Perspectives on the global economic meltdown (Jan 26 2010)

Hari Seldon · Post by **Hari Seldon** » 21 Mar 2010 13:22

Jesse in a long-winded ramble at his gentle readers

....

Very thoughtful, thought-provoking piece. Recommended read.

Curtain of Tragedy Will Be Raised Soon Enough, But Perhaps Not Next in Japan

Thesis is that things will dive mighty soon but that japan won't be the first to get flushed down the drain. UKstan and eurostan have worse positions.

First, a verbal broadside against mainstream academic ekhanomix:

The crisis is certainly not over, despite the government propaganda and economic window dressing that is being applied. Quite likely we have only seen the end of the first Act in what is going to be a three part drama lasting at about nine more years.

In particular, the understanding of money and monetary theory is still in its infancy, having been sidetracked by the ideologues in the service of corporatism and big government. In fairness, economics is difficult because there are an enormous amount of variables, and the time lags are highly significant and varied. The fact that economics is a social science with a profound impact on public policy decisions does not help advance academic research. It does seem that the field has a surfeit of economists for hire who often seem to produce studies in order to support pre-ordained conclusions and biases.
...
I think the field will progress more quickly once some new insights are made, and a new model, or skeleton if you will, is struck that allows the mathematicians to begin to flesh it out again.

For now, at least in my opinion, most economic thought is impoverished since the revolutionary insights of Keynes and so many others in response to the world depression of the 1930's. The jargon that currently passes for knowledge is a sign of decadence. I find all of the schools to offer little more than caricatures of what is a highly complex and richly interactive system.

Ok. Nothing terribly new, I'd say. But interesting POV nonetheless.

On why japan is doomed but not first among equals..

My personal opinion is that Japan will not collapse until its export mercantilism collapses, or the average age of the overly homogeneous population strangles its ability to maintain a high savings rate and a ready market for government debt at artificially low prices.
I expect the UK and a portion of the european region to founder first, and then perhaps China, which appears to be an enormous bubble, an accident waiting to happen. Its collapse may be a precipitant to collapses in the developed world. The US dollar will have its day to devalue into a reissuance, but perhaps not until Europe and the UK are sorted out first. But the dollar is a doomed currency, the vanity of vanities. All fiat currencies are doomed; they are invariably the victims of human willfulness.

The same adulation which people had showered on Mussolini and Hitler and their economic recoveries in the 1930's was widespread, as it was for Japan Inc. in the 1980's, and for China today. The crowd always gets it wrong, but it surprising how often the monied interests and the professionals get it wrong as well, and remain stubborn in their misjudgement until they are overwhelmed by its consequences. Or perhaps that is their intention. Who can say.

Yup, like I said, 'thoughtful' all the way.
Now this sounds positively conspiratorial but who knows?

The Bankers will make the world an offer which they think it will not be able to refuse. One currency, and then one government. People being irrational are not likely to take that deal, once again.

There are those who say that they very sure what is coming, what will happen, what the future will bring. For the most part they are speaking out of fear and false pride. The only certainty is that if they really knew what is going to happen, they would cast themselves down from high places in despair.

Grab something solid and hang on to it, and to the faith that sustains you. Do not be distressed if it feels as though the world has lost its reason, and is made blind, and all is deception and trial, for this is part of the process which has begun. If a war comes, then the world will lose its ability to reason in its temporary madness. We are in for a rough ride, and revelations of what is life and what is nothingness, what is true and what is false.

Amen. And jai ho. Scary times ahead. Hang on and hold on tight.

Hari Seldon · Post by **Hari Seldon** » 21 Mar 2010 13:27

self-explanatory, perhaps.

The marginal productivity of debt, i.e. the value of new ekahnomic activity a $ of debt is able to create on the average, has been relentlessly falling relentlessly for a while now as debt loads have mounted and growth has faltered. Now its in positively neg territory.

Jesse sums up the implications best w/o pulling any punches or free lunches

The debt must be liquidated and income in the form of real wages must increase to bring this relationship back into balance.

And more specifically:

This is going to be a dangerous path for the US monetary authority to tread, because a misstep will lead to an inflationary spiral that will surprise most economists as did the stagflation of the 1970's, which up until that point was considered to be almost impossible according to the prevailing theory of that day.

The financial engineers will keep at this until they hit they wall. If we were not in the car with them it might be a more interesting exercise to observe.

Hari Seldon · Post by **Hari Seldon** » 21 Mar 2010 13:34

OKie, this one be just for laughs onlee...

Singha · Post by **Singha** » 21 Mar 2010 19:32

LATIMES: http://articles.latimes.com/2010/mar/17 ... -2010mar17

"more homeowners opting for strategic default"

Hari Seldon · Post by **Hari Seldon** » 21 Mar 2010 21:20

Boy, is AEP on a crusade against the euro or is he?
Markets spooked as Greek rescue plan crumbles

Same set of events packaged and repositioned and re-marketed as new and improved only.
sample this:

Europe’s rescue plan for Greece appears to be crumbling after the country threatened to call in the International Monetary Fund unless Brussels comes up with real money on acceptable terms within a week. The inability of the eurozone to put together a viable package after a month of talks has dismayed markets, which thought the terms of a deal had already been agreed. Yields on 10-year Greek bonds spiked 17 basis points yesterday to 6.26pc. The euro fell two cents against the dollar to below $1.36.

See, all you've to do is replace bolded keywords above with updated data streams and even you can churn out AEP columns at steady clip....

meanwhile the greeks have taken aesop's fables to heart. And decided to play hardball.

The pakiness in their nego tactics reeks of professional leT certified training only.

Greek Premier George Papandreou told the European Parliament that his country was running out of patience. It is in effect already subject to the full rigours of an IMF-style austerity plan but without enjoying any of the benefits. He said the savings from cost-cutting measures were vanishing into the pockets of bond-holders through higher interest rates. "We have the worst of the IMF and none of the advantages. This is where Europe must come in and provide what the IMF can offer. Or Greece will have to go to the IMF. We hope that will not be necessary," he said.

