Perspectives on the global economic meltdown (Jan 26 2010)

Hari Seldon · Post by **Hari Seldon** » 02 Mar 2010 22:10

Clarification:
I am not one to celebrate amrikhan decline with lungi dances. Just that I see it as part of the natural order of things. Unkil will always remain a great power. Sole-superpower and always don't mix so well however.

But but when it comes to UKstani decline, bring out the beer and the lungeese now....

Buiter:Pound at risk

Have always liked Buiter's exposition. Haven't always agreed of course, esp on his views on the 'barbaric relic' - gold.

… this is a good time to revisit a suggestion I made earlier on a number of occasions….that there is a non-trivial risk of the UK becoming the next Iceland.

The risk of a triple crisis – a banking crisis, a currency crisis and a sovereign debt default crisis – is always there for countries that are afflicted with the inconsistent quartet identified by Anne Sibert and myself in our work on Iceland: (1) a small country with (2) a large internationally exposed banking sector, (3) a currency that is not a global reserve currency and (4) limited fiscal capacity.

The UK has a very large financial and banking sector, which conducts much of its activity by buying and selling financial instruments denominated in foreign currencies rather than in sterling. As a country, the UK has massive gross external liabilities and assets. These are well over 400 percent of annual GDP each, as compared with under 100% of annual GDP for the USA and around 700% of annual GDP for Iceland. It is not much of an exaggeration to describe the UK as a hedge fund, a highly leveraged entity, borrowing shorter than in lends and invests. It has a lot of short-maturity foreign-currency-denominated foreign liabilities and quite a lot of illiquid, non-sterling denominated foreign assets

It’s not a bad way to make a living, but it means the country needs a lender of last resort and market maker of last resort. It has one for sterling-denominated financial instruments. The Bank of England, after malfunctioning temporarily following the onset of the crisis in August 2007, now performs this function effectively. The Bank of England, however, cannot print euros, dollars, Swiss francs or yen. That means the Bank of England cannot be an effective lender of last resort or market maker of last resort if UK banks find themselves unable to roll over their foreign-currency-denominated short-term liabilities or if they find themselves unable to sell their foreign currency-denominated assets in international wholesale markets that have become illiquid.

To deal with a run on the non-sterling short-term liabilities of the UK banking sector or with a ’strike’ in the wholesale non-sterling markets, the Bank of England would be dependent on the goodwill of other central banks, through swaps and credit lines in foreign currency. They would have to be willing to go long sterling when the markets are yelling: ‘go short’. Possible, but an (uncessary) risk.

The key question is: is the UK more like the USA and the Euro Area or more like Iceland? I would argue that, from the point of view of being able to act as an effective, credible lender of last resort and market maker of last resort in financial instruments that are not denominated in the national currency, the UK is more like Iceland than like the Euro Area and the USA. Only the USA and the Euro Area are serious global reserve currencies, with around 60 percent and 26 percent of the global stock of reserves respectively. Sterling, with around 4 percent, no longer plays with the big boys and girls.

Oh. The clarity, the gyan, the flow only.... read it all.

There are good reasons for the weakness and volatility of sterling. Among industrial countries, Britain’s economic fundamentals are uniquely awful. As regards public debt and deficits, Britain’s true fiscal circumstances are about as bad as Greece’s reported situation, once we allow for the understatement of UK public debt through the off-balance-sheet accounting tricks of the past decade (the private finance initiative, unfunded public sector pensions, student loans and other Enron-like constructs).

The fiscal weakness of the UK is largely government-inflicted, rather than a result of the financial crisis and global contraction. During the long boom preceding the crisis, fiscal policy was relentlessly pro-cyclical, with public spending rising steadily as a share of gross domestic product. {Hail the labor sarkar for this command performance}The size of the bank bail-out reflected failures of UK regulation that permitted the financial system’s balance sheet to pass 400 per cent of GDP.

When a government has credibility – its promises and commitments are believed by its citizens and by the markets – the best policy is not an immediate fiscal tightening. A credible government would implement an immediate fiscal stimulus of, say, 2 per cent of GDP and commit itself to sufficient future tightening to restore fiscal sustainability…..

A commitment now to a three-party government of national unity could stabilise matters immediately. Failing that, all three parties could agree the size of post-election tightening now, with only the mix of tax rises and spending cuts to be decided after the election. I am not holding my breath.

SwamyG · Post by **SwamyG** » 02 Mar 2010 23:27

>>>>progessive propaganda.....
You are just too caught up with the Western definitions of Progressive vs Conservative or Left vs Right itiyadi.

Remove all these labels and for a moment imagine you live in a small tribe. As a member of the tribe and for the common good of the tribe, you earn both rights and duties. You get both to keep an harmonious tribe that will have a better chance of survival against natural elements and other tribes.

Yup, the rise and fall of Thomas Paine is a story by in itself. Thomas Paine had "common sense" used rhetoric as much as anybody else to drive home his points in America, England and France. He befriended and created enemies. He lacked the Benjamin Franklin's acumen and ability to survive in the upper circles.

You need to look at all those documents and concepts considering the time those people lived in. Why do they keep talking about just "Rights"? Doesn't the "creator" bestow any "duties" on the people? Uh?

SwamyG · Post by **SwamyG** » 02 Mar 2010 23:37

Hari gaaru: Please explain to me why India's deficit is not such a huge concern. Are we doing okay just because our GDP is growing? Is that the lone factor to feel that we can manage our deficit? Why is it that the deficit in PIIGGS countries make news while India's deficit does not make news? I have read couple of articles and essays, but nothing like a BRF guru to explain the fundamentals.

vera_k · Post by **vera_k** » 02 Mar 2010 23:49

prad wrote:3. health-care savings accounts (good way to boost savings and reduce the debt binging)

HSAs are not particularly attractive because you get bilked by providers charging rates up to 400% of that charged for patients with insurance. For this to work, it has to be coupled with a regulation that requires all providers to set cash payment rates that are no higher than 15% of the rates paid by Medicare for a similar service.

