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Daily Archives: August 15, 2022

In Pictures: Food of St. Hubertus in San Cassiano, Italy

Authentic Italian Mountain Cuisine Focused on Local Products

No.29 of the World’s 50 Best Restaurants 2022

Chart: A History of U.S. Home Values

Robert J. Shiller American Housing Price Index

See large image . . . . . .

Source : Robert J. Shiller

It Was Less Affordable to Buy a Home in June in the U.S. Than It’s Been in 33 Years

Derek Saul wrote . . . . . . . . .

The National Association of Realtors’ housing affordability index, calculated using median single-family home prices, mortgage rates and median family incomes, hit 98.5 in June, a 3.6% decrease from May and 32.2% decrease since June 2021.

This is the worst monthly score on the index since 1989, according to the Wall Street Journal.

The median sale price of a single-family home rose to $423,300 in June, according to the association, an all-time high and a $7,900 increase from May.

Houses are the least affordable in the West, with a 69.6 score on the index, followed by the South (99.3), Northeast (102.3) and Midwest (132.3).


Declining mortgage rates may soon help improve affordability: the 30-year fixed mortgage rate is 5.22% this week, down 59 basis points from June’s peak. Rates could fall to as low as 4.5% by the end of 2022, Bank of America said in a note last week, a welcome break for home buyers.


Housing prices exploded since the beginning of the Covid-19 pandemic: The average price of a house rose from $383,000 in the first quarter of 2020 to $525,000 in the second quarter of 2022, a 37% increase, according to the St. Louis Federal Reserve. Declining housing affordability has coincided with the highest inflation levels in over 40 years, though the rise in consumer prices slowed in July. New home sales have plunged in recent months, contributing to fears of a housing market collapse, though a jump in mortgage applications last week provided a glimmer of hope.

Source : Forbes

ECB’s Long Journey into Currency Collapse Just Got a Lot Shorter

Brendan Brown wrote . . . . . . . . .

The ECB’s announcement on Thursday July 21 of a “new instrument” for tackling “fragmentation risk” is ominous for the future of the euro. The idea is to pre-empt the emergence of serious break-up risk for the euro-zone as the policy interest rate continues to move higher in coming quarters towards “neutral.”

Chief Lagarde and her colleagues are determined to pre-empt this process triggering financial stress in the form of market crisis for weak government and bank paper. Saving the euro from high inflation must go along with saving the monetary union from break-up (fragmentation risk).

The launch of the new instrument and its likely use means “saving the euro” will drain not bolster confidence in the European money. Historians will not overlook the irony of this new likely giant step on the euro’s long journey to inflationary collapse occurring just on the same day as Mario Draghi, Chief Lagarde’s predecessor, renowned for his swaggering remark about “doing whatever it takes to save the euro” being forced to resign as Prime Minister of Italy.

The new instrument, born under the name “transmission protection instrument” (TPI), will be the catalyst to the accelerated full transformation of the ECB into a bloated European “bad bank” fund. This entity enjoys a giant privilege. Its liabilities are in large part the designated money (whether as banknotes or as reserves of banks) enjoying huge protections as such (most importantly legal tender) in all member countries of the European Monetary Union.

In effect, since the EMU crises of 2010-12, the ECB has been the agent which has “communalized” much of the bad state and bank debt of Italy (also Spain, Portugal and Greece). It has done this by issuing euro money liabilities against giant purchases of government paper and long-term lending (called LTROs) into the corresponding weak banking systems (again most of all Italy).

This communalization has created three big problems for the future of the euro:

First: the road back to monetary normality surely involves shrinking monetary base (now almost 50 percent of euro-zone GDP, compared to 27 percent in US). But how to accomplish this when the ECB would have to dump huge quantities of weak sovereign and bank loans on to the open market to achieve this purpose?

Second: as interest rates rise, it becomes increasingly problematic whether those weak borrowers can service their loans from the ECB. New loans to pay the interest are a red flag regarding insolvency danger, whether in the form of legal default, or default by inflation (thereby reducing real value of principle). The European public at some stage should become alarmed about the danger of default by inflation spilling over into their holdings of the money issued by this bad bank fund.

