Perspectives on the global economic meltdown- (Nov 28 2010)

Pratyush · Post by **Pratyush** » 30 Dec 2010 10:55

Must be a lot of miitary supplies to the nation.

Hari Seldon · Post by **Hari Seldon** » 30 Dec 2010 15:31

was away on xmas vacation of sorts. Back now but down with cold coff fever- the usual. Hope to resume posting soon.

Aaj ke liye TAE tweets:

NEW BLOG POST UP: Dec 29 2010: 2011 : Ready Or Not, Here We Come! http://bit.ly/hoR831

Interesting set of 2011 predictions there. Discount some. But the others may be worth watching, perhaps.

Regular D&G dose here....

Number Of Uninsured Americans Soars Above 50 Million http://huff.to/i00CI0

Yawn. twas 40+ mn pre-crisis. No big shakes, I'd say. Hosp emergency rooms are still open for illegals and other uninsured, am told.

Economic Report: U.S. house prices tumble in October http://bit.ly/h0spWq Case Shiller double dipping.

Consumer confidence unexpectedly falls in Dec. http://r.reuters.com/het83r Ooops :O

TAE 12/27: China’s land sales are expected to top 2 Tn yuan ($302 billion) this year from 1.5 Tn yuan in 2009. Home prices up for 18 months{Bubblyness, anyone? Time will tell. After all, even with 1.3bn janta and all, prc aint immune to gravity. Yet, at any rate.}

TAE 12/27: Today, half of all American workers earn $505 or less per week.
{Wow, close 2 but more than what moi made as a grad student}

TAE 12/27: Since the year 2000, we have lost 10% of our middle class jobs. From 72 million down to 65 million. While 42,000 factories closed

TAE 12/27: the richest 20 pc of working families taking home 47 pc of all income and earning 10 times that of low-income working families.

TAE 12/27: Back in 2000, it took over 40oz of gold to buy the Dow; now it takes a little more than 8oz.

#WikiLeaks Cables Reveal U.S. Sought to Retaliate Against Europe over Monsanto GM Crops http://bit.ly/ganuJW #realfood

One could describe the global economy as a race between the U.S. and China, to see who goes down first http://bit.ly/fO5pms[i]{Ouch, onlee.}[/i]

Bank Pay Should Be More Transparent, Basel Group Says http://bit.ly/g9HN5m yawn

1 in 7 Americans rely on food stamps http://bit.ly/gupXFb

Britain at risk of power cuts from aging networks, warns Ofgem http://bit.ly/gppxGO more yawn

chalo, enough only. jai ho.

Neshant · Post by **Neshant** » 30 Dec 2010 19:36

only banking & financing crooks are living large these days courtesy of the federal reserve's robbery schemes. A little bit of scam artistry, printing money, easing of this and loosening of that goes a long way.

In this case, what will happen is the younger generation already battered by ridiculous education costs, rising indebtedness and a crap job market will be forced to pay for these old guys who lived it up all their lives and did not save a dime.

-----
Depressing Message For Babyboomers (more so for the working folks who'll be tapped to pay for them)
http://www.foxnews.com/us/2010/12/27...est=latestnews

Michael Vanatta, 61, of Vero Beach, Fla., is paying the price for being a boomer who enjoyed life without saving for the future. He put a daughter through college, but he also spent plenty of money on indulgences like dining out and the latest electronic gadgets.

Vanatta was laid off last January from his $100,000-a-year job as a sales executive for a turf company. And with savings of just $5,000, he's on a budget for the first time. In April, he will start taking Social Security at age 62.

"If I'd been smarter and planned and had the bucks, I'd wait until 70," says Vanatta, who is divorced and rents an apartment. "It's my fault. For years I was making plenty of money and spending plenty of money."

SwamyG · Post by **SwamyG** » 30 Dec 2010 21:32

^^^
So you don't even acknowledge your mistake. Wow.

Hari garu: Get well soon. Okka cupulo Vodka teeskondi...taravatha mix black pepper...gulp gulp.....anthe cold poye poyindhi

)))

Neshant · Post by **Neshant** » 31 Dec 2010 07:04

SwamyG wrote:^^^
So you don't even acknowledge your mistake. Wow.

Are you referring to Hari or me ? I presume me.

Not very many moons ago, I clearly remember you were pushing the science of bailout hounding, public sector pension scams and offloading losses on suckers down the line.

Neshant · Post by **Neshant** » 31 Dec 2010 10:41

Ultimate Cost Of 0% Money
By Jim Willie CB

http://www.kitco.com/ind/willie/dec292010.html

Hari Seldon · Post by **Hari Seldon** » 31 Dec 2010 11:50

chillax, Neshant.

Let time prove you or whoever right. NO point yaw-yawing away till then. Me, I've seen my perspective and understanding evolve, sometimes, quite drastically, in 2 yrs+ of posting on this thread.

well, swamygal, good idea. I had brandy in mind, though.

Arya Sumantra · Post by **Arya Sumantra** » 31 Dec 2010 12:12

Gibson's Paradox, Larry Summers and central bank antipathy to gold and silver
http://www.eurotrib.com/story/2010/8/15/14018/3894

In a free (i.e.,UNMANIPULATED) market, the gold price moves inversely to real interest rates. If you keep interest rates artificially low, gold will go up in price.

The interest rates are zero in the west, in the east the interest rates are not being raised out of fear of interest rate arbitrage, so precious metals should go up only.

SwamyG · Post by **SwamyG** » 31 Dec 2010 19:49

Neshant wrote:
SwamyG wrote:^^^
So you don't even acknowledge your mistake. Wow.
Are you referring to Hari or me ? I presume me.

