Perspectives on the global economic meltdown (Jan 26 2010)

vina · Post by **vina** » 10 May 2010 07:51

Nice.. Nice . A trillion dollar bailout for the PIIGS arranged. Not that they may need to get the printing presses going full speed, but they feel that threatening to do so and flooding the market with Euro Wampum should do the trick.

Heck, if only life was so easy. With the Wampum printing going on, the Dollar is king again!.

But have to pity the poor Germans. They slog, save and run a tight ship and the southern European "Romance" countries party till they drop and when the tab is due throw it across to the Germans.

Nice. Now the Germans will see the value of their assets and savings drop via Wampum printing so that the PIIGS can continue eating to their heart's content at the trough.

Jai Ho.

Sanjay M · Post by **Sanjay M** » 10 May 2010 08:08

Heh, now that Euro-TARP is underway, with IMF assistance, then everyone will be too tapped out to help if any other debt crisis emerges in any other part of the world. The IMF Atlas now has both hands occupied in holding up the Western sky. Tough luck for anyone else who needs a hand.

As for USD benefiting from Euro's "misfortune", this then points the way to possible beggar-thy-neighbor competition, through the use of WMD (Weapons of Monetary Destruction), whether in the form of CDS or some other new innovation. Got a debt crisis? No problem, just kick the chair out from under the other guy, and you're still the tallest man in the room.

German voter revolt will re-write the terms of EU, causing its southern portions to crumble away.

I look forward to seeing Germany's Social Democrats return to power. This will cause the Atlanticists plenty of heartburn.

Sanjay M · Post by **Sanjay M** » 10 May 2010 08:13

Take a look at who gets soaked if Greece dives into default (according to Morgan Stanley)

http://www.businessinsider.com/greece-p ... f-claims-1

Could Balkans political turmoil reactivate due to this crisis?

Well, war has been known to be an economic stimulus in the past.

ramana · Post by **ramana** » 10 May 2010 10:24

Reinventing Collapse: The Soviet Example and American Prospects
New Society Publishers | 2008-06-01 | ISBN: 0865716064 | 176 pages

The title of this book is Reinventing Collapse, and I have to say that's exactly what this book manages to do. It's a short book, so you could read it in just a few hours, but it is packed with information and "make you think" moments. Orlov's unique perspective on American life engages the reader and opens your eyes to what life in America is like to an outsider.
Without a doubt the most useful aspect of this book are the details of what the situation was like in Russia after their political collapse. This book is a tutorial on how the reader might modify thier life in the future if (or when) America collapses.
Reviewed by Matt Mayer - Groovy Green

In the waning days of the American empire, we find ourselves mired in political crisis, with our foreign policy coming under sharp criticism and our economy in steep decline. These trends mirror the experience of the Soviet Union in the early 1980s. Reinventing Collapse examines the circumstances of the demise of the Soviet superpower and offers clear insights into how we might prepare for coming events.

Rather than focusing on doom and gloom, Reinventing Collapse suggests that there is room for optimism if we focus our efforts on personal and cultural transformation. With characteristic dry humor, Dmitry Orlov identifies three progressive stages of response to the looming crisis:

* Mitigation—alleviating the impact of the coming upheaval
* Adaptation—adjusting to the reality of changed conditions
* Opportunity—flourishing after the collapse

Kati · Post by **Kati** » 10 May 2010 11:26

The greeks are seething with anger toward germans. Given a chance the greeks would BBQ
germans and have a fat dinner. They now blame their financial mess to introduction of euro
which was mainly a handiwork of Germany (and France to a lower extent). Average greeks say that
through Euro the germany wanted to dominate the whole Europe. because of the integration,
prices of essential commodities have risen drastically over the last few years causing misery to
average greeks. I guess, the same has happened to Portugal and Spain. It'll be interesting to
see how this new financial mess plays out in the next few months.

Carl_T · Post by **Carl_T** » 10 May 2010 11:27

Just print more Euros, and bail them out, it's no big deal. ALthough the greece firnance ministry should go in European control now until the books are balanced. IMO

Kati · Post by **Kati** » 10 May 2010 11:29

A must see/listen to understand how Goldman-Sachs caused the financial mess:
http://www.npr.org/templates/story/stor ... =126414989

derkonig · Post by **derkonig** » 10 May 2010 12:38

errm..where were the Greeks all these years free riding on the low rates that Euro-zone membership got them. Serves 'em free riding Greeks right, in some ways they are no different from the welfare mooching packees. Once the benefits stop, its only rage & bile against the benefactors.