Plus, there should be a program to prevent medical bankruptcies by picking up medical expenses for people who can demonstrate that a) they cannot afford insurance, b) do not have the assets to pay for medical expenses and c) therefore would be compelled to file for bankruptcy due to medical bills.

Hari Seldon · Post by **Hari Seldon** » 03 Mar 2010 06:00

swamygaru: I make no claims to khanomic gurudom

The seed of the answer revolves around the following factoids:

1. Its both quality and qty of debt, not GDP or its growth in isolation, that count foremost. Desi debt is mostly INR denominated, which Des prints, so default chances are quite low. PIIGS debt is denominated in a currency they don't print. AND their debt levels (ratio to GDP) is higher than ours (ours is 80%, they are *all* above 80, esp if you deflate their GDP from all the shady accounting gimmickry they have indulged in, and inflate ours by the shadow economy that goes unreported).

2. UKstan prints GBP, so why the concern about them, one may wonder. Well, its coz Londonistan is an int'l financial hub and banks based there have built up huge positions in non GBP currencies which may come to call (see Buiter above). Aah, but those banks are pvt players and why should their failure impact sovereign credit rating, you may next ask. Well, ideally it shouldn't. Pvt entities should live and die by thgeir own khanomic successes and mistakes. But the banking sector is, ahem, 'different' and deserving of serial bailouts (i.e. risk transferred to sovereign balance sheets and taxpayer on the hook). The banking sector has declared jeehard paki style and negotiates with a gun to the head of the entire financial system.

So while UQ may or maynot be on the hook for a run from londonistan, UQ's treatment of Iceland - where a pvt bank Icesave defaulted on impossible Eurodenominated obligations - essentially suggests UQ won't get away easy should banks based in UQ run up excessive phoren liabilities. In Des, thankfully, YV Reddy's RBI prevented Indian pvt entities from gorging on hard currency debt, securities, derivatives or other fin instruments using regulation, sectoral caps, an approvals system etc

3. Entitlements. The real size of defacto liabilities that western gubmint have taken on in guaranteeing their ppopulations high living standards at all levels is so enormous, it dwarfs
anything we have seen so far. And no its not accounted for yet in the official Debt/GP figs. FOlks argued that Fannie/Freddie liabilities (in the many trillions) should have been refl;ected on the Federal balance sheet in their budget presentation but that suggestion was dismissed outright - the true picture could cast gloom over western creditworthines as we understand it.

4. Credit ratings - the western gubmints (esp the PIIGS and UQ) have gotten used to refinancing and rolling over mounting debt loads at very favorable, low interest rates. A downgrade could styrangle them, quite literally. Deson the other hand, discrimnated against in that its credit rating was never AAA and we've always had to pay usurious interest rates for external borrowings is much, much less vulnerable on that front. Thanks to the obscene interest rates charged us, we went the internal savings+ internal borrowings route out of necessity, besides.

5. Demographics and the future - Save unkil, none of the other western countries have any happy story to tell on the future/demografix front. Their entitlements and other programs worsen in that light. The train won't run another generation, or even another decade perhaps. Some big break and reset is coming. Its one purpose of this thread to look ahead and discern when, who, where and how. Lotsa speculation and semi-informed chatter, admittedly, but then everyone including gubmints in the same position, essentially. Everybody knows what's coming. Nobody knows when.

Hari Seldon · Post by **Hari Seldon** » 03 Mar 2010 06:08

Aha. If there's one event I can look back to from the future and point to when the decline really began for UQ, this one woul be it (if true!).

Bank of England Plans to Sell 3-Year Bonds in Dollars

The beginning of the end, indeed. Selling USD bonds by a sovereign that doesn't print USD...aha, recipe for disaster. Losing what little control the BoE had. Gilt situation must be really, really dire for the Brits to even consider this, I reckon.

March 2 (Bloomberg) -- The Bank of England said it plans to sell three-year bonds in dollars to finance its foreign-exchange reserves.

The U.K. central bank hired Barclays Capital, BNP Paribas SA, Goldman Sachs Group Inc. and JPMorgan Chase & Co. to manage the issue, which will be benchmark in size, it said in a statement. The bank paid 106.2 basis points more than Treasuries when it issued $2 billion of three-year notes in March last year, according to data compiled by Bloomberg.

“The notes will likely receive good investor appetite seeing that it’s a AAA rated name,” said Trevor Welsh, a portfolio manager at London-based Aviva Investors, which manages about 10.5 billion pounds ($14 billion) of fixed-income assets. “This bond sale is purely a technical move for the bank’s foreign currency reserves.”

The Bank of England is seeking to raise funds as confidence in the U.K. currency plummets on concern no party will win an outright majority in a forthcoming general election. The pound weakened 7.6 percent against the dollar this year, the worst performer among the 16 major currencies, as traders bet a new administration won’t be strong enough to reduce the nation’s budget deficit of more than 12 percent.

Sovereigns need to raise a record $16 trillion from markets this year alone. Bond yields are destined to be driven up crazily only. No other way, IMHO. Mkt will now punish the weakest, the most reckless, the most profligate and so on with the highest yields. The bloodbath will soon get started. Heck, there's a nontrivial chance of seeing failed bond auctions happening on a regular basis besides.

“It will be interesting to see if investors require a slightly higher spread because of sovereign risk,” Welsh said. “But if so, it won’t be more than a couple of basis points.”

Famous last words? Or what?

Time will tell. I am willing to wait for UQ to meet its karmic destiny, hopefully in my lifetime.

Neshant · Post by **Neshant** » 03 Mar 2010 08:08

“The notes will likely receive good investor appetite seeing that it’s a AAA rated name,”

famous last words..

Singha · Post by **Singha** » 03 Mar 2010 08:12

wife came back from london. except for the historical part of central london was claiming the rest
was not-so-impressive and some parts were 'dirty'

I nodded sagely

Suraj · Post by **Suraj** » 03 Mar 2010 08:35

By issuing USD denominated debt, the BoE appears to be implicitly increasing the risk premium on its own currency, because their actions indicate that they are themselves concerned about currency risk. In the process they'll just have to offer a higher coupon rate on their GBP denominated debt. A deterioration - especially a self-inflicted one - of the debt servicing margin is the first step towards a downward spiral.

