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

Neshant · Post by **Neshant** » 06 Feb 2011 09:45

neither of the two. hint : its a female

Neshant · Post by **Neshant** » 06 Feb 2011 10:08

For those of you who need it spelt out in cartoon form :

JwalaMukhi · Post by **JwalaMukhi** » 06 Feb 2011 20:30

Neshant wrote:neither of the two. hint : its a female

Ayn Rand?

Hari Seldon · Post by **Hari Seldon** » 06 Feb 2011 20:36

^^ Aah, the libertarian mascot....

Neshant · Post by **Neshant** » 06 Feb 2011 23:55

I pretty much knew once I dropped that hint, it would be a give away.

Yea its her.

Neshant · Post by **Neshant** » 07 Feb 2011 07:31

Its only up for a short while (perhaps a day) but listen to it if the link is still valid.

Fast forwared to 19:17 minutes into the radio show.

Its about Social Security in the US and how its almost identical to a ponzi scheme. The working class today in their 20s, 30s, 40s will get far less (if anything) out of it compared to what they put in.

http://www.schiffradio.com/site/rd;jses ... U3Kip8.mp3

arnab · Post by **arnab** » 07 Feb 2011 11:12

JwalaMukhi wrote:
Neshant wrote:neither of the two. hint : its a female
Ayn Rand?

Do as I say, not as I do

An interview with Evva Pryror, a social worker and consultant to Miss Rand's law firm of Ernst, Cane, Gitlin and Winick verified that on Miss Rand's behalf she secured Rand's Social Security and Medicare payments which Ayn received under the name of Ann O'Connor

http://www.boingboing.net/2011/01/28/ay ... overn.html

Neshant · Post by **Neshant** » 07 Feb 2011 13:53

That's already known. Her lung cancer was draining her financially. It would be unrealistic to expect anyone to live upto perfect libertarian ideals when we are trapped in a system that is non-libertarian to begin with. i.e confiscation of earnings by threat of violence/jail by the state. Now if the govt wasn't involved in taxation & inflation robbery schemes, she might have had a lot more disposable income to fund here own health care.

The situation is analogous to the govt which forces the working class to pay into SS rather than save for their own retirement. When it comes time for them to retire, how can anyone blame them for being dependant on the govt handout. The govt has made them poor by robbing them all their lives leaving no choice but dependancy on the state.

The whole point of libertarian movement is to cut this unholy cycle of robbery to create a dependancy.

Prices of housing should be falling to affordable levels and banks which made bad loans should be going under. Instead Uncle Ben is inflating away to make people spend 30 yrs of their life paying a bank to keep an over-priced house even while destroying purchasing power. This again is nothing more than the same old robbery scheme to create a dependancy. Basically he wants to keep the population as indentured servants to banking crooks.

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

"A heavy smoker, Rand underwent surgery for lung cancer in 1974. Although she had long opposed government assistance programs, she eventually accepted Social Security and Medicare payments for herself, under the assumed name of "Ann O'Connor", and her husband as well.[87] A July 1998 interview with Ewa Joan Pryor, a New York state social worker, conducted in 1998 by the Ayn Rand Institute, revealed that Pryor assisted the two with filing claims for government assistance.[88]"

arnab · Post by **arnab** » 07 Feb 2011 15:26

Neshant wrote:That's already known. Her lung cancer was draining her financially. It would be unrealistic to expect anyone to live upto perfect libertarian ideals when we are trapped in a system that is non-libertarian to begin with. i.e confiscation of earnings by threat of violence/jail by the state. Now if the govt wasn't involved in taxation & inflation robbery schemes, she might have had a lot more disposable income to fund here own health care.

[/i]"

Ah but that is a classic non-testable hypothesis isn't it (like 72 virgin avaiability after shaheedisation)? No taxation / no regulation - who knows whether she would have written anything at all in such a world? But evidently she did not believe in her vision enough to be willing to die for it

Neshant · Post by **Neshant** » 07 Feb 2011 21:22

the hypothesis will be tested soon once this blows up. i.e. govt revenues unable to meet the soaring expenditure and debt liabilities.

One of 2 things will happen : taxes will be raised through the roof on the working class killing the economy or the more backdoor method of hyper-inflation will be used while denying there is inflation (as Uncle Ben currently does).

