Perspectives on the global economic meltdown

Neshant
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Re: Perspectives on the global economic meltdown

Postby Neshant » 05 Aug 2009 23:14

The US establishment is heavily, and I mean heavily*, pushing for the FED to become super-regulator of the financial sector.


Hoping to get it done before the "audit the fed" bill decends on them. Meanwhile certain politicians are sitting on the audit the fed bill at the behest of feds and/or banks.

My guess is Shri Bernanke is desparate to invent a new role for the federal reserve beyond just money printing as his job review is coming up in January, 2010.

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Re: Perspectives on the global economic meltdown

Postby svinayak » 06 Aug 2009 11:46

http://www.gurufocus.com/news.php?id=59129
1. David Dreman is buying stocks and avoiding corporate bonds and U.S Treasuries due to concerns about inflation.

2. He thinks we are going to have some of the worst inflation. 12%

3. He thinks real estate may be a good investment.

4. "Probably the two worst investments over the past two, three years have been stocks and real estate," Dreman said. "They could be the best investments two or three years out."

5. But he himself is does not invest in real estate, and he is also avoiding bonds, including corporate debt, Treasuries and TIPS, or Treasury Inflation-Protected Securities.

6. Dreman thinks the U.S. recession that has lasted about 18 months is nearly over, but problems in the banking sector are likely to linger, he said.


http://www.cnbc.com/id/32300097
The worst buys of the past few years, such as real estate and stocks, may prove to be the best investments a few years from now, said David Dreman, chairman and CIO of Dreman Value Management.

“I think we’re factoring in some pretty major inflation,” Dreman told CNBC.

“There’s been a report that there has been $21 trillion of new debt that was recently put out. The Treasury has been printing money 24-7 and that’s got to have its toll.”

Dreman predicted that this will lead interest rates to reach 10 to 12 percent in 2 to 4 years, which will be good news for stocks and real estate over time.

“We will see markets go down some and we’ll have volatility,” he said. “But all in all, we’re in a market that will go up much higher over the next 3 to 5 years.”

Dreman advised investors to look into oil, natural resources and exploration developer stocks; and to buy real estate.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 06 Aug 2009 14:06

American Incomes Head Down, Threatening Recovery in Spending

“Consumers have started to change their behavior and they are going to save more,” said Richard Berner, co-head of global economics at Morgan Stanley in New York and a former researcher at the Fed. “You have pressure on wages, you have employment still declining.”

{Nothing new so far. This has been discussed to death already on this thread.}

Wages and salaries, which drive recoveries in spending, fell 4.7 percent in the 12 months through June, the biggest drop since records began in 1960, according to Commerce Department figures released yesterday.

{The biggest drop since record keeping began in 1960. That is saying something. Most likely make it the biggest drop since the great depression because WWII and the 50s were great for the US economy - booming demand, women in the workforce, rising incomes - the works of the virtuous cycle}

The Obama administration’s tax cuts, extended jobless benefits and a one-time Social Security bonus have helped mask the damage done by the worst employment slump since the Great Depression.

{Critical to understand just how important unempl benefits have become in this downturn. Elsewhere there's news that Alabama's Jefferson county is considering callinig in the national guard after derivatives play destroyed the county's budget and forced the sacking of 2/3rds of county employees.}

Personal incomes, which include interest income, dividends, rents and other payments as well as wages, tumbled 1.3 percent in June, more than forecast and the biggest drop in four years, yesterday’s Commerce report showed. Excluding the effects of the stimulus plan, June incomes would have dropped 0.1 percent after no change in May, according to the report. In May, one-time additional payments to Social Security recipients boosted incomes 1.3 percent.

One of every 10 American workers will be without a job by early 2010, economists project, shaking the confidence of those still on payrolls and discouraging spending. It may take as long as 15 years for consumers to fully repair finances battered by the decline in home values, stocks and employment, said Edmund Phelps, winner of the Nobel prize in economics in 2006.

{15 yrs? lost decade and a half, anybody? And this is the optimistic scenario, I surmise. I sincerely hope the extended downturn doesn't kickstart military adventurism by the big powers anywhere near India's backyard}

Decreasing pay is not the only hurdle for consumers. Plunging home prices and stocks reduced household net worth by a record $13.9 trillion from the third quarter of 2007 through this year’s first quarter, according to figures from the Fed.

“Households are going to have to do an awful lot of rebuilding of their wealth,” Phelps, a professor at Columbia University in New York, said this week in an interview on Bloomberg Television. “Even if that rebuilding goes on at a pretty good clip, it will take 12 or 15 years for households to get to the wealth level that they had several years ago. Consumer demand is going to take a long time to rebuild to normal levels.”


If that doesn't describe the symptoms to a dot of a debt-deflationary spiral, then what will? These are indeed dangerous times. The inflation predictors are off-mark on this one, IMHO. Japan didn't have significant inflation despite yrs of ZIRP, public debt-pileup and furiously printing banknotes.

FinBlogger Mish Shedlock's comments say it succinctly:
As for unemployment, I think we see 10% by September or October at the latest. Right now I am sticking with my forecast of 9.8% by August.

In regards to balance sheet repair, 15 years has ominous implications for jobs and the stock market.

In regards to rebuilding wealth, "never" may be a better estimate than 12-15 years for boomers now retiring. Those boomers need to draw down savings during retirement while stock market gains will likely be hard to come by.

Of course most of that "wealth" was all imaginary in the first place, especially in regards to home prices.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 06 Aug 2009 15:17

OK. Here is the link to the Jefferson county story. Stranger than fiction, alrite.

