Perspectives on the global economic meltdown

vsudhir · Post by **vsudhir** » 06 Jul 2009 19:43

Sorry SriniY, no links. Found the excerpt on a D&G board I sometimes lurk at, liked it and pasted here. Only.

enqyoob · Post by **enqyoob** » 06 Jul 2009 21:49

Tank Tread Lubrication Again in The People's Paradise:

The unrest is another troubling sign for Beijing at how rapid economic development has failed to stem — and even has exacerbated — resentment among ethnic minorities, who say they are being marginalized in their homelands as Chinese migrants pour in.

About 1,000 to 3,000 Uighur demonstrators had gathered Sunday in the regional capital for a protest that apparently spun out of control.
On "Oriental Horizon," a current affairs program aired on China Central Television on Monday night, a scholar from the government's Chinese Academy of Social Science blamed Kadeer for masterminding the riots.
Seytoff said he had heard from two sources that at least two dozen people had been killed by gunfire or crushed by armored police vehicles just outside Xinjiang University.

Mamet, a 36-year-old restaurant worker, said he saw People's Armed Police attack students outside Xinjiang University.

"First they fired tear gas at the students. Then they started beating them and shooting them with bullets. Big trucks arrived, and students were rounded up and arrested," Mamet said.

sanjaykumar · Post by **sanjaykumar** » 06 Jul 2009 22:33

Ahem maybe BRF should be monitoring East Turkestan, Mongolia and Tibet to forecast unrest. I know the Paki body count is more fun for most people.

Nandu · Post by **Nandu** » 07 Jul 2009 01:06

narayanan wrote:
prices are coming down for everything.
Hallelujah! But not where I shop, unfortunately. Everything has gone UP, not down, esp. food. ... Gas prices are up, not down.

I was trying to give a definition of deflation, not claim that deflation is happening right now.

BUT:

a) The definition I gave was not accurate. Prices only have to come down in general, not for everything. A composite price index, such as the CPI, is used to determine if there is deflation.
b) Deflation is usually measured on a year-on-year basis. Gas prices have come down from a year ago, and are going down again right now.
c) The BLS says there is a very low level of deflation right now. Whether one should trust government stats is a different matter.

http://www.bls.gov/news.release/cpi.nr0.htm

Compound annual rate 3-mos. ended May 2009: -0.2%
Unadjusted 12-mos. ended May 2009: -1.3%

vsudhir · Post by **vsudhir** » 07 Jul 2009 02:23

Nandu saar,

Moi would define deflation as a net decrease in money supply. Furious debt-paydowns and sinking demand for credit achieve precisely that.

******************

Meanwhile, the world's most credible political, nay, statesmanly voice speaks....

Recession may get worse, Gordon Brown warns world leaders

The worst of the recession may be yet to come and world leaders are in danger of hampering the recovery, Gordon Brown will say today.

As he begins a week of meetings with world leaders, the Prime Minister will strike an unexpectedly gloomy note about the prospects of an upturn and will demand that fellow heads of government “sound a second-wake up call for the world economy”.

Soaring oil prices, rising 75 per cent this year, protectionist measures contributing to a 10 per cent drop in trade and the failure of banks to start lending again could all put the recovery at risk, according to Downing Street.

The remarks are a departure from Mr Brown’s usual rhetoric. His forecast that the British economy will emerge from recession by the end of the year is expected to form the basis of Labour’s general election campaign. Downing Street sources denied that the remarks were a change, saying that he had not spoken about the international economy for a while.

The world is hanging on to his every word, no doubt. If any statesman has implemented a conomic miracle in our time, Sri Brown it is in his glorious tenure as chanceller of the exchequer or some such fancy titular BS. bravo, brown sahib, lage raho!

vsudhir · Post by **vsudhir** » 07 Jul 2009 06:22

The UKstani Times and Telegraf rags are among the more, shall we say 'colorful', rags out there. So take with appropos amts of salt pls.

US lurching towards 'debt explosion' with long-term interest rates on course to double

The US economy is lurching towards crisis with long-term interest rates on course to double, crippling the country’s ability to pay its debts and potentially plunging it into another recession, according to a study by the US’s own central bank.