Either way, some robbery scheme or another is coming down the pike. I advise all my bros here to move your assets out of harm's way (govt's reach).

svinayak · Post by **svinayak** » 08 Feb 2011 06:55

U.S. should step back from mortgage business, industry leaders say

By Zachary A. Goldfarb
Washington Post Staff Writer
Monday, February 7, 2011; 8:10 PM
ORLANDO - A group of Wall Street professionals meeting here Monday posed a central question facing the Obama administration: How do taxpayers get off the hook for supporting new home loans without doing damage to the struggling housing market?
It is a multi-trillion-dollar question. And it's gaining currency as the administration prepares to unveil this week a white paper on overhauling the nation's mortgage system, which, as a result of the financial crisis, relies on the government to insure almost every home loan made today.

...

The Obama administration has been debating whether the government should guarantee mortgages in the long run, with some officials questioning whether any more taxpayer dollars should be put on the line.

But some participants at the conference warned that a government withdrawal from the market might scare off investors, who are the source of funds for banks that make loans to home buyers. Many investors are especially nervous after the financial crisis, when they took major losses on loans that weren't backed by the government. "The wounds are too fresh," said Kevin Palmer, a Freddie Mac executive.

Eliminating the government's role might also undermine the $5 trillion market for mortgage-backed investments, some conference attendees said. In this market, investors are willing to trade in mortgage-backed investments regardless of whether they know what loans underlie them and whether those loans are overly risky.

Hari Seldon · Post by **Hari Seldon** » 08 Feb 2011 08:36

Speaking of housing, wonder how many mango yumreekis can see through this elaborately righteous charade....

The Real Estate Lobby Is Ready to Rumble

Barbara J. Thompson plans to put a human face on the high-stakes debate over whether to preserve cherished U.S. government subsidies for home loans. Hundreds of faces, in fact. Next month, she'll lead a legion of "everyday people" to Capitol Hill to affirm the virtues of homeownership and urge Congress not to abandon federal support for low-cost mortgages.

"These are your neighbors, they're the people who teach your kids at school, they're your firefighters," says Thompson, executive director of the National Council of State Housing Agencies, whose members help provide loans to first-time home buyers. "The middle working class is the bedrock of our country."

Cry me a river. The sheer duplicity, double-faced lying and deception rivals packee levels only. No wonder as sri shiv saar says, the US and Pak are made for each other.

Well, here's what's wrong with smt barabara's facetious tirade: (in TAE's words)

The present US housing finance system, in which the government - through Fannie Mae, Freddie Mac, Ginnie Mae, the FHA and others-, guarantees all losses from mortgage loans for the lenders, but none for the borrowers, is the prime perpetrator in, if not the outright cause of, the financial -and political- crisis the US finds itself in. It's those government -read: taxpayer- guarantees that made it possible for lenders to throw all caution to the wind, lend to anyone who could fog a mirror, and use the proceeds to engage in ultra-high-stakes poker games in the international finance markets.

What the borrowers got were homes at artificially -hugely- elevated prices, and, when the markets started to crash, foreclosures, job losses and bankruptcies. Still, people like Barbara J. Thompson, who claims to "represent" your neighbors, teachers and firefighters, wants that same system to be perpetuated and revived.

But wouldn't it be better for those people who are the "bedrock of our country" if prices came down? Wouldn't that do a whole lot more towards home affordability than "cheap" loans? What exactly makes a house affordable to you? Is it a price you can afford, or is it a loan you can afford? If you look at the main Wall Street banks, and you realize that they a) were all bankrupt until your money was poured into their black holes, and b) they now pay record bonuses again, what is it that makes you think the system that made them rich is going to do you, as a borrower, any good?

It's no secret that propping up home prices benefits the wall st elite disproportionately only. The chootzpah required to spin it as for 'em mango yankees only is revealing indeed. And so on and so forth.

More from that story above:

Joining Thompson's cause will be thousands of homebuilders, real estate agents, civil-rights leaders, and bankers who aim to deliver a similar message to Congress: Preserve government support for housing. Together, these groups represent what one might call, with apologies to President Dwight D. Eisenhower, a real estate-industrial complex that transcends partisan politics, geography, and socio-economic divides.

Bingo. bang-on. bulls eye. And so on and so forth. But kya fayada, I don't see how this juggernaut can be stopped at this point only.

Neshant · Post by **Neshant** » 08 Feb 2011 09:28

The federal reserve and the banks it represents want people to be indentured slaves paying a mortgage on an overpriced house for 30 years. There is no reason anyone should waste 50% of their life for a shack. Banks are crooks who make money out of nothing and charge interest on it.

