Perspectives on the global economic meltdown

vsudhir · Post by **vsudhir** » 01 Jul 2009 04:03

Wow. this is incredible. Regulatory capture in the USA is complete.

The NYSE has announced it is (arbitrarily) backtracking on its requirement to release program trading data (program trades are trades run primarily by the big banks and their quant funds).

link

The New York Stock Exchange LLC (“NYSE”) will be decommissioning the requirement to report program trading activity via the Daily Program Trading Report (“DPTR”), which was previously approved by the Securities and Exchange Commission (the “Commission”).1 The last trade date for which member organizations will be required to file the DPTR with the Exchange will be July 10, 2009 and therefore the last required date to submit the DPTR will be July 14, 2009.

In the 2007 rule filing, the Exchange proposed to eliminate DPTR. The 2007 filing noted that there was some duplication between the DPTR data and the audit trail information that member organizations provide to the Exchange via account-type indicators at the time that they submit program trades to the Exchange... [A]fter consulting with the SEC, the Exchange announced that it would delay implementation of the two redefined account type indicators, and pending such implementation, member organizations would be required to continue filing the DPTR with the Exchange. The current delayed implementation date of the redefined J and K account type indicators is June 30, 2009. Accordingly, the Exchange still requires member organizations to submit DPTR.

The Exchange has filed with the SEC to implement the decommissioning of the DPTRrequirement following the July 10, 2009 trade date. Accordingly, the last required submission of the DPTR will be on July 14, 2009, which is the second business day after the last trade date for which the DPTR is required.

In addition, in connection with the decommissioning of the DPTR, the Exchange will not be implementing the proposed redefined program trading account type indicators (J and K) and will continue to use the existing J and K audit trail account types. Upon further analysis and based on industry input, the Exchange has determined that these redefined account type indicators do not enhance the regulatory audit trail because the proposed redefined J and K could subsume some of the other, more granular account type indicators that the Exchange currently receives. Accordingly, the Exchange has determined not to redefine the J and K account types in the manner previously proposed, and is instead leaving the J and K account-type definitions unchanged.

The Exchange further notes that it will use the existing account type indicator data – which captures program trade information for those orders sent to and executed on the Exchange – to report to the Commission on a weekly basis the program trading statistics for portions of program trades executed on the Exchange. Accordingly, beginning on July 23, 2009, the Exchange will provide the Commission with its weekly statistics on program trading based on account type indicator data rather than DPTR data. Similarly, at the same time, the weekly statistics regarding program trades that the Exchange provides to media outlets will also be derived from account type indicator data rather than the DPTR.

The finblogs are abuzz. Tyler Durden at zero hedge has this to say:

Basically this is the beginning of the end of unmodified data transparency. Going forward the NYSE will provide whatever data it feels comfortable, after sufficient internal "audits," and media outlets such as Zero Hedge, which had presented its millions of readers the only data point about Goldman's complete encroachment of not only NYSE but Program Trading, will be henceforth unreliable and likely will present no useful information at all.

This is a travesty, as well as a complete obliteration and a mockery of the move for transparency that the Administration, Regulators and Exchanges have been posturing they support.

link

And moi naively thought brazen corruption happens only in turd world banana republix. Welcome to the brave new world.

Sad to see a great nation like the USA come crashing down like this. The US' strength was in its institutions and their probity. That reputation has taken a serious beating and will likely not recover in years. This credibility crisis has dented all the main fin institutions the victors of WWII devised to further their dominance.

A poster I respect a ton had this to say:

If you own shares of anything in the stock market other than Goldman Sachs or JPM (and possibly CITI), sell now! The quant boys no longer have to report their huge swing trades. They are free to run up the prices of these big banks under a cloak of complete darkness. When they are done and have cashed in on their stock gains, they will be free to short each other under that same cloud of darkness.

We saw what happened to the prices of these big bank stocks when they were able to get rid of mark-to-market accounting, so get ready for a re-run. The pump will be breathtaking, and the dump will kill what's left of the pensions and small investors. Welcome to the Obama-Summers-Geithner-Bernanke-Rubin definition of "transparency".

There is the old dog and cat analogy that explains how these banks have been able to pump up each other's net worths. Imagine that GS has a dog, and JPM has a cat. GS values its worthless mutt at $1 million. JPM values its worthless ally cat at $1 million. GS buys JPM's cat for a borrowed million dollars and takes a 10% commission. JPM buys GS's dog for a borrowed million dollars and takes a 10% commission. The dog and cat are now collateral for the worthless $2 million in loans. The Fed backstops the loans, the Treasury backstops the Fed and the American taxpayers backstop the Treasury. Guess who wins and guess who loses.

GS and JPM, without mark-to-market audits get to count all that backstopped worthless paper at face value. These phony assets and the pure profits they made trading them to each other and then to other banks, pension funds and investors enable them to pump up the values of the stock shares of their own insolvent banks. Now, cloaked under the total secrecy of non-reporting, their highly leveraged quant traders can force that value even higher. Once the banking barons have dumped these worthless shares at crazy prices, the damage to the market and the US economy will be cataclysmic.

On a separate note, more regulatory golmaal

You gotta love the way the Government keeps working for cronies. GE CEO, Jeff Immelt, was appointed to the President's Economic Recovery Advisory Board in 2/09. Now the FDIC, through a loophole, is insuring billions in GE debt. I guess Immelt advised the FDIC to do so. What will GE do with this risk free money it received for selling that debt? Why use it to buy distressed paper from its cronies. When the paper goes bust, the taxpayer will be on the hook.

Immelt was paid over $8 million last year, as he ran the company into the ground. Now, being a member of Obama's advisory board, I'm sure he will get paid even more. After all, they'll value that near worthless paper at face, and GE will look profitable after adding all those assets. They'll be no mark-to-market accounting to prove otherwise.

vsudhir · Post by **vsudhir** » 01 Jul 2009 04:38

This is one example of what I was talking abt when i lamented:

Wow. this is incredible. Regulatory capture in the USA is complete.
......
And moi naively thought brazen corruption happens only in turd world banana republix. Welcome to the brave new world.

Sad to see a great nation like the USA come crashing down like this. The US' strength was in its institutions and their probity. That reputation has taken a serious beating and will likely not recover in years.

This one is a MUST WATCH in bold capitals folks. 5.5 minutes of your precious time to marvel at how the mighty squirm their way out of straight questions.

[youtube]<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/cJqM2tFOxLQ&re ... ram><param name="allowFullScreen" value="true"></param><param name="allowScriptAccess" value="always"></param><embed src="http://www.youtube.com/v/cJqM2tFOxLQ&re ... edded&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" allowScriptAccess="always" width="425" height="344"></embed></object>[/youtube]

svinayak · Post by **svinayak** » 01 Jul 2009 09:12

We are now in a lull before the next storm.

