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

[devaraj_d]

I visited a small but very impressive company in Germany. It is doing stuff what both India and China cannot do.

Sir, why bring in India. You probably didnt mean it in that sense. But I am tired of folks telling us what we can and cannot do. What do they do, cr*p golden bricks every morning.

pradeepe ji:

No I did not mention in any wrong way.

In my industry it does matter what you can make and what you cannot. I see issues because of this in almost every project.

[SwamyG]

The global economy is in for major storms in the coming year. Yeah, I know, too many such doomy predictions have been made already and we're still around, so this one is just another in that series. For all our sakes, let us hope this one too blows over...

However, the boy who kept bluffing "the tiger is coming" was ultimately eaten by the tiger. We were talking about PIGS last year, and there serious-jokes about expanding it to PIIGGS or PIGGS etc - adding Ireland and Great Britain.

[paramu]

Now US & China's rating agencies are duking it out downgrading each others creditworthyness. US does not even want to recognize China's rating agency and refused its application to operate in the US.

What influence does Chinese rating agency have? Does PRC decide buying debts based on Dagong's ratings? Does PRC formally say that it won't buy US debt because of its poor ratings?

It it doesn't, it can be called a combined drama of uncle and panda.

[Hari Seldon]

However, the boy who kept bluffing "the tiger is coming" was ultimately eaten by the tiger. We were talking about PIGS last year, and there serious-jokes about expanding it to PIIGGS or PIGGS etc - adding Ireland and Great Britain.

OK, whatever. Your point being?

[Singha]

Although how anyone can consider a country where the primary source of revenue is corruption money as being safe i have yet to understand.

informal aggreement among gora elites to leave it alone, or atleast leave the stolen third-world money alone for the swiss to take their annual commission on.

[Airavat]

Rise of the Swiss Franc

Jordan said it is in everyone's interest that the European Union find a solution to some countries' debt problems and that if the situation worsens, then Switzerland, too, would have large problems.

The Swiss currency has risen about 11% versus its euro-zone and U.S. counterparts in the past three months, undermining the competitiveness of Swiss exports in the country's most important markets.

[Neshant]

What influence does Chinese rating agency have?

Probably none for now. Although it does light a fire under Moody, Fitch and S&P that their bogus ratings in favor of their employer (US govt) isn't going unnoticed.

Nobody is trusting rating agencies these days. Its caveat emptor making investment decisions based on their so called ratings as their credibility has been shot to pieces.

There's a parallel. Central banking chairmen roll dice and pretending to know what ails the economy. Rating agencies roll dice and pretending to be able to predict risk. The truth is neither have any special insight into the economy that they claim to have. Both however exist to promote their own agenda or that of their cronies.

[Neshant]

It is related to an automotive component. I am afraid I do not want to elaborate more than this in a public forum due to confidentiality issues.

I'm pretty sure there's nothing in a car that's impossible to do.

It might appear impossible to you however depending on your background.

[Neshant]

He thinks its a trick question but its not.

Thinking way too hard for an answer.

Watch his facial expression.

[Dileep]

There is NOTHING someone can't do. There are only two factors going against it.

1. Economy of scale
2. Monopoly of information and materials. (you can't make the blisk if you don't have the specific metals, and the know-how to process them)

Skills can be learned, facilities can be made, money can be arranged.

[Arjun]

However, the boy who kept bluffing "the tiger is coming" was ultimately eaten by the tiger. We were talking about PIGS last year, and there serious-jokes about expanding it to PIIGGS or PIGGS etc - adding Ireland and Great Britain.

The doomsday forecasting business is a large and growing one, and for some very profitable....so you are not going to see these people disappear anywhere in a hurry. Hopefully, they are at least putting their money where their mouth is and profiting from their shorts.

[abhishek_sharma]

Lawrence Summers Interview

[Ambar]

However, the boy who kept bluffing "the tiger is coming" was ultimately eaten by the tiger. We were talking about PIGS last year, and there serious-jokes about expanding it to PIIGGS or PIGGS etc - adding Ireland and Great Britain.

The doomsday forecasting business is a large and growing one, and for some very profitable....so you are not going to see these people disappear anywhere in a hurry. Hopefully, they are at least putting their money where their mouth is and profiting from their shorts.

Don't be alarmed. It is a seasonal thing. Happened in the 80s recession too, but was mostly restrained to newspaper articles . The new pessimistic p0rn has become viral and new self-proclaimed pundits are creeping out of the woodwork thanks to electronic media. First it was the great crash that was gonna come at the end of 2009,then 2010 and then a crash again after Fed stopped the QE this June. Now the "pundits" say "5 to 10 years". Market economies go through cycles,some more steep than others. PIGS,Sparrows or flying cows, commerce will go on as long as civilization remains on earth.

[Hari Seldon]

Martin Wolf uvacha

Utopia vs reality: It is not that tackling the US fiscal position is urgent. At a time of private sector deleveraging, it is helpful. The US is able to borrow on easy terms, with yields on 10-year bonds close to 3 per cent, as the few non-hysterics predicted. The fiscal challenge is long term, not immediate. A decision not to allow the government to borrow to finance the programmes Congress has already mandated would be insane.... Yet, astonishingly, many of the Republicans opposed to raising the US debt ceiling do not merely wish to curb federal spending: they enthusiastically desire a default. Either they have no idea how profound would be the shock to their country’s economy and society of a repudiation of debt legally contracted by their state, or they fall into the category of utopian revolutionaries, heedless of all consequences.

