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

[Hari Seldon]

Two quick UKstani stories...

Shock as UK economy shrank by 0.5% at end of 2010
Yawn. Why the shock, I fail to see.

The UK economy shrank by a shock 0.5% in the last quarter of 2010 as Britain's recovery from recession faltered. Most of the unexpected contraction was caused by the wintry weather that gripped Britain last month, the Office for National Statistics said. Without it, GDP would probably have been flat – suggesting that the UK economy had already run out of steam before the snow hit. Economists said the first estimate of GDP for the last quarter was much worse than expected, and meant that Britain could now suffer a double-dip recession.[..]

George Buckley of Deutsche Bank said today's 0.5% decline was "quite shocking", and questioned whether the snow could really be blamed for the drop in economic activity. Hetal Mehta at Daiwa Capital Markets said it was "an absolute disaster for the economy". "It seems that the economy is incredibly vulnerable, and with the fiscal tightening yet to fully bite, we will have to brace ourselves for a bumpy ride," Mehta said.

More yawn, but ya get the picture. UQ elitemen sold a lemon to UQ mango folk. They predicted economic growth while retrenching both private and public sector leverage - inevitably a contraction followed.

Now, here's long live the merrywin king:
Bank of England chief Mervyn King: standard of living to plunge at fastest rate since 1920s

Households face the most dramatic squeeze in living standards since the 1920s, the Governor of the Bank of England warned, as he reacted to the shock disclosure that the economy was shrinking again. Families will see their disposable income eaten up as they "pay the inevitable price" for the financial crisis, Mervyn King warned.

Inevitable price? This king arsol bailed out banksters with taxpayer funds and now lectures the same taxpayers that pain is inevitable?

Mr King said he was unable to offer any imminent hope of a rise in interest rates in coming months because of the poor economic outlook. Savers and "those who behaved prudently" would be among the biggest losers in the squeeze, he admitted.

Admitted? He colluded with bankster cartel to design this precise outcome. Either that or he had no clue as to what his actions meant in reality.

Disposable household income has been hit by sharp increases in the cost of food, fuel and tax, coupled with restricted wage rises for most workers. Last year, take-home pay fell by about 12 per cent, official figures showed, and the trend was expected to continue in 2011. The governor warned that the Bank "neither can, nor should try to, prevent the squeeze in living standards".

Of course, as long as the living stds of the elitemen bankster cartel is protected and their bonuses are unimpeded and all that. No? arsol is too mild a word for the creepy ilk of banksters and their frontmen only.

He added: "Monetary policy cannot be based on wishful thinking. So, unpleasant though it is, the Monetary Policy Committee neither can, nor should try to, prevent the squeeze in living standards, half of which is coming in the form of higher prices and half in earnings rising at a rate lower than normal." "The Bank of England cannot prevent the squeeze on real take-home pay that so many families are now beginning to realise is the legacy of the banking crisis and the need to rebalance our economy."

Tch tch. No colonies left which you could squeeze dry, now, eh? No overworked peasantry whose labors you could steal wholesale and in addition steal of what remains of their families' meagre rations, eh?

For over 17 decades, India's per capita was stagnant because your ilk carted away all its surplus, you mofos. There are those in India who have neither forgotten nor forgiven. Your 'squeeze' in living standards is effing peanuts. Bloody nothing. Let the cuts get brutal. Let civil unrest explode on the streets. Let those thrown under the bus fight back with nothing to lose. Then we will see. Hrrmph.

/OK. Sorry abt that outburst, but I'd rather it stay. Saw the movie 'Gandhi' yesterday on R-day in Sony channel. Was moved. Re-understood why he's called 'mahatma'. And what the briturds did with my country and my people wasn't lost on me either. Was moved and saddened and horrified. The britards indeed got away light and easy. And got to write history too.

[Hari Seldon]

Ilargi over at TAE writes a good piece on those 2 UQ news stories above.

link

The major UK banks, just like those in Lower Manhattan, only continue to exist today because trillions of dollars were transferred from Main Street to Wall Street. That's the whole story, even if it's not distributed in print. And now Mr. King claims he cannot "prevent the squeeze" for everyday people, while London traders go home with multi-million dollar bonuses. The main take-away from that is not even that the "standard of living is plunging" at its fastest rate in almost a century, it's that the standards of honesty and dignity, of how to build a society, are plunging. Corruption and fraud have free rein. King's right when it comes to the end result, though, of course: the British future comes dressed as misery.

Yes, your future looks bad, and Mervyn King is telling you it would have been worse if you hadn't bailed out the bankers and made sure they got their X-mas bonuses. Come to think of it all that way, how is it possible that Britain doesn't yet look like Tunisia, Yemen or Egypt, why are there no people in the streets, no riots, no nothing of the kind? It's not as if the Brits have rosier futures ahead of them then the Egyptians. But then they likely missed that part. All parties are still stuck squabbling over the right path to -resumed- growth. But real economic growth will not return anytime soon, if ever, in the western world, no matter what numbers anyone comes up with.

