Perspectives on the global economic meltdown- (Nov 28 2010)

The Technology & Economic Forum is a venue to discuss issues pertaining to Technological and Economic developments in India. We request members to kindly stay within the mandate of this forum and keep their exchanges of views, on a civilised level, however vehemently any disagreement may be felt. All feedback regarding forum usage may be sent to the moderators using the Feedback Form or by clicking the Report Post Icon in any objectionable post for proper action. Please note that the views expressed by the Members and Moderators on these discussion boards are that of the individuals only and do not reflect the official policy or view of the Bharat-Rakshak.com Website. Copyright Violation is strictly prohibited and may result in revocation of your posting rights - please read the FAQ for full details. Users must also abide by the Forum Guidelines at all times.
TSJones
BRF Oldie
Posts: 3022
Joined: 14 Oct 1999 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby TSJones » 29 Sep 2013 01:49

From wiki:

By 1971, the money supply had increased by 10%.[4] In May 1971, West Germany was the first to leave the Bretton Woods system, unwilling to devalue the Deutsche Mark in order to prop up the dollar.[2] In the following three months, this move strengthened its economy. Simultaneously, the dollar dropped 7.5% against the Deutsche Mark.[2] Other nations began to demand redemption of their dollars for gold. Switzerland redeemed $50 million in July.[2] France acquired $191 million in gold.[2] On August 5, 1971, the United States Congress released a report recommending devaluation of the dollar, in an effort to protect the dollar against "foreign price-gougers".[2] On August 9, 1971, as the dollar dropped in value against European currencies, Switzerland left the Bretton Woods system.[2] The pressure began to intensify on the United States to leave Bretton Woods.

Event[edit]

At the time, the U.S. also had unemployment and inflation rates of 6.1% (Aug 1971)[5] and 5.84% (1971),[6] respectively. [notes 1]

To combat these issues, President Nixon consulted Federal Reserve chairman Arthur Burns, incoming Treasury Secretary John Connally, and then undersecretary for international monetary affairs and future Fed Chairman Paul Volcker.

On the afternoon of Friday, Aug. 13, 1971, these officials and other high-ranking White House and Treasury advisors met secretly with Nixon at Camp David. There was great debate about what Nixon should do, but ultimately Nixon, relying heavily on the advice of the self-confident Connally, decided to break up Bretton Woods by suspending the convertibility of the dollar into gold, freezing wages and prices for 90 days to combat potential inflationary effects, and impose an import surcharge of 10 percent.[7] "Connally brilliantly packaged the program not as America abandoning its commitment to the gold standard but as America taking charge. He turned the dollar's collapse, which could have appeared shameful, into a moment of hubris."[1]

To prevent a run on the dollar, stabilize the US economy, and decrease US unemployment and inflation rates, on August 15, 1971, Nixon issued Executive Order 11615, pursuant to the Economic Stabilization Act of 1970, which imposed a 90-day maximum wage and price ceiling, a 10% import surcharge and most importantly, "closed the gold window", ending convertibility between U.S. dollars and gold.

Speaking on television on a Sunday before the markets opened, Nixon said the following:


The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world.

In the past 7 years, there has been an average of one international monetary crisis every year...

I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.

Now, what is this action — which is very technical — what does it mean for you?

Let me lay to rest the bugaboo of what is called devaluation.

If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.

The effect of this action, in other words, will be to stabilize the dollar.[8]

The American public felt the government was rescuing them from price gougers and from a foreign-caused exchange crisis.[9][10] Politically, Nixon's actions were a massive success. The Dow rose 33 points the next day, its biggest daily gain ever at that point, and the New York Times editorial read, "We unhesitatingly applaud the boldness with which the President has moved."[1]

By December 1971, the import surcharge was dropped as part of a general revaluation of the Group of Ten (G-10) currencies, which under the Smithsonian Agreement were thereafter allowed 2.25% devaluations from the agreed exchange rate. In March 1973, the fixed exchange rate system became a floating exchange rate system.[11] The currency exchange rates no longer were governments' principal means of administering monetary policy.

paramu
BRFite
Posts: 669
Joined: 20 May 2008 11:38

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby paramu » 29 Sep 2013 08:26

Stagflation Is Here as Fed Succeeds at Inflationary Target: Rosenberg


For twenty years, economist David Rosenberg held a special place amongst his fellow prognosticators, by consistently outlining a bearish case that was as chilling as it was cogent.
But those days are over and the Gluskin Sheff chief economist and strategist has just switched his long-standing forecast for deflation to one that sees some inflation.
"I think what's happening now is a complete mirror image of what happened thirty years ago. We've come full circle," he says in the attached video. "Fast forward to today, and we don't have Paul Volcker, we have a Ben Bernanke-led Federal Reserve and we do not have the most anti-inflationary policy in modern history, we have the most pro-reflationary monetary policy that we've seen in at least seven decades."
Related: The Rise of the Fed's Jackson Hole Symposium
Don't fight the Fed has a new convert.
"My assumption is that the Fed is ultimately going to get what it wants," Rosenberg says, pointing out that his main concern is not with the 6.5% unemployment target, but with their inflation target. "I've got news for you, a 2.5% inflation expectation is not price stability."
And it's not just in the U.S. either. He says there's been a global fundamental shift on what central banks want. Where they once sought disinflation and price stability, he says, we have the exact opposite phenomenon today.
Related: Market Heading Into 'Corrective Mode,' Says Rosenberg
"My sense is that once this consumer deleveraging cycle is over, and there are signs that it is coming to an end if it hasn't ended already, you're going to see the velocity of money start to rise, against the backdrop of double-digit growth of the monetary base, and that is going to lead to inflation down the road."
Not the double-digit '70s-style inflation that plagued the Volcker era for years before he was ultimately able to break its back, Rosenberg says, but rather a mild form of stagflation for years to come, and he thinks stocks and bond markets are reflecting this already.

