Perspectives on the global economic meltdown

Hari Seldon
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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 31 Oct 2009 16:51

Private-sector lending in the eurozone falls for first time

THE fragile nature of the recovery in the eurozone was highlighted yesterday in figures showing the first decline in private-sector credit since data was first collected in 1991.

Despite record-low interest rates and efforts to flood the eurozone with funds, the region's banks have cut the volume of loans to customers. Loans to eurozone households and firms fell 0.3pc in September from a year earlier, the European Central Bank (ECB) said. On a monthly basis, lending rose slightly.

Loans to households and business fell, despite the ECB flooding banks with cash in an effort to revive lending -- billions in extra funds have been forwarded to banks. The ECB also cut its benchmark interest rate to a record low of 1pc in a further bid to boost credit.

The annual private-sector lending rate "is a lagging indicator", said Nick Kounis, chief European economist at Fortis in Amsterdam. He is forecasting the eurozone economy expanded 0.6pc in the third quarter from the second. "The monthly flow data suggests that much of the contraction in lending actually took place in the final months of last year and the first half of this year, while more recently there have been signs of stabilisation."


Stabilization? Lets hope so. The data meanwhile are decidedly testy. While gubmint borrowing has soared, has it crowded out the pvt sector? Doubt thats the dynamic at play here. Something else is happening - and thats the bot households and the corporate sector are reluctant to borrow because their extant debt service burdens are way too high as is.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 31 Oct 2009 18:56

picture == 1000 words and all.

Image

From the Horse's mouth:
Firstly, I would say that the energy prices that currently seem stubbornly high should fall substantially as the speculative premium evaporates and demand falls on a resumption of the credit crunch. The sucker rally that has spawned all the talk of green shoots is essentially over in my opinion.

The result should be a reversal of a number of trends that depend on the ebb and flow of liquidity - we should see stock markets and commodity prices fall, a significant resurgence in the US dollar and a large contraction of credit. The scale of the reversal should be substantial, as should its effects on energy demand. Demand is not what one wants, but what one is ready, willing and able to pay for, and in a severe credit crunch the capacity to pay for supplies of most things will be severely reduced.

As demand falls, and with it prices, investment in the energy sector is likely to dry up. Many projects will be uneconomic at much lower prices, meaning that the projects which might have cushioned the downslope of Hubbert’s curve (and the much steeper net energy curve), are unlikely to be developed. In this way a demand collapse sets the stage for a supply collapse that could place a hard ceiling on any prospect of economic recovery. That is a recipe for extremely high energy prices in the future.

Secondly, our vulnerability to the consequences of debt is extremely high at the moment. The scale of that debt is staggeringly large. The global credit hyper-expansion has been decades in the making and is now significantly larger than notable events of the past such as the South Sea Bubble of the 1720s and the Tulip Bubble of the 1630s. It dwarfs the excesses that led to the Great Depression.


Scary. Reflate and print like no tomorrow then. Debt jubilee achieved another way, I guess.

Sh1t. This gets scarier and murkier.... strange no, that the darkest D&G thread on the forum is oh so quiet for Halloween... Lemme liven things up here a bit....

Credit bubbles are inherently self-limiting, proceeding until the debt they generate can no longer be supported. We have already passed that point and we are now two years into a contraction phase that is about to accelerate. As the aftermath of a credit bubble is typically proportional to the scale of the excesses that preceded it, we should be in for the largest economic contraction for at least several hundred years, and it will be global.


Image

Jai hor!

There will be a very significant undershoot of historically average values, as there always is following a mania (much more than the Case-Shiller projection below suggests). In my opinion, housing prices are likely to fall at least 90% on average. For those who own property on margin, this will be a disaster.


Huh? 90%?? well, you lost me there. lady. But that won't stop me from claiming credit on brf 'for being ahead of the curve and all' should that unlikely even transpire. :lol:

Image

Unlike inflation, which divides the underlying real wealth pie into smaller and smaller pieces, credit expansion creates multiple and mutually exclusive claims to the same pieces of pie. Once a credit expansion reaches its maximum extent, and contraction begins, these excess claims begin to be extinguished.

Unfortunately, the leverage is such that there are probably over a hundred claims to each piece of pie. While contraction begins slowly, as is the nature of positive feedback loops, it picks up momentum until a cascade point is reached, whereupon one can expect the excess claims to be extinguished in a rapid and chaotic process. This amounts to a rapid collapse in the supply of money and credit relative to available goods and services, which is the definition of deflation.


But then I wondered, where from all this D&G? WHy can't everybody concerned - banks, gubmints, consumers, every effing body, zimbly continue the fiction that all is well especially when the fed is willing to backstop everything unlimitedly so, seems like?

Banks hold extremely large amounts of illiquid ‘assets’ which are currently marked-to-make-believe. So long as large-scale price discovery events can be avoided, this fiction can continue. Unfortunately, a large-scale loss of confidence is exactly the kind of circumstance that is likely to result in a fire-sale of distressed assets. The structure of the credit default swap component of the derivatives market makes this very much more likely.


Bah. Keep hearing abt this big bad derivatives mkt. Just how big is it anyway? Here's a clue....should make our halloween only - costume idea - dress up as a derivative.... :mrgreen:

Image

BTW, seems the great COTUS bill to regulate derivatives has a 'hole so big a truck could drive though' in that it doesn't apply to 'customized derivatives' which are over 90% of all derivatives. The bill ensures that there will no longer be any standard derivatives that could be regulated, rather all manner of parties will prefer 'customizing' their derivatives so that they fall outside the purview of proposed legislation onlee..... Bullsh1t just became billsh1t onlee :((

Oh, the D&G litany goes on...
The CDS market allowed large bets to be placed on certain prices falling, and by entities which did not have to own those assets. This creates a perverse incentive for some parties to cause others to fail for profit (akin to me being able to take out fire insurance on your house and thereby give me an incentive to burn it down).

