Perspectives on the global economic meltdown

Neshant · Post by **Neshant** » 31 Aug 2009 02:55

What is the Indian govt doing about getting names of tax evaders?

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Swiss banks give France info on 3,000 tax evaders

http://timesofindia.indiatimes.com/NEWS ... 952507.cms

vishwakarmaa · Post by **vishwakarmaa** » 31 Aug 2009 03:07

Hari Seldon wrote: The crucial role of the financial system in a mostly free-enterprise economy is to allocate capital investment towards the most productive applications...

For years, much of the best young talent in the western world has gone to private financial firms. At Harvard more than a quarter of our recent graduates who have taken jobs have headed into finance.... we are wasting one of our most precious resources.....much of their activity adds no economic value.

Same with IIM's contribution to Indian industry.

vishwakarmaa · Post by **vishwakarmaa** » 31 Aug 2009 03:10

Neshant wrote:What is the Indian govt doing about getting names of tax evaders?

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Swiss banks give France info on 3,000 tax evaders

http://timesofindia.indiatimes.com/NEWS ... 952507.cms

It is a way to say - "you sit and wait. P5 came first. your turn comes later and then we will consider you if at all."

One might say, there is no racism and you are being cynic but these are subtle signals then.

vishwakarmaa · Post by **vishwakarmaa** » 31 Aug 2009 03:27

Hari Seldon wrote:Wall Street back to its old highly levered ways.

Can someone say Moral hazard on steroids? Why bother with risks blowing up if the taxpayer is on the hook for more bailouts? The bailed out banks that were too big to fail back in late 2008 have only gotten bigger since, having gobbled up smaller not big enough banks.

That allows them to show more "paper" to the world than what they are actually worth of.

USA runs on a lot of fake money and half of its GDP is fake. Raid the Fort Knox and bluff will be called in open.

Hari Seldon · Post by **Hari Seldon** » 31 Aug 2009 16:10

Swiss “Black” Accounts – A Trillion Dollar Problem

Isn't it cute that desi black monies hidden away in Swiss vaults is also estimated to be ~ 1 trillion USD? That's almost the size of our GDP.

Pranabda's tax rationalization proposals may do a lot to bring back a good portion of those monies, I hope.

SwamyG · Post by **SwamyG** » 31 Aug 2009 16:46

^^^
Is that you sudhir garu? Just want to know.

shravan · Post by **shravan** » 31 Aug 2009 17:01

^^I also want to know the same thing.

Hari Seldon · Post by **Hari Seldon** » 31 Aug 2009 19:37

^What can I say but Hari Om Hari Om Radheyshyaam....

Anyhow, unattributed (yet to find the URLs) sources indicate USG front heating up in unexpected ways.... Sample this:

6/12/2009 (Bloomberg) "Masaharu Nakagawa, finance spokesman of the opposition Democratic Party of Japan, said last month the government should ask the U.S. to sell debt denominated in yen, so-called samurai bonds, over his concern that the dollar may weaken."

and

7/28/09 Wal-Mart (WMT 51.13, -0.11, -0.21%) sold the bonds in two tranches comprised of 83.1 billion yen in fixed-rate bonds and 16.9 billion yen in floating-rate bonds.

The fixed-rate bond coupon was set at 55 basis points above yen swaps, while that of the floating-rate bonds was set at 60 basis points above the six-month London interbank offered rate for yen.

Samurai issuance ground to a halt in September 2008, the same month Lehman Brothers Holdings Inc. filed for U.S. bankruptcy protection, with about 195 billion yen in outstanding samurai bonds.

Also in September, Citigroup Inc. (C 5.08, -0.15, -2.87%) suspended a samurai issuance which would have been the largest ever, and which had already priced at 3.22%. Deutsche Bank AG (DB 69.36, -0.08, -0.12%) and Societe Generale SA (SCGL.Y 16.14, +0.07, +0.44%) also canceled samurai sales.

The following month, Iceland's Kaupthing Bank defaulted on its samurai bonds, failing to pay interest on 50 billion yen in three-year samurais issued in October 2006.

What does it show? Well, its an open secret that the US derives tremendous leverage (both literally and figuratively) from the USD status as reserve currency becoz it can borrow internationally in its own cur rency. Risk of defaulting on USD debt for the US is 0 because it can print USD legitimately (unlike TSP and NoKO). One reason moi looked curiously at UQstan and its bond mkts was precisely because its debt is primarily foreign.

Now the above 2 news items in tandem make clear the danger ahead. Now we know why PRC and Moscow were issuing those fervent calls for IMF SDRs or whatever as super sovereign currency. Because that will rein in USD and US power like nothing else.

We are entering ever more interesting times despite the seeming lull all around. Fasten seatbelts and pray! Jai Ho.

Added later: Ah, Sri Chris Martenson read my thoughts, seems like:

However, the absolute game-changer would be if the US had to pay off borrowed money in a currency other than its own. Yen, for example. In order to pay off that loan, we'd have to get Yen from somewhere, with the usual source being a positive trade balance.

If the US could not get the Yen through legitimate trade, then it could always print up dollars and buy Yen off the open market. But this would serve to drive up the value of Yen and drive down the value of the dollar, so this scheme would rapidly unravel in a currency crisis. If this sounds familiar, it should. This is how most developing nations get in trouble and experience severe currency and debt crises.

