Perspectives on the global economic meltdown (Jan 26 2010)

ramana · Post by **ramana** » 04 Feb 2010 23:41

Its current.

Suraj · Post by **Suraj** » 04 Feb 2010 23:51

Ramana: returns are always stated over a particular period. I understand you're saying the end of the period is current time, but when the start is matters a lot, because of the level of market volatility in the last 2 years.

ramana · Post by **ramana** » 05 Feb 2010 00:00

svinayak · Post by **svinayak** » 05 Feb 2010 00:30

Looking at the chart shows the market volatility in the last few years with negative returns.
That is a no brainer.

vera_k · Post by **vera_k** » 05 Feb 2010 09:21

Colorado Springs cuts services considered basic by many

More than a third of the streetlights in Colorado Springs will go dark Monday. The police helicopters are for sale on the Internet. The city is dumping firefighting jobs, a vice team, burglary investigators, beat cops — dozens of police and fire positions will go unfilled.

The parks department removed trash cans last week, replacing them with signs urging users to pack out their own litter.

Neighbors are encouraged to bring their own lawn mowers to local green spaces, because parks workers will mow them only once every two weeks. If that.

Water cutbacks mean most parks will be dead, brown turf by July; the flower and fertilizer budget is zero.

City recreation centers, indoor and outdoor pools, and a handful of museums will close for good March 31 unless they find private funding to stay open. Buses no longer run on evenings and weekends. The city won't pay for any street paving, relying instead on a regional authority that can meet only about 10 percent of the need.

milindc · Post by **milindc** » 05 Feb 2010 09:43

vera_k wrote:Colorado Springs cuts services considered basic by many
Quote from article
Employee pay criticized
Community business leaders have jumped into the budget debate, some questioning city spending on what they see as "Ferrari"-level benefits for employees and high salaries in middle management. Broadmoor luxury resort chief executive Steve Bartolin wrote an open letter asking why the city spends $89,000 per employee, when his enterprise has a similar number of workers and spends only $24,000 on each.

Once the services are cut, people start to review the budget and realize that pay of public employees is out of sync. We will see more of this all over the world.
Similar questions need to be asked in India as well. Why do we pay Rs 25,000 + benefits for a luggage hauler at Air Parasite, when private airlines use contractors at Rs.5000 per month.

amol.p · Post by **amol.p** » 05 Feb 2010 15:38

Volvo Q4 loss wider than forecast, market to grow

...get ready for Volvo China Ltd............

The company reported an operating loss of 2.3 billion Swedish crowns ($315.9 million) versus a loss of 999 million a year ago and the loss of 519 million seen in a poll of analysts.

http://economictimes.indiatimes.com/new ... 538310.cms

Dubai World woes behind Istithmar's stake sale in SpiceJet
.....now we are able to see dominno effect of Dubai problems............

Understanding is that Isthitmar has sold their stake to various mutual funds, largely domestic mutual funds. This is in view of the fact that Dubai World has been having some issues and therefore that has necessitated a liquidation of certain assets especially public listed assets.

http://www.moneycontrol.com/news/busine ... 40136.html

ramana · Post by **ramana** » 05 Feb 2010 21:52

How is SAAB/Bofors doing in Sweden? Maybe GOI should buy them and transfer lock stock and barrel to India.

ramana · Post by **ramana** » 05 Feb 2010 21:58

Fast Company Infographic on:

What crisis could crush us in 2010?

ramana · Post by **ramana** » 05 Feb 2010 23:27

Fast Company

Info Graphic: The lost decade

And take alook at the magnitude of the booms in 2000-2010 versus earlier periods.

shyam · Post by **shyam** » 06 Feb 2010 00:54

How the big banks make the big bucks

Satya_anveshi · Post by **Satya_anveshi** » 06 Feb 2010 01:14

G7 is meeting, market is taking a beating. There is amazing correlation of market corrections with G7/G20 meetings.

shyamd · Post by **shyamd** » 06 Feb 2010 04:12

Prediction: Despite the tough talk from other EU nations, I feel they will bail Greece out. That will cause markets to make a rally, then its a big down from thereon, as no one steps up to bail Spain and Portugal. They won't be able to service their own debts as the problem of soverign debt will cause investors to be spooked, IR goes up.... you can work out the rest.

About todays fall: Everyone is in denial, Schroders UK head of Equity called this an over reaction! This decline will be a long lasting decline I think.

China is facing a massive problem too, retail spaces in the worlds biggest mall are empty. Some others are 50% empty. Bank of China loan approval systems are switched off, these were driving the stock market gains. Watch things fall!

Neshant · Post by **Neshant** » 07 Feb 2010 00:45

In my opinion, the government is rigging the stock market and will continue to do so. Every now and then when everyone is in disbelief at how the market keeps rising, they will have a slight controlled correction (like we are having now) to keep the people fooled.

Where did the money to pump up the S&P 500 come from since March 2009. Nobody can identify it because it came from government rigging the market.

vera_k · Post by **vera_k** » 07 Feb 2010 01:09

I don't know about that. The stock market was starved of funds because everyone and their dog was buying up real estate. That gravy train is at an end now, so the money that has to go somewhere - and it can very well end up in the stock market because of the open spigot on margin borrowing at very low rates.

Neshant · Post by **Neshant** » 07 Feb 2010 02:16

If everybody was buying real estate, it means they are stuck with their overpriced homes and underwater mortgages paying it off. A good deal of their wealth has been wiped out with real estate prices falling. So where did the money to pump up the stock market come from. There is only one source.