panduranghari
BRF Oldie
Posts: 3756
Joined: 11 Aug 2016 06:14

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby panduranghari » 29 Sep 2013 12:54

An important point to mull over is, when US closed the gold window, why did the world still live with USD. They could have very well ditched it.

From 1972 to 1980 gold rose remarkably in price when the window was closed signalling the world was not happy with the management of US dollar.

Even then in 1980 they did not ditch the US dollar. Why?

Then Reagan brought in Volker who got the fall of a USD against gold under control and gradually the price of gold dropped. Why?

http://www.ecb.europa.eu/pub/pdf/scpops/ecbocp77.pdf

The following excerpts are offered as a teaser and not a substitution for reading the whole thing. The actual paper is only 16 pages of reading even though the pdf is 33 pages long. Here are a few excerpts:

A recurring theme in recent years in the debate on the international role of currencies has been the possibility of pricing oil in euro.

The traditional economic literature provides ample reasons why oil is invoiced in one single currency around the globe. Specifically… the US dollar.

Despite the strong case for the use of one vehicle currency in the oil trade, the analysis of this paper suggests that the introduction of a new currency in the crude oil market is possible.

The country with the largest weight among the oil exporting nations is Saudi Arabia. It has the world’s largest proven petroleum reserves (one-quarter of the total) and some of the lowest production costs, and is the largest producer and net exporter of oil (see Appendix, Table 1). As of May 2005, owing to the recent rapid increase in demand for petroleum, Saudi Arabia is the only country with any surplus production capacity: 900-1,400 thousand barrels per day, or some 13% of total capacity (EIA, 2005b). This enormous capacity has allowed Saudi Arabia to play the role of “swing” producer.

Until a few years ago, oil earnings were deposited in international banks in US dollars. However, since 2002, OPEC countries have increasingly deposited their oil wealth in euro-denominated accounts (12% in the third quarter of 2001, against 25% in the second quarter of 2004) at the expense of US dollar-denominated accounts (75% in the third quarter of 2001, against 61.5% in the second quarter of 2004). These observations support the view that the oil exporting countries, as well as some oil importing countries, such as those within the euro area or in its vicinity, could potentially be willing to invoice or settle their oil contracts in euro or in another currency other than the US dollar. The next section discusses current practices as regards price setting in the oil market.

Why is crude oil predominantly invoiced in one currency? The next section attempts to answer this question.

Network effects arise when the utility a consumer derives from a particular good is dependent upon the number of other individuals also consuming that good. The network property of a good has the following four implications for the market for that good. First, a minimum level of agents using the good (critical mass) is necessary for the initial adoption of a network good. Second, the demand for network commodities is associated with a bandwagon effect, i.e. the more individuals use the good, the more incentive there will be for other individuals to use it as well. Third, network effects may give rise to multiple and unstable equilibria related to the interplay of information, expectations and coordination. Finally, there are two problems linked to network goods, which may result in market failures: excess inertia, i.e. resistance by individuals to using a “superior” network commodity, and excess momentum, i.e. a rush by individuals to an “inferior” network good. Treating money as a network good is a recent development in economics and has led to interesting results concerning the origin of money, fiat currency and monetary integration.

This section develops a model that captures network effects in the oil market, extending the models developed by Stenkula (2003) and Oomes (2003). The market consists of many buyers (B) and sellers (S) of crude oil. While the oil producers are sellers in this game, they have an incentive to invoice their oil contracts in the currency with which they will pay for their (non-oil) imports of goods and services from the rest of the world. In short, we will call these (non-oil) goods and services food.

Similarly, the rest of the world are buyers of oil and sellers of food. Both parties aim to minimize foreign exchange risk and costs associated with the use of a specific currency for trade. In an environment where buyers and sellers are matched randomly and are subject to cash-in-advance constraints, both types of agents may choose between two currencies, i.e. euro (e) or US dollars (d), as the invoicing currency for their contracts. Each contract is fully invoiced in a single currency. In addition, the price of each contract is assumed to be constant and normalised to one. At time t, the sellers sell oil to the buyers, while at time t + 1, the buyers of oil sell food to the oil sellers. Hence, all agents try to anticipate the currency they will need for purchases in the next period.

Depending on whether or not the currency they accept for payment for oil is the same as the currency they use for their imports, the oil producers (S) may incur three types of cost, related to the three functions of money – medium of exchange, unit of account and store of value.14

14 Note that, although for the remainder of the paper we refer to oil exporting countries, the analysis for oil companies is similar: they are either buyers or sellers of oil, or both; and they too incur costs when they invoice oil in one currency and have to record profits and pay taxes and dividends in another.

