Perspectives on the global economic meltdown- (Nov 28 2010)

[panduranghari]

Classical hyperinflation is where a country's currency becomes worthless to the point that it would take a truckload of currency to purchase anything. Or, the currency is printed with astronomical values on thm. A million dollar note of currency for example.

Wrong. First come loss of confidence and only then comes the printing of money. Hyperinflation ain't printing of money causing increase in currency units.

[TSJones]

[quote="panduranghariWrong. First come loss of confidence and only then comes the printing of money. Hyperinflation ain't printing of money causing increase in currency units.[/quote]

So good sir, what causes the loss of confidence?

[Austin]

In Delhi NCR, around one million housing units are coming up and even at cost, around 60-90% would be unsellable as middle class cannot afford them. So everybody will have to wait for inflation to take salaries up and stagnation in property prices to make it affordable.

I agree with you there , the situation is no less different in Mumbai.

Stagnation in property prices is not possible unless they curb black money which are channelised by politicans into property business , this keeps the property prices high as even in worst economic situation the builder can afford to not sell his property and keeep it on hold without compromising the prices , there is the entire Builder Politician Mafia lobby that keeps the property prices going north year on year even though the Middle class cannot afford to buy them all they end up doing is taking huge home loans and ties up them for 2 decades.

[Christopher Sidor]

In the last few weeks there were instances where people thought that US Fed Reserve would stop its unlimited bond buying program. Such a rumor led to a brief disruption in the market. When it was stated that Fed had no intention currently to stop its program, things got more saner. This does lead one to think that all progress made since 2008 has been artificial. That it may not be based on any fundamental economic foundations. Like my friends like to point out a sugar high. And since US financial sector is such an important part of US economy, anything impacting it adversely has repercussions throughout the world.

This might change in the near future, when US shale gas revolution finally hits full steam. One of the major input costs to any production is the cost of energy. The other is cost of human capital. In the second certain east-asian nations excel. In the first, US has the potential to excel. The problem is that it has the potential to excel.
The new shale gas revolution and the future hydrate revolution, are dependent on high price of oil & gas. If the price of oil & gas were to fall, significantly and touch 60 USD plus or minus 10 USD the shale gas revolution will be over before it has managed to reach full potential. Also the ability to produce oil and gas for a long time from these shale gas sources is in doubt. Complicating the issue is the toxic nature of shale gas revolution, which leads to polluting the under water gas sources and the land too.

Just like PRC managed to pollute its environment and abuse its land just to achieve double digit growth, US might ignore the potential environmental costs of shale gas revolution so as to return to growth. There is a compelling reason for US to walk down this path, without growth the sheer monetary easing done by US will lead to catastrophe down the line. If not immediately then in the medium term.

[TSJones]

In the last few weeks there were instances where people thought that US Fed Reserve would stop its unlimited bond buying program. Such a rumor led to a brief disruption in the market. When it was stated that Fed had no intention currently to stop its program, things got more saner. This does lead one to think that all progress made since 2008 has been artificial. That it may not be based on any fundamental economic foundations. Like my friends like to point out a sugar high. And since US financial sector is such an important part of US economy, anything impacting it adversely has repercussions throughout the world.

This might change in the near future, when US shale gas revolution finally hits full steam. One of the major input costs to any production is the cost of energy. The other is cost of human capital. In the second certain east-asian nations excel. In the first, US has the potential to excel. The problem is that it has the potential to excel.
The new shale gas revolution and the future hydrate revolution, are dependent on high price of oil & gas. If the price of oil & gas were to fall, significantly and touch 60 USD plus or minus 10 USD the shale gas revolution will be over before it has managed to reach full potential. Also the ability to produce oil and gas for a long time from these shale gas sources is in doubt. Complicating the issue is the toxic nature of shale gas revolution, which leads to polluting the under water gas sources and the land too.

Just like PRC managed to pollute its environment and abuse its land just to achieve double digit growth, US might ignore the potential environmental costs of shale gas revolution so as to return to growth. There is a compelling reason for US to walk down this path, without growth the sheer monetary easing done by US will lead to catastrophe down the line. If not immediately then in the medium term.

Demand is slow in the US. There is no doubt about it. The mere prospect that the Fed might be slowing down QE (thus making money scarcer) sends chills to the market. We can see the effect on China with the growth in its exports being stunted. Plus, the US governmnt is squestering money from its budget due to austerity demands from the tea party idiots. A double whammy. So you are right in your concern that it won't take much for oil to drop 30%-40%. Reduced demand from China and reduced demand from the US, plus Iraq is coming back on line big time after years of disruption. They want some cash, man. Uncle Sugar is gone. God forbid that Iran should seek peace and quit threatening Israel with total war! That will send the short speculators to apoplexy! they will go nuts! then you will see oil really drop.

We are facing an uncertain future. The US public has the most powerful, dynamic, open economy in the world and they are weak on demand. The US government with its sequester is adding to that perception. We may be soon cought ina conumdrum of loads of money but nobody wants to loan it or spend it. The shit will just sit in bank reserves, electronic blips, waiting to go work for an uncaring public. Poor money! In the dog pound. And. IF. The. Fed. Decides to Bring It Back Into the House And Destroy It, The Public Will Panic and further collapse demand!

[Christopher Sidor]

Yes one of the reason why Oil prices has zoomed in the past decade is because of absence of Iraq. Note how around the time frame of Kuwait occupation by Iraq the price of oil had dropped around 10 USD. The second reason of high oil prices is that starting from late 1990's China appetite for oil grew after it had exhausted its internal sources of oil & gas. Also Iran since the revolution had not been able to produce significant amount of oil and gas due to the sanctions imposed by US and its allies. So basically two of the worlds biggest sources of oil and gas were producing below their capacity.

To put things into perspective, Iraq has estimated oil and gas reserves which rival Saudi Arabia, the biggest oil and gas reserves holders on this planet. Some are even saying that Iraq has oil and gas which exceed the Saudi's. And this country was out of world oil producing nations for more than 2 decades.

When Obama got elected for the first time there were hopes that he would shift the focus of American energy from oil and gas to renewable energy sources. Recall the talk about green shoots of recovery. That did not happen. But what happened was the shale gas revolution.