Chinmayanand · Post by **Chinmayanand** » 10 May 2010 15:33

Got this in mail :

The EU and IMF crafted a loan package of almost $1 trillion (€750B) to shore up the euro and financially
troubled EU countries. The package will include the monetization of bonds (QE). The IMF will supply
€250B in loans…Britain, which is struggling with its own debt problems, will not contribute to the fund.
http://www.businessweek.com/news/2010-0 ... risis.html

The Fed said it will reinstitute its emergency currency swap tool by providing dollars to European central
banks. This will bring outrage from Congress and intensify the demand for a Fed audit…Last week, GOP
leaders warned Bernanke to not bailout Greece and European countries.

Has anyone seen the list of EU countries that will provide funds? It should be good for laughs. Does
anyone think Germany will provide most of the funds? Not bloody likely! Once the details are released,
how much money certain bankrupt or financially troubled EU countries are to provide, the markets will
readjust to the short-covering and manic buying that occurred early on Monday.

The EU self-bailout has equity futures up sharply on Sunday night. Gold, bonds and the dollar are down.
As we keep preaching, there is still no necessary restructuring; so the EU bailout will have only an
ephemeral effect, just like Hank Paulsen’s bazooka for FNM and FRE.

More importantly, as we noted last week, it’s absolutely ludicrous to have EU nations that are mostly
bankrupt bailing out other EU countries and themselves…Who will eventually guarantee the euro?

Is the solution to unserviceable sovereign debt, more sovereign debt?

SwamyG · Post by **SwamyG** » 10 May 2010 18:56

Bailout of PIGS is nothing but attempt to keep the German, French and Britain banks solvent. Countries have to be selfish and take care of their short term interests. All are villains, any Knight in shinning armor is actually Darth Vader onlee

)

Carl_T · Post by **Carl_T** » 10 May 2010 19:20

PIGS need to be bailed out along with anyone else in order to avoid a deflationary scenario. I don't think inflation is the worry yet, the first worry has to be deflation.

SwamyG · Post by **SwamyG** » 10 May 2010 19:53

Prad: Though I have favorites, I am not exactly a liberal or a conservative. I like to distance myself from those Western constructs. These labels have been abused over the years and should be consigned to history's trash bin. So have no fear

My point is the savings rate did not fall in the recession (2007-2009) period. I think what happened was people pulled back a lot during the recession as they feared the future. As they realized it is not going to be hell, they slackened. It rose, so correct me if I misunderstand something here.

RamaY · Post by **RamaY** » 10 May 2010 20:07

Sanjay M wrote:Heh, now that Euro-TARP is underway, with IMF assistance, then everyone will be too tapped out to help if any other debt crisis emerges in any other part of the world. The IMF Atlas now has both hands occupied in holding up the Western sky. Tough luck for anyone else who needs a hand.

There always has been a preference list for IMF and WB types. In "when genius failed" (the LTCM saga), it was explained how some nations (East Asian, Argentina, and Mexico IIRC) were saved and some other were left to the dogs (Russia).

So it depends on who is the next EFS (Economically Failed State). If it is UK or US, all bets are off for PIIGS

Hari Seldon · Post by **Hari Seldon** » 10 May 2010 20:26

GS shows some interesting results here...

Goldman Sachs, which makes more money from trading than any other Wall Street firm, also disclosed that its traders generated $100 million or more on 35 days during the first quarter and lost money on no days. The firm set a record when it made $100 million or more on 46 days in the second quarter.

link

Denninger says it best about this one:

No losing days in the entire quarter?

You are free to believe that this is solely due to "superior skill." I, on the other hand, do not believe that on a statistical probability basis the record this firm has put together over the last two years in terms of the number of winning .vs. losing days is possible simply due to superior skill - that is, without cheating in some form or fashion.

Indeed, I would liken the odds of this being a matter of pure skill (or luck) to be somewhat similar to the odds of my pulling three royal flush's in a row at the poker table - against a full house aces each time.

Well, yawn, I guess. MOve on, nothing to see here. Etc.

Carl_T · Post by **Carl_T** » 10 May 2010 20:32

Hari Seldon wrote:GS shows some interesting results here...
Goldman Sachs, which makes more money from trading than any other Wall Street firm, also disclosed that its traders generated $100 million or more on 35 days during the first quarter and lost money on no days. The firm set a record when it made $100 million or more on 46 days in the second quarter.
link

Denninger says it best about this one:
No losing days in the entire quarter?

