Perspectives on the global economic meltdown

John Snow · Post by **John Snow** » 25 May 2009 21:57

Somebody wanted the meaning of wealth (creation), the above is an example of what is not wealth. (The above post about deflation debt by vsudhir garu).

Wealth is eternal not identified or quantified in relative terms but is in absolute terms, akin to “deterrent is in the eye of beholder Spinster” a la beauty is in the eye of beholder).

Oh by the way is Gold Bug a jewish last name / surname?

vsudhir · Post by **vsudhir** » 25 May 2009 22:00

US bonds sale faces market resistance

The US Treasury is facing an ordeal by fire this week as it tries to sell $100bn (£62bn) of bonds to a deeply sceptical market amid growing fears of a sovereign bond crisis in the Ungli-Saxon world.

The Obama administration needs to raise $2 trillion this year to cover the fiscal stimulus plan and the bank bail-outs. It has to fund $900bn by September.

"The dynamic is just getting overwhelming," said RBC Capital Markets.

The US Treasury is selling $40bn of two-year notes on Tuesday, $35bn of five-year bonds on Wednesday, and $25bn of seven-year debt on Thursday. While the US has not yet suffered the indignity of a failed auction – unlike Britain and Germany – traders are watching closely to see what share is being purchased by US government itself in pure "monetisatio
of the deficit.

Again, watch the bond markets - the last (albeit imperfect) outlet voicing the will of investors in a sinking world. And today or tomorrow, they shall speak. Sooner rather than later, I suspect.

The US is not alone in facing a deficit crisis. Governments worldwide have to raise some $6 trillion in debt this year, with huge demands in Japan and Europe. Kyle Bass from the US fund Hayman Advisors said the markets were choking on debt.

"There isn't enough capital in the world to buy the new sovereign issuance required to finance the giant fiscal deficits that countries are so intent on running. There is simply not enough money out there," he said. "If the US loses control of long rates, they will not be able to arrest asset price declines. If they print too much money, they will debase the dollar and cause stagflation.

The great unwinding is moving to a new phase, I suspect. I would give govts no later than september (why, maybe even July) to realize just how much appetite bond mkts have for their debt at current yields.

AEP ends with:

We just have to hope that G20 creditors agree to put a clothes peg on their nose and keep buying Western debt until the crisis passes, for the sake of the world.{whose world, noble sir? Why would SDRE slumdawgs be interested in propping up UKstani gilts for instance? Out of goodwill and gratitude for your having carried gora's burden, eh?}

John Snow · Post by **John Snow** » 25 May 2009 22:12

so as posted long time back

Recession --> Deflation --> Pump Fiat Money --> Stagflation -->Hyper inflation

we are in between 2 and 3. In macro economic terms this (the chain) may span, two election (US) cycles at minimum or maximum of two election cycles (Indian). Ardhath 8 to ten years

vsudhir · Post by **vsudhir** » 25 May 2009 22:14

Aside:

JS garu, meeru Hyderabad loney kadaa.... should meet up. Moi R2Iing permanently in late July.... konchom beer+biryani avvali

.

vsudhir · Post by **vsudhir** » 26 May 2009 00:45

World economy stabilising says Krugman

"I will not be surprised to see world trade stabilise, world industrial production stabilise and start to grow two months from now," Krugman told a seminar [in the UAE].

"I would not be surprised to see flat to positive GDP growth in the United States, and maybe even in Europe, in the second half of the year."
...
"In some sense we may be past the worst but there is a big difference between stabilising and actually making up the lost ground," he said.

"We have averted utter catastrophe, but how do we get real recovery?

"We can't all export our way to recovery. There's no other planet to trade with."

Chalo, happy to see some basic measure of stability, respite.

James B · Post by **James B** » 26 May 2009 02:56

The Dangers of Printing Money

Its about printing money in Germany post-World War I.

John Snow · Post by **John Snow** » 26 May 2009 04:50

Sudhir Gurvu garu prasthutham Garden sate lo unnanu, kani ma janabha antha Bhagyanagarm lo ne.

Shankk · Post by **Shankk** » 26 May 2009 09:14

Sell US Stocks, Bonds, Dollar NOW: Strategist

Sell U.S. stocks, sell U.S. bonds, sell the dollar and protect your wealth by going abroad, said Peter Schiff, president of Euro Pacific Capital.