Meanwhile... Europe is trapped in its own utopian project: the single currency. Just as members of the Tea Party hate paying taxes for those they deem unworthy, so, too, do solvent Europeans hate transfers to those they deem irresponsible. Alas, as many have long predicted, what would, in the absence of the currency union, have been a straightforward currency crisis has now morphed, within these constraints, into an agonising fiscal cum financial crisis. Worse, spreads on Spanish and Italian 10-year bonds over German bunds have reached 328 and 296 basis points, respectively. In slow-growing economies with overvalued real exchange rates, these spreads begin to be dangerous. If they became and remained, say, 400 basis points, the real interest rate on long-term debt would be 5 per cent. These countries would then be slowly shifted from a good equilibrium, with manageable debt, to a bad equilibrium, with close to unmanageable debt. Italy, with the fourth-largest public debt in the world, is probably too big to save: Italians themselves must make the decisive moves needed to restore fiscal credibility. That, in turn, requires both a sharp tightening and measures to raise the growth rate. Can this combination be managed? Only with difficulty, is the answer.

These are dangerous times. The US may be on the verge of making among the biggest and least-necessary financial mistakes in world history. The eurozone might be on the verge of a fiscal cum financial crisis that destroys not just the solvency of important countries but even the currency union and, at worst, much of the European project. These times require wisdom and courage among those in charge of our affairs. In the US, utopians of the right are seeking to smash the state that emerged from the 1930s and the second world war. In Europe, politicians are dealing with the legacy of a utopian project which requires a degree of solidarity that their peoples do not feel. How will these clashes between utopia and reality end? In late August, when I return from my break, we may know at least some of the answers.

Oh, agreed 100%.

[Hari Seldon]

Don't be alarmed. It is a seasonal thing. Happened in the 80s recession too, but was mostly restrained to newspaper articles . The new pessimistic p0rn has become viral and new self-proclaimed pundits are creeping out of the woodwork thanks to electronic media. First it was the great crash that was gonna come at the end of 2009,then 2010 and then a crash again after Fed stopped the QE this June. Now the "pundits" say "5 to 10 years". Market economies go through cycles,some more steep than others. PIGS,Sparrows or flying cows, commerce will go on as long as civilization remains on earth.

True only. What did you expect - perfect and unbiased forecasting?

I'll happily admit to getting swayed by the doomers. In fact, I still believe a crash is possible, even likely. I hope it doesn't happen though - too much disruption only. Time will tell. That the doomers' predictions haven't borne out so far is !== they can't come true tomorrow. 3 yrs back, in July 2008, how many believed that the global I-banking biggies would cease to exist by thanksgiving?

[abhischekcc]

>>In fact, I still believe a crash is possible, even likely

Even desirable, it will remove the weak

[ramana]

Hari, Based on the falling country stocks markets can you identify who is exposed where or is it general mayhem?

Yesterday, NPR said US banks lent $270B in Italian debt. The fear was others had lent more to Italy and they in turn were lent by US banks.

[paramu]

Market economies go through cycles,some more steep than others.

Market economy should let inefficient ones fail, not bail them out. Call what we have now whatever you like, but not market driven economy.

[Hari Seldon]

Hari, Based on the falling country stocks markets can you identify who is exposed where or is it general mayhem?

Yesterday, NPR said US banks lent $270B in Italian debt. The fear was others had lent more to Italy and they in turn were lent by US banks.

Saar, hope you had a chance to look through the charts I posted on cross-border bank exposure to PIIGS debt. The big scare, apparently, isn't some haircut on what's been lent to PIIIGS but margin calls on CDSs which the biggies have contracted on PIIGS default scenarios. Those run into 100s of billions, some say. Of course, hat can't be paid, won't but the resulting disruption, dislocation, contagious panic and paranoia are a recipe for pandemonium only...not a happy thought, IMHO.

[Ambar]

Don't be alarmed. It is a seasonal thing. Happened in the 80s recession too, but was mostly restrained to newspaper articles . The new pessimistic p0rn has become viral and new self-proclaimed pundits are creeping out of the woodwork thanks to electronic media. First it was the great crash that was gonna come at the end of 2009,then 2010 and then a crash again after Fed stopped the QE this June. Now the "pundits" say "5 to 10 years". Market economies go through cycles,some more steep than others. PIGS,Sparrows or flying cows, commerce will go on as long as civilization remains on earth.

True only. What did you expect - perfect and unbiased forecasting?

I'll happily admit to getting swayed by the doomers. In fact, I still believe a crash is possible, even likely. I hope it doesn't happen though - too much disruption only. Time will tell. That the doomers' predictions haven't borne out so far is !== they can't come true tomorrow. 3 yrs back, in July 2008, how many believed that the global I-banking biggies would cease to exist by thanksgiving?

Hari-ji, commodities have been traded since the days of Gupta dynasty ( and probably much before that ), has there ever been a time where there has been no severe price fluctuation ? If a person is not ready to lose money in markets then he should not be in the market. Crash/correction whatever you may want to call it, it is part of market cycle that won't go away unless we either become staunch true commies or go Shariah aka stone age. I have no qualms about someone trying to predict the ups and downs of markets, but i cannot stand scare-mongers who preach we should all go agrarian , load up on ammunition and do a Jonestown. Such people are no different than those who predict markets will keep rising. Look up on youtube and you'll see hundreds of guys ( and many of them not so personable) sitting in front of webcams and parroting pundits of doom. Sure, if i keep predicting death of Parvez Musharraf everday i'll be right some day. True only.