You are free to believe that this is solely due to "superior skill." I, on the other hand, do not believe that on a statistical probability basis the record this firm has put together over the last two years in terms of the number of winning .vs. losing days is possible simply due to superior skill - that is, without cheating in some form or fashion.

Indeed, I would liken the odds of this being a matter of pure skill (or luck) to be somewhat similar to the odds of my pulling three royal flush's in a row at the poker table - against a full house aces each time.
Well, yawn, I guess. MOve on, nothing to see here. Etc.

this is not new, it was all over the news early last year.

Hari Seldon · Post by **Hari Seldon** » 10 May 2010 20:44

Well, well....seems like the other shoe has dropped only. The new clear option seemed to be deployed rather in a hurry. Are things that dire, commisars of the ECB??

From Bloomberg:
ECB to Intervene in Bond Market to Fight Euro Crisis

May 10 (Bloomberg) -- The European Central Bank said it will buy government and private bonds as part of an historic bid to stave off a sovereign-debt crisis that threatens to destroy the euro.

The ECB wants “to address severe tensions in certain market segments which are hampering the monetary policy transmission mechanism and thereby the effective conduct of monetary policy,” the central bank said in a statement today, minutes after European finance ministers announced a loan package worth almost $1 trillion to staunch the market turmoil.

The central bank said it will intervene in “those market segments which are dysfunctional,” signaling it views the recent surge in some of the region’s bond yields as unjustified. Policy makers are seeking to restore confidence in markets and protect the economy from a double-dip recession. The bank said the moves won’t affect monetary policy and the resulting liquidity will be reabsorbed.

“They are not cranking up the printing presses,” said James Nixon, co-chief European economist at Societe Generale SA in London. “This is a much more targeted, surgical approach. They buy the duff stuff that no one in the market will touch...”

...While the ECB cannot buy bonds directly from governments, the euro’s founding treaty doesn’t ban it from doing so in the secondary market, providing the bank with some room to execute today’s plan. The bank’s council will decide the scope of the intervention.

Bundesbank President Axel Weber said May 5 that the threat of contagion from Greece’s fiscal crisis didn’t merit “using every means.” Without referring specifically to bond buying, he said “measures that damage the fundamental principles of the currency union and the trust of the people would be mistaken and more expensive for the economy in the longer term...”

To the last point, jesse adds quite aptly a pithy explanation.

The limit to the ability of a central bank to create money is the acceptability of the underlying bonds and currency.

When a central bank turns to buying the bonds in order to support their price, or more properly the interest rate paid, this is the beginning of the end, the point at which the national currency becomes little more than a Ponzi scheme, creating more money to pay the interest on the old money.

Now both the US Federal Reserve the Bank of England, and the ECB have fallen into this. We are seeing the controlled demolition of the fiat currencies of the developed world.

Well, a tad melodramatic perhaps that characterization was? Who knows. Time will tell, of course. Jai ho and dollahoakbar till then.

Hari Seldon · Post by **Hari Seldon** » 10 May 2010 20:47

Wow. The Iron lady of our time has speaks and IMO duniya'd do well to listen. Ensoi.

"German Chancellor Angela Merkel accused the financial industry of playing dirty. 'First the banks failed, forcing states to carry out rescue operations. They plunged the global economy over the precipice and we had to launch recovery packages, which increased our debts, and now they are speculating against these debts. That is very treacherous,' she said.

'Governments must regain supremacy. It is a fight against the markets and I am determined to win this fight.'"

link

And I for one am betting in favor of gubmints. Sovereigns, when the sky falls and we batter down the hatches, can do many things the banks cannot. IMHO, of course.

ramana · Post by **ramana** » 11 May 2010 01:04

Recall the Knights Templar and Friday the 13th.

svinayak · Post by **svinayak** » 11 May 2010 04:57

This INFO will have significant impact on pension funds in the market ( Repeat of 2007-'08?!)

1.http://globaleconomicanalysis.blogspot. ... anity.html

Excerpt: Meredith Whitney (Banking analyst who predict the fall Citi Corp + in 2007!)