Well, greece hid debt, fudged, lied, cheated, overspent money they ddin't have and now play victim to perfection. Sheer pakiness.

"I prefer a European solution as part of the eurozone, to show the world that Europe can act together.

Kashmir is a world issue and the US must show it can get its act together on kashmir....

This is not to ask for money but to have an instrument on the table to stop the speculation. We expect the EU to live up to the challenge facing it. We are a eurozone country," he said.

This is not to ask for kashmir/afgn. We are a NATO ally. US must fulfill its responsibilities to us...

Hungary was better off with a "free currency", able to work with the IMF outside the eurozone.

Yindia is not even a NATO (forget abt frontline!) ally yet they get all advantages of the n-deal.

Mr Papandreou said his country did not want charity. "We are not asking for money from the Germans, Italians or French, what we are saying is that we need strong political support for reforms and to make sure that we do not have to pay more than necessary.

It may look, feel, smell, and taste like we're begging but remember we're not begging only.

However, Mr Papandreou is in danger of exhausting sympathy in other EU states. His game of playing off the EU and IMF against each other has begun to irk fellow leaders, and his insistent claim that Greece is the victim of speculators may be unwise in any case. It creates the impression that the country has been cut off from access to the capital markets. By demonizing credit default swaps his rhetoric may discourage investors from buying Greek bonds...

TSP is perennially n danger of overplaying its hand but miraculously never actually does so. By demonizing YYY all sins are forgiven.

"Papandreou is playing poker," said Silvio Peruzzi from RBS. The defiant tone leaves no doubt that this escalating game of brinkmanship has turned deadly serious. If Mr Papandreou is bluffing, his bluff is likely to be called since a German-led bloc of states is also warming to the IMF be the best way after all to maintain EMU discipline.

Sadly, dilli lacks the will to call paki bluff. Yet.

Ameet · Post by **Ameet** » 22 Mar 2010 03:43

prad wrote:http://www.nakedcapitalism.com/2010/03/ ... hread.html

China’s Exporters Hanging by a Thread?

Vice Commerce Minister Zhong Shan, in an exclusive interview Thursday ahead of a visit to the U.S., said that the profit margin on many Chinese export goods was less than 2%.
there's a lot of trouble brewing in China. situation being contained by temporary bubble environment (stimulus, speculation in real estate/stocks). 2% profit margins in a sector that makes up 40% of the GDP that's not a good sign. that inevitable correction might not be so far off.

The good minister and the others in the article don't seem to be taking into account the China governments export rebates. During the good times this used to be over 10%, even for low end goods - I suppose you could argue that is most of China's exports anyway. Now factories can still receive 5-6% rebates. The China miracle will go on as long as the China government wants it to. Slowdowns are inevitable, but the long march does not stop. They have taken a page from MMS and will go the extra mile to protect their factories as much as possible.

svinayak · Post by **svinayak** » 22 Mar 2010 05:03

Hari Seldon wrote:Boy, is AEP on a crusade against the euro or is he?
Markets spooked as Greek rescue plan crumbles

What is AEP?

Hari Seldon · Post by **Hari Seldon** » 22 Mar 2010 05:26

Acharya wrote:What is AEP?

Unless one has followed my posts over the years, one cannot understand.

...

/Just kiddin'

AEP==Ambrose Evans Pritchard, UKstani author of these hit pieces.

svinayak · Post by **svinayak** » 22 Mar 2010 06:19

You are getting up too early for monday morning

. You need a break

Hari Seldon · Post by **Hari Seldon** » 22 Mar 2010 07:58

Acharya wrote:You are getting up too early for monday morning . You need a break

Well, never know when the inner pakistani may strike.....gotta get rid of the inner pakistani one does, doesn't he?

In any case, BRF is like on 'always on' mode in the grihastam....

Singha · Post by **Singha** » 22 Mar 2010 08:26

afaik 2% profit margins were common in PRC even in the "boom" times. thats
how they operate. but somehow the factory owners and political bosses do find
ways to get fabulously rich, while the workers just about manage to get by.

meantime, high end repo is a thriving business - taking back the boats and planes of the khanate rich.

http://online.wsj.com/article/SB1000142 ... stpop_read

shravan · Post by **shravan** » 22 Mar 2010 08:51

Financial Times:China to lose ally against US trade hawks

Myron Brilliant, senior vice-president for international affairs, who has previously helped to protect Beijing from hawkish trade policies, told the Financial Times: “I don’t think the Chinese government can count on the American business community to be able to push back and block action [on Capitol Hill].”
...
Mr Brilliant said corporate America’s attitude had changed in response to a range of “industrial policies” pursued by Beijing, including the undervaluation of the renminbi, which made it harder for US companies to do business and compete with China.

Mr Brilliant has long supported China, including lobbying for China to join the WTO.

--

WaPo: China's commerce minister: U.S. has the most to lose in a trade war

China's commerce minister warned the United States on Sunday that if it launches a "trade war" against China by levying punitive tariffs on Chinese imports, the United States will suffer the most.
...
"You're not going to get 1.3 billion Chinese to change by insulting them," [Commerce Minister Chen Deming] said. "Could it be related to upcoming elections? I don't know. Because economically, it makes no sense."
...
"[Obama] wants exports to double in five years, but I don't know whom he is going to sell them to."

svinayak · Post by **svinayak** » 22 Mar 2010 09:17

http://www.youtube.com/watch?v=iKpSr40zFQ4

http://www.youtube.com/watch?v=ycVvP1B9Upo

Myron Brilliant

Vice President, East Asia, U.S. Chamber of Commerce

President, U.S.- Korea Business Council
Executive Vice President, Hong Kong - U.S. Business Council

As President for Asia, and Officer of the U.S. Chamber of Commerce, Myron Brilliant is responsible for developing, promoting, and executing U.S. Chamber programs and policy relating to U.S. trade and investment in the Asia trade arena. In overseeing the U.S. Chamber's work in Asia, Brilliant works with U.S. Chamber members, business coalitions, American Chambers of Commerce abroad (AmChams), the U.S. Government, and foreign governments and businesses. Brilliant speaks frequently to the media on matters relating to business interests in Asia.

