Perspectives on the global economic meltdown (Jan 26 2010)

[Sanjay M]

Silly - you might as well be claiming that everyone is an agent of Hitler

[Pranav]

Silly - you might as well be claiming that everyone is an agent of Hitler

Who do you think Hitler was an agent of?

[Hari Seldon]

^^^ Wow.

Tenku tenku, swamygaru. Sri Stiglitz articulates the case brilliantly. Thread regulars have often been accused of 'gloating' and spouting 'anti-west rhetoric' whatever that means. Has happened before the latest dustup also. Such notions are quite misplaced, IMHO, though different folk have their own opinions. Sure, there has been a certain element of schaudenfraude when the latest meltdown exposed how nakedness of the heavenly emperor only. And no, before janta start jumping up and down spraying icons all over the place, no, its not as if the great benefits and advantages that western ecosystems gave the world in terms of science, tech, productivity are denied, downplayed or overlooked.

The IMF scam has been exposed for good. The same IMF, instrument of western fin elites, used to bludgeon sdre nations into parting with resources, policy independence and prudence itself in order to profit the IMF's backers at the expense of aam aadmi - that IMF has admitted to 'policy errors'. Sri Stiglitz lays the case brilliantly:-

..the IMF’s policies( often based on the flawed market fundamentalism…..) led downturns into recessions, recessions into depression, and imposed unpalatable (and often unnecessary) structural and macro-policies that impeded growth and contributed to poverty and inequality.

• As a condition for giving money, the IMF insists that the recipient country do certain things. Every bank imposes certain conditions on borrowers to enhance the likelihood that the loan be repaid, but the conditions the IMF imposes sometimes reduce the likelihood of repayment, and often are only very loosely connected to the loan itself. There may be “macro-conditions” (for instance, requiring that the central bank raise its interest rates or that deficits be cut), structural conditions (for instance, requiring that the government privatize its banks), or political conditions (for instance, requiring that the government give full independence to the central bank). In total, the conditions reduce the scope for independent policy making. Many developing countries view the conditions as taking away their economic sovereignty.
...
• In the past, the IMF had provided money but only with harsh conditionalities that had actually made the downturns in the afflicted countries worse. These conditions were designed more to help Western creditors recoup more of their money than they otherwise would have been able to, than to help the afflicted country maintain its economic strength. The strict conditionalities the IMF frequently imposed induced riots around the world .

• The IMF was an old boy’s club of the rich industrial states, the creditor countries, run by their finance ministers and central bank governors. Its views of good economic policies were shaped by those in finance – views that were, as I have explained and as the crisis has amply demonstrated, often misguided. The United States alone had the power to veto any major decision, and it always appointed the number two in command; Europe always appointed the head.

• While the IMF pontificated about good governance, it didn’t practice what it preached. It did not have the kind of transparency that we now expect of public institutions. {Really? Now, whudathunkit?! LOL}

• The large giants in Asia – China and India – managed their economies their own way, producing unprecedented growth. But elsewhere, and especially in the countries where the World Bank and IMF held sway, things did not go well. {OK, no premature lungi dances please. Let us reach solid middle income country status on the back of domestic demand and have a modicum of food and energy security before we stop to take a breath...}

• America and IMF forced countries to raise interest rates, in some cases (such as Indonesia) to more than 50 percent. They lectured Indonesia about being tough on its banks and demanded that the government not bail them out. {karma is an oily beach or what}

• America and IMF demanded that the affected countries reduce their governments’ deficits by cutting back expenditures – even if, as in Thailand, this resulted in a resurgence of the AIDS epidemic, or even if, as in Indonesia, this meant curtailing food subsidies for the starving, or even if, as in Pakistan, the shortage of public schools led parents to send their children to the madrassas, where they would become indoctrinated in Islamic fundamentalism.

Read it all. Excellent only. Lays bare the case for why resentment against the global ekhanomic world order instituted by the western fin elites and run by the IMF-WB cabal is not unjustified, perhaps. And so, if their comeuppance leads to what some say is gloating, so be it.

Let us also not forget that the same rating agencies, partners in crime and market-rigging, that rated greece AAA last yr continue to rate India BB+ or something and had rated Yindia C- etc in the past. This is for an India that has a squeaky clean record of on-time loan repayments (just like our squaky clean nonproliferation record, eh?). This raised India's borrowing rates to high levels, interest our people repaid with blood, sweat and toil. Good that the high rates forced India to depend on our own resources and domestic savings. It is helping like hell now.

Sure, we are a wretched, poor country. Our poverty, backwardness, superstition, yindu rate of growth, lack on innovativeness and ingenuity, sdre nature and pathological dependence on the west for their it-vity business etc etc ensures we shall forever remain second rate only. Sure, we of all people, have no business to know exalted sentiments like schaudenfraude and comeuppance. Still, sometimes these things mistakenly show up. This is atemporary phase though. We will all go back to the old normal very soon.

Jai Ho and have a nice day.

[arnab]

I think it would be nice if people read Ken Rogoff's response to Stiglitz's spray as well (just for completeness)

http://www.imf.org/external/np/vc/2002/070202.HTM

The Stiglitz-Laffer theory of crisis management holds that countries need not worry about expanding deficits, as in so doing, they will increase their debt service capacity more than proportionately. George Bush, Sr. once labeled these ideas "voodoo economics." He was right.

Joe, as an academic, you are a towering genius. Like your fellow Nobel Prize winner, John Nash, you have a "beautiful mind." As a policymaker, however, you were just a bit less impressive.

[Neshant]

Read it all. Excellent only. Lays bare the case for why resentment against the global ekhanomic world order instituted by the western fin elites and run by the IMF-WB cabal is not unjustified, perhaps. And so, if their comeuppance leads to what some say is gloating, so be it.

