Wednesday, January 4, 2012

Today's links

1--The Best of CBPP Graphs: Guideposts on the Road Back to Factville, On the Economy

Excerpt: #1: A look at which income group reap the benefits of most of the growth in recent years (see here for much more on this; income changes in the figure are adjusted for inflation). ("must see" graphs)

2--Laurie Goodman On Why Another 11 Million Mortgages Will Go Bad, businessinsider

Excerpt: A major bear on the housing market, Amherst Securities' Laurie Goodman has predicted since 2009 another housing crash as banks are forced to liquidate tons of bad loans.

Up to 11 million mortgages are likely to default, according to Goodman. This is a frightening figure, seeing as only several million have been liquidated since the crisis began. When it happens, the market will be flooded with supply.

Goodman reached 11 million by projecting default rates for non-performing loans, re-performing loans, and underwater loans. Here's a slide from a recent presentation (via The Atlantic) Really excellent graphs..

Meanwhile banks are refraining from liquidations in hope that bad loans turn good. Thus the shadow inventory keeps growing

3--For 2012, Signs Point to Tepid Consumer Spending, NY Times

Excerpt: American consumers are running out of tricks.

As the weak economy has trudged on, they have leaned on credit cards to pay for holiday gifts, many bought at discounts. They are dipping into savings to cover spikes in gas, food and rent. They are substituting domestic vacations for international trips, squeezing more life out of their washing machines and refrigerators and switching to alternatives as meat prices have risen.

That leaves little room for a big increase in spending in 2012, economists say, a shaky foundation for the most important pillar of the American economy.

“The consumer is far from healthy,” said Steve Blitz, senior economist for ITG Investment Research.

Even the seemingly robust holiday shopping season is raising concern. After a strong start on Thanksgiving weekend, a pronounced lull followed, causing retailers to mark down products heavily in the week before Christmas. While final numbers for the season are not in, analysts say they are worried that retailers had to eat into profits to generate high revenues....

And with more than one in every five borrowers still owing more than their homes are worth, many homeowners feel too pressed to spend on much more than the essentials.

The stock market did not help consumers, either. Because of turmoil in the markets in the late summer and early fall, household wealth declined by $2.4 trillion in that period, a contraction likely to make people think twice about big purchases.

Adding to the uncertainty, financial weakness in Europe, and the potential expiration of the payroll tax cut and unemployment insurance benefits in two months, could further soften spending.

4--The collateral crunch gets monetary, FT Alphaville

Excerpt: Back in 2011, FT Alphaville made a big point of highlighting that tight bank funding conditions in the eurozone were largely driven by a “crunch” in the supply of quality collateral.

While such things as repo rates, central bank actions and Bund yields certainly supported the thesis, one very important dataset — the M3 monetary aggregate — failed to reflect the condition....

it’s also worth keeping the Target2 debate in mind (i.e. how giving out liquidity against rubbish collateral to one set of eurozone members simply pushes more liquidity into the deposit facilities of stronger members, who have no choice but to invest it in quality collateral — causing a quality collateral crunch — and or lacking that option straight into ECB deposit facilities).

For example, as SocGen explain (our emphasis):

In its simplified version, the Eurosystem’s liabilities are made up of the current accounts (required reserves), the autonomous factors and the deposit facility; the Eurosystem’s assets contain the OMOs (Open Market Operations) and the marginal lending facility. In other words, if the ECB allocates more liquidity (OMOs + marginal lending) than is required by the system (autonomous factors + required reserves) then the deposit facility automatically surges....

Graph 2 shows that the money multiplier has collapsed. Indeed, using the weekly ECB data from 23 December, base money has increased by 46% over the past year, when broad money supply has grown by just 2% (with the counterparts of M3, loans to the private sector were up by just 1.7% yoy in November and still slowing). In other words the ECB is printing money but the transmission to the real economy is extremely weak. We have been and remain sceptical that such a passive form of QE would reverse economic fortunes. The money multiplier, now at a historical low in the eurozone, has more than halved from the peak of 2002. The pressure on banks to deleverage and the lack of appetite for non-financial private sector borrowing are such that the ECB ought to think about other plans.

In simple terms that means the money multiplier is dead.

Put another way, there are not enough creditworthy counterparties in the system to encourage any sort of money multiplication effect at all. Banks and investors just want to get their principal back and are even prepared in some cases to pay out a negative interest rate to ensure that as much of their principal as possible is returned at some date.

