WSJ speaks with Bernard - "Why the Euro Crisis Isn't Over"
One of Britain's Most Insightful Economists Inspired by Hayek and Bernard Connolly
Bernard at the 2012 Milken Conference - "Is it time to invest in Europe?"
Watch Bernard speak on the "Is it time to invest in Europe?" panel at the 2012 Milken Conference!
(from the Milken website)
"It's nothing but bad press for Europe these days, and many investors have headed for the exits. But does that mean it's actually a moment for contrarians to jump in? Several sectors are continuing to perform well, especially in exports to outside the region. And many companies (and even countries) have seen price distortions in their stocks and debt offerings that could create valuable opportunities. Where are the right places to invest in Europe, and what are the remaining hidden dangers? Which countries are best positioned to buck the trend and maintain positive economic growth? Which sectors are best insulated from the uncertainty?"
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NYT - "Words of a Euro Doomsayer Have New Resonance"
Bernard Connolly Speaks at the Milken Institute Global Conference 2011 - What's Next for the Euro Zone?
See what Bernard Connolly had to say about the euro zone in May 2011!
(from Milken website)
Though last year's bailout plans bought temporary reprieves, the sovereign debt crisis in the euro zone keeps flaring up. Investors have been driving up borrowing rates for countries on the periphery, and a recent wave of rating downgrades for Spain, Portugal, Greece and Ireland have sent further jitters through the markets. Greece and Ireland have fallen behind their deficit reduction targets as austerity plans stifle their economies. Is it time for a fundamental restructuring of their debt? What are the risks to European banks, which hold billions in government bonds? Can the euro – and the unity of the 17-nation currency bloc – be salvaged? Will Germany serve as a backstop? If so, what kind of concessions will it demand in return? Can a permanent financial rescue framework be put into place? What other kinds of fiscal, structural and institutional changes could ensure the euro zone's long-term cohesion? Is the market's patience about to wear out?
To watch the panel, please visit the link below:
BC in the Economist - 3rd Dec 2010
SIR - Buttonwood asked, "Why is the Austrian explanation of the crisis so little discussed?" ("Taking von Mises to pieces", November 20th).
The short answer is that the "Austrian school" of economic ideas has not been taught for a long time in any university department; hence the response of the economic establishment that the current crisis could not have been foreseen.
Outside this establishment there are some exceptions and one whom Buttonwood did not mention is the estimable Bernard Connolly, who has described the unfolding crisis for over a decade with more accuracy than any other economist on the planet.
Economic adviser to the British prime minister, 1997-2003
23rd Dec 2009 - Yet another Mention in Dispatches
Derek Scott gives Bernard a credit in todays FT and eloquently summaries the current malign state of the world.
Use any well know search engine and look for "Derek Scott Financial Times" for the text as, unfortunately, we are forbidden to post the link ...
BC interviewed on Reuters News Service - 20 Oct 2009
By Steven C. Johnson and John Parry
NEW YORK, Oct 20 (Reuters) - The United States may face a series of asset price bubbles and a rerun of the financial crisis unless it lets the dollar fall "at least" another 25 percent, economist Bernard Connolly said on Tuesday.
Because fierce international resistance will likely prevent such a large dollar devaluation, Connolly told Reuters the Federal Reserve may instead have to extend indefinitely its artificial support of a struggling U.S. economy by purchasing another $2 trillion in U.S. Treasuries and federal housing agency debt.
Some investors have started to watch Connolly's forecasts. In February , he accurately predicted the Fed would have to buy Treasuries to boost the money supply and reduce borrowing costs for companies and households (http://uk.reuters.com/article/idUKTRE51C5E620090213).
The Fed began buying $300 billion in longer-dated debt in March, a program expected to wind up this month, and will buy up to $1.425 trillion in agency and mortgage-backed debt.
"A dollar devaluation is needed of at least 25 percent from here, but resistance will be so great that this is not feasible," said Connolly, managing director of UK-based Connolly Global Macro Advisors.
Without substantial dollar depreciation or a resurgent private sector, "the Fed will have to buy another $2 trillion in debt, including Treasuries and agency debt" to reflate the economy, running up dangerous asset bubbles in the process.
The dollar has lost about 7 percent against a basket of major currencies this year <.DXY> and is down about 26 percent since 2003. The euro is about 11 cents from an all-time high.
Some economists say it must fall further to redress global imbalances built up between debtor countries such as the United States and large exporters such as China, Japan and Germany.
But that would meet stiff resistance from governments around the world, who would be forced to reorient growth toward investment and consumption and away from exports.