Let us also not forget that the same rating agencies, partners in crime and market-rigging, that rated greece AAA last yr continue to rate India BB+ or something and had rated Yindia C- etc in the past. This is for an India that has a squeaky clean record of on-time loan repayments (just like our squaky clean nonproliferation record, eh?). This raised India's borrowing rates to high levels, interest our people repaid with blood, sweat and toil. Good that the high rates forced India to depend on our own resources and domestic savings. It is helping like hell now.

The IMF is a kind of international version of that other mafia organization The Federal Reserve. Only difference is that usary, fake ratings, debt trap and resource grabbing for MNC is their product in trade. The funniest piece of news I read on the IMF came from Argentina recently. The IMF sent researchers to figure out how the Argentinians managed to get out of their economic mess in 2002 without the IMF :

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IMF eyes data mission to Argentina

Such a mission would be a small, but significant step for reestablishing ties between the IMF and Argentina, whose relations have been strained since the country's $100 billion debt default and currency crisis in 2001.

But Argentina's own statement to the IMF earlier, was scathing about the Fund and its advice, which it blames for the 2001 default.

"If we had followed the recommendations traditionally made by (the IMF) -- which have favored opening our economies, foreign indebtedness, financial liberalization and 'unbeatable' market-oriented reforms -- the outcome would have been totally different and today we would have been embroiled in a fresh economic, social and political crisis," the statement said. "Therefore, we celebrate today our well-gained economic independence."

http://ca.news.finance.yahoo.com/s/2504 ... ntina.html

[abhischekcc]

>>In AmirKhana today, one cannot succeed by coming out like Hitler, precisely because ppl like me will say that that's like Hitler.

Another wrong argument - this is a Catch 22 situation you are using.

What you are saying is that the only reason US does not have Hitler like politicians is because you accuse all and sundry among them of being Hitlers.

You should criticise particular aspects of Ron Paul's (and others') agenda. At least that gives the other person a chance to defend himself. What will the other guy say if you accuse him of being Hitler - 'look, my face is clean shaven, I do not have a toothbrush moustache'?

If you compare Ron Paul with FDR, it still makes sense. Because then you will be raising the point that Ron Paul is a corporatist in the garb of a populist. Incidently, this accusation fits Obama like a glove.

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

I do not know of Ron Paul's supporters - never took that much interest in the man. So I won't argue on that point. Do you have particualr ones one should look at?

Will read up on the racist agenda of Ron Paul and Co later.

[Satya_anveshi]

But but at a time when we should seek "consistency" from IMF and ask it to prescribe measures to US and propose interest rate hike, why do we gloat on these exposes? ( I am not necessarily complaining against any of you but suggesting approach to look at these things).

The above IMF exposes are like Wikileaks implicating Pak - all self evident truths but the focus should be to seek consistency and put authorities on record.

In that way we have already justified ourself that IMF will not do what is required (if not required but even an annoyance) and loose the card ourself that could be some value.

[arnab]

But but at a time when we should seek "consistency" from IMF and ask it to prescribe measures to US and propose interest rate hike, why do we gloat on these exposes? ( I am not necessarily complaining against any of you but suggesting approach to look at these things).

The above IMF exposes are like Wikileaks implicating Pak - all self evident truths but the focus should be to seek consistency and put authorities on record.

In that way we have already justified ourself that IMF will not do what is required (if not required but even an annoyance) and loose the card ourself that could be some value.

This is what the IMF has suggested that the US do (note IMF can't 'prescribe' anything to the US because the US has not gone to IMF requesting for a 'stability' loan). So we can't accuse them of being inconsistent.

The global lender says the United States, which plans to halve the budget deficit by 2013 and stabilize public debt at just over 70 percent of GDP by 2015, will need to cut back on spending and increase revenues. The government could accomplish the latter through cuts in tax deductions and higher taxes on energy, a national consumption tax, or a financial activities tax.

The key will be to design changes that support further growth in the economy. The IMF suggested three elements for a credible plan.

• A clear plan for stabilizing debt over the coming years

• A downpayment on stabilizing the debt starting in 2011, as planned by the government

• Reform of entitlement programs, such as Social Security.

The IMF’s review acknowledges improvements will come from pending financial reform legislation, but notes that an opportunity seemed to have been missed to create a single federal agency to supervise commercial banks, and another to regulate all securities and derivatives transactions. Going forward, effective implementation will be key and the priorities include:

• Improve interagency cooperation and respond quickly and forcefully to emerging risks to financial stability

• Expand the perimeter of regulation to include more financial institutions and transactions, such as derivatives, and strengthen oversight of firms’ risk management practices

• Address the too-big-to-fail problem by discouraging excessive size and complexity, requiring “living wills,” and introducing credible mechanisms to intervene and resolve failing systemic financial institutions.

http://www.imf.org/external/pubs/ft/sur ... 70810B.htm

[Hari Seldon]

But but at a time when we should seek "consistency" from IMF and ask it to prescribe measures to US and propose interest rate hike, why do we gloat on these exposes? ( I am not necessarily complaining against any of you but suggesting approach to look at these things).

Saar, will it matter one iota whether we 'seek' consistency or not? In the animal kingdom we know of as the old world order, some are more equal than others, always have been. Ask the P-5, for instance.

Mockery is itself a powerful weapon, IMHO. And it makes complete sense to discredit further the set of (mental) institutions designed with lofty goals perhaps after WWII but which have now degenerated into a neo-ekhanomic colonism and naked resource-grab dance-drama only. This includes not just the IMF-WB cabal, but also the rating agencies, the so-called 'Washington consensus', the wall street frausters, the private central banking elite, the ivory tower ekhanomic wizards and so on. At least for a generation when memory is intact and when the (belatedly self-admitted) faults of seers like the IMF and greedspan are out in the open, focus the limelight there, laugh loudly and long.

Also, see how the law of unintentional consequences works - the same IMF mistreatment of ASEAN (incidentally under Summers and Geithner, who are back in the saddle now sticking it in to what is left of the yooyes middle class this time) led directly to the 'savings glut' in Asia that flooded the US with cheap capital, lowered rates and created subprime ministers out of deadbeats. The rest is history, of course.

