Perspectives on the global economic meltdown

Neshant · Post by **Neshant** » 05 Oct 2009 04:22

dive, dive, dive!

this is the US government's figures. the real un-rigged figures show an even steeper graph since government is underestimating unemployment according to some.

Scariest Job Chart Ever

http://dont-tread-on.me/wow-the-scariest-job-chart-ever

ss_roy · Post by **ss_roy** » 05 Oct 2009 06:27

An updated chart..

http://1.bp.blogspot.com/_pMscxxELHEg/S ... evised.jpg

and

http://www.ritholtz.com/blog/2009/10/bi ... nder-fire/

g.sarkar · Post by **g.sarkar** » 05 Oct 2009 08:12

Neshant wrote:
Prices on everything from clothes to coffee to cat food are dropping, some faster than they have in half a century.
Its not true. Prices are not falling except on real estate and some luxury items which were (and still are) grossly over priced to begin with.

Sirji,
I agree. The price of food had gone up before the downturn (basic things like eggs, milk etc). Gas prices are creeping up again. Prices of realestate has fallen. But it has become very difficult to get loans even with very good credit score. Drs, dentists and successful businessmen with access to money are buying houses by paying in full in cash. But they are the exception. In California the unemployment is more than 10%, in my county it is about 25%. So, everyone is worried of losing his job. At my work I have 3 days of furlough, that is about $1000 less take home pay. So, less money for discritionary spending. They are laying off teachers and anciliary people. So, no one can afford to buy houses at this time, though this would be the prudent thing to do.
Gautam

vera_k · Post by **vera_k** » 05 Oct 2009 08:50

g.sarkar wrote:So, no one can afford to buy houses at this time, though this would be the prudent thing to do.

I doubt the smart money is going to be out buying houses. With the loss of the leverage that became possible post 1992, it is pretty much guaranteed that prices have not hit bottom, and that they will vary with inflation even if interest rates don't rise and the baby boom echo starts buying houses in 10 years time.

Ameet · Post by **Ameet** » 05 Oct 2009 10:06

Will California become America's first failed state?

http://www.guardian.co.uk/world/2009/oc ... state-debt

Neshant · Post by **Neshant** » 05 Oct 2009 11:22

At my work I have 3 days of furlough, that is about $1000 less take home pay.

I did not get a raise this year either. There is no deflation other than in purchasing power.

very early next year. by that logic, recovery will be in full swing by end of 2010 or early 2011.

There is not going to be any recovery until new industries arise that can drive employment at all levels especially at the white collar level. If you can point out *what* industry that is, then the so called recovery buzzword has some meaning.

This new industry would have to be borne out of some great invention or scientific discovery. Not banking & bullcrapping, house flipping or being a fast talking conman selling junk securities, collecting million dollar bonuses for showing up in an armani suit at the office, doing illegal stock trades with insider information..etc.

I mean a real industry that produces a tangible and exportable product that improves productivity or does something useful. I don't see anything on the horizon and until I do, the recovery talk is bull.

kmkraoind · Post by **kmkraoind** » 05 Oct 2009 11:57

U.S. Lost Credibility by Saying Banks Were Healthy, Audit Says

“Treasury may have created unrealistic expectations about the institutions’ condition and their ability to increase lending,” he wrote. “Treasury and the TARP program lost credibility when lending at those institutions did not in fact increase and when subsequent events -- the further assistance needed by Citigroup and Bank of America being the most significant examples -- demonstrated that at least some of those institutions were not in fact healthy.”

Ready for next wave of downtrend and prepare stay in that stagnated period for 2-3 years. Tough items ahead for India. Without demand picking up in US and Europe, China needs to some diversion to cool rageing tempers of its Chinese, hope GOI prepares in advance to thwart any mischief by Chinese strongly.

Neshant · Post by **Neshant** » 06 Oct 2009 09:59

none of the post WW-II recoveries from recession were caused by some "new" industry as you put it. the business cycle itself picked up and that is how recovery happened.

There's nothing more absurd than claiming recovery when you cannot point out *what* industry will drive job creation.

There is no mythical business cycle and so called recovery does not come out of thin air. That type of loose talk comes only from economists who are clueless about what creates wealth and jobs in an economy - the kind who believe fiddling around with various metric will somehow improve the economy. Most have never worked a day of their lives in the real world where products have to be invented through R&D, manufactured, marketted and sold - so they are clueless.

Growth has to be driven by the emergence of a new industry that causes a rise in productivity in some way. If its not driven by the emergence of some new industry or at the very least some change in geo-political circumstance favoring the country, it can only be financed through debt or some scam (like selling junk bonds over seas or like the swiss promoting their country as a haven for tax fraud & corruption). There is no business cycle or anything of that sort.

What ended the recession of the early 90s was the emergence of computers in the work force & home and the rise of the internet. Both new industries. There were a number of other factors as well - collapse of the USSR, historically low oil prices as russia faught with opec and flooded the market with crude, the flight of capital & resources from eastern europe to the west, japanese economy in the doldrums - but it was mainly due to the enormous rise in productivity and innovation from computers + internet which triggered the stock market boom for everything else.

Once that had run its course, there was no new industry to keep the boom going post 2000. So debt & scam was used to inflate the next bubble. What's worse is the bubble has zero productivity component (i.e. flipping houses). So called economists were dancing on the rooftops claiming some business cycle had turned when it was all just fake growth based on debt + scam. The end result is what we see before us.