The theoretical literature on trade invoicing explains the almost universal use of the US dollar in international trade in crude oil by means of the fact that petroleum is a homogeneous good traded in organized exchanges. Apart from serving as a medium of exchange, the US dollar fulfills the function of a unit of account by providing price transparency in the oil market. Thirdly, the macroeconomic stability of the United States and the depth of the US financial markets explain the role of the US dollar as a store of value and the low liquidity costs associated with holding the currency.

TSJones
BRF Oldie
Posts: 3022
Joined: 14 Oct 1999 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby TSJones » 01 Oct 2013 13:33

Maybe some good economic news for India.....

http://finance.yahoo.com/news/desperate ... 32835.html

India's "cloudy" outlook might be just what's needed to pull the economy out of the doldrums, with the country appearing set for a favorable monsoon season, Credit Suisse said.

Last year's monsoon season was considered a "drought," which means rainfall was at least 25 percent less than the long-term average, but historically, India's droughts lead to a bumper season in the following year, said Robert Prior-Wandesforde, head of regional economics at Credit Suisse, in a note.

Forecasters are likely under-estimating the size of the anticipated agricultural output bounce, Prior-Wandesforde said. India's farmers plant most of their summer crops during the critical June-September monsoon rains.

RoyG
BRF Oldie
Posts: 5180
Joined: 10 Aug 2009 05:10

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby RoyG » 01 Oct 2013 23:20

Yeah, like some morphine before the end.

TSJones
BRF Oldie
Posts: 3022
Joined: 14 Oct 1999 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby TSJones » 02 Oct 2013 09:37

The US government has shut down. Unfortunately, the IRS stills expects to be paid. :( Also sadly, except for mission control, NASA has shut down. :( The Federal Reserve, owned by the US banking system is still busy, busy, busy. :)

TSJones
BRF Oldie
Posts: 3022
Joined: 14 Oct 1999 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby TSJones » 02 Oct 2013 10:39

Apple now hoards 10% of all US corporate cash in existence.

http://finance.yahoo.com/news/apple-now ... 03208.html

...that's some serious cash.

Where da goldbugs?

vishvak
BR Mainsite Crew
Posts: 5345
Joined: 12 Aug 2011 21:19

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby vishvak » 02 Oct 2013 17:38

CNN news doesn't have peaceniks of Syria fame on these days. Instead some interviews of African-Americans about Obamacare seems to be on. Doesn't take long to see no push for Obamacare social program. Even debates from Parliament seem to focus on African-Americans in Parliament on one side.

What is the next debt level proposal appears to be after the current one is passed this month? No information seems to be available as of now.

TSJones
BRF Oldie
Posts: 3022
Joined: 14 Oct 1999 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby TSJones » 02 Oct 2013 20:30

vishvak wrote:CNN news doesn't have peaceniks of Syria fame on these days. Instead some interviews of African-Americans about Obamacare seems to be on. Doesn't take long to see no push for Obamacare social program. Even debates from Parliament seem to focus on African-Americans in Parliament on one side.

What is the next debt level proposal appears to be after the current one is passed this month? No information seems to be available as of now.


I don't think anybody knows or if they know, they ain't saying. For instance, the current budget ammendment they are fighting over is only for 6 weeks of authorization! WTF!

Plus, two weeks from now (October 17) they have to authorize an increase in the debt limit.

You tell me what's going to happen and then we will both know.

This is no way to run a country.

Addendum:

If they don't authorize an increase in the debt limit in two weeks then that means the government can't borrow any more. According to one source I read debt payments are only 7% of the budget. That doesn't sound correct to me but that is what I read this morning. If correct, this means that the government can easily make debt payments out of its on going revenue stream and thus NOT default on its debt. Well, that's the theory anyway.

vishvak
BR Mainsite Crew
Posts: 5345
Joined: 12 Aug 2011 21:19

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby vishvak » 02 Oct 2013 20:40

Conditions can vary over time. For example US is perhaps self sufficient for oil. Obamacare seem to be stuck however, on issues that are not probably well clarified and perhaps even selective. Just wondering if the message above by me makes sense.

TSJones
BRF Oldie
Posts: 3022
Joined: 14 Oct 1999 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby TSJones » 04 Oct 2013 19:40

An abandoned ship, bankrupt owners let sailors drift:

http://www.foxnews.com/world/2013/10/04 ... rs-adrift/

svinayak
BRF Oldie
Posts: 14223
Joined: 09 Feb 1999 12:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby svinayak » 05 Oct 2013 00:25

US policy makers fear flying blind
A lengthy government shutdown could paralyse US Federal Reserve policy making - including a crucial decision on when to slow its asset purchases - and create ripple effects that make economic data less useful for months or even years to come.

Suraj
Forum Moderator
Posts: 12716
Joined: 20 Jan 2002 12:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby Suraj » 05 Oct 2013 02:40

The shutdown more or less guarantees no taper this year...

ramana
Forum Moderator
Posts: 52780
Joined: 01 Jan 1970 05:30

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby ramana » 05 Oct 2013 08:34

Lots of defense contractors are chipping in with furloughs.

panduranghari
BRF Oldie
Posts: 3756
Joined: 11 Aug 2016 06:14

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby panduranghari » 05 Oct 2013 18:59

Acharya wrote:US policy makers fear flying blind
A lengthy government shutdown could paralyse US Federal Reserve policy making - including a crucial decision on when to slow its asset purchases - and create ripple effects that make economic data less useful for months or even years to come.


