Perspectives on the global economic meltdown (Jan 26 2010)

VikramS · Post by **VikramS** » 23 May 2010 07:33

shyam and others:

Bids can and do disappear. Most of the market liquidity is provided by high frequency computer traders which control 60-70% of the volume. Even if they are not pure HFT, most market-making is automated.

Many of these players have stated that they shut down their computers as liquidity disappeared. Even Citadel had problems and shut down their market making operations.

Do remember that the market was already down 3-4% and TV images were full of riots in Greece. Traders are very jittery and the typical reaction is to sell first and then think. Once the computers detect a reduction in liquidity they widen the bid-ask spreads, and if they do not see price stability simply exit the market. All these high frequency algorithms are based on regression to the mean. In the rare case they do not see that happening, they will shut down to protect capital.

It is very easy for any stock to trade at 1c if there is no on willing to make a market. Remember that lower prices attract more sellers as higher prices begets more buyers. Suppose a very liquid stock has 50K shares bids at different price points. However if an order to sell 100K shares comes in, that 50K liquidity will be exhausted soon, unless SOMEONE steps up. But the people who typically step up were hunkering down and the people who had stepped up 2 seconds ago, were also selling. Note that the 100K need not be one order. It might start with 5 orders of 2K each but as traders see large sell blocks passing through they withdraw their bids, and the lower prices then trigger more stops and the cycle builds up till stronger hands appear.

This is what is called a breakdown of market structure. If you want to see another example study the intra-day chart of MA (MasterCard) for Wednesday between 3:40 and 3:45. There is political uncertainty regarding restrictions on these firms and market is jittery. One large order to sell comes and bids disappear as traders wonder what is happening, and whether there is some news. Then it breaks the 200 mark triggering more selling. But then buyer's emerge as it becomes clear that there is no news. That was a mini-flash crash.

What used to happen to small caps and micro-caps is now happening to mega-caps because the same lack of liquidity occurs.

abhishek_sharma · Post by **abhishek_sharma** » 23 May 2010 10:58

Payback Time: Crisis Imperils Liberal Benefits Long Expected by Europeans

http://www.nytimes.com/2010/05/23/world ... urope.html

Neshant · Post by **Neshant** » 23 May 2010 12:20

What used to happen to small caps and micro-caps is now happening to mega-caps because the same lack of liquidity occurs.

Sorry but I don't buy your explaination.

Bidders would far outnumber sellers way before a large cap stock hits 0.01 or anywhere near that in a market with no news event of any significance moving it. Certainly if a large institutional investor dumps shares and takes out other people's stops the stock can fall perhaps 10 to 20%, but not to 0.01.

If there was a large short position on the stock (which surely would have been building since the Greek situation was not unknown), the shorts would be covering at a price way higher than 0.01 stabilizing the stock price.

What other historical example of such a thing happening can you cite? Surely if this happens all the time as you claim, we should be seeing this happening at least once a month since the stock market has been in existance.

There's some aspect of this crash that gives us a hint of how the stock market is being rigged. In any other country, investigating this crash would be of the highest priority. But the US govt is very lax about it and down plays it which is suspicious in of itself

Something rotten ties the system of secrecy promoted by the federal reserve, money printing, debt monetization and stock market rigging in the US. IMO in the next chapter of this great depression, the curtains are going to be lifted on all this. The fraud will become self-evident despite efforts to obscure it.

Chinmayanand · Post by **Chinmayanand** » 23 May 2010 16:37

15 Ways To Spot A Bubble

VikramS · Post by **VikramS** » 24 May 2010 00:36

Neshant

What I explained was the dynamics of how the crash happened. We are used to a very liquid equity market and whenever liquidity disappears are shocked to wonder why. No exchange or market guarantees a liquid market; all they guarantee is the best match. Many liquidity providers including HFT firms and market making firms have confirmed that they shut down their computers and stopped making a market during the crash.