There is no mythical business cycle. Nor will anything be gained by economists fiddling around with interest rates, tax payer's money, bonses, stimulus, currency debasement or any other con artistry. The only way to real economic development and recovery is through the emergence of new industries which enhance productivity, innovation & create jobs.

amol.p · Post by **amol.p** » 06 Oct 2009 10:27

Condé Nast Closes Gourmet and 3 Other Magazines

Gourmet magazine, which has celebrated cooking and travel in its lavish pages since 1941, will cease publication with the November issue, its owner, Condé Nast, announced on Monday.

Gourmet was to food what Vogue is to fashion, a magazine with a rich history and a perch high in the publishing firmament

Condé Nast also announced it would shut three other magazines: the parenting magazine Cookie and the wedding publications Elegant Bride and Modern Bride.

http://www.nytimes.com/2009/10/06/busin ... f=business

amol.p · Post by **amol.p** » 06 Oct 2009 10:32

Woes of Aircraft Leasing Companies Could Mean Higher Ticket Prices

many of the world’s biggest jet-leasing companies — top customers for Boeing and Airbus — are sinking in debt and scrambling for cash. Several are now up for sale but having difficulty attracting buyers.

When the dust eventually settles, analysts say, many lessors will probably face higher borrowing costs. And that could increase the cost of flying for airlines and passengers

http://www.nytimes.com/2009/10/06/busin ... f=business

amol.p · Post by **amol.p** » 06 Oct 2009 10:36

Executive Quits After Suicides at France Télécom

The telecommunications giant France Télécom said on Monday that the company’s second-in-command had quit, after weeks of mounting criticism over the company’s handling of a spate of suicides by employees.

Unions say the company’s restructuring could be to blame for some of the 24 suicides by company employees in the last 18 months. The company laid off some 22,000 people from 2006 through 2008.

The latest suicide came last week, when a 51-year-old man jumped off a bridge onto a highway in the Haute-Savoie region. In a note found in his car, the father of two blamed his act on the “atmosphere” at his workplace.

http://www.nytimes.com/2009/10/06/techn ... f=business

With more and more people losing jobs and getting paycutts unable to pay the loans seems we got more to come.

Neshant · Post by **Neshant** » 06 Oct 2009 10:51

the boom of the 90's was a direct result of the credit loosening that started in the Reagan era. the internet and IT boom was itself an offshoot of the Reagan Revolution

I'm afraid there's no convincing a person who believes its the cart pushing the horse rather than the horse pulling the cart. Credit loosening, tightning..etc has no bearing on the emergence of a new productive industry. You may as well have cited his bowel movements in the 80s as having set the stage for the 90s NASDAQ boom.

Economics is full of charlatans who believe their fiddling around with metric somehow results in a glorious outcome which otherwise would never have been encountered. The reality is that the average economist has no clue what the market price of bananas should be and certainly has no clue what the price/interest rate on a house should be either. He'd be better off not doing anything rather than writing a prescription for an illness caused by his last prescription.

You can have 99.995% of the economy based on consumer spending, government spending or spending money on having people chase gophers in the back yard. But at the end of the day, there has to be a) an industry generating productivity growth & innovation and b) job creation as a result of (a). Without that core productive base of any economy, there can be no sustainable growth/recovery/development.

Hari Seldon · Post by **Hari Seldon** » 06 Oct 2009 12:05

IMHO, what we are witnessing is more than a passing fad in terms of a savings rate uptick. This looks more like a permanent reset, actually.

Many boomers are retiring into paupery - their pensions uncertain, their retirement plans destroyed, their balance sheets from the past yrs shattered by the simultaneous crash in NPV across all asset classes (stocks have since recovered, miraculously but with all the markings of a bubble), primarily realty. There are no jobs to be found precisely when multiple generations are hitting the labor market increasingly desperately. The official jobless rate for the late teens is 25% plus.

Social security was long known to have positive balances in cash terms (whats paid in today > whats paid out today) but large negative balances in accrual terms (NPV of obligations that come with today's cash >> future payins). It was widely expected to go permanently negative in another 2 decades but the recession has already caused it to go negative in cash terms this year and likely also the next. The insolvency has been pre-poned by a decade at least.

Simply too many depend on gubmint's social safety nets just when gubmint debt has piled to unheard of levels. The deflation scenario puts the lid on rising interest rates for now but down the line it has to come - rising interest rates --> lesser ability to borrow and spend out of current shortfalls --> cuts across teh oard in all welfare programs as well.

I expect the jobless rate to continue spiking till it goes to roughly a sixth of the workforce (16%+) in official terms before protectionism kicks in. There is no jobs driver in the immediate future, so hope will be to protect jobs by raising import barriers and other such means. The green legislation planned will come in handy here to spin protectionism as some kinda green measure, maybe.

It is a scary scenario. The gains made in world trade, living standards etc in the past few decades are all seriously threatened in large parts of the world.

Hari Seldon · Post by **Hari Seldon** » 06 Oct 2009 12:45

Fishing wizards have been one with financial wizards in marketing unsustainable ponzi schemes with all manner of tricks, seems like.

Aquacalypse Now: The End of Fish

Our oceans have been the victims of a giant Ponzi scheme, waged with Bernie Madoff–like callousness by the world’s fisheries. Beginning in the 1950s, as their operations became increasingly industrialized--with onboard refrigeration, acoustic fish-finders, and, later, GPS--they first depleted stocks of cod, hake, flounder, sole, and halibut in the Northern Hemisphere. As those stocks disappeared, the fleets moved southward, to the coasts of developing nations and, ultimately, all the way to the shores of Antarctica, searching for icefishes and rockcods, and, more recently, for small, shrimplike krill. As the bounty of coastal waters dropped, fisheries moved further offshore, to deeper waters.