OK, an overly doomy view, admittedly. Let us hope it doesn't come to pass even though UQ could do with some squeeze, perhaps.

[SwamyG]

Okay......don't yell that onlee D&G and alarmist stories are reported in this dhaaga, you see this dhaaga can apart from giving a perspective can also prepare you in an eventual Economic Meltdown Preparedness Plan.
Click on that linky, will you? Next you will ask the most logical question - "How do I recognize Economic Meltdown". The McHale Report gives the following 5 red flags for your convenience onlee.

These are the top items that you can watch. These indicators will let you know just how close we are to an economic meltdown.
1. Debt/Loss of US currency as the World Reserve Currency.
2. Inflation/Soaring food, gas etc prices.
3. Printing money to monetize the debt
4. Excess in Gov’t spending - Living beyond our means
5. Job Growth/Unemployment

[Christopher Sidor]

The unthinkable happens. Japans Debt is downgraded.

This is despite the fact that majority of the japanese debt is held domestically.

S.& P. lowered its sovereign credit rating for Japan to AA- from AA. That is three levels below the highest possible rating, and S.& P.’s first downgrade of Japanese government debt since 2002.

And to rub salt on the wound

With the lower grade, Japan’s debt rating is now on par with China’s.

Ouch that must have hurt.

The reason why S&P did this is

Japan’s liabilities will hit 204 percent of its gross domestic product this year, overshadowing even the 137 percent for beleaguered Greece, according to figures from the Organization for Economic Cooperation and Development.

And the silver linning in all of this is

Despite the staggering size of Japan’s debt-to-G.D.P. ratio, most of Japan’s debt is held domestically, unlike that of Greece or the United States. And Japan runs a current-account surplus in trade, putting it on a more stable financial footing. With Japanese household assets close to $17 trillion, Japan has a big pool of domestic deposits to draw on, and government policy encourages long-term investors like banks, pension funds and insurance companies to buy up bonds.

Moreover, a bulk of Japan’s bonds are held by the public sector, including the central bank, leading some analysts to suggest that Japan’s net debt — which also discounts other government assets, such as foreign reserves and public pension funds — is a better measure of its debt burden. By that measure, Japan’s debt is closer to 120 percent of its G.D.P., although it is still the highest among major economies, according to the O.E.C.D.

Just Compare the assets held by japanese households to the size of the us economy.

[Neshant]

interesting comment by Skarkozy :

Is he dropping a hint as to the level of insolvency of US banks ? If true they have gambled their ass away and a whole lot of people who have worked hard and saved their useless fiat are going to watch it all go up in smoke.

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

"The world has paid with tens of millions of unemployed, who were in no way to blame and who paid for everything. It caused a lot of anger. Too much is too much. The world was stupefied to see one of five biggest U.S. banks collapse like a house of cards. We saw that for the last 10 years, major institutions in which we thought we could trust had done things which had nothing to do with simple common sense. That's what happened... There is an ocean between flexibility and the scandal we saw. So if people present me as obsessed with regulation, it's because there is a need for regulation. I don't contest the principle of securitisation, but when one offshore country guaranteed 700 times its GDP, are we in the market economy or in a madhouse? Bonuses don't bother me, provided there are also ... draw-downs when there are losses. When things don't work, you can never find anyone responsible. Those who got bumper bonuses for seven years should have made losses in 2008 when things collapsed."

http://www.zerohedge.com/article/sarkoz ... d-madhouse

[svinayak]

http://money.cnn.com/video/fortune/2008 ... t.fortune/

AmEx chief: Plan for the worst
Kenneth Chenault says CEOs should prepare their companies for the possibility of a long recession.

[ramana]

He is fine one to talk.

[Ambar]

Fed's 'official' balancesheet increases to 2.45 T $. More treasury purchases likely.

The Federal Reserve’s total assets rose by $18.5 billion to $2.45 trillion as the central bank bought Treasury securities as part of the second round of its quantitative easing strategy.

Treasuries held by the Fed rose by $34.9 billion to $1.11 trillion as of yesterday, according to a weekly release by the central bank today. Mortgage-backed securities held by the Fed fell by $15.1 billion to $965.1 billion, while holdings of federal agency debt fell by $1.26 billion to $144.6 billion in the week ended Jan. 26.

The central bank has purchased $266.5 billion in Treasuries since Nov. 12 under plans to purchase $600 billion of government debt through June and reinvest proceeds from maturing mortgage debt. The program represents the Fed’s second round of unconventional monetary easing aimed at spurring economic growth and preventing inflation from falling too low.

