and I thought those were the same 3 hours when UK's banks were near total collapse according to Lord Myners but then I saw UK's problem was on Oct 10,2008.ramana wrote:SwamyG wrote:USA was 3 hrs away from Economic, Political Collapse in September 2008
This is a DailyKos blog talking about what Rep. Paul Kanjorski (D) (PA-11) said. There is CSPAN video of the interview with Paul. There is a partial transcript too.
Which is why the federal reserve is buying T bonds, to counteract this deflation.John Snow wrote: When Govt sells bonds it is sucking (moping up)up cash hence (less money in circulation) deflationary.
sanjaykumar wrote:http://www.businessweek.com/globalbiz/c ... 663058.htm
India to Pass China as Fastest-Growing Major Economy
It is a simple enough statement and in fact China's Q4 growth rate may have been negative, certainly not the 7% claimed by the government.
But why oh why do the Chinese get so worked up? They seem to have a latent fear of India rightfully turning into a colossus. It is only a matter of time. 20 years or 40 years. It is inevitable; get used to the idea Chinkos.
so that deep discounted assets are transferred from banks holding them to individuals who have cash and are speculators a kind of distress sale to cut lossesramana wrote:
So whats the deal with Geithner's TARP bailout plan to have private folks buy the assets?
February 9th, 2009
No alternative to inflation
By: John Kemp
http://blogs.reuters.com/great-debate/2 ... inflation/
John Kemp Great Debate– John Kemp is a Reuters columnist. The views expressed are his own –
Every budding economist is taught the distinction between nominal variables (expressed in terms of contemporary cash values) and real variables (adjusted for inflation and expressed in constant-dollars).
An oil price of $50 per barrel in 1980 is not the same as an oil price of $50 a barrel in 2009 because inflation has steadily eroded the purchasing power of the currency in the intervening years. Moreover, economists are taught that real values are more important than nominal ones — because “money is a veil” (to use the phrase of the Austrian economist Joseph Schumpeter).
Prices are important because they perform a signaling and allocating function, encouraging supply and rationing demand. What matter are relative prices not absolute ones.
If all prices and wages double, there is no impact on the distribution or quantity of production and consumption because the relative prices remain unchanged. Money is a veil and focusing on nominal values risks succumbing to money illusion — believing that purchasing power or wealth has increased simply because it is expressed in more units of a devalued currency.
When the US Department of Commerce releases its updated National Income and Product Accounts at the end of each month, investors focus on the real growth rate in GDP, adjusted for inflation. You would be hard pressed to find the nominal GDP growth rate on dealing screens, or for that matter in the Commerce Department’s press release.
But surely that doesn’t matter, because we are only interested in how much output is produced, how many cars, how many homes, not their selling value.
Wrong.
John Snow,When Govt buys bonds it is injecting cash therefore inflationary
When Govt sells bonds it is sucking (moping up)up cash hence (less money in circulation) deflationary.
Era known as the Carter Years. Rampant inflation, 21% interest is common, and no milk at the breakfast table. My father, a union pipefitter, a well respected, well paid job, struggled to purchase milk for our family in the late ’70s. Why? Because his union contract negotiated in your NOMINAL dollars was not able to keep pace with your REAL dollars, meaning, that because of inflation, his paycheck stayed the same, while prices rose far to quickly for families (read: REAL PEOPLE) to adjust. Fast forward to today.
I’m a now a Computer Administrator, a well respected, well paid job. I can buy Milk whenever I want because my pay has been able to outpace the low levels of inflation and prices remain relatively cheap. Now, you expect us to buy a tired argument that inflation is good and repeat our mistakes of the past? Your economic math just doesn’t jive with my real world experience. What you propose, from my point of view, is to make sure that I can’t afford milk for my kids, so that a bank or other lending institution (read: FEDERAL RESERVE BANK) can stay solvent because they ran up their debt and can no longer reliably service it? Sorry, your Carter math didn’t work then and it isn’t going to work today. Besides, my kids and I rather like having milk around.
.......sources in the world and more financial systems will come up in future,” Dr Ahluwalia said. “There will be intensification of intra-regional flows and as Asian nations – China, India and East Asia as a bloc – will play a major role in the revival of global financial system, integration between these nations will increase,” he observed......