Let us consider the home market. During the downturn houses did not sell even if they were priced at 40% below the peak price. Why? Because they were no buyers. There were no buyers either because of a lack of financing or because of the buyers' fear of even lower prices down the road. However once buyers started appearing we often have multiple bidding situation. It took a few years for the market to find some support.

The same process can happen to equities also. Buyers did not emerge till there was a sign of support; that was provided by the longer time frame buyers. Once they came in the prices moved back up. This is how the auction process works. It took equity markets about 10 minutes once it was clear that there was no news to cause the drop AND buyers emerged at the 50 week MA which was kissed to within a point. Try reading Mind Over Markets to understand the auction process.

Even on Friday the Auction Process was visible. Most buyers were waiting for a retest of the flash crash low. On Friday open, the market gapped down tested the 1050 level on the SPX and went up almost 40 points in a straight line. What happened? Why were people willing to buy at 1070 when ten minutes ago they were not willing to buy at 1055? Simple. All buyers were waiting to see what happens at 1050. Once buyers emerged they all jumped in.

That is why the stock went to 1c. There were no buyers and there were market orders. And the computers are programmed to match the best bid which was 1c. Note that it is not that the volume traded at 1c was a lot. No new orders were being placed; it was just the stop-market orders being matched to the only bid out there which was 1c.

If you want an analogy, look at the housing market in Michigan. You can buy homes for less than $10K there simply because there are no buyers left at all. When there are no buyers the price of anything is worth zero.

You might argue that the market is rigged, manipulated etc.; that all is true. Markets have been, are, and will be manipulated to suit the interests of greater powers. How do you think all the major banks did not have a single losing day in Q1; not just GS.

Completely free markets are an illusion. In fact the 1c order was an indication of what happens when the markets are left to their own devices with no circuit breakers or manual intervention. By their very definition circuit breakers are hampering the free market since they stop trading.

Neshant · Post by **Neshant** » 24 May 2010 03:03

VikramS wrote: Let us consider the home market. During the downturn houses did not sell even if they were priced at 40% below the peak price. Why? Because they were no buyers. There were no buyers either because of a lack of financing or because of the buyers' fear of even lower prices down the road. However once buyers started appearing we often have multiple bidding situation. It took a few years for the market to find some support.

Again I do not buy your explaination and you are free to disagree.

Housing prices declined over a period of a year and they did not go to $1 per house even at the maximum point of panic. That decline was precipitated by real news of major fraud in lending standards and leverage on those loans. In you theory, housing prices would have got to $1 at the very outset.

IMO it is absurd to suggest that the entire market is operating in unison and that if one guy sells then everyone will sell and if one guy buys then everyone will buy. If that were true we would be seeing the stock market moving violently up and down 95% from peak to trough and back up every other month.

I think you have bought too much into this liquidity stuff and not enough into questioning whether such things can happen on a practical level.

If what you claim is true, then everyone can hit the jackpot within 10 years. Just put in a bid for a million shares on a bunch of blue chip stocks. Sooner or later, this so called temporary liquidity vanishing magic trick will cause stocks to fall to 0.01 and jump back up. Hey if it happens all the time as you claim, then surely it will happen more then a few times over the next 10 years right?

The reality is this market is increasingly exposed as being a rigged one. Probably after the March 2009 lows, the federal reserve realised that the only way to instill confidence in the economy is to jump into the stock market and rig it. Hence their obsession with secrecy. But soon the game will come to a head which will either precipitate an even bigger crash or destruction of anyone who has trusted govt debt based promisary notes.

VikramS · Post by **VikramS** » 24 May 2010 05:38

Neshant:

You have to distinguish between the fundamental macro reasons which drive a move and the market behavior intra-day. Think in terms of strategy and tactics.

The Fed intervenes but it is subtle. They expect all kind of junk collateral at their lending window. This provides banks with liquidity against all the toxic assets they own. It was buying treasuries and MBS allowing that market to function. It keeps short term funding costs low allowing banks to use almost 50:1 leverage (haircut is 2%) to borrow at 0 and invest 2-3% in risk-free US Treasuries. If the Fed was participating in the market actively it would not allow a 1000 pt drop in the DJIA.