Neshant · Post by **Neshant** » 07 Feb 2010 02:17

Next bear market phase starting: Prechter

26 Jan 2010, 0050 hrs IST, REUTERS
NEW YORK: The next leg of a bear market in US stocks has probably started and gold and corporate bonds are likely to slide as the US economy suffers long-term weakness, technical analyst Robert Prechter said on Monday.

Prechter has previously said he believes the 2007-2009 markets crisis and US recession were harbingers of a severe, longer economic downturn. His book "Conquer the Crash" first published in 2002 , warned about the dangers of a deflationary depression and Prechter maintains the United States economy will struggle for years to come.

"We probably have begun the next phase of the bear market," said Prechter, president of research company Elliott Wave International in Gainesville, Georgia and known for predicting the 1987 stock market crash.

The US S&P 500 index has fallen about 5 percent since hitting a 15-month peak on Jan. 19 as some investors started to worry about the possibility of a double-dip recession. Although many stock analysts expect a short term pullback of about 10 or 15 percent in US stocks, Prechter, known for his bearish views, expects a steeper, longer term fall. Within the bear market Prechter says started in 1999, this latest stock rally "is the third I think final peak," he said in a telephone interview with Reuters.

For investors in equities, this is "the last chance to get out with the Dow in quintuple digits," Prechter added. Prechter adhered to his earlier forecasts US stocks will fall below 12-year lows hit in March 2009, with the S&P 500 index falling below 666 points as the economy worsens, and as investors' recent optimism about risky assets fades.

Last year "was a respite for anyone who was stuck in corporate paper, municipal paper, stocks and commodities," he said. Now, along with stocks, corporate bonds are set to fall to lower levels than in the market panic of 2008, he said. US corporate bonds rallied spectacularly last year as investors regained their nerve in the aftermath of the global financial crisis.

Most bond analysts do not expect investment grade corporate bond yield spreads to revisit all-time wides over government bonds hit in late 2008. That was when investors panicked over a potential rerun of the Great Depression and demanded a huge premium for the risk of holding corporate debt. Prechter expects US investment grade corporate bond yield spreads to exceed the 656 basis point record of December 2008.

If deflation - an environment in which prices of everything from houses, to cars, to wages fall - does set in, gold, which in some respects is a hedge against inflation, is likely to fall precipitously in value, he expects. Gold "is over-owned and overvalued and is about to resume a bear market, if hasn't already," said Prechter.

"I think it could drop at least 40 percent from its peak value," he added. Spot gold was trading at about $1,095 per ounce on Monday, after hitting a record high of around $1,226 on Dec 3, hurt by a firming dollar, and investors' ebbing confidence about economic growth and inflation prospects.

Prechter reiterated his longstanding advice to investors to shelter in Treasury bills until between about 2014 and 2016 when he expects the unwinding of the biggest debt bubble in history will start to abate. "The bear market (in stocks) has a number of years left to run: four to six more years," he said.

"It makes it prudent to stay in the safest cash equivalents till it's over," and perhaps keep some money under the mattress as well in case of problems in the banking system, he said. Over about the next year, the dollar should continue gaining against the euro Prechter said. In October, Prechter said the dollar was bottoming. The dollar has rallied nearly 5 percent against a basket of currencies since a Nov 26 low amid expectations of higher US interest rates given strong economic data.

shyam · Post by **shyam** » 07 Feb 2010 06:22

http://www.shadowstats.com/

The SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994. That estimate is added to the BLS estimate of U-6 unemployment, which includes short-term discouraged workers.

shyam · Post by **shyam** » 07 Feb 2010 06:30

More Americans face underemployment

Satya_anveshi · Post by **Satya_anveshi** » 07 Feb 2010 06:57

PIGS - Portugal, Italy, Greece, and Spain -> people with black hair

Ireland, Iceland, and England -> people with blond hair; each in more terrible situation than PIGS but no such collective insulting terms used.

We need more of such things out in the open.

shyamd · Post by **shyamd** » 07 Feb 2010 06:59

Neshant wrote:In my opinion, the government is rigging the stock market and will continue to do so. Every now and then when everyone is in disbelief at how the market keeps rising, they will have a slight controlled correction (like we are having now) to keep the people fooled.

Where did the money to pump up the S&P 500 come from since March 2009. Nobody can identify it because it came from government rigging the market.

Nope, Roubini was saying that traders were taking loans with -10 and 20% interest. i.e. Paying them to take risk. So markets went up. Truth is Fed cannot control whats going to happen to the economy. They just follow the market.

Plunge Protection Team (PPT) does exist, but I don't think it actually works, I mean look at the number of crashes or declines we have had, it has never really stopped anything. The market is too big to be controlled.

I am with Prechter on this one. Food price inflation is up, but credit value decline on mortgages, corp bonds etc will be FAR bigger than effect of food price inflation. Sure govt is printing money of £200 billion and so on. But whats that compared to $46 trillion in credit?? When we start losing trillions (deflation) in value of credit, the printing of money(Apparently there is $2trillion USD in circulation currently) isn't really going to make that much diff in short run.

Neshant · Post by **Neshant** » 07 Feb 2010 07:56

Nobody is taking loans at 10 and 20% interest to go gambling in the stock market. Banks are not lending to real businesses why would they be lending to half-bankrupt stock market gamblers.

