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

sugriva · Post by **sugriva** » 21 Sep 2011 15:10

Time to pack up the Eurozone and get back to the Italian lira, Greek Drachma and German Deutch Mark. This will allow the poor buggers in Greece to print money and get out of the mess ala US.

Singha · Post by **Singha** » 21 Sep 2011 15:16

I have seen a lot of shops mushrooming in blr latety with "gold deposit" and "gold loan" where presumably people can get cash loans against collateral of their gold ornaments.

I wonder what is the model of these guys to make money?

Singha · Post by **Singha** » 21 Sep 2011 16:09

you mean 20% of folks are unable to pay back loan and forfeit the deposited gold and the loan itself has 18% PA interest ?

makes it sound like another "emerging area" for "global financial giants" like JP or Gsachs to get into.

Neshant · Post by **Neshant** » 21 Sep 2011 19:35

Its standard pawn shop practice of rip off.

The best part is if gold goes up by more than 18% in value the next year, they tell you they "lost" your jewelery. They know most people going to such stores are short on money and cannot sue them for breach of contract.

Its good old banking & financing @ work.

Singha · Post by **Singha** » 21 Sep 2011 19:39

http://online.wsj.com/article/BT-CO-201 ... 05563.html

The Lloyd's of London insurance market said Wednesday it had reduced its exposure to European government debt and pulled deposits from some of the region's banks, joining a growing list of institutions that are limiting exposure to Europe because of the deepening euro-zone crisis.

"Given the uncertainty around the euro zone, it's only natural that we would seek to reduce any potential downside risk. As a result, we're not holding government debt of any peripheral EU country and have sought to reduce our exposure to banks in these countries," Lloyd's Finance Director Luke Savage told Dow Jones Newswires on Wednesday.

The comments come after Dutch financial services company ING Groep NV (INGA.AE) said earlier Wednesday it has substantially cut its holdings of Italian government debt to soothe market concerns over its exposure to troubled euro-zone countries.

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On Tuesday, German industrial company Siemens AG (SIE.XE) reportedly withdrew EUR500 million from French bank Societe Generale SA (GLE.FR) prior to the European bank stress tests earlier this year, having lodged the cash with the French bank for several weeks.

Lloyd's has an investment portfolio worth nearly GBP50 billion, with roughly a third allocated to cash investments, a third to government bonds and the rest in corporate bonds.

"On the cash element, the focus is to make sure it's in banks that are going to be around to give it back to you."

"So you look at the credit quality of the banks and the exposure of those banks to peripheral European government debt for example. We're not moving out of cash, we're just making sure we're with the right banks," he said.
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The cut in Lloyd's exposure to some European government debt appears relatively minimal. "Most of our government bonds are U.K. and U.S., which are seen as safe havens," Savage said.
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Earlier Wednesday, Lloyd's posted a pretax loss of GBP697 million compared with a GBP628 million profit a year earlier. The loss followed a record GBP6.7 billion in insurance claims, of which GBP2.8 billion went to catastrophe claims.

"It will be tough time for the rest of 2011 and 2012. It will be very difficult to make any meaningful investment income, yields are at record lows and equity markets are volatile," Savage said.

Christopher Sidor · Post by **Christopher Sidor** » 21 Sep 2011 21:21

EURO was and still is a monetary union. The EURO-ZONE countries, i.e countries which adopted EURO, had more than a decade to go and create a fiscal union to complement their monetary union, but unfortunately for us they did not or would not do it. Fiscal union implies taxation power to Brussels, seat of European Commission and European parliament.