Next month, July, California hits the wall financially, that will send a ripple effect across the US economy, and over the next two years one state after the other will fall to it's knees financially.

Within 120 to 150 days from now the commercial real estate market nationally begins to collapse as stores, malls, and shopping strips, and industrial plant have enough closures (store and plant) and loss of rental revenue to make them unable to pay their mortgages.

Unless oil stays above $70 a barrel the Russian and Mexican economies will begin to unravel.

We need to get nations off fiat currencies and onto energy-backed currencies before national currencies collapse.

KarthikSan · Post by **KarthikSan** » 01 Jul 2009 09:58

Britain's Queen May Run Out of Money by 2012

Maintaining a monarchy is costly, as Britain found out when a newly published account revealed that Queen Elizabeth II will be out of pocket by 2012 unless the government boosts funds for the Royal household for the first time in 20 years.

Life obviously comes a full circle! Maybe she will now sell some of the precious treasures that her ancestors stole from India and our newly rich business class can buy them and gift them to museums for our future generations to enjoy.

vsudhir · Post by **vsudhir** » 01 Jul 2009 19:53

The slide continues in some formerly snooty emerged markets.

Sterling Crisis Looms as U.K. Unraveling Points to Budget Cuts

Chancellor of the Exchequer Alistair Darling said on April 22 that this year’s government deficit would hit 12.4 percent of GDP. Alan Clarke, a London-based economist at BNP Paribas SA, expects it to reach 17 percent of GDP in 2010.

“We’re not Iceland or Ireland, but we’re closer to them than we are to the U.S.,” says Ferguson, author of “The Ascent of Money: A Financial History of the World” (Penguin, 2008). Iceland had to borrow from the International Monetary Fund to avoid default after its banks collapsed in October; Ireland this year may have the steepest economic contraction of any industrialized nation since the Great Depression.

uh-oh onlee.

This is not the first time this iceland/ireland comparison meme has surfaced inthe mainstream press. Cleaver, pre-emptive Expectations mgmt on part of the crafty UKstanis or what? In any case, for clarity sake, I doubt Londonistan will quite become the Rekjavik on the Thames (another meme that rapidly gained currency), but not for the lack of trying.

Britons can expect to face spending cuts in coming years in all areas, including social security and health care, says Nigel Lawson, who was chancellor of the Exchequer under Margaret Thatcher from 1983 to 1989.

{Hah. so what. The great brits still better off than 'em slumdawgs in the emerging turd world, no? So there, that settles it. Meanwhile blit propagandu organs - from the ekhanimist to the beeb will nontsop focus on daleets/cashmere/etc., just to drive home the message.}

“Our public finances are easily the worst we’ve ever had in peacetime,” Lawson, 77, says. “The amount of borrowing the government will have to do as a result of the deficit is very worrying.” He says yields on U.K. debt will have to climb to attract buyers.

{Duh. But the blits shtill have their AAA rating, see? they're better off than most, no?}

The government must sell about 900 billion pounds of gilts over five years, Clarke says. He estimates that the Bank of England will buy a third of these gilts to pump money into an economy mired in its worst recession since World War II. The government may struggle to find buyers for the rest, he says.

Bad as it is, the fiscal mess is unlikely to end in disaster, says Ben Broadbent, U.K. economist at Goldman Sachs Group Inc. “We had debt of over 200 percent of GDP after World War II and we didn’t default,” he says. “I don’t look at the public borrowing numbers alone and think there’s a big risk of default or a currency crisis.”

Sure, the blits didn't default after wwii. They watered down the debt they owed India, for example, but that doesn't count, am sure. Their intention to inflate their way outta this mess is crystal clear. Why their conomic outlook will magically imporve 10 yrs down remains a mystery to me, though.

Tanaji · Post by **Tanaji** » 01 Jul 2009 20:15

What is the S&P rating for England then? Surely not AAA?

If its AAA then vsudhir, you are lying onleeee... The rating agencies cannot be wrong, can they?

Singha · Post by **Singha** » 01 Jul 2009 20:22

the english royals as a whole and the queen in particular own huge landed estates and urban property in prime areas that can be priced in billions. just selling off 90% of that land at market prices will yield a small fortune.
they also hold a inventory of valuable artifacts from all over that would fill a good museum.

mind control is so complete the british people raise not a murmur against the huge cost of maintaining the royals.

a lot of estates could for example be converted into luxury spas and hotels like our rajasthan ex-royals did. unused land could be sold. multiple homes could be cut to 1.

shravan · Post by **shravan** » 01 Jul 2009 21:09

Call for Trident rethink prompts Barrow defence cut fears

An investigation claimed the project for two giant new aircraft carriers is already £1bn over budget only a year after the deal was signed, making their cost £5bn instead of just under £4bn.

And a new policy study published today called for the government to rethink the Trident submarine project, on which Barrow shipyard’s future depends.
.
.
“We voted for the replacement to Trident because all the evidence shows that is the best system to put in place and that is what we think Britain needs.”

“Countries like North Korea are getting nuclear arms and we need to make sure we have the capabilities to defend ourselves in the future."......

bart · Post by **bart** » 01 Jul 2009 21:09

Singha wrote:the english royals as a whole and the queen in particular own huge landed estates and urban property in prime areas that can be priced in billions. just selling off 90% of that land at market prices will yield a small fortune.
they also hold a inventory of valuable artifacts from all over that would fill a good museum.

mind control is so complete the british people raise not a murmur against the huge cost of maintaining the royals.

a lot of estates could for example be converted into luxury spas and hotels like our rajasthan ex-royals did. unused land could be sold. multiple homes could be cut to 1.

True, but:

-How much of that is owned by the Queen and her immediate family. For example the Duke of Westminister is one of the wealthiest men in Britain purely due to ownership of prime real estate but his interests are clearly separate from that of the 'royal family'.

-Much of what is believed to be the estates of the royal family are actually owned and administered by the crown estate and is not their's to sell.
http://www.thecrownestate.co.uk/tce_faqs.htm

-The Queen does own certain palaces, and also private estates that are family heirlooms. There is also the matter of whether that land can be sold in the first place. The queen (or family trust) might own them, but would Britain allow Buckingham Palace or Windsor Castle to be owned by an Indian, German, or heaven forbid a Frenchman?

-Also, if the country is so far down the drain that the royal family has to pawn their assets, I doubt if the real estate prices could command the same premiums as they did a few years back when London was considered the place to be. You might actually see guys like Lakshmi Mittal, Abramovich etc move their Musharrafs out of there.