There is no source that has driven the stock market up other than government rigging via big fianancial firms. The monetization of debt via the stock market where a great number of Americans own assets (like retirement funds, pension funds...etc) is the only way the govt can come up with to launder printed up money into the economy. They cannot do it via handout checks as that becomes too obvious and they cannot do it by pork barrel public sector spending which looks like a waste and frightens creditors. They got to do it discretely.

There is no intent to repay the debt with dollars worth what they are in today's terms. That prescription of hard work and debt repayment is only given to developing countries.

When the private sector debt begins to collapse, some scam will be pulled to redefine the value of money. Already the UK is talking about inducting the G-20 into the IMF/G-7 grouping of goondas. My guess is they hope to roll their problems into an international currency and various agreements and use that smoke screen to destruct what's left of their own currency/debt without causing a major panic.

SwamyG · Post by **SwamyG** » 07 Feb 2010 08:16

Prad:
Sorry for the delay in my rant

Hopefully by next week I get to put the Dharmic Economic Model based on Purusarta.

#2. American lifestyle & Corporations.
The American lifestyle can be summarized by one word "debt". The private and government, both, are in debt. So what is leading to this debt? Unrestricted & unsustainable consumption. So why are they exhibiting this tendency? Well one might call it the evolution of market or the control by Corporations. If you follow this dhaaga, you must have read my earlier post about the history of Corporations. I also posted this in the "US" dhaaga. I re-post part of it here again.

Pre and Post WWI
1. With help of Abraham Lincoln, the Railroad companies won the right to break unions, hire immigrants for up to a year and device strong contractual advantages that people did not have. Corporations began to have rights that normal humans did not have.
2. In 1886, a Supreme Court clerk managed to document a judge’s opinion into the headnotes that helped Corporations to claim the rights of personhood.
3. Over the course of decades the evolution of Corporation into a person also saw the devolution of citizens into consumers.
4. Industrialists sought to develop a culture that was more sympathetic with corporate prosperity. So they funded public schools that helped create a docile work force. Stanford’s Ellwood P. Cubberley helped design a public school system based on Prussian method that sought to create “mediocre intellects….and ensure docile citizens”.
5. Woodrow Wilson with the help of practitioners of a new science – Public Relations help set up the Creel Commission – to change America’s mind.
6. Edward Bernays, nephew of Sigmund Freud, played an important role. He believed masses were too stupid to make decisions for themselves when it came to global affairs or economy. The thought was to have enlightened and informed elite to make decisions and “sell” them to the public in the form of media campaigns. This way masses began to believe they were coming up with the opinions themselves.
7. In the years to come, Bernays and people like him believed that such elite people were not found in government chambers; so they began to look for elites in the corporate boardrooms. Consumers were thought to be easily pleased than citizens.
8. By 1940, things were moving towards a form of society where the power flowed to corporately governed industrial society. Corporate funding became a necessity to put somebody in the government.

WWII and Post WWII
1. Mass media began to play further greater role in shaping the people’s mind. Marketing through media became a kind of science.
2. Industrialists produced goods, moved it through railroad companies, and people consumed these goods. TV commercials prepared these consumers and made them ready for these products.
3. Suburbs began to grow faster; and people began to further lose dependence on each other. This meant depending on Corporations.

What this all meant
1. Corporatism favored selfish over the social, the brand over the product, and central over the local.
2. It is akin to how the invention of monotheism disconnected people from the forces of nature; corporations disconnected people from each other.
3. This makes people depend on one central authority than depend on each other or on local products and relationships.

The country is in the current situation because of "social engineering" over decades in the 19th and 20th century. I consider it to be due to over reliance on materialism towards "pursuit of happiness". "over" is the keyword in the previous sentence. Right since the East India Company days, Corporations have been influencing the powers-to-be to enact/change laws to suit money making. Money making in itself is never wrong. It becomes wrong or concerning only when it becomes unsustainable. Unsustainable is in terms of drawing more resources and/or causing a negative effect on this planet.

One facet of marketing is to create a need and then fulfill the need. Corporations have been perpetuating this need for more than a century. This has made people spend enormous amount of time and money - beyond what is necessary. Two questions that should pop in our minds are - "What is necessary?" "Who decides?" The answers are vague & relative and probably why we as society continue to fail answering them.

But we should atleast make an attempt to answer these. Let me take two extreme cases and that should allow us to fit everything in between. I know a person who owns several televisions (more than 5) - various sizes, old and new. I am not sure how many work well. He must have bought them all over the years. At the opposite end would be a person with no television. But considering the times we live in, I would say one TV is almost a must. There are various costs involved in making, distributing and owing the TVs - most of them are economic, some of them are environmental. There are benefits too - employment creation. These are extremes and we can jump to conclusions easily on the question of necessity.

Answering the second question of who decides is tough and easy. All of us decide; but it is tough to enforce. Obviously the person who owns the nine TVs felt there was a necessity else he would not have bought them. It is not my business to tell him or others on how many TVs to buy for his family. I can not even say it is right or wrong; but I know those nine TVs have extracted their share of costs.

After Thanksgiving Day, Superbowl Suday is a day on which Americans consume more food on a single day. Father's Day, Mother's Day, Christmas, Valentine's Day itiyadi are all geared towards spending. Holiday spending is the period when retailers sell more products than most part of the year. Bush after 9/11 urged Americans to go out and spend. I don't bring Bush to pick on him; but bring him here because as a President he would have understood the gravity of situation and the country. People eating out several times a week, addicted to soda/pop, snacks etc are all the things that keeps the Corporations alive. One might argue that one should look at "Opportunity Costs" and look at how people spend the time gained by not cooking. Well, sadly it is their health that is getting affected. In order to remain in shape, if they have the money they join health fitness club. More money going out from the pocket.