An added complication is the extreme degree of counterparty risk that resulted from a complete lack of capital adequacy regulation. Many parties with winning bets will not be able to collect, so they may cause financial mayhem for nothing. The CDS market is worth some $62 trillion, and a meltdown is very likely in my opinion.

A large-scale mark-to-market event of banks illiquid ‘assets’ would reprice entire asset classes across the board, probably at pennies on the dollar. This would amount to a very rapid destruction of staggering amounts of putative value. This is the essence of deflation.


And here's something Sri ss_roy has long been yelling about, often to much ridicule...

Credit bubbles always end this way, with the mass extinguishing of the excess claims debt represents. They are essentially Ponzi schemes, crucially dependent on the continued buy-in of new entrants. Globalized finance brought a flood of new entrants following the liberalization of the early 1980s, but there are now no more new sources of wealth to tap.

Deregulation allowed the reckless to gamble away virtually everything, including bank deposits and pension funds. Globalized finance has created a giant Enron, which while appearing robust is actually almost completely hollowed out. Such structures implode, often without much notice.


OMG, smt. Stoneleigh knows what she's talking about. She's no CNBC anchor, for sure. Heck, she's prolly way better informed and more scrupulously honest that many a professional academic ekhanomist who wouldn't dream of taking a stand even remotely critical of the Fed for reasons Pavlovian onlee.

And she says it like she sees it. Bloody scary.

In my opinion, deflationary deleveraging will continue until the (small amount of) remaining debt is acceptably collateralized to the (few) remaining creditors. Until that point, there can be no lasting return of the confidence required to rebuild shattered credit markets.

Deflation is ultimately psychological. Without trust we will see hoarding of the cash which will be very scarce in the absence of the credit that currently comprises the vast majority of the effective money supply. The combination of scarce cash and a very low velocity of money will be toxic.

Money is the lubricant in the economic engine and without enough of it that engine will seize up as it did in the 1930s, when farmers dumped milk they couldn’t sell into ditches while others were starving for want of the money to buy food. There was plenty of everything except money, and without money, one cannot connect buyers and sellers.
{Tell me if you've heard of a cleaner simpler true-er explanation onlee.}

Potential buyers will have no purchasing power as they will have lost access to credit and their ability to earn an income will be hit by spiking unemployment. Those who still have jobs will find that they have no bargaining power and there is therefore no wage support.

Sellers and producers will have no market and will themselves lose the means to purchase supplies or raw materials for the things they would like to produce.

If conditions remain frozen for any length of time, they will go out of business. The deeper the collapse, the more protracted the trough and the more difficult the eventual recovery.

I would argue that we have no need to fear inflation until we have reached a trough - until the deleveraging impulse is spent. We can expect to spend a long time in the liquidity trap, where real interest rates will be much higher than nominal rates, leaving central bankers “pushing on a string”.


So the D&Gers were right. It is deflation after all. The yields on long bonds stay resolutely below historical averages, what else to make of it but the one sole explanation - deflation? yallah....it'll get very ugly very fast should that scenario unfold as it quite likely will...

And here's Ms Stoneleigh on bond mkts...re-read every word. She knows what she's talking about, IMO, for a change....

Stoneleigh: The bond market is far more powerful than governments at this point. While the international debt financing model remains, the bond market will retain its power to prevent money printing. Even though governments are not succeeding in increasing the effective money supply for reasons already discussed, they are nevertheless increasing systemic risk with their activities.

This is a recipe for very much higher interest rates as a risk premium. Governments do not set interest rates, they decide what rate to defend, but if that rate is substantially different from what the bond market requires, then defending it would be ruinous.

I think we are headed (not imminently but eventually) for a bond market dislocation, with nominal interest rates on government debt spiking into the double digits. This will amount to hitting the emergency stop button on the economy, especially since real interest rates will be substantially higher (the nominal rate minus negative inflation).

I am in fact expecting interest rates on private debt to rise before we see problems in the market for government debt, as the latter should benefit substantially in the shorter term from a flight to safety. The risk premium on private debt is already rising, which is a serious danger signal for such thoroughly indebted societies as we see in the developed world.


OMG....am I condemned to copy-pasting the entire stellar, spectacular interview??? :(( :(( There's zimbly zero select and excerpt anymore. This intvw is pure gold, janta....forget what you have learned and seen so far. this is the real thing. I'm hanging onto every word. O lawd.....!!

Euan Mearns: But stock markets are booming again, several OECD economies are emerging from recession, unemployment has stabilized, there are green shoots everywhere. Surely the current QE strategy is working?



Stoneleigh: The green shoots are gangrenous. Some of the largest market rallies on record happened during the course of the Great Depression, as depressions are associated with very high volatility. Look for instance at the great sucker rally of 1930. There are always rallies of all different sizes in any bear market, just as there are pullbacks of all sizes in bull markets. No market ever moves in only one direction.

People tend to extrapolate recent trends forward, but this amounts to stepping on the gas while looking only in the rearview mirror. This is one reason why major trend changes are so rarely anticipated. Another is that the prevailing view of markets is fundamentally wrong. There is no perfect information, perfect competition, stabilizing negative feedback, rational utility maximization or efficient markets.

Markets are irrational, driven by swings of optimism and pessimism, or greed and fear, in an endless tug of war, and largely in an information vacuum. Investors chase momentum by jumping on passing bandwagons, hence demand for financial assets increases when prices are rising and falls when prices are falling, in classic positive feedback loops.

We have just lived through a period of several months when greed and complacency were in the ascendancy, but that trend is about to reverse in my opinion. Looking at markets as constructs of human herding behaviour allows them to be probabilistically predictable, permitting the forecasting of trend changes. For anyone who is interested in pursuing this idea further, I suggest looking into Bob Prechter’s socionomics - a fascinating subject which delves into the many effects of changes in collective mood.