JPMorgan fleeces Jefferson County, National Guard may be called in

BIRMINGHAM, Ala. – The sheriff in Alabama’s most populous county may call for the National Guard to help maintain order, a spokesman said Tuesday, after a judge cleared the way for cuts in the sheriff’s budget and hopes dimmed for a quick end to a budget crisis.


The county relied on advice from a bank, JPMorgan Chase & Co., to arrange its funding, rather than use competitive bidding.

The county paid banks $120 million in fees — six times the prevailing rate — for $5.8 billion in interest-rate swaps. That was supposed to protect the county from rising rates for their bonds. Lending rates went the wrong way, putting the county $277 million deeper into debt.

That means local officials now have to pay to banks money that otherwise might have been used to build schools, hospitals or public housing.


Yup, right. Always trust the big banks to do the right things for their clients, eh? And these same bigboy banks - GS, JPM and the like are issuing 'country reports' pouring flattery on India's growth rate that is lamentably still below potential, then funding think tank studies to show that yindia must 'open up its financial sector' to take advantage of said growth potential only.

Quaint, or what?

Beware phoren banks bearing gifts.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 06 Aug 2009 20:54

What California`s terrible numbers mean for America

Nice set of charts and graphs that pictorially depict a 1000 words each.

It is often said that California is a window onto America's future. Well, with a heavy tax and regulatory burden, a new greenhouse gas emissions law, and rapidly growing welfare rolls, perhaps America should pay close attention to the Golden State's mistakes. This email details the extent of California's burgeoning welfare rolls.

California accounts for 12% of the U.S. Population but 32% of the welfare caseload.

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Re: Perspectives on the global economic meltdown

Postby svinayak » 06 Aug 2009 23:42

About half of U.S. mortgages seen underwater by 2011
Wed Aug 5, 2009 5:12pm EDT
By Al Yoon

NEW YORK (Reuters) - The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.

Home price declines will have their biggest impact on prime "conforming" loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.

"We project the next phase of the housing decline will have a far greater impact on prime borrowers," Deutsche analysts Karen Weaver and Ying Shen said in the report.

Of prime conforming loans, 41 percent will be "underwater" by the first quarter of 2011, up from 16 percent at the end of the first quarter 2009, it said. Forty-six percent of prime jumbo loans will be larger than their properties' value, up from 29 percent, it said.


"The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding," the analysts said. Prime jumbo loans make up 13 percent of the total market.

Deutsche's dire assessment comes amid a bolt of evidence in recent months that point to stabilization in the U.S. housing market after three years of price drops. This week, the National Association of Realtors said pending home sales rose for a fifth straight month in June. A widely watched index released in July showed home prices in May rose for the first time since 2006.

Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent.

The drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgages. The more severe the negative equity, the more likely are defaults, since many borrowers believe prices will not recover enough.

Homeowners with the riskiest mortgages taken out during the housing boom have seen the greatest erosion in equity, in part because they were "affordability products" originated at the housing peak, Deutsche said. They include subprime loans, of which 69 percent will be underwater in 2011, up from 50 percent in March, Deutsche said,

Of option adjustable-rate mortgages -- which cut payments by allowing principal balances to rise -- 89 percent will be underwater in 2011, up from 77 percent, the report said.

Regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011, it added.

"For many, the home has morphed from piggy bank to albatross," the analysts said.

Ameet
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Re: Perspectives on the global economic meltdown

Postby Ameet » 07 Aug 2009 01:59

Credit card issuers pile on new fees

http://www.usatoday.com/money/perfi/cre ... ostPopular

For months, issuers have raised credit card rates and fees at a dizzying pace. Now, a growing number are starting to tack on new card fees for inactivity or purchases made outside the U.S.

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Re: Perspectives on the global economic meltdown

Postby JwalaMukhi » 07 Aug 2009 04:43

Hari Seldon wrote:What California`s terrible numbers mean for America

Nice set of charts and graphs that pictorially depict a 1000 words each.

It is often said that California is a window onto America's future. Well, with a heavy tax and regulatory burden, a new greenhouse gas emissions law, and rapidly growing welfare rolls, perhaps America should pay close attention to the Golden State's mistakes. This email details the extent of California's burgeoning welfare rolls.

California accounts for 12% of the U.S. Population but 32% of the welfare caseload.


Sorry for OT: posted in J&K thread. X-posted
Similar depiction needs to be done for welfare and central spending on the Jammu and Kashmir with respect to India. That surely will cause raised eye brows if not jaw droppings.

Nandu
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Re: Perspectives on the global economic meltdown

Postby Nandu » 07 Aug 2009 12:44

"Welfare" is not such a big part of Indian government budgets.

However, if you are talking about overall spending from the federal/central government, it ought to be well known that California pays about 25% more in taxes to the US than it receives in federal spending.

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Re: Perspectives on the global economic meltdown

Postby Chinmayanand » 08 Aug 2009 04:42

US 'back from the brink' but jobs still at risk

"Back from the brink" ...not yet...will be going back to the brink soon... :mrgreen:

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Re: Perspectives on the global economic meltdown

Postby Chinmayanand » 08 Aug 2009 04:59

From Russell,
------------------
I woke up last night with a strange thought. During the last days of the Roman Empire, the emperors put on gladiator fights to entertain the crowd. At the same time there were wild orgies throughout Rome. All this to take the people's minds off the city's decline as the barbarians were marching on Rome.