BTW the stock market is looking incredibly rigged and artificial.

Neshant · Post by **Neshant** » 08 Feb 2011 09:48

now i personally don't much trust mike maloney because he sells gold & silver for one and his interest is in pumping the ownership of precious metals. And neither do i trust his get-rich-quick partner Robert Kyosaki who was pumping real estate investing as means of getting rich quick back in 2006 on infomercials!

nevertheless, here is mike giving his view of what's about to happen next in the stock market :

VikramS · Post by **VikramS** » 08 Feb 2011 11:58

Neshant:

Right now we are in unchartered territory so there are a lot of pundits out there. But a few things to keep in mind.

It is very likely that the problems at the local and state level will linger on for a long time. However they are not systemic, since by their very nature they are local. They will be resolved via a combination of cuts and taxes. It will take a long time to clean the system and it will result in lower level of services but the US economy is built on private enterprise, not government jobs.

The US is an excellent position to benefit from the growth in the BRIC and the former third world. Wonder why? LAND, LAND, LAND. It has one of the most productive agricultural sector in the world. It has a lot of natural resources which remain untapped since it is cheaper to import them. It has a low population density. So all this talk of the USD collapsing etc has to be taken with a pinch of salt since the US has a LOT of natural resources to back up its currency. Of course having a very stable government and a strong military does not hurt your standing as a reserve currency.

Bernanke is smarter than most give him credit for. He understand the current dynamics in the world. The USD is the one-eyed king of all fiat currencies. He also knows that the Europeans are hiding a lot of dirt under the carpet and one of the beneficiaries of the QE program are actually European banks who are raising debt denominated in USD since it costs less (they hedge the currency risk); bond investors STILL trust the US more than Europe.

It is the stated policy of Ben/Obama to increase US exports. That will happen naturally as more natural resources are exported. It will also happen if the USD weakens. They realize that they are in a world of competitive devaluation but also know that being #1, they can beat anyone else in the game. QE2 was also done to send in a fiscal stimulus to prevent a double dip. Politically it was not tenable to get another stimulus through so the powers decided to use the QE2 method of sending stimulus.

It is true that the excess liquidity is helping push up commodity prices, though the Feds role is overstated. Though over the short term excess liquidity can push up prices, over the longer term it is the supply and demand situation which determines pricing. AND the demand for commodities is soaring; hence their prices.

When it comes to currency wars, the US actually likes soaring commodity prices, since it forces currency manipulators to revalue their currency a value determined by market forces instead of artificial pegs. QE is also a tool to put pressure on China and other countries which undervalue their currency.

There is a chance that the forces unleashed by Ben results in major geo-political uncertainty. The food and inflation driven riots in the Arab countries is a good sign of the things to come. Given the way they have dumped Mubarak, the US may be using commodity inflation as a mechanism to achieve desirable regime changes. Perhaps there is a realization that Islamization can not be rolled back by strong-men alone.

I can go on, but I hope you get the idea. I am not sure how many people track it but the Nasdaq 100 (QQQQ) has now risen above the 2007 peak. And valuations are not frothy yet.

shyam · Post by **shyam** » 08 Feb 2011 12:42

VikramS wrote:When it comes to currency wars, the US actually likes soaring commodity prices, since it forces currency manipulators to revalue their currency a value determined by market forces instead of artificial pegs. QE is also a tool to put pressure on China and other countries which undervalue their currency.

it is inappropriate to accuse China as the currency manipulator. When USD was adopted as the reserve currency as per Bretton Woods System, USD was supposed to be pegged to gold and other currencies pegged to USD. As long as USD is treated as global reserve currency, it is legitimate for other countries to peg their currencies to USD.

Now, who is the currency manipulator here?

Hari Seldon · Post by **Hari Seldon** » 08 Feb 2011 17:34

^^^Shyam,

The bretton woods you talk of (the one where USD was backed by gold) ended in 1971 when Nixon went off the gold standard. The PRC set up its USD peg much after 1971.

Bretton woods II started that stated that the USD was now a purely fiat currency based in gawd we trust. The rest as they say is history.

BTW, have to agree with vikramS that all collpase scenarios for USD are way overdone. Oirostan is far weaker and liable to see implosion much before the US feels the heat.