Since there is no fiscal union taxes cant be levied to over come the current fiasco. Further no support can be given to weaker parts of the euro-zone. For example GoI gives massive support to J&K Government as it gives support to various states in north east and the state of Delhi. Something similar is not possible in case of Euro-Zone.
The countries which make up Euro-Zone have an interest in preserving their power to impose taxes, as most of their power is derived from it. Once the countries which make up the euro-zone give up this power, i.e. ability to tax, they basically become irrelevant. As the wise man once said in the movie "Cliff Hanger" Irrelevant things are discarded. Off course the countries which make up the EURO-Zone need not give up their power of taxation. They can pledge a portion of their taxation income to EURO-ZONE. But in times of upheavals, like the current one, how many countries would willingly give up their tax euros is a moot point.

This brings us to a very interesting counter-argument. Should the Europeans have concentrated on building a fiscal union first and then a monetary union later ? And is the solution to Greece's and other PIIIGS countries debt issues a fiscal union rather than more debt? It is noteworthy that Iceland, which is integral to PIIIGS countries, is not part of EURO-ZONE or EU.

I am trying to come up with some innovative solutions to the Greece issue, rather than going for the same recycled solutions which have been proposed ever since the debt crisis flared up after 2008.

ramana · Post by **ramana** » 22 Sep 2011 00:53

Nightwatch comments:

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Italy: The Wall Street Journal reported that Standard and Poors cut Italy's sovereign-debt rating to A. The Journal reported the move was unexpected and described it as a blow to Rome, which is trying to avoid getting caught in the Eurozone debt crisis.

Comment: Too late; the contagion has spread. Italian bonds are one step away from junk.

Singha · Post by **Singha** » 22 Sep 2011 09:38

does any of the PIIGS have the kind of high personal income tax rates seen in germany and scandinavia?
that might be an option for Govts to mop up cash for opex.

how is it that the germans are able to consistently outperform their next door biraders italy and spain in manufacturing products and productivity - they must be eating the same wheat, milk and meat and breathing the same air out there. educational and health stds would be about the same ..... what makes the germans so formidable in high end manufacturing?

Suraj · Post by **Suraj** » 22 Sep 2011 10:33

Probably the vocational training school system that produces large numbers of skilled workers who can aspire to a comfortable middleclass life in skilled manufacturing.

shyam · Post by **shyam** » 22 Sep 2011 11:14

Must listen to: Elizabeth Warren on Debt Crisis, Fair Taxation

sugriva · Post by **sugriva** » 22 Sep 2011 13:26

Singha wrote:what makes the germans so formidable in high end manufacturing?

Some factors
1. Culture. Willingness to go to other places for better prospects and work hard. In medieval Europe two communities were to be found in almost every village in European Russia, viz the Jews and the German farmers. German-Americans are the largest ethnicity in the US. Even earlier the Germans were colonizers and traders par excellence. You must be knowing about the Hanseatic League.
2. Govt trade policies to preserve jobs and manufacturing. But Germany too is an export driven economy, as is China.
3. Germans are less prudish than the Americans with regards to the issue of human rights etc while dealing with emerging economies.
It would not be wide of the mark to call Germany as the China of Europe.

ramana · Post by **ramana** » 23 Sep 2011 00:13

Dow down ~495 points right now.

Hari Seldon · Post by **Hari Seldon** » 23 Sep 2011 09:51

Europe bank debt in lurid detail
And boy, is it lurid.

Recommended short read only.

Christopher Sidor · Post by **Christopher Sidor** » 23 Sep 2011 13:43

^^^^^
Awesome...

A_Gupta · Post by **A_Gupta** » 23 Sep 2011 22:46

Cause of the Eurozone crisis:
http://streetlightblog.blogspot.com/201 ... -part.html

krishnan · Post by **krishnan** » 24 Sep 2011 13:22

http://w3.newsmax.com/a/aftershockb/vid ... ODE=CACB-1

Hari Seldon · Post by **Hari Seldon** » 24 Sep 2011 20:19

Greece default underway, rumor says...