The government is no better than the people; in order to sustain their global power and keep their citizens happy they have to protect their interests abroad. Sometimes it leads to wars which pushes their deficit higher. It allowed the "Corporatization" of agriculture in the country. It helped pushed the manufacturing out to China and other countries. The argument that there will be newer technologies that will come to the rescue will run out one day. It is often said in some circles that Pakistan is controlled by 25 rich families. America and West is almost in the same boat. The senseless expenditure has just pushed the money into few pockets. Education and Health-care two important things for any country are expensive.

It is akin to Satyam's Raju riding the tiger. The Americans can not change their lifestyle without upsetting the economy in a dramatic manner. Unless things change for good in the next 10-20 years, I don't see how they can continue to enjoy their current standards of living. I want to emphasis that I am not dissing on USA or Americans, I am just trying to point out how helpless they have become too.

SwamyG · Post by **SwamyG** » 07 Feb 2010 08:24

Fvck, I should have cashed out. I waited for more than an year and recovered lost-money-on-paper, I was almost break even. It now looks I was greedy in expecting that I at least make 2-3% . Now the losses-on-paper are huge again.

SwamyG · Post by **SwamyG** » 07 Feb 2010 08:29

(PIGS): Cracks in the European Union
The prediction in December of 2009 was:

U.S. investors should remember that Greece is simply one nation of many that are likely to produce further shocks to the global economy.

So Greece now infamously went down; so there are other countries on the line. Is the Sheet just hitting the fan?

SwamyG · Post by **SwamyG** » 07 Feb 2010 08:42

Satya_anveshi wrote:PIGS - Portugal, Italy, Greece, and Spain -> people with black hair

Ireland, Iceland, and England -> people with blond hair; each in more terrible situation than PIGS but no such collective insulting terms used.

We need more of such things out in the open.

Don't worry....PIGS is also modified to read PIIGGS. Ireland and Great Britain add the extra I and G. Also this will probably apply some balm Bullshit Britain

Neshant · Post by **Neshant** » 07 Feb 2010 08:46

Without a doubt the next Lehman Bros incident will eminate from a country, not a company.

When joining the euro, many countries were thinking only of all the economic benefits they would be able to milk out of Germans. None of them thought that getting their economy pegged to a foreign controlled currency was like putting themselves on a gold standard. They lose all flexibility to inflate away their debt and pass on the burden to their creditors (like US does and which UK is trying to do but won't get away with for much longer).

The situation is comparable to post WWI when Germany was forced to pay 1.5 times its gdp IN GOLD (since currencies were linked to gold back then) under the Treaty of Versailles. Greece is now has to pay 1+ times its GDP in a high value currency called the euro. As with the Germans then, I predict they will pay for a while and then riots will break out as living standards fall due to the massive export of capital. The debt will ultimately be defaulted on and Greece could leave the euro unless its debt is restructured (reduced) now.

India would have a hell of a time paying off 300 billion euros so how the heck can Greece do it. India would have the added burden of higher interest rates due to bogus & discredited credit rating agencies biased against developing countries for geopolitical purposes.

vina · Post by **vina** » 07 Feb 2010 08:56

Extra Extra.. For all those who were slow on the take, please read exactly how Goldman shafted AIG .Quite Conflict With Goldman helped push AIG to the precipice

Only thing is that it is the usual YYY Kansipiracy of course. Yankees, Yindu (here Ram Sundaram) and Yehudis.. Root causes onree eh?.

But my antennas say that Ram K. Sundaram seems to be a Grad from the Madras Madrassa.. Nice eh ?. Somone's got to do the God's work. In the process if you become rich and rise to become a partner at Goldman, more power to him I say.

Really nice to see old Madrassa folks in the thick of the action, being at the right place at the right time and going hand to hand in combat ops.

vera_k · Post by **vera_k** » 07 Feb 2010 10:05

Neshant wrote:Nobody is taking loans at 10 and 20% interest to go gambling in the stock market. Banks are not lending to real businesses why would they be lending to half-bankrupt stock market gamblers.

Money is essentially free these days because the fed funds rate is < 0.25%. Margin loans can be had at very small rates of interest (1%-3%) - and that's for the little guys who don't have direct access to the Fed. The Fed is providing a huge subsidy to the financial industry by keeping overnight rates close to 0%.

Couple of examples -

0% - http://www.interactivebrokers.com/en/ac ... terest.php
1.25% - http://www.tradingdirect.com/

Neshant · Post by **Neshant** » 07 Feb 2010 10:25

that's not really a loan. that's a margin account where if the value of your account drops a little, you get a margin call and have to pay up.

if as you claim investors have taken up huge margins to drive up the stock market, then why has volume been declining since march, 2009? its literally been downhill all the way on volume.

vera_k · Post by **vera_k** » 07 Feb 2010 10:37

Oh sure, you can get a margin call, but you borrow the money just the same. What data are you looking at that shows low volume? The 10yr QQQQ chart shows incredible volume in CY09.

Satya_anveshi · Post by **Satya_anveshi** » 07 Feb 2010 11:29

I am with Neshant here in that there is more than circumstantial evidence of this market being rigged. Not for nothing that ZH is even talking about DOW 10K caps for some time.

During the credit freeze and virtual free fall of the market to DOW 6.5K levels in Mar 2009, we all know the existence of SWFs which were ready to gobble up assets WW even at peaks and what's to stop them from buying at level of Mar2009.