Saar,

You are assuming this has not been accounted for. They had a contingency plan for a while.

And here it is. link

PART II - PRIORITIES AND ALLOCATIONS

Sec. 201. Priorities and Allocations Authorities. (a) The authority of the President conferred by section 101 of the Act, 50 U.S.C. App. 2071, to require acceptance and priority performance of contracts or orders (other than contracts of employment) to promote the national defense over performance of any other contracts or orders, and to allocate materials, services, and facilities as deemed necessary or appropriate to promote the national defense, is delegated to the following agency heads:

(1) the Secretary of Agriculture with respect to food resources, food resource facilities, livestock resources, veterinary resources, plant health resources, and the domestic distribution of farm equipment and commercial fertilizer;

(2) the Secretary of Energy with respect to all forms of energy;

(3) the Secretary of Health and Human Services with respect to health resources;

(4) the Secretary of Transportation with respect to all forms of civil transportation;

(5) the Secretary of Defense with respect to water resources; and

(6) the Secretary of Commerce with respect to all other materials, services, and facilities, including construction materials.

(b) The Secretary of each agency delegated authority under subsection (a) of this section (resource departments) shall plan for and issue regulations to prioritize and allocate resources and establish standards and procedures by which the authority shall be used to promote the national defense, under both emergency and non-emergency conditions. Each Secretary shall authorize the heads of other agencies, as appropriate, to place priority ratings on contracts and orders for materials, services, and facilities needed in support of programs approved under section 202 of this order.


----

Sec. 302. Loans. To reduce current or projected shortfalls of resources, critical technology items, or materials essential for the national defense, the head of each agency engaged in procurement for the national defense is delegated the authority of the President under section 302 of the Act, 50 U.S.C. App. 2092, to make loans thereunder. Terms and conditions of loans under this authority shall be determined in consultation with the Secretary of the Treasury and the Director of OMB.

------
(b) Each guaranteeing agency is designated and authorized to: (1) act as fiscal agent in the making of its own guarantee contracts and in otherwise carrying out the purposes of section 301 of the Act; and (2) contract with any Federal Reserve Bank to assist the agency in serving as fiscal agent.

----

Austin
BRF Oldie
Posts: 23312
Joined: 23 Jul 2000 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby Austin » 07 Oct 2013 19:45

‘Big lender’ China urges US to avoid bankruptcy

China, the US government's largest foreign creditor, is "naturally concerned about developments in the US fiscal cliff", as Reuters quoted Vice Finance Minister Zhu Guangyao giving the Chinese government's first public response to the Oct 17 US deadline for raising the debt ceiling.

China currently holds 22.85 percent of the US $16.7trln debt, which makes it the biggest US creditor.

Image

Treasury Secretary Jacob Lew calculated the US would run out of money by October 17 and have less than $30 billion cash in hand if Congress fails to agree on its spending plans.

"We ask that the United States earnestly takes steps to resolve in a timely way before October 17 the political (issues) around the debt ceiling and prevent a US debt default to ensure safety of Chinese investment in the United States and the global economic recovery," Zhu said.

"We hope the United States fully understands the lessons of history," Zhu said.

Austin
BRF Oldie
Posts: 23312
Joined: 23 Jul 2000 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby Austin » 07 Oct 2013 19:46

Any idea of what % India holds of US Debt

TSJones
BRF Oldie
Posts: 3022
Joined: 14 Oct 1999 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby TSJones » 07 Oct 2013 20:14

Austin wrote:‘Big lender’ China urges US to avoid bankruptcy

China, the US government's largest foreign creditor, is "naturally concerned about developments in the US fiscal cliff", as Reuters quoted Vice Finance Minister Zhu Guangyao giving the Chinese government's first public response to the Oct 17 US deadline for raising the debt ceiling.

China currently holds 22.85 percent of the US $16.7trln debt, which makes it the biggest US creditor.

Image

Treasury Secretary Jacob Lew calculated the US would run out of money by October 17 and have less than $30 billion cash in hand if Congress fails to agree on its spending plans.

"We ask that the United States earnestly takes steps to resolve in a timely way before October 17 the political (issues) around the debt ceiling and prevent a US debt default to ensure safety of Chinese investment in the United States and the global economic recovery," Zhu said.

"We hope the United States fully understands the lessons of history," Zhu said.


You are drawing an incorrect conclusion from the data. China holds about $1.3 trillion of US debt about 8% overall but it is also about 23% of debt held OVERSEAS.

To be sure, China holds a huge amount of US debt but it goes up and down. It wasn't too long ago they had sold off a bunch and were down to a little over $900 billion. Now it's back up to $1.3 trillion. You will have to ask them what their plans are.

The largest US debt holders are the Federal Reserve and Social Security, that is the people of the United States of America.

At any rate, even if the US doesn't issue any more debt (refuses to raise the debt limit as authorized by Congress), it still has enough revenue to service its current debt. It just can't continue to spend massive amounts of money on defense and entitlements. In essence it will have to have a balanced budget. Which right now would be bad for China because the US economy would drop. It would also be bad for the US poor and retiree population.

Austin
BRF Oldie
Posts: 23312
Joined: 23 Jul 2000 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby Austin » 07 Oct 2013 20:34

I guess China keeps buying US Debt to keep Yuan artifically low and make its export competitive ..... if they stop doing that then their product would turn out to be less attractive .... so its like Win Win for US and China ...... you scratch my back and I will scratch yours.