However I wouldn't go so far as to label sri big ben a great man. The man and his predecessor through their actions the implications of which they surely must have known (even more damned if they didn't) staged mighty asset bubbles in a debt based economy. When the bubbles imploded (first in 2001) they instead of easing the deleveraging process, helping the stressed mango people and allowing the bad banks to go bust thereby rebooting the banking system on a clean slate, burdened the mango people with future liabilites in order to help wall st biggie banks*.

I still maintain that it was perhaps possible back in sept '08 to take 'em big banks, on their last legs at that time, into receivership and begin an orderly untangling of the complex web of interconnected financial mexican standoffs that existed then...or perhaps even that was not possible given that banks in EU, UQ and PRC were hugely involved in the mess...anyway, hard to say from our vantage point, I guess.

*added later:
This series of actions where wall st fatcats get preference over everyone else in the bailout queue was built into the way the Fed is formed and operates - as a private institution whose regional boards have predominantly bank representation. Shall we say the bailouts we saw are a structural feature of the Fed and we can expect more down the line.

Hari Seldon · Post by **Hari Seldon** » 08 Feb 2011 17:34

TAE tweet, self-explanatory I guess and linked to a good article:

In David Cameron we have a leader whose job is to quietly legitimise a semi-criminal, money-laundering economy http://bit.ly/hNVNZu

Ambar · Post by **Ambar** » 09 Feb 2011 06:18

Hari Seldon wrote:TAE tweet, self-explanatory I guess and linked to a good article:
In David Cameron we have a leader whose job is to quietly legitimise a semi-criminal, money-laundering economy http://bit.ly/hNVNZu

Let me try and understand this : They are reducing the corporate tax at home to improve hiring and encourage investment, but at the same time also reducing (or completely nullifying) tax on foreign earnings!? Isnt this completely oxymoron to reducing corporate tax at home in the first place? I'm all for reducing the corporate tax at home but removing tax on foreign earnings is plain ridiculous.

Where i disagree with the author is his gripe against cuts in NHS and benefits. UK has become one of the largest nanny-states in Europe and this is unsustainable. The northern England is filled with vilest refuses of the society who live on endless benefits contributing nothing back. Add a silly immigration policy and you have large swathes of muslim population where unemployment stands at around 30+% and they keep sucking the system dry on freebies.

Make no mistakes about it, i am no fan of UK or its history, but they do have some amazing engineers in aeronautical and automobile fields.They can still salvage their country if they really want to but not with the current policies.

Btw, i just looked up their external debt. How on earth are they servicing it when it is 5 times their GDP?! Ditto goes with The Netherlands (where illegal immigrants can legally work and live endlessly on state housing while their petition is under review - and stays that way for years and years). How are these guys paying the interest on such gargantuan external debts?

somnath · Post by **somnath** » 09 Feb 2011 07:24

Ambar wrote:Btw, i just looked up their external debt. How on earth are they servicing it when it is 5 times their GDP?!

this is abslutely fallacious...Bulk of the debt is company lending and (biggest daddy) bank liabilities...against each of those liabilities, UK technicaly also owns external assets..For example, the liabilities on the balance sheet of (say) HSBC India will get counted as "external debt"....So unless the assets that these banks (and companies) hold overseas go bad, there is no "servicing" that Britain needs to do...

http://www.statistics.gov.uk/downloads/ ... -q3-10.xls

Britain's bigger problem are its fiscal situation and growth...

shyam · Post by **shyam** » 09 Feb 2011 09:39

Hari Seldon wrote:The bretton woods you talk of (the one where USD was backed by gold) ended in 1971 when Nixon went off the gold standard. The PRC set up its USD peg much after 1971.

Bretton woods II started that stated that the USD was now a purely fiat currency based in gawd we trust. The rest as they say is history.

True. But Nixon ended only the dollar-gold peg. But he did not undo the other part, the reserve currency status of USD. Many countries do peg their currencies with USD. When Argentina pegged that eventually led to its finacial crash, nobody from GOTUS accused that Argentina was a currency manipulator. Nor did they complain about Chinese peg during the boom time. When uncle complains that PRC is currency manipulator, please ask them to say that USD should no longer be the reserve currency.

My point is that as long one country's fiat currency is treated as world reserve currency, others have the right to peg their currency to it. Also want to add that US has the right to manipulate its currency and it is China's problem to handle the inflation that it imports.

