How the Rich Get Richer – Money in the World Economy | DW Documentary

Exploding real estate prices, zero interest rate and a rising stock market – the rich are getting richer. What danger lies in wait for average citizens?

For years, the world’s central banks have been pursuing a policy of cheap money. The first and foremost is the ECB (European Central Bank), which buys bad stocks and bonds to save banks, tries to fuel economic growth and props up states that are in debt. But what relieves state budgets to the tune of hundreds of billions annoys savers: interest rates are close to zero.

The fiscal policies of the central banks are causing an uncontrolled global deluge of money. Experts are warning of new bubbles. In real estate, for example: it’s not just in German cities that prices are shooting up. In London, a one-bed apartment can easily cost more than a million Euro. More and more money is moving away from the real economy and into the speculative field. Highly complex financial bets are taking place in the global casino - gambling without checks and balances. The winners are set from the start: in Germany and around the world, the rich just get richer. Professor Max Otte says: "This flood of money has caused a dangerous redistribution. Those who have, get more." But with low interest rates, any money in savings accounts just melts away. Those with debts can be happy. But big companies that want to swallow up others are also happy: they can borrow cheap money for their acquisitions. Coupled with the liberalization of the financial markets, money deals have become detached from the real economy. But it’s not just the banks that need a constant source of new, cheap money today. So do states. They need it to keep a grip on their mountains of debt. It’s a kind of snowball system. What happens to our money? Is a new crisis looming? The film 'The Money Deluge' casts a new and surprising light on our money in these times of zero interest rates.

Daniel Lacalle | Why the ECB Must Stop QE and Outlook for Oil Prices

The ECB Must Stop Its QE Program Now. Here is Why

DANIEL LACALLE: This week the European Central Bank has announced that it will maintain its asset buyback program, despite the fact that the European Union is neither in crisis nor in a recessionary shock. This is the first time in history that major central banks are making repurchases in excess of $200 billion a month without being in a period of crisis.

The European Central Bank launched a fresh defense of its monetary policy, saying that low interest rates and monthly asset purchases of €60bn have helped to stimulate growth and jobs in the eurozone and prevented the bloc from sliding into deflation.

“Our monetary policy was successful. The question is: is it time to exit or time to think about exit or not? This time hasn’t come yet,” he said. I am afraid he is wrong, ignoring financial risk accumulation and perverse incentives in over-indebted governments.

The growth figures of the European economy are good, and manufacturing indices are expanding. But they were already in expansion before QE was launched. The European manufacturing PMI is at six-year highs, the expected growth for 2017 will be 1.7% and 1.8% for 2018, unemployment will fall to 9.4% and 8.9% in 2017 and 2018 respectively, and growth of investment and credit is close to 2.5%. However, inflation by decree has been a failure, rising in energy and food prices and poor in core underlying inflation, a consequence of accumulated overcapacity and poor productivity.

You could say that these good growth figures are because of the ECB policy, but Europe was already expanding and recovering before they bought a single bond. Europe has been improving for five years. But that is not the debate. Even if we assume, for a moment, that the ECB policy has “worked” -despite 1.2 trillion euro of excess liquidity and high-risk bonds at the lowest rates in thirty-five years- the ECB must stop the monetary laughing gas urgently, for several reasons:

It runs out of tools before a cycle change. With zero interest rates, buying in some issues up to 100% of bond issues’ supply, and with new debt financing governments’ current expenditure and low productivity investments, whenever the economic cycle changes – and it does -, the central bank will have run out of its only historical tools.

After 600 rate cuts and buying tens of billions of dollars per month, it would create a boomerang effect that would generate more stagnation, Japanese-style. Anyone who thinks that the central bank can put negative types and increase money supply further and change everything is dreaming. What has not worked from 5 to 0% will not work from 0 to -5%. Financial repression does not lead agents to take more risk and invest, but to be more prudent, to hoard on liquid and safe assets, because monetary policy encourages over-indebtedness and perpetuates imbalances.

The ECB has already gone beyond the Fed. The ECB’s balance sheet already exceeds 36% of the Eurozone’s GDP and controls 10% of corporate bonds, a “nationalization” of the corporate debt market of almost 1% per month. In the case of the US, the Fed is c10 points below. Only the Bank of Japan surpasses the ECB, and we already know the level of debt and stagnation that the country has. The risk of following the path of Japan is not small.

