Perspectives on the global economic meltdown

svinayak · Post by **svinayak** » 14 Dec 2009 01:56

'The basic problem is that they have been and are continuing to print money when there’s nothing backing it. There’s no self-restraint. If you’re creating credit at 25% per year to raise the GDP 2%, something is wrong. Credit induced expansion in the economy. Obama says he’s creating jobs – that’s the kind of nonsense that government parties are selling us.

For example, is it sustainable to give people $4000 to go buy a car – one shot buying of cars to make the GDP go up temporarily? It’s just appearances. On a micro level if you can’t pay your bills, you have to stop spending or get a better job.

Ilene: Does it matter that we’re bankrupt?

Mr. Solomon: We seem to be functioning as though we’re not. There’s no question that only two trillion of revenue can’t service $100 trillion of debt. It’s pretty clear that there’s a major problem...'

More at:
http://philsbackupsite.wordpress.com/20 ... developer/

Hari Seldon · Post by **Hari Seldon** » 14 Dec 2009 06:33

Barclays Is Barred From Trading Offshore Derivatives in India

MUMBAI -- The Securities and Exchange Board of India Wednesday said it has barred Barclays Bank PLC from issuing and trading in offshore derivative instruments with immediate effect.

SEBI, India's capital markets regulator, said it found the U.K.-based bank to be in breach of disclosure rules that guide offshore derivative activity of foreign institutional investors, or FIIs, in India. The bank is registered with SEBI as a FII in India.

The SEBI order said the regulator had initially sought data from Barclays on four offshore derivative instruments issued between January 2006 and January 2008 with Reliance Communications Ltd. as the underlying scrip.

Barclays didn't initially report these transactions in the periodical filings and later disclosed erroneous data, the SEBI order said.

"We haven't seen the order and will provide an appropriate response after we review it," a Barclays spokesman in Mumbai told Dow Jones Newswires on the phone late Wednesday.

Barclays has until Dec. 18 to respond to a showcause notice, the order said.

Barclays is barred from issuing, subscribing and trading in any fresh offshore derivative instrument until it shows SEBI that it has the systems to correctly report such transactions, a copy of the regulator's order on its Web Site showed.

Ban Barclays entirely, perhaps? Yindia can do without their peddling noxious stuff here, am sure. IMHO, the jerks are testing the waters - pushing our regulators to test reaction times, punitive actions and the like. Ban their butts from Desi shores for 20 yrs. And its a Brit bank to boot.

amol.p · Post by **amol.p** » 14 Dec 2009 10:55

JIM ROGERS INTERVIEW

Q: Why do you think that we are going to have a short-term rally in the dollar? What’s behind this thinking?

A: Everybody is pessimistic, I am pessimistic too and that’s why there might be a rally.

Q: Long-term you used to worry about deficit, you are still worried about the debt that this country has?

A: Gigantic spending in Washington, incompetence in Washington where they don’t know what’s going on, they are making our situation worse. I see nothing to turn the dollar around.

Q: What you mean incompetence in Washington? Where is the most incompetence? What would you like to see done differently?

A: The Federal Reserve has tripled its balance sheet full of garbage, which you and I are going to have to pay for. They have gone out and printed gigantic amounts of money, why do we want the Fed they are making the situation disastrous for all of us.

Q: I guess you don't think that Bernanke should be reconfirmed?

A: Hopefully. Of course not.

Q: What about Tim Geithner? Treasury as well has been putting out this entire stimulus and now the troubled asset relief program (TARP) programme?

A: Mr Geithner is a smart person from what I understand but he has been wrong about everything for the last 15 years. Why are we listening to him? Why are we listening to any of those guys? They are making our situation worse. They said in writing yesterday that the solution is to spend more money, that’s what got us into the problem, too much debt too much consumption and now we are going to solve it with more debt and more consumption? That’s like telling Tiger Woods, you got another girlfriend then you solve your problem

Q: The one way we got into this— all this debt and leverage– the President Obama said the other day – we have to spend our way out of a recession. He said it?

A: It’s making the situation worse for us. We are all going to pay the price for this in one-two or three years. The next time we have problems in the economy, which will not be too long, we don’t have any bullets left, we have shot everything we have. What are they going to do? Quadruple the debt, print more money. We don’t have any trees left.

Q: What are the major implications? I want to ask you about Dubai, I want to as you about Greece as well as Spain. Are you worried? Tell me how this manifest itself that we are going to see?

A: We are going to have more currency turmoil and crises. You already see Vietnam devalued last week, Brazil put on special taxes for currencies, you are seeing what is happening in Dubai, Greece is in trouble, Ukraine, Argentina, Spain, there are plenty of people we can put to the list. We are going to have currency turmoil, we are going to have more debt problems. In the meantime, everybody has printed money and then what are they going to do when the problem start giving us great turmoil.

Q: The sovereign debt fears are growing; the S&P put Spain on debt negative watch, Fitch cut trading on Greek sovereign debt. Yesterday David Paterson in New York – just a press conference called – saving New York from insolvency?

A: They put the US, UK on debt watch; we are all in serious trouble. I mean in Asia there are still creditors, in the West unfortunately debtors.

Q: So do you invest in an environment where all of this gloom and doom and these headlines keep coming out?

A: I own gold as you know. But I am not buying gold. Gold shot up and whenever something shoots up it probably would go down for a while. So if gold goes down I hope I am smart enough to buy some more, other commodities are probably better like silver, agriculture. So I urge you to learn about foreign currencies as well, because there are going to be great opportunities.

Q: I am going to go through some of these investment ideas with you one by one. So let me first focus on gold. You are saying you own gold, you are not going to buy more gold right now because of the level that it is but you are not going to sell it is basically the point?

A: If gold goes to USD 1000 per ounce, I am smart enough to buy more.

Q: So do you think the fact that the Indian central bank, Mauritius — we are seeing different buyers recently. Does that change the gold story? What is behind this move or is it just the dollar hedge?

A: Until last year central banks around the world were selling gold. New you have the opposite; they stopped selling and they are starting to buy as well. That’s a huge shift in the gold market and many other people are worried about paper money as well. So I think gold will certainly go to couple of thousand dollars an ounce over the next decade. That’s not a very radical assumption only 4-5-6% a year, it would have to go up. So I am sure gold will be a great investment over the next decade

Q: Do you own any stocks?

A: The US markets are up 70% in the last 8-10 months and I don’t like to buy anything like that. I am skeptical of the economy going forward. If the world economy gets better commodities are going to be a great place because there are shortages developing. If the world economy doesn’t get better they’re going to be printing a lot more money, so commodities and real assets are the place to be.

Q: Do you see a bubble in some emerging markets, you are living in Singapore, you are travelling all around, you have seen the Asia growth story on the ground and it is really alive. But people say much money has moved in to these emerging markets and it’s a bubble what do you think?

A: I sold all of my emerging markets two years ago except China. They went down, they’ve come back up, its not a bubble yet. The Chinese economy is one tenth the size of Europe and Asia. There will be bubbles in China and Brazil but now at the moment.

Q: Where do you think is the most important place to avoid right now, is it the stock market?

A: I would say it’s the bond market, the long term government bond market. Would you lend money to the US government for 30 years at 4-5% in US dollars? Who would?

Q: So you think the US bond market is a bubble?

A: Not yet. But its going to be and that is the next bubble that I see forming in the world because they are down and driving up as fast as they can and they are buying on themselves and that is not good for anyone.

Q: Are you more worried about inflation or deflation?

A: Inflation. Throughout history when people have printed huge amounts of money its led to rising prices. Also, in the commodities market we have shortages developed. Food is the lowest inventory in decades. You cannot get loans to open mines, we are having great shortages developing in commodities. Shortages combined with printing money will lead to more inflation.