“When [the U.S.] decouples, the world will thrive,” Schiff told CNBC. “The world doesn’t need our consumption, we need their production. The global economy is fine without propping up the U.S. economy. We are in serious, serious trouble.”

Schiff said it’s not only a possibility, but “it’s inevitable” that Brazil and China are eventually going to dump the dollar as the international currency of choice. (Watch interview for more of Schiff's reasons why the U.S. dollar is in trouble.)

“As far as I’m concerned, the U.S. has already lost its AAA rated status,” said Schiff.

He said emerging markets continue to be strong and had great gains since they bottomed in October 2008.

“Americans are going to lose their wealth if they go down with this ship,” he said. “I’m trying to help by getting their stocks abroad, out of the dollar and protecting them from Ben Bernanke, Obama and the congress.”

vsudhir · Post by **vsudhir** » 26 May 2009 12:31

Another persp on how the great recession has changed and redefined national priorities and roles...

x-post

Japan's big guns prepare to rejoin global arms industry

The huge engineering and technological might of Japan may be poised for a new lease of life as the country prepares to ditch a self-imposed ban on arms exports that was introduced in the mid-1970s.

The controversial decision, which is likely to encounter bitter opposition from the country's mainly pacifist middle classes, could deliver significant economic benefits to Japan and lead to a realignment in the global defence industry.

A ruling party MP said that the greatest significance would be the conversion of Japan's robotics industry from civilian to military use as the world's defence spending is directed to remote-control hardware, such as drone aircraft.

Lifting or toning-down the 33-year old embargo would unleash some of the world's most advanced heavy engineering companies into the international weapons market, one of the few areas of manufacturing where Japan's immense technical resources have, for purely political reasons, not produced a dominant global player.

The expected move, which government insiders said may be announced by Taro Aso, the Prime Minister, before the summer, is likely to begin by relaxing the ban to allow Japanese companies to work on joint projects with American and European defence manufacturers, whose products could then be sold internationally.

Joint production and the scope to profit from a share of international sales could draw more Japanese companies into the defence industry and, the Government hopes, bring procurement costs down. Yet as the ban loosens further, government defence insiders say that Japan could be propelled into the top ranks of arms manufacturers.

Mr Aso's Government, meanwhile, is struggling to reverse an unprecedented shrinkage of the economy while the strong yen has made Japanese goods even less price-competitive against South Korean and Chinese products. Defence analysts have long maintained that Japanese industry, once freed from its ban, could quickly rival British, American and European players. Japan's prowess in miniaturised motors, robotics and control systems would be especially competitive.

Singha · Post by **Singha** » 26 May 2009 13:28

AoA....I looked forward to mitsubishi armed 12 foot tall mech-droids with 2x20mm cannons and canikon opto electronics

and small fast moving feral toyota robot suicide hounds based on fuel cells.

Japan is in the sweet spot for sensors, robotics, smart weapons, vehicles, ships, auto engines, avionics and heavy machinery

we hope they look for projects and partners in Yindia.

vsudhir · Post by **vsudhir** » 26 May 2009 17:15

All symptoms point to a balance sheet recession in progress (different qualitatively and quantitatively than the one that struck Japan in 1990).

Leverage is majorly out.

Firms everywhere are racing to payoff debt as asset bubbles bursting has seriously distorted the asset side of their balance sheets whereas the liability side (debt) remains huge as ever.

Tata's JLR tragedy stands out. Here's another high-visibility example:

Porsche seeks Euro bailout

German magazine Der Spiegel is reporting that Porsche has found itself $15.3 billion in debt due to its recent purchase of a 51 percent majority share in the German giant, Volkswagen.

Worse still, the report claims the company is $4.4 billion short of the funds needed to keep its operations rolling, asking the German government for $179 million in emergency loans for the short term.

vsudhir · Post by **vsudhir** » 26 May 2009 17:42

China warns Fed Reserve on printing money

China has warned a top member of the US Federal Reserve that it is increasingly disturbed by the Fed's direct purchase of US Treasury bonds.

Richard Fisher, president of the Dallas Federal Reserve Bank, said: "Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature."

"I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States," he told the Wall Street Journal.