It does more harm to the financial sector than benefits to the real economy. The bankruptcy of the zero-interest-rate policy is unprecedented and jeopardizes the consolidation process. Non-performing loans remain above 900 billion euros, operating margins and solvency ratios have plummeted to the lowest levels in a decade, and since the program was launched, Europe has seen three banking shocks, in Portugal, Italy, and even Germany. The impact on the financial sector is not compensated by the alleged economic improvement (a loss of almost 90 basis points in margins versus a slight increase of 15 in financial sector results, according to Mediobanca).

It does not help SMEs or families. While the ability to repay debt has not improved and cash or credit ratios remain poor, zombification of the refinanced sectors is soaring. High-yield is at the lowest interest rate in at least thirty-five years. Governments have saved more than 1 trillion euros in interest on the debt, of course, but, to my surprise, they have spent it all, and the ability of most European Union governments to adapt to an increase of only one 1% in the cost of debt is extremely low.

This leads to a rising tax burden despite the massive transfer of wealth from savers to governments, and – with it – it is extremely complex for SMEs and families to receive the slightest benefit of this extreme liquidity. Only 1% of SMEs have sought new credit, because their costs, excluding labor, have grown almost ten points more than their revenues, and of the meager 29% who requested a loan, only 69% received the required amount, according to the ECB. Despite extreme liquidity and low rates, demand for solvent credit remains very poor.

The huge risk of a bubble in bonds and financial assets is not offset by the supposed benefits of keeping the quantitative easing program. If we do not understand that accumulated risk is the root of the next crisis, we will repeat the mistakes of 2007.
Ignoring the risks that monetary policy generates in financial markets is very typical of central banks. It is thought that they can be mitigated, that they are acceptable and that they are not dangerous. And they are. They will be. Getting used to abnormally low rates and excessive liquidity to perpetuate imbalances is a huge risk. Not preparing for winter is suicidal. | Daniel Lacalle | Saturday, May 13, 2017

© Daniel Lacalle

All Rights Reserved

Daniel Lacalle has a PhD in Economics and is author of “Escape from the Central Bank Trap”, “Life In The Financial Markets” and “The Energy World Is Flat” (Wiley)

You can comment on this article at Dr Daniel Lacalle’s website here

Debt Crisis: Central Bank Action Is Work of the Devil, Says Germany's Jens Weidmann
THE DAILY TELEGRAPH: The head of Germany’s Bundesbank has raised eyebrows across Europe after he appeared to compare Mario Draghi’s bond buying programme with the "devil’s work".

Jens Weidmann said that efforts by central banks to pump money into the economy reminded him of the scene in Faust, when the devil Mephistopheles, “disguised as a fool”, convinces an emperor to issue large amounts of paper money. In Goethe’s classic, the money printing solves the kingdom’s financial problems but the tale ends badly with rampant inflation.

Without specifically mentioning Mario Draghi’s bond-buying programme, he said: “If a central bank can potentially create unlimited money from nothing, how can it ensure that money is sufficiently scarce to retain its value?” He added: “Yes, this temptation certainly exists, and many in monetary history have succumbed to it,” Mr Weidmann warned. » | Louise Armitstead, Chief Business Correspondent | Tuesday, September 18, 2012

SPIEGEL ONLINE INTERNATIONAL: 'Too Close to State Financing Via the Money Press': Jens Weidmann, the 44-year-old head of Germany's central bank, has made a name for himself by championing price stability and opposing bond purchases by the European Central Bank. In a SPIEGEL interview, he criticizes the ECB's latest plans and insists he only wants to secure the euro's long-term future. | » | SPIEGEL Interview | Bundesbank President on ECB Bond Purchases | Wednesday, August 29, 2012

Euro Is Facing Disintegration, Commission Warns
THE DAILY TELEGRAPH: The euro faces 'disintegration' unless European governments do much more to work together, the European Commission has warned.

Olli Rehn, the economics commissioner, gave the warning as Mario Draghi, the head of the European Central Bank, criticised national leaders for a “lack of action” to help the single currency out of its crisis.

Spain remained at the eye of the financial storm yesterday, amid continuing fears for its banking sector.

Investors in Spanish banks are withdrawing money at a record rate, figures showed yesterday. More than £55 billion was withdrawn and moved out of the country last month.

Yesterday’s figures are for the month before the Spanish banking crisis entered its latest phase with the nationalisation of Bankia, one of the country’s biggest banks.

Even more money is thought to have left the country since then, raising fears that Spain is locked in an unbreakable cycle of market panic.