Q: A lot of people feel that the biggest risk for the stock market in the US is the Fed coming in? When would expect Bernanke and company to raise rates?

A: The markets would raise rate before Mr Bernanke, he is not smart enough, he will follow the market. Just watch the currency markets you will see the rates start to go higher. We will start seeing turmoil in the currency markets and then rate would go higher on their own.

Q: You think that is a 2010 affair?

A: I know we are going to have the currency problems in 2010, we are certainly going to have atleast the semi-crisis. But its already starting as we said with Vietnam and all other countries. We are going to have serious problems in many countries and in currencies.

Q: What are the implications that our viewers will feel or will see of some of these debt worries?

A: If I am right you are going to see the dollar rally, which will be a good chance for some to buy some of the currency ETF or buy some commodities, they maybe better opportunities. If we start having turmoil, which I expect the dollar is going to rally for a while because everyone will have to cover their shorts and the dollar will go up and you can put your money into other foreign currencies.

Q: One thing we didn’t mention was Europe, the US and Britain untouched, Britain is trying to keep their AAA Credit rating what you think about Europe?

A: The UK is not going to keep its AAA rating. They are already worried about the US and certainly should be worried about the UK, the Prime Minister there has been rolling things. Its going to be a very bad situation, I use to own sterling for about 30-40 years but I own no sterling now, it grieves me to see what is happening in the UK.

http://www.moneycontrol.com/news/fii-vi ... 500-2.html

amol.p · Post by **amol.p** » 14 Dec 2009 12:25

ArcelorMittal could cut 10,000 jobs: report

ArcelorMittal, the world's biggest steelmaker, could cut 10,000 jobs worldwide next year to boost productivity and reduce general expenses by around $500 million.

http://www.reuters.com/article/idUSTRE5BD0SZ20091214

ldev · Post by **ldev** » 14 Dec 2009 12:43

Abu Dhabi steps in to bail out Dubai

Abu Dhabi is providing $10bn in funding to bail out its fellow emirate Dubai, enabling it to settle a $4.1bn sukuk or Islamic bond owed by troubled developer Nakheel due today, the official news agency said on Monday.

The government of Dubai said in a statement that the remaining funds would be used for interest payments and working capital until May 30 next year on the condition that Dubai World, a heavily endebted state-owned conglomerate, reaches a standstill agreement on the remaining portion of the $26bn in distressed debts

I think Yves on the blog Naked Capitalism has got it right in that this last minute rescue by Abu Dhabi is more to protect the nascent market in Islamic bonds i.e. sukuk. Also as I understand, something like 80% of the Nakheel Sukuk issue of $5.2B was subscribed by Islamic investors from the Gulf region. So in a sense if Abu Dhabi had not stepped in today, they would not have been very popular in the region especially given the size of the funds managed by the Abu Dhabi Investment Authority.

Hari Seldon · Post by **Hari Seldon** » 14 Dec 2009 12:53

Its getting tight in Indiana, seems like.

Indiana cities pull plug on streetlamps to save money

Budget cuts and property tax caps are leaving many residents across Indiana in the dark.

Merrillville has turned off every other streetlight on its main roads. Valparaiso is turning off every other light in some areas and has set others to turn off at midnight. Muncie officials say the city will shut off 85 percent of overhead lights to help balance the 2010 budget.

The moves are a response to rising costs and shrinking revenue that's the result of the ailing economy and property tax caps.

Muncie Mayor Sharon McShurley says the move could result in more than just darker streets. "I'm setting you on notice," she told the council. "The decisions you have made, unless you reconsider the budget, are going to be detrimental to the city."

Merrillville Public Works Director Bruce Spires said the city is more than a year behind on its NIPSCO bills. The city will turn off 300 streetlights, for a savings of about $2,000 a month.

Its no secret that state and local gubmints in the khanate are in trouble. Keep watching for more and varied symptoms of the same underlying ailment (insolvency thanks to unfunded and underfunded obligations coupled with falling tax receipts) to keep propping up with alarming frequency. A moon or so ago I posted about Detroit's mayor Sri Something admitting that the city has stopped paying utility bills because it doesn't have the money.

Meanwhile, more innovative ways to extort, err raise, money from aam citizenry abound and are always around. Sample this also from Indiana: City Threatens $2500 Fines for Challenging Traffic Tickets

Motorists who receive minor parking or traffic tickets in Indianapolis, Indiana are being threatened with fines of up to $2500 if they attempt to take the ticket to court. A local attorney with the firm Roberts and Bishop was so outraged by what he saw in Marion County traffic court that he filed a class action suit yesterday seeking to have the practice banned as unconstitutional.

The city made explicit the threat of additional fines for challenging parking tickets in a November 30 press release announcing a deal between Indianapolis and a private firm, T2 Systems, to hand over operations of a parking ticket court to increase municipal income.

In traffic court, Judge William Young has been making good on the threats by routinely siding with police officers in disputes and imposing fines of up to $500 on anyone who challenges a moving violation ticket, no matter how minor, and loses. Those who pay without going to court do not face this extra fine.

“The deck is stacked against the motorist,” lawyer Paul K. Ogden wrote. Ogden argues the court’s practices violate the excessive fines clause of the state constitution as well as the clause requiring that “all penalties shall be proportioned to the nature of the offense.”

Hari Seldon · Post by **Hari Seldon** » 14 Dec 2009 12:58

Can't see how job losses (except for very specialized people like PhD degree holders in the Sciences) can be stopped and employment scenario improved in the khanate until healthcare is fixed.

Right now, for all the sloganeering that 'employees are our greatest asset' that massa companies routinely mouth-off, fact is that from mgmt POV, employees can be a huge cost center - measured not just in terms of direct payroll effect (wages) but also in terms of healthcare insurance coverage that must be offered to the employee and family, pension and 401k type contributions that need to be made, a host of other benefits that may be on the table and so on. Many small and medium employers, it is said, are not at all keen to raise payroll size any more than is absolutely required to run the core business.

Consider also the rising costs of retirement benefits to public orgs and systems.
Taxpayers' pension tab starts spike

Pennsylvania's school districts will see their retirement costs increase by more than 70 percent next year as the first symptoms of the state's public pension crisis begin to be felt.

The Public School Employees' Retirement System trustees on Friday approved an employer contribution rate of 8.22 percent for the 2010-11 budget year, a 12-year high for the system and a 72 percent jump from the 4.78 percent contribution rate in place now.

That means taxpayers will have to spend $1.1 billion next school year for teachers' pensions, or almost $500 million more than this year. State and local education officials said the worst part is that next year's increase is just a fraction of an anticipated leap to record public contributions by 2012, when the state and local tab is projected to exceed $4 billion.

The taxpayers' tab -- known as the employer contribution rate -- floats according to the investment earnings. The rate is that share of a district's payroll taxpayers must put up to meet future pension obligations. That cost is split between the state and school districts, but it's all paid by taxpayers.

School officials have been bracing for the 2012 rate spike, driven in large part by benefit changes passed by the General Assembly and approved by then-Gov. Tom Ridge in 2001, after several years of historic bull markets, that would leave most career teachers and state workers retiring at full salary.

But thanks in part to historically bad returns in investment markets last year, the cost climb has started earlier and might be getting steeper. PSERS lost 26.5 percent on its investment portfolio for the year ending June 30, believed to be its worst one-year result ever.

In one glimmer of good news, PSERS' investments have started to rebound, posting a 9.2 percent gain this summer. Still, Melva Vogler, the PSERS board chairwoman, appealed to all districts Friday to do their best to continue to plan ahead.