M2 money supply rose by $46.6 billion in the week ended Jan. 17, the Fed said. That left M2 growing at an annual rate of 3.5 percent for the past 52 weeks, below the target of 5 percent the Fed once set for maximum growth. The Fed no longer has a formal target.

The Fed reports two measures of the money supply each week. M1 includes all currency held by consumers and companies for spending, money held in checking accounts and travelers checks. M2, the more widely followed, adds savings and private holdings in money market.

M1 increased $30.3 billion, and over the past 52 weeks M1 rose 8.1 percent, according to the central bank. The Fed no longer publishes figures for M3.

Question to Hari,Vina and other gurus : Although the Fed is likely to continue buying masses of treasury, the percentage of agency backed MBS seems to have reduced significantly from an year ago. At the beginning of 2010,Fed was holding 1.28T $ in Freddie and Fannie MBS,that seems to have reduced to 965 billion $ now. But what about the colossal amount of MBS/CDS that private institutions own? What percentage of that garbage is Fed holding? If you guys had to guess, what do you think is the real figure on Fed's balance sheet ? Thanks.

[abhishek_sharma]

U.S. must reduce deficit, IMF warns

http://www.washingtonpost.com/wp-dyn/co ... 07593.html

[Hari Seldon]

^^ Don't know. Written off, perhaps? Bought-back by the banks at pennies to the dollah? Fed secrecy ensures no outsiders know and none can find out.

[Neshant]

[Ambar]

I don't know where to put this, but since personal debt is one of the biggest reasons for exacerbating the current economic slowdown, i think it is apt that i post it here.

A couple of years ago i met this young lady in public transit on my way to work. We would wait for the same train everyday and started talking a bit.She told me she was a single mother, who had separated from her abusive husband was now living in a NGO shelter with her 1 year old daughter.She had high-school education and was working part-time at a daycare center somewhere in Suburban DC. After a while i did not see or hear from her anymore. After a long hiatus, she called me out of the blue a couple of days ago and we met over some coffee. She said she has enrolled herself in a para-legal course at a for profit college. I was a bit taken back as i know how expensive those colleges can be. Then she went on to say she has taken a 40K $ in loan! Now i was really shocked, as i know this person has no credit history to speak of and was virtually homeless a couple of years ago. Apparently, the college arranged for her loan and she is taking solace in the fact that she wouldn't have to make payments until she graduates 2 years from now.

The above sounds just like yet another housing bubble to me where predatory lenders and worthless borrowers created one of the largest real-estate and stock market bubble in history. If someone with no job and no credit history could walk into a college and get $40K in loan, and if these loans are being packaged as SLABS and are backed by Dept.of Education.then we have another major problem on our hands. I'm sure there are millions of students like her who have no financial surety but have taken on huge loans confident that they'll get good paying jobs once they get out of these 'for profit' colleges. Apparently, the magnitude and speed of student loan lending has increased dramatically in the last couple of years thanks to govt. pushing more and more people to get college degrees. We should see the fallout of student loans in the next few years..I see another calamity coming.

[Neshant]

There's an entire segment of the industry built around pushing student loans and getting people upto their neck in debt.

I heard some worthless online university/college went around signing up homeless people to enroll in diploma courses so they could apply for govt education loans. Of course these street dwellers had no ability to ever pay back the loans and probably just used the money for day to day survival while the college got its cut.

The sad fact is the taxpayer gets billed when these loans default.

I think there are laws in place since 2007 or so that prevent a person from just walking away from student debt. That is even if they declare bankruptcy, they are still on the hook for the full amount. Perhaps someone could elaborate further on this.

This whole thing is going down real soon. The more subsidies govt provides at taxpayer expense towards funding education, the higher the cost of education goes.

[svinayak]

The above sounds just like yet another housing bubble to me where predatory lenders and worthless borrowers created one of the largest real-estate and stock market bubble in history. If someone with no job and no credit history could walk into a college and get $40K in loan, and if these loans are being packaged as SLABS and are backed by Dept.of Education.then we have another major problem on our hands. I'm sure there are millions of students like her who have no financial surety but have taken on huge loans confident that they'll get good paying jobs once they get out of these 'for profit' colleges. Apparently, the magnitude and speed of student loan lending has increased dramatically in the last couple of years thanks to govt. pushing more and more people to get college degrees. We should see the fallout of student loans in the next few years..I see another calamity coming.

This is like the farmers taking loan and then doing 'suicide'
The money gets distributed.

The govt has to make sure that money reaches the poor and this is one way. they will writeoff the loans after 5-10 years . There is deep need for credit in US and huge number of people with no access to money cannot sustain with just small govt subsidies.

[shyam]

The govt has to make sure that money reaches the poor and this is one way. they will writeoff the loans after 5-10 years .