Not very many moons ago, I clearly remember you were pushing the science of bailout hounding, public sector pension scams and offloading losses on suckers down the line.

Yeah, right

. I will give you the benefit of doubt, and kindly point out that you are mistaken. BTW, what is "science of bailout hounding" ? Through out my stay in this dhaaga, I have been FOR people. If you clearly remember, please point them out, so that I can clarify. If not I will conclude you like to climb on to Ivory Pedestal and preach others and pay little attention to what others say.

Here I was, posting something praising you for your opinions or conclusion; and here you are coming of as arrogant, self-obsessed and know-it-all. To top it of, you do not have any humility and you accuse me of something for which I have not stood. Sad. Not.

Hari Seldon · Post by **Hari Seldon** » 01 Jan 2011 09:36

Debt forgetfulness

Forgive but never forget, they say. Dubai though has chosen to forget its debt problems without its creditor emirates' forgiveness. Recipe for trouble down the road.

THERE was plenty of Schadenfreude when, in late 2009, Dubai was forced to admit it had trouble paying its debts. The brash emirate’s Gulf neighbours quietly hoped to tempt bankers and business people to their rival financial hubs. Now, irritatingly for many, Dubai is showing signs of recovery. A $10 billion bail-out by Abu Dhabi staved off the threat of a big default. The emirate returned to the bond markets in September. Although the issue was unrated, it was heavily oversubscribed.

Hawala monies, perhaps. Too much dirty money too deeply invested in dubai (same as londonistan, I guess) to allow meaningful reform.

One concern is how Dubai will meet its future payments. In 2010 debt was rescheduled rather than repaid. In 2011 Dubai’s state-owned and quasi-sovereign entities are due to repay $18 billion of principal. Abu Dhabi was willing to help when crisis hit, but it is tightening its purse-strings and some of its own property companies are struggling. “Ultimately these maturities can’t be met without asset sales,” says Tristan Cooper, a sovereign-risk analyst at Moody’s. Dubai has some impressive assets, but so far has been reluctant to sell those that are successful or strategic, such as docks, hotels and its airline. Moreover, some state-owned enterprises have most of their assets tied up in property that is now of questionable value.

Hari Seldon · Post by **Hari Seldon** » 01 Jan 2011 12:09

The 'watched pot' hypo-theory says that watched pots boil but seldom boil over because they are being watched only. Similarly, everyone was execting and watching spain as the next big doomjob outta oirostan but turns out Italy is putting up fierce and determined competition for that singular honor only. From irrepressible alarmist sri AEP at the telegraf only.

Italy's debt costs approach red zone

First the buildup:

Italy's borrowing costs have jumped to the highest level since the financial crisis over two years ago, raising concerns that Europe's biggest debtor may slip from the eurozone's stable core into the high-risk group on the periphery.

Then the facts:

Yields on 10-year bonds rose 10 basis points to 4.86pc after a poor auction of short-term debt in Rome. The Italian treasury had to pay 1.7pc to sell €8.5bn (£7.2bn) of six-month bills in a thin post-Christmas market, up from 1.48pc a month ago. The spike in rates came as money supply data released by the European Central Bank showed that real M1 deposits have collapsed at a rate of 2.8pc over the last six months in the EMU bloc of Italy, Spain, Greece, Ireland and Portugal, even though they are rising in northern Europe.

Then the selected doominess

"This is comparable with the decline in early 2008 just ahead of the plunge into recession," said Simon Ward from Henderson Global Investors. "The eurozone periphery is locked into a 'double dip' that will undermine fiscal consolidation." Italy's M1 contraction began later than elsewhere in southern Europe but is now accelerating. M1 typically gives advance warning of economic shifts by six to nine months.

Then come professed solutions to ill-defined problems:

The poor auction in Rome may be a warning sign that EU leaders offered too little to restore confidence at their Brussels summit two weeks ago. German Chancellor Angela Merkel vetoed the creation of eurobonds or any serious move towards fiscal union, and shot down calls for an increase in the eurozone's €440bn emergency loan fund. The ECB has so far refused to step in to the breach with overwhelming action.

And wild guesstimates as obvious fact regarding the magnitude of phree monies needed to 'save' the post-iceberg titanic:

Willem Buiter, Citigroup's chief economist, said the response had been "woefully inadequate", raising the risk of fresh bank failures and a wave of sovereign defaults next year. He said the EU authorities may need a mix of measures worth up to €2 trillion to stop the rot. Italy avoided the sort of property bubble seen in Spain or Ireland and has kept a tight rein on public spending under finance minister Giulio Tremonti. However, the rise in yields looks ominously like the pattern seen in Greece, Ireland, Portugal and Spain when they first began to lose easy access to the capital markets.

Which raises the question, why is Italy facing trouble when it avoided property bubbles (unlike Ireland and Spain) and fiscal deficits (unlike Spain and Greece)? Eh? Well, here's one possibility:

Italy is too big to be rescued by a diminishing group of creditor states in the EMU core, should it ever need help. Public debt will creep up to 120pc of GDP next year – or over €1.9 trillion – a level widely seen as the outer limit of debt sustainability. The country's trump card is a high savings rate and low private debt. Total debt is 245pc of GDP, below the eurozone average, and much lower than in Spain, Britain, the US or Japan. This may be the relevant indicator for an economy as a whole. However, low private debt may equally reflect deep pessimism in a country where growth has been glacial for a decade, productivity has fallen since 1995, and global export share is in steep decline.

