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

svinayak · Post by **svinayak** » 29 Jun 2012 21:50

After all, an estimated $350 trillion of derivatives contracts have already been written using Libor as a reference point, and about 90 per cent of US commercial and mortgage loans are thought to be linked to the index, too. That means that Libor – like credit ratings – is now hard-wired into the system, even with its flaws.

A better name for the US would be Scams R Us. Stop with the false advertizing already. That's what this country is really all about.

Hari Seldon · Post by **Hari Seldon** » 30 Jun 2012 07:47

^^^Hmmm now where have I seen that comment verbatim somewhere....?? Acharya san, either you're active on purely econ D&G boards or you've copy-pasted a comment here without quotes or cites....

ramana · Post by **ramana** » 01 Jul 2012 03:30

Hari et al, The Euro seems to be under lot of stress due to weakness in EU. It might go away in a couple of years. What will be the consequences of such an event?
- On the dollar
- On EU economy
- On PRC
- On US

krisna · Post by **krisna** » 01 Jul 2012 05:38

Merkel seen as big loser in euro zone showdown

Angela Merkel was portrayed across Europe as the big loser of a euro zone showdown in Brussels after the German chancellor was forced to accept the crisis-fighting measures championed by countries struggling with their debts.

Bild wrote: "Italy and Spain got what they wanted: It'll be easier to borrow excessively again... It was the first time in more than two crisis years that euro states didn't follow Germany's orders."

Her foto says it all.

Christopher Sidor · Post by **Christopher Sidor** » 01 Jul 2012 20:43

^^^^
Till now we were assuming that one or more of the PIIGS countries would leave EURO. Now think the unthinkable. What if Germany or any of its AAA rated partner decides to leave EURO?

Moreover any new money spent will have to go through German Parliament, where it might get a veto. We are not over the EURO-ZONE crisis not yet anyways. This crisis is slowly looking like the stagflation of 1970s. Unemployment will remain high, growth will be sub optimal.

svinayak · Post by **svinayak** » 02 Jul 2012 12:32

ramana wrote:Hari et al, The Euro seems to be under lot of stress due to weakness in EU. It might go away in a couple of years. What will be the consequences of such an event?
- On the dollar
- On EU economy
- On PRC
- On US

http://www.fairobserver.com/article/liv ... ity?page=2

Living With Global Liquidity
28 JUNE 2012
ULRICH VOLZ

Ulrich Volz says that emerging countries need to brace themselves for a world of high global liquidity and volatile capital.

The world economy has been in a state of fragility since the outbreak of the global financial crisis in September 2008. While most emerging countries navigated the crisis with relative success and staged strong recoveries in 2009, many advanced countries – not least in Europe – are still struggling with recession or tremors in their banking systems. Since 2010, the European banking and sovereign debt crisis has not only caused jitters in the global financial markets but has also sparked worries about contagious effects around the world, increasing the volatility of international capital flows. To fight financial crisis and the ensuing recession, the central banks of all major advanced economies responded with unprecedented monetary expansion by lowering interest rates to historically low levels and pursuing unconventional monetary policies, such as large asset-buying programmes. The extremely expansionary monetary policies pursued by the world’s major central banks have led to a surge of global liquidity.

Both the US Federal Reserve System and the Eurosystem – the issuers of the world’s two most important currencies – have seen remarkable expansions of their balance sheets since September 2008. While such expansionary monetary policies may be necessary to respond to financial crises, economic contraction, high unemployment and deflationary tendencies in Europe and the US, the effects of monetary easing are also felt elsewhere. Though one would hope that banks in Europe and the US use the cheap refinancing possibilities to extend credit to the real sector and finance investment that will help economic recovery in these economies, apparently much liquidity is now flowing into emerging economies.