For instance, as pessimism deepens, driving economic contraction, one would expect to see many manifestations of collective anger and mistrust. As this progresses it is likely to lead to xenophobia and a blame-game, with skillful manipulators (such as the fascist BNP leader Nick Griffin in the UK) poised to direct the anger of the herd towards their own chosen targets.

{Sooner please? HAve had enpough of the uk-stani propagandu organs spewing naked hatered against my beloved yindia occupying some morally high pedastal which the great $hitish of all people can never occupy!}

The potential for serious social fragmentation is very high when expectations have been dashed and there is not enough to go around. Having lived through a very long period of manic optimism and increasing inclusion, we in the developed world are not used to expressions of the dark side of human nature, except for entertainment purposes in popular television programmes. It will come as a considerable shock.


If stoneleigh is syaing it, I wouldn't dismiss it lightly. More general gems....

The aftermath of the last major mania - the South Sea Bubble in the 1720s - lasted decades and culminated in a series of revolutions. We are still relatively near the beginning of our own crisis, but already it compares with the Great Depression.


In a deflationary scenario, prices fall, but purchasing power typically falls even faster, meaning that everything becomes less affordable despite the lower nominal prices. Prices in real terms, adjusted for changes in the supply of money and credit, are what matter.

In a world where almost everything is becoming rapidly less affordable, the essentials will be the least affordable of all, as a much larger percentage of a much smaller money supply will be chasing them. This will confer relative price support.

Although we could initially see a large glut in energy supply as demand falls off a cliff, this is likely to lead to supply collapse as investment dries up, hence I expect energy prices to bottom early in this depression.


Shux, war is coming. no way prc will escape this trap sans a coordinated war with the packees on one side.

Prognosis on gold...
As for gold, I expect it to fall initially as people sell not what they would like to, but what they can, in order to raise the cash they need for living expenses and debt servicing. Owning gold is likely to become illegal again (as it did in the Great Depression) in my opinion.

This wouldn’t necessarily stop you owning it, but would stop you trading it (at least without taking major risks) for other things you might need. Owning gold now therefore only makes sense if one is confident of being able to sit on it for a very long time, as it will hold its value over the long term as it has for thousands of years.


OMG...its getting unbearable now..can't read on anymore. Read it all here, if you have the heart...

October 30 2009: An interview with Stoneleigh - The case for deflation

raam bharose....
Last edited by Hari Seldon on 31 Oct 2009 20:47, edited 2 times in total.

Katare
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Re: Perspectives on the global economic meltdown

Postby Katare » 31 Oct 2009 20:06

Hari Seldon wrote:Private-sector lending in the eurozone falls for first time

THE fragile nature of the recovery in the eurozone was highlighted yesterday in figures showing the first decline in private-sector credit since data was first collected in 1991.

Despite record-low interest rates and efforts to flood the eurozone with funds, the region's banks have cut the volume of loans to customers. Loans to eurozone households and firms fell 0.3pc in September from a year earlier, the European Central Bank (ECB) said. On a monthly basis, lending rose slightly.

Loans to households and business fell, despite the ECB flooding banks with cash in an effort to revive lending -- billions in extra funds have been forwarded to banks. The ECB also cut its benchmark interest rate to a record low of 1pc in a further bid to boost credit.

The annual private-sector lending rate "is a lagging indicator", said Nick Kounis, chief European economist at Fortis in Amsterdam. He is forecasting the eurozone economy expanded 0.6pc in the third quarter from the second. "The monthly flow data suggests that much of the contraction in lending actually took place in the final months of last year and the first half of this year, while more recently there have been signs of stabilisation."


Stabilization? Lets hope so. The data meanwhile are decidedly testy. While gubmint borrowing has soared, has it crowded out the pvt sector? Doubt thats the dynamic at play here. Something else is happening - and thats the bot households and the corporate sector are reluctant to borrow because their extant debt service burdens are way too high as is.


It's lagging indicator that means the contraction happened last year not this year.

As expected correction in US stock market has started....
Flat incomes, weak consumer spending raise concern -US Market

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Re: Perspectives on the global economic meltdown

Postby SwamyG » 31 Oct 2009 21:08

Hari garu, meeru "Life, Inc" book compulsory chaduvaali.

Hari Seldon
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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 31 Oct 2009 21:11

SwamyG wrote:Hari garu, meeru "Life, Inc" book compulsory chaduvaali.


SwamyG aiah, appidi aa. sari. naanu yanne univ library le book requisition kudukuvein....

Meanwhile, this dilbert toon says it all....

Image

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 31 Oct 2009 21:59

Expert D&G prognosis on employment ... stomach it if you can! Shreds to bits our pretences to any real importance in the scheme of things, eh?

Euan Mearns: What will be the consequences for unemployment levels and services provided by government?



Stoneleigh: Unemployment will go through the roof as the prospects for selling most goods and services decline dramatically. In the developed world we are nations of middle men - generally service economies where we make a living figuratively taking in each other’s laundry.

Most of us produce relatively little. Even those who do will find almost no market for their exports, and those who could find buyers may not be able to send shipments as credit contraction prevents shippers from getting the letters of credit they need to ship goods. A glance at what has happened to the Baltic Dry Index (below) indicates the difficulties already facing shipping companies.

Unfortunately middlemen are almost completely expendable
, and the services of others are likely to become unaffordable for the majority very quickly. While there will be a huge surplus of labour, and the few who retain purchasing power will be able to hire anyone they want for very little, most people will have to do everything for themselves, as poor people have done throughout history and as most of the population of the world does now.
{And did during GD I. Not pretty, IMHO. Sure for context this was also about the time the `$hitish were preparing to engineer the Bengal famin where upto million of our people would starve to death.}
Not only will we lose access to the paid labour of others, but we will lose our virtual energy slaves as well. This will represent an enormous fall in the standard of living for the vast majority.