Here's a statistic that is fascinating. This is just for the top four banks. If you look at nonperforming assets - that's loans that haven't paid over 120 days - the size of that is 1.5 times all of the chargeoffs that banks have incurred since 2005. So you think credit has stabilized, mortgages have stabilized? Non-performs have ballooned so they've more than doubled since the beginning of 2009, and that's just stuff that has to start going on to the market, and interestingly, this quarter you're
starting to see housing supply reach the market. That is belief that there's going to be another double-dip in housing

"There's huge growth in non-performing assets. These are numbers, apples-to-apples, on the four big banks. The issue is
when does that stuff that's not paying come to market, and when
do banks recognize the charge offs?

2 Re: Further DECLINE in Housing Values! - See the CHARTS!

http://blog.ml-implode.com/2010/05/hous ... the-trend/

shyamd · Post by **shyamd** » 11 May 2010 05:04

I am still sticking with my view that this crisis is still too big to bail. This show of strength is not going to be enough.

Oh and please look at the graphs of what happened after Lehmann bailout and the meeting with 9 bank heads and forcing them to take the TARP. They both led to markets to go into decline for the following 6 months. Should we expect similar? Probably yes.

I have also noted a systematic pullout of investments in UKstan and US by some investors. I think Buffett's visit to India and investments in China is a point in that direction. Al Waleed has removed most of his investments from the US and brought it back to KSA and spent more in China and India. Faber says he is pulling out of the market expecting a long decline, so is Jim Rogers. Al Fayed sold Harrods to Qatar govt entity (Sovereign Wealth funds are usually the last ones to get caught up when trouble starts). This from the guy said he would never sell Harrods. Apparently China started investing in US equities - a tell tale sign that things are looking bad if you ask me.

Just IMO's.

Sanjay M · Post by **Sanjay M** » 11 May 2010 05:38

Hari Seldon wrote:Wow. The Iron lady of our time has speaks and IMO duniya'd do well to listen. Ensoi.

"German Chancellor Angela Merkel accused the financial industry of playing dirty. 'First the banks failed, forcing states to carry out rescue operations. They plunged the global economy over the precipice and we had to launch recovery packages, which increased our debts, and now they are speculating against these debts. That is very treacherous,' she said.

'Governments must regain supremacy. It is a fight against the markets and I am determined to win this fight.'"
link

And I for one am betting in favor of gubmints. Sovereigns, when the sky falls and we batter down the hatches, can do many things the banks cannot. IMHO, of course.

Iron Lady is from the Centre-right, as opposed to the people who are now making political inroads against her, who are social democrats. She is therefore forced to shift leftwards to counter them. She has no Bush-like predecessor to bash, since hers is the more conservative political camp in her country.

She will become a casualty like Blair. He was a lefty who got stuck doing right-wing things because of War on Terror. She is a righty who will get stuck doing lefty things because of the war against sovereign default.

Again, I welcome the future return of the Social Democrats to power in Germany, since they will further improve relations with Russia, to the detriment of the Atlanticist agenda.

These days, Atlanticists are practically facing a 'Perfect Storm'

Neshant · Post by **Neshant** » 11 May 2010 06:20

call me crazy but i notice a curious trend :

All currencies are converging to parity!

Pound down, USD down less, canada and australia almost equelling USD. euro diving fast.

Is there some hidden agenda to make all currencies of western economy equal and then merge it all into one 'global' currency or am i reading too much into it ?

Neshant · Post by **Neshant** » 11 May 2010 07:02

Prechter Discusses Dollar Outlook, Global Debt Woes
http://www.youtube.com/watch?v=x72lW0k5t6w

Hari Seldon · Post by **Hari Seldon** » 11 May 2010 07:14

ramana wrote:Recall the Knights Templar and Friday the 13th.

Wow, you've gone back really far for this example but a great one it is. Indeed, the eternal tension between the state and its within-border creditors doesn't usually end well for the moneylender side when the pot goes from simmer to boil.

IMO, the right thing to do after Lehmann was to nationalize the banks that required TARP to survive in the absence of FASB FAS 157. Or equity instead of debt --> leading to majority shareholding for gubmints --> majority on bank boards --> an orderly winding-down of counterparty risks/derivatives --> an end to the egregious wealth transfer from the taxpayer to bank bonuses --> etc etc.One can wish, no doubt.

Muppalla · Post by **Muppalla** » 11 May 2010 08:01

Euro bailout. Risk now moves from banks -> states ->geopolitics, currencies and the streets. It's massive.