Large interest rate differentials between the major advanced economies and emerging economies have incited carry trades and capital flows into emerging economies with higher risk-adjusted rates of return. Capital flows to emerging countries have been further reinforced by rather bleak growth prospects in advanced countries. After net private capital flows to emerging countries in 2008 were halved to USD 619 billion in comparison to the previous year as financial institutions in advanced countries scrambled to liquidate assets during the global credit crunch, net flows to emerging countries had again reached an impressive USD 1,088 billion by 2010 – an amount close to the historic all-time high of USD 1,244 billion reached in 2007, the year before the crash of global financial system. In 2011, net flows to emerging markets ebbed to an estimated USD 1,030 billion as the European sovereign debt and banking crisis increased funding difficulties among European banks. But even though the need for liquid assets in the face of the European banking crisis and the introduction of new European Union capital requirements caused European banks to cut back their international exposure and sell assets in emerging markets at the end of 2011 and early 2012, the Institute of International Finance projects net private capital inflows of USD 912 billion to emerging economies in 2012 and USD 994 billion in 2013. Compared with historical standards, these are enormous sums that emerging economies will have to absorb.

The rapid increase in global liquidity and the continuing large-scale net capital flows to emerging countries give cause for serious concerns in the recipient countries about adverse effects. Large capital inflows not only put appreciation pressure on exchange rates, which can hamper exports, but they can also cause sharp monetary and credit expansions, increase the danger of overheating, and put inflationary pressure on consumer and asset prices. They also pose a risk to financial stability, especially if the inflows lead to a build-up of currency and maturity mismatches, which can cause serious problems in the case of capital flow reversals. Indeed, the current deleveraging of European banks, which has introduced new volatility in the markets, highlights the risks for financial stability.

It is therefore not surprising that emerging country policymakers have voiced their discontent. Dilma Rousseff, Brazil’s president, repeatedly expressed her concerns about the monetary expansion in Europe and the US and the resulting “monetary tsunami” that was making its way to emerging economies. South Africa’s central bank governor Gill Marcus recently complained that “small emerging countries are innocent bystanders as advanced economies battle to recover from the financial crisis.” And at their last Summit in New Delhi, the BRICS leaders complained in their final declaration that “excessive liquidity from the aggressive policy actions taken by [advanced countries’] central banks to stabilize their domestic economies have been spilling over into emerging market economies, fostering excessive volatility in capital flows and commodity prices.”

In the face of abiding economic troubles in the US and the Eurozone, it would be unreasonable to expect a rapid change of the expansionary monetary policy stance by either the Fed or the ECB (or the Bank of Japan, the emitter of the world’s third-most important currency, which has been tinkering with ultra-loose monetary policy since 1999). And given the potentially devastating effects of a hurried exit from expansionary monetary policies not only for the US and the Eurozone economies, but also for the global economy, such a policy move should not be hoped for in emerging countries. This implies that emerging countries need to brace themselves for living in a world of high global liquidity and volatile capital flows for years to come.

Each country will have to find the right policy mix that will minimise the adverse effects of excessive global liquidity and volatile capital flows on its economy. Besides using conventional macro policies – including countercyclical fiscal policy, monetary policy and exchange rate policy – governments of recipient countries can manage capital account transactions through targeted capital controls and by implementing macroprudential policies that reduce incentives for domestic financial institutions to build up foreign currency exposure, such as currency-dependent liquidity requirements for banks, to safeguard financial stability.

Furthermore, measures in recipient countries to curb short-term capital inflows could be coupled with actions taken by the source countries to discourage capital outflows and excessive risk-taking abroad by financial institutions headquartered in their jurisdictions. Measures to discourage short-term outflows – such as prudent capital regulations or taxes on the outflow of speculative capital – from advanced countries would not only benefit developing and emerging economies which are being harmed by excessive short-term inflows, it would also help to channel liquidity into productive investment in the source countries. And this, after all, was a major reason why the Fed and the ECB embarked on expansionary monetary policies in the first place.

This article draws from the introduction to the e-book Financial Stability in Emerging Markets: Dealing with Global Liquidity, which was recently published by the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE).

abhischekcc · Post by **abhischekcc** » 02 Jul 2012 14:22

ramana wrote:Hari et al, The Euro seems to be under lot of stress due to weakness in EU. It might go away in a couple of years. What will be the consequences of such an event?
- On the dollar
- On EU economy
- On PRC
- On US

JMT!