Today we have "extreme cage fighting" and "mixed martial arts," which is becoming the most popular "sport" in the nation. The fighters are referred to as "gladiators." We also have an explosion of ***** which is literally enveloping the Internet. Meanwhile, sex is taking over TV along with narcotics shows and vampirism. Is history repeating?
.......................................................................
I've been reading a great deal about Goldman Sachs. Are they an evil outfit or are they just smarter than anyone else and willing to take bigger risks? Or do they have their people positioned in the right places?

Goldman people have infiltrated the US government. Perhaps the most flagrant Goldman situation was the AIG antic. This from New York magazine. "As it happened Goldman Sachs was AIG's biggest client, having bought $20 billion in credit-default swaps from the insurer back in 2005. The swaps were meant to offset some real-estate investments Goldman had made, specifically, a bunch of mortgage bonds it had on the books.

"The idea was simple. If the value of the mortgage bonds went down, the value of Goldman's AIG swaps went up, assuring that Goldman was safe from all-out losses on what it feared was an upcoming collapse in real estate. By that weekend, Goldman had collected $75 billion from its AIG credit-default swaps but had an additional $13 billion at risk -- money AIG could no longer pay. In an age in which we've become numb to such astronomical figures, it's easy to forget that $13 billion was a loss that could have destroyed Goldman at that moment.

"Hank Paulson and then -- New York Fed chief Tim Geithner called an emergency meeting for the following Monday morning at the Federal Reserve Bank, ostensibly to discuss whether a private banking syndicate could be established to save AIG -- one in which Goldman and JPMorgan Chase, two of the ailing insurance giant's clients, would play prominent roles.

"At the meeting it was hard to discern where concerns over AIG's collapse ended and concern for Goldman began. The Goldman domination of the meeting might not have raised eyebrows if a private solution had been forthcoming. But on Tuesday, Paulson reversed course and announced that the government would step in and save AIG, spending $85 billion in government money to buy a majority stake. The argument was that AIG was not only too big to fail but too interconnected. Of the $52 billion paid to counter-parties, Goldman was the biggest recipient; $13 billion, the entire balance of its claims.

"Over time, it would appear to many that Goldman had received a backdoor bailout from a Treasury Dept. run by the firm's former CEO. Why did Paulson bail out the banks that did business with AIG, critics have demanded ever since, and not Lehman Bros?"

Again, "The appearance of a government of Goldman enablers didn't improve when Stephen Friedman, serving as both a board member at Goldman and Chairman of The Federal Reserve Bank of New York, bought 52,600 shares of Goldman stock while he was supposed to be responsible for the firm's oversight. Friedman had a temporary waiver saying that he could still act as a Goldman board member, but it was hard to shake the impression that Friedman had sidestepped the rules, particularly since the subsequent rise in Goldman's share price made him $3 million richer. In May, he resigned from the Fed over the alleged conflict of interest." Note that he resigned from the Fed, not from Goldman.

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Re: Perspectives on the global economic meltdown

Postby Liu » 08 Aug 2009 06:21

Hari Seldon wrote:China’s growth figures fail to add up

China’s gross domestic product figures are among the world’s most closely watched since they can move markets or boost hopes of an imminent recovery.

But the latest set of first-half numbers provided by provincial-level authorities are far higher than the central government’s national figure, raising fresh questions about the accuracy of statistics in the world’s most populous nation.

GDP totalled Rmb15,376bn ($2,251bn) in the first half, according to data released individually by China’s 31 provinces and municipalities, 10 per cent higher than the official first-half GDP figure of Rmb13,986bn published by the National Bureau of Statistics.


Wow. So first half GDP is some $2.25T -> annual GDP is $4.5T? Its already bigger than japan then. No?

Anyway, am kinda pleasantly surprised that the discrepancy between the national and provincial figures is "only 10%". PRC can always trump an accusing hand at America that front-loaded its GDP some 20% on debt driven consumption alone. That is why folks now warn the US will take yrs to return to its 2007 output.

More from the story:
An editorial on Tuesday in the China Daily, the government’s English-language mouthpiece, quoted another survey that found 91 per cent of respondents sceptical of official data, up from 79 per cent in 2007.

Economists abroad have also questioned the reliability of the data in recent months.

“Despite starkly limited resources and a dynamic, complex economy, the state statistical bureau again needed only 15 days to survey the economic progress of 1.3bn people,” said Derek Scissors, of the Washington-based Heritage Foundation, referring to the time it took for the bureau to produce the figures after the end of the first half this year. “At worst, results are manufactured to suit the Communist party.”


In a lighter vein
The criticism has prompted the NBS to launch a campaign last week, entitled “Statistical Feelings: We have walked together – Celebrating the 60th anniversary of the founding of New China,” to boost confidence among statisticians.

The campaign has already produced works such as: “I’m proud to be a brick in the statistical building of the republic.” In another poem, a contributor writes: “I can rearrange the stars in the sky because I have statistics.” :lol: :lol:


well, usually, the second half years has less vacation and more orders. the GDP in the second half year is always more than that in the first half year in china./

whether Chinese GDP can surpass Japan's this year depends on the excange rate of Yen

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 08 Aug 2009 07:59

Baltic Dry Index Down 17% for the Week, Worst Fall Since October

The Baltic Dry Index, a measure of shipping costs for commodities, had its worst week since October as Chinese demand for shipments of coal and iron ore slowed.

The index tracking transportation costs on international trade routes today slid 135 points, or 4.6 percent, to 2,772 points, according to the Baltic Exchange. That took its weekly drop to 17 percent, the most since the end of October.

“The Chinese have backed off and it’s starting to show in the number of shipments this month,” Gavin Durrell, a Cape Town-based official at Island View Shipping SA, Africa’s biggest commodities shipping line, said by phone today. “Iron ore and coal seem to be slowing down.”