RamaY · Post by **RamaY** » 03 Mar 2010 09:15

Hari Seldon wrote:Clarification:
I am not one to celebrate amrikhan decline with lungi dances. Just that I see it as part of the natural order of things. Unkil will always remain a great power. Sole-superpower and always don't mix so well however.

But but when it comes to UKstani decline, bring out the beer and the lungeese now....

Hari-ji

AWMTA

Hari Seldon · Post by **Hari Seldon** » 03 Mar 2010 10:51

More and more confirmatory data points flooding in.... pls post contrarian indicators should you find any, janta!

From aaj ka NYT:
Gold Hits Record High In Euros, Pound

NEW YORK (Reuters) - Gold rallied to a six-week high in dollar terms and hit record highs versus the pound and the euro on Tuesday, as uncertainty about Greece's debt and Britain's politics lifted demand for bullion as a hard asset.

Ok so what does it mean that gold-denominated in xyz currency has risen? One clue lies here in this famous quote on the barbaric relic:

"Gold has traditionally been used as a safe haven in times of economic and political uncertainty, as the metal's intrinsic value is not dependent on any paper currency."

IOW,

"Gold denominated in euros has definitely outperformed the drop in euro-dollar by almost 1 percent in the last 10 days," said Mitsubishi Corp precious metals strategist Tom Kendall. "That does reflect some nervousness about stability of sovereign debt, and stability of the euro itself."
...
Sterling-denominated gold rose as the British currency was driven lower by fears that the next UK general election could result in a hung parliament.

That could mean an incoming government would struggle to take the action necessary to reduce debt, analysts said.

"Markets fear the UK government will be forced to create more sterling in order to buy their own government bonds and that quantitative easing and debt monetization may continue for longer than expected," and that could lead to further gains in gold, bullion dealer GoldCore said in a note..."

All that hung-parliamenty/next gubmint incompetence etc is hogwash. The bolded part in the last para above says it all, IMHO....

Hari Seldon · Post by **Hari Seldon** » 03 Mar 2010 11:54

And let's not forget the human cost of the crisis. The ones paying the heaviest price are also the ones least responsible for the crisis coming head on.

New ghost towns: Industrial communities teeter on the edge

There may be a revolution coming if unemployment U3 crosses 15% (1 in 6 able workers jobless) and stays there for a while. Its not as unlikely a scenario as one would've thought, even a few yrs ago.

What's most striking about Ravenswood, however, is not the material deprivation but the psychological distress, an anxiety about the future that tests faith itself. "I try to explain that God has not abandoned us," says Scott Mapes, pastor of the Church of the Nazarene, where yearly giving has dropped from $180,000 to $150,000.

Shumaker does not lack daily sustenance; he lacks a future and a purpose. "I'm not depressed or anything, but I can't seem to get started in the morning," he says. "I didn't get out of bed today until 9 a.m."

He's wearing a black T-shirt with pictures of a U.S. flag and a buffalo and the words "Roam Free." Problem is, he can't. The old rule — go where the work is — no longer applies, unless maybe you're a nurse or a teacher.

Singha · Post by **Singha** » 03 Mar 2010 18:05

WSJ - USPS was losing money even in the boom era

Post Office Pushes Halt for Saturday Deliveries

By COREY DADE

The U.S. Postal Service stepped up its campaign to end Saturday deliveries to help stem losses, but the move met with skepticism that signals an uphill battle for approval by regulators and Congress.

Postal officials sought support for a broad restructuring from a gathering in Washington on Tuesday that included big postal clients, congressional aides and postal workers' labor representatives. Without the restructuring, the agency potentially faces $238 billion in projected losses in the next 10 years, Postmaster General John E. Potter warned.

The recession has worsened the Postal Service's financial condition, and mail volume continued to fall as more letters and documents are sent electronically. It saw a 13% drop in volume in the year ended Sept. 30, more than double any previous decline, and lost $3.8 billion.

The agency has reduced its work force 25% in 10 years, Mr. Potter said, but "must now make changes to its business model."

The Postal Service wants authority to change delivery schedules, raise prices and control labor costs. Congress must approve the elimination of Saturday mail delivery and lawmakers haven't been receptive.

Any changes to employee work schedules need to be negotiated with postal workers' unions. Labor leaders Tuesday came out against the plan.

The loss of Saturday delivery would deal a blow to the biggest postal clients, companies that mail ads to consumers.

"Almost all of direct marketing is done when it's relevant and timely. If it reaches you three days later, it's not timely," said Linda Woolley, chief lobbyist for the Direct Marketers Association

Singha · Post by **Singha** » 03 Mar 2010 18:06

billion is the new $10 note. people talk of billions + and - that way. unless its a trillion nobody opens even one eye.

stock answer => one extra shift of the printing press!

SwamyG · Post by **SwamyG** » 03 Mar 2010 18:49

The thing that caught my eye regarding the troubles plaguing USPS.

The loss of Saturday delivery would deal a blow to the biggest postal clients, companies that mail ads to consumers.

"Almost all of direct marketing is done when it's relevant and timely. If it reaches you three days later, it's not timely," said Linda Woolley, chief lobbyist for the Direct Marketers Association

Tanaji · Post by **Tanaji** » 03 Mar 2010 19:19

Not sure if this was posted

http://www.vanityfair.com/business/feat ... table=true

Good read.

Singha · Post by **Singha** » 03 Mar 2010 19:26

WSJ - maulvi seldon will like this one:

Fed's Fisher: Too-Big-To-Fail Banks Should Be Dismantled

NEW YORK (Dow Jones)--Large, systemically important "too-big-to-fail" banks should be dismantled and broken up before regulators have to deal with another crisis, Richard Fisher, President of the Federal Reserve Bank of Dallas, said Wednesday.

Fisher, speaking at the Council on Foreign Relations in New York, said he feared that the current legislative push to give regulators resolution authority to shut troubled banks down if and when the need arises "might provide false comfort in that...[it] might be viewed favorably by creditors, continuing the government-sponsored advantage bestowed upon" large institutions.