"At this point, the fund cannot realistically earn its way out of the projected rate spike," she said.

amol.p · Post by **amol.p** » 14 Dec 2009 13:07

Paterson Trims Aid to Schools and Localities

Gov. David A. Paterson announced on Sunday that he would unilaterally withhold $750 million in scheduled payments to schools and local governments, saying that strong action was necessary to protect New York State from insolvency.

The reductions of 10 to 19 percent in aid will affect schools and social service providers, health insurance payments, cities and counties. Mr. Paterson said the withheld funds were not “a cut” or an “impoundment” — perhaps drawing a legal distinction because only the Legislature is empowered to make permanent budget cuts.

The reductions mean that New York City will not get approximately $84 million in municipal aid and school payments scheduled for Tuesday; an additional $107 million will be withheld across the state. Later this month, $560 million more in scheduled payments will be withheld.

In announcing the withholding, Mr. Paterson made good on a threat he issued late last month to act on his own if the Legislature did not make enough cuts to address a $3.2 billion state budget deficit. The governor acknowledged that the move was only a “temporary fix.” He said it was needed because of Albany’s legislators’ inaction

It was also uncertain when the state’s fiscal health would improve enough so that the withheld money could be restored; the state’s revenue picture is expected to brighten somewhat next month, after bonuses are paid to Wall Street executives and as tax revenue starts to trickle in......{ The reason the bonus are so much favored...without these bonus NY will be broke}

http://www.nytimes.com/2009/12/14/nyreg ... ?hp---Read it all

Hari Seldon · Post by **Hari Seldon** » 14 Dec 2009 15:18

'Welcome to Obamaville' Sign Marks Colorado Homeless Tent City

Shades of Hooverville or what?

amol.p · Post by **amol.p** » 15 Dec 2009 10:01

Mexico’s Credit Rating Downgraded One Level by S&P

Mexico’s credit rating was cut one level by Standard & Poor’s after tumbling oil output and the worst recession since the 1930s swelled the budget deficit.

S&P lowered Mexico’s foreign-currency debt rating to BBB, the second-lowest investment grade, from BBB+, with a stable outlook. The cut follows a downgrade by Fitch Ratings on Nov. 23

http://www.bloomberg.com/apps/news?pid= ... MMFI&pos=6

amol.p · Post by **amol.p** » 15 Dec 2009 10:16

Putting Obama on Hold, in a Hint of Who’s Boss

The heads of three major firms did not make it to the White House meeting in person as President Obama called on the nation’s biggest banks to take steps to revive lending DUE TO “Inclement weather"

He was, of course, referring to the three conspicuously absent attendees who were being piped in by telephone: Lloyd C. Blankfein, the chief executive of Goldman Sachs; John J. Mack, chairman of Morgan Stanley; and Richard D. Parsons, chairman of Citigroup.

That awkward moment on speakerphone in the White House, for better or worse, spoke volumes about how the balance of power between Wall Street and Washington has shifted again, back in Wall Street’s favor

http://www.nytimes.com/2009/12/15/busin ... ml?_r=1&hp
....read all

{The bankers do not pay heed to any top officials in US after getting so much money from TARP.....imagine the same happening in India...by this time he would have been sacked}

Hari Seldon · Post by **Hari Seldon** » 15 Dec 2009 16:01

The usual suspects are back to gaming the system and creating false dichotomies and mythologies. Sample this egregious piece of transparent plunder.

Businesses hold world hostage over carbon credits

WND research reveals the European Union's cap-and-trade exchange is vulnerable to a sophisticated form of corporate extortion in which EU bureaucrats in Brussels are manipulated into paying hundreds of millions of dollars in carbon permit bribes to keep companies from moving jobs to Third World nations.

In fact, it appears the scam is already under way.

The crux of the scheme is this: European steelmakers have threatened to leave the EU for India, eliminating the jobs of thousands of workers in the process, unless the EU grants the steelmakers free carbon credits worth hundreds of millions of dollars.

{Aholes drawing Yindia's fair name into this melee totally unwarrantedly, spinning CT theories around Yindian involvement and will ultimately have Yindian and other turd world businesses pay either directly (in the form of bought carbon credits) or indirectly (in the form of green tariffs on their export products) for doing what they are now able to master - produce quality products at cutthroat prices that the emerged world cannot match come hell or highwater.}

Eurofer, a European trade group, is at the center of the scheme. The web of the plot, however, weaves in not only several companies, but also the United Nations' climate change chief:

* Among its members, Eurofer represents two EU steelmakers, Corus Redcar and ArcelorMittal, each of which has ties to India as well as to Rajendra K. Pachauri, the Indian industrial engineer who has been chairman of the U.N. Intergovernmental Panel on Climate Change, or IPCC, since 2002.

{More blatant CT mongering, FUD sowing and muddying the waters at a dizzying pace}

* Eurofer appears to have coordinated a threat to the European Union Greenhouse Gas Emission Trading System that its steelmakers would move their operations from the EU to India unless the EU cap-and-trade exchange issued them – at no cost – carbon emissions permits worth hundreds of millions of dollars.

* Once the bureaucrats in Brussels acquiesced, Corus Redcar and ArcelorMittal maneuvered to cash in windfall profits from the EU carbon permits given them at no cost.

* Additionally, Corus Redcar has now announced a decision to close operations in Great Britain nonetheless and relocate its steelmaking activities to India in order to gain additional U.N. carbon credits.

Ironically, EU and U.N. officials who might have thought requiring cap-and-trade permits would operate as "protection racket" in which EU companies need to buy carbon credits to continue operations, have now found themselves on the losing end of the reverse scheme.

In the final analysis, the winners are the European Union corporations willing to play hardball with the European Union Greenhouse Gas Emission Trading System, and the losers are the EU middle class workers that are held hostage in the scheme.

The euros are stacking the deck with indignant calls for a 'level playing field' wherein they will ultimately introduce a 'green tariff' on imports from the emerging world. Only that they'll do it perched on a moral high horse, this time.

Jai Ho indeed.

OK, hang on, Maybe moi boor heart spoke too soon. Digging ali'l deeper into the melee uncovers another fascinating tale.

Carbon credits bring Lakshmi Mittal £1bn bonanza

LAKSHMI MITTAL, Britain’s richest man, stands to benefit from a £1 billion windfall from a European scheme to curb global warming. His company ArcelorMittal, the steel business where he is chairman and chief executive, will make the gain on “carbon credits” given to it under the European emissions trading scheme (ETS).

The scheme grants companies permits to emit CO2 up to a specified “cap”. Beyond this they must buy extra permits. An investigation has revealed that ArcelorMittal has been given far more carbon permits than it needs. It has the largest allocation of any organisation in Europe.

The investigation has also shown that ArcelorMittal and Eurofer, which represents European steel makers at European level, have lobbied intensively in Brussels. This has included threatening to move plants out of Europe at a cost of 90,000 jobs, and asking European commissioners to meet Mittal.

ArcelorMittal is now free to sell its surplus permits on the market or to hoard them for future use. The latter would allow it to avoid cutting greenhouse gas emissions for years, effectively undermining the point of the scheme.

Hmmm. Cunning baniya outdid the Eurocrats in Brussels now, did he? No wonder the blits were spewing venom on him and desis in general some blit board the other day.

Hari Seldon · Post by **Hari Seldon** » 15 Dec 2009 16:14

Extreme D&G warning.....but hey, just for laughs as well... the new scare picture the hyperinflationist camp has been circulating around comes from a true story....