Airavat · Post by **Airavat** » 26 Sep 2011 08:06

Greece will be in a perpetual debt trap

Under the July deal, Greece is asking banks and other large private investors to swap their existing Greek bonds for ones with longer repayment deadlines, a lower face value or lower interest rates. The IIF says the deal would save Greece some €54 billion by 2014 and €135 billion by 2020. However, most analysts say that those savings are far too small to make Greece’s massive debts — which amount to some 160 percent of economic output — sustainable again. “If the July deal goes ahead, Greece would be locked into this perpetually,” said Sony Kapoor, managing director of Re-Define, a Brussels-based economic think tank.

Greece has been relying on €110 billion in rescue loans from other eurozone countries and the International Monetary Fund since May 2010. In July, when it became clear that Athens needed more help, eurozone leaders agreed on a second, €109 billion bailout, although several aspects of that deal still need to be finalized.

But since July, the eurozone’s debt crisis has significantly worsened, partly because investors now fear that they may also face losses on bonds from already bailed-out Portugal and Ireland as well as struggling Italy and Spain. The Greek economy is now set to shrink 5.3 percent this year, up from a June estimate of a 3.8 percent decline, followed by a further contraction in 2012.

Germany and other rich eurozone nations have been pushing for a re-negotiation of the July deal, arguing that the economic situation in Greece has significantly deteriorated since then and may require a steeper cut in the country’s debt load. The international bank lobbying group that has been leading negotiations on giving debt-ridden Greece easier terms for its bonds on Sunday rejected calls to impose larger losses on private investors.

Forcing private creditors to write down their Greek bond holdings by more than the 21 percent tentatively agreed to in a July deal would quickly cause a “domino effect” that would see the crisis spread to other parts of Europe, warned Josef Ackermann, the outgoing chairman of the Institute of International Finance.

skumar · Post by **skumar** » 26 Sep 2011 15:19

Where is Mexico's gold, and is it really gold at all? http://gata.org/node/10487

Is our gold reserves also situated on foreign shores like Mexico's?

skumar · Post by **skumar** » 26 Sep 2011 15:57

"Central banks are suppressing gold prices to make their own currencies seem stronger and to build confidence in the reserve currency, the US dollar."
http://gata.org/goldrush21

skumar · Post by **skumar** » 26 Sep 2011 17:18

I think we may hear that the RBI was trying to buy some gold in the market. That may explain Pranab's trip to the US.

sunnyP · Post by **sunnyP** » 26 Sep 2011 21:48

Gold dipped to below $1600 today. A 20% drop from it's recent peak.

Neshant · Post by **Neshant** » 27 Sep 2011 11:16

I made money on the dip in gold prices having anticipated it and having purchased and sold put options against that fake paper gold ETF known as GLD.

Gold has since rebounded quicker than I thought and is presently at 1650.

Not sure whether to buy or stay put. One thing I'm sure of is I'm all out of the market in October. I'm sensing a bloodbath on the bourse coming middle of next month.

joshvajohn · Post by **joshvajohn** » 27 Sep 2011 11:46

I think to stop global economic meltdown, a bit more regulation is needed in the share markets. For example of selling and buying shares should be given a time frame (at least a few months time frame). Those who make huge profits at short time should be asked to invest in jobs if not, make them to pay heavy tax.

SEBI proposes self-regulation for investment advisors news
http://www.domain-b.com/investments/mar ... isors.html

Neshant · Post by **Neshant** » 27 Sep 2011 20:29

Regulations are all worthless because even with regulations no banking crook has gone to jail.
They bribe politicians through lobbyists to bend the rules, pack govt beaurocracy with their ex-employees like Goldman Sachs does and have the Federal Reserve to offload their gambling losses on the people. If anything, they lobby for regulations to keep out/down the competition.

I'm afraid more regulation won't do a thing.

What's needed is honest money (gold) alongside competing local currencies which puts an end to the monopoly over money by the useless middleman sector known as banking and promotes market self-regulation. It transfers the power of money back to the people who earn it instead of the counterfeiters who print it.

shyamd · Post by **shyamd** » 28 Sep 2011 01:54

When I saw this thread - Khalaaas song came to my head.