In a 2003 paper, Thomas Laubach, the US Federal Reserve’s senior economist, calculated the impact on long-term interest rates of rising fiscal deficits and soaring national debt. Applying his assumptions to the recent spike in the US fiscal deficit and national debt, long-term interests rates will double from their current 3.5pc.

The impact would be devastating by making it punitively expensive to finance national borrowings and leading to what Tim Congdon, founder of Lombard Street Research, called a “debt explosion”. Mr Laubach’s study has implications for the UK, too, as public debt is soaring. A US crisis would have implications for the rest of the world, in any case.

Using historical examples for his paper, New Evidence on the Interest Rate Effects of Budget Deficits and Debt, Mr Laubach came to the conclusion that “a percentage point increase in the projected deficit-to-GDP ratio raises the 10-year bond rate expected to prevail five years into the future by 20 to 40 basis points, a typical estimate is about 25 basis points”.
The US deficit has blown out from 3pc to 13.5pc in the past year but long-term rates are largely unchanged. Assuming Mr Laubach’s “typical estimate”, long-term rates have to climb 2.5 percentage points.
He added: “Similarly, a percentage point increase in the projected debt-to-GDP ratio raises future interest rates by about 4 to 5 basis points.” Economists are predicting a wide range of ratios but Mr Congdon said it was “not unreasonable” to assume debt doubling to 140pc. At that level, Mr Laubach’s calculations would see long-term rates rise by 3.5 percentage points.

The study is damning because Mr Laubach was the Fed’s economist at the time, going on to become its senior economist between 2005 and 2008, when he stepped down. As a result, the doubling in rates is the US central bank’s own prediction.

More pointless jargon-coinage. What's 'debt explosion' really? Why not the old, tried n trusted 'debt trap'? After all, isn't that what continually rolling over interest burden amounts to, ultimately? Kyaikee.

svinayak · Post by **svinayak** » 07 Jul 2009 06:47

Met some Gujju Patel hotel owners. They said that starting Sept/Oct will be commercial real estate/Hotel property foreclosure collapse of nearly $1T

vsudhir · Post by **vsudhir** » 07 Jul 2009 07:08

wah bhai wah. Perhaps our lalmasjid maulanas will get an idea or 2 about improving morale in student dorms now, eh?

Staff strip naked to improve moral

Staff at a design and marketing company in Newcastle spent a day working together naked after being told it would improve their morale.

David Taylor, a business psychologist, told workers at design and marketing onebestway, in Newcastle upon Tyne, that a Naked Friday idea would boost their team spirit.

He was called in to help the firm after six staff members were forced into taking redundancies at the start of the credit crunch.

Mr Taylor told them that, by stripping off their clothes, staff could also strip away inhibitions and talk to each other more openly and honestly...

'em perors have no clothes onlee.

vera_k · Post by **vera_k** » 07 Jul 2009 07:24

Acharya wrote:Met some Gujju Patel hotel owners. They said that starting Sept/Oct will be commercial real estate/Hotel property foreclosure collapse of nearly $1T

Was there any talk of ways to take advantage of it?

enqyoob · Post by **enqyoob** » 07 Jul 2009 07:33

Was there any talk of ways to take advantage of it?

Sure! I am going to buy up all these and turn them into madarssas. Along with the 153 major bridges that are also going to be on sale...

vera_k · Post by **vera_k** » 07 Jul 2009 07:42

narayanan wrote:
Was there any talk of ways to take advantage of it?
Sure! I am going to buy up all these and turn them into madarssas. Along with the 153 major bridges that are also going to be on sale...

Given the need for cheap daycare, you've hit rather close to home. Turning some of the giant stores into an all purpose madarsa and Christian school will be a profitable business once rents/prices become more reasonable

RamaY · Post by **RamaY** » 07 Jul 2009 07:45

^^^
couldn't stop

svinayak · Post by **svinayak** » 07 Jul 2009 12:16

Check out the life of a Dutch banker with family history and connection from the colonial days.
http://www.bloomberg.com/apps/news?pid= ... Yxg0DptluE

Business Came First’ for ABN Amro Banker Found Dead (Update1)

By Jonathan Browning, Simon Clark and Martijn van der Starre

July 6 (Bloomberg) -- Banking at ABN Amro Holding NV was the only career Huibert Boumeester ever knew.