.......re-emergence of India is a good thing and welcomed by us as India has a non-threatening presence.” He quoted his Prime Minister saying, “India should consider Singapore as its last outpost.”.......
.........Asian nations like China, Japan and India have huge foreign exchange reserves and thus “they should lead the charge in changing from export-led strategy to consumption-led strategy.........
Ha ha ha. Lezsee who's bluff gets called. Some things are clear, though.China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies,” said Yu Yongding, a former adviser to the central bank.
The U.S. “should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way,” Yu, who now heads the World Economics and Politics Institute at the Chinese Academy of Social Sciences, said in response to e-mailed questions yesterday from Beijing. He declined to elaborate on the assurances needed by China, the biggest foreign holder of U.S. government debt...
China may voice its concerns over U.S. government finances and the potential for a weaker dollar when Secretary of State Hillary Clinton visits China on Feb. 20, according to He Zhicheng, an economist at Agricultural Bank of China, the nation’s third-largest lender by assets.
“In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar’s exchange rate and make sure China’s dollar-denominated assets are safe,” said He in Beijing. “That would be one of the prerequisites for more purchases.”
Chinese Foreign Ministry Spokeswoman Jiang Yu said yesterday that talks with Clinton would cover bilateral relations, the financial crisis and international affairs, according the Xinhua news agency....
“The government will be a net buyer of Treasuries in the short-term because there’s no sign they have changed their strategy,” said Zhang Ming, secretary general of international finance research center at the Chinese Academy of Social Sciences in Beijing. “But personally, I don’t think we should increase holdings because the medium- and long-term risks are quite high.”...
A decline in reserves “isn’t likely because of China’s huge twin surpluses,” Yu said. China “should diversify its reserves away from U.S. Treasuries if the value of China’s foreign- exchange reserves is in danger of being inflated away by the U.S. government’s pump-priming,” he said.
China may try to link trade and currency policy disputes to its future investment in Treasuries, said Lu Zhengwei, an economist in Shanghai at Industrial Bank Co., a Chinese lender partly owned by a unit of HSBC Holdings Plc....
“China can also use this opportunity to get a promise from the U.S. not to make inappropriate requests on bilateral trade and the Chinese yuan,” Lu said. “We can’t afford more yuan appreciation as the economy is facing a serious slowdown.”
Second, unkil also knows PRC is blowing hotter than its likely to act upon.While Yu, the source quoted in the Bloomberg story, is not a government official, China has a practice of sending messages via articles and public statements from authorized parties. Moreover, the article indicates that similar views have been expressed by some government officials. The only open question regarding Yu's comment isn't whether it has some official support (it clearly does) but whether the group holding this position is actually in the driver's seat (the central bank and finance ministry have been loggerheads over China's position as a buyer of US Treasuries; if the finance ministry's position has been represented accurately, it is more than a tad schizophrenic).
But hey, the chinis might just, you know, do tactical brilliance with their USD hoard. So, unkil joe 6pk will add poison pill psy-ops to deter abdul chang.What is weird is this particular threat is empty. Stop buying Treasuries? Great! The dollar will tank (which is what the Fed should want, the 40% depreciation of the dollar in 1934 played a major role in reviving the US economy) which would hurt China export competitiveness (Stephen Roach, a Morgan Stanley economist who now heads their Asian operations, contends that China needs to devalue its currency. It thus needs to buy even more dollar assets to effect that).
Or this may simply be an effort to blow smoke. "We want assurances you won't weaken the dollar because it will hurt our FX reserves." That is one way of dismissing Tim Geither's demand that China quit manipulating its currency, and the result would be that the dollar would fall relative to the yuan.
So this broadside seems either to be a retort to US demands ("you want us to let the yuan rise? Not unless you improve the quality of the guarantees on the paper we hold") or part of a long-term effort to move towards a new currency regime (China resents the way the US has abused its reserve currency standing, and also wants a fixed price currency regime, seeing that as producing more stability, which in turn is more conducive to trade).
And throw a bone or 2 to assuage chini H&D/ face saving concerns....China seems not to recognize the peculiar position it has gotten itself in. Even if there were no worries about the US economy, even if it wasn't constrained by the need to keep buying Treasuries to hold the yuan down. China could not sell its holdings to a meaningful degree without having a serious, adverse market price impact.