Neshant · Post by **Neshant** » 09 Feb 2011 10:02

VikramS wrote:It is true that the excess liquidity is helping push up commodity prices, though the Feds role is overstated. Though over the short term excess liquidity can push up prices, over the longer term it is the supply and demand situation which determines pricing. AND the demand for commodities is soaring; hence their prices

If during the height of the real estate driven bubble, demand was not soaring, how can it be soaring now?
Rise of commodity prices are due mostly to speculators chasing another bubble. Even the speculators know it will collapse soon like the real estate bubble and they will flood the exits at the first sign of US being over-indebted (which surely can't be far off).

VikramS wrote:I am not sure how many people track it but the Nasdaq 100 (QQQQ) has now risen above the 2007 peak. And valuations are not frothy yet.

I don't know what measure you are using but the stock market looks rigged by the federal reserve to create confidence in the market by creating the illusion of more bogus wealth.

Its beginning to look like the tail is wagging the dog. Since 2000, not a single new productive industry has emerged that can create well paying jobs to take the place of IT. House flipping and financial service (more like financial scams) are not productive industries. Until I see the emergence of a new productive industry, this stock market rise, wreckless spending and money printing will only end in disaster.

shyam · Post by **shyam** » 09 Feb 2011 10:08

Neshant wrote:Rise of commodity prices are due mostly to speculators chasing another bubble.

The speculators are there because it is not their personal money (only profit is) and they get ultra cheap money originated from Fed. Close that liquidity tap, you will see a different scenario.

somnath · Post by **somnath** » 09 Feb 2011 10:35

shyam wrote:True. But Nixon ended only the dollar-gold peg. But he did not undo the other part, the reserve currency status of USD. Many countries do peg their currencies with USD. When Argentina pegged that eventually led to its finacial crash, nobody from GOTUS accused that Argentina was a currency manipulator. Nor did they complain about Chinese peg during the boom time. When uncle complains that PRC is currency manipulator, please ask them to say that USD should no longer be the reserve currency.

USD's status as a reserve ccy is not the result of a fiat, or diktat by anyone...For that matter, even membership of Bretton Woods was voluntary..USD is the de facto resreve currency because it is backed by the largest eonomy in the world (by FAAAR), the largest trading nation in the world and the largest financial market in the world (by FARX10!)...And, but naturally, it is a fully convertible ccy with the least amount of capital a/c restrictions on tranferability and conversion...

There are benefits to the US of USD's reserve ccy status, but that is not a result of POTUS declaring that it must be so!

About Argentina's default, its a bit facile to attribute it to the dollar peg...It was the same dollar peg that allowed Argentina to reduce inflation from triple digit levels to single digit..The core reasons for the default was worsening fiscal position and other structural issues, though the dollar peg too played a role later...

The whole question of a peg is more complicated than a simple good/bad..Any ccy peg by definition takes away monetary policy freedom...On the other hand, the peg (in theory) forces the policy-makers to be more disciplined in their monetary and fiscal policies, esecially in terms of debt...A peg also reduces txn costs for investments (and for trade), which in turn boosts investments in the local economy...The flip side of the peg is the inability to devalue the ccy, which is a standard textbook response to downturns...And in a crisis, maintaining the peg becomes a bigger headache than managing the macro for the policy-makers..

Hari Seldon · Post by **Hari Seldon** » 09 Feb 2011 11:03

The whole question of a peg is more complicated than a simple good/bad..Any ccy peg by definition takes away monetary policy freedom...On the other hand, the peg (in theory) forces the policy-makers to be more disciplined in their monetary and fiscal policies, esecially in terms of debt...A peg also reduces txn costs for investments (and for trade), which in turn boosts investments in the local economy...The flip side of the peg is the inability to devalue the ccy, which is a standard textbook response to downturns...And in a crisis, maintaining the peg becomes a bigger headache than managing the macro for the policy-makers..

+1.

Exhibit A for peggy problems is the oiro periphery. A common currency (sans a debt union) is effectively a 'hard peg' against some external standard. Routine monetary tools now stand denied to an Ireland and a Portugal whereas a UQ merrily devalues away. The oiro story ain't over yet, not by a long shot.

VikramS · Post by **VikramS** » 09 Feb 2011 12:16

Neshant:

All markets operate under a regulatory framework and that framework evolves over time. The purpose of the markets is to provide access to capital from those who have it to those who need it. When that system breaks down, the regulators step in. All we know, the Fed might be buying index futures, left and right through their proxy, but they have done their job in preventing a collapse in nominal asset prices. In March 2009 you would have have laughed at anyone who would have said that the Nasdaq 100 will top its 2007 high within 24 months but it has. I do not know of any market which is not rigged in one form or another.

