Perspectives on the global economic meltdown (Jan 26 2010)

[Hari Seldon]

D&G from TAE. Tweets from http://twitter.com/AutomaticEarth

TIFWIW and other std disclaimers.

Major banks masked their risk levels in the past 5 quarters by temporarily lowering debt before reporting to the public http://bit.ly/dnaIZM

Exactly what Lehmann was doing right till sept 2008. So more banks are into the same game - whuddathunkit, eh? In any case, the free money window at the Fed - borrow at 0% from the Fed and lend at 2% to the Fed (short term yields) is too good to let go, IMHO.

On the unemployment catastrophe-in-waiting......

TAE 4/8: "long-term jobless"—people out of work more than 6 months was 44% of all people unemployed in Feb. A year ago that number was 24.6%

TAE 4/8: The U.S. unemployment rate for workers under 25 years old is about 20%. This doesn't even include under-employment!!

TAE 4/8: "Since 1990, roughly 80 million Americans have been born. They can't all be organic farmers or write scripts for "30 Rock." "

Euro unemployment rates for under 25's: Belgium 22.6% Spain 44.5% France 25.2% Italy 26.2% UK 19% Sweden 26.9% Finland 23.5% Germany 10%

I tell ya, jobs are the #1 Kore issue going fwd. Those eurostan under-25 umemp figs are eye-popping indeed. A few more yrs of this and xenophobic backlashes are 400% going up only. "Those colored types taking away our entitled jobs only" shall ring again, IMHO.


The global stimulus scam.

TAE 4/8:On Oct 31 07, the total market value of shares globally reached high of $63 Tn.By early March 09, the value had dropped to $28.6 Tn

TAE 4/8: Price of stability so far: Atleast$20 trillion of government bailout/stimulus commitments/spending that began in 2008 worldwide.

TAE 4/8: 20 Tn In global stimulus has resulted in a $16.4 Tn rise in global equity markets. 17.5% of the public money was lost. #fail

More oirostan green crapshoots:

TAE 4/8: Out of 10 Mn Greeks, how many would you have guessed filed income tax returns of over €1 million? The answer is 6...(No really, 6)

If the UK was a company it would have up to £4 trillion of debt compared to an income £1.4 trillion. http://bit.ly/98zKyw (Just public debt)Jai hor, jai hor!

TAE 4/8: 87% of Latvia's debts are in euros or other foreign currencies, and are owed mainly to Swedish banks. (Risk of contagion) {They never learn do they? Latvia should summarily default in the interest of its people. Period. Latvians aren't a Swedish colony slaving away and cutting down on essential services to repay swedish loans.}

More D&G from the 2 and only G-2.

Recovery?!? There's No Recovery! The U.S. Is Completely Screwed! http://bit.ly/azaPLD (Howard Davidowitz on the economy)

Record 39,430,724 receive SNAP (food stamp) benefits, a 22.4% increase from a year ago. http://bit.ly/bgRMgh (Via Mish), 14th rise in a row

Chinese Property sales were equivalent to 13 percent of GDP in 09."Corporate profits are very much driven by the property sector,”Andy Xie.

The Chinese economic planning agency says 5,557 kilometers of railways and 98,000 kilometers of highways opened last year.

Chinese local government projects started last year have totaled between 10 -20 Trillion yuan. http://bit.ly/adElLY (Crazy bubble stimuli)

Npow read the cheena news in conjunction with jim chanos's charitable explanations for why the cheena bubbly may pop soon. Of course, sri wlin is far more convincing in averring that because doomy commentators got cheena wrong in the past, they will always get cheena wrong in the future too....yup, lets drink to that, shall we

[svinayak]

Complicated Risks
http://roomfordebate.blogs.nytimes.com/ ... ould-mean/

Yasheng Huang is professor of political economy and international management at Sloan School of Management, Massachusetts Institute of Technology. He is the author of “Capitalism with Chinese Characteristics.”

Many of the criticisms of the Chinese exchange rate policy are quite sensible, especially those that identify other developing countries as bearing some of the burdens of the Chinese policy (mostly in the form of forgone export opportunities).