Whereas inflation can conceal a fall in purchasing power, so that people may not even realize it is happening, deflation brutally exposes it. Wages would have to fall just to keep purchasing power the same, but keeping it the same will not be an option for cash-strapped employers. In addition, with a large surplus of labour, workers will have no bargaining power.

This is a recipe for exploitation the like of which we have not seen for a very long time, but in the intervening adjustment period it is likely to lead first to war in the labour markets.

I would expect general strikes and a breakdown in the reliability of centralized services such as healthcare, education, power systems, water treatment, garbage (and snow) removal etc. This will be exacerbated by plunging tax revenues for all levels of government, which governments will try to compensate for by raising taxes, on anyone still capable of paying, to punitive levels. We would thus expect rapidly deteriorating services at much higher cost.

Many people are at risk of being eventually priced out of the market for goods and services, and particularly the essential ones, entirely.

In my opinion, we stand on the brink of truly tragic circumstances.


OMG. I have ceased to be flippant about Ms Stoneleigh's pronouncements anymore. Give ups onlee.

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Re: Perspectives on the global economic meltdown

Postby ss_roy » 01 Nov 2009 03:26

Hari,

I was not kidding.. The fragility of the system was evident to me years ago. It just took a series of convergent event to start the process.

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Re: Perspectives on the global economic meltdown

Postby Neshant » 01 Nov 2009 08:01

You mean : Fed Chief should be elected by commons?


Yes. Its better than being elected by a few bankers. The so called independance of the fed chief is a lie. He did not get to his position by opposing the banks which are the shareholders of the federal reserve - you can be sure of that. His own survival is dependant on shilling for those banks, lobbying for bailouts and handouts at the expense of everyone else. So there is no independance to be had.

At the very least, if you are going to separate people from the fruits of their labor with paper money (an evil piece of con-artistry if you ask me), you need a person who's elected by the people. To put that power into the hands of some guy who's shilling for a bunch of private banks is to put the hard work, sweat and toil of millions in jeapordy.

And in same was, should we elect RBI-chief too?


More than elect, he should be done away with. Nothing could be worse than concentrating everyone's wealth into the hands of some guy who has fooled himself into thinking he knows better than the free market what prices/interest rates should be.

About the only thing the federal reserve charlatans do is fiddle around with interest rates and print money creating distortions in the economy. There is no science to it other than the science of bullshitting people. It does work wonders however if you happen to be the bank at the top which gets those printed up dollars first before they get devalued down the chain - except with deflation, that pyramid scheme gets turned on its head. Ah! now we know why the fed chairman was pushing for bailouts.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 01 Nov 2009 08:36

Academic economics sowing signs of speaking truth to power or what?

Chairman of the Department of Economics at George Mason University Says Politicians Are NOT Pr0stitutes … They Are P1mps

Yikes. Strong words and all but as analogies go, remarkably well argued, actually.

Real whores, after all, personally supply the services their customers seek. Prostitutes do not steal; their customers pay them voluntarily. And their customers pay only with money belonging to these customers.

In contrast, members of Congress routinely truck and barter with other people’s property…

Members of Congress are less like whores than they are like pimps for persons unwillingly conscripted to perform unpleasant services.

Consider, for example, agricultural subsidies. Each year a handful of farmers and agribusinesses receive billions of taxpayer dollars. These are dollars that government forcibly takes from the pockets of taxpayers and then transfers to farmers.

The customers, in this case, are the farmers and agribusinesses. The suppliers of the services performed for these customers are taxpayers, for it’s the taxpayers who possess the ultimate asset — money — that farmers and agribusinesses lust after. And the intermediaries who oblige the suppliers to satisfy the base lusts of the customers are politicians. Just as pimps facilitate their customers’ access to prostitutes’ assets, politicians facilitate their customers’ access to taxpayers’ assets.

We taxpayers have less say in the matter than we like to think. Sure, we can vote. But if even just 50.00001 percent of voters cast their ballots for the candidate proposing higher taxes, the assets of not only our pro-tax citizens, but also those of the remaining 49.00009 percent of us anti-tax citizens are put at the disposal of our pimps’ customers. (And note that many of those who vote for higher taxes are not among those persons actually subject to higher taxation)…

Politicians force taxpayers to pony it up — just as the services rendered for a pimp’s customers are rendered not by that pimp personally, but by the ladies under his charge. The pimp pockets the bulk of each payment; he’s pleased with the transaction. His customer gets serviced well in return; he’s pleased with the transaction. The only loser is the prostitute forced to share her precious assets with strangers whom she doesn’t particularly care for and who care nothing for her.Also like the ladies under pimps’ power, taxpayers who resist being exploited risk serious consequences to their persons and pocketbooks. Uncle Sam doesn’t treat kindly taxpayers who try to avoid the obligations that he assigns to them. Government is a great deal more powerful, and often nastier, than is the typical taxpayer. Practically speaking, the taxpayer has little choice but to perform as government demands.


Abbo....I stopped there. Read it all, if you wanna. TSP GUBOing to unkil Sam's demands and all was common sight in the tsp thread. But here in the econ threads too?

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Re: Perspectives on the global economic meltdown

Postby Neshant » 01 Nov 2009 09:18

Its a real goonda organization the federal reserve and their share holder banks. Its a lesson to India on the importance of keeping private companies from hijacking the purse strings of the nation. Once they get entrenched, its a hell of a job to uproot them.

Note the areas which have been watered down in the bill. The areas of the bill which have been gutted tell us about where the major scams & crooked dealings are going on.

____________________________________

Federal Reserve Policy Audit Legislation ‘Gutted,’ Paul Says
By Bob Ivry

Oct. 30 (Bloomberg) -- Representative Ron Paul, the Texas Republican who has called for an end to the Federal Reserve, said legislation he introduced to audit monetary policy has been “gutted” while moving toward a possible vote in the Democratic-controlled House.

