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

[Christopher Sidor]

^^^
Before Europe exploded in the gory of violence and ethnic genocide, in early 1940s, a similar situation existed too. The world was more inter-linked then ever. Japan's biggest trading partner was US. French and Germany were the biggest trading partners of each other. The elites of the world used to rub shoulders with each other in london, new-york, singapore, zurich, etc. It still did not stop the horrid waste of human life and the economic loss which resulted from the first half of 1940s.

If history is any guide, there has never been an orderly transfer of economic/military power.

[vic]

Anybody who is using any bulk commodity in any manufactering unit knows that world trade is controlled by speculators like GSaches and they rake in all the profit

[Hari Seldon]

Will Japan make it through 2011 as peacefully as it did 2010? Doubtful, something tells me.

Sengoku Says Japan’s Finances Near ‘Edge of a Cliff’

Japan’s top government spokesman said the country’s fiscal situation is “approaching the edge of a cliff,” underscoring Prime Minister Naoto Kan’s call for a national debate on raising the 5 percent sales tax.

Kan is “expressing his deep sense of crisis and resolution about the sustainability of social security as the aging population increases under a low birth rate,” Chief Cabinet Secretary Yoshito Sengoku told reporters today in Tokyo. “The supporting fiscal conditions don’t allow for any delays, it’s finally approaching the edge of a cliff.”

The prime minister last night said in an interview with TV Asahi that he would “stake my political life” on addressing Japan’s rising social welfare costs and increasing public debt. The day before he said “now is the time” to face these problems.

Japan’s public debt is set to exceed twice the size of the economy this year and reach 210 percent of gross domestic product in 2012, both estimates the highest among countries tracked by the Organization for Economic Cooperation and Development, according to the group’s forecasts.

Strong words and all for a usually reticent and face-based society, I'd say. In any case, the tipping point where Japan's historic savings largesse will turn negative as its savers turn retirement era spenders is (almost) nigh. This bunch of ant like savers provided the cannon fodder of domestic buyers of jap gubmint bonds all these long, lost deflationary years. That era is finally ending. Japan tapping int'l mkts for its bonds, just imagine that thought.... 0% won;t fly there for sure. And even a 200 basis point rise in borrowing costs for japan with its infamous 200%+ public debt to GDP spells calamity only. Watch this space.

[Singha]

so why exactly is Japan unable to replace the old with a healthy 2 kids/family replacement rate?

[Hari Seldon]

^^^Good Question. In fact, this phenomenon of civilizational suicide by refusal to procreate in favor of recreating 24x7 is actually new in the history of the world. Nobody knows yet how this will play out and there's precious little evidence incentives of the gubmint variety (more tax breaks, childcare facilities, monetary incentives 2 have kids etc) have worked (somewhere in scadinavia they raised the fertility rate to just above replacement level, IIRC but that's it).

Maybe japan needs a wee bit of pakiness only.

[Neshant]

so why exactly is Japan unable to replace the old with a healthy 2 kids/family replacement rate?

Same reason as many other developed countries.

Fiat pushing banking & financing crooks in association politician collaborators are ripping off the fruits of people's labor through enforcing the usage of worthless money and stealing its value through inflation, taxation and various other means of confiscation. Day to day living and raising of a kid gets to be way too expensive. Public sector unions milk what's left to get good pensions at the expense of everyone else who have no pensions. Job stability meanwhile has evaporated.

The end result - kids become an unaffordable luxury. The way to reverse this trend is to destroy crooks who control the money and return power to the people who are working and producing real goods & services in the economy - not con men shuffling paper !

[Neshant]

^^^Good Question. In fact, this phenomenon of civilizational suicide by refusal to procreate in favor of recreating 24x7 is actually new in the history of the world. Nobody knows yet how this will play out

Nature will drive Japanese to a lower standard of living. Usually the lower the standard of living the greater the output of children. The laws of nature dictate that since more and more wealth has ended up creating less and less babies, the pendulum must quickly swing in the other direction to compensate for this imbalance.

Perhaps the current economic crisis is something developed societies _need_ to cut themselves down to a level where the priority shifts to procreation (as opposed to personal gratification) by whatever means possible. If those means require that society should become poorer, then nature will find a way to get them there no matter how obscure/unbelievable the path may seem.

Maybe the rise of banking crooks is nature's way of leading developed society into the economic abyss and increasing the birthrate as a result.

Personally i think my above theory will one day stand among the great discoveries like Darwin's theory of natural selection. Just remember you read it here first.

[Bade]

The more and more wealth gets concentrated in a few, the easier it is to steal it all from them, since it is only a few that needs to be taken care of in which ever manner the very large majority will decide. So nature has it all built in.

[RamaY]

so why exactly is Japan unable to replace the old with a healthy 2 kids/family replacement rate?

I think the issue is with materialistic & individualistic world view. What do "I" gain by having two more kids and taking the responsibility for raising them?

[Theo_Fidel]

Once women control their own fertility they care two hoots about replacing the species. It has proved almost impossible to get women to have children by choice once that cultural transition takes place. Due to low human fertility(don't laugh), at least 95% of women must bear minimum 2 children. And every third mother should have 3-4 children. Just to maintain the population leave alone growth.