Having your debt denominated in your own currency is an enormous privilege. Should that luxury go away, it would become immediately apparent how much the US depends on the kindness of strangers to continue living beyond its means.

ramana · Post by **ramana** » 01 Sep 2009 09:33

Hari Are you keeping an eye on the Dollar exchange rates vis a vis other currencies right?

Hari Seldon · Post by **Hari Seldon** » 01 Sep 2009 09:50

ramana wrote:Hari Are you keeping an eye on the Dollar exchange rates vis a vis other currencies right?

Not professionally. But otherwise, yes. Should any mkt-quakes occur above 4.0 on the Richter scale, I typically try to listen in for further rumblings only.

Hari Seldon · Post by **Hari Seldon** » 01 Sep 2009 13:36

Boomers’ Spending, Like Other Generations’, Down Sharply

Baby boomers' self-reported average daily spending of $64 in 2009 is down sharply from an average of $98 in 2008. But baby boomers -- the largest generational group of Americans -- are not alone in pulling back on their consumption, as all generations show significant declines from last year. Generation X has reported the greatest spending on average in both years, and is averaging $71 per day so far in 2009, down from $110 in 2008.

So spending is down across generational lines. And cosnumer spending accounts for over 2/3rds of the khanomy. Twas high time US household savings rates rose. They borrowed and spent like no tomorrow from the future - a bill the millenials and their children will be saddled with. Some 70% of boomers - likely the luckiest,wealthiest and most pampered generation coming in - will retire into insufficient savings, a good fraction into outright poverty.

Blogger Mish writes:

Boomer Statistics

* $400 Billion: Amount that will come out of annual U.S. consumption as thrifty boomers push savings rate from 1% to nearly 5%.

* 47%: Boomers share of national disposable income in 2005 before the bubble burst. Boomers contributed only 7% to national savings.

* 2.4%: Forecasted GDP growth over the next three decades as boomers ratchet back. GDP has grown 3.2% a year since 1965.

* 69%: Portion of boomers aged 54 to 63 who are financially unprepared for retirement.

* 78%: Boomers' share of GDP growth during the bubble years of 1995 to 2005

Those stats are from a McKinsey study, and there is nothing remotely inflationary about boomer demographics.

So where is all this heading? What does it portend for the khanomy going fwd? What happens to the rosy valuations upon which the current stock mkt is holding up?

Baby boomers have pulled back considerably on their spending this year, but they are not alone in doing so. Gallup finds significant declines among all generations in average reported daily spending in 2009 compared to 2008. Given that consumer spending is the primary engine of the U.S. economy, it's not clear how much the economy can grow unless spending increases from its current low levels. But spending may not necessarily be the best course of action for baby boomers as they approach retirement age and prepare to rely on Social Security and their retirement savings as primary sources of income. Indeed, the two generations consisting largely of retirement-age Americans consistently show the lowest levels of reported spending.

Interestingly, US Treasuries might do well in the melee. US households edged out PRC as the largest buyers of US debt. The piddly 2.5% returns on UST look attractive indeed considering that all other asset classes have crashed through the floor. The stock mkt, currently artificially propped up wil soon crash too, IMHO.

Meanwhile, first rumbles of intergenerational cold war in the US start to flicker as the repayment schedule and the sheer crushing debt burden of the current bailouts and other largesse coupled with the massively underfunded social and medical saftey nets becomes apparent to even the marginally econ-inclined..... one poster writes:

As for saving for retirement or the future in general the worry from the GenX perspective is how to keep the Boomers from voting themselves other peoples' monie(s) through taxation on savings/assets/IRAs or by borrowing from our future and leaving us the debt. The Boomers will of course try to do both and wrap it in some kind of altruistic holier-than-thou claptrap. Will they have the political clout to do it? Will the Millenials wake up and vote against the Boomers before it is too late? So far it does not look promising.

Hari Seldon · Post by **Hari Seldon** » 01 Sep 2009 19:02

Resident alarmist Sri Sri Ambrose Evans Pritcahrd muses on how long it might take to work off the excess debt driven consumption binge that got anglosaxonia here....

Statutory warning: keep your hankeys/towels ready pls.

Statutory disclaimer: AEP is an alarmist. Keep the salt shakers ready too.

Our quarter-century penance is just starting

Never in modern times has there been such a flat contradiction between the euphoria of markets and the stern warnings of officialdom at central banks and financial watchdogs.

Corporate credit has seen the steepest rally in almost a hundred years, according to Morgan Stanley. Hedge funds are reviving the final bubble play of early 2007, writing put options on long-dated "volatility" contracts to wring out extra profit.

It is as if the Great Contraction – as the Bank of England now calls it – was just a random shock, as if we should naturally expect "V-shaped" resurgence to take us back to where we were. Yet that is what precisely we are being told will not and cannot happen.

{My, my says moi, wetting fresh towels in gloom....."Things can't really be THAT bad now, can they"? And then one reads on}

"The current financial crisis is unlike any others," says the Bank for International Settlements. Lasting damage has been done. The "cumulative output loss" is likely to reach 20pc of GDP in the major economies.

{Just curious. Did the BIS make that -20% assertion or is another AEP gemdrop? Seems like the latter for now.}

The message is the same at the International Monetary Fund. "The world is not in a run of the mill recession. The crisis has left deep scars. In advanced countries, the financial systems are partly dysfunctional," said Olivier Blanchard, the Fund's chief economist.