In his Chamber role, Brilliant focuses heavily on the U.S.- China relationship. In 2001, Brilliant formed the U.S. Chamber's China WTO Implementation Working Group to follow China's efforts to open its market to foreign goods and services. From 1998-2000, he also served as co-chair of the Business Coalition for U.S.-China Trade during the national campaign to secure Congressional support for Permanent Normal Trade Relations with China. The Coalition was comprised of over 1,200 U.S. companies, as well as trade and farm organizations representing the U.S. manufacturing, agriculture, and services sectors. From 1997-2000, Brilliant launched and ran a wide-ranging Chamber grassroots issue advocacy program designed to build support for full normalization of the U.S.-China commercial relationship. The grassroots program included significant outreach to companies of all sizes, state and local chambers of commerce and other organizations across the country.

Brilliant also works on matters impacting U.S. market access into other key Asian markets such as Southeast Asia, Australia, Korea, and Japan. In 1998, Brilliant organized and led a successful business campaign to obtain congressional passage of legislation to provide $18 billion to the International Monetary Fund.

In addition, Brilliant has overall management responsibility for two bilateral business councils. In the spring of 2002, Brilliant assumed the leadership of the U.S. - Korea Business Council, an organization comprised of top executives from U.S. companies with a strong commitment to the Korea market. The Council provides a forum for business leaders to advance their market access and broader policy issues with senior U.S. and Korean government officials. He also serves as President of the Hong Kong U.S. Business Council, a private-sector initiative whose mission is to further strengthen and expand ties between the United States and Hong Kong. Council members are chief executives of leading American companies who share an interest in getting more deeply involved in the Hong Kong and China markets.

Before coming to the U.S. Chamber, Brilliant was an attorney with the law firm of Stewart & Stewart in Washington, D.C., where he specialized in international trade matters and published a number of articles on international trade issues. His responsibilities included assisting clients on matters relating to the Uruguay Round of the GATT Multilateral Trade Negotiations and the North American Free Trade Agreement.

Brilliant received his J.D. from the American University's Washington College of Law and his B.A. in Government and Politics from the University of Maryland.

http://www.youtube.com/watch?v=n2BzxCzfUDs

Why China says it can't stop buying millions of dollars worth of US government bonds.

Memories of Mao, the economic slowdown is driving many Chinese to question modern capitalism.

Check out what is said at 8-10 min about India.
False argument and fake information. It is all about geopolitics

Neshant · Post by **Neshant** » 22 Mar 2010 09:41

Interesting 3 minute interview with Richard Duncan.

He predicts US govt will keep spending massively for years into the future. It will be able to borrow this money from the public at very low rates since the public has nowhere else to invest their money. If he's right, it will be a real disaster for savers in cash and people betting on inflation via gold.. etc.

Click on the link and the clip will start 5 seconds after a small advert.

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

Blackhorse's Richard Duncan: The US Must Keep Spending, Otherwise We'll Be Japan

http://www.ft.com/cms/af1f4356-e399-11d ... omSearch=n

markos · Post by **markos** » 22 Mar 2010 10:57

amdavadi wrote:Since we are talking about california. In my opinion republican control california governship since 1967 starting with
ronald reagan to Arnold.Except two terms of jerry brown & 6 years of gray davis.They been in charge for 29 years.They are responsible for california mess more than what they can blame tree hugging liberals for.

Good point. Under uber-liberal Jerry Brown, CA had record surpluses (which Ray-gun worshippers might try to claim credit for just like they claim credit for 90's boom as a result of Ray-gun taxcuts)

Worth noting, since the discussion is on education and taxes funding education, the example of CA
http://en.wikipedia.org/wiki/Jerry_Brown

Brown was criticized for not decreasing the state's surplus by cutting property taxes and thereby paving the way for the success of the proposition. Wrote Harold Meyerson in the Washington Post, "As incomes and property values rose, Sacramento's tax revenue soared—but the parsimonious Democratic governor, Jerry Brown, neither spent those funds nor rebated them. With the state sitting on a $5 billion surplus, frustrated Californians grumped to the polls and passed Proposition 13, which rolled back and then froze property taxes—effectively destroying the funding base of local governments and school districts, which thereafter depended largely on Sacramento for their revenue. Ranked fifth among the states in per-pupil spending during the 1950s and '60s, California sank to the mid-40s by the 1990s

markos · Post by **markos** » 22 Mar 2010 11:06

Singha wrote:visit NJ high schools and study them carefully: the amount of excesses and extravagances is astounding.

have to agree. the extent of spending on sports infra is amazing. some schools
have stadiums that put indian proper stadiums to shame. there are also science
labs allegedly better than some univs in massa itself.

There is no rule that universities should have better science labs than schools. Also the spending actually produces results, unlike what tea-baggers would like others to believe. Following is an interesting article from Tom Friedman.

http://www.nytimes.com/2010/03/21/opini ... ef=general

The most important economic competition is actually between you and your own imagination. Because what your kids imagine, they can now act on farther, faster, cheaper than ever before — as individuals. Today, just about everything is becoming a commodity, except imagination, except the ability to spark new ideas.
...
My favorite chat, though, was with Amanda Alonzo, a 30-year-old biology teacher at Lynbrook High School in San Jose, Calif. She had taught two of the finalists. When I asked her the secret, she said it was the resources provided by her school, extremely “supportive parents” and a grant from Intel that let her spend part of each day inspiring and preparing students to enter this contest. Then she told me this: Local San Jose realtors are running ads in newspapers in China and India telling potential immigrants to “buy a home” in her Lynbrook school district because it produced “two Intel science winners.”

