Perspectives on the global economic meltdown

vsudhir · Post by **vsudhir** » 22 Jun 2009 02:25

‘Buy China’ Policy Will Raise Protectionist Tensions

China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus programme in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world.

In an edict released jointly by nine government departments, Beijing said government procurement must use only Chinese products or services unless they were not available within the country or could not be bought on reasonable commercial or legal terms.

Just a few months ago Beijing was raging against a proposed “Buy American” clause included in the US economic rescue package.

“Some countries raised clauses to prioritise the purchase of products of their own countries in their economic stimulus packages,” Yao Jian, a Chinese commerce ministry spokesman, told reporters in February. “We express deep concern about these [measures] ... under the current financial crisis, measures issued by all countries should not cause negative impacts, and especially they should not send out wrong messages.”

Most economists agree China’s economy is starting to recover as a result of its aggressive stimulus package but the country is still struggling with unemployment and fears widespread layoffs could lead to serious social unrest.

“The whole world is dying to see China spread its orders around and save their economies,” said Mr Tao. “But what this policy reflects is heightened anxiety about these job pressures and the potential for social unrest.”

Trade data in recent months show import volumes, particularly of raw materials, have stabilised and started to increase strongly, while exports have stabilised but remain very weak following precipitous drops in both exports and imports since the fourth quarter of last year. China’s trade surplus rose 15.7 per cent to $88.8bn in the first five months from the same period a year earlier.

1 blogger opines:

Congress is tied up now with all kinds of other nonsense, but if protectionist sentiment in Congress heightens in response to China's actions, world trade will be seriously affected.

The last thing the world economy needs right now is another Smoot-Hawley Tariff act out of US Congress. It should be obvious that a global "Buy Me" policy by every country in the world cannot possibly work, but that may be where we are headed.

link

vsudhir · Post by **vsudhir** » 22 Jun 2009 06:23

Andy Xie: Chinese Banks Funding Commodities Speculation, Casting Doubt on Recovery

Worthwhile read, IMHO.

Some excerpts:

China's credit boom has increased bank lending by more than 6 trillion yuan since December. Many analysts think an economic boom will follow in the second half 2009. They will be disappointed. Much of this lending has not been used to support tangible projects but, instead, has been channeled into asset markets.

Many boom forecasters think asset market speculation will lead to spending growth through the wealth effect. But creating a bubble to support an economy brings, at best, a few short-term benefits along with a lot of long-term pain. Moreover, some of this speculation is actually hurting China's economy by driving asset prices higher.

nutshell : good part of the vaunted 'stimulus' is by leaning on banks to lend, and state-owned banks lent by guangxi to party favorites who're now dabbling in speculative commodity trades.

The current surge in commodity prices, for example, is being fueled by China's demand for speculative inventory. Damage to the domestic economy is already significant. If lending doesn't cool soon, this speculative force will transfer even more Chinese cash overseas and trigger long-term stagflation.

Commodity prices have skyrocketed since March....The weak global economy can't support high commodity prices. Instead, low interest rates and inflation fears are driving money into commodity buying.
...
The iron ore market has been brutal for China, partly due to China's own inefficient system. China imports more ore than Europe and Japan combined. Skyrocketing prices have cost China dearly.

For four decades before 2003, fine iron ore prices fluctuated between US$ 20 and US$ 30 a ton. As ore was plentiful, prices were driven by production costs. After 2003, Chinese demand drove prices out of this range. Contract prices quadrupled to nearly US$ 100 per ton, and the spot price reached nearly US$ 200 a ton in 2008.....

China's local governments have been obsessed with promoting steel industry growth....But the spot market is relatively small, and mines can easily manipulate spot prices by reducing supply. On the other hand, numerous Chinese steel mills simultaneously want to buy ore to sustain production so their governments can report higher GDP rates, even if higher GDP is money-losing. China's steel industry is structured to hurt China's best interests.

As steel demand collapsed in the fourth quarter 2008 and first quarter 2009, steel prices fell sharply. That should have led to a collapse in ore demand. But the bank lending surge armed Chinese ore distributors, giving them money for speculating and stocking up....

What is happening in the commodity market is glaring proof that China's lending surge is hurting the country. Even more serious is that it is leading Chinese companies away from real business and further toward asset speculation – virtual business...

xie lays out the algorithm rather plainly, mussay.

As the economy weakened in late 2008, private lenders began demanding money back from distressed private companies. Loans from state-owned enterprises may have kept many private companies from going bankrupt. It has served to re-channel bank lending into cash for individuals and businesses that were in the lending business. This money may have flowed into asset markets. It is part of the phenomenon of the private sector withdrawing from the real economy into the virtual one.

It's worrisome that businessmen have become de facto fund managers and speculators. This happened 10 years ago in Hong Kong, and since then the city's economy has stagnated. Some may argue that China has SOEs to lead the economy. However, private companies account for most employment in China, even though SOEs account for a larger portion of GDP.

Now, the government is spending huge amounts of money to provide temporary employment for 2009 college graduates. If private sector employment doesn't grow, the government may have to spend even more next year. The government is using fiscal stimulus and bank lending to support economic recovery. But the recovery may be a jobless one. China needs a dynamic private sector to resolve the employment problem.

We are seeing a dark side to the lending surge as commodity speculation hurts the economy. More lending may lead to higher commodity prices, threatening stagflation. Cheap loans benefit overseas commodity suppliers, not necessarily the Chinese economy. Lending policy should consider this self-inflicted damage.