The euro bailout deal consists of several massive moves and, as far as the eurozone is concerned, signals a fundamental change. But not the end of the global crisis. If 2008 transferred global risk from banking to state finances, this transfers instability from the sphere of state finances to the sphere of global and social politics

The move to printing money is a signal that the EU has to create something more like a state to back the ECB.

ramana · Post by **ramana** » 11 May 2010 08:29

All maya only. If they don't create a state to back the wampum it will also evaporate. EU becomes a mega borg to survive.Back to Roman Empire with out the emperor.

svinayak · Post by **svinayak** » 11 May 2010 08:51

Neshant wrote:call me crazy but i notice a curious trend :

All currencies are converging to parity!

Pound down, USD down less, canada and australia almost equelling USD. euro diving fast.

Is there some hidden agenda to make all currencies of western economy equal and then merge it all into one 'global' currency or am i reading too much into it ?

It looks like that. Somebody recently told me about the global currency.
But the biggest shift is the change in the weight of the currencies in the east and the currencies in the west.

Hari Seldon · Post by **Hari Seldon** » 11 May 2010 08:59

Ilargi at TAE having his way with words again. LOL

Both Brown's decision to quit and the EU's decision to move to quantitative easing come way too late. Moreover, both are, were, always would be and always will be, the worst possible options available.

The EU should at the every least have done their trillion dollar deal at the same time the US did it, not some 12-18 months later. What are they thinking? But by the same token, the US deal has been a miserable failure, and so will the EU one, only, inevitably, because of the time delay involved, a worse one. While the US $trillions bought the world about a year of hologrammic hallucinations of green pastures in better times to come, the EU plan will be lucky if its "positive" effect lasts a month. Or even a week. Talk about bang for your buck.

Hey, again, TIFWIW onlee. Ilargi at TAE is a known gloomer only. Hard to fault his logic, just the extent of the inferences reached only.

Since everyone and their pet parrot was shorting everything they could lay their hands on with their eyes closed last week, on Monday European stocks went up 5-6 even 10%, and Wall Street a still jubilant 4%. Nothing rose more than European financials, of course, because the $1 trillion plan proudly announced by a bunch of "leaders" who neither speak each other's languages nor can stand the sight of one another unless there’s political gain to be had was and is about those financial institutions all the way.

So what about tomorrow?

Pertinent Question. Poignant question, in fact. What about tomorrow?? Or worse, the day after tomorrow....

IMHO, nothing will happen onlee. Sun'll continue to rise in the east and the sky will hold firm above the earth. Only.

Under the pretense of saving the world itself, and perhaps because at least some of them actually think it's one and the same thing, it's all about propping money into European banks. And not just the Eurozone banks either, as can be seen in the numbers: the biggest gains on Wall Street today were for UK banks: Barclays up 16.18%, Lloyd’s: 13.95%, and RBS: 15.15%.

The much heralded (if only for a day) European plan serves not to save countries and solve their deficits, it serves instead to save the banks that are exposed to these countries' debt. Every European citizen -and, through the IMF, Americans and Canadians (and all the other IMF "constituents")-, pay to 'save' Deutsche Bank, Société Générale, Crédit Agricole, and all the rest of them from having to fess up and pay up their gambling losses. We heard that tale before.

That bolded part was pointed out on this dhaga, IIRC.

And if there were only a reasonably chance of such a scheme succeeding, I would understand to a certain -albeit low- degree why Europe's democratically elected dimmer switches are creating this tragedy, which is much bigger than they could ever dream to be. But there's no such chance, none.

European "leaders", like their US counterparts, are -or pretend to be- under the illusion that to save their economy they have to fork over truckloads of taxpayer money in order to preserve the very institutions that played instrumental parts in causing that very crisis. The argument used to defend this kind of policy measure is encapsulated in the term "systemic risk".

But, if you take a second or two to think about it, that is a fake argument.

Excellent write-up. worthwhile read, IMHO.

svinayak · Post by **svinayak** » 11 May 2010 09:00

ramana wrote:All maya only. If they don't create a state to back the wampum it will also evaporate. EU becomes a mega borg to survive.Back to Roman Empire with out the emperor.

In the mid 90s the dean in my college was challenging the emergence of Euro and was trying to dismiss it.

This is covert financial rivalry between the backers of Euro and the US govt with dollar currency. It is not apparent to the outside world but this deep seated fear of Euro being a major currency was always there.

The speed in which the debts is creating ripples across the govts is also very unreal. But those who knew the connection before would know how to create the toppling effect.

Hari Seldon · Post by **Hari Seldon** » 11 May 2010 09:23

We've always known the papal-like infalliability of the khan rating agencies, their indispensability to the khanomic system etc etc was almost a law of nature. Well, well, what's htis then?
Why Didn't Moody's Tell Us About The SEC "Wells Notice" In March?

