Perspectives on the global economic meltdown (Jan 26 2010)

ramana · Post by **ramana** » 09 Mar 2010 22:43

Hari, Can you look at SAARC countries and then ASEAN to see how they fare?

SwamyG · Post by **SwamyG** » 09 Mar 2010 23:38

Ilargi over at the automatic earth declares that the oirozone crisis is over. Well argued piece.

Not so fast Speedy Gonzales, Bloomberg analysts were pondering over Spain's problems this morning.

And WSJ reminds us: http://online.wsj.com/article/SB1000142 ... 27910.html

Greece is a sideshow. Spain is the main event.

shyam · Post by **shyam** » 09 Mar 2010 23:39

Most Americans still unprepared for retirement - survey

The percentage of workers who said they have less than $10,000 in savings grew to 43% in 2010, from 39% in 2009, according to the Employee Benefit Research Institute's annual Retirement Confidence Survey. That excludes the value of primary homes and defined-benefit pension plans.

Workers who said they had less than $1,000 jumped to 27%, from 20% in 2009.

Confidence in ability to save enough for a comfortable retirement hovered at 16% of respondents, the second lowest point in the 20-year history of the survey.

SwamyG · Post by **SwamyG** » 09 Mar 2010 23:48

Jim Jubak lays it down as it is Why every nation cooks its books

Greece cheated on its national accounts in 2009. And that led to a budget crisis in 2010.

But that's not the important part of the story.

What makes this a crisis not just for Greece but also for the euro and the European Union is that everyone -- from the Greek government and its accountants to the financial officials of the EU to the experts at international watchdog agencies such as the Organisation for Economic Co-operation and Development, or OECD -- knew it.
Bing

More on Europe's debt crisis
It makes you wonder what other countries are cheating on their accounts. Or maybe we should ask it this way: "Is anyone not cheating?" We all know that the United States does. But so does China, that much-admired model -- at the moment anyway -- of economic management. Even the Canadians -- yes, the Canadians! -- cheat.

The consensus view is that the world's books are in pretty bad shape. But the consensus view has a long history of ignoring problems until they bite it. Hard.

Let us assume, desh was also cooking its books. Should we get a tad bit disappointed at all the positive news about desh's growing GDP? I think not, our 'black market' - the parallel economy for all its flaws is also growing no? Ultimately what matters is not numbers but people's growth.

4000000% growth does not matter; what matters is does the aam admi sense s/he is better off than yesterday and thinks s/he has a better future than today.

Hari Seldon · Post by **Hari Seldon** » 10 Mar 2010 04:38

^^ The main form the cheating takes is the non-recognition of liabilities (including debt taken on and its repayment) in present national balance sheets - partly due to the widespread use of off-balance sheet vehicles and also by the sanctioned non-recognition of future liabilities already contracted for (the entitlements system - includes pensions, retirements, social safety nets like the SS system, entitled health benefits like medicare etc)

While its easy to say (as I keep doing) ki yaar,

default en mass on the debt, reset the system to a new zero and all will be better off

, its very complicated because the creditors (and not just the debtors) are diffusely spread throughout the economy - every bondholder (that includes pension funds), every saver and every investor suffers when this reset finally comes through.

These things don't have a direct bearing as is on Yindia. Sure, Yindia also indulges in off-balance sheet activity - like parking part of the GOI fiscal deficit in the balance sheet of the oil companies. But the shape, size and scale is not comparable to what the OECD routinely has been doing for yrs upon yrs now. Yindia has liabilities - the guaranteed pensions of gubmint workers - but that has been slowly reined in in that recruits post 2004 into the public sector are *not* explicitly guaranteed public pensions, at least in many state gubmints. And so on.

Yup, end of the day it boils down to "will our children have a better std of living than was our avg?" and that question in India, pending resolution of the energy deficit, is a massive YES. Not true almost everywhere in the emerged world, IMHO.

arnab · Post by **arnab** » 10 Mar 2010 05:36

Hari Seldon wrote:^^ The main form the cheating takes is the non-recognition of liabilities (including debt taken on and its repayment) in present national balance sheets - partly due to the widespread use of off-balance sheet vehicles and also by the sanctioned non-recognition of future liabilities already contracted for (the entitlements system - includes pensions, retirements, social safety nets like the SS system, entitled health benefits like medicare etc)

Yindia has liabilities - the guaranteed pensions of gubmint workers - but that has been slowly reined in in that recruits post 2004 into the public sector are *not* explicitly guaranteed public pensions, at least in many state gubmints. And so on.

All state govenment debt in India are guaranteed in one form or the other by GOI. The Indian constitution clearly says that States are allowed to raise loans independently of the GOI ONLY if they owe no money to GOI. Which of course has never happened. So state public pensions are guaranteed by GOI.

Regarding 'non-recognition' of future liabilities by OECD countries - I don't think that is quite correct. You probably mean that it is 'not recognised' in their budgets. This is because a budget typically goes out 4-5 years - so how would they recognise liabilities coming through in about 20 years? However, most OECD countries also publish long-term financial statements where they do include long-term expense and revenue forecasts.

