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

devaraj_d · Post by **devaraj_d** » 10 Dec 2011 13:41

ramana wrote:So what were the UK misgivings that made them not vote for the rescue package?

London has a huge and profitable financial services industry. It will be severely hit if a financial transaction tax was imposed. The financial services industry may move over to Switzerland.

shyam · Post by **shyam** » 10 Dec 2011 13:53

City of London is the snake pit of global financial corruption

Why The UK Trail Of The MF Global Collapse May Have "Apocalyptic" Consequences For The Eurozone, Canadian Banks, Jefferies And Everyone Else

Guess Which Country Has Debt Of Nearly 1000% Of GDP...

shyam · Post by **shyam** » 10 Dec 2011 14:04

Germany is the one benefitting from the crisis.

European CEOs Move Cash to Germany

Christopher Sidor · Post by **Christopher Sidor** » 10 Dec 2011 20:08

^^^^
Germany is benefiting from a flight to safety. What Germans have not realized is that they are sailing in the same boat as the Greek/Italians/Spanish/French and there is a fire in certain decks of this ship. Right now they need to fight the fire with water. But all the talk about lazy Greeks and inefficient Italians does not help in fighting the fire. Germany and its other well to do neighbors should not forget that if the fire spreads, it will take the entire ship down with it, along with Germans. Germans may be able to escape in rescue boats, i.e. bring back Deutsche Mark or restrict a euro to a few economically-powerful countries, but it will be poorer for it.

Europeans wanted to expand the euro bail out fund to 1 trillion Euro. They offered to put in some 400-500 billion euros of their own money and wanted the rest of the money to come from somewhere else. They looked everywhere, from China to leverage to everywhere. But they did not look at ECB to bolster this fund. The predictable result was that were unable to get the fund's size sufficient big. After all why would China or anybody else for that matter put in money where ECB, Europe's own Central bank, will not put its own money. Now they are talking about IMF bailout. Recall what IMF forced the south-east asian nations to undergo ?

It is so goddamn frustrating to see the that these prevaricating countries do not seem to get it. We are sleep walking to another disaster. A disaster which would pale in comparison to what happened after Lehman.

vic · Post by **vic** » 11 Dec 2011 09:01

I do not forsee any crash, just lot of stagflation. As i said before equilibirum will only be reached if the living standards fall to half and China's doule in real terms.

ramana · Post by **ramana** » 12 Dec 2011 01:23

I think more than anything the Uk wont be able to the new guidelines with its ultra high Debt to GDP ratios.

RamaY · Post by **RamaY** » 12 Dec 2011 01:28

Wow! look at UK's financial leverage compared to it's economy. It is nearly 6-7 times its GDP where as everyone else is limited at ~100% of their GDP.

How could they do it?

Neshant · Post by **Neshant** » 12 Dec 2011 05:15

Christopher Sidor wrote:This is what hold backs majority of Europeans. For the rich countries it is a different worry. The rich countries of Europe are concerned that they will have to carry the burden of their so called slouchy/lazy cousins. That is why the so called german proposals for a semi-fiscal union, with sanctions and permitted level of budget spending, have favour and not a full fiscal union. In a full fiscal union revenue earned from one place is spent in some other place.

If I'm reading things right, semi-fiscal union is a trap. Germany wants to have its cake and eat it too. They want to bind other European countries into serfdome & debt repayment while keeping them away from German economic spoils.

It sounds like a terrible deal for any in-debt European country and only works to the advantage of the debt collector namely Germany itself.

Either there should be full fiscal union or none. No half-assed union.

This is a great experiment unfolding where we will find out whether nation-states can be artificially engineered into one country through beaurocracy alone. Usually nation-states like India come into existance partly because of a great unifying force (conquerer, cultural values) and usually in one go (suddenly) where nobody has enough time to reject it.

My feeling is that just as we found out religion alone does not provide the glue to hold a nation together (i.e. pakistan) and ideology (i.e. communism) is an even weaker binding force to hold a country together, so too we will find out that this concept of "regulations from beaurocrats" is the worst way to hold anything together.

You cannot artifically engineer a nation that is bound by regulations based on forcing the weaker segments into debt serfdome and take away their political rights to exit the union through democratic elections. The serfs will revolt.