Theo_Fidel

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby Theo_Fidel » 07 Oct 2013 20:58

TSJ,

That is a misunderstanding on how the GOTUS gets money. IRS gets its money in a large amount near April deadline. Rest of the months GOTUS borrows. Lew just came on Fox News and said definitely that essential services alone cost $60 Billion PM. It could be much more. Right now tax income is only $30 Billion PM. Ergo USA will default in a matter of hours. Unless Congress authorizes shut down of essential services.

IMO America should hit the default and shut down all essential services. Shut it all down for 3 months. Let nothing work. Let Americans experience what it is to live in a 3rd world country. This entire small government thing will die on the vine in days. American have gotten too soft and don’t recognize what they have or how good they have it. Need a swift kick in the rear end, IMHO. Lets see how many bug-out bags work and how long the doomsday nuts can survive an abscessed tooth or no McD.

Austin
BRF Oldie
Posts: 23312
Joined: 23 Jul 2000 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby Austin » 07 Oct 2013 21:01

They keep saying in CNN and others if US Defaults then it would be recession and its effect will be felt for long time to come ,its credibility will take a major blow of US cannot service its debt

Theo_Fidel

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby Theo_Fidel » 07 Oct 2013 21:13

I still think USA should default, shut its GOTUS down, completely. Not this soft stuff. And let the folks face the consequences of they stupidity.

Austin
BRF Oldie
Posts: 23312
Joined: 23 Jul 2000 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby Austin » 07 Oct 2013 21:25

Theo_Fidel wrote:I still think USA should default, shut its GOTUS down, completely. Not this soft stuff. And let the folks face the consequences of they stupidity.


It may as well

Boehner vows no deal on budget or debt limit without spending talks with Obama

Christopher Sidor
BRFite
Posts: 1435
Joined: 13 Jul 2010 11:02

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby Christopher Sidor » 07 Oct 2013 22:45

The American government shutdown is not the worrying part, it is the thought of an American default which is the most worrisome part. The American financial system is built on the bed rock of dollar and US Treasury Notes. If the T-Notes/Securities are called into question the we are truly into unknown territory. Even more worrying is the prospect of US Govt. debt. It is in excess of 110 %. Basically when the next recession hits the US government will simply not have the leeway to spend. The US government and the US fed have saved the financial system of the US and consequently the world. But in doing so they have set the stage for possibly even a bigger bust or worse a depression.

TSJones
BRF Oldie
Posts: 3022
Joined: 14 Oct 1999 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby TSJones » 07 Oct 2013 22:50

Theo_Fidel wrote:TSJ,

That is a misunderstanding on how the GOTUS gets money. IRS gets its money in a large amount near April deadline. Rest of the months GOTUS borrows. Lew just came on Fox News and said definitely that essential services alone cost $60 Billion PM. It could be much more. Right now tax income is only $30 Billion PM. Ergo USA will default in a matter of hours. Unless Congress authorizes shut down of essential services.

IMO America should hit the default and shut down all essential services. Shut it all down for 3 months. Let nothing work. Let Americans experience what it is to live in a 3rd world country. This entire small government thing will die on the vine in days. American have gotten too soft and don’t recognize what they have or how good they have it. Need a swift kick in the rear end, IMHO. Lets see how many bug-out bags work and how long the doomsday nuts can survive an abscessed tooth or no McD.


You may be right. Although the people who pay the most income tax pay every quarter so as not to be penalized by the IRS. Most businesses remit employee taxes at least every quarter in order to escape penalties as well.

Most of the impetus of "let's default (not raise the debt limit)" comes from mostly rural or southern states districts that have been gerrymandered by their respective state's legislatures to be mostly white and conservative. The theory goes that the federal government doesn't impact them very much so they would just as soon shut it down. Which is gross stupidity.

The federal government provides a majority of highway funds, agricultural conservation crop payments, school lunch programs, nursing homes for the elderly, hospital federal funds, local airport control, rural electrification, local telephone switching susubsidies for rural communities, etc., etc., etc., etc. The fact is, that federal programs are so pervasive and bedrock that the local population doesn't even realize the resources that they are getting. So they vote stupid for a party that is largely campaign financed by oligarchs who live far away and do not have their best interest in mind. It's simply amazing what has been accomplished by simple mindedness. There are 80 of these congressional districts and they are the ones that are at the core of the house of representatives driving this agenda.

svinayak
BRF Oldie
Posts: 14223
Joined: 09 Feb 1999 12:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby svinayak » 07 Oct 2013 23:33

Families hoard cash 5 years after financial crisis

Families hoard cash 5 years after financial crisis
Monday - 10/7/2013, 11:44am ET
BY BERNARD CONDON
AP BUSINESS WRITER

NEW YORK (AP) -- They speak different languages, live in countries rich and poor, face horrible job markets and healthy ones. When it comes to money, though, they act as one: They're holding tight to their cash, driven more by a fear of losing what they have than a desire to add to it.

Five years after U.S. investment bank Lehman Brothers collapsed, triggering a global financial crisis and shattering confidence worldwide, families in countries as varied as the United States, Japan, the United Kingdom and Germany remain hunkered down, too spooked and distrustful to take chances with their money.