Either way, interesting days ahead. khanomic doomongery feels glacial to dhaga regulars, am sure but the pace at which events have been unfolding is not all that slow, relative to historical standards. Slow sure, thanks to generous dollops of printed dollahs that have postponed but not cancelled the inevitable decline.

Hari Seldon · Post by **Hari Seldon** » 01 Jan 2011 12:13

Finally, something useful in the policy realm appears to come out of the crisis at least somewhere in the emerged world....

Sweden Shows Central Bankers How to Fight Against Next Asset-Price Bubble

Sweden’s central bank may set the direction for other policy makers as it looks beyond conventional inflation targets to asset-price growth in an effort to prevent the next bubble.

Riksbank Governor Stefan Ingves has raised the repo rate four times since July even as inflation remains below the bank’s 2 percent target. The increases occurred as house prices move above pre-crisis levels and credit growth hovers near 9 percent. While Sweden raises rates, the U.S., the euro region, Japan and the U.K. are keeping borrowing costs at record lows.

The financial crisis that started more than two years ago was exacerbated by central banks holding rates too low as inflation gauges failed to capture asset-price growth, according to Johnny Akerholm, president of the Helsinki-based Nordic Investment Bank. He says most policy makers are repeating the mistake.

"We are practically re-running the same situation these days," he said in his bank’s Dec. 17 newsletter. "Rates are low and the central banks are 'printing money’ while virtually all prices, except the consumer prices in industrial countries, are increasing rapidly."

About time too.

Hari Seldon · Post by **Hari Seldon** » 01 Jan 2011 20:18

Is the Bond rally over?
From the ever excitable zero hedge.

When Nassim Taleb and Marc Faber say that US government debt is a suicide investment, one can be allowed some skepticism. After all, they are likely just talking their book. On the other hand, when the manager of the world's biggest bond fund, whose flagship fund Treasury holdings amount to almost $80 billion goes on Bloomberg and says to "avoid dollar-denominated government debt" better known as US Treasuries, and instead recommends viewers invest in "stable" currencies like the Peso, the BRL or the CAD, then you know the bottom in bonds is in. So in addition to dumping fixed rate bonds (which means Pimco will again be able to buy on the cheap ahead of QE3, which as Larry Meyer has by now likely advised Pimco is a sure thing), Gross also told Bloomberg that his other two strategies are to buy floating rate debt (over fixed), and lastly recommend credit spreads over interest rate duration risk. For those who find something troubling with a $1 trillion fixed income manager talking down his investments, and are still wondering whether or not QE3 is coming, we suggest putting one and one together. And while at it, they should also consider that Pimco now holds over $100 billion in MBS: a notional amount last held just as QE1 was announced.

Yawn. nothing will happen only. Everybody's talking their book while looking to outsmart everybody else only. Chaos results and we manage to see chankian conspiracies even there.

Prem · Post by **Prem** » 04 Jan 2011 04:54

http://www.nytimes.com/2011/01/03/opini ... ugman.html
Deep Hole Economics
By PAUL KRUGMAN

Realistically, the best we can hope for from fiscal policy is that Washington doesn’t actively undermine the recovery. Beware, in particular, the Ides of March: by then, the federal government will probably have hit its debt limit and the G.O.P. will try to force President Obama into economically harmful spending cuts.
I’m also worried about monetary policy. Two months ago, the Federal Reserve announced a new plan to promote job growth by buying long-term bonds; at the time, many observers believed that the initial $600 billion purchase was only the beginning of the story. But now it looks like the end, partly because Republicans are trying to bully the Fed into pulling back, but also because a run of slightly better economic news provides an excuse to do nothing. There’s even a significant chance that the Fed will raise interest rates later this year — or at least that’s what the futures market seems to think. Doing so in the face of high unemployment and minimal inflation would be crazy, but that doesn’t mean it won’t happen. So back to my original point: whatever the recent economic news, we’re still near the bottom of a very deep hole. We can only hope that enough policy makers understand that point.

Ambar · Post by **Ambar** » 04 Jan 2011 10:14

Yeah sure! We all know how near zero % interest rates have helped Japan out of the rut in the last 2 decades! With a 14 trillion dollar debt, 56 trillion dollar total credit and a whooping 90+ trillion dollars in unfunded liabilities all that US needs is more debt. Unfortunately, there are plenty of folks in DC from either side of the political spectrum who listen to highly destructive individuals like Krugman and Larry Summers. The debt ceiling will most likely be raised yet again, and the interest rates will remain near zero until the markets will force it higher..there is no end in sight.

Hari Seldon · Post by **Hari Seldon** » 04 Jan 2011 11:06

Ambar,

I think the Krugman types do have a point at the end of the day. Its not one-dimensional. A rational, rigorous resolution of the present impasse will impact the holy cows /third raisl of both sides of the politico-ideological divide in the US.

On the expenditure side, given that the states has been living way beyond its means for a while now, spending has to be cut down, no doubt. A good start would be undoing GWB's Medicare part D, for instance. By liberalizing drug imports from abroad at their prices, much of the cost of healthcare can be curbed. Then of course, half the overseas military bases can be shutdown and wars ended and the troops brought home. Immediate savings there, no?

On the revenue side, tax the rich. It wasn;t so long ago, 70s in fact, that the wealthiest few % had marginal tax rates touching 3 quarters only. I'd say bring a fglate tax of 50% for any and all earnings above $1 mn or $10mn or something and then watch then result.

I have no doubt that the reaganites and volckerites gutted the US economy severely starting 1980. Of course, nixon and party before that weren't saints exactly but at least median wages were still growing and a blue collar worker could afford a middle class existence for a family of 4 back then.

Now again, I digress, but you get the idea.