BBC Speechless as a trader tells viewers whats going on.
http://www.youtube.com/watch?v=lqN3amj6AcE

The Conspiracy theorists were more amused at the fact that he said GS ruled the world than the fact that they are gonna lose their savings!

Prem · Post by **Prem** » 28 Sep 2011 03:28

http://www.salon.com/news/politics/war_ ... index.html
The collapse of neoliberal capitalism

More than 10 years ago, before 9/11, Goldman Sachs was predicting that the BRIC countries (Brazil, Russia, India, China) would make the world economy's top ten -- but not until 2040. Skip a decade and the Chinese economy already has the number two spot all to itself, Brazil is number seven, India 10, and even Russia is creeping closer. In purchasing power parity, or PPP, things look even better. There, China is in second place, India is now fourth, Russia sixth, and Brazil seventh.
No wonder Jim O'Neill, who coined the neologism BRIC and is now chairman of Goldman Sachs Asset Management, has been stressing that "the world is no longer dependent on the leadership of the U.S. and Europe." After all, since 2007, China's economy has grown by 45 percent, the American economy by less than 1 percent -- figures startling enough to make anyone take back their predictions. American anxiety and puzzlement reached new heights when the latest International Monetary Fund projections indicated that, at least by certain measurements, the Chinese economy would overtake the U.S. by 2016. (Until recently, Goldman Sachs was pointing towards 2050 for that first-place exchange.)
Within the next 30 years, the top five will, according to Goldman Sachs, likely be China, the U.S., India, Brazil, and Mexico. Western Europe? Bye-bye!

A System Stripped to Its Essence

Increasing numbers of experts agree that Asia is now leading the way for the world, even as it lays bare glaring gaps in the West's narrative of civilization. Yet to talk about "the decline of the West" is a dangerous proposition. A key historical reference is Oswald Spengler's 1918 essay with that title. Spengler, a man of his times, thought that humanity functioned through unique cultural systems, and that Western ideas would not be pertinent for, or transferable to, other regions of the planet. (Tell that howler to the young Egyptians in Tahrir Square.)
Spengler, of course, captured the Western-dominated zeitgeist of another century. He saw cultures as living and dying organisms, each with a unique soul. The East or Orient was "magical," while the West was "Faustian." A reactionary misanthrope, he was convinced that the West had already reached the supreme status available to a democratic civilization -- and so was destined to experience the "decline" of his title.

Christopher Sidor · Post by **Christopher Sidor** » 28 Sep 2011 06:28

Road Map to Prepackaged, Orderly Default That Keeps Greece in Euro: View --- Bloomberg

One of the view points which expects Greece to default and not yet leave the EURO. Though it is heavily biased for the creditors, still worth a read.

Almost no one believes Greece is solvent, not with an economy -- and tax receipts -- shrinking and debt ballooning to 180 percent of gross domestic product, a burden that no amount of belt-tightening will make bearable.
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Europe ultimately needs radical change, including a fiscal union and the ability to issue bonds that all 17 euro-area countries collectively would stand behind, much like U.S. Treasuries.
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Expelling Greece from the euro would cause more economic, political and social chaos than the world can bear.
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A euro exit would mean a 100 percent write-off of Greek bonds, while staying would mean writing down their value by 60 percent to 80 percent. Greek bonds now trade at discounts of 40 percent to 65 percent of face value. Greece would need debt forgiveness, in which creditors accept haircuts of at least 50 percent to bring the debt-to-GDP ratio below 100 percent
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Instead of imposing a tough-love austerity plan on Greece, this troika should peg any new securities to an economic recovery, so that payments increase with GDP growth and decline in a recession. A similar arrangement worked for Latin American countries issuing Brady Bonds in the late 1980s (Disclaimer: Brady Bonds were of smaller value then what will be required for the PIIIGS)
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Preventing contagion also means stopping bank runs.
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Once Greece defaults, its bonds and those of a half-dozen euro-area countries suddenly will be worth a fraction of the value at which they are carried on banks’ books. The amount of bank capital needed -- estimates range from the IMF’s $410 billion to Merrill Lynch’s $550 billion -- must be based on realistic stress tests that take sovereign defaults into account.
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Who will pay? The European Financial Stability Facility could be the source of capital for a euro-TARP and the ECB sovereign-debt backstop.
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Those funds (i.e. belonging to the European Financial Stability Facility) could be leveraged with the help of the ECB to build a 2 or 3 trillion euro facility. But there’s no getting around the fact that Europe’s taxpayers will be on the hook.