In recent weeks, policy-makers and government officials in China, France, Canada, Brazil and elsewhere have complained about a weak dollar or taken measures to keep their own currencies from getting too strong and undermining exports. See [ID:nLK233394] and [ID:nN19264977]
Connolly was formerly an economist at Banque AIG, a unit of U.S. insurance firm American International Group Inc <AIG.N> that was saved from collapse last year by a U.S. government bailout.
In the late 1980s and early 1990s, he worked for the European Commission analyzing the European monetary system in the run up to the introduction of the euro currency.
World stock markets and oil prices have rallied this year and gold soared to a record high. The MSCI index of world stock markets <.MIWD00000PUS> hit a fresh 13-month high on Tuesday.
But Connolly said there is "a real disconnect between the rebound of risky assets and the real economy, and added that "financial markets are working their way up to ... a renewed bubble, which will burst again."
Signs of stronger global growth have led financial markets to call for less stimulus, with increasing numbers of players saying the Fed should start unwinding its special programs.
Some Fed officials have said interest rates may have to rise even if the U.S. unemployment rate -- now at 9.8 percent -- is still rising, though Fed Chairman Ben Bernanke has suggested rates are likely to stay at record lows near zero for some time yet.
Connolly said a straw poll of participants at a private investors' conference in New York, where he spoke on Tuesday, showed some three-quarters thought higher rates would come too late and cause inflation.
"I think, if anything, the risk is the other way round -- not necessarily via a rate rise, but by the Fed being forced to validate a market tightening," he said.
He added that the idea "that we have to raise interest rates to defend the dollar is complete and utter nonsense."
Even lawyers want to know where the world is heading ...
Here is an abstract from the September 2009 edition of the Law and Financial Markets Review
We can't publish the whole article but LFMR is running a free trial promotion until the 1 January 2010
"In the December 2007 issue of Law and Financial Markets Review, Bernard Connolly predicted that the financial and economic crisis would intensify and be used as an excuse, by opponents of "Anglo-Saxon" capitalism, to attack the financial markets seen as the shock troops of that model of capitalism. British financial targets have been an obvious target, since many of the most determined of the opponents of "Anglo-Saxon" capitalism control EU mechanism and are thus able to target British markets directly. In this edition of the Review, Bernard Connolly argues that the undisguised EU regulatory assault on British financial markets has little to do with a desire to buttress economies against financial crisis. Indeed, the financial crisis was induced by the by the perverse signals sent to financial firms by regulation and by monetary policy -- not least by the reckless imposition of European monetary union. In turn, those perverse signals arose from the incompatibility of "Anglo-Saxon" financial markets with an anachronistic and misconceived central banking model in the world that emulated the Bundesbank. Seen in this light, the regulatory assault reflects an ambition of restoring a corporatist model of the state, seen by the EU as having been usurped by a perceived "Anglo-Saxon" victory in the Second World War. Further, the identification of risk-taking with anti-social or even criminal activity which has marked the attitudes of EU regulators and jurists, among others, implicitly rests on a theory of law, accepted by the ECJ, that privileges the General Will over individual freedoms."
Bernard out and about at the BCA conference
BC will be in New York on the 20th October at the BCA conference debating;
"Currencies and the Future of the International Monetary System"
I believe its sold out but we will publish any resulting notes on the site!
Kaletsky V Connolly - Video of debate
CGMA's launch debate: "Depression or Socialism - is there another way out?" with the world-renowned journalist and commentator, Anatole Kaletsky and CGMA's Bernard Connolly, took place on 9th July at Brown's Hotel. Please click on the link below to view a video of the debate.
For those of you who would like to make comments, challenge Bernard's argument or raise any other queries about current issues then please add these to our forum (which will be up and running later this week) or contact email@example.com
The forum was conceived to enable subscribers to ask questions, seek clarification, make points or just plain argue with one another (either anonymously or with your name attached).
The International Economy Magazine - Spring 2009
Bernard has particiapted in two symposiums:
The first, detailing what Obama needs to do to get a good 500-day report card;
The second details his views on the reasons for the collapse in world trade;
EMU, Spain and Portugal ...
Follow this link for the transcript of a 1997 roundtable debate on EMU between
Bernard Connolly, Charles Goodhart, Gavyn Davies, Will Hutton, Anatole Kaletsky, David Marsh and Giles Radice, originally published in Prospect magazine.