The accompanying story is anything but funny though. Sri John Williams of shadowstats.com has a pungent D&G piece on how zimb ishtyle hyperinflation likelihood has 'hit some critical level' in the khanate only. Now, I don;t buy the thesis in toto but still, worth a look, I'd say.

Shadowstats' John Williams: Prepare For The Hyperinflationary Great Depression

Hari Seldon · Post by **Hari Seldon** » 16 Dec 2009 06:04

Lungi dance time, folks!

Moody's Ups (India's) Local Currency Debt Rating Outlook to Positive

MUMBAI -- Moody's Investor Service Tuesday raised its rating outlook on India's local currency debt one notch to positive, citing the economy's resilience during the global financial crisis and high growth potential.

"The structure of India's economy is robust and cyclical trends are strong and sustainable," said Aninda Mitra, Moody's sovereign analyst for India in a release.

The rating agency, however, retained the outlook on the government's foreign currency bond ratings, which remains stable at Baa3.

It raised the ceiling on banks' foreign currency deposits to Ba1 from Ba2 to better reflect India's robust external position.

Oh, aren't we well and truly blessed that Sri Muddy's has condescended to patronize our rupee debt?!?!?!

Well, more seriously, the CRAs even though they're ostensibly pvt entities, wield power disproportionate to that status. Here's one reason why:

And though the agencies are private companies, their opinions can effectively have the force of law. The ratings often dictate what institutions like banks, insurance companies, and money-market funds can and can’t do: money-market funds can’t have more than five per cent of their assets in low-rated commercial paper, there are limits on the percentage of non-investment-grade assets that banks can own, and so on.

link

Thankfully that US law and not Yindian law. Our FIs needn't misinvest our people's hard earned savings following 'advice' from the likes of Muddy's.

Hari Seldon · Post by **Hari Seldon** » 16 Dec 2009 06:12

Another perspective on the ekhanomic stress afflicting the emerged world.

With Fewer U.S. Opportunities, Home Looks Appealing to Expats

With unemployment at 10% and prospects for finding work bleak, foreign-born professionals who came to the United States in search of better job opportunities and prosperity are now retreating.

Foreign-based companies, particularly in Asia, are using the employment picture in the U.S. as a means to lure former residents home. This comes as a welcome respite for professionals who've experienced layoffs, underemployment and visa issues.

Vivek Wadhwa, a senior research associate at Harvard Law School who has studied these trends, says frustrations about the lack of advancement in the U.S., where salary and promotion freezes have become the norm, are a significant factor in foreign-born professionals' heading home.

HSBC Bank International's 2009 Expat Explorer survey found that 23% of U.S.-based expats are considering returning home, compared with 15% elsewhere in the world. The most frequently cited reason was increasingly limited career prospects, according to the survey of more than 3,100 expats, defined as anyone over 18 living outside their country of origin.

Desh is often cited as a shining example of human capital deployed abroad. Hopefully, the best of that will return to help Yindia while helping themselves.

Hari Seldon · Post by **Hari Seldon** » 16 Dec 2009 06:20

In other news, foreigners seem to have entirely disappeared from the long bond mkt in the US. PRC it seems has bought zero of the long bonds (30 yr USTs). Signs of trouble ahead? Who knows?

It seems all this started with COTUS's admirable idea of raising the debt ceiling even higher.

At least someone in America isn't feeling a credit squeeze: Uncle Sam. This week Congress will vote to raise the national debt ceiling by nearly $2 trillion, to a total of $14 trillion. In this economy, everyone de-leverages except government.

It's a sign of how deep the fiscal pathologies run in this Congress that $2 trillion will buy the federal government only one year before it has to seek another debt hike—conveniently timed to come after the midterm elections. Since Democrats began running Congress again in 2007, the federal debt limit has climbed by 39%. The new hike will lift the borrowing cap by another 15%.

There is surely bipartisan blame for this government debt boom. George W. Bush approved gigantic spending increases for Medicare and bailouts. He also sponsored the first ineffective "stimulus" in February 2008—consisting of $168 billion in tax rebates and spending that depleted federal revenues in return for no economic lift.

Democrats ridiculed Mr. Bush as "the most fiscally irresponsible President in history," but then they saw him and raised. They took an $800 billion deficit and made it $1.4 trillion in 2009 and perhaps that high again in 2010. In 10 months they have approved more than $1 trillion in spending that has saved union public jobs but has done little to assist private job creation. Still to come is the multitrillion-dollar health bill and another $100 billion to $200 billion "jobs" bill.

We've never obsessed over the budget deficit, because the true cost of government is the amount it spends, not the amount it borrows. Milton Friedman used to say that the nation would be far better off with a budget half the current size but with larger deficits. Mr. Obama and his allies in Congress have done the opposite: They have increased the budget by 50% and financed the spending with IOUs.

OK. And the consequence? As the excitable Sri Denninger says:

What was your first hint the former $1.8 trillion increase attempt was a bad idea?

Or was it China buying a literal zero of Treasury debt in October?

Or was it the TIC report this morning (which I'm sure you had "early") that showed a near-zero appetite for foreign funding of our idiotic spending proclivities?

Or was it the fact that this morning PPI numbers came in hot, especially in crude goods, strongly implying that we're in for a nasty bout of either cost-push price inflation or collapsing corporate profits?

Perhaps it is the numerous anecdotes of "seasonal help" already being laid off, stacks of "Black Friday" merchandise still in the stores, and Best Buy's earnings report this morning in which they disclosed margin compression in the 4th quarter - which promptly hammered their stock for 7.2%.

None of this should be a surprise.

We have fixed nothing in the last two years. We have not forced bad debt to default yet worse, despite the incessant pumping and attempted "forcing" of credit into the system via government borrowing the pump has now officially failed, as the new Z1 data shows.

Note that despite all the Federal Deficit spending - $1.4 trillion last fiscal year (ending in September) and $300 billion more in the last two months - approaching two trillion dollars - the total credit outstanding in the system - including the new Federal borrowing - went negative in the third quarter of this year.

The bottom line:

Your attempt to play "pump prime" over the last two years has FAILED.

For the first time in the modern era you have run into the mathematical realities of too much debt for the amount of payment capacity in the private sector.

You can either stop now, or you can stop when the government's ability to borrow is cut off forcibly by radical increases in the bond interest-rate curve.

You WILL stop gentlemen. The only question remaining is whether it will be voluntary or whether the market will force an involuntary cessation of Treasury Coupon issuance.

Attempting to avoid this by monetizing debt, as Bernanke has done while being your handmaiden (while lying about his actions to The American People AND in sworn testimony before Congress) forced currency devaluation which in turn (as expected) cuts off foreign debt demand.

That in turn, as you are now seeing, causes the coupon increase to happen anyway.

You're trapped folks, exactly as I predicted you would be two years ago.

Uh-oh. Read it all anyway. I suspect the Fed will game its way outta this one too.

amol.p · Post by **amol.p** » 16 Dec 2009 14:19

U.S. forgoes billions in tax on Citi: report

The U.S. government "quietly" agreed not to collect billions of dollars in potential taxes from Citigroup Inc as part of its deal to allow the bank to repay its taxpayer bailout, The Washington Post reported.

http://www.reuters.com/article/idUSTRE5BF0G820091

Either way the US govt & public is at loss.

amol.p · Post by **amol.p** » 16 Dec 2009 14:23

prad wrote:
amol.p wrote:Putting Obama on Hold, in a Hint of Who’s Boss

The heads of three major firms did not make it to the White House meeting in person as President Obama called on the nation’s biggest banks to take steps to revive lending DUE TO “Inclement weather"

He was, of course, referring to the three conspicuously absent attendees who were being piped in by telephone: Lloyd C. Blankfein, the chief executive of Goldman Sachs; John J. Mack, chairman of Morgan Stanley; and Richard D. Parsons, chairman of Citigroup.