[SwamyG]

Just because the D&G happened from time immemorial does not mean the current D&G has no basis. Yes, we all realize humans will survive and live on this planet for some more time. What some of us have been talking about is the scale and impact on countries. UK was a big bad wolf once upon a time, now it is just a bad wolf. Slowly it will become just a wolf. It won't become a failed state, but things will not be as it was in the 20th century. Same goes for America, China, Russia, India ityadi.

Just because USA defaulted just once in history does not mean they will or will not default again. This dhaaga has been tracking various gurus predictions about BRIC, PIGS, America, EU etc. Many of them have come true. I am sure BRFites are smart enough to not rush and invest based on this dhaaga. If they did, they should be permanently banned

[Ambar]

SwamyG-ji, if i had taken some of the "advices" in this thread from a few voracious posters seriously, i would be taking to you from Torabora with a loaded AK next to me and a herd of sheep outside my cave complex! Yes, no one country has ever remained the sole superpower forever. Even the Mauryas did not last for more than 125 years.If US becomes a second-rate power (which it will) someone else will fill that vacuum. And then it'll be the same old mantra partial rating agencies, burgeoning sovereign debt,high taxes etc etc.

[abhishek_sharma]

Lawrence Summers Interview Part ll

[chola]

Same goes for America, China, Russia, India ityadi.

It will be a very long time before the US gives up its crown if ever.

The US is an unique mega state that can grow indefinitely. In spite of all its problems, it is still growing both economically and demographically.

Not only is it the largest economy, it also holds a trump card on the next two largest economies since both China and Japan depend on the US market.

India onlee with its internal consumption driven economy is a viable contestant for the future title. But that is a ways off and anything could happen in the meantime.

[Hari Seldon]

SwamyG-ji, if i had taken some of the "advices" in this thread from a few voracious posters seriously, i would be taking to you from Torabora with a loaded AK next to me and a herd of sheep outside my cave complex!

So very true only. If only the denizens of a then-sooperpower (ex-USSR) had the wit and wisdom to not diss-miss the possibility of a sudden and widespread breakdown in their way of life in 1991. A cascading default domino can have some such effect on countries and peoples across the world. Operative word being 'can' only. That said, extremisty pronouncements should be taken with a load of salt only. What's an extremisty position depends on the beholder's judgement, I guess.

Yes, no one country has ever remained the sole superpower forever. Even the Mauryas did not last for more than 125 years.If US becomes a second-rate power (which it will) someone else will fill that vacuum. And then it'll be the same old mantra partial rating agencies, burgeoning sovereign debt,high taxes etc etc.

Like some wiseguy said, history doesn't repeat thouigh it often rhymes only. The intent and extent of globalized connections, optimized supply chains, free-wheeling finances and capital flows we have today is pretty much unprecedented in recorded history, IMVVHO. A volcano could bury Pompei and cause nary a bird's flutter in Patliputra then. Not so easy now, perhaps.

Sure, the game and the imperatives behind it remain the same, just actors change. Still, when the current game has evolved into something history's not seen previously, I'd go easy diss-missing dire predictions and go careful predictions of my own, IMHO. And no, its not another variant of 'this time it's different'. I hope it's not different this time and its just another market cycle etc. But I wouldn't be so smug as to claim no other possibility is worth considering. Only.

[Arjun]

I hope it's not different this time and its just another market cycle etc. But I wouldn't be so smug as to claim no other possibility is worth considering.

Anybody consistently claiming the market is going to head either up or down is obviously going to get it right right one day or the other - that's the way of all markets.

At least to me - the fact that there are various economic maladies occurring in regions around the globe is no big news - that has always been the case historically and will remain so forever into the future. To even assume that mankind has found the perfect economic system that ensures all of humanity will live perfectly ever after - is silly.

What is more interesting to me is whether the globalized economy and system of capital flows that we live in is the best possible system to engender innovation and advancement of humankind. Or is there a better economic system out there ? And the Austrian school - which is the driver for most of the negative posters on this forum, has consistently failed to articulate in clear terms the benefits and methodologies of their alternative system. Having failed to connect with the standard Austrian bogeys of 'fiat money', central banks and Wall Street greed - it seems to me that they are reduced to trumpeting up every small-time cycle in the system in any part of the world as a reason for impending collapse of the global economy. To me they are no different from the Wall Street 'spinsters' they so love to hate, except that they are rooting for the global 'fiat money' system to collapse and usher in a brave new 'golden' era (pun intended), where their favorite currency (and the commodity they have invested their savings in) will be king.

[shyam]

Hari-ji, commodities have been traded since the days of Gupta dynasty ( and probably much before that ), has there ever been a time where there has been no severe price fluctuation ?

The difference was that during Gupta era, people had to use non-printable gold to trade commodity. They can not afford to over-spend or mis-spend without facing consequences. Take out printable-at-wiil nature of current money, you will see very little fluctuations, except for disruptions. Even USA won't be consuming endlessly as it does now.

It will be a very long time before the US gives up its crown if ever.

People thought so about Britain before 1945. In 1905 Churchill made a speech in San Francisco that Britain would rule India for next 500 years. I'm sure many people believe that too, like this.