Many analysts argue GDP growth follows loan growth, and inflation is a problem only when the economy overheats. This is naive. Borrowed money channeled into speculation leads to inflation. And China may face a lasting employment crisis if private companies don't expand.

Last line is bang on. Exactly what happened in japan post 1990 and in the greenspanian US in the 21st century.

This lending surge proves China's economic problems can't be resolved with liquidity. China's growth model is based on government-led investment and foreign enterprise-led export. As exports grew in the past, the government channeled income into investment to support more export growth. Now that the global economy and China's exports have collapsed, there will be no income growth to support investment growth. The government's current investment stimulus is tapping a money pool accumulated from past exports. Eventually, the pool will dry up.

And that is the bottomline.

vera_k · Post by **vera_k** » 22 Jun 2009 06:39

Author says blue collar work is a good bet in the USA. Getting into these lines of businesses is fairly cheap at this point in time.

Link

vsudhir · Post by **vsudhir** » 22 Jun 2009 08:08

JS garu,

Am now pretty firmly in the deflation camp. Even ordinary inflation, much less hyperinflation, seems difficult to foresee.

The people who worry about inflation—and there are many—may not have fully grasped the multitrillion-dollar ramifications of American households' extended deleveraging. While cleaning up debt is a good thing for the long-term health of the U.S. economy, it's hell on consumer spending, which accounts for about two-thirds of gross domestic product. The dramatic pullback in consumer spending means money that otherwise would have gone into raising prices is going into propping up the faltering economy.

Banks have drastically increased their reserves at the Fed rather than making new loans. That's the biggest cause for the increase in the monetary base. "At every level of the economy and every level of society, the demand for cash is unprecedented," says David A. Rosenberg, chief economist and strategist for Gluskin Sheff & Associates, a Toronto money manager. Says Rosenberg: "If the Fed didn't meet that demand for cash, we'd have a destabilizing deflation on our hands."

As a matter of fact, the economy is teetering on the edge of deflation—a general extended decline in prices—despite the Fed's intervention. Excluding food and energy, consumer prices rose a modest 1.8% in the 12 months through May—and including food and energy, they fell 1.3%, the most since 1950. Cutbacks by consumers are bringing about deflation in business, with unemployment in May at 9.4% and manufacturers using only 65% of their capacity, the lowest since recordkeeping began in 1948. Small businesses that were aggressively raising prices a year ago are now "worried about weak demand, the fact that they don't have many customers," says William C. Dunkelberg, chief economist of the National Federation of Independent Business.

Inflation remains a distant prospect because the retrenchment of the American consumer, which is deflationary, still has a long way to run. Consider that household debt soared from two-thirds of GDP in the early 1990s to three-quarters in 2001 to an even 100% at the end of 2008. Getting back to a more sustainable debt ratio will take years of belt-tightening. Based on today's GDP, simply returning to the 2001 level would require paying off 25% of all outstanding household debt—$3.5 trillion worth.

True, plenty of legit economists don't buy this low-inflation scenario. Sooner or later, they argue, all that money is bound to show up in prices. "We will soon see a resurgence of inflation and an increase in mortgage rates," says Stanford University economist John B. Taylor, "unless the Fed presents a clear and credible exit strategy from the unprecedented explosion of its balance sheet."
...

It's not primarily inflation fear that's pushing up interest rates, but rather massive federal deficit spending. Investors are demanding higher yields to take even more Treasury bonds. In fact, the bond market is forecasting inflation averaging only about 1.8% a year over the next decade, judging from the spread between ordinary and inflation-indexed Treasury bonds.
...
Whether inflation could become an issue in two or three years is irrelevant anyway, argues Gluskin Sheff's Rosenberg. The important thing, he says, is to stave off deflation right now: "Once you get onto the slippery slope of a deleveraging, it's extremely difficult to climb your way out." In the past, countries where consumers retrenched, such as Japan, were able to fight their way out of recession through exports. The catch this time is that lots of countries from the U.S. to Germany to China are pegging their hopes on export-led recoveries.

link

There's more. Debt-monetizing and overdriven printing presses are yet to manifest in increased money supply!

So say the pundits, but in the past year the Fed has "monetized" over a trillion dollars worth of debt, yet the money supply is not expanding.

link

Lucid, well written and totally readable. IMVHO.

vera_k · Post by **vera_k** » 22 Jun 2009 09:24

Worst of crisis is behind us

Important indicator coming from Soros. This was his take before the stock market meltdown in Oct 2008.

Singha · Post by **Singha** » 22 Jun 2009 10:10

Employers cutting back 401(k) plans: study
Mon Jun 22, 2009 12:28am EDT

NEW YORK (Reuters) - A quarter of U.S. employers have eliminated matching contributions to employee 401(k) retirement plans since September to save money amid the economy's downturn, according to research released on Monday.

A quarter of U.S. employers also have instituted limited enrollment rather than open the savings plans to all employees, according to the study conducted for Charles Schwab Corp. by CFO Research Services.

Although the study showed 23 percent of companies have eliminated 401(k) matching contributions, most see the move as temporary, said Steve Anderson, who heads Retirement Plan Services at Charles Schwab, a financial services provider.

"Most view that as a temporary step. They don't see that as a long-term approach," he said. (right!)

Workers with 401(k) plans have seen their savings hit hard in the recession. A 401(k) account allows workers to defer taxes on some income and typically put the money in a mix of stock and bond mutual funds and other investments.