The above IMF exposes are like Wikileaks implicating Pak - all self evident truths but the focus should be to seek consistency and put authorities on record.

Interesting parallel. The good thing that comes outta this is nobody will take the IMF and its mealy mouthed preachers seriously anymore. Nobody but nobody was prosecuted for systemic, systematic, widespread and chronic fraud in the securitization, subprime and later the ponzi meltdown mess. Why expect consistency and all that now?

In that way we have already justified ourself that IMF will not do what is required (if not required but even an annoyance) and loose the card ourself that could be some value.

Saar, the only card of value is our realization of the way things are. That these scamsters stand exposed is good. Beyond that, we are all on our own only.

Arnab da,

One needn't agree with all of Sri Stiglitz's prescriptions to appreciate the good work he has done in that particular piece above. In particular, I have reservations about his unabashed Keynesian prescriptions only.

A debt jubilee or some form of social equity - money as equity and not as debt - would be a good solution but it is all but impossible to implement now.

[arnab]

Actually there is a very simple strategy of avoiding IMF preaching - i.e. don't ask them to bail you out. Their prescriptions in a nut shell are - discourage spending, encourage revenue and make sure the lenders get their money back. IMF has always been about letting politicians take 'ownership' of micro-economic reforms (as in what expenditures to cut and what taxes to raise). Which politicians never do because it is easy to deflect popular criticism on to institutions.

[rohitvats]

Real Estate math works ONLY if there is asset price appreciation (even in Massa). The rental yield is never going to cover the monthly payment, except in a commie "controlled" economy where "speculation" is tamped out by a rule book wielding babu (aka, the mixed economy of the 60s and 70s India).

The reason why you invest in RE is to diversify your assets away into different risk classes, take advantage of any taxbreaks that you might get and finally have a place to call your own.

The rental yields are actually pretty poor in any circumstances. In Bangalore Kerala, a house with a sticker price of 90L to 1 Crore will rent for 25 to 30K (maintenance @ Rs 4 to 5 per sqft per month included).

Aha!!!, the prophet has spoken and how.....The rental yeilds in Indian do not breach the 4%-4.5% mark...Therefore, in case you own a high end apartment which you intend to lease out, it is advisable to furnish your apartment and then lease out....the rent which can be acheeived is higher and one can have >4.5% return...

As for the property bubble - well, sirs, there is not any. Two reaons: (a) Black money (b) strong end user demand. As for the developers - no one has run out of money and gone kaput. Just ask youself - how many firesales did you guys see in the India where developers had reduced the prices for ensuring quick clearance of the stock and get in revenue? DLF Capital Greens in NCR and another DLF Project in Gurgaon are an exception and reason for the same is different.

(a) Black Money - Typically, before a large project is launched, the apartments are sold to investors at a discount - which is lower than even the sof launch price of a property. Each developer has a legion of such deep pocket investors with immense holding power - these are not your fly-by-night investors. They get appreciation the moment the property is listed in the market. The developer's sales team markets the property and does the deal on his behalf. From a builder's perspective, the bulk of sales (or the minimum he wants to achieve) are done and money received. Example - the Prestige Wellingdon in Jalahalli was sold to investors at INR 2,200 - 2,500..the asking rate now is INR 4,000 - though firesale from one time investor may get you one at INR 3,500-INR 3,800.

In NCR, there is a system of underwriters - these are big brokers who undertake sale of X apartments (from 50-60 apartments to whole tower in a project) - these are sold to them at a discount. They make money by selling at current rate.

So, there is a vested interest from parties other than builders to hold the prices - even the developer cannot lower the prices or his investors/underwriters will loose money. Yes, there are people/parties who might speculate once too many times, these people have deep pockets and generally less vulnerable to time factor - simple reason: Black Money does not come with time value of money concept.

(b) End user demand - There is very strong end user demand during this phase of RE boom in bulk of RE Markets (Cochin is an exeption to this). That is why we did not witness the rapid depreciation in property prices like 93-95 period in Mumbai and 97-98 period in Bengalore. But like I've said earlier, to assume that sale pace (at todays prices) will continue to match the one witnessed in 2005-2008 period is a big fallacy - the income levels are not rising at the same pace. BTW, 3BHK apartments in projects in Bengalore tend to move faster than 2BHK apartments - should tell you something about existing client base in that category.

[ShivaS]

The rental yield is never going to cover the monthly payment,

That is why a true Marwari will never buy a home (for living) but may sell homes for others

'fools build homes so that wise men can live in them' Bernard Shaw

[Sanjay M]

^^

Rental Yield + Appreciation = Mortgage + Taxes + Maintenance

[Sanjay M]

David Stockman:

http://www.nytimes.com/2010/08/01/opini ... ckman.html

I think he's the one who came up with "supply side economics"

India could use some of that right now

[SwamyG]

I think it would be nice if people read Ken Rogoff's response to Stiglitz's spray as well (just for completeness)
http://www.imf.org/external/np/vc/2002/070202.HTM

It is really not complete. Stiglitz's superiority or arrogance is not the issue here; the rejoinder should have focused if IMF's way of doing business hurt developing countries more than it helped them. Ken's article does not clearly establish that case. He mentions Stiglitz's blueprint is controversial or snake oil at the best. It would be informative to tell why so - that would make it complete. But he moves on to this third point - Stiglitz's action, during his WB days, hurting developing countries. If that is true then it merely validates the developing countries view that WB and IMF screws them.

[SwamyG]

Satya garu:
These are not new 'exposes'. The information is from a book publish in January 2010, Stiglitz lashed at IMF in 2002 itself. The reason I posted this was because I am reading the book and remembered my conversation with Hari garu on IMF. So I asked him if he needed tidbits from the book; and I posted them, which validates Hari's points.