Strength of US, and its vast consumer market, comes from reserve status of its unlimited USD. When they keep printing it endlessly, countries that export real stuff for this paper or electronic digits would realize that they will be left holding the bag in the event of a crisis. Every sensible leader in the world will be looking for a method to get out of that. All they need is an opportunity.

If Britain's mistake was WW-II, IMO, US's mistake would be debasing of its currency. They should have tried every other method to come out of recession, except that destroys the world's population's confidence in the currency.

[shyam]

I'd go easy diss-missing dire predictions and go careful predictions of my own, IMHO. And no, its not another variant of 'this time it's different'.

I have been noticing from 2000 onwards (when I started paying attention to this phrase after dot-com crash) that whenever people said "this time it is different and old rules are no longer valid", the whole thing crashes pretty quickly. Then I came to the conclusion that fundamentals never change. You may try to push it, but it will come back with vengeance.

[Hari Seldon]

Market economies go through cycles,some more steep than others.

Market economy should let inefficient ones fail, not bail them out. Call what we have now whatever you like, but not market driven economy.

Bingo.

In the routine market crash of 1987 (the S&L crisis) driven by routine greed and routine fraud, the US justice system at least acted. Reagnomics hadn't yet extended & consolidated its hold on all arms of the state. 100s of businesscrooks did perpwalks and went to jail. Same story with the routine crash of 1929 leading to the 'great' depression.

This time though, was different. No, really. Apart from Bernie Madoff who stole rich people's money, nobody was even prosecuted, much less jailed only. *Nobody*. Not lying frauds like Lehman's Dick Fuld, none of the Goldman execs who conspired with Paulson to poison the stuff they sold their clients and then shorted their clients' life insurances only, not .... you get the idea. If Matt Tabibi is livid, I can quite see why.

But hey, let's not get carried away. its not like the sky is falling. What are a few printed trillions anyway? The lights are still on and there's still food on grocery shelves, no? Its not like anybody's pensions, social security payments, life savings, retirements or some such have been quitely stolen away now, have they? have they?

Anyway, going round and round in circles only. Despite my fervent belief that the system as is diseased and bound to come to grief, I only hope nad pray we muddle along for as long as possible. I'm not rooting for a US default or a global depressionary correction. Oh, no sir. Growing up, leaving grad school, having a family and a life does that to you, somehow....

[Ambar]

The difference was that during Gupta era, people had to use non-printable gold to trade commodity. They can not afford to over-spend or mis-spend without facing consequences.

Point is those who traded took losses be it in gold or fiat currency. No one was spared from the ups and downs of market cycles.

It will be a very long time before the US gives up its crown if ever.

People thought so about Britain before 1945. In 1905 Churchill made a speech in San Francisco that Britain would rule India for next 500 years. I'm sure many people believe that too, like this.

US will decline like all superpowers do, and then someone else will fill their place. The evil,wicked,fat americans would probably be replaced by the lovey-dovey Chinese,the world would be such a nice place then. But before that happens, every other aspiring superpower will have to out do America in mixed international,ethnic and racial demographics, crush it in innovation and technology,destroy it militarily and politically. Probably it will happen in my time , probably it won't.

[Ambar]

Market economy should let inefficient ones fail, not bail them out. Call what we have now whatever you like, but not market driven economy

Bingo.

In the routine market crash of 1987 (the S&L crisis) driven by routine greed and routine fraud, the US justice system at least acted. *Nobody*. Not lying frauds like Lehman's Dick Fuld, none of the Goldman execs who conspired with Paulson to poison the stuff they sold their clients and then shorted their clients' life insurances only, not .... you get the idea. If Matt Tabibi is livid, I can quite see why.

We've dedicated close to 300 pages of this thread discussing weather bailout was right or wrong and we'll never have an answer. We could have 30% unemployment and kill them all instantly, or we recapitalize by holding assets of banks,stop the hemorrhage now,but this action could lead to inflation and kill people slowly instead of instantly.

I would have proposed a hybrid option of taking over the assets of banks,allowing them to fail. Instead of TARP and TALF, have a window open to keep the money market funds alive so there wouldn't be non-banking "collateral damage". ( Many Fortune 500 companies including GE,Vz,ATT were days away from collapse with credit drying up). Also provide states with long term assistance to keep the essential services running.

But hey, let's not get carried away. its not like the sky is falling. What are a few printed trillions anyway? The lights are still on and there's still food on grocery shelves, no? Its not like anybody's pensions, social security payments, life savings, retirements or some such have been quitely stolen away now, have they? have they?

Shelves went empty when Russian economy collapsed in 1998,inflation spiraled,ruble devalued,debts defaulted. WB,IMF,US banks all helped stabilize the situation. Russia in a few years became the 'R' in BRICS. If government tapping into public funds in times of crisis is so bad, no country should bother fighting wars defending themselves. Esp. countries like India that have sub 1500$/capita GDP shouldn't think of buying those shiny planes that'll mostly sit in hangars when we could well use the funds increase social security and pension benefits. After all,misusing public money IS misusing public money! Weather you bailout companies during crisis or buy planes to fight wars.The money doesn't belong to the govt anyways,no ?

Anyway, going round and round in circles only. Despite my fervent belief that the system as is diseased and bound to come to grief, I only hope nad pray we muddle along for as long as possible. I'm not rooting for a US default or a global depressionary correction. Oh, no sir. Growing up, leaving grad school, having a family and a life does that to you, somehow....