{Whatta shocka. Whuddathunkit? advanced conomies are by definition 'advanced', no? How can they suffer any dysfunctionality, pray? You mean they aren't magically self-correcting anymore?}

Mr Blanchard said an IMF study of post-War banking crises led to an unpleasant finding. "Output does not go back to its old trend path, but remains permanently below it."

"Aah, but so what", you say, pulling a longish drag on the Goldflake Kings (or longish sip on the nimbu pani, if you're nonsmoking like moi)....."the emerged khanomies can always print money at will, no?"

Then the sting: we are exhausting the limits of fiscal stimulus. "The average ratio of debt to GDP in the G-20 economies was high before the crisis, and is forecast to exceed 100pc in the next few years".

We cannot add debt, so the IMF says we must draw down our future pensions and future health spending to keep today's economy afloat. "A modest cut in the growth rates of entitlements can buy substantial fiscal space for continuing stimulus."

{Aha....sri IMF doing what it knows best....jai ho, jai ho indeed..... there is a lawd administering beachy karma around or what?}

Shouldn't bulls be sobered that the bastion of hard-nosed orthodoxy feels the need to talk in such terms, or that White House officials are preparing the ground for another round of emergency spending even as it reveals that fiscal deficits will reach $9 trillion over the next decade. This is $2 trillion worse than feared in March, and based on rosy growth assumptions.

Wow. "where are the adults in the room you say" pouring yourself another single malt large peg "that I have to listen to unadulterated D&G ayatollahs like US retail tycoon Howard Davidowitz?"

It has certainly alarmed US retail tycoon Howard Davidowitz. "As a country we are out of control, we're in a death spiral," he said.

And lo, who else but a nobull laurate to represent adult opinion on the matter?

Nobel Laureate Paul Krugman said the US needs another fiscal blast for "political reasons", alluding to the Great Depression. It was Phase II from late 1931 to early 1933 that tipped half Europe into fascism and brought America soup kitchens. Although such a fate has been averted this time by government action, the Atlanta Fed says the true rate of US unemployment is already 16pc (not 9.4pc), worse than early 1931 levels. Official youth unemployment is 34pc in Spain, 28pc in Latvia, 25pc in Italy, 24pc in Sweden, Hungary, and Greece.

That the unemploymt stats were a load of BS is no secret anymore. There's zimbly no way the admin can allow the BLS to publish true stats, IMHO.

We know what caused this crisis. The West kept short-term interest rates too low for a quarter century, luring society into debt: and the East held down long-term rates by flooding bond markets as a side-effect of their mercantilist strategy (ie suppressing currencies to gain export share).

The outcome was over-investment, excess capacity, and too much debt among those supposed to buy the goods. Has any of this changed? No. Have we cleared the excess plant? No.

Jeff Wenniger from Harris Private Bank says an army of baby-boomers have seen their old age plans shattered by the housing bust. Their nightmare is here. They will have to spend less, and save more. "Generational destruction of a society's balance sheet down not rectify itself in a matter of months".

How about a quarter century?

I fully expect green chute weed smokers to wilfully ignore the obvious, though. Sadly, we in India won't be immune from the effects of their stupidity.

SwamyG · Post by **SwamyG** » 01 Sep 2009 19:14

I used to respect Krugman, these days he comes off as more like Democratic party hack.

Nandu · Post by **Nandu** » 01 Sep 2009 19:32

Hari Seldon wrote:Boomers’ Spending, Like Other Generations’, Down Sharply

Baby boomers' self-reported average daily spending of $64 in 2009 is down sharply from an average of $98 in 2008. But baby boomers -- the largest generational group of Americans -- are not alone in pulling back on their consumption, as all generations show significant declines from last year. Generation X has reported the greatest spending on average in both years, and is averaging $71 per day so far in 2009, down from $110 in 2008.

Hmm... If spending is down 35% (that is what $64/$98 implies) and spending is 2/3rds of the economy, then the economy should have taken a 23% hit.

Something doesn't add up here.

svinayak · Post by **svinayak** » 01 Sep 2009 21:21

Nandu wrote:
Hmm... If spending is down 35% (that is what $64/$98 implies) and spending is 2/3rds of the economy, then the economy should have taken a 23% hit.

Something doesn't add up here.

Fiscal stimulus and govt spending has increased and the share of the economy has increased.
We can see a contraction of 6% decrease in GDP for 24 mths. Loss of $2T

Hari Seldon · Post by **Hari Seldon** » 02 Sep 2009 07:27

^^Nandu, Acharya San beat me to it. GDP = I + C + G (Investment or savings, consumption and govt, respectively) + etc. Of course, G is not really 'independent' in the sense that relying on G to drive up GDP leads to crowding out of pvt sector in the I and is not sustainable over the longer term.

23% of GDP of $14tn is $3.22 tn. Now UG gubmint's deficits + fiscal stimuli + bailouts are a fairly large figure (hard to precisely compute because of the nature of bailout data). Projected $1.8tn in deficits, $0.8 tn in fiscal stimulus + another $0.4tn in TARP and other TALF programs used thus far kinda cover the consumption gap.

Boor export powerhouses like Germany, Japan and PRC may not be so lucky though. In Japan exports fell 25% plus. Same with Germany. About PRC's shanghai stats, who knows. Everybody everywhere is now chanting fiscal stimulus mantra - calling for gubmint to take the slack by borrowing from the future and spending now to prevent a depressionary contraction in GDP.

Hope that clarifies.