China’s record coal and iron ore imports in the first half helped the index to advance as much as fivefold this year, reversing some of the record 92 percent collapse in 2008. Demand rose after the country’s government announced a 4 trillion yuan ($586 billion) stimulus package....

Rates are declining as Chinese steelmakers delay imports while they negotiate annual iron ore prices with producers such as Rio Tinto Group, BHP Billiton Ltd. and Vale SA, Durrell said. “I don’t think they will come back until they agree,” he said.

The drop reflects a wider slide in demand for raw materials that will likely push prices for metals, commodities and energy lower, Eugen Weinberg, a senior commodity analyst at Commerzbank AG in Frankfurt, said


Hmmm, so despite cheery official numbers, PRC's mineral imports are down? I think this is wicked western propaganda only, to hide its own dismal showing in the face of glittering numbers emerging from china's musharraf! How can the great PRC's juggernaut even slow down? Tauba tauba. PRC should not care for western loss of face! march ahead, o mighty revolutionary china! pretty soon, every country in the world will be clamoring to be invaded and occupied by china onlee...

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Re: Perspectives on the global economic meltdown

Postby Liu » 08 Aug 2009 08:19

Hari Seldon wrote:Baltic Dry Index Down 17% for the Week, Worst Fall Since October

The Baltic Dry Index, a measure of shipping costs for commodities, had its worst week since October as Chinese demand for shipments of coal and iron ore slowed.

The index tracking transportation costs on international trade routes today slid 135 points, or 4.6 percent, to 2,772 points, according to the Baltic Exchange. That took its weekly drop to 17 percent, the most since the end of October.

“The Chinese have backed off and it’s starting to show in the number of shipments this month,” Gavin Durrell, a Cape Town-based official at Island View Shipping SA, Africa’s biggest commodities shipping line, said by phone today. “Iron ore and coal seem to be slowing down.”

China’s record coal and iron ore imports in the first half helped the index to advance as much as fivefold this year, reversing some of the record 92 percent collapse in 2008. Demand rose after the country’s government announced a 4 trillion yuan ($586 billion) stimulus package....

Rates are declining as Chinese steelmakers delay imports while they negotiate annual iron ore prices with producers such as Rio Tinto Group, BHP Billiton Ltd. and Vale SA, Durrell said. “I don’t think they will come back until they agree,” he said.

The drop reflects a wider slide in demand for raw materials that will likely push prices for metals, commodities and energy lower, Eugen Weinberg, a senior commodity analyst at Commerzbank AG in Frankfurt, said


Hmmm, so despite cheery official numbers, PRC's mineral imports are down? I think this is wicked western propaganda only, to hide its own dismal showing in the face of glittering numbers emerging from china's musharraf! How can the great PRC's juggernaut even slow down? Tauba tauba. PRC should not care for western loss of face! march ahead, o mighty revolutionary china! pretty soon, every country in the world will be clamoring to be invaded and occupied by china onlee...


well, guy, chinese are negotiating hard with west guys about the price of iron ores....

broadcasting some news is helpful to melead you rivals and bargaining.

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Re: Perspectives on the global economic meltdown

Postby Nandu » 08 Aug 2009 08:36

One anecdotal data point.
I posted here back at the end of Feb that I had been laid off.
Well, it took me six months to find a new gig. Just got the offer, will start work in a week or two.
SF Bay area tech job. When I went to the outplacement talk after the lay off, there were 15 other people thre. AFAIK, only one other person from that group has landed a new job so far.

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Re: Perspectives on the global economic meltdown

Postby Neshant » 08 Aug 2009 10:45

Well, it took me six months to find a new gig. Just got the offer, will start work in a week or two.


congratulations!

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 08 Aug 2009 11:23

Neshant wrote:
Well, it took me six months to find a new gig. Just got the offer, will start work in a week or two.


congratulations!


I second that. In this khanomy, finding employment is no mean feat.

Meanwhile, just as the green shoots hopium starts to sound vaguely plausible - the rising stock mkts, the absence of large scale civil unrest, the appearence of outward normality......cold water rains from the heavens only....

We are in the process of deleveraging the most leveraged economy in history....this deleveraging as a major negative that will weigh on the economy for years to come and we could wind up with a lost couple of decades just as Japan experienced over the past 20 years. It is true that Japan didn't act as quickly as we did but our debt ratio presently is much worse than Japan's debt ratios throughout their deleveraging process...

This seems to us to be a "mini bubble" of stocks reacting to an abundance of "money printing" by governments all over the world since stocks are rising worldwide. Of course, if the U.S. doesn't recover there will be no worldwide recovery since the rest of the world is still dependent upon the U.S. consumers' appetite for their goods and services (despite the so called growth of domestic consumption in China and India). We, however, don't believe that the U.S. massive stimulus programs and money printing can solve a problem of excess debt generation that resulted from greed and living way beyond our means. If this were the answer Argentina would be one of the most prosperous countries in the world....

{The equity mkt bubble looked fishy frm day 1. The fundamentals, the P/E ratios, nothing justified them.}

Most investors believe the bailouts, stimulus plans, and quantitative easing will lead to inflation. In fact, almost all of the bearish prognosticators are negative because of the fear that interest rates will rise once the inflation starts to work its way into the economy. They point to the doubling of the monetary base which they believe will soon lead to rising prices as more dollars are created chasing the same amount of goods. We, on the other hand, are not as concerned about the doubling of the monetary base because we believe the excess money will need the money multiplier and increases in velocity in order to increase aggregate demand and eventually inflation. As long as velocity (turnover of money) is stagnant we expect the increases in the monetary base and all the quantitative easing will lead to a stagnant economy and deflation until the consumer goes into the same borrowing and spending patterns that was characteristic of the 1990s through 2007.