A house in Michigan which is listed for $10K but does not sell for years is basically worthless. If someone offers $1 some banks might just sell since they still have to pay taxes on the useless asset.

It is not a true jackpot since most of the 1c trades were later cancelled. And everyday in the market these bids appear. I use a trading software that would lock me out on an option position at market open since the bid-ask spread on the position was $10K. Bid was 10c offer was $10K. And based on that my spread position which has a very well defined risk, had cost me everything! Once the market opens and the stock trades for a minute or two, the liquidity in the option market increases and the spread narrows to 5c. The spread goes from $10k to 5c in a matter of minutes.

The guy who put out that $10K offer is primary looking for that dumb market at open order by some retail investor. Perhaps it is a way for the designated market maker to claim that he is still making a market while insulating himself to the wild swings in share price which happen at open.

You are forgetting that the $40 stock was back at $40 from 1c as soon as some sense of normalcy returns but for those 5-10 minutes the market was broken. I tried to explain the mechanics of how the market operates and how the price can fall to 1c and then be back to $40.

Markets crash when bids disappear. And they disappear more often than you would imagine. The action on Wednesday afternoon in MA is another example of a flash crash.

BTW the market is rigged. You just got to learn the rules.

vera_k · Post by **vera_k** » 24 May 2010 08:15

Aren't the market makers bound to keep a bid going no matter what?

Singha · Post by **Singha** » 25 May 2010 13:20

the loot and rape of US treasury by unionized employees continues...

NYT

When Passengers Spit, Bus Drivers Take Months Off
By MICHAEL M. GRYNBAUM
Published: May 24, 2010

It could be the cutbacks to the city’s transportation system, or a general decline in urban civility. Perhaps people are just in a collective bad mood.

What else could explain why New Yorkers — notoriously hardened to the slings and arrows of everyday life here — are spitting on bus drivers?

Of all the assaults that prompted a bus operator to take paid leave in 2009, a third of them, 51 in total, “involved a spat upon,” according to statistics the Metropolitan Transportation Authority released on Monday.

No weapon was involved in these episodes. “Strictly spitting,” said Charles Seaton, a New York City Transit spokesman.

And the encounters, while distressing, appeared to take a surprisingly severe toll: the 51 drivers who went on paid leave after a spitting incident took, on average, 64 days off work — the equivalent of three months with pay. One driver, who was not identified by the authority, spent 191 days on paid leave.

Transit officials, facing a budget shortfall of $400 million, called the numbers troubling. “We have to see what we’re going to do with that,” said Joseph Smith, who oversees bus operations for New York City Transit.

Spitting falls under the category of assault in the drivers’ contract with the authority. And officials at Transport Workers Union Local 100, which represents city bus operators, said the extended absences were justified.

“Being spat upon — having a passenger spit in your face, spit in your mouth, spit in your eye — is a physically and psychologically traumatic experience,” said John Samuelsen, the union’s president. “If transit workers are assaulted, they are going to take off whatever amount of time they are going to take off to recuperate.”

Sensitivities have been heightened since 2008, when Edwin Thomas, a bus driver in Brooklyn, was stabbed to death by a passenger after an argument over the fare.

In response, the authority offered classes to drivers on defusing tense situations. Plastic partitions for drivers have been tested, but a design has not been set.

Yet spitting assaults have grown. More than 80 drivers reported being spat upon in the last year, the authority said.

Enforcement may be an issue. Almost no arrests have been reported for spitting on a driver, said Mr. Smith, who noted that a police officer “must witness the spat upon to give a summons.”

London and other cities have found a novel solution: collecting the DNA of the offending spitters.

Bus drivers interviewed Monday said they frequently heard about episodes involving spit.

Passengers “get angry at the MetroCard not working, they get very irate over the schedules and having to wait a certain period and the bus being late,” said Richard Davis, a union official in Manhattan.

“A lot of people are worried about diseases, and they go to the hospital to get checked,” Mr. Davis said, referring to the drivers.

Raul Morales, 52, has been driving city buses for five years, but his first encounter with spit came early.