This is the power of fiat money. It costs nothing to the goverment when they extend this credit, and they realistically don't lose anything when they have to write it off. It is all just adjustments in the balance sheet. Till it is formally written off, the poor debtor will be struggling to survive while the bankers have easy life. None of this would be possible, and would have happened, if people were following unprintable gold as the medium of trade.

[svinayak]

http://banking.mfpa.ru/files/dataset_01.pdf
Banking problem

China
1990s

Indonesia
1997–present

Korea, Rep. of
1997–present

Malaysia
1997–present

Philippines
1981–87

1998–present

Thailand
1983–87

At the end of 1998 China’s four large state-owned
commercial banks, accounting for 68 percent of
banking system assets, were deemed insolvent.
Banking system nonperforming loans were
estimated at 50 percent.

Through May 2002, Bank Indonesia had closed 70
banks and nationalized 13, of a total of 237.
Nonperforming loans for the banking system were
estimated at 65–75 percent of total loans at the
peak of crisis and fell to about 12 percent in
February 2002.

Through May 2002, 5 banks were forced to exit the
market through a “purchase and assumption
formula” and 303 financial institutions shutdown
(215 were credit unions). Four banks were
nationalized. Banking system nonperforming loans
peaked between 30–40 percent and fell to about 3
percent by March 2002.

Finance company sector was restructured, and
number of finance was reduced from 39 to 10
through mergers. Two finance companies were
taken over by the Central Bank, including the
largest independent finance company. Two banks
deemed insolvent—accounting for 14 percent of
financial system assets—will be merged with other
banks. Nonperforming loans peaked between 25–35
percent of banking system assets and fell to 10.8
percent by March 2002.

Problems in two public banks accounting for 50
percent of banking system assets, six private banks
accounting for 12 percent of banking system
assets, 32 thrifts accounting for 53 percent of thrift
banking assets, and 128 rural banks.

Since January 1998 one commercial bank, 7 of 88
thrifts, and 40 of 750 rural banks have been placed
under receivership. Banking system nonperforming
loans reached 12 percent by November 1998, and
were expected to reach 20 percent in 1999.

Authorities intervened in 50 finance and security
firms and 5 commercial banks, or about 25 percent
of financial system assets; 3 commercial banks
deemed insolvent (accounting for 14 percent of
commercial bank assets).

Net losses estimated to reach $428
billion, or 47 percent of GDP in 1999.

Fiscal costs estimated at 55 percent of
GDP.

Fiscal costs estimated at 28 percent of
GDP.

Fiscal costs estimated at 16.4 percent of
GDP.

At its peak, central bank assistance to
financial institutions amounted to 19
billion pesos (3 percent of GDP).

Net losses estimated at $4 billion, or 7
percent of GDP in 1999.

Government cost for 50 finance
companies estimated at 0.5 percent of
GNP; government cost for subsidized
loans amounted to about 0.2 percent of
GDP a year.

2

Systemic Banking Crises

Region/economy

Scope of crisis

Estimated losses or costs

1997–present

Vietnam
1997–present

Through, May 2002 the Bank of Thailand had
shutdown 59 (of 91) financial companies that in
total accounted for 13 percent of financial system
assets and 72 percent of finance company assets.
It shutdown 1 (of 15) domestic banks and
nationalized 4 banks. A publicly owned assets
management company held 29.7 percent of financial
system assets as of March 2002. Nonperforming
loans peaked at 33 percent of total loans and were
reduced to 10.3 percent of total loans in February
2002.

Two of four large state-owned commercial banks—
accounting for 51 percent of banking system
loans—deemed insolvent; the other two experience
significant solvency problems. Several joint stocks
banks are in severe financial distress. Banking
system nonperforming loans reached 18 percent in
late 1998.

Fiscal costs estimated at 34.8 percent of
GDP.

[Neshant]

This is the power of fiat money. It costs nothing to the goverment when they extend this credit, and they realistically don't lose anything when they have to write it off. It is all just adjustments in the balance sheet.

I disagree. Somewhere along the line, someone has to eat that loss. It does not just vanish in the magic of paper work although that's what Uncle Ben would like everyone to believe.

Printing of money is a way of passing on that loss to a person who did not deserve it. That person gets less and thus has less to invest in what he may be doing profitably. That results in an even bigger loss to society.

Keynesian economics is nonsense and only serves politicians seeking to get re-elected and banking crooks seeking to milk the productive people in society.

[RamaY]

I disagree. Somewhere along the line, someone has to eat that loss. It does not just vanish in the magic of paper work although that's what Uncle Ben would like everyone to believe.

I think the "emerging world" is eating this loss for past few years. It is only now they are realizing it and are asking for a share for themselves, so they can do the same to under developed world.