I think in developed countries the angst is due to the recognition of an attitudinal shift. For equilibrium between the Government and the citizenary, one has to be profligate and the other a saver. Over the last 2 decades, in the west, the govt has been prudent and the citizens profligate . Now that will have to reverse. No more 'rinam kritwa ghritang pivet' (borrow money to drink ghee)

Hari Seldon · Post by **Hari Seldon** » 10 Mar 2010 05:53

^^^I know some state gubmints (Sikkim's for instance) have withdrawn provision of public pensions from the employment contract for new hires 2004 onwards. Clear recognition that it wasn't sustainable.

'Non-recognition' means not just in the budget but in the famed debt/GDP calculations. The liabilities side, due to the nature of money, will be covered by raising debt (borrowing either from the central bank or from the markets). Oh, what does that do to debt service costs as a % of GDP some 10 yrs down the line, I wonder.

The forecasts made for US fiscal deficits even a few yrs back are unrealistic today. And the forecasts made even a few weeks ago are having to be revised upwards as new info creeps in. And even those revised numbers look overly optimistic. Follow the CBO's flips and flops over the deficit forecasts, just for entertainment. Worse, gubmints have lost street cred over the integrity of their accounts and their numbers projections amongst even vanilla small investor types. If the gubmint tells you it'll rein in the deficit in 5 yrs to x% from x+5% currently, would you even half-believe them?

Some speak of depressionary conditions in many pvt sectors of the khanomy. And it sure looks like it, going by published numbers, despite gubmint lipstick liberally daubed. Fact remains that during the great depression, there was no entitlement and liabilities overhang the sort we have now. No healthcare and pensions liabilities for example. Doesn't bode well for the khanomy presently.

Sure, ultimately some way will be found. Just that whatever that is, the old world is dead and gone and ain't coming back. There is now no return to the pre 2007 era.

arnab · Post by **arnab** » 10 Mar 2010 06:05

Hari Seldon wrote:^^^I know some state gubmints (Sikkim's for instance) have withdrawn provision of public pensions from the employment contract for new hires 2004 onwards. Clear recognition that it wasn't sustainable.

'Non-recognition' means not just in the budget but in the famed debt/GDP calculations. The liabilities side, due to the nature of money, will be covered by raising debt (borrowing either from the central bank or from the markets). Oh, what does that do to debt service costs as a % of GDP some 10 yrs down the line, I wonder.

The forecasts made for US fiscal deficits even a few yrs back are unrealistic today. And the forecasts made even a few weeks ago are having to be revised upwards as new info creeps in. And even those revised numbers look overly optimistic. Follow the CBO's flips and flops over the deficit forecasts, just for entertainment. Worse, gubmints have lost street cred over the integrity of their accounts and their numbers projections amongst even vanilla small investor types. If the gubmint tells you it'll rein in the deficit in 5 yrs to x% from x+5% currently, would you even half-believe them?

Sikkim has accepted the 'new pension scheme' introduced by the 6th pay commission (a defined contribution scheme rather than a PAYG).

The non-inclusion of the ENTIRE future liabilities of the govt into 'debt' is correct IMO. Just like the government has 'future' expenses it also has 'future ' earnings. So ideally only the 'net' expense should be included in the government's debt forecasts.Typically long-term debt is forecast at 'today's' taxation levels.

SwamyG · Post by **SwamyG** » 10 Mar 2010 06:08

arnab wrote:No more 'rinam kritwa ghritang pivet' (borrow money to drink ghee)

Hey, are you quoting Carvaka here

?

arnab · Post by **arnab** » 10 Mar 2010 06:12

SwamyG wrote:
arnab wrote:No more 'rinam kritwa ghritang pivet' (borrow money to drink ghee)
Hey, are you quoting Carvaka here ?

Was it Carvaka? don't know - my dad used to quote this a lot

SwamyG · Post by **SwamyG** » 10 Mar 2010 06:15

Not true almost everywhere in the emerged world, IMHO.

Hari garu: I think it is time to change the meaning of emerged and emerging countries

Emerged Countries: Those countries that have emerged from the early 21st century economic meltdown. In addition countries like India and to a limited extent China who were marginally affected by the crisis are classified in this category.

Emerging Countries: Countries that were severely affected by the early 21st century economic meltdown and are yet to recover from the crisis.

SwamyG · Post by **SwamyG** » 10 Mar 2010 06:21

arnab wrote:Was it Carvaka? don't know - my dad used to quote this a lot

I am not fully sure. But I have heard Carvaka's Lokyata darsna talk about borrowing money to enjoy the present. I never knew where Carvaka was from; but with each passing day I keep hearing his "way of life" being quoted from WB people. So I suspect there is some folklore from that state tracing origins to him. Maybe he is from that part of India.

