Thoughts on the Crisis of Capitalism
George Soros' "The Crisis of Global Capitalism..." was published back in late-1998, following a dreadful period of global instability. Such concerns for the most part dissipated over the years with the resuscitation of global market and economic booms. The market value of global debt, equities and commodities skyrocketed. Bigger booms and busts followed and, not surprisingly, global Capitalism is today under only more intense fire.
Strangely enough, there remains a fine line between a "crisis of global Capitalism" and utter euphoria in the financial markets. The ECB's $620bn first round Long-Term Refinancing Operation (LTRO) - along with expectations for an even more grandiose 3-year lending facility (LTRO II) next month - has the markets abuzz. Crisis resolved? The unleashing of another global reflationary backdrop on which to capitalize?
Participants certainly appreciate that the Federal Reserve has a hankering for QE3; the Bank of England (BOE) appears poised for unending quantitative easing; the Bank of Japan continues to flood its system with liquidity; the Chinese will likely soon resume stimulus measures; and "developing" central banks around the world have moved to combat a weakening global backdrop with their own brand of monetary largess. Especially after global risk markets have ushered in 2012 in robust fashion, the optimists and speculators can be excused for believing that all the crisis chatter might yet again signal "liquidity abundance, government backstops and spectacular market booms ahead."
Prime Minister David Cameron yesterday provided his take on Capitalism in what has become a fascinating political debate in the UK. Here at home, the outcome of the November election could very well be decided by which of two opposing visions of a capitalistic economy best resonates with a divided populace. These are critical times.
The Financial Times this week ran several interesting essays in their "Crisis in Capitalism" series. Today from former ECB and Bundesbank economist Otmar Issing: "Too Big to Fail Undermines the Free Market Faith... The crisis has provided strong arguments for opponents of the financial system. Interventions to avoid its collapse have severely undermined not only confidence in financial markets but also in the market economy as a whole. Once a financial institution has become so big or interconnected that its insolvency threatens the stability of the system, politicians must intervene. The problem of 'too big to fail' has made society - more precisely, the taxpayer - hostage to the survival of individual financial institutions. As a result, the basis of free markets has been shaken. A market economy rests on the principle that individuals are free to act within boundaries set by a legal system... The rules of the game should be clear. Those who succeed are free to take the profits (after taxation); those who make losses have to bear the consequences, with bankruptcy the ultimate sanction. Thus, 'too big to fail' not only undermines a fundamental principle of market economies but also a principle of societies in which individuals are responsible for their actions."
Also today, from Mohamed El-Erian: "The Crisis Raises Legitimate Questions About Capitalism Itself... The majority of writers agree that the crisis in capitalism is caused by two distinct failures: the inability of the system to deliver sustained prosperity through economic growth and jobs; and the perception that it is grossly unfair and socially unjust. ...To fail on both counts, and to do so in such a spectacular manner, is indeed a 'crisis.' It raises legitimate questions about the model itself. There are three main reasons for this. Firstly, capitalism has always, and will always be, prone to traditional market failures. The answer is to accept this, and work harder at reducing the chances of a catastrophic failure... Secondly, during the past decade, in another part of the world, a set of countries embarked on their own capitalist economic revolution... Lastly, too many of the institutions that are critical for the smooth functioning of capitalism utterly failed to deliver when they were needed most... Each of these areas can be corrected. Theoretically at least, what has occurred is less a calamity of the system as a whole, and more an issue of how it was run."
Perhaps it's only semantics, but while Mr. El-Erian writes "what has occurred is less a calamity of the system as a whole, and more an issue of how it was run," I would instead focus on how it is "BEING run." And when Mr. Issing writes, "The problem of 'too big to fail' has made society... hostage to the survival of individual financial institutions," I would focus these days somewhat less on "institutions" and more on "global debt and securities markets." I know many analysts are of the view that system fragilities are being addressed through greater bank capital cushions and more stringent regulation. This is fighting the last war. I believe that a profoundly greater risk to global Capitalism goes largely unappreciated and unaddressed.