"Given the danger these institutions pose to spreading debilitating viruses throughout the financial world, my preference is for a more prophylactic approach: an international accord to break up these institutions into ones of more manageable size--more manageable for both the executives of these institutions and their regulatory supervisors," Fisher said, adding that he'd also support unilateral action by the U.S. on this matter.

"I think the disagreeable but sound thing to do regarding institutions that are TBTF is to dismantle them over time into institutions that can be prudently managed and regulated across borders," he said. "And this should be done before the next financial crisis, because it surely cannot be done in the middle of a crisis."

By his own admission, Fisher's somewhat radical stance on shutting down big banks makes him something of an outlier in the Fed system.

However, the other two main points that made up the bulk of his remarks on the financial regulatory reform process were in line with the views of virtually every other Fed official who has addressed the topic.

He said that contrary to various legislative proposals, the Fed should not be stripped of its bank supervision role, a move that he claimed would severely curtail its capacity to conduct effective monetary policy. And he also argued against proposals to have the Government Accountability Office audit the Federal Open Market Committee's monetary policy deliberations. (playing for his team here)

"Were this to come to pass, I believe it would lead to the politicization of the FOMC process, injecting Congress at whim into monetary policy and, if so, eventually putting us on the on-ramp to a road that could lead the United States directly to the fate suffered by once-great economies like pre-Weimar Germany, Argentina and others that allowed monetary policy to become the handmaiden of fiscal policy," Fisher said.

In his speech, the Dallas Fed President did not address current economic conditions or monetary policy

Hari Seldon · Post by **Hari Seldon** » 03 Mar 2010 21:21

moi last post for ze day.

Tour-de-force from the TAE team (Ilargi, in particular)

Random excerpts:

Our society has gambled itself away, literally, and that is so hard to understand I can't blame anyone for not catching on within the first five minutes. Perhaps once speculators force entire countries to their knees, it will become clearer.

OK. Big words. But anything concrete anywhere, is there??

Credit Default Swaps, as they are and stand, have the potential to bring down entire civilizations, and they will too, just to prove their point (and mine). It’s unbelievable to the innocent eye that after the collapse of AIG, the CDS market wasn't ostracized and burned at the stake. Unbelievable, that is, until you realize who's really in power in our societies.

Bang on. The entire derivatives mkt remains untouched. The only law proposed to deal with it is so obscenely diluted, it has holes a truck could drive through. And all this for what?? To benefit the big 5 on Wall street (hail the new P5!)

If you allow bets, wagers, in your society whose total monetary value adds up to many times the entire world’s GDP. you assure two certain outcomes: First, that these bets will bring down your society at some point and in some way, and: Second, that the people in charge of the best will take over power until the house comes crashing down. What power does Washington have, with annual US GDP at $14 trillion, while JPMorgan’s derivatives desk has 6 times as much outstanding? When the total derivatives market has numbers like $1 quadrillion attached to it? And then we, the people, hail the winning bets, and bail the losing ones? There’s no way we can win this one.

Hold on Ilargi. IMHO, most of these derivatives, say 90% are junk and will become inconsequential because both contracting parties will be broke when push comes to shove. Still, the remaining 10% ain't small....Its like a mexican standoff - we both pointing guns at each other. We both win! No?

It’s like we’re all in the hands of the acid hippie who climbs up to the rooftop convinced she can fly. Feeling good, feeling great and then ..... well, not so much.

Yes, banks can bring down societies, simply because they can control them. And that’s what we’ve let them do. And we’ve let them make us think we were far richer than we are, which got them into making us spend much more than we ever had. All this has perverted our economies, and our lives, to a far greater extent than we presently realize. But the bill is coming due, and you're not going to like it.

Exactly.

REad it all.

Prasad · Post by **Prasad** » 03 Mar 2010 21:21

SwamyG wrote:The thing that caught my eye regarding the troubles plaguing USPS.

The loss of Saturday delivery would deal a blow to the biggest postal clients, companies that mail ads to consumers.

"Almost all of direct marketing is done when it's relevant and timely. If it reaches you three days later, it's not timely," said Linda Woolley, chief lobbyist for the Direct Marketers Association

On reaching massaland as a FOB, one of the first things that hit me was the sheer volume of these ads. An approximate 1:10 ratio of necessary mail : Ads, I wondered if the postal services would crash if they somehow stopped these ads overnight. Can't imagine the kind of paper wastage and energy wastage for these ads!

shravan · Post by **shravan** » 03 Mar 2010 21:29

ADP Says U.S. Companies Cut 20,000 Jobs in February (Update4)

March 3 (Bloomberg) -- U.S. companies in February cut the fewest jobs in two years, according to data from a private report based on payrolls.

The 20,000 decline was in line with forecasts and followed a revised 60,000 drop the prior month {from a decline of 22,000 to a decline of 60,000}, data from ADP Employer Services showed today

---

U.S. Stock Futures Rebound After ADP Says Employment to Increase - Bloomberg.com

vera_k · Post by **vera_k** » 03 Mar 2010 21:30

Singha wrote:The agency has reduced its work force 25% in 10 years, Mr. Potter said, but "must now make changes to its business model."

I'd like to see the USPS get into the healthcare business by using its post offices to open walk-in cash-only clinics.

derkonig · Post by **derkonig** » 03 Mar 2010 22:26

A nordic/viking alliance can be a good option as well. Coupled of course the rise of the Greater Deutscheland incorporating Osterreich and parts of Schweiz-land, Poland & Czechia while the bear looms over the east. Wonder what would the surrender monkeys & poms think of this new order.

SwamyG · Post by **SwamyG** » 03 Mar 2010 22:30

Hari garu: Dhaniyavaadhulu for the lucid factoids. It was easy to understand.

SwamyG · Post by **SwamyG** » 03 Mar 2010 22:33

vera_k wrote:
Singha wrote:The agency has reduced its work force 25% in 10 years, Mr. Potter said, but "must now make changes to its business model."
I'd like to see the USPS get into the healthcare business by using its post offices to open walk-in cash-only clinics.