The flow of money out of Spain has raised fears that its banking system could collapse, requiring a bail-out that its government cannot afford.

Those fears are pushing up Spanish borrowing costs, which intensifies pressure on Spanish banks. » | James Kirkup, Deputy Political Editor | Thursday, May 31, 2012

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European Central Bank Cuts Interest Rates as Contagion Fears Grow

THE GUARDIAN: New chief, Mario Draghi, acts after he warning that growth forecasts are likely to be cut and eurozone heading for recession

Financial markets received a jolt of energy when the European Central Bank stunned investors by cutting interest rates – the latest sign that policymakers fear the eurozone crisis could tip economies back into recession.

After chairing his first meeting to discuss interest rates, Mario Draghi, the new ECB president, warned that growth forecasts for the eurozone in 2012 were likely to be cut and that the euro area was heading towards a "mild recession" by the end of this year.

The admission for the first time that Greece might leave the euro caused early gyrations in markets across Europe. But the reversal of the ECB rate rises implemented earlier in the year, when inflation was a cause of concern, bolstered sentiment. In London, the FTSE 100 ended 1.1% higher while in France markets rose 2.7% and in Germany they added 2.8%.

But as he announced the rate cut to 1.25% from 1.5%, Draghi warned that the euro area was facing an "environment of high uncertainty".

And he conceded the current market turbulence is "likely to dampen the pace of economic growth in the second half of the year and beyond." » | David Gow in Athens and Jull Treanor | Thursday, November 03, 2011

Euro Bureaucrats Demand More Power


THE GUARDIAN: Double-dip recession fears see £49bn wiped off shares: City prepares for second round of quantitative easing after sharpest slowdown in UK's services sector in a decade » | Larry Elliott, economics editor | Monday, September 05, 2011

Pour Jean-Claude Trichet, il n'y a pas de crise de l'euro
LE MONDE: Le président de la Banque centrale européenne, Jean-Claude Trichet, affirme, vendredi 3 décembre, sur RTL, que l'euro est "crédible" et n'est pas "en crise en tant que monnaie", au lendemain du conseil des gouverneurs de la BCE qui a prolongé ses mesures exceptionnelles.

"On a des problèmes d'instabilité financière qui sont dus à une crise budgétaire dans certains pays européens", a-t-il ajouté, en expliquant que la BCE avait décidé jeudi de "continuer à alimenter en liquidités, sur des durées d'une semaine, un mois et trois mois, de manière illimitée, l'économie européenne". >>> LEMONDE.FR avec AFP | Vendredi 03 Décembre 2010

A Vision for ECB's New Monument to the Euro

A 'Quantum Leap' in Governance of the Euro Zone Is Needed
SPIEGEL ONLINE INTERNATIONAL: In a SPIEGEL interview, Jean-Claude Trichet, the 67-year-old president of the European Central Bank, discusses the largest financial rescue package in the history of Europe, the role and importance of speculators in the euro crisis and the weakness shown by politicians in the euro zone member states. >>> | Saturday, May 15, 2010

ECB Risks Its Reputation and a German Backlash Over Mass Bond Purchases
THE TELEGRAPH: The European Central Bank risks irreparable damage to its reputation by agreeing to the mass purchases of southern European bonds in defiance of the German Bundesbank and apparently under orders from EU leaders.

Jean-Claude Trichet, the ECB's president, denied there had been any political interference. "We are fiercely and totally independent," he said.

It is clear, however, that the two German members of the ECB's council voted against the move, a revelation that may cause a catastrophic political backlash in Germany.

Axel Weber, ultra-hawkish head of the Bundesbank, told Boersen-Zeitung that the emergency move over the weekend had been a mistake. "The purchase of government bonds poses significant stability risks and that's why I'm critical of this part of the ECB's council's decision, even in this extraordinary situation," he said. The rebuke is devastating. The ECB draws it authority from the legacy and aura of the Bundesbank.

The European Commission made matters worse by announcing the decision in the small hours of Monday morning before the ECB had spoken, fuelling suspicions that monetary policy is being dictated by the political authorities. French President Nicolas Sarkozy further enraged Berlin by claiming that 95pc of the $1 trillion "shock and awe" rescue package was based on French proposals.

"Germans are watching this in horror," said Hans Redecker, currency chief at BNP Paribas. "If this ends up in full-blown quantitative easing, people are going to be up in arms." >>> Ambrose Evans-Pritchard | Tuesday, May 11, 2010

Euro Jumps as Markets Welcome €750bn Rescue
THE TELEGRAPH: The euro soared on Monday morning as investors reacted with initial relief at the €750bn plan to defend the single currency and European Monetary Union from potential collapse.