That is ironic. Consider that Germany is on path to produce 25% of its total electricity consumption from renewable energy sources. It is not that Europe's demand has declined due to the debt crisis of southern Europe. It is that one of the biggest consumers of gas in Europe, i.e. Germany is going head long into renewable energy sources. Another potential wind super power, i.e. UK, is also seeing some sense. If UK were to tap its massive wind energy potential, which is said to be thrice or twice Germany's potential, then we might see UK emerge very fast and very strong out of its economic stagnation.

It was said at the peak of the current financial crisis in 2008, "Never let a good crisis go waste." Well 2008 was the year when a different path ought to have been chartered. This was not done. Neither in energy nor in the financial sector.

[Neshant]

another day, another bailout

Greece needs to learn the fine art of faking inflation, unemployment and most importantly GDP statistics from uncle.

______

IMF Says Another Greek Bailout Necessary

http://www.zerohedge.com/news/2013-06-0 ... -necessary

Just six short months ago (before GGBs rallied 119% and the Athens Stock Index 53%), the EU and IMF agreed on Greek Debt/GDP targets, pronounced the nation "fixed", and went on winter vacation. Well, surprise, the hockey-stick of expected GDP has not come to pass and now, as Der Spiegel reports, the IMF is refusing to participate in further rescue programs for Greece unless financing for the nation is secured for the next 12 months - in other words - a new haircut for Greece will be required to cover the EUR4.6 billion funding shortfall.

[vic]

World economy cannot recover in short term till the crude is at USD 100 or so. Either Crude falls below USD 50 or the Western World goes for nuclear power in massive way forcing crude down in medium term. All in all the developed world has to lose around 50% of its nominal wealth and China has to gain 50% to bring them back to competitive par.

[TSJones]

In reading the following article I am beginnng to understand where some some of the posters here have established their viewpoint:

http://finance.yahoo.com/news/indian-ru ... 27612.html










;

[Austin]

Crude has little to do with the problems of World economy if any thing the crude will stay above $90 for WTI for many reasons , Nor will Iraq coming online which they have for quite some time will lower crude prices.

For crude $90 plus is a new normal we have to live with , if the prices even goes to $80 OPEC will stop pumping and it will be uneconomical for oil producing country to keep producing oil and they will have to temporarily shut shop. Infact US Energy Agency have forecasted Oil to be $125 by 2025.

Since Oil is traded in USD it wont be even in US interest to see the prices go low.

Shale will eventually collapse if it keeps running in red , Many Oil companies think this is a Wall Street Funded Bubble which will eventually crash in its own contradiction.

[Neshant]

The US govt is hounding S&P to maintain top ratings for US debt.

Back in 2010, S&P had to sack its chairman after S&P downgraded credit ratings of the US govt from AAA to AA.

Now the justice department has launched litigation against S&P to prevent any other kind of downgrade.

Credit rating agencies are turning into nothing more than faking agencies - where fake credit reports are issued under threats of sackings, legal threats..etc.
______________

S&P Upgrades US Outlook From Negative To Stable On "Receding Fiscal Risks"

In a confirmation that the S&P is starting to get worried about the drones surrounding the McGraw Hill building resulting from the ongoing litigation with Eric Holder's Department of Injustice, not to mention a reminder that US downgrades always happen after hours, while upgrades must hit before the market opens, Standard & Poors just upgraded the Standard & Poors 500 the US outlook from Negative to Stable.

On what "receding fiscal risks" did the S&P raise its assessment of the US - the fact that the US is now at its debt limit, that there is no imminent resolution to the credit issue, or the 105% and rising debt/GDP - read on to find out. And of course, the countdown until the S&P wristslap settlement with the DOJ is announced begins now, as does the upgrade watch by Buffett's controlled Moody's of the US to AAAA++++.

http://www.zerohedge.com/news/2013-06-1 ... scal-risks

[Theo_Fidel]

Yes, Crude is structurally at high price now.
The oil sands stuff is such a large part of the marginal production increase and most of that is only profitable at $70+ a barrel.
Same with the liquids from the shale gas plays. The new oil coming in these days is all expensive stuff. Deep water, Ultra Deep water, Arctic drilling, Horizontal fracking, Oil sands, more oil sands, etc.
WRT Iraq my impression was that many of the reservoirs were badly damaged by the Saddam sanction and bad maintenance situation.I don’t think there is any chance of it rivaling KSA.

The key thing is that there is a price point at which the price of oil makes it not worth producing. Yes really. So there is an upper price barrier as well.
My own opinion is that people don’t realize who close the whole of humanity is to this precipice. The miraculous thing about oil was its energy return on effort. EROI of 40-100 times the effort was normal.
The oil sands and Shale are now down to an EROI of 2-3. Meaning about half the energy recovered is expended on acquiring the stuff.
When oil price hits $150 - $200 I would suspect that oil is over the economic value line. It will make less and less sense to search for it and produce the last remaining drops.
So once the existing giant fields drain out there will be nothing new coming on line to replace it.


The only down pressure at present is from efficiency. The USA is essentially doubling the mileage of its vehicle fleet over the next 20 years even as Americans drive less.
Electric cars, esp. with range extending tech is very viable and here right now. The population can switch in a heartbeat with almost no disruption, standard 120v wall plugin is fine. Demand on the grid will only rise 20%+/-.
That should release 4 Million barrels of Oil. Europe will be doing the same. China is the wild card, easily the least prepared for a serious oil disruption.
So far China has not had to spend a dime to ensure peace and its access to resources. This is not likely to last.

[member_26147]

The price of oil or energy doesn't have anything to do with economic output. Wall street may short stock for a month but economic activity will continue. As long as the economic activity is producing something of value far greater than the cost of oil, it doesn't matter. The problem is stifling of innovation by wall street which looks at cold hard numbers and doesn't give a second chance to working corporations. Bankers are paranoid. Keep producing iCrap and give us sales numbers or we will short your stock in half. This also significantly increases the cost of new technologies like clean battery powered cars to ramp up. They have to face a two-pronged attack from wall street and established energy companies (like big oil). That is the problem of the United States. India on the other hand, is marred by policy decisions that hinder itself. The government is run by such sleazy inefficient people that it appalls everyone new to the country and makes the intelligent students move out of the country. The newspapers try to publish accomplishments of Indians abroad as if they had invested in them. China, although iron-handedly, is taking the right long term approach. It is reverse-engineering, snooping, researching and doing everything it can to beat the western interests.