Even the US population does not replace itself. Only immigration saves it. One of the clear lessons of this economic collapse for the US is that it needs a bigger population. At least 1 Billion, 3 times the present if it wants to compete long term.

Undoubtedly this will happen to us as well. The younger generation around me is only having one child. At least a few are not having children at all and having a ball.

[Bade]

Why should the world economy grow forever ?

[SwamyG]

Maybe japan needs a wee bit of pakiness only.

Or it could make it easy for deshvasis to migrate. A better route for both countries.

The World's population is estimate to reach 9 billion sometime in this century. We will hit 7 billion in 2011 (this year). Until the Industrial revolution (19th century) the World had less than a 1 billion. In the last 200+ years we have added almost 6 billion.

[vera_k]

Undoubtedly this will happen to us as well. The younger generation around me is only having one child. At least a few are not having children at all and having a ball.

At a state level, some Indian states are already beyond redemption and will get old before getting rich. Even Gujarat is on the cusp as fertility has reached 2.1. It's the northern states and Pakistan that will stay younger for longer.

At a minimum the states impacted need to abandon the family planning programs and use the money for something else. Maybe official indifference will get things back in balance.

[Ambar]

I don't get it, why do we wish for better fertility rate in a country like India ? We have one the lowest median ages in the world ( around 24 if i remember right), and make up 17% of the world's population living in 2% of land. After a sensible 1 kid / family approach atleast in urban areas during the 80s and 90s, as people grow more affluent, i again see a shift towards 2/3 kids now. We are running out of water and land, we are exporting food and our infrastructure is over-strained.Atleast i don't see any reason why we should abandon family planning.

[Hari Seldon]

^^Agreed.

The 'grow rich before you grow old' paradigm will be put to severe test shortly even in the tfta rich world. Turns out that after paying out all that is owed by them, the rich aren't so flashingly rich anymore. Granted, they're still miles ahead of us boor SDREs. Their next gen and the gen after that, which shall be saddled with the liabilities and the party bills for the current boomer gen having fun will have a decidedly lower std of living.

Family planning in Yindia is a good thing. We could do with a stable population like right now. Even BD am told has reduced its fertility level to below UP's.

[Bade]

In the agriculture->manufacturing->services->Automation(?) model trajectory that we are on as societies, with some at different stages on this track, what will follow the last stage. Clearly as we move along this path fewer and fewer numbers in captive population is required. So what happens next ?

Does it get cyclical again with new planetary colonies. I do not see any other option in the growth model of economics.

[Bade]

Assuming that there are no wars which requires a reset here on earth itself, automation stage cannot go back to agriculture stage of growth model in an instant.

Or some sort of mass revolution where wealth sorta gets distributed, following which societies have to slide back to agriculture stage due to general stagnation and survival mode kicks in.

In essence a large scale war, revolution or a black swan astronomical event can only set us back at a fast scale. Effects of fertility has less of an impact as it can be accelerated over a 15-20 yr period.

[Theo_Fidel]

The question is not of having more children. The point is that once the transition happens fertility irreversibly declines below replacement.

India's transition is set for 2050 by the way. Though I believe TN will transition in 2035 or so and Kerala even sooner. This does not mean the population will decline immediately. Just that there will be more old people than young people.

Bade,

It not wise to stop economic growth when others around you are sprinting ahead. Either all of us stop sprinting or none of us do. Remember we tried this earlier with our 'just enough' policies ignoring the 'hindu' growth rate. Look where it got us. Stagnation.

[Arya Sumantra]

Beyond a certain population size, a country is forced to stick to low-value added and higher numerical employment sectors so that its huge crowds can remain employed. This means it's currency is forced to remain low in value to remain competitive.

In higher value added work, the profits are greater, competitors fewer but it employs fewer and necessitates that education system constantly churn out exactly the numbers and high calibre people fit for needs of such industry/trade.

If a highly populated country plans to move to and remain only in high value added work it has to grey its population down to a size that will be employed by such industry and then it can support a higher valued currency. The problem is such work is too stressful and people stop breeding more and for an already small population like Japan it adds to existential crisis.

If a country plans to remain in both high value and low value added work, it should only be trading with minerals rich small population countries and politically strategic countries.

For a country like India, it already has 15% of world's population living on 2.5% of world's land. It would have to grey down its population to a comfortable level say around 500-700 million.

We cannot grow/get more resources from our land to keep standard of living high for entire 1 billion+. So we need to get resources from abroad for which our currency's value should be high - for which we should be in high value added work - for which our population should be lower to remain entirely employed.

A greying population is not bad for anyone and everyone, only bad for already small societies(Japan etc). For large populations like India and china, greying down to optimum population is a plus to ensure better std of living for their citizens.