IOW, the ever increasing growth rates are unsustainable.

And, finally, as the larger fish began to disappear, boats began to catch fish that were smaller and uglier--fish never before considered fit for human consumption. Many were renamed so that they could be marketed: The suspicious slimehead became the delicious orange roughy, while the worrisome Patagonian toothfish became the wholesome Chilean seabass.

Yup, much like "Its not a bad loan", merely a permanently nonperforming one that can be 'marked to market' on the books to show full expectation of recovery anyway

Others, like the homely hoki, were cut up so they could be sold sight-unseen as fish sticks and filets in fast-food restaurants and the frozen-food aisle.{A la securitization and the CDO epidemic, perhaps?}

The scheme was carried out by nothing less than a fishing-industrial complex--an alliance of corporate fishing fleets, lobbyists, parliamentary representatives, and fisheries economists. By hiding behind the romantic image of the small-scale, independent fisherman, they secured political influence and government subsidies far in excess of what would be expected, given their minuscule contribution to the GDP of advanced economies--in the United States, even less than that of the hair salon industry. In Japan, for example, huge, vertically integrated conglomerates, such as Taiyo or the better-known Mitsubishi, lobby their friends in the Japanese Fisheries Agency and the Ministry of Foreign Affairs to help them gain access to the few remaining plentiful stocks of tuna, like those in the waters surrounding South Pacific countries. Beginning in the early 1980s, the United States, which had not traditionally been much of a fishing country, began heavily subsidizing U.S. fleets, producing its own fishing-industrial complex, dominated by large processors and retail chains. Today, governments provide nearly $30 billion in subsidies each year--about one-third of the value of the global catch--that keep fisheries going, even when they have overexploited their resource base. As a result, there are between two and four times as many boats as the annual catch requires, and yet, the funds to “build capacity” keep coming.

No kament required, IMVHO.

The jig, however, is nearly up. In 1950, the newly constituted Food and Agriculture Organization (FAO) of the United Nations estimated that, globally, we were catching about 20 million metric tons of fish (cod, mackerel, tuna, etc.) and invertebrates (lobster, squid, clams, etc.). That catch peaked at 90 million tons per year in the late 1980s, and it has been declining ever since. Much like Madoff’s infamous operation, which required a constant influx of new investments to generate “revenue” for past investors, the global fishing-industrial complex has required a constant influx of new stocks to continue operation.

Instead of restricting its catches so that fish can reproduce and maintain their populations, the industry has simply fished until a stock is depleted and then moved on to new or deeper waters, and to smaller and stranger fish. And, just as a Ponzi scheme will collapse once the pool of potential investors has been drained, so too will the fishing industry collapse as the oceans are drained of life.

Sustainability is the foundation of ethics. Welcome world, to the Indic view of life, the universe and everything.

Sadly, the bottomline is all too predictable,

Unfortunately, it is not just the future of the fishing industry that is at stake, but also the continued health of the world’s largest ecosystem.

Read it all.

kmkraoind · Post by **kmkraoind** » 06 Oct 2009 14:25

US rivals 'plotting to end oil trading in dollars'

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars," it claimed.

Why heck Japan is participating in these discussions. IS Japan sensing inevitable collapse of dollar and positioning to place yen in basket of currencies.

Apart from Chinese pets like Pakistan, North Korea, Myanmar, and some African nations, which major powers will buy Chinese yuan.

For years, economists have speculated about how long oil would continue to be traded in dollars. Critics argue that the current system is flawed; oil importers are forced to buy dollars to pay for their fuel, while exporters are left with billions of dollars which they often hold in reserve or reinvest in the US economy. The result, they say, is that the dollar's position as the global reserve currency is reinforced. Thus, the US economy is supported as any devaluation would cause damage across the world. Most of China's $2tn (£1.24tn) of foreign currency reserves are in dollars, for example.

Hari Seldon · Post by **Hari Seldon** » 06 Oct 2009 16:13

^ Strange that Japan would participate in such a system. Japan stands to lose big if the USD empire falls and would likely do nothing to precipitate that, IMO.

BTW, the USD is, IMVVHO, in no real danger of collapse. Deflation is taking hold. Bond yields at all levels (30yr, 10yr to 3 month) are at record lows. Pls check this graph from Mish:

Stiglitz Says Deflation Threat Pushes Fed to Stay at Zero

The U.S. faces the possibility of deflation for the first time since the Eisenhower administration, a threat that may prompt the Federal Reserve to keep interest rates near zero through next year.

Executives at Kroger Co., the largest U.S. supermarket chain, blamed deflation for a 7 percent drop in earnings in the second quarter, while falling prices for food, gasoline, and electronics left August sales unchanged at Costco Wholesale Corp. A sustained price drop might set off a chain reaction in which lower profits force employers to pare wages and payrolls. That would erode consumer demand, exacerbating wage cuts and firings.

“Deflation is definitely a threat right now,” Nobel laureate Joseph Stiglitz, 66, a professor at Columbia University in New York, said in a Sept. 22 interview. “The combination of the deflation threat and the sluggish recovery should keep the Fed on hold for quite a while.”

Well, the popular press is doing its bit to reinforce the notion that deflation == price levels falling. Not exactly.
Deflation means a net contraction in money in circulation. Excess capacity, massive loan defaults, unemployment, and drops in prices of many goods and services (though less than that in real incomes or purchasing power) are typical symptoms. IMHO, of course.
I guess it won't become conventional wisdom/establishment concurrence unless Sri Krugman says it, eh?