All these chini warnings will continue right to the point where either the USD weakens fatally or the next sino-US war at whcih point, unkil will be out looking for serious trouble and PRC will, true to form, walk into the trap.

ramana · Post by **ramana** » 26 May 2009 20:28

The conmist has a great cover this week on state of Europe.

shaardula · Post by **shaardula** » 26 May 2009 20:32

vsudhir wrote:China warns Fed Reserve on printing money

China has warned a top member of the US Federal Reserve that it is increasingly disturbed by the Fed's direct purchase of US Treasury bonds.

Richard Fisher, president of the Dallas Federal Reserve Bank, said: "Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature."

"I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States," he told the Wall Street Journal.
All these chini warnings will continue right to the point where either the USD weakens fatally or the next sino-US war at whcih point, unkil will be out looking for serious trouble and PRC will, true to form, walk into the trap.

i wanted to ask this. could the NoKo blasts be bcoz of this? at one point during the meltdown there was some news of "foriegn hands" precipitating it. what happened to that line?

vsudhir · Post by **vsudhir** » 26 May 2009 22:34

Well, even dark clouds have silver linings, don't they?

Dollar Gains as North Korean Tests Spur Demand for Safety

While saying that unkil-chinkil collaborated on winking at the NoKo tests is admittedly a stretch, can't say it hasn't benefited the USD. soko and japan as well ad much of asean will now quietly go back to buying US treasuries. The alternative is of course the renminbi onlee.

vsudhir · Post by **vsudhir** » 27 May 2009 02:42

Dubai wants physical delivery of its gold reserves (from London)

All the gold of Dubai that is held in the vaults of various banks in London is coming back to the City of Gold. The Dubai Multi Commodities Centre (DMCC) has opened new vaults to store the gold reserves in Dubai, currently being looked after by central banks in London

To which one commentator notes:

As other countries pull in physical gold from London and the USA, we will soon see if the emperor has no clothes. That can only take the gold price in one direction.

On March 31st, Deutsche Bank were caught with no clothes on when they had to made good on delivery of 850,000 ounces of gold (850 Comex contracts). Coming to their rescue, almost at the same instant DB gave notice of its deliveries, the ECB “sold” 35.5 tons - 1,141,351 ounces

James B · Post by **James B** » 27 May 2009 03:13

http://www.imf.org/external/np/g20/pdf/020509.pdf (page 21)

James B · Post by **James B** » 27 May 2009 03:23

http://econompicdata.blogspot.com/2009/ ... -mess.html
http://www.bls.gov/

James B · Post by **James B** » 27 May 2009 03:28

A Look at the World's Largest Stimulus Plans Outside the United States

Stimulus as a %ge of GDP

Japan - 15.7% ($687.7 billion)
Germany - 1.6 to 2 % ($54.3 billion to $67.9 billion)
China - 18 % ($585.6 billion)
U.K - 1.1% ($29.2 billion)
France - 1.4% ($35.3 billion)

vsudhir · Post by **vsudhir** » 27 May 2009 04:57

10 year Treasuries at 3.51%

There's prolly panic behind closed doors at the Fed and at Treasury. The bond mkts are beginning to voice their will. Moi fears the game has but begun. What will a 4% yield (very conceivable a few months down the dirt road) imply for interest rates? mortgage rates? budget balancing? sovereign credit rating? Not pretty, IMHO.

Singha · Post by **Singha** » 27 May 2009 06:28

U.K - 1.1% ($29.2 billion)

how has this been calculated. iirc the bailouts to british banks are a lot larger?

vsudhir · Post by **vsudhir** » 27 May 2009 07:45

Two-Thirds Off on Manhattan Office Space

In Midtown Manhattan ... 13 percent of ... Class A space — was available in April, up from 7.2 percent a year earlier, according to Colliers ABR, a commercial real estate services company. And sublets now account for some 40 percent of the space available in Midtown, compared with 30 percent of the much smaller total that was available a year ago, the company said.
...
Robert Sammons, the managing director in charge of research at Colliers ABR, said that sublet space in trophy office towers along Madison Avenue and Park Avenue has been leasing for as little as one-third of what that space might have commanded in early 2008, at the height of the roaring market.

“A year and a half ago, this space might have leased for $150 per square foot,” Mr. Sammons said, while he has heard of recent sublets in high-end buildings in this office corridor with annual rents of as little as $40 to $50 per square foot. “This is the most remarkable turnaround in pricing that I’ve ever seen in such a short period of time.”