So, after the mega bailout, HUGE govt money is moved into stocks to retain the control of major US companies and therefore US economy. Shortly thereafter market went up 40%.

Even during the past weeks, somehow markets amazingly resisted 10K level almost to the dot and like a program.

Also, the whole boom in RE was total inflation; existing wealth didn't go into it and whatever small money went it, is not going to come back soon (if not ever).

Satya_anveshi · Post by **Satya_anveshi** » 07 Feb 2010 12:17

while I was reading one of the reports on Yahoo Finance, I read the following in comment section - I thought it is relevent here:

==
Our problem is NOT unemployment, or it is NOT housing. Our problem is debt. And we have more of it now! When we borrow, banks create new money. This inflates the money supply and causes an economic boom: *********** http://www.tradingstocks.net/html/banks ... money.html *********** We borrow from the future. In the old days America has borrowed from the future. Do you read that? The future is here. The good days were moved from today, to the past! Todal public debt debt per household is around 200K USD. That is more than the average home price in America. What does that mean? It means even if you paid your mortgage, you still owe as much as an average house! The private debt is even worse! Our entire money supply is borrowed money. When we borrowed, we promised to pay back with interest! Principal + interest does not exist. Therefore it is not possible to earn it to pay it back with interest! That is why previously fine individuals and businesses are going bankrupt! the crash is built into the monetary system. It cannot be avoided. There is no free lunch. What was borrowed from the future will be paid back. Here is the debt problem that is causing deflation: *********** http://www.tradingstocks.net/html/infla ... t_bub.html *********** Let us say when we borrowed 50 trillion, we promised to pay back 100 trillion. The economy is built on the assumption that the money supply would some day reach 100 trillion. That could happen if borrowing continued. But there is a catch! The real economy cannot sustain the interest payments on debt if debt keeps increasing exponentially. That is why the deflationary crash has started. After sub-prime, we exhausted borrowers. There is no one left to borrow. Baby boomers are beyond their peak spending years. Money supply is deflating. 100 trillion will not exist and the economy that is built on that assumption will have to shrink back to lower levels, 40, 30, 20 trillion. Whatever the money supply shall be at the bottom. All prices around you, homes, stocks, pickles, salaries, everything is based on this inflated money supply. When the money supply fails to expand under the weight of excessive debt, current prices and salaries cannot be sustained. People are asking, where is the next bubble? The bubble is the debt. Debt is the money supply. We borrowed all we could and we created all money we could and it is deflating now! Prepare for the biggest crash the world has ever seen! Great Depression is nothing compared to this bubble! *********** http://www.tradingstocks.net/html/prepa ... crash.html *********** People think this is all Obama's fault. No folks, this is the mistake of 70 years. The mistake was to inflate the credit bubble for decades. The cause is in place. The effect will follow. Credit will deflate! That makes a deflationary depression. That is because we will stop borrowing and we will start paying off debt and start saving. That is a good thing. Depression is the fix! Once we are done with it, we can grow and prosper again. Here is a free report that lists other deflationary forces for 2010: *********** http://www.tradingstocks.net/html/2010_ ... ecast.html
==

Neshant · Post by **Neshant** » 07 Feb 2010 16:20

Robert Prechter's Predictions for 2010

http://www.youtube.com/watch?v=5ZE2dPzln5w

shyamd · Post by **shyamd** » 07 Feb 2010 17:31

Neshant wrote:Nobody is taking loans at 10 and 20% interest to go gambling in the stock market. Banks are not lending to real businesses why would they be lending to half-bankrupt stock market gamblers.

Just when the crisis started, I think around Nov or Dec 2008, one of the first moves was to allow Investment banks to borrow directly from the Fed. One of the reasons the carry trade went back in full swing, because Fed dropped interest rate so low.

Hari Seldon · Post by **Hari Seldon** » 07 Feb 2010 19:40

Am no fan of Sri Niall garu ( I think the man is a chaar-laat-an) who seems to have sensational soundbyte headlines more than intellectual integrity. But am unsure if I should disagree too much with his optimism on display in this following CNBS segment:Niall Ferguson: The Next Greece is The US

[youtube]<object width="560" height="340"><param name="movie" value="http://www.youtube.com/v/JzpsgDdoE0Y&hl ... ram><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/JzpsgDdoE0Y&hl=en_US&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="560" height="340"></embed></object>[/youtube]

keep some salt shakers and

hankeys ready. Enosi.

Added later: Oh, wait, seems Desutsche bank agrees only. Jai ho.

Greece ‘Dress Rehearsal’ for U.S., Deutsche Bank Says

The cost of insuring against U.S. and U.K. debt defaults may rise in the same way as it has for so- called European peripheral nations including Greece and Portugal, Deutsche Bank AG said. “The problems currently faced by peripheral Europe could be a dress rehearsal for what the U.S. and U.K. may face further down the road,” Jim Reid, a strategist at Deutsche Bank in London, wrote in a research note today.

Credit-default swaps on the debt of Greece, Spain and Portugal rose to record highs today amid concern that European governments will struggle to fund their deficits. Contracts on Greece climbed 19.5 basis points to 446.5 before dropping to 422.5, CMA DataVision prices show. Spain’s increased 13 basis points to 183 before falling to 168, and Portugal’s rose 9.5 basis points to 239 before slipping to 223.5. The U.S. and U.K. “have similar issues to those facing peripheral Europe but have the luxury of a flexible currency up their sleeves as a first defense if the market wants to attack them,” Reid said. “Such a defense means that the market, for now, thinks there are easier targets.”