Put another way still, the central bank transmission mechanism has been compromised because expansion or contraction of high-powered money makes no difference to the overall amount of money which is multiplied into the system.

And as we’ve noted before, that is exactly what happened during the Great Depression.

Reason to worry? We would say so.

5--Tensions not seen easing much as banks hoard cash, Reuters

Excerpt: The euro zone banking system starts the new year awash with record levels of liquidity but few signs that institutions are prepared to lend to each other, leaving money markets frozen.

Most of the near half trillion euros of three-year funds borrowed from the European Central Bank in the last week of 2011 have made their way back to the ECB's overnight deposit account.

Use of the facility was close to 450 billion euros on Monday night. But, reflecting the dislocation in short-term funding markets, at least one other bank borrowed 14.8 billion euros from the ECB's punitively priced emergency lending facility.

What happens to the excess liquidity in coming weeks will be key. But with banks facing heavy refinancing schedules this year, those looking for a revival in money markets may be disappointed.

"My sense is that we will see some easing of tensions, but that's a natural seasonal thing," said Simon Smith, chief economist at FxPro.

But it's unlikely to be that substantial because of the bank refunding that needs to be done and the three-year money was in part intended to help with that."

The reduction of tail risk for banks, where the ECB has effectively backstopped the system reduces counterparty risk to the extent a Lehman type event is a lower probability," strategist Harvinder Sian said.

"Until the sovereign risk is reduced (spreads) are unlikely to trend narrow - and our view remains much more cautious in that sovereign defaults are likely in 2012, starting with Greece."

Concern over banks' exposure to the sovereign debt crisis has closed money markets and longer-term financing markets.

Societe Generale calculates that the roughly 200 billion euros in extra funding available to banks since the three-year tender only corresponds to an estimated financing gap for 2012 based on longer-term debt redemptions and deleveraging.

Even with another three-year tender in February, that means banks are unlikely to use the cash to buy euro zone government bonds, the so-called carry trade, anticipation of which drove shorter-term Italian and Spanish bond yields sharply lower at the end of the year.

"Banks are torn between using cheap borrowing to boost profits and intense market and regulatory pressure towards deleveraging," SG analysts said.

"We continue to believe that the latter is too strong a force. The large (three-year cash) take-up should reduce the speed of asset selling, but we doubt it will lead to aggressive buying of sovereign bonds."

6--Food Stamp Rush Hour, Bloomberg

At superstores across the U.S., a rush to use up food stamps

Excerpt: Just before midnight on Nov. 30, swarms of shoppers at the Wal-Mart (WMT) Supercenter in North Bergen, N.J., fill their carts with milk, bread, cereal, vegetables, baby food, and more. Some hold crying or sleeping infants. Others have brought along elderly relatives who cruise the aisles in scooter carts. Nearly everyone is yawning.

At about 11:50 p.m., long, winding lines start to form at the three open checkout lanes. The manager takes to the storewide PA to summon all cashiers to their posts. As the clock strikes 12, the lines move slowly forward. Almost all the customers pay with swipe cards and linger over brimming carts to double-check foot-long receipts for errors.

It’s a monthly event, and a sign of the times. On the last day of every month, at 24-hour Wal-Marts, food stamp recipients line up to make essential purchases just as their federal benefit cards recharge for the new month.

News of the trend was first broken by William S. Simon, Wal-Mart’s U.S. chief executive officer. At a Goldman Sachs (GS) conference in September 2010, Simon told investors that on the last day of the month, “it’s real interesting to watch. About 11 p.m., customers start to come in and shop, fill their grocery basket with basic items … and mill about the store until midnight. Our sales for those first few hours on the first of the month are substantially and significantly higher. If you really think about it, the only reason somebody gets out in the middle of the night and buys baby formula is that they need it, and they’ve been waiting for it.” Executives at Dean Foods (DF) and grocery chain Kroger (KR) have said as much in investor calls this year.

According to the U.S. Agriculture Dept., the Supplemental Nutrition Assistance Program (food stamps) has grown from 26 million recipients five years ago to a record 46 million today. The U.S. Census Bureau says nearly 50 million Americans are living in poverty, the highest figure since recordkeeping began 52 years ago. The bureau calculates that 6 million more people would be living in poverty were it not for a temporary increase in the earned-income tax credit. And without food stamps, an additional 5 million Americans would fall below the poverty line.