Having said that they still have huge estates that they can sell like Balmoral Castle in Scotland, which includes some 50,000 or so acres.

Stan_Savljevic · Post by **Stan_Savljevic** » 01 Jul 2009 21:30

Just my 2 pence of unsolicited opinionating...

It is high-time that Indians started treating the UK, the US and china as enemy-nations, if not officially promulgated by the GoI, at least in heart and as a unwritten rule no 0. Any money they do not have to throw at their love-child is money well-spent for us. In the long run, we need to "force" these enemy nations to blow their money on useless crap, as inefficiently as possible, till they give up on their nefarious agenda. If the sources are nipped, we can breathe easy, and its a zero-sum game in that regard.

vsudhir · Post by **vsudhir** » 02 Jul 2009 00:14

A Forecast With Hope Built In (NYT)

In the weeks just before President Obama took office, his economic advisers made a mistake. They got a little carried away with hope.

... Without the stimulus, they saw the unemployment rate — then 7.2 percent — rising above 8 percent in 2009 and peaking at 9 percent next year. With the stimulus, the advisers said, unemployment would probably peak at 8 percent late this year.

We now know that this forecast was terribly optimistic.

Here is the January forecast with the actual data ...

John Snow · Post by **John Snow** » 02 Jul 2009 13:30

Hi folks reproting from Republic of SOuth Africa Joburg.

Just returned to joburg from a tour of Cape town, cape of good hope(in troubled world economics andd trade, Vasco was doing the same in 1460s) Simonstown, and Durban. Very interesting information I collected and will post a comprehensive report.

In the mean time

This is the unanimous opinion about Nigeria and TSPakis.

Nigerians own the worlds largest criminal empire streteching from drugs Human traffficking and terror asssiatance in logistics.

About TSP this is what I head in Durban (huge influx of TSP pakis since `1995, not the IMs who along with Hindu indentured population went to SA)

Kidhar be rahay Pakistani
Ek dum be Imani

Will ost lots of interesting observations by Tourist guides, taxi drivers hotel staff. of all colours andd hues

Viv Sreenivasan · Post by **Viv Sreenivasan** » 02 Jul 2009 18:43

Hey Vsudhir buddy you must be the biggest doomsayer on BR. The sky isnt going to fall down on us tommorow. Despite this global recession the global economy will carry on. Every time i read one of your posts your either spreading invective against all western nations or fortelling the demise of the UK or USA. It gets a bit tiring, youve made your point well and clear, change topic.

Tanaji · Post by **Tanaji** » 02 Jul 2009 18:53

^^^
Eh, why? Even if its alarmist, the government is painting a rosy picture no? Also, the articles he posts are very educative, especially the ones that highlight the shocking laxness of regulatory bodies that has now been the norm since the regulation hit. You dont see that in the standard news reports. Also, he is/or is studying to be an economist... he has more domain knowledge than me or others ... so I dont surf the sites that he quotes just because I dont know them. Its good to see the choice articles being pasted here, I get to hear about stuff that i would never have come across otherwise.

You can easily make vsudhir as a "Foe" in your board settings, that way you wont see his posts when you log in..

bart · Post by **bart** » 02 Jul 2009 19:06

Viv Sreenivasan wrote:Hey Vsudhir buddy you must be the biggest doomsayer on BR. The sky isnt going to fall down on us tommorow. Despite this global recession the global economy will carry on. Every time i read one of your posts your either spreading invective against all western nations or fortelling the demise of the UK or USA. It gets a bit tiring, youve made your point well and clear, change topic.

Dude, read the thread topic, it contains the phrase 'economic meltdown'. What he posts is very informative and completely on-topic. What do you expect, people should pretend that nothing is wrong and like the musicians on the Titanic stay on deck and keep playing the violin while the ship sinks?

Western economic and financial elite have been exposed by this crisis as a bunch of over overpaid, pathological liars with little originality or ethics. Given that they have been lecturing us, putting us down, and berating us for not blindly accepting their opinions, it is logical that people here see some satisfaction on being proved right.

If you don't like the thread, skip it and read some other, simple.

shravan · Post by **shravan** » 02 Jul 2009 19:35

China unveils rules on yuan-settlement facility
HONG KONG (MarketWatch) -- China said Thursday it will allow companies to settle cross-border trade in yuan for a trial period, moves that were seen as expanding the use of the currency in international commerce.

The rules will apply to companies involved in trade with Hong Kong and Macau, and took effect from July 2, according to news reports which cited a statement published on the People's Bank of China Website.

shravan · Post by **shravan** » 02 Jul 2009 19:41

Economic Fragility Underestimated - Collapse May Be Imminent

The mainstream media and government are communicating that the economy is on a positive track toward recovery while downplaying the likelihood of another economic catastrophe similar or worse than that experienced in the fourth quarter of 2008 and first quarter of 2009. In actuality, there is a significant chance that the U.S. will experience a severe economic collapse, beyond what has already been experienced, either this year or within the next few years. If there is a perceived, sustainable economic rebound before this happens, do not be fooled - the underlying economic problems still exist and will likely eventually surface in economic collapse.

This following analysis further explores this warning by describing:

1. The 4 key reasons an economic collapse is likely imminent
2. Why these 4 reasons make the economy vulnerable
3. Warning signs and triggers to monitor to foresee a collapse before it happens
4. What can result from an economic collapse
5. Ideas for preparation

The 4 Key Reasons an Economic Collapse is Likely Imminent

1. The U.S. has unprecedented, massive amounts of current and coming debt.
2. Foreign countries have experienced their own crises, and they cannot offer added levels of debt funding for the U.S. Even if they could, they are unlikely to do so.
3. Productivity is declining, and everything the government is doing is further hurting productivity.
4. The U.S. is printing unprecedented, massive amounts of money and no longer has an ability to control inflation and deflation.

1. The U.S. has unprecedented, massive amounts of current and coming debt.

1. Over $11.4 trillion in current debt and growing
2. $1.8 trillion deficit in current budget - $9.3 trillion over next decade (likely to be higher)
3. Outstanding future debt of $43 trillion to $102 trillion from entitlements
4. Debt Comparison to U.S. GDP
.
.
.
Economic Fragility Underestimated - Collapse May Be Imminent

vsudhir · Post by **vsudhir** » 02 Jul 2009 19:46

Ah, welcome back JS garu. Was wondering where you'd dropped off the radar to. Looking fwd to your report on the SA situ. BTW, are the paks there legal or otherwise?