Hari Seldon · Post by **Hari Seldon** » 07 Feb 2010 20:02

The only bright spot with good future prospects in an otherwise flailing G7 duniya is, of course, UK-stan. Here's more corroboration....
There but for the grace of God goes Britain

History repeats first as tragedy, then as farce. They say. Here's the greek tragedy first:

Greece is indeed buried deep in the financial mire. At first gradually, and then with alarming speed, the country has lost credibility with investors to such a degree that it is now having to offer an interest rate of 7 per cent to persuade them to buy its debt, compared with 4.5 per cent a few months ago. Some, including Papandreou, characterise this as a speculative move aimed at splitting up the euro; others see it as a statement of economic disgust at a country whose public finances, always bad, have now dipped into no-hope territory.

Is there an object lesson here? You betcha.

There is some truth to both theories, but, more important, at least for both Gordon Brown and David Cameron, there is a broader lesson: the only thing that matters more than knowing what to do about the deficit is persuading the markets that you know what you’re doing about the deficit. Because there but for the grace of God goes Britain. There is no knowing how and when investors will lose their faith in a government, but when it’s gone, there isn’t much you can do to get it back.

{Kindly re-read and digest the bolded parts above only. 400% agree. Once UKstan and yanquistan go into a debt spiral, even they'll find it hard despite 24x7 printing presses to keep throwing crumbs at their TSP biatch, who knows?}

Greece, in other words, is the fiscal Petri dish that reveals in gory detail what could happen in the UK if this Government – or the next – fails to maintain the confidence of investors.

{'gory' detail? Could it have been gora detail, perhaps?
/Just kiddin' }

It is not merely that those interest rates are already inflicting an awful toll on borrowers in Athens and beyond.

It is that they are sending the national government towards a full-blown debt spiral, in which the cost of its annual interest bill becomes so unmanageable that it can hardly afford to supply its citizens with basic services.

That last bolded part is the punchline, the meat of the article only.

Aah. But the IMF is there nah, you aver...the big dada. IMF'll bail 'em out and make 'em problems go away. No?

And an IMF bail-out would only layer new debt on top of the old. In the end, the only solution is to find some way to slash spending and raise taxes without a) sparking riots or revolution and b) critically damaging the economy.

Something that Greece is fiding hard to do indeed, what with its largest unions declaring jeehard against gubmint 'austerity'. Would gleat blitain find it similarly difficult, you may wonder. Its not called gleat for nothing now, is it?

Should markets pass the same verdict on Britain as on Greece, the results would be almost identical. In its Green Budget yesterday, the Institute for Fiscal Studies, with the help of Barclays Bank, attempted to map out what would happen if the Government failed to achieve the necessary cuts in its budget in the coming years.
The verdict: a “very large, and fast-acting” impact on interest rates, pushing them even higher than Greek rates today.{Whoa!}
Still, we are not there yet.
And there are four reasons to be cautiously optimistic about Britain’s chances. {}well, ok, if ya say so, I guess

The first is that much of the population is already reconciled to some form of austerity. Both main parties want to cut the deficit sharply, and although the Tories talk a little tougher, in economic terms there is actually not that much clear water between their proposals and those already laid out by the Treasury.

Second, the UK started the crisis with national debt below 40 per cent of gross domestic product, compared with Greece, whose national debt was already close to the 100 per cent of GDP – near the tipping point for a debt spiral.

Third, it is a little-appreciated quirk of the British market that, rather like a homeowner on a long fixed-rate mortgage, the Government has to roll over its debt far less regularly than other countries, so is significantly insulated from a Greek-style crisis.

And fourth, unlike Greece, Britain has its own currency, which affords it more leeway to adjust.

That's the sweet part above. Here're the diabetes risks though:

But as Greece has shown, a credibility collapse can take place even when you least expect it. Despite George Osborne’s pledge earlier this week to safeguard Britain’s credit rating, some still reckon there is an 80 per cent chance of the UK losing its coveted triple-A status – something that could trigger an investor panic. So both main political parties should, as a matter of course, prepare detailed emergency plans saying what overnight cuts they would impose in the event of a similar crisis.

However, avoiding such a credibility collapse will not spare Britain from having to drag itself through an economic transformation with the same end: to reduce debt and to live within its means. For some countries, the financial crisis was painful because people suddenly started spending less.
For Britain, it uncovered the fact that the nation had duped itself into believing it was more prosperous than it really was.
We mistook a debt bubble and the proceeds of financial engineering for sustained and lasting growth. {Yup, that and the fact that there were no other starving colonies you could leech lifeblood out of, no? Elementary, Watson. Eh?}
Time to get real.{No kiddin', eh?}

Read it all. Howla-level howler only.

Statutory disclaimer: Moi got nothing against the people of UK-stan. But, got zero goodwill for the establishment that feeds of the said beebals. That is all, only.

vina · Post by **vina** » 07 Feb 2010 20:49

Nice.. Socialism Jai Ho. Greece is one of the bastions of old style socialism. A massive culture of entitlement . A bloated public sector /command economy and a work culture that would teach our own Indian Public Sector or two about slack and indolence. Of course, latching on to the Euro was a god send, coz you could ride on the coattails of the Germans.