7--Shoppers turn to pawn shops, The Daily Times
Excerpt: While in the past pawn shops have seen holiday shoppers, this year they are seeing more and seeing them earlier -- a trend that coincides with national sales at chain stores.

"We are seeing an increase this year," said Scott Paulsen, owner of Sussex County Pawn. "Shopping actually started earlier. Usually the last week people come in in a panic."...

One of the main draws pawn shops offer are negotiable prices, while customers heading to a chain store will likely have to pay sticker price. Pawn shops also offer a place to sell past presents gift-givers don't use for cash.

"Holidays are always big and for us it's one of those things where we see a pick up in business going both directions," says Steve Kottman, general manager at Crazy Louie's Pawn Shop in Salisbury. "Certainly with the economy people need more money.

8--USDA: Increased Food Aid Kept Hunger Rate Steady, NPR

Excerpt: Despite the bad economy, the number of Americans who struggled to get enough to eat did not grow last year, and in some cases declined, according to new government data. Still, a near-record number — almost 49 million people — were affected.

Federal officials say an increase in government food aid kept the numbers from going even higher.

Supplemental Nutrition Assistance Program
According to the new data from the Department of Agriculture, about 17.2 million households last year had trouble putting food on the table — what it calls "food insecure." And more than a third of those households had members who went hungry at some point during the year because they couldn't afford enough to eat....

All of those programs have seen an increase in enrollment since the start of the recession. Today, more than 45 million people get food stamps, or SNAP benefits, as they're now called; that's 1 in 7 Americans. Concannon says children are among the main beneficiaries....
children in 386,000 households went hungry at some time during 2010. That's a big concern for Bill Shore, head of Share Our Strength, a national nonprofit that wants to end childhood hunger by the year 2015.

"These numbers reflect the fact that we've been stuck at a very high level of hunger and food insecurity for going on three years now, and so that takes a real toll on those who are most vulnerable, which tend to be our children," Shore says.

9--Obama takes aim at public education---Interview with Education historian Diane Ravitch, author of The Death and Life of the Great American School System and an outspoken critic of Race to the Top – which she equates to a mass privatization of public education – recently spoke with EPI about the Times article, EPI

Excerpt: Part of what is going on is to try to blame low performance on teachers instead of recognizing that poverty is the single greatest determinant of low scores. Not being a native English speaker and being homeless are also major factors....

Q. Should teachers have guaranteed lifetime tenure?

Ravitch: Lifetime tenure does not exist. Tenure means the right to due process. But firing people because they cost more is a way to destroy a profession. If you go in for surgery, do you want an experienced surgeon, or a resident? Senior teachers are a valuable part of every school staff. New teachers need their help. If teachers are incompetent, they should be brought up on charges and removed. A far more important problem than removing teachers is teacher attrition: Half of those who enter teaching are gone within five years. Yet the ”reformers” ignore this problem, which is largely due to poor working conditions.

Q. The New York Times piece does make the point that many charter schools perform badly. But it also uses the example of one charter school in Harlem that actually shares the same building with a public school, yet has a vastly different school environment and much better student performance. How can two schools that are not only in the same neighborhood, but in the very same building have such vastly different outcomes?

Ravitch: The important point here is that these two schools don’t have the same population. The public school has a much larger population of English-language learners, special education students, and students with disabilities. The only thing they share is the same building.

Q. And why would two schools in such close proximity have such different student populations?

Ravitch: Charter schools, when they are popular, have a lottery. But a lot of parents never even hear about the lottery. In New York City, there is a very large number of homeless students in the population, and very few enroll in charter schools. It is a selective effect. There is a big difference between entering a lottery for a charter school, and going to a public school, where they are required to accept you.

Charter schools can also quietly remove kids. Some of the charter schools that are very successful have a very high attrition rate. They may start with 100 students and end up with 50. Then they say how successful they are but don’t tell you about the students who didn’t make it.

Ideally, charter schools should collaborate with public schools, not compete with them. Both sectors should coalesce around common goals, funding and sharing ways to help all students succeed.
Q. What are some of the other problems you see with charter schools?

Ravitch: Some skim away the most motivated students, and many are concentrated in cities in minority neighborhoods. If you look at the nations in the world with the highest performing schools — Finland, Japan and Korea — they have not privatized public education. They have made it better.