Neshant · Post by **Neshant** » 12 Dec 2011 05:33

Once the semi-fiscal union is done, will the printing presses start up in Europe? I'm guessing it will as the printing press has always been used to pay off debt.

g.sarkar · Post by **g.sarkar** » 12 Dec 2011 06:03

http://www.nytimes.com/2011/12/11/world ... &ref=world
Euro Crisis Pits Germany and U.S. in Tactical Fight
By NICHOLAS KULISH
Published: December 10, 2011
"BERLIN — Even as European leaders put together their latest response to the euro crisis last week, a German-American clash over how best to manage a vast financial crisis and put the world economy back on a sound footing was set in stark relief.
Chancellor Angela Merkel of Germany defied skeptics and laid the groundwork for a deeper union that she said rights the mistakes of the euro’s birth and puts integration on a stable path for the long term. In the process, she forced German fiscal discipline on Europe as the prescription for the ills that afflict the region.
Yet even as the cogs of the European agreement were being fitted into place, President Obama issued his sharpest warning yet about the German-led solution. He said the focus on long-term political and economic change was well and good, but emphasized that failure to react quickly and strongly enough to market forces threatened the euro’s survival in the coming months.
At the heart of the debate is the question of how far governments must bend to the power of markets. Mr. Obama sees retaining the stability of markets and the confidence of investors as a primary goal of government and a prerequisite for achieving any major changes in public policy. Mrs. Merkel views the financial industry with profound skepticism and argues, in almost moralistic fashion, that real change is impossible unless lenders and borrowers pay a high price for their mistakes.
“It’s a battle of ideas,” said Almut Möller, a European Union expert at the German Council on Foreign Relations. “There is a different understanding of how to set up a sustainable economy in a globalizing world. Here there is a major rift.”
It will be difficult to know for weeks, or maybe even months, which approach is right. But it is clear that the stakes are high, with the health of the world economy, the European Union and perhaps Mr. Obama’s presidential hopes hanging in the balance. Economists have fretted for months that forcing austerity plans on Europe’s troubled economies — while a good long-term solution — could lead to deep recessions in the short term, compromising any chance for effective change.
..........
President Obama, of course, faces re-election and sees the crisis in Europe as one of the biggest threats to his chances, as it could tip the American economy back into recession if austerity worsens the slump there. German officials are well aware of that and complain privately that electoral results are Mr. Obama’s chief concern......"
Gautam

Neshant · Post by **Neshant** » 12 Dec 2011 08:42

it looks like a competition between a US demand that money be printed vs German demand that austerity be enforced.

I can see why the US wants europe to do money printing - to disguise the devaluation of the dollar!

Why should savers & creditors have to eat a loss which is what money printing does.

Banking goons have hijacked the US and are promoting what's in their interest - namely croney capitalism of printing money and offloading gambling debts of banks onto the people.

Christopher Sidor · Post by **Christopher Sidor** » 12 Dec 2011 15:39

Banks in ‘Vicious Cycle’ With Government Cash --- Bloomberg Dated 12-Dec-2011
After reading this article it does seem that, the sovereign crisis, is going to turn into an economic crisis. Certain European banks have been asked to raise their capital adequacy ratio to 9% by the European Banking Authority, i.e. EBA. Here is the kicker
1) Banks have been asked to refrain from tweaking their risk-weightings to meet their capital adequacy ratio to 9%.
2) Banks have been asked to refrain from asset sales.
3) Banks have been asked to refrain from reduced lending.
EBA has asked banks to refrain from giving dividends.

And what is the banks first instinct
1) Sell assets.
2) Reduce Lending.

The First impacts us. The second impacts the local economy of Europe.

One European bank executive who requested anonymity because plans weren’t public said his company intended to comply with requirements of the stress tests by lending less in 2012.

The EU leaders’ agreement for tougher budgetary discipline coupled with banks cutting lending will cause a “huge recession” in Europe, AEI’s Lachman said. The result of the stress tests will be constrained lending, especially in the Southern countries, which will make their economic rut even worse, Lannoo said.

“North[ern Europe] has fared well so far, but if the South[ern Europe] derails further, then the North[ern Europe] will trip too,” Lannoo said.

On a related note U.S. Money Funds Cut French Bank Debt by 68% in November.
Now unlike the other Spanish/Italian/Greek Banks, French banks will not require French Government support to meet the capital adequacy ratio which was given in the first link. The French Banks can depend on " main and long-term refinancing operations of the ECB" to meet their requirements. However the sign that the French Banks are impacted is the first sign of the clogging of the financial pipes. And please note that French Banks are at the heart or the core of the EURO Zone.