[Hari Seldon]

Kinda yawnable but still, for the record and for bosterity, here goes:

Geithner Warns Lawmakers On US Debt Limit

The U.S. could reach its debt limit of nearly $14.3 trillion as early as March 31, Treasury Secretary Timothy Geithner said Thursday.
{score one for predica(ment)table surprises}

Geithner in a letter to lawmakers said failure to raise the debt limit could "precipitate a default by the United States" and have catastrophic economic consequences--potentially more harmful than the financial crisis in 2008 and 2009.
{More gunwaving at one's own head.....Paki tactics to the fore, eh? Hire Gola to recite this part for added emphasis....}

The letter received a cool reception on Capitol Hill. {yawn. GOTUS has cried wolf once too often. yawn again}

... by Monday, the federal debt subject to that ceiling stood at around $13.95 trillion, giving the government just $355 billion before it would be legally prohibited from borrowing to pay its financial obligations.
{Okie, how about stopping kerry-loo aid to TSP 400%? Every li'l bit should help, no? And withdraw like tomorrow from Afgn. And Iraq. And Diego Garcia while you're at it, dammit.}

A Treasury official said the administration is hoping to separate the debt ceiling increase from the debate on spending. And in his letter, Geithner said deep spending cuts would delay reaching the ceiling by no more than two weeks.

Boehner, though, emphasized the importance of spending cuts. "While America cannot default on its debt, we also cannot continue to borrow recklessly, dig ourselves deeper into this hole, and mortgage the future of our children and grandchildren," he said.{yawn. More motherhood n apple pie. Kindly spell out who you intend to throw under the bus boehner sahib. Would that be sections of the core Dem base - blacks and half-legals??}

Failure to raise the U.S. debt ceiling could cast doubt on the U.S. government's ability to meet its obligations and send shockwaves through the bond market. "Default would have prolonged and far-reaching negative consequences on the safe-haven status of Treasurys and the dollar's dominant role in the international financial system," Geithner said. A Treasury official described the request for the increase as routine. Still, the political balance on Capitol Hill has changed, potentially making the process more fraught.
{more scaremongering. yawn.}

Many conservative candidates ran election campaigns criticizing their opponents for voting to lift the debt ceiling last year, and promised to vote against another increase when federal borrowing hits the current cap. Their promises likely will be tested in the coming weeks.

Oh, read it all. Here's more distilled scaremongering....
"It is the most monumental insanity"

... Every single day the Treasury has bills to pay, Social Security benefits, interest on the national debt ... But if the debt ceiling is not raised, the only cash it would have to pay those bills would come from the tax revenues that come in on a day-to-day basis -- from the payroll tax or from income tax withholding. But that would not be enough to pay the bills that are due that day, so somebody at the Treasury is going to have to decide -- as individuals do when their pay doesn't cover their credit cards and other debts -- who gets paid this month and who doesn't.

And, of course, there is a problem with this, because not everybody can be put be off. By law, Social Security benefits have to go out on the first of the month. But the Treasury literally would not have the cash in its account to cover those benefits, or to pay interest on the debt -- at which point you have a default. Any time the precise terms of a bond are not adhered to -- if you don't receive exactly the amount of money you were promised, on exactly the day it was promised -- you have a default, and that is what would happen under this circumstance.[..]

Do we really want to introduce an element of doubt into the financial markets, that a security that is primarily bought because there is assumed to be risk zero risk of default is no longer safe? There is no other security on earth that has that reputation, not even German government bonds.

The U.S. Treasury is the gold standard and we have benefited enormously from this fact. Every time there is some disruption in the world financial markets, people flee to quality by buying Treasuries. As a result, we have benefited by not having to pay for the consequences of our own profligacy. Foreign central banks hold trillions of dollars of Treasuries as the backing for their own securities.

The minute we introduce an element of doubt into their own minds about whether these debts will be paid, suddenly other alternative investments may start to look better to them, and we will lose market share, which will greatly increase the costs of borrowing over the long term. It's the most monumental insanity that I can even imagine.

Where's the ROFS (rollin' on the floor smokin') icon when you need one.....yawn.

[abhischekcc]

The more and more wealth gets concentrated in a few, the easier it is to steal it all from them, since it is only a few that needs to be taken care of in which ever manner the very large majority will decide. So nature has it all built in.

How true

The more wealth gets concentrated in the hands of a global few, the more unstable it will be.
See, they need their 'wealth' to be stored in one or two global currencies - USD, GBP, Swiss Franc, Euro, Yen, etc. The stability of this currency determines the stability of their 'wealth'. If one or two of these countries default, the 'wealth' of these people will vanish.

-------------
PS
I see Hari has already posted about the possibility of default by US.
The other 'global currency' I see defaulting is GBP.

[Hari Seldon]

The irrepressible max keiser onlee...ensoi...

2011: Year of the Big Default? (short video)

[svinayak]

Matt Taibbi: How Wall Street Is Like the Russian Oligarchy
Big Think Editors on January 7, 2011, 12:00 AM
http://bigthink.com/ideas/26453

Since branding Wall Street's pre-eminent investment bank, Goldman Sachs with the epithet "vampire squid," Rolling Stone correspondent Matt Taibbi has made quite a name for himself in the mainstream American media. Despite the popularity of Taibbi's caustic commentary, few realize his nose for sniffing out corruption and hypocrisy was trained long before he turned his attention to the U.S. financial industry. In his recent Big Think interview, Taibbi explains how the time he spent in Russia throughout the 1990s, co-running the eXile, a satirical ex-pat newspaper headquartered in Moscow, has helped him uncover the less-than-savory underworld of the U.S. financial system.

"One of the reasons I was so attracted to this Wall Street story was when I first started looking at it in the summer of 2008 I was continually struck by how much it reminded me of a lot of the dynamic that I had seen covering the Russian government and the Russian state," says Taibbi. "There were a very tiny collection of super connected industrial figures—these oligarchs. They were bankers mostly and there was this circular process of government gives tons of money to banker; banker then scams the public and returns money to politicians who in turn keep giving money back to the bankers."