I also disagree with you regarding your comment about no innovation since 2000. 2000 started the process of IT transforming business operations. The tech bust was just the end of the beginning. Since then IT has permeated all aspects of US economy at a level which would have been hard to imagine in 2000. Think of wireless, mobile computing, cloud computing. The phone I have right now has functionality comparable to a laptop I had 10 years ago and I can sit in a park while using it. That allows me to have a better work-life balance which at the end enhances productivity.

For all the rona-dhona in the US about IT outsourcing, the availability of IT services at an affordable price has helped raise productivity in the US; something Indian IT companies should make an effort to highlight. Unlike the Chinese exports which cost the US millions of jobs, the productivity gained by the US economy due to IT has helped every American corporation in a very positive manner.

These days supply chains are more integrated and availability of reliable real-time data makes businesses a lot more efficient. One reason the collapse in 2008 was so sharp was this real-time availability of data. Everyone saw what was happening and rapidly cut down; information that would have normally taken months to trickle down happened in weeks. However, the same knowledge sowed the seeds of recovery. US corporations were able to maintain their profitability even during the doldrums. They exited the recession cash rich, and with very lean operations which results in significant bottom-line leverage to even modest top-line growth.

It is hard not to be pessimistic after what happened in 2008. Fixing that the psychological damage is a very important component in the path to recovery. And with so much of the US wealth tied to the stock market, there is nothing like a stock market on a tear to fix that psychology.

Neshant · Post by **Neshant** » 09 Feb 2011 13:10

VikramS wrote:All markets operate under a regulatory framework and that framework evolves over time. The purpose of the markets is to provide access to capital from those who have it to those who need it. When that system breaks down, the regulators step in. .

These guys are useless middlemen in the economy. The regulating Uncle Ben is doing is only aimed at ensuring the private banking cartel he represents gets to offload its bad gambling debts on the rest of productive society. All regulating & unregulating is framed with that objective in mind.

As for what's going on in the rest of the economy, he hasn't a clue. If anything, there's good evidence to suggest that his fiddling around with interest rates is the cause of the real estate bubble which blew up. Hell the guy practically slept his way into the crisis.

Markets do not need these fools & pretenders who claim to have foresight of the future. It operates quite nicely on its own so long as the various participants eat their losses instead of getting a free ride offloading it on some sucker down the line like member banks behind the federal reserve.

The real objective of markets are price discovery - which is what's currently being thwarted for the reasons mentioned in the first paragraph.

VikramS wrote:All we know, the Fed might be buying index futures, left and right through their proxy, but they have done their job in preventing a collapse in nominal asset prices. .

What should be happening IS a collapse of asset prices. Prices need to fall to a point where people find homes, educaiton, health care, cars..etc. affordable. Those who did not gamble their ass away (like the banking crooks) should reap the benefits of their correct decision and those who did (like the member banks behind the federal reserve) should rightfully eat their losses.

VikramS wrote:Think of wireless, mobile computing, cloud computing

This already existed back then and is old hat. Cloud computing is another one of those useless buzzwords invented to create hype and nothing more. There is no new major productive industry that has emerged since the year 2000 that creates well paying jobs on a vast scale. Financing & high rolling + house flipping is the only thing that has happened since then. The MASSIVE blowup of that is still being hidden on the books as its slowly offloaded onto to the backs of productive society.

VikramS wrote:However, the same knowledge sowed the seeds of recovery. US corporations were able to maintain their profitability even during the doldrums. They exited the recession cash rich, and with very lean operations which results in significant bottom-line leverage to even modest top-line growth.

All this is empty talk. There is no recovery. There is only money printing, stock market rigging, running up debt and for companies - laying off staff. I repeat : there is not a single new productive industry that has emerged since 2000 that can create well paying jobs on a large scale in the US.

Just as over-priced houses created a fake belief in people that their net worth had risen dramatically, so too this fake stock market bubble is beginning to fool some into thinking some recovery is magically underway. Nobody can identify what new industry has emerged or what US is exporting (other than inflation) but you got financers & high rollers and economists talking rocks about recovery. As with the housing bubble, this will end in a spectacular bust and this time there won't be any more bubbles to blow.