Interesting times ahead. Ensoi.But regardless of the logic, having China say bad things about the US's credibility as a debtor is not exactly what the Fed and Treasury probably want broadcast right now.
Return to sanity? Not if gub-mints backed by real mints and cheered by conO'mists have their way.Microsoft Chief Executive Steve Ballmer sketched a dire portrait of the world economy on Friday, likening it to market conditions in 1837, 1873, and 1929, each of which involved bank failures, high unemployment, and a depression.
"This is a once-in-a-lifetime economic crisis," Ballmer told a retreat of House Democrats in Williamsburg, Va. "There is a lot of history around that, and frankly if you stop and think about it, 1837, 1873, 1929, 2008, it's almost exactly a whole lifetime between each of the major economic difficulties that we face."
Ballmer said that economic growth in the last 25 years was fueled by innovation, globalization, and debt--and that the current levels of debt were unsustainable. "In 1929, for example, just before the stock market crash, the private debt-to-GDP ratio was 160 percent," he said. "Last year, private sector debt as a percentage of the GDP: 300 percent, far more leverage."
His warning of a protracted downturn that could become a depression comes amid a stock market that is down by more than 40 percent from its October 2007 peak, and housing prices in many metro areas that have been falling consistently since July 2006--a feat not equalled since the Great Depression.
"In my view, what we now have will be a fundamental economic reset," he said. "The economy is going to have to re-establish itself at a level of spending that reflects the real value of underlying assets before we can all start growing again at a healthy rate."
The more things change, the more they remain the same, eh? Hello, brave new world. Interestingly, while those in the west who saw the gr8 depression have since moved on, in India the gen currently in its 50s and above has seen scarcity economics at work up close and personal. Who can forget the value of booking a trunk phone call, the joy of booking a scooter a year in advance, a B&W tv 6 months in advance and a foreign travel allowance of USD 10.00? Thei children, now in their 20s and 30s have imbibed at least some of the thrift, debt aversion and basic common sense their parents had no choice but to live by. Or so I hope.Another interpretation of the expression involves the changing role of attitudes towards debt and asset accumulation over time. This is how I see it:
Few alive remember the great depression. Most boomers headed into retirement have seen rising asset prices all their lives. Those boomers thought they could live off their houses and/or investments in the stock market, expecting prices to rise forever, even though it was mathematically impossible for that to happen. Now, headed into retirement, boomers are realizing they are actually savings poor given that asset prices have crashed.
Moreover, children who have seen their parents wiped out in bankruptcy or foreclosed on are going to have a completely different attitude towards debt than their reckless parents did. Expect to see more frugality from parents and their children alike.
Three generations from now the lessons of today will have again been forgotten and the cycle will repeat.
Just moi 2 centi and all that.Life is too short to always have to learn from one's own mistakes.
Dunno abt the deflationists but in a fewyrs, these defiicts simply have 2 show up as decreased USD value w.r.t all asset classes. IOW, inflation onlee.As for the startling [$1.2 trillion] estimate from the nonpartisan Congressional Budget Office, if it proves accurate, the budget deficit will be nearly two and a half times bigger than the previous record shortfall of $455 billion reached in 2008.
The estimate was far higher than most other analysts have predicted. If combined with the gigantic stimulus package of tax cuts and new spending that Mr. Obama is preparing, which could amount to nearly $800 billion over two years, the shortfall this year could hit $1.6 trillion.
Sino-Indian trade is small fry in absolute terms but expect this trade row to get watched rather carefully and played up by interested psy surgeons all around. It will determine the limits, options, and alibis available for many other countries on what to do with cheap chini imports.China threatens to bring its opposition to India's toy import ban to the WTO, while India seems poised to restrict other Chinese products
O yes, true to form, the chinis have attempted bullying dilli again. Didn't it work during the olympics tibetian protests after all, eh?Toys may be just the beginning. Officials in India's Ministry of Trade confirm the Indian government has been collecting data and passing them to Chinese counterparts in several sectors where New Delhi plans either to ban or restrict Chinese imports. Whether India proceeds with such restrictions depends in part on its success at the WTO dispute settlement hearing that China threatens against the toy ban. India already has 10 anti-dumping investigations under way into Chinese-made products as varied as penicillin, steel used for car manufacturing, and even linen.