After a frantic weekend of negotiations in Brussels, the Eurozone's 16 finance ministers released a package that pledges: €440bn in loans or guarantees from Eurozone countries, €60bn from the European Union's Budget and up to €250bn from the International Monetary Fund.

The EU's monetary affairs commissioner, Olli Rehn, said the agreement "proves that we shall defend the euro whatever it takes."

In a statement, the Finance Ministers said: "We are facing such exceptional circumstances today and the mechanism and the mechanism will stay in place as long as needed to safeguard financial stability," the ministers said in a statement.

The radical action, which will see the European Central Bank buy the debt of the most troubled countries, likely to include Portugal, Greece and Spain, comes as European Monetary Union faces the gravest threat in its short history. Fears that the debt crisis that has engulfed Greece would spread throughout southern Europe reached a crescendo last week. Investors welcomed the package. >>> | Monday, May 10, 2010

LE FIGARO: Euphorie sur les Bourses européennes : Le plan d'aide à la zone euro rassure les marchés. A Paris, le CAC 40 s'envole de près de 7%. Les bancaires grimpent sur des progressions à deux chiffres. >>> Par Marine Rabreau | Lundi 10 Mai 2010

THE TELEGRAPH: FTSE 100 soars as €750bn rescue package for Europe sparks global rally: The FTSE 100 joined in a stock market rally across Europe on Monday, as investors reacted with initial relief at the €750bn (£655bn) plan to defend the single currency from potential collapse. >>> | Monday, May 10, 2010

THE WALL STREET JOURNAL: European Markets Surge: European stocks and the euro surged Monday, as investors took heart from a €750 billion ($954.83 billion) rescue package intended to stabilize the single currency and prevent the Greek debt crisis from spreading to other member countries. >>> Michele Maatouk and Ishaq Siddiqi | Monday, May 10, 2010

Greek Debt Crisis Spreading 'Like Ebola' and Europe Must Act Now, OECD Warns
THE TELEGRAPH: The Greek debt crisis is spreading “like Ebola” and Europe must act now to protect the stability [of] the financial markets, according to the Organisation for Economic Co-operation and Development.

The Parthenon, Greece. Photograph: The Telegraph
“It’s not a question of the danger of contagion; contagion has already happened,” OECD secretary general Angel Gurria said.

“This is like Ebola. When you realise you have it you have to cut your leg off in order to survive,” he added, saying the crisis is "threatening the stability of the financial system".

Alistair Darling, the Chancellor, called for Eurozone countries to "urgently" agree a bail-out for Greece or risk a further decline in stock market confidence.

Mr Darling said it was "absolutely essential" that Greece's problems were sorted out "quickly, effectively and decisively", following a torrid 24 hours for world markets.

Asked on LBC Radio about the drop in the FTSE on Tuesday, the Chancellor said stock markets rise and fall but added: "That's my argument about the situation in Greece – we have got to make sure that it gets sorted out.

"But the primary responsibilities are for the other members of the euro group.

"They know that they have got to sort it out. They have promised money, and what I would say is they need to make that money available as soon as possible."

He added: "If we can sort out the problems in Greece quickly, then that will make people more confident."

The crisis in Greece sent stock markets and the euro reeling for a second day as fears grew that it would not be able pay its debts. >>> | Wednesday, April 28, 2010

ECB May Have to Turn to 'Nuclear Option' to Prevent Southern European Debt Collapse
THE TELEGRAPH: The European Central Bank may soon have to invoke emergency powers to prevent the disintegration of southern European bond markets, with ominous signs of investor flight from Spain and Italy.

Greece’s fortunes were dealt yet another blow as Standard & Poor’s slashed its credit rating to junk status - BB+ - the first time that has happened to a euro member since the single currency was created, pushing yields on 10-year Greek bonds up to a record 9.73pc.

The credit-rating agency also cut Portugal’s sovereign debt ratings by two notches to A-, as the swirling storm hit the country with full-force.

“We have gone past the point of no return,” said Jacques Cailloux, chief Europe economist at the Royal Bank of Scotland.“There is a complete loss of confidence. The bond markets are in disintegration and it is getting worse every day.

“The ECB has been side-lined in the Greek crisis so far but do you allow a bond crash in your region if you are the lender-of-last resort? They may have to act as contagion spreads to larger countries such as Italy. We started to see the first glimpse of that today.”