Larry Summers this week on CBNC repeated a common view: Capitalism is inherently flawed, but it still beats the alternative. Longtime readers know I take exception with the view that Capitalism is "flawed." One could similarly contend that the eyeball is flawed - that it is much too soft and fragile for having such a vital function. In reality, it is the nature of its operation and functionality that dictates its vulnerable structure. So it is incumbent upon those of us relying on eyeballs to guard against potential dangers, such as excessive sunlight (sunglasses), metal shavings (safety glasses) and disease (regular self-assessment and trips to the optometrist when things begin to appear out of whack).
There is certainly no doubt that Capitalism has vulnerabilities. Much less obvious is that its greatest vulnerability lies with the nature of Credit. This reality goes unappreciated by most - and largely undiscussed by the few conversant in the formidable nuances of Credit analysis. Ignoring the inherent instability of Credit is akin to staring at the lovely sun. Ironically, those that seem to best appreciate the nature of Credit instabilities - along with the risk posed to Capitalism - also tend to be those working keenly to extract the greatest amount of financial wealth from grossly distorted financial markets. Indeed, profiting from the consequences of two decades of policy measures in response to market instabilities has engendered one of history's greatest periods of wealth accumulation (much of it through the transfer of wealth). And as the scope of policy prescriptions and market interventions turns only more incredible, the whirlwind of speculation seeking market riches becomes more intensive than ever. The markets ebb and flow and convulse, while the Crisis of Capitalism drifts nearer to the abyss.
I am convinced that a capitalistic system must have a monetary anchor to be sustainable. A functioning market pricing mechanism is fundamental to resource allocation, saving and investment, wealth creation and, in the end, social stability and cohesion. Stable money and Credit is a prerequisite. One can also think in terms of two distinct pricing systems. There is the pricing of goods and services throughout the "economic sphere." There is, as well, the pricing of finance/Credit/risk in the "financial sphere." It is the pricing mechanism within the financial sphere that has become so badly out of whack to the point of posing dire risk to global Capitalism.
As I've noted in the past, we live in period unique in financial history: There is globally no limits placed on the quantity or quality of Credit creation. There is no gold standard; no Bretton Woods monetary regime; nor even an ad-hoc "dollar standard" working to regulate global Credit expansion. Markets for pricing finance and risk have turned progressively distorted and, in the end, dysfunctional. This was a predictable outcome for a global "system" bereft of a monetary anchor. Policymakers have repeatedly responded to dysfunction and inevitable booms-turned-bust with unprecedented market intervention. This continues to only exacerbate financial market pricing distortions and attendant imbalances. What began as tinkering has regressed to the point of policymakers attempting to take virtual command over the pricing of finance. Capitalism now hangs in the balance.
I am prepared to defend Capitalism until my dying days. I expect this endeavor to be no less of a challenge than it's been the past 12 years trying to explain the great dangers associated with a runaway Credit Bubble. Over the long-term, for Capitalism to succeed in the real economy requires a functioning pricing mechanism and sound Credit system. Distorting the price of finance ensures speculative Bubbles, the misallocation of real and financial resources, and resulting economic maladjustment. In this regard, policymakers have bordered on gross negligence.
Massive fiscal and monetary stimulus, along with unprecedented market interventions, has completely overwhelmed the capacity of the markets to effectively price risk. Instead of learning from past mistakes, policymakers are more determined than ever to dictate market pricing. Rather than recognizing the prevailing role "activist" central banking has played in fomenting dysfunctional markets, policymakers believe market outcomes beckon for only greater activism. Until governments can begin to extricate themselves from the manipulation of interest rates and risk market pricing more generally, this long cycle of destructive booms and busts will run unabated.