In other words, the toy ban is the proverbial shot across the bow. "There is a serious problem on the Chinese side in terms of security and safety of the products that get shipped here," says professor Madhav Das Nalapat, director of the school of geopolitics at Manipal University in South India. "And the idea is to get them to look seriously at this, and a whole gamut of issues."
OTChina's muscular response to the toy ban has already gotten the diplomatic wheels rolling in India. In a short conversation outside his office, Trade Minister Kamal Nath said India was confident the ban would stand up in front of a dispute settlement body at the WTO. "I welcome any discussions on this matter," he said, adding that his office was happy to answer any queries from the Chinese government on the reasons behind the ban. But, he said, "Until [we] are satisfied, we simply cannot lift the ban."
If the Panda can protect its own market by manipulating its yuan and keeping yuan undervalued why can't we protect ourselves with duties?vsudhir wrote:India-China Trade Tensions Rise
China threatens to bring its opposition to India's toy import ban to the WTO, while India seems poised to restrict other Chinese products
Now is the time to challenge the exclusive monopoly of Federal Reserve notes as currency. Buyers and sellers, by mutual consent, should have access to an alternate means for settling accounts; they should be able to do business using a monetary unit of account defined in terms of gold. The existence of parallel currencies operating side-by-side on an equal legal footing would make it clear whether people had more confidence in fiat money or money redeemable in gold. If the gold-based system is preferred, it means that people fully understand that the purpose of money is to facilitate commerce, not to camouflage fiscal mismanagement.
Private gold currencies have served as the medium of exchange throughout history -- long before kings and governments took over the franchise. The initial justification for government involvement in money was to certify the weight and fineness of private gold coins. That rulers found it all too tempting to debase the money and defraud its users testifies more to the corruptive aspects of sovereign authority than to the viability of gold-based money.
Yes the author has mixed up the two. just proposing multiple alternatives(both linked to gold) to choose from.Abhijeet wrote:It seems strange that the writer is mixing two separate issues in the article.
Perhaps you don't need to have physical gold to facilitate such trading. Buyer and seller can just trade in terms of grams of gold and then settle payments in paper cash. The cash payment equivalent to grams of gold can be as per the market price of gold on day of deal.Abhijeet wrote:Barter isn't illegal in the US as far as I know, so people do have access to alternative ways of settling accounts - including payment in gold if they wish, assuming the buyer has access to the necessary amount of gold.
vsudhir wrote:India-China Trade Tensions Rise
Sino-Indian trade is small fry in absolute terms but expect this trade row to get watched rather carefully and played up by interested psy surgeons all around. It will determine the limits, options, and alibis available for many other countries on what to do with cheap chini imports.China threatens to bring its opposition to India's toy import ban to the WTO, while India seems poised to restrict other Chinese products
O yes, true to form, the chinis have attempted bullying dilli again. Didn't it work during the olympics tibetian protests after all, eh?Toys may be just the beginning. Officials in India's Ministry of Trade confirm the Indian government has been collecting data and passing them to Chinese counterparts in several sectors where New Delhi plans either to ban or restrict Chinese imports. Whether India proceeds with such restrictions depends in part on its success at the WTO dispute settlement hearing that China threatens against the toy ban. India already has 10 anti-dumping investigations under way into Chinese-made products as varied as penicillin, steel used for car manufacturing, and even linen.
In other words, the toy ban is the proverbial shot across the bow. "There is a serious problem on the Chinese side in terms of security and safety of the products that get shipped here," says professor Madhav Das Nalapat, director of the school of geopolitics at Manipal University in South India. "And the idea is to get them to look seriously at this, and a whole gamut of issues."
OTChina's muscular response to the toy ban has already gotten the diplomatic wheels rolling in India. In a short conversation outside his office, Trade Minister Kamal Nath said India was confident the ban would stand up in front of a dispute settlement body at the WTO. "I welcome any discussions on this matter," he said, adding that his office was happy to answer any queries from the Chinese government on the reasons behind the ban. But, he said, "Until [we] are satisfied, we simply cannot lift the ban."