[SwamyG]

x-posting

Our kiranas deserve better, including a ministry of their own by R.Vaidyanathan {a BRFite right}
I have said in this dhaaga several times on India achieving a balance between organized and unorganized sectors. The unorganized sector can be used to hedge against the organized sector. The unorganized way of doing business can stop dominoes effects and act as a cushion when the organized sector, which is globalized and sometimes in the hands of foreigners, takes a hit. The debate should not be if we need one or the other, it should be about how we effectively use both to society's advantage.

[Hari Seldon]

Actually there is a very simple strategy of avoiding IMF preaching - i.e. don't ask them to bail you out. Their prescriptions in a nut shell are - discourage spending, encourage revenue and make sure the lenders get their money back. IMF has always been about letting politicians take 'ownership' of micro-economic reforms (as in what expenditures to cut and what taxes to raise). Which politicians never do because it is easy to deflect popular criticism on to institutions.

Good point. Some (hopefully good) counterpoints:

1. The ASEAN nations, having tasted the IMF's medicine, which the IMF itself has belatedly admitted was misplaced, are resolved to never approaching the IMF again and have started creating the contours of helping one another in case of crisis (witness the flurry in 'currency swap' activity in Asia recently).
2. The example of Latvia and now of Hungary proves the IMF acts on behalf of its fin backers - the banking industry. Hungary recently raised bank taxes to help repay its IMF loan and the IMF rushed in with finger wagging advice on why that is wrong. Hungary, went ahead anyway (good show!).
3. The experience of countries that defaulted also shows that the scaremongering indulged in by the IMF and its backers w.r.t. sovereign default is way overblown. Russia and Argentina are better off now for having defaulted back then.

[Sanjay M]

And yet India is being roped in to offer more funds for IMF.

Why? When we haven't benefited from IMF one bit?

We need more pull at the institutions which oversee stuff like Indus River Waters Accord, etc.

[Hari Seldon]

^^^ Because we're a status-quoist nation seeking desperately seeking not to rock the leaking boat. Only.

In any case, in times of tumultuous change, its always better to seek to slow change down, support existing arrangements until a gentler, more orderly transition can take place. The risk of disruption and consequent suffering is too great, otherwise.

[Hari Seldon]

Excellent piece in the FT by PIMCO's brass on the effects of the new normal not being 'normal' (as in Gaussian):

It seems that, wherever we look, the snapshot for “consensus expectations” has shifted: from traditional bell-shaped curves – with a high likelihood mean and thin tails (indicating most economists have similar expectations) – to a much flatter distribution of outcomes with fatter tails (where opinion is divided and expectations vary considerably)….

What is less appreciated is the extent to which this changing shape of distributions affects conventional wisdom in the investment world, together with the rules of thumb that many investors have come to rely on.

Old, well known stuff. Taleb hammers at this hajaar in his book.

We can think of five implications, some of which are already evident while others will only be obvious over time.

First, investing based on “mean reversion” will be less compelling. Even though flatter distributions with fatter tails have means, the constituency for mean reversion investing will shrink as those means will be much less often realised in practice. A world where the realised return rarely equals the expected valuation creates a bigger demand for liquid, default-free assets; it also lowers the demand for more volatile asset classes such as equities. These shifts are already taking place.

Excellent articulation of stuff we already see. Retail investors have all but exited the US equities mart which is now a playground only for the HFT types, seems like. This is 1 explanation for the decline in interest in equities from investors of all hues.

Second, frequent “risk on/risk off” fluctuations in investors’ sentiment are here to stay. Investors, based on 25 years of rules of thumb that “worked” during the great moderation, thought they knew more about the distribution of risk than they in fact did. This led to overconfidence during the bubble. The crisis reminded investors that these rules of thumb are less useful, if not dangerous.

With declining confidence in a reliable set of investing rules, markets have become more susceptible to overreactions to daily news and, are, therefore, more volatile. Just think of the number of triple-digit days in the Dow….

Third, tail hedging will become more important. An understandable consequence of the crisis is less trust in diversification as the sole mitigator for portfolio risk. We are already seeing increased investor interest in tail hedging, though the phenomenon is still limited to a small set of investors.

Fourth, historical benchmarks and correlations will be challenged. In this new “unusually uncertain” world, many investors will need to fundamentally rethink the design of benchmarks and the role of asset class correlations in implementing their investment strategies. The investment industry is yet to give sufficient attention to this.

Finally, less credit will be available to sustain leverage and high valuations.{GOOD!}Even apart from the inevitable response to regulatory actions aimed at derisking banks, a world of flatter and fatter distributions will reduce available supply of leverage to finance trades and balance sheet expansion.

This is not just because extreme bad scenarios “melt down” positions but rarely “melt up”. Even with a balance among good and bad scenarios, the provider of leverage does not benefit from the fatter good tail, but faces greater likelihood of loss with the fatter bad tail.

Investors had 25 years to get comfortable with the great moderation. Its end poses challenges that extend well beyond policy circles as it fundamentally undermines the rules of thumb that served so many investors for so long. The sooner this is recognised, the better.

Read it all.

Jai Ho.

[Sanjay M]

Similarly, the same thing could be accomplished by not having a US Federal Reserve, so that it can't automatically target some minimum positive inflation rate to scare people to hand their money over to banks. That too would result in less credit to sustain over-valuations and hyper-speculation that feeds bubbles.

Market forces themselves are trying to neutralize the Fed.

[Neshant]

If you compare Ron Paul with FDR, it still makes sense.

Ron Paul's economic ideas most closely resemble that of Andrew Jackson - the man who shut down the federal reserve of his day (The Second Bank of the United States) after realising it was a ripoff. He had it written on his tombstone "I destroyed The Bank!". His reasons for doing so are uncannily similar to the situation today after making the appropriate substitutions.

♦ It concentrated the nation's financial strength in a single institution.
♦ It exposed the government to control by foreign interests. (subtitute foreign with banking)
♦ It served mainly to make the rich richer.
­♦ It exercised too much control over members of Congress.