John Snow · Post by **John Snow** » 02 Sep 2009 07:55

Krugman has been co opted.
He is no longer credible as you say SwamyG garu.
(andaru Kshemamu ga unnara? Yellame saukyam da na?)

Hari Seldon · Post by **Hari Seldon** » 02 Sep 2009 12:16

^Some say Sri Roubini has been co-opted too, what with his turning bullish-sort recently. Maybe its a genuine transformation. Maybe the establishment made him an offer he couldn't refuse.

Anyway, here's a lengthy polemic on the debt deflationary spiral unfolding in Eurostan.

Spain: The Hole In Europe's Balance Sheet

Spain, and the rest of the European periphery, can solve their problems either through massive productivity gains, which is highly unlikely, or through a reduction in wages and prices in the order of 20-30%, which is what will happen slowly and painfully. You could call such a reduction of wages and prices an "internal devaluation".

Eastern Europe, Spain and Ireland are now all experiencing the beginning of deflation. We believe that we will see much more deflation to come, which will have broad ramifications across the European banking sector. The periphery countries are net debtors, and the rest of Europe is the net creditor. When a debtor can't pay, the creditor suffers. Germany, France and others will need to cope with recapitalizing the periphery and Spain.

In the words of Plautus, "I am a rich man as long as I don't pay my creditors."
{Heh. AM beginning to like this Platus dude already.}

A deflationary spiral means that most of the debt will need to be written off, and the creditors will have to absorb the losses.
{Precisely what transpired in the great depression}

Spain is not the only country facing deflation. It is a problem for the entire European periphery. Ireland, for example, has the highest rate of deflation in the world. Prices in Ireland are falling at an annual rate of 5.9%, well ahead of the drops in other countries - only Thailand, at 4.4%, comes even close.

We believe that Ireland's experience is what Spain will see more of in the months ahead as the economy slowly adjusts to new realities. Almost all of Ireland's banks have been taken over by the government, and Ireland is struggling to decide how best to dispose of its bad assets. We believe Spain will be much more like Ireland than any of its European neighbours.

Oddly, even though inflation is negative, and unemployment is high, unions are still winning pay rises. Most wage agreements in Spain are reached through collective bargaining on an industry level. So far, wage increases are happening above the ECB's 2% target inflation rate.

Given how far out of line wages are with unit labor costs and the reality of deflation in Spain, we see Spain's unemployment level heading towards 25%. With a 25% unemployment rate and a debt deflationary dynamic, how exactly do the banks think they'll be paid back? Who will earn the money to pay the mortgage payments, and how will housing be affordable when wages have been deflated? Assuming the worst has passed in Spain does not pass the common sense test.

We believe Spanish politicians and international investors have grossly misjudged Spain, but events will force them to change their mind. In retrospect Spain will be viewed much like subprime where all the banking results looked good, until they didn't. This is typical of bubbles, and Spain will be no different.

The ponzi scheme works great till it doesn't. Expect ever more fevered attempts at keeping the game of musical chairs atop the Titanic deck going.

Rahul Mehta · Post by **Rahul Mehta** » 02 Sep 2009 14:27

Nandu wrote:Hmm... If spending is down 35% (that is what $64/$98 implies) and spending is 2/3rds of the economy, then the economy should have taken a 23% hit.

Something doesn't add up here.

I dont follow GDP numbers of US or any country. But I see that those who keep track of US GDP numbers do NOT take into account the FACT that almost entire capital base of Iraq is now part of US. And the GDP numbers do not take into account addition of natural resource. (IOW, GDP numbers are useless). If you take the decrease in Iraqi GDP, that would explain some of the 23% hit you are mentioning. Essentially, loss of Iraq is gain for US, but while loss of Iraq is visible, gains that US made got buried in the books and accounts.

ramana · Post by **ramana** » 02 Sep 2009 20:25

Wasn't Spain the miracle of Europe, the show piece of EU integration? From nowhere in a decade they came up wit modern everything and were the shining example.

bart · Post by **bart** » 02 Sep 2009 20:49

ramana wrote:Wasn't Spain the miracle of Europe, the show piece of EU integration? From nowhere in a decade they came up wit modern everything and were the shining example.

Even more hyped was Ireland where 'only some years back people were dying in the potato famine' but now the GDP one of the highest in Europe etc etc.

Hari Seldon · Post by **Hari Seldon** » 02 Sep 2009 21:00

ANother tour de force by Sri Matt Tabibi here. This regular contributer to the Rolling stones lifestyle mag took on the full might of Goldman sacks recently and has lived to tell the tale (so far, at any rate).

Bailout propaganda begins

The other reason for that is that it’s only a tiny sliver of the whole bailout picture. The real burden carried by the government and the Fed comes from the various anonymous bailout facilities — the TALF, the PPIP, the Maiden Lanes, and so on. The losses from the Fed’s purchase of distressed/crap Bear Stearns assets (Maiden Lane I) and AIG assets (MaidenLanes II and III) alone were as recently as late July calculated in the $8.6 billion range, and even that number is very conservative. Then there’s the trillion or so dollars that the Fed used on buying up mortgage-backed securities and Treasuries; we don’t know what their market value is now. And there are untold trillions more the Fed has loaned out in the last 18 months and which we are not likely to find out much about, unless the recent court ruling green-lighting Bloomberg’s FOIA request for those records actually goes through.