Neshant · Post by **Neshant** » 04 Jan 2011 11:54

all the bailout hounds & public sector pension scams are going to be cut loose... now that banking & financing crooks have cleaned up with bailouts & bonuses and offloaded their losses onto suckers down the line.

Ambar · Post by **Ambar** » 04 Jan 2011 12:08

Hari sahib,

You are prescribing what Krugman and his like do no want to hear! Krugman not so long ago advocated another bubble to get out of the current bubble. He says spending cuts will plunge the economy and what this country needs is more stimulus and more spending. How moral is it to take on private risks and convert them into public obligations? After all, the government is the only corporate that does not have to work for its money.

Yes, shutting down foreign bases,drastically reducing military spending etc would be steps in the right direction, but i dont see either Dems nor Republicans taking any firm position in cutting military spending by half. After all, one of US' primary export to the rest of the world is to keep up global tensions and dominate the arms bazaar.

I don't agree with tax the rich mantra. Instead how about drastically cutting non-essential government workforce? I am not rich, not even remotely close. But i am sure the rich work just as hard as i do if not harder for the money they earn, and i certainly don't begrudge them.

Reagan's policies in his later years wrecked havoc with the health of nation's finances, but his first term,especially with Volcker took the country out of a decade long recession. Volcker did not shy away from double digit increases in interest rates that briefly plunged the businesses, but restored investor confidence and started a 2 decade long bond market bull run. Many constructive regulations like removing 'regulation Q', interest rate ceilings,and re-introduction of ARMs helped the banks and mortgage industry. Reagan's uncapping of oil price control allowed the market to dictate the price of oil instead of ME dictators.

Sure, the middle class wages were raising from 40s to 60s, but isn't that mostly due to the fact that US was the only industrial nation in the world? For much of the past 4 decades, US has been following what Krugman/Summer' and their like have prescribed - the result has been a new,bigger crisis every 5 years. Probably taking a contrarian view would do no harm ..

Neshant · Post by **Neshant** » 04 Jan 2011 12:24

abhischekcc · Post by **abhischekcc** » 04 Jan 2011 13:25

I went to the recently concluded Delhi book fair on Saturday.

It was the saddest book fair of my life - the number of publishers was SO low.
Earlier, entire sections of Pragati maidan used to have participants, with books being displayed on flights of stairs. Now, the publishers struggled to have relevant books in numbers. Even the visitor volume was extremely low. I covered the entire book fair in 1.5 hours

I had to go to the stationary fair to pass some more time.

So why am I recounting my tale of woe in this thread? Because this fair indicates that Indian economy may not be as hunky dory as the Shanghai Statisticians led by our able and sincere PM make out to be.

-----------------
Even today, the top floors of may malls remain empty or have low levels of activity.

OTOH, the number of cars in Delhi seems to be keeping pace with the road space being built.

Christopher Sidor · Post by **Christopher Sidor** » 04 Jan 2011 13:35

People have blamed regan-nomics and/or the de-regulation of the banking/finance industry for the American mess and consequently to the world economic slowdown.

But this misses the important fact. Manufacturing will chase the lowest cost base.
Previously in 1960s-80s it was Japan/America/Germany which used to do most of the manufacturing.
From 1990s-2010's manufacturing shifted to china and other east asian nations. This happened due to the low labor cost and so called world-class infrastructure. Some people say post 2015, when the working population of China peaks, manufacturing will shift to Mexico/vietnam/Bangladesh/etc. Even India is mentioned.

I remember purchasing a wonderful winter jacket in 2003-4 from Germany, that was manufactured in China. It lasted for 5 years. So impressed I was with the quality of the jacket that I recently got another winter jacket, again from Germany. But this time it was made in Bangladesh and not China. And both the jackets were equal, quality wise. I fully expect this jacket also to last for another 5 years.

Just as manufacturing industry shifted from imperial Europe to the dynamic America/Japan and then from America/Japan to the now dynamic China/East Asian nations, it will shift once again. It is a slow and gradual process, but it will happen.

So aiming for 50-50% balance in manufacturing and services is not going to be doable. Unless we want to follow the German example, of ruthlessly keeping down the labor costs. This will lead to a situation where India will prosper but not Indians. To be more specific Indians involved in Manufacturing will not prosper.

Coming back to the Americans, with loss in manufacturing, services had to take up the slack. But services industry demands a highly trained and skilled workforce. Not everybody in the workforce is going to become highly skilled and capable. And there in lies the rub. Even in a services dominated economy there will be people who will less skilled and capable. America has to find a way to absorb these people in something meaningful. I hope they would. But flagging a dead horse (Regan/Neo-liberal/conservative ideology/etc) will not help.

svinayak · Post by **svinayak** » 04 Jan 2011 15:24

Christopher Sidor wrote:
But this misses the important fact. Manufacturing will chase the lowest cost base.
Previously in 1960s-80s it was Japan/America/Germany which used to do most of the manufacturing.
From 1990s-2010's manufacturing shifted to china and other east asian nations. This happened due to the low labor cost and so called world-class infrastructure. Some people say post 2015, when the working population of China peaks, manufacturing will shift to Mexico/vietnam/Bangladesh/etc. Even India is mentioned.

Think in a different way
They mfg in the west first with high wages and let other countries catch up on the mfg. MNCs made profits first in the west and then later by lower cost in the dev world.
This process of creating a mkt of high end product and keeping the margins for a long time with a tradeing system is the real plan. They will keep India as the last and Indian companies will lap it up

Hari Seldon · Post by **Hari Seldon** » 04 Jan 2011 18:23

Ambar

I don't agree with tax the rich mantra. Instead how about drastically cutting non-essential government workforce? I am not rich, not even remotely close. But i am sure the rich work just as hard as i do if not harder for the money they earn, and i certainly don't begrudge them.