After a titanic struggle, Jackson succeeded in destroying the Bank by vetoing its 1832 re-charter and withdrawing U.S. funds. However the guy did not have a proper plan for transition to a non-paper based system. By the time he clued in, private banks issuing worthless paper money had sprung up all over the place wrecking havoc. Less than 70 years after his death, legislation to setup yet another federal reserve (the present one) was sneaked in and here we are.

Some of his quotes will sound familiar in today's context :

"Mischief springs from the power which the moneyed interest derives from a paper currency which they are able to control, from the multitude of corporations with exclusive privileges... which are employed altogether for their benefit."

"I have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank (bailout anyone?). You tell me that if I take the deposits from the Bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I am determined to rout you out and, by the Eternal God I will rout you out."

[Neshant]

Some sucker is urgently needed to hold the bag. Someone's wealth needs to be destroyed to fulfill all these promises.

Despite the fact that Robert Prechter may be right on deflation and cash being king in the short term (and gold going down to $700/oz), the propensity of the federal reserve-politican criminal nexus to pass on bills to suckers without breaking a sweat keeps me weary of paper money and paper promises.

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

State and Local Debt Bombs Ticking Throughout U.S. Heartland
Sunday, 01 Aug 2010 04:05 PM

By: David A. Patten

The 50 states have racked up a record $2.4 trillion in bond debt during the economic downturn – the highest level of state and local indebtedness in history, economic analysts warn.

State and local bond debt now consume a whopping 22 percent of the nation’s annual Gross Domestic Product – a bigger slice of the economic pie than ever before, according to Manhattan Institute senior fellow and City Journal senior editor Steven Malanga.

Based on an analysis of federal data on state indebtedness, Malanga calculates that state and local debt has skyrocketed from 12 percent of GDP in 1980, to 15 percent of GDP in 2000, to an estimated 22 percent in 2010. That’s the highest it has ever been, and those figures do not include the estimated $3 trillion in state and local pension obligations.

http://www.newsmax.com/Headline/debt-st ... /id/366260

[abhischekcc]

^^ No wonder all the liberals, including frauds like Noam Chomsky, hate Jackson so much. Of course, they couch their hatred in politically correct language like 'Jackson invaded Florida and threw out all the Indians', but the intent of the whole shebang is clear when you read what Jackson did to their paymasters.

[svinayak]

BRETT ARENDS' ROI
Aug. 3, 2010, 12:01 a.m. EDT ·
http://www.marketwatch.com/story/the-bi ... =nwhfriend

The biggest lie about U.S. companies

BOSTON -- You may have heard recently that U.S. companies have emerged from the financial crisis in robust health, that they've paid down their debts, rebuilt their balance sheets and are sitting on growing piles of cash they are ready to invest in the economy.

You could hear this great news pretty much anywhere -- maybe from Bloomberg, which this spring hailed the "surprising strength" of corporate balance sheets. Or perhaps in the Washington Post, where Fareed Zakaria reported that top companies "have accumulated an astonishing $1.8
trillion of cash," leaving them in the best shape, by some measures, "in almost half a century."

Or you heard it from Dallas Federal Reserve President Richard Fisher, who recently said companies were "hoarding cash" but were afraid to start investing. Or on CNBC, where experts have been debating what these corporations are going to do with all their surplus loot. Will they raise dividends? Buy back shares? Launch a new wave of mergers and acquisitions?

It all sounds wonderful for investors and the U.S. economy. There's just one problem: It's a crock.


Investors hear July echoes
This July resembled the previous July in several key respects. What does this suggest for the markets for the rest of 2010?

American companies are not in robust financial shape. Federal Reserve data show that their debts have been rising, not falling. By some measures, they are now more leveraged than at any time since the Great Depression.

You'd think someone might have noticed something amiss. After all, we were simultaneously being told that companies (a) had more money than they know what to do with; (b) had even more money coming in due to a surge in profits; yet (c) they have been out in the bond market borrowing as fast as they can.

Does that sound a little odd to you?

A look at the facts shows that companies only have "record amounts of cash" in the way that Subprime Suzy was flush with cash after that big refi back in 2005. So long as you don't look at the liabilities, the picture looks great. Hey, why not buy a Jacuzzi?

According to the Federal Reserve, nonfinancial firms borrowed another $289 billion in the first quarter, taking their total domestic debts to $7.2 trillion, the highest level ever. That's up by $1.1 trillion since the first quarter of 2007; it's twice the level seen in the late 1990s.

The debt repayments made during the financial crisis were brief and minimal: tiny amounts, totaling about $100 billion, in the second and fourth quarters of 2009.

Remember that these are the debts for the nonfinancials -- the part of the economy that's supposed to be in better shape. The banks? Everybody knows half of them are the walking dead.

[SwamyG]

I am seriously thinking to cash out from my stocks. After suffering, couple of years, of thousands and thousands of dollars of paper-loss, I broke even recently. I know this is not a Stocks tip dhaaga, so let me phrase my question this way to all you eCONgurus: "Do you think the stock market is going to tank in the next month or two?"

[svinayak]

"Do you think the stock market is going to tank in the next month or two?"

THis month - high probability before aug 20

[Satya_anveshi]

Acharya avure, which panchangam do you follow?

[svinayak]

Souryamana Panchangam.

Once in a while it is good to keep everybody on their toes

[hnair]

^^ No wonder all the liberals, including frauds like Noam Chomsky, hate Jackson so much. Of course, they couch their hatred in politically correct language like 'Jackson invaded Florida and threw out all the Indians', but the intent of the whole shebang is clear when you read what Jackson did to their paymasters.

abhischekcc/Neshant-saars, afaik, Jackson was considered pretty much a bad gringo by any interested non-white you talk to. That resettlement of Injuns is good old ethnic cleansing in its pristine form. Even that Emotional Stayfree of America, Chomsky, could not murky that fact up by his tambourine plucking.