Mr. El-Erian posited that "capitalism has always, and will always be, prone to traditional market failures. The answer is to accept this, and work harder at reducing the chances of a catastrophic failure." Well, what lies at the heart of these "traditional market failures"? I have a very difficult time with the notion of accepting market proclivities and correcting institutional failings when there is scant evidence that policymakers or the economic community appreciate the inherent instabilities of Credit or the dangers of unsound finance. Would less debt, leverage, government market intervention and market speculation reduce the risk of catastrophic failure? Why then the incessant inflationist solutions of massive deficit spending, interest-rate manipulation, central bank monetization and progressive government control over the markets and real economies?
Mr. Issing states that "the rules of the game should be clear. Those who succeed are free to take the profits...; those who make losses have to bear the consequences, with bankruptcy the ultimate sanction." Yet the overarching problem today is that the global government finance Bubble has inflated past the point of being too big to fail. And the rules of the game have become dangerously clear: policymakers will do any and everything to sustain a global Credit system some years ago exposed as dysfunctional and a risk to Capitalism. Governments are conspicuously against the bearing of consequences, and market participants are being heavily incentivized to play it that way.
For the Week:
The S&P500 jumped 2.0% (up 4.6% y-t-d), and the Dow gained 2.4% (up 4.1%). The Morgan Stanley Cyclicals rose 2.9% (up 11%), and the Transports gained 2.0% (up 5.2%). The Banks added 0.1% (up 10.5%), and the Broker/Dealers surged 6.5% (up 14.3%). The S&P 400 Mid-Caps gained 2.6% (up 5.9%), and the small cap Russell 2000 rose 2.7% (up 5.9%). The Nasdaq100 was up 2.7% (up 7%), and the Morgan Stanley High Tech index surged 5.1% (up 8.9%). The Morgan Stanley Consumer index increased 1.7% (up 2.7%), while the Utilities dipped 0.6% (down 3.7%). The Semiconductors spiked 8.1% higher (up 13.7%). The InteractiveWeek Internet index jumped 3.8% (up 6.4%). The Biotechs were little changed (up 13.8%). While bullion gained $28, the HUI gold index dropped 3.4% (up 0.6%).
One month Treasury bill rates ended the week at 2 basis points and three-month bills closed near 4 bps. Two-year government yields rose 2 bps to 0.22%. Five-year T-note yields ended the week up 9 bps to 0.86%. Ten-year yields jumped 16 bps to 2.02%. Long bond yields ended up 19 bps to 3.05%. Benchmark Fannie MBS yields were 7 bps higher at 2.82%. The spread between 10-year Treasury yields and benchmark MBS yields narrowed 9 bps to 80 bps. Agency 10-yr debt spreads narrowed 10 bps to negative 10 bps. The implied yield on December 2012 eurodollar futures was little changed at 0.58%. The two-year dollar swap spread was little changed at 35 bps. The 10-year dollar swap spread declined 2 to about 13 bps. Corporate bond spreads narrowed. An index of investment grade bond risk dropped 10 to a five-month low 110 bps. An index of junk bond risk sank 62 bps to a five-month low 593 bps.
Debt issuance was strong. Investment grade issuers included Goldman Sachs $6.75bn, Bank of America $1.5bn, Citigroup $1.0bn, HCP $450 million, Amphenol $500 million, FedEx $250 million, and Scana $250 million.
Junk bond funds enjoyed inflows of $1.3bn (from Lipper). Junk issuers included Fresenius Medical $1.5bn, and Taminco $400 million.
I saw no convertible issuance this week.
International dollar bond issuance included KFW $3.0bn, Bank of Nova Scotia $2.5bn, Petroleos Mexicanos $2.1bn, UBS $1.5bn, Turkey $1.0bn, Itau Unibanco $1.1bn, Groupo Bimbo $800 million, Ardagh $770 million, Inter-American Development Bank $700 million, Shinhan Bank $700 million and Sable International $400 million.