It is the last statement which really gets one goat. What the author is proposing is euro-bond with another name. In spite of what leverage means and what happened in 2008, recall Bear Sterns, Lehman and Merrily Lynch, the author is still telling us to go down the same path. It is as if nothing happened in the year 2008. To save the creditors, they expect EFSF to borrow in the market place. It is like borrowing from Peter to pay Peter. And let us not forget, who will be in line if EFSF goes belly up.

Gaurav_S · Post by **Gaurav_S** » 28 Sep 2011 08:23

self deleted.

ramana · Post by **ramana** » 28 Sep 2011 19:30

PRem< Dont know if you recall in ~2001 Suraj made an asessment, at BRF meeting in Mountian View, of the GS BRIC report and showed that India's growth was much faster than the reports estimated. I think you were among others there.

The 2008 meltdown accelerated the process.

Prem · Post by **Prem** » 28 Sep 2011 21:08

I do remember his presentation. This meltdown have come in much earlier than expected but Ravi Batra did see it coming. India needs at least another decade or so to be meaningful player on big table. Good news is, we are on the right economic track and lets hope with the control on corruption we pick the pace of development. Free movement of labor across international borders ought to be next agenda of Indo _Pacific region to gain control of worldwide economic agenda.

Suraj · Post by **Suraj** » 29 Sep 2011 04:23

I looked at that old set of data and the preso from that meeting again. According to the original BRIC report, our 2011 GDP would have been approx $1 trillion, or half of the estimated $2 trillion for the 2011-12 fiscal. I'd suggested then that it would be 40-50% more than the GS extrapolation for 2011, but even my more optimistic estimate at the time has been far exceeded as of today; it turned out to be 2x their estimate. How things change. I hope we stay the course...

Theo_Fidel · Post by **Theo_Fidel** » 29 Sep 2011 04:28

I have a question.

How much of this debt in Europe is real vs notional. For instance much of the debt drowning the banks is derivative based and due to very high unregulated gearing.

The reason I ask is that it seems incredible that a country can borrow or lend 4 times its GDP and not trigger wild inflation and financial mayhem. In Ireland every single person has borrowed and spent about $200,000. Could it be much of the debt is due to fees, penalties, excessive interest rates, roll over of paper losses, etc. Not dissimilar to bonded labor. How odd it would be if Europeans became bonded laborers.

ramana · Post by **ramana** » 29 Sep 2011 08:32

Suraj, Even then you were closer to real numbers than the experts. and you didnt base it on PIROMA but your best reading of the facts.

So take a big bow first.

skumar · Post by **skumar** » 29 Sep 2011 08:43

Interesting views - Doug Casey from Casey Research
http://vimeo.com/29058918

Over the long term,
- US has to default, its creditors should be punished
- Abolish welfare
- Buy gold
- Short (US) bonds

gakakkad · Post by **gakakkad** » 29 Sep 2011 16:53

Suraj wrote:I looked at that old set of data and the preso from that meeting again. According to the original BRIC report, our 2011 GDP would have been approx $1 trillion, or half of the estimated $2 trillion for the 2011-12 fiscal. I'd suggested then that it would be 40-50% more than the GS extrapolation for 2011, but even my more optimistic estimate at the time has been far exceeded as of today; it turned out to be 2x their estimate. How things change. I hope we stay the course...