Human-beings by nature are resilient and hence we outlive and outdo every other species in this world. If i were to believe the sky would fall on my head tomorrow, i'd rather spend my life in a cave. If the style of commerce as we know today seizes to exist, we'll still figure out a way to produce food,get energy,do trade and find ways to transportation. Weather you talk about gold,fiat currency,silver or seashells as money,we will survive.

[Hari Seldon]

Thanks for a reasoned response. Helps hone own thinking and positions answering them, I notice....

We've dedicated close to 300 pages of this thread discussing weather bailout was right or wrong and we'll never have an answer. We could have 30% unemployment and kill them all instantly, or we recapitalize by holding assets of banks,stop the hemorrhage now,but this action could lead to inflation and kill people slowly instead of instantly.

Red herring, saar. Doubt anybody's saying 'nothing could or should've been done at that time of crisis (leave out the Austrian school extremistas out of this one).

Point is were things that folks can now agree upon with reasonable hindsight done only? As an example, the Glass-Steagall act that was putup thanks to painful lessons from the great depression was later surreptiously pulled down in the late 90s. Why isn't it back up? What message goes out when nobody but nobody is prosecuted for widespread and proven fraud in every sector you can think of in the FIRE economy? Arguing market cycles in the face of such glaring derelction of duty on part of govt and the establishment doesn't bode well for the future, IMHO and is anyway quite, quite besides the point. I fear nothing really has been learned. And the next round of crises, this time at the level of sovereign creditworthiness rather than mere big-bank and insurance company ones, has all but been guaranteed.

BTW, 300 pages already?? Wow. IMpressive, eh? Didn;t know someone was counting only

I would have proposed a hybrid option of taking over the assets of banks,allowing them to fail. Instead of TARP and TALF, have a window open to keep the money market funds alive so there wouldn't be non-banking "collateral damage". ( Many Fortune 500 companies including GE,Vz,ATT were days away from collapse with credit drying up). Also provide states with long term assistance to keep the essential services running.

And I agree. I don;t see where I have implied otherwise. When the banks were at risk of death itself, just imagine how much leverage the govt then had over them. Should've fired their top mgmt, replaced their boards, created a clearing house for toxic assets, unravelled of-balance sheet time-bombs under govt oversight in an orderly fashion...in short, done the sensible thing. No? But what we actually saw was that the banks called the shots all along. And banking industry insiders in high govt positions helped every step of the way.

Shelves went empty when Russian economy collapsed in 1998,inflation spiraled,ruble devalued,debts defaulted. WB,IMF,US banks all helped stabilize the situation. Russia in a few years became the 'R' in BRICS. If government tapping into public funds in times of crisis is so bad, no country should bother fighting wars defending themselves. Esp. countries like India that have sub 1500$/capita GDP shouldn't think of buying those shiny planes that'll mostly sit in hangars when we could well use the funds increase social security and pension benefits. After all,misusing public money IS misusing public money! Weather you bailout companies during crisis or buy planes to fight wars.The money doesn't belong to the govt anyways,no ?

More red herrings. IMHO, of course. Nobody's claiming this crisis can be resolved painlessly or that a bright future after the crash is impossible. Dunno where you get that idea.

Besides, in practical terms, isolated defaults by a Russia or Argentina, which were hugely impactful for the peoples of the countries concerned, were easily containable and manageable from the outside. The rest of the world had the wherewithal to help out and move on. Now if the EU breaks up, or a sovereign default domino touches half the OECD, where from will IMF/WB/US banks that were so helpful in the 1998 Russian crisis come up with the bailout funds from? Heck, given the public debt-to-GDP in some of these places (starting with Japan) a few 100 basis points rise in interest rates will push them perilously close to the default edge. Of course, post-crash they will rise again like a phoenix from the ashes (and Japan has managed quite well actually post its 1989 crash - stagnation is a great outcome compared to what could have been) and all that. In the interim what, is my Q. And how long will that interim last given the absence of growth engines 'outside' the crisis zone is another Q. Only. Amnot claiming to know any answers. Just that I wouldn't dismiss the Qs only.

Human-beings by nature are resilient and hence we outlive and outdo every other species in this world. If i were to believe the sky would fall on my head tomorrow, i'd rather spend my life in a cave. If the style of commerce as we know today seizes to exist, we'll still figure out a way to produce food,get energy,do trade and find ways to transportation. Weather you talk about gold,fiat currency,silver or seashells as money,we will survive.

Human beings...etc etc. Well, nice to know we doomers aren't the only ones who talk in terms of global generalities sometimes, eh? Sure, things'll find a way to move on and on. Doubt anybody questions that. Central point got sidelined somewhere though, it seems like. The central point being that excessive malinvestment and borrowing from the future is what enabled the level of commerce, economic activity, demand and services that we see around us today. And these unsustainable levels of returns/growth seeking are what might well have given rise to a standard of living somewhat above what may otherwise be sustainable for a good part of the world's people. IOW< we might all be worse off as a result. Even after the great awakening after the crash, things may never quite get to this level of activity and income, who knows? Time will tell....

By the way, this hide-in-a-cave analogy is way overstretched and overdrawn. TFTA comprehension perhaps.... My SDRE comprehension sees it only as a diversion and ploy only. To discredit a disagreeable POV, perhaps. And that's fine too, perhaps. Been there done that myself. And yes, doomers can be dogmatic too, I have seen quite a few get unreasonable about their positions. Been there done that, as well.Anyway, my SDRE comprehension is often wrong. Have learned a lot and updated my beliefs quite a bit in the 3 years I've been following this dhaga. I do hope that learning continues.