When the largest Dutch lender became the target of the biggest financial takeover in history in 2007, he pushed for Barclays Plc. A group led by the Royal Bank of Scotland Group Plc won. Twenty months later, the former chief financial officer was found dead from gunshot wounds in woods 25 miles (40 kilometers) west of his London home.

Suicides have shocked global investors in the last 12 months. German billionaire Adolf Merckle stepped in front of a train in January. David Kellerman, chief financial officer of Freddie Mac in McLean, Virginia, hanged himself in April. U.K. investor Kirk Stephenson jumped in front of a train last September.

“Business came first,” said Machiel Jansen Schoonhoven, Boumeester’s best man at his wedding in 1991 and a former ABN Amro colleague. “It was not the outcome to the takeover that he had wanted, but he took it as part of an outcome of a free market.”

Throughout his life, the Dutch banker would escape into nature, friends said. He hunted as a boy and as a man he shot game on an estate he managed in Scotland. In Africa, Boumeester helped run a network of wildlife parks co-founded by a billionaire uncle.

“He grew up in the countryside, and he was a really enthusiastic hunter so he spent a lot of his time in nature,” Jansen Schoonhoven said.

In Malaysia, where Boumeester served as ABN Amro’s country manager, bankers looked up to the Dutchman as “a coach, mentor, boss, a top-class professional,” Jansen Schoonhoven said.

Boumeester raised his concern about RBS’s group breaking up ABN Amro in a July 2007 interview with Bloomberg Television. “There is the issue of breaking up the bank, which is not the same as integrating it,” he said.

Resigned Last Year

Boumeester resigned from ABN Amro in March 2008 after it was acquired. Jiskoot said he’d talked to Boumeester about the outcome of the takeover battle.

“He was one of the ones who was pretty realistic,” Jiskoot said. “Maybe because he was an incredibly hard-working, pretty decisive type of person, maybe he missed at stages a more emotional discussion about things.”

ABN Amro paid Boumeester a base salary of 114,000 euros in 2008, plus a 3.8 million-euro termination fee, according the bank’s annual report. In 2007, Boumeester received a 667,000- euro salary, a 1 million-euro bonus and 4.82 million euros in share-based payments.

svinayak · Post by **svinayak** » 07 Jul 2009 12:26

vera_k wrote:
Acharya wrote:Met some Gujju Patel hotel owners. They said that starting Sept/Oct will be commercial real estate/Hotel property foreclosure collapse of nearly $1T
Was there any talk of ways to take advantage of it?

One property in Huntington Beach which is always full is down 40%. He is losing $40k per month over all and he said he can manage that since he is cash loaded. But things are going to be nasty.

Chinmayanand · Post by **Chinmayanand** » 07 Jul 2009 12:56

Debt Burden Quickens Power Shift as G-8 Loses Clout
July 7 (Bloomberg) -- The world’s most affluent nations will take decades to work off the biggest buildup in debt since World War II. The political costs may be permanent, laid bare at this week’s Group of Eight summit of leading industrial powers.

Bank bailouts and recession-fighting measures will explode the debt of the advanced economies to at least 114 percent of gross domestic product in 2014, more than triple the 35 percent of the main emerging economies including China, the International Monetary Fund forecasts.

The run-up in debt has hastened a power shift that is sapping the industrial world’s authority to impose its economic doctrine, currency arrangements or greenhouse-gas reduction strategies. Even some G-8 officials acknowledge that the group has lost its grip amid the global recession they spawned.

The eight-nation forum that starts tomorrow in L’Aquila, Italy is “a lot less relevant given its makeup and given developments in the world,” French Finance Minister Christine Lagarde said July 5. “Big players, like emerging economies, India, China or Mexico, are invited, but they’re given only a jump seat outside of the main summit.”