For the United States to improve, they need to control the day-trading of stocks. It has gotten out of control. For India to improve, they need to remove congress out of power and implement merit based positions in all governmental positions and eliminate bureaucracy. Its not rocket science. Everyone knows what needs to be done but blames the effect, not the cause.

[TSJones]

The Fed will start to taper off on QE by th end of the year....and not for the reason you thought:

http://finance.yahoo.com/blogs/daily-ti ... .html?vp=1

...because if the US government continues the sequester there won't be enough US government debt to buy to sustain QE!

[svinayak]

http://blogs.lse.ac.uk/europpblog/2013/ ... -problems/

Quantitative easing does not address the fundamental problems underpinning struggling western economies.
Blog Admin

Quantitative easing has been adopted by a number of central banks in the wake of the global financial crisis. John Doukas takes an in-depth look at the effects of quantitative easing, arguing that it not only fails to increase real economic activity, it also increases unemployment and encourages outsourcing to developing countries that offer higher rates of return. He concludes that economic growth and job creation should be the priority of western governments and not of central banks.

Since the global financial crisis erupted in 2007, central banks have been dealing with “tail” risks arising from private (mortgage and consumer) and governments’ excessive leverage or the potential for disasters, such as the break-up of the Eurozone. While these defensive policies seem to have worked in the short-run, their long-term results remain doubtful, if not destabilising.

More recently, the task of major central banks has shifted towards promoting growth and job creation, without having the ability to deliver on their promises. For example, the repeated Quantitative Easing (QE) policies of the US Federal Reserve in the aftermath of the global financial crisis, with similar actions by the Bank of England and the European Central Bank (ECB), have failed miserably to restore growth and reduce unemployment. Unemployment remains at high levels in the US and is rising at an alarming rate in the Eurozone, especially in southern European countries, with the state of economic activity staying subdued and far from the path of recovery. Figure 1 below shows that since the collapse of Lehman Brothers, unemployment in the southern Eurozone is on the rise despite the ECB’s attempts at quantitative easing.

[svinayak]

http://blogs.telegraph.co.uk/finance/th ... heres-why/

The Fed avoided QE like the plague during the Great Depression. Here's why
By Thomas Pascoe Economics Last updated: March 7th, 2013

Milton Friedman's influence lasts long after his death.
While George Osborne won't be giving us Plan A+, Plan B or even Plan V in his Budget, he hopes that the Bank of England may be more radical. This morning's FT (£) echoes a report in last month's Times (£) predicting the devolution of significant new powers to the Governor of the Bank of England, in time for Mark Carney's accession in July.
The Chancellor sees monetary "activism" as a necessary counterweight to fiscal austerity. New BoE powers under discussion in the Treasury include increasing the inflation target and giving the BoE a mandate to tackle unemployment as well as inflation.
These measures suggest that the Treasury is moving towards looser monetary policy in the form of QE and (as mooted earlier this month) even more "innovative" measures such as a negative rate of interest on monies held on deposit at the Bank. There was no increase in QE or decrease in the interest rates today, but you sense the Bank is simply waiting for Mr Carney before it moves.
Earlier this week, I gave my objections to an extension of QE – namely that because of the way the money is distributed, it tends to stay within the financial markets rather than reaching the man on the street. This inflates the nominal wealth of those who already own assets, while lowering living standards for those on a fixed cash wage or benefit, who now find assets increasingly priced out of reach. As much as QE is an economic problem, in that it encourages governments not to think about sustainable spending levels and areas, it is also, in this way, a significant social cost in that it splits society.

[svinayak]

http://blogs.telegraph.co.uk/finance/th ... -up-on-qe/

The gap between rich and poor will continue to grow until we give up on QE
By Thomas Pascoe Economics Last updated: March 5th, 2013

Monopoly money means that it's more of a rich man's world than ever.
The world's rich are getting richer. The Forbes billionaire list was published this morning (there are now 1,426 of them globally in dollar terms, with 210 new entrants in the last year), and collectively they are $800bn richer than they were a year ago. Each billionaire is, on average, $100m richer than in 2011, with an average wealth of $3.7bn.
It can hardly be a surprise. Across the world, stock markets are booming (Dow futures indicate it will open today around the 14,170 mark, a new record). Bond prices are also strong in developed markets despite those same sovereigns usually being mired in a debt crisis. At the same, no major currency has collapsed, thanks to the cancellation effect of simultaneous Western devaluation, and commodities (WTI crude is perhaps the exception), have looked fairly stable, even though the bull run has stopped. In short, if you have any asset base at all, you had to be quite special to have lost money in the last year.
Strong stocks and strong bonds are an unusual mix. Theoretically and historically, money has washed from one to the other causing rises and falls along the way. What is unusual about the present climate is that so much money has been created by central banks that there is sufficient available to create a bubble in, well, everything.
This has a lot to do with how QE operates. Unlike straight money printing, it is designed to transfer money to banks, not to the consumer or to the government. The banks swap their existing government bonds for newly printed money. In theory, the banks now lend this cash on the high street to consumers and businesses. In reality, that has been a problem. Burnt by the financial crisis, banks have imposed tougher lending criteria at a time when creditworthiness is impaired. As such, they cannot lend. Instead the money ends up in the trading account. It gets spent on financial instruments in proportion to the greed (equities) or fear (bonds) of the institution in question. The main reason that QE has not been catastrophically inflationary is that so little of it has filtered down to the high street. For the most part, it has simply pushed up values across the board in the financial markets.
In short, if you came into this last year owning assets, you will have done well. Of course, whether protecting asset prices come what may is a good or useful thing for a central bank to be doing is another thing altogether.

[TSJones]

Calling out the Austerians:

http://www.foreignpolicy.com/articles/2 ... y?page=0,0

...the result of austerity is....more inequality of income.

[Neshant]

Austerity or non-austerity has nothing to do with the Austrian school of economics.

Austrian school of economics is based on the market aka individual determining supply & demand. Austrian economics can only exist once control of the monetary system is in the hands of the people who do honest work to earn that wealth. There is no Austrian economics when some pretend "wise man" oracle is sitting at a central bank claiming to manage the economy as if he can read tea leaves and predict the future.