Collapse of the Euro will strengthen to dollar. This will:
1. Strengthen the Chinese yuan as well, leading to costlier Chinese imports, but it will also make the Chinese look to purchase assets (resources, companies, etc) outside China.
2. Lead to hyperinflation in the Oil producing countries of West Asia, whose currencies are also linked to the dollar, and who import everything they need. Hence, to maintain the social subsidies at existing levels, the monarchies will try to jack up the price of oil. This may not be possible, because the collapse of the Euro will weaken the commodities prices. Unable to buy off to balance domestic political and social forces, the gulf monarchies may face their own version of color revolution.

Impact on PRC economy will depend on how much they are able to shift to a domestic consumption base. At any rate, you will find more capital exiting China as investments abroad look more remunerative.

If Germany gives up the Euro project, it will emerge as a stronger economy. At the same time, many Euro countries may fall into 3rd world status, which will create a vast store of cheap labour for German industries. So after a period of adjustment, Germany may actually turn out to be better off.

The thing to watch for is the closeness of German-Russian relationship. If these two stick together, Europe will escape relatively unscathed. If they break down, then Europe may face civil war. Russia provides cheap energy and resources to Germany and western Europe, it is crucial in maintaining social peace in western Europe.

Impact on US: perhaps US has no way out of this dilemma without some form of default, so US will look at hyperinflation as a way out.

ramana · Post by **ramana** » 02 Jul 2012 22:44

John Snow/Spinster had predicted some of this in the first version of this thread but around 2018.

Looks like it will happe sooner than later.

svinayak · Post by **svinayak** » 02 Jul 2012 23:17

abhischekcc wrote:
The thing to watch for is the closeness of German-Russian relationship. If these two stick together, Europe will escape relatively unscathed. If they break down, then Europe may face civil war. Russia provides cheap energy and resources to Germany and western Europe, it is crucial in maintaining social peace in western Europe.

Impact on US: perhaps US has no way out of this dilemma without some form of default, so US will look at hyperinflation as a way out.

Russia may sponser the Eurasian currency along with Germany which will take Silk Road and eurasia into global dominance in 21st century.

ramana · Post by **ramana** » 03 Jul 2012 00:24

Can you get together with Vaidya sir and write an article on that?

Yogi_G · Post by **Yogi_G** » 05 Jul 2012 15:44

abhischekcc wrote:
ramana wrote:Hari et al, The Euro seems to be under lot of stress due to weakness in EU. It might go away in a couple of years. What will be the consequences of such an event?
- On the dollar
- On EU economy
- On PRC
- On US
JMT!

Collapse of the Euro will strengthen to dollar. This will:
1. Strengthen the Chinese yuan as well, leading to costlier Chinese imports, but it will also make the Chinese look to purchase assets (resources, companies, etc) outside China.
2. Lead to hyperinflation in the Oil producing countries of West Asia, whose currencies are also linked to the dollar, and who import everything they need. Hence, to maintain the social subsidies at existing levels, the monarchies will try to jack up the price of oil. This may not be possible, because the collapse of the Euro will weaken the commodities prices. Unable to buy off to balance domestic political and social forces, the gulf monarchies may face their own version of color revolution.

Impact on PRC economy will depend on how much they are able to shift to a domestic consumption base. At any rate, you will find more capital exiting China as investments abroad look more remunerative.

If Germany gives up the Euro project, it will emerge as a stronger economy. At the same time, many Euro countries may fall into 3rd world status, which will create a vast store of cheap labour for German industries. So after a period of adjustment, Germany may actually turn out to be better off.

The thing to watch for is the closeness of German-Russian relationship. If these two stick together, Europe will escape relatively unscathed. If they break down, then Europe may face civil war. Russia provides cheap energy and resources to Germany and western Europe, it is crucial in maintaining social peace in western Europe.

Impact on US: perhaps US has no way out of this dilemma without some form of default, so US will look at hyperinflation as a way out.

So the rampant hyper-inflation could make its way into India and we will all see our hard earned savings made worthless in a second?

Hari Seldon · Post by **Hari Seldon** » 05 Jul 2012 17:10

Singha · Post by **Singha** » 05 Jul 2012 17:17

the _really_ rich are still in america incl in politics, just stacked some of their gains abroad. why would anybody run from a system so loaded in favour of the rich and well connected?