John Snow · Post by **John Snow** » 27 May 2009 08:13

During the long week end I did survey of all Malls, I find the crowds/customers sparse if not thin. Mostly looking for throw away prices. I see lot of rental spaces, and also most of the isles are empty or one or two copies of the ware.
The only exceptions are Walmart and SAMs club stores. Even Borders and Barnes and Nobles are stocking les and less books. Could be because of eBooks, but by and large very little traffic. During the height of IT boom the IT books aisles were fully with books and people sitting on floor reading away Java for Dummies, Mastering C++ in one week end etc.

Things are surely bad, so was EU. In Amsterdam hotel rentals are 25 to 30 % straight discounts in three stars and above.

Singha · Post by **Singha** » 27 May 2009 08:27

the starbucks inside bookstores also used to be quite popular. your survey matches what a friend did survey in NJ-NYC.

Singha · Post by **Singha** » 27 May 2009 11:43

TOI ascent is starting to put some meat on the bone. 8 pages today and some genuine looking ads not gap-fillers.

by winter the Indic economy should be firmly in recovery cycle - masha-allah.

realty builders who were in doldrums in Jan-apr seem to have lined up new sources of funding either from banks or other investment cos backed by HNIs. work at my
apt had totally stopped this yr and all labour had gone away and supplier withdrew LC. now there are indications of it starting up again as fresh funds are located.
sobha just tied up 240 cr from son of a INFY founder and is selling some stakes/land to raise more cash.

Dileep · Post by **Dileep** » 27 May 2009 12:38

The RE scene here in DMA also shows signs of recovery. The erstwhile 1.5Cr sooperdooper apartment thingies is gone, and replaced by <20L 3BHK SDRE projects. Looks like there are takers for them.

The malls here have no respite. Last sunday Oberon was choke full. Car parking being full and hundreds of cars parked outside. Both on the service road and the highway itself. The kids couldn't get into the arcade or the kirket machine. Had to eat dosas because the TFTA food counters were all choked full.

Raja Bose · Post by **Raja Bose** » 27 May 2009 13:09

^^^ What is this kirket machine??? Is this like SDRE version of baseball bowling machine?

Singha · Post by **Singha** » 27 May 2009 13:41

yes it throws tennis bowls at a area enclosed in nets. uses compressed air / springs.

in blr while premium 'fine dining' (aka ripoff) places are suffering lack of clients, the
modest adiga, sukh sagar, pizza corner, china pearl, pai viceroy, home delivery kabab/biryani type places are doing good business.

also seeing a lot of glum looking low-end expats walking or cycling around these
days.

groceries like SPAR are seeing tremendous business. on sunday nights its pure chaos.

alcohol continues to sell well. I see wimmin come in and buy stuff for themselves and
phone husbands whether to pickup old monk

John Snow · Post by **John Snow** » 27 May 2009 14:28

chi chi do husbands (males in Indian Context) need old monks? only wimmen need old or young monks no?

Dileep · Post by **Dileep** » 27 May 2009 15:02

Yes, the kirket machine is a simple tennis ball gun, with an air compressor and an L bent PVC pipe. The speed is controlled by slit with a movable sleeve. The ball enters from the bottom and is pushed up by the air. When it reaches the open slit, the air escapes and looses mojo. So, the higher up you keep the sleeve, the faster the ball. The ball continues to travel up, through the L bend and out through the open end of the pipe. The operator moves the whole gizmo around to aim the ball.

It is kept in a net enclosure. You hit the sides, it is 2 runs. Hit the opposite end is six. hit to the farther end of the side is four. You pay Rs 50 and play 3 overs. If you score more than 25 runs, you get a bonus over. Various sizes of bats are kept, so that you can pick one.

I wanted to play, but every time we go there, it is packed.

vsudhir · Post by **vsudhir** » 27 May 2009 15:28

Well, might as well add moi own 'unscientific' survey of the mall scene in moi town.

Moi town, like a lot of upstate and midwestern towns has been in slow, long decline. So there was no great property bubble in the boom times, likewise, no grand crash later either. But the slow decline continues unabated.

Malls weren't ghostlike yet but slowly emptying nonetheless. Was last out on memorial day at the local mall. Taco Bell was empty whereas previously it entailed a minimum 10 min que wait onlee.