[Hari Seldon]

As usual, our fave D&G high priests have been busy latching onto another potential source of doom and gloom - food scarcity in the coming years.

Lets start with sri AEP at the UK telegraf:
Egypt and Tunisia usher in the new era of global food revolutions

Political risk has returned with a vengeance. The first food revolutions of our Malthusian era have exposed the weak grip of authoritarian regimes in poor countries that import grain, whether in North Africa today or parts of Asia tomorrow.

Pakistan, anyone? That's what 'em stoopid authoritarian gubmints failed to get - nukes. That is the one assurance that'll ensure regular food supplies form the rest of the world. That is the 1 thing the Packees understood very well from the beginning of time.

Events have moved briskly since a Tunisian fruit vendor with a handcart set fire to himself six weeks ago, and in doing so lit the fuse that has detonated Egypt and threatens to topple the political order of the Maghreb, Yemen, and beyond.

As we sit glued to Al-Jazeera watching authority crumble in the cultural and political capital of the Arab world, exhilaration can turn quickly to foreboding.

This is nothing like the fall of the Berlin Wall. The triumph of secular democracy was hardly in doubt in central Europe. Whatever the mix of aspirations of those on the streets of Cairo, such uprisings are easy prey for tight-knit organizations – known in the revolutionary lexicon as Leninist vanguard parties.

In Egypt this means the Muslim Brotherhood, whether or not Nobel laureate Mohammed El Baradei ever served as figleaf. The Brotherhood is of course a different kettle of fish from Iran’s Ayatollahs; and Turkey shows that an ‘Islamic leaning’ government can be part of the liberal world – though Turkish premier Recep Tayyip Erdogan once let slip that democracy was a tram “you ride until you arrive at your destination, then you step off."

It does not take a febrile imagination to guess what the Brotherhood’s ascendancy might mean for Israel, and for strategic stability in the Mid-East. Asia has as much to lose if this goes wrong as the West. China’s energy intensity per unit of GDP is double US levels, and triple the UK.

Aha. Geopolitics cannot really be divorced from geo-economics now, can it? Besides, the west that cosied upto 'em islamist or islamic regimes, that sheltered the likes of khomeini and so on now should have little to fear, no?

And this is where the politics of food scarcity comes into the picture:

The surge in global food prices since the summer – since Ben Bernanke signalled a fresh dollar blitz, as it happens – is not the underlying cause of Arab revolt, any more than bad harvests in 1788 were the cause of the French Revolution.

Yet they are the trigger, and have set off a vicious circle. Vulnerable governments are scrambling to lock up world supplies of grain while they can. Algeria bought 800,000 tonnes of wheat last week, and Indonesia has ordered 800,000 tonnes of rice, both greatly exceeding their normal pace of purchases. Saudi Arabia, Libya, and Bangladesh, are trying to secure extra grain supplies.

The UN’s Food and Agriculture Organization (FAO) said its global food index has surpassed the all-time high of 2008, both in nominal and real terms. The cereals index has risen 39pc in the last year, the oil and fats index 55pc.

And

The immediate cause of this food spike was the worst drought in Russia and the Black Sea region for 130 years, lasting long enough to damage winter planting as well as the summer harvest. Russia imposed an export ban on grains. This was compounded by late rains in Canada, Nina disruptions in Argentina, and a series of acreage downgrades in the US. The world’s stocks-to-use ratio for corn is nearing a 30-year low of 12.8pc, according to Rabobank.

The deeper causes are well-known: an annual rise in global population by 73m; the “exhaustion” of the Green Revolution as the gains in crop yields fade, to cite the World Bank; diet shifts in Asia as the rising middle class switch to animal-protein diets, requiring 3-5 kilos of grain feed for every kilo of meat produced; the biofuel mandates that have diverted a third of the US corn crop into ethanol for cars.

Add the loss of farmland to Asia’s urban sprawl, and the depletion of the non-renewable acquivers for irrigation of North China’s plains, and the geopolitics of global food supply starts to look neuralgic.

Well, overly doomy, perhaps.

[Ambar]

I am keenly following two 'Zahid Hamids' (pbuh) of financial prophecy - Mish and Celente burst their hemorrhoids claiming their 'prognosis' of civil unrest has come true and how banks in Manhattan wont let you draw your money,that we should all buy guns and run to the hills with some gold !

Apart from a 20% hike in the oil prices and a renewed lifeline to the shipping companies, i don't see this unrest topple stock markets/economies in the developed world. Sure, a high gas price in times as these is hardly in anybodies interest, but it does seems inevitable now.

[Neshant]

wait till the printing comes to an end, austerity begins, SS and public sector pensions start blowing up and standards of living begin falling off a cliff.

then you will see some real fireworks.

we are only at the beginning. can you imagine the horror if real estate prices kept falling for 20+ years as they have in Japan.