Surya · Post by **Surya** » 10 Mar 2010 06:42

http://www.spiegel.de/international/eur ... -3,00.html

Interesting article

I like the idea of how to tackle the moody;s and other crooks

Neshant · Post by **Neshant** » 10 Mar 2010 09:10

These rating agency goons are costing India billions of dollars with their BB ratings. Meanwhile they are bullsh&tting on the ratings of their host country & its associates. What a massive fraud the sub-prime fiasco was yet they continue to operate as if nothing happened. Not one crook has landed in jail.

India better be wary of these guys gaming the system and keep them well out of the country.

Hari Seldon · Post by **Hari Seldon** » 10 Mar 2010 09:19

The non-inclusion of the ENTIRE future liabilities of the govt into 'debt' is correct IMO. Just like the government has 'future' expenses it also has 'future ' earnings. So ideally only the 'net' expense should be included in the government's debt forecasts.Typically long-term debt is forecast at 'today's' taxation levels.

In theory, yes. And it is apropos if the intention and integrity are bona fide.

Take the case of the GSEs - Freddie and Fannie, right now in defacto gubmint receivership. Should their liabilities not show up in the federal budget? There's a case to be made for why they should be.

And yes, the future liabilities are in the future and should hence not show up in today's budgets. fair enough. But it seems creative accounting is already making future revenues show up in today's budgets (witness the Californian miracle the past 2 yrs in a row). What was the stimulus and TARP but treasury essentially borrowing from future tax revenues? Its a slippery slope once these gimmicks are factored in.

In any case, from a solvency POV, the NPV of the tax pie has to be pitted against the NPV of the liabilities side. No? Technically, one could argue that its only current assets versus current liabilities that count. But aren't pensions and retirements and social security and healthcare committed liabilities? Sure the outgo won't be this period hence are not 'current', but so what, they can be ignored?

P.S.
Tks, about the Sikkim info. Good that they've moved onto a defined contribution scenario from the current defined benefit provision which is an open-ended liability and drain on state resources. May more states follow the sensible lead and take small measures now to add upto big trouble-saves later on.

Hari Seldon · Post by **Hari Seldon** » 10 Mar 2010 09:26

Surya wrote:http://www.spiegel.de/international/eur ... -3,00.html

Interesting article

I like the idea of how to tackle the moody;s and other crooks

O yes. Would pay to not underestimate the power of precedent.

The capitalist model of the anglo-saxon hue has taken an irreversible beating. Its has been exposed as hollow and low, period. The IMF, that great instrument of capitalist control over entire once-sovereign lands has also fallen into well-deserved ill-repute.

The problem with unfair trade practices (which is what cheating other people by faking one's own robust khanomic health is) is that once the jig is up, its hard to sell the same scam to the same set of people. Which is why typically 2 generations have to pass before the cycle repeats on this grand scale. The IMF and now soon the rating-agency scam will hopefully be up. heck, the entire fiat-currency system scam itself is set to receive a jolt (which it will likely survive though, for lack of alternatives).

arnab · Post by **arnab** » 10 Mar 2010 09:54

Hari Seldon wrote:
In theory, yes. And it is apropos if the intention and integrity are bona fide.

Take the case of the GSEs - Freddie and Fannie, right now in defacto gubmint receivership. Should their liabilities not show up in the federal budget? There's a case to be made for why they should be.

And yes, the future liabilities are in the future and should hence not show up in today's budgets. fair enough. But it seems creative accounting is already making future revenues show up in today's budgets (witness the Californian miracle the past 2 yrs in a row). What was the stimulus and TARP but treasury essentially borrowing from future tax revenues? Its a slippery slope once these gimmicks are factored in.

In any case, from a solvency POV, the NPV of the tax pie has to be pitted against the NPV of the liabilities side. No? Technically, one could argue that its only current assets versus current liabilities that count. But aren't pensions and retirements and social security and healthcare committed liabilities? Sure the outgo won't be this period hence are not 'current', but so what, they can be ignored?

P.S.
Tks, about the Sikkim info. Good that they've moved onto a defined contribution scenario from the current defined benefit provision which is an open-ended liability and drain on state resources. May more states follow the sensible lead and take small measures now to add upto big trouble-saves later on.

True - but they are all accounting maya only. Re Freddie Mac, the CBO believes that they should be part of the fed's liabilities but the Administration does not. A difference of opinion - but transparent enough. The Admin argues that the ownership is a temporary cyclical factor and therefore the budget should 'abstract' from it. IOW, then the fed should take into account all the liabilities of all institutions it 'intends' to save in the future. The main problem in the US budget actually stems from structural problems like health expenditure (just like california's revenue problems stem from it's strange property tax policy).
I never understood the relevance of NPVs in public policy. I know the US is big on it, but we used to get a big laugh out of it. What does it mean really - if you wer to sell the govt the present value of your future liabilities is $ 10 trillion?

Why would it matter?

Re sikkim, the latest RBI report says 19 of the 28 statets have already signed up to the new pension scheme. Notable exceptions include the commie paradise of kerala and WB, Most of the north east states and of course J&K and Punjab.