Indian Post Offices have savings schemes. There is one move that is trying to wean people away from big banks to local community banks and credit unions. Going the USPS route might not be a bad idea.

Ameet · Post by **Ameet** » 03 Mar 2010 23:30

Finnish Commuters, Goods Stranded as Drivers Strike

http://www.bloomberg.com/apps/news?pid= ... qkM1keyXj0

The stevedore strike will stop 90 percent of Finnish exports, costing about 160 million euros a day in lost sales, the industry federation estimates.

Finland is one of the most strike-prone countries in Europe, lagging behind only Spain, France and Italy, according to the European Union’s statistics office. Strikes cost Finland an average 71 working days per 1000 workers each year from 2000 to 2007, compared with 137 for Spain and 83 for Italy. Neighboring Sweden lost just 20 days a year.

Prem · Post by **Prem** » 04 Mar 2010 01:20

RamaY wrote:
Hari Seldon wrote:Clarification:
I am not one to celebrate amrikhan decline with lungi dances. Just that I see it as part of the natural order of things. Unkil will always remain a great power. Sole-superpower and always don't mix so well however.
But but when it comes to UKstani decline, bring out the beer and the lungeese now....
Hari-ji
AWMTA

Dont forget the Fish N Chips . Now all we need is for Arabs to pull their money out and put in Indian infrastructure as well shift finnancial services to BOM , Sha or SIN so Londonabad can become true resemble Londrachi, Londhore or Londetta. Churchil wanted to keep some part of India , lets give it to them. Seriously, they must mend their way, stop playing spoiler and control home grown and imported Jeehardis to mitigate few bad karmic deeds . Wheel of Dharma rolling per natural law. In the end Unkil always have teh choice to invade Canada and take over all the natural resources.

Hari Seldon · Post by **Hari Seldon** » 04 Mar 2010 05:37

Could PRC's true fiscal deficit be 15% of GDP??

When China publishes its budget report on March 5, Beijing may congratulate itself for achieving 8.7 per cent GDP growth with a fiscal deficit that is just 3 per cent of GDP. But the real cost of stimulating the economy has been much bigger - thanks to frantic borrowing by local governments.

State media reported that China’s local governments borrowed 3.8 trillion yuan ($556 billion) from banks last year, to keep the economy humming. They also raised 450 billion yuan ($65.9 billion) indirectly via the bond market. Add those debts to Beijing's own, and the real 2009 fiscal deficit could be 15 per cent of 2009's GDP.

That sounds scary,{You betcha!} especially as local governments may not have spent their borrowed funds wisely. {You can say that again!}
But a sovereign debt crisis is unlikely. Even if Beijing absorbed all the local debts, total public borrowing would remain safely below 60 per cent of GDP.{Sure, it would when the major component of chini gdp is investments and the borrowings directly feed investments only. Jai hu, jai hu! maoA, maoA!}

Beijing is unlikely to acknowledge the debts as its own. That means future defaults could be left for banks to mop up. UBS expects 2009’s credit expansion to create up to 3 trillion yuan ($439 billion) of non-performing loans over the next few years, mainly because of lending to local governments.

That 3 trillion yuan is equal to 10 times the 2008 earnings of the three largest listed banks and would be enough to bring the non-performing loan ratio in the banking system up from less than 2 percent to 9 percent, based on current asset levels.{NPAs in PRC at <10% of total assets?? what're these oisoles smoking? Or is it some fancy mark-to-myth tricks goldman taught the cheenis, eh?}

If bonds too default, any foreign investors could find their situation really bleak - based on the few previous defaults, they could end up with mere cents on the dollar. For now, Beijing may be happy to take a hands-off approach. After all, banks may be able to grow out of the problem.
{Of course. And Pak may grow enough to repay its sponsors' debts..LOL}

But if banks do take big losses, and private investors are scared away, it is to Beijing that the lenders will turn for new capital. In that case, the game of "pass the parcel" could end up back in the central government's hands after all.

Hari Seldon · Post by **Hari Seldon** » 04 Mar 2010 06:06

^^^RE post above, more news coming in.

The good folks over at TAE also weigh in... TAE tweets:
http://twitter.com/AutomaticEarth

TAE Today:Chinese house prices spiked by 24% in 2009 and sales of residential space rose by more than 80% in some major cities like Beijing.

TAE Today: Property & its ancillary industries account for up to 17% of Chinese GDP and 25% of investment in China. (Cometh the crash).

China local govt debt may top $1.65 trillion, (around 33% of the 'fake' GDP, GDP is an unreliable measure of wealth) http://bit.ly/bB4SqY

China exceeds US as world's largest property investment market, http://bit.ly/bGjnRQ ($156.2Bn vs $38.3Bn in the US, China is oh so bubbly).

PRC is a riddle wrapped inside an enigma. So no saying when it may go tits up.

Well, bad news frm cheen doesn't mean baki duniya gets a pass....

TAE Today: A tenth of global credit has evaporated in a year, cutting lending by $3 trillion. Global bank lending contracted by $360Bn in Q3.

TAE Today: More than $1 in every $10 that American banks have outstanding in loans is lent to a troubled borrower.

15,000 S.F. workers face layoffs, shorter weeks, http://bit.ly/c53d7I (Budget,wage & job cuts all over the US, this is just 1 example).

In Europe,the average deficit is about 6% of G.D.P. and in the U.K. it’s 12%. It is only just beginning. http://nyti.ms/c7ViMM (UK fiasco).

Hari Seldon · Post by **Hari Seldon** » 04 Mar 2010 10:47

Martin Wolf writing on the Desi eknomy in the FT hits the ball way out of the park. (Hat tip Sanjaykr)

India's elephant charges on through the economic crisis

Some Delicious excerpts...