The industrial world is beset by the harshest economic conditions in a lifetime: a projected U.S. budget deficit of 13.6 percent of GDP in 2009, unmatched since World War II; an annualized 14.2 percent contraction in Japanese GDP in the first quarter, also the worst since the war; in the first three months of 2009, German exports had their steepest quarterly decline since 1970 when the data were first compiled.

shravan · Post by **shravan** » 07 Jul 2009 18:54

http://washingtontimes.com/news/2009/ju ... commentary

Mr. Medvedev, Mr. Putin and Deputy Prime Minister and Finance Minister Alexei Kudrin called for the Group of Eight leading industrial nations to make the Russian ruble and the Chinese yuan reserve currencies and expand International Monetary Fund drawing rights -- measures which, if enacted, would cause treasuries worldwide to dump their dollar reserves and thereby weaken the U.S. currency.

enqyoob · Post by **enqyoob** » 07 Jul 2009 19:00

Le question stupide:

One property in Huntington Beach which is always full is down 40%. He is losing $40k per month over all and he said he can manage that since he is cash loaded. But things are going to be nasty.

Why? If the hotel is full, how can he be losing $40K / month? The property VALUE may be down, and he may be kicking himself in the musharraf for paying interest based on a much higher value, but other than that, how is he "LOSING" money? This sounds like Delta Airlines, which is always oversold and claims to be losing money, but at least they have a huge fuel bill. Why would a Patel Motel in S.Cal be in trouble?

Also, with all this "GREEN" initiatives, hotel costs have gone way down. The other day I stayed (for more than 1 day) at a Patel Motel up in Montana. They don't change the sheets, they don't even straighten the bed, they don't wash the coffee cups or clean the coffee maker from the previous guest's antics...

RamaY · Post by **RamaY** » 07 Jul 2009 19:11

^^^
N-ji

He said "One property in Huntington Beach which is always full is down 40%."

vsudhir · Post by **vsudhir** » 07 Jul 2009 20:26

Reality checks everywhere. What happens when the rainchecks (gubmint stimuli) run out?

With Wounded Pride, Unemployed (South) Koreans Quietly Turn to Manual Labor

KUNGHANG, South Korea — With his clean white university sweatshirt and shiny cellphone, Lee Chang-shik looks the part of a manager at a condominium development company, the job that he held until last year’s financial panic — and the one he tells his friends and family he still holds.

But in fact, he leads a secret life. After his company went bankrupt late last year, he recently relocated to this remote fishing village to do the highest-paying work he could find in the current market: as a hand on a crab boat.

“I definitely don’t put crab fisherman on my résumé,” said Mr. Lee, 33, who makes the five-hour drive back to Seoul once a month to hunt for a desk job. “This work hurts my pride.”

Tales of the downwardly mobile have become common during the current financial crisis, and South Korea has had more than its share since the global downturn hammered this once fast-growing export economy. But they often have a distinctly Korean twist, with former white-collar workers going into more physically demanding work or traditional kinds of manual labor that are relatively well paid here — from farming and fishing to the professional back-scrubbers who clean patrons at the nation’s numerous public bathhouses.

Just as distinctly Korean may be the lengths to which some go to hide their newly humble status.

Mr. Lee says he carefully avoids the topic of work in phone conversations with friends and his parents, and dodges invitations to meet by claiming he is too busy. He gave his name with great reluctance, and only after being assured the article would not appear in Korean.

The khans are as flexible and change-ready as anyone. By the time, the unemp checks run out, and in the abscence of new job engines, IMO the mexican manual labor in the khanate could face competition from the natives. Yindia of course has not been any stranger to extreme swings in poverty, calamity and the grapes of wrath. The last 25 yrs have been very different from the norm right till the late 60s.

In a competitive, status-conscious society, these and other workers say they feel intense shame doing manual work. Some also say they feel guilty working such rough jobs after years of expensive cram schools and college. And many younger workers, having grown up in an increasingly affluent nation, consider physical labor a part of the bygone, impoverished eras of their parents and grandparents.

“These days, many South Koreans think they have the right to be white collar,” said Lee Byung-hee, senior economist at the Korea Labor Institute, a government-linked research organization based in Seoul. “But their expectations hit the dark reality of this economy, where people have no choice but to go into the blue-collar work force.”

Labor experts say the number of former office workers who are moving into blue-collar jobs has increased as South Korea has suffered its worst unemployment since the 1997 Asian currency crisis. According to the National Statistical Office, the unemployment rate has risen to 3.8 percent — low by American standards, but high for this Asian economic powerhouse.