Hari Seldon · Post by **Hari Seldon** » 05 Jul 2012 18:17

ramana wrote:Hari et al, The Euro seems to be under lot of stress due to weakness in EU. It might go away in a couple of years. What will be the consequences of such an event?
- On the dollar
- On EU economy
- On PRC
- On US

I don't know what to think, sirjee. I've been wrong enough the past few years to reconsider things I thought I knew. Also, I now have skin in the status-quo game.

Altair · Post by **Altair** » 05 Jul 2012 19:59

He might be referring to people who are buying off islands and starting a self-sustaining life in them. No citizenship, No tax!

abhischekcc · Post by **abhischekcc** » 05 Jul 2012 23:06

Yogi,

Hyperinflation will take place in the US. Whether it comes to India will depend on the then exchange rate.

RamaY · Post by **RamaY** » 06 Jul 2012 03:38

Singha wrote:the _really_ rich are still in america incl in politics, just stacked some of their gains abroad. why would anybody run from a system so loaded in favour of the rich and well connected?

+1.

Interestingly many new rich from china, Russia and Eu are moving to Massaland because they are not sure of protecting their wealth there. The NY RE is hot nowadays.

My gut feel is that these really rich types (>$1B networth guys) already bought their own islands in some remote areas and do not need the citizenship of any specific country for protection like us mortals. They are moving their capital around to make the best buck. For that they do not need citizenships and GCs.

Haaa didn't see Altairs post

svinayak · Post by **svinayak** » 06 Jul 2012 05:25

See the new documentary - Billionaires fear.

-----------

But lot of rich Chinese are planning to go abraod and there is steep demand for green card among wealthy chinese.

THey want to protect their wealth and also they are allowed only one house in China.
House prices in Bay area is rising due to chiense money

Singha · Post by **Singha** » 06 Jul 2012 07:32

makes sense. with a change of leadership due in china, with hu jintao still trying to retain his GOC PLA post, there could be further purges against those linked to fallen icons by the new regime. for the rich and well connected in china its a tightrope walk to be in favour with the ruling clique to get permits, land, credit on friendly terms as well as loan writeoffs and investment ops.

abhishek_sharma · Post by **abhishek_sharma** » 06 Jul 2012 09:04

Crisis forces "dismal science" to get real

shyam · Post by **shyam** » 08 Jul 2012 13:33

Era of -ve interest rates has begun

UPDATE 3-Denmark sets a negative rate for first time

The negative CD rate means that banks must pay the Danish central bank for the privilege of depositing money with it, which is a reflection of the high uncertainty in financial markets as Europe's debt crisis has deepened

shyam · Post by **shyam** » 08 Jul 2012 13:39

Now we have a name - LIBOR-gate
DAVID KOTOK: LIBOR-Gate Will Take Down Many More Bankers, And The Claims Will Spiral Into The Trillions

RamaY · Post by **RamaY** » 08 Jul 2012 19:51

Acharya wrote:See the new documentary - Billionaires fear.

-----------

But lot of rich Chinese are planning to go abraod and there is steep demand for green card among wealthy chinese.

THey want to protect their wealth and also they are allowed only one house in China.
House prices in Bay area is rising due to chiense money

A few Chinese colleagues of mine were approached by their rich native friends. The idea is to buy a good house ($M +++) and buy a business worth $M+. Don't know about it now, but there was a GC process where one can get fast GC by investing $1M in a business and employ x number of people.

This will lead to American revival, but only in pockets (East coast, West Coast and Texas type areas). There are few large RE projects coming in NYC where they are planning to build X0,000 apartments in one area with average price of $M++.

Singha · Post by **Singha** » 08 Jul 2012 22:21

thailand also has such a scheme. you need to employ 3 local people iirc into any business and maybe some min money(not huge) and you can get their form of GC/citizenship. our tour boat owners were a middle aged aussie couple.

Ambar · Post by **Ambar** » 08 Jul 2012 23:50

abhischekcc wrote:Yogi,

Hyperinflation will take place in the US. Whether it comes to India will depend on the then exchange rate.