In light of all this, the Fed’s decision to brag publicly about a few loans that are actually performing is sort of scary — it speaks to a level of intellectual desperation and magical-thinking unusual even for a banker in the subprime/MBS era. Don’t be surprised if you hear more of this sort of thing in the coming years.

wow. Is 'bulldozer' his middle name or what? Just wondering onlee.

svinayak · Post by **svinayak** » 03 Sep 2009 13:19

http://www.bloomberg.com/apps/news?pid= ... FzszWs8eic

Rothschild Said to Start Fund; Chairman’s Son Joins (Update1)
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By Jacqueline Simmons and Anne-Sylvaine Chassany

Sept. 2 (Bloomberg) -- Rothschild, the largest family-owned bank, plans to raise a 500 million-euro ($711 million) investment fund as chairman David de Rothschild’s son joins the firm, two people familiar with the plan said.

Alexandre de Rothschild, 29, moved to the family bank from Argan Capital, Bank of America Corp.’s former European private equity division, to work on the project, said the people, who declined to be identified before the fundraising is completed. Rothschild Managing Director Marc-Olivier Laurent, 57, will oversee the fund, the people said.

The two-century-old firm, which is run by 66-year-old David de Rothschild, plans to buy minority stakes in closely held companies after the pace of global mergers and acquisitions dropped 46 percent in the past year. The fund’s backers include Rothschild partners and clients. It will target companies valued at 100 million euros to 500 million euros, the people said.

“It’s normal for them to bring in family members to ensure succession,” said Anis Bouayad, founder of Paris-based advisory firm AB Conseils. “The bank has always found a way to promote its own, while also bringing outside talent to the top jobs.”

Javed Khan, who joined Rothschild from New York-based private equity firm Blackstone Group LP in June, and Emmanuel Roth, a former executive at investment firm Paris-Orleans, will also manage the fund, the people said. Rothschild plans to complete the fundraising before the end of the year, they said.

‘Family is Fine’

“In a business, the key is to have the best people,” David de Rothschild said in a 2005 interview, addressing the subject of succession. “The family is fine as long as they do a good job. If they don’t, it has to be someone else.”

David de Rothschild took managerial control of the U.K. side of the bank after his cousin Evelyn retired in 2004, cementing control of both the Paris and London businesses by a French Rothschild, a first for the family firm.

David’s younger brother, Edouard, stepped down in 2004 after helping to expand the French bank. Today, he oversees France Galop, the country’s horse-racing association. David’s cousin, Eric, is chairman of Rothschild’s asset-management and private-banking units and also runs the family’s Chateau Lafite vineyard.

Mayer Amschel, founder of the Rothschild banking dynasty, started out buying and selling old coins in a Frankfurt Jewish ghetto in the late 1700s and built an embryonic banking business by extending credit to clients. In the early 1800s, he sent his five sons to establish bases in London, Paris, Naples and Vienna, in addition to Frankfurt.

His great-great-grandson, Guy de Rothschild, rebuilt the French business in the 1950s and 1960s after reclaiming the bank, which had been seized by the pro-Nazi Vichy regime. In 1981, the French bank was nationalized by Socialist President Francois Mitterrand. Two years later, David persuaded the French government to grant the Rothschilds a new banking license.

ramana · Post by **ramana** » 03 Sep 2009 22:15

I heard on radio that Vinod Khosla has launched two venture funds for green technology and for energy. They are about the size of the new fund in Paris.

shravan · Post by **shravan** » 04 Sep 2009 02:38

China Set to Buy $50 Billion in IMF Notes

WASHINGTON -- China is on track to become the first purchaser of notes issued by the International Monetary Fund, a move that would diversify its foreign asset holdings and could give the IMF's quasi-currency more clout.

The IMF on Wednesday said China has signed an agreement to purchase approximately $50 billion in notes from the fund. The notes are denominated in Special Drawing Rights, a quasi-currency issued by the fund and promoted by China as a potential replacement for the dollar

SwamyG · Post by **SwamyG** » 04 Sep 2009 03:16

Economic Power Continues To Flow Out Of The West Towards Asia
The above is a link to a blog, take it for whatever it is worth for.

Hari Seldon · Post by **Hari Seldon** » 04 Sep 2009 05:01

OK, the extreme D&Gers are out in force, determined to have their 15 secs of fame in the sun. No surprise they happen to be Russian, eh?

Two months left to read the book on US collapse

Book review excerpt.

Professor Igor Panarin, whose book "The Crash of America" is just out, claims that by November the book will be yesterday’s news. Panarin believes President Obama will lead his country to a breakup. Panarin compares Obama to former Soviet president Mikhail Gorbachev.

Panarin made his controversial forecast back in 1998, saying 2010 would be the starting point of the collapse. He spent the following eleven years monitoring the events around the US and says they largely confirm his theory.

"Today I received another confirmation that the collapse of the dollar and the US is inevitable. Japan’s Democratic Party won the election, and I’d like to remind you that its leader [Yukio Hatoyama] has the snubbing of the dollar among his economic plans. In plainer words, he plans to transfer Japan’s monetary reserves from US dollars into another currency. The move will seriously accelerate the dollar’s exchange slump as early as this November. Disintegration will follow shortly,"
he added.

OK, take with salt only. FWIW.

Hari Seldon · Post by **Hari Seldon** » 04 Sep 2009 12:15

Atimes' chan akya rolls on. Get the salt shakers out, seems a tad far out but interesting read nonetheless.

