidity squeeze, S&P said after conducting stress tests of the nation’s real estate companies. Most developers would be able to “absorb” a 10 percent sales drop next year, the credit rating company said.
“The worst isn’t over for China’s real estate developers,” S&P analysts led by Frank Lu wrote in a report today. “Developers are bracing themselves for slower sales and lower property prices ahead.”
Fewer than half of the 70 cities monitored by the government in August posted month-on-month gains in home prices for the first time, according to Samsung Securities Co.
What will happen to Chinese lending to the US and Europe if global trade slumps and their banking system begins to experience severe stress as a consequence of their own real estate bubble popping? Probably nothing good. That's why we have concerns that the enormous bubble in US Treasuries may be exposed as early as next year (2012).
Consistent with the rumblings from Dr. Copper are the reported slumps in global trade recently hitting the wires:
German Exports Unexpectedly Fell in July (Sep 8, 2011)
German exports unexpectedly declined for a second month in July, underscoring signs Europe’s largest economy is losing momentum as the global recovery falters.
Exports, adjusted for work days and seasonal changes, fell 1.8 percent from June, when they dropped 1.2 percent, the Federal Statistics Office in Wiesbaden said today.
German growth is slowing as Europe’s debt crisis prompts governments from Spain to Ireland to cut spending, sapping export demand. Factory orders from abroad dropped in July and executives and investors grew more pessimistic last month. Bayerische Motoren Werke AG (BMW), the world’s biggest maker of luxury cars, said on Sept. 1 that U.S. sales dropped in August.
Japan exports disappoint, could weaken further (Sept 20, 2011)
TOKYO, Sep. 20, 2011 (Reuters) — Japan's exports rose in the year to August at less than half the pace expected as a global economic slowdown, a strong currency and Europe's sovereign debt crisis put Japan's own recovery increasingly in doubt.
"The impact of a slowing in the global economy is starting to become visible in Japan's export figures," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"In the coming months exports may go back to posting year-on-year declines, meaning the economy will have no sufficient support factor unless the government quickly implements reconstruction spending."
[US] Economic indicators predict continued weak growth (Sept 22, 2011)
[F]actory orders, unemployment benefit applications and hours worked were among six measures that weakened in August.
Existing home sales up but price outlook grim (Sept 21, 2011)
WASHINGTON (Reuters) - Existing home sales rose in August to their highest in five months as lower prices and rock-bottom interest rates drew more buyers into a still moribund market.
Sales climbed more than expected, up 7.7 percent from the previous month to an annual rate of 5.03 million units, the National Association of Realtors said on Wednesday. The median price was 5.1 percent lower than a year earlier.
Existing home sales have trended lower in 2011 and prices are still weakening. One factor keeping prices low is the high rate of "distressed sales" which include those forced by foreclosures.
Distressed sales accounted for 31 percent of August transactions, up from 29 percent a month earlier.
Comment: Note that falling prices are not a good sign here. Also the 7.7% bump in sales, assuming we believe the NAR data (always worth taking it with a grain of salt), still leaves us well off the peak of several years back and is being driven in large measure by distressed sales.
Let's contrast the distressed bargain activity with new home sales, also for August, to see if a different picture emerges:
New home sales fell in August for 4th month (Sept 26, 2011)
Sales of new U.S. homes fell to a six-month low in August.
The fourth straight monthly decline during the peak buying season suggests the housing market is years away from a recovery.
The Commerce Department said Monday that new-home sales fell 2.3 percent to a seasonally adjusted annual rate of 295,000. That's less than half the roughly 700,000 that economists say must be sold to sustain a healthy housing market.
New-homes sales are on pace for the worst year since the government began keeping records a half century ago.
New home sales are on a pace for the worst year since records began fifty years ago? That statistic alone should tell you exactly where we are in this so-called recovery. Absolutely nowhere. The decline in new home sales wipes out the warm glow from the increase in existing home sales.
Summary: Part I
The world that Europe, the US and Japan are desperately trying to sustain is no longer possible in a world of too much debt and too expensive energy. The plethora of sliding data noted above are classic warning signs one would expect to see from a global economy in systemic decline.
We are now down to the wire. Over the next few months and years, our story of credit growth - four decades in the making - will continue to unwind. Those who place their faith in the authorities to first understand the true nature of the predicament and second to implement restorative policies are at tremendous risk of personal and/or financial losses.
In Part II of this report: Understanding What Happens Next, we discuss important decoupling trends, what steps global leaders will be forced to take later this year to deal with them, why these steps won't work, and what prudent individuals should be doing now to protect themselves and their wealth.