Craigslist is all the rage now. bargain hunters' economy indeed but that maybe due to bias as moi lives in the college part of town perhaps.

vsudhir · Post by **vsudhir** » 27 May 2009 15:46

Something BR had long ago predicted...ahead of the curve and all that.

Will higher ed be the next bubble to burst?

The public has become all too aware of the term "bubble" to describe an asset that is irrationally and artificially overvalued and cannot be sustained. The dot-com bubble burst by 2000. More recently the overextended housing market collapsed, helping to trigger a credit meltdown. The stock market has declined more than 30 percent in the past year, as companies once considered flagship investments have withered in value.

Is it possible that higher education might be the next bubble to burst? Some early warnings suggest that it could be.

With tuitions, fees, and room and board at dozens of colleges now reaching $50,000 a year, the ability to sustain private higher education for all but the very well-heeled is questionable. According to the National Center for Public Policy and Higher Education, over the past 25 years, average college tuition and fees have risen by 440 percent — more than four times the rate of inflation and almost twice the rate of medical care. Patrick M. Callan, the center's president, has warned that low-income students will find college unaffordable.

Meanwhile, the middle class, which has paid for higher education in the past mainly by taking out loans, may now be precluded from doing so as the private student-loan market has all but dried up. In addition, endowment cushions that allowed colleges to engage in steep tuition discounting are gone. Declines in housing valuations are making it difficult for families to rely on home-equity loans for college financing. Even when the equity is there, parents are reluctant to further leverage themselves into a future where job security is uncertain.

Consumers who have questioned whether it is worth spending $1,000 a square foot for a home are now asking whether it is worth spending $1,000 a week to send their kids to college. There is a growing sense among the public that higher education might be overpriced and under-delivering.

As a rule of thumb, at least for professional qualifications, tuition fees should be recovered in no more than 12-18 months of the gross median income of the graduating class. Else the RoI of the qualification is artificially kept high in a 'bubble' sense. Sure, there's a lag in the edu sector but expect values to fall to realistic levels within 1-2 yrs as demand drops after the initial post bust glut in apps.

vsudhir · Post by **vsudhir** » 27 May 2009 15:58

The Finance-Government Complex & The End of U.S. Economic Dominance (Satyajit Das)

Worthwhile read. Das was a consummate insider on the trading side at least. But even he seems to dismiss the possibility, nay the probability, that this is a balance sheet recession and the problem is *not* lack of liquidity or credit in the system as much as it is a reluctance on part of borrowers to borrow - hence lack of demand for funds.

Chinmayanand · Post by **Chinmayanand** » 27 May 2009 17:08

US Debt Clock

Singha · Post by **Singha** » 27 May 2009 20:52

it shows the GDP and bailout both at 11 trillion. I dont think the bailout has been that large - yet

Singha · Post by **Singha** » 27 May 2009 22:59

BBC

Number of problem US banks soars

The number of problem US banks jumped 40% to a 15-year high in the first three months of the year, a government watchdog has warned.

A total of 305 banks had financial woes in January-March, up from 252 in October-December, said the Federal Deposit Insurance Corporation (FDIC).

vsudhir · Post by **vsudhir** » 27 May 2009 23:56

http://www.youtube.com/watch?v=akVL7QY0S8A

Elizabeth Warren lecture on the coming collapse of the US middle class. Must-see, IMHO. ~ 57 minute video.

ramana · Post by **ramana** » 28 May 2009 01:03

vsudhir wrote:The Finance-Government Complex & The End of U.S. Economic Dominance (Satyajit Das)

Worthwhile read. Das was a consummate insider on the trading side at least. But even he seems to dismiss the possibility, nay the probability, that this is a balance sheet recession and the problem is *not* lack of liquidity or credit in the system as much as it is a reluctance on part of borrowers to borrow - hence lack of demand for funds.

What to make of the creeping T-Bill rate from ~ 2.25% a few months ago to now ~ 3.55%? Does it mean lack of money in the system as its scarce?

Suraj · Post by **Suraj** » 28 May 2009 01:20

Lack of confidence among bondholders/buyers pushing up the rate in order to mitigate greater perceived risk.

vsudhir · Post by **vsudhir** » 28 May 2009 03:15

Moody's affirms US AAA rating despite rising debt

"Whew!" Can sleep in peace tonite...