The Market Ticker
Commentary on The Capital Markets- Category [International]

We got trouble coming folks...

The Ruble has been all over the board -- straight down for quite some time since the Ukraine-related sanctions were imposed, and now there's been a roughly 9% surge in value today alone.

This sort of volatility is big trouble; it makes international trade nearly impossible as there is no way to figure out what your costs look like on a forward basis.  A steady move in either direction for a currency can be hedged; violence in the FX markets is never good for anyone -- on either side.

Let's not forget that nations, when they get in trouble with their currencies, have a habit of resorting to war as a means of resolving their problems.  That, to put it mildly, would be bad.  While Russia is unlikely (in the extreme) to direct any sort of attack against the United States, that Putin might attempt "re-consolidation" of more territory in the "old" USSR is not beyond reasonable expectation, and the potential for European allies -- or even us -- to get dragged into it is very real.

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The stupid, it burns!

The view for policy makers is of a euro-zone populace so weary of years of economic turmoil that it’s increasingly electing politicians who say no to pan-European cooperation, and spurn reforms that the ECB says are vital to revive the economy. Trapped by their mandate to prevent deflation, officials fret they might soon be forced to roll out quantitative easing that can never succeed by itself.

Fact: QE Never succeeds period.

Go ask the Japanese.  Or ask the United States; at least for those not in the "1%".

However, let me define "succeed": Stabilize the economy and redirect malinvestment toward productive investment, increasing both employment and per-capita real income.

QE  cannot "succeed" because arithmetic says it cannot, when measured via this yardstick.  QE by definition destroys purchasing power across the economy and the weakest actors in the economy, those who are unemployed or have low-quality jobs and income and thus cannot take defensive measures as they must spend most of their cash flow find themselves with depreciating incomes in real terms.

It must have this effect because QE by definition increases the amount of "money" in circulation.  The denominator (that by which the total amount of all goods and services produced is divided) thus increases and as a result the amount of goods and services purchased with each unit of the currency goes down in direct proportion to the amount of QE employed.

While the increase in debt (especially government debt, which by definition QE requires to be issued in order for it to occur) appears to originally make QE "work" it cannot because all borrowed money must be repaid with interest in time and as result the handouts and projects funded by government when it undertakes such a path are in fact paid for via an immediate increase in taxation, despite appearances otherwise!

Don't be an idiot folks -- arithmetic is not a series of suggestions nor can it be bargained with or changed.

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