“A guy wanted to get on the bus; I told him the fare; he didn’t want to pay it,” Mr. Morales said. “So, he spat at me.”

The spittle landed on his shirt and glasses. He stopped at a nearby McDonald’s to clean himself off, then finished his shift. “I just kept on going.” (An ice slushie was once thrown at him for the same reason.)

Mr. Morales said it did not occur to him to take an extended absence to recover. “Everybody has their own tolerance to these things,” he said.

Alan E. Pisarski, the author of “Commuting in America,” calls it “aisle rage”: a resentment toward declining mass transit. “It could be that the combination of declining service and increasing costs is a tough burden for people to accept,” Mr. Pisarski said.

Come June in New York City, that burden will grow. Dozens of local and express bus lines will be eliminated, taking the brunt of an austere slate of service cuts by the authority. (Fewer riders on the subway will be affected.)

Gene Russianoff, staff lawyer for the Straphangers’ Campaign, the riders’ group, said the cuts could make riders less patient. “On a train,” Mr. Russianoff said, “you really can’t get at the train operator in most cases. If you’re late, or they missed your stop, you’re pretty mad. On the bus, the driver is the flashpoint.”

Nancy Shevell, the chairwoman of the authority’s bus committee, said she did not envy those spat upon. But she wondered whether three months’ time off was excessive.

“You have to wonder if you can go home and shower off, take a nap, take off the rest of the day and maybe the next day,” she said. “When it gets strung out for months, you start to wonder.”

Emily Hager contributed reporting.

ramana · Post by **ramana** » 25 May 2010 21:07

From "Prespectives" this thread is becoming "Vignettes". Have some mercy folks we have so many threads for you to post inane things. This thread is to get a sense of direction as to what is happening globally and not "yet another nukkad" thread.

Prem · Post by **Prem** » 25 May 2010 22:51

http://www.usatoday.com/money/economy/i ... ctor_N.htm
Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds. t the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.
hose records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. The result is a major shift in the source of personal income from private wages to government programs.
The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. "This is really important," Grimes says.

paramu · Post by **paramu** » 26 May 2010 06:08

The 20 Most Unemployed Cities In America

12 of the 20 most unemployed cities in America are in California. That is, California in fact is a dead-man-walking state.

Chinmayanand · Post by **Chinmayanand** » 26 May 2010 13:45

America's Ten Most Corrupt Capitalists

Tanaji · Post by **Tanaji** » 26 May 2010 21:02

http://news.bbc.co.uk/1/hi/business/10150007.stm

In graphics: Eurozone in crisis

Muppalla · Post by **Muppalla** » 27 May 2010 04:34

US money supply plunges at 1930s pace as Obama eyes fresh stimulus

The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.

"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.

Carl_T · Post by **Carl_T** » 27 May 2010 04:46

^^^I knew it!!!!!!! It is so irritating hearing people complain about bailouts when the money base is contracting. US needs to keep printing money...

It is probably no longer possible to increase money supply via interest rates, but what can be done now to increase the money supply? I think it is time to begin a new round of bailouts by adding more equity stakes in banks.

svinayak · Post by **svinayak** » 27 May 2010 04:48

Tanaji wrote:http://news.bbc.co.uk/1/hi/business/10150007.stm

In graphics: Eurozone in crisis

From Eurozone it will affect US economy in a few mths.
Then After US -> China will get affected.

After China -> India will get affected. This cycle will continue

paramu · Post by **paramu** » 27 May 2010 04:55

Acharya wrote:From Eurozone it will affect US economy in a few mths.
Then After US -> China will get affected.

After China -> India will get affected. This cycle will continue

So, when will it hit the UKstan?

Neshant · Post by **Neshant** » 27 May 2010 05:50

Carl_T wrote:^^^I knew it!!!!!!! It is so irritating hearing people complain about bailouts when the money base is contracting. US needs to keep printing money...

