Money-market funds in the United States have quite dramatically slammed shut their lending windows to European banks. According to the Economist, Fitch estimates U.S. money market funds have withdrawn 42 percent of their money from European banks in general.
And for France that number is even higher — 69 percent. European money-market funds are also getting in on the act.
Bond issuance by banks has seized up because buyers have gone on strike.
In the third quarter bonds issues by European banks only reached 15 percent of the amount they raised over the same period in the past two years, reckon analysts at Citi Group. It is unlikely that European banks have sold many more bonds since.
“We are starting to witness signs that corporates are withdrawing deposits from banks in Spain, Italy, France and Belgium,” an analyst at Citi Group wrote in a recent report. “This is a worrying development.”
And there are troubling signs that banks are even running out of collateral to back their borrowings from the European Central Bank .
So far the liquidity of the European Central Bank (ECB) has kept the system alive. Only one large European bank, Dexia, has collapsed because of a funding shortage. Yet what happens if banks run out of collateral to borrow against?
The flight from European sovereign debt and banks has spanned the globe. European institutions like the Royal Bank of Scotland and pension funds in the Netherlands have been heavy sellers in recent days. And earlier this month, Kokusai Asset Management in Japan unloaded nearly $1 billion in Italian debt.
At the same time, American institutions are pulling back on loans to even the sturdiest banks in Europe. When a $300 million certificate of deposit held by Vanguard’s $114 billion Prime Money Market Fund from Rabobank in the Netherlands came due on Nov. 9, Vanguard decided to let the loan expire and move the money out of Europe. Rabobank enjoys a AAA-credit rating and is considered one of the strongest banks in the world.
American money market funds, long a key supplier of dollars to European banks through short-term loans, have also become nervous. Fund managers have cut their holdings of notes issued by euro zone banks by $261 billion from around its peak in May, a 54 percent drop, according to JPMorgan Chase research.
This is really disturbing. I wonder if any of my economics-minded commenters can explain to me what happens when there is a run on banks. I am guessing that there will be some rioting over benefits as austerity measures are imposed, and interest rates will go up.
Two psychologists, Dr. Robert A. Emmons of the University of California, Davis, and Dr. Michael E. McCullough of the University of Miami, have done much of the research on gratitude. In one study, they asked all participants to write a few sentences each week, focusing on particular topics.
One group wrote about things they were grateful for that had occurred during the week. A second group wrote about daily irritations or things that had displeased them, and the third wrote about events that had affected them (with no emphasis on them being positive or negative). After 10 weeks, those who wrote about gratitude were more optimistic and felt better about their lives. Surprisingly, they also exercised more and had fewer visits to physicians than those who focused on sources of aggravation.
Another leading researcher in this field, Dr. Martin E. P. Seligman, a psychologist at the University of Pennsylvania, tested the impact of various positive psychology interventions on 411 people, each compared with a control assignment of writing about early memories. When their week’s assignment was to write and personally deliver a letter of gratitude to someone who had never been properly thanked for his or her kindness, participants immediately exhibited a huge increase in happiness scores. This impact was greater than that from any other intervention, with benefits lasting for a month.
Of course, studies such as this one cannot prove cause and effect. But most of the studies published on this topic support an association between gratitude and an individual’s well-being.
Other studies have looked at how gratitude can improve relationships. For example, a study of couples found that individuals who took time to express gratitude for their partner not only felt more positive toward the other person but also felt more comfortable expressing concerns about their relationship.
Managers who remember to say “thank you” to people who work for them may find that those employees feel motivated to work harder. Researchers at the Wharton School at the University of Pennsylvania randomly divided university fund-raisers into two groups. One group made phone calls to solicit alumni donations in the same way they always had. The second group — assigned to work on a different day — received a pep talk from the director of annual giving, who told the fund-raisers she was grateful for their efforts. During the following week, the university employees who heard her message of gratitude made 50% more fund-raising calls than those who did not.
My editor Mary writes: There is a health bonus to thankfulness but health isn’t why we should be thankful. We should be thankful because we are the recipients of many good things and it is appropriate under such circumstances to express gratitude. It is also the overflow of a heart made happy by the generosity of another.
To help us be thankful, here is a famous Thanksgiving day proclamation.
