Europe | - Part 5

ECB Launches NIRP

Here’s European Central Bank President Mario Draghi’s press conference where he explains how the central bank plans to spur lending by charging member banks to keep their money, a policy that will soon become known as NIRP (Negative Interest Rate Policy).

Some say Draghi looks a little bit like a frog and, given that, it’s natural to recall the “frog in boiling water” analogy as it relates to monetary policy around the world.

Go back ten years and few could have imagined what central bank policy makers have already done and what they are planning to do, all in an effort to combat the biggest credit bust the world has ever seen and, importantly, one that they oversaw.

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U.K. Housing … In the News

The Organization for Economic Cooperation and Development ratcheted down its expectations for global economic growth and, in the process, warned that the U.K. housing market may be spiraling out of control. While many policymakers in the West would no doubt give themselves a pat on the back for the latter (e.g., George Osborne below), it seems the English people think differently based on the graphic from this story at the Telegraph.

The Government and Bank of England must act to curb mortgage lending or the recent surge in demand could see house prices spiral out of control, the Organisation for Economic Co-operation and Development has warned.

While the OECD’s latest forecasts showed Britain will be the fastest growing major economy in 2014, the Paris-based think-tank said if measures were not taken to further “restrain housing demand”, such as cutting back the Government’s Help to Buy scheme or forcing borrowers raise higher deposits, the market could quickly overheat.

The OECD said on Tuesday that it expects Britain to grow by 3.2pc in 2014, up significantly from its forecast of 2.4pc last November.

However, it warned that “vibrant housing demand” – helped by schemes such as Help to Buy, which provides Government guarantees for high loan-to-value mortgages – could quickly inflate a house price bubble.

Also see BOE Tools to Tame U.K. Homes Market May Not Work, OECD Says at Bloomberg today and House prices are as big a challenge as inflation in the Seventies and Eighties that appeared at the Telegraph today as well for the many reasons why the U.K. economic recovery is much more exciting (and dangerous) than it appears to the casual observer.

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Ukraine Crisis Escalates

This item at the new and improved Vox website depicts the situation in Ukraine where protests and the takeover of government buildings in the country’s eastern region have reignited the crisis that began over the winter and has been on simmer so far in the spring.

As noted in the report, this is how things started in Crimea before that region was annexed by Russia, so, in the words of Jesse Pinkman and Walter Williams, “There’s that.”

Here’s the latest via CNN:

I wouldn’t mess with that guy in the white ski mask.

Europe’s Shifting Borders

Since Russia annexed Crimea there have been a number of videos such as the one below about how European and Eastern Asia borders have changed over time, but this is one of the very best of them ( at tip of the hat to Marc to Market).

Of course, what’s interesting about this is that Crimea has been part of Russia for the vast majority of the last 300 years. That’s pretty much the case for Ukraine as well, but aside from Russia, there are few (if any) other regions that are quite as Russian as Crimea.

Lord Turner Warns on U.K. Housing

They continue to talk about how unbalanced the economic recovery is over in the U.K. and how a lot of people seem to be fine with that, this Telegraph story following on the heels of Jeremy Warner lamenting “This Guilty Return to Pre-Crisis Norms” yesterday.

Today, it’s former Financial Services Authority Chairman Lord Adair Turner.

Britain’s property obsession has left the country at risk of another major financial shock, the former head of the City watchdog has warned.

“We have made it incredibly favourable to buy houses,” Lord Turner told The Telegraph. “The supply issue is very important and we’ve got to increase the supply of housing because otherwise we are just piling up very strong incentives to buy housing, very strong incentives to borrow money to buy housing but against a fixed supply.”

If you do that the only thing that can give is the price.”

Lord Turner also said he was “worried” that the UK was “developing a recovery which is simply returning to the very issues that led us to this problem in the first place.

“Even the Office for Budget Responsibility has said the only way we’re going to get growth back in the next five years is for the [debt to income ratio] to go all the way back to 170pc again. If in five years time debt has gone back up to 170pc, and if interest rates have returned to 3pc, 4pc or 5pc, then a lot of people are going to be struggling.”

As noted here recently, it really does seem to be a case of policymakers in Anglo-Saxon countries almost admitting that “financial bubbles are about all we have left”.

It’s as if they say, “Let’s get a really good asset bubble going again – stocks, housing, whatever – and we should have a few good years of economic growth before it blows up.”

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