[SwamyG]

Acharya: Why August 20th? What events do you anticipate in the global economy for this prediction. Gyan appreciated.

[VikramS]

I am seriously thinking to cash out from my stocks. After suffering, couple of years, of thousands and thousands of dollars of paper-loss, I broke even recently. I know this is not a Stocks tip dhaaga, so let me phrase my question this way to all you eCONgurus: "Do you think the stock market is going to tank in the next month or two?"

Take your money and start with a clean slate; it is much easier on you emotionally. This is a trading market and not a buy and hold market. When sentiment gets too bearish, buy; when it gets too bullish sell. Right now the sentiment is rising from extreme bearish levels to somewhat bullish. It is not frothy bullish.

Also use option to limit your risk. You can do collars: i.e. sell a call against your long position (which limits your gains) and use the money to buy a put (which limits your downside).

[Satya_anveshi]

I was surprised at the MSNBC news capsule on Hilary for VP rumor. This per the capsule should happen by the end of year or shortly thereafter. She (and Clintons) represent huge business interests (and of course the Chinese too ) and if the rumor is true it should reflect in the global business sentiments IMO. Take it FWIW and std investment disclaimers apply.

[enqyoob]

This thread HAS to be sponsored by the Stock Buyers' Association of AmirKhana and Beijing.

Let's see about the claim that companies are really deep in debt, all the talk of cash is nonsense.

So as I understand it, the market is composed of many individual companies. Even if you invest in a mutual fund, the fund manager has to buy individual companies' stock.

Each company on the stock exchange posts its quarterly statement (which I am too illiterate to read) and this is public.

Individual stocks go up or down, based on whether buyers or the stock decide it is a good thing to buy, or need to sell.

Now we are told in a sweeping generalization with no details offered, that the balance sheets are all false, they are showing profit and cash flow and cash reserves and HIDING the fact that they have large liabilities??? Wow!

Really? Which companies? Intel? GE? Apple? Reliance? Tata? Hyundai? Toyota? Honda? Nokia? Exxon? Shell? Southern Company? Lockheed? Boeing (quite possible, they are behind on deliveries of 787)? SUPARCO? Kahuta Labs?

And I should hence go buy garbage-dump type Third World real estate in Communist-ruled Capitalist Paradises at inflated prices because, hello!!! tomorrow its gonna appreciate when all that (nonexistent) profit and cash come in to buy me out? Surely I can't put it in a bank, because "half the banks are walking dead"? But I wasn't planning to put my Rs. 0.10 in "half the banks". Only in one or maybe 2 or 3 banks, that seem fairly secure and have govt insurance on the deposits..

Why not just cash out now, buy a box of matches, use one to set all your cash on fire and sell the remaining matchsticks? After all the paper money is totally useless and tainted because it was issued by the criminal govt-central bank nexus? Maybe I should put it into that exotically-priced urban blight at Rs. 3.3 crore per square inch, and dig a big hole, buy all the oil that I can buy with my remaining 3 paise and pour it into the ground there as Future Resources. May add to the ambience anyway.

[enqyoob]

Just to contribute to the panic - from http://www.kiplinger.com

7 reasons why stocks still matter
BY jeffrey r. kosnett, Kiplinger's Personal Finance — 07/27/10
After suffering through a wild ride the past several years, many ordinary investors have thrown up their hands in disgust. But stocks belong in many portfolios, and you shouldn’t banish them entirely and forever.

Investing in stocks can be maddening. Major market indexes regularly swing 2% to 3% in one day, sometimes in a few hours. ..... For example, the U.S. stock market plunged 2.7% on June 29 on reports of weak home prices and consumer confidence. On July 22, the market jumped 2.5% following upbeat earnings reports from such bellwethers as 3M, Caterpillar and UPS.


In the long run, as Warren Buffett so famously put it, the stock market may still be a weighing machine--that is, it reacts over the long haul to key fundamental measures, such as corporate profits and dividends. But to say, as Buffett did, that the market is just a voting machine in the short run underestimates the degree to which today's volatility makes the market look more like a crapshoot than anything approximating a rational measuring stick of the health of corporations, both here and abroad.

The idea that you or I or even a mutual-fund manager might buy a company's stock based on fundamental developments seems positively quaint nowadays. Now, large "investors" buy and sell gigantic blocks of indexes--representing tens of millions of bundled shares and occasionally acquired with buckets of borrowed money. It's as if they were dealing in gold or crude oil or currencies rather than giving a thumbs up or down on 3M or Caterpillar or UPS.

These traders have elbowed aside long-term investors. Instead of caring about balance sheets and price-earnings ratios, they learn about high-frequency trading, dark pools, naked access and automated market structures. Where once stocks traded mainly on the New York Stock Exchange, a few regional exchanges and Nasdaq, they now change hands on more than 60 "trading platforms" where enormous numbers of shares move all day and all night--and on weekends, too.

After suffering through the wild ride of the past several years, more than a few ordinary investors have thrown up their hands in disgust. Typical is Richard Dziallo of Hickory Hills, Ill. .. "the current markets and the volatility and the price fluctuation are beyond my expectations and belief... I have watched premier stocks rise and fall in a tide of mis-beliefs and rumors" as derivatives, exchange-traded funds and other investment techniques and vehicles have helped turn the stock market "into a 24/7, 365-day casino." From now on, says Dziallo, he will invest only in bonds or put his money in the bank rather than continue to be a "pigeon."

Some professionals echo Dziallo's frustration. Lee Munson, of Portfolio, LLC, an advisory firm in Albuquerque, N.M., says many wealthy clients are fed up and want out entirely.

If you have enough money to last through a long retirement, by all means, cut way back on your allocation to stocks. As for the rest of you, don't act too hastily. Stocks belong in many portfolios, and you shouldn't banish them entirely and forever. Below are seven reasons why you should continue to hold some stocks (as long as you accept that share prices won't be calm and predictable):

1. They pay dividends

Dividends are back in favor with investors, advisers and, fortunately, many chief executives and corporate directors. Cash dividends represent money in your pocket now and don't depend on the ups and downs of a stock. Plus, a company can boost its payout every year, while the overwhelming majority of bonds and CDs pay the same amount of interest year in and year out (hey, they don't call them fixed-income instruments for nothing).