Hari Seldon · Post by **Hari Seldon** » 10 Mar 2010 10:23

I never understood the relevance of NPVs in public policy. I know the US is big on it, but we used to get a big laugh out of it. What does it mean really - if you wer to sell the govt the present value of your future liabilities is $ 10 trillion?

I know, I find it o-so-hilarious too.

Why would it matter?

Aha. It just might, if the two sides of the *balance* sheet were on a divergent path (i.e. increasingly off-balance and forever).
See, its fine if in the 90s I computed, using all sorta accounting gimmickry and mimicry that net gubmint assets (NPV of taxation) and liabilities NPV were some $x trillion. Then by 2008, a gap emerged. NPV assets were $(x-4) trill and NPV liab was ($x+4) trill.
The trend continued to worsen, or diverge in 2009 - $(x-8)trill and $(x+8) trill and so on.

Its the divergent trend that causes concern. It suggests that not only will the sovereign not be able to bridge the gap, the lack of effort to close it means, the sovereign is not willing to either. Unsustainability built in onlee.

Would one continue as if nothing matters?
One option is to say

Tomorrow never comes. Why worry, have curry? Etc and onlee

Well, you are welcome to, but at some point I would imagine the music stops and the bill comes due.

Heck, I would rather it come due after I am dead and gone. I have no burning desire to live in interesting times. Sadly, all indications are I will live to see it in this janam onlee.

arnab · Post by **arnab** » 10 Mar 2010 10:32

Hari Seldon wrote:
I never understood the relevance of NPVs in public policy. I know the US is big on it, but we used to get a big laugh out of it. What does it mean really - if you wer to sell the govt the present value of your future liabilities is $ 10 trillion?
I know, I find it o-so-hilarious too.
Why would it matter?
Aha. It just might, if the two sides of the *balance* sheet were on a divergent path (i.e. increasingly off-balance and forever).
See, its fine if in the 90s I computed, using all sorta accounting gimmickry and mimicry that net gubmint assets (NPV of taxation) and liabilities NPV were some $x trillion. Then by 2008, a gap emerged. NPV assets were $(x-4) trill and NPV liab was ($x+4) trill.
The trend continued to worsen, or diverge in 2009 - $(x-8)trill and $(x+8) trill and so on.

Its the divergent trend that causes concern. It suggests that not only will the sovereign not be able to bridge the gap, the lack of effort to close it means, the sovereign is not willing to either. Unsustainability built in onlee.

Would one continue as if nothing matters?
One option is to say
Tomorrow never comes. Why worry, have curry? Etc and onlee
Well, you are welcome to, but at some point I would imagine the music stops and the bill comes due.

Heck, I would rather it come due after I am dead and gone. I have no burning desire to live in interesting times. Sadly, all indications are I will live to see it in this janam onlee.

See the problem with NPV is that it simply compounds the initial status. It takes no account of policy changes. It merely assumes a trend growth in future revenue and future expense stream, puts in an arbitrary discount rate and calculates a 'present value'. So if you start from a surplus situation you are likely to be in surplus and if you start from a deficit you are likely to have debt and liabilities (depending on how far into the future you want to look). IMO it really has no meaning. For private sector entities it *probably* makes some sense to get an idea of what your future revenue and expense stream looks like and collapse it to a single number and base your decision on that. But for governments they really have many more policy instruments in their hands than an average private sector firm.

Hari Seldon · Post by **Hari Seldon** » 10 Mar 2010 11:29

Been posted before perhaps, but still, another look won't hurt.
43% have less than $10k for retirement

NEW YORK (CNNMoney.com) -- The percentage of American workers with virtually no retirement savings grew for the third straight year, according to a survey released Tuesday.

The percentage of workers who said they have less than $10,000 in savings grew to 43% in 2010, from 39% in 2009, according to the Employee Benefit Research Institute's annual Retirement Confidence Survey. That excludes the value of primary homes and defined-benefit pension plans.

"People just don't want to think about this," said VanDerhei. "Everybody thinks they're too young to think about it, until suddenly they're too old to do anything about it."

In general, financial planners say that retirement savings, including Social Security benefits and pension, should be large enough to provide about 80% of pre-retirement income.

To reach that target, "most Americans need to be saving within the healthy range of 6% - 10% (of their salary)," said Beth McHugh, vice president of workplace investing for Fidelity Investments.

But the survey found that 54% of the workers with some form of savings said that they have less than $25,000 stowed away.

The bolded excerpt says it all, IMHO

Where would a mango worker save his savings in aaj ka amrika? Equities? 401k? govt bonds? gold? realty? Just wondering only.

Hari Seldon · Post by **Hari Seldon** » 10 Mar 2010 11:36

it simply compounds the initial status.

Only under a simple DCF calculation with fixed cash flow forecast with some positive discount rate into eternity.

For private sector entities it *probably* makes some sense to get an idea of what your future revenue and expense stream looks like and collapse it to a single number and base your decision on that. But for governments they really have many more policy instruments in their hands than an average private sector firm.