The bill, with 308 co-sponsors, has been stripped of provisions that would remove Fed exemptions from audits of transactions with foreign central banks, monetary policy deliberations, transactions made under the direction of the Federal Open Market Committee and communications between the Board, the reserve banks and staff, Paul said today.

“There’s nothing left, it’s been gutted,” he said in a telephone interview. “This is not a partisan issue. People all over the country want to know what the Fed is up to, and this legislation was supposed to help them do that.”

The Fed, led by Chairman Ben S. Bernanke, has come under greater congressional scrutiny while attempting to end the financial crisis by bailing out financial firms and more than doubling its balance sheet to $2.16 trillion in the past year. The central bank is also buying $1.25 trillion of securities tied to home loans.

Paul, a member of the House Financial Services Committee, said Mel Watt, a Democrat from North Carolina, has eliminated “just about everything” while preparing the legislation for formal consideration. Watt is chairman of the panel’s domestic monetary policy and technology subcommittee.

Keith Kelly, a spokesman for Watt, declined to comment and said Watt wasn’t immediately available for an interview. Watt’s district includes Charlotte, headquarters of Bank of America Corp., the biggest U.S. lender.

Original Language

Paul said he intends to introduce an amendment to the bill when it comes to the House floor for a vote restoring the legislation’s original language.

Representative Barney Frank, a Democrat from Massachusetts and chairman of the committee, said in interview that he intends to ensure legislation would provide a time lag between FOMC actions and the reporting of them.

Such a provision would “lessen the market impact,” he said on Oct. 20. “The importance is to see that there are no abuses and to judge what they did.”

The legislation will probably be included in a broader Democratic package of financial-regulation changes in the House, Frank said.

http://www.bloomberg.com/apps/news?pid= ... c2o1ijLRno

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 01 Nov 2009 09:39

Ah, you beat me t it Neshant.

Was abt to post that. Shouldn't come as any surprise at all, imho, I never quite believed that bill would see the light of day.

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Re: Perspectives on the global economic meltdown

Postby shyam » 01 Nov 2009 16:21

Ameet wrote:The greatest theft in American history
Earlier this week, a story made the rounds of a 20-year old girl of Salvadorian origin who holds 3 jobs and bought a $155,000 home (and got a $34,000 "embellishment" extension on top of that) with an FHA-guaranteed loan with a 3.5% down payment. That story had subprime written all over it right from the start, and loudly begged the question what on earth moves the US government to move into (make that induce) subprime lending.


This is the story, in Public Radio, author is referring to
Buying young

In the comments section, you can see a lot of people agreeing with woman for purchasing a home instead of opting for a college education. But one guy puts following fantastic response
To all the people who support her decision: Would YOU have loaned her the money? It’s a lot easier to be “nice” with other people’s money.

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Re: Perspectives on the global economic meltdown

Postby Neshant » 02 Nov 2009 05:50

Economics is in danger of ending up as a false science like sourcery or palmistry.

---------

Ron Paul: Be prepared for the worst

http://mensnewsdaily.com/sexandmetro/20 ... the-worst/

What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years. As the housing market fails to return to any sense of normalcy, commercial real estate begins to collapse and manufacturers produce goods that cannot be purchased by debt-strapped consumers, the economy will falter.
Last edited by Neshant on 02 Nov 2009 06:20, edited 2 times in total.

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Re: Perspectives on the global economic meltdown

Postby Neshant » 02 Nov 2009 05:58

the mullahs are catching on.

-----------

Saudis drop WTI oil contract

http://www.ft.com/cms/s/0/8cda145a-c3fe ... ck_check=1

Saudi Arabia on Wednesday decided to drop the widely used West Texas Intermediate oil contract as the benchmark for pricing its oil, dealing a serious blow to the New York Mercantile Exchange.

The decision by the world’s biggest oil exporter could encourage other producers to abandon the benchmark and threatens the dominance of the world’s most heavily traded oil futures contract. It is the main contract traded on Nymex.

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Re: Perspectives on the global economic meltdown

Postby Prem » 02 Nov 2009 06:48

The traders have been creating so much volatility and glad they are being undermined. I hope and belive their manipulative grip is loosened and it will be good for developing countries.


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Re: Perspectives on the global economic meltdown

Postby kmkraoind » 02 Nov 2009 09:33

China Slaps Antidumping Tax on Imports of Industrial Acid

China announced antidumping tariffs on imports from the U.S., Europe and South Korea of a chemical used to make nylon, in the latest sign of trade tension amid the global economic slump.


As Hari saab predicted protectionism has started. The worst offender also seems to be using protectionist measures. Definitely after 1 year world economic order will not be the same as of today. Where is Suraj saar, we are missing his educationist big posts recently.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 02 Nov 2009 15:54

^^ heh. PRC imposing anti-dumping tariffs is like TSP denying the Pope a visa due to his alleged terror ties..... :lol:

Mother of all carry trades faces an inevitable bust (Roubini in FT)

Risky asset prices have risen too much, too soon and too fast compared with macroeconomic fundamentals.

So what is behind this massive rally? Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fuelling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualised – as the fall in the US dollar leads to massive capital gains on short dollar positions.

Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing – as the total returns have been in the 50-70 per cent range since March.


The dollar is now the preferred medium for a carry trade. How quaint.

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Re: Perspectives on the global economic meltdown

Postby SwamyG » 02 Nov 2009 16:47

Fed. Res. Bank, in USA, is private no? Is it the only one of a kind. Not many central banks in the World are private, IIRC. Can gurus confirm this?

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 02 Nov 2009 18:18

SwamyG wrote:Fed. Res. Bank, in USA, is private no? Is it the only one of a kind. Not many central banks in the World are private, IIRC. Can gurus confirm this?


Yup the Fed Reserve is a pvt org. The US ninth circuit court of appeals ruled that the Federal Reserve Banks are "independent, privately owned and locally controlled corporations", and there is not sufficient "federal government control over 'detailed physical performance' and 'day to day operation'" of the Federal Reserve Bank for it to be considered a federal agency.