Many of the unemployed can rely on traditional forms of economic support, like living with family. And despite the slowdown, jobs are still to be found in this prosperous society, where the neon-lit bustle of cities like Seoul has not missed a beat.

Still, Jeong Seung-beom, whose small Seoul-based firm helps recruit workers for South Korea’s fishing industry, says that this year is the busiest he has seen, even better than 1997, when white-collar workers also flooded his office.

vsudhir · Post by **vsudhir** » 07 Jul 2009 20:29

"Half of the World's Emissions Came from Just 700 Million People"

SwamyG · Post by **SwamyG** » 07 Jul 2009 21:08

Banks get stingy on credit; new cards down 38%
The US 'consumernaut' (TM SwamyG onlee) is facing resistance. They are getting less credit cards issued to them, jane and joe are tending to save more, credit card defaults are going to increase. Humans have short memory, in a few years we will have all our bad habits back that brought us down to this situation. The cycle of 'samsaram'.

Nandu · Post by **Nandu** » 07 Jul 2009 21:26

vsudhir wrote:Nandu saar,

Moi would define deflation as a net decrease in money supply. Furious debt-paydowns and sinking demand for credit achieve precisely that.

Yes, but then, you would have to define inflation as a net increase in money supply. I believe that is the definition preferred by followers of the Austrian school, but not the one that is generally accepted.

Nandu · Post by **Nandu** » 07 Jul 2009 21:30

RamaY wrote:
He said "One property in Huntington Beach which is always full is down 40%."

This means what? "Always" means only the past and current occupancy rate is 60%?

svinayak · Post by **svinayak** » 07 Jul 2009 21:38

Nandu wrote:
RamaY wrote:
He said "One property in Huntington Beach which is always full is down 40%."
This means what? "Always" means only the past and current occupancy rate is 60%?

If one knows the area the city does not permit new hotels to be built. There is no excess capacity for bookings to be down. So entire year booking has been down. He has been in the business for more than 20 years. Asian American Hotel Owners association predicts the same scenario going forward. Other areas may have good occupancy during the travel season but overall bookings are down FY.

narayanan wrote:
Why? If the hotel is full, how can he be losing $40K / month?

He was talking about all his properties.

vsudhir · Post by **vsudhir** » 07 Jul 2009 21:53

Acharya san,

That commercial real estate (CRE) will be the next shoe to drop is no secret. Hotels are in bad shape.

20% of U.S. hotels to default on their loans

Lotsa hotels were conceived on rosy projections (actually linear extrapolations of the boom era of 2003-06), invested in and now their capacity is coming onstream amid the worst recession in decades onlee.

Click for chart on avg Hotel occupancy stats this decade

vsudhir · Post by **vsudhir** » 07 Jul 2009 21:56

deflationist hugh hendry talking to FT

link

ensoi

vsudhir · Post by **vsudhir** » 07 Jul 2009 21:57

uh-oh

Big Banks Don't Want California's IOUs (WSJ)

A group of the biggest U.S. banks said they would stop accepting California's IOUs on Friday ... if California continues to issue the IOUs, creditors will be forced to hold on to them until they mature on Oct. 2, or find other banks to honor them.
...
The group of banks included Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and J.P. Morgan Chase & Co., among others.

One blogger opines:

I guess the banks don't think the 3.75% annual interest rate is worth the risk for a "BBB" rated debtor on the Rating Watch Negative list.

Kakkaji · Post by **Kakkaji** » 07 Jul 2009 22:31

Bob Schiller's views on the state of economy

Two years into the housing bust, Shiller finally sees some faint rays of sunshine (that's just light, not green shoots yet). When the June Case-Shiller figures were released, he said they showed "striking improvement in the rate of decline." Asked to look ahead, he says, "My guess is that prices will continue to fall for a while, but at a slower pace, and then stabilize. We've become very speculative in our attitude toward real estate, so there could be another boom. But if so, it likely won't happen for another five to 10 years."