As for being a doomsdayer, there are advantages. I'd be hajaar happy to be proved wrong in many of my doomier crystal-ball-gazing. Heck, who wants anarchy worldwide? Besides, what are the odds there will be complete collapse tomorrow? The sky indeed is not likely to fall tomorrow, praise the lord.

The concern though, is what if the doomsdayers all over the finblogs are even partially right? Who do you see preparing for such a scenario - gubmints? citizenry? terrorists?

Like Morpheus tells Neo in the Matrix

You can take the blue pill. Or you can take the red pill. The choice is yours.

Its been 70 yrs since the last big crash. *Nobody* including the doomsdayers wants a repeat. Kindly re-read that, rinse and repeat.

Heck back in April 1929, things looked sanguine too. No? Japan's example since 1990 is quite scary too - the Japs managed ok because they are/were a large surplus nation.

As for spreading "anti-western invective", chillax and smell the coffee. I may not like glate blitain and could very well do with their diminished role in world affairs (esp in subcontinental affairs - full disclosure) but have no issues with the other western nations vis-a-vis India.

In any case, re-read ss_roy's posts in pages 1-4 of this thread to get *perspective* (pun not extended) for how thsi thread started, why and where it is going. One can then better appreciate the direction and tenor of posts then, perhaps.

P.S.
Thx Tanaji n bart, for the kind words.

vsudhir · Post by **vsudhir** » 02 Jul 2009 22:37

Consumer credit down a massive 33% in Spain

Harmful financial innovation (Willem Buiter in FT)

Zero Hedge expresses cautious skepticism on the china growth story. Worthwhile read if only for the perspective a some fresh insights brought into why. Interestingly, he does draw parallels between the 90s Japan and China today which kinda confirms, more or less, that the balance-sheet recession and the odds of a debt-deflation spiral have heightened in the middle kingdom.

China - Economic Catastrophe Unfolding

First, here's somethng BRFites might've long suspected having faced off with repeated barrages from chini drones on this board

That is one thing I noticed immediately about China: there is a constant barrage everywhere you turn—-TV, advertisements, magazines, newspapers, billboards, etc.—-that essentially suggests that everything is wonderful and getting more wonderful all the time, and everybody is just happy, happy, happy, and China is getting better and better and stronger and stronger. I was really struck by this. It was like living in a never-ending infomercial. Maybe some go to China and are not very aware of this, but to me it was like a constant din.

Actually, at least some of this data is readily available on the mainland. But it requires digging. The official news agencies like Xinhua and the People’s Daily just keep repeating the same mindless mantra in endlessly varying ways every day: “Everything is good, there are only a few small little problems, but the Motherland is unstoppable and will just get mightier and mightier and mightier.” If the Falun Gong would just chant that mantra, they would get to keep their organs and they would have no more problems in China.

Abt the balance sheet recession looming in the people's republic.

The news here is actually worse than I realized. One very alarming thing is that the Chinese banks have avoided writing down bad debt. I should have assumed this would happen, since it is hard to see how it could be avoided, given the nature of the Chinese culture. This is NOT a good idea. It is like pretending that defaults and bad debt simply don’t exist, and this is very bad for the financial sector in the long run.

Abt why it is potentially deadly onlee

And that is exactly what the Shanghai and Shenzhen markets are looking at, since you have the exact same lethal combination in 1989 Japan as you do now in China: dual bubbles in real estate and stocks (one has imploded), and a decided reluctance to face facts and write down bad debt and defaults. In contrast, in the US in March 2000, we had a bubble in the stock market but not the real estate sector. And even though 7 trillion dollars in stock equity disappeared after March 2000, there was an increase in value of the real estate markets of 8 trillion dollars that more than offset those losses. That is a major factor that allowed the economy to expand in subsequent years, but that is not possible in China, just as it was not possible in 1989 Japan.

And what that might imply (with apologies to doubters and naysayers and green-shoot optimists bellowing abt why the sjy won't fall tomorrow:

This is a singularly ominous combination that makes China’s economic future outlook over the next 25 years very grim. And that, in turn, will lead to acceleration of civil unrest. In fact, that has already happened: incidents of violent civil unrest have accelerated markedly all across China over the past year or two. But I think this could well get far more noticeable and disruptive. Some economists have said that in order to avoid disruptive amounts of civil unrest (as opposed to the more manageable baseline levels of unrest that are a constant), China’s economy must grow by 8.5% per year or more, just to keep enough people quiet. I suspect that is probably more or less approximately true in principle, although I don’t know where they came up with that number. But regardless of what that magic number might be, when that economy gets really bad—–watch out. That’s the seeds of civil war, if you ask me. If you have a very large group of desperate people coupled with an extreme polarization of wealth, you have a classic “haves” vs. “have nots” Marxian confrontation that is the underpinning of most if not all major revolutions. Then, the only missing ingredient is a charismatic leader (like Mao, for example…..).

A tad alarmist, if you ask me. But, but doesn't pay to play ostrich aajkal . Might as well be aware of some extreme possibilities. The cardiac arrest lasting a a few hours that rocked the US financial system in Sept 2008 seemed mighty extreme in July 2008.

In any case, PRC unrest means trouble for India. military misadventurism and a kargil redux in NEFA can't be ruled out onlee.

More chini propagandus and their modus operandees:

Look at this one - http://www.moneymorning.com/2008/01/09/ ... -projects/, dated January 9, 2008…..

They talk about a book that was “just published” by some hedge fund whiz by the name of Rogers who lives in China now. The book is about as bullish as you can get on China. He says that “even if China’s stock market were to plummet, that country’s economy would remain healthy, and would continue to advance unchecked.” He calls China “the world’s greatest market.”

I don’t know if this is a pump-and-dump scheme, but it sure sounds like one to me. Somebody ought to inform Mr. Rogers that even as his book was being published, the Shanghai and Shenzhen bubbles had already burst, had plummeted 15% in a few months, and were destined to drop far more over the remainder of 2008. And despite the fact that these bubbles lost over 70% in a year, they have NOT seen the bottom yet. And, they won’t see those lofty 6000+ levels again in real dollar (or real RMB) terms for another 30 years at least.

If you ask me, there’s no better short in the world than China. The problem is that the vehicles for shorting anything in China are very limited and not ideal. Well-heeled investors in China can short those markets, but this is a relatively recent development (maybe 2 years ago they changed the regulations). The average retail investor in China still can not short anything in those markets, because there are very stiff capital maintenance requirements with brokers there. And, the average retail investor elsewhere has only a couple of choices.

Now, now...might as well *hdge* positions and hburry to submit that PRC should not and cannot be underestimated onlee, that the super-efficient RPC system will beat the cryap outta everyone else in asia and beyond etc.