It is probably no longer possible to increase money supply via interest rates, but what can be done now to increase the money supply? I think it is time to begin a new round of bailouts by adding more equity stakes in banks.

giving out money for free to a bunch of bankers who don't produce any tangible product (other than scams) is the cause, not solution to the problem.

the solution is to let the free market function without middlemen like the federal reserve & its croney banks. A system that rewards those who save, produce and export goods of value without subsidies is what will work.

There has not been a single new productive industry that can generate many high paying jobs since 2000. Financial crap is not an industry, its just a drain on the remaining wealth of those who are innovating & producing.

Govt should stick to what its supposed to do - which is nothing.

Carl_T · Post by **Carl_T** » 27 May 2010 07:56

The government needs to hand out money to banks because if banks fail there will be no lending and therefore no borrowing and the money supply will evaporate and we will be back to the 30s. Do you really want that as an option?

Neshant · Post by **Neshant** » 27 May 2010 08:11

Carl_T wrote:The government needs to hand out money to banks because if banks fail there will be no lending and therefore no borrowing and the money supply will evaporate and we will be back to the 30s. Do you really want that as an option?

Of course I want that as an option. Getting rid of this most useless middle man 'industry' of society known as banks is the first step in ensuring people who earn the money get to lend it. After all, what point is there to earning money if someone else is counterfeiting it.

Given that we are locked into this system until the collapse, I'd at least ask :

Why not just skip the middle man and have the govt hand out money directly to the people in the form of tax reductions instead? Hand out being a misnomer since the money belongs to he who earned it to begin with.

But I guess that would eliminate the middle man which bribes politicians to keep itself around like a parasite. The road to recovery starts with doing away of the parasitic financial companies draining wealth from the productive economy.

Carl_T · Post by **Carl_T** » 27 May 2010 08:21

Who is going to lend money if banks fail?

Neshant · Post by **Neshant** » 27 May 2010 08:25

You may as well be asking who is going to lend money if banks succeed.

Whether banks fail or succeed, in all cases, the money/wealth is generated only by the productive elements of society - and that's not a bunch of guys sitting in offices fiddling around with interest rates and counterfeiting money.

Maybe if you include scamming other nations as productive activity, then banks may have a useful role. But those opportunities are fast fading.

Banks produce nothing and are just middle men raising the cost of every transaction.

RoyG · Post by **RoyG** » 27 May 2010 20:50

Borrow + Print + Spend = Economic Recovery

All hail Keynes!....

Carl_T · Post by **Carl_T** » 27 May 2010 20:53

Neshant wrote:You may as well be asking who is going to lend money if banks succeed.

Whether banks fail or succeed, in all cases, the money/wealth is generated only by the productive elements of society - and that's not a bunch of guys sitting in offices fiddling around with interest rates and counterfeiting money.

Maybe if you include scamming other nations as productive activity, then banks may have a useful role. But those opportunities are fast fading.

Banks produce nothing and are just middle men raising the cost of every transaction.

I don't understand, who do you want to be doing the money lending for economic activity if you think banks are a bad idea?

ramana · Post by **ramana** » 27 May 2010 21:54

Carl_T, John Snow aka Umrao jaan had listed a 12 step cycle and printing money was one of them.
What happened was the Admin monetized the bubble. In layman terms the fake bubble debt was paid off while everything collpased. So now they need more money to keep it going. The cycle is listed in one of the 100 pages of the old thread.
Some one more savvy than me can state this better.

paramu · Post by **paramu** » 28 May 2010 03:17

Hedgeye CEO Keith McCullough: The U.S. Collapse Will Follow Europe's, And Bernanke Will Be Fired

abhishek_sharma · Post by **abhishek_sharma** » 28 May 2010 09:10

Conventional Madness
Paul Krugman

http://krugman.blogs.nytimes.com/2010/0 ... l-madness/

although the OECD has marked up its growth projections, it’s still forecasting extremely high unemployment for years to come. ...