Link

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Re: Perspectives on the global economic meltdown

Postby SwamyG » 02 Nov 2009 19:21

Image
115 is only a quarter of the banks that seem to be doomed. There are not nearly as many banks today as were in existence when the fiat floating currency was conjured out of thin air. Every cycle since Nixon has seen the number of local banks collapse. And the power of the Federal Reserve has grown. This is also due to all Presidents doubling or even in the case of Reagan, tripling the national debt.

So, as consumer, real estate, commercial and government debts have doubled or tripled each 8 years, we have fewer and fewer banks participating in this. And in this complete collapse of normal banking, we see the biggest owners or players in the Derivatives Beast’s den thriving while a quarter of the remaining banks which are not even a quarter of the number of banks that existed in 1974, are dying.

Realistically speaking, there are no real banks anymore. There is either the government system funded by taxpayers or no system at all. That is, these are Halloween zombie banks. The reason all the zombie banks haven’t died in just one year is due to remarkable efforts by the Fed and the Fed to feed the system to keep the biggest ones alive and seemingly well.


Linky to the blog

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Re: Perspectives on the global economic meltdown

Postby SwamyG » 02 Nov 2009 19:45

Adding some perspective, i.e my 2 cents to this: Eventually things boiling to having a balance. Balance can be achieved only by counter forces. I was probably the only BRFite that was sad when the Commies were washed in the last general elections. I don't want to glorify them, but their counter weights were and would be always useful. I consider National banks to be a good counter force to the private banks. We need both. One thing we should not have in Desh is "to big to fail" concept. Be it a PSU or a Private Sector company.

In our recent progress - 200 or 300 years so, we seem to have forgotten some age old wisdom, which are simple and have stood times. One of them is: "don't put all eggs in one basket"

Touching upon the same, in America the small farmers have been systemically eased out - one might call the evolution of agriculture or what not. But essentially it is just a handful of few corporations spearheading the agriculture business. No doubt, they are efficient and produce great quantities of food. But is at the cost that is not readily seen. The subsidies that Unkil hands out to this industry goes from the tax payers to this select farmers. I have read articles that talk about how having large number of people in agriculture is not a good thing for the country. For example bulk of the Indian population is in the agriculture business. While India might be at the other extreme, USA is at the other extreme. A country has to strike a balance which is absent in both cases.

more laterz as things unravel in our planet.

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Re: Perspectives on the global economic meltdown

Postby Katare » 02 Nov 2009 21:33

Stocks surge on manufacturing, housing data

Stocks are snapping back from Friday's big losses as stronger-than-expected reports on manufacturing and housing allay concerns that the economy's recovery won't last


The gains came after the Institute for Supply Management said the manufacturing industry grew at the fastest pace in October since April 2006. The ISM manufacturing index clocked in at 55.7, much better than the 53 economists had expected. It was the third month in a row the index came in above 50, which indicates growth.


Also Monday, the Commerce Department said construction spending increased 0.8 percent in September, matching the gain in August. Economists had been expecting a 0.3 percent decline.

"This should help relieve some of the fears that the recovery is not sustainable," said Peter Cardillo, chief market economist Avalon Partners Inc. of the reports.

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Re: Perspectives on the global economic meltdown

Postby Pulikeshi » 03 Nov 2009 00:31



Looks like the tide has already changed.... The Malthusians are back! :mrgreen: :P

The link is now:
Stocks waver, Dow gives up more than 100 points

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Re: Perspectives on the global economic meltdown

Postby Katare » 03 Nov 2009 09:21

It seems yahoo changes the lead story within the same link as day goes by. Anyhow the DOW ended with gain of 76 points but that was not the point of the post. The point was the new data on manufacturing growth, home sales and construction that came out today.

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Re: Perspectives on the global economic meltdown

Postby Neshant » 03 Nov 2009 11:01

the only manufacturing growth going on is on account of the cash for clunkers.

and the only home sales going on is on account of the cash rebates for homes.

once all that runs out (and gets renewed) and runs out again, then the real picture will emerge.

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Re: Perspectives on the global economic meltdown

Postby ramana » 04 Nov 2009 04:59

Guys I see all these multi-colored posts but to a non-economist they dont mean much. So can some on who understands write short summaries for the rest of us? Thanks, ramana

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Re: Perspectives on the global economic meltdown

Postby shyamd » 04 Nov 2009 05:01

I get the feeling after 4th Q results are out, things are just going to fall heavily. I bet bonuses at investment banks will be around 2007 levels for banks like Goldman. GS is one shady business, will explain why on another date... would not suprise me if something major happens by next year. They will get issued special treatment in a bear market. Keep an eye out.

Don't believe the financial media, when it comes to results reporting(its tightly controlled and controlling psyche)... they lowered expectations and they call the results a "beat"...but...things are slowly starting to change.

Anyway, came across this:

Lifecycle of a Bubble

Image
Are we at the return to normal stage??

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Re: Perspectives on the global economic meltdown

Postby svinayak » 04 Nov 2009 05:21

http://globaleconomicanalysis.blogspot. ... -labs.html

Janet Tavakoli on Financial Meth Labs


Here is a lengthy but well worth listening to 59 minute interview of Janet Tavakoli on C-Span. The interview is from April 20, 2009 but given that Tavakoli's name is just now on everyone's radar, most will have missed it.