It'll probably have to be a bit of both. The reason I'm now in favor of a tax-the-rich-more mantra is the fact that income and wealth inequality in the US have reached their highest since, yes, the 1920s. And they seem set to go higher. The top 1% in the US today own more than the bottom 40% in asset terms. And so on. Inherently unhealthy. IMHO, of course.

svinayak · Post by **svinayak** » 04 Jan 2011 21:21

Europe’s Young Grow Agitated Over Future Prospects
http://www.nytimes.com/2011/01/02/world ... ef=general
Nadia Shira Cohen for The New York Times
Francesca Esposito has a law degree and a master’s and speaks five languages. She recently quit her unpaid job for Italy’s social security administration.
By RACHEL DONADIO
Published: January 1, 2011

LECCE, Italy — Francesca Esposito, 29 and exquisitely educated, helped win millions of euros in false disability and other lawsuits for her employer, a major Italian state agency. But one day last fall she quit, fed up with how surreal and ultimately sad it is to be young in Italy today.

It galled her that even with her competence and fluency in five languages, it was nearly impossible to land a paying job. Working as an unpaid trainee lawyer was bad enough, she thought, but doing it at Italy’s social security administration seemed too much. She not only worked for free on behalf of the nation’s elderly, who have generally crowded out the young for jobs, but her efforts there did not even apply to her own pension.

“It was absurd,” said Ms. Esposito, a strong-willed woman with a healthy sense of outrage.

The outrage of the young has erupted, sometimes violently, on the streets of Greece and Italy in recent weeks, as students and more radical anarchists protest not only specific austerity measures in flattened economies but a rising reality in Southern Europe: People like Ms. Esposito feel increasingly shut out of their own futures. Experts warn of volatility in state finances and the broader society as the most highly educated generation in the history of the Mediterranean hits one of its worst job markets.

The contrast could not have been stronger. Indeed, experts warn of a looming demographic disaster in Southern Europe, which has among the lowest birth rates in the Western world. With pensioners living longer and young people entering the work force later — and paying less in taxes because their salaries are so low — it is only a matter of time before state coffers run dry.

krisna · Post by **krisna** » 04 Jan 2011 22:01

China’s Yuan Signal Is A Cry For Help

China benefits from a fixed rate to the dollar for two big reasons. First, the price relationships in the United States are duplicated in China — which is a command economy. If shoes sell for $100 in the U.S., and you want to make them in China, keep your costs nicely under CNY662. Capital and labor get allocated in kind. You don’t have to imagine what this would be like in the absence of a fix. On its best days, communist economic history is that of commissars ordering quotas of production and the useless stuff piling up outside, the shops empty of things that matter.

The other reason the fix works for China is that no one wants a currency produced by a country with a horrific recent past and a dodgy political system, unless that currency is readily convertible to something tender in parts of the world that are economically and politically functional — the dollar, if not gold.

It is fanciful to ask the Chinese to accept floating exchange rates. This is exactly what their country does not need. Likewise it is hard to see how the U.S. could benefit from extending the realm of floating rates, not least because it would throw one of its major trading partners out of whack.

In its currency announcements, China, like Germany decades ago, is effectively begging the U.S. to hold fast to fixed exchange rates. The U.S. finally cut the mark off in 1973, only to go into its worst economic tailspin since the Great Depression. Yearly growth in the U.S. from 1973 to 1982 was a paltry 1.8%, and inflation totaled 117%. Stagflation is what you get when you kill your economy with regulation and taxes, and then print money and fool with currency devaluation in a bid to get out of it. Today China is trying to preserve itself — and us.

krisna · Post by **krisna** » 04 Jan 2011 22:08

China votes Spanish as it promises to buy more debt

China gave Spain's financial markets a much needed shot in the arm on the first trading day of the new year after it pledged to shore up Spain’s ailing financial system and purchase more of the country’s sovereign debt.

Spain has come under increasing pressure from international debt markets amid concerns that it might be forced to follow Greece or the Republic of Ireland and accept a European Union bailout.

Mr Li’s remarks appeared in the newspaper El País on the eve of a threeday visit to Spain starting today. The Vice-Premier, who is widely expected to succeed Wen Jiabao when the Beijing leadership changes next year, will then visit Britain and Germany.

Why is dlagon doing this-

Observers say that a question arises concerning what Beijing might expect in return for bailing out Madrid. Part of the answer might lie in American diplomatic cables revealed by Wikileaks last month. It was reported that behind closed doors, Spain was trying to overturn a 21-year European Union arms embargo against China. During its sixmonth rotating EU presidency this year, Spain tried to lift the bloc’s embargo, imposed in 1989 after the Tiananmen Square protests.
Washington mobilised its European embassies against the Spanish bid to help China and the plan failed to win sufficient support.

what about ukstan and germany- any problems there. garnering support to remove the embargo!!
uncle has his job cut out.

Ameet · Post by **Ameet** » 05 Jan 2011 04:38

European nations begin seizing private pensions

Hungary, Poland, and three other nations take over citizens' pension money to make up government budget shortfalls.

http://www.csmonitor.com/Business/The-A ... e-pensions

The most striking example is Hungary, where last month the government made the citizens an offer they could not refuse. They could either remit their individual retirement savings to the state, or lose the right to the basic state pension (but still have an obligation to pay contributions for it). In this extortionate way, the government wants to gain control over $14bn of individual retirement savings.