In Taibbi's opinion, the U.S. government's most recent "quantitative easing" program is yet another example of the "insanity" of Wall Street's relationship to the federal government. "There is a reason why you can’t just print money and get yourself out of economic trouble that way," says Taibbi. "There is a tremendous inflationary danger here, but they’re doing it anyway, which speaks to the total desperation and craziness of our current economy."

A seasoned campaign reporter, Taibbi also talks about Sarah Palin, who he says will "absolutely run for president in 2012,"—as well as about the hypocrisy of Tea Party members who rail against welfare for immigrants, minorities, and "the lazy," but happily ride around in motorized scooters paid for by the government. The Tea Party is now in a "king-making" role, says Taibbi, and he doubts the Republicans will be able to nominate anybody who isn't acceptable to their rank and file. Despite his criticism of Palin and the Tea Party, Taibbi is complimentary of the Palin's political prowess: "She is a gifted politician just in terms of getting people to connect with her on an emotional level in person," he says. "You know it’s like watching Michael Jordon in person. You can just see that they have it and she has got it and I think she is going to win the nomination."

Every journalist has to be concerned about burning their sources, says Taibbi, who in addition to being a veteran journalist, is a well-known bomb-thrower. "I venture a little bit more in the direction of just saying what I think is appropriate and letting the chips fall where they may," says Taibbi, "But at the same time you have to be fair to your sources otherwise no one will ever talk to you." Taibbi, a former heroin addict who spent most of his twenties traveling the world, playing professional basketball in Mongolia, and satirizing Russian politicians, seems to apply a similar mentality to his current life and work. "If you live life like there is no tomorrow, actually it doesn’t work, because ultimately there is a tomorrow. That is one of the things you learn if you do that long enough."

Taibbi's newfound public life, more than anything, is what keeps up at night. "I never, ever thought about my whole life and personality being out in public and what people might think of me as a person and all that and that is it’s very nerve-wracking, that whole situation. I worry that I'm going to hurt somebody with my writing. I've had a couple of close shaves where I've written some things that may have done damage to the people in my stories and that freaks me out an awful lot and so I worry about being wrong more than anything," he says. "I think every time I write a story kind of I always hold my breath and worry that, you know, did I hit somebody unfairly in this piece? Or is it going to come back that I got something completely wrong? And I think that is the thing I worry about the most."

[vera_k]

The question is not of having more children. The point is that once the transition happens fertility irreversibly declines below replacement.

India's transition is set for 2050 by the way. Though I believe TN will transition in 2035 or so and Kerala even sooner.

Exactly. But if the country is not on track to OECD membership by then, this date will need to be pushed back IMO. Or perhaps, the Kerala model of low incomes but high HDI can be replicated. Both options need better government.

[Hari Seldon]

Aaj ka D&G from TAE.

http://twitter.com/#!/AutomaticEarth

Transfers to East Germany are still running at €60bn a year 2 decades after the fall of the Berlin Wall. No meaningful convergence occurred

Wow. Which is why I say better to integrate the Nepal and Ceylon types early rather than late when the income differentials are way higher only..... BTW, Dilli still sends tiny sikkim mucho INR in grants - transfer payments - 35 yrs after its merger only....

Portugal must raise €38bn, Belgium €85bn, Spain €210bn, and Italy €374bn – according to Goldman Sachs in 2011

tra la la ... and with PIIGS CDS spreads widening like lahore's legs, this might just get interesting. Don;t hold your breath though. ECB will print like the Fed in a race to the bottom QE should push come to shove, IMVHO.

BTW, above point directly leads to...

The eurozone is in bad need of an undertaker http://bit.ly/fIkuKm

Amen.

Debt default fears will spread to US and Japan, warns Citigroup's Willem Buiter http://bit.ly/fJMw7v

Familiar theme. underscored in bosts above only.

The percentage of Americans who are either employed or actively looking for work down is down to 64.3 percent, a stunning low!

which is how the Unemp fig dropped to a miraculous 9.4% from 9.8% previously. Birth-death model adjustments coldn't alone cut it, so they merely raised the number not in the labor force. cute, eh? Here's the detail:

'NEVER BEEN A POOL OF MISSING WORKERS THIS LARGE' http://huff.to/e6butC 260,000 people dropped out of the Labor Force in December

The percentage of the unemployed who have been out of work for 27 weeks or longer edged up last month to 44.3 pc, same level as a year ago

The US popn. has grown 6.2 million in the last 2 years. About 250,000 jobs are required per month just to keep pace with popn. growth.

Food stamp use hits record 43.2 Million. 25pc of recipients have some college degree & 40pc work more than 48 weeks per year!

"What if collapse does not arrive over a number of centuries but comes suddenly," Niall Ferguson. Something to ponder about.

yawn. sri ferguson is a tiresome bore.

In China the banks are nationalised by the Government. In America the Government is privatised by the banks. #epicfail

wonder what the scene is in aamchi yindia...

Californians brace for 59% premium hike http://bit.ly/hOF7gT Blue Shield initiating massive hikes.