Companies often match all or part of employee contributions.

Asked to identify the most important feature of their company's 401(k) plans, 87 percent of those polled said it was the company's match, the Schwab study said.

Second most important was providing employees access to 401(k) investment advice, the study said.

Of the 107 human resource and 112 senior finance executives polled, 63 percent said employee concerns over personal finances are creating a more difficult work environment.

The online survey was conducted in March and April among executives at companies with revenues ranging from $100 million to more than $10 billion in a cross-section of industries.

More than half of the respondents worked for companies with more than 1,000 employees eligible for participation in their 401(k) plans. A statistical margin of error was not immediately available.

(Reporting by Ellen Wulfhorst; Editing by Jackie Frank)

vsudhir · Post by **vsudhir** » 22 Jun 2009 15:54

Goldman to make record bonus payout

Surviving banks accused of undermining stability

Sometimes, the auda-citi just gets funny onlee.

Recalling lyrics I used to hear as a kid....

We didn't start the fire/
Twas always burning, since the world was turning'/
we didn'
t light it but we tried to fight it

Sums up Sri Goldman sax perfectly onlee.

Ameet · Post by **Ameet** » 22 Jun 2009 21:44

Insiders exit shares at the fastest pace in two years

http://www.bloomberg.com/apps/news?pid= ... gNM5hd9W94

Highlights:

Executives at U.S. companies are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago. Insiders of Standard & Poor’s 500 Index companies were net sellers for 14 straight weeks as the gauge rose 36 percent.

“If insiders are selling into the rally, that shows they don’t expect their business to be able to support current stock- price levels,” said Joseph Keating, the chief investment officer of Raleigh, North Carolina-based RBC Bank, the unit of Royal Bank of Canada

Chinmayanand · Post by **Chinmayanand** » 22 Jun 2009 22:20

30-Years of Inflation Coming, But "Deflation Scare" Not Over Yet, Cycle Maven Says
Everyone is right to fret about inflation but the "deflation scare" isn't over yet, says Charles Nenner, founder of the Charles Nenner Research Center.
Renowned for his cycle work, Nenner sees deflation remaining dominant until year-end and inflation not picking up for another 18 months. But that will be the start of a 30-year (yes, year) upcycle for inflation says Nenner, who spent 12 years as a market-timing consultant for Goldman Sachs.

The investing implications of this scenario are clear:

Nenner is bullish on gold for the long-term and even more bullish on gold mining stocks, which he says are currently cheap relative to bullion.
After a secular decline, Treasury yields are set to rise, with Nenner predicting the 10-year yield will reach 5.50% by Spring 2013, a 45% rise from Friday's close of 3.78%.
What's less clear is the timing of this trade. Nenner believes the "deflation trade" is about to reassert itself in the short-term, meaning strength in the dollar and Treasuries, and weakness commodities and equities, as we'll discuss in more detail in a forthcoming segment.

For those who believe the dollar is doomed, Nenner notes "all currencies are bad." In other words, currency trading will be a game of relative bets vs. a one-way trade against the greenback, as so many expect.

vsudhir · Post by **vsudhir** » 22 Jun 2009 23:05

The trends journal - a glimpse of 2012 today

Insightful stuff. Its a short pdf download. worthwhile look through.

A tad too alarmist for my taste, but hey, what have you.

vsudhir · Post by **vsudhir** » 22 Jun 2009 23:12

ramana wrote:Dont be fooled by Doom and Gloom folks. In the 80s they were all constantly moaning while the economy took off. So those following the D&G guys were left behind. So lesson is look at all the pictures and not just at scary ones. new oppotrunities were created as the D&G guys were convincing mainstream all was lost.

There is now talk of ending the recession earleir than expected. Could be psy-ops but could be true.

All too true. never pays to underestimate the khans.

However, note some differences between the D&G of the 80s versus now. The khanate then did have the clout and the consensus to force the 1985 plaza accords down tokyo's throat. What followed was the khan rising like the phoenix in the 90s post cold war whereas Japan sinking like a lead balloon after suffering the biggest asset bubble (and hence, the biggest bubble bursting) until then - losing 2 decades to deflation, debt spirals, 0% interest rates and what not.

Dunno what the khan will do now w.r.t. PRC and the BRICs in general to keep at the top of the heap.

ramana · Post by **ramana** » 22 Jun 2009 23:30

One of the first things is to ensure that the PRC, Russia and India don't come together to create new basket of currency. They might throw some lucrative sops to ensure this happens: investment routed to India, gas cartel for Russia and whatnot. PRC with its recalcitrant leadership have ensured none of the other two neighbors can trust them. So they will be the new Japan. However unlike Japan they will do their darndest to take down India. Have to figure out how.

vsudhir · Post by **vsudhir** » 23 Jun 2009 00:36

Mark Steyn again.... how true is this, btw? Can anyone confirm or disprove the stuff he states about the UKstani NHS?

