Four years of relentless austerity in many of the euro zone’s most debt-hobbled countries have forced many of their youngest and sometimes brightest workers to grab the plane, train or boat and emigrate in search of work. For countries with a long history of emigration, such as Ireland, this is depressingly familar — coming just 20 years after the country’s last debt crisis and national belt-tightening in the 1980s crescendoed, with the exit of some 40,ooo a year in 1989/90 from a population of just 3-1/2 million people.
The intervening boom years surrounding the creation and infancy of the Europe’s single currency and expansion of the European Union eastwards saw huge net migration inflows back into the then-thriving euro zone periphery — Ireland, Greece, Portugal, Spain and Italy — and created a virtuous circle of rising workforces, higher demand for housing/goods and rising exchequer tax receipts.
Have fears of global shortage of high-grade collateral been exaggerated?
As the world braces for several more years of painful deleveraging from the pre-2007 credit excesses, one big fear has been that a shrinking pool of top-rated or AAA assets — due varioulsy to sovereign credit rating downgrades, deteriorating mortgage quality, Basel III banking regulations, central bank reserve accumulation and central clearing of OTC derivatives — has exaggerated the ongoing credit crunch. Along with interbank mistrust, the resulting shortage of high-quality collateral available to be pledged and re-pledged between banks and asset managers, it has been argued, meant the overall amount of credit being generating in the system has been shrinking, pushing up the cost and lowering the availability of borrowing in the real economy. Quantitative easing and bond buying by the world’s major central banks, some economists warned, was only exaggerating that shortage by removing the highest quality collateral from the banking system.
But economists at JPMorgan cast doubt on this. The bank claims that the universe of AAA/AA bonds is actually growing by around $1trillion per year. While central bank reserve managers absorb the lion’s share of this in banking hard currency reserves, JPM reckon they still take less than half of the total created and, even then, some of that top-rated debt does re-enter the system as some central bank reserve managers engage in securities lending.
As US Q3 earnings kick off (f/c -2.4% y/y), TR data shows 91 negative EPS preannouncements vs 21 positive. Ratio of 4.3 weakest since 2001
LONDON (Reuters) – Investors staring squarely at the U.S. fiscal cliff may well be ignoring a bigger monetary policy pitfall.
Many asset managers are puzzled at the how little attention world markets seem to have paid to the U.S. Republican party’s stiff criticism of the hyper-active Federal Reserve and its successive bouts of reflationary money printing since 2008.