A gradual exchange rate adjustment will make China’s real estate bubble’s worse, and its eventual bursting more of a calamity.
But I think advocates for a stronger renminbi have exaggerated the benefits of such a move for other developing countries and may have under-estimated some of the risks for China.

The benefits of a revaluation on other developing countries will not be instantaneous. It took China 10 to 15 years to build its powerful export clusters in the coastal regions and that was already considered as a supersonic speed. Adjusting China’s exchange rate, while moving things in the right direction, is not going to solve the immediate challenge of jump-starting growth during this round of global recession.

Close

For China itself, the calculation is quite complicated. In the medium term (3 to 5 years), China needs to have more flexibility in its exchange rate policy. It is important to emphasize that it is not only the revaluation per se that matters; how it’s done also matters.

Those export factories, which many think of as dreary sweatshops, are sources of decent income for millions; some estimates suggest that almost 100 million rural Chinese work in coastal provinces and many of them are employed in those factories. If the exchange rate is revalued by 40 percent overnight, many of those export factories will go bankrupt. That will be very unpleasant, economically, socially and politically.


The third priority, I believe, is to reform the currency system. Even if exchange rate flexibility is a desirable goal, what’s important is that it be carried out in the right sequence.

[Hari Seldon]

D&G high priest AEP returns. Take with a little salt but otherwise totally Ensoi.

Sovereign debt crisis at 'boiling point', warns Bank for International Settlements
In a nutshell.

The Bank for International Settlements does not mince words. Sovereign debt is already starting to cross the danger threshold in the United States, Japan, Britain, and most of Western Europe, threatening to set off a bond crisis at the heart of the global economy.

Yawn.
I've already bet several cases of beer on bond mkt dislocation resulting from a sudden recognition of reality (much like cartoon characters continue pedaling off the cliff, then look down, then realize, then stop, then drop).
So, pardon my scepticism. Let at least one sovereign blow up into default and bankruptcy (Iceland doesn't count) before I give serious credence to this D&G talk.....

More yawn opportunities arise in the para below

"The aftermath of the financial crisis is poised to bring a simmering fiscal problem in industrial economies to the boiling point", said the Swiss-based bank for central bankers -- the oldest and most venerable of the world's financial watchdogs. Drastic austerity measures will be needed to head off a compound interest spiral, if it is not already too late for some.

The risk is an "abrupt rise in government bond yields" as investors choke on a surfeit of public debt. "Bond traders are notoriously short-sighted, assuming they can get out before the storm hits: their time horizons are days or weeks, not years or decade. We take a longer and less benign view of current developments," said the study, entitled "The Future of Public Debt", by the bank's chief economist Stephen Cecchetti.

Like I said, more yawn.

Official debt figures in the West are "very misleading" since they fail to take in account the contingent liabilities and pension debts that have mushroomed over recent years. "Rapidly ageing populations present a number of countries with the prospect of enormous future costs that are not wholly recognised in current budget projections. The size of these future obligations is anybody's guess," said the report. The BIS lamented the lack of any systematic data on the scale of unfunded IOUs that care-free politicians have handed out like confetti.

Not surprisingly, only 1 country emerges unscathed from this mess. the UK.

Britain emerges in the BIS paper as an arch-sinner. The country may have entered the crisis with a low public debt but this shock absorber has already been used up, exposing the underlying rot in the UK's public accounts.

Tucked away in the BIS report are charts and tables showing that Britain faces the highest structural deficit in the OECD club of rich states, with a mounting risk that public debt will explode out of control.

Interest payments on the UK's public debt will double from 5pc of GDP to 10pc within a decade under the bank's 'baseline scenario' before spiralling upwards to 27pc by 2040, the highest in the industrial world. Greece fares better, and Italy looks saintly by comparison.