Hey, anybody else see unusual (as opposed to the usual) annual hike in healthcare premiums in the golden state or elsewhere, eh?

Anyway, std disclaimers hold. Take all D&G with salt and common sense. Don;t panic overly, yet. cheers and jai ho.

[Hari Seldon]

The WSJ, handmaiden of elite interests, is no doubt seeking to sow trouble and fan doubt, in the true tradition of UKstani divvy and rule the roost only.
But its not as if there ain't a grain of truth or some fire at the heart of this issue....

Labor's Coming Class War

Private-sector union workers begin to notice that their job prospects are at risk from public-employee union contracts.

Well, all workers, public and pvt would do well to first prosecute, jail and claw-back the plunder by the moneyed banking elite only, first, before turning on one another. Aah, but with passions raised, who'll listen to plain old reason, eh?

[Prem]

http://www.ft.com/cms/s/0/680e8a74-1ac0 ... z1AV92zdVb
China currency puzzle irks emerging markets
By James Mackintosh
China is not making life easy for anyone. In just a week the renminbi has given back 17 per cent of its rise since June, when Beijing loosened controls. It is now just 2.9 per cent stronger than in the summer and going in the wrong direction.A weakening Chinese currency is one of the few things that could unite Republicans and Democrats in Washington. It is also sure to worry those faced with the increasingly difficult task of managing other emerging economies, for whom China is the main competitor.
The dilemma is well known, but it has left politicians and central bankers facing an impossible choice. Either they can keep their currencies stable by running low interest rates, deterring hot money, or they can control inflation by raising interest rates, slowing their economies.Unfortunately, the appropriate policies for a stable currency and for low inflation are directly contradictory – and require vastly different approaches from investors. Attempts are being made to try to escape this catch-22, controlling inflation without hitting exporters with a stronger currency. None are likely to work for long.

[abhischekcc]

The fall in RMB shows capital flight out of China, if nothing else. If China is such a hot economy, then why is money exiting those shores.
It would be interesting to know who is selling RMB

[Hari Seldon]

The Bernank at it again....stirring the hornet's nest, that is...

Bernanke Rejects Bailouts

"We have no expectation or intention to get involved in state and local finance," Mr. Bernanke said in testimony before the Senate Budget Committee. The states, he said later, "should not expect loans from the Fed."
{Is this just empty bazooka style rhetoric? Or is it sri Ben's HMVs speaking? Time will tell.}

The $2.9 trillion municipal-bond market has been stung recently by worries that some cash-strapped cities or states won't be able to pay off or roll over debt. Costs have risen broadly for municipal borrowers. The market also faces challenges from the expiration of the Build America Bonds program, which helped cities and states borrow $165 billion at interest rates held down by federal subsidies.

The Fed only has legal authority to buy muni debt with maturities of six months or less that is directly backed by tax or other assured revenue, which makes up less than 2% of the overall market. The Dodd-Frank financial-regulation law enacted last year further tied the Fed's hands, Mr. Bernanke noted, by barring the central bank from lending to insolvent borrowers or pursuing bailouts of individual borrowers.

Mr. Bernanke played down the risk of a major municipal-bond crisis, noting that muni markets have been functioning normally, with healthy trading volumes and lots of issuance. But he said that if municipal defaults did become a problem, it would be in Congress's hands, not his.

"This is really a political, fiscal issue," he said.

Lawmakers also are drawing a line in the sand. Senior House Republicans say they will oppose any state requests for money. "If we bail out one state, then all of the debt of all of the states is almost explicitly put on the books of the federal government," House Budget Committee Chairman Paul Ryan said Thursday.

At least three House committees are planning hearings on local budget woes. Rep. Devin Nunes (R., Calif.) plans to introduce a bill to require states to disclose the size of their public-pension obligations in order to keep their federal tax-exempt bonding authority.

The bill, the Public Employee Pension Transparency Act, will explicitly bar state and local governments from receiving help from the federal government to cover their pension obligations.

"There are 242 Republicans, and I can't imagine one that would be in favor of a bailout," Mr. Nunes said.

Many Democrats are wary as well. "We need to be prepared with a plan in case we are approached by one or more states," said Sen. Kent Conrad, (D., N.D.), chairman of the Budget Committee. Neither the House nor the Senate would be "very interested in bailouts to states," he added.

On a recent broadcast of CBS's "60 Minutes," Meredith Whitney, a banking analyst who recently turned to analyzing state and local finances, said the U.S. could see "50 to 100 sizable defaults," in 2011 amounting to "hundreds of billions of dollars."

Mr. Bernanke described that as a "pessimistic view" that he didn't entirely agree with.

OK, nothing to get worried about. This will likely be a slow landing with appropriate aid injected at the right time, IMHO.

[Hari Seldon]

UK banks defiant on bonuses for chiefs

Britain’s big five banks are determined to reward their chief executives with generous bonuses for 2010, defying political and public pressure to curb their pay-outs as public sector cuts begin to bite.

According to bank directors and investors, HSBC, Barclays, Royal Bank of Scotland, Lloyds and Standard Chartered insist they will press ahead with bonus pay-outs despite the danger of a renewed public backlash. RBS and Lloyds, which are partly state-owned and barely profitable, have come under particular pressure from the government.

“We don’t want to see a repeat of last year when no one felt able to take their bonuses,” said one senior banker.