Italian 10-yr yields ended the week down 39 bps to 6.23% (down 80bps y-t-d). Spain's 10-year yields dipped 4 bps to 5.45% (up 41bps). German bund yields jumped 17 bps to 1.93% (up 10bps), and French yields added 2 bps to 3.08% (spread to bunds narrowed 15 bps to 115bps). Greek two-year yields ended the week up 1,361 bps to 165.06% (up 3,952bps). Greek 10-year yields fell 16 bps to 30.86% (down 45bps). U.K. 10-year gilt yields rose 15 bps to 2.11% (up 14bps). Ten-year Portuguese yields jumped 197 bps to 13.88% (up 111bps). Irish yields fell 33 bps to 7.32% (down 94bps).
The German DAX equities index jumped 4.3% (up 8.6% y-t-d). Japanese 10-year "JGB" yields rose 3 bps to 0.98% (unchanged). Japan's Nikkei rose 3.1% (up 3.7%). Emerging markets were strong. For the week, Brazil's Bovespa equities index surged 5.4% (up 9.8%), and Mexico's Bolsa gained 2.3% (up 0.8%). South Korea's Kospi index surged 4.0% (up 6.8%). India's Sensex equities index rose 3.6% (up 8.3%). China's Shanghai Exchange gained 3.3% (up 5.4%). Brazil's benchmark dollar bond yields fell 12 bps to 3.34%, and Mexico's dollar bond yields declined 3 bps to 3.64%.
Freddie Mac 30-year fixed mortgage rates declined one basis point to a record low 3.88% (down 86bps y-o-y). Fifteen-year fixed rates added a basis point to 3.17% (down 88bps y-o-y). One-year ARMs declined 2 bps to 2.74% (down 51bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down 6 bps to 4.50% (down 100bps y-o-y).
Federal Reserve Credit surged $20.9bn to $2.904 TN. Fed Credit was up $487bn from a year ago, or 20.2%. Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt this past week (ended 1/18) declined $6.1bn to $3.392 TN (18-wk decline of $83bn). "Custody holdings" were up $48.5bn year-over-year, or 1.4%.
Global central bank "international reserve assets" (excluding gold) - as tallied by Bloomberg - were up $940bn y-o-y, or 10.2% to $10.185 TN. Over two years, reserves were $2.364 TN higher, for 30% growth.
M2 (narrow) "money" supply jumped $22.3bn to a record $9.756 TN. "Narrow money" has expanded 10.7% from a year ago. For the week, Currency increased $2.8bn. Demand and Checkable Deposits rose $23.7bn, while Savings Deposits declined $5.3bn. Small Denominated Deposits slipped $1.9bn. Retail Money Funds increased $2.8bn.
Total Money Fund assets declined $12.6bn to $2.692 TN. Money Fund assets were down $70bn over the past year, or 2.5%.
Total Commercial Paper outstanding rose $5.0bn to $968bn. CP was up $51bn from one year ago, or 5.5%.
Global Credit Watch:
January 19 - Financial Times (Sam Jones): "Greek negotiators may be about to reach a final agreement with creditors on the country's huge debt burden but, as with the original bonds, any deal may not be worth the paper it is written on. Fraught discussions on Wednesday - led on the creditor side by veteran technocrats Jean Lemierre, special adviser to the chairman of BNP Paribas, and Charles Dallara, managing director of the Institute for International Finance - have hit on a formula with Greek officials that an untested minority of bondholders could yet reject. Several hedge fund managers that hold Greek debt have said they have not been involved in the talks and will not be agreeing with the 'private sector involvement' (PSI) deal - which centres on a 50% loss on bondholders' capital and a reduction in the interest they receive. Alongside them are insurance companies, fund managers and pension funds that also have little incentive in agreeing to the negotiated terms."
