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Kapital has transitioned to the state (ref. AMA) Political Economix & Rational Expectations

What we have to realize is that ‘capital has transitioned to the state’[1]; through the bail-outs and bail-ins, QE’s & SLS’s, LTRO’s & EFSFs; TARPs & twists; capital has transitioned to the state; it has happened, it is ‘what it is’; de-facto (not de-jure); capital has crossed the great libertarian 'blood brain barrier' and it did it @ a ridiculously low price with the greatest irony of all, no central planning!

The Political Economy of LTRO

INTRODUCTION

It's LTRO[1] that I’m talking about this time! LTRO the latest version of “economic life support those” crackpot surgeons in the Central Banks and Treasuries of Europe have come up with. What is the issue with it? As LTRO2 approaches, to on the leap day (29/2/2012) I present a number of theses about LTRO;

1.      LTRO is a workaround for Crowding Out

2.      LTRO is executed via a process called 'Round Tripping' or known as a ‘Carry Trade’

3.      Hedge Funds are intrinsic to the success of LTRO

4.      This makes governments dependent upon Hedge Funds (& not just the banks)

5.      LTRO creates a cash balloon which props up the equity market

6.      LTRO is a high-risk central bank strategy which could deflate at a stroke

7.      Ironically the very Hedge Funds and Asset Managers who are intrinsic to the success of LTRO are already freaked out by the high risk nature of the policy,

IMF Global Financial Stability Report - September 2011: Europe bank's exposure to the eurozone debt crisis increased to €300bn

 

Europe bank's exposure to the eurozone debt crisis has increased to €300bn (£263bn).

Cumulative spillovers from high spread euro area sovereigns to the EU banking system - 300 bn euros

The epicenter of sovereign risk has been Greece, which generated the first of four waves of spillover to European banks. The analysis suggests that, first, spillovers on European bank exposures to the Greek sovereign have amounted to almost €60 billion (Figure 1.17). Second, as sovereign risks spread to other governments, the spillovers to banks have mounted. If the sovereign stresses in Ireland and Portugal are included, the total spillover rises to €80 billion. Third, the governments in Belgium, Italy, and Spain have also come under market pressure; incorporating credit risks from these sovereigns into the analysis further raises the total estimated spillover, to about €200 billion. Fourth, bank asset prices in the high-spread euro area have fallen in concert with sovereign stresses, leading to a rise in the credit risk of interbank exposures; including those exposures increases the total estimated spillover to €300 billion overall. Although these numbers are based on market assessments of credit risk, which may reflect a degree of overshooting, the underlying problems that they highlight are real.

Visualising 'Crowding Out' The Macro Perspective

all charts from the European Central Bank Statistical Data Warehouse : http://sdw.ecb.europa.eu/

Original thinking on asymptotix in POLITICAL ECONOMY

 

 

Original thinking on asymptotix in  POLITICAL ECONOMY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

An Asymptotic Year End Comment (Thanks to the FT)

 

 

 

 

We made a year end comment last year, here at asymptotix, which was popular and commented upon, something to do with the yield on the ten year, if I remember correctly.

 

 

 

Keynesian futurism on a wing and a prayer BBC SPINS KING

version 2
5th July 2012

 

a political manifesto for asymptotix?

defining asymptotix as NOT what my friend is ....!

This page is absoloutely crucial to everything I say in the Political Economy domain on asymptotix. It was first blogged as an immediate demolishment of one of my oldest friends' re-propositioning of neo-Keynesian 'New Labour' macroeconomic policies predicated on what I call the 'Golden Multiplier' fantasy of New or Neo-Keynesianism. This is a different type of Keynesianism to that of Krugman which has really grabbed the agenda in 2011 / 2012. The comments and references below the main body of this blog post are references to serious academic and journalistic comment and critique in this debate including something from Ian Fraser (@Ian_Fraser) making the old Scottish triumvirate representative here on this page.

There is a key Economic Policy aspect to the content on this page & that is the idea that CROWDING OUT does exist (or see the CROWDING OUT tag) that is that government spending does not facillitate further private investment in some magic multiplied 'golden rule' way; in fact government spending crowds out the private sector; soaks up the whole Money Supply. This Credit Crisis has killed the old neo-Keynesian ideas forever I think but there is one more implication which is that Rational Monetary rules are a key policy for Central Authorities even in depression-type-crises. Central Authorities have to regard themselves as participants (not like any other) in a market or community process. Central Authorities cannot do what the hell they like, they must be 360 Rational if you like & have concern for the Expectations of other particpants. Here Endeth the Lesson but it is a crucial Macroeconomic and Political Ecomomic principal and pivotal to everything we promulgate here on asymptotix!

Round Tripping or How the Banks are currently reporting profits and paying bonuses

round trippingThe banks are making profits. They are not lending to you and me - so how are they doing it? They are making enough of the stuff now to be able to stand against the moral opprobrium of not only the whole of the UK population but arguably all of the ordinary people of Western Europe and the United States in demanding the right to pay huge bonuses based upon these profits.

Crowding out 2

lewis chessmenClient Advice - Crowding Out.

It's difficult if not protocol-breach for Asymptotix to disclose precisely who its clients are right now and what specific advice we give to them. Particularly in the context of what we do right now, all of our advice work is currently focussed on ‘impaired (or toxic) assets’, sensitive stuff with multi-legal entity stakeholders. We have to have some regard for our own NDA process! Often it is placing fortune as hostage to give one’s clients advice which can be construed as a warning! But that is what we did at the end of last year (2008). We predicted to one sceptical client that full-blown "crowding out" was not only likely but imminent. All of our analytics on Money Supply (components), the yield curve and some aggregate real factors were shouting “Crowding Out”! Unfortunately our vision has been reified, it seems clear. The consequence is that as hard as we try to put a price on toxic assets so as to allow bank lending to flow again – it has now become pointless.  As of last week there was no breathing space for less than the rock-stars of the private sector in the capital markets, as Keynes might have said: yields we're too low.

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