Moody's stock is getting slammed this morning on the shocking news that the SEC has hit it with a "Wells Notice" that could lead to the SEC's preventing the company from acting as a rating agency.

WHAT?!

Some more arcane details about how the integrity-laden company was first up to disclose the news:

How did the market learn about the Wells Notice? Because Moody's was apparently forced to disclose it in its latest SEC filing. (The company tried to hide the news deep in the 10Q, even burying it within a broader paragraph, but investors found it). So here's our question: If the Wells Notice is material enough for Moody's to have to disclose it in a 10Q--which it certainly seems to be--why wasn't it material enough for the company to disclose two months ago, on March 18th, when Moody's received it? Wouldn't investors who bought Moody's in the two months since the middle of March have wanted to know that the SEC might well tell Moody's to "cease-and-desist"? We certainly would have.

Nah, nah. Must be a honest mistake I tell ya. Nothing will happen, of course. But then, what's this??
Moody's CEO Dumped Shares The Day SEC's "Wells Notice" Arrived -- And So Did Buffett!

The burden of nobility, integrity and fairplay..... would it be some witch-hunting small-fry Rajaratnam's galleon group get onto sri buffet's case, eh? we all know the answer to that of course.

Sanjay M · Post by **Sanjay M** » 11 May 2010 10:22

Morgan Stanley: Enjoy The Sucker's Rally, The Euro Is Still Toast

svinayak · Post by **svinayak** » 11 May 2010 10:26

http://www.youtube.com/watch?v=812AP2V0ABg
May 5 (Bloomberg) -- Bloomberg's Olivia Sterns reports on the role of wealthy Greeks in London's luxury-home market. Greeks now account for 6 percent of all purchases of properties costing more than 2 million pounds, double the level of a year ago, as they try to protect their assets during the countrys economic troubles. Bloomberg's Andrea Catherwood also speaks in this report, which aired yesterday.

http://www.youtube.com/watch?v=8CV-SM8i9B0

March 2 (Bloomberg) -- Bloomberg's Sara Eisen reports on a February 8, 2010 secret dinner of hedge fund managers, at which the investors discussed big bets against the euro.

copyright bloomberg 2010

hedge fund managers conspire to short euro Greece Wall Street Journal Soros plotted Ideas Dinner

soros
bank of england 1992
malaysia/asia 1997
russian collapse 1998
speculating countries into ruin..... soros is an enemy of the state or the creator of the NWO

svinayak · Post by **svinayak** » 11 May 2010 10:55

http://sites.google.com/site/evernewecon/#ravibatra

"...It appears that both the Great Depression and the current crisis had their origins in excessive consumer debt -- especially mortgage debt -- that was transmitted into the financial sector during a sharp downturn...."
"...The hypothesis we propose is that a financial crisis that originates in consumer debt, especially consumer debt concentrated at the low end of the wealth and income distribution, can be transmitted quickly and forcefully into the financial system. It appears that we're witnessing the second great consumer debt crash, the end of a massive consumption binge...."
Steven Gjerstad, Vernon L. Smith, Wall Street Journal, April 6, 2009
From Bubble to Depression?
Mr. Gjerstad is a visiting research associate at Chapman University. Mr. Smith is a professor of economics at Chapman University and the 2002 Nobel Laureate in Economics.

http://www.project-syndicate.org/commen ... 12/English

The Illusion of a Chinese Bubble
Fan Gang

2010-02-25

BEIJING – On the eve of Chinese New Year, the People’s Bank of China (PBC) surprised the market by announcing – for the second consecutive time in a month – an increase in banks’ mandatory-reserve ratio by 50 basis points, bringing it to 16.5%. Shortly before that, China’s government acted to stop over-borrowing by local governments (through local state investment corporations), and to cool feverish regional housing markets by raising the down-payment ratio for second house buyers and the capital-adequacy ratio for developers.

This latest round of monetary tightening in China reflects the authorities’ growing concern over liquidity. In 2009, M2 money supply (a key indicator used to forecast inflation) increased by 27% year on year, and credit expanded by 34%. In January 2010, despite strict “administrative control” of financial credit lines (the PBC actually imposed credit ceilings on commercial banks), bank lending grew at an annual rate of 29%, on top of already strong expansion in the same period a year earlier. While inflation remains low, at 1.5%, it has been rising in recent months. Housing prices have also soared in most major cities.