Interview Topics


Money
Transparency
Job security
Banking crisis
Credit derivatives
Invisible Debt
How and why credit derivatives came into existence
Mortgage lending, Countrywide, New Century, etc
Investment banks churning money to collect fees
Bipartisan problem of promotion of home ownership to buy votes
Crony capitalism

Select Quotes

Democracy has been diluted by the actions we have taken to get out of this crisis.
The government is willing to willy nilly print money to prevent any bank from going into receivership which I think is a galacticly bad idea.
Credit derivatives added to the problems by providing leverage and opacity. They increased people’s ability to borrow in hidden ways.
There is a lot of debt in the system that is invisible. And banks themselves were often running invisible hedge funds. The legacy investment banks were running invisible hedge funds, but so were our major banks, and that includes JPMorgan, and Citigroup Bank of America.
Collateralized Debt Obligations (CDOs) were overrated and overpriced the minute they came to market. If that wasn’t enough, investment banks were creating these things in their financial meth labs , knowingly selling things they knew or should have known were overrated and overpriced.
In 2007 when it was clear that this activity should be shut down, because we had mortgage lenders failing throughout the country, instead of shutting down the financial meth labs, the investment banks sped up, they accelerated the bad deals they were bringing to market. Many of them were just phony secutritizations with no other purpose than to hide losses.
I was hopeful that when someone like Obama came in, there would be meaningful change. If anything, the situation has gotten worse. But this is bipartisan. You’ll notice that President Bush when he was in office, he elevated Roland Arnold who was the head of Ameriquest, that had been involved in alleged mortgage fraud, massive, sued by almost every state in the union, and he was elevated to the position of Ambassador to the Netherlands. The Netherlands did not even like it.
This was not a model issue. This was a management issue. We had people who knew or should have known they were selling things that were value destroying securitizations, and their sale provided money to lenders were originating fraudulent loans, overrated by complicit rating agencies.

Janet Tavakoli is a straight shooter and an equal party basher. You have to like that.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Re: Perspectives on the global economic meltdown

Postby Neshant » 04 Nov 2009 08:31

cash for clunkers ended approximately two and half months ago...


which is why inventory of cars were depleted
which is why more are being built to replenish inventories
which is why manufacturing is up

.. and which is why another round of cash for clunkers will be needed not long from now.

clue in! :idea:

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 04 Nov 2009 11:04

AoA biraders, x-posting from 'Nation on the march' happi-fest thread.

Vipul wrote:Why India bought IMF Gold.

It has been an incredible turnaround for India.

In 1991, New Delhi kick-started the economic reforms process owing mainly to the serious balance of payments crisis it was facing. Then, India -- just an inch away from defaulting on its loans -- had less than $2 billion in forex reserves (that would not even have taken care of three weeks' of imports) and had to pledge gold with the International Monetary Fund to get a loan to get out of the crisis.

Today, it is the IMF that has sold gold to India to 'borrow' money to loan to poor nations!

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Re: Perspectives on the global economic meltdown

Postby Neshant » 04 Nov 2009 11:10

people look at ceos and other crooks getting away with millions of dollars... and they wonder why they need to pay their debts.

the culture of being a dead beat and a scammer is spreading through the US.

-

http://allfinancialmatters.com/2008/04/ ... st-idiots/

The Sinclairs say they never meant for this to happen, but Esmeralda lost her job and a third child was on the way.

Sinclair: We had to start making some hard choices, which included going into foreclosure on our house and kind of starting again. We’re midway through the process, about a six to eight month process and we kind of have a plan of attack. If plan A doesn’t work, we go to B, C and D.

Plan A is asking the mortgage company to lower the principle they owe on the house, something Fed chairman Ben Bernanke has suggested to the banking industry.

Plan B: Try for a short sale.

Plan C: Just walk away.

Plan D: Chapter 7 bankruptcy.

Many of the current government proposals call for reductions in interest rates. Dan says even that wouldn’t be enough:

Sinclair: If they reduced our interest rate back to 4.25%, we might be able to make the payments, but I don’t think we’re going to.

Vigeland: Now, why not?

Sinclair: We would do it if the equity was there, but in a case where we’re already so behind… Imagine that for five years, say, we’re gonna pay four grand a month and then we’re just gonna be back up at what we bought the house for. We feel like we’re throwing away money.

The Sinclairs say they want to take responsibility for their debts, but right now it makes more financial sense not to.

Sinclair: I mean, you ask a good question. Is it really the right thing to do to let the mortgage companies take up the difference? That’s a really tough ethical question.

Dan says he experienced the various stages of grief, including denial and anger. Now he’s just relieved.

Sinclair: We went through months of being skinflints, because we knew that we were going into the red, so we didn’t buy anything. All the sudden, we had a bank full of money and we’re living rent-free, but we know that’s not really our money.

Vigeland: How does that feel?

Esmeralda Sinclair: Great! Like he said, we were so tight with money…

Dan: It does feel great, because all the sudden, we feel like we have a little margin now where we can go out to dinner, get a babysitter… :shock:

Vigeland: But you’re not paying your mortgage. You’re not paying the biggest obligation you have. How does that feel good?

Esmeralda: We already went through the guilt. his is really what we need to do, not what we wanted to do, but what we need to do.

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Re: Perspectives on the global economic meltdown

Postby Neshant » 04 Nov 2009 12:15

why would you buy a house that takes you a lifetime to pay off?

it is the stupidest thing you can do. you have just one life. the last thing you should do is waste your life paying for a house or anything else for that matter.

By the time the stimulus, bailout and other debt related money wasting ideas come to a disasterous end, housing will be down 80% once people come to their senses. A house will cost 60 to 75K max, not 600K.

-----

Real Estate Price Plunge Makes U.S. Homeownership Perilous Path

Nov. 3 (Bloomberg) -- Kajal and Vishal Dharod paid $559,000 in 2006 for a new four-bedroom house built in Rancho Cucamonga, California. Today, it’s worth about $360,000.

“We don’t know how we can come back from a loss like that,” said Kajal Dharod, 29, a first-time homeowner with a $4,200-a-month mortgage. “Buying the house was a mistake.”

http://www.bloomberg.com/apps/news?pid= ... Mu8v6dknLo

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Re: Perspectives on the global economic meltdown

Postby Neshant » 04 Nov 2009 12:36

I expect rates to stay low for a few more months, followed by some kind of "loss of confidence" event which forces the rates dramatically higher.