Q. In your view, what are the school reforms that are needed?

Ravitch: The most important reform is to have a strong and coherent curriculum in the arts and science, in history and geography. Every high-performing nation has a strong curriculum. And as a society we have to act on the other problems, such as poverty and homelessness, which contribute to poor educational outcomes. We should not punish schools and teachers because they have a high number of kids who are poor or homeless or aren’t native English speakers. We have to do something to help those students have a better life.

10--The crisis of African American unemployment requires federal intervention, EPI

Excerpt: Unemployment rates for African Americans have been far higher than those of whites for the past 50 years, even in good times. In fact, since 1960 the black unemployment rate has been about twice the white rate. Had blacks had the same unemployment rate as whites in 2010, an additional 1.3 million blacks would have been employed....

Neither educational advances nor suburbanization by blacks has translated into reductions in the black–white unemployment rate ratio.

If a bold new approach is not developed to address the racial unemployment disparity, it is likely that African Americans will be condemned to unemployment rates that are twice those of whites into the foreseeable future.

11--Unemployment is down over last two years because the labor force shrank, not because of greater employment, Larry Mishel, EPI

Excerpt: Exodus occurred among almost all education groups

Unemployment in November dipped to 8.6 percent, its lowest point since March 2009, down from its 10.1 percent recession high in Oct. 2009. The unemployment rate fell because the share of the population seeking work or working—the labor force participation rate—has fallen considerably. We know this because the share of the population employed last month—58.5 percent—is the same as when the unemployment rate peaked. The lack of change in the share of the population employed—known as the employment-to-population ratio—indicates that the growth in employment has only kept pace with the growth of the working-age population. The figure shows the erosion in the labor force participation rate of people age 25 and older by education level over the last two years.

For the 8 percent of the labor force who have not completed high school, there was no real fall in labor force participation as the small decline from 2009–10 roughly offset the small increase from 2010–11. In contrast, labor force participation of those with a high school degree or some college declined by 1.6 percentage points, with the greatest decline occurring in the last year. There was a somewhat smaller but still sizeable 1.3 percentage-point decline in labor force participation of those with a college degree or further education (such as a master’s or professional degree). Thus, this deep recession led to a widespread shrinkage of the labor force that encompasses all but the least-educated workers. (see chart)

12--A lost decade: Poverty and income trends continue to paint a bleak picture for working families, EPI

Excerpt: The 2010 poverty and income data released yesterday morning by the U.S. Census Bureau are yet another reminder of the continued weight of the Great Recession on families in the United States. The Great Recession officially ended in the summer of 2009, but the labor market continued deteriorating through the end of 2009, and the modest economic growth in 2010 was not enough to compensate for those losses. From 2009 to 2010, the number of jobs fell by 658,000, the unemployment rate increased from 9.3 percent to 9.6 percent, and the share of unemployed workers who had been unemployed for more than six months climbed from 31.2 percent to 43.3 percent. Thanks to this deterioration in the labor market, incomes dropped and poverty rose.

Key findings from the Census Bureau’s report

Poverty

The poverty rate increased from 14.3 percent in 2009 to 15.1 percent in 2010, representing an additional 2.6 million people living in poverty and bringing the total number of people in poverty in the United States to 46.2 million.

The poverty rate for children was 22.0 percent in 2010, representing 16.4 million kids living in poverty. In 2010, more than one-third (35.5 percent) of all people living in poverty were children.

The poverty rate for working-age people (18- to 64- year-olds) hit 13.7 percent in 2010, the highest rate since the series began in 1966. Poverty among the elderly (age 65 and older) poverty was statistically unchanged over the year.

The poor are getting even poorer. In 2010, the share of the population below half of the poverty line hit a record high of 6.7 percent.

Nearly one in 10 children (9.9 percent) fell below half of the poverty line in 2010, up from 9.3 percent in 2009.

Non-Hispanic whites maintained far lower poverty rates than any other racial/ethnic group. Blacks were particularly hard-hit by increases in poverty from 2009 to 2010, increasing 1.6 percentage points to reach a rate of 27.4 percent.

In 2010, over one-third of black children (39.1 percent) and Hispanic children (35.0 percent) were living in poverty. The poverty rate for families with children headed by single mothers hit 40.7 percent in 2010. Of the 7.0 million families living in poverty in 2010, 4.1 million of them were headed by a single mom.

Income
Between 2000 and 2010, median income for working-age households fell from $61,574 to $55,276, a decline of roughly $6,300, which is more than 10 percent.