Mr Cailloux said the ECB should resort to its “nuclear option” of intervening directly in the markets to purchase government bonds.

This is prohibited in normal times under the EU Treaties but the bank can buy a wide range of assets under its “structural operations” mandate in times of systemic crisis, theoretically in unlimited quantities. >>> Ambrose Evans-Pritchard, International Business Editor | Tuesday, April 27, 2010

ECB's President Jean-Claude Trichet on Greece's Debt Crisis

Sorry, Ma’am! It’s Time for Us to Accept the Euro
Successive governments, along with the Bank of England, have shown that they are quite incapeable of taking good care of our currency. They’re obviuosly unable to maintain its value. Now, it seems, that dear Merve doesn’t even hide the fact! He wants a weak currency in order to “rebalance the nation’s economy”. What the hell does “rebalance the nation’s economy” mean anyway? It means nothing! These people are just trying to baffle us! What a load of bulldust it is! If these people had balanced the nation’s economy in the first place, they wouldn’t have to try and rebalance it now!

And what’s all this nonsense about quantitative easing? That’s a euphemism for printing money. History tells us where that leads to! It leads to hyperinflation.

It seems to me that neither the government nor the Bank of England are serious about maintaining a stable and valuable pound. People at the top of the banking sector don’t need to care about the pound’s falling value. All they have to do is award themselves hefty bonuses to make up for the lost value of their savings and salaries. For less privileged folk, this is not, alas, a possibility. So, with the pound falling dramatically in value and interest rates remaining very low, and likely to do so for quite some time to come, the people who are becoming poorer and poorer are ordinary folk, i.e. people who do not work in banks! Therefore, perhaps sadly, it is time to get rid of the pound and place our currency into good, safe hands – into the hands of the European Central Bank (ECB).

I, for one, am looking forward to the day when we shall have a stable and desirable currency. The euro must surely be the currency of the future of all European nations. It must surely also be the currency for the future of the United Kingdom, too. So let’s adopt it before we’ll be forced to do so by circumstances beyond our control. By that time the pound sterling may have have become next to worthless. – © Mark

Sterling Slides After BoE Chief Mervyn King Backs a Weak Pound
THE TELEGRAPH: Sterling fell to its weakest against the euro in more than 5½ months, pressured after Bank of England Governor Mervyn King said a weak domestic currency was helping to rebalance the nation's economy.

The UK currency also hit a near 2½-month low versus the dollar, stung by Mr King's comment to a regional UK newspaper that sterling's fall "will be helpful" to rebalance the UK economy to one focused more on exports.

While the comments reiterated the central bank's long-held view on the currency and the economy, analysts said the market considered his remarks a good opportunity to wipe out sterling's gains made the previous day.

Sterling had rallied on Wednesday after minutes from the BoE's policy meeting earlier this month showed a unanimous vote not to extend quantitative easing in September.

Market participants said those gains had been overdone, and some analysts said that even though King's comments on Thursday did not offer new insight into the BoE's position on sterling, his statement helped to revive momentum to dump the pound.

"When the market's down on a currency, it will jump on anything that justifies selling it," said Stuart Bennett, currency strategist at Calyon in London.

"Sterling is certainly the whipping boy at the moment."

The euro climbed roughly 1.5pc on the day to 91.53p, its highest since early April. Daily trade volumes surged on the move, with the number of trades executed on the Reuters Dealing system hitting its highest in at least three months.

Thursday's move put the euro on course to posting its best daily performance against the pound since late April. >>> Reuters | Thursday, September 24, 2009

Bank Calls Unprecedented Meeting of Economists
THE TELEGRAPH: The Bank of England has summoned the City's leading economists to an unprecedented meeting in Threadneedle Street, as the pound plunges amid growing confusion over its radical Quantitative Easing (QE) policy.

The Bank will host a seminar of all London's major economists next Tuesday – the first time it has invited them in en masse in recent memory – in what has been construed as a sign that it fears market participants are starting to lose faith in its efforts to pump cash into the economy. The move has also sparked speculation that it is poised to announce a major change to the monetary policy framework, although insiders dismissed such suggestions.

It came after the minutes from the Bank's latest Monetary Policy Committee meeting revealed that the idea of cutting the interest rate banks are paid on the reserves they hold there was not discussed this month. The pound has lurched lower in recent weeks, thanks in part to speculation that the Bank will impose charges on banks for holding excessive amounts of cash in reserve at its vaults. Under QE, it is pumping £175bn into the economy, but much of this cash is sitting in banks' reserve accounts rather than being recycled and flowing around the broader economy.