Remember, the Fed has now financed like 50% of the national debt on 1-2 year paper (as no one will buy 30 year and 10 year notes anymore). This means that they need to refinance every year. Like an adjustable rate mortgage.

Once it becomes obvious that the short end of the yield curve is going to rise, it will rise in a violent way. And when that happens, you look at the finance cost of trillions of dollars doubling over night. The US will implode, whether they print their way out, or whether they try to extract it from the taxpayer.

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Re: Perspectives on the global economic meltdown

Postby AkshayM » 05 Nov 2009 06:12

Neshant wrote:why would you buy a house that takes you a lifetime to pay off?


So just keep paying rent for lifetime? Or are you saying buy with cash? Or buy with 50% cash?

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Re: Perspectives on the global economic meltdown

Postby Neshant » 05 Nov 2009 10:01

I'm saying don't buy something you cannot pay off in 5 to 7 years tops.

The idea of paying 3000/month for 20 years is insane.

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Re: Perspectives on the global economic meltdown

Postby Raja Bose » 05 Nov 2009 11:42

In Arnold's California, by any chance, is the rate of mortgage more than the rate of appreciation of home property value?

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Re: Perspectives on the global economic meltdown

Postby Umrao Das » 05 Nov 2009 12:24

Tes Vigland till couple of years ago was host of Market Place a NPR program everyday broadcast. Now hosted by Kai Ryssdal.
but its worth reading or listening here hear.

http://marketplace.publicradio.org/

And somebody wanted to know about University Phoenix?
read there in the above link
*******
About Gold and India

TEXT OF STORY
Kai Ryssdal: If you took a pass on gold a year ago when it was around 800 bucks an ounce, you're probably kicking yourself right now. Gold touched $1,095 an ounce today, thanks in large part to India. Earlier this week the International Monetary Fund announced it had sold a whopping 200 metric tons of gold to the Indian central bank. Marketplace's Rico Gagliano reports on the sale, and why India's so keen on the yellow stuff.


--------------------------------------------------------------------------------

RICO GAGLIANO: Back in September, the IMF announced it was offering about 400 metric tons of gold for sale to the world's central banks. Most cash from the sale will fund an endowment to cover the IMF's operating costs. None of that was surprising. But when India scooped up half the gold? That was a surprise.

DAVID KOTOK: Two hundred tons of gold is a very large transaction.

That's David Kotok, of Cumberland Advisors. He says India's purchase sends a positive signal to investors who're bullish on gold.

KOTOK: If India would buy 200 tons, we could maybe expect somebody else to do it. If institutions raise their appetite for gold holdings, that is likely to drive the price much higher.

But India may also be sending a negative signal that it's worried about the value of major currencies. Especially as central banks around the world pump new cash into their economies.

Mike Levy is president of futures firm Cannon Trading.

MIKE LEVY: If those central banks figure out that if they take this money out of the system again, it's gonna cause more havoc than anything else, they might decide to keep it in the system and create inflation.

One hedge against that? Gold. Cumberland's David Kotok says there's evidence some Middle Eastern institutions have been secretly squirreling away gold for a while now. And some experts speculate China might step in to buy the remaining 200-or-so metric tons of the IMF's gold.

I'm Rico Gagliano for Marketplace.


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Re: Perspectives on the global economic meltdown

Postby svinayak » 05 Nov 2009 17:48

Umrao Das wrote:

One hedge against that? Gold. Cumberland's David Kotok says there's evidence some Middle Eastern institutions have been secretly squirreling away gold for a while now. And some experts speculate China might step in to buy the remaining 200-or-so metric tons of the IMF's gold.

I'm Rico Gagliano for Marketplace.


I had this news few mths ago.
China has been buying gold secretly and also they have been trading on Nazi gold. Lot of Nazi gold is floating around in the world. I know a commodities trader connection who keeps a watch

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 05 Nov 2009 19:21

BOE May Expand Bond Plan as Officials ‘Throw Money’ at Economy (bloomberg)

The Bank of England may increase its bond-purchase plan by 50 billion pounds ($83 billion) today as central bankers and politicians scramble to shore up Britain’s banking system and drag the economy out of recession.


In theory, pvt investors buy a gubmint's bonds. When one fails to find pvt buyers, tinpotty-ish nations demand command performances of central banks at bond auctions. UK-stan perfected the 'quantitaive easing' route in this eruption of an old, cyclical boom-bust crisis. Of course the overeager Fed followed suit.

Governor Mervyn King’s nine-member Monetary Policy Committee will expand the asset-buying program to 225 billion pounds at 12 p.m. in London, the median of 48 forecasts in a Bloomberg News survey shows. That follows Prime Minister Gordon Brown’s pledge this week to spend almost 40 billion pounds in a second bailout of two the nation’s biggest banks.


Long live Sri Mervyn King. And dont'ya just loooove the dashing Sri Gordon Brown? Such genuine concern for UK-stan's poor, penniless, paupered and dispossessed he shall soon get to show like any red-blooded desi neta from the bimaru heartland, seems like.

ANd lez not forget that UK-stani establishment played no insignificant role in pauperizing and beggaring the Yindia and the bimaru areas not so long ago.Of course, that's not to excuse the failures of our own NJBPRIE etc.

Any increase in the Bank of England’s emergency program would be the third since (the) King unveiled the plan in March. Brown’s first bank bailout, the government’s fiscal stimulus measures and an injection of 175 billion pounds in newly printed central bank money have so far failed to end Britain’s longest recession on record.

“They’ve got to throw money at it,” said Neil Mackinnon, an economist at VTB Capital Plc and a former U.K. Treasury official. “The fact of the matter is that the U.K. economy is lagging behind. As to whether quantitative easing is working, the jury is still out.”


Jai Ho, I guess.


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