Posted: 14 Aug 2014 10:26 PM PDT
The Eurozone's financial regulatory framework, combined with the ECB's monetary policy, has created an environment in which holding sovereign bonds is the optimal outcome for many of the area's banks.
1. Government bonds crowd out private sector credit, limiting loan growth in a number of countries. 2. Banks are becoming more intertwined with their central governments - something that was part of the cause of the debt crisis. Governments depend on banks for cheap funding and banks depend on their governments for support (bailout) in case of a liquidity crunch. _________________________________________________________________________ SoberLook.comSign up for our daily newsletter called the Daily Shot. It's a quick graphical summary of topics covered here and on Twitter (see overview). Emails are distributed via Freelists.org and are NEVER sold or otherwise shared with anyone. From our sponsor: | ||
Posted: 14 Aug 2014 09:57 PM PDT
In the face of inflation running at 25-30% - one of the highest rates in the world - Argentina unexpectedly decided to cut interest rates yesterday. It is difficult to say how the government justifies this madness, but here we are. Combined with the nation's recent default and no settlement on the horizon, the rate decision sent the nation's currency to record lows. WSJ: - The decision to cut rates will likely be seen as a sign that Economy Minister Axel Kicillof's plans to stimulate the economy are prevailing over central bank Governor Juan Carlos Fabrega's effort to curb inflation, analysts said. ...The black market peso continued to slide this afternoon, with quotes hitting 13.3 pesos per one dollar. The so-called "blue dollar" is the unofficial market for US dollars in Argentina (there is also the "blue euro" market). Unless we see some sort of settlement on the defaulted debt and the resumption of coupon payments to all the bondholders (see post), Argentina will unravel rapidly. Another official currency devaluation becomes increasingly likely, pushing inflation to new highs and making Argentina look increasingly like Zimbabwe. With no ability to access international debt markets, foreign reserves will begin to run out and shortages of imported goods will become commonplace. Violent unrest is sure to follow. _________________________________________________________________________ SoberLook |
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Freitag, 15. August 2014
Eurozone banks hold record amounts if sovereign paper
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