For 2009 the chief executives, led by Barclays’ then chief John Varley and his replacement Bob Diamond, did not take their bonuses, giving up a combined entitlement to as much as £30m.

The sense of entitlement is almost pakee-like only. The outcomes too may endup being pakee-like only, who knows?

[Hari Seldon]

Deepening crisis traps America's have-nots

The US is drifting from a financial crisis to a deeper and more insidious social crisis. Self-congratulation by the US authorities that they have this time avoided a repeat of the 1930s is premature.

Trademark alarmism by sri AEP in the Telegraf. Another recommended read only.

Here's IMVHO the money quote:

More subtly, Asia’s mercantilist powers have flooded the world with excess capacity, holding down their currencies to lock in trade surpluses. The effect is to create a black hole in the global system.
Yes, we can still hope that this is a passing phase until rising wages in Asia restore balance to East and West, but what it if it proves to be permanent, a structural incompatibility of the Confucian model with our own Ricardian trade doctrine?

Bingo.

There is no easy solution to creeping depression in America and swathes of the Old World. A Keynesian `New Deal’ of borrowing on the bond markets to build roads, bridges, solar farms, or nuclear power stations to soak up the army of unemployed is not a credible option in our new age of sovereign debt jitters. The fiscal card is played out.
So we limp on, with very large numbers of people in the West trapped on the wrong side of globalization, and nobody doing much about it.
Would Franklin Roosevelt have tolerated such a lamentable state of affairs, or would he have ripped up and reshaped the global system until it answered the needs of his citizens?

Hubris leads ultimately to debris, sri AEP garu. Only.
The only reason USofA hasn't embarked on an FDR course is because the cons outweigh the pros, perhaps? Of course, events will force unkil's hand. Maybe. Protectionism, trade wars, blockades, blockages, shortages, mayhem...possible. Not likely right now but distantly possible. Only.

[Hari Seldon]

China's forex reserves hit record $2.87 trillion

BEIJING (AFP) – China said Tuesday its foreign exchange reserves hit a record high at the end of 2010 as new loans topped an official target, highlighting Beijing's difficult task of stemming a flood of liquidity. The country's stockpile of foreign currencies, already the world's largest, expanded 18.7 percent from a year earlier to $2.847 trillion at the end of December, the central bank said in a statement.

New loans issued by state-owned banks in 2010 reached 7.95 trillion yuan ($1.2 trillion), exceeding the government's full-year target of 7.5 trillion yuan but less than the previous year's explosion of lending.

M2, the broadest measure of money washing around the world's second-largest economy, reached 72.58 trillion yuan at the end of last year, up 19.7 percent from a year earlier.

Analysts blame China's huge trade surplus -- $183.1 billion in 2010 -- and its massive stimulus measures since late 2008 to combat the financial crisis for the flood of credit that has been fuelling inflation and property prices.

Foreign exchange earned by Chinese exporters is changed for yuan with the central bank so it can control the value of the local unit -- a policy long criticised by China's trade partners for grossly undervaluing the currency.

The foreign exchange is added to China's growing coffers, while the yuan fuels the amount of money flowing into the economy.

Ever fearful of inflation's potential to spark social unrest, top leaders have been pulling on a variety of levers to rein in consumer prices and calm growing anxiety about soaring food costs and property values.

In December, the central bank hiked interest rates for the second time in less than three months. It has also ordered lenders to keep more money in reserve, effectively limiting the amount of funds they can lend.

Wow or wow or what?

For a different perspective, however, pls read sri jesse's splendid take on here only....

link

[China] certainly is fueled by Western investment, particularly driving by companies like Walmart who insisted on suppliers moving production to China starting in the 1990's. A favorable and sizable devaluation in the yuan and a relaxation of US trade rules by Clinton helped to spark the 'miracle' which we are seeing today.

It seems to me that China is monetizing cheap labor, and playing an arbitrage against the middle class sensibilities and public policies of the West. China is exporting deflation and lower living standards for workers in massive quantities, and acquiring sizable foreign reserves in the process. Multinational corporations find this attractive because in the short run it breaks the power which labor and the middle class had gained in the reforms after the 1930's. And it comes complete with vendor financing by China et al., and the promise of fresh economies for exploitation to come. As Bill Gates noted, China represented his kind of capitalism, if only they could start enforcing intellectual property laws. Oligarchy requires pliant labor and obediaent and law-abiding consumers.

Unfortunately China and other developing nations must now start growing their domestic markets, and a consuming middle class of their own, or face an economic collapse that will make the Japanese deflation look like a cyclical recession. This is not easy for a oligarchical non-democratic government to manage gracefully. It is harder to control a healthy and wealthy and better educated rising middle class.

Miracles like China and Japan are made possible by a currency system that is broken, subject to manipulation and mercantilist trade policies that protect domestic markets while promoting exports. It is promoted by economic quackery that is funded by Wall Street that is masquerading as a scientific approach to maximizing the common good.

This remnant of the efficient markets hypothesis is creating even more dangerously destabilizing imbalances than those which provoked the collapse of Russia and the Asian currency crisis, and will be at the root of the global currency crisis to come.

