Saturday, February 21, 2015

The dollar, the yen, and the euro: 3 peas in a pod

Subprime lending is making a comeback, the Wall Street Journal reports:

Almost four of every 10 loans for autos, credit cards and personal borrowing in the U.S. went to subprime customers during the first 11 months of 2014, according to data compiled for The Wall Street Journal by credit-reporting firm Equifax.

That amounted to more than 50 million consumer loans and cards totaling more than $189 billion, the highest levels since 2007, when subprime loans represented 41% of consumer lending outside of home mortgages. Equifax defines subprime borrowers as those with a credit score below 640 on a scale that tops out at 850.

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After declining for the past three years, overall delinquency rates for car loans are rising, according to the New York Fed report. Some economists and consumer advocates are concerned that auto-lending practices are too risky and could result in more loan defaults.

Duh.

It’s no surprise lending has shot up as the Federal Reserve’s quantitative easing tapered. Stocks don’t have that floor supporting their inflated prices. Letting it ride on Wall Street isn’t clearly the best option anymore. Financial firms are returning to lending to make a better rate of return than the savings interest rate, which is practically zero.

But they still need to manufacture demand because despite the equities boom, the real economy sucks, hence these subprime loans. Inflation is around the corner as the Federal Reserve’s $4 trillion starts to circulate. Interest rates will have to be raised soon.

Japan’s quantitative easing isn’t trickling down, but at least stocks are doing well! Andrea Riquier reports at Investor’s Business Daily:

Economists and analysts hailed Abe as Japan’s last best hope. Since he took office, financial markets and corporate profits have benefited from the massive central bank easing and fiscal stimulus of “Abenomics.” The Nikkei has nearly doubled in value.

What’s less clear is the impact of Abenomics on what might be called the real economy.

A weaker yen helps Japanese conglomerates that export but hurts households increasingly dependent on imports.

And Japan Inc. is passing on little of its record profits as salary increases, which many analysts say is the only way to get citizens spending rather than saving.

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But for [David] Pogue, the most worrying aspect of Abenomics is something beyond the reckoning and control of the government and the central bank. It’s that the entire world suddenly seems to be turning Japanese.

The European Central Bank in early January finally bowed to calls for the kind of massive bond-buying program that the BoJ pioneered in 2000 as inflation turned negative and the economy stalled.

Now that central banks around the world seem to be locked in a currency race to the bottom, Pogue thinks the low-hanging fruit for the BoJ is mostly picked. “We’re finding out that everyone is in the same boat,” Pogue said. “We’re all trying to do the same thing. We’re all going after the same small pie.”

Keynesians don’t know how to create wealth. They only know how to waste it trying to stimulate wasteful spending.

I can’t blame the Russian separatists in Ukraine. Russia has a brighter future than the EU. Who would want to join a failing union?

Speaking of which, here’s Alvaro Vargas Llosa on Greece, the petulant, itinerant teenager of Europe :

Two bailouts by the EU, IMF and European Central Bank (ECB) kept Greece afloat and inside the eurozone, at a cost of 240 billion euros. In return, the Greek government agreed to raise taxes and cut spending, a self-defeating combination.

Little was done to reform the economy, ensuring that the Greeks would suffer deep pain without the benefits that a freer, more flexible and dynamic system of wealth creation might have brought them.

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If Tsipras’ government wants to avoid defaulting on its debt, largely held by the ECB, Germany and France, it needs the last of the bailout funds that Greece was promised. If it fails to pay 7 billion euros this summer, the ECB will stop meeting the liquidity needs of Greek banks, and Greece will leave the euro.

Greece should be allowed to secede and self-destruct, as is Greece’ wont. Europe can’t force them to be responsible if expelling them from the eurozone is not just punishment for defaulting on their loans. Socialized consequences serve only to put off the day of reckoning for failed socialist policies.

UKIP leader Nigel Farage says the EU’s stubbornness in holding Greece to a bargain that the Greeks democratically reject is a threat to national sovereignty. Like Big Nurse, the EU cares. She knows what’s best for you, and she’ll lobotomize you if you disagree.

Perhaps losing a few member states will make the EU more cautious about making false promises and centralizing government in the hands of technocrats. That goes for America and the Federal Reserve, too. Buzzfeed reports:

“I would like to start off by talking about the subject and the subject is secession and, uh, nullification, the breaking up of government, and the good news is it’s gonna happen. It’s happening,” [Ron] Paul, the father of potential Republican presidential candidate Rand Paul, told a gathering at the libertarian Mises Institute in late January. The event Paul was speaking at was titled “Breaking Away: The Case for Secession.”

Paul said secession would not be legislated by Congress, but would be de facto, predicting “when conditions break down... there’s gonna be an alternative.”

“And it’s not gonna be because there will be enough people in the U.S. Congress to legislate it. It won’t happen. It will be de facto. You know, you’ll have a gold standard when the paper standard fails, and we’re getting awfully close to that. And people will have to resort to taking care of themselves. So when conditions break down, you know, there’s gonna be an alternative. And I think that’s what we’re witnessing.”

Per usual with Ron Paul, what he says that isn’t complete nonsense makes a lot of sense.

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