Hari Seldon · Post by **Hari Seldon** » 06 Oct 2009 17:09

This may seem like old hat D&G overhang to some but read this Guardian piece (even if it provides no new info - and IMHO it did to me) about Calif and tell me that you aren't shocked.

Lotsa info collated and presented --> fresh perspective. Or so I hope.

Will California become America's first failed state?

Yet California is currently cutting healthcare, slashing the "Healthy Families" programme that helped an estimated one million of its poorest children. Los Angeles now has a poverty rate of 20%. Other cities across the state, such as Fresno and Modesto, have jobless rates that rival Detroit's. In order to pass its state budget, California's government has had to agree to a deal that cuts billions of dollars from education and sacks 60,000 state employees. Some teachers have launched a hunger strike in protest. California's education system has become so poor so quickly that it is now effectively failing its future workforce.

The percentage of 19-year-olds at college in the state dropped from 43% to 30% between 1996 and 2004, one of the highest falls ever recorded for any developed world economy. California's schools are ranked 47th out of 50 in the nation. Its government-issued bonds have been ranked just above "junk". Some of the state's leading intellectuals believe this collapse is a disaster that will harm Californians for years to come. "It will take a while for this self-destructive behaviour to do its worst damage," says Robert Hass, a professor at Berkeley and a former US poet laureate, whose work has often been suffused with the imagery of the Californian way of life.

Now, incredibly, California, which has been a natural target for immigration throughout its history, is losing people. Between 2004 and 2008, half a million residents upped sticks and headed elsewhere. By 2010, California could lose a congressman because its population will have fallen so much – an astonishing prospect for a state that is currently the biggest single political entity in America.

And on and on it goes. Depressing reading, really.

Read it all, if you want to.

kumarn · Post by **kumarn** » 06 Oct 2009 17:54

Friends in the SF bay area are reporting increased traffic on the highways and more people boarding the trains. That to me suggests increased economic activity.

Have we convinced ourselves of impending doom and looking at only that part of the data set which bolsters our point of view? Just wondering...

SwamyG · Post by **SwamyG** » 06 Oct 2009 18:35

kumarn wrote:Have we convinced ourselves of impending doom and looking at only that part of the data set which bolsters our point of view? Just wondering...

America is the leader and it is not going down so easily. Britain after its Empire collapsed has still managed to be in the limelight for so long. Gurus here watch how the '08-'09 economic meltdown is shaping the short, mid and long term scenario. A giant economy and country like USA can not be just ignored. It has 300+ million people, it definitely is going to thrive. Unless scientific breakthroughs are made, the current lifestyle would have to be lowered to keep it sustainable. Can we put the genies China and India back into their bottles? I don't think so. Definitely these countries impact the global lifestyle for the good or bad.

What let to the meltdown, and what are the lessons is the perspective.

Hari Seldon · Post by **Hari Seldon** » 06 Oct 2009 18:57

SwamyG wrote:
kumarn wrote:Have we convinced ourselves of impending doom and looking at only that part of the data set which bolsters our point of view? Just wondering...
What let to the meltdown, and what are the lessons is the perspective.

A little perspective here.

Twas precisely the self-interested tendency amongst the central banking, investing and finance classes (and gubmints, regulators etc in their pocket) of looking at only one set of data (the good ones - anyone remember theories of 'the great moderation', of the ultimate triumph of Friedmanian Monetarism, of efficient markets and the conquest of the possibility of a debt-deflation spiral) and wilfully ignoring the risks inherent that has let to the current impasse.

Lemme readily admit moi as a khanomic grad student was persuasively swayed too. Only now realize the monumental blind spot that the profession operated under and how ever closer to a precipice we continue to march to.

The attempt here is to look at the forces arrayed behind what movements we do see. Europe was technically peaceful in 1913 but events had been set in motion leading to a catastrophic (for Europe) climax. Someone fixating on the increasing conflicts of geopolitical interest in 1912-13 would likewise have been accused on obsessive negativism, I suspect.

And lets get this straight - I doubt anyone here wants catastrophe. The scale of human misery that would be unleashed by another great depression multiplied by trade wars, resource wars and khanomic mayhem should say, the dollar collapse or a war disrupt oil supplies, would be anything but funny.

I would dearly like to present some khanomic good news. Sadly, there's little to be found and what looks like good news (the equity rallies worldwide) reeks of bubble-iness only. Rampant overcapacity n' unemployment, mounting debt burdens, interest burdens and defaults, every attempt by central banks in the G7 to ignite inflation failing, slow n' sure and deflation setting in is all I am able to see.

Lets thank our stars lessons were learnt from depressions past. The social safety nets built since have held good and made this much more painless, relatively. But will those safety nets hold indefinitely? Sure I hope so but what I expect has little to do with what I hope for.

SwamyG · Post by **SwamyG** » 06 Oct 2009 21:52

Lemme readily admit moi as a khanomic grad student was persuasively swayed too.

Even the mighty stalwarts having access to more data and information swayed. Assuming you have less data than them, it was no biggie. We all sailed in the boat.

I have friends who still strongly believe the Wall Street Analysts. They have above average intelligence but I am dismayed how they do not show some healthy skepticism.

Here is something that you might find interesting: http://rushkoff.com/category/articles/

SwamyG · Post by **SwamyG** » 06 Oct 2009 22:14

Interesting the UK media are the ones that carry such news The demise of the dollar. These are mostly left leaning ones.