Shiller doesn't care whether you listen to his opinion -- or anyone else's for that matter. But he does want to give you a way of protecting yourself from violent fluctuations in home values. He is a co-founder of MacroMarkets, a company that hopes to create financial vehicles for hedging a wide variety of risks. MacroMarkets' latest offering, instruments that let you bet on the direction of home prices, just started trading on the New York Stock Exchange. Shiller hopes to make money from the venture, of course, but he also has an idealistic streak that can seem very ivory tower at times. "He cares about making the world a better place," says Karl Case, the Wellesley economics professor who helped develop the home-price index. "This is the way he has chosen to do so."

enqyoob · Post by **enqyoob** » 08 Jul 2009 00:01

He said "One property in Huntington Beach which is always full is down 40%."

Ah! Sorry about the confusion. The scenario does look bad then. But the Oiro is now worth $1.39 and if hotel rates in the US come down, and airfares are a bit down because only Fedayeen Pakis and Les Francais and stupid ppl like me who think Turbulence is cool, will fly Les Airbooses any more, maybe there will be a spurt in tourism. LA area is not exactly cheap for staying at hotels, and Huntington Beach is among the expensive places, IIRC.

Chinmayanand · Post by **Chinmayanand** » 08 Jul 2009 02:35

shravan wrote:http://washingtontimes.com/news/2009/ju ... commentary

Mr. Medvedev, Mr. Putin and Deputy Prime Minister and Finance Minister Alexei Kudrin called for the Group of Eight leading industrial nations to make the Russian ruble and the Chinese yuan reserve currencies and expand International Monetary Fund drawing rights -- measures which, if enacted, would cause treasuries worldwide to dump their dollar reserves and thereby weaken the U.S. currency.

A wet commie dream...

vsudhir · Post by **vsudhir** » 08 Jul 2009 03:41

Public pensions woefully underfunded across the board

Public employee pension plans are plagued by overgenerous benefits, chronic underfunding, and now trillion dollar stock-market losses. Based on their preferred accounting methods -- which discount future liabilities based on high but uncertain returns projected for investments -- these plans are underfunded nationally by around $310 billion.

The numbers are worse using market valuation methods (the methods private-sector plans must use), which discount benefit liabilities at lower interest rates to reflect the chance that the expected returns won't be realized. Using that method, University of Chicago economists Robert Novy-Marx and Joshua Rauh calculate that, even prior to the market collapse, public pensions were actually short by nearly $2 trillion.

Some public pension administrators have a strategy, though: Keep taxpayers unsuspecting. The Montana Public Employees' Retirement Board and the Montana Teachers' Retirement System declare in a recent solicitation for actuarial services that "If the Primary Actuary or the Actuarial Firm supports [market valuation] for public pension plans, their proposal may be disqualified from further consideration."

Denninger uvacha

Oh, so there's a little book-cooking going on?

Yeah, you've got these "public" pension plans that don't like the rules that private pension plans have to use for their accounting, and this is what they're telling their "auditors":

Some public pension administrators have a strategy, though: Keep taxpayers unsuspecting. The Montana Public Employees' Retirement Board and the Montana Teachers' Retirement System declare in a recent solicitation for actuarial services that "If the Primary Actuary or the Actuarial Firm supports [market valuation] for public pension plans, their proposal may be disqualified from further consideration."

and

Let's be clear (again), just so nobody can claim they weren't warned:

These plans are critically underfunded - all of them. Many of them shifted to an equity-heavy focus in 2007 just as the market topped, and some (including CALPERS) were even dumb enough to get involved in the speculative real estate bubble in 2005! If your supposed pension is provided by these funds you have a problem and you better pay attention now, because these sorts of actuarial problems, once they get going, cannot be reversed as they take years to show up, by which time its too late to fix it.

The alleged "requirement" to make up shortfalls from the governments involved sounds all fine and well, but how do you squeeze blood from a stone? WHEN, not if, the tax base disappears (unemployed and broke people don't pay taxes!) your pension plan can "demand" tax hikes but if the money doesn't exist then that's just too darn bad.

The American Sheeple are lining up to be sheared again. I was warning about this over a year ago in regards to pension plans both public and private over a year ago, along with the clear and impending train wreck in state budgets.

Will the people wake up before or after "change" is all that is left in your wallet?

vsudhir · Post by **vsudhir** » 08 Jul 2009 07:00

Chan akya in atimes

It is a truism that while debt markets fear inflation, they absolutely detest deflation; especially when one looks past the absolutely safe end of the fixed income spectrum (that is, the government debt of some countries).