I know that better school districts in my area pay anywhere from 25-50% more for their teachers/other facilities compared to others. If they aren't producing results, people wouldn't be paying for that( and I know from my experience what that difference in pay/facilities produces, often better than private schools where you could end up spending a fortune).

Neshant · Post by **Neshant** » 22 Mar 2010 11:37

but enterpreneurs and the whole IT boom was kick started by Reagan tax cuts

Its a total work of fiction that half assed economists have dreamed up that their fiddling creates a boom.

The reality is none of these jokers had anything to do with any boom. Booms arise when some new technology/science which has incubated long enough enters the market and creates a massive boost in productivity. It has zero to do with tightening of monetary policy and loosening of credit, tighening trouser belts and loosening the tie, financing & high rolling and all other bull&shit metric and terminologies economists come up with to baffel people to claim they sparked a boom.

It just so happened that the time was ripe for the IT industry to emerge after years of incubation. US was lucky that Japan had no other market to export to and had to buy America's debt and reinvest it back into America. The same trick is being tried on China and we'll know the result soon enough.

Probably George Bush Jr. got dazzeled by the theory you are pushing and started on the idea of tax cuts as a way to cause economic booms. Probably seeing the (fake real estate) boom, he thought he had sparked something. He sparked something allright LOL

As for teachers, its turned into a union mafia where maximum extraction of salary and gold plated pension plans and passing on pension investment losses to the public and getting inflation adjusted pensions is the main concern of the faculty. Basically you need a 1.5 or 1.6 million dollar taxpayer funded portfolio waiting for a teacher at the end of retirement to generate the $44,000 /year pension payout. Its jjust ripping off the taxpayer in the private sector : 75% of whom dont have a pension! Average guy coming out of high school meanwhile has just enough education to roll tacos at Taco bell.

markos · Post by **markos** » 22 Mar 2010 11:43

prad wrote: 1. Ray-gun's tax cuts for the rich worked. the 80's economy and the 90's proved that. deregulation failed, but that has nothing to do with tax cuts. they are not mutually inclusive.

Ray-gun INCREASED soc. security taxes (paid by people making less than $100,000 in today's USD) and then raided the surplus for tax-cuts for the rich and on the military-industrial complex. That was hardly the reason for 90s prosperity. 90s prosperity was due to the steps taken up by Clinton with his '93 budget (which was passed like today's healthcare vote, without any republican support). But for republicans and tea-bagger's every success in america can be tied to St. Ronnie.

2. actually, what Christie is doing is he's telling people you can't keep spending and taxing anymore. NJ is a prime example of the Leftist tax-and-spend programs (other such states include CA, NY, IL to name a few). it isn't a coincidence that the states with the most budgetary crisis are ones with super liberal majorities.

3. by cutting funding for schools, he's telling people that they'll have to give up on luxuries in education. high schools should keep what is needed and refrain from building swimming pools which cost millions and take thousands more to maintain every year. visit NJ high schools and study them carefully: the amount of excesses and extravagances is astounding.

Christie is going to remove all excesses from School spending - the first excess to be removed will be teachers. Republicans will replace teachers with preachers (if there aren't enough preachers, Faux news can be used)

After all the nonsense about spending cuts, republicans as usual would shift the responsibility to someone else (as they usually do all the time). In this case, school districts will be forced to increase the property taxes.

The so-called liberal states that you listed produe an outcome from that spending. Income and education attainment in the liberal states remain high compared to basket cases like MS, WV, LA, AR, AL etc (which are all controlled by Bible-thumping republcans and tea-baggers)

http://www.census.gov/compendia/statab/ ... 0s0228.pdf
NJ has 34% population with bachelor's degree or better compared to MS with 19%.

Also talking about states with liberal majorities, let us not forget that it is the red-states that are the welfare queens when it comes to federal spending (also note that SC, NC, FL etc. are in an equally bad shape). Most of those red states take in twice as much they contribute in federal taxes.

http://www.taxfoundation.org/research/show/266.html

NJ happens to be the last one in that list. So while tea-baggers and republicans will bitch and complain about the "intrusive federal" gubmit, they have no problem with receiving the same tax money because in the absence of that tax money, they would be in a worse shape than they are now

5. medicare, social security, medicaid, etc represent the addictive ability of govts to enslave citizens to their statist agenda. the represent the worst instincts of a people: to give up their rights and liberties b/c of the freebies and subsidies that they can't live without.

Ok, let the republicans/tea-baggers opt out of SS, medicare etc. and I am sure that that should keep those solvent for the next 100 years. I am sure, they can sustain themselves using the overflowing 401(k) accounts.

I am reminded of an advertising campaign launched by Ray-gun(aka st. ronnie for republican/tea-bagger crowd) while medicare was debated about 48 years back.

http://www.youtube.com/watch?v=6FzNTB1qtFA

Ronnie's fascinating conclusions

From here it’s a short step to all the rest of socialism, to determining his pay. And pretty soon your son won’t decide, when he’s in school, where he will go or what he will do for a living. He will wait for the government to tell him where he will go to work and what he will do.
....
And if you don’t do this, and if I don’t do it, one of these days, you and I are going to spend our sunset years telling our children, and our children’s children, what it once was like in America when men were free.

So according to this idiot, passage of medicare would have ushered in the socialist era. But he had no problem with raising taxes for another "socialist" program, social-security!! As you can see, most of the fear-mongering on medicare from Ray-gun never materialized. Also it was ray-gun's own party that started one of the biggest UNFUNDED mandates for medicare prescription drug benefits about 8 years back (to provide a big kick-back to pharma industry; the republican rep who wrote that bill - Billy Tauzin - later went on to work for pharma lobbyist group).