That awkward moment on speakerphone in the White House, for better or worse, spoke volumes about how the balance of power between Wall Street and Washington has shifted again, back in Wall Street’s favor

http://www.nytimes.com/2009/12/15/busin ... ml?_r=1&hp
....read all

{The bankers do not pay heed to any top officials in US after getting so much money from TARP.....imagine the same happening in India...by this time he would have been sacked}

there is nothing noble about what Obama is asking. he is asking them to feed the poison that created this crisis in the first place. as many have said, and will continue to say: easy money is not the solution, it is the problem.

and the toxic assets of the banks haven't vanished. asset price inflation in the last few months has created the illusion that the banks are now back to pre-sub-prime crisis health, which they are not.

Obama is asking banks to make available credit to samll business to spur up economy...and it is the right thing he is doing. What is the use of all money if it keeps on circulating between banks-FED-govt....???? This Obama knows ...without handing out money to people no way ecocnomy is will be on right track.
This is the same what RBI in India ask banks to provide credit to SME.

amol.p · Post by **amol.p** » 16 Dec 2009 14:31

"Dollar Crisis" author: 2010 will bring more stimulus

some major points:

1] rapid credit growth causes excess capacity and leads to busts.

2]After predicting in his 2003 book "The Dollar Crisis" that the U.S. property bubble would trigger a global recession, Duncan's new book argues that governments will have to keep stimulating their economies because U.S. demand for cheap goods will not return to the halcyon days of the 2003 to 2007 boom.

3] Talk of an exit from the easy money policies in 2010 is entirely premature since investors will most likely see more U.S. stimulus spending next year to prop up demand

4] This current round of stimulus will begin to wear out and everything will start to weaken again, and that will require another round of stimulus, not just from the U.S. but from China as well," Duncan told Reuters

5] If this stimulus is delayed or withdrawn, we will get significant drops in asset prices and go back into recession

6] Duncan is part of a group of economists like Marc Faber, Nouriel Roubini and James Grant, who believe the financial crisis is a symptom of something structurally wrong with the United States economy that will not be solved by the end of recession

7] The institution of capitalism has been so corrupted by binges of borrowing financed with money printed on demand that governments now indefinitely have to take the reins of economies, Duncan argues in his book

8] investors were too optimistic about China, which he said is certainly headed for bubble trouble. He is doubtful the fiscal stimulus and new loan growth amounting to about 40 percent of gross domestic product will lead to structural change in the export-dependent economy. "That will just lead to more excess capacity with no one to sell it to, which means product prices will be extremely depressed, companies won't profitable and banks won't be repaid."....{ Predicted by BR}

9] The real antidote to the cycle of credit-fueled bubble and bust, in Duncan's view, is for the U.S. government to spend an additional $3 trillion in the next 10 years to reindustrialize.

10] Among his more austere prescriptions, Duncan would fix exchange rates, apply credit controls and only allow money supply to grow in line with population growth. He would also dissolve the Federal Reserve.

http://www.reuters.com/article/idUSTRE5BF14420091216

Hari Seldon · Post by **Hari Seldon** » 16 Dec 2009 14:36

Amol.p, you just beat me to posting this citi story....

Anyway, Sri Jesse's take is worth excerpting here:

Well, at least it will make the results of the TARP program look better on paper if it drives up Citi's stock price by inflating their financial results. That's a plus, right?

I guess raising the credit card rates to 26% and free money from Ben was not enough to push Citi over its capital objectives in time for bonus season. We'll all have to really tighten our belts for this one.

Change you can believe in.

Coupla days back, the shadowstats guy was arguing for an extreme D&G scenario wherein even the banks know (gasp!) that the end is near and are hence splurging one last time on massive bailout-driven bonuses before the lights go out on the world as know it..... posted it somewhere in the prev page, IIRC.

Meanwhile, UK-stani candor rushes and gushes to the fore as former Barclays CEO Martin Taylor describes fraud happen in the i-bank bonus payouts in the FT to boot stopping just short of using the word 'fraud'.

City people have always been paid well relative to others, but megabonuses are quite new. From my own experience, in the mid-1990s no more than four or five employees of Barclays’ then investment bank were paid more than £1m, and no one got near £2m. Around the turn of the millennium across the market things began to take off, and accelerated rapidly – after a pause in 2001-03 – so that exceptionally high remuneration, not just individually, but in total, was paid out between 2004 and 2007.

{Aha. Note, this is precisely the time when Sri Hank Paulson, ex-CEO of GS charmed the SEC into allowing unlimited leverage ratios to banks only, by excepting capital adequacy norms in those cases}

Observers of financial services saw unbelievable prosperity and apparently immense value added.
{If it seems unbelievable, it prolly is.}

Yet two years later the whole industry was bankrupt.
{No sh1t sherlock! Inside of 1 fateful weel in Sept'08, not a single i-bank was left standing on wall st. They all morphed into bank holding companies for survival reasons. Funny how that works, eh?}

A simple reason underlies this: any industry that pays out in cash colossal accounting profits that are largely imaginary will go bust quickly. Not only has the industry – and by extension societies that depend on it – been spending money that is no longer there, it has been giving away money that it only imagined it had in the first place. Worse, it seems to want to do it all again.

What were the sources of this imaginary wealth? First, spreads on credit that took no account of default probabilities (bankers have been doing this for centuries, but not on this scale). Second, unrealised mark-to-market profits on the trading book, especially in illiquid instruments. Third, profits conjured up by taking the net present value of streams of income stretching into the future, on derivative issuance for example. In the last two of these the bank was not receiving any income, merely “booking revenues”. How could they pay this non-existent wealth out in cash to their employees? Because they had no measure of cash flow to tell them they were idiots, and because everyone else was doing it. Paying out 50 per cent of revenues to staff had become the rule, even when the “revenues” did not actually consist of money.

The above bolded portions essentially constitute fraud by any reasonable definition of the term. Of course Sri Taylor has his own (t)reasons not to use the term perhaps. Entertaining tale Taylor's tailored though. Read it all.

Hari Seldon · Post by **Hari Seldon** » 16 Dec 2009 14:42

Obama is asking banks to make available credit to samll business to spur up economy...and it is the right thing he is doing. What is the use of all money if it keeps on circulating between banks-FED-govt....???? This Obama knows ...without handing out money to people no way ecocnomy is will be on right track.
This is the same what RBI in India ask banks to provide credit to SME.

I used to think along the same lines myself but am now wondering as to how much quality demand really exists even among the SME sector for further binges of debt/loans. The loans taken when times were good 2 short yrs ago are yet to be digested. The repayment and rollover of such loans is now topmost priority for both households and SMEs alike. This also mirrors the Jap experience of the 90s when demand in the pvt sector for debt plunged.

In fact, the collapse of demand for debt is part of the classic debt-deflation cycle that Fischer warned about long ago. Its playing out almost textbook style so far along those lines. The excess debt will have to first be extinguished either through default or through slow-mo repayment or via inflation in an orgy of destruction (which will take down major zombie banks now standing on gubmint props) before healthy demand for credit can appear again, IMHO.

amol.p · Post by **amol.p** » 16 Dec 2009 14:43

U.S. outflows at $13.9 billion in Oct; Treasury buys fall

The United States saw net capital outflows in October, as foreign private investors shied away from U.S. assets as a safe haven,

Net long-term capital inflows, which excluded swaps, fell to $20.7 billion, from an inflow of $40.7 billion in September. This is a key gauge of foreign investor appetite because they exclude short-term transactions

The data also showed that private investors in October sold $32.1 billion in U.S. assets, a precipitous decline from purchases of $142.1 billion in September

China, meanwhile, still the largest holder of U.S. Treasuries, did not buy the asset during the month of October

http://www.reuters.com/article/idUSTRE5BE2ZK20091215

By the way more D&G

U.S. consumers fall behind in holiday shopping: NRF

The holiday shopping that consumers have completed so far this season is at a five-year low, despite early promotions by retailers, according to a survey released on Wednesday

http://www.reuters.com/article/idUSTRE5BF0NR20091216

nelson · Post by **nelson** » 16 Dec 2009 18:28

http://beta.thehindu.com/news/internati ... epage=true

or

?