If you’re a business, when government gives you 2% of your income, it has a veto on 100% of what you do. If you’re an individual, the impact is even starker. Once you have government health care, it can be used to justify almost any restraint on freedom: After all, if the state has to cure you, it surely has an interest in preventing you needing treatment in the first place. That’s the argument behind, for example, mandatory motorcycle helmets, or the creepy teams of government nutritionists currently going door to door in Britain and conducting a “health audit” of the contents of your refrigerator. They’re not yet confiscating your Twinkies; they just want to take a census of how many you have. So you do all this for the “free” health care—and in the end you may not get the “free” health care anyway. Under Britain’s National Health Service, for example, smokers in Manchester have been denied treatment for heart disease, and the obese in Suffolk are refused hip and knee replacements. Patricia Hewitt, the British Health Secretary, says that it’s appropriate to decline treatment on the basis of “lifestyle choices.” Smokers and the obese may look at their gay neighbor having unprotected sex with multiple partners, and wonder why his “lifestyle choices” get a pass while theirs don’t. But that’s the point: Tyranny is always whimsical.

link

vsudhir · Post by **vsudhir** » 23 Jun 2009 01:22

William Buiter on the emerging economies. Recommended read!

The emerging markets are a very heterogenous bunch. Their recent economic performance and prospects range from quite good (India, Turkey, Brazil since the end of the destocking implosion), to prima facie quite good (China) to pretty mediocre or bad (Central and Eastern Europe), to dismal (Russia).

Those emerging markets that (1) did not have their domestic financial sectors destroyed or excessively exposed to parent banks in the North Atlantic region; (2) are not excessively dependent on export demand and (3) are not too dependent on foreign funding are likely to do best and have a ‘V’-shaped recovery. India ticks all the boxes. …

China is the great unknown. It is big enough to make a global impact. It is, however, very export dependent. It will have to swicth demand towards domestic final demand, including consumption of non-traded goods and services. The potential is certainly there…

A key question is whether the Chinese authorities have the implementation capacity to steer this change in the composition of production and demand towards import-competing goods and non-traded goods and away from exportables. Given enough time, they no doubt can, but it is not obvious that it will be possible to achieve this right now - over a horizon relevant to the cyclical state of the Chinese and global economy…

Finally, there is the usual worry about the quality and bias in the Chinese statistics. In China, as in most authoritarian states, statistics are not primarily a source of information, but a policy tool and a propaganda instrument. Corroberation is therefore important. Chinese energy (electric power) consumption historically tracks industrial production and GDP quite well. Not so since the downturn began. Power consumption has been declining despite continuing GDP growth. As there has been no big push on energy conservation in China, either through prices or through administrative methods, this coexistence of rising GDP and declining power use is strange.

{Strange, eh? The art of understatement still lives! Hooray!}

Bottom line is, I continue to have doubts about the strength of the Chinese growth performance, but would welcome confirmation that eight percent growth or more this year is truly achievable.

link

Goes w/o saying, read it all.

vsudhir · Post by **vsudhir** » 23 Jun 2009 03:40

World Bank warns of social unrest (BBC)

The head of the World Bank has warned that the global economic crisis could lead to serious social upheaval.

"If we do no take measures, there is a risk of a serious human and social crisis with very serious political implications," Robert Zoellick said.

He pointed to Eastern Europe, which faces the "tricky situation" of fast-shrinking economies and protests.

Mr Zoellick suggested governments should start preparing for high levels of unemployment.

"In my opinion, in this context, nobody really knows what is going to happen and the best one can do is be ready for any eventuality," Mr Zoellick said in an interview with Spain's El Pais newspaper.

"There is also what I call the 'X-factor', that one can not foresee," such as the recent outbreak of swine flu, he said.

"Latin America has remained reasonably stable, even if Mexico and Central America are under pressure because they rely a lot on the North American market," Mr Zoellick added.

It was reported last week that Mexico's economy shrank by 8.2% in the first three months of this year compared with a year earlier. Mexico sends 80% of its exports to the US.

Other economies in Eastern Europe have registered double-digit declines in GDP, such as Latvia and Estonia, while the retiring Bank of England rate-setter David Blanchflower has said at least one million more people in the UK will lose their jobs.

The World Bank has previously warned of a "human catastrophe" in the world's poorest countries unless more is done to tackle the global economic crisis.

It said an extra 53 million people are at risk of extreme poverty.

vsudhir · Post by **vsudhir** » 23 Jun 2009 04:26

Singha · Post by **Singha** » 23 Jun 2009 06:25

unlike japan, none of the big-3 (india, china, russia) depend on anyone but their own sticks for security. perhaps that is the key. brazil is said to have tied up with DCN
to build their own nuclear submarine.

thats why MRCA deal is so scary. in one swoop, 30% of our fighter force and 50% of our best a/c would be under the control of khanate.

this old hulagu khan has seen many a fient on the steppe. me not like that. smells too much like a trap.

vsudhir · Post by **vsudhir** » 23 Jun 2009 06:57

Ukraine’s Political Paralysis Gives Black Eyes to Orange Revolution Heroes

Uh-oh.

The 'political paralysis referred to is deeply connected with the ekhanomic crisis.

Kakkaji · Post by **Kakkaji** » 23 Jun 2009 21:07

Derivatives: The risk that still won't go away

IMHO a good read

shravan · Post by **shravan** » 23 Jun 2009 22:08

Obama administration complains to WTO about China

vsudhir · Post by **vsudhir** » 24 Jun 2009 05:01

Last week the U.S. House of Representatives passed a bill which included an expanded credit facility for the IMF and gave U.S. approval for the proposed IMF sale of 400 tons of gold. This week the UST is set to sell a massive $165bn in govt debt. Coincidence?