{critical point. the inflationists forget the velocity of money is ~ zero now since banks are busy accumulating reserves and are in no mood to lend anyway}


Remember, over the past decade (when we believe the secular bear market started) the total debt in the U.S. doubled from $26 trillion in 2000 to just over $52 trillion presently (peaking a few months ago at $54 trillion). This consists of $14 trillion of gross Federal, State and Local Government debt and $38 trillion of private debt. We expect the private debt to continue declining in the future as the deleveraging of America unfolds, while the government debt will very likely explode to the upside as the government tries to slow down the private deleveraging by helping out the entities and individuals in the most trouble with debt (such as over-extended homeowners).

We wrote a special report in January of this year titled "Substituting Debt for Savings and Productive Investment" in which we explained why the U.S. economy historically prospered because of hard working Americans saving a substantial amount of their income which was used for productive investment. Unfortunately, all of this changed over the past few decades and got worse over the past decade. In fact, we stated in the report that it took $1.50 of debt to generate $1 of GDP in the 1960s, $1.70 to generate $1 of GDP in the '70s, $2.90 in the '80s, $3.20 in the '90s, and an unbelievable $5.40 of debt to generate $1 of GDP in the latest decade. Over the past two decades, while most investors thought this trend could continue indefinitely, we have been warning them of the catastrophic problems associated with this ballooning debt....


There were debates on this thread a few days ago on whether or not 'internal debt' (i.e. debt denominated in local currency) is dangerous. Suffice it is to say that though internal debt offers more leeway and flexibility, it too has its definite limits.

The Fed study charted the peak of the debt related bubble of the stock and real estate assets in Japan in 1991 (1989 for stocks and 1991 for real estate) and overlaid it with the peak of U.S. debt associated with the same assets in 2008. They concluded that if we are able to liquidate our debt at the same rate as Japan we would have to increase our savings rate from the present 6% (artificially high due to the recent stimulus paid to households) today to around 10% in 2018. If U.S. households were to undertake a similar deleveraging, the collective debt-to-income ratio which peaked in 2008 at 133% (H/H debt vs. Disposable Personal Income) would need to drop to around 100% by 2018, returning to the level that prevailed in 2002.

If the savings rate in the U.S. were to rise to the 10% level by 2018 (following the Japanese experience), the SF Fed economists calculate that it would subtract ¾ of 1% from annual consumption growth each year. We did a weekly comment about this very subject on June 25 of this year and came to a similar conclusion. In that same report we showed that from 1955 to 1985 that consumption accounted for around 62% of GDP. Because of the debt driven consumption over the past few years at the end of March 2009 consumption accounted for over 70% of GDP. If the percentage dropped to the normal low 60% area of GDP it would subtract about $1 trillion off of consumption (or from $10 trillion to $9 trillion)....

We expect that the U.S. deleveraging will follow along the path of Japan for years as real estate continues to decline and the deleveraging extracts a significant toll from any growth the economy might experience. We also expect that, just like Japan, the stock market will also be sluggish to down during the next few years as the most leveraged economy in history unwinds the debt.


link

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Re: Perspectives on the global economic meltdown

Postby Raja Bose » 08 Aug 2009 12:36

Nandu wrote:One anecdotal data point.
I posted here back at the end of Feb that I had been laid off.
Well, it took me six months to find a new gig. Just got the offer, will start work in a week or two.
SF Bay area tech job. When I went to the outplacement talk after the lay off, there were 15 other people thre. AFAIK, only one other person from that group has landed a new job so far.


Congratulations and good luck in your new job!

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Re: Perspectives on the global economic meltdown

Postby Singha » 08 Aug 2009 15:04

good luck brother. I assume you are relocating from germany to khanate?
maybe I am confusing with another member...

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Re: Perspectives on the global economic meltdown

Postby Nandu » 08 Aug 2009 20:11

Singha wrote:good luck brother. I assume you are relocating from germany to khanate?
maybe I am confusing with another member...
No, I was never in Germany.
I will post some details in the invisible forum, nukkadan thread.

svinayak
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Re: Perspectives on the global economic meltdown

Postby svinayak » 09 Aug 2009 01:08

Image

Lost Couple of Decades’ Looming for U.S. Economy: Chart of Day

By David Wilson

Aug. 7 (Bloomberg) -- The U.S. economy may be just as sluggish during the next 20 years as Japan’s economy was in the last 20, according to Comstock Partners, a money manager founded and run by Charles Minter.

Stimulus programs and a surging money supply aren’t likely to “solve a problem of excess debt generation that resulted from greed and living way beyond our means,” the firm wrote yesterday in an unsigned report on its Web site. “We could wind up with a lost couple of decades.”

The CHART OF THE DAY shows U.S. total debt and gross domestic product since 1952, along with the ratio between them, based on data compiled by Bloomberg. The ratio rose in the first quarter to 372 percent even as household borrowing dropped for a second straight quarter, an unprecedented streak.

The U.S. is headed for “a deleveraging period” in which the amount of so-called private debt, including consumer borrowing, collapses as government borrowing explodes, Comstock wrote.

Assuming that private borrowers pay down debt at the same pace as they did in Japan after its 1980s economic bubble burst, the savings rate will climb to about 10 percent in 2018, the report said. The estimate was made in a study by the Federal Reserve Bank of San Francisco that Comstock cited. It’s more than double the 4.6 percent rate for June.

Citing the study in addition to its own research, Comstock wrote that reduced borrowing may curtail growth in U.S. consumer spending by 0.75 percentage point annually on average during the next nine years.