Hari Seldon · Post by **Hari Seldon** » 22 Mar 2010 11:55

^^^Well, re these sweet US partisan bickerings transplanted to this fun dhaga, IMHO we all should have the courage and intellectual integrity to admit that a lot of things we may have held dear to our minds a few yrs ago have shown up to be bankrupt and failed ideas.

For instance, Reaganomics failed, period. The full effects of the disastorous policies launched in the early 70s and taken fwd by Reagan have become clear more or less. Why work ourselves into a dishonest trap of having to defend the indefensible?

Added later: I say 'we' because like some here, I readily admit to being influenced a lot by reaganist, neoliberal, free-mkt ideas in my youth.

Similarly, the neoclassical Chicago school of monetarism stands discredited as well. As also the efficient markets hypotheses, free globalized markets mantras and such.

Whether the neo-socialist ideas and ideals will lead us to nirvaan remains to be seen. I have no doubt it will lead to ruin. Time will tell. I have no hesitation whatsoever in lauding amriki healthcare bills and the like which will redirect a lot of resources to much needed relief in the domestic arena rather than spend it in military bases and adventurism on distant shores and in giving aid and comfort to the likes of TSP and KSA.

markos · Post by **markos** » 22 Mar 2010 11:56

Probably George Bush Jr. got dazzeled by the theory you are pushing and started on the idea of tax cuts as a way to cause economic booms. Probably seeing the (fake real estate) boom, he thought he had sparked something. He sparked something allright LOL

I didn't say tax-cuts cause economic boom. Actually Clinton increased taxes to balance the budget before the IT boom took off. I agree with you on the fake real estate boom, as no one is going to increase the wealth by flipping the same property ten times.

Basically just ripping off the taxpayer in the private sectory 75% of whom dont have a pension. Average guy coming out of high school meanwhile has just enough education to roll tacos at Taco bell.

I believe an average school teacher in US needs a bachelors degree and most high school teachers usually have a master's degree (which probably means they have better educational qualification than 75-85% of US population). So if a doctor can command a six figure salary because they spend 8 years in school, why shouldn't the high school teacher make at least half of that? I am all for holding teachers/doctors accountable(i.e. pay for performance)

You can not compare high school graduate/dropout with the teachers. If I recall right, the average government worker has better qualifications than average private sector worker. Now private sector in US has royally screwed their workforce through reduced benefits coupled with offshoring/outsourcing etc in the last 30 years. As a result, private sector wages failed to keep up with even inflation.

Chinmayanand · Post by **Chinmayanand** » 22 Mar 2010 16:53

Betting on the Blind Side

Neshant · Post by **Neshant** » 22 Mar 2010 20:59

I believe an average school teacher in US needs a bachelors degree and most high school teachers usually have a master's degree (which probably means they have better educational qualification than 75-85% of US population). So if a doctor can command a six figure salary because they spend 8 years in school, why shouldn't the high school teacher make at least half of that? I am all for holding teachers/doctors accountable(i.e. pay for performance)

There are tons of people in the private sector with bachelor's degrees but that does not guarantee employment let alone lavish salaries and gold plated pension plans.

The theory of what teachers are worth in the market place should be tested by privatizing these schools. Then we will know whether they are worth what they claim. Everyone would like to compare their salary to that of a licenced profession like being a surgeon or doctor except the market does not price it as such. For all you know, a good 60% of these teachers would be rolling tacos along with their students if education was privatized and they had to survive in the real economy. There sure as hell ain't no 1.5 million dollar pension nest egg funded by some other sucker waiting for them at retirement.

Licenced professions by their nature are designed to inflate salaries. Of course many professions insist on being licenced (like pharmacy) so that they can inflate their wages even though 95% of the time all a pharmacist does is count pills and put it in a bottle.

I further make the distinction here between bachelor's degrees in arts, drama, social sciences, basket weaving... and bachelor's degrees in math, physics and other hard sciences. A good number of even the latter group are under employed and under paid in the private sector. What % of teachers are math & hard science graduates?

SwamyG · Post by **SwamyG** » 22 Mar 2010 21:10

It will be nice to keep USA politics out of this dhaaga as much as possible. We could focus on policies that worked or did not work; and policies that caused or helped the financial meltdown.

SwamyG · Post by **SwamyG** » 22 Mar 2010 21:13

I say 'we' because like some here, I readily admit to being influenced a lot by reaganist, neoliberal, free-mkt ideas in my youth.

Similarly, the neoclassical Chicago school of monetarism stands discredited as well. As also the efficient markets hypotheses, free globalized markets mantras and such.

Can you elaborate on both things a little bit more? To me, economics as life needs to have a good balance. On the flip-side don't you think the trickle-down-economics is working in India?

SwamyG · Post by **SwamyG** » 23 Mar 2010 01:48

^^^
Essentially it means, Unkilland will require more immigrants workers to support the retirees and their way of life. The good thing is they have sufficient land and resources to support the new migrants. The problem - lots of people would want to migrate.

SwamyG · Post by **SwamyG** » 23 Mar 2010 03:01

The problem would be to allow a good match of educated and not-so-educated workers to migrate, and keeping the local population happy and demographic dynamics in control. Would you allow anybody to enter into your house?

Hari Seldon · Post by **Hari Seldon** » 23 Mar 2010 05:45

SwamyG wrote:Can you elaborate on both things a little bit more? To me, economics as life needs to have a good balance. On the flip-side don't you think the trickle-down-economics is working in India?

The underlying realization is that assumptions on which these ekhanomic doctrines rested were insufficiently understood and hence selectively accounted for.

The basic assumption that lays waste neoliberal (free-trade) khanomics is the role of regulation by gubmint. The free-marketers trumpeted Adam Smith's 'invisible hand of mkts' i.e. the doctrine that 'markets can regulate themselves' - and got unbelievable success - managed to influence an entire generation+ of economystics, lawmakers and policy wonks. Sure, it helped that the moneyed elite found the doctrine convenient to further squeeze profits from the system and used their overarching sway over media, Fed, gubmint and public debate to further this viewpoint right till 2008.