Hari Seldon · Post by **Hari Seldon** » 05 Jan 2011 06:05

sri AEP is back again with another infotaining piece in the telegraf.
Overheating East to falter before the bankrupt West recovers

IOW, everybody's screwed ('cept his beloved kool-aid brittania).

Policy levers in the US, Europe, and Japan remain set on uber-stimulus with the fiscal pedal pressed to the floor and rates near zero everywhere, yet OECD industrial output has not regained the peaks of 2007-2008 by a wide margin. Leading indicators are tipping over again. We are one shock away from a liquidity trap.

And we have always been. The human mind has always been an inch away from madness. So what? Pumping the same tune like 100 times hasn't dented sri AEP's spirits one bit, I see. Admirable perseverance, mussay.

The East-West trade and capital imbalances that lay behind the Great Recession are as toxic as ever. Surplus states are still exporting excess capacity with rigged currencies -- the yuan-dollar peg for China and, more subtly, the D-Mark-Latin peg within EMU for Germany.

Perspicacious. Germany's got a lot to gain with indirectly subsidizing its imports coz its troubled periphery ain't in any position to devalue and let the D-mark rise as a natural consequence. However, Germany may fall into the Nortel/Lucent trap of financing its bankrupt customers to buy its produce. We know how that movie ended.

Dangerously high budget deficits of 6pc, 8pc, or 10pc of GDP in countries with dangerously high public debts near 100pc may have prevented an acute depression, but they have not prevented the weakest rebound since World War Two, and they cannot continue, whatever the assurances of New Keynesians and pied pipers of debt.

That would be the Krugman types no doubt. Its a ponzi and everyday more and more folks are realizing this. Q is what now, after the realization? The Krugman types want to continue the party for as long as credulity allows. Am yet to hear what the alternatives are - short of an unwitting crash test of the system as a whole.

Cyclical bulls may see the surge in 10-year US Treasuries -- and therefore mortgages rates -- as a sign that growth is about to blast off: structural bears suspect it may be the first convulsive shudder of bond vigilantes dismayed at the easy willingness of Washington to spend $1.4 trillion above revenues next year, with no credible plan to contain the monster thereafter.

Can bond yields rise on "sovereign risk" even as core prices grind lower towards deflation? Yes, they can, and this baleful possibility is not in the textbooks.

bingo. Time is telling, even if its too slow for running commentary style excitement.

Here're excerpts from AEP's predictions for 2011...

China and India are over-heating, faced with a 1970s choice between choking credit or the onset of stagflation. If they choose the latter to buy time, the politics of food will turn on them with a vengeance.
Vietnam will have to rescue its banking system, kicking off the Asian hard-landing of 2011-2012. The Aussie dollar will come back to earth.

Speaking of rules, the Atlanta Fed’s law is that every year of debt-based boom is roughly offset by equal years of debt-purge bust, which means a Lost Decade for the old world. I doubt the West will recover soon enough to pick up the growth baton before the East hits tires. We may then have a "sub-optimal equilbrium", that modern euphemism for a trade depression.

As usual, Frankfurt will fall between two stools, failing either to satisfy Germany by immolating EMU on an altar of Bundesbank purity, or to satisfy everybody else by blitzing QE to save the system.

Ireland's Fine Gael-Labour coalition will take its revenge on Europe for imposing such ruinous terms under Berlin's Diktat. It will restructure senior bank debt, setting an irresistible precedent for the PASOK backbenchers in Greece, the Left wing of the Partido Socialista Obrero Espanol, and America’s insolvent cities. From bank debt to parastatal debt is a hop, and from there to quasi-sovereign debt is a skip. Nobody will utter the word default. They never do. Bondholders `volunteer'.

whoa! interesting stuff. Take with salt, of course, only. Read it all. Ensoi.

Hari Seldon · Post by **Hari Seldon** » 05 Jan 2011 10:02

Twas no secret that curbing gubmint spending would require massive cuts and retrenchment of a unionized and combative public sector workforce that is also, perhaps the last strong and organized middle class holdout against a sweeping wave of elitist robbery of what used to be the great amreeki middle class. To do that however, laws will need to be rewritten, contracts reopened and pandemonium reinvited. As usual, it will start with the most cash-strapped gubmints having no other options.

Nothing surprising here, but chronicling the obvious might also prove gainful down the line, who knows, eh?

Strained States Turning to Laws to Curb Labor Unions]Strained States Turning to Laws to Curb Labor Unions

Faced with growing budget deficits and restive taxpayers, elected officials from Maine to Alabama, Ohio to Arizona, are pushing new legislation to limit the power of labor unions, particularly those representing government workers, in collective bargaining and politics.

On Wednesday, for example, New York’s new Democratic governor, Andrew M. Cuomo, is expected to call for a one-year salary freeze for state workers, a move that would save $200 million to $400 million and challenge labor’s traditional clout in Albany.

But in some cases — mostly in states with Republican governors and Republican statehouse majorities — officials are seeking more far-reaching, structural changes that would weaken the bargaining power and political influence of unions, including private sector ones.{A bogey, pvt sector middle class workforce has hardly any barg power.}

For example, Republican lawmakers in Indiana, Maine, Missouri and seven other states plan to introduce legislation that would bar private sector unions from forcing workers they represent to pay dues or fees, reducing the flow of funds into union treasuries. In Ohio, the new Republican governor, following the precedent of many other states, wants to ban strikes by public school teachers.

Some new governors, most notably Scott Walker of Wisconsin, are even threatening to take away government workers’ right to form unions and bargain contracts.

