Merkel Sends the Markets To Their Room

...presumably to think about what they have done. It brings to mind the story that Lyndon Johnson used to tell, of a young boy sent to ask God whether he should have treated his mother in a particular way when she would not get him a dog. The boy spent the night in contemplation and then arrived at breakfast to announce that God thought that he deserved a dog too.

Frau Merkel (whom I admire, as my one demented reader will know) has banned a particular form of gambling on German stock exchanges called naked short selling. This involves betting on forward 'spot' rates for currency and taking actions that, whilst increasing liquidity, are predicated upon a fall in an asset or currency in the future. It involves borrowing, selling, and replacing things belonging to another. It helps make markets efficient, but markets assess their efficiency according to what the markets think of the past, when their regression analysis (funnily enough) tends to prove that the people analysing the behaviour of their colleagues and co-conspirators were right all along.

The significance of Angie's move is serious. She has, in one country--one big, serious country--attempted to send traders whose Fisher parity models and uncovered interest arbitrage are worshipped by the wannabes of the Anglo Saxon world to their room.

I cannot believe, given her history, that she did this on her own bat. She prepares the ground and moves--this is the lesson of her career, and why opponents end up roadkill.

Anecdotal and observational evidence from people in Asian central banks has suggested to me for the past week that trillions of won, yen, and reserves were being strategically placed at high speed by those banks, from European offices, in ways that they won't talk about. The Koreans, China and Japan--and who knows, ASEAN too-- may well be backing the French and German stand on the euro, in which case the American attempt--on the part of their ratings agencies and authorities--to pull in dollars and shore up the American debt, in part by undermining a currency they never liked, will fail. Things are coming down, as they often do, to a battle in Germany.

On the other hand, what is going on may just be a desperate measure to defend a Euro which needs to flexibly retreat. I doubt this. It is in serious trouble, but when one looks at the purchasing power and history of the euro, it is still slightly overvalued, most of its economy is based on internal trade, and the exporters will benefit from a controlled depreciation. The Euro has been skirting the edge of destruction lately, but in part this has been because of the self-seeking and thanatic obsessions of traders who know what they did to the world economy over the past two decades and who do not care.

By pulling out liquidity, Angie has made the situation dangerous; but the metaphor that springs to my mind is that of Thomas Jefferson, who noted that in slavery, America had a wolf by the ears. Angie has basically stuck a needle into its jugular and slowed it down--a clear solution to the issue of what to do with it. If the markets act now, they will have to do so in a serious, long way that may result in huge losses for them. That wolf knows its body; if it bites, it could end up with a heart attack now.

De Gaulle once said that everyone else was playing cafe games whilst he played poker; I hope that Ms Merkel is the one with the safe hand.


DBC Reed said…
It strikes me as odd that the dominant right-wing presence on the blogs is always belly-aching about freedom but believes fervently that it a good idea to saddle every "freeborn Englishman"
with a an upfront bill for 100k GB quid for the land underneath their house ,so that they can't afford to move to London to seek work/the chance to re-invent themselves as jazz musicians, horse-racing experts ,sex slaves whatever.Then using the aggregate 100ks which go straight to the banks and the finance "industry" in crippling monthly instalments,the markets then impose an "iron discipline" such that they can decide the economic fate of nations.We do not need their freedom which is the age old High Tory anarchism. This is the real state,land -based capital markets,not CCT cameras etc which the iron discipline lovers find really frightening, so guilt-ridden must they be.Meanwhile the people with real power sit at screens causing capital movements that ruin lives with fat-fingered jabs at the keys.
Chesterton was told that he could n't turn the clock back with his neo medieval political reforms so took a clock and stopped it with the comment that as it was a man-made contrivance so it was man's servant not his master.So it should be with the markets and good luck to Merkel if this what she is really about.Markets seem to be for right-wing people what God was to the same people previously.A Monster from the Id to quote the space fiction classic.
Martin Meenagh said…
I like Forbidden Planet. Marketeers with no depth to them should go there.