Hari Seldon · Post by **Hari Seldon** » 16 Dec 2009 22:02

nelson wrote: or ?

both?

Meanwhile, this potentially important piece almost slipped through the craps, err cracks.

“The Gulf monetary union pact has come into effect,” said Kuwait’s finance minister, Mustafa al-Shamali, speaking at a Gulf Co-operation Council (GCC) summit in Kuwait.

The move will give the hyper-rich club of oil exporters a petro-currency of their own, greatly increasing their influence in the global exchange and capital markets and potentially displacing the US dollar as the pricing currency for oil contracts. Between them they amount to regional superpower with a GDP of $1.2 trillion (£739bn), some 40pc of the world’s proven oil reserves, and financial clout equal to that of China. Saudi Arabia, Kuwait, Bahrain, and Qatar are to launch the first phase next year, creating a Gulf Monetary Council that will evolve quickly into a full-fledged central bank.

The Emirates are staying out for now – irked that the bank will be located in Riyadh at the insistence of Saudi King Abdullah rather than in Abu Dhabi. They are expected join later, along with Oman.

The Gulf states remain divided over the wisdom of anchoring their economies to the US dollar. The Gulf currency – dubbed “Gulfo” – is likely to track a global exchange basket and may ultimately float as a regional reserve currency in its own right. “The US dollar has failed. We need to delink,” said Nahed Taher, chief executive of Bahrain’s Gulf One Investment Bank.

Jai Ho. Hari Om Hari.

Suraj · Post by **Suraj** » 16 Dec 2009 23:49

Time mag takes inspiration from the no bull committee:
Time names Bernanke man of the year 2009

"The story of the year was a weak economy that could have been much, much weaker. Thank the man who runs the Federal Reserve, our mild-mannered economic overlord," the article said.

"He didn't just reshape U.S. monetary policy; he led an effort to save the world economy."

Bernanke is considered a scholar of the Great Depression. A series of his writings were compiled into the book "Essays of the Great Depression."

Michael Grunwald, who authored Time's article, on Wednesday told NBC's "Today" that "basically [Bernanke] saw what looked like another depression coming, and he decided he would do whatever it takes to forestall that. And basically, I think he did. It could have been a lot worse."

Hari Seldon · Post by **Hari Seldon** » 17 Dec 2009 06:19

Suraj wrote:Time mag takes inspiration from the no bull committee:
Time names Bernanke man of the year 2009

And what a puffpiece Time mag puts up to go with it. Makes one wonder if Time Warner has now become a bank holding copany for it to be so beholden of Sri Bernake.....

Anyway, just for laughs, found the following on the web:

Appearing on the cover of Time as person of the year is like a bell ringing. It almost always is akin to a figurative death sentence for the person involved, and sometimes even a literal one.

Jeff Bezos made the cover in 1999 - the year the internet portion of the tech stock bubble topped out.

GW Bush made the cover as his popularity rating had just begun to slide, ending at the worst such rating since Nixon, concurrent with a stock market crash.

Hitler made the cover in 1938
General Chiang Kai Chek in 1937. It turned out to be an ill omen, career-wise.

Kennedy made the cover in the year before he was assassinated, as did Martin Luther King - a literal death sentence in both cases.

Lyndon B. Johnson made the cover in 1964 - he was about to lead the country into the Vietnam catastrophe.

Nixon and Kissinger made it in 1972.

It was Yury Andropov's turn in 1983 - he died shortly thereafter.

Gorbachov became 'man of the decade' half a year before being forced to step down.
Obama's turn was last year.

Most worrisome however, in 2006 Time decided to write on its person-of-the-year cover 'You!'.

What is also well known is that after 9/11, Time committee refused to put OBL on the cover and instead put Sri Rudy Giuliani there. Result - OBL is yet to be 'brought to justice' as GWB put it, and poor Rudy is in oblivion.

Re the bolded part in the quote above, blogger Mish writes:

Indeed what a warning: "You!" In retrospect it should have been perfectly clear. Boomers were heading into retirement, flush with cash, jobs plentiful, feelin' good ... well you know the rest.

Today it is widely known that "You" is not generally in good shape.

Yet, the warning was right there on the cover. "You" was headed for deep, deep trouble. Few heeded it.

Hari Om Hari

Hari Seldon · Post by **Hari Seldon** » 17 Dec 2009 06:30

What will surely send TSPians into a tizzy of CT mongering ....

Whats that - a yindoo gesture from the yeh00di chairman of the yankee Federal Reserve?? What will Shri Shrilleen say? What will Sri Zaid hamid think?

amol.p · Post by **amol.p** » 17 Dec 2009 09:37

US mortgage delinquencies at new high----{more green shots in economy}

In November, 42.06 percent of subprime mortgages were delinquent compared with 41.36 percent a month ago and 39.25 percent in June

http://economictimes.indiatimes.com/new ... 346022.cms

amol.p · Post by **amol.p** » 17 Dec 2009 13:00

4 Big Mortgage Backers Swim in Ocean of Debt

Even as the biggest banks repay their government debt in what is being heralded as a successful rescue program, four troubled giants of the financial world remain on government life support

These companies, the American International Group, Fannie Mae, Freddie Mac and GMAC, are not only unable to repay the government, they are in need of continuing infusions that make them look increasingly like long-term wards of the state.

And the total risk they pose to the taxpayer far exceeds that of the big banks. Fannie and Freddie, in the final days of the year, are even said to be negotiating with the Treasury about greatly expanding the money available to them.

Fannie Mae recently warned, for example, that it could not pay the dividends it owes the Treasury, so “future dividend payments will be effectively funded with equity drawn from the Treasury.”

...{what a joke}

read all
http://www.nytimes.com/2009/12/17/busin ... f=business

girish.r · Post by **girish.r** » 17 Dec 2009 15:31

Fed Says U.S. Economy Still Needs Low Rates After Markets Heal

http://www.bloomberg.com/apps/news?pid= ... g5_s&pos=6

Recipe for HYPER INFLATION.....

Hari Seldon · Post by **Hari Seldon** » 17 Dec 2009 19:20

Folks, the good news is that the worst has been averted, or at least postponed for now. Had the Fed not acted as forcefully, overtly and covertly as it did last year, who knows how fast and how far things may have deteriorated?

The danger ahead is of a subtler and less calamitous variety, IMHO. Sure we may see some scalps down the road (minor league ones like Ireland and Greece and some major league ones like UK-stan), but the keystone of the western/anglosaxonian economic edifice - the US ekhanomy and by extension the US Dollah - shall remain alive even if not kicking.

As some support n backup, I offer a decent writeup by one Tyler Durden of one zerohedge.com:

I offer data that moderates fears of a specific kind of apocalypse: a currency crisis.

The apocalyptic flavor of the month is dollar crisis. One should take the possibility seriously. The data does offer reasonable assurance that it won’t happen anytime soon. Yes, even in spite of massive (but not unprecedented) fiscal and monetary craziness, a socialist president, a populist legislature, and seething people just itching for the whole outhouse to go up in flames. Why doesn’t it make sense that the dollar should be out on its rear while gold or oil and their devotees dance in the street?