Prices of most everyday stuff has quadrupled or sextupled in India in the last 4 years ( so much for the GoI 10%/PA inflation figures). Hyperinflation is already a reality in India , and will only get worse with rupee sinking like a rock, diminishing farm land and water bodies, and a creaking infrastructure that does not exist beyond SEZs and "hi-tech/millennium" cities.

Prem · Post by **Prem** » 08 Jul 2012 23:54

RamaY wrote:
Acharya wrote:See the new documentary - Billionaires fear.

Chinese colleagues of mine were approached by their rich native friends. The idea is to buy a good house ($M +++) and buy a business worth $M+. Don't know about it now, but there was a GC process where one can get fast GC by investing $1M in a business and employ x number of people.

This will lead to American revival, but only in pockets (East coast, West Coast and Texas type areas). There are few large RE projects coming in NYC where they are planning to build X0,000 apartments in one area with average price of $M++.

Canada has the best policy.AFAIK, requires only 300K.

Nandu · Post by **Nandu** » 09 Jul 2012 05:32

Acharya wrote:See the new documentary - Billionaires fear.

Never heard of it. Got an imdb or youtube link?

AbhiJ · Post by **AbhiJ** » 09 Jul 2012 19:37

Goldman Sachs and Greediness

Nandu · Post by **Nandu** » 10 Jul 2012 09:49

Nandu wrote:
Acharya wrote:See the new documentary - Billionaires fear.
Never heard of it. Got an imdb or youtube link?

I guess not.

shyam · Post by **shyam** » 11 Jul 2012 11:44

Because Once You Drop By Bankruptcy Court, You Don't Stop: San Bernardino On Chapter 9 Deck

Meredith Whitney made her doomsday prediction. The nothing. Nothing. Then lots of glib muni expert pundits gloating because the Fed, the ECB, the BOJ, the BOE, the SNB, and of course, the central bank of Kenya, had managed to delay the inevitable by a year. Then some more nothing. Then suddenly Stockton, Mammoth Lakes, and now San Bernardino all file in the span of 2 weeks.

Hari Seldon · Post by **Hari Seldon** » 11 Jul 2012 19:12

picture == 1000 words and all that...

Hari Seldon · Post by **Hari Seldon** » 11 Jul 2012 19:19

Folks, this one by Ilargi on the implications and mechanics of the Libor rigging is a recommended read at TAE

http://theautomaticearth.com/Finance/li ... start.html

Make that Highly recommended.

girish.r · Post by **girish.r** » 11 Jul 2012 20:04

Hari Seldon wrote:picture == 1000 words and all that...

How would you want your rate...... FIXED?

svinayak · Post by **svinayak** » 12 Jul 2012 01:05

This is the real name.

http://www.cnbc.com/id/47692617/Billion ... n_Measures
http://video.cnbc.com/gallery/?video=3000093730

Ultimate Security Measures for Billionaires
For the average American, a home alarm system may be the extent of his or her security detail. But for the super-rich, it’s another story. They’re taking security to a new high in technology and price.

With billionaires worried about protestors, pirates and kidnappers, they’re fortifying their homes, yachts and even private jets with high-tech security. The price tag to equip homes of the super-rich can be as cutting edge as the technology.

Entry-level protection for such homes routinely easily reaches $150,000, but it can also be “fabulously more expensive,” said Al Corbi, president of Safe, a firm which designs custom security for the ultra-wealthy. It all depends on the amount of security, size of the home and the specific details involved.

One of his latest projects has a price tag of $10 million. What do you get for that kind of money?

“It would be full life-support systems that would keep these people and sustain them for generations, even if they were the last two people on earth,” Corbi said.

Those seeking top-level protection on the high seas can expect to spend 7 percent to 8 percent of the yacht’s total value, according to retired Coast Guard Vice Admiral Brian Peterman, now with Command at Sea International. So, a $54 million dollar super-yacht security retrofit would cost between $3.7 million and $4.3 million.

Here we take a look at some of the unbelievable lengths billionaires can go to in their quest for the ultimate protection, as well as the costs associated with the various security measures.