The BIS said the UK's structural budget deficit will be 9pc of GDP next year, the highest in the advanced world. A primary surplus of 3.5pc of GDP will be required for the next twenty years just to stabilize the debt at the pre-crisis level.
The paper said that Labour's plan to consolidate the budget deficit by 1.3pc of GDP annually for the next three years is not nearly enough. Such a gentle squeeze will let public debt climb to 160pc of GDP by the end of the decade, accelerating to 350pc over the following twenty years as the compound interest trap closes in. "Consolidations along the lines currently being discussed will not be sufficient to ensure that debt levels remain within reasonable bounds", said the bank. While the comment covers a group of countries, it is clearly aimed at Britain.

The analysis bolsters claims by the Tories that markets will not wait patiently as Britain draws up leisurely plans for austerity-lite, relying on implausible turbo-growth to do the hard work of cutting the deficit.

Fitch Ratings has made the same point, asking why the UK thinks it has a longer grace period than peers in Europe. {tauba, tauba. haraam talk onlee! UK will be allowed grace period becase it is UKstan. period. Fitch is a ***** for even hinting at outright blashphemy.... }
Spain has pledged to cut its deficit from 11.4pc to 3pc in three years in line with Maastricht rules.

Ever more yawn. there should be an icon for yawn, imvvho!

read it all, chillax. jai ho.

[Neshant]

Ever more yawn. there should be an icon for yawn, imvvho!

you can thank me later..

[Neshant]

Crystalline Collapse
http://www.youtube.com/watch?v=Z4dFT_2NkYc

frightning hypothesis on why complex civilizations collapse

[Purush]

Darth Singha's apocalyptic visions are coming true. Soon, roving bands of well armed vigilantes and criminals will be going at each other to claim the remaining scraps of civilization.
http://www.wkyc.com/news/local/news_art ... 51&catid=3
Ashtabula County: Judge tells residents to "Arm themselves"

JEFFERSON -- In the ongoing financial crisis in Ashtabula County, the Sheriff's Department has been cut from 112 to 49 deputies. With deputies assigned to transport prisoners, serve warrants and other duties, only one patrol car is assigned to patrol the entire county of 720 square miles.


"I did the best with what they (the county commissioners) gave me. If it wasn't enough, don't blame me, don't blame this department," said Sheriff Billy Johnson.

Johnson said he is suing the commissioners to get a determination of whether he should use his limited budget to carry out obligations defined by law or put more patrol cars on the streets.

"I just can't do it anymore," he said. "I have to have the court explain to the commissioners and to me what my statutory duties are."

The Ashtabula County Jail has confined as many as 140 prisoners. It now houses only 30 because of reductions in the staff of corrections officers.

All told, 700 accused criminals are on a waiting list to serve time in the jail.

Are there dangerous people free among the 700 who cannot be locked up?

"There probably are," Sheriff Johnson said, "but I'm telling you, any known violent criminal, we're housing them. We've got murderers in there."

Ashtabula County Common Pleas Judge Alfred Mackey was asked what residents should do to protect themselves and their families with the severe cutback in law enforcement.

"Arm themselves," the judge said. "Be very careful, be vigilant, get in touch with your neighbors, because we're going to have to look after each other."

Ashtabula County gun dealers and firearms instructors tell WKYC their business has really picked up since the Sheriff's Department cutbacks began some months ago.

"That's exactly why they are coming, so that they can protect themselves," says Tracy Williams, a certified firearms instructor in Jefferson. "They don't feel that they are protected. They want to be able to protect themselves."

"And as far as him (Judge Mackey) telling you to arm yourselves and protect yourselves, you don't have any other option," Williams told WKYC. "We don't have the law enforcement out here to handle it right now."

Ashtabula County, where unemployment is higher than the state average, is asking voters to approve a one half per cent sales tax increase in May.

[Hari Seldon]

^^^Thanks Neshant.

The BIS report has been generating quite some buzz in khanomic blogs and other rarefied (fringe?) circles, apparently. As usual, no match for Sri Durden's eloquence on his day. Read it all with the usual disclaimers, and dance with jay abandon.

