FRANKFURT — Few would begrudge Mario Draghi his boast last week that he and the European Central Bank had prevented a disastrous credit crisis by showering banks with cheap loans in December.

But beneath the gratitude toward Mr. Draghi, the president of the central bank, lurks a fear that the easy money could simply be creating the conditions for another banking crisis several years from now.

Because of the central bank’s cheap financing, some economists warn, sick banks now face less pressure to confront their problems — to clean out bad loans and other impaired assets, or even wind down operations if there is no hope of a turnaround. The European Central Bank, they say, could inadvertently spawn a cohort of “zombie banks,” burdened by nonperforming loans and assets that remain on the books, like the ones that helped make the 1990s a lost decade for Japan.

“It’s a huge bet,” said Charles Wyplosz, a professor of economics at the Graduate Institute in Geneva. “If the crisis ends up well, the E.C.B. will have pulled off a miracle. If things go wrong, then commercial banks will be in a much worse situation than they were before.”

Professor Wyplosz said the central bank might be making the banking system more fragile by encouraging institutions to load up on risky assets, especially government bonds from troubled euro zone countries like Spain or Italy. Banks can use those assets as collateral for more loans from the central bank.

In December, the European Central Bank invited banks to borrow money at the benchmark interest rate of 1 percent for three years, compared with a previous maximum maturity of one year. Banks could borrow as much as they wanted provided they posted collateral. They jumped at the opportunity: 523 banks borrowed 489 billion euros, or $647 billion.

The central bank will offer another round of three-year loans at the end of this month, and last Thursday it loosened its collateral rules to encourage smaller banks to join in. According to some predictions, banks may draw on the cheap credit even more enthusiastically than they did in December.

Last Thursday, Mr. Draghi urged banks to take the money, and even ridiculed top bankers who have bragged they did not need the central bank’s charity. “I would describe some of the statements made as ‘statements of virility,’ ” Mr. Draghi said at a news conference in Frankfurt. “The three-year facilities are there to be used.”

The cascade of cash has lifted sentiment in the euro zone, and may even help the region avoid a serious economic downturn. But it is not yet clear how banks are using the money, and whether they will spend it wisely. Some banks — no one knows how many — are bound to use it to cover up past mismanagement and books full of bad assets.

“It’s like taking medicine, it sometimes has side effects,” said João Soares, a partner at Bain & Company, the management consulting firm, who specializes in financial services. “One side effect that is not good,” he said of the central bank’s lending, “is that it removes pressure to clean up balance sheets.”

PARIS (Reuters) – Europe’s left is torn between outrage and anxiety over drastic cuts in living standards and working conditions being imposed on Greeks by the European Union and the International Monetary Fund.

Indignation at sweeping pay and pension reductions and public sector job cuts dictated by official creditors in return for a second bailout of the debt-ridden euro zone state is strongest in south European countries that fear a similar rod.

Yet there is scant sympathy from centre-left politicians and labor leaders in northern Europe, where voters are more worried at the potential cost of bailouts, nor in former communist central Europe, where people are more inured to hardship.

“What if we all became Greeks?” left-wing French daily Liberation asked on Monday. “Is what is being imposed today on this pressured and humiliated country a foretaste of what will one day be prescribed for Italy, Portugal, and why not France?”

A planned 22 percent cut in the Greek minimum wage, with a 32 percent cut for workers under age 25, is among the most radical steps backwards inflicted in peacetime in modern Europe. Only Latvia has endured a similar EU/IMF-mandated “internal devaluation” cutting living standards.

Public sector pay in Ireland has fallen on average by 15.9 percent since 2009 due to wage cuts and a pension levy, but a 12 percent cut in the minimum wage agreed with lenders was reversed after the government found savings elsewhere.

The leader of Portugal’s largest trade union, Armenio Carlos of the CGTP, praised Greek workers’ “heroic resistance” against austerity measures and warned that his own country could face a similar social explosion.

“If the results in Greece were disastrous, without a doubt they will be no different here,” Carlos said last week.

French Socialist politician Segolene Royal, the defeated presidential candidate in 2007, voiced outrage at the way austerity was targeting the poorest Greeks while the rich were still able to evade taxes with impunity.

Accusing European leaders of “cowardice,” she singled out European Commission President Jose Manuel Barroso for criticism.

“Athens is burning … Where is Mr Barroso? – the ultra-liberal politician chosen to head the Commission – that was a very grave error. Where is the Council of Ministers? What is the European parliament doing?” Royal asked in a radio interview.

Forward looking predictions 

Recent pink slip announcements seem to show an increase in the jobless rate…

via @permabloom on Twitter

Sheesh, would somebody tell the politicians that all that needs to be done to save the economy is spend more of everyone else’s money? Gosh, who knew it could be so simple?

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Debt-ridden and hidebound, Europe may be on the verge of a painful breakup. America is still reeling from the 2008 financial crisis. Even China and India — the new engines of global growth — seem to be sputtering these days. Worse yet, the usual wonkish prescriptions don’t seem to be working anymore. So we asked 13 of the smartest people we know to give us their one out-of-the-box idea for fixing the global economy. Here’s what they recommend.

Read the rest here.

McDonald’s is hiring….