So the OECD wants the Fed to start raising interest rates soon — in the next six months or less — because … well, we can look at the OECD’s own forecast. According to this forecast, in the fourth quarter of 2011 — a year and a half from now — the unemployment rate will still be 8.4 percent. Meanwhile, inflation will be 1 percent — well below the Fed’s implicit target of 2 percent. My view is that inflation will be lower than that — core inflation is already below 1 percent. But even given the OECD’s forecast, what possible reason would there be to tighten monetary policy now, when the economy will still have vast excess capacity and inflation that’s too low at the end of next year?

The only explanation seems to be at the beginning of that passage: some people, the report claims, are starting to think there might be inflation, so even though they’re wrong according to our forecasts, see, we need to head off this phantom threat and slow the economy’s recovery … what?

Neshant · Post by **Neshant** » 28 May 2010 09:11

CPI figures put out by the govt are all fake.

ramana · Post by **ramana** » 28 May 2010 22:31

Spain rating cut. Leads to fall in Dow.

Why wasnt it cut when the European markets were up!

Sanjay M · Post by **Sanjay M** » 29 May 2010 03:26

But once again, notice the Atlanticist tilt of the NYT as it describes the reaction to Spain's downgrade:

http://www.nytimes.com/2010/05/29/busin ... tml?src=mv

If the American markets ever needed a reminder of how intertwined they are with European economies, they got it on Friday.

How come NYT doesn't talk about the US and Asia being "intertwined" when there's an Asian economic flu? Instead they talk about how Asian crony capitalism was the cause of it.

No, that "intertwined" phrasing is only trotted out for the European blood brothers.

There's something wrong with this diagnosis and the prescriptions coming from the mouths of the Atlanticists.

Neshant · Post by **Neshant** » 29 May 2010 06:13

Sanjay M wrote:How come NYT doesn't talk about the US and Asia being "intertwined" when there's an Asian economic flu? Instead they talk about how Asian crony capitalism was the cause of it.

From my limited understanding, the (south east) Asian fall in 97 was due to major western investment firms/individuals (probably encouraged by their nations) to start a panic in Asian economies. Currency speculation was the means by which to cause that panic. Then the old rope trick of getting the IMF in the door to get those countries to sell off their assets at cheap prices to western firms. A kind of economic colonialism or so it sounded like to me back then.

Step 1 : Encourage these SE Asian economies to adopt free capital movement and remove capital controls and regulations.
Step 2 : Instigate a panic by moving out vast amounts of capital from the country (like yelling fire in a cinema)
Step 3 : The IMF shows up to offer loans to the panic striken nation... but with strings. Strings being - sell all that you have to western firms at throw away prices.

India was immune because it had total control over its currency. Some speculators even complained that the red tape involved in moving their money out of India caused them millions in losses

For once, good old fashioned babudom did some good.

Indonesia was the worst hit unfortunately. They made i believe a dumb mistake of seeking 55 billion in loans from the IMF and was told to tighten their belt. First on the chopping block was their indegenous car industry. Scrap it and import foreign cars said the IMF. I'm sure the big name car makers of the world had something to do with it. Strangely there's no such prescription for Greece.

abhischekcc · Post by **abhischekcc** » 29 May 2010 12:10

Regarding the Chinese ban on Indian iron ore imports - this is the clearest sign of a slowdown in the Chinese economy. China is a big importer of iron ore (what with it being the larget steel producer and all). Its decision to reduce ore imports indicate trouble in the I&S industry demand, indicating trouble in the construction and other industries.

Is the much awaited slowdown of China really here?

Pranav · Post by **Pranav** » 29 May 2010 14:37

Carl_T wrote:
Neshant wrote:You may as well be asking who is going to lend money if banks succeed.

Whether banks fail or succeed, in all cases, the money/wealth is generated only by the productive elements of society - and that's not a bunch of guys sitting in offices fiddling around with interest rates and counterfeiting money.

Maybe if you include scamming other nations as productive activity, then banks may have a useful role. But those opportunities are fast fading.

Banks produce nothing and are just middle men raising the cost of every transaction.

I don't understand, who do you want to be doing the money lending for economic activity if you think banks are a bad idea?