The U.S. stock market, as measured by Standard & Poor's 500-stock index, yields about 2%. That may not seem like a lot, but it's more than what you get today from a five-year Treasury note. Moreover, the index, which includes companies that don't share their wealth, understates the dividend advantage. The average dividend-paying stock in the S&P 500 yields 2.4%, and you can find plenty of good companies that yield far more. Examples: McDonald's (MCD, 3.1%; Procter & Gamble (PG), 3.1%; Johnson and Johnson 3.7%; and AT&T, a whopping 6.6%.

2. You can use them to play the economy

Paul Samuelson (quipped) about the market having forecast nine of the past five recessions. ..Typically, stocks tend to fall before a seemingly healthy economy begins to backslide and rise before the economy emerges from recession. We saw that in 2007, when stocks peaked a couple of months before the onset of recession and in 2009, when the market bottomed several months before the economy (the body that dates recessions and expansions still hasn't called an official end to the downturn that began in December 2007; Kiplinger's believes the recession ended in the middle of 2009). The main point is that in most cases you'll want to lighten your exposure to stocks when the economy is firing on all cylinders and add to your holdings when the economy looks flat-out awful.

3. They give you exposure to growth all over the world

The U.S. is no longer the only game in town. U.S. stocks now account for only one-third of global market capitalization. The real growth is in emerging markets, including such countries as India, Brazil, Mexico, Turkey, South Africa and Indonesia. If you invest (preferably through a good, well-diversified mutual fund) in local industries in these developing markets, such as homebuilding, retailing and finance, you can insulate yourself, to some degree, from the wacky doings in the U.S. market. Knee-jerk traders who dump the S&P 500 because a European bank goes bust may not bother to unload shares in the Sao Paolo or Istanbul markets because they don't control those markets, and that's a comfort.

4. IPOs offer fresh hope

Talk that Facebook or a revived General Motors will go public creates a buzz and can give the market a jolt of optimism. In this economy, poorly managed or poorly financed companies have no shot at issuing stock and fooling the public, as happened during the tech bubble of the late 1990s. As long as serious companies still see a future in getting their shares listed and traded, you have to believe the stock market can still be a place where the price of an investment will eventually reflect the value of the underlying enterprise. You'll just have to endure spells during which traders treat "good" stocks and "bad" ones alike.

5. They're just too hard to ignore

On Kiplinger.com, you can find what we call a "Tofurky portfolio" because it's supposed to act like a stock portfolio but doesn't hold any stocks. It's done well with its recipe of bonds, bank loans, commodities and energy partnerships; but there aren't enough alternative investments to go around, whereas there are trillions of dollars worth of stocks. If everyone ditches stocks and piles into other securities, you can bet a bubble will form and eventually burst, as all bubbles do. So as much as I like pipeline partnerships, for example, it's impossible to make a case for a growth portfolio that's 100% free of traditional common stocks.

6. Financial reform may help

Scoff if you wish, but if the recently enacted financial-reform law stiffens the backbones of regulators and promotes a saner approach to risk-taking at banks , the result may be fewer panics and mini crashes. Remember this: Whenever there are failures or insolvencies (or rumors of impending trouble) that involve financial firms--as opposed to oil companies, home builders or automakers--the traders' culture is to sell now and ask questions later. Anything that cuts down on the propensity of overaggressive or misguided financial firms to cause such confusion reduces the chance of a 2008-style meltdown.

7. Thank heavens for earnings season

Companies issue important fundamental news so infrequently that the arrival of earnings season comes as a relief to regular investors. That's when they learn whether a company has met expectations and, more important, they get some indication of what the future holds for a firm -- and, by extension, for a sector and sometimes for the entire market. A rally of the sort that occurred on July 22 confirms that plain old commonsense investment news can still translate into winning days for you and me. If only there could be more days like it.

© 2010 The Kiplinger Washington Editors, Inc.

[SwamyG]

Satya garu...... MSNBC is ably matched by its sister channel CNBC. The smirking baboon a.k.a Larry Kudlow is talking about how bad the economy is these days. I vividly remember the spin-master touting how good the economy was in 2008 before elections. Night after night he would come on CNBC and advocate free market capitalism and like a broken record spit at the viewers about how everything is hunky dory or going to be hunky dory. Why? Because of elections. Obama was leading the race because of "bad economy". Obama milked the "bad economy". Now in 2010, Obama is parroting how good things are getting, but Kudlow is singing different tunes of "bad economy". That is the way to beat the Dems in November 2010. Funny..............or sad the games politicians and their chamchas play?

[enqyoob]

I think I'll shoot myself instead of waiting for the Achtung_Anschluss Austrian School of E-Panikhanomics to come in and do it for me.

So as I understand it, the market is composed of many individual companies. Even if you invest in a mutual fund, the fund manager has to buy individual companies' stock.

No, the fund manager apparently just buys a piece of another Exchange-Traded Basket of Baskets of Baskets of Derivative Products.

Each company on the stock exchange posts its quarterly statement (which I am too illiterate to read) and this is public.

Who cares?

Individual stocks go up or down, based on whether buyers or the stock decide it is a good thing to buy, or need to sell.

Absolutely not. See Kiplinger article above. And I can confirm that I have no clue whether any stock is going to go up or down based on things like P/E ratio (those with negative earnings do better than those with positive ones), P/V ratio (value is zero), profitability (they lie, after all), cash flow (all bogus, they are taking out huge loans to report cash flow)

Now we are told in a sweeping generalization with no details offered, that the balance sheets are all false, they are showing profit and cash flow and cash reserves and HIDING the fact that they have large liabilities??? Wow!

A great and revolutionary revelation .. c b lo.