Invariably all he's there for is to cater to the interests of his private banker cronies to ensure their monopoly - the claim of acting in the public interests merely being a cover story. The private banks (which setup the central bank in the first place) gamble with leverage and force their gambling losses onto the rest of society. This they do by threatening economic chaos if large sums of money are not handed over through "stimulus", money printing, 0% loans or if any of if any attempt is made to prosecute them for any of their economic crimes.

Most of what passes for economic theory today is a sham. So called experts are nothing more than front men for the private banker mafia.

[Neshant]

one of my favourite videos

[Austin]

Talk about Shale Oil and Gas with recoverable reserves and the latest report from US EIA gives a good picture , Surprise part is who has most Shale Oil and Gas which can be recovered. Another surprise is Pakistan figuring in Shale Oil list in bottom 10 but India does not seem to be there.

Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States

[Austin]

Eurozone crisis over – Francois Hollande

"What you need to understand here in Japan is that the crisis in Europe is over. And that we can work together, France and Japan, to open new doors for economic progress," Hollande said at a meeting organized by Japan's Nikkei newspaper. "We have used various measures to address weaker nations. Member nations have tried to restore fiscal health. We have also established a banking federation. Due to these efforts, yields in the euro zone have dropped dramatically and we have been able to restore confidence among investors."

To reassure investors, Hollande claimed that the debt crisis contributed to “reinforcing” Europe and forced the 17 single currency-using states to deepen cooperation for the good of the whole of the Eurozone. In his view it’s the crisis that made European authorities cooperate and work out instruments to support the region’s economy and the single currency.

"I believe that the crisis, far from weakening the Eurozone, will strengthen it," he said. "Now, we have all the instruments of stability and solidarity. There was an improvement in the economic governance of the Eurozone, we set up a banking union, we have rules on budgetary matters that allow us to be better coordinated and have a form of convergence."

Despite the fact that many of the Eurozone’s major weaknesses have been tackled, the economy in Eurozone is still shrinking and the manufacturing sector is also in contraction. Unemployment has soared to its highest level since the euro was introduced in 1999 and reached 12.2 percent.

"We must create a new outlook - an outlook for growth and employment. Together with Germany, we are trying to establish new goals beyond fiscal discipline. France and Germany together are trying to address unemployment, particularly among the youth, in order to restore Europe's competitiveness… We must ensure that industries are not only hindered but become part of our long-term strategy."

[Christopher Sidor]

Talk about Shale Oil and Gas with recoverable reserves and the latest report from US EIA gives a good picture , Surprise part is who has most Shale Oil and Gas which can be recovered. Another surprise is Pakistan figuring in Shale Oil list in bottom 10 but India does not seem to be there.

Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States

I am glad India is not there. US has excess land in Montana and in other states of USA where they can carry out this chemical chemotherapy to extract shale oil. We do not have such places. What we should be doing is aiming to beat Germany, in renewable energy sources and France in nuclear energy. We should not be aping US, especially not its worst tendencies.

We should think radical and boldly. Think about space based solar power stations. Invest in Hydrogen-Helium fusion fuel cycle research. Not bemoan about a 19 century energy source in 21st century.

[member_26147]

Talk about Shale Oil and Gas with recoverable reserves and the latest report from US EIA gives a good picture , Surprise part is who has most Shale Oil and Gas which can be recovered. Another surprise is Pakistan figuring in Shale Oil list in bottom 10 but India does not seem to be there.

Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States

I am glad India is not there. US has excess land in Montana and in other states of USA where they can carry out this chemical chemotherapy to extract shale oil. We do not have such places. What we should be doing is aiming to beat Germany, in renewable energy sources and France in nuclear energy. We should not be aping US, especially not its worst tendencies.

We should think radical and boldly. Think about space based solar power stations. Invest in Hydrogen-Helium fusion fuel cycle research. Not bemoan about a 19 century energy source in 21st century.

I agree. India is blessed with solar energy that is consistent except during the months of mid June through mid September. India should focus on solar energy and massive energy banks that can store it and provide energy at night with reserves to spare with utmost urgency.

[Neshant]

Now perhaps might be a good time to buy out the chinese solar panel makers going bankrupt due to over capacity.

[TSJones]

Bill Gross: all assets are risky but I'm buying US treasuries

http://finance.yahoo.com/blogs/daily-ti ... .html?vp=1

ihe guru speaks, man.

[member_26147]

Now perhaps might be a good time to buy out the chinese solar panel makers going bankrupt due to over capacity.

Not a bad idea. It would leapfrog solar energy generation in India.

[TSJones]

Gold takes a beating and it could get worse:

http://finance.yahoo.com/blogs/talking- ... .html?vp=1

It seems the BoJ and the Fed are not pumping out money fast enough.

[RoyG]

Gold takes a beating and it could get worse:

http://finance.yahoo.com/blogs/talking- ... .html?vp=1

It seems the BoJ and the Fed are not pumping out money fast enough.

Yeah yeah, and yet Deutsche Bank is building a new vault at the Singapore Freeport to store 9 billion worth of gold. Blind as usual.

http://qz.com/92532/singapore-gold-vault-deutsche-bank/

[Austin]

Fossil fuel will continue to remain the backbone of global energy needs no amount Solar , Wind or Nuclear energy will replace it atleast not for couple of decades to come , even countries that used to run Coal based energy or Nuclear are moving towards Gas based one since its environmentally friendly.

Solar will continue to grow in small patches only Nuclear looks promising for long run.

[member_26147]

If fossil fuel continues to be the backbone, that has to be the worst policy decision that India takes considering it spends more than half of its imports on fossil fuels. Wind energy is not deterministic, but Solar energy is, atleast in India. To become energy independent, Solar to me seems like the best bet. Nuclear fuel imports are costly too if India keeps using enriched uranium imports from Australia. Thorium fast-breeders are still being researched and look promising but they can be complemented by solar energy.

[Theo_Fidel]

^^^
Can you guys post some numbers on this, esp. WRT price and scale. It would be very interesting to see what the situation is right now and which looks more likely. If the argument is that we should have used this crisis to switch - what would have been the total cost? Was an opportunity wasted?