Here it is:
PRESIDENTIAL THANKSGIVING PROCLAMATIONS
1789-1815 : George Washington, John Adams, James Madison
THANKSGIVING DAY 1789
BY THE PRESIDENT OF THE UNITED STATES OF AMERICA – A PROCLAMATION
Whereas it is the duty of all Nations to acknowledge the providence of almighty God, to obey his will, to be grateful for his benefits, and humbly to implore his protection and favor – and Whereas both Houses of Congress have by their joint Committee requested me “to recommend to the People of the United States a day of public thanksgiving and prayer to be observed by acknowledging with grateful hearts the many signal favors of Almighty God, especially by affording them an opportunity peaceably to establish a form of government for their safety and happiness.”
Now therefore I do recommend and assign Thursday the 26th day of November next to be devoted by the People of these States to the service of that great and glorious Being, who is the beneficent Author of all the good that was, that is, or that will be – That we may then all unite in rendering unto him our sincere and humble thanks – for his kind care and protection of the People of this country previous to their becoming a Nation – for the signal and manifold mercies, and the favorable interpositions of his providence, which we experienced in the course and conclusion of the late war –for the great degree of tranquillity, union, and plenty, which we have since enjoyed – for the peaceable and rational manner in which we have been enabled to establish constitutions of government for our safety and happiness, and particularly the national One now lately instituted, for the civil and religious liberty with which we are blessed, and the means we have of acquiring and diffusing useful knowledge; and in general for all the great and various favors which he hath been pleased to confer upon us.
And also that we may then unite in most humbly offering our prayers and supplications to the great Lord and Ruler of Nations and beseech him to pardon our national and other transgressions – to enable us all, whether in public or private stations, to perform our several and relative duties properly and punctually – to render our national government a blessing to all the People, by constantly being a government of wise, just, and constitutional laws, discreetly and faithfully executed and obeyed – to protect and guide all Sovereigns and Nations (especially such as have shewn kindness unto us) and to bless them with good government, peace, and concord – To promote the knowledge and practice of true religion and virtue, and the increase of science among them and Us – and generally to grant unto all mankind such a degree of temporal prosperity as he alone knows to be best.
Given under my hand at the City of New York the third day of October in the year of our Lord 1789.
[Tuesday] night at The Republican National Security Debate, hosted on CNN by The Heritage Foundation and the American Enterprise Institute, an electromagnetic pulse attack (EMP) was mentioned as one of the most important national security issues that is not discussed often. This is true. Despite the gravity of the threat, the United States remains unprotected from the effects of an EMP.
An EMP is a high-intensity burst of electromagnetic energy caused by a rapid acceleration of charged particles. The EMP would disrupt all electronic devices within its zone of impact. It would burn circuits and immobilize electronic components and systems. It addition, the EMP would flow through electricity transmission lines and would damage distribution centers and power lines.
Detonating a singular nuclear weapon at a high altitude can create an EMP large enough to envelop the entire continental United States. The nuclear weapon could be delivered by a long-range ballistic missile from Iran, China, Russia, or North Korea. Even a short-range nuclear-tipped missile launched off of the U.S. shore could cause a devastating EMP effect.
[…]The effects of an EMP on today’s society would be even more devastating. According to Heritage’s James Carafano, “communications would collapse, transportation would halt, and electrical power would simply be nonexistent. Not even a global humanitarian effort would be enough to keep hundreds of millions of Americans from death by starvation, exposure, or lack of medicine.”
There are some simple steps that can be taken to prevent against the crippling effects of an EMP attack. First, the U.S. needs to build and adequately fund a robust missile defense system composed of Aegis ballistic missile capable ships, and Aegis Ashore, the land-based ballistic missile component. Second, both the public and private sectors should harden vital infrastructure to make it more resilient and resistant to the EMP—to hedge against an attack or prepare for a solar flare. Third, the U.S. should develop a national plan to respond to EMP emergencies. This would involve educating federal, state, and local officials along with the public about the risks and response options.
In case you missed the debate, you can watch the whole thing here: (and you should – it was awesome)
For the record, the consensus in the Republican debate was that there were “under-the-radar” threats, in addition to threats from Iran, Pakistan, North Korea, China, etc. These were: 1) Cyber attacks like the recent attacks that originated in China, 2) EMP attacks such as I described above and 3) terrorist attacks coordinated with actors in Latin America and South America that exploit our porous southern border.
WINTERY KNIGHT 