I read an interesting thing about Cyprus on ZeroHedge today.
Following the improvised and very confused bail-in of the Cypriot banking system in mid/late March, one of the key requirements was to contain the liquidity within territorial Cyprus, and prevent the outflows of critical bank funding liabilities – i.e., deposits – abroad thus causing a waterfall cascade of ever increasing capital needs and bigger and better bailouts. Thus capital controls, which two months after the bailout, are still in place. Judging by just released Cyprus Central Bank data they failed. Because even though the deposit outflow in March, when the fiasco happened, was a moderate €3.8 billion, which the European politicians promptly pointed to as confirmation of a job well done, it was the April outflow that was the jawdropping number.
In a month in which deposit flight should have been largely contained, Cyprus banks saw a record outflow of 6.4 billion, or 10% of its entire deposit base, in one month!
So, despite having capital controls in place, what money people still have in Cypriot banks is pouring out of them even faster than it was when this particular crisis started. Which will mean, I guess, that Cyprus will need another bail-in/out in a year. And next time they won’t be able to rob the banks depositors like they did last time, because there’ll be nothing in them at all.
In the Telegraph, Ambrose Evans-Pritchard reports that HSBC sees another downturn beginning.
“We see building evidence of a cyclical downturn,” said Fredrik Nerbrand, HSBC’s global asset guru. “We find it highly troubling that the eurozone is still marred in a recession at the same time as our cyclical indicators appear to have peaked.”
The bank said there is a market “disconnect” between the world’s gloomy outlook and talk of tapering by the US Federal Reserve, the supposed moment when it starts to wind down its $85bn of monthly bond purchases.
AEP thinks that the QE money is ending up in the wrong pockets.
Should there be another round of QE/helicopters, we must surely find a better way to inject the money. Today’s method is enriching the uber-elites, with a painfully slow trickledown. The Gini co-efficient of wealth inequality is soaring. The better alternative is to stick the needle straight into the veins of the economy – building roads, railways or nuclear power stations; but that is a subject for another column.
After almost five years we are still in a contained global depression, struggling with a world record saving rate of 25pc, and a chronic shortage of demand.
So people are saving and not spending. I wonder why that might be?
One simple explanation is that, everywhere in the world where smoking bans are introduced (which actually happens to be almost everywhere in the world), smokers respond by staying home and stopping spending. And I estimate that in the UK, this has reduced demand across the entire economy by something approaching 10%. That’s what happens when you exile a quarter of the population (or more) to the outdoors, and tell them they’re no longer welcome anywhere.
It’s just as if the engine of the economy is firing on three cyclinders instead of four. No wonder it’s got so little traction.
My advice: repeal all smoking bans immediately. You’ll soon pull in the smokers again. It’ll be like sticking a needle straight into the veins of the economy. Not roads, railways, and power stations. But pubs, cafes, and restaurants. And close down Tobacco Control. And clear-cut all the Health and Safety rules and regulations.
Because if you don’t, the global economy will just keep on tanking, regardless of how low interest rates are slashed.
But, of course, they won’t take my advice, will they? They never do.