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Re: Perspectives on the global economic meltdown

Postby Singha » 09 Aug 2009 08:50

Does that mean people will be back to a simple bagel and 50c mcdonalds coffee and not $5 grande vertu mertu *bucks coffee ? :twisted:

sooner the bratty overspending teens and 20-somethings get slapped back in
line the better for america and the world.

having a ipod touch, xbox, 24" IPS panel, ton of clothes and shoes is not anyones right by birth - they gotta earn it.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 09 Aug 2009 10:16

^Well, I'd kinda cut the new age brat pack some slack.

They will likely receive no pension or social security, ponzi schemes younger workers are suckered into paying into but from which they will probably never see any benefit.

Besides, the crisis has hit the college fresh grads and younger workers hardest. The largest % of workforce w/o health insurance is.... you guessed that right.

Also, the younger uns are on the taxpayer hook for the largest bailouts, backstops, guarantees and other gubmint freebies their fathers and gramps are engineering on their behalf. The ones below 18 have no electoral say even in what they will eventually become liable for down the line.

On the other end of the spectrum, the boomers - most pampered and spoiled of US generations who define the 60s and the 70s live-it-ups - head into retirement with the largest drop in wealth and assets in decades, with their retirements and pensions effectively screwed, in debt more than any other gen was, facing the real prospect of working till they no longer are able to and so on.

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Re: Perspectives on the global economic meltdown

Postby Paul » 09 Aug 2009 10:51

McDonald's coffee is $1.69 at least.

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Re: Perspectives on the global economic meltdown

Postby shyam » 09 Aug 2009 12:01

Doesn't it become obvious that media is openly lying with this kind of news in front page of newspapers like WSJ?

Hopeful Signs for U.S. Jobs
July Unemployment Rate Slips Unexpectedly to 9.4% as the Pace of Layoffs Slows.
...
The jobless rate slipped to 9.4% from 9.5% a month earlier -- the first decline since April 2008.


Jobs were lost in July too. Truth about reduction of unemployment was listed below
But the decline in the jobless rate was primarily caused by people dropping out of the labor force, and the rate is likely to rise again.

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Re: Perspectives on the global economic meltdown

Postby Singha » 09 Aug 2009 12:04

sorree...I am out of touch for 5 yrs now after r2i.

I was reading a NYT article yesterday how coffee shops are shutting down
power outlets and wifi to discourage people who sit with laptops and crowd
out lunch and eating customers. people could wfh I suppose , dont see why
only coffee shops can make people creative...a close friends wife was even
hit on by a enterprising student at one such place for a cup of coffee together...when she refused he even had the chutzpah to say all he wanted was a coffee! :roll:

http://www.nytimes.com/2005/06/13/techn ... 3wifi.html

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 09 Aug 2009 15:52

Self explanatory.

What Growth is the S&P 500 Pricing In?

Based on past linkages between earnings trends and the pace of economic activity, believe it or not, the S&P 500 is now de facto discounting a 4¼% real GDP growth rate for the coming year. That is what we would call a V-shaped recovery. While it is possible, though in our opinion a low-odds event, it is doubtful that the economy is going to be better than that. So we have a market that is more than fully priced for a post-recession world — any further gains would suggest that we are moving further into the “greed” trade.

We realize that the market has to climb a wall of worry and that it will often price in a lot of bad news, but for the first time ever, it has rallied nearly 50% amidst a two-million job slide since March. That is either whistling past the graveyard or at the lows the market was indeed pricing in a full-fledged depression.

Think about that last comment. Whatever the market was pricing in at the March lows was obviously a pretty bad outcome, but isn’t that what we saw in the end? To be sure, the government established a floor under the financials, but when you go back and think about the fresh lows posted in late 2002, it was about earnings and the economy, not about financials.

In the four months after the recent lows in March, employment plunged by two million, which is as much carnage as we saw in the entire 2001 recession — and we are talking about the entire cycle including the jobless recovery that spanned from March 2001 to June 2003! We will guarantee you one thing — it is doubtful that the two million folks who lost their jobs are going to be heading to the malls, dealerships or restaurants anytime soon. And while that is only a sliver of the 130 million U.S. workforce, change does occur at the margin.

Usually, government plays a small role, but this time around, it may be the only actor in the play, and what multiple does that deserve is a very good question, especially now that Uncle Sam’s generosity is supporting a record of nearly 20% of personal income. The fact that we have now resorted to ‘Cash for Clunkers’ to support consumption is a very sorry state of affairs.

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Re: Perspectives on the global economic meltdown

Postby vina » 09 Aug 2009 16:12

{critical point. the inflationists forget the velocity of money is ~ zero now since banks are busy accumulating reserves and are in no mood to lend anyway}


While that might be true in the US and UK and Oireope, in India the dynamic is totally different. Here we never had a credit crisis (but imported slow down due to exports getting hit and slow down of inflows, primarily hot money), but a macro economic scene that is totally out of whack.

Here we have pumped up the monetary base, cut taxes and have been riding it out because of collapse of global energy and raw material prices. India is surely surely set for a rise in inflation and to counter those inflationary expectations, the interest rate WILL ABSOLUTELY HAVE TO GO UP . The RBI has said that in so many words.
I think the failure of the monsoons is another nail in that coffin. It is now inevitable and we will see huge primary food/ inflation at least and soon, inflation picking up in other sectors and we anyway have very little slack in capacity in our industry. If there is even a hint of raw material /commodity prices going up (which I think they will, China has exact same dilemma as India and the Aussies, Brazilians and Yindoos are going to squeeze Panda's balls in a vice), matter over.