Because prices can range widely when it comes to securing a house, the prices quoted here for home security are based on Safe’s show home in the Hollywood Hills section of Los Angeles.

Click ahead for a peek at how a security-conscious billionaire can purchase peace of mind.

By Michelle Fox
Posted 6 June 2012

pentaiah · Post by **pentaiah** » 12 Jul 2012 06:28

Does anybody remember a BRF member named Neshant, who had been saying that the banks are all fraud. He is vindicated....

Also Rahul Mehata who long long ago and many moons tried to tell folks here how corrupt the Indian System had become....

he did predict about Hershad Mehta , now Ketan Parekh...

read on folks

Mon, Jul 09, 2012 at 09:24
Stockbroker Ketan Parekh in major stock market scam: Report
A major stock market scam involving big players such as tainted stockbroker Ketan Parekh (KP), apparently banned from trading on the bourses till 2017 by securities market regulator SEBI, has been exposed by the Intelligence Bureau (IB), according to a report by India Today.

member_23626 · Post by **member_23626** » 12 Jul 2012 06:44

pentaiah wrote:Does anybody remember a BRF member named Neshant, who had been saying that the banks are all fraud. He is vindicated....

Also Rahul Mehata who long long ago and many moons tried to tell folks here how corrupt the Indian System had become....

he did predict about Hershad Mehta , now Ketan Parekh...

read on folks

Mon, Jul 09, 2012 at 09:24
Stockbroker Ketan Parekh in major stock market scam: Report
A major stock market scam involving big players such as tainted stockbroker Ketan Parekh (KP), apparently banned from trading on the bourses till 2017 by securities market regulator SEBI, has been exposed by the Intelligence Bureau (IB), according to a report by India Today.

Can you please provide some important quotes of the two ? Or just tell me where I might find them TIA

RamaY · Post by **RamaY** » 12 Jul 2012 08:25

Watching some show where pat Robertson comes and says there is $800T

loans that depend on LIBOR. And he also says Barclays get $40B per year as interest earnings.

Can these numbers be true?

shyam · Post by **shyam** » 12 Jul 2012 09:19

I haven't seen the video, but the amount $800T usually refers to the total derivatives on the balance sheets of the banks.

Singha · Post by **Singha** » 12 Jul 2012 09:46

the Rajaratnam or Sanford kind of deeds are like the local thief making off with a bag of eggs in comparison. ofcourse they will be strung up and made examples of...while the well oiled insiders will pay fines, make some vague promises and walk away into rich retirement.

shyam · Post by **shyam** » 12 Jul 2012 10:02

Revealed: why Gordon Brown sold Britain's gold at a knock-down price

It seemed almost as if the Treasury was trying to achieve the lowest price possible for the public’s gold. It was.

One of the most popular trading plays of the late 1990s was the carry trade, particularly the gold carry trade.

In this a bank would borrow gold from another financial institution for a set period, and pay a token sum relative to the overall value of that gold for the privilege.

Once control of the gold had been passed over, the bank would then immediately sell it for its full market value. The proceeds would be invested in an alternative product which was predicted to generate a better return over the period than gold which was enduring a spell of relative price stability, even decline.

At the end of the allotted period, the bank would sell its investment and use the proceeds to buy back the amount of gold it had originally borrowed. This gold would be returned to the lender. The borrowing bank would trouser the difference between the two prices.

This plan worked brilliantly when gold fell and the other asset – for the bank at the heart of this case, yen-backed securities – rose. When the prices moved the other way, the banks were in trouble.

This is what had happened on an enormous scale by early 1999. One globally significant US bank in particular is understood to have been heavily short on two tonnes of gold, enough to call into question its solvency if redemption occurred at the prevailing price.

Goldman Sachs, which is not understood to have been significantly short on gold itself, is rumoured to have approached the Treasury to explain the situation through its then head of commodities Gavyn Davies, later chairman of the BBC and married to Sue Nye who ran Brown’s private office.

Faced with the prospect of a global collapse in the banking system, the Chancellor took the decision to bail out the banks by dumping Britain’s gold, forcing the price down and allowing the banks to buy back gold at a profit, thus meeting their borrowing obligations.