More realistic analyses take into account policy responses, scenario based analyses etc. Many use upper and lower bounds on what is feasible. And after that also, emerged sovereigns come up short. The entitlements they have nurtured over the decades dwarfs everything we have seen so far. The tax rate will have to really soar to crushing levels or the retirement age has to rise to 100 for the math to add up for them (ok, pardon the rhetorical exaggerations but you get the point). Or both.

Either way, point is the old days are gone but on the surface, everyone but everyone, from netas and babus to media airheads, ekhanomists and regulators are acting as if tomorrow will never come. The urgency, the probity and the will required to do the needful is just not there. Reality has a way with asserting itself, will have to wait till then, I guess.

arnab · Post by **arnab** » 10 Mar 2010 11:52

Hari Seldon wrote:
it simply compounds the initial status.
Only under a simple DCF calculation with fixed cash flow forecast with some positive discount rate into eternity.

Either way, point is the old days are gone but on the surface, everyone but everyone, from netas and babus to media airheads, ekhanomists and regulators are acting as if tomorrow will never come. The urgency, the probity and the will required to do the needful is just not there. Reality has a way with asserting itself, will have to wait till then, I guess.

I don't think this is completely true. Most countries are reacting (albeit slowly) and trying to put in place a more sustainable fiscal policy. Even India, which does not have a unversal pension scheme has revamped its government pension system to control future unfunded expenses. In europe, they are increasing the working age. Next they will look at tax loopholes, next they will consider entitlement 'indexation'. I agree the US needs to solve its health expense issues and quickly. I think it will happen - don't see a choice really unless they want to create a set of 'elite ghettos' to protect them selves from the unwashed

Neshant · Post by **Neshant** » 10 Mar 2010 15:02

Fraud: The Western Banking Industry's Fastest Growing Export

http://seekingalpha.com/article/192440- ... ing-export

Neshant · Post by **Neshant** » 10 Mar 2010 15:14

The problem with unfair trade practices (which is what cheating other people by faking one's own robust khanomic health is) is that once the jig is up, its hard to sell the same scam to the same set of people.

You underestimate how short people's memories are.

The only time people rememeber something is when they lose their own money and are concious of it. Printing money which is a loss of wealth flies beneath the radar for most people who don't have a clue where their purchasing power dissapeared - just the way the money printers like it.

RamaY · Post by **RamaY** » 10 Mar 2010 19:58

Hari Seldon wrote:Been posted before perhaps, but still, another look won't hurt.
43% have less than $10k for retirement

Where would a mango worker save his savings in aaj ka amrika? Equities? 401k? govt bonds? gold? realty? Just wondering only.

Hari garu,

Was thinking exactly the same a while ago. Where should one save for one's retirement?

I have decided to save in India.

Hari Seldon · Post by **Hari Seldon** » 10 Mar 2010 20:19

arnab da,

I don't think this is completely true. Most countries are reacting (albeit slowly) and trying to put in place a more sustainable fiscal policy. Even India, which does not have a unversal pension scheme has revamped its government pension system to control future unfunded expenses. In europe, they are increasing the working age. Next they will look at tax loopholes, next they will consider entitlement 'indexation'. I agree the US needs to solve its health expense issues and quickly.

Theek hai, let's agree to disagree here.

Your belief that the oecd types will make the necessary changes etc is more hopium, IMHO than realium. What little they do now is more because of necessity (that too deferred) than foresight, planning and 'greatest good for the greatest many'. IOW what they do now is 'way too little, too late'. And 1 step back every 2 steps fwd.

Bottomline - basic competitiveness and consequently living stds in the oecd duniya has changed forever, and for the worse. Doesn;t mean the emerging types will have it any better but at least we can hope that we shall be spared the heavy knowall attitude we've had to endure from the emerged types all these yrs.

I think it will happen - don't see a choice really unless they want to create a set of 'elite ghettos' to protect them selves from the unwashed

Disparity levels and ghettosization seen in latin amrika wasn't necessarily a conscious endgame towards which the elites collectively worked. Each acting in his own self interest ended up in that situ. Disparity levels in the khanate are rising evermore. sure, its unlikely things'll spiral outta control (and I hope they don't!). My point merely is that bad things happen even when they're in nobody's collective interest and all affected parties don't want that particular outcome. Pareto suboptimal equilibria exist in the real world.

Feel free to critique and disagree and all. Time will tell who was closer to what will transpire.

svinayak · Post by **svinayak** » 10 Mar 2010 23:02

Sample excerpt:
The first was the refusal to consider investigations of any kind. Obama is widely reported to have studied the early days of Franklin Delano Roosevelt’s administration for inspiration; it would be impossible for him to miss the dramatic steps FDR took, including supporting the continuation of a Senate Banking Committee investigation into the misdeeds of the Roaring Twenties, the Pecora Commission. The Pecora Commission not only kept the bankers on the defensive, but it also did the forensic work into the abuses. It was critical to bring the nefarious practices to light to devise durable and lasting reforms.