[Neshant]

"investors" = depositors.

Either there's going to be a bank run or the currency will be watered down even as bond yields spike and defaults start rolling.
___________

Land Of The Rising Bail In: Deposit Confiscation Coming To Japan Next
Submitted by Tyler Durden on 06/11/2013 - 20:15

We now know that 'muddle through' is over, and just as we noted here "there may only be painful ways out of this crisis" as we evidenced by Europe's attack on Cypriot depositors. With the pillars of Abenomics starting to crumble, it seems plans are afoot to prepare for the bank failures that will come from a BoJ-inspired out-of-control bond market. As Nikkei reports,Japan's Financial Services Agency will enact new rules that will forced failed bank losses on investors, if needed, via a mechanism known as a "bail-in.” The FSA report also notes that Mitsubishi UFJ (MTU), Mizuho Financial (MFG) and Sumitomo Mitsui (SMFG) are among those proposing amendments to allow them to issue the types of preferred shares or subordinated bonds that would be used in such cases. So not only will Japanese banks suffer VaR shock-driven needs to reduce JGB holdings but a weaker deposit base will further exacerbate the deleveraging.

http://www.zerohedge.com/news/2013-06-1 ... japan-next

[member_26147]

^^^
Can you guys post some numbers on this, esp. WRT price and scale. It would be very interesting to see what the situation is right now and which looks more likely. If the argument is that we should have used this crisis to switch - what would have been the total cost? Was an opportunity wasted?

I don't think the opportunity was wasted considering that the old panels (that we could buy from the bankrupt Chinese and US panel makers) were 10% efficient in converting solar to electricity. A new technology that is as simple as utilizing the entire spectrum instead of just the limited spectrum promises efficiency of 50% of energy conversion that can be the game changer. It is new but I would bet on the fact that panels can be definitely improved from the meagre 10% efficiency they provide today. One could argue that it can be cheaper to modify existing panel manufacturing plants to which I agree in the short term. However, since the consumption would be domestic, the longer term goal should be to make those panels locally and build the entire eco-system in India. It is also attractive that the government provides subsidies for Solar manufacturers.

Reading:
New Technology:
http://www.technologyreview.com/feature ... lar-power/

Solar panels on the market today consist of cells made from a single semiconducting material, usually silicon. Since the material absorbs only a narrow band of the solar spectrum, much of sunlight’s energy is lost as heat: these panels typically convert less than 20 percent of that energy into electricity. But the device that ­Atwater and his colleagues have in mind would have an efficiency of at least 50 percent. It would use a design that efficiently splits sunlight, as a prism does, into six to eight component wavelengths—each one of which produces a different color of light. Each color would then be dispersed to a cell made of a semiconductor that can absorb it.

Economics:

http://www.atkearney.com/utilities/idea ... -win/10192

Global prices for photovoltaic (PV) modules are dropping, reducing the overall cost of generating solar power. In India, this led to a steep decline in the winning bids for JNNSM projects. With average prices of 15 to 17 cents per kilowatt hour (kWh), solar costs in India are already among the world's lowest. Given overcapacity in the module industry, prices will likely continue falling over the next four years before leveling off. By 2016, the cost of solar power could be as much as 15 percent lower than that of the most expensive grid-connected conventional energy suppliers.

The market will see a significant change after 2016. Lower solar costs combined with rising prices of grid power will convince offtakers (including distribution companies, private firms using open access, and firms putting up their own captive capacity) that solar power is economically viable (see figure 2). This shift will signal the start of the growth phase, during which grid-connected solar capacity will rise rapidly to about 35 GW by 2020 as developers build capacity to meet both RPO requirements and demand from offtakers seeking cost-efficient alternatives to conventional power.

[vishvak]

Any idea about drawbacks of global currency that is based on debt - unlike credit or even nothing/trust as right now? It can be worse as it is only a default option left. Under any name, it is still based on debt and looks very weird as an idea. That can make defaults by institutions as default-standard-idea giving globally stronger/2Big2Fail financial institutions greater chance to grab other institutions since a debt based currency will degrade/destroy any chance to trade based on credit at all! A totally contradictory situation with debt considered base of currency can not be of any good other than killing all productive industries. Any clarity, however little, please.

Probably debt as currency will change the situation downhill to paki like times all over the world, where there is no scope of credit based business so anything goes as decided by top dogs and their minions. Any credit will be quickly sucked out into debt structures with speed of algorithms run by computers.

[TSJones]

^^^^^ The problem can already be illustrated in microcosm by the Euro. Greece under reported its debts and financial obligations when it joined the Euro Cnetral bank (ECB). It was practically doomed to failure right off the bat. Culturally the Greeks under report their income and got away with it primarily due to the punishing nature of their income tax levels and social support systems and a failure to tax the rich. It was a house of cards. They should never had been admitted into a debt based currency system that included other countries like Germany. Germany had already seen hyper inflation in the Weimar republic. Post WWII they experinced the economic austerity miracle of Erhard who had the US army who helped keep unemploymnet down to near zero in the process. Erhard is still worshipped by Germany. The Germans have their social support systems too. But it is very transparent and culturally they agree upon the system as worhty of tax support by the general populace. Germany's systems are way more transparent and therefore they look with askance at greece and they way they comport themselves with their financial obligations and services. Thus they are reluctant to rush money to Greece and potentially degrade their currency when thy have worked so hard to maintain. Can you see global relationships as a potential disaster for global currency if Germany and Greece cannot agree? If you wish to have a gold standard then you must risk that some countries will have most of the gold. Other countries will not. There will be problems. Therefore let each country establish its own system and let the value dpend upon the market place. That is fair. If you don't like US dollars then don't use them. Use the Euro or the Yuan or some other currency that appeals to you.

[panduranghari]

I am calling for separating unit of exchange from store of value function of money. right now its the same. later fiat as unit of account. gold as store of value.

I'm not sure what your plan is, perhaps you can elaborate. I`m pretty sure you are proposing a gold standard, just that you are not aware of it.

Taxation is the only thing that gives fiat its value. i.e. sales tax, capital gains tax, income tax, property tax..etc. Banking goons make sure its only payable in one medium and no other. i.e. the fiat they issue. That preserves their monopoly over the monetary system.

