A Month of Islam and Multiculturalism in Germany: April 2018

One of Germany’s leading economists, Hans-Werner Sinn, warned that the migrant crisis could end up costing German taxpayers more than one trillion euros: “The cost to the taxpayer could also be higher. So far, there are about 1.5 million migrants who
— Read on www.gatestoneinstitute.org/12285/islam-multiculturalism-germany-april

More diversity

Has Draghi Just Lost It? | Armstrong Economics

QUESTION: Why are long-term yields on risky European debt below that of US Treasuries? Is this the European bubble madness? HN, Frankfurt ANSWER: This is unquestionably a bubble, but the buyer has been the ECB (European Central Bank). Yields on risky European bonds have been driven below the yields of long-dated US securities. The financial system may appear to be riddled with anomalies, distortions and erroneous prices, but all of those labels assume it is the madness of crowds rather than the government. Mario Draghi has created the worst possible financial nightmare perhaps in modern history since governments began borrowing in the 12th century. These are not driven by a free market, but one that is manipulation of a central bank gone absolutely mad. The average return on European junk bonds is below “risk-free” US government bonds. This is completely driven by the insanity of the ECB. In fact, Draghi purchased around $ 2.6 trillion in securities since his Quantitative Easing began in March 2015. He assumed that this would stimulate the economy. However, all it has done is kept the member states on life-support. He is trapped and has no way out, which is why he has come out and said that the ECB will reinvest when the bonds they hold mature. There will be no end to this madness and he has single-handedly wiped out the bond markets. There is no free-market remaining so the question becomes – how will governments ever sell its debt in the future?
— Read on www.armstrongeconomics.com/international-news/europes-current-economy/has-draghi-just-lost-it/

Doubling down

Cologne Institute of German Business Warns of Deposit Protection May Not Survive in Europe | Armstrong Economics

The Cologne Institute of German Business sees in the planned European deposit insurance is simply incapable of proving protection against a bank crash in Europe. The EU deposit guarantee is simply not practical under any concept of austerity. The Eurozone still has inherent significant risks in the balance sheets of European financial institutions. This is primarily because where the USA took the bad loans from the banks and stuffed them into Freddie and Fanny, in Europe, the bad loans are still on the books of the banks. Systemically, this has been the leading problem why Europe has been unable to recover and Quantitative Easing merely robber savers of their income and it failed completely to stimulate the economy. Banks were still reluctant to lend and people would not borrow if they did not have confidence in the future. The proportion of bad loans is so different between the individual banks that a joint deposit guarantee leads to a permanent transfer mechanism. This is a complete disaster and pulls the EU apart. As the worse banks are in Southern Europe, Northern Europe will see this as a bailout for the South. Therein lies the very crisis and why the structure of the Eurozone from the outset has been such a complete disaster. All national debts of member states should have been consolidated and that should have become the European National Debt. Thereafter, member states should have been on their own. But that common sense design was ignored for political purposes. Any consolidation of debt was seen as a bailout for weaker member states. This inherent disparity simply remains intact with no solution in sight. The recapitalization costs for eliminating non-performing loans (NPLs) just in Cyprus will still consume 2.4% of GDP in that member state. In Greece, any recapitalization will cost 2% of GDP and in Italy 0.8%. The disparity among members smacks of transfer payments which have been a sore subject behind the design of the Euro. A closer look at Italy reveals that more than 10% of the balance sheets of Italian banks constitute bad loans. The cost to bailout Italy is put at €189 billion while Spain comes in around €100 billion and even France will be €85 billion. In Germany, the bad loans amount to about €48 billion While nobody wants to talk about it, the obvious issue is why has Deutsche Bank not been merged with Commerzbank? The bad loan problem a derivatives problem would simply not be solved even by such a merger. Is it any wonder why politicians have looked to bail-ins rather than bailouts?
— Read on www.armstrongeconomics.com/international-news/europes-current-economy/cologne-institute-of-german-business-warns-of-deposit-protection-may-not-survive-in-europe/

Scary

Europe v America | Armstrong Economics

QUESTION: Why is Europe still in an economic crisis among its banks while the US banks are obviously beyond the crisis days of 2008-2009? Thank you for your insight. HT ANSWER: The bad loans in the states were really dumped into Freddie Mac, is a public government-sponsored enterprise created in 1970 to expand the secondary market for mortgages. The main difference between Fannie and Freddie boils down to who they buy mortgages from. Fannie Mae primarily purchases mortgage loans from commercial banks, while Freddie Mac primarily buys mortgages from smaller banks that are often called “thrift” banks. The bad real estate loans were stuffed into Fannie and Freddie so the bad debt was not in the banks. In Europe, the bad loans are still on the books of the banks. Hence, the European banking crisis was not been addressed and this is the primary difference between American v Europe.
— Read on www.armstrongeconomics.com/world-news/banking-crisis/europe-v-america/