From Prada to Pravda

Hilarious read though sadly, not so funny if you happen to be in the line of fire.

As we approach the 20th anniversary of the fall of the Berlin Wall, the decline of the Soviet Union is being mirrored by a parallel decline of the United States. What passes as reality on the pages and screens of the financial media today is so far removed from ground realities as to suggest a renewed version of the Pravda economy that the Soviet Union tried to build and failed. A "then and now" comparison isn't just stark but also quite scary for anyone with common sense (that excludes today's stock market investors right away).

OK. So far so good. I agree that the stock mkts are levitating against moi expectations and what I see as ground khanomic realities. But hey, as an empirical guy, I totally realize that should the data disagree with my model I will concede that the model is wrong, not the data.

Then (or, a long time ago in the Soviet Union):
# The Soviet Union controlled a vast array of vassal states using far-flung military bases that were all steadily declining.
# The army was mired in Afghanistan, 10 years after the beginning of a "just" liberation that proved anything but.
# The government owned car companies that made sub-standard products no one really wanted.
# There were long queues for bread and vodka across the nation.
# A deep recession was in place, caused by the decline in demand from poorer countries and falling oil prices.
# The actions of president Mikhail Gorbachev, a political reformer, were characteristic of those of a person who wanted change to ensure his place in history.
# The fall of the Berlin Wall fatally weakened Soviet authority across the satellites.
# Poor distribution led to massive food waste.
# The rouble became worthless after the pseudo-reality holding it up (namely parity with the US dollar) was exposed as a cruel hoax.

# Now (or, as things stand in the new Soviet Union):
# America's allies are in dangerous decline - be it Turkey, Egypt or worst of all, Pakistan.
# The military is mired in Afghanistan - almost eight years of incessant activity haven't yielded the simple result of finding Osama Bin Laden or Taliban leader Mullah Omar. (For good measure, America is also mired in another Islamic country, Iraq ... just in case the challenge of getting one's behind spanked in one country wasn't enough).
# The American government is the proud owner of General Motors, a car company that apparently doesn't know how to make cars and, even less, profitable cars; Citibank, a bank that apparently doesn't know how to make loans and, even less, profitable loans; Fannie Mae ... okay, you get the picture.
# The US economy is in recession, and will permanently remain in this state.
# There are long queues for dole payments, food stamps and the like. Prescription drugs, mainly antidepressants, are the new normal for the country.
# President Barack Obama is increasingly being seen as a politician who would do pretty much anything - ranging from limitless economic intervention to throwing Israel to the Arab wolves - to ensure his place in history.
# Mainly thanks to the continued American fascination with burgers and other fast food - that deliver calories without the nutrients - the level of food waste in the US today exceeds the total food production of many European countries.
# The US dollar is, well, worth less (that's two words - for now at least) with respect to its purchasing power; and is being held up by the pseudo-reality of a consumer economy.

Well, as long as the USD holds up, all will be fine. IMHO. And what is holding the USD up is the TINA factor.

And yes, we in India and all should wish for an orderly transition to a more equitable distribution of economic (and therefore resource-access) power.

O yes, entertaining article, pls do read in full.

Hari Seldon · Post by **Hari Seldon** » 04 Sep 2009 19:12

Talking about extreme D&G, read up this li'l piece on the parallels between unkil and Argentina.

The royal scam

So when you're reading the news about how randomly careless and stupid everybody was, just remember the Argentine plan: all the right people win, all the wrong people lose, and the good people never knew what hit them. The Royal Scam.

Hari Seldon · Post by **Hari Seldon** » 04 Sep 2009 19:21

Sri Krugman analyzes what went wrong with the economics profession

One blogger opines:

Banks faking high earnings is nothing new. Robert Rubin perfected it. It's ironic that a socialist leaning guy like Paul Krugman worships at the House of Clintons. It was during the Clinton years that neo-liberal corporatism was able to fully capture the US economy. It was his buddies Rubin, Geithner and Summers who did away with Glass-Steagall and pushed through The Commodities Futures Modernization Act of 2000 (the "Enron Loophole"). As Secretary of the Treasury, Rubin did what he had to do to save Citigroup. Then he left his Treasury job to run Citi into the ground and collect $110 million for his efforts. Now the taxpayers are stuck with Citi's hundreds of billions future defaults.

You've got to love the way Krugman defended Rubin and Citigroup, Rubin being one of the major architects of the whole neo-liberal takeover of the US economy, and Citigroup being one it the collapsed US economy's major taxpayer disasters. Here's Krugman defending Rubin after Rubin gets called out for committing fraud with ENRON.

Sanjay M · Post by **Sanjay M** » 05 Sep 2009 06:51

India Agrees to Lend $10B to IMF

http://economictimes.indiatimes.com/Ind ... 974527.cms

So now India is in the business of lending money to other basketcases. Unless we can get some kind of worthwhile representation on the IMF's board, why should we be propping up a Western-run loan shark operation that maintains their hold on weaker countries? Couldn't we just set up a separate fund of our own, in connection with like-minded countries (eg. BRIC)?

Neshant · Post by **Neshant** » 05 Sep 2009 07:08

Don't tell me we've gotten in on the business of ripping off poor African countries via the IMF. Its a loan sharking organization where poor African countries are ensnared into endlessly exchanging real goods and services for worthless printed up paper currency from select countries.