Meanwhile, desi CEOs getting unnerved seing all those wall st execs prading before congress, eh? Sure enough, heavy PR doses on ocial and corp responsibility couldn't hurt now, could it?
Indian CEOs Take Pay Cuts to Avoid Layoffs
well, in fact, both would lose in a trade war.amit wrote:Abhi,
Trade war with China may not be a bad idea.
That will stop the shipping of iron ore and other commodities to China.
Its better we keep iron ore in the country and produce steel with it rather than feeding Chinese steel mills.
And the demand from steel in China has fallen so the export of steel has also gone down.
Bottom line is China has more to lose in a trade war than India.
BTW are you one of those who thought that a gas pipeline through Shitistan which feeds dozens of captive plants in India was a good idea?
Come on man you kidding me rite??
No, I ain't making it up. His name really is Ed Balls.Ed Balls, the PM's closest ally, warns that downturn is ferocious and says impact will last 15 years.
Interesting, the GDI is also gonna be mild relative to what Shri balls sees coming. Apparently. TSP better prepare a USD printing press in its unofficial quetta mint.In an extraordinary admission about the severity of the economic downturn, Ed Balls even predicted that its effects would still be felt 15 years from now. The Schools Secretary's comments carry added weight because he is a former chief economic adviser to the Treasury and regarded as one of the Prime Ministers's closest allies.
Mr Balls said yesterday: "The reality is that this is becoming the most serious global recession for, I'm sure, over 100 years, as it will turn out."
Bad karma is a beetch, Balls man....didn'tya know? The unglisuxons piled on debt upon debt believing this time the ponzi story will turn out differently.He warned that events worldwide were moving at a "speed, pace and ferocity which none of us have seen before" and banks were losing cash on a "scale that nobody believed possible".
Aha, the political angle.....see, Shri Balls is a career leftist, and hence like his ilk, is permanently labor pained about 'em fascist rightists taking power onlee.The minister stunned his audience at a Labour conference in Yorkshire by forecasting that times could be tougher than in the depression of the 1930s, when male unemployment in some cities reached 70 per cent. He also appeared to hint that the recession could play into the hands of the far right.
Politics shaped by the economy? sure? Churchist anti-semitism that bloomed to genocidal proportions on a continental scale and had raving admirters in sh1tain too can thus be explained, am sure."The economy is going to define our politics in this region and in Britain in the next year, the next five years, the next 10 and even the next 15 years," Mr Balls said. {meaning labor will go downhill from here for at least 5 yrs+, maybe upto 15 yrs+} "These are seismic events that are going to change the political landscape. I think this is a financial crisis more extreme and more serious than that of the 1930s, and we all remember how the politics of that era were shaped by the economy."
The only solution remains more aid to TSP and cutting and running from Afgn. And yes, importing more pakis by the shipload to grant assylum to.Philip Hammond, the shadow Chief Secretary to the Treasury, said Mr Balls's predictions were "a staggering and very worrying admission from a cabinet minister and Gordon Brown's closest ally in the Treasury over the past 10 years". He added: "We are being told that not only are we facing the worst recession in 100 years, but that it will last for over a decade – far longer than Treasury forecasts predict."
Apparently, tghe UKstanitelegraf, when not psy-opsing yindoos and stoking anti-Indism with cowmootra cola stories, had a headline tabled:A bail-out of the toxic assets held by European banks' could plunge the European Union into crisis, according to a confidential Brussels document.
“Estimates of total expected asset write-downs suggest that the budgetary costs – actual and contingent - of asset relief could be very large both in absolute terms and relative to GDP in member states,” the EC document, seen by The Daily Telegraph, cautioned.
"It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.”
The secret 17-page paper was discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday.
National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors - particularly those who lend money to European governments - have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.
The Commission figure is significant because of the role EU officials will play in devising rules to evaluate “toxic” bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries.
European banks may need 16.3 trillion bailout
Not so fast. The ripples emanating from the global recession may have seemed tiny at first as they traveled across the Pacific, but they are about to hit China with the full force of a tsunami. And there is real concern among the Chinese leadership that the impact may well surpass anything we've seen in the US or Europe. That's because the economic crisis in China is taking on a fundamentally different shape than in the countries where it originated.