An Associated Press analysis of households in the 10 biggest economies shows that families continue to spend cautiously and have pulled hundreds of billions of dollars out of stocks, cut borrowing for the first time in decades and poured money into savings and bonds that offer puny interest payments, often too low to keep up with inflation.

"It doesn't take very much to destroy confidence, but it takes an awful lot to build it back," says Ian Bright, senior economist at ING, a global bank based in Amsterdam. "The attitude toward risk is permanently reset."

A flight to safety on such a global scale is unprecedented since the end of World War II.

The implications are huge: Shunning debt and spending less can be good for one family's finances. When hundreds of millions do it together, it can starve the global economy.

Some of the retrenchment is not surprising: High unemployment in many countries means fewer people with paychecks to spend. But even people with good jobs and little fear of losing them remain cautious.

"Lehman changed everything," says Arne Holzhausen, a senior economist at global insurer Allianz, based in Munich. "It's safety, safety, safety."

The AP analyzed data showing what consumers did with their money in the five years before the Great Recession began in December 2007 and in the five years that followed, through the end of 2012. The focus was on the world's 10 biggest economies - the U.S., China, Japan, Germany, France, the U.K., Brazil, Russia, Italy and India - which have half the world's population and 65 percent of global gross domestic product.

Key findings:

- RETREAT FROM STOCKS: A desire for safety drove people to dump stocks, even as prices rocketed from crisis lows in early 2009. Investors in the top 10 countries pulled $1.1 trillion from stock mutual funds in the five years after the crisis, or 10 percent of their holdings at the start of that period, according to Lipper Inc., which tracks funds.

They put more even money into bond mutual funds - $1.3 trillion - even as interest payments on bonds plunged to record lows.

- SHUNNING DEBT: In the five years before the crisis, household debt in the 10 countries jumped 34 percent, according to Credit Suisse. Then the financial crisis hit, and people slammed the brakes on borrowing. Debt per adult in the 10 countries fell 1 percent in the 4 1/2 years after 2007. Economists say debt hasn't fallen in sync like that since the end of World War II.

People chose to shed debt even as lenders slashed rates on loans to record lows. In normal times, that would have triggered an avalanche of borrowing.

- HOARDING CASH: Looking for safety for their money, households in the six biggest developed economies added $3.3 trillion, or 15 percent, to their cash holdings in the five years after the crisis, slightly more than they did in the five years before, according to the Organization for Economic Cooperation and Development.

The growth of cash is remarkable because millions more were unemployed, wages grew slowly and people diverted billions to pay down their debts.

- SPENDING SLUMP: To cut debt and save more, people have reined in their spending. Adjusting for inflation, global consumer spending rose 1.6 percent a year during the five years after the crisis, according to PricewaterhouseCoopers, an accounting and consulting firm. That was about half the growth rate before the crisis and only slightly more than the annual growth in population during those years.

Consumer spending is critically important because it accounts for more than 60 percent of GDP.

- DEVELOPING WORLD NOT HELPING ENOUGH: When the financial crisis hit, the major developed countries looked to the developing world to take over in powering global growth. The four big developing countries - Brazil, Russia, India and China - recovered quickly from the crisis. But the potential of the BRIC countries, as they are known, was overrated. Although they have 80 percent of the people, they accounted for only 22 percent of consumer spending in the 10 biggest countries last year, according to Haver Analytics, a research firm. This year, their economies are stumbling.

habal
BRF Oldie
Posts: 6612
Joined: 24 Dec 2009 18:46

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby habal » 08 Oct 2013 10:16

DEVELOPING WORLD NOT HELPING ENOUGH: When the financial crisis hit, the major developed countries looked to the developing world to take over in powering global growth. The four big developing countries - Brazil, Russia, India and China - recovered quickly from the crisis. But the potential of the BRIC countries, as they are known, was overrated. Although they have 80 percent of the people, they accounted for only 22 percent of consumer spending in the 10 biggest countries last year, according to Haver Analytics, a research firm. This year, their economies are stumbling.


how do they expect developing countries to prop up a dollar system ?

TSJones
BRF Oldie
Posts: 3022
Joined: 14 Oct 1999 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby TSJones » 08 Oct 2013 14:40

habal wrote:
DEVELOPING WORLD NOT HELPING ENOUGH: When the financial crisis hit, the major developed countries looked to the developing world to take over in powering global growth. The four big developing countries - Brazil, Russia, India and China - recovered quickly from the crisis. But the potential of the BRIC countries, as they are known, was overrated. Although they have 80 percent of the people, they accounted for only 22 percent of consumer spending in the 10 biggest countries last year, according to Haver Analytics, a research firm. This year, their economies are stumbling.


how do they expect developing countries to prop up a dollar system ?


That's not the question. The question is, how do developing countries expect to export their way to a healthy economy when consumers are not buying?

habal
BRF Oldie
Posts: 6612
Joined: 24 Dec 2009 18:46

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby habal » 08 Oct 2013 14:54

Developing countries do not expect payment in local currency. All international trade prefers dollar payment due to legacy issues and currency portability.

How did countries generate dollars ? by trading with US.
So this system collapses when US stops buying.
For consumers to start buying again, the system needs to be changed.

TSJones
BRF Oldie
Posts: 3022
Joined: 14 Oct 1999 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby TSJones » 08 Oct 2013 17:39

habal wrote:Developing countries do not expect payment in local currency. All international trade prefers dollar payment due to legacy issues and currency portability.