Bottomline?

Well, I think you’ve got the equivalent in China, because both real estate and equity markets have formed frightening bubbles. And, just to add to things, an increasing proportion of both commercial and residential real estate lies vacant, building continues nonetheless, the banking sector’s fortunes are strongly tied to the construction and real estate markets, there is virtually no secondary market for real estate to speak of, and Chinese banks are notoriously reluctant to write down bad debt. Sounds to me a lot like Japan in the late 80s—only worse. The Nikkei even today is trading about 75% below where it was trading at the peak in late 1989. And that doesn’t even consider the change in buying power of the yen over that time. This is a devastating loss that takes at least a full generation to repair.

I think China will recapitulate what happened in Japan, and for all the same reasons. You’ve got precisely the same prerequisites for disaster in China, so why would it be any different this time? Plus, there are some additional reasons why things will be particularly bad there over then next 25 or 30 years. One thing we have learned about bubbles—-once they are fully formed, there is no way to tame them, just like a fully-formed wave at the Wedge when it’s really firing. They just have to expend their explosive energy, and anybody with the common sense God gave gravel will just get out of the way. There is no way to suppress or regulate these things once they begin to gather momentum. No government or regulatory body has ever succeeded in doing so, to the best of my knowledge, and few if any have any motivation to even try. Why would anybody mess with a cash cow that is driving an economy at breakneck speed, after all?

We have not seen the full force of the implosion yet. That is still probably months away. In the meantime, the bull trap sucker’s rally that the Chinese stock market have been in for several months now rather predictably out-suckers even the US sucker’s rally. The Shanghai market is up almost 70% from the lows in November. That one has gone about as far as it can go now, and is really gonna crash and burn.

Scary onlee. Sri Antony is very right to rush in to rebuild, repair and renovate the ramparts. No saying what may come our way when the next big crash comes around.

shravan · Post by **shravan** » 02 Jul 2009 22:53

vsudhir wrote:World Bank warns of social unrest (BBC)

"There is also what I call the 'X-factor', that one can not foresee," such as the recent outbreak of swine flu, he said.

Swine flu 'cannot be contained'

Ministers said the emergency response would now move to a new "treatment" phase across the UK as there may soon be 100,000 new cases a day.

-----------

More Trouble ?

vsudhir · Post by **vsudhir** » 02 Jul 2009 23:04

Shravan,

not sure what to make of the swine flu melee. Happy for now that the death rate is very low and the infection rate, though high is still manageble. Such outbreaks happen every few decades. Last flu outbreak to kill in the 1000s was in the 50s, I read somewhere.

John Snow · Post by **John Snow** » 02 Jul 2009 23:18

Viv Srinivasan, please open your eyes and stop reading only embeded correspondents of CNBC MSNBC CNN with white house and federal reserve. Note and learn from laughing PRC students at the address of Gaithner. Ever heard of the die laughing phrase?

You have a right to be skeptical but not denigrate the posts of VS garu... in economics that too in macro economics things happen gradually but the trends are there to see that the sky is surely closing in if not falling. (surprising the name is srinivasan sri is laxmi nivasan is abode so viv must be vivek so please take time to put it all together).

Ok Now quick notes on SA economy.

Economy shruk by 2.8% this year since Jan.
Real estate in bad shape over built
Rand appreciates by 28% against Dollar and exports are hurting due less consumption by world and the same time commodity prices going up.
Doctors on Strike for higer wages
Transport workers on strike (in durban) for higher wages and privitization.
Half of the gold mined vanishes from accounting.
Political scandal in arms purchase (is that new or what?)
Lots of revenue generated by IPL helped ease the recession
Followed by Rugby tests and FIFA tournaments.
Everybody wants IPL to be permenant feature as it was the biggest money spinner in recent times.
Tourism is very much impacted by world termoil, GM bankruptcy impacted SA operations too.

Tata trucks and LCVs very popular along with Mahindra Scorpio ( have seen white as well as "coloured" people drive) Tata indica too high priced in its class because of high margins of dealers I am told.

The PRC Channa cars not doing well even being priced very low in their class.

Thats for now. If anybody has specific questions I c an ask and research.
Thanks.

I will write u a comprehensive report shortly

shravan · Post by **shravan** » 02 Jul 2009 23:21

http://www.oxfordeconomics.com/free/pdf ... jun09).pdf
June 22
Could swine flu tip the world into deflation?
Health experts agree that while the current flu epidemic that started in Mexico in April 2009 may weaken during the summer, it could re-appear in the autumn, possibly in a stronger form. Besides the assessment of the likelihood of such a pandemic breaking out that relates to medical and health policy factors, it is useful to evaluate the possible economic impact should a pandemic occur. Using historical benchmarks of previous flu pandemics and of the SARS episode, we have estimated the economic impact of a global flu pandemic.

Under reasonable assumptions about infection and death rates (30% and 0.4% respectively), the duration of the pandemic (six months from October 2009) and responses by households and businesses to the pandemic, we estimate that world GDP would be cut by around US$2.5 trillion in the six months of the pandemic, or 3.5% of 2009 GDP.

The channels through which a swine flu pandemic would affect the economy are manifold. They include supply effects as employees cannot go to work due to illness or death. They also include demand effects. In particular, consumption of discretionary goods and services such as restaurants or tourism is likely to be cut as consumers (and business travellers) stay away from crowded places in order to avoid infection. In addition, heightened uncertainty about economic developments is likely to make businesses postpone investment. Increased uncertainty would also have a negative impact on financial markets, bringing lower share prices and higher market interest rates than warranted by the economic situation.

Due to the global nature of the pandemic, all countries and regions are affected. Our scenario assumes that the pandemic starts in North America. The US economy is therefore hit relatively harder than other developed economies, with a GDP loss of nearly 5% of 2009 GDP in the six-month pandemic period. However, the Eurozone
and the UK would also lose around 3% of 2009 GDP.

Different industries would be affected differently. Those selling non-essential goods and services would probably be hardest hit. In particular, as the SARS experience showed, travel and tourism is likely to fall sharply (international travel to Asia was down by around 60% during the SARS outbreak).

Weaker demand would keep inflation rates lower for longer. At first, the drop in inflation is limited due to fixed wage contracts. By 2010Q1, world consumer price inflation is around ½% below the baseline. But the disinflationary trend continues and deepens as rising unemployment and lower demand exert downward pressure on prices and wages.