Without taxation and without a condition where tax is only payable in fiat money (as is the case right now), paper money would have no value.

So what you proposing

I am just stating the plan already in motion which lead to the formation of EURO.

In 1999, the Euro came into being as a official international currency.

Euro is different from all other global currencies in 2 aspects:

1-It's not controlled by a national government- notwithstanding the constant statements in the press that Germany controls it.
2- it's completely severed its link to gold.

Point 1-

The ECB when formed after Maastricht treaty in 1992 was like a company. Every country contributed to its finances by contributing gold and Euro-dollars. The necessity was that out of the total contribution 15% should be in physical gold. Rest in currency. The contribution was akin to buying a share in the ECB. You can contribute as much gold as possible but the rest of the currency contribution should be equivalent to a minimum required contribution. They decreased the standards when the allowed Greece - Cyprus to join but the 15% gold was mandatory requirement. The president of ECB has only 1 goal. To keep currency inflation to 2% max annually. He or she cannot print euro and give it to A national government even if a national govt is desperate. The ECB board decides this based on the the books provided by the participating bullion banks. But they can give it to a WELL CAPITALISED bank. The bank can get loans from ECB and the bank in turn if they wish can give money to a national government. This was amply demonstrated in Greek and Cypriot situations recently. Compare this to Bank of England or US federal Reserve.
These 2 institution claim to keep inflation below 2% but according to shadowstats.com it's running at above 10%. And they print money at governments request and give it to the banks. The Bank of England thus acts like a official arm of government.

Point 2

They ECB has severed link to gold. This means the gold is not linked to the value of fiat.

Here is the latest consolidated financial statement of ECB which published every quarter.
http://www.ecb.int/press/pr/wfs/2012/ht ... 06.en.html

The first line in assets in gold. This gold is valued at that days price. I.e the price of gold is allowed to float at the days price.

Now how does this differ from gold standard?

Let's answer a different question first,

Who sets standards and why is gold an important element in the international economics?

All throughout the early times, prior to BC and into some AD, people didn't see the gold coins as we think of money today. These various gold coins had tremendous value, but they were just gold pieces. They were wealth for trade like everything else was.. That's simple logic, I know, but the vessel of oil, for instance was just as tradable as a gold coin. In fact, within most of the medium sizes city states of that era, barter of like goods was just as good or better than gold coin. One's life was better if he owned wealth he used.

Humans of that period didn't live all that long a time span. Even though some accounts prove otherwise, the majority of life went by rather quickly. If you were a regular part of society in general, your wealth was what you had and consumed during those short days. There were no banks or investment houses and the average person's return on a wealth unit was his length of use and it's quality of life enhancement. More to the point, this logic made these guys spenders of gold, rather than savers! If you had gained gold in trade, for your services or goods supplied, you had no reason to save it. There was no other money that needed to be hedged against value loss.

It's becoming more and more apparent that average people of that time quickly traded (spent) their gold for something useful of value, for both them and their family. They didn't have the excess we know today. In modern nomenclature; this logic dictates that a much smaller amount of gold money circulated and circulated faster than many supposed. All forms of jewlery and art objects were in the same situation.

For longer savings, even for those of above average means that had all they wanted, people tended to spend their most valuable gold coins first, while saving the least valuable (bronze, silver, iron) for emergencies and later use. To us, today this sounds strange, but place yourself in that time. It was better to build your most useful and needed store of things while times were good.

Therefore, you traded the gold, which brought the most equal trade, first. If things got so bad that one had to dig up the stash, you were trading for last ditch things anyway. Kind of like wrapping up and burying cto get yThis use of lower metal is suported. Remember, lots of things served as money objects them. Even much later, AD, it was common in the world to trade big iron bricks that were forged as a bull. It's use was in trade for "one bull" or something of that animal's value.

This tends to explain why so many hordes of lesser quality, non gold coins are always being found today. Roman silver, bronze, iron, copper coins are very common in digs at various archaeological sites in southern Bharat. The classic belief is that all the gold was found, melted down and recast. But that action just didn't fit the whole profile of life's need back then. The majority of gold in average and even upper hands was always on the move, in trade or payment for service. Each succession of ruler, simply reused the old coins or melted them down and restruck with a new image. And new gold was minted only if it was easy to find. Especially stolen jewlery. Mined gold was a very last resort.

Remember, real useful goods crowded a rich ruler's house, too and these were just as valuable and tradable as gold. Besides, far too many finds have come up with jewelry and no coins to suggest some robbery by thieves sold the coins to new rulers with melting pots. The gold would have been taken whether coin or art.

Taxes were paid in goods, service or coin (preferably gold) and regular people knew it. Far better to trade your gold and save your wealth in a bulky form so the tax man's take at least has a chance of taking less than enough. To store your wealth in gold and risk him finding and taking it all was just not acceptable.

The great gold stores we have found almost always point to their being the reserves of a rich ruling class. Just like modern billionaires, after too much comes excess and gold was the only alternative for someone with guards and regular army.

More and more evidence is mounting that the largest portion of gold, during this early period was, "On The Road"! The perception that every person had some portion of gold as savings is blunted by their lack of need for such wealth. Gold was needed and used to spend "On The Road" more so than in local domains. Whether for armies or traveling merchants, gold moved more than it was saved. Even gold in the form of art was "fair game" for the regular people to use as a tradable medium. In fact it was just as likely used as money "on The Road" as coins. This further explains the findings of small amounts of jewelry in most of the locations where small towns were located.

We find gold more in the "upper status" burial places of great cities in Europe than in the areas where common man traded, lived and kept his personal worth. We further conclude that gold was much harder to find and utilize, back then than many supposed. Yes, great amounts were around, but the reality was that these amounts were perhaps 1/2 or less than many others conclude. Simply because finding or producing gold meant displacing labor that could be making barter able goods of equal value. Besides, gold that was in trade, was valuable enough that what existed mostly covered it's need in long distance commerce. This further points to a much greater value for a much lesser amount of gold while it was used during this period.