EU is China's biggest trading partner, bigger than US. EU is India' biggest trading partner, bigger than US. In Japan Foreign investors accounted for about 65 percent of turnover on Japan’s bourses in October, according to the Tokyo Stock exchange. European investors made up 64 percent of those trades by value. North Americans accounted for 24 percent of the number. Source for the Japans story is over here.
So the Top 3 economies of Asia, China, Japan and India are heavily dependent on Europe. In some cases more than US.

Neshant · Post by **Neshant** » 12 Dec 2011 18:42

Truly crazy. The Federal Reserve is an example of a parasite run amock. It highlights the enormous dangers of letting banking goons hijack a nation's monetary system.

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

Bernanke's Obfuscation Continues : The Fed’s $29 Trillion Bail-out of Wall Street

Since the global financial crisis began in 2007, Chairman Bernanke has striven to save Wall Street’s biggest banks while concealing his actions from Congress by a thick veil of secrecy. It literally took an act of Congress plus a Freedom of Information Act lawsuit by Bloomberg to get him to finally release much of the information surrounding the Fed’s actions. Since that release, there have been several reports that tallied up the Fed’s largess. Most recently, Bloomberg provided an in-depth analysis of Fed lending to the biggest banks, reporting a sum of $7.77 trillion. On December 8, Bernanke struck back with a highly misleading and factually incorrect memo countering Bloomberg’s report. Bloomberg has—to my mind—completely vindicated its analysis; see here: http://www.bloomberg.com/news/2011-12-0 ... icism.html.

Any fair-minded reader would conclude that Bernanke’s memo to Senators Johnson and Shelby and Representatives Bachus and Frank is misleading. One could even conclude that it is not just a veil of secrecy, but rather a fog of deceit that the Fed is trying to throw over Congress.

Read it all (copy and paste) :

http://www.economonitor.com/lrwray/2011 ... ll-street/

Neshant · Post by **Neshant** » 13 Dec 2011 16:42

the fine art of offloading gambling losses of banking crooks onto the backs of suckers.

----
The easiest way to understand Europe’s financial crisis is to look at the solutions being proposed to resolve it. They are a banker’s dream, a grab bag of giveaways that few voters would be likely to approve in a democratic referendum. Bank strategists learned not to risk submitting their plans to democratic vote after Icelanders twice refused in 2010-11 to approve their government’s capitulation to pay Britain and the Netherlands for losses run up by badly regulated Icelandic banks operating abroad…

This is the treadmill on which Eurozone social democracies are now being placed. Under the political umbrella of financial emergency, wages and living standards are to be scaled back and political power shifted from elected government to technocrats governing on behalf of large banks and financial institutions. Public-sector labor is to be privatized – and de-unionized, while Social Security, pension plans and health insurance are scaled back.

This is the basic playbook that corporate raiders follow when they empty out corporate pension plans to pay their financial backers in leveraged buyouts.

http://www.jamesrgrangerjr.com/

Neshant · Post by **Neshant** » 13 Dec 2011 16:54

for real or just an excuse to fire up the printing press?

------

Mother of all Bank Runs has already begun in Europe

Uncertainty over the future of the eurozone runs high, despite last week’s high-on-hot-air agreement on moving towards greater fiscal union. And that uncertainty is driving European banks into a severe liquidity crunch that could cause the region’s entire banking system to collapse, analysts fear.

The early warning signs of such a liquidity seizure are already showing up in the troubles that European banks face in raising short-term liquidity. French, Italian and Spanish banks have run out of collateral (typically US Treasures) that they put up to finance short-term loans, and have been forced to pledge their gold reserves in order to secure dollar funding, reports The Telegraph.

http://www.firstpost.com/world/mother-o ... 54124.html

Christopher Sidor · Post by **Christopher Sidor** » 13 Dec 2011 21:35

The German Bundesbank is perhaps the most independent central bank of the world. The discretion given to the US Fed Reserve and to a certain degree to RBI pales in comparison to what is available to the German central Bank. In a nut shell the Bundesbank can tell the german government to go to hell and the German government can do nothing about it. This was largely due to the result of the post WW-I disastrous monetary and fiscal policy adopted by the Wiemar republic.