Obama Administration pushes IMF gold sales through House by tieing it to security bill

The Obama administration has pushed a bill through the U.S. House of Representatives approving $106 billion in supplemental funding, primarily for the Iraq and Afghanistan 'security' efforts, but attached to it was also an expanded credit facility for the International Monetary Fund (IMF) of a massive $108 billion which included an agreement to allow U.S,. members of the IMF Board to agree the proposed $13 billion sale of 400 tons of IMF gold to shore up its finances.

Hmmmm.

In theory the US. approval of the IMF gold sale, which still has to pass through the U.S. Senate would be the final hurdle in the gold sale actually going ahead. But despite this there was virtually little or no impact on the gold market. In part this may be because of scant publicity being given to this part of the funding approval, but also in that firstly the gold market has largely discounted the IMF gold sale anyway, and secondly in that the IMF has said it will dispose of its gold in an orderly manner through a system such as the Central Bank Gold Agreement which limits sales volumes in a given year.

Expectations mgmt, seems like. Could this be an attempt to suppress gold prices by injecting supply?

But what of the IMF itself?

The IMF holds 103.4 million ounces (3,217 metric tons) of gold at designated depositories. The IMF’s total gold holdings are valued on its balance sheet at SDR 5.9 billion (about $8.7 billion) on the basis of historical cost. As of March 31, 2009, the IMF's holdings amounted to $94.8 billion (at then current market prices).

The Articles of Agreement now limit the use of gold in the IMF's operations and transactions. The IMF may sell gold outright on the basis of prevailing market prices, and may accept gold in the discharge of a member's obligations at an agreed price, based on market prices at the time of acceptance. These transactions in gold require an 85 percent majority of total voting power. The IMF does not have the authority to engage in any other gold transactions—such as loans, leases, swaps, or use of gold as collateral—nor does it have the authority to buy gold.

link

One blogger opines:

China is a possible recipient of the gold. If the real reason for this move is to allow China to get rid of some US dollars or treasuries in return for gold I view that as good thing.

Bretton Woods II is coming to an end. That we know. What we do not know is the timeframe or the replacement. However, China may need to accumulate gold for whatever the next agreement might be. IMF gold sales may be a small step down that path.

Gold is consolidating recent gains now. Bear in mind that March to August is generally a seasonally unfavorable period. That is not a prediction of a further pullback, although it is likely. Further consolidation is a good thing that will add fuel for the next leg higher.

vsudhir · Post by **vsudhir** » 24 Jun 2009 05:50

Brain drain takes toll at Citi and BofA

Many top traders and bankers have left the financial giants for rivals. The trend may continue as long as Citi and BofA remain under the government's thumb.

Moi first reaction was to

when I heard Brain and Citi/Bofa in the same sentence. Sad AIG was missed out in the melee. Now its clear that these entities are sitting dux for the big boys (GS, JPM) to poach and hollow down for the final kill.

shravan · Post by **shravan** » 24 Jun 2009 13:24

The world's new power brokers

.
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The grouping - known as BRIC - took no action to diminish the role of the greenback as the world’s leading reserve currency, as Russian President Dmitry Medvedev had hinted it might. What’s noteworthy is that, had they chosen, these four high-growth economies could have worked credibly to undermine the dollar’s privileged position.

When Brazil’s President Luiz Inacio Lula da Silva, India’s Prime Minister Manmohan Singh, and China’s President Hu Jintao joined President Dmitry Medvedev in Yekaterinburg, Russia, they represented 42 percent of the world’s population and 15 percent of global GDP. By mid-century, their countries are expected to equal the economic output of America and Europe combined.

There is no secret about why their final communique made no mention of Medvedev’s threat to supplant the dollar. China, holding roughly $1 trillion in US government debt, would be hurting itself if it permitted BRIC to take a position that shook confidence in the dollar.

The BRIC nations were justified, however, in asking for “a greater voice and representation in international financial institutions.’’ If they are to contribute more to the International Monetary Fund and the World Bank, they must have more say in decision-making.

vsudhir · Post by **vsudhir** » 25 Jun 2009 08:18

BRIC is hype. Happens to be just another boat where Dilli occasionally drops in to hedge bets against geopolitical black swans.

Meanwhile
OECD warns on pension crisis

Strains in pensions systems, in both private and public provision, threaten to turn the financial crisis of the past two years into a social crisis lasting for decades, the Organisation for Economic Co-operation and Development warned on Tuesday.

In its annual analysis of the health of pensions systems globally, the Paris-based organisation found private pension plans lost 23 per cent of their value last year, while higher unemployment “leaves little room for more generous public pensions.

Angel Gurría, the OECD secretary-general said: “Reforming pension systems now to make them both affordable and strong enough to provide protection against market swings will save governments a lot of financial and political pain in the future”.

Pensioners hit hardest include those heavily dependent on defined contributions, where people save to build up a personal fund, those near retirement and those heavily invested in equities. This applies to many US citizens who have large pension pots, known as 401(k) retirement plans.

vsudhir · Post by **vsudhir** » 25 Jun 2009 09:05

The Independent reports that a group of pensioners has been accused of kidnapping and torturing a financial adviser who lost over €2m of their savings:

Link

The pensioners, nicknamed the "Geritol Gang" by police after an arthritis drug, face up to 15 years in jail if found guilty of subjecting German-American James Amburn to the alleged four-day ordeal.

Two of them are said to have hit him with a Zimmer frame outside his home in Speyer, western Germany, before he was driven 300 miles to a home on the shores of a lake in Bavaria.