January 18 - Financial Times (David Oakley and Robin Wigglesworth): "Portugal is trading in default territory after investors offloaded the country's bonds this week amid rising fears of contagion, hurting a government debt auction on Wednesday. Worries are mounting that the private sector and Greece will fail to agree a restructuring package for Athens' debt. Portuguese 10-year bond yields... jumped to a new euro-era high of 14.40%... Wednesday. Before the S&P two-notch downgrade late on Friday, yields were trading at 12.45%."
January 20 - Bloomberg (Paul Dobson, Emma Charlton and Lucy Meakin): "European Central Bank President Mario Draghi's unlimited three-year loans to euro-region banks may give Italy and Spain only temporary respite from the region's debt crisis... The gain on the short end of the market outpaced longer-dated debt on concern the nations' austerity plans won't plug deficits and reduce Europe's largest debt load... 'This is about buying time,' said John Davies, a fixed-income strategist at WestLB AG in London. 'It's only when the market believes Italy and Spain have returned to sustainable debt levels that you can say the crisis has truly ended.'"
January 20 - Financial Times (Patrick Jenkins and Camilla Hall): "Italy's banks, led by UniCredit, were the biggest users of the special three-year funding mechanism launched by the European Central Bank in December, according to a new research report. UniCredit - Italy's biggest bank by assets - took €12.5bn of three-year money under the facility, closely followed by Intesa Sanpaolo, with €12bn, and Monte dei Paschi di Siena, which took €10bn, the report from analysts at Morgan Stanley says. The data, submitted to Morgan Stanley but not previously disclosed, underline just how reliant banks in some eurozone nations have become on emergency mechanisms put in place by the European authorities. It will also stoke the gratitude of the Italian financial system towards Mario Draghi, who took over as president of the ECB in November, instituting the funding mechanism soon afterwards. Banks across the eurozone periphery have been frozen out of commercial funding markets for months, as investors have shied away from anything other than the most trusted bond issuers."
January 20 - Wall Street Journal (Sara Schaefer Munoz, David Enrich and Laura Stevens): "Just six months after issuing billions of euros of new stock to investors and raising hopes the European banking sector was on the mend, three big lenders in key euro-zone economies have been hit by a fresh wave of problems. Germany's Commerzbank AG and Italy's Banca Monte dei Paschi di Siena SpA are scrambling to come up with billions of euros in new capital to comply with European regulations. That is raising the prospect that they might need to go back to their beleaguered investors--or taxpayers--for fresh rounds of aid. Spain's Bankia SA, meanwhile, is facing a possible merger with a stronger rival as part of the government's plan to deep-clean its banking sector, just six months after the bank raised some EUR3 billion ($3.9bn) in an initial public offering that was widely hailed as a success for the Spanish sector. The travails of the three banks, coming so soon after they tapped the markets for capital, are likely to make investors even more reluctant to put money into cash-strapped European lenders, analysts and investors say."
January 18 - Bloomberg (Paul Dobson): "The European Central Bank and domestic Italian and Spanish investors may need to buy as much as 121 billion euros ($154bn) of debt this year as international investors curb holdings, Barclays Plc said. 'The behavior of foreign investors will likely remain key to the performance of the Spanish and Italian bond markets,' Laurent Fransolet, head of fixed-income strategy at Barclays Capital in London, wrote..."
January 19 - Bloomberg (Angeline Benoit): "Fitch Ratings Managing Director Edward Parker said he has 'doubts' over whether Spain can reach its deficit targets for 2012 and next year after overshooting its projected shortfall last year. Spain's 2011 deficit of about 8% of gross domestic product 'casts many more doubts about its capacity to hit budget targets for this year and in 2013 and bring the budget deficit down to a sustainable level,' Parker said... He reiterated that Fitch would likely cut by one or two levels by the end of this month the six euro nations it put on review in December."
