Tag Archives: Central Planning

Apr 4 2019

Basel III – IMF – Liquidity Crisis


Armstrong Economics Blog/Banking Crisis

Re-Posted Apr 4, 2019 by Martin Armstrong

QUESTION: As of today, Basel III comes in effect. Rumour goes that in a couple of months, there will be a lot of turmoil on the market and it would be the start of the implementation of an SDR like thing where people would lose 20-30% of their value and get stuck with this new currency. You have mentioned before this was in the pipeline but no timing was given. Is it really this close or is it for 2020-2022?

PT’S

ANSWER: The IMF has been pitching Washington to let their SDR become the new reserve currency. They claim this would eliminate the problem of the Fed having to worry about external influence v domestic. Let me say that this will NEVER eliminate the issues of international capital flows. The fixed exchange rate of Bretton Woods never prevented that problem and it was that very issue that brought it crashing down. Until we are ready to begin teaching the meaning of a floating exchange rate system and abandon Keynesian economics, I do not see this problem ever being eliminated.

Basel III is separate from the IMF and its purpose is capitalization of banks — not the reserve currency of a dollar v SDR. Basel III was agreed upon by the members of the Basel Committee on Banking Supervision in November 2010, and was scheduled to be introduced from 2013 until 2015. However, implementation was extended repeatedly to March 31, 2019, and then again until January 1, 2022. The Committee replaced the existing Basel II floor with a floor based on the revised Basel III standardized approaches. This revised output floor is to be phased in between January 1, 2022, and year-end 2026, thereby becoming fully effective on January 1, 2027, if the banking system can survive that long to begin with.

The Basel III leverage ratio framework and disclosure requirements (“the Basel III leverage ratio framework”) was supposed to be raised to protect banks from failures. Many were required to raise more capital. The Net Stable Funding Ratio (“Basel III NSFR standards”) was to be applied to participating banks. Moreover, the committee is monitoring the overall impact of Total Loss Absorbing Capacity (TLAC) and banks’ holdings of TLAC instruments. Capital requirements for market risk as well as the committee’s finalization of post-crisis reforms were all supposed to be back-tested. Additionally, profit and loss (P&L) accounts related to the revised internal models-based approach (IMA) for calculating minimum capital requirements for market risk more specifically.

All of that said, the crisis we have is a LIQUIDITY Crisis. This time it has been created especially by the European Central Bank (ECB). By keeping interest rates negative and punishing banks for having cash, they have (1) lent into real estate to get higher yields but this type of asset cannot be sold easily, (2) buying emerging market debt to get a high-yield like Turkey. Turkey was the favorite of Spanish Banks and the capital controls that Turkey did before the election sent shivers down the spine of institutional investors. The ECB has driven banks into these markets that are notoriously illiquid. This means that under Basel III, banks will not have the liquid assets to support their capitalization requirements. It becomes more likely that the Basel III requirements will be suspended or else there will be a wholesale collapse of the banking system.

Apr 3 2019

PM May to Join Left Against Her Own Party?


Armstrong Economics Blog/BRITAIN

Posted Apr 3, 2019 by Martin Armstrong

Anyone who wants to understand why the dollar is the only game in town, all they need do is look at the politics in Europe. It is just absurd. In Britain, Prime Minister Theresa May simply REFUSES to abandon her BREXIT plan no matter how many times Parliament votes against it. She survived a no-confidence vote last year so nobody can oust here until December and she refuses to resign. She has made a real disgrace of how Parliamentary politics operates.

PM May will now ask the EU for another extension to the BREXIT deadline of April 12th to “break the logjam” in Parliament. She is now turning to meet with Labour leader Jeremy Corbyn, who is the closest thing to a communist in the West, to join with the extreme left in hopes of saving her plan.  May has insisted that her withdrawal agreement would remain part of the deal.

In all my years of politics, I have never seen such absolute stubbornness on the part of any world leader to the point that she will alienate her own party. There is no question that this will outrage Tory Brexiteers. Boris Johnson has come out beside himself saying that now Labour will decide the fate of Britain.

Under the terms of hard borders and remaining in the customs union, Britain under May has rejected the democratic process entirely. She is tieing the fate of Britain to that of the EU, which in an of itself is in dire straights. If we needed any explanation as to why the British pound will collapse in the future, all we need do is look at this dynamic-duo May-Corbyn for the answer.

If you need any explanation as to why the dollar continues to be the currency to which everyone is fleeing, you have it in spades. Putting the fate of Britain into the hand of Corbyn is like putting Alexandria Ocasio-Cortez (AOC) in the office of President

Apr 2 2019

Liquidity Crisis


Armstrong Economics Blog/Socrates

Re-Posted Apr 2, 2019 by Martin Armstrong

QUESTION: I have attended the last 2 conferences and you have said the “liquidity” in the stock market will become tighter coming into 2020 and that there will be less stocks available to buy. Does that have something to do with this inflow of capital from Europe as people become more aware? I read your article about the Emerging Market crisis with great interest and remembered what you said. Is there more information you can share with us on this topic?

CDH

ANSWER: Since Quantitative Easing has failed, capital was driven into non-traditional investments to simply try to earn income. There were institutions buying farmland just to lease it out to get 5% annual income. Others ran off into Emerging Markets. Spanish banks are heavily invested in Turkey. The problem is that this trend has caused a liquidity crisis insofar as capital has been invested in assets that are not liquid. Add to this corporate buybacks that are reducing the supply of stocks available.

All I can say is thank God for Socrates. There are so many global trends emerging that by themselves are confusing and would be impossible for a standard domestic analysts to forecast from a personal interpretation perspective. The combination of investment shifts into real estate, Emerging Markets, and corporate buybacks have created an interesting risk factor for liquidity during a financial panic.

 

Apr 1 2019

Turkey Elections


Armstrong Economics Blog/Turkey

Re-Posted Apr 1, 2019 by Martin Armstrong

Turkish President Recep Tayyip Erdogan and his Justice and Development Party (AKP) have won every vote since the party first came to power in 2002, but this time, the party had risked losing Ankara and faced a tough fight in Istanbul. Erdogan’s AKP appeared destined for defeat in the capital Ankara and faced a dead heat in Istanbul after Sunday’s local election delivered a blow to a party in power for a decade and a half. With 99% of the ballot boxes counted, the joint opposition candidate for Ankara mayor was winning with 50.89% of votes and the AKP on 47.06% at last count. Meanwhile, in Istanbul, Turkey’s largest city and economic capital, the race for mayor was deadlocked with the AKP candidate claiming victory with 48.70% of votes, but his opponent on 48.65% also claimed that he had won.

This is what we are showing in so many elections globally on the docket. We seem to be living in a world that is fed up with governments as is in general, and the disillusionment is growing. The global population appears to be almost evenly divided and this is posing a major problem. Erdogan suffered a severe setback on the weekend as his ruling AK Party was set to lose control of the capital Ankara for the first time in a local election and he appeared to concede defeat in the country’s largest city, Istanbul.

This trend is also associated with civil unrest and it appears that this disenchantment will manifest insofar as neither side will be willing to accept defeat. Indeed, we do live in interesting times. Even when Erdogan won the presidential election in 2018, he did so only by 52.5%. This is indicative of the problem we face. The public is nearly evenly divided no matter what country we look at.