Third: the tolerance of the German public for this transformation of the ECB and its money could snap in a way which means that the Federal Republic pulls out of the union. Germany has been critical in keeping the ECB humpty dumpty together. Partly this critical role depends on public perception (that Germany stands behind the ECB and all its potential losses), albeit there is much wishful thinking here rather than legal fact.

And then there is the target-2 system – in effect an interbank clearing system, but where net balances between the member central banks are not cleared. The Bundesbank’s credit balance here now stands at over 30 percent of German GDP (matched largely by Italian and Spanish net debit balances; France’s balance is at approximately zero),

Germany, though, can walk away – a course which is not absurd given that ECB holdings of loans and government paper issued by weak banks and sovereigns amounts to over 100 percent of German GDP. In the big picture we should note no member country, jointly or severally, guarantees the monetary debts of the ECB. In fact. the only meaningful guarantee here would be a promise to sustain real purchasing power of money.

If Germany exits EMU, then the ECB’s monetary liabilities just become worth a lot less in real terms (via currency collapse and inflation). Ultimately these monetary liabilities might cease to be monetary – that occurs if monetary union comes to an end. Then the monetary liabilities of the ECB would have to find a market price (in terms of real purchasing power) as the paper of a giant bad bank devoid now of monetary function.

No doubt, any break-up scenario has huge costs, including write-offs for the German public. The existential question, though, poses itself: if not now, when? How much larger will these costs be when the decision to break-up is forced much later.

No-one expects the present coalition government in Berlin to be taking any such decision. But market valuations including of money do reflect shifting probability of future catastrophe even far ahead. The dangers highlighted here of ultimate monetary collapse have just got a lot worse due to the ECB’s launch of its new instrument.

According to the official press release on the TPI, the ECB, its own discretion (by vote of its governing council) can engage in unlimited purchases of paper from any member country if it considers the behaviour of its credit spread (say relative to Bunds) as having come out of line “with fundamentals.” In making that determination, the ECB will check with the EU Commission concerning the evolution of public finances in the given country. The ECB will also check for general economic sustainability in its various dimensions.

If, for whatever reason, the Italian spread (Italian government bond yields vs. German) suddenly widens – perhaps because markets distrust the political direction or sense that Italian credit institutions are in a new bleak situation – then the ECB can turn on the taps. Yes, it will sterilize the new lending, that means presumably disposing of German and Dutch paper in the ECB balance sheet to make room for Italian for example, becoming even more of a bad bank.

There are decisive moments in monetary history. The aftermath of July 21 is likely to be one of them as regards the European monetary future.

Source : Mises Institute

Read also at BNN Bloomberg

Here’s a Closer Look at the ECB’s New Anti-Fragmentation Tool . . . . .

China Criticizes U.S. Chip Law As Threat to Trade

China on Wednesday criticized a U.S. law to encourage processor chip production in the United States and reduce reliance on Asian suppliers as a threat to trade and an attack on Chinese business.

The law signed this week by President Joe Biden promises $52 billion in grants and other aid to investors in U.S. chip factories. It responds in part to warnings that supplies might be disrupted if China attacks Taiwan, which produces up to 90% of high-end chips. China’s ruling Communist Party claims the self-ruled island as part of its territory.

The measure will “disrupt international trade and distort global semiconductor supply chains,” said a Foreign Ministry spokesperson, Wang Wenbin. “China firmly opposes that.”

Parts of the law “restrict companies’ normal investment and economic and trade activities in China,” Wang said, without giving details.

Disruption in chip supplies following the coronavirus pandemic hampered production of goods from smartphones to autos and highlighted the world’s reliance on Taiwanese chips and Chinese factories that assemble most electronic devices.

Fears of disruption have been heightened by Chinese threats to attack Taiwan, which split with the mainland in 1949 after a civil war.

Beijing launched military drills around the island last week in retaliation for a visit by Speaker Nancy Pelosi of the U.S. House of Representatives. China believes visits by American officials to Taiwan might encourage its leaders to make its de facto independence permanent, a step the mainland says would lead to war.

The “CHIPS and Science Act” calls for research spending that would total about $200 billion over 10 years, according to the Congressional Budget Office.

The Communist Party has spent tens of billions of dollars developing China’s own chip production industry. Its factories make low-end chips for autos and other products but cannot supply high-end smartphones and other devices.

Source : AP

Charts: China Economic Data of July 2022