Why were there no inquiries into how the firms that needed bailouts got themselves into a mess? This was an obvious and comparatively easy avenue of inquiry which would make a great deal of useful background accessible and identified issues for further examination. For instance, after the rescue of UBS, the Swiss Federal Banking Commission required UBS to provide an extensive report of what went wrong, and also had the bank make considerable portions of that information public, via a special report to its shareholders. Yet no US firm has been asked to make any explanation of how it managed its affairs so badly as to require extensive public support to keep from failing.

The choice here was obvious. A refusal to investigate was tantamount to a refusal to reform. A good understanding of what had happened was essential, not merely to develop sound new rules, but also to keep the industry from muddying the waters, which would be easy to do, given how complex and opaque many of the products are....

http://www.nakedcapitalism.com/2010/03/ ... pitch.html?

shyam · Post by **shyam** » 11 Mar 2010 03:39

Meanwhile in UKstan:
North Tyneside high street 'revived' by fake shop front

Fake businesses are to be used to lessen the impact of the recession on high streets in North Tyneside.

With 140 empty shops in the borough, council bosses think they have come up with a unique way of ensuring shopping areas remain as vibrant as possible.

Make believe....

Hari Seldon · Post by **Hari Seldon** » 11 Mar 2010 03:52

^^^exactly, shyam.

'Extend and pretend' has extensively been used and is pure tactical brilliance only. Perhaps twas only intended to pump-prime confidence and could then be withdrawn.

E.g. in propping up the equity mkts where retail investors are scant, traded volumes are low and the breadth of trades i.e. # firms whose stock was traded in a day, is small.

Right now, much of the green shoots kinda hopium we see in stat after stat (employment, housing starts, manufacturing orders, credit offtake, retail sales) is repeatedly revealed to be extend and pretend only. From cash for clunkers last yr to census hiring this year.

I am yet to see political will to speak truth and then bite the bullet on multiple fronts (starting with prosecuting widespread khanomic fraud in the banking and fin securities industries). Sure, I hear brave words occasionally from one state governor (NY's Paterson to NJ's Christie) but talk is cheap. Walk the talk. Set precedent. Bull by the horns. Push is yet to get to shove, quite clearly. It soon will. Rubber, meet road.

Maybe events'll force real change soon. That we can drink to.

Jai Ho.

Hari Seldon · Post by **Hari Seldon** » 11 Mar 2010 04:29

Chalo, more TAE tweets: https://twitter.com/AutomaticEarth

New York state debt in red zone, should cut $20 billion: study, http://bit.ly/cw2tBf (NJ, Hawaii & West Virginia have worse debt burdens)

National office #vacancy rates will probably top 18% in 2010, reaching their highest levels ever - http://bit.ly/aLzi2e (Empty buildings)

Every dollar the US spends on military,homeland security,transportation,education & research is borrowed, http://bit.ly/aoBYfy

Bubbly China: Residential and CRE prices in 70 cities climbed 10.7% from a year earlier (fastest pace in 2 yrs) http://bit.ly/9HReZK

More than 350K homeowners will lose out on the kind of relief the administration has repeatedly promised:lower payments,http://bit.ly/cOTiTt

Only 33% of homeowners who have successfully completed the trial period of mortgage modification programs have been offered permanent relief

TAE Today: Most public #pension funds assume returns of 8% per year, over the last decade they've averaged 3%. Liabilities exploding.

“In effect, they’re going to Las Vegas.” Public Pension Funds Are Adding Risk to Raise Returns, http://nyti.ms/9IY1uo
{They have no choice and I don't see how this can end well for the majority of them and their clients, the pensioners}

TAE Today:Big banks have funding advantage,cheaper for them to borrow.THEY WILL/HAVE BECOME LARGER due to political benefits of being larger {Duh!}

Defaults May Signal Bursting Muni Junk Bubble, http://bit.ly/b0mwFV (“In order to be muni-junk, you really have to be junk"){Amen}

Gasp: U.S. Posts Record Budget Deficit of $221 Billion in February,http://bit.ly/9eUoYq, spending at $328.4Bn & revenue at $107.5Bn {Why gasp? At least they are reporting the numbers as they come in and not playing extend and pretend with actuals unlike with forecasts. Bless their soul.}

China: Crackdown on local-govt borrowing,estimated @ $3.5 TN could trigger "gigantic wave" of bad loans as projects are left without funding

Chalo, enough for now. Shalom and peace.

arnab · Post by **arnab** » 11 Mar 2010 05:51

Hari Seldon wrote: Theek hai, let's agree to disagree here.

Your belief that the oecd types will make the necessary changes etc is more hopium, IMHO than realium. What little they do now is more because of necessity (that too deferred) than foresight, planning and 'greatest good for the greatest many'. IOW what they do now is 'way too little, too late'. And 1 step back every 2 steps fwd.

Bottomline - basic competitiveness and consequently living stds in the oecd duniya has changed forever, and for the worse. Doesn;t mean the emerging types will have it any better but at least we can hope that we shall be spared the heavy knowall attitude we've had to endure from the emerged types all these yrs.