SwamyG · Post by **SwamyG** » 06 Oct 2009 22:36

You ask for perspective, you get perspective:
Source: Dollar Hysteria

The real reason the dollar will lose its role as the world's reserve currency is because US markets, which until recently provided up to 25 percent of global demand, are in sharp decline. Export-dependent nations--like Japan, China, Germany, South Korea--already see the handwriting on the wall. US consumers are buried under a mountain of debt, which means that their spending-spree won't resume anytime soon. On top of that, unemployment is soaring, personal wealth is falling, savings are rising, and Washington's anti-labor bias assures that wages will continue to stagnate for the foreseeable future. Thus, the American middle class will no longer be the driving force behind global consumption/demand that it was before the crisis. Once consumers are less able to buy new Toyota Prius's or load up on the latest China-made widgets at Walmart, there will be less incentive for foreign governments and central banks to stockpile greenbacks or trade exclusively in dollars.

As private industry veers away from the dollar, governments, investors and central banks will follow. The soft tyranny of dollar dominance will erode and parity between currencies and governments will grow. This will be create better opportunities for consensus on issues of mutual interest. One nation will no longer be able to dictate international policy.

So-called "dollar hegemony" has added greatly to the gross imbalance of power in the world today. It has put global decision-making in the hands of a handful of Washington warlords whose narrow vision never extends beyond the material interests of themselves and their constituents. As the dollar weakens and consumer demand declines, the United States will be forced to curtail its wars and adjust its behavior to conform to international standards. Either that, or be banished into the political wilderness.

So, what exactly is the downside?

Superpower status rests on the flimsy foundation of the dollar, and the dollar is beginning to crack. Fisk is right to this extent; big changes are on the way. Only not just yet.

Hari Seldon · Post by **Hari Seldon** » 07 Oct 2009 05:12

My 2 humble cents - its way too early to make a call about dollar demise.

Things should become clear, 1 way or another, in a decade odd.

Meanwhile, Japan proposes a moratorium on the collection of principal and interest on consumer loans (IOW, stop collections totally only) based on a brilliantly persuasive argument that such action does not reek or desperation, obviously, and will not lead to more bad loans, of course.

Kamei Says Moratorium Won’t Increase Japan Bad Loans

Japanese banks’ bad loans won’t be driven higher by a proposed moratorium on debt payments by struggling small companies, said Financial Services Minister Shizuka Kamei.

Lenders won’t have to classify loans encompassed by the plan as non-performing, Kamei, 72, said in an interview yesterday at his office in Tokyo. That means they won’t be forced to boost provisions when borrowers postpone repayments of interest or principal, he said. At the same time, Kamei vowed to push banks to extend more credit to small businesses after bankruptcies hit a six-year high in Japan.

“We’re going to get financial institutions to provide these firms with more loans,” said Kamei. “Banks won’t have to treat debt on which they provide a moratorium as bad.”

The moratorium, postponing repayment of principal and interest, will be extended to individuals as well as firms Kamei said. It will aim at giving relief to companies with about 100 million yen ($1.1 million) or less in capital.

“As long as I’m financial services minister, I’m not going to leave small companies in the lurch unable to get loans,” Kamei said. “If a bank takes that approach, I’ll hit them with a business improvement order.”

Hari Seldon · Post by **Hari Seldon** » 07 Oct 2009 05:48

Rob Fisk sinks his shredded credibility, yet again. He's had his 15 minutes of undeserved fame 15 times already. His latest report on the secret talks to dump the USD seemed outlandish to me and chances are, it really was outlandish after all.

Oil States, Russia Say No Talks on Replacing Dollar

Big oil producing nations denied on Tuesday a British newspaper report that Gulf Arab states were in secret talks with Russia, China, Japan and France to replace the U.S. dollar with a basket of currencies in trading oil.

It said the proposal was for trade in crude oil to move over nine years to a basket of currencies including the Japanese yen, the Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, which includes Saudi Arabia and Kuwait.

But top officials of Saudia Arabia and Russia, speaking on the sidelines of International Monetary Fund meetings in Istanbul, denied there were such talks.

Asked by reporters about the newspaper story, Saudi Arabia's central bank chief Muhammad al-Jasser said: "Absolutely incorrect." He repeated the same response when asked whether Saudi Arabia was in such talks.

Russia's deputy finance minister Dmitry Pankin said: "We did not discuss this at all."

Algerian Finance Minister Karim Djoudi told Reuters: "Oil producing countries need to stabilise revenues but...I don't see a need for oil trade to be denominated differently.

Analysts said that while individual countries would find it relatively easy to stop using the dollar in settling their oil trades, as Iran has already done, replacing the currency in which oil is priced would require a massive effort.

And apart from the strong political links between Gulf nations and the United States, the lack of convertibility for many Gulf currencies and the yuan tops the list of practical hurdles to making such a shift. Saudi Arabia and some other Gulf states now peg their currencies to the dollar.

Of course, the inscrutable Cheenis are yet to issue their denial perhaps but issue one they will.

AkshayM · Post by **AkshayM** » 07 Oct 2009 08:50

The demise of dollar talk is more of wishful thinking by some quarters of the world rather than fact based on reality. There is no doubt demand has declined, too much consumer debt and biggest of all -- unemployment. How that translates to dollar demise or writing on the wall is not exactly clear.

As the dollar weakens

Who is saying that? Where is the data to support that?

United States will be forced to curtail its wars

The dollar decline is probably not going to be on the list of reasons if and when US curtails its wars.