Mr Amburn (56) says he was burned with cigarettes, beaten, had ribs broken, was hit with a chair leg and chained up "like an animal".

The incident began on Tuesday last week after Mr Amburn, the head of an investment firm called Digitalglobalnet, was allegedly attacked by two men aged 74 and 60.

Another couple, retired doctors aged 63 and 66, later arrived to join in the alleged torture.

"I was struck. Again and again they threatened to kill me. The fear of death was indescribable," he said.

He told them he could pay them back if he sold some securities in Switzerland and they agreed to let him send a fax to a bank there.

He scribbled a plea for help on the fax. Armed commandos stormed the house on Saturday.

No kament onlee.

svinayak · Post by **svinayak** » 25 Jun 2009 23:10

http://blogs.wsj.com/economics/2009/06/ ... -spending/

* June 25, 2009, 5:00 AM ET

Guest Contribution: Housing Bubble Fueled Consumer Spending

By Guest Contributor

Earlier this week, Charles W. Calomiris, Stanley D. Longhofer and William Miles wrote in Real Time Economics that the wealth effect from housing on consumption should be small. Atif Mian and Amir Sufi of the University of Chicago Booth School of Business respond that their data indicate the opposite.

The sharp drop in household consumption is a striking feature of the current economic downturn. The 4% annualized real reduction in consumption from June to December of 2008 is the largest six-month decline since 1980. In August 2008, even before the heart of the financial crisis, borrowing by households registered its first monthly decline in a decade. In the most recent quarter, the household personal savings rate reached its highest level since 1998.

The painful process of household de-leveraging follows a historically unprecedented rise in household debt. From 2000 to 2007, household debt doubled from $7 trillion to $14 trillion, with debt related to housing responsible for 80% of the increase. By 2007, the household debt to GDP ratio reached its highest level since 1929.

Are these patterns linked with the dramatic rise and collapse of the housing market? In the June 22nd entry for Real Time Economics, Calomiris, Longhofer, and Miles argue that the link is weak. They conclude that “the reaction of consumption to housing wealth changes is probably very small.”

Findings in our research suggest the exact opposite: the rise in house prices from 2002 to 2006 was a main driver of economic growth during this time period, and the subsequent collapse of house prices is likely a main contributor to the historic consumption decline over the past year.

We agree with two key points made by Calomiris, Longhofer, and Miles. First, from the perspective of economic theory, it is not obvious that housing wealth should affect consumption. Second, it is difficult to measure the causal effect of housing wealth on consumption because other economic factors confound the relation. If you live in a neighborhood that experiences house price growth, it is likely because wages, employment, and school quality are improving. These alternative factors may increase consumption, while the housing market remains a sideshow.

These factors highlight the importance of quality data and sound methodology to estimate the effect of house prices on real economic activity. Our study samples 70,000 consumers in 1998 who were already homeowners at the time. We then follow the borrowing decisions of these households for eleven years until the end of 2008. Our data set represents a major advantage over prior studies; it allows us to see exactly how existing homeowners respond to increases in house prices.

Tanaji · Post by **Tanaji** » 26 Jun 2009 00:03

vsudhir:

Not a UKstani myself, but AFAIK, NHS is a lottery. The UK is split into various regions for the purpose of NHS and each is administered by its own primary care trust under NHS guidelines. Each trust has its own budget, procedures and they get to choose what drugs will be available, procedures etc, albeit under NHS "suggestions". In the end, each trust is responsible for their own budget. So, it often happens, especially in case of cancer treatments that are expensive, that a treatment that is available in one trust to the public is not available to one living in another area administered by a different trust. This is referred to as NHS postcode lottery and caused a lot of heartburn for those involved.

Now getting to Suffolk: I think that was the policy from 2005, dont know if it is still followed. East Suffolk PCT was suffering from budget problems so it decided to stop hip replacements to obese. I think the policy was solely till the deficit was recovered.

I have not found any reference to the Manchester issue, in fact NHS spends literally hundreds of millions of £s to cure smoking related illnesses.

vsudhir · Post by **vsudhir** » 26 Jun 2009 00:12

Thx Tanaji.

Its no secret that the lifetime costs of health care are majorly skewed towards the last 1-2 yrs of an individual's life.

And its a hard ethical question of how to deny expensive care to the seriously aged coz that money is better spent treating more 'productive' people.

Its plain that that is how nationalized health care would control costs - by spending within budget-> creating scarcity as demand from the aged piles on -> queing and long wait lines -> the weak and the meek get bumped off in the waiting line itself. -> only those strong enough to wait their turn through get care.

ldev · Post by **ldev** » 27 Jun 2009 08:19

There has been a surfeit of rona dhona and gloating on this thread. (Also some real effort on vsudhir's part to provide information). I thought the objective was to also do some out of the box thinking in terms of a new perspective and if it can be applicable to India.

One of the primary weaknesses exposed in the last 12 months has been the weakness of fiat currencies. Obviously any country that has a convertible fiat currency has all of the other prerequisites necessary to issue convertible currency.

Without putting the cart ahead of the horse think of the following interesting statistics:

- Of all the gold mined in history (about 140,000 tons), something like 30,000 tons is in India. (primarily for cultural reasons given the average Indian's desire to hold gold).

- As of June5, 2009 the M3 money supply in India according to the Reserve Bank of India was Rs 49,39,696 (see LINK)

Taking the price of gold at $1000 per ounce and converting the rupee at 50 to the dollar, both numbers equate to about 1 trillion dollars.