How did countries generate dollars ? by trading with US.
So this system collapses when US stops buying.
For consumers to start buying again, the system needs to be changed.


They do not expect payment in local currency because they have poltiical issues and want to control their currency. The US dollar is a reserve currency for a very good reason: It is fully convertible and has very few controls on it. Again, developing countries have political issues that rebuff foreign investment, lack of transparency, failure to develop internal infrastrure, refusing full convertibility of their currency. Countries are similar to individuals, that is if you want to be a better person look internally. Quit blaming others.

panduranghari
BRF Oldie
Posts: 3756
Joined: 11 Aug 2016 06:14

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby panduranghari » 08 Oct 2013 19:26

TSJones wrote:The US dollar is a reserve currency for a very good reason: It is fully convertible and has very few controls on it. .


USD is a reserve currency because oil is priced in USD at the convenience of Saudi.

Having purchased the Saudi Arabian concession in drilling oil, in subsequent drilling Socal's Damman Number 7 struck oil in 1937. Socal partnered with Exxon, Mobil, and Texaco to form the Arabian-American Oil Company- ARAMCO. Over a thirty year period, Aramco discovered petroleum reserves in Saudi Arabia in excess of 180 billion barrels...a quarter of the known reserves of the planet at that time. And as the world aged and changed, the amount of oil consumed daily in world trade climbed dramatically, from 3.7 million barrels per day in 1950, to 9.0 mbpd in 1960, to 25.6 mbpd in 1970, to 34.2 million barrels per day in 1973 during the first Oil Crisis.

Consider this for better perspective: the average yield per well at the end of the 70's in the United States was 17 barrels per day per well, in Venezuela (one of the co-founders of OPEC) it was 186 barrels per day per well, and in Saudi Arabia (the other OPEC co-founder) it was 12,405 barrels each day per well. Just imagine if the internet companies today issued new, additional shares each day at this same rate as oil consumption...the stock price would plummet! But unlike internet stocks, because this oil is consumed, it must be replaced (and paid for) every single day.

link

In Saudi Arabia, gold coins have always been important in the monetary system. For years, in fact, paper money was unacceptable, and to pay royalties to the government, Aramco once flew kegs of both gold and silver coins to jiddah. In 1952, when the Saudi Arabian Monetary Agency (SAMA) was formed, the first coin issued was a Saudi sovereign – a gold coin equal in weight and value to the British sovereign – that was later demonetized and today sells for about $124.

To collectors, however, the most interesting Saudi gold coins weren’t coins at all; they were “gold discs” Similar to coins, they were minted by the Philadelphia Mint in the 1940’s for Aramco, and bore, on one side, the U. S. Eagle and the legend “U. S. Mint, Philadelphia, USA” and, on the other side, three lines on the fineness and weight. They looked like coins, they were used as coins, but, technically, they weren’t coins.In the 1950’s, numismatists were puzzled by these “discs” until-in 1957 – the story emerged in The Numismatist. Aramco, required to pay royalties and other payments in gold to the Saudi government, could not obtain the gold at the monetary price fixed by the United States so the U. S. government specifically began to mint the “discs” – actually bullion in coin form for these payments. In 1945, for example, the mint turned out 91,210 large discs worth $20, and, in 1947,121,364 small discs worth $5, according to The Numismatist.


Because most of the discs were melted down for bullion, or later redeemed for the Kingdom’s gold sovereigns, the discs are interesting additions to art collections. But care is necessary as counterfeits are common.”

(This article appeared on pages 2-5 of the September/October 1981 print edition of Saudi Aramco World. by Robert Obojski.)

On April 14, 1991, the New York Times printed an article by Jed Stevenson on the “disks” in reference to several which were to be sold by Stacks in an upcoming auction in May of 1991. Below are portions of that Article….

“Sometimes coins are minted for the strangest of reasons. Some Saudi Arabian bullion coins, several of which will be auctioned by Stack’s early next month, are a prime example.

The coins were struck in Philadelphia by the United States Mint in 1945 and 1947 to satisfy the obligations of the Arabian American Oil Company, or Aramco, which had been set up in Saudi Arabia by four American oil companies. The company was obliged to pay the Saudi Government $3 million a year in oil royalties and its contract specified that the payment be made in gold.

The United States dollar at the time was governed by a gold standard that, at least officially, made the dollar worth one thirty-fifth of an ounce of gold. But the price of gold on the open market had skyrocketed during World War II.

For a time the Saudis accepted payment in United States currency, but by 1945 they were insisting that the payments in gold be resumed. Aramco sought help from the United States Government. Faced with the prospect of either a cutoff of substantial amounts of Middle Eastern oil or a huge increase in the price of Saudi crude, the Government minted 91,120 large gold disks adorned with the American eagle and the words “U.S. Mint — Philadelphia.”

Aramco paid for the minting and the bullion. The coins were shipped off to Saudi Arabia.

These bullion coins weighed 493.1 grains, slightly more than a troy ounce, and were 91 2/3 percent gold and 8 1/3 percent copper. The fineness was that of the British sterling system then current in the Middle East. The United States standard was only 90 percent gold.

Most of the coins disappeared. The bullion coins were crated and shipped to Bombay, where the $35-an-ounce American gold was sold for $70 an ounce. Most of the coins were melted into bars and later sold in Macao.