[Ambar]

Neshant, SS/pensions/Medicare will never be fully funded - ever! There will be a huge social burden that will have to lifted by all of us thanks to reckless spending on the part of governments and people for decades. Savings,diversification and common-sense are the only weapons we'll need and the rest will fall in place.

As for the real estate prices in Japan,yes, it is no longer soaring the way it did in late 70s and 80s but it is still one of the most expensive real estate markets in the world. I was on a visit to Osaka in the middle of 2009 meltdown, the cheapest hotel rooms the size of a cubicle is almost three times as expensive as a decent 'Best Western' in states. So i dont know where the real estate drop is visible.

Here in NoVA,despite the crisis real estate prices never dropped more than 15%-20% ( in far suburban areas) and around 10% - 15% closer to metro accessible areas . And in the last 6 months or so the prices of those overbuilt condos have steadily risen and it is now at 2005 levels. The cities along both coasts will be the first to recover,sunshine belt cities with the exception of TX might have further drops before prices stabilize. Detroit/Cleveland/Columbis are innocuous and is getting depopulated so i have little hope on those cities ever recovering.

I agree we'll have plenty of downfalls, but if i had to quake in fear everyday then there's no point in getting out of bed in the morning. Folks like Mish who make a living of scaring people should put their money where their mouth is and let us know how many shorts they have and where. Like Hari likes to say "all else is maya only"!

[Neshant]

Most people who think the worst is behind us will be in for a rude awakening within the next 2 to 5 years when their living standards go through the floor. Only a very few realise what's coming. Most assume the govt will 'fix' the problem. After all wasn't 2008 'fixed' and guaranteed never to re-occur.

Mises of the Austrian school of economics says it best :

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." - 1949

That is exactly what we will see and when we do, you will see panic like you've never seen before. This is not some boy who cried wolf. This is what will inevitably happen. Just as you wouldn't buy a house if there was a guarantee it would collapse on you within the next 10 yrs, so too should you not buy into the theory that more debt & money printing will solve a problem brought on by excessive debt & money printing to begin with. Its all maya until standards of living fall off a cliff.

If there's one piece of advice I can give my bros here, its to move your assets out of the reach of govt (taxation, confiscation, inflation) and banking crooks.

As for SS and public sector pensions, its going to blow up and wreck a lot of people - those demanding that others be taxed to pay for them and those on whom the burden is thurst by crooked politicians. Don't count on it. Its going to be morphed into a program where means testing is used to see if you are poor enough to qualify for SS rather than everyone getting it.

[abhischekcc]

A collapse of living standards in the west is just what the doctor ordered. The fact of the matter is, when we talk about environmental concerns, the west was, is, and will remain the biggest culprit. However, most governments in the world do not acknowledge the elephant in the room - that western living standards will have to be cut drastically if we are to live more than one generation.

If this financial crisis helps reduce climate catastrophe, it will have served its purpose.

[Neshant]

The west can afford to withstand higher food & fuel prices due to greater disposable income. Inhabitants of India cannot.

Perhaps this is one purpose for inflating - to break the backs of developing countries first by inflation and maybe later by deflation when they least expect it. As good old Thomas Jefferson pointed out :

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."

[Hari Seldon]

Ambar,

All that can be said for the prophets of gloom and doom is that their doomier scenarios haven't played out yet.

See, anybody seer or not can say that the market will go down - because by the law of averages it will. However, to make money or do something useful with such predictions, getting the timing right is crucial and timing is where these sages have gotten things wrong, perhaps.

abcc,

Living stds in the west readjusting is a forgone conclusion. The oft-repeated truism that the one's children (the next gen) will have a higher std of living than the present one is now widely accepted as broken, even by sunny politocs. The western janta of course still be miles ahead of us turd worlders, don't get me wrong on that one.

Neshant,

Our energy needs (and consequent energy and environmental footprint) per capita is but a tiny fraction of that of the west. Like shiv saar once explained, our sunny climes, generally abundant labor and generally fertile arable land has reduced the need to deploy energy-guzzlers in climate control and other areas. No doubt, the storm when it comes will hit us also heavily and our bottom quartile of mango people are likely to be severely hit. That said, India will have a demographically vibrant path to recovery to look forward to unlike Japan and the ageing west. Too many ifs and buts there but the general idea remains.

[Ambar]

Hari,

I have no disagreements about the ugly underbelly of this recovery, and yes, markets go up and down - there's never been certainty and never will be. But i do have severe qualms about attention seeking,sensationalistic perennial prophets of doom like Sheldon and Celente.Was there ever a time in history of human civilization when the sailing was smooth? Never. These scare tactics about buying enough ammunition,guns and running to countryside just reeks of McCarthyism.