These factors have inspired some China watchers to regard the country’s economy as a bubble, if not to predict a hard landing in 2010. But that judgment seems premature, at best.

http://pragcap.com/are-the-inflationistas-right

ARE THE INFLATIONISTAS RIGHT?
6 MAY 2010 BY TPC 48 COMMENTS
I’ve maintained for quite some time that the greater risk to the global economy is the continuing threat of deflation (see here). In my opinion the Greek debt contagion clearly shows this to be the case. While signs of inflation appear benign at best, the dollar continues to rally and the inflationistas are once again forced to put their doomsday scenario of imminent US bankruptcy and US dollar collapse on the back burner.

In my opinion, what the inflationistas have all missed is the disconnect between actual “money printing” (I prefer button pressing) and increased money in circulation. Monetarists and Austrians have generally made the false assumption that button pressing equals increased money supply – as if the money is literally dropped out of helicopters into the hands of the public. The last 18 months have proven that is simply not the case. That is not how the monetary system actually functions. So why hasn’t all this “button pressing” turned into higher inflation? Because the money isn’t actually getting into the hands of the public. It’s mostly sitting on the floors of bank vaults (or more appropriately, in on-line accounts). As I’ve said many times before, dumping a canister of iced tea into a pitcher of water doesn’t give you iced tea – at least not until it is stirred in!

In the Fall of 2008 Ben Bernanke made the classic monetarist gaffe of assuming that banks were reserve constrained. In other words, if you can simply fill their vaults with money they will be more willing to lend. Well, that’s clearly not true. This is as silly as assuming that you can sell more apples at the market so long as you double or triple your inventory of apples. But lending, much like any market, is two sided. There has to be demand AND supply. Bankers will lend money to any creditworthy customer – they’re not reserve constrained. As of now, there continues to be very little demand for credit and even fewer creditworthy customers. This is why we have seen no pick-up in lending. Banks are effectively hoarding the cash, loan demand remains low and therefore money circulation remains weak.

http://www.businessinsider.com/el-erian ... one-2010-5

El-Erian Warns Of Cascading European Bank Failures, Says Weak Countries Could Take A "Sabbatical" From The Eurozone

Joe Weisenthal and Gregory White | May. 6, 2010, 1:16 PM | 2,386 | 6
PIMCO boss Mohammad El-Erian was on CNBC earlier laying down the law about Europe.
Among his calls: Cascading bank failures should be a big concern, and the eurozone WILL look differently in a year, as weak countries take what he calls a "sabbatical."
0:15 2010 is the year of sovereign risk, and the Greek crisis is on the verge of going global
1:05 The U.S. will win through more capital coming into the country, but European demand is going down, and risk aversion is rising
2:05 Banks in Europe are choosing not to lend because they are concerned about each other's exposure
3:00 This is not 2008, so don't pull your money out of banks yet
3:30 Spain debt buyers already under water, will hurt next auction
4:45 There is a risk of eurozone dissolution as country's look to sort out there own problems
5:50 Eurozone will look different in a year's time, with a smaller zone or further fragmentation
7:20 Greece tells you that debt and deficits matter

Read more: http://www.businessinsider.com/el-erian ... z0nb3SGWxN

svinayak · Post by **svinayak** » 11 May 2010 10:59

Hari Seldon - what is your email

svinayak · Post by **svinayak** » 11 May 2010 11:17

There's a new regional group that excludes the USA and Canada

Earlier this year, 32 countries south of Texas gathered in Cancun to discuss the formation of a new regional group.
No one cares much for the DC-based Organization of American States, which is known as a puppet of Washington, according to the CS Monitor.

Read more: http://www.businessinsider.com/15-signs ... z0nb8fqxaZ

The Next BRICs: Six Surging Countries You Must Pay Attention To This Decade

If you're bullish about Brazil, Russia, India, and China, then don't forget there is an entire second tier of less-appreciated-but-giant economic growth stories -- the MAVINS.
Commodities play a major role for these economies.
They are uniquely positioned to feed and benefit from global economic growth via their relative commodity advantages, yet at the same time they have massive domestic market expansion opportunities due to a surplus of under-utilized land or people.
With the right policies, these nations are likely to blow away expectations over time and become leading powers in their regions. The MAVINS combined economies could easily equal 60% of today's America by 2020, over 200% of today's America by 2050, and then keep growing robustly thereafter.