More importantly Bundesbank's primary and some would say the only function is to ensure, "price stability". i.e. inflation fighting is the primary goal of the Bundesbank. The stability or well being of the financial sector is not anywhere mentioned as a goal. Also Bundesbank does print currency notes, but it cannot give credit. i.e. unlike the US Fed Reserve or RBI, it cannot buy government bonds directly. Due to the sheer size and reputation of the Bundesbank it has a large influence over running of ECB and its behavior. It is largely due to Bundesbank insistence that ECB has not directly bought the sovereign bonds of Euro-zone from the issuing sovereign

Keeping this in mind, consider what Der Spiegel had to report yesterday on the European summit which happened last weekend
The End of Old Europe --- Why Merkel's Triumph Will Come at a High Price

The German chancellor knows all too well that her coalition partner, the liberal Free Democratic Party (FDP), will not go along with jointly issued bonds. If she supported euro bonds, her coalition would be finished. That is a step she is not prepared to take, she recently told close associates.

The chancellor is much more flexible when it comes to the ECB. Merkel and Finance Minister Wolfgang Schäuble are tacitly relying on the central bankers for their help in saving the euro. Merkel and Schäuble are calculating that they[i.e. the ECB and indirectly the German Bundesbank] will rush to the euro's aid with their unlimited funds if the continued existence of the monetary union is in danger.

Because of its independent position -- so the thinking goes -- the ECB could provide any financial institution with cash in return for collateral. Besides, it still makes its own decisions on the quality of collateral. Consequently, it would be easy for the ECB to provide capital for the bailout funds, even without them having a banking license. If necessary, the central bank could also become directly involved in the bond markets and buy up securities on a massive scale to rescue the euro.

In the opinion of government officials, this approach would be in the ECB's own interest. The argument is that the monetary watchdogs in Frankfurt would never go so far as to put their principles and concerns over their own future. If the euro were to fail because they refused to provide assistance, they would be making themselves redundant. Hence, officials at Berlin's ministries are assuming, the heads of the ECB will do everything to ensure the continued existence of the euro -- and, with it, their jobs.

So we all are expecting ECB to do what is needful and what must be done. But guess what ECB and consequently the Bundesbank does not seem to think along the same lines. All this drama and high tension was for nothing. It was all an empty theater. Nothing was tackled and nothing was resolved.

Airavat · Post by **Airavat** » 14 Dec 2011 08:10

How Bad Is the Euro? Ask Iceland:

Iceland has toyed with idea of joining the euro for a number of years, but after the krona plummeted during the country's economic implosion in 2008, the idea gained more urgency. Now the tiny nation has an application pending to join the euro. But the Progressive Parry is arguing that the Canadian dollar is a safer bet.

Suraj · Post by **Suraj** » 15 Dec 2011 07:13

VikramS: What's your take on the situation with precious metals recently ? GLD et al are all breaching oversold territory, but it appears that they're headed even lower before pulling back. The immediate driver appears to be the lack of a QE3 announcement.

abhishek_sharma · Post by **abhishek_sharma** » 15 Dec 2011 08:24

The Book of Jobs: Joseph Stiglitz

kmkraoind · Post by **kmkraoind** » 15 Dec 2011 11:33

Village Revolts Over Inequities of Chinese Life

I have a CT to make. I am not as elaborative, expressive or lucid like some of our BRFites, as I am a true 16 annas SDRE.

- Up to six months back, US officials shuttled to China to urge it to appreciate Yuan.
- China thought it has become a middle kingdom again and planned to expand rapidly with its reserves, even into Europe. It even talked some warmongering.
- Unable to persuade China, rest of the world decided to devalue their currencies 20-30% against dollar, thus making Chinese exports costlier. (In Indian case there are no significant FII outflows, yet it gone from Rs. 44 to Rs. 54 in a short span of 4-5 months). One year back I had said, its better for the rest of the world to devalue themselves WRT to dollar, if China refuses to appreciate its Yuan.
- To stop European conquest, Euro appreciated 20-30% so that investing in Euro is not that attractive (Yuan->Dollar->Euro).

Next in line:
- Continued unrest in China, due to loss of jobs and economic recession.
- Some sort of protectionism in US and Europe through import quotas.
- Partial collapse of WTO.
- Rupee range bound at 53-57, so that Indian IT companies will give flat 30% discount to US.
- Once Rupee stabilizes around 53-57 range expect huge inflows FDI inflows in India in infrastructure and manufacturing, and there is as geopolitical angle to it (India giving them 20-30% discount at starting by Rupee depreciation).
- FDI in retail will be cleared with backhand understanding that Western countries will move most of low manufacturing jobs from China to India.
- Complete encirclement of China with careful balance of power, so that India or Japan cannot become military powers.
- Pakistan will be defanged and will be used as a low punching bag.
- Continued stalemate in Middle East, thus keeping Turkey, GCC and Iran at bay.