The crisis in Western markets began at the top and worked its way down. When the US property bubble burst, it hurt some homeowners, but the real damage it inflicted was to undermine confidence in complex financial instruments and the banks that owned them. It was essentially a financial panic, and the first people to be laid off were Wall Street MBAs working at investment banks and hedge funds.
The effect on the real economy only came later. As big-name banks failed, consumer confidence took a nosedive, and as surviving banks retrenched, credit to consumers and business dried up. Only in the fourth quarter of last year - six to nine months after the first big bank, Bear Stearns, collapsed - did these factors result in significant working-class job losses.
The process unfolding in China is precisely the opposite.
Color me unconvinced.The fact that China's slowdown is originating from the bottom up, rather than the top down, carries important implications. The first is the visibility of the problem. Today, China's high-income urban areas are experiencing a false dawn as banks churn out easy cash to prop up the economy. But quietly, behind the scenes, Chinese companies are revising their profit estimates downward, by as much as 50% for 2008. The bad news just hasn't hit home yet.
The second difference is the solution. Unlike the West, China does not face a liquidity problem, where financial markets have frozen and the government can thaw them out with easy money. China faces a breakdown in real demand due to an over-reliance on external markets, a core element of its growth model that will require a wrenching structural shift in the economy to correct.
Of greatest immediate concern are the social implications. Job cuts are starting to bite in the US and Europe, but at least there the working stiff had the (somewhat ephemeral) satisfaction of seeing the so-called "masters of the universe" get their comeuppance first. Pain has been felt both high and low.
China's slowdown, in contrast, threatens to drive a wedge between the rural have-nots, who are bearing its entire brunt, and the urban haves, who are still living it up. It's a worrisome vision that is giving top Chinese leaders some long sleepless nights, and ought to have the world's attention.
“Estimates of total expected asset write-downs suggest that the budgetary costs of asset relief could be very large both in absolute terms and relative to GDP in member states,” said the document, prepared for a closed-door meeting of EU finance ministers.
“For some member states, it may be the case that asset relief for banks is no longer an option, due to their existing budgetary constraints and/or the size of their banks’ balance sheet relative to GDP. The extent of any risks to the EU banking system as a whole from an inadequate response in these member states needs to be considered, particularly in the case of cross-border banks”.
While no country was mentioned, the obvious candidates are Ireland, Luxembourg, Belgium, the Netherlands, Austria, Sweden, and Britain -- and non-EU member Switizerland -- which all have oversized banking sectors...
The IMF says European and British banks have 75pc as much exposure to US toxic debt as American banks themselves, yet they have been much slower to take their punishment. Write-downs have been $738bn in the US: just $294bn in Europe.
Global banks have so far written down half the $2,200bn losses estimted by the IMF. On top of this, EU banks have $1,600bn of exposure to Eastern Europe -- increasingly viewed as Europe’s subprime debacle, and EU corporate debts are 95pc of GDP compared to 50pc in the US, a mounting concern as default rates surge.
The EU document also highlighted the “real danger of a subsidy race between member states” if countries start to undercut each other in the way they value toxic debts in their `bad bank’ rescue programmes. This could be used as a means of covert state aid, undermining the unity of the EU single market.
It could also lead to an explosion of budget deficits, already threatening to hit 12pc of GDP in Ireland next year and almost 10pc in Spain and Britain.
“It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems. Such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance,” it said.
I was in Austria in December, meeting with some local businessmen, and to a person, they expected the bank failures to be of a scale that would force Germany to rescue the Austrian government (the German part of the contingent was amused at the Austrians' confidence that Germany would rush to their aid). Willem Buiter asserts that there is a "non-trivial risk" that Britain could go the way of Iceland. UBS alone poses a risk to Switzerland.
...
The nice thing about having the reserve currency is the US isn't worried about that sort of thing.....yet.
Here are the lessons I learned after reading Fisher’s piece again and reflecting on our current dilemmas from its perspective.
Lesson 1: Fiscal stimulus is a band-aid. We need – now and for the next two years –massive government spending to support the unemployed and prevent the implosion of state and local governments. Beyond that, spending will not stimulate anything, and it has nothing to do with the causes of the crisis or with putting an end to it. It is the strong pain killer that the economy needs for the infection that afflicts it, but it is just a pain killer, not a cure. Well-crafted tax adjustments can be useful, but only if targeted to address the deflationary pressures and/or the fragility of the financial system (see Lesson 2). By the same token, trade protection and other similarly “brilliant” ideas floating around need to be opposed. They will do nothing to attack the causes of the crisis, and they could make the recession deeper and more protracted.