Might I suggest you read Peter Schiff's book "How an Economy Grows and Why it Crashes". As far as I'm concerned, anyone who reads that book and understands it has earned a PhD in economics.

shyam · Post by **shyam** » 09 Feb 2011 13:15

There is a difference in peg done by Argentina/China and those in Euro countries. Former ones are soft pegs, where the countries still retain their right to print and change peg level, whereas others don't have it in the Euro.

According to the arguments made above, currency pegging most likely to be an issue for the country that pegs, i.e. Arg/China. But in the case of China, it is US that is complaining about the peg and not China. The reason why PRC pegs currency is to continue exporting their products to US. All US has to do is to provide incentives to US corporations to move manufacturing to US. This would actually solve many problems in US - unemployment, trade deficit, and currency issues (who cares about Yuan/USD peg if there is no big export from PRC). Why print money and send them to China to create inflation, when they could have given that to their own people to solve many of their problems. Accusing PRC as currency manipulator without addressing the root cause of the problem is like "ulta chor kotwal ko danda".

somnath · Post by **somnath** » 09 Feb 2011 13:21

shyam wrote:There is a difference in peg done by Argentina/China and those in Euro countries. Former ones are soft pegs, where the countries still retain their right to print and change peg level, whereas others don't have it in the Euro.

Well, theoretically a country in Eurozone can also decide to opt out of ECU...There were serious suggestions about Greece, and Germany at the other end has contemplated reverting to DM...But the idea of a common currency without a common debt market is a bit of a stretch to maintain - as people put it, the euro area is a sociological compact more than an economic one!

shyam wrote:All US has to do is to provide incentives to US corporations to move manufacturing to US. This would actually solve many problems in US

How Obama (and Bernanke) wish it were as easy as that!

China's ccy peg is a bit of a political fudge - it is important, and China is playing hardball on it no doubt..But it is hardly the most important issue confronting the US...

shyam · Post by **shyam** » 09 Feb 2011 13:29

somnath wrote:How Obama (and Bernanke) wish it were as easy as that!

So they are doing the easiest one... print money, export inflation, and cause internal revolts. If that appears easy, do not expeect others to remain foolish spectators. Just wait till other countries start asking why USD should no longer be treated as the global reserve currency and why not move to gold or something equivalent for international trade.

Neshant · Post by **Neshant** » 09 Feb 2011 20:09

India is being badly hurt by the inflation being exported by the US.

It should buy gold and take physical delivery to counter act the devaluation of the USD.

paramu · Post by **paramu** » 09 Feb 2011 22:25

from TAE:

500 largest nonfinancial companies have accumulated $1.93 trillion(record) in cash & other liquid assets as of end Q3 http://bloom.bg/gyTAaJ

Expect massive global acquisitions by these companies if a crash happens in future.

Prem · Post by **Prem** » 09 Feb 2011 23:33

http://online.wsj.com/article/SB1000142 ... 41574.html
IMF Warns on Japan Banks

TOKYO—Japanese banks may need to raise their capital base as they face various risks—possibilities include a global slowdown induced by Europe's debt crisis and an increase in bad loans to smaller companies—a senior International Monetary Fund official said Wednesday. "The Japanese banking system has already increased its capital buffer, but banks continue to face several challenges, such as declining core profitability and still-elevated domestic and global macro-financial risks," IMF Deputy Managing Director Naoyuki Shinohara said at a seminar on banking supervision and regulation. He added that given "existing risk exposures and the new regulatory capital requirements, banks may need to

ramana · Post by **ramana** » 09 Feb 2011 23:47

But they have no warnings for US banks!

paramu · Post by **paramu** » 09 Feb 2011 23:50

What GoJ has to do is to allow mark-to-fantacy rule for Japanese banks, and lower reserve requirements. Problem solved.

Arya Sumantra · Post by **Arya Sumantra** » 10 Feb 2011 03:41

somnath wrote:USD's status as a reserve ccy is not the result of a fiat, or diktat by anyone...For that matter, even membership of Bretton Woods was voluntary..USD is the de facto resreve currency because it is backed by the largest eonomy in the world (by FAAAR), the largest trading nation in the world and the largest financial market in the world (by FARX10!)...And, but naturally, it is a fully convertible ccy with the least amount of capital a/c restrictions on tranferability and conversion...

There are benefits to the US of USD's reserve ccy status, but that is not a result of POTUS declaring that it must be so!