The suspicion that the Bank will soon take action to mitigate this has pushed down market interest rates sharply and contributed to an almost 5pc fall in the pound against other leading currencies. It has caused gilt prices and short-term interest rates to fluctuate wildly in recent weeks. >>> Edmund Conway and Angela Monaghan | Wednesday, September 23, 2009

Quantitative easing >>>

It’s Time to Adopt the Euro >>> Mark Alexander | Saturday, September 19, 2009

ECB Deems Britain Unworthy of Euro
THE TELEGRAPH: The European Central Bank has deemed Britain unfit for monetary union even if it wants to join following the dramatic slide in sterling and the explosion in the UK budget deficit.

"Great Britain does not meet the entry criteria for the euro," said Lorenzo Bini Smaghi, the ECB's board member in charge of international affairs.

"The public deficit will rise to around 6pc (of GDP) in 2009 and even higher in 2010. Sterling's exchange rate is not yet sufficiently stable," he told Italy's La Repubblica newspaper.

The entry rules impose a deficit ceiling of 3pc of GDP, two years of currency stability, and a public debt limit of 60pc of GDP. The rules were waived for political reasons to let Italy, Belgium and Greece into EMU, but terms are becoming stricter as the ECB seeks to exclude East European states before they are ready.

If anything, Mr Bini Smaghi may have been too kind to Britain. The Treasury expects the deficit to reach £118bn in the 2009 tax year - almost 8pc of GDP - but there are now fears that this will rise even higher as tax revenues collapse. Some analysts have begun to warn that Britain will soon face a deficit of 10pc, the sort of catastrophic levels seen in Latin America in the 1980s. >>> By Ambrose Evans-Pritchard | Thursday, January 8, 2009

The Dawning of a New Dark Age (Paperback & Hardback) – Free delivery >>>

Pound Sinks to Record Low against the Euro
THE INDEPENDENT: First property. Then shares. Now sterling is slumping. Sean O'Grady explains what the decline means for us

In July, £1 would still buy $2; lower than its recent record of $2.11 set last November, but healthy enough for shopping trips to New York to make sense. Yesterday, sterling was trading at about $1.48, a six-year low. Macy's and Sachs of Fifth Avenue may soon notice a sharp decline in the number of British accents at the tills.

Our currency has also been bouncing along the bottom against the euro, which is now worth about 84p, its highest since the single currency was launched in 1999.

Suddenly the idea of parity – £1 = €1 – hoves into view. Broadly speaking, sterling has had a more violent battering in recent months than it endured after it famously fell out of the European Exchange Rate Mechanism on "Black Wednesday", 16 September 1992. The pound has fallen 25 per cent against the dollar and 15 per cent versus the euro this year. It has, you might say, had a bit of a pounding.

The reasons for sterling's weakness are not difficult to see. To some extent, it is simply an adjustment to the way the pound has been overvalued for years: its fair value is about $1.50, according to the Organisation for Economic Co-operation and Development.

What's more, the UK is evidently headed for recession and the Bank of England is predicted to cut interest rates to historically low levels, maybe even below 1 per cent over the course of next year – the lowest level since the Bank was granted its charter in 1694. Such meagre prospective rewards for investors and the general belief that sterling assets have further to fall has prompted a sharp sell-off in the currency. >>> Sean O'Grady | November 14, 2008

THE TELEGRAPH: Europe Is in Recession after Bank Meltdown

Europe has fallen into its first recession in 15 years, after the global banking crisis and a decline in exports brought growth to a shuddering halt.

The Eurozone economy - made up of the 15 countries that use the euro - contracted by 0.2pc in the third quarter and it follows a 0.2pc fall in GDP in the second quarter.

The contraction underlines the escalation of the financial crisis that began in the US sub-prime mortgage market into a full-blown economic downturn. The Organisation for Economic Co-Operation and Development and the International Monetary Fund have both warned in the past two weeks that the US, Europe and Japan will also be in recession next year for the first time since World War II.

"The latest data and survey evidence indicate that the fourth quarter is likely to see a sharper fall in GDP as the financial crisis bites harder," said Howard Archer, chief economist at Global Insight. The European Central Bank is likely to slash rates from 3.75pc to 2pc by the middle of 2009, according to Mr Archer.

The move would represent a u-turn for the ECB's policy makers who in July increased rates to combat the threat of inflation. Inflation in the region slowed to 3.2pc in October from 3.6pc in September.

