Bundesbank's Stunner To Broke Eurozone Nations: First "Bail In" Your Rich Citizens .... Bail ins make sense as th idea that Central Bank manipulations may have run their course of effectiveness !

http://www.zerohedge.com/news/2014-01-27/bundesbanks-stunner-broke-eurozone-nations-first-bail-your-rich-citizens

(  Buba launches a cruise missile to the European Davos crowd.... )

Bundesbank's Stunner To Broke Eurozone Nations: First "Bail In" Your Rich Citizens

Submitted by Tyler Durden on 01/27/2014 08:28 -0500

• Bond
 
• Central Banks
 
• default
 
• European Central Bank
• European Union
 
• Eurozone
 
• Germany
 
• Greece
• International Monetary Fund
 
• Italy
 
• Monetary Policy
• Reuters

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In what is sure to be met with cries of derision across the European Union, in line with what the IMF had previously recommended (and we had previously warned as inevitable), the Bundesbank said on Monday that countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help. As Reuters reports, the Bundesbank states, "(A capital levy) corresponds to the principle of national responsibility, according to which tax payers are responsible for their government's obligations before solidarity of other states is required." However, they note that they will not support an implementation of a recurrent wealth tax in Germany, saying it would harm growth. We await the refutation (or Draghi's jawbone solution to this line in the sand.)

Via Reuters,

Germany's Bundesbank said on Monday that countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help.

The Bundesbank's tough stance comes after years of euro zone crisis that saw five government bailouts. There have also bond market interventions by the European Central Bank in, for example, Italy where households' average net wealth is higher than in Germany.

"(A capital levy) corresponds to the principle of national responsibility, according to which tax payers are responsible for their government's obligations before solidarity of other states is required," the Bundesbank said in its monthly report.

It warned that such a levy carried significant risks and its implementation would not be easy, adding it should only be considered in absolute exceptional cases, for example to avert a looming sovereign insolvency.

...

The German Institute for Economic Research calculated in 2012 that in Germany a 10-percent levy on a tax base derived from a personal allowance of 250,000 euros would add up to around 230 billion euros. It did not give a figure for crisis countries due to lack of sufficient data.

Greece has been granted bailout funds of 240 billion euros from the euro area, its national central banks and IMF to protect it from a chaotic default and possible exit from the euro zone. Not all funds have been paid out yet.

In Germany, however, the Bundesbank said it would not support an implementation of a recurrent wealth tax, saying it would harm growth.

...

"It is not the purpose of European monetary policy to ensure solvency of national banking systems or governments and it cannot replace necessary economic adjustments or bank balance sheet clean ups," the Bundesbank said.

As BCG concluded previously:

In considering some of the potential measures likely to be required, the reader may be struck by the essential problem facing politicians: there may be only painful ways out of the crisis.

...

There is one thing we would like to bring to our readers' attention because we are confident, that one way or another, sooner or later, it will be implemented. Namely a one-time wealth tax: in other words, instead of stealth inflation, the government will be forced to proceed with over transfer of wealth. According to BCG, the amount of developed world debt between household, corporate and government that needs to be eliminated is just over $21 trillion. Which unfortunately means that there is an equity shortfall that will have to be funded with incremental cash which will have to come from somewhere. That somewhere is tax of the middle and upper classes, which are in possession of $74 trillion in financial assets, which in turn will have to be taxed at a blended rate of 28.7%.

 

The programs BCG (and the Bundesbank) described would be drastic. They would not be popular, and they would require broad political coordinate and leadership – something that politicians have replaced up til now with playing for time, in spite of a deteriorating outlook. Acknowledgment of the facts may be the biggest hurdle. Politicians and central bankers still do not agree on the full scale of the crisis and are therefore placing too much hope on easy solutions. We need to understand that balance sheet recessions are very different from normal recessions.  The longer the politicians and bankers wait, the more necessary will be the response outlined in this paper.  Unfortunately, reaching consensus on such tough action might requiring an environment last seen in the 1930s

http://www.zerohedge.com/news/2014-01-27/hsbcs-four-reasons-why-current-em-jitters-may-last

HSBC's Four Reasons Why Current EM Jitters May Last

Submitted by Tyler Durden on 01/27/2014 07:59 -0500

• China
 
• International Monetary Fund

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While HSBC itself may be having some rather substantial capital outflow issues, that does not prevent its head of EM research, Pablo Goldberg, to list four reasons why the current series of "painful though unrelated flare-ups" in key markets may last. To wit:

1) Reinforcement of preference for DM vs EM

    -  While EM have cheapened vs DM, value might not be enough as long as the flow continues to favor DM

2) Potential short-term solutions leading to longer-term problems

3) FX depreciation leading to outflows from local markets

4) Due to decentralized nature of these shocks, no silver bullet can restore appetite for risk

Of course, he saved the best for last: "Unlike the market shocks of recent years, QE or IMF bailouts unlikely to come to rescue this time." Which really is all that matters in a time when the Fed has begun tapering and any market not economy data-driven untapering, will merely serve to kill its credibility that much faster.1

Finally, in order to assess EM demand, Goldberg recommends tracking 1Y/1Y swaps, China PMIs and EPFR flows data to see when/if the capital outflow trend will reverse.

Source: Bloomberg

Emerging Market Rout Continues In Overnight Trading

Submitted by Tyler Durden on 01/27/2014 - 06:58

A slew of favorable overnight news, including a stronger than expected German IFO business climate print, reports that Draghi has signalled he would be prepared for the ECB to buy packages of bank loans to households and companies, when he said "the ECB might be able to buy securitised bank loans if they could be packaged as asset-backed securities in a transparent manner" (a QE-lite will hardly make the market happy), a largely expected bail out of the Chinese Trust Equals Gold imminent default (more in a subsequent post), as well as the announcement of Argentina's new liberalized dollar purchase capital controls (which have a monthly purchase limit as well as a minimum income threshold), not to mention the traditional USDJPY levitation which drags all risk along with it, were unable to put an end to the ongoing rout in emerging markets, which saw the Turkish Lira collapse to fresh record lows before it jumped on news the Turkish Central Bank would hold an extraordinary meeting tomorrow (if the recent intervention by the CB is any indication, watch out), not to mention the Ruble, Zloty and even the Ukraine Hryvna dump as the outflows from EMs continued over a mixture of tapering fears as well as concern that the one way fund flow would accelerate creating its own positive feedback loop. Is today the day the fund flow exodus will finally be halted? Stay tuned to find out and keep a close eye on the USDJPY - the most manipulated, confidence-boosting "asset" in the world right now, more so than gold even.