Singha · Post by **Singha** » 15 Dec 2011 11:57

interesting - until your post it had not struck me that by devaluing against the dollar, the rest of world had effectively devalued against the fixed-peg yuan and made it harder for chinese exports to them! is there reliable data which breaks up chinese exports by country or by region

vina · Post by **vina** » 15 Dec 2011 12:07

interesting - until your post it had not struck me that by devaluing against the dollar, the rest of world had effectively devalued against the fixed-peg yuan and made it harder for chinese exports to them! is there reliable data which breaks up chinese exports by country or by region

Yes. kmraokind is indeed right. The Chinese have suffered a loss of export competitiveness wrt to the rest of the world . Problem for them is that EU is literally dead in the water (their largest export market) and US is increasingly turning protectionist (latest pow-pow on that is China imposing duties on US cars) and their strategy is to increase exports to other "emerging" markets and guess what that is , India Brazil etc, where the Chinese products have suddenly become 25 to 30% more expensive

.

So yeah, I remarked earlier that we may have seen the high point of Chinese export growth. That growth rate is going to plateau off and not going to be the big driver for Chinese growth going forward. Ok, they have the investment going (not sustianable any more), what is going to take it's place ?

ldev · Post by **ldev** » 16 Dec 2011 00:30

http://www.bloomberg.com/apps/quote?ticker=DXY:IND

Unlikely. Look at the chart of the spot dollar index over the last 1 year in the link. Its back now to where it was 1 year ago. The rupee depreciation likely has a unique Indian explanation i.e. India specific factors.

svinayak · Post by **svinayak** » 16 Dec 2011 02:44

kmkraoind wrote:Village Revolts Over Inequities of Chinese Life

I have a CT to make. I am not as elaborative, expressive or lucid like some of our BRFites, as I am a true 16 annas SDRE.

- Up to six months back, US officials shuttled to China to urge it to appreciate Yuan.
- China thought it has become a middle kingdom again and planned to expand rapidly with its reserves, even into Europe. It even talked some warmongering.
- Unable to persuade China, rest of the world decided to devalue their currencies 20-30% against dollar, thus making Chinese exports costlier. (In Indian case there are no significant FII outflows, yet it gone from Rs. 44 to Rs. 54 in a short span of 4-5 months). One year back I had said, its better for the rest of the world to devalue themselves WRT to dollar, if China refuses to appreciate its Yuan.
- To stop European conquest, Euro appreciated 20-30% so that investing in Euro is not that attractive (Yuan->Dollar->Euro).

Next in line:
- Continued unrest in China, due to loss of jobs and economic recession.
- Some sort of protectionism in US and Europe through import quotas.
- Partial collapse of WTO.
- Rupee range bound at 53-57, so that Indian IT companies will give flat 30% discount to US.
- Once Rupee stabilizes around 53-57 range expect huge inflows FDI inflows in India in infrastructure and manufacturing, and there is as geopolitical angle to it (India giving them 20-30% discount at starting by Rupee depreciation).
- FDI in retail will be cleared with backhand understanding that Western countries will move most of low manufacturing jobs from China to India.
- Complete encirclement of China with careful balance of power, so that India or Japan cannot become military powers.
- Pakistan will be defanged and will be used as a low punching bag.
- Continued stalemate in Middle East, thus keeping Turkey, GCC and Iran at bay.

Fantastic!
Indian structural problem is reflecting in the Rupee value but other factors world wide are converging to the same conclusion about PRC manufacturing base

VikramS · Post by **VikramS** » 16 Dec 2011 05:14

Suraj wrote:VikramS: What's your take on the situation with precious metals recently ? GLD et al are all breaching oversold territory, but it appears that they're headed even lower before pulling back. The immediate driver appears to be the lack of a QE3 announcement.

I have reduced my trading time frame to intra-day since this market is driven by politicians. No big-bets, just taking something out of the market everyday.

In general what is happening in the Eurozone is deflationary which is negative for gold. There is also the property bubble in China which is bursting.