Germany, the biggest economy in Europe, confirmed yesterday it was in recession, with a 0.5pc contraction in GDP. The country has been hard hit because of its position as the world's largest exporter, as economies around globe slow. The UK and US economies both contracted in the third quarter. >>> By Amy Wilson | November 14, 2008

The Dawning of a New Dark Age (Paperback & Hardback) – Free delivery >>>

ECB Goes Nuclear as EU Leaders Plan to ‘Civilise’ Capitalism
THE TELEGRAPH: The European Central Bank has taken dramatic action to unblock the credit markets, flooding the system with $170bn of dollar liquidity and accepting junk bonds as collateral at its lending window.

"The ECB is doing whatever it takes to unclog the interbank market," said Gilles Moec, from Bank of America, who described the move as "spectacular" volte-face and a belated recognition that the credit crisis is deadly serious.

The monetary blitz was welcomed in Brussels, where EU leaders were meeting yet again, just days after agreeing to the most comprehensive bank bail-out in history. "We are not at the end of the crisis, we are still living in dangerous times," said Jean-Claude Juncker, Luxembourg premier and Eurogroup chair.

He issued a stark reminder that life is going be very different for the banking elite as governments move to restore the lost discipline of the Bretton Woods financial order and attempt to "civilise" capitalism, the code word for clamping down on the City – dubbed "the Casino" in Europe.

"Let everyone remember after this crisis, who solved it. Politicians did, not bankers," he said. Mr Juncker added that this episode would have a profound effect on the euro debate in Britain.

"The British prime minister had to beg to be let into the room. I'm sure that when the storm is over, the British will think about whether they shouldn't become an equal in all decision-making bodies." ECB Goes Nuclear as EU Leaders Plan to ‘Civilise’ Capitalism >>> By Ambrose Evans-Pritchard | October 16, 2008

The Dawning of a New Dark Age – Paperback (US) Barnes & Noble >>>
The Dawning of a New Dark Age – Hardcover (US) Barnes & Noble >>>

Shock Worldwide Interest Rate Cuts, Including 0.5% in UK
TIMESONLINE: Central bankers around the world took emergency action to end the market meltdown today with co-ordinated interest rate cuts designed to give the global economy a lift in the face of recession.

The Federal Reserve led the way, slashing its key federal funds rate by half a point to just 1.50 per cent. At the same time, the Bank of England cut its base rate by the same amount to 4.50 per cent and the European Central Bank also announced a half-point cut to 3.75 per cent. The Swiss, Canadian and Swedish banks joined in while China also trimmed rates.

The co-ordinated cuts were announced at midday, UK time, as Gordon Brown prepared to take MPs questions on a radical £500 billion package to restore confidence in the UK banking sector and breaking the crippling logjam in credit markets. Shock Worldwide Interest Rate Cuts, Including 0.5% in UK >>> Philippe Naughton | October 8, 2008

NZZ Online:
Sieben Notenbanken senken gemeinsam den Leitzins: Auch Schweizerische Nationalbank zieht mit >>> 8. Oktober 2008

NZZ Online:
Koordinierte Zinssenkung bremst Abwärtsspirale nur kurz: Verluste an den europäischen Börsen wieder ausgebaut >>> 8. Oktober 2008

LE MONDE:
La baisse des taux : trop peu, trop tard ? : Les banques centrales vont-elles réussir là où les gouvernements ont échoué, c'est-à-dire à restaurer la confiance sur les marchés financiers et entre leurs principaux acteurs, les banques ? C'est l'objectif principal visé par la Réserve fédérale américaine, la Banque centrale européenne, la Banque centrale du Canada, la Banque d'Angleterre, la Banque centrale suédoise et la Banque nationale suisse en abaissant leurs taux de manière conjointe.