Read more: http://www.businessinsider.com/the-next ... z0nb9lAhzC

Chinmayanand · Post by **Chinmayanand** » 11 May 2010 16:07

Did a Big Bet Help Trigger 'Black Swan' Stock Swoon?

Through the trading desks at Barclays, Universa bought 50,000 options contracts, according to people familiar with the matter. The contracts would pay off about $4 billion should Standard & Poor's 500-stock index fall to 800 in June. It was at 1145 points at the time of the trade.

Back across the country in Chicago, the big trade appeared to have had an immediate ripple in the markets. The traders on the other side of the Universa trade were essentially betting stocks wouldn't post big losses.

But to minimize the risk of losing money, they in turn needed to sell, according to traders. The more the market fell, the more the traders at places like Barclays had to sell to protect their own positions. This, along with likely dozens of other trades across the market, led to a cascade of selling in the futures markets…

http://online.wsj.com/article/SB1000142 ... Collection

What, no ‘B’ or ‘M’ key mistakes?

Hari Seldon · Post by **Hari Seldon** » 11 May 2010 16:28

Acharya wrote:Hari Seldon - what is your email

brf.hari at yahoo.in

SwamyG · Post by **SwamyG** » 11 May 2010 18:56

More Financial Crises Coming Thanks to Global "Wall of Liquidity," Roubini Says

I cried hoarsely for the money to be given to the people than the banks. Instead of giving billions in aid to these different banks, the government could have given money in the form of tax breaks, tax refunds or call-what-ever to the people. When I say people, I mean households. For example, the project number of households in 2010 in USA was 120,000. If, say, they were each given 100,000. The amount would have come to $12billion (if I counted the zeroes correctly). So how much has been the total bailout package so far, uh? Of course, there will be questions about it be fair, how to disburse the money, how to determine who gets it, yada yada. My first thought was similar to the way they issued tax refund checks.

People being people; some would just put it in the banks, some would pay part of their credit card loans, student loans, home mortgages, take vacations, essentially spend a whole lot of money. At least they would have kept the money in circulation unlike the banks who now mistrust each other & are not lending.

So where did I cry, well at my lunch table

Hari Seldon · Post by **Hari Seldon** » 11 May 2010 21:12

TAE tweet roundup
https://twitter.com/AutomaticEarth

Britain must fend for itself in event of crisis,French official warns (Anger over Britain's refusal to help bailout EU) http://bit.ly/92Wahu

Bah, more empty words from the oirostanis. UK-stan has nothing to fear from that useless bunch, IMO.

ECB risks its reputation and a German backlash over mass bond purchases http://bit.ly/aHuHr2 (Bail, baby, bail!)

Bank Funding Crunch Deepens as Default Swaps Reach Records http://bit.ly/9pSAVg (Even post EU Bailout announcement!)

ECB Plans to Buy European Bonds to Ease Greek Crisis http://bit.ly/bGpMBV (The nuclear option in the words of many)

EU Crafts $962 Billion Show of Force to Halt Crisis http://bit.ly/aCrcCR , fighting debt with more debt. Geniuses!!

Was the most useless 1 Trillion bailout in history 2 days ago? Euro back to where it was, stocks falling again. China in bear market.

Time will tell...oh, wait, has it 'told' already? Telling, I tell ya. Anyway, more seriously, its a premature call to say the EMU bailout has failed. Give it more time, I say.

khanistani news

The squid lives and sucks America dry! Goldman Sachs made profits on ALL days in Q1. Not even one day of losses. http://bit.ly/dcgoq9

Goldman Sachs reaped more than $100 million on 35 of the days, or more than half the time in Q1. 76% of revenue came from trading.

Buffett defends Goldman, joins greed Conspiracy http://bit.ly/cAOYDa (Paul Farrell, slams Warren Buffett hard)

Elena Kagan, Obama's nominee for Supreme Court Justice worked with Goldman for 3 years. 'Nuff said.

Roach Says Debt Crisis Raises Risk of ‘Double Dip’ Recession http://bit.ly/ameP1Q

Via Reuters: Fannie Mae says there is "significant uncertainty as to our long-term financial sustainability".

Chalo. G'Nite all.

Satya_anveshi · Post by **Satya_anveshi** » 11 May 2010 22:05

SwamyG wrote:For example, the project number of households in 2010 in USA was 120,000. If, say, they were each given 100,000. The amount would have come to $12billion (if I counted the zeroes correctly).

SwamiG ji,
[nitpick]
# of households in US exceeds 100M and now do the calculations @ $100K per household

[/nitpick]