My hypothesis is that like 2008 there will be a major deleveraging driven sell-off. The USD will strengthen as it remains the one eyed king of the blind. USD strength is Gold negative.

Once the dust settles, there will be massive government intervention. I think the Germans are waiting for the fiscal union before they allow the ECB to print. The US too will reach a point where further printing is necessary. The big wild-card of course will be the Chinese consumer. Real-estate has been used as hedge against inflation by the common Chinese cut off from other investment options and facing negative real interest rates. If the collapse in real estate pricing continues, there is a chance of loss of confidence, and a major shift towards Gold in China as an inflation hedge. China is the world second largest economy and if there is an en-masse flight to Gold, then sky is the limit.

As they say the Dow-Gold approaches 1:1 at the point where hard-assets versus paper assets ration tops. Right now it is about 8:1. So there is another order of magnitude to go.

Purely from a longer term investment point of view it is prudent to keep at least 5-10% of your portfolio in Precious metals purely as a hedge against the doomsday scenario. Most Indians do not have to worry about that thanks to our traditions.

Suraj · Post by **Suraj** » 16 Dec 2011 06:39

VikramS: I agree with part of that. Two other matters that bear mentioning:
* 2012 is an election year. Typically this is a cyclical bull phase unless the outgoing US president is at the end of a 2nd term. Won't the Dems try to prime the pump, despite the best efforts of the Repubs to sabotage any measure as a means to assist their election goals ?
* The ability of frantic Chinese population to buy gold is constrained by CPC, who can try to fight the debasement of the CNY and require a certain fraction of deposits to be maintained in savings accounts.

svinayak · Post by **svinayak** » 16 Dec 2011 07:22

There is a rivalry between US and UK on asia pacific for the last 150 years.
India is off limits to US and hence it has courted PRC for a long time.

The global economic system for the last 1000 years is based on India and China system.
This system was owned by British empire for 100+ years and then the cold war brought US into this system. This colonial system is breaking now and they are working to fix it. India is not to be touched by the US but it can meddle in Pakistan and keep trying. Use of Pakistan and courting of PRC is mainly as a way to get back against UK (Rothschild). But they both have common goals in CAS, Middle east and Indo Pacific ocean

PRC is being controlled by the use of India and Indian currency now. India is indirectly is helping the global system to contain PRC. The PRC currency system is supported by the US economic system. The Indian currency system is indirectly under the BOE

abhischekcc · Post by **abhischekcc** » 16 Dec 2011 10:54

I have question for economic gurus:

There are studies which 'show' that since 1920s, 80% of US growth has been due to enhanced productivity.

My question is, if a country takes on a lot of debt, does it show up as enhanced productivity?
I mean, how much of the 'enhanced productivity of 80%' can be because of US financial hunky dory, and how much of it is real?

How can economic laymen get around this obfuscation - are there are numbers which can help us understand the real story?

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

Acharya, is there are way in which India can break through this logjam?

svinayak · Post by **svinayak** » 16 Dec 2011 11:23

abhischekcc wrote:
------------

Acharya, is there are way in which India can break through this logjam?

Yes and that is why India and several countries are working to get out of this.
India and the region has to reach the position as it was in 1750 before the colonial economic system and its hegemony.
India can take the path of war or the path of economic might and geo economics.

vishvak · Post by **vishvak** » 16 Dec 2011 12:11

From http://forums.bharat-rakshak.com/viewto ... 0#p1212180

rajsunder wrote:yesterday i saw the documentary insider job about the financial meltdown in 2008, one of the issues discussed in the movie was about Paid Academicians who went on drumming support for non regulation of derivatives, the list of Academicians who as per the movie included economic professors from the famous universities such as Harvard, Columbia, Yale e.t.c ..... When i read this article, i just could not stop linking both.

How do these economic professors, from the famous universities such as Harvard, Columbia, Yale e.t.c, did not point out that the rating agencies were not keeping up with the bubble?

The reputed first world universities and academicians are not too clear about the fact( per me) that it is one thing to invest in a market when regulations are tight; it is quite another when rating agencies are not catching up and so the balance is lost. How fair it is to call a market a 'market' when the rating agencies are not upto the pace, and the Academicians not pointing this out?