Cette décision concertée, annoncée simultanément, vise avant tout à marquer les esprits, à jouer sur la dimension psychologique de la crise. La nouvelle dégringolade des places boursières, dans la matinée, avait montré le désarroi total des investisseurs face à l'aggravation de la tempête bancaire. Des investisseurs peu convaincus par les mesures gouvernementales annoncées, séparément, aux Etats-Unis, en Angleterre, en Espagne et ailleurs pour tenter de sauver les banques nationales. >>> LEMONDE.FR | 08.10.08

WELT ONLINE:
Finanzkrise: Dax schließt auf tiefstem Stand seit Ende 2005: Der positive Effekt durch die Zinssenkung sechs führender Notenbanken ist am Aktienmarkt weitgehend wieder verpufft. Der Dax schloss mit einem Minus von 5,88 Prozent bei 5013,62 Zählern auf dem tiefsten Stand seit November 2005. Am Vormittag war der Leitindex zeitweise um mehr als acht Prozent eingebrochen. >>> | 8. Oktober 2008

FRANKFURTER ALLGEMEINE:
Italien: Banker fürchten Machtübernahme Berlusconis: An Italiens Finanzplatz Mailand breitete sich panische Angst aus über ein Szenario, dem zufolge die italienische Regierung unter Silvio Berlusconi die internationale Bankenkrise nutzen wolle, um die wichtigsten italienischen Kreditinstitute unter staatliche Kontrolle zu stellen. >>> Von Tobias Piller | 8. Oktober 2008

LE FIGARO:
Malgré la baisse de taux, 
la Bourse de Paris plonge : Le CAC 40 a perdu plus de 6%. L'action concertée des banques centrales n'a pas convaincu les investisseurs. >>> Perrine Créquy - Sylvain D'Huissel | 08.10.2008

LE MONDE:
Les Bourses européennes poursuivent leur descente aux enfers : Les Bourses européennes ont clôturé en chute libre, mercredi 8 octobre, pas du tout rassurées par la décision simultanée des banques centrales mondiales d'abaisser leurs taux directeurs d'un demi-point. A la fermeture, le CAC 40 abandonnait 6,39 %, proche du plus bas de 8,18 % de pertes atteint en début de journée. Londres a fini en net recul de 5,18 % et Berlin de 5,88 %. Les autres Bourses d'Europe étaient sur la même tendance, Madrid clôturant en retrait de 5,20 % et Milan de 5,71 %. Vienne affichait la plus forte chute de son histoire, à 8,71 %. >>> LEMONDE.FR avec AFP | 08.10.08

The Dawning of a New Dark Age – Dust Jacket Hardcover, direct from the publishers (UK) >>>
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The Fed Injects $180bn into Markets
THE TELEGRAPH: The Federal Reserve has spearheaded the pumping of hundreds of billions of dollars into financial markets as central banks battle the deepening credit crisis.

The co-ordinated move by central banks including the Bank of England and the European Central Bank is designed to unfreeze lending in dollars, which has collapsed since the demise of Lehman Brothers.

At the moment, banks are having to pay the most since 1999 to borrow dollars for three months on fears another lender will fail. Federal Reserve Spearheads $180bn Injection into Markets >>> By Telegraph Staff | September 18, 2008

WELT ONLINE:
Finanzkrise: Angst beherrscht Börsen – Anleger flüchten in Gold: Börsen krachen zusammen oder lassen ihre Türen gleich ganz geschlossen, milliardenschwere Banken werden zu Spottpreisen übernommen oder verstaatlicht. Das Ausmaß der Finanzkrise ist noch nicht abzusehen, aber die Schockwellen sind längst bei uns angekommen. Und Gold ist wieder ein großes Thema. >>> 18. September 2008

WELT ONLINE:
Analyse: Märkte in der verheerenden Abwärtsspirale: An den Märkten herrscht Panik, Rettungsaktionen des Staates verpuffen. Selbst gesunde Banken drohen umzukippen. Wenn sich die Stimmung nicht dreht, wächst die Gefahr einer Weltwirtschaftskrise. Es bleibt gerade nur ein Trost: Politiker und Notenbanker haben den Ernst der Lage erkannt. >>> Von Jörg Eigendorf | 18. September 2008

SPIEGELONLINE INTERNATIONAL:
US Financial Crisis: 'The World As We Know It Is Going Under': Panic is the word of the hour on Wall Street. Now even Morgan Stanley is fighting for survival. The commercial bank Wachovia and China's Bank Citic are being discussed as possible rescuers. The crisis has led President Bush to cancel a trip. >>> By Marc Pitzke in New York | September 18, 2008

BBC:
Central Bank Moves Cheer Markets: Markets regained some poise in Thursday trading, cheered by news that six of the world's top central banks have taken steps to calm credit markets.

The banks will release $180bn (£99bn) to lift the amount of credit available. >>> | September 18, 2008

THE TELEGRAPH:
Credit Crisis Affects Wives: For Richer, for Poorer?: The domestic repercussions of the financial crisis have already hit home. Just ask the City wives >>> By Judith Woods | September 17, 2008

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