Lesson 2: Deflation must be halted and reversed, and the credit system restarted. Today, as in the early 1930s, these two parts of the puzzle are tightly interrelated, as Fisher explained. Deflation will not stop if the collapse of the credit system is not contained, and the collapse of the credit system will not stop until the deflation of asset and goods prices is controlled. A trillion dollars of fiscal stimulus today will not avoid catastrophe if the financial stabilisation fails. Conversely, the sooner a credible, comprehensive, and effective financial stabilisation plan is implemented, the lower the actual cost of “true” fiscal support needed for the social safety net.
Being realistic, however, even if we had this ideal situation in place tomorrow, a major recession – unlike anything most Americans alive today have ever seen – is unavoidable. Catastrophe is here and we will not escape it. But even the 18-to-24-months catastrophe we are in is not the worst outcome. The worst outcome would be a full repeat of the Great Depression. The worst of the Great Depression was not so much the initial economic collapse, as dramatic as that was, but its persistence for several years. This is what we still have time to avoid and where our energy should be invested. The political spin about pushing for reforms and bailouts to “avert disaster” needs to be corrected, so that everyone’s expectations are not biased towards thinking that a trillion dollars of fiscal stimulus means back to business as usual. The emergency is real and present, but not to escape catastrophe. All the numbers we have about employment, production, world trade, the financial system, etc. show that we are already in a catastrophe. The emergency is to avoid the persistence of the stagnation that occurred during the Depression. The emergency is to prevent most of the next decade from looking like 2008.
An international mathematics research team announced today that they had discovered a new integer that surpasses any previously known value “by a totally mindblowing shitload.” Project director Yujin Xiao of Stanford University said the theoretical number, dubbed a “stimulus,” could lead to breakthroughs in fields as diverse as astrophysics, quantum mechanics, and Chicago asphalt contracting.
Abhi,abhischekcc wrote:It can also be transported via undersea pipeline as well as on ships.
Liu,Liu wrote: well, in fact, both would lose in a trade war.
China would have to buy iron ore with higher price from Australia or Brazil-- Australia and Brazil is eager to hug chinese fund because of the crisis.
India would pay more money for alternatives of forbidden chinese goods . But what harms India most should be the decrease of US$ due to the decline of export to china.
Geithner-Bharata? I mean, really?I had been planning to blog today on US Treasury Secretary Timothy Geithner’s proposals for saving/reviving financial intermediation in the USA. However, picking through the entrails of this multi-faceted, surprisingly incomplete, seriously underfunded, occasionally well-designed but mostly inadequate, counterproductive and unnecessarily moral-hazard-creating set of proposals was just too depressing. I will wait till I am at my parents’ home this weekend, mollified and mellowed by my father’s good claret, before I review the Geithnerbharata. But as a four-finger exercise before the main concert, I shall discuss here the second Dutch government bail-out of ING. Many of the issues involved in and principles raised by this deeply unfortunate exercise also are central to the Geithnerbharata.
The state pays ING a management and funding fee. Again, I don’t know the amount or how it was arrived at (it would be cute, however, if the guarantee fee and the management and funding fee just happened to cancel each other out!).
The other relevant conditionality is that ING is to provide 25 bn euro of additional credit to businesses and households and that there will be no bonuses for 2009 and until a new remuneration policy is adopted. The CEO was told to fall on his sword.
I am sure the stock market loved this deal. And I am sure the politicians and civil servants that put it together loved this deal. Politicians and their advisers love off-balance-sheet and off-budget financing. Guarantees are great from this perspective. Because they represent a contingent liability, they are off-balance sheet. Only if and when the guarantee is called, will the payments under the guarantee show up in the budget. The tax payer, however, should hate it. And so should all those concerned about moral hazard: the effect on future incentives for excessive risk taking by ING and other Dutch banks. It is also unfair: it bails out the shareholders and unsecured creditors of the bank, who made lousy investment decisions and should pay for that.