By the end of 2010, world CPI inflation is around 1.5% below baseline, just above 1%. In this scenario, Japan is in deflation and Chinese inflation falls to zero.
.
.
.
http://www.oxfordeconomics.com/free/pdf ... jun09).pdf
--
About Oxford Economics
Oxford Economics was founded in 1981 as a commercial venture with Oxford University's business college to provide economic advice, forecasts and analytical tools to international institutions, governments and blue-chip companies.

Singha · Post by **Singha** » 02 Jul 2009 23:50

NYT - the "golden state" lol

California Starting to Pay With I.O.U.’s

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Article Tools Sponsored By
By JENNIFER STEINHAUER
Published: July 2, 2009

LOS ANGELES — Its budget gap growing and its political process for addressing the gap unhinged, California will begin Thursday to pay vendors and taxpayers with i.o.u.’s, only the second time the state has adopted the emergency payment method since the Great Depression.

A state board will meet Thursday morning to set the interest rate for the i.o.u.’s — known officially as warrants — as well as their maturity date. By Thursday afternoon, state officials said, 28,742 warrants worth $53.3 million will be printed and readied for distribution.

The bulk of the warrants will be issued to Californians waiting their income tax refunds, though some will be issued to local governments as well as vendors doing business with the state. Federal and state laws prohibit paying state employees, schools, or Medicaid recipients with the warrants.

Tanaji · Post by **Tanaji** » 03 Jul 2009 00:27

Spinsterji,

are you on a world trip to invigorate yourself?

Anujan · Post by **Anujan** » 03 Jul 2009 00:39

Viv Sreenivasan wrote:Hey Vsudhir buddy you must be the biggest doomsayer on BR. The sky isnt going to fall down on us tommorow. Despite this global recession the global economy will carry on. Every time i read one of your posts your either spreading invective against all western nations or fortelling the demise of the UK or USA. It gets a bit tiring, youve made your point well and clear, change topic.

Sreenivasan-ji

Are we all going to die hungry on the street ? Possibly not. Are we going to enter into a brave new world with changed economic rules, international power equations, political and social upheaval ? Possibly. That is what a bulk of us here are saying.

I wish to highlight two important points.

(a) Even a fairly modest change in economic situations can cause great social and political upheavals. You dont need to look farther than (estwhile) soviet union or Venezuela/Iran's belligerence, US-Saudi alliance over oil etc.

(b) A correction in the way we do things is overdue. The correction threatens the very future of our current banking and lending practices in general and possibly the functioning and role of federal banks in particular. In the decade or two this correction takes, you might have no savings, might stand in queue for roti, may not be able to buy new clothes for your kids. Will you live ? Ofcourse. Will your basic assumption of a more prosperous tomorrow be challenged in a fundamental way ? yes. More importantly, will malnourishment, slums, disease etc be at current levels or worsen ? Possibly.

Let me explain this aspect. The basic problem I think originates from fractional banking, which while can be necessary, has the power to corrupt.

So what is fractional banking ? Let us assume a bank has 10 depositors who deposit 100 Rs each. So the bank has 1000 Rs. The bank has figure out that at most one depositor is likely to withdraw at any time, so keeps 100Rs in the vault and lends out 900Rs and charges an interest of 10%. Hence has made "money" out of "nothing". We need to distinguish between "money" and "currency". Money is value you place on things. Currency is just paper. Now the total currency in circulation is 100 Rs + 900 Rs + 10% of 900 Rs = 1090. So we have created currency from nothing. (fractional banking)

This is a good as well as bad idea. This is a good idea, if the people who borrowed 900Rs actually invested it in say, buying machinery for their farms thereby increasing the production of goods. So instead of 10 tons of rice in India, we have 11 tons of rice. So the amount of "currency" has gone up by 10% and amount of goods in the country has gone up by 10%. If this is done in a careful and controlled way, it can lead to an upward spiral of quality of life. We might come back and argue that the amount of currency should be increased *after* we determine that the goods have gone up by 10% - however, this is a chicken and egg problem. If the farmer hadnt got a loan of 900Rs in the first place, he might not have been able to increase his rice output. So we increase the amount of currency first and hope for productivity gains later. (Inflate and pray)

Now comes the two important question - who takes home the profit of fractional banking ? Does how much of "inflate and pray" should be done ?

What bankers in Massa and Londonistan figured was that they can be the fractional bankers of the world ! They also gave the profit to executives and favorable lending rates (in real terms) to their own population (take money from the world, charge low interest to citizens, charge high interest to outsiders, pocket the profit). So there is a huge incentive for them to lend recklessly without considering if the lending is in fact increasing the value of underlying goods and commodities (for example, you lent 900rs to a farmer, who drank beer and p*ssed it all away, so now there is 1090rs but only 10 tons of rice). Now it used be the case that in that scenario, the depositors could take pitchforks and kill the bankers.

Except that this is what exactly happened, and Massa decided "lets print some currency and give it to the banks". This is with a (somewhat genuine concern) that no currency in circulation = (a) depositors wont get money back (b) no credit for business so they wont grow. what is the problem ?

1. The amount of currency they have "printed" runs into trillions - never ever done in the history of the world !
2. Nobody knows how much they printed
3. Nobody knows who got it
4. Nobody knows why the people who got it, got it in the first place (why GS and not LEH ?)
5. Inflate and pray is not working. Increased currency is not stimulating lending or increase in productivity or increase in goods and services in real terms
6. People are being mislead into believing that (5) is not the case. They are being misled by huge government intervention in the stock market and manipulation of gold
7. If government intervention is aimed at preserving the value of a commodity which is degrading in value, what happens to the commodity which actually does have value ? (what I mean is, let us assume that the price of a used car would be a constant 500,000Rs every year. Now in actual terms, the demand for the car goes down as time goes by so its "value" to a consumer is going down). On the other hand, the value of a kilo of atta is constant. So automatically the price of a kilo of atta starts to skyrocket.
8. The moment inflation hits the energy or food sector, we are done for
9. A lot of countries (like china) are pissed that the currency they accumulated through hard work (exports, sweatshops

) - a equivalent amount of currency just got printed overnight in the US. This will lead to geopolitical shifts

So all that we are saying is that we are in uncharted territory, with a combination of factors unprecedented in human history. Whether we will all remain sane and not be paying 500,000Rs for a kilo of atta, is not known. A danger of a "correction" is quite high.

John Snow · Post by **John Snow** » 03 Jul 2009 01:28

Tanaji (garu) Saheb
Tomorrow in Zimbabwae return on Monday to SA then go to Mozambique for 4 days, then on to Mombasa Kenya, then to Darasalam in Tanzania.

meanwhile

MMS at work as usual in Nai Delhi while PRC is invading Africa in a big way. you must see the number of chinese in SA and Zimbabwae. PRC has just announced 1 Billion aid/grant/loan to the current govt in Harare.