January 19 - Financial Times (Robin Wigglesworth, Mary Watkins and Nicole Bullock): "The new year has brought a torrent of European bond sales, as companies and banks race to take advantage of a window of opportunity opened by the European Central Bank. The ECB's Christmas tonic, in the form of €489bn of cheap, three-year bank funding - so-called LTROs - has lifted the spirits of investors, who have grown more receptive to European bank debt. In addition to a rush in sales of covered bonds, a type of debt considered ultra-safe by investors, European banks have already issued €16bn of senior unsecured euro debt this January, more than for the whole of the second half of 2011, according to Dealogic."
January 20 - Bloomberg (Simone Meier): "Marc Faber, publisher of the Gloom, Boom and Doom report, said it would make sense for the euro region's 'weak' member states to leave the currency union. 'It would be good if weak countries were kicked out or left the currency union," Faber said... 'It would be the better solution than denial.'"
Global Bubble Watch:
January 18 - Bloomberg (Simon Kennedy): "The International Monetary Fund is proposing a $1 trillion expansion of its lending resources to insulate the global economy against any worsening of Europe's debt crisis, according to an official at a Group of 20 nation. The Washington-based lender is pushing China, Brazil, Russia, India, Japan and oil-exporting nations to be the top contributors... The fund wants the agreement struck at the Feb. 25-26 meeting of G-20 finance ministers and central bankers in Mexico City, the official said.
January 17 - Bloomberg (Daniel Kruger): "For the first time, Wall Street's biggest bond-trading firms hold more U.S. Treasuries than corporate securities, signaling concern the economy's rebound will be too slow to sustain record demand for riskier assets. The 21 primary dealers that trade directly with the Federal Reserve held a total of $74.7 billion of Treasuries as of Dec. 28, compared with $61.1 billion of company debt... The aggregate position in U.S. government bonds has increased from a $38.6 billion bet against the securities in May, while corporate holdings have tumbled 50 percent from $121.8 billion."
The dollar index this week dropped 1.7% (unchanged y-t-d). On the upside, the Mexican peso increased 3.2%, the Swedish krona 3.1%, the South African rand 2.2%, the Norwegian krone 2.1%, the Danish krone 2.0%, the euro 2.0%, the Swiss franc 1.9%, the Brazilian real 1.8%, the British pound 1.7%, the Singapore dollar 1.6%, the Australian dollar 1.6%, the New Zealand dollar 1.5%, the South Korean won 1.3%, the Canadian dollar 1.0%, and the Taiwanese dollar 1.0%. On the downside, the Japanese yen declined 1.0%.
Commodities and Food Watch:
The CRB index added 0.7% this week (up 1.5% y-t-d). The Goldman Sachs Commodities Index was little changed (up 1.1%). Spot Gold gained 1.7% to $1,667 (up 6.6%). Silver jumped 9.0% to $32.17 (up 15.2%). March Crude declined 51 cents to $98.37 (down 1%). February Gasoline gained 1.9% (up 4.8%), while February Natural Gas slumped 12.4% (down 22%). March Copper rallied 3.0% (up 9%). March Wheat recovered 1.4% (down 6.5%), and March Corn rallied 2.0% (down 5.4%).
China Bubble Watch:
January 18 - Bloomberg (James Nash and Michael B. Marois): "China's aggregate financing, which includes bank lending, off balance-sheet loans and bond and stock sales, fell 1.11 trillion yuan to 12.83 trillion yuan in 2011 from the previous year, the People's Bank of China said... Yuan-denominated loans accounted for 58.3% of aggregate financing while corporate bond sales accounted for 10.6%..."
January 20 - Bloomberg): "A Chinese purchasing managers' index signaled manufacturing may contract for a third month as a slowing economy boosts the case for the government to further loosen credit controls. The preliminary January reading of 48.8... compares with a final 48.7 number for December."
January 18 - Bloomberg: "China's December home prices posted their worst performance last year, with only two of the 70 cities tracked posting gains... Prices in 52 of 70 cities monitored by the government declined from the previous month... New home prices in the nation's four major cities of Shanghai, Beijing, Shenzhen and Guangzhou declined for a third month, it said."