The key is to find a way of monetizing the gold with India's population by working out an iron clad mechanism of guaranteeing the value of the gold such that it can be used to provide the backing for the Indian rupee. This mechanism if it can be fine tuned will ensure (provided ALL of the other prerequisities of a convertible currency and a globally competitive economy are met) that a new paradigm can be established for the future of the Indian rupee.

svinayak · Post by **svinayak** » 27 Jun 2009 10:36

ldev wrote:

The key is to find a way of monetizing the gold with India's population by working out an iron clad mechanism of guaranteeing the value of the gold such that it can be used to provide the backing for the Indian rupee. This mechanism if it can be fine tuned will ensure (provided ALL of the other prerequisities of a convertible currency and a globally competitive economy are met) that a new paradigm can be established for the future of the Indian rupee.

There is no neeed to monetize the gold directly since it will be manipulated by foriegn interest.
It is better to keep it fudgy and then create some sort of backing of the Indian Rupee based on middle class economy and some gold. It may be less than optimal but it will be less vulnerable for manipulation

vina · Post by **vina** » 27 Jun 2009 10:45

The key is to find a way of monetizing the gold with India's population by working out an iron clad mechanism of guaranteeing the value of the gold such that it can be used to provide the backing for the Indian rupee. This mechanism if it can be fine tuned will ensure (provided ALL of the other prerequisities of a convertible currency and a globally competitive economy are met) that a new paradigm can be established for the future of the Indian rupee

How via the feckless govermund and babus ? What if the govt decides to give you IOUs / will pay back gold in future, instead of giving gold back when you demand it ?. Does anyone have any faith in the govt honoring it's obligations. ITI (with the dubious distinction of being independent India's first PSU) has defaulted on it's loan which was guaranteed by "an irrevocable sovereign guarantee" from the GOI. Good luck to you if you want to collect on your dues with the govt. Just try seizing ITI's assets (how about the land in KR Puram?) or try litigating with the govt.

Between AmirKhan and GOI, AmirKhan has a much higher rating even today precisely because of that.

Behenji seems to have spent Rs 700 crores on statues of herself, Kanshi Ram, lots of elephants and "dalit symbols" (saw some example on TV yesterday). People in UP dont have water to drink, buses to travel, lack sanitation, roads and power, not to mention basic schools and primary education. I can think of far far better and productive use of Rs 700 crores.

Multiply that by 28 or how many ever states there are in India (I lost count long ago), and cull the politicos and jumbo ministries, you will start finding money to do a lot more pressing things. How about killing the "Dept of Adoption /Propagation of Hindi /Rashtra Basha"? . Hindi does fine without the govt monkeys. Thank you. How about killing the "Planning Commission" .. How about "Culture Minsitry" , and get the ministries out of operating stuff like Air India/IA, Prasar Bharati corp and all those govt depts (maybe except railways) . You can downsize the govt drastically and do away with folks who want Pensions and healthcover for life (including for their surviving spouses after death), which tax payers pay for of course. Do all that and your fiscal burden comes down drastically and you can actually have money to do a lot of things other than feed govt babus, flunkeys and parasites like Air India.

shravan · Post by **shravan** » 27 Jun 2009 13:02

Fri, 14 Dec 2007 22:42:40 GMT
Russia to dump waning dollar
http://www.presstv.ir/detail.aspx?id=34 ... id=3510213

"Selling for rubles is much more attractive," Deputy Chief Executive Officer Leonid Fedun said on December 12. "Gazprom is considering introducing ruble-denominated contracts and I think that technically Russian companies can do it by 2009 if the banks are ready."

================================================

Gazprom seals $2.5bn Nigeria deal
Thursday, 25 June 2009
http://news.bbc.co.uk/2/hi/business/8118721.stm

Russia's energy giant Gazprom has signed a $2.5bn (£1.53bn) deal with Nigeria's state operated NNPC, to invest in a new joint venture.
.
.
Analysts say the move could further strengthen Russia's role in supplying natural gas to Europe.
.
.
Chinese deal

Russia is not alone in seeking to secure energy deals overseas with commodity-rich nations.

Separately on Thursday, Chinese oil refiner Sinopec has made a $7.2bn bid to acquire oil exploration and producing firm Addax, which focuses on Africa and the Middle East.

If the deal is approved by regulators it would be the biggest foreign takeover by a Chinese firm.
===========

vsudhir · Post by **vsudhir** » 27 Jun 2009 18:02

"Toyota Motor Corp., the world’s biggest carmaker, said Thursday its worldwide output dropped 38.8 percent from a year earlier to 442,621 vehicles _ the 10th straight monthly decline.

Among key regions, Toyota’s production in the United States plunged 48.2 percent to around 56,000. Toyota operates five auto plants in the U.S. In Japan, Toyota made 192,637 vehicles, down 41.9 percent year-on-year.
"
"Honda Motor Co., Japan’s No. 2 automaker, said its global production continued to tank in May. Honda made 195,085 vehicles worldwide, down 38.4 percent."

"Nissan’s production in Spain nose-dived 68.4 percent in May, while its output in the U.S. plunged 41.4 percent. Output in Japan fell 36.3 percent."

"Mazda Motor Corp. also reported a drop in global production at 66,531 vehicles, down 37 percent."