Jai ho. Have a nice day.

[SwamyG]

And then it'll be the same old mantra partial rating agencies, burgeoning sovereign debt,high taxes etc etc.

From an Indian perspective, it is straight-forward; when the global power shift happens where would India find itself.

We've dedicated close to 300 pages of this thread discussing weather bailout was right or wrong and we'll never have an answer.

Though there might not be a single and simple answer; one needs to ask the question "From whose perspective?"

[Neshant]

A wonderful trip down memory lane to the peak of the bubble in 2007 where eCONnomists were telling us all was well



The ridiculous part about it is not that the guy made a fool of himself, but rather after the crash of 2008, he writes a book on why the economy crashed as if he's an expert on it! And he charges consultancy fees to companies to write forecasts on the economy...... !

If anyone took their advice on money matters today, they'd be sleeping under a bridge by tonight.

A lot of these con artists economists disappear & reappear so fast singing a different tune, its sometimes hard to keep track of their bull. Fortunately this one was caught on tape.

[Ambar]

Thanks for a reasoned response. Helps hone own thinking and positions answering them, I notice....



Red herring, saar. Doubt anybody's saying 'nothing could or should've been done at that time of crisis (leave out the Austrian school extremistas out of this one).

Point is were things that folks can now agree upon with reasonable hindsight done only? As an example, the Glass-Steagall act that was putup thanks to painful lessons from the great depression was later surreptiously pulled down in the late 90s. Why isn't it back up? What message goes out when nobody but nobody is prosecuted for widespread and proven fraud in every sector you can think of in the FIRE economy? Arguing market cycles in the face of such glaring derelction of duty on part of govt and the establishment doesn't bode well for the future, IMHO and is anyway quite, quite besides the point. I fear nothing really has been learned. And the next round of crises, this time at the level of sovereign creditworthiness rather than mere big-bank and insurance company ones, has all but been guaranteed.

BTW, 300 pages already?? Wow. IMpressive, eh? Didn;t know someone was counting only

Red herring is when one turns contrarian for the sake of it. "Damned if you do, and damned if you don't" was the situation that the Govts found themselves in 2008. If we are to believe rapid credit expansion was the reason for the current crisis,Glass-Steigal act could've hardly helped. Glass-Steagall was implemented so depositors wouldn't lose money when a bank fails. But the situation that unfolded in 2008, the depositors were never in real threat (honestly, when you have a savings rate of 1%, how many depositors were there in the first place? ) , but it was bond holders and pension funds,money market funds that were threatened with drying credit and a rapid de-leveraging. Glass-Steagall has been debated enough post crisis, and its presence would have made no difference to investment banks and there synthetic derivatives. Even retail banks as Citi or Wachovia could have easily bypassed the Glass-Steagal by having independent foreign subsidiaries as many did during 1980s.

S&L crisis had clear culprits, but the current crisis has issues with fiduciary ethics but not necessarily crime. GS,DB,CS etc shorting CDOs that their own customers owned is a matter of ethics but not technically unlawful. Just the way back in the olden days the first oath of a trader was never to short one's own company! There is no law to stop you from doing it, but you don't do it as a matter of ethics. We can debate if the rich were saved, if so, why did top executives of Enron,Tyco,WorldCom et al went to prison ? The govt loves to make examples out of fatcats for the sake of votes,surely this was a ripe moment. But there was no case to be made.



(100 pages/thread, counting is simple only, no ? )

And I agree. I don;t see where I have implied otherwise. When the banks were at risk of death itself, just imagine how much leverage the govt then had over them. Should've fired their top mgmt, replaced their boards, created a clearing house for toxic assets, unravelled of-balance sheet time-bombs under govt oversight in an orderly fashion...in short, done the sensible thing. No? But what we actually saw was that the banks called the shots all along. And banking industry insiders in high govt positions helped every step of the way.

As for firing the top management of bailed out companies, they did try that with GM and AIG with terrible results. Companies like Ford that managed themselves during crisis were the first to bounce back without crutches of the government.

The stress tests did unravel the balance-sheets. But as we saw during the dot com crisis, mark-to-market accounting is a two edged sword. If assets were marked at unnaturally depressed state as they were in early 2009, it would be a bottomless pit to recapitalize the banks, hence mark-to-market was not considered. But when we did take m-m accounting seriously as we did during 1999-2001 and 2003-2008, we again come up with atrocious figures.

I think it was Danuta Hubner who suggested US should bite the bullet,take over all the banks and their assets and create a "bad bank" to put the troubled assets in.I think that is inline with what you are suggesting, but i doubt it if the outcome would have been any different that govt lending money to banks with assets as collateral. Or as i said, the assets could have been held and allowed atleast some troubled banks to fail,but kept a fund window open to keep the credit flowing for other institutes and state governments.

More red herrings. IMHO, of course. Nobody's claiming this crisis can be resolved painlessly or that a bright future after the crash is impossible. Dunno where you get that idea.

