Running Silent, by Tim Duy: I will soon be boarding a flight on my way to a real vacation. "Real" is defined as the absence of an internet connection, which will be the case for the first part of the trip. Or so I am told by my wife who planned the trip, I suspect, by looking for locations without internet access. More evidence that she is smarter than me.
This week the Federal Reserve will likely be overshadowed by the European summit and the expected Supreme Court ruling on health care, both of which I will miss in real time. Of course, if markets tank on European news and there is a sudden dollar shortage, we would expect the Fed to assist via expanded swap lines. For their part, the Europeans are reaching a critical moment in history. They still have time to walk back from the abyss, but they need to move quickly. Paul Krugman outlines three sensible proposals that offer the most near term hope - shared backing of the banking system, enable the ECB to act as lender of last resort to governments, and a higher inflation target. A real fiscal union is too much to hope for anytime soon.
That said, while the Europeans have the capacity to move forward, the odds are all too high that they will choose to move backwards. At this point, I can't see the latter two proposals seeing the light of day. On the first point, today's comments by German Chancellor Angela Merkel seem pretty clear. Via Bloomberg:
Merkel, speaking to a conference in Berlin today as Spain announced it would formally seek aid for its banks, dismissed “euro bonds, euro bills and European deposit insurance with joint liability and much more” as “economically wrong and counterproductive,” saying that they ran against the German constitution.
The ball is in Germany's court, and they are dropping in it.
In other news, Greece is losing its finance minister:
Incoming Greek Finance Minister Vasilios Rapanos is going to resign after less than a week in office, according to the prime minister’s office.
The cause wasn’t immediately known, although Rapanos was rushed to the hospital on Friday after suffering from abdominal pain. At the time, the hospital released a statement saying he was admitted “because of intense abdominal pains, dizziness, nausea, sweating and weakness.”
Could be symptoms of extreme stress, which would hardly be surprising. Note that Prime Minister Antonis Samaras will also be missing this week's summit for health reasons. It is hard not to suspect that the new Greek government is trying to avoid their European counterparts after getting their hands on the books and realizing that they had no good news for the Troika. It is very possible that the Greek electoral drama over the past two months piled more almost-permanent damage on the Greek economy. Very discouraging; I still have trouble seeing how Greece stays in the Euro, except that there is no mechanism for exit.
Bottom Line: I wish everyone the best managing in this difficult environment. Posting will now be intermittent, depending on internet connection.