So anyone taking up SBI's teaser 8% homeloan rates which reset later, beware. The HDFC bank statement there is absolultely right. It is setting folks up for a US style disaster and credit crunch later on.

Reading the tea leaves, I think the IT/Vity export/sector will do well , thanks to stabilization and those guys will see a V shaped recovery thanks to them being contracyclical and Khans and Euros making beeline to them to cut costs and for new product development. For India's interest rate sensitive sectors (real estate, banking, autos and other usual suspects), it is going to be stagnant /heavy weather ahead. This is like a false /short spring between two severe winters.

For Yindia, the interest rates will go up , govt will squeeze out private sector for borrowing (so private sector costs will be even higher) and it will continue (I dont see what else is the way out, the current fiscal deficit is unsustainable beyond this year) until Khan and Oierope and Rest of World recover and the banks and other private investors have the cash and cojones to come back into emerging markets.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 09 Aug 2009 16:37

While the hosts on the CNBC show we were on yesterday afternoon claimed that the bounce in July auto sales was evidence of pent-up demand, we would simply have to disagree. If there was pent-up demand we wouldn’t need the subsidy to begin with — it just goes to show that there will always be people who will be willing to accept free money. What we think is important is how low the level of auto sales were in July, at barely more than 11 million units at an annual rate. It was only nine-years ago that auto-related stimulus (“0% financing”) brought us 21 million units; and just four-years ago another gimmick (“Employee discount for everyone”) brought us 20 million units. The ‘new normal’, we would have to assume after the response to ‘Cash for Clunkers’, is 11 million units. That’s supposed to get us excited over the consumer spending outlook? Keep in mind that we never saw 21 or 20 million units again after those prior programs were unveiled — could it be that we just saw 11 million for the last time too?


Point to ponder only. From Rosenberg's report above. More gems tumble out.

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Re: Perspectives on the global economic meltdown

Postby Neshant » 10 Aug 2009 01:27

An interesting allegation which if true has profound significance. If the Federal Reserve is rigging the market, they are responsible for countless losses suffered by investors who shorted the market. I do think Shri Bernanke is desparate for the title of Systemic Risk Regulator for the fed so he has some legal cover for this very illegal practice. Imagine if they caught him authorising this in a fed audit.

----
Fed Laundering Money through the Big Banks Into the Stock Market
http://www.marketoracle.co.uk/Article12507.html

It means the revered professor Bernanke figured out a way to circumvent Congress and dump more than a trillion dollars into the stock market by laundering the money through the big banks and other failing financial institutions. As Kessler suggests, Bernanke knew the liquidity would pop up in the equities market, thus, building the equity position of the banks so they wouldn't have to grovel to Congress for another TARP-like bailout. Bernanke's actions demonstrate his contempt for the democratic process. The Fed sees itself as a government-unto-itself.

Over at Zero Hedge, Tyler Durden did the math and figured that the recent 45% surge in the S&P 500 had nothing to do with the fictional economic "recovery", but was just more of the Fed's hanky panky. Durden noticed that the money that's been sluicing into stocks hasn't (correspondingly) depleted the money markets. That's the clue that led him to the truth about Bernanke's 6 month stock rally.

Zero Hedge: "Most interesting is the correlation between Money Market totals and the listed stock value since the March lows: a $2.7 trillion move in equities was accompanied by a less than $400 billion reduction in Money Market accounts!


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Re: Perspectives on the global economic meltdown

Postby bart » 10 Aug 2009 05:11



Wealth shift from West to East? More like the gradual recovery of several centuries worth of wealth looted from the East by the West.

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Re: Perspectives on the global economic meltdown

Postby svinayak » 10 Aug 2009 09:51

Image

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 10 Aug 2009 11:44

From Neshant's post:
Over at Zero Hedge, Tyler Durden did the math and figured that the recent 45% surge in the S&P 500 had nothing to do with the fictional economic "recovery", but was just more of the Fed's hanky panky. Durden noticed that the money that's been sluicing into stocks hasn't (correspondingly) depleted the money markets. That's the clue that led him to the truth about Bernanke's 6 month stock rally.

Zero Hedge: "Most interesting is the correlation between Money Market totals and the listed stock value since the March lows: a $2.7 trillion move in equities was accompanied by a less than $400 billion reduction in Money Market accounts!


Aha. More corroboration from Denninger:
The Stock Market has been on a tear, powered by printed money. Bernanke and his clowns have been monetizing debt - only $400 billion of the more than $2 trillion in market increase came out of money markets - the rest of the "firepower" - more than $1.5 trillion - came from "new bank reserves" used to buy mortgage-backed securities (Fannie and Freddie) and Treasuries - a figure that incidentally is close to the market's rise in terms of capitalization.

Annualized, the $181 billion deficit increase in July alone is approaching one half of the full year 2008 deficit - in one month - and Treasury has announced it is going to sell almost half that much again this week in new Treasury issuance - that is, yet more deficit (or addition to debt.)


The truth of this policy is found in the S&P 500's P/E - it was over 100 for the first quarter (a level never before reached in the index's history) and is over 140 today. There are those who claim that we must use "operating earnings", disregarding credit losses.


Conclusion? Denninger says it best.

We have a long way to go folks, and further attempts out of the government to "pump" the economy and markets, while certainly making the stock market feel good in the short term, are unlikely to be able to turn around the credit demand picture, which is in fact the backbone of our economic engine.