Disparities in incomes among racial and ethnic subgroups grew in 2010, as racial and ethnic minorities experienced particularly large declines in income. The black household earning the median income is now bringing in $5,494 less than the median black household did 10 years ago (a drop of 14.6 percent) and the median Hispanic household is now bringing in $4,235 less than the median Hispanic household did 10 years ago (a drop of 10.1 percent).

A quick comment on the effect of ARRA
How did the American Recovery and Reinvestment Act of 2009 (ARRA) affect the 2010 poverty and income numbers? Because ARRA was passed in February and was in the process of ramping up through the end of 2009, its full impact was felt in 2010. ARRA primarily affected these numbers by creating and saving jobs, the earnings from which otherwise would not have been there supporting family incomes. The Congressional Budget Office estimates that the Recovery Act created or saved around one million full-time equivalent jobs in 2009, and 3.4 million jobs in 2010. Without these jobs, the decline in income and increase in poverty would have been much more dramatic. In other words, the new Census Bureau report is ugly, but without ARRA, it would have been much uglier. This underscores the growing impact of the end of ARRA—in the current quarter, ARRA is supporting only 2.3 million full-time equivalent jobs, and the number of jobs supported drops to half a million by the fourth quarter of 2012. This means that the loss of the boost from government action is—and without additional intervention will continue to be—a substantial drag on jobs and family income.

What about the direct income supports in ARRA? Of three major income supports in the stimulus—unemployment insurance, nutritional assistance (food stamps), and tax cuts—only unemployment insurance is counted in the income numbers just released; the income numbers include cash income received from programs such as unemployment insurance, but exclude noncash benefits like food stamps, and are measured before payments of taxes, so they do not reflect reductions in taxes. While unemployment insurance benefits replace a maximum of half of a worker’s prior earnings, these benefits went to workers who were laid off and who had low odds of quickly finding another job (in 2010, there were 5.3 unemployed workers per job opening on average). In other words, these unemployment benefits went to families that otherwise would likely have suffered even steeper income declines, and in some cases dropped below the poverty line. Census data show that 3.2 million people were kept out of poverty in 2010 by unemployment insurance benefits alone.

Poverty: Record highs

Between 2009 and 2010, an additional ­­­­­­2.6 million people slipped below the poverty line, as the poverty rate increased from 14.3 percent to 15.1 percent. The rate represents 46.2 million people living in poverty in the United States. The last time the poverty rate was higher was in 1983, when it was 15.2 percent

Income: Another lost year in a lost decade

From 2009 to 2010, median household income, adjusted for inflation, fell from $50,599 to $49,445, a decline of $1,154, or 2.3 percent. Working-age households—those with a head of household younger than 65 years old—experienced even larger declines because they are most exposed to the labor market and therefore most likely to be affected when the labor market deteriorates. The median income of working-age households fell from $56,742 in 2009 to $55,276 in 2010, a decline of $1,466, or 2.6 percent.

Conclusion

The new data on income and poverty underscore the real, human consequences of the economic downturn. The labor market is the core building block of family incomes—when the labor market falters and people lose work, hours, and wages, family incomes drop and poverty rises. The Census Bureau’s report shows that much of the income and anti-poverty gains made in the 1990s have been more than erased due to both the weak business cycle from 2000-07 and the lasting effects of the Great Recession. While the Recovery Act stemmed the losses from the Great Recession, it was never big enough to right the economic ship given the scale of the crisis. With unemployment expected to stay above 8 percent well into 2014, it is time for Congress to once again act boldly to create jobs so that America’s residents have the work they need to provide for their families. The jobs plan that President Obama announced last week takes an important step in the direction of a solution that matches the scale of the ongoing crisis. For more on what we can and should be pursuing to generate jobs, see EPI’s Putting America Back to Work.

13--Hypothecation; maximizing leverage, Roger Montgomery's Insights

Excerpt: Hypothecation is, in simple terms, the practice of a borrower putting up collateral to secure a debt. An example of this is the typical purchase of a house. The buyer puts down a 20% deposit and borrows the remaining 80%. In this case the borrower has put up some cash and the house (at an agreed value) as collateral to cover the debt until the mortgage is paid off. Until such the borrower retains ownership of the collateral. Thus the collateral (both the deposit and the house) remains “hypothetically” controlled by the creditor, usually a bank. If the borrower can’t afford to meet agreed repayments (default), the creditor can take possession of the collateral and sell it to recover its assets. That’s Hypothecation – hypothetically the borrower owns the house, but in fact, they don’t until all loans are paid off. The same goes for securities purchased on margin.