We now know the free marketer neoliberal mantra is bunkum. Independent regulators guided by law made by the state are crucial to the success and sustainability of the system - much like referees are crucial to the smooth conduct of any game.

The second phenomenon is the chicago school of monetarists - led by Milton Friedman himself. The doctrine that says that 'inflation is, always and everywhere, a monetary phenomenon'. Discredited now. Fed continues to believe it and its repeated and hevy-duty firepowered mkt interventions using monetarist tools have failed visibly. Japan represents a bigger (or at least, longer) testament to the failure of this doctrine. The doctrine appears to fail under the debt-deflation rubric that the emerged khanomies face. Friedman seems to have gotten his explanation for the great depression itself massively wrong and his mistakes have contaminated policy responses subsequently.

Trickledown is working in India, I agree. The rise in incomes at the lowest rungs of the ladder have quite a lot to do with direct cash transfers by the state to this rung via NREGA, among other schemes. It's not entirely a free-mkt outcome, as some may like to proclaim. The creation of an 'outside option' in ekhanomics greatly raises bargaiing power and hence, wages.

Thats that, in a nutshell.

Hari Seldon · Post by **Hari Seldon** » 23 Mar 2010 06:07

Have often wondered, like others on dhaga I'm sure, if somehow the "G2" - khanistan and cheenistan - are so big that the laws of conventional khanomics maynot apply to them much like newtonian mechanics doesn't fly around an singularity's event horizon.

Turns out, the jury is still out on this one but some nuggets are slipping through.... seems even the khanate may *not*be immune to market punishments. I mean, really. Sample this.
Obama Pays More Than Buffett as U.S. Risks Losing AAA Rating

OK, ignore the ~~alarmist~~ allah-ramist headline for a sec.

The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.
Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg.
{Whoa! whoa. wait a minute.... digest that. Has it come to this now? Really? Has the voice of the bond mkt, suppressed by uncounted trillions in backstops, guarantees, other forms of free money etc sloshed at the mkts by the Fed, found resonance somewhere else?}

Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an "exceedingly rare" event in the history of the bond market.

Exceedingly rare is bloody right.

The $2.59 trillion of Treasury Department sales since the start of 2009 have created a glut as the budget deficit swelled to a post-World War II-record 10 percent of the economy and raised concerns whether the U.S. deserves its AAA credit rating. The increased borrowing may also undermine the first-quarter rally in Treasuries as the economy improves. "It’s a slap upside the head of the government," said Mitchell Stapley, the chief fixed-income officer in Grand Rapids, Michigan, at Fifth Third Asset Management, which oversees $22 billion. "It could be the moment where hopefully you realize that risk is beginning to creep into your credit profile and the costs associated with that can be pretty scary."

Amen, Sri Stapley. Amen.

Aaaah, you aver. "Big deal, yaar these yield shield keeps going up-down only, no? Why for is it interesting, you ask? How does it affect say, my pocket??"

While Treasuries backed by the full faith and credit of the government typically yield less than corporate debt, the relationship has flipped as Moody’s Investors Service predicts the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K.
{Anglo-saxonia is taking it in the chin first. Doesn't mean eurozone has it any better, IMHO.}

America will use about 7 percent of taxes for debt payments in 2010 and almost 11 percent in 2013, moving "substantially" closer to losing its AAA rating, Moody’s said last week.
{Moody's isn't pulling verbal punches, quite clearly. But kindly set aside any possibility of a real downgrade for the khan anywhere in the near or far future. See, pension funds and other huge institutional investors are bound by law to invest in AAA rated securities only, and are hence heavily piling into US debt. No freakin' way unkil will allow this source of mich to walk. Khan will carpet bomb the Moody office before this can come to pass.}

"Those economies have been caught in a crisis while they are highly leveraged," said Pierre Cailleteau, the managing director of sovereign risk at Moody’s in London. "They have to make the required adjustment to stabilize markets without choking off growth."

Advanced economies face "acute" challenges in tackling high public debt, and unwinding existing stimulus measures will not come close to bringing deficits back to prudent levels, said John Lipsky, first deputy managing director of the International Monetary Fund. All G7 countries, except Canada and Germany, will have debt-to-GDP ratios close to or exceeding 100 percent by 2014, Lipsky said in a speech yesterday at the China Development Forum in Beijing. Already this year, the average ratio in advanced economies is expected to reach the levels seen in 1950, after World War II, he said.

If accounted for properly (i.e include off balance sheet liabilities onto your books, then many already kiss the 100% debt-gdp level onlee. The debt service costs associated with such debt levels can be back-breaking. Lemme re-emphasize, back-breaking. No wonder there's zero chance benchmark rates anywhere will go up in a hurry - it'll make debt-serv ice burden even more back-breaking. The carry trade will rule the roost. Expect massive pressure at the doors of fortress Yindia to open up the gubmint debt sector to freer phoren participation - all that money borrowed free at 0% will scour the duniya desperately seeking returns.

Sri YV Reddy in an ET article a few days back made a clear and unambiguous case for the imposition of some form of capital controls by emerging mkts. As clear a signal as any, IMHO.

It’s a manifestation of this avalanche, this growth in U.S. Treasury supply which is under way and continues for the foreseeable future, and the comparative scarcity of high-quality credit," particularly in shorter-maturity debt, said Malvey, whose Lehman team was ranked No. 1 in fixed-income strategy by Institutional Investor magazine from 1998 through 2007. Last year’s $2.1 trillion in borrowing by the government exceeded the $1.08 trillion issued by investment-grade companies, the biggest gap ever, Bloomberg data show. Malvey said the last time he can recall that a corporate bond yield traded below Treasuries was when he was head of company debt research at Kidder Peabody & Co. in the mid-1980s.

Read it all.

OK, lemme hurry to add - this just another data point in a long series of data points, some confirmatory, others defamatory.