IMO India should be working to break this system not perpetuate it. There are no more Amway customers for the US debt and British pound in Asia. Now the scam is moving to the next rung of the pyramid to even more destitute places via the IMF.

shyam · Post by **shyam** » 05 Sep 2009 12:24

SwamyG wrote:Economic Power Continues To Flow Out Of The West Towards Asia
The above is a link to a blog, take it for whatever it is worth for.

I'm not really convinced that wealth is moving from west to east.

When the wealth moved from east to west, that was real wealth such as gold, control of natural resources and access to global market. But the wealth that is moving to east is just fiat currency, or paper money, which can be printed in abundance by western countries. True, if western countries print too much money that would make their money worthless, but that won't make east any wealthier. In fact, it would make the paper wealth they accumulated worthless, hence poorer.

Now, you may say that manufacturing has moved to east. But control of those factories are still with the west. In a way, east is only providing labor and natural resources to western consumers, in return for fiat currency. So, it is again not transfer of real wealth to east.

We can say the wealth is really moving to east when east start using the fiat currency they accumulated to purchase real wealth from west and transfer them to east. It could be purchase of gold reservs from west, or purchase of factories set up in east, hence the technologies and market access. Then they also have to start consuming most of the items they produce.

Otherwise, transfer of wealth to east could still be a mirage.

Rahul Mehta · Post by **Rahul Mehta** » 05 Sep 2009 12:58

SwamyG wrote:Economic Power Continues To Flow Out Of The West Towards Asia
The above is a link to a blog, take it for whatever it is worth for.

shyam wrote: I'm not really convinced that wealth is moving from west to east.

When the wealth moved from east to west, that was real wealth such as gold, control of natural resources and access to global market. But the wealth that is moving to east is just fiat currency, or paper money, which can be printed in abundance by western countries. True, if western countries print too much money that would make their money worthless, but that won't make east any wealthier. In fact, it would make the paper wealth they accumulated worthless, hence poorer.

Now, you may say that manufacturing has moved to east. But control of those factories are still with the west. In a way, east is only providing labor and natural resources to western consumers, in return for fiat currency. So, it is again not transfer of real wealth to east.

We can say the wealth is really moving to east when east start using the fiat currency they accumulated to purchase real wealth from west and transfer them to east. It could be purchase of gold reservs from west, or purchase of factories set up in east, hence the technologies and market access. Then they also have to start consuming most of the items they produce.

Otherwise, transfer of wealth to east could still be a mirage.

True and Truer.

In fact, wealth is moving from "east" to west as we speak. eg all oil wells of Iraq are now US property, and US control over Saud/Kuwait oil well for all practical purpose is total. And in India, one after another industrial conglomerate is coming under control of West (or West + Japan). Ranbaxy had to sell itself , Reliance Petro (as per rumor mill) is under Rockefeller control and so forth. And whole of Africa is again becoming "mineral supplier" for the West.

All in all, Japan and China have made some progress. But given that Japan has no army to attack anyone, it will only end up becoming goods provider for West, and in return, it will get paper notes and T-bills and bonds, which when the music ends will be all worthless. Essentially, Japan is providing goods to West for free.

.

Neshant · Post by **Neshant** » 05 Sep 2009 13:52

China refuses to honor derivative bets made by foreign banks operating in its country

India too should not honor bets made by others. There's no way the Indian govt should pay for, backstop or be responsible for any bets or junk sold by foreign banks (or local ones for that matter).

-------------

Beijing's derivative default stance rattles banks

http://www.reuters.com/article/rbssBank ... dChannel=0

BEIJING, Aug 31 (Reuters) - A report that Chinese state-owned companies will be allowed to walk away from loss-making commodity derivative trades provoked anger and dismay among investment bankers on Monday as they feared it may set a damaging precedent.

The State-owned Assets Supervision and Administration Commission, the regulator and nominal shareholder for state-owned enterprises (SOEs), told six foreign banks that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying in an article published on Saturday.

Hari Seldon · Post by **Hari Seldon** » 05 Sep 2009 15:38

Timely article, neshant.

BEIJING, Aug 31 (Reuters) - A report that Chinese state-owned companies will be allowed to walk away from loss-making commodity derivative trades provoked anger and dismay among investment bankers on Monday as they feared it may set a damaging precedent.

Damaging (to them) precedent is exactly right. MaoA MaoA!

Hopefully other emerging markets will grow cojones and follow suit.

Lets not forget how the enlightened emerged markets have defaulted/devalued/derivatived and manipulated their contractual obligations to suit their emerged interests.

Hari Seldon · Post by **Hari Seldon** » 05 Sep 2009 16:55

Events slowly aligning for a major structural break point somewhere down the line. The mood so far is that since if we can kick the can down the road, we've solved the problem for now, can-kicking==problem solving only.

Unemployment Insurance Buckles After Years of Underfunding

18 states have simply run out of money to pay benefits and been forced to borrow from Washington a total of more than $8 billion. That number is almost certain to grow as more states reach the brink. If they are not able to pay that amount back before 2011, which most will not be able to do, they face paying hundreds of millions of dollars in interest.

Meanwhile, many workers are struggling to get by on what the system pays them. Where you live can make all the difference -- workers in the most generous states get twice the average benefits of workers in the stingiest ones. The percentage of unemployed workers who even receive benefits varies greatly by state.

Unemployment insurance is also intended to be automatic stimulus during a recession, keeping people spending and businesses open.

"The idea is you accumulate reserves and then you can support spending when the economy goes south," said Gary Burtless [3], an economist at the Brookings Institution.