Stimulus has its costs. The central government's fiscal deficit expanded from 2.6 per cent of GDP in 2007-08 to a provisional figure of 5.9 per cent in 2009-09 and an estimate of 6.5 per cent for this year. If one includes the states, the deficit jumped from 4 per cent of GDP in 2007-08, to 8.5 per cent in 2008-09 and a forecast of 9.7 per cent this year. India's nominal GDP grew at an average rate of 14 per cent {nominal}between 2004-05 and 2009-10. That makes deficits of 10 per cent of GDP quite sustainable. I wish that were equally true of the UK.
...
But India has had a "good crisis". Now its task is to unwind the exceptional support given to the economy and push through the reforms needed to sustain fast and inclusive growth.

Before the crisis the country's gross savings rate had hit 36 per cent of GDP (see chart). Given the country's attractions to long-term foreign capital, that would allow an investment rate of close to 40 per cent of GDP.
{Take a deep breath and let that sink in...aaaaahhhaaaaa}
Such a high rate of investment could deliver 10 per cent growth.
It might deliver even more: since India's output per head (at purchasing power parity) is roughly a fifteenth of that of the US, the potential for fast growth is huge.

Sri Wolf certainly seems to have friends in high places:

The extent of the optimism became evident during a week spent in India last month. Among the highlights was a conference on a book of essays in honour of Montek Singh Ahluwalia, deputy chairman of the planning commission and, after Manmohan Singh, prime minister, India's most influential economic policymaker of the last two decades (and a friend of mine for 39 years).*

I was struck by the upbeat tone of the essay on "macroeconomic performance and policies, 2000-8" by Shankar Acharya, a former chief economic adviser to the Indian government. Dr Acharya is the most sober of competent analysts of the Indian economy. Indeed, the book gives a strong sense of the confidence of the technocratic elite in India's performance and prospects. Similar confidence is palpable among the business elite. This confidence makes this a radically different India from the one I knew when I was the senior divisional economist for India, at the World Bank, in the mid-1970s.

The emergence of an elite consensus on where the country is going is clear to any regular visitor.

Yes. Desi elite has forged a consensus. Its import is beyond critical. Which is what gladdens my heart when INC under Prnabada is taking some firm measures like fuel price hikes when times are (relatively) good - that consensus is now forged in cement.

When entering the commerce ministry, bastion of opponents of open markets in the 1970s, I was struck by a poster describing India as the "world's largest free-market democracy".

The king is dead, long live the king. There's a reason why Yindia is described as a timeless hotbed of wonderment onlee....

And very importantly:

Another feature is the belief that the pragmatism of India's policies, particularly over global finance and the balance of payments, had proved correct. Those in charge of a vast country with so many vulnerable people are rightly wary of making their economy hostage to the sociopathic tendencies of the financial sector.

Hear, hear! And once again we thank Dr YV Reddy garu for being in the right place at the right time, just like PVNR was in 1991-96.

And extremely gratifyingly, Sri Wolf goes onto state what, when admitted often enough in elite intellectual circles could eventually become conventional wisdom onlee...

Exhausted by the burden of its pretensions, the UK should soon offer its seat on the security council of the United Nations to its former colony. Its condition would be that France does the same in favour of the European Union. Whether or not such enlightened statesmanship is forthcoming (presumably not), we are moving into the age of continental superpowers. Asia will be home to not one, but two, of them.

BWAHAHAHAHAHAHA!!!!

abhishek_sharma · Post by **abhishek_sharma** » 04 Mar 2010 11:23

Joseph Stiglitz interview

http://www.charlierose.com/view/interview/10885

Hari Seldon · Post by **Hari Seldon** » 04 Mar 2010 13:42

Hedge fund billionaire Sri Jim Chanos (he of the "china is bubble 'bout to pop" fame) soberly defends the poor, poor hedge fund industry that is getting so much bad press aajkal...

As Tyler of ZH says:

Thank god smart people still have the temerity of existing in this world. Jim Chanos is, for better or worse, one of them. In this short but sweet Bloomberg TV Interview, he tells the retaaards from Europe just where they can shove it.

Video comments transcript

"Hedge funds are being demonized once again for the failings of governments and regulators everywhere. We've seen this happen in subprime, we've seen this happen in the banking crisis, we are now seeing it happen in the currency and sovereign debt crisis. Hedge funds are being attacked as causation. They're the symptom and not the cause of the problem."

I think, this wise web wag summarized it best:

"We vultures are merely a reaction to the dead body. We aren't killers."

shravan · Post by **shravan** » 04 Mar 2010 20:47

German MPs suggest cash-strapped Greece should sell islands

shyamd · Post by **shyamd** » 04 Mar 2010 21:53

Advantage Greece

Stephanie Flanders | 12:25 UK time, Wednesday, 3 March 2010

Greece looks to all the world like a country with its back against the wall, forced by the markets and the European Commission to spit out new austerity measures this morning, in advance of the Greek prime minister's crucial meeting with the German chancellor on Friday.

But don't count them out yet. The Greeks have three cards up their sleeve. And make no mistake: behind the scenes they are playing them for all they are worth.

The first is that if there's one thing the European Central Bank hates more than profligate governments, it's the overpowerful - and oh-so-American - ratings agencies. And right now, as Greek officials keep reminding their eurozone colleagues, one single ratings agency has the capacity to send the Greek financial system over the edge.

I'm exaggerating. But trust me, so are the Greeks.

As I've discussed before, the ECB has been giving back-door help to the likes of Greece since the start of the financial crisis, by letting eurozone banks post lower-rated sovereign debt as collateral for oodles of cheap liquidity.

Those rules were supposed to go back to normal at the end of the year. As of today, Greek debt would still qualify. But if Moody's follows the other leading ratings agencies and further downgrades Greece, Greek debt would be beyond the pale.

That could have a massive effect on the price of Greek debt: arguably, the single most important factor propping it up in the past year has been that it can be swapped for free money at the ECB.

And if Greek debt tumbles in value, that, in turn, could cause big problems for not just Greek banks but all the many other banks across the Eurozone who are holding Greek sovereign debt.

Yesterday, Ewald Nowotny, a member of the ECB Governing Council, said it was "an unacceptable situation" that "the fate of Greece, and if you are going to be more dramatic, the fate of Europe depends on the judgement of one ratings agency."