“We can no longer live in a society where the public employees are the haves and taxpayers who foot the bills are the have-nots,” Mr. Walker, a Republican, said in a speech. “The bottom line is that we are going to look at every legal means we have to try to put that balance more on the side of taxpayers.”
{FIne sentiment indeed. Its the details which will be nasty}

But it is not only Republicans who are seeking to rein in unions. In addition to Mr. Cuomo, California’s new Democratic governor, Jerry Brown, is promising to review the benefits received by government workers in his state, which faces a more than $20 billion budget shortfall over the next 18 months.

“We will also have to look at our system of pensions and how to ensure that they are transparent and actuarially sound and fair — fair to the workers and fair to the taxpayers,” Mr. Brown said in his inaugural speech on Monday.

Of all the new governors, John Kasich, Republican of Ohio, appears to be planning the most comprehensive assault against unions. He is proposing to take away the right of 14,000 state-financed child care and home care workers to unionize. He also wants to ban strikes by teachers, much the way some states bar strikes by the police and firefighters.

“If they want to strike, they should be fired,” Mr. Kasich said in a speech. “They’ve got good jobs, they’ve got high pay, they get good benefits, a great retirement. What are they striking for?”

Mr. Kasich also wants to eliminate a requirement that the state pay union-scale wages to construction workers on public contracts, even if the contractors are nonunion. In addition, he would like to ban the use of binding arbitration to settle disputes between the state and unions representing government employees.

Union leaders particularly dread the spread of right-to-work laws, which prevail in 22 states, almost all in the South or West. Under such laws, unions and employers cannot require workers to join a union or pay any dues or fees to unions to represent them.

Unions complain that such laws allow workers in unionized workplaces to reap the benefits of collective bargaining without paying for it.

“They’re throwing the kitchen sink at us,” said Randi Weingarten, president of the American Federation of Teachers. “We’re seeing people use the budget crisis to make every attempt to roll back workers’ voices and any ability of workers to join collectively in any way whatsoever.”

Well, the public unions have been egregious and notorious and have cried wolf once too often. Now the tables are turned and the screws will be turned, systematically and relentlessly. The party's over for them. Still, it doesn't do anything to redress a bleak jobs situ for most ordinary, indebted, jobless americans. Joblessness among young amreekis is at epidemic proportions. Even default-proof student loans will be defaulted upon. Family formation among this cohort has been delayed perhaps by a decade if not more. Social effects in addition to economic ones are yet to be seen widely but slowly will be, perhaps.

Anyway, lest I get carried away in a D&G frenzy, things aren't all that bad, hopefully. Things tend to work themselves out, certainly in a land as innovative, smart and resourceful as amrika. Or so I hope. Let's see.

abhischekcc · Post by **abhischekcc** » 05 Jan 2011 10:31

And so the class war between the upper and middle-lower classes continues

Neshant · Post by **Neshant** » 05 Jan 2011 14:14

what;s needed is to privatize all this stuff and get govt & its taxation racket out of the business of providing over-priced and over-bloated services.

Hari Seldon · Post by **Hari Seldon** » 05 Jan 2011 14:17

This one then, is for Neshant:

European Nations Begin Seizing Private Pensions

People’s retirement savings are a convenient source of revenue for governments that don’t want to reduce spending or make privatizations. As most pension schemes in Europe are organised by the state, European ministers of finance have a facilitated access to the savings accumulated there, and it is only logical that they try to get a hold of this money for their own ends. In recent weeks I have noted five such attempts: Three situations concern private personal savings; two others refer to national funds.

The most striking example is Hungary, where last month the government made the citizens an offer they could not refuse. They could either remit their individual retirement savings to the state, or lose the right to the basic state pension (but still have an obligation to pay contributions for it). In this extortionate way, the government wants to gain control over $14bn of individual retirement savings.

The Bulgarian government has come up with a similar idea. $300m of private early retirement savings was supposed to be transferred to the state pension scheme. The government gave way after trade unions protested and finally only about 20% of the original plans were implemented.

A slightly less drastic situation is developing in Poland. The government wants to transfer of 1/3 of future contributions from individual retirement accounts to the state-run social security system. Since this system does not back its liabilities with stocks or even bonds, the money taken away from the savers will go directly to the state treasury and savers will lose about $2.3bn a year. The Polish government is more generous than the Hungarian one, but only because it wants to seize just 1/3 of the future savings and also allows the citizens to keep the money accumulated so far.

The fourth example is Ireland. In 2001, the National Pension Reserve Fund was brought into existence for the purpose of supporting pensions of the Irish people in the years 2025-2050. The scheme was also supposed to provide for the pensions of some public sector employees (mainly university staff). However, in March 2009, the Irish government earmarked €4bn from this fund for rescuing banks. In November 2010, the remaining savings of €2.5bn was seized to support the bailout of the rest of the country.

The final example is France. In November, the French parliament decided to earmark €33bn from the national reserve pension fund FRR to reduce the short-term pension scheme deficit. In this way, the retirement savings intended for the years 2020-2040 will be used earlier, that is in the years 2011-2024, and the government will spend the saved up resources on other purposes.

It looks like although the governments are able to enforce general participation in pension schemes, they do not seem to be the best guardians of the money accumulated there.

Gold remains about the only safe haven that the gubmint cannot wilfully sieze...but wait a minute, didn't declare private possession of gold illegal during the great depression? uh-oh only.

abhischekcc · Post by **abhischekcc** » 05 Jan 2011 17:18

If any government in INdia declares holding gold illegal, they will be laughed out of power.