Besides, in practical terms, isolated defaults by a Russia or Argentina, which were hugely impactful for the peoples of the countries concerned, were easily containable and manageable from the outside. The rest of the world had the wherewithal to help out and move on. Now if the EU breaks up, or a sovereign default domino touches half the OECD, where from will IMF/WB/US banks that were so helpful in the 1998 Russian crisis come up with the bailout funds from? Heck, given the public debt-to-GDP in some of these places (starting with Japan) a few 100 basis points rise in interest rates will push them perilously close to the default edge. Of course, post-crash they will rise again like a phoenix from the ashes (and Japan has managed quite well actually post its 1989 crash - stagnation is a great outcome compared to what could have been) and all that. In the interim what, is my Q. And how long will that interim last given the absence of growth engines 'outside' the crisis zone is another Q. Only. Amnot claiming to know any answers. Just that I wouldn't dismiss the Qs only.

Lol! Sure! Red herring is usual the "hearing" when one feels a need a disagree. I thought someone mentioned Soviet Union earlier and food disappearing off the shelves in this page, or it could be just my imagination.But thats digressing only. Russian default was not an "isolated" event. It had a direct impact on LTCM and through it several major banks and hedge funds worldwide. The EU should break up. They are different economies with one currency that is unsustainable. Countries like Germany would be well off without having to worry about Greece or Ireland that make a miniscule of world trade. For there to be a "interim", we should know what the beginning or what the end is, since no society has a clear answer to that, the only explanation is market cycle or if you take into account wars,political turmoil etc, it is a business cycles that Austrian thinkers are so fond of.

Human beings...etc etc. Well, nice to know we doomers aren't the only ones who talk in terms of global generalities sometimes, eh? Sure, things'll find a way to move on and on. Doubt anybody questions that. Central point got sidelined somewhere though, it seems like. The central point being that excessive malinvestment and borrowing from the future is what enabled the level of commerce, economic activity, demand and services that we see around us today. And these unsustainable levels of returns/growth seeking are what might well have given rise to a standard of living somewhat above what may otherwise be sustainable for a good part of the world's people. IOW< we might all be worse off as a result. Even after the great awakening after the crash, things may never quite get to this level of activity and income, who knows? Time will tell....

By the way, this hide-in-a-cave analogy is way overstretched and overdrawn. TFTA comprehension perhaps.... My SDRE comprehension sees it only as a diversion and ploy only. To discredit a disagreeable POV, perhaps. And that's fine too, perhaps. Been there done that myself. And yes, doomers can be dogmatic too, I have seen quite a few get unreasonable about their positions. Been there done that, as well.Anyway, my SDRE comprehension is often wrong. Have learned a lot and updated my beliefs quite a bit in the 3 years I've been following this dhaga. I do hope that learning continues.

Jai ho. Have a nice day.

Surely society and civilization forms the periphery within which economic cycles exists.The level of commerce has inevitably picked up post industrialization of the world. And the velocity of credit and business expansion is an offshoot rapid progress in technology.Consumption or the lack of it again depends on capital accumulation as wonderfully explained by the Harrod-Domar model. Any one of these denominators in the equation impacts the society as a whole and vice-versa. What you call as "mal-investment" is a part of capital accumulation,besides, markets are a self-discounting mechanism as we've seen in the last 3 years, so blaming credit market is hardly the right decision,in IMHO only.

The "hide-in-a-cave" analogy is as stretched as "load your guns,run to the hills,the collapse is coming" line peddled by Alex Jones,his like and his fanboys. One statement cannot be a diversion ploy in isolation only.

Anyways, enough writing for a Friday . Enjoy your weekend, gents.We all live another day to fight on and all that..

[Hari Seldon]

^^Good, good. Will respond. Too lazy to do so right now. Post weekend perhaps.

[devaraj_d]

It is related to an automotive component. I am afraid I do not want to elaborate more than this in a public forum due to confidentiality issues.

I'm pretty sure there's nothing in a car that's impossible to do.

It might appear impossible to you however depending on your background.

It is all not cut and dry when it comes to manufacturing. It is sometimes more of an art which has to come by practice.

It will take some time for us to say we can do everything. At the moment we are not there.

(I am talking in this post only about automotive stuff as my background is only in this area.)

[Neshant]

It is all not cut and dry when it comes to manufacturing. It is sometimes more of an art which has to come by practice.
It will take some time for us to say we can do everything. At the moment we are not there.
(I am talking in this post only about automotive stuff as my background is only in this area.)

I don't agree. This not some martial arts movie where we have to learn for 20 years from some master before we are good at it.

Cars today are not high tech items. 99% of what's in a car isn't hard to duplicate and i'm not talking just mechanical either.

Now maybe they are able to create engines that are more efficient or operate better under high stress conditions, better lubricants, market their product better...etc. But the base technology is not hard to duplicate. The rest is quality control.

Making a car is not hard but I agree that making a good one that can compete against what's out there is very difficult from the engineering to the marketting and everything in between.

But to claim that it cannot be produced or is impossible to produce in India is a stretch. What is this item anyway? Give me a hint and I'll tell you how do-able it is. Is it something like this :

[Neshant]

Competing local currencies is certainly a system that's a lot better than the money printing racket being run by the useless middleman sector known as banking & financing today.

Of course one of the currencies will have to be gold to keep things honest.
----------------

Competing Currencies - a Defense Against Profligate Government Spending
Tuesday, July 12, 2011 – by Ron Paul

The end of June marked what is hopefully the end of the Federal Reserve's policy of quantitative easing. For months the Fed has purchased hundreds of billions of dollars of Treasury debt, enabling the government to fund its profligate deficit spending, push the national debt to its limit, and further devalue the dollar. Confidence in the dollar is plummeting, confidence in the euro has been shattered by the European bond crisis, and beleaguered consumers and investors are slowly but surely awakening to the fact that government-issued currencies do not hold their value.