Because those distinctly American circumstances don’t incorporate a wide enough range of vision. The issue isn’t about the United States in a vacuum. It is about the United States as a reserve currency country whose debt acts as the world financial system’s risk-free collateral. Before any imminent implosion of the dollar, there is a whole zoo of more flawed economies like Dubai and Greece and dozens of others that would fall. As old as history itself is the truth that the last ones standing claim the spoils of victory. The United States has the 61st highest public debt ratio in the world.

Goes w/o saying, read it all.

ramana · Post by **ramana** » 17 Dec 2009 21:14

He is thanking Neel Kashkari for saving the system.

amol.p · Post by **amol.p** » 18 Dec 2009 10:05

Luxury-Home Owners in U.S. Use ‘Short Sales’ as Defaults Rise

Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate and some are turning to so-called short sales to unload properties as stock-market losses and pay cuts squeeze wealthy borrowers. .......{who said that finacial turmoil was only due to subprime holders}

“The rich aren’t as rich as they used to be,” said Alex Rodriguez, a Miami real estate agent with JM Group USA Inc., whose listings include a $2.9 million property marketed as a short sale because the price is less than the mortgage, leaving the bank with a loss. “People have reached the point where they can’t afford the carrying expenses of a $2 million home.”

Payments on about 12 percent of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages, according to data from First American CoreLogic Inc., a Santa Ana, California-based research firm. The rate for mortgages above $1 million was 4.7 percent a year earlier

http://www.bloomberg.com/apps/news?pid= ... ED_96QBBkk

Hi Hari....you should watch the documentary " ACCENT OF MONEY" which comes on either fox history or discover every Thurshday between 7-8. Its very informative.
In yesterdays episode they proved it how this recession was a mass financial fraud of all generations.......to transfer wealth

Hari Seldon · Post by **Hari Seldon** » 18 Dec 2009 10:15

Opportunity knocks on Desh's doors.... and am sure some of our more astute babus have long grasped the import of recent happenings.

Start with this excellent piece in NC by Ed Harrison. His main thesis is:

At issue is how best to weather a crisis given the Impossible Trinity of free movements in capital, independent monetary policy and fixed exchange rates. A country can pick two, but no one can have all three.

Correct. Many small countries tried to go it alone.

Many [small countries] had adopted the Icelandic model of free movements in capital, independent monetary policy and flexible exchange rates. This has worked pretty well for the U.S. But when Iceland’s currency collapsed last year, sending that country into depression, it sent shudders down the spines of policy makers in small countries everywhere.

In order to avoid the fate of Iceland, small countries everywhere jumped onto what appeared to be a good solution - a currency union on the lines of the euro.

Some countries have adopted currency unions to solve this problem. This is the ‘Euro’ model of free movements in capital, no monetary policy control and internally fixed exchange. The Persian Gulf states of Saudi Arabia, Kuwait, Bahrain, and Qatar are now embarking on that path.

The news about the gulfo union was posted on this thread a moon back, IIRC. There's persistent rumor also, off and on, about converting NAFTA into an Amero currency union and doing away altogether with the almighty dollah.

Given recent events in Europe concerning Greece, Ireland and Austria, and speculation about a bust up of the Eurozone, one might think the desire to initiate currency unions has weakened. But it has not. I reckon events post-Dubai World make the pull toward a currency union even greater. The disruption caused by this financial crisis has buffeted smaller countries with sovereign currencies because of a lack of currency controls and the destabilizing effects of ‘hot money.’ Iceland, which suffered the worst fate of small nations, has now been fast tracked for EU membership.

Now, where is the opportunity I was alluding to in the beginning of this post? Well, its here. Yindia can take the lead in sending feelers for testing out a SAFTA (minus TSP) followed by a currency union without giving up RBI's central role, regulatory powers and independence by having RBI become the regional central bank down the line after the monetary union takes effect. Far-fetched? You bet. But so was an Icelandic, UK-stani and Latvian collapse in 2007.

Well, one may rightly ask that if currency unions are so swell, why doesn't everybody do it, eh? IOW, what's the catch?

The problem with internally fixed exchange rates in a currency union is it binds countries into a one-size-fits-all monetary policy. If fiscal policy, business cycles and macro outlooks do not converge, someone will suffer. This was a major reason we saw a massive property bubble in Ireland and in Spain as these countries overheated. And, inevitably, economic collapse and depression is the result.

So, if currency unions too aren't the solution ,what are the remaining options? Two arise. One, a currency peg i.e. fixing the exchange rate externally like PRC rather than internally as the EU does. And two, capital controls - like what Brazil is now doing with its Tobin tax of sorts, like what Iw as hoping India would do to discourage hot money flows. Both these options have their own problems, besides.

What has India done so far? IMHO< she has chosen the best possible approach. Like Ed writes:

There are no silver bullets: not capital controls, not currency union, not pegs. The safest (and probably only) way for a country to weather contagion in a sovereign debt crisis is to maintain low levels of debt in both the public and private sector through appropriate fiscal and monetary policy and robust macro-prudential regulation.

That has been our approach (or attempted approach) so far.

Hari Om.

ramana · Post by **ramana** » 18 Dec 2009 10:22

Even EJ magazines are catching on

The Stampede to Gold

The cartoon was awesome.

Hari Seldon · Post by **Hari Seldon** » 18 Dec 2009 10:48

UK-stan revealing its true colors.

UK rejects plans for OTC standardisation

Divisions between global regulators started to emerge on Wednesday over how to reform the vast over-the-counter derivatives markets as the UK’s financial watchdog said it opposed forcing “standardised” OTC contracts into clearing houses.

In a paper published with the UK Treasury, the Financial Services Authority raised objections to forcing “standardised” OTC contracts into clearing houses, as well as mandating that they be traded on exchanges and other electronic platforms.

It is no secret that the largely unregulated derivatives trade is a ticking time bomb with enormous systemic destabilization potential across the board. Just as wanton securitization and the resultant CDOs spread systemic risk from localized US lenders to banks and central banks all over the world, the opaque derivatives trade is an even bigger mess spreading risk all over duniya. Sample this from the same FT article.

Last week, the US House of Representatives passed a bill to reform the financial system that included sweeping changes to the way OTC derivatives are traded.

That included requiring “standardised” OTC contracts to be processed through clearing houses to safeguard against the fallout from defaults by market participants. Clearing has shot to prominence in the wake of the default of Lehman Brothers last year, since many OTC contracts in which the former investment bank was a counterparty were not processed through clearing houses.

And UK-stan adamantly opposes it prolly under fin sector lobbying to whom London has totally sold out.

The regulator raised three other areas where it disagreed with the approach taken by US authorities and the European Commission in Brussels. They included opposing any imposition of “position limits” on OTC commodity derivatives trading.

Hari Seldon · Post by **Hari Seldon** » 18 Dec 2009 19:11

Today's must-read, folks, IMHO.

The wonderful folks over at the Automatic Earth have published their prognosis for events and trends in 2010. Plenty of D&G and some of it might need to be taken with a pinch of salt (though it all frightfully realistic to moi boor soul). IOW, TIFWIW.

As the US dollar soars and gold plummets, fear is the master in the dark days before the Scrooge fest. Many are taking their profits and counting their losses before the end of the year. Here are 10 trends for 2010 and beyond. Some have started already, others won’t be big till after the next year, but all will be prominently in the news in the 12 months to come.

Read it all. And wonder.