Neshant · Post by **Neshant** » 05 Jan 2011 18:45

I wouldn't put it past the fiat pushing thieves to do just that. It would only confirm however that the days of worthless fiat currencies are numbered.

sumishi · Post by **sumishi** » 05 Jan 2011 20:28

Most of the private holdings of gold here is in the form of jewelery, and IMO will be well nigh impossible to pull off the "coup" which FDR did during the great depression -- the govt stole the gold literally.

Hari Seldon · Post by **Hari Seldon** » 05 Jan 2011 20:42

I agree - gold confiscation in India is an almost impossible event only.

However, other schemes by the scheming will abound. There's this famous 'gold loan' scheme doing the rounds here in Des that is rumored to return gold plated fakes of the pawned real gold to borrowers after they've repaid the gold loan....

SwamyG · Post by **SwamyG** » 05 Jan 2011 22:06

Hari garu: Have you seen the documentary "Mind over money". Essentially it is a hit at Chicago School ("rational economics") by others ("behavioral economics"). More people are questioning the past few decades economic principles and growth. Was it in BRF or elsewhere that I read Freud when he studied humans, had a small sample set comprised of European extraction onlee.

ramana · Post by **ramana** » 06 Jan 2011 01:13

I believe
"Freud was fraud!"

SwamyG · Post by **SwamyG** » 06 Jan 2011 01:24

^^^
and his nephew?

Hari Seldon · Post by **Hari Seldon** » 06 Jan 2011 09:42

Rise of the new global elite (Atlantic)

Very interesting perspective (not exactly blazingly new for dhaga regulars though). Main point is that the global elite are a reality and like the MNCs turned TNCs now owe increasingly less affiliation and loyalty towards mere nation states. That puts a major spanner in the hopes of taxing the uber wealthy at anything approaching 50% + marginal tax rates now, doesn't it?

...the rich are, as F. Scott Fitzgerald famously noted, different from you and me.

What is more relevant to our times, though, is that the rich of today are also different from the rich of yesterday. Our light-speed, globally connected economy has led to the rise of a new super-elite that consists, to a notable degree, of first- and second-generation wealth. Its members are hardworking, highly educated, jet-setting meritocrats who feel they are the deserving winners of a tough, worldwide economic competition—and many of them, as a result, have an ambivalent attitude toward those of us who didn’t succeed so spectacularly. Perhaps most noteworthy, they are becoming a transglobal community of peers who have more in common with one another than with their countrymen back home. Whether they maintain primary residences in New York or Hong Kong, Moscow or Mumbai, today’s super-rich are increasingly a nation unto themselves.

Which is why their influence in gubmint formation and public policy is nothing to sneeze at. We are already seeing its effects in eurostan and even North amrika.

This widening gap between the rich and non-rich has been evident for years. In a 2005 report to investors, for instance, three analysts at Citigroup advised that “the World is dividing into two blocs—the Plutonomy and the rest”:
In a plutonomy there is no such animal as “the U.S. consumer” or “the UK consumer”, or indeed the “Russian consumer”. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the “non-rich”, the multitudinous many, but only accounting for surprisingly small bites of the national pie.

As long as a rising tide (of subprime credit?) lifted or appeared to lift all boats, calm could still be maintained. Alas, after the bubble-popping, not so easy anymore. A new franco-russian ishtyle revolution in the works - working classes of the world unite before the global elites (who are already united) suck whatever remains of our blood? The second Foundation is indeed truly a super-elite. And the aam aadmi can be forgiven his paranoia.

Before the recession, it was relatively easy to ignore this concentration of wealth among an elite few. The wondrous inventions of the modern economy—Google, Amazon, the iPhone—broadly improved the lives of middle-class consumers, even as they made a tiny subset of entrepreneurs hugely wealthy. And the less-wondrous inventions—particularly the explosion of subprime credit—helped mask the rise of income inequality for many of those whose earnings were stagnant.

But the financial crisis and its long, dismal aftermath have changed all that. A multibillion-dollar bailout and Wall Street’s swift, subsequent reinstatement of gargantuan bonuses have inspired a narrative of parasitic bankers and other elites rigging the game for their own benefit. And this, in turn, has led to wider—and not unreasonable—fears that we are living in not merely a plutonomy, but a plutocracy, in which the rich display outsize political influence, narrowly self-interested motives, and a casual indifference to anyone outside their own rarefied economic bubble.

Oh, read it all only.

Added later:
More.

Meanwhile, the vast majority of U.S. workers, however devoted and skilled at their jobs, have missed out on the windfalls of this winner-take-most economy—or worse, found their savings, employers, or professions ravaged by the same forces that have enriched the plutocratic elite. The result of these divergent trends is a jaw-dropping surge in U.S. income inequality. According to the economists Emmanuel Saez of Berkeley and Thomas Piketty of the Paris School of Economics, between 2002 and 2007, 65 percent of all income growth in the United States went to the top 1 percent of the population. The financial crisis interrupted this trend temporarily, as incomes for the top 1 percent fell more than those of the rest of the population in 2008. But recent evidence suggests that, in the wake of the crisis, incomes at the summit are rebounding more quickly than those below. One example: after a down year in 2008, the top 25 hedge-fund managers were paid, on average, more than $1 billion each in 2009, quickly eclipsing the record they had set in pre-recession 2007.

Ok, I'm not going communitistic or anything but this trend is inherently unhealthy. A disruption is round the corner, IMO. May take years to manifest, still. However, the levels of disparity and loot of the public purse we have see in recent times cannot but have repurcussions down the line. Uber-Complexity in our governance and economic systems now yielding negative returns, not merely diminishing ones cannot be ruled out. That means a breakdown in complexity leading to simpler systems, greater redundancies (not uber-efficiency pursuit) and more generally, a simpler way of life for everybody, whether they like it or not. Perhaps.