For all the concern about U.S. finances, Treasuries are unlikely to lose their role as the world’s borrowing benchmark, said Michael Cheah, who manages $2 billion in bonds at SunAmerica Asset Management in Jersey City, New Jersey. The U.S. has the biggest, most liquid securities markets, said Cheah. Speculating that Treasuries may lose their privileged position is "not a bet I want to put on," said Cheah, who worked at Singapore’s central bank. Yields on 10-year notes are about half their average since 1980.
...
"There’s no natural law that says a Treasury has to yield less than a corporate," said Daniel Shackelford, who is part of a group that manages $18 billion in bonds at T. Rowe Price Group Inc. in Baltimore. "It wouldn’t be the first time that I would scratch my head and say ‘this doesn’t make sense, the market’s behaving irrationally.’ And it can go on for much longer than you may think."

Neshant · Post by **Neshant** » 23 Mar 2010 07:34

Moody's is just putting out sound bytes to make it look like they are impartial in rating national debts. But much like CNN and other large media, they will be towing the US government's line or else the CEO will get the boot.

Given the circumstance, which would the CEO sacrifice - the already abysmal credibility of Moody's or his over-paid salary?

Moody's will change track at the drop of the hat just like they did on Greece after Germany threatened to boot them out of rating EU debt.

Also it begs the question, if a credit rating agency downgrades a country's rating after the fact (in the case of greece after the news of its financial difficulties were already in the newspapers), do you really need a credit rating agency?

SwamyG · Post by **SwamyG** » 23 Mar 2010 07:57

Hari garu: Thanks. I get the free market thing you talk about. And on it my view is the one needs a balance for sustainability (a.k.a dharma). When dharma goes for a toss, artha and kama goes for a toss as well. I think I have a moderate grasp on this subject matter.

Let me admit that I do not fully understand the Chicago School of Economics, Monetarism and neoclassical price theories, freshwater school of economics itiyadi. As you can see I have googled and checked Wikipedia, but I like simple gyaan from you (and others). So if time permits, please provide gyaan in simple layman terms.

ps: the problem with wiki, is each time I read a term, it has hazaar links for other terms, and I keep clicking and journey along.

Added: Slightly dated news (4 days old), S&P has raised India's credit rating from "negative" to "stable" onlee.

markos · Post by **markos** » 23 Mar 2010 10:38

Following is the comparison of post war president's in terms of handling economy. Ray-clown finishes fourth - after Clinton, LBJ and JFK (Poppy Bush finished last, but I am sure his son would have "improved" that record with his 2-term disaster). It is not from socialist sources or wikipedia, but from Forbes. Even the much storied second-term of Ray-gun ranks as the fourth best

http://www.forbes.com/2004/07/20/cx_da_ ... dents.html

Actually the assertion that real GDP grew the fastest during Ray-gun's term is a fallacy. It grew at 3.49% during Regan era while 4.01% during Clinton presidency. Also inflation reduction was achieved by Paul Volcker, appointed by much reviled Carter.

http://www.measuringworth.com/growth/gr ... US[]=GDPCP

Another myth that Ray-gun acolytes try to perpetrate is that the tax revenues increased because of tax-cuts. Again a false assertion, as can be seen by this study from US treasury. Reagan taxcuts never increased tax revenues (see page 17 and look for the 4 year effect of his '81 tax-cut)

http://www.ustreas.gov/offices/tax-poli ... /ota81.pdf

Some would like to claim that the tax-cuts spurred investment growth. But that is not really true either. Prosperity in 90s was due to Clinton reducing the budget deficits created by successive republican administrations. With a Gore presidency in 2000, we probably wouldn't be discussing this topic today.

http://www.americanprogress.org/issues/ ... _side.html

Real investment growth after the tax increases of 1993 was much higher than after the tax cuts of 1981 and 2001. The yearly growth rate after 1993 was 10.2 percent versus 2.8 percent for the first supply-side era beginning in 1981, and 2.7 percent in the period of the second supply-side era beginning in 2001. Without better investment growth being associated with supply-side policies, a critical link in the theory of supply-side economics is broken—and it is difficult to draw any plausible connection between supply-side tax cuts and any observed positive economic performance.

Reagan's hagiographers try to find solace these days by trying to cling to the notion that he ended the cold-war. Truth is that if Soviet Union had a leader in the mold of Stalin or Krushchev (instead of Breshnev and Gorbachev), it is hard to predict if coldwar would have unraveled the way it did.

http://www.theamericanscholar.org/not-r ... -rushmore/

But Kotkin points out that the Soviets had increased military spending to “astronomical levels in the 1970s,” before Reagan took office, and that by the 1980s they had determined that his missile defense system “would never work.” Kotkin suggests that, to understand the collapse of communism, we must look “to the wider world.” The most damaging competition to the Soviet Union came, he says, not simply from Reagan’s rhetoric but also from the material and intellectual appeal of post–World War II U.S. and Western capitalism. “Affordable Levittown homes, ubiquitous department stores overflowing with inexpensive consumer goods, expanded health and retirement benefits, and democratic institutions” effectively challenged the Soviet Union in ways that ultimately forced “Gorbachev’s fatal reform effort” to the fore, Kotkin says.

IOW, Macy's and Woolworth's probably had more to do with destabilization of soviet union than Ray-clown

PS:- I must say I enjoyed the desparate attempt from prad to try to tie Ray-gun's follies to Keynesian economics. I don't recall Keynes' theories on distributing wealth upwards (using the funds for social safety net) and wasting taxpayer money on military-industrial complex on programs like "Star wars" which were proven to NOT work.

Suraj · Post by **Suraj** » 23 Mar 2010 10:55

Moderation Note:

This is NOT the thread or forum for US political mudslinging. Those continuously indulging in Republican vs Democrat history revision exercises will earn warnings for thread disruption.

