One of my favorite financial axioms is that about every ten years or so we experience the worst financial crisis in the last 50 years. And for the last couple of years there has been no shortage of predictions from clever and successful financiers that we really haven’t solved the banking problems that contributed to the meltdown of 2008—just postponed them for another day, or, worse, building up trouble for possibly an even worse crash down the road.
I’m no forecaster, but two things are always certain to me: uncertainty, and that most forecasters can’t. After all, who foresaw the 2008 housing bubble/crash? None of the usual oracles of economic wisdom. It was only a handful of cranks out on the margin, like John Paulson, who saw it coming (and made billions by going short).
That preface out of the way, today’s financial news seems to have a lot of curious stories worth following. Such as:
1. Germany yesterday auctioned $5.3 billion in short-term (2-year) government notes, at an interest rate of . . . 0.00%. That actually represents a slight increase; in the summer of 2012, Germany actually paid a small negative interest rate on 2-year notes. Deflation anyone?
2. Headline: “Profit Rises at Bank of China, But So Do Bad Loans.” Does anyone have confidence in China’s banking sector?
3. “U.K. Currency Gets Pounded.” Did they really think they could sneak that headline about the Pound past us? Go pound sand, headline writers. Anyway:
Sluggish inflation is complicating investors’ plans on the British pound.
Slower-than-expected growth in consumer prices on Tuesday forced fund managers to dial back their bets on an early interest-rate increase by the Bank of England, sending the currency to a four-month low against the dollar.
Unexpectedly low inflation is the latest in a series of setbacks for the pound, which hit a six-year high in July as a burgeoning economic recovery had cemented the view that the Bank of England would be the first major central bank to raise interest rates. Higher interest rates make a currency more attractive to investors.
“Sluggish” inflation? Sheesh. What a world we live in nowadays. Still, I wonder if gold isn’t better than sterling (heh) these days.
4. Argentina is in default. Maybe you’ve seen their amazing full-age ads in major American papers that appear to have been written by a degree holder from the Chomsky School of Financial Public Relations or something. Yesterday Argentina said they intend to pay domestic bondholders, in defiance of a U.S. court order. If they go ahead with this it will mean that Argentina has decided it no longer wishes to have access to American capital markets. Is this a sign of weakening American economic strength in the world, or just a sign of Argentine socialist stubbornness? Will China step into the breach as a lender? (Seems doubtful.) And if the Argentine economy fall sharply because it this, will it spread to the rest of Latin America, and trigger a new regional or even global slowdown? I have no idea, but all of this is worth watching.
From the Wall Street Journal story today:
The plan to pay the bondholders in Argentina could be taken as evidence the country has no interest in obeying Judge Griesa’s order and it could lead the judge to declare Argentina in contempt of court, said Mr. Secco. Argentina has said it cannot obey the order because doing so could spark demands from other bondholders for similar treatment, potentially putting the government on the hook for around $120 billion.
“After this, it will be very difficult for Argentina to issue debt again in the U.S.,” said Mr. Secco. “Even if another government comes in and remediates this and Argentina reaches a deal with the holdouts, a couple of years may go by before Argentina can issue debt again in another jurisdiction without it being very expensive.”
Last month’s default has at times seemed to overwhelm some officials in the Kirchner administration. Top officials, led by Mrs. Kirchner herself, have lashed out repeatedly at the U.S. court system and the vulture funds that sued it. All the while, administration officials have denied the country defaulted at all. Officials have also denied predictions from economists that the default will significantly affect the economy.
Even so, with the economy in recession, unemployment on the rise and annual inflation thought to total around 40%, the president seemed a bit rattled.
Socialism will do that to you when you run out of other people’s money.