When evaluating lifestyle wealth, back them, many often find themselves comparing things in a relative mode with today's perspective. In this position we think the mark has been far missed for gold worth. It's possible that gold payment, in these early times amounted to a hugh premium compared to today. The various goods and lifestyle conditions in existence, indicate a much higher relative worth for their goods of daily life. Thereby giving gold a much greater relative worth within one's life also. If a one stater Darius of gold, from Cyrus of Persia was worth a very valuable vessel of oil, why utilize the effort to find gold just to trade for some oil. Better to skip the gold production and make the oil. This was the norm for thinking by people not trading on the road, living "within local" city states. Indeed, outside the need to pay armies, a much smaller amount of gold did the job much better than us modern thinkers thought was necessary. Further, the use of oversea warfare and trade perhaps lost more gold into the ocean than we will ever know. The oft heard statement by roman Caesars was the draining of gold from Rome into the coffers of India is not lies.

Consider these possibilities well. In that gold today is in a much lesser existence, compared to modern goods supply and lifestyle enhancements, when comparing it to it's value in life in the past. It's true worth as a wealth medium could be a 1,000 times higher!

A bit of historical perspective sets up the discussion of gold standard perfectly.

Gold standard- I ask again "who sets the standard?"

UK did until 1912 as they had a huge empire then US took over because Europe was embroiled in a war of attrition through 1918. Of course Breton woods was an attempt to formalise the move away from fixed exchange rates, the hijacking lead to the disbandment of gold standard by Nixon on 15 aug 1971. Where are we now?

On the verge of explosive price of physical gold unconstrained by paper gold.

The Euro is taking us there.

Imagine with me a three stage rocket which has just launched to take us to our next level of stasis and equilibrium. In the first stage of this ride, the fractional reserve paper market for gold will break up and all the existing gold demand will rush from paper into physical. These are the "gold bugs" that were fooled into paper promises. This stage represents a newfound equilibrium between already existing supply (physical gold) and demand (all gold investors). You can do your own calculation of the ratio of paper gold to physical, but I will tell you it is not small.

The second stage of this rocket ride begins as the first stage propellant (paper gold market) is jettisoned. During this second stage we will witness the massive force of trillions of dollars as dollar reserve holders all over the world bid on rising physical gold as there will be not much else for them to do with their dollars at that point.

As the first stage brought "the gold market" into equilibrium, this second stage will bring "the dollar" into equilibrium, as it finally reaches a depth of value to match its long term history of over-creation - 50 years worth!

The third and final stage of the rocket ride could be called "the momentum effect". Seeing the first two stages in full swing, everyone else will rush out of any paper asset still liquid enough to obtain even a tiny amount of gold. And with this stage will come the hyperinflation in the prices of all other real goods as the US Fed frantically prints more dollars to pay the government's nominal obligations in addition to its hyperinflating daily expenses.

This printing response will add fuel to "the momentum effect" stage rocketing it from what would normally be a bubble into a sustainable rise which will only plateau once the madness ends.

And may I remind you, the madness has only just begun.

When things finally settle down, we will enter a new era of equilibrium. Some things will remain the same while others will have changed forever. Here are just a few of the changes I imagine.

Gold will trade in physical form only. No longer will the owners of gold trust the custodianship of foreign nations.

Fiat currencies will still function in trade and as a unit of account, repositioned at their new values, wherever debt is required. But they will have to undergo a process of credibility re-establishment, much like a bankrupt individual, before they will ever again be used by people as a reliable store of value.

For producing individuals and nations alike, gold will become the wealth reserve of choice for the preservation of purchasing power earned through productive labor. Believe it or not, I think that our freshly neutered governments will support this development as they will ultimately view it as the only means to slowly rebuild what has been lost, in a sustainable way.

[panduranghari]

Apparently, he thinks that people can continue to use fiat for exchange of goods and services but keep it pegged to gold or keep the savings in gold. Basically an armchair general, nothing to see here.

It is not him, me or you that is going to decide what the next monetary unit is going to be, like I said. Its going to be the bankers through their pet politicians.

It is pretty clear that there is a full-fledged race to the bottom though. Countries are trying to prepare for war either economically or militarily because they can't pay their debt and so they need their debt cancelled which means the whole geopolitical equation is going to change.

Arm chair general or whatever else you wish to call me makes no damn difference to the theory I have tried to elucidate.

World war is the imagination of Abrahamic leeches running wild. Until they find alternative to oil, they can kiss their chances of sustained global conflict good bye. Nuclear fusion until miniaturised is the only choice closely followed by a massive improvement in solar tech. Currently solar panels are 15% efficient. Getting them to even 50% would be massive. But that is for future. Battery tech in improving exponentially. But current game plan is based on oil. FULLSTOP.

Oil is priced in USD but for how long? After hyperinflation in the US who will accept a greenback for oil?

The world until 1999 had no choice but to stick with USD as reserve. Not any more. The game is up. The pin is out of the grenade. The clock has been ticking for an awfully long time.

[TSJones]

^^^^^^"And with this stage will come the hyperinflation in the prices of all other real goods as the US Fed frantically prints more dollars to pay the government's nominal obligations in addition to its hyperinflating daily expenses."



mission of the federal reserve

http://www.federalreserve.gov/aboutthefed/mission.htm

[panduranghari]

[quote="panduranghari] wrong. First come loss of confidence and only then comes the printing of money. Hyperinflation ain't printing of money causing increase in currency units.

So good sir, what causes the loss of confidence?[/quote][/quote]

Just a couple of images should explain this.



I ask you why has there been no episode of hyperinflation in the so called developed economies while there have been more than handful episodes of rampant hyperinflation in the developing poor world?

A few reasons are as follows:

The inflation was exported from developed to the developing world.
The absence of credible replacement for USD.
The presence of the Political will to prevent the fall back to era of bone crushing deflationary gold standard and associated risk of inducing revolutions.

Now we are in a far different era to the 1970s.

All currencies have the value of whatever they can buy. In a sense, they get their value from price tags offering prices denominated in their unit. But this MoE (medium of exchange) usage demand is not enough for the dollar. It is not enough that foreign goods are priced in dollars. The dollar requires another kind of usage demand: SoV (store of value) usage.

The reason for this is simple. The US is the only originator of new dollars and the US has run an unending trade deficit for 37 years, so the US has been exporting an unending stream of dollars for 37 years. To some extent, that pool of external dollars can circulate outside of the US as long as some foreign goods, like oil, carry a dollar price tag. But that is not enough.