But many states have failed to do that, and they're now paying the price. Indiana, which ran out of reserves last year, just raised its unemployment taxes by 35 percent, right in the middle of a deep recession when businesses can least afford it.

Many have been maintaining close to zero reserves [4] for years, well before the economy headed south. California, for example, got into trouble by raising benefits without increasing taxes. Other states, like Michigan, lowered taxes to unsustainable levels and watched their reserves dwindle.

Now, these states will be forced to raise taxes or cut benefits in the middle of a recession -- just when those changes will do the most economic damage.

On average, workers who rely on unemployment insurance get about half as much as they earned while they were working. In some states it is much less, and it may get lower as policymakers struggle to keep their unemployment insurance systems afloat.

There are also wide variations in the percentage of unemployed workers who collect benefits. Nationwide, only about 30 percent of workers who lose their job ever see an unemployment check, but in some states it is as high as 80 percent. Some of the variation is due to differences in who is allowed to collect benefits, some is because many workers -- particularly in states where unemployment insurance is considered a welfare program -- never apply.

There will be political upheaval if and when the unemploymt insurance program goes broke. As it is the clear majority of city and local govts and municipalities are hurtling towards de facto insolvency and bankruptcy.

Singha · Post by **Singha** » 05 Sep 2009 17:23

are there still any takers for municipal bonds ?

other than shake the katora for more $$ notes printed in D.C. doesnt look like any
other way to raise funds than to tax and whip the kulaks more.

Singha · Post by **Singha** » 05 Sep 2009 18:16

BBC - no prizes for guessing france and germany want to leash feral bankers while
west pakukstan wants them to run free

G20 proposes curb on bank bonuses

Finance ministers, central bank governors and other G20 officials are meeting in London

Enlarge Image

Bankers' bonuses should be deferred in order to reward long-term success rather than short-term risk-taking, G20 finance ministers have suggested.

In a draft proposal agreed in London, ministers backed the idea from the UK as an alternative to a formal cap on bonuses sought by some countries.

Ministers also said they would continue financial support for the global economy despite some signs of recovery.

And they agreed to give emerging economies more say on the world stage.

The BBC's chief economics correspondent Hugh Pym said it appeared a consensus was emerging on bank bonuses.

He said ministers had agreed in principle that bankers' pay should be long term, with no cash bonuses up front, and that there should be greater transparency about what staff are actually being paid.

But our correspondent said the details of any plans would still need to be thrashed out before the summit of G20 leaders in Pittsburgh, Pennsylvania later this month.

'Serious mistake'

Some countries, including France and Germany, had wanted the G20 to start discussing "exit strategies" - ways of scaling back their spending on fiscal stimulus.

They are already beginning to emerge from recession and had argued that such spending was leading to dangerously high levels of state debt.

Pay and bonuses cannot reward failure or encourage unacceptable risk taking
Prime Minister Gordon Brown

Brown urges G20 to keep spending
G20: Economic summit snapshot

Opening the meeting, Prime Minister Gordon Brown warned that any such scaling back would be a "serious mistake" and could risk causing another "downward lurch" in the global economy.

The draft communiqué suggests his concerns were taken on board as ministers have agreed in principle to continue spending until a global recovery is firmly secured.

Britain had also opposed suggestions by France and Germany to place a mandatory cap on bankers' bonuses.

Instead, Mr Brown and Chancellor Alastair Darling backed a system of deferred bonuses which G20 ministers now appear to have accepted.

Their draft proposals contain plans to withhold bonuses for up to five years until the longer-term impact of bankers' actions is clear.

They also suggest including claw-back clauses in bonus agreements which would allow money to be recouped if decisions which seemed successful later go bad.

Bonuses would also be paid in stock options, not cash, so that individuals only benefit if their company does.

Mr Brown said earlier there could not be "a return to the past ways of governance" within the banking sector, which resulted in pay awards that were "offensive" to the public.

Gordon Brown: "Too early a withdrawal of vital support could undermine the tentative signs of recovery we are now seeing"

"Specifically, pay and bonuses cannot reward failure or encourage unacceptable risk taking," he told ministers.

More say

The third aspect of the draft communiqué concerns the representation and voting rights of emerging economies within the IMF and World Bank.

At present, for example, China has the same power as the Netherlands, despite the vast difference in the size of their economies.

The draft shows ministers have agreed to raise "significantly" the say of emerging nations' on the world stage.

The BBC's business correspondent Joe Lynam said the draft would now be turned into formal guidelines by the Financial Stability Board, which is made up of representatives of central banks and regulators from around the world.

Those guidelines will be discussed and voted on in Pittsburgh, but it will be up to individual state governments to decide whether or not to turn them into law.

Hari Seldon · Post by **Hari Seldon** » 05 Sep 2009 19:07

Garden Brown championing continued 'fiscal stimulus' is totally understandable. Anglosaxonia is digging into supermassive levels of public debt whose debt service burdens can crash lesser currencies and maybe, just maybe, even the emerged TFTA ones.

So Sri Brown wants everyone in their hole to keep digging to get out of their holes - yup, even those few who are slowly but surely clawing their way out.

Anything is possible but not anything is likely. Sri Brown's valiant navigation and prescriptions are not likely to help UQstan or unkilica. Hail Mary pass season shall soon be here, like they say in yankee footbal jargon.

Jai Ho and hallelujah.