What is this situation called when rating agencies fail to keep pace but it is hidden from the public? It is one thing to bet in a satta knowing fully that it is a chance, it is another to 'invest' in the situation where where rating agencies are not running ahead of the bubble passed off a 'market', even trying to catch up. All these in the first world countries with famous univ.s and academicians. According to me it is almost like misleading people into the bubble with convenience of the famous, or the infamous the way it is seen.

shyam · Post by **shyam** » 16 Dec 2011 12:26

Looks like you did not notice the adjective "Paid Academicians"

vina · Post by **vina** » 16 Dec 2011 12:58

vishvak wrote:How do these economic professors, from the famous universities such as Harvard, Columbia, Yale e.t.c, did not point out that the rating agencies were not keeping up with the bubble

That would be unfair. The point is , profs in those places DID speak about the problems with the rating agencies AND the Fannie Maes and Freddie Mac (esp the last two), for a long time, and precisely on the liabilities of the Agencies, but how the agency securities were treated like sovereign etc ,etc and the possibility of them having credit risks and event risk, this was talked about in class.

That all that was sotto voce so to speak and could be dismissed off as rants by ivory towered academics was and could be done during the boom time when the Fed intentionally stoked the real estate bubble in the aftermath of the tech bubble (Greenspan allowed both bubbles to happen , in his world and ideology that was fine and he was the master of the universe then.. something very similar to what the Chinese did in 2008 when the inflated the property bubble and investment bubble). What started as an investment led normal recession in 2000/2001, exploded as a consumer led fiscal bubble in 2008 and later now as a sovereign debt crisis now. The point is, that run away monetary growth HAD to inflate SOMETHING . The bust of the tech bubble affected a very small section and could have been easily brushed off. The fiscal bubble hurt EVERYONE and the effects are truly long lasting.

Now, tell that to the Chinese drones in the Chinese Economy thread about how their investment and real estate bubble is going to end, and you will hear stories about the ultra super-duper managerial excellence of the Chinese govt and Communist party to "ride over it". Yeah right. The moon is made of green cheese after all.!

Neshant · Post by **Neshant** » 16 Dec 2011 18:21

wow what an information packed interview!

well worth the time listening to both parts of it - especially the 2nd part.

----

Kyle Bass interview on Canada's Business News Network

Part I : http://watch.bnn.ca/#clip584881

Part II : http://watch.bnn.ca/#clip584882

shyam · Post by **shyam** » 17 Dec 2011 04:36

Keiser Report: Möbius Strip of Fraud (E223)

Worth watching the entire episode, including the interview of Reggie Meddleton.

Gist of the show is the other financial scam that got exposed by M F Global collapse called "Rehypothecation". You hypothecate a collateral for loan, rehypothecation is when this lender uses this hypothecated collateral as collateral to someone else to borrow further. This will create a lot of debt with a single underlying collateral. There are regulations for this in US and Europe, but not in the city of London. All banks with office in London are involved in unlimited hyper-hypothecation and super derivatives. This also increases the risk for all those banks.

One can extrapolate this scenario further. This high leverage of banks is very vulnerable to shocks. If someone (put your favorite name here) in London wants to economically crash any country, all they have to do is to throw a spanner in the massive debt-finance shuffling of a major bank from that country. This will crash that bank and send shock waves across the economy of the tragetted country. This way they have every major country by b@lls. It is also being said that the real reason why David Cameron dissented with EU plan is to protect the lax bank regulations in the city of London. Had he agreed, London would have to tighten the rules as per EU requirements.

We have to thank our RBI for putting all kinds of regulations on Indian banks for operating outside the country.

VikramS · Post by **VikramS** » 17 Dec 2011 06:45

Suraj wrote:VikramS: I agree with part of that. Two other matters that bear mentioning:
* 2012 is an election year. Typically this is a cyclical bull phase unless the outgoing US president is at the end of a 2nd term. Won't the Dems try to prime the pump, despite the best efforts of the Repubs to sabotage any measure as a means to assist their election goals ?
* The ability of frantic Chinese population to buy gold is constrained by CPC, who can try to fight the debasement of the CNY and require a certain fraction of deposits to be maintained in savings accounts.

FWIW:

http://smartmoneytracker.blogspot.com/2 ... ubble.html

This guy is good and he feels the bottom is in.

The CPC reduced restrictions to allow private ownership of gold over the past few years. And I doubt that the CPC cares too much about the debasement of CNY. Again this is all hypothesis.