I am not an economist but I have a question.. We exceeded expectations in the last 10 years because due to the fact that the BRIC report put very low expectations on us.. Their low expectations were due to their lack of understanding on the inner dynamics of Indian economics and attempting to gauge and measure everything by western yardstick ... Thats what the report seemed to me a laymen w.r.t economics..

But would not exceeding expectations in the next 10 years be far more challenging than in the previous 10?

I mean Growth occurred in the class of people that were most receptive to growth ie the middle class/upper middle class... If we want to carry on with a high growth rate we must mobilise the rural farmers from the agriculture to manufacturing as these class of people have not grown in real terms in the last decade are are not receptive to growth.. They are in fact hostile to reforms...India is not urbanising the at the rate it should .. And that is bad because if growth has to come it has to come from labour intensive manufacturing..And that would need sweeping legislative reforms..And industrialise on a scale that has been unprecedented in history of the world.

So keeping these in mind do you still expect India to exceed expectations in the next decade? Especially when expectations are higher this time around. (14 % CAGR is what some people project)

vishvak · Post by **vishvak** » 29 Sep 2011 17:08

From http://www.bbc.co.uk/news/world-europe-15107538
German parliament approves expanded EU bailout fund

All 17 countries that use the euro must ratify the commitment to expand the powers of the EFSF and boost its bailout guarantees to 440bn euros (£383bn). So far, 10 have approved the measure.
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Germany's commitment to the fund would rise from 123bn euros to 211bn.
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abhischekcc · Post by **abhischekcc** » 29 Sep 2011 23:01

Hitler's dream coming true from the ashes of the economic crisis. Don't know whether to

or

Suraj · Post by **Suraj** » 29 Sep 2011 23:45

gakakkad wrote:I am not an economist but I have a question.. We exceeded expectations in the last 10 years because due to the fact that the BRIC report put very low expectations on us.. Their low expectations were due to their lack of understanding on the inner dynamics of Indian economics and attempting to gauge and measure everything by western yardstick ... Thats what the report seemed to me a laymen w.r.t economics..

But would not exceeding expectations in the next 10 years be far more challenging than in the previous 10?

We grew faster than expected because we saved (and invested) more than estimated then. My contention at that meeting (but didn't explain in detail since it was for a general audience) was that we were saving progressively more, and that it would mathematically translate to higher growth. I didn't really follow or care about the expectations of any entity, since that was too nebulous; I just saw savings/GDP and investment/GDP rising and stated that growth rate would increase and also stabilize at a higher level - it did, but at an even higher level than I estimated, because we saved and invested at a faster rate than I estimated...

There used to be a time in the mid 2000s when there were loud pronouncements that 7% real GDP growth was too high to maintain and that we were 'overheating'. Actually those claims are again in vogue, due to the higher inflation recently. However, we managed average real GDP growth of ~8% (nominal growth of ~14%) in the last plan period, easily the highest ever. Despite the inflation recently, savings/GDP and investment/GDP remains stable in the high 30%s. As long as those two variables remain stable or rise, we'll continue to grow fast as a mathematical consequence provided we retain the same efficiency of investment (ICOR).

paramu · Post by **paramu** » 30 Sep 2011 02:50

gakakkad wrote:
I am not an economist but I have a question.. We exceeded expectations in the last 10 years because due to the fact that the BRIC report put very low expectations on us.. Their low expectations were due to their lack of understanding on the inner dynamics of Indian economics and attempting to gauge and measure everything by western yardstick ... Thats what the report seemed to me a laymen w.r.t economics..

BRIC report assumed that things will remain the same in the G8 and trade will reamin the same in the world.

PRC grew faster than expected after 2007 and the west went down faster than they planned
India managed to increase trade and grow internally which the rport has not expected