The joke used to be: ‘what’s the difference between bonds and bond traders?
Bonds eventually mature.

Except in the euro zone, post the Greek PSI ‘bond tax’, markets are starting to trade like maybe the don’t.

Yes, the ECB can come in and buy again, and probably will with more deterioration, but now it’s known that merely increases the risk of holding the remaining outstanding bonds, as the ECB’s bonds become ‘senior’and don’t get taxed.

So with deficits looking higher due to economic weakness due to mandatory austerity, the sustainability maths pointing to the bond tax route, and the ECB buying further adding to risk of loss, something has to give.

And it all remains potentially catastrophic for the global financial infrastructure, with aggregate demand remaining on the weak side globally and fiscal consolidation pending in most places.

7 Responses

  1. Seems the only variation in this fiscal drain is that the madness goes schlockwise in the northern hemisphere, and counter-schlockwise in the southern hemisphere. 🙂

    Political Economics is exhibiting the effects of the normally negligible Bozonialis farce. It’s the political equivalent of Dark (does not) Matter, which seems to have a large influence on the weakly informed.

    1. @roger erickson,
      Madness manifests not as water rotating but as Euro US politicians do daring to diminish the life conditions of peoples.

      An inverse movement occurs in the BARICS (to include Argentina): politicians do not dare to restrict the access of peoples to better life conditions.

      Something changes in human development.

  2. Excuse my ignorance but can someone explain what bonds becoming ‘senior’ means and the tax free bit?

  3. What’s maddening is that Europe has sufficient experience to be wary of inflexible exchange rates, mandatory austerity, and cries of “fairness” from creditor nations. Then it was Germany in debt to the Americans and French, hemorrhaging gold and experiencing 30% unemployment. Be on the lookout for disgraced Corporals with magnetic personalities, promising dignity for people being crucified on a cross of Euros.

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