Europe is Japan, USA is worse

Oktober 13, 2011

At least if looking at the 10y government bonds yields:


10y government bond yields

10y government bond yields

(Source: Page 40 from this PDF)

RAP NEWS 9 – The Economy w. Ron Paul & Peter Joseph

Oktober 3, 2011

Not entirely with the brilliance f previous editions, but great nevertheless.

ECB Collateral Changes

September 21, 2011

Today the ECB surpirsed everyone with changes to it’s rules of egilible collateral. The following things were changed:

First, the Eurosystem has abolished the eligibility requirement (Sections and that debt instruments issued by credit institutions, other than covered bank bonds, are only eligible if they are admitted to trading on a regulated market.

So in plain English: The ECB now also accepts any debt instrument issued by banks even though they are not traded on regulated market and thus do not come with a market price. This is a mayor relaxation of colleteral standards. Cynics might claim that markt-to-fanansy enters the Euro monetary system. Den Rest des Beitrags lesen »

Common Misconceptions on Eurobonds

August 23, 2011

Hans-Werner Sinn, sitzend

Sinn Targets Eurobonds. Image via Wikipedia

There are many common misconceptions on Eurobonds out there. I was going to compile a list, but the German economic newspaper Handelsblatt did me the favor of having them all in one article – however not identified as such.

Den Rest des Beitrags lesen »

How to make Eurobonds work

August 16, 2011

The Lisbon Treaty formalised Jean-Claude Junck...

Junker, "My Name is Bond, Eurobond". Image via Wikipedia

The political pressure on Germany and other surplus countries within the Eurozone to introduce Eurobonds is constantly increasing. I’m not a big fan of Eurobonds without further political integration, but given the problems of the deficit countries, I fear we may not have the time to introduce a common democratic European government to orderly introduce Eurobonds. As I write this, Angela Merkel and Sarkozy just pleaded for a common European Economic Government. As Merkel’s CDU always cited this too as a prerequisite to the introduction of Eurobonds, I guess that the chances that we actually will get Eurobonds are increased, despite Merkel saying otherwise.

So the question addressed in this post is: Can Eurobonds work without further political integration and thus without creating a „transfer union“. Yes, that is possible.

Den Rest des Beitrags lesen »

Openleaks vs. CCC

August 14, 2011

There is some trouble going on in the CCC camp as the CCC expelled Daniel Domscheidt-Berg from it’s club. The CCC board was irritated, if not irate, because Daniel asked the hackers at the camp to look into his and other leaking platforms. The CCC claims that Daniel wants to lever on the clubs reputation and insisted that it turned similar requests by other parties down previously and Daniel should have known. Here is the talk that Daniel held on the camp that apparently caused this anger.

To be honest, nothing in this talk struck me as calling for trouble. Seeing this talk, it is hard for me to imagine that the CCC decision was biased and well thought through. I also don’t see the point in criticizing Daniel as a person. His project is not ideal, especially because he didn’t deliver on the transparency yet that the name OpenLeaks promises. However, what Daniel said in this talk is well in line with previous talks, with what common sense, and with information that I obtained in some private Email exchanges with the OpenLeaks team. So, unless someone else comes up with a more promising project, I hope the OpenLeaks team proceeds and we finally have a leak platform up and running again.

Relationship Benefit in Credit Ratings

August 7, 2011

President Signs S. 3850, the "Credit Rati...

President Signs the "Credit Rating Agency Reform Act of 2006". Image via Wikipedia

S&P downgraded the USA from AAA to AA+. For me, this downgrade is a no-brainer. After all, the rating is an estimation of the probability that the USA will not service its debts. Either because it is not able to or it is not willingly to follow it’s obligations. Given that all US debt is dollar denominated, it seems inconceivable that it cannot service its debt. But given the chaos in the congress its very possible that it one day may not be willingly to do so. „AAA“ indicates that this chance of this happening in the next year is 0.01% or once in 10,000 years. That seems very optimistic to me.

Therefore, from my perspective, the downgrade is no surprise. The only questionable thing is: Why not much earlier? The congress gone insane is not new. One possible answer come from Prof. Thomas Mählmann’s latest research publication „Is There a Relationship Benefit in Credit Ratings?„. He finds for the rating agency S&P that

This paper documents the existence of relationship benefits in credit ratings. In
particular, the paper shows that firms with longer rating agency relationships have
better (i.e., closer to AAA) credit ratings. […] controlling for observables, the firms with longer relationships, while having higher ratings, do not have lower default rates.

In other words, the ratings of bond issuers with a long lasting relationship with S&P, have higher default rates than equal ratings of new customers of the rating agency. In case of the USA that means: you shouldn’t have taken the AAA too serious in the first place, given the relationship length of a century or so.

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