In other words, any debt issued by entities that have no ability to print their own currencies - in which hopefully the debt is also denominated - will have to confront lower revenues entailed by deflation, which is only partially offset by lower borrowing costs.

The game of investors purchasing risky debt - such as that issued by companies rated below investment grade - cannot be explained by economic fundamentals. Such companies have a high dependence on cashflow growth in order to sustain their debt loads; when economies collapse they will inevitably run out of cash faster than they will run out of debt, that is, they will have to default on their obligations.

A scarier version of this problem is represented in the position of various US states, ranging from California to Florida. As state governments issue their own debt that is expected to be repaid by their revenues from taxes and services locally, a deep recession is more likely to hurt these governments than the federal government, especially as the latter can print its own currency.

The problem for debt markets is that the so-called municipal market in the United States runs into hundreds of billions of dollars. With financing down, and various states running the danger of essentially issuing IOUs rather than hard cold cash (Republican-run California has already gotten there), there is a real possibility that the entire market could shut down over summer.

In turn, that would mean the opening of a new front in the financial crisis, as millions of investors lose their investments in such bonds, or at least have to stomach huge losses over the near term. The scale suggests something similar to two years ago when the market for auction rate securities completely froze up, sending many states, cities and other government-linked borrowers to emergency programs.

That crisis could overturn the sunny news from credit markets for much of this year, as shown by new bond issues and generally tighter credit spreads.

Good read.

enqyoob · Post by **enqyoob** » 08 Jul 2009 08:26

So what's the deal here? California is behind on mortage payments? Can China foreclose on California? Will Angana Chatterjee become First People's Governor-General of New Shanghai (formerly San Francisco)?

How does it work in the case of states and cities falling behind on payments? Can't the creditors foreclose?
Is California filing for Chapter 11?

Singha · Post by **Singha** » 08 Jul 2009 08:55

california cant even find the $300mil it needs to pay for kids textbooks.

give up N3. your gen may be able to muddle along on inertia and psyops. but the younger ones will be left holding the bag for the "party" you folks had at everyone's expense

everyone knows the state of the emperors clothes now.

can you imagine the shock and horror of not being able to go out to
the nearest bestbuy or kohls and buying whatever is the latest and greatest?

amirkhanis need a 15% family savings rate sustained from now on
over several decades to get back on even keel. there's onlee so much printing notes will cover.

Dileep · Post by **Dileep** » 08 Jul 2009 11:08

Good, Good. So, finally I would be able to fully justify R2I. Ohlone, CA is going to be just like DMA, KL, with ploughed down roads, stinky garbage, clogged sewers, and you have to flag down a taxi to go to hospital when you have an emergency.

Satya_anveshi · Post by **Satya_anveshi** » 08 Jul 2009 12:39

Things seem to be moving fast (downhill) but what I observed is that the D&G news items have a remarkable correlation with various summits and meetings such as those of G8/G20, WEF (World Economic Forum), etc where various *proposals* and whining by the usual suspects happen. The other reason I say this is that the alternatives are not voiced and *actions* taken towards providing an alternative. In the very short term, while the G8 is meeting, buy it and sell it a few weeks later when I am sure bloomberg and other news agency will bring another survey that depicts a upcoming rosy picture. (of course I would like the folks heed the health warning that Mr. Chan Akya has issued at the end of his column in ATimes).

I am not denying the problems US has. The problems the US has are real and grave; the same growth model that has worked before will no longer work. The current environment simply does not support. I mean look at its various industries and folks in US should know whether they can be sustainable:

Airline industry - where an airline earns less than $500 per flight if everything goes perfect (i.e.full occupancy). If not they are screwed. How the phuck system runs like this? Of course with govt blessing

Healthcare Industry - well, the most scariest service you can avail in the time of its exact need. It is supposed to be exactly opposite. It is totally beyond what average people can afford. Turned out to be a monster that few people can touch and thank Obama for *trying* to do something.

Financial Services/ Banking/Insurance industries - the line has become as blur as Taliban/CIA/ISI. The less said about them the better. Mother, Father and the whole khandan of all evils rest here.