Let’s say a hedge fund (who is managing your money) puts up $100,000 collateral to support a leveraged position of $1,000,000. If the broker then re-hypothecates that $100,000 and uses this to support the same level of leverage, the firm is in a position where just $100,000 in collateral (not theirs) is supporting $2,000,000 in leveraged market positions.

A move of just 5% on $2,000,000 equates to $100,000 in profit and both you and your broker make $50,000 each. A move however of 5% against a $2,000,000 position can however wipe most of the collateral – and such moves are not uncommon today. While a single trade will unlikely bring down a broker’s diversified trading book, if all trades move in unison (remember US house prices were never expected to all decline at once), as was the case when MF Global traded European bonds, you can see how quickly everything can unravel.

And remember, while the broking firm enjoys all of the trading profits and fees, the clients bear the risk. If the broker loses, they file for bankruptcy, leaving clients holding an empty can. This appears to be what transpired at MF Global. It’s the ultimate privatization of profits and socialization of losses. And according to an increasingly vocal group of experts it could all happen again if a sovereign defaults.

And now you also have the reason why Central Banks around the world are applying a policy of ‘price stability’ or ‘price support’ in asset markets like the stock market – everyone is leveraged to the hilt.

It has been estimated that in 2007, re-hypothecation accounted 50% of the worlds Shadow banking system and the IMF estimated that US banks received $4 trillion of funding from the UK from re-hypothecation using just $1 trillion in clients funds, funds being levered several times over. In this light, don’t think for a moment that MF Global is alone in using client’s funds to trade and borrow for their own trading activities.

It appears in the current market environment that the first question you should ask is not whether or not your investment idea will work out correctly, it’s more a question of whether the money you put into your broker sponsored account will ever come back.

And now that re-hypothecation is exposed, I wonder how many assets have been double, tripled and quadruple-counted. An expose on this subject by Reuters about this subject following the collapse of MF Global, revealed that “Engaging in hyper-hypothecation have been Goldman Sachs ($28.17 billion re-hypothecated in 2011), Canadian Imperial Bank of Commerce (re-pledged $72 billion in client assets), Royal Bank of Canada (re-pledged $53.8 billion of $126.7 billion available for re-pledging), Oppenheimer Holdings ($15.3 million), Credit Suisse (CHF 332 billion), Knight Capital Group ($1.17 billion), Interactive Brokers ($14.5 billion), Wells Fargo ($19.6 billion), JP Morgan($546.2 billion) and Morgan Stanley ($410 billion).”

And if you are wondering what the implications are, it may not be what you think. Initially there will be the denials and then, if Prime Brokers have to recall all the stock they lent out, imagine the global short covering rally?

15--Eurozone credit crunch fears on M3 money contractionEurope is at mounting risk of a fresh credit crunch after the eurozone money supply contracted for a second month in November and the volume of private loans began to shrink, Telegraph


Excerpt: Data released by the European Central Bank shows that M3 money figures tracked by experts as a leading indicator for the economy have turned negative since August, signalling almost certain recession over coming months for the region as a whole.

"The message of these numbers is that the eurozone faces a bleak 2012, with inflation falling rapidly," said Tim Congdon from International Monetary Research. "There is a desperate need to restore growth to the banking system and boost the quantity of money."

Credit to households and business is still growing at 1pc on an annual basis, but on a month-to-month basis it has been flat for months and is now shrinking. It is broadly the same picture for the "broad" M3 money supply, which includes cash and a wide range of accounts and forms a key pillar of the ECB’s monetary policy.

Simon Ward from Henderson Global Investors said the ECB’s "narrow" M1 money figures - tracked for clues on shorter-term spending patterns - show a drastic divergence between the North and South of the eurozone. "Parts of the core may avoid recession but there is no light at the end of the tunnel for the periphery. Real M1 deposits in Greece and Portugal have been falling at an annual rate of roughly 20pc over the last six months," he said.

The overall picture for both the money supply and private credit is as contractionary as in late 2008 after the Lehman crisis. ECB president Mario Draghi has reversed gears dramatically since taking charge in October, cutting interest rates twice to 1pc and providing €489bn in credit to banks for three years to prop up EMU debt markets

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