Here's what Bernard said back in 1997;
BERNARD CONNOLLY: I think there will be a "wide" 11-country Emu. The Bundesbank will have one last go at trying to keep Italy out, but it will be a half-hearted one. How will it work? For the first couple of years it is going to look great. To the peripheral countries, such as Spain or Portugal, it will seem as if they have died and gone to heaven. They will have strong growth, falling interest rates, low inflation, and business and consumer confidence will be high. France and Germany will have monetary policy set-broadly speaking-in their interests and will continue a sluggish sort of recovery. But by 2001 the boom in the periphery will go bust. These countries will not be able to devalue their currencies; their budget deficits will grow rapidly. There will be a conflict with the stability pact rules; I suspect the pact will be suspended. The likeliest outcome from this crisis is the ejection of at least some of the peripheral countries and a solidifying of the core, with much stronger elements of political union. France will then have to make a final decision on whether to join a core dominated by Germany.
BERNARD CONNOLLY: Well, we should be very grateful that early entry has been ruled out. But by the year 2002/2003 I think the initial euphoria about Emu will definitely have died away. We shall be in a position where it becomes clear that-at a minimum-in order for Emu to work, the adjustments which Gavyn has talked about will have to be made. They all involve further surrenders of sovereignty. At this point, it will no longer be possible for British politicians to close their eyes to what all continental politicians say that this project is about-political union. Let no one believe that monetary union, or for that matter the EU itself, is a special purpose association for pursuing common interests. It is not. It is a way of producing political union via a single currency.
BERNARD CONNOLLY: Well, one has to draw a distinction between the early history of the community and what we are seeing now. Whatever the rhetoric of the founding fathers, for 30 years the EU was an organisation for pursuing common interests. Monetary union is different. As well as one exchange rate, interest rate and central bank, we are talking about one interest, a community interest. National interests will have to be forgotten.
BERNARD CONNOLLY: It depends partly on what people are going to be told. Just about everyone in political life-not just Ken Clarke-says yes, we will lose control of interest rates, but we still set our own fiscal policy, our own social policy, environmental policy, industrial policy and so on. But in reality all of this will have to be closely co-ordinated with other Emu members. This is exactly what is now being negotiated in Brussels; commission papers are being circulated. But this fact has not yet been explained to the British public. Nor, for that matter, to the publics of other EU countries.
Another important implication of this co-ordination concerns the reform of the German model which Will and Giles were talking about. Ultimately, I think, most Germans will be convinced of the need for change. But if the German economy suddenly becomes much more competitive, it will be a serious blow to France. So the French will try to pre-empt any such move by ensuring that social, employment and labour market policies are co-ordinated, as far as possible, at European level. So everyone will modernise at the pace of the slowest member.
BERNARD CONNOLLY: But we will not be making the decisions, even if we are in. Look at the ECB. It is supposed to represent the area as a whole, not individual countries. But it is perfectly clear that the Bundesbank expects the ECB to set rates in the light of German and, to some extent, French conditions.
BERNARD CONNOLLY: Well, in the Brussels game a simple majority is never simple. Some countries are more equal than others. Emu is not primarily about economics. The ECB will initially set rates too low for the peripheral countries and it is difficult to see how they can avoid boom-and-bust.
BERNARD CONNOLLY: Businesses might also be unhappy if you tell them that we have to join at DM3.10 to the pound. Do not believe that Britain can just walk in at DM2.40 or even DM2.60.
Don't say I didn't warn you ....
Back in August 2007, Bernard wrote a op-ed piece for the London, Daily Telegraph
Here are some highlights;
"In the US, the Fed is belatedly recognising that what is now happening is not a "healthy correction" of the previous under-pricing of risk but a virulent infection running rapidly through the financial system, threatening to inflict severe structural damage on the real economy. Its decision announced last Friday to cut the Discount Rate, the rate at which financial institutions can borrow directly from the Federal Reserve Banks, was a step in the right direction. But it will not be anything like enough"
"The Fed is going to have to make very substantial cuts in the general level of interest rates if it is going to have any chance of preserving financial stability and avoiding an extremely serious recession. It will do that, even if it does not yet realise just how much it is going to have to do, because its mandate will make it do it."
"Eventually, when things have got bad enough, the German public will be forced to acquiesce in lowered interest rates and high German inflation. But by then the EU will have taken the opportunity to seize control of the financial system (cheerfully punishing the London financial "casino" in the process), dictate budgetary policies, extort bail-out transfers from countries such as Britain and impose exchange controls with the rest of the world (and even, as reportedly threatened in a 1998 meeting of the EU Employment Committee, impose exit taxes - expropriation of life savings - on people seeking to flee the EU)."