Smoke Signals

smokesigsWarning – China: breakable. Just as the markets seemed happier about the Chinese credit crunch yesterday, reports came to the West throughout the afternoon reporting outages, transfer failures, long delays and other banking problems. The blockage lasted some two hours, and was hastily given the ‘glitch’ spin, with terms like ‘software upgrade’, and ’emergency treatment’ being bandied about, but many witnesses to the event said it had all the hallmarks of a brief liquidity crisis.

Although China has completely different problems to the West, it faces the same dilemma: running out of ways to serve several masters at once. Just as we constantly juggle between propping up banks, needing to create employment, and yet needing liquidity for growth, the Chinese have a regular tap on/off game of raising interest rates to keep house price rises within reason, while whacking in some economic stimulation (to spur falling growth rates) and then return to low interest rates (to stop too much foreign investment from creating a bubble).

Xinhua says Shadow Banking lies behind some of the fears and problems. Either way, Goldman Sachs cut China’s outlook (predictable now that Bull in a China Shop Jim O’Neill has left) but it’s hard to see how they could do otherwise. This rock/hard place thing is common sense: when you’re markets are broke, they cut consumption. Next one to fall will be Australia – reflected lately in the steady decline in the Aussie’s value.

US on a Swiss roll. Bit of amusement here as the Americans and the gnomes get into a spat. The US has been applying pressure for Swiss bank secrecy to be opened up, and all the Central Bank’s (SNB) actions to be transparent. The Swiss Parliament voted convincingly against doing this yesterday, and now in a fit of pique the American Department of Justice has issued a statement calling the SNB “a currency manipulator”. This is a bit like Julian Clary accusing Lord Mandelson of being a screaming faggot, but even so the Americans know how to turn nasty in such matters: ask anyone trying to do banking business in Iran.

If the DOJ indicts a Swiss bank, it can prevent it from making dollar based wire transfers. The DOJ will order all US banks to not make transfers on behalf of the targeted institution . At that point, the bank is functionally shut out of all dollar based business. No global bank can operate for long without the ability to make transfers in dollars…..as the Iranians discovered to their cost.

My name is Bond, Spiking Bond: Italy in trouble. As you know, I’ve been banging on about rising interest rates for ten months now, and it does seem based on the last few trading days that the change is going to come via the cost of borrowing at or near the Sovereign level through Bonds. Now one of Italy’s biggest institutions, Mediobanca, has overtly warned that the country is going to need a further rescue-cum-bailin within six months at the most. “Time is running out fast,” said Mediobanca analyst, Antonio Guglielmi, “The Italian macro situation has not improved over the last quarter, rather the contrary. Some 160 large corporates in Italy are now in special crisis administration.”

Yes, but apart from political stalemate, a major power broker going to bunga-jail, undeclared sovereign debts, and a collapsing economy, where exactly is the danger here? Well, even the debt they’ll admit to is in excess of €2 trillion –  the third biggest on the planet after the US and Japan. For an economy of their size, that’s big bordering barking. If it does need serious help soon, the eurozone crisis will be over for good, because there won’t be a eurozone any more.

He being an Italian genetleman, it now becomes even more obvious why Il Draghi has been keeping the European capital flight data to himself. If any loons start trying a bail-in bigtime, the little exterior cash still left will leave scorch-marks as it departs in haste. The Americans have already said they are draining Europe of dollars. Keep your eyes on Berlin: I think they know what’s coming. I still believe they will quit the Euro before Greece does.

Last night at The Slog: A cheery note on the state of global ethics.