Feel free to critique and disagree and all. Time will tell who was closer to what will transpire.

sir jee, every economy takes 'drastic' action out of necessity rather than foresight (think of what triggered India's liberalisation drive post 1991). living standards of OECD countries 'changing for ever' is in a very relative sense - primarily translates into 'pensioners should not be taking overseas holidays every year'.

Regarding 'knowall attitude' - you only received it if you were playing the game (of inviting comments in your economic policy), for e.g Nicholas Kaldor being invited to analyse India's taxation policy in the 1950s

I think preservation of the status quo was the endgame in latin america which obviously led to the policy choices of the elites.

Hari Seldon · Post by **Hari Seldon** » 11 Mar 2010 07:26

Oops, this part didn't go in the first edit:

sir jee, every economy takes 'drastic' action out of necessity rather than foresight (think of what triggered India's liberalisation drive post 1991).

Well, shouldn't knowalls know better anyway? And what's the comparison with sdre Yindia meant to convey? The same economystics who couldn't see this crisis (and the prev one and the one before that etc) a mile off are what they are, period.

living standards of OECD countries 'changing for ever' is in a very relative sense - primarily translates into 'pensioners should not be taking overseas holidays every year'.

Good point. 'poverty' definitions are relative. Just ask what these pensioners are worth currently now that their houses are likely underwater or at least fallen below in value the debt they took on thanks to the house-as-atm mantra. Anf what would happen if the firm, state or local gubmint they rely on for pensions were to go kaput tomorrow and reneg the pensions agreements made? Ask their pension funds how they are faring. How much the pensioners currently have in savings and so on.

IMO, it goes deeper than that. A rise in interest rates by a few % points and things worsen considerably for the bottom 20% in these countries. I know, sdre Yindia has 33% below poverty line so we have no locus standi to talk of the emerged tfta poor only, perhaps.

But again, we are talking past each other perhaps. Time will tell if its only overseas vacations that are forfeited. Depressionary scenarios are quite likely exaggerated. But what results is only giving up of pensioner vacations, eh?

Theek hai, each to his own, I guess.

Regarding 'knowall attitude' - you only received it if you were playing the game (of inviting comments in your economic policy), for e.g Nicholas Kaldor being invited to analyse India's taxation policy in the 1950s

Who Sri kaldor and why is his holy name in this debate at all? I talk of soup-e-rearity, pile-ons and talkdowns of far more recent vintage only.

Sure, when we asked for it, we got it, deservedly so. What IMF mandatory prescriptions wrought on ASEAN in the late 90s was traumatic in terms of real suffering of real people - resulting from khanomic washington airheads 'knowing better' only. 2 of those airheads - Geithner and Summers who were in the thick of the IMF cudgels back then are back in the thick of it now. Interesting times ahead for sure.

Time to move away from phoren knowall prescriptioneering and subtle acknowledgements of their 'demonstratedly superior' systems in favor of what works better in emerging conditions, perhaps.

Time will tell. Let's wait and see.

arnab · Post by **arnab** » 11 Mar 2010 08:41

Hari Seldon wrote:Oops, this part didn't go in the first edit:
sir jee, every economy takes 'drastic' action out of necessity rather than foresight (think of what triggered India's liberalisation drive post 1991).
Well, shouldn't knowalls know better anyway? And what's the comparison with sdre Yindia meant to convey? The same economystics who couldn't see this crisis (and the prev one and the one before that etc) a mile off are what they are, period.

Let me relate an anecdote, and drop some names

As a newly employed callow youth I was once ranting in front of Dr Y V Reddy (in the latter half of the 1990s) as to why the hell was he so soft on the Indian States and continue to extend them overdrafts after overdrafts when the state finance departments clearly don't seem to realise the costs of fiscal profligacy. His response was - 'Son, while putting pressure on them to bend, we have to make sure that they do not break'.

Today almost 12 years later - most States have done what was wanted - enacted financial responsibility bills, clearly identified contingent liabilities, put a ceiling on guarantees (and set up guarantee funds), undertaken pension reforms etc.

So the quintissential message for public policy practitioners is this - Government (and by extension bureaucracy) is slow. They often try to align self interest with public interest and at the cost of sound economic policy. The way to win the game here is not to lose sight of the final objective - which is ensure a better form of governance.

The reason for bringing up India is this - As a mature democratic government, the pressures faced by India are no different from those faced by the developed world. So the methods followed by India to obviate her problems, will also hold true for rest of the world. IOW 'baby steps'.

Hari Seldon · Post by **Hari Seldon** » 11 Mar 2010 08:56

Wow, you actually knew the great man Dr YV Reddy in person?!?! Hajaar pranaams, sirjee.

Neshant · Post by **Neshant** » 11 Mar 2010 08:59

Too many Wall Street companies out there gaming the market and destroying their clients for ulterior motives. India better not let any one of them deal directly with Indian state govts. All deals must have the center's involvement so nothing slips by to threaten the whole economy of the nation. i.e. no Greek trojan horse is planted in the economy

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EU Bans Wall Street from European Bond Markets

http://www.smirkingchimp.com/thread/272 ... all_street

Hari Seldon · Post by **Hari Seldon** » 11 Mar 2010 10:06

Well, arnab saar has been persuasive only. I am slowly coming round to the view that the world is saved. Slowly but surely the world will find a way. Hasn't it always?