Bank Of International Settlements Sees US Debt/GDP At Over 400% By 2040

t's one thing to hear fringe bloggers raving breathlessly against the collision course that the US economy is on. {hear, hear!}

It is something else to see the Bank of International Settlements call for the baseline projection for US debt/GDP to hit over 400% by 2040. {Note: Dass the baseline projection onlee. The realistic projection could well be worse. But realistically speaking there's no way in high heaven debt/gdp ratios can reach those insane levels. And stretching anything to 2020 is futility incarnate. Default will occur at half that level if not less. The burden becomes enormous to carry on, otherwise.}

And this excludes the bankrupt GSEs, bankrupt Social Security, and the soon to be bankrupt Medicare.
{Yawn. wake me up when the gubmint actually admits these are bankrupt.}

In a must read report, the BIS (of the central bankers' central bank) provides the much needed segue to the work of Reinhart and Rogoff, and in not so many words confirms that the entire developed world is now bankrupt on a discounted basis.

On a discounted basis, eh? Then can be discounted only, I tell ya.

[Neshant]

Banks being ordered to lend to dead beats again.

The federal reserve has printing up money and is pushing that into the US economy hoping to hold up asset prices and make overpriced real estate solvent once again. No doubt when this blows up as it surely will, another round of printing will occur.

The so called recovery is looking like a money printing racket and little else.

----

FDIC Issues List of Banks Examined for CRA Compliance
April 2, 2010

The Federal Deposit Insurance Corporation (FDIC) today issued its list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). The list covers evaluation ratings that the FDIC assigned to institutions in January 2010. The CRA is a 1977 law intended to encourage insured banks and thrifts to meet local credit needs, including those of low- and moderate-income neighborhoods, consistent with safe and sound operations. As part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Congress mandated the public disclosure of an evaluation and rating for each bank or thrift that undergoes a CRA examination on or after July 1, 1990.

[Singha]

one of my (US citizen) friends who relocated back to US recently got his home loan proposal rejected after an inquisition that resembled some "enemy of the state" CIA rogues going after a person's records. this even though he had a good credit and home owning history in the past. all sorts of nasty queries raised about the bank a/c in india etc.

so my advice to anyone to who comes back to india with a bideshi passport would be maintain your funds fully there until you are sure you want to settle here and buy a flat/villa. at that point, burn the sher khan flag , bring all your funds here and forget about it.

keep the mind clear and dont attempt to 'hedge' and sit on two stools.

[vera_k]

That's strange because nearly free money is being given in ample amounts for housing, even for buying investment properties. He was probably trying to use the money in the Indian account towards a downpayment. They need to positively identify the source for all funds that will go towards the downpayment.

[Neshant]

Do deficits matter?

http://www.youtube.com/watch?v=JjCpiKAZSh8

[Neshant]

Get out of pounds, of all currencies it looks ripe for a repeat of history - i.e. devaluation.

[Hari Seldon]

Is Debt Repudiation a Good Thing or a Bad Thing?

Debates why a debt jubilee or massive debt repudiation in on the cards in the yrs ahead. IMHO, it's not good to rely a great deal on ageing+broke emerged khanomy soveriegn debt for a while at least. Perhaps.

Anyway, Recommended read. Entertaining too. Ensoi.

Jai Ho.

[Hari Seldon]

I know the coming demise of the eurozone has forever been in coming only. Yawn. Still, was refreshing to see the old arguments scrutinized and some new ones presented.

The Eurozone De Facto Currency Peg, and the Death Spiral We Are Currently Witnessing

Turns out apni author woman's a Chilean film-maker and ekhanomist (how cute!). She talks about ominous parallels between LatAm's 1980s USD pegs-> bubble prosperity initially -> bubble pops -> crises-> obscene debtloads -> defaults -> yet to fully recover aftermath and that developing and oirozone's de facto currency pegs against the "German-Euro" and where this movie's heading.

Good read, imho.

[Anujan]

Ah Debt Repudiation!! Sometimes I feel that major banks are like McDonalds or Philip Morris.