So how is anyone proposing replacing dollar in the international trade? When does that happen? What is it being replaced with? Is oil trade part of it? Does anyone think Saudi will start trading oil in non-dollar currency?

Hari Seldon · Post by **Hari Seldon** » 07 Oct 2009 09:08

^ Well, here's the UKstani press with more speculative fuel on how the dollah demise might come about now that Rob Fisk's fertile imagination got exposed again.

China calls time on Dollar hegemony (Telegraf)

It is this shift in China and other parts of rising Asia and Latin America that threatens dollar domination, not the pricing of oil contracts. The markets were rattled yesterday by reports – since denied – that China, France, Japan, Russia, and Gulf states were plotting to replace the Greenback as the currency for commodity sales, but it makes little difference whether crude is sold in dollars, euros, or Venetian Ducats.

What matters is where OPEC oil producers and rising export powers choose to invest their surpluses. If they cease to rotate this wealth into US Treasuries, mortgage bonds, and other US assets, the dollar must weaken over time.

"Everybody in the world is massively overweight the US dollar," said David Bloom, currency chief at HSBC. "As they invest a little here and little there in other currencies, or gold, it slowly erodes the dollar. It is like sterling after World War One. Everybody can see it's happening."

{See, now, that scenario is much better argued than Fiskian nonsense. A gradual erosion of USD influence is quite likely indeed. Even so, yrs will pass before the effective borrowing costs for the US rise enough to alter geopolitical power structures.}

"In the US they have near zero rates, external deficits, and public debt sky-rocketing to 100pc of GDP, and on top of that they are printing money. It is the perfect storm for the dollar," he said.

"The dollar rallied last year because we had a global liquidity crisis, but we think the rules have changed and that it will be very different this time [if there is another market sell-off]" he said.

The self-correcting mechanism in the global currency system has been jammed until now because China and other Asian powers have been holding down their currencies to promote exports. The Gulf oil states are mostly pegged to the dollar, for different reasons.

This strategy has become untenable.
{Untenable? Already? Wait, you ain't seen nothing yet. All that printing and all is yet to ignite inflation coz the tinder is soaking wet. As long as USD value relative to produced goods and services in the US remains roughly even keel - and thats what bind yields seem to suggest - the dollah is ok.}
It is causing them to import a US monetary policy that is too loose for their economies and likely to fuel unstable bubbles as the global economy recovers.

Anyway, moi 2 cents.

Hey, here's some entertainment value also from the very last para in the article.

The new order may look like the 1920s, with four or five global currencies as regional anchors – the yuan, rupee, euro, real – and the dollar first among equals but not hegemon. The US will be better for it.

The rupee? The great gora UKstani press actually deigned it acceptable to name the rupee as a regional anchor?!? Be still,my beating heart! To their credit, they have yet to specify whether it is the yindian, packee or nepali rupee they allude to. Besides, it could well be that they are talking about the 1920s only - when the rupee was quite strong actually and traded all along the IOR.

Neshant · Post by **Neshant** » 07 Oct 2009 11:56

I expect the jobless rate to continue spiking till it goes to roughly a sixth of the workforce (16%+) in official terms before protectionism kicks in. There is no jobs driver in the immediate future, so hope will be to protect jobs by raising import barriers and other such means. The green legislation planned will come in handy here to spin protectionism as some kinda green measure, maybe.

It is a scary scenario. The gains made in world trade, living standards etc in the past few decades are all seriously threatened in large parts of the world.

I share your opinion about much of what you wrote. From the unemployment rate to protectionism to dependance on government payouts, you are right on the money. I think the hustlers from the financial 'industry' were smart to rush to the trough first and clean it out before all the old folks, medicare, unions, government workers, military..etc. showed up to collect their dues or ask for tax reductions, funding..etc.

I can see no driver for job growth either. It sure as hell isn't coming from banking and sh&t which drains wealth from an economy rather than adding to it. If I had to look into a crystal ball, the most likely industry from which we will see the next boom is genetics.

If a gene was found that could put ageing on pause, it would result in a productivity boom as large if not larger than computers + the internet combined. Health costs would plummit, the government could literally regulate the ageing so not all people end up on govt pensions at the same time.

How far off that is I'm not sure. Perhaps 20 years or perhaps never ? The whole 'spending like no tommorrow' premise is based on some future industry generating a boom to pay for today's spending.

bart · Post by **bart** » 07 Oct 2009 12:01

Hari Seldon wrote: Hey, here's some entertainment value also from the very last para in the article.
The new order may look like the 1920s, with four or five global currencies as regional anchors – the yuan, rupee, euro, real – and the dollar first among equals but not hegemon. The US will be better for it.
The rupee? The great gora UKstani press actually deigned it acceptable to name the rupee as a regional anchor?!? Be still,my beating heart! To their credit, they have yet to specify whether it is the yindian, packee or nepali rupee they allude to. Besides, it could well be that they are talking about the 1920s only - when the rupee was quite strong actually and traded all along the IOR.

It (Indian Rupee) shall be the SAR or South Asian Rupee.

Whenever mentioned in a positive context, our precious neighbors will trumpet it as a South Asian Rupee, while viciously blaming it as the root of all ills at other times.

SwamyG · Post by **SwamyG** » 07 Oct 2009 21:37

Hari:
Why would you believe the noises Russia or the Oil countries making? I don't think anybody is going to openly say "Death to the Dollar". All machinations are going to be subtle onlee no?