You do need somebody to judge creditworthiness and project viability, but it should not be the present set of crooks.

svinayak · Post by **svinayak** » 29 May 2010 20:13

Neshant wrote:

From my limited understanding, the (south east) Asian fall in 97 was due to major western investment firms/individuals (probably encouraged by their nations) to start a panic in Asian economies. Currency speculation was the means by which to cause that panic. Then the old rope trick of getting the IMF in the door to get those countries to sell off their assets at cheap prices to western firms. A kind of economic colonialism or so it sounded like to me back then.

It was created to get the money out of Asia and back to the US.

abhishek_sharma · Post by **abhishek_sharma** » 30 May 2010 09:48

Joseph Stiglitz interview (sorry if posted before)

http://www.c-spanvideo.org/program/291851-1

abhischekcc · Post by **abhischekcc** » 30 May 2010 11:07

Acharya wrote:
Neshant wrote:

From my limited understanding, the (south east) Asian fall in 97 was due to major western investment firms/individuals (probably encouraged by their nations) to start a panic in Asian economies. Currency speculation was the means by which to cause that panic. Then the old rope trick of getting the IMF in the door to get those countries to sell off their assets at cheap prices to western firms. A kind of economic colonialism or so it sounded like to me back then.
It was created to get the money out of Asia and back to the US.

While it is true that money flowed back to the US after the East Asian Crisis, it it inappropriate to say that the crisis was created just to do that. Capital flows to highest reward areas in times of expansion and towards safest areas when any crisis comes. Just like money flowed into the dollar when euro faced crisis now.

It is wrong to impute that effects are causes.

svinayak · Post by **svinayak** » 30 May 2010 11:14

abhischekcc wrote: Capital flows to highest reward areas in times of expansion and towards safest areas when any crisis comes. Just like money flowed into the dollar when euro faced crisis now.

It is wrong to impute that effects are causes.

Just read the info again and the details of those asian crisis. This is very sophesticated financial groups which created this large network of financial links during the period of expansion from 1977-1997. After that the same groups removed them

Chinmayanand · Post by **Chinmayanand** » 30 May 2010 13:18

Bill Gross: The burden of debt can take decades to accumulate, but only a few short months to change course into crisis. Many investors, economists and politicians alike have little understanding of why attitudes and lending standards can reverse so quickly…They operate with the mindset that markets, jobs and economies will “come back.” “I’ll just wait ‘till it comes back” is the common saw amongst underwater investors, just as “something will turn up” is a sad refrain of many unemployed or
underemployed workers. Sometimes it doesn’t come back…

How much debt is too much? How little growth is too little? No one knows for sure. Economic historians such as Kenneth Rogoff point out that at debt levels of 80-90% of GDP, a country’s real growth becomes stunted, and the sixteen tons become more and more difficult to bear. Greece is well past that standard, which is one of the reasons why lenders are balking at extending a private-market helping hand. When not only government but corporate and household debt is included, the waters become murkier, because historical statistics are less available…Common sense observation tells you, though, that the debt super cycle trend in the U.S. shown in the following chart is reaching unsustainable proportions and that the “growth” required to service it if real interest rates were ever to go up instead
of down would be insufficient…

Tougher sovereign budgets produce government worker layoffs, pay cuts, reduced pension benefits and a drag on consumption and the ability of the private sector to accept an attempted hand-off from fiscal authorities. Recession becomes the fait accompli, and the deficit/GDP ratio moves ever higher because of skyrocketing risk premiums and a plunging GDP denominator. In many cases therefore, it may not be possible for a country to escape a debt crisis by reducing deficits!...

Link

Chinmayanand · Post by **Chinmayanand** » 30 May 2010 13:21

Default May Be Option for Some Nations, Gross Says

Bill Gross said restrictive lending rates and austerity measures that slow growth may leave default as the “only way out” for some sovereign borrowers when it comes to dealing with growing debt burdens and deficits.

“Credit and equity market vigilantes are wondering if in many cases sovereigns haven’t already gone too far and that the only way out might be via default or the more politely used phrase of ‘restructuring,’”