Residential/ Commercial Real Estate - the shit has hit or is hitting the fan already. It is the first time in my life I have seen as much inventory of real estate units (both commercial and residential) as I see automobiles at the various dealers in US. Tons and Tons of them even at the remotest *village* let along town and cities. The deliberate intent with which they dumped the other people's monies is clearly visible here.

Hospitality Industry - folks covered it here already and is also part of Commercial Real estate above. There is just too much supply of inventory that simply cannot be sustained in the current market conditions (in the near and medium terms).

Energy Industry - supposedly stable and part of old economy. Has gained significance with the strategy of dollar hegemony that US practices. Huge bubble and the mere news that US will curtail speculation has lowered the price by over $10. If there is any seriousness to curtail speculators, expect the price to be in $40s for good. Recall that many world leaders complained that about 70% (Gordon Brown?) of crude price is pure speculation.

Automobile Industry - Room is all yellow already. People are figuring out what to do with it.

Healthcare and entitlement programs - completely unsustainable, underfunded. Pretty soon people will need a commitment to ensure they get the benefits they paid for. This is in massive doubt.

The list goes on and on and on.

However, it is surprising that no one talks about the spending on sustaining the gigantic military industrial complex and huge defense spending when clearly there is no imminent or potential threat to national security. All of the so called national imperatives of US are of its own doing.

Chinmayanand · Post by **Chinmayanand** » 08 Jul 2009 13:59

Japanese bankruptcies top 8,000 in first half: Survey

Japanese corporate bankruptcies topped 8,000 in the six months to June, the highest first-half level in six years, as the global economic
downturn deepened, a survey showed on Wednesday.

The number of companies that failed with debts of 10 million yen (105,000 dollars) or more each totalled 8,169 in the January-June period, up 8.2 percent from a year earlier, Tokyo Shoko Research reported.

Their combined debts jumped 47.3 percent from a year-earlier to 4.69 trillion yen.

In June alone, 1,422 firms went under, up 18.2 percent from May and the highest for the month since June 2002 when 1,439 companies collapsed, the research firm said.

svinayak · Post by **svinayak** » 08 Jul 2009 15:56

Prosperity in India good for U.S.: Obama

Moscow: As the world grappled to cope up with the “worst global recession in a generation,” U.S. President Barack Obama on Tuesday said prosperity in countries like India and China was good for the U.S. and West as it opens new markets for them and pushes their businesses to innovate.

“And while this crisis has shown us the risk that comes with change, that risk is overwhelmed by opportunity. Think of what’s possible today that was unthinkable two decades ago. A young woman with an Internet connection in Bangalore, India can compete with anyone, anywhere,” he said. “... That’s good for all of us because when prosperity is created in India, that’s a new market for our goods;when new connections are forged among people, all of us are enriched.” —PTI

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Pope prays for G-8 summit

VATICAN CITY (AP) Benedict XVI is urging people to pray that the Group of Eight summit in Italy is successful, especially in devising ways to help the world's poor.

Pope Benedict told his weekly public audience on Wednesday that he hopes the leaders at G-8 summit in L'Aquila can make important decisions for the progress of all peoples, ``especially the poorest.''

He also referred to the encyclical he issued on Tuesday calling for a world financial order guided by ethics and the search for the common good.

Chinmayanand · Post by **Chinmayanand** » 08 Jul 2009 17:40

Switzerland: Will Block UBS From Giving U.S. Client Data

"Switzerland makes it perfectly clear that Swiss law prohibits UBS from complying with a possible order by the court in Miami to hand over the client information," the Swiss Justice Ministry said. "On the basis of the Federal Council's landmark decision, UBS will by no means be in a position to comply with such an order."

The Finance Ministry added that "all the necessary measures should be taken to prevent UBS from handing over the information on the 52,000 account holders demanded in the U.S. civil proceeding."

ramana · Post by **ramana** » 08 Jul 2009 22:35

In mid 80s California passed a law that required 3/4 majority to vote for increased revenues aka taxes instead of the customary 51%. This was done as a check on tax and spend politics. However this has come to bite back as the Republican minority won't vote for the budget at this time. Meanwhile the State goes into default. And the Gubernator is not exercising his powers.