If i cannot trust banks,the government,my neighborhood financier or my house then where do i invest? Maybe convert everything into gold and get under a tent. Hypothetically if i did take such a step, and if gold goes sideways for the next 20 years the way it did previous 2 decades, the i'll lose out on inflation there as well. That's why in my opinion the practical solution is to be diversified, train yourself constantly,have a substantial savings (cash,stocks,bonds,metals) and use common-sense rather than live everyday quaking in fear of civil unrest and apocalypse.

[Hari Seldon]

^^Agreed. I wasn't sure what to make of the 'mad max scenarios' coming out in the wake of the giant total credit freeze for 15 or so minutes in Sept 2008 that led directly to Lehamann's fall. There was a time when it was unsure what would happen next and things could have, even if unlikely, spiralled out of control.

That time is past now. Chances are the relative rebalancing of living standards across the world will happen with a whimper rather than a bang. Good. There is only so much disruption mango people can peacefully handle only.

Added later:
BTW, let me hurry to mention, for the record that *none* of the causes and the perps of the fin meltdown have been investigated and remedied. None. What Bill Buiter once called 'state capture' (by the fin elite) is all but reality only. The transfer of wealth, unimpeded to the top 1 odd % of the Economy has actually accelerated. Only. All this does cause concern and the nagging doubt that out of control scenarios aren't that outlandish only, perhaps.

Anyway, time will tell, whether we like it or not.

[Neshant]

That time is past now.

I don't agree it is past.

Nothing has been solved by increasing indebtedness and money printing. The consequence has only been deferred to the near future.

However the fact that people are starting to believe it is unlikely to happen again is a good contra-indicator.... because usually that's when it happens.

[SwamyG]

Anybody think the galatta in West Asia has some origins in this economic meltdown or the ascending "Chindia" animal?

[Ameet]

Wall Street Pay Reaches Record $135 Billion

http://online.wsj.com/article/SB1000142 ... Collection

When it comes to paychecks, Wall Street's law of gravity is back in full force: What goes down must come back up.

In 2010, total compensation and benefits at publicly traded Wall Street banks and securities firms hit a record of $135 billion, according to an analysis by The Wall Street Journal. The total is up 5.7% from $128 billion in combined compensation and benefits by the same companies in 2009.

The increase was fueled by a revenue rebound as the financial crisis recedes in the rearview mirror. At 25 large financial firms that have reported full-year results, revenue rose to $417 billion, another all-time high, even though last year's 1% increase was just a fraction of the industry's revenue jolt from 2008 to 2009 as trading and investment banking sprang back to life.

[Hari Seldon]

OK, searing piece by Jesse here. Starts with an Orwell quote:

"It was possible, no doubt, to imagine a society in which wealth, in the sense of personal possessions and luxuries, should be evenly distributed, while power remained in the hands of a small privileged caste.

But in practice such a society could not remain stable. For if leisure and security were enjoyed by all alike, the great mass of human beings who are normally stupified by poverty would become literate and would learn to think for themselves; and when once they had done this, they would sooner or later realise that the privileged minority had no function, and they would sweep it away. In the long run, a hierarchical society was only possible on a basis of poverty and ignorance."

George Orwell, 1984

Yup. MKG's great achievement was awakening the mango masses to the realization that "the privileged minority had no (indispensable) function". The rest as they say, is history.
Ok, but why this in this dhaga, you ask? Read on...

This is the ultimate failure of oligarchical, crony capitalism, as it is being trumpeted today from several diverse circles of thought as the new thing with China as its model. Oligarchies can not allow for the rise of a thriving middle class, with decent education, substantial wages, and rising standards of living, because that is a threat to their power. The fascists were much admired for their economic recovery from the Depression, but they maintained their control of the people through the iron grip of fear and terror, even while the East coast establishment lionized Mussolini and Hitler as economic miracle workers.

And this is why the oligarchical classes even in the US and the UK favor austerity over reform. Reform diminishes their illicit access to unproductive wealth and power, and austerity hammers the middle class into submission.

Brilliantly put. The decline in the median real wage and in the true unemployment number (U6 + many those currently recorded as not in the labor force, aka discouraged workers) is major cause for concern because these are verily the metrics that are a far better barometer of 'greatest good for the greatest number' within the boundaries of the nation state.

Jesse further states:

The key metric for them [Wall st] is the anticipated unemployment rate which is expected to be 9.5% or thereabouts.

Now it is fairly well known that the unemployment rate is a less important metric, since when people stop being counted as unemployment when no longer receiving unemployment benefits, or when they take a menial low paying job. And in a prolonged downturn you can have improvements therefore in the unemployment rate without any real improvement in overall unemployment like the labor participation rate and the median wage, which are the key indicators of a sustainable recovery.