Really? Which companies? Intel? GE? Apple? Reliance? Tata? Hyundai? Toyota? Honda? Nokia? Exxon? Shell? Southern Company? Lockheed? Boeing (quite possible, they are behind on deliveries of 787)? SUPARCO? Kahuta Labs?

Who cares? Who knows? They are all parts of Baskets of Stock Third Derivatives of the Square Root of the Beta over Epsilon raised to the power of yesterday's temperature minus the 100 year average in degrees Farenheit in Phukit, Thailand.

And I should hence go buy garbage-dump type Third World real estate in Communist-ruled Capitalist Paradises at inflated prices because, hello!!! tomorrow its gonna appreciate when all that (nonexistent) profit and cash come in to buy me out? Surely I can't put it in a bank, because "half the banks are walking dead"? But I wasn't planning to put my Rs. 0.10 in "half the banks". Only in one or maybe 2 or 3 banks, that seem fairly secure and have govt insurance on the deposits..

Aha! So these wonderful real estate speculative ventures are done with .. .what? Gold? Or might they be leveraged derivative baskets of third derivatives of REITs, dowry re-investors, town drunks and other fly-by-nite operators providing the e-"cash" for microseconds before trading the whole basket to the ppl who buy such "packages" per recommendation of Goldman-Sachs or Kittoo the neighborhood Investment Consultant and Marriage Broker?

Anyone else see the correlation between today's Indian urban real estate Tower (I don't want to call it "bubble" to avoid hurting anyone's H&D) and the equally solid Real Estate Tower in AmirKhana of January 2007? Can the Home Mortgage mess of AmriKhaha not be replicated a 100 times worse in the commercial mortgage scams of India?

To restate the Enqyoob Phase-Shift Theorem (PST):

Follies about which we sneer at the Khans today, have just not happened in desh yet, but give us time, v r a bit slow onlee!

and the corollary

The severity of any crash in India is proportional to the square of time elapsed since the same happened in Dera AmirKhana, and inversely proportional to the level of "nah! nah! nah! won't happen here onlee!" unconcern about the possibility of its occurrence.

But.. nah! nothing like that can happen in India! How can real estate prices go DOWN in India when population is rising onlee, and there is a flood of migration to cities from rural areas? After all, in rural areas you are "rich" if you have income of Rs. 1.8lakh pa onlee. In B'looru you can't even buy a flat unless you have a salary of Rs. 20 lakhs plus bonus onlee.

Is this flood permanent? The Econonic Times, August 4, p. 8 has a

"Special Feature" on Rural BPOs From 50 centres to 1000 in five years

showing a lot of ultra-sopheesticated suit and suitina talking heads, explaining that the "rural BPO" experiment stage is over. They found that all they have to do is drop the word "rural". They can get the same quality of service, delivered at the same speed, from Alappuzha, Haryana, as from Brigade Road, B'looru or Nariman Point, Mumbai. And...

Costs have ballooned in urban areas: office rentals are up 15% to 20% and salaries 20% to 30%. While the capital expenditure (computers, bandwidth) is the same for urban and rural centres, the operating expenditure of the latter is 35% to 40% less.

Archana, a 29-year-old process executive at Harva, is being trained to be a centre manager. A big leap for her and for rural BPOs....

.. Archana, who joined as a Process Executive on a salary of Rs. 4500 per month..

Archana still hasn't changed into the Clone-e-Amirkhani stuffed-suit, so perhaps her salary hasn't quite reached Rs. 20 lakh yet to buy that Rs. 25,000 suit at Joy Alukkal's.

Point is, very few may reach those levels. And since the whole BPO marketplace is based on cost, not care or thought or quality, what is going to happen to the BPO salaries in the urban areas? OK, data entry DOOs don't get Rs. 20 lakhs, their slave-drivers do, but will the slave-drivers get paid the same when the business gets sucked out to Alappuzha, Haryana?

And what will sustain the RATE OF INCREASE of real estate prices in urban areas? Note: RATE OF INCREASE, because if that rate falls below what you can get from other things, the Basket of Derivatives will suddenly be seen to be the junk that it is, and ***POOF**** away goes the money from the real estate market. Of course, that in itself should not lower prices, because present owners will just hold on, right? Their money is of course backed by hard 400% pure gold, right?

Invest in desi urban real estate. 1,000,000,000 investors cannot be wrong.

[kubhamanyu]

Time for gold, again?

[Sanjay M]

Gold rally is still continuing, if you look back a few posts from me on this thread.

http://online.wsj.com/article/BT-CO-201 ... 14466.html

Ironically, both gold and treasuries are up, even though they're normally counterposed to each other.

That shows that there is simultaneously both a fear of domestic inflation (aka. currency erosion, aka. collapse of US economy) and of foreign-originated recession (aka. collapse of Chinese real estate, aka. collapse of Chinese economy)

Both of these forces are pushing against each other - it's a matter of which of the 2 prevails over the other. They are like 2 locomotives on a collision course. Xeno's Paradox - the Irresistable Force vs the Immovable Object.
Or, as Indians like to say, "When the elephants fight, it is the grass which suffers"

In my opinion, China holds the better cards. In the event of a Chinese real estate collapse, Chinese govt would stubbornly win out, because they will resolutely devalue their currency to export their way out of recession. Chinese leaders will do this, even in spite of past US warnings, simply because Chinese leaders fear the lamp-post if they don't.
Meanwhile, spend-a-holic US would be in no position to impose capital controls to deny China the right to purchase more US treasury debt. Neither would whitehouse wish to see the implosion of their biggest lender, which would leave the US vulnerable because they'd be forced to hike treasury yields in the absence of their Chinese sugardaddy.

So imho, that means US treasuries are a better bet than gold - at least for the near/medium term. Then wait until they really soar/swell up, and then dump them for gold which would have fallen in the meantime. Because gold will swell back up as fears return over US debt exposure due to all the Chinese purchases of US debt.

Anyone disagree?