"Mitsubishi Motors Corp. said its global production in May totaled 44,902 for the 15th straight monthly decline, marking a 54.6 percent drop from a year earlier."

link

shravan · Post by **shravan** » 27 Jun 2009 22:16

China argues to replace US dollar
26 June 2009
http://news.bbc.co.uk/2/hi/business/8120835.stm

China's central bank has reiterated its call for a new reserve currency to replace the US dollar.

The report from the People's Bank of China (PBOC) said a "super-sovereign" currency should take its place.

Central bank chief Zhou Xiaochuan has loudly led calls for the dollar to be replaced during the financial crisis.

The bank report called for more regulation of the countries that issue currencies that underpin the global financial system.

"An international monetary system dominated by a single sovereign currency has intensified the concentration of risk and the spread of the crisis," the Chinese central bank said.

The dollar fell after the report was released. The US currency dropped 1% against the euro to $1.4088, and declined 0.8% versus the British pound to $1.6848.

Singha · Post by **Singha** » 27 Jun 2009 22:48

its like pakistan asking the taliban to be replaced by a new entity.

if chipanda were so smart why did the idiots buy up $2tr in US debt ?

onree a loud fart from Unkil in general directon of beijing will be had

shravan · Post by **shravan** » 27 Jun 2009 22:59

Singha wrote:its like pakistan asking the taliban to be replaced by a new entity.

if chipanda were so smart why did the idiots buy up $2tr in US debt ?

onree a loud fart from Unkil in general directon of beijing will be had

Singha Ji,

I think you are not following this thread seriously. The answer to your question is in the last 2-3 pages.

svinayak · Post by **svinayak** » 27 Jun 2009 23:30

* Panic of 1792
* Panic of 1796-1797
* Panic of 1819
* Panic of 1825
* Panic of 1837
* Panic of 1847
* Panic of 1857
* Panic of 1866
* Panic of 1873
* Panic of 1884
* Panic of 1890
* Panic of 1893
* Panic of 1896
* Panic of 1901
* Panic of 1907
* Panic of 1910-1911
crash 1929

the bankers been yanking for years....just nobody talks about it, except the 1 crash, 1929

ldev · Post by **ldev** » 28 Jun 2009 00:28

Acharya wrote:
ldev wrote:

The key is to find a way of monetizing the gold with India's population by working out an iron clad mechanism of guaranteeing the value of the gold such that it can be used to provide the backing for the Indian rupee. This mechanism if it can be fine tuned will ensure (provided ALL of the other prerequisities of a convertible currency and a globally competitive economy are met) that a new paradigm can be established for the future of the Indian rupee.
There is no neeed to monetize the gold directly since it will be manipulated by foriegn interest.
It is better to keep it fudgy and then create some sort of backing of the Indian Rupee based on middle class economy and some gold. It may be less than optimal but it will be less vulnerable for manipulation

To provide a link between gold with Indians and money supply GOI should:

1. Make purchases of gold, tax deductible without any limit.
2. Abolish capital gains tax on gold profits.
3. Provide an ammnesty with no time or amount limits for declaration of black money provided the same is invested in gold.
4. All Indians holding gold will have to declare annually their gold holdings.
5. Purchase for the account of the RBI any amount of gold tendered and pay in rupees at then current market price.

Taken together 1 through 4 should provide a disincentive to not declaring the gold each family has. Further disincentives via a tax or inspection regime can be decided on. The only objective of the exercise being to tie, say MI money supply to Declared Gold.

Whats the advantage of this? Simply that it will impose disclipine on creation of money supply either via deficit spending or via monetization. If Declared Gold is tied to M1 then money creation via the multiplier effect will not be impacted and as such M3 can continue to increase to support additional business/consumer borrowing demand as and when warranted. Similarly when demand wanes and there is a cyclical recession, M3 can be destroyed via the same reverse multiplier mechanism. But there will no permanent increase in the monetary base as is the case under the present fiat currency regime.

Why is this needed now? Because unless India wants to live in perpetuity either under a mismanaged dollar regime or a new yuan regime, the time to begin acting is now.

India is probably the only country in the world which has this unique capability now where domestic gold with citizens can back money supply. In no other major country are the two numbers even close together. In fact if the objective is to back M1, then M1 money supply as of June 5 in the RBI site link given in my last post is the equivalent of $250 billion which is about 25% of the estimated gold holdings in India. As such even if a declaration scheme as outlined in the 4 points above has a success rate of only 25%, the gold linkage can be established for the rupee.

Now, none of this means that ANY of the other variables of a successful economy can be ignored as vina has pointed out in his post.

vera_k · Post by **vera_k** » 28 Jun 2009 00:41

I don't think this will succeed because much of the gold is in the form of jewellery. Womenfolk are attached to their jewellery and will not want to let it go even if it spends most of its time in a vault. If my family is any indicator, then any gold bought from smugglers landing it on the coast (to get a good deal) or for purposes of hiding black money has long been converted into jewellery.

It may be better if there is a scheme to loan money against jewellery held as collateral. And the collateral should be made available for special occassions like weddings on payment of a fee to cover transaction charges and insurance for the period it is out of the bank's control.

ldev · Post by **ldev** » 28 Jun 2009 00:47

vera_k

There is nothing in this beyond a declaration for the purpose of establishing the overall gold inventory in India which in turn is needed simply to tie money supply to it. Gold/jewellery will not be confiscated or even be put into a vault for this scheme. This scheme does not make the rupee convertible into gold either. In fact this scheme will provide incentives for citizens to buy and hold additional gold via the tax breaks suggested.