Chinmayanand · Post by **Chinmayanand** » 23 Mar 2010 14:53

Rare China trade deficit not seen signaling new trend

(Reuters) - China will probably run a trade deficit of more than $8 billion in March, state media said on Tuesday, citing Premier Wen Jiabao.

Looks like a psy-op using madarsa math to avoid amriki pressure ...

Hari Seldon · Post by **Hari Seldon** » 23 Mar 2010 16:28

Indian miracle loses its shine

It's time to stop relying on the Federal Reserve's easy money policies and start liberalizing the economy.

Clownish psy-ops.

The author actually purports to seriously claim that the Fed's easy money policies are primarily driving Yindian growth rates. Even a cursory glance at our savings rate and national ROCE was not done by sri author. Speaks more about his cred than Yindia's shine, IMO.

Hari Om.

Hari Seldon · Post by **Hari Seldon** » 23 Mar 2010 17:46

Interest-Rate Swaps Sting Cities, States

Buyer's remorse has hit some cities and states that did deals with Wall Street in different times. Hundreds of U.S. municipalities are losing money on interest-rate bets they made during the bull market in hopes of protecting themselves from higher rates. The deals backfired when rates fell, shriveling the sums paid to municipalities. Now some are criticizing Wall Street and trying to exit the contracts. The Los Angeles city council approved a measure this month instructing city officials to try to renegotiate an interest-rate deal with Bank of New York Mellon Corp. and Belgian-French bank Dexia SA.

The pact, reached in 2006 to help fund the city's wastewater system, currently is costing the city about $20 million a year. The banks declined to say how they would respond to a request to renegotiate.

Hari Seldon · Post by **Hari Seldon** » 23 Mar 2010 17:52

Unkil will need to pay for the tab is coming due for past excess. The answer remains the same today as a 1000 yrs ago - Debt and taxes. The ultimate inevitabilities.

States Look Beyond Borders to Collect Owed Taxes

"The states are all hungry for revenue," said Alan Clavette, an accountant in Newtown, Conn. "We are certainly seeing states like New York and Connecticut looking more and more for executives and everyday taxpayers who may be spending time across the border."

The states, for their part, say better techniques for tracking tax deadbeats, not pressure to fill their budget holes, have prompted them to become more vigorous at enforcing the provision. "We are just trying to make sure our tax laws are complied with," said Richard D. Nicholson, commissioner of the Connecticut Department of Revenue Services. "That’s not driven by a need for revenue. If we’re doing more, it’s because of advances in technology. We can do analysis we could never do before with just paper."

Sure, lots of other arcane laws that sit on books for yrs may just need to be revived, who knows. And there's armies of unemployed lawyers out there willing to do the heavy digging for minimum wage.

"We tried to preserve a reasonable balance," said Mr. Wetzler, now a director at the firm Deloitte Tax. "We wanted to avoid imposing onerous burdens on people just for us to collect small amounts of revenue."
...
But now states have greater access to data warehouses that help them better track taxes owed. Real estate transactions, federal data from the Internal Revenue Service, commercial license plates, traffic tickets, bids for government construction projects — all this information, newly digitized and dumped into a computer system, can help states find tax scofflaws. "We’re sort of getting into ‘1984’ land here," said Kenneth T. Zemsky, an accountant and partner at Ernst & Young. "A lot of the reason they went after athletes and entertainers is that they couldn’t find the other people. Now they’re able to get those people, too."
...
But these companies also say that they have been subjected to payroll audits more frequently in the last few years and that tax officials have requested travel logs for highly paid employees during these audits.

In some cases auditors check to see if, say, an employee who was reimbursed for airfare to California also had California income taxes withheld from his paycheck. If not, the company can be fined. Finding out that you owe income taxes across the border can raise your overall tax bill, if your home state has a low tax rate (or no income tax rate at all, as in a handful of states). But your tax bill may not rise by much, since most states allow you to deduct income taxes paid to another state.

Hari Seldon · Post by **Hari Seldon** » 23 Mar 2010 17:56

Classic case of shedding croc tears after 'em horses have bolted only.

Bernanke Says Large Bank Bailouts ‘Unconscionable,’ Must End

WTH? Whatever's come over Sri Bernanke? Moi thought his reappointment is confirmed now....

SwamyG · Post by **SwamyG** » 23 Mar 2010 18:23

I am sure all these schools of economics based their model on the basis of human behavior. Maybe that is why each of them comes with known limitations and some assumptions. After all Economics is the mother of all assumptions, no?

Strictly for people like me: Schools of Economic thoughts. If you are a guru don't go clicky click. Nice to see our own Kautilya being recognized

Hari Seldon · Post by **Hari Seldon** » 24 Mar 2010 06:02

The Guru himself holds fort on the proposal for a Tobin tax form of capital controls and why it may be right for Yindia.
Y Venugopal Reddy: Revisiting the Tobin tax

It has immense potential when used along with complementary policies such as counter-cyclical and macro-prudential measures

Oh, read it all, I say.

Last yr, in a stunning reversal of decades old policies, the IMF (yes, the I-M-F!) admitted that "capital controls can be beneficial in some situations"....

BWAHAHAHAHAHA

Anybody think the IMF will say sorry to the countless Asian and LatAm households their prescriptions have beggared and visited misery upon in the 90s, then?? Yes, I didn't think so, either.

Brazil has already blazed a trail. It is an idea whose time is coming. Time for Yindia to do the right thing, IMHO. Or maybe we're waiting for this to become conventional wisdom before we wade into it, eh?

SwamyG · Post by **SwamyG** » 24 Mar 2010 06:31

Brazil has already blazed a trail. It is an idea whose time is coming. Time for Yindia to do the right thing, IMHO. Or maybe we're waiting for this to become conventional wisdom before we wade into it, eh?

In my opinion, India could have said (probably still has time) to say "screw you all, we are going the GNH way". Happy Economics any one? Salam Jigme Singye Wangchuck!!!