January 19 - Bloomberg: "China's biggest developers slowed home sales toward the end of 2011, bracing for the worst property market in three years as the government vows to keep real-estate curbs. Contract sales, or sales booked before apartments are completed, dropped 30% last month at China Vanke Co., as the country's biggest developer..."
January 20 - Bloomberg (Toru Fujioka and Masahiro Hidaka): "The Bank of Japan will maintain its zero interest-rate policy until at least 2016 as Europe's debt crisis weighs on an economy struggling to overcome deflation, bond market options show."
Asian Bubble Watch:
January 20 - Bloomberg (Chinmei Sung): "Taiwan's export orders fell in December for the first time since 2009 and industrial output shrank as demand from China and Japan declined."
Latin America Watch:
January 20 - Bloomberg (Gabrielle Coppola): "Brazilian companies from power generator Cia Energetica de Minas Gerais to Cia. de Saneamento Basico do Estado de Sao Paulo are leading a 60% jump in local market bond issuance as benchmark borrowing costs tumble."
January 19 - Bloomberg (Jose Enrique Arrioja): "Mexico's unemployment rate was 4.51% in December compared with 4.97% in November..."
Unbalanced Global Economy Watch:
January 20 - Bloomberg (Nichola Saminather): "A year ago, when Sydney property agent Peter Green's clients decided to sell, half opted for auctions betting competition among buyers would deliver them the best price. Today, less than one in five take that chance. 'The vendors don't want to embark on the potential of failure,' said Green... principal at... Laing+Simmons in Miranda, a suburb...16 miles south of Sydney's center. 'In the last three months, the number of people visiting open houses has been cut by half. And buyers may show up to auctions, but they don't bid.'"
Central Banking Watch:
January 19 - Bloomberg (Jana Randow): "European Central Bank Governing Council member Jens Weidmann said policy makers should resist pressure to increase government bond purchases in response to the euro region's debt crisis. Some are demanding that the ECB turn to the 'bazooka' or 'nuclear option' of 'engaging in unlimited government bond purchases and limiting yields,' Weidmann, who heads Germany's Bundesbank, said... 'There are a number of legal, economic and political reasons why we shouldn't do this,' he said. Such an approach would violate European Union law, take away the incentive for governments to implement fiscal reforms and redistribute losses within the currency union, Weidmann said."
U.S. Bubble Economy Watch:
January 17 - Bloomberg (Leslie Patton and Lauren Coleman-Lochner): "Supermarkets that had been adding Starbucks Corp. cafes and olive bars to draw wealthy shoppers are now catering to a different audience: food-stamp recipients. Stores are moving their opening hours, adding products and revamping merchandise assortments as persistent joblessness pushes more shoppers to government support in buying groceries. Distributions from the federal Supplemental Nutrition Assistance Program rose 11% to a record $71.8 billion in fiscal 2011..."
January 19 - Bloomberg (Charles R. Babcock and Frank Bass): "Almost 15,000 federal retirees, including former leaders of Congress, a university president and a banker, are receiving six-figure pensions from a system that faces a $674.2 billion shortfall. About one of every 125 retired federal civilian workers collects more than $100,000 in benefits annually... 'We don't want to bash federal employees,' said Jim Kessler, vice president for policy at Third Way... 'Still, when you have today's economy, public sector jobs look better and better. And there are some pensions that make you question the system as a whole.'"
January 19 - Bloomberg (James Nash and Michael B. Marois): "California's future hinges on spending billions of dollars to link its cities with bullet trains and to bolster its water supply, Governor Jerry Brown said, even as it confronts a $9.2 billion deficit. The largest U.S. state by population is 'on the mend' after years of fiscal distress and needs the projects to keep growing, Brown told lawmakers..."