Try saying that to any OPEC nation that wanted to diversify currency in oil trade

VikramS · Post by **VikramS** » 10 Feb 2011 05:34

Neshant:

Your pessimism is clouding your judgement. I suggest you spend a few hours going through the earning reports of a few major corporations, study their balance sheets etc. If you have an account at a brokerage go through a few research reports from good analysts (typically S&P equity report have a good balance of pros and cons).

The headline numbers which you hear are very misleading. Among the college educated, the unemployment rate went from 2% at the peak to around 4-5% at the bottom. It is that high school educated American who is in trouble. The export of the manufacturing base to China meant that those relatively well paying manufacturing jobs were no longer there. The construction boom helped hide that problem but once that went away, the wounds are there for all to see.

Most of the consumer discretionary spending comes from upper income Americans and they are doing fine. It shows up in the earnings of the consumer discretionary sector. Whole Foods reported blow out earnings, selling organic stuff at 2-3x the price of normal non-organic stuff. Walmart on the other hand is still struggling because the buying power of their client base has eroded. This was true even two years ago..
http://seekingalpha.com/article/132518- ... ight-spots

From social point of view those millions of unemployed, less educated Americans are going to be an issue. But from the corporate profitability point of view, things are very rosy. Wage costs are low, corporations are very lean, they have a lot of cash, and the cost of capital is very low.

There is an inherent beauty in QE. The USD will continue to be the one-eye king of the major currencies since there is no alternative. The Euro is toast; you can not have monetary and fiscal policy operate independently. Japan is dying. The BRIC currencies have their own issues with regards to capital controls and convertibility. The commodity countries (CAD, AUD, NOK, ZAR) just do no have the size to become reserve currencies.

Also note that the valuation of paper money and hard money (gold) is cyclical. One rule of thumb which the gold bugs use is that the Dow/Gold ratio goes down to ONE! (it around NINE right now) These cycles are long and last many years/decades. The advantage which the US has that it is pretty much the only long-term viable option on the paper side.

Of course there is going to be a cost to pay along the way. However, who pays that is still out there in the open. The US wants the currencies of BRICs and other emerging economies to reflect their true value; once they do they we will not have to use the Purchasing Power Parity mechanism to compare economies. QE is the American way of telling the world to revalue the USD to help make the US more competitive and reverse the outflow of jobs. Those economies which are unwilling to adjust will be forced via inflation thanks to the inflation genie unleashed by QE.

Arya Sumantra: Carrying a big stick and having the willingness to use it are a requirement for being a reserve currency. No surprise there. Jiski Lathi Uskhi Bhains works at all levels.

Hari Seldon · Post by **Hari Seldon** » 10 Feb 2011 05:56

Sadanand Dhume nails it, I guess.....Nothing Inevitable About India's Rise (WSJ)

Read it all only

svinayak · Post by **svinayak** » 10 Feb 2011 06:23

Hari Seldon wrote:Sadanand Dhume nails it, I guess.....Nothing Inevitable About India's Rise (WSJ)

Read it all only

Very general article DG
This was usually the style of the WP reporters based in New Delhi

somnath · Post by **somnath** » 10 Feb 2011 06:27

Hari Seldon wrote:Sadanand Dhume nails it, I guess.....

The fetish over FDI is quite misplaced...Even at double the current levels, FDI is going to remain a small, peripheral contribution to Indian investment..And the examples being oft quoted - POSCO, Mittal Steel - these are sensitive issues related to the political economy...Mineral resources are the nation's, not any private corporation's...It is therefore important to get the frameork right...the investors will wait, dont worry..With commodity prices where they are, they are not going to go away...the bigger issue is on the nitty gritty of governance...

Arya Sumantra wrote:Try saying that to any OPEC nation that wanted to diversify currency in oil trade

Well, indeed...Some of them did try..But invoicing ccy is not just the question of the exporter's preference, but also the buyer's...And who are the major buyers of oil? US, China, India (outside Europe) - and any guesses on what is the preferred invoicing ccy for these countries?

Neshant wrote:India is being badly hurt by the inflation being exported by the US.

It should buy gold and take physical delivery to counter act the devaluation of the USD

Care to explain how that is possible? And how is the US exporting inflation?

ramana wrote:But they have no warnings for US banks!

The Jap banks are potentially under much greater threat than the Americans...the banking system there is a haven of crony banking