TSJones
BRF Oldie
Posts: 3022
Joined: 14 Oct 1999 11:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby TSJones » 08 Oct 2013 20:23

USD is a reserve currency because oil is priced in USD at the convenience of Saudi.


Well then, gripe at the Saudis. :)

Rahul Mehta
BRF Oldie
Posts: 2577
Joined: 22 Nov 2001 12:31
Location: Ahmedabad, India --- Bring JurySys in India
Contact:

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby Rahul Mehta » 08 Oct 2013 21:13

USD is a reserve currency because oil is priced in USD at the convenience of Saudi.


USD is reserve currency due to US Military's strength

So if anyone tries to make crude oil or gold as reserve currency will go Saddam way or Qaddafi way.

Solution is that we need to make our Military equally strong

vishvak
BR Mainsite Crew
Posts: 5345
Joined: 12 Aug 2011 21:19

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby vishvak » 08 Oct 2013 21:37

Instead of griping Saudis, we should understand energy situation. Energy in ALL forms- Natural Gas, Petroleum products- is priced unevenly in different continents. In USA, Europe logic is availability of different sources and that reduces prices because of competition. In Asia logic is dependence on gulf crude, transport cost, lack of competition and lack of independent pricing mechanism. In short logic can be enforced anyway even in mutually exclusive pieces. One has to find better situation- for example oil from Nigeria to India- does it increase competition or is that ignored under label of 'Asian premium' or any such labels.


SBajwa
BRF Oldie
Posts: 5087
Joined: 10 Jan 2006 21:35
Location: Attari

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby SBajwa » 08 Oct 2013 22:27

USD is a reserve currency because oil is priced in USD at the convenience of Saudi.


Only a half statement!! Saudis have no other options.

USD is a reserve currency because Researchers based in USA figured out the utility of the petroleum, figured out the way to get the petroleum out of the ground and put them to use (from making roads, cars, planes, etc). Saudis did nothing and are getting paid handsomely because American companies found Crude oil in their Bedouin land.


svinayak
BRF Oldie
Posts: 14223
Joined: 09 Feb 1999 12:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby svinayak » 08 Oct 2013 23:34

When did the Dollar Replace Sterling as the Leading Reserve Currency?

A final question is what this episode tells us about the future and specifically about the
danger of a scramble out of dollar reserves. As we write, foreign central banks are growing
anxious that a further decline in the dollar and U.S. credit problems might result in additional
capital losses on their dollar balances.

And today, just as in the 1930s, there exists an alternative
reserve asset, namely the euro, issued by a large economy possessing deep and liquid financial
markets. Interwar history suggests that the possibility of a sharp shift in reserve composition
cannot be discounted in such circumstances. If there is a large-scale shift from dollars to euros,
it is not inconceivable that the Fed could feel compelled to raise interest rates to support the
dollar exchange rate and limit imported inflation. Forcing the central bank into this corner would
not be helpful in a period when recession and deflation are in the air. If the dollar falls further,
the euro will rise further.64 In this case Europe too may feel deflationary pressure. The
consequences would not be unlike those in 1931, when Britainís devaluation transmitted
deflationary pressure to the United States.

And if the parallel is to be extended, we note that
sterling problems eventually became serious dollar troubles.
But there are also differences between the two periods. In 1931 the scramble out of
sterling was not a scramble into the dollars; rather, it was a scramble into the third reserve asset,
gold. The United States saw its currency weaken, forcing the Fed to raise interest rates, rather
than strengthening as in the European scenario in the preceding paragraph. But imagine, for sake
of argument, that economic and financial problems comparable to those in the United States also
infect Europe, as happened in the 1930s. Asian and Latin American central banks might then
wish to scramble out of both dollar and euro securities in a 1931-style scenario.

The question is
where they would go. Just as there was no viable third option in the 1930s, there is no obvious
third option now: there are not enough Swiss francs to go around. Central banks could scramble
into gold as a safe haven, mimicking the behavior of private investors. This would create credit
stringency in both the U.S. and Europe, as in the 1930s. Working against this is the observation
that gold is already expensive and no longer enjoys its historic stature as a reserve asset.65
This suggests that if central banks and governments want to shift out of both U.S. and
European securities, they are more likely to shift into claims on real assets other than gold, for
example purchasing equities through their sovereign wealth funds.

The consequences for the
U.S. and European economies would not then be so damaging. Of course, this scenario for how
central banks will respond assumes their confidence in the fundamental health of the U.S. and
European economies. It assumes, in other words, that economic and financial circumstances
today, however dire, still do not begin to approach those of the Great Depression.



svinayak
BRF Oldie
Posts: 14223
Joined: 09 Feb 1999 12:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby svinayak » 08 Oct 2013 23:40

Image

svinayak
BRF Oldie
Posts: 14223
Joined: 09 Feb 1999 12:31

Re: Perspectives on the global economic meltdown- (Nov 28 20

Postby svinayak » 08 Oct 2013 23:44

All the Chinese people I know want to have their money in dollars, euros and pounds. Or real estate. NOT in yuan. They believe that the renminbi is greatly overvalued, and don't trust it to retain its present purchasing power.


Return to “Technology & Economic Forum”

Who is online

Users browsing this forum: No registered users and 14 guests