Absent that turn-around the only paths forward are to either dramatically increase taxes (which will hammer consumption and thus stocks) or force repatriation of labor so we produce more (which will lead to nasty tariff wars ala The Great Depression.) Attempting more and more fiscal stimulus to prop up a consumer with no more true borrowing or production capacity is a path that will produce "feel good" response only for the duration of the spending, the ability of the government to continue down that path is not indefinite in duration.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 10 Aug 2009 11:55



Excerpting:
[Q:]Would you say that global banks somewhere are a little disappointed with the pace of financial reforms they have seen come out of a market such as India?

[A:]I think that, obviously, foreign participants would love to have broader access to a growing, thriving and healthy economy like India. I think that the Reserve Bank of India (RBI) has been quite consistent and thoughtful about how it has approached that.
And one way of looking at it is that the Indian economy would be largely protected in a banking sense, largely protected from the difficulties of the financial crisis, and apart from banking, the economy has obviously been affected by the slowdown, but you haven’t seen a banking crisis in India as you have seen in other countries. And I think that no matter how frustrating it is, as you described, about how foreign banks may feel about access, the benefit as seen in the protection from the crisis is something that has to be given some credit for.


That was from Chuck Prince, Sandy Weill's Protege!

Sri Sandy Weill, together with his mentor Sri Rubin in govt at that time and their friendly hand in the Fed Sri Greenspan engineered the breakup of the Glass-Steagell act to facilitate the citi merger with the traveller's group.

And Sri Prince, after Weill, indulged in the worst practices of securitization of mortgages and spreading the risk through the system to pandemic levels (CDOs and subprimes from which protection was ought in complex CDSes that only served to further weaken an already delicate system)....but but - these worthies left the high seat just in time with fat bonuses and payouts to leave poor (sri?) Vikram Pandit in the high saddle to face the flak and the blame and the winding down of the great banking empires their mistakes brought about.

Wow. Whatta small cosy world, eh?

BTW, regarding India's (lucky?) escape from the Fin meltdown mess, Columbia Nobelist Sri Joe Stiglitz is on record saying that:
"I have repeatedly said that the worst of the financial crisis could have been avoided if we had a central banker of the caliber of India's YV Reddy"


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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 10 Aug 2009 14:15

Not new for this thread but for the record anyway ...

When the Treasury secretary reached his office the next day, on Sept. 18, his first call, at 6:55 a.m., went to Mr. Blankfein. That was followed by a call from Mr. Blankfein. All told, from Sept. 16 to Sept. 21, 2008, Mr. Paulson and Mr. Blankfein spoke 24 times.

At the height of the financial crisis, Mr. Paulson spoke far more often with Mr. Blankfein than any other executive, according to entries in his calendars.

The calls between Mr. Paulson and Mr. Blankfein, especially those surrounding the AIG bailout, are disturbing to Samuel L. Hayes, a professor emeritus at Harvard Business School and a consultant in the past for government agencies, including the Treasury Department.

"We don't know what they talked about," Mr. Hayes said. "Obviously there was an enormous amount at stake for Goldman in whether or not the AIG contracts would be made whole. So I think the burden is now on Mr. Paulson to demonstrate that there was no exchange of information one way or the other that influenced the ultimate decision of the government to essentially provide a blank check for AIG's contracts." :rotfl:


link

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 10 Aug 2009 14:20

Excerpts of a krugman interview....

Japan "...really does need some inflation..."

(On Bernanke) "I'm biased, right...he was my department chairman at Princeton....he hired me." {No kiddin'!}

"...I just, in general, like the idea of bearded professors from Princeton running the world."

:rotfl:
(Bernanke) turned the Fed into the financial intermediary of last resort." {Also, the fin intermed of first resort, actually. AND a vacation resort for bankers and their cronies}

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 10 Aug 2009 20:58

Chalo, good news at last.

U.S. Economy May Be on Brink of Recovery

The U.S. economy may be on the cusp of a recovery and the impact of the nation’s stimulus plan should increase this quarter, said Laura Tyson, an adviser to President Barack Obama.

“We may have hit stability, we may be in the beginning of an upturn” based on the latest economic data, Tyson, a member of the White House’s Economic Recovery Advisory Board, said yesterday during an interview in Kuala Lumpur. Nobel Prize- winning economist Paul Krugman said the deepest slump since the Great Depression may be ending.

“It’s quite possible, though not certain, that retrospectively, we’ll say that the recession ended in July or August, maybe September,” Krugman said in a separate interview in the Malaysian capital. “My guess is that we’ve bottomed out now, that August was probably the trough month.”

There’s no reason for a second stimulus package now, Tyson said in the interview. She suggested on July 7 the U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the $787 billion approved in February was “a bit too small.” She told CNBC three days later that it’s premature to plan for a second stimulus package.

“We know that relative to plan, the stimulus package in place is performing along expectations,” Tyson said yesterday. “Right now, based on the evidence that the economy has put forward and the stimulus spend out relative to plan, there isn’t any reason to think about a next round.”


From the brink of catastrophe to the brink of recovery in <1 year (it started last sept). No mean feat. The D&G aspects of the thread can then safely be put away. Too soon to bring out the party hats, let us wait and watch the next few months.

By no means does a recovery imply that the problem has been solved. it would merely have been successfully kicked down the road somewhere (like Calif has done brilliantly). Next year will be another thread, am sure.

ss_roy, you still there? Kindly spill some gyan more on where things are headed by your reckoning. TIA.

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Re: Perspectives on the global economic meltdown

Postby ramana » 10 Aug 2009 22:10

Hari Seldon, Isnt Laura Tyson a sarkari economist? off course she will says its recovering. What we need are the outsiders to say that not the Establishment aka Sarakri folks. Otherwise its con.


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