LKG after election glaring at the ommisions and commisions of his leadership Sardar Patel II

vsudhir · Post by **vsudhir** » 03 Jul 2009 03:37

"We're in the middle of a crash" The black swan speaks.

http://plus.cnbc.com/rssvideosearch/act ... layershare

vsudhir · Post by **vsudhir** » 03 Jul 2009 04:38

Jobs data dash recovery hopes

US unemployment rate hits 9.5% in June. And this is the notorious BLS figure. Real unemp is likely to be far higher. And w/o jobs, there will be no recovery.

These numbers were grim enough to even make the CNBC cheerleader squad downbeat this morning. Really, this return of higher job losses took the wind out of the "Green Shoots" sails. Grim and getting grimmer.

Even gubmint ain't safe haven anymore. At least at the non federal level. Big states like CA, AZ and PA have yet to balance their budgets. Before this is over, there will be sarkari employee firings, union sit-ins, broken contracts and commitments w.r.t. pay raises and pension promises and likely a few bankruptcies along the way (certainly at the city, municipality level).

Hope, pray and hang on tight. Promises to be a rough ride ahead.

vsudhir · Post by **vsudhir** » 03 Jul 2009 06:15

Its happened. The sun rose in the west-ish kinda event. 0% interest was like the absolute floor on central bank interest rates. Akin to the zero kelvin (the "real" absolute zero).

But nay, wrong were we....

Sweden Cuts Deposit Rate to NEGATIVE .25%

This is understated lunacy. Sometimes, truth *is* stranger than fiction.

Read it all. Wonder and ponder.

Suraj · Post by **Suraj** » 03 Jul 2009 06:37

The Riksbank report says it cut the repo rate to 0.25%, not to -0.25% . Am I missing something ?

vsudhir · Post by **vsudhir** » 03 Jul 2009 06:41

Suraj wrote:The Riksbank report says it cut the repo rate to 0.25%, not to -0.25% . Am I missing something ?

The linked report says:

DATE 2/07/2009
The weak development of the economy requires a somewhat more expansionary monetary policy. The Executive Board of the Riksbank has therefore decided to cut the repo rate by 0.25 of a percentage point to 0.25 per cent.

Deep economic downturn

Economic activity abroad is very weak and this hits Sweden hard. Exports have fallen substantially and the situation on the labour market is continuing to deteriorate rapidly. The information received in recent months points to the economic downturn in 2009 being somewhat deeper than the Riksbank forecast in April.

Deposit Rate

The decision on the repo rate will apply with effect from Wednesday, 8 July. The deposit rate is at the same time cut to -0.25 per cent and the lending rate to 0.75 per cent.

One blogger opines:

In light of the above, punishing savers with negative deposit rates is the height of stupidity.

It would be fitting if there was an immediate run on deposits. And if that happens what will Sweden do? Halt deposits? Sweden risks (and deserves) a currency collapse and bank runs for this insane effort. Look for capital flight in Sweden.

We should all be rooting for the demise of Sweden lest Bernanke or some other Central Bank clowns try the same thing. The risk is that Sweden does not immediately suffer for this stupidity and that Bernanke tries to do the same thing.

One thing is certain. This is eventually going to blow sky high. Let's hope it does before Bernanke gets the same brilliant idea.

Nandu · Post by **Nandu** » 03 Jul 2009 12:20

What exactly does central bank setting a deposit rate mean? This is for deposits banks make in the central bank, I presume? So this effectively tells banks they cannot deposit their funds with the central bank. But does that really force the banks to lend?

vsudhir · Post by **vsudhir** » 03 Jul 2009 17:56

Nandu wrote:What exactly does central bank setting a deposit rate mean? This is for deposits banks make in the central bank, I presume?

From what I understand, yes.

So this effectively tells banks they cannot deposit their funds with the central bank. But does that really force the banks to lend?

I don't know. Wait and see. banks are in a corner now. If they 'pass on' the neg rate onto their retail depositors, they might as well invite a bank run as storing cash beneath your mattress becomes more attractive then on.

The contrarian opinion is that the neg rate might just about be what the doc ordered because banks can take more risks with their lending now - lose the least money becoes the new game rather than make the most money, of sorts.

We're entering a deflationary spiral, so there is fear of a new contraction in money supply.

Interesting times. wait and watch.

vsudhir · Post by **vsudhir** » 03 Jul 2009 20:04

Alrite, been searching for more on the Riksbank (Riskbank, anyone?) news and not much forthcoming so far, am afraid.

Sweden cuts rates to new low, offers banks loans

Sweden's Riksbank cut interest rates to a fresh record low on Thursday and offered banks 100 billion crowns ($13.2 billion) to boost lending as it strives to reverse the country's worst recession since the 1940s.

The central bank lowered its key interest rate by 25 basis points to 0.25 percent in a surprise move, putting official rates at their lowest since records began in 1907, and said it expected rates to remain at that level until late 2010.

Well, could it be that since the net change in rates is -0.25%, it got misreported as -0.25% effective rate? Thats what I thought but...

"It's a double whammy, or even a triple whammy," said Roger Josefsson at Danske Markets.

"The deposit rates are actually negative now. In some sense they are creating a money machine for banks. You can lend all you want, but don't put that back into the central bank."

Well, swedish banks are world-renowned for their prudence. Witness their cautious foray into Latvia recently with that country on the verge of meltdown, sovereign default or likely, both and putting Swedish banks in the dock for the damage.

The Riksbank will offer 100 billion crowns of fixed interest loans with a maturity of 12 months. It said supplementary measures would ensure monetary policy had the intended effect.

"This should contribute to lower funding costs for the banks and lower interest rates for companies and households," it said.

Deputy Central Bank Governor Barbro Wickman-Parak told a news conference that offering loans at fixed rates to the banks was judged more suitable than purchasing government or mortgage-backed bonds, at least for now.

"Sweden has a very bank-based system," she said.

"Company borrowing, in contrast to the United States, is carried out through the banks and in light of that it is reasonable for us to look first to moving through the banking system when we want to ease credits."

The ECB ended up pouring 442 billion euros ($622 billion) of funds into money markets in its first such operation with a term as long as one year, pushing some bank-to-bank borrowing costs to new record lows.

Record lows, sure. But negative rates? ZIRP is old hat now, apparently.

vsudhir · Post by **vsudhir** » 03 Jul 2009 20:31

Heck, the more I think about it, the more appealing the core concept of neg interest rates appears. The contrarians are winning this round, in my humble opinion.