Currency is sound only when it is recognized and accepted as such by individuals, through the actions of the market, without coercion. Throughout history, gold and silver have been the two commodities that have most fully satisfied the requirements of sound money. This is why people around the world are flocking once again to gold and silver as a store of value to replace their rapidly depreciating paper currencies. Even central banks have come to their senses and have begun to stock up on gold once again.

But in our country today, attempting to use gold and silver as money is severely punished, regardless of the fact that it is the only constitutionally-allowed legal tender! In one recent instance, entrepreneurs who attempted to create their own gold and silver currency were convicted by the federal government of "counterfeiting". Also, consider another case of an individual who was convicted of tax evasion for paying his employees with silver and gold coins rather than fiat paper dollars. The federal government acknowledges that such coins are legal tender at their face value, as they were issued by the U.S. government. But when it comes to income taxes owed by the employees who received them, the IRS suddenly deems the coins to be worth their full market value as precious metals.

These cases highlight the fact that a government monopoly on the issuance of money is purely a method of central control over the economy. If you can be forced to accept the government's increasingly devalued dollar, there is no limit to how far the government will go to debauch the currency. Anyone who attempts to create a market based currency – meaning a currency with real value as determined by markets – threatens to embarrass the federal government and expose the folly of our fiat monetary system. So the government destroys competition through its usual tools of arrest, confiscation, and incarceration.
This is why I have taken steps to restore the constitutional monetary system envisioned and practiced by our Founding Fathers. I recently introduced HR 1098, the Free Competition in Currency Act. This bill eliminates three of the major obstacles to the circulation of sound money: federal legal tender laws that force acceptance of Federal Reserve Notes; "counterfeiting" laws that serve no purpose other than to ban the creation of private commodity currencies; and tax laws that penalize the use of gold and silver coins as money. During this Congress I hope to hold hearings on this bill in order to highlight the importance of returning to a sound monetary system.

Allowing market participants to choose a sound currency will ensure that individuals' needs are met, rather than the needs of the government. Restoring sound money will restrict the ability of the government to reduce the citizenry's purchasing power and burden future generations with debt. Unlike the current system which benefits the Fed and its banking cartel, all Americans are better off with a sound currency.

http://www.thedailybell.com/2652/Ron-Pa ... t-Spending

[devaraj_d]

It is all not cut and dry when it comes to manufacturing. It is sometimes more of an art which has to come by practice.
It will take some time for us to say we can do everything. At the moment we are not there.
(I am talking in this post only about automotive stuff as my background is only in this area.)

I don't agree. This not some martial arts movie where we have to learn for 20 years from some master before we are good at it.

Cars today are not high tech items. 99% of what's in a car isn't hard to duplicate and i'm not talking just mechanical either.

Now maybe they are able to create engines that are more efficient or operate better under high stress conditions, better lubricants, market their product better...etc. But the base technology is not hard to duplicate. The rest is quality control.

Making a car is not hard but I agree that making a good one that can compete against what's out there is very difficult from the engineering to the marketting and everything in between.



But to claim that it cannot be produced or is impossible to produce in India is a stretch. What is this item anyway? Give me a hint and I'll tell you how do-able it is. Is it something like this :


Neshantji, I don't fully agree with you

The only thing I agree with you is "making """A""" car is not hard"

My old company tried to reduce the cost of a front cover of an engine by outsourcing it to China. Even though the part looks simple (at least visually) compared to other parts of the engine it was not easy to manufacture. The molds cracked right after the first shot and they could not produce even a proper sample after a couple of tries.

To reduce the Hertzian stresses on rollers riding on camshafts a complex profile is specified. The supplier did not allow my old colleague to see the manufacturing line as they did not want someone to see their secrets. This is why I said that it is more of an art as you have to make a lot of adjustments before you reach your goal. I have not read a book so far that teaches this kind of stuff. The more experience you have the "adjustments" will get quicker and easier.

Cars are pretty complex. I am assuming that you are not an engineer based on your post. The more you are involved the more you realize how less you know. The devil is in the details. There is a big learning curve and it will take some time for us to master. There are some parts in a car (best example fuel injection systems) where there are only very few suppliers in this world. These guys have taken years to reach where they are now.

The Chinese, in general, manufacture from machines supplied by the foreign companies. The manufacturing know how is also foreign. I have heard cases of complete assembly lines designed and supplied by foreign companies to China. IMO this does not make them a manufacturing powerhouse.

IMHO the best case would be is for Indian companies to design and to manufacture fully in India from machines designed fully and manufactured in India. 12 years ago I heard the following story from my friend. A South Korean company quoted about 1 crore for a machine for a two wheeler manufacturer in India. One of the Indian managers decided to design the machine completely in India and they succeeded. This is the way forward for us. This is when we can say it is 'doable'. I know purists will argue about economies of scale or comparative advantages and tell me that it will be foolish to make everything but I disagree with them. I hope we have such managers everywhere.

BTW OT but I hope you heard in the video that they will use German machines for the Bosch plant in India.

I do not have the faintest idea about military stuff but somebody please correct me if I am wrong. IMHO even though we are getting better at designing our own military hardware (LCA, Arjun tank which you guys know better than me) we are still dependent on buying parts from other countries. This IMHO is because we are still beginners when we get to manufacturing.

Slowly we are getting there. But I will still not once again agree that everything is doable now.