The ECB President Jean-Claude Trichet has always said the Bank would not change the rules for just one country. But it can and will change the rules for the sake of the eurozone banking system. Especially if can take the US ratings agencies down a few pegs at the same time.

When the terms of the European support package for Greece are revealed, expect the ECB and its collateral rules to be in the mix.

The Greeks' second secret weapon is that there is, in fact, nothing to stop them going to the IMF - with of without the EU's blessing. If their European partners push them too hard, that is almost certainly what they will do.

Threatening to go to the IMF is a last resort (it could also backfire - because it's not clear that the IMF, on the basis of Greece's, "quota share" at the Fund, would be in a position to give it a big enough loan.) But given French and German hostility to the idea of an IMF deal, it's a useful card for the Greeks to have.

Finally - there's that secret weapon which is not a secret at all. Greece is in the eurozone. And there is zero confidence that a Greek meltdown could be contained within Greek national borders. If Greece goes down, most in the European Commission now think Portugal and maybe Spain will follow.

As I've said before, there ought to be a way for Greece to restructure its debt, without the sky falling in on everyone's heads.

When Argentina defaulted on its sovereign debt at the end of 2001 the short-term results were extremely ugly. But the government was back borrowing from the global market barely three years later, and the economy grew by more than 8% a year from 2003 to 2007.

For all that, when you talk to officials in Brussels or Frankfurt, they cite Argentina as the example to be avoided at all costs.

For the powers that be in the eurozone, it is simply inconceivable that Greece should be allowed to renege on its debts. As long as that remains true, Greece is a lot stronger than it looks.

Greek problem is all of a sudden not so bad at all. Greece is more than likely going to get bailed out to save the rest of the Eurozone, be it Germany or the IMF. Its just like Abu Dhabi and Dubai.

But I still dont think bailing out Greece will stop the PIIGS from going bankrupt. We are just delaying the inevitable.

Singha · Post by **Singha** » 05 Mar 2010 09:38

all the islands in the aegean sea between greece and turkey are owned by greece. the turks have
practically no islands - the british must have arranged it during the breakup of caliphate.

the turks could find the cash to buy these islands.

Singha · Post by **Singha** » 05 Mar 2010 09:50

smells like the days of showpiece penthouse student housing and billion dallah
gyms and sports complexes are slowing coming to a close....cinder block red brick
buildings with shared baths and steam heating is the new luxury

Rowdy protests target funding cuts at US campuses

By TERENCE CHEA (AP) – 1 hour ago

BERKELEY, Calif. — Students staged raucous rallies to protest education funding cuts on college campuses nationwide Thursday, but some demonstrations got out of hand as protesters threw punches and ice chunks in Wisconsin and shut down a major freeway in California during rush-hour traffic.

In Oakland, protesters clambered onto Interstate 880 near downtown Oakland just before 5 p.m., forcing the closure of the freeway in both directions for more than an hour and causing traffic to back up for miles.

Police arrested more than 150 people who blocked the freeway after breaking off from a peaceful rally at Oakland City Hall, said Officer Sam Morgan, a spokesman for the California Highway Patrol.

One protester suffered serious injuries after jumping from the elevated freeway while officers were making arrests, authorities said.

University of Wisconsin-Milwaukee police arrested at least 15 people protesting tuition hikes after protesters tried to enter an administrative building to deliver petitions to the school chancellor. When police turned them away, some protesters threw punches and ice chunks, university spokesman Tom Luljak said.

No serious injuries were reported in the melee that followed.

"We have no problem with a protest," university spokesman Tom Luljak said. "We do have a serious problem when individuals decide to become violent."

Kas Schwerdtfeger, a national organizer for Milwaukee Students for a Democratic Society, said demonstrators were peaceful but persistent in approaching the hall.

"What we did was try to assert ourselves peacefully and nonviolently," he said.

The university was among dozens of nationwide campuses hit with marches, strikes, teach-ins and walkouts in what was billed as the March 4th National Day of Action for Public Education.

Organizers said hundreds of thousands of students, teachers, parents and school employees were expected to participate in the nationwide demonstrations.

The steep economic downturn has forced states to slash funding to K-12 schools, community colleges and universities to cope with plummeting tax revenue.

Experts said schools and colleges could face more severe financial problems over the next few years as they drain federal stimulus money that temporarily prevented widespread layoffs and classroom cuts.

In Northern California, rowdy protesters blocked major gates at two universities and smashed the windows of a car.

Protesters at the University of California, Santa Cruz surrounded the car while its uninjured driver was inside. Earlier, demonstrators blocked campus gates.

University provost David Kliger said there were reports of protesters carrying clubs and knives, but Santa Cruz police Capt. Steve Clark could not confirm those reports. No arrests had been made.

An advisory posted on the school Web site urged people to avoid the campus because of safety concerns.

At the University of California, Berkeley, a small group of protesters formed a human chain blocking a main gate to the campus. Later in the day, hundreds gathered for a peaceful rally in the middle of a busy intersection near Sproul Plaza.

"We're one of the largest economies in the world, and we can't fund the basics," said Mike Scullin, 29, a graduate student in education who plans to become a high school teacher. "We're throwing away a generation of students by defunding education."

At UC Davis, about 75 police officers were called to the scene after nearly 300 students tried to block a freeway onramp near campus, said university spokeswoman Claudia Morain.

A tense standoff between students and police ended police after fired pepper spray into the crowd and one female student was arrested, Morain said. There were no reported injuries.

At the University of Illinois, about 200 professors, instructors and graduate faculty marched through campus carrying signs that read "Furlough Legislators" — a reference to recent furloughs and 4 percent pay cuts imposed on thousands of university employees.

The state is $487 million behind on payments to the University of Illinois. State government has a budget deficit of $13 billion.

In Olympia, Wash., a group of about 75 protesters arrived at the Capitol bearing a faux coffin emblazoned with the slogan "R.I.P. Education."

They were later ejected from the state Senate gallery after interrupting a debate with a protest song that followed the tune of "Amazing Grace."