Sample this from Ran Prieur:

Negative interest. That means if you borrow money from a bank, they pay you interest, or in practice, you pay them back less than what you borrowed; and people with savings accounts pay the bank interest, so that their accounts gradually shrink.

It sounds absurd, but why not call it natural and call positive interest absurd? The difference is, the present concept of interest channels money from the poor to the rich, increases differences in wealth, and concentrates and centralizes power. Also it demands that the total "wealth" keep growing exponentially, which drives an economy that destroys the earth and enslaves people so it can turn more and more life into money. An opposite concept would do the opposite -- equalize wealth, diffuse and decentralize power, and make the dead money economy shrink and give back to the living world.

There are precedents. Ancient Egypt was especially prosperous during a period when they had negative interest through currency backed by grain with storage charges. In Medieval Europe, under the negative interest Brakteaten system, people didn't sit on money -- since it decreased in value -- but spent it on things that increased in value, including some of the best cathedrals.

{Hmmm. Brihaspati garu, perhaps you can connect if such periods existed in Indic history, if they were significant or even dominant periods, if they created equitable wealth etc? Hajaar thanks and pranaam in advance only! Shall cross-post as I doubt you visit here much}

We wouldn't even need a law for negative interest, just a new way of thinking, a custom enforced by social pressure. And it isn't even a new way of thinking, just the way we already think about everything else except money: If I hoard a bunch of wheat instead of putting it in the ground, it doesn't grow -- it slowly dies. If I'm not using a hammer, and you borrow it, and continue to use it, it gradually becomes yours.

Turns the entire concept of property right upside down though. Tenancy issues arise, besides. But interesting think-through. Maybe, indeed, a new era is indeed dawned upon the world, who knows?

SwamyG · Post by **SwamyG** » 03 Jul 2009 20:55

Finally saw the documentary: http://www.iousathemovie.com/. I am glad that some of my points were validated by that documentary. By biggest complain regarding USA is people not saving enough and spending more than what they have. There are more complaints, but for another day. The GDP to Deficit ratio for USA is not at all nice. It is just not what it is now, but the trend. Simply put it is 'yucky'.

SwamyG · Post by **SwamyG** » 03 Jul 2009 21:13

Viv Sreenivasan: Sudhir' gaarus posts might be from some of the gloom & doom authors. He is bringing more attention to news; we can either read it or not. If we read it we can use it or ignore it. The choice is ours. He is not imposing on us. Finding the trend is a key to understanding where we are all headed. If only we could easily find it many of us would be phenomenally rich.

One school of BRF thought is that for Bharat to rise up the West has to go down - it is that simple. What do you think will happen to the planet if all its inhabitants had 40" TV? It is simply not sustainable. Non-renewable sources of energy does not form the bulk of our energy source; so we all have finite energy (and other) resources. It is simply a fight. If 10 bharatvaasis have to climb up the economic ladder to have 20" TV sets; it is likely that a guy somewhere in the West would have to lose a chance of gaining a 60" TV set.

If India and China were economic super powers few centuries ago; people in the West were crawling in the caves (exaggeration onlee) or ravaging each other. If the West has been the economic power the last few centuries; then people in India and China were reeling in poverty and dying of thirst.

The point is for a sustainable and comfortable life someone else has to pay the price. If we want the entire 6.xx billion people on the planet to be happy and singing khumbhya then our lifestyle would have to be far far simpler.

Economists and other experts have been predicting the doom and gloom for so many decades now; and each time it does not happen people come out saying "see you are just doom and gloom person" little realizing that both 'puniyam' and 'paapam' are accumulating. We will never know what the last straw is going to be on the Camel's back. It is said that USA launched a financial war on UK/France during the Suez Canal saga in the 1950s. Well let us see what kind of economic war USA and China will get into. Interesting times and trend watching onlee.

vsudhir · Post by **vsudhir** » 03 Jul 2009 22:04

State of the (United) states

THE mantra in Washington, DC, is simple: spend billions now, pay later. Congress has been crafting ambitious plans for energy, health care and transport. But the mood in state capitals has been different. Forty-six states had a deadline of June 30th to pass their budgets. Just as important, those budgets had to be balanced. With the sole exemption of Vermont America’s state governments, unlike the federal one, are not allowed to run deficits. For many states June was an agonising month.

Every state but two, commodity-rich North Dakota and Montana, has faced a deficit this year.

Ponder that. Alaska too is resource rich, btw.

One legislator in New Jersey described her state as “functionally bankrupt”.

As long as the state still "functions", who cares if its bankrupt?

More than 5,000 Illinoisans gathered on June 23rd to protest against cuts to social services, with a child placed in a coffin for dramatic effect.

Aha. Now we know where Gadflies like Patkar and Aroy get their more dramatic ideas from.

In California, which faces a $24 billion gap, Arnold Schwarzenegger, the governor, sent the leader of the state Senate a metallic pair of bull testicles to urge him to cut spending.

Wow. Only in yamerika! Wonder what he'll send the state's creditors now.... a horse-head on a plate?

On the morning of July 1st, the first day of the new fiscal year for most states, taxpayers had reason to be glum. Connecticut, North Carolina and Ohio had passed temporary extensions. California, Arizona, Pennsylvania and Illinois did not have a balanced budget as required. On Thursday California’s controller was preparing to pay the state’s bills with IOUs instead of cash. Most states that did pass budgets imposed painful cuts, higher taxes and fees on everything from pesticides in Minnesota to hunting licences in Maine.

It will be ugly. Pray for those in the crossfire.

There are three main ways that a state can close a deficit: raid reserves, raise taxes or cut spending. Though the Republican governors of Indiana and Texas were reluctant to tap their “rainy day” funds, many other states decided that the storm had come and withdrew copious amounts. Louisiana’s legislators were among those to shun a tax hike of any kind, but since January at least 37 states have raised or are considering raising taxes and fees. Hawaii created three new income tax brackets. Illinois’s governor wants to raise the income tax by a whopping 50%.

US states aren't allowed to approach the IMF on their own. But they seem to follow the IMF tough medicine. Bravo for practising what unkil preached us SDREs in the 80s and 90s.

Many economists fret about an unpleasant scenario in 2011, when the stream of stimulus money will ebb, reserves will have been drained and revenues will still be meagre. Medicaid enrolment may still be swollen by recession. Promises to retired workers, including pensions and health care, will weigh more heavily than they do now. This year was painful, but those to come may be even worse.

And that is the bottomline. Lets hope things dont get that bad.

SwamyG · Post by **SwamyG** » 03 Jul 2009 22:13

So why did the states in US land into trouble? Any clear picture on that? The simple arithmetic says they are spending more than they earn. But is the nature of the spending? On what sort of programs are the money being spent?