[Christopher Sidor]

^^^
Isn't it amazing a country whose economy is between 4-5 trillion USD has some 2.87 trillion USD as reserves. And this makes one wonder, why is china exporting its capital to others. Why not use it internally for the betterment of its own people.

[shyam]

Was in Dubai. One thing I noticed is that British corporations (like HSBC) seem to more active presence in the emirate than American corporations (say Citi Bank or BoA or Chase). Don't understand why British media was eager to publish dirty stories about emirates.

Too many constructions. Some buildings where people live don't have proper street address. It seems people use post box or work address to receive mails. It is rumoured that government asked companies not to remove crains from the buildings to create an impression that the constructions are still going on.

Occupancy rates in Dubai hotels during this holiday season was much lower despite significant reduction in room rents.

[Hari Seldon]

Theek hai, at the risk of sounding like a broken record, lemme anyway record this piece for bosterity on this dhaga.

Yup, sri AEP again, pontificating on oiro troubles.

EMU debt crisis edges ever closer to the core

The eurozone's debt crisis is once again in danger of spiralling out of control after yields on Portuguese debt spiked to a post-EMU high and contagion hit Spain and Belgium.

You yawning yet? Why not? I'm so jaded listening to this same crock over n over only. Nothing will happen, I tell ya. The same piece could have been written at anytime in the last 18 months with none being any the wiser, so monotonous and yawny have become oirostani ekhanomic reports of late.....

The European Central Bank (ECB) intervened heavily in the markets, buying Greek, Irish and Portuguese bonds to drive down yields again, but has yet to broaden its emergency purchases to a fresh set of countries. Germany's Bundesbank is vehemently opposed to policy "creep" that involves the ECB in fiscal rescues by the backdoor.

The bank's refusal to be drawn further has left Belgium fending for itself as an escalating constitutional crisis pushes yields on its 10-year bonds to a post-euro record of 4.27pc. The country has not had a government since Flemish separatists emerged as the biggest party in elections seven months ago.

Stephen Jen, chief economist at Blue Gold Capital and a former IMF official, said Greece, Ireland and Portugal are already "insolvent". Refusal to face up to reality draws out agony, with a "cancerous" effect on the whole eurozone.

Mr Jen said the bail-outs themselves - done in the in the name of "saving the euro" - are causing the crisis to spread ever wider by contaminating stronger states instead of separating the balance sheets of good from bad, as would be normal in a debt clean-up operation.

The danger is that this will infect Europe's core, threatening the AAA ratings of France, Germany and others. If the EU's bail-out fund is enlarged by a further €250bn (£208bn) to €700bn, "one or more" of the AAA states may be downgraded, "most likely" France. "We see a further escalation of the debt crisis. There is no silver bullet because the underlying problems are 'knotted'," he said.

The euro is on life support. And it will continue to be for a long time. Best case seems to be a few quick defaults followed by euro-exits by the 'periphery' that preserves the strong core and its AAA rating. IMVHO, of course.

Anyway, don;t hold breath for anything dramatic to happen like tomorrow. This will draw out over months, perhaps even years. jai ho.

[RamaY]

HS garu and others,

I presume PRC must put those $2.8T in either
- Foreign Exchange - Means it will increase the value of the currency that PRC is trying to keep the money in, be it $ or Euro or Pound. Wouldn't it automatically deflate the value of Yuan?

- In Yuan - What will it do with all that liquidity? Lend it thru the national banks to the extent that people will buy RE and Maglovs increasing inflation? Wouldn't it automatically deflate the value of Yuan?

How long PRC can artificially control the exchange rate in this scenario? What happens when it "officially" deflates Yuan?

[Theo_Fidel]

^^^
Isn't it amazing a country whose economy is between 4-5 trillion USD has some 2.87 trillion USD as reserves. And this makes one wonder, why is china exporting its capital to others. Why not use it internally for the betterment of its own people.

Currency reserves are not strictly capital. They have already been monetized in Yuan.

[Hari Seldon]

RamaY garu,

PRC is doing both. Trying to buy hard assets globally with forex AND fueling a property bubble with massive money supply and credit offtake increase in its domestic banking system. Can it pull it off and engineer a soft landing? Time will tell.

Added ;ater:
BTW, here's an interesting recent piece relevant to the above:
Is Inflation About to Burst the Chinese Bubble?
Again, take all these 'about to burst...' type pronouncements with salt only. Still, there may be handy pointers in there sometimes only.

[Hari Seldon]

Satyajit Das: European Death Spiral – Communicable Diseases

Recommended read only.

European politicians and central bankers have provided useful geographical clarifications. Prior to succumbing to the inevitable, the Ireland told everyone that they were not Greece. Portugal is now telling everyone that it is not Greece or Ireland. Spain insists that it is not Greece, Ireland or Portugal. Italy says it is not in the “PIGS”. Belgium insists it was no “B” in “PIGS” or “PIIGS”.

LOL

Greece had a bloated public sector and an uncompetitive economy sustained by low Euro interest rates. Ireland suffered from excessive dependence on the financial sector, poor lending, a property bubble and an increasingly generous welfare state. Portugal has slow growth, anaemic productivity, large budget deficits and poor domestic savings. Spain has low productivity, high unemployment, an inflexible labour market and a banking system with large exposures to property and European sovereigns. Italy has low growth, poor productivity and a close association with the other peripheral European economies. Italy has recently started to rein in its budget deficit. The Italian banking system is relatively healthy but exposed to European sovereign debt. Belgium is really two ethnic groups that share a king and high levels of debt (about Euro 470 billion, 100% of GDP).