Suraj · Post by **Suraj** » 17 Dec 2011 14:32

Yes, that's the oversold technical indicator that led me to ask the original question about GLD and related instruments.

shyam · Post by **shyam** » 18 Dec 2011 15:33

Repo rehypo hell

chetak · Post by **chetak** » 18 Dec 2011 16:09

Special: Economic meltdown vindicates forgotten Indian economist

Arvind Kumar | Monday, December 5, 2011

The imminent collapse of the European monetary union is a welcome development as it will herald the end of the Keynesian economic system that has been responsible for various economic crises around the world. For several decades, most governments and international organisations have based their economic policies on debt, deficit and inflation, as their policies have been shaped by the ideas of John Maynard Keynes, a British bureaucrat who once worked at the India office.

Nearly a 100 years ago, in 1915, even before Keynes’s star had risen, an Indian economist, SV Doraiswami, published his book, Indian Finance, Currency And Banking. Doraiswami’s ideas were opposed to those of Keynes and his views are vindicated by events today.

Doraiswami had already published his views in several outlets like London’s Statist, and his book was reviewed around the world. In the decades that followed, though Doraiswami’s work was known in academic circles, the Keynesian economists who gained control of academia were dismissive of his ideas and relegated him to the footnotes as they had memorised the claims of Keynes and were conditioned to believe that governments could solve all problems.

Doraiswami faulted the British economic policies in India and demanded that the central bank be an ‘instrument for allowing and encouraging the free and unfettered inflow ofgold into India.’ He wrote that a ‘gold standard without a gold currency is an absurdity’ and wrote in support of a resolution by Vitthaldas Thackersey in the Imperial Legislative Council calling for the opening of mints for the free coinage of gold. Doraiswami wanted the exchange rate of gold to be ‘automatic’ by leaving it to the forces of supply and demand and opposed the government setting its price.

If these suggestions for sound money by Doraiswami had been followed around the world, the current crisis in Europe as well as the Great Depression of the 1930s in the United States could have been avoided. Instead, it was Keynes whose ideas held sway leading to many problems in the world.

Keynes was an influential figure in the British government and opposed the setting up of gold mints in India as he considered gold to be a social evil and a ‘barbaric relic of the past.’ He did not have an understanding of the nature and function of money that Doraiswami had lucidly explained in his book, and some of his ideas were bizarre. He confused cause and effect after observing greater amounts of spending during times of prosperity and concluded that more spending would lead to more wealth. He even famously argued that hiring people to dig holes in the ground would increase the ‘real national dividend of useful goods and services.’

In contrast to Keynes’s views, Doraiswami objected to wasteful spending and blamed the British for creating huge debts for India through ‘reckless railway construction’ and funding wars using Indian money. Although Doraiswami was harsh on the British, he was also very objective and pointed out that the British Conservatives did a better job than the British Liberals in managing India’s finances. He pointed out that the policies of the Conservatives in currency matters “were sounder and more sensible” than those of the Liberals.

Doraiswami was also very knowledgeable about the banking systems of various countries and described them in his book. He pointed out that the reason that Indian banks did not do well was that the British government competed against them.

Today, Doraiswami’s views gain centre stage as several governments that swore by paper money, and even the International Monetary Fund, scramble to increase their reserves of gold after realising that gold is the only stable currency. Meanwhile, as the European Union teeters on the brink of collapse due to its debts, it would be apt to recall the prescient words of Doraiswami from his book: 'The State Bank should do nothing to increase credit currency, as some would advocate, or in any way meddle in the increase of note circulation, as such a step would only lead to the inflation of paper money and end in disaster.’

As discredited Keynesian ideas are on the way out, the Indian government too should move away from running up debts and deficits and printing paper money. It should replace these Keynesian policies with Doraiswami’s suggestions as it is now safe to state that the entire literature produced by the Keynesian economists is not worth a page of wisdom in Doraiswami’s book.

Marut · Post by **Marut** » 19 Dec 2011 17:22

^ from above article

As discredited Keynesian ideas are on the way out, the Indian government too should move away from running up debts and deficits and printing paper money. It should replace these Keynesian policies with Doraiswami’s suggestions as it is now safe to state that the entire literature produced by the Keynesian economists is not worth a page of wisdom in Doraiswami’s book.

an apt closing statement!

gakakkad · Post by **gakakkad** » 19 Dec 2011 17:32

>>Special: Economic meltdown vindicates forgotten Indian economist

yeh. yeh . vindicated. Keynesian west lived a 100 years of extreme prosperity . It not that west is starving today . How on earth is the chappy vindicated.