ECB opens the floodgates

Hot on the heels of the Fed comes the ECB with a massive Christmas present for the markets in the form of a half a trillion dollars……yes that’s right. They are taking no chances of an end of year credit squeeze and have basically opened their doors and said take as much as you need.

It’s probably a sensible step but doesn’t exactly fill one with confidence. This comes as Moody’s prepares to downgrade another $175bln worth of collateralized debt obligations (CDOs). At least the US and Europeans are singing from the same hymn sheet here. Liquidity must be maintained at any cost.

The question for all us is what that cost turns out to be.

Fed ups the ante but market calls

Its like watching a disaster movie in slow motion. To see the Fed so far on the back foot is disconcerting to say the least. The recent $40bln credit injection has just left the market needing more and stocks floundering.

For the first time I am asking myself whether we have a Japan style bank crisis developing. My immediate response is to say no because we haven’t had the screaming bubble of the equivalence they experienced in Japan but one could look back to the bubble of 2000/2001 and feel it was merely reinflated by the post 9/11 easing. This easing further invigorated the property bubble and took it to new heights along with financial practices that were dubious at best.

We have a situation where the banking system, in the wider sense, is stuck with a serious number of non-performing loans and this number could easily escalate if the recent liquidity measures don’t work. In Japan the policy response was to duck it and hope it would go away. The US has addressed it head on so far but will they allow banks to go under and house prices to tumble further. The maintenance of confidence is crucial in any fractional reserve fiat based money system and so far it seems like the US authorities are no taking any chances.

What if this doesn’t work? Then we will have a serious problem and global stock markets will take a 20-30% hit. I’m not making any predictions but cash still works for me.

Bali or Bust?

So finally the US capitulates and agrees to be part of talks in 2 years time that will look to make deep cuts in global emissions. Yet the reality, as reported here, is that not much has changed. The US still won’t budge on developing nations (read China and India) and still won’t provide any meaningful targets. It’s interesting that without Australia alongside they are looking very much alone on this issue.

Arguing over who is responsible and who must cut what is really a waste of time. It’s not an argument that can be won by either side. The simple question to be asked is whether global emission levels need to be reduced. If so then they need to be reduced through a global mechanism such as I have proposed in Climate Control where emissions will be reduced by virtue of a quota agreed at the point of extraction not use.

Otherwise we might as well stop wasting our time and focus on adapting and developing cheaper supplies of energy.

Wolf cries Wolf

Martin Wolf writes an insightful piece here in the FT. If you can’t access it just register as its free.

He points to ingrained problems which are holding back progress:

- The free rider problem.

- Richer countries are responsible yet want poor countries to stop developing.

- The reality that the poorer countries will be worst hit by any further warming.

On top of that we still have disagreements of whether warming is taking place to the degree alluded to in the forecasting models. Scrutiny of forecasting processes and data management is throwing up some issues. Who can we trust? We know politicians always have their own agenda and a huge amount of political capital has been invested in the whole process.

Richer countries may feel that their best course of action is to simply adapt via new environmental technologies, building and planning. Developing countries (China and India) may feel that they didn’t cause this and so can carry on growing at a furious pace.

Poor countries simply have to bear it.

As Wolf notes we may need a real wake up call to make anything actually happen. He muses on the potential of a 2o degree increase as having the desired effect. We saw this scenario play out in the “The Day After Tomorrow” where the world gets a big wake up call but pulls through in the end.

For now though it seems like we will just stumble along from one conference to the next increasing emissions but having little real impact.

Fed to freeze mortgage rates……another fiddle

So the Fed joins the Bank of England in changing the rules. The word is that certain sub prime mortgages will have their rates frozen for 5 years. This will ease the pain of borrowers who in some cases face rises of up to 30% on their mortgage bill.

Did i mention that mortgage means “deathgrip”?

Anyway this just shows that for all the hi’ fallutin’ nonsense about free markets we actually live in a system that is far from free. Bush doesn’t really want to hand the next election to the Democrats though he’s done his best to do so in recent years.

But what we are seeing now, as we saw post 1930, is that the financial system can be changed if required and that the fundamental right to create money resides with the people via their representatives. If i owned shares in a bank i would be worried.

Come to think of it if i had money in a bank i’d be worred but humping around gold coins is so 13th century.

I can’t quite work out if this is the beginning of the end or the end of the beginning. I fear its the latter.

Don’t tax raw foods

It seems crazy that in a time of increasing obesity and poor nutrition that we still tax basic raw food. So people keep consuming highly processed junk which they claim is cheaper than good old fruit and vegetables.

A food researcher from Massey University has asked for GST to be removed from fruit and vegetables.  This is a step in the right direction at least. It will not cause a sudden shift in diet…let’s face it it’s hard to come off a high sugar and salt diet but at least it will start to compete on price terms.

How the government can continue to justify this tax is beyond me. But given that the whole tax system is dysfunctional that is hardly a surprise.