Portugal, Ireland, Greece and Belgium are also small, narrowly based economies which increases investor’s risks. The countries have in common, very high and potentially unsustainable debt levels. They also have in common a reliance on foreign investors to purchase their debt.

Contagion is transmitted through different channels. The rising cost of borrowing increasingly makes high levels of debt unsustainable because of the cost of meeting interest payments. Eventually, countries lose access to commercial funding sources, which is what happened to Greece and Ireland. By the end of 2010, the cost of funds for the relevant countries had risen, in some cases to punitive levels. Greek debt is trading around 12%. Ireland trades at around 9.50%. Portugal trades around 6.60%. Spanish debt now trades at 5.50-6.00%, while Italy is trading close to 5.00%.

And here's why the 'core' EU cares...their banking systems have enormous exposures to PIIGS debt.

In total, banks have lent over $2.2 trillion to the PIGS. French and German banks have lent around $510 billion and $410 billion respectively. British banks have lent $324 billion to Ireland and Spain. The problem is compounded by complex cross funding arrangements. Spain, which may need financial support, has $98.3 billion exposure to Portugal as well as a $17.7 billion exposure to Ireland.

The final channel of transmission is less obvious. Where stronger countries move to support the weaker countries, financing the bailouts affects their own credit quality and ability to raise funds. As concerns about the peripheral countries increased, interest rates for Germany and France, which would have to bear the burden of supporting others, rose. Europe increasingly resembles a group of mountaineers roped together. As the members fall one by one, the survival of the stronger ones is increasingly threatened.

Of course blame-gaming and scapegoating is never far behind.

European leaders see markets as the cause of the problems. George Papandreou, Greece’s Prime Minister, spoke of “psychological terror” that traders were inflicting. EU Commissioner Michel Barnier complained that traders were “making money on the back of the unhappiness of the people”. Others variously blamed “wolf-pack markets”, hedge funds and credit ratings agencies. But unsustainable levels of debt remain the heart of the problem.

Well, here's the hopium laden gameplan on part of the EU boorocrats at least...

The EU and IMF are hoping that the bailouts of Greece and Ireland will restore market confidence. In combination with stronger growth, greater fiscal discipline and domestic structural reforms, they hope that the fear of default or restructuring will recede. Eventually, the troubled countries will regain access to markets. The emergency facilities and support mechanisms will be gradually unwound.

The problem, as Das explains is that...

While not impossible, the chances of this script playing out are minimal.

And the redundancy and spare capacity and sag in the system required to deal with deviations from this hopeful script are not strongly in evidence currently.

A more likely scenario is that the support measures do not work and increasingly Portugal and Spain, initially, find themselves under siege. As market access closes, they too will need bailouts straining existing arrangements, necessitating new measures. If Portugal (debt around Euro 180 billion) was to require assistance, then it will reduce the available funds in the existing EU’s bail-out mechanism. Spain (with debt of over Euro 950 billion) is simply too big to bail out using the present facilities.

Under such a scenario, available options include greater economic integration of the EU, expansion of existing arrangements or a decision to allow indebted countries to fail.

And those options are troublesome only, in their own way.

Greater economic integration would entail adoption of a common fiscal policy, encompassing strict controls on fiscal policy including tax and spending. It could also include the issue of Euro zone bonds (”E-Bonds”) to finance member countries, lowering borrowing costs for peripheral economies and facilitate access to markets.
...
The E-Bond proposal, for up to 50% of a State’s funding requirement, is unworkable given large differences in credit quality and interest rates between Euro Zone members of around 10%. The E-Bond credit support structure would resurrect the ill-fated EFSF on a larger scale.

In any case, Germany takes the view that national governments should bear responsibility for their own decisions. Germany also opposes E-Bonds, as they would increase its borrowing costs. France’s early enthusiasm for E-Bonds seems to have diminished.

The cost of full fiscal union is prohibitive, entailing between Euro 340 billion and Euro 800 billion, depending on the degree of fiscal imbalances. Much of this cost would have to be borne by Germany and other richer economies.

which directly leads to...

If Portugal and Spain experience problems, then in absence of a full fiscal union, the only available actions are further EU support or default.

Oh, read it all. Nothing reeeally new or anything but an excellent summarizing and injecting of perspective from an old hand in the game.

[Neshant]

Downturn's Ugly Trademark: Steep, Lasting Drop in Wages

http://finance.yahoo.com/banking-budget ... p-in-wages

In California, former auto worker Maria Gregg was out of work five months last year before landing a new job—at a nearly 20% pay cut.

In Massachusetts, Kevin Cronan, who lost his $150,000-a-year job as a money manager in early 2009, is now frothing cappuccinos at a Starbucks for $8.85 an hour. (if the wall street/federal reserve financing & high rolling crowd paper printing scam ended and they had to get real jobs, this would be their fate)

In Wisconsin, Dale Szabo, a former manufacturing manager with two master's degrees, has been searching years for a job comparable to the one he lost in 2003. He's now a school janitor.

http://finance.yahoo.com/banking-budget ... p-in-wages