So it makes me wonder what antics the government and the pigmen might have up their sleeve to rattle the swill bucket for mom and pop to get back into stocks, and most likely once again at a top.

How better to end than...more Orwell!

"People can foresee the future only when it coincides with their own wishes, and the most grossly obvious facts can be ignored when they are unwelcome. Advertising [perception management] is the rattling of a stick inside a swill bucket."

George Orwell

[shyam]

It is worth watching this video from Max Keiser.
People & Power - Savers vs speculators - 23 Mar 08

[Hari Seldon]

The canary in the coalmine? Mere signs or the writing on the wall?

Theek hai, lez not get too concerned right away - this is just some state senator's bill that is unlikely to pass muster. But the direction, the narrative and the hand of the forces ranged against public sector unions slowly becomes Unmistakable only. Perhaps.

Senate Bill 5 to End Collective Bargaining i

Section 1. It is the General Assembly's intent that sections of the Revised Code be amended, enacted, or repealed to prohibit the state and state employees and state institutions of higher education and their employees from collectively bargaining, to abolish salary schedules for public employees and instead require merit pay, and to make various other changes to the Collective Bargaining Law.

[Abhijeet]

I thought this beautifully written, optimistic article provides a good counter to the general mood of this thread.

Steve Blank is a professor of entrepreneurship at UC Berkeley and influential in the venture capital/startup world.

When It’s Darkest Men See the Stars

Let me offer my prediction. There’s a chance that the common wisdom is very, very wrong. That the second decade of the 21st century may turn out to be the West’s and in particular the United States’ finest hour.
I believe that we will look back at this decade as the beginning of an economic revolution as important as the scientific revolution in the 16th century and the industrial revolution in the 18th century. We’re standing at the beginning of the entrepreneurial revolution.

What’s happening is something more profound than a change in technology. What’s happening is that all the things that have been limits to startups and innovation are being removed. At once. Starting now.

The barriers to entrepreneurship are not just being removed. In each case they’re being replaced by innovations that are speeding up each step, some by a factor of ten. For example, Internet commerce startups the time needed to get the first product to market has been cut by a factor of ten, the dollars needed to get the first product to market cut by a factor of ten, the number of sources of initial capital for entrepreneurs has increased by a factor of ten, etc.

Yet it’s possible that we’ll look back to this decade as the beginning of our own revolution. We may remember this as the time when scientific discoveries and technological breakthroughs were integrated into the fabric of society faster than they had ever been before. When the speed of how businesses operated changed forever. As the time when we reinvented the American economy and our Gross Domestic Product began to take off and the U.S. and the world reached a level of wealth never seen before. It may be the dawn of a new era for a new American economy built on entrepreneurship and innovation.

[Neshant]

Interesting commentary from the low point of March, 2009.



he got a number of things right.

[Neshant]

I thought this beautifully written, optimistic article provides a good counter to the general mood of this thread.

It may be the dawn of a new era for a new American economy built on entrepreneurship and innovation.

Shutting down various useless middleman industries like the banking & financing along with ending the issuance of bad money via the federal reserve cartel is the first step in putting things back on track. Until this is addressed, i don't see how anything is going to turn around.

So far the only innovation going on has been in financial scamming.

The author also ignores the massive outstanding pubic and private debt that is about to blow up. He is dreaming a fantasy.

If we are lucky, the private sector will conjure up a mini boom in genetics or some industry within the next few years giving us all some breathing room. Whatever the case, one thing is clear. The solution is not coming from the banking & financing indstry which produces nothing of value. Nor is it coming from Uncle Ben fiddling around with money printing.

[Neshant]

Ultimate Cost Of 0% Money
http://www.kitco.com/ind/willie/dec292010.html

Since the early 1990 decade, the nation's maestros have promulgated the notion that cheap money is a beneficial factor for the sustenance of wealth, for economic development, for the standard of living, for the robust industries, in general for the American society. Nothing could be further from the truth, but even today the reckless US economists from the Keynesian Camp and their controllers from Wall Street have convinced the multitudes that cheap money is a good thing. Cheap money comes with a deadly ultimate cost.

But the true singlemost cause of wreckage is the artificial low forced cost of money, the near zero cost of usury.

[Neshant]

Quick quiz question..

Without looking it up, tell me WHO said what's written below in 1957. It describes the current scenario of financing & banking crooks getting away with bonuses for committing crimes perfectly.

"When you see that trading is done, not by consent, but by compulsion -- when you see that in order to produce, you need to obtain permission from men who produce nothing - when you see money flowing to those who deal, not in goods, but in favors - when you see that men get richer by graft and pull than by work, and your laws don't protect you against them, but protect them against you - when you see corruption being rewarded and honesty becoming a self-sacrifice - you may know that your society is doomed."

[Hari Seldon]

Wow. Who was that? JFK? Ike Eisenhower?