Great article on how we are avoiding the one thing that could really help out the housing problem which plagues our economy.

WASHINGTON (AP) — Ben Bernanke says declines in home prices have forced many Americans to cut back sharply on spending and warns that the trend could continue to weigh on the economy for years.

The Federal Reserve chairman drew the connection between home values and consumer spending, which fuels 70 percent of economic activity, on Friday during a speech to the National Association of Home Builders in Orlando.

Bernanke says the broader economy won’t fully recover until the depressed housing market turns around. People are spending less because they are stuck in “underwater” homes, which are worth less than what is owed on the mortgage. And home values are falling because of foreclosures and tight credit — even in areas with lower unemployment.

“Recent declines in housing wealth may be reducing consumer spending between $200 billion and $375 billion per year. That reduction corresponds to lower living standards for many Americans,” Bernanke said.

The Fed chairman said there’s no “silver bullet” to rescue the housing market. Renting out foreclosed homes and reducing or modifying mortgages are among steps that could help.

“Low or negative equity creates additional problems for households,” Bernanke said. “It reduces financial flexibility: Homeowners who are underwater on their mortgages cannot tap home equity to pay for emergency health expenses or their children’s college educations.

Down 7.6% QoQ

Sanctions may cause serious pain for many industries not involved with petroleum as Iran was Europe’s largest trading partner in 2010.

Not a hard landing call, but true concern over a slowdown from light lending and falling exports.

Read here:

The week isn’t even half-way done and we’ve already heard at least a quarter’s worth of horror stories out of Europe:

* German industrial production unexpectedly unexpectedly fell in December as Europe’s largest economy continues to whither.

* Greek workers are staging a strike in protest of the austerity measures European authorities are requiring prior to formalizing a long-delayed “make or break” debt write down.

* Retail sales in the UK slumped to their second worst January since 1995 when the country started tracking such data.

Six months ago, any two of the above would have sent global equities tumbling. In 2012 U.S. investors pretended to care by starting the day lower prior to sending the tape lazily higher on Monday and Tuesday. Crazy as it seems the question has to be asked: Does Europe as we know it (in a recession and keeping Greece on life support) still matter to U.S. Stocks?

Tim Speiss of EisnerAmper Wealth Planning LLC gives the natural answer: An emphatic YES. For starters he notes “the EU on a combined basis represents 20% of global GDP.” That doesn’t just have implications for the U.S. According the International Monetary Fund, via Speiss, China’s ability to pull off an economic “soft-landing” relies on Europe stabilizing. The magnitude of China’s exposure is such that the IMF offered China unsolicited advice on what the country should do to stimulate its economy in the likely event that the EU drag worsens.

What really scares Speiss as a wealth adviser, is his observation that the EU recovery will be hampered by the same demographic problem that will become acute in the U.S. over the next two decades: An economy dominated by the elderly and retired, draining resources from a decreasing base of workers.

“The spotlight is on Greece,” notes Speiss, adding that the country represents less than one-half of a percent of global GDP. The diminutive Greek economy is the good news. The bad news is that if it takes the EU this long to deal with Greece, the failure of a larger economy in the remaining nations figures to utterly paralyze the entire continent.

It’s an extensive list of horrors, including the fact that he thinks the ECB is exacerbating matters horribly through inaction. Regardless, Speiss still thinks there are companies that will emerge from the wreckage intact and possibly even thriving; just not in the financial sector.

The bottom line as Tim Speiss sees it is Europe not only matters but its still getting worse. The view from where I’m sitting is a European recession is priced into the tape, reducing developments over there to the loudest sound in a noisy room.

Unless it starts screaming lower, the EU playbook for dealing with an eroding Europe is already laid out: Buy U.S. stocks.

Have we become competitive enough to take back some manufacturing ?

Always ask at what cost….

Usually the last market to go…

The following charts show the huge dependence the public has on the government… 

by David Asman at FoxBusiness.com

Mitt Romney panicked the other day. The press was raking him over the coals for saying that he worried more about the middle class than he did about the poor. So he panicked and threw a bone to liberals, some of whom he hopes will vote for him in November.

The bone he threw was a promise to index minimum wage to inflation — an idea that’s not only an insult to those who believe in free markets, but also an insult to the millions of young folks who are out of work because of minimum wage laws.

As the brilliant economist Thomas Sowell pointed out in a column this week, a minimum wage is one of the worst things you can do to young folks out of work.

“When you set minimum-wage levels higher than many inexperienced young people are worth, they don’t get hired. It is not rocket science.”

The minimum wage is particularly tough on black teens, whose unemployment rate is now over 39%. But it hasn’t always been that way. Sowell reminds us that black teen unemployment in the late 1940s was under 10%. Why? Because there really wasn’t a minimum wage back then; high inflation had made it meaningless.

So young black men were able to get entry level positions. Sowell was one of them. His first job was delivering telegrams in New York — not a great job, but for a black, high school drop out in the late 1940s, it was a great start. And he wouldn’t have gotten that start if there had been a real minimum wage.

Minimum wage laws prevent that first leg up. And if we index minimum wage to inflation, we’ll see teenage unemployment go even higher.
Read more: http://trade.cc/ajegixzz1loAvTB89

Things are getting better as per….

Interesting argument here