Without foreign CBs supporting this system of foreign dollar settlement by mopping up the unending glut of dollar emissions, the market price mechanism would collapse the US trade deficit in a heartbeat.

We need not be concerned about the stock of dollars held by these foreign CBs, which today stands at more than $5T. The real danger is the unstoppable flow of dollars. No one needs to dump their dollar holdings to collapse the dollar. In fact, the central banks won't dump and I don't expect them to dump, at least not until collapse is well underway.

All they need to do is to slow down mopping up the gushing, unending flow. Here's how fragile the dollar actually is. It is supremely overvalued because its SoV arena, its "trading asset arena", simply dwarfs the MoE arena where all currencies get their value. But what threatens the dollar's massive overvaluation most clearly and presently today is only that tiny, marginal portion of the flow: the deficit portion or the unstoppable net-emission of dollars.

Trillions of dollars circulate (change hands) every day, and orders of magnitude more sit idle in investments. But the real threat to all of it is the net-emission of dollars which must be mopped up (stored) by someone. This is the structural support that holds the whole system together: foreign CBs perpetually gorging themselves on Treasuries. It's not that they might sell their stock of Treasuries. The real threat is that they might slow or stop their rate of accumulation relative to our rate of emission.

Stock and flow are not directly comparable because while stock is a measure of units, flow is a measure of units per time. We can look at the ratio of stock to flow over a period of time, but I'm not even interested in that in the case of the dollar. With dollar flows, we have the prices of goods and services which are far more relevant to the marginal (deficit) flow of dollars than any measure of the total stock of dollars.

I'm also not really interested in the flow of dollars within the monetary plane of "investments". Investments within the monetary plane change price regularly, sometimes with great volatility, yet without crashing the entire global monetary and financial system. But that real stuff in the physical plane, stuff like food, energy, medicine and industrial inputs, is (remarkably) relatively stable on its dollar price tags over time (at least compared to currencies going through hyperinflation). So we don't need to picture the dollar flow as a portion of the entire dollar stock, we can instead picture it as a flow of real goods and services as long as we focus on the goods and services portion of the BOP. And we also know that government spending (the US federal budget) is all on goods and services in the physical plane, not on "investments" in the monetary plane.

The US is the dollar's home, its creator and its legal tender zone. Most everything here carries a dollar price tag. But the US also trades with the world outside of its own currency zone, and in so doing it emits dollars. Last year the US spent $2.66T abroad, but they also took back most of those dollars by selling US stuff abroad. In fact, US took back $2.1T of the $2.66 it sent out. So netting it out, US net-emitted $560B last year. That's 560B dollars created here in the dollar creation zone and sent out into the non-dollar (homeless dollar) zone. That's marginal (deficit) flow.

But let's reduce this to an easier time-frame. In a stable currency (like the dollar), the prices of necessities like food, energy, medicine and industrial inputs don't change much over a one-year time period. But prices can change overnight, and that's what I'm predicting. So I'm going to start quoting these annual statistics in daily flow amounts, by dividing the annual number by 365. That, of course, includes weekends and holidays. And while our beloved monetary plane closes down for weekends and holidays, the physical plane of necessities runs 24/7.

So looking at it as a daily flow, last year the US in aggregate emitted about $7.3B per day to the world outside of its boundaries and took back in only $5.8B. So the US is a net-emitter of about $1.5B per day. But there's more. In 2009, the federal budget deficit overtook our trade deficit in dramatic fashion. In 2007 the federal budget deficit was only 23% of the trade deficit. In 2008 it was 63%. And in 2009 it jumped to 367% of the trade deficit. In 2010 the federal budget deficit was 259% of the trade deficit, and in 2011 it was 232%. Currently it's over 350%.

You don't see this comparison very often, budget deficit to trade deficit. And the actual percentages don't really matter much. What matters is that it went over 100%. What matters is that, since 2009, the US government (USG) is a net-emitter of more dollars than the US in aggregate emits to the outside world.

And the outside world is not accumulating more dollars.



http://www.zerohedge.com/news/china-dum ... adow-buyer

In 2008, the US in aggregate (private sector and public sector combined) net-emitted $1.9B per day to the outside world. This is like a broken water main that cannot be shut off, and must be mopped up by someone. But that year the USG only gushed $1.2B per day. So the foreign mess we created was only 63% attributable to the USG. The other 37% came from private sector deficit spending. But ever since 2008, that broken water main gushing dollars abroad is 100% attributable to the USG alone. And not only that, but it's now spilling out within the USA.

The USG today is spending $3.6B more than it is taking in, each and every day. That's a big mess of dollars flooding out of the USG. $1.5B per day is flooding outside of US while $2.1B is staying right within USA. This is all flow. It is ongoing and unstoppable. And it all must be mopped up by someone. And by someone, I mean either the foreign sector, the domestic private sector or the Fed buying up US Treasuries. $3.6B per day, an unstoppable, unending broken water main gushing out dollars. Marginal flow!

Don't be fooled by the misdirection. QE, twist, whatever; it's not about interest rates or helping the economy recover. It's 100% about disguising and managing this uncontrollable, unstoppable mess.

Sure, the Fed needs to keep interest rates from rising. Because what happens when interest rates rise? The value of the entire $35T bond market starts to collapse and bond holders panic. The Fed doesn't want that, so don't bet on them letting interest rates rise. But as I said, I'm not worried about the stock of dollars. I'm worried about this broken water [sewer] line we call the federal budget deficit which means no one has to sell a single bond. In fact, someone has to continuously buy $3.6B more each and every day, including weekends and holidays.

And if prices start to rise as they do in a 'hot' inflation, I propose to you that the USG will not cut back in real terms. So if prices were to rise by, say, 10%, the USG net-emittance of dollars would rise by 10% to $3.96B per day. And because the trade deficit is 100% attributable to the USG ever since 2008, the trade deficit would also rise 10% to $1.65B per day. The USG will not be outbid for goods priced in dollars. Price is what determines who gets a scarce good, and the USG will not be deprived. They even said so in a recent Executive Order! And where are goods and services prices discovered? In the minds of investors with pensions and IRAs, or at the margin where dollars flow?


That sir is a good enough answer to your question. I hope. Best wishes.