Now to cover up and get free lunches they lied . The Greeks gave the European Statistics Office, false data all along. The fiscal deficit was not 3.7%, but actually 12.7% . And now the economies are diverging. France and Germany are growing and need to raise rates soon. The rest of Club Med (Spain, Portugal, Greece) along with Ireland are in a a SAVAGE recession . They need low interest rates. Now the only way out for those jokers who dont have the wherewithal to inflate away their debts is to cut spending. Everything has a cost. They had a golly great decade riding on the coattails of the Euro. Now the Chickens are coming home to roost.

Is Greece's Debt Trashing the Euro?

svinayak · Post by **svinayak** » 07 Feb 2010 22:15

Baby boomers busted by housing market collapse
Mary Umberger
http://www.chicagotribune.com/classifie ... ?track=rss

Mary Umberger
On Real Estate
February 7, 2010
I have become, again, the people I write about.

In two instances since I started covering real estate I've been a seller/buyer, and those experiences taught me a lot, especially that I find packing and moving to be the sort of thing that induces tics.

In addition, from day one on this beat, I've been one of those ever-studied baby boomers. We are the fruit flies of American real estate trends: For many years, demographers, economists and anybody with an interest in getting a subdivision built has watched our every move. Go ahead and blame all the usual suspects for the housing bubble — the mortgage industry, the real estate brokers and homebuilders, the bond traders, et al. — but we boomers were the visible face of the buying-and-selling spree from which it will take the nation years to recover.

This time, though, it's what I'm not doing that puts me in an increasingly crowded category: I'm a baby boomer who thinks it's probably time to sell the manse and move to someplace smaller. That's what I'm thinking, anyway. Barring some nationwide economic miracle, however, that's not going to happen. Until housing finds its footing again and home prices start to look up, I'm going nowhere, unless I'm keen to lose money.

I have plenty of company. My fellow boomers and I, it appears, are suffering from a serious case of real estate irony. Housing, the very thing that fueled our generation's legendary mobility and free spending, is keeping us right where we are.

A sobering new study from the Urban Land Institute, a Washington think tank for development issues, predicts that housing prices nationwide have 10 percent further to fall by either late this year or early in 2011, feeding the flow of foreclosures and underwater home values.

It also says that what baby boomers do in the coming decade will be no less important than when the bubble was inflating. There are 78 million of us, and in 2011, the population of senior citizens (a term that I'm predicting boomer vanity will drive into extinction, by the way) will be growing at a rate that's faster than that of the general population.

The Urban Land Institute's study, called "Housing in America: The Next Decade," divides us into two groups: older and younger (though I'm not about to blurt out which one is mine). The older group, aged 55 to 64, will continue to work, either out of necessity or choice. The news here is that just a few years ago, boomer studies were predicting that we'd put off retirement for the latter reason, that we liked the busy-ness of work. Those studies, though, were before the stock market shredded a generation's 401(k) plans. Now, the money is doing the talking.

The real estate takeaway for this older group is, in the institute's verbiage, that many boomers will be "trapped" in their suburban homes until values recover. Not only are they waiting for their homes' values to emerge from underwater status, but their houses, the institute says, tend to be bigger and farther out in suburbia than the next generation wants.

The younger boomers (aged 46 to 54) also won't have an easy time selling their homes. These people are in their prime earning years, but they're facing flat incomes and the ugly truth that many of them have very little home equity. In the olden days (five years ago), they would have been prime candidates for purchasing vacation homes, a prospect that now, for the aforementioned reasons, is "greatly diminished," according to the institute.

I could go on, but I've typed myself into a deep funk, here in my too-big ol' house. So I figure I might as well take a glass-half-full view of things: The Urban Land Institute study didn't say I'd never manage to sell, only that it will take longer than my generation, famous for its I-want-what-I-want-right-now attitude, is used to.

If moving isn't in the near-term cards, I might as well sit back and enjoy. Maybe I'll finally paint that bedroom that has needed it since I moved here in 2005, at the statistical height of the boom. Besides, I still haven't finished unpacking.

svinayak · Post by **svinayak** » 07 Feb 2010 22:35

The Pinch: How the Baby Boomers Stole Their Children's Future by David Willetts
Richard Reeves on a hard-hitting account of the generation that took the houses, jobs and welfare – and is having all the fun
Richard Reeves
The Observer, Sunday 7 February 2010
http://www.guardian.co.uk/books/2010/fe ... d-willetts

David Willetts is a rare creature. Britain does not produce many public intellectuals. To find one lurking deep in the jungle of Westminster politics is little short of an anthropological miracle. But with this book, Willetts, a frontline Conservative politician, has confirmed his status as the thinking person's MP.

The Pinch: How the Baby Boomers Took Their Children's Future - And Why They Should Give it Back
by David Willetts
288pp, Atlantic Books, £18.99

Buy The Pinch: How the Baby Boomers Took Their Children's Future - And Why They Should Give it Back at the Guardian bookshop
The Pinch sets out to show how the baby boomers – those, like Willetts, who were born between 1945 and 1965 – have "stolen their children's future" through their cultural, demographic and political dominance. Willetts does not quite succeed in proving this charge of intergenerational theft. But in marshalling his case he takes you on such a fascinating journey through British society that you do not feel remotely shortchanged.

His stated thesis is that the big generation of boomers has concentrated wealth, adopted a hegemonic position over national culture and failed to attend to the needs of the future. They have, in effect, broken the inter-generational contract. It is certainly true that the boomers have done well out of the welfare state, being set to take out, Willetts suggests, approximately 118% of what they'll put in. But this makes them no worse than previous generations, including those born between 1900 and 1920.