Hari Seldon · Post by **Hari Seldon** » 18 Dec 2009 19:22

Ilargi, in the piece posted above mentions as trend#10:

10) Unrest

The main newbie and the rising star in 2010. We've seen instances the past year, which the media have hilariously all attempted to label "terrorism", but watch for a million different forms of unrest in a million different places, and all over the planet, some of it decidedly ugly. A lot of people stand to lose a lot of what they have long been led to believe is rightfully theirs, and they're not all going to take it lying down. Not anymore.

2009 was the year of the gullible victim.

2010 will be the year of the wake-up call.

And sure enough, the very next story from the UK telegraf sorta corroborates this thing...

Moody’s warns of 'social unrest’ as sovereign debt spirals

Britain and other countries with fast-rising government debts must steel themselves for a year in which "social and political cohesiveness" is tested, Moody’s warned.
{No sh1t, Sherlock.}

In a sombre report on the outlook for next year, the credit rating agency raised the prospect that future tax rises and spending cuts could trigger social unrest in a range of countries from the developing to the developed world.

{What must happen, will. Elementary, Watson. The developing word saw massive pain and unrest mgmt in the Asian contagion of '97-98 with, coincidentally (?) Geithner and Summers at the helm of affairs in the IMF then. IMHO, the developing world is not as deep in sovereign debt crisis this time round as the TFTA emerged world onlee, IMVVHO. SUre, the emerging world is in soup too, but its chicken soup compared to the one the emerged world will be in going fwd. Again, JMTs}

It said that in the coming years, evidence of social unrest and public tension may become just as important signs of whether a country will be able to adapt as traditional economic metrics. Signalling that a fiscal crisis remains a possibility for a leading economy, it said that 2010 would be a "tumultuous year for sovereign debt issuers". It added that the sheer quantity of debt to be raised by Britain and other leading nations would increase the risk of investor fright.

Strikingly, however, it added that even if countries reached agreement on the depth of the cuts necessary to their budgets, they could face difficulties in carrying out the cuts. The report, which comes amid growing worries about Britain’s credit rating, said: "In those countries whose debt has increased significantly, and especially those whose debt has become unaffordable, the need to rein in deficits will test social cohesiveness. The test will be starker as growth disappoints and interest rates rise."

{Says it all essentially. The emerged world, esp in euroland has gotten used to low-interest rate regimes predicated on a low-risk presumption about the state of their economic werewithal to repay sovereign debt. That era is passing. What lies ahead is a storm of rising int rates pushing up costs of public services and welfare to unaffordable levels, leading to cuts--> unrest--> more risk -->higher rates --> more cuts and so on. A vicious cycle.}

It said the main obstacle for fiscal consolidation plans would be signs not necessarily of economic strength but of "political and social tension". Greece, where the government has committed to drastic cuts in public expenditure, has suffered a series of riots over the past year which are thought to have been fuelled by economic pressures.
{You ain't seen nothing yet. Wait for the sovereign default itself to happen before things really unravel. Iceland had it rather smooth, actually. UKstan would be the case to watch.}

Hari Seldon · Post by **Hari Seldon** » 18 Dec 2009 19:58

Kisine sach hi kaha hai,When it rains, it pours. More telegraf D&G on UK-stani utopia.

More on the UK-stani debt situ. Now, don't get the idea that the UK-stan will default tomorrow (it might, bt don't count on it). It may happen in the next few months/yrs.

Inflating away debt is not an option

Something important happened this week: for the first time since the start of the financial crisis, investors demanded a bigger premium in return for holding British debt than Spanish. Indeed, the cost of our government borrowing – as measured by the interest rate – is rising so quickly that within a month it could be higher than Italy's.

Wow. Really?

Much of the worry has been over whether Britain will have its credit rating cut, but this is actually something of a sideshow. The credit ratings agencies are charged only with working out the likelihood that Britain will default on its debt – something that has never happened since the UK started issuing bonds in the 17th century, save for a fiddle with a loan from the First World War in the 1930s.

Sure. What goes unmentioned is that Gleat Bshitain extracted India's surplus - in the process beggaring and starving our forefathers - to cart away the biggest heist in history. And it is that surplus that played no mean role in propping up Glate Bshitain's sterling debt repayment record. And to think they defaulted in the 1930s despite poor India's colonial tribute!

Jai Ho , I guess.

What is far more likely, or so investors fear, is that Britain will inflate the deficit away by debauching the currency: as inflation rises alongside the money supply, every pound we owe will be worth that little bit less. This is what we did in the 1970s – and most other times we have faced a debt crisis. So suspicions that a repeat performance is on the cards are not difficult to understand: the pound has already fallen by around a quarter since the start of the crisis; the Bank of England has embarked on a quantitative easing scheme that involves printing enough money to buy the annual economic output of Denmark; and inflation is threatening to leap well above the Bank's 2 per cent target.

Might history repeat itself? You can understand why the market thinks so: we are facing not only the debts from the current crisis (equivalent to those incurred in the Second World War) but a looming bill of almost double the size from the ballooning health and pension costs of an ageing population.

Welcome to a karmic universe, o Glate Bshitstain!

Turns out, inflating away debt is easier said than done. No, not even for Glate Bshitain.

Yet however much today's politicians may be tempted to try to inflate away their debts, this avenue is in fact far more difficult than it was in the 1970s.
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governments have, largely unwittingly, sewn safeguards into the debt market which make an inflation strategy pointless. Since the 1970s, we have issued an increasing amount of debt in the form of index-linked bonds, which now account for a quarter of the debt market. These are inflation-proof: the debts increase automatically alongside inflation. Then there are the country's other liabilities: public sector pensions (circa £800 billion), the state pension (£1.4 trillion) and the costs of private finance initiatives (£140 billion), all of which are tied to inflation.
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In fact, around four fifths of the state's debt bill is inflation-proof. The only way ministers and mandarins could inflate their way out of the crisis would be to rip up all the contracts that tie these debts to inflation: possible in the case of the state pension (which is one reason why Gordon Brown's pledge to link it to earnings is probably doomed), difficult for all the rest.

Jai Ho again.

Hari Om, Hari Om, Radheshyam....

astal · Post by **astal** » 19 Dec 2009 00:58

Hari Seldon wrote:Kisine sach hi kaha hai,When it rains, it pours. More telegraf D&G on UK-stani utopia.

In fact, around four fifths of the state's debt bill is inflation-proof. The only way ministers and mandarins could inflate their way out of the crisis would be to rip up all the contracts that tie these debts to inflation: possible in the case of the state pension (which is one reason why Gordon Brown's pledge to link it to earnings is probably doomed), difficult for all the rest.

Hari Bhai,

I think they have worked in ways to tailor inflation rates to their liking. Inflation linked bonds IMO are another way to provide poor returns by playing a con game. In the US, if I am not wrong, (I am sure you are also aware given your Labor Econ background) the Bureau of Labor Statistics is tasked with announcing ex-post official inflation statistics. Inflation adjusted bonds are guaranteed on the basis of their announcements.

The Bureau of Labor Statistics is permitted to change consumption bundles from which it measures inflation, in a fairly opaque exercise. For example since housing ownership costs and fuel are not part of the bundle that they consider for bonds (core inflation) they could maintain a low inflation regime while the property market shot through the roof. I believe that the the UK would have similar provisions, especially since we all know how statistics are susceptible to manipulation.

I feel they will all inflate (euphemism reflate) their way out of this crisis. Retirees will be negatively impacted and everyone will move on.

Finally, India should look for opportunities in this time of crisis. Without gloating, quietly buy out companies with advanced technology and hire the best possible employees to attain India's economic goals. The biggest weakness of modern materialistic western society is "Everyone and everything is for sale. This price just has to be right."