Muppalla · Post by **Muppalla** » 07 Oct 2009 22:13

Russia desperately need its oil prices to rise continuously for its oil dependent economy. US needs all it printed trillion dollars to hold value equivalant to real ones. It is a win-win for both to keep the oil prices up and also the dollar to have its pre-eminent value. Keep printing them to clear the debt as the oil producing countries contine to accept dollars as though nothing has happened.

SwamyG · Post by **SwamyG** » 07 Oct 2009 22:23

That is short term. Are we thinking countries will not hedge considering long term interests? I think conditions are such that, countries are waiting to see which direction the wind is blowing; also they like to test the waters and still ensure they are one of the top countries to make changes or be part of the equation.

Hari Seldon · Post by **Hari Seldon** » 08 Oct 2009 09:30

SwamyG wrote:Hari:
Why would you believe the noises Russia or the Oil countries making? I don't think anybody is going to openly say "Death to the Dollar". All machinations are going to be subtle onlee no?

True that everybody's looking to their own interests and all. But transitioning away from the USD cannot happen so fast. And unkil is no fool, has gamed scenarios in which USD is under attack by any group of actors - nations, institutions, non-state actors etc - and I believe has measures in place to trip any such move.

Measures such as you do this against USD and I'll do xyz against your longterm interests in this area, types. Enough pressure points and leverage points have been painstakingly built and deployed over the yrs for precisely these reasons.

Which is why in times of high uncertainty, nobody will be in a hurry to cross the known devil so soon, IMO.

But it is now turning out that despite the world's central banks staunchly behind the USD for now, private accounts are slowly but surely starting to hedge against the USD by diversifying into other currency baskets. Its still a trickle but it could rapidly become a flood should appropriate conditions unfold down the line.

I envision that the whole duniya could rally around a set of economic zones with their own currencies and central banks, much like the EU. India would do well to join up the ASEAN one or create a zone all of her own (SL, Nepal, Burma maybe, BD could be invited). Russia joining the EU (with restricted voting rights for the first so many yrs to start with) is a distinct and game-changing possibility.

OK am rambling now. Hey, just my 2 centi.

Rahul Mehta · Post by **Rahul Mehta** » 08 Oct 2009 11:38

.

Given that US Military controls Saud, Kuwait and now Iraq, the puppet Govts of these 3 countries will sell oil only for Dollars, and may be a bit for Euro. So Saud will accept dollars for oil and so value of Dollar will remain high. Now Europe and US are cousins of each other. So even if Euro steals some limelight from Dollar, India will not be benefited even by 1 cent.

.

Hari Seldon · Post by **Hari Seldon** » 08 Oct 2009 13:14

Have to admire the way truth eventually prevails in the relatively more open systems. Sunlight is indeed the best disinfectant.

“In this period of steep job losses, the birth/death model didn’t work as well as it usually does,” Manning said in an interview. “To the extent that there was an overstatement in the birth/death model, that is likely to still be there.”

The model added about 184,000 jobs to the payroll total last quarter compared with a 135,000 increase in the same period in 2008, before the financial crisis deepened with the collapse of Lehman Brothers Inc.

“This birth/death model is still assuming that we are getting new jobs from new-business creations,” David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto, said in an interview.

‘Alice in Wonderland’

“These additions are coming somewhere from ‘Alice in Wonderland,’” he said, referring to the novel by Lewis Carroll detailing the adventures of a girl that fell down a rabbit hole into a fantasy world.

“Even though the current data is bad, the numbers are actually even worse,” Rosenberg said.

Wells Fargo’s Silvia says the birth/death calculation isn’t the only thing that’s broken as many companies are also discarding their business models.

Companies “really have diminished their willingness to hire labor for any production level,” Silvia said. “It’s really a strategic change,” where companies will be keeping fewer employees for any particular level of sales, in good times and bad, he said."

link

To give some context, it was no secret that the birth/death model based on which the US Bureau of Labor Statistics (BLS) was calculating the unemployment rate returns rather rosy pictures in a deflationary downturn such as the one currently underway. The official unemploymt stats are thus tainted in that they make the scene look better than it is.

Whereas everybody from the EU to Japan and PRC are hiding massive losses, potential losses, slowdowns, bad assets and the like, the problems afflicting the US are out in the open. Who that will help is a moot question. Identifying the problem and acknowledging it is the first step. A public process has its advantages in that the wisdom and inputs of the mob/public come into play.

From Mish today:

Might the US dollar blow up? Yes it might. But so could the RMB if China floated it, and so could the British pound. No one seems to see the crisis brewing in Japan with a huge demographic problem, a shrinking population, falling exports, and no way to pay back its national debt.

There is seldom a mention of the problems in European banks who foolishly lent money to the Baltic States in Euros or Swiss Francs and now those Baltic country currencies have collapsed and the loans cannot be paid back. European banks also lent to Latin America and those loans are also suspect. Arguably, European banks are in worse shape than US banks, but no one talks about it, at least in the US.

Spain has unemployment approaching 20% yet must suffer through the same interest rate policy as Germany. Seldom does one hear about this either.

Certainly the UK is a complete basket case with its banks on government life support. Iceland has already blown up, who is next?

Most are not aware of the problems in China, Japan, or Europe. However, the problems in the US are universally well understood. Indeed all eyes are on the dollar and everyone is talking about deficits, monetary printing, and especially unfunded liabilities even though the latter is tomorrow's problem, not today's.

Hari Seldon · Post by **Hari Seldon** » 08 Oct 2009 17:17

So it begins....Commercial Real Estate (CRE) is starting to crater.