There is also no doubt that the monomaniacal British obsession with home ownership, while far from being a new phenomenon, has so far benefited the boomers rather more than the generations on either side. At the same time, the rise in immigration since the mid-1990s has held down wages for Generations X and Y (or those born between the mid-60s and the millennium) who would otherwise be benefiting from being in a smaller cohort and therefore a tighter labour market. It is also true that the boomers haven't been proactive enough on climate change – indeed, Willetts says too little about this – but it is hard to argue that they can be singled out on these grounds.

Willetts is unsure whether the boomers are a bad generation or just a big and lucky one. At one point, he insists that "generational name-calling" is unhelpful and that the issue at hand is simply a demographic one. But at other points, he labels the boomer generation a "selfish giant", which sounds like name-calling to me. The main problem facing him is the absence of hard data. There is good academic research in the US on "inter-generational accounting", but no equivalent here.

Willetts is candid about the fact that "there are no authoritative estimates of the distribution of the £6.7 trillion of wealth in our country between the different age groups" and relies instead on the assertion that "there are good reasons to believe" the boomers have got more than their fair share. There are some reasons to believe this, but it is also likely that the recent financial crash will alter any generational distribution of money, since the boomers are retiring just as the value of their pension assets has been sharply knocked down.

Willetts might have done better to take as his main theme the links between family, education and social mobility, since on these issues he is on firmer ground. In fact, his title could just as easily have been The Big Grab: How the Rich Are Using Money and Marriage to Buy the Future for Their Kids. His opening chapter is a tour de force, a brief, brilliant history of England's social architecture. He shows that far from being a modern invention, the nuclear family is a long-standing feature of Anglophone societies. (We are, he says, "the first nuclear power".) The idea that we used to live in big, warm, noisy My Big Fat Greek Wedding-type families is a myth. "Think of England as being like this for at least 750 years," he writes. "We live in small families. We buy and sell houses. We go out to work for a wage."

The English have a private, market-based idea of property, in contrast to the familial property forms of our continental neighbours. Over a 44-year period in Leighton Buzzard, more than 900 houses changed hands. Two-thirds were sold to someone outside the family, rather than being passed down. The years in question? 1464 to 1508.

By contrast, the large familial networks of continental Europe act as the institutional anchor for property ownership and transmission, as well as for the formation of businesses and the provision of welfare. Willetts speculates that the property-managing function of French families may explain why romantic love there is more often associated with extramarital relationships. The orientation towards family-owned firms in Germany helps to explain the strength of the Mittelstand, the medium-sized, locally rooted layers of corporations.

Willetts does not at any point fall victim to the awful if-only-we-were-more-like-the-continentals lament. He does not want to alter our social DNA. But our particular social economy has two important consequences. First, the smallness of our families puts a greater emphasis on non-familial civic institutions. Small families need civil society more. This is why medieval guilds, trade unions and churches have played such an important role in our history.

Second, the welfare role of government is greater in a society marked by a highly privatised notion of property and small families. Breadwinning men are less likely to have family resources to fall back on, so need out-of-work benefits. This system worked reasonably well until the rise in divorce rates in 1970s and 1980s. Then, millions of women, many with dependent children, suddenly became reliant on the state. As Willetts puts it: "A welfare system that was originally designed to compensate men for loss of earnings is slowly and messily redesigned to compensate women for the loss of men." And everybody – but especially women – ends up poorer. This is why Willetts, certainly no reactionary, is so pro-marriage.

Strong parental relationships also influence children's well-being, which in turn affects the chances of upward social mobility, another of Willetts's preoccupations. Drawing on the very latest and best research, Willetts shows how the middle classes are tightening their grip on the opportunities available for the next generation. The professions are all but sealed off from the poor: "The competition for jobs is like English tennis, a competitive game but largely one the middle classes play against each other."

In general, this is a remarkably non-political book; David Cameron is mentioned just once. But Willetts does argue strongly for a vouchers scheme in education, weighted in favour of the poor, in order to break the middle-class stranglehold on the state education system. And the explanation for the flat-lining of social mobility brings Willetts back to social structures and, in particular, the trade-off between gender equality and class equality. The principal beneficiaries of the expansion of higher education have been the daughters of the middle class. Six per cent of girls born into low-income families in both 1958 and 1970 went to university; for girls born into richer households, the rate rose from 21 per cent to 36 per cent.

"Educational upgrading" – the increase in the numbers of young people getting qualifications – accounts for 40 per cent of the fall in mobility for women between 1958 and 1970. This is, as Willetts says, a shocking statistic. The expansion of higher education, far from improving social mobility, has actually made it worse.

Women graduates marry male graduates and this trend towards "assortative mating" has increased in recent years, which means that on a household level, inequality is bound to rise. The narrowing of the gender gap seems to have widened the class gap. As Willetts puts it: "Feminism has trumped egalitarianism." And not just for one generation, either: just 5% of degree- educated mothers split up from their partner before their child's third birthday, compared with 42% of mums with no qualifications.

Willetts manages to synthesise these social trends into a coherent and engaging narrative, successfully mixing vignettes from South Park and The Simpsons with statistics from the British Household Panel Survey. Most important, when it comes to social and economic research, Willetts really does know his stuff.

David Cameron has lately been engaging fruitfully with external political thinktanks (including, I should say, Demos). This is greatly to his credit. Let's hope he recognises that in David Willetts he has a one-man thinktank right under his nose.

Richard Reeves is the director of Demos