Sample this hopeful story from zero hedge. The 'laws' of ekhanomics can be cast aside if necessary to rescue the world. Now there is nothing to worry about any longer. Morale will be rigged until it really improves.

As Budget Deficit Hits Record High, Interest On US Public Debt Hits Record Low

What is wrong with this picture: the MTS just announced that the February budget deficit was $220.9 billion, after receipts of just $107.5 billion with vastly surpassed by outlays of $328.4 billion. This is a record. Yet the interest on the public debt was a mere $16.9 billion (page 13 of the MTS report). The reason for this is because as TreasuryDirect points out, in February the interest on public marketable debt (actual cash outlays), which as of Monday stood at $8.061 trillion, hit an all time low of 2.548%.

How is it possible that unprecedented debt accumulation can result in ever declining interest rates, and Treasury auctions, such as today's 10 Year reopening, in which the Bid To Cover hit an all time high? One answer: The Federal Reserve, which through complete domination of the entire capital market courtesy of ZIRP and QE has now turned market logic upside down by 180 degrees.
{Interestingly, this can continue indefinitely, no?}
In a normal world, the more money you borrow, the greater the associated risk, and the greater the interest payments on this debt. Not in America though. So can we assume that the Fed can forever keep rates on debt at record low levels?
No.
{No? errrr, why saar??}
Which begs the question: what happens when interest rates do finally start going up?

They won't. Know why? Because there'll always be buyers for USTs at 0.25%. And if there are none, the Fed will buy up the USTs under various guises. Nobody'll be any the wiser. The same bold path the yUK has also embarked on, nay led. Jai Ho.

In any case I see deflation in the near to medium term. No chance of much action on the bonds front till the deflationary unwind concludes, yrs from now. USTs are as good a bet as any (even with 0.25%).

Here is the relevant page highlighting the deficit. In a word: the US collects enough money organically (via taxes) to cover less than a third of its outlays.

Again, so what? The extend and pretend can continue for as long as everybody's agreed not to cry uncle. And one thing is for sure - nobody but nobody has any incentive to rock the boat at this time, or in the next few yrs.

arnab · Post by **arnab** » 11 Mar 2010 10:14

Hari Seldon wrote:Well, arnab saar has been persuasive only. I am slowly coming round to the view that the world is saved. Slowly but surely the world will find a way. Hasn't it always?

Oh I hope not, I was only being a pollyanna to your cassandra

The other side of the Y V Reddy saga is that a rival of his (yes there is rivalary in the public service) had commented - 'Some people choose to crawl when they are merely asked to bend'

The Indian state story isn't over - let us see what happens.

Neshant · Post by **Neshant** » 11 Mar 2010 13:01

Hari Seldon wrote: They won't. Know why? Because there'll always be buyers for USTs at 0.25%. And if there are none, the Fed will buy up the USTs under various guises. Nobody'll be any the wiser. The same bold path the UK has also embarked on, nay led. Jai Ho.
Again, so what? The extend and pretend can continue for as long as everybody's agreed not to cry uncle. And one thing is for sure - nobody but nobody has any incentive to rock the boat at this time, or in the next few yrs.

Excellent summary!

Not sure if I agree with it however. It all rests on the premise that the US govt manipulations can overpower global market forces. IMO its only possible with the cooperation of all major global players and that too only for a while.

One powerful surge in the price of gold and the printing racket will come undone. At some point in the future, this is sure to happen. I plan on use the upcoming deflationary period to accumulate physical gold. Where are you placing your bets Hari?

Hari Seldon · Post by **Hari Seldon** » 11 Mar 2010 15:46

Neshant bhai

I plan on use the upcoming deflationary period to accumulate physical gold. Where are you placing your bets Hari?

Yes, Marc Faber himself says unequivocally that buy some (physical) gold every month regardless of its price at that time. Period.

With good reason, lemme hurry to add.

Another seer recently told me this sagely advice:

The best savings you can get right now is to stay out of debt

Only.

I'm not invested anywhere yet. Neither have I any serious debt as yet. My 100% eggs will be in the Yindia basket only, for sure. But within that, am stuck. Property prices too high to invest in land, gold buying is alien to me, shall have to start somewhere though. Folks sell gold as ornaments in Des. Very little as plain bullion, that I have seen. Equities are not a bad avenue either (weighted for some 10-20% of the total savings+investment pie).

Sanku · Post by **Sanku** » 11 Mar 2010 16:15

Hari Seldon wrote: Very little as plain bullion, that I have seen.

Hari bhai things have changed, all banks sell plain bullion, with trade marks, brought and sold in huge quantities. Tanishq et al sell coins etc

Lot of gold buying is going on. Folks have this route real state (first option) once you have your own reasonable place --> gold --> more real state s(smaller)/equity --> gold.

And cycle through this, with the next definition of reasonable place getting "less reasonable"