Hotel defaults, foreclosures rise in California

Meanwhile Goldman revised ratings of bank stock upwards sending the market upwards- surefire sign they'll short the whole sector mighty soon.

SwamyG · Post by **SwamyG** » 08 Oct 2009 19:11

Hari:
Slow and fast are relative terms. The move to alternative currency could be fast and yet take 15-20yrs; in our human life span that is very slow but in the history of world economics it is rather quick. I think even the allegedly secret meetings people expect at least 9 years.

Like you correctly point out, the trickle can become a flood. Markets have herd mentality, sometimes common sense is pushed to the side. No Empire likes its influence to reduce. It will fight back. And the current fight could very well played over 30-40yrs.

SwamyG · Post by **SwamyG** » 08 Oct 2009 19:18

Rahul Mehta:
USA and Middle East does not share ideologies; and hence most of the transactions are based on self-interests. Satyam Raju popularized the concept of riding the tiger and not being able to get down. Such is the case of geo-politics, all countries are riding tigers or holding tigers' tails. The trick is to move from one tiger to the other without being eaten by any one of the tigers. It is a never ending game that all have to play.

My point is the middle east can exert on USA when it has to; it only needs a good reason. Without good reason it is not going to take any decision.

Chinmayanand · Post by **Chinmayanand** » 09 Oct 2009 00:51

Global markets rally is 'too much, too fast'

Economist Professor Nouriel Roubini, fund manager George Soros and master technician Robert Prechter have all separately cautioned on the state of the recovery in the global economy, each arguing in their own way that the prevailing positive sentiment is likely to backfire.
Their comments essentially focus on the issue that, after almost two years of negative economic data, investors have become too excited about the prospect for growth, returning to the market in droves before the nascent economic recovery has had time to take hold.
Professor Roubini – known in the industry as "Dr Doom" for his often negative stance on the economy – believes that stock markets are essentially overvalued and may drop. "Markets have gone up too much, too soon, too fast," said Prof Roubini in an interview with Bloomberg.
Mr Prechter, famed for his Elliott Wave theory of financial forecasting, agreed, saying that share prices could suffer a "major decline" after climbing to year-highs in recent weeks. "Stocks are very overvalued," Mr Prechter also told Bloomberg, adding "stocks peaked in September and are back in a bear market".
"I see the risk of a correction, especially when the markets now realise that the recovery is not rapid and V-shaped, but more like U-shaped," Prof Roubini continued, saying that it might come in either the current fourth quarter of 2009 or the first quarter of 2010.
He went on to say that unless there was a rapid rebound in growth, markets would eventually flatten out until valuations became more justified.
Meanwhile, Mr Soros, the man who "broke the Bank of England" in 1992 by betting heavily against sterling, gave warning that the US financial system is effectively "bankrupt".
He believes that indebted consumers will continue to impede the recovery in North America, saying that it continued to be "very slow," in spite of gross domestic profit (GDP) projections showing a return to growth in the third quarter of this year. "The United States has a long way to go," Mr Soros continued, during a panel discussion at the International Monetary Fund's annual meeting in Istanbul, adding that "Europe has been less damaged"

Hari Seldon · Post by **Hari Seldon** » 09 Oct 2009 08:07

Jai ho, pakistaniyat strikes reckless borrowers when it comes time to either repay or roll over debt....

Latvia in Crisis; Threatens to Stiff Swedish Banks With Mini-Jubilee

First some background to the crisis:

Latvia and to a lesser extent Estonia and Lithuania had a massive and unsustainable current account deficit. That means they bought more from the rest of the world than they sold (just like America buys far more from China et al than they sell). The current account deficits (relative to GDP) was however much bigger in Latvia.
In a floating exchange rate regime this would usually be remedied by the currency falling dramatically, increasing the competitiveness of exports (and increasing the price of imports). The market provides a solution. With America this can’t happen because the Chinese fix their currency against the US dollar. In the Baltic States the currency is fixed against the Euro.

Normally to fix the exchange rate a central banker needs to buy the currency that is tending weaker. They buy it and remove it from circulation. In so doing the reduce the money supply in the weaker currency causing interest rates to rise and a mild monetary deflation (increasing the competitiveness of local industry versus foreign competition) and hence over time remedying the current account deficit.

Unfortunately this monetary deflation causes a recession in the country with the naturally weaker currency. Ultimately that makes fixed rates unpopular in countries with chronic relative economic under-performance – because the populace doesn’t like more or less continuous mild recessions…

Now there is one exception…And that is if somebody cheaply finances your current account deficit ad-infinitum. Then you can have the nice strong currency and spend it and not have any domestic price pressure. Unfortunately you also wind up owing your foreign benefactors just way too much money.

The party has to end. And it can end quite sharply when the foreign benefactor becomes less willing to lend to you.

Foreign benefactors have just put the choke collar on Latvia. The government was unable to roll over its debt this week.

Ok, that sometimes happens even to decent places. where's the pakiness you ask?

Sweden, in other words, finds itself a major actor, along with the EU and the IMF, in negotiating a rescue package that extends new loans only if austerity measures are implemented.

But Latvia does not appear to be ready to accede to Sweden’s demands. The immediate cause for concern is that Latvia will simultaneously devalue its currency and provide a mechanism for its consumers to partially default on mortgages held by foreign banks.

Dass where.

I'd rather Latvia do the honorable thing (like Iceland, Argentina, Russia in '98) and default formally. Then rebuild. Long process but the best way fwd.