"I once could eat, but now I find, I can't afford the food," they sang.

Several Democratic senators applauded the performance, as security guards escorted the protesters from the building.

At the University of Texas at Austin, about 100 students and staff rallied on campus to protest a 5.4 percent hike in tuition and fees approved by regents a day earlier. Protesters complained the quality of education was taking a backseat to the university's bottom line.

In Alabama, Broderick Thomas, a 23-year-old Auburn senior, attended an annual higher education rally in Montgomery and said he feels "it's the moral duty of the state to give back what they promised."

However, the chairman of the state Senate education budget committee, Sen. Hank Sanders, D-Selma, curbed the enthusiasm, saying it would be hard to find additional funds for higher education this year.

"I wish we could give all the money higher education needs," Sanders said, as some in the crowd groaned. "We're having to cut up to $460 million out of the budget the governor recommended."

Hundreds of students, teachers, parents and school employees from across California gathered in Sacramento for a midday rally at the Capitol to urge lawmakers to restore funding to public schools.

Linda Wall, a state Department of Mental Health employee, said she had two children attending Sacramento State University. Hikes in student fees and mandatory furloughs for state workers have strained her budget.

"Their tuition has taken a big chunk of my paycheck and my paycheck is shrinking, so it's a double whammy," Wall said.

Associated Press Writers Marcus Wohlsen in San Francisco, Robin Hindery in Sacramento, Calif., David Mercer in Urbana, Ill., April Castro in Austin, Texas, Bob Johnson in Montgomery, Ala., Curt Woodward in Olympia, Wash., and Dinesh Ramde in Milwaukee contributed to this report.

Neshant · Post by **Neshant** » 05 Mar 2010 10:35

Betting on the Blind Side

http://www.vanityfair.com/business/feat ... table=true

Neshant · Post by **Neshant** » 05 Mar 2010 11:09

Another ponzi scheme in the making.

Unable to find buyers for its debt, the US Govt now wants to grab the 401K savings of people who have been responsible enough to save for their retirement. Its proposed that their 401K be converted into a government annuity. i.e. their savings be used to buy govt debt. Of course, with fake inflation figures being published, federal reserve money printing and retirement of younger workers decades off, its a great design for a ponzi scheme. When finally the worker comes to retirement age, much like social security he will find the pot is empty.

The fraud is reaching incredible levels ! Sit back and watch how govt gets into the money confiscation game either through taxation, inflation, confiscation or out right scams.

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

http://georgewashington2.blogspot.com/2 ... -your.html

Hari Seldon · Post by **Hari Seldon** » 05 Mar 2010 14:55

BRICs continue to Build Its Gold Reserves Ahead of the SDR Discussions

As you know, Russia, India, China and some of the BRIC-like countries will continue to push hard for a gold and silver content in the new formulation of the SDR this year.

The US and UK are vehemently opposed. {Duh!}

Europe is still wallowing in confusion and is virtually leaderless, as the most recent financial crisis in Greece shows.

Jesse slips through some absolute gems in this piece.... Sample this.

One cannot have a common currency with uncommon fiscal policies and laws. While there is some room for discretion, it is sorely tried in changing economic conditions and social attitudes. America went through a bloody Civil War for this reason.

Huh? And the story officially doing the rounds is that the slavery question was the #1 issue over which the civil war was fought.

This is why a one world currency, except for international trade only and at the discretion of trading partners, is so dangerous. One cannot maintain their sovereign freedom when someone else controls the supply of their money: either you cheat or you submit. All serious economists understand this; too few of the voting public do.
...
If one submits to a single world or regional currency for domestic use, they may as well take their constitutions and individual rights and throw them away. And globalization has been serving as a proxy for this, paving the way.

Hear, hear. Amen.

This is the fallacy of the US dollar as the reserve currency for the world. It 'worked' as even Mr. Greenspan noted, as long as the US dollar was able to demonstrate the objective stability of an external gold standard relative to other currencies. That lasted for a few years, and the rest is foreign policy and currency wars.
The time for its replacement is long past. The BRIC's understand this, and are playing their hands accordingly.

The moves here are slow and subtle, since great nations are involved. I get the impression, though, that most traders are playing checkers at a chess match. Well, that works for the daytrade. But only time will tell what will happen, and when. But sometimes events can break free and move quickly. Best to gather those nickles off the freeway before the rush hour commences.

Or as the man behind the .50 cal would say, 'Git some. Come git some.'

Singha · Post by **Singha** » 05 Mar 2010 15:47

Hari Seldon · Post by **Hari Seldon** » 05 Mar 2010 17:00

It just gets more and more predictable onlee....

Chinese Premier: "Protectionism Is Clearly Reasserting Itself"

From ZH:

At the start of today's Chinese National People's Congress, Chinese premier Wen Jiabao poured water over expectations that the renminbi may appreciate any time soon, and also indicated that China will "continue its expansionary fiscal policy" by maintaining appropriately loose monetary policy
(translation: it is now next to impossible for the Chinese supertanker to steer off direct collision course with the bubble iceberg).

He also noted that "The foundation for global economic recovery remains weak; financial risks have not been completely eliminated" and, most disturbingly, said that "trade protectionism is clearly reasserting itself."

The ramification for US trade policy as a result of this admonition will likely continue to be made felt over the next 12 months. Yet in an odd moment of clarity, when discussing the domestic economy, Wen noted "latent risks in the banking and public finance sectors among the key challenges to economic growth, alongside now-standard warnings about industrial overcapacity and shortcomings in income distribution."

As for the biggest question of how China will approach the USD-CNY relationship, Wen provided little clarity besides promising to "continue to improve the mechanism for setting the (yuan) exchange rate and keep it basically stable at a reasonable and balance level." As Market News notes, that wording, which is frequently trotted out in government statements, is identical to that contained in last year's report.

Heh. Bring it on, I'd say, in ordinary times. But it pays to be careful here. PRC used the distraction of US leadership in the cuban mijjile crisis in '62 to invade India. Might try some new tricks this time when the BS hits the fan as perfect storms hit home.