1. Make a product that is harmful to people, hawk it and sell it like there is no tomorrow knowing that it is harmful to people
2. People by it by the tons, knowing that it is harmful for them, knowing that their body cant take much
3. Product causes obesity/cancer/diabetes
4. Revolt against the companies who sold the products
5. Companies and their victims then go to normal healthy people who exercised and ate healthy food, raise their taxes to provide bailouts and free medical care.

The real victims here are those who *didnt* buy houses and chose to rent instead and chose to live their lives responsibly. These people had to live in smaller houses for a decade, forgo the opportunity of buying a house because of artificially inflated property prices, and are going to be hit with higher taxes and across the board high interest rates on everything from credit cards to house mortgages and auto loans. Add to it the inflation.

I love it when irresponsible idiots acts like victims and starts whining

[RamaY]

Dear gurus,

A hypothetical question.

What happens when let's say G-20 declares that the economic engine is reset, that is all sovereign debts are purged and reset to ZERO?

Will it result in WWIII? If not, there is no WWIII but the economies restart after taking initial economic-hits, who (nations/societies) will be winners and who will be losers?

Thanks in advance

[Muppalla]

one of my (US citizen) friends who relocated back to US recently got his home loan proposal rejected after an inquisition that resembled some "enemy of the state" CIA rogues going after a person's records. this even though he had a good credit and home owning history in the past. all sorts of nasty queries raised about the bank a/c in india etc.

so my advice to anyone to who comes back to india with a bideshi passport would be maintain your funds fully there until you are sure you want to settle here and buy a flat/villa. at that point, burn the sher khan flag , bring all your funds here and forget about it.

keep the mind clear and dont attempt to 'hedge' and sit on two stools.

You are right. It is taking a longer time to even do bank to bank transfer of money from US to India. There is a lot of scrutiny for bank-to-bank online transaction.

[Neshant]

The real victims here are those who *didnt* buy houses and chose to rent instead and chose to live their lives responsibly. These people had to live in smaller houses for a decade, forgo the opportunity of buying a house because of artificially inflated property prices, and are going to be hit with higher taxes and across the board high interest rates on everything from credit cards to house mortgages and auto loans. Add to it the inflation.

If you are stupid enough to live within your means, not take vacations, not buy buy an expensive car, rent instead of buying a house..etc. you are going to be left holding the bag.

The western mindset is geared towards spending and the govts will accomodate that. It requires confiscation of wealth through devaluation, taxation or maybe out right confiscation from people who have saved for a rainy day. Ironically the rainy day will be when govts do an equal-equal between spenders and savers and rip the savers off.

Scams such as these are aplenty in other countries where savers wake up one morning to find their savings have been greatly watered down if not wiped out.

Previously this scam worked by ripping off the third world - getting them into debt and then keeping them in debt trap or have them accumulate fiat paper issued by western governments. Except there are fewer and fewer Chinas and Japans around.

That's why its important to protect yourself with purchases of 24K physical gold (govt issued coins that are recognized). Now that the banks have offloaded their losses onto the govt's books, the next 5 years is going to involve govts trying to stick these losses onto the productive members of their society.

[Ameet]

Dubai’s $330 Billion Deferred Buildings Impose Fees
http://www.bloomberg.com/apps/news?pid= ... 1i0&pos=14

[Hari Seldon]

Anujan and Neshant,

Agree with both your points. Here's some (Brilliant!) analysis of the average cost for the average Joe to afford the average American standard of living.

Recommended read.

Its impossible to get by in the US

Salient calculation excerpts:

In 2008, the median US household income was $50,300. Assuming that the person filing is the “head of household” and has two children (dependents), this means a 1040 tax bill of $4,100, which leaves about $45K in income after taxes (we’re not bothering with state taxes). I realize this is a simplistic calculation, but it’s a decent proxy for income in the US in 2008.

Now, $45K in income spread out over 26 pay periods (every two weeks), means a bi-weekly paycheck of $1,730 and monthly income of $3,460. This is the money “Joe America” and his family to live off of in 2008.

Now, in 2008, the median home value was roughly $225K. Assuming our “median” household put down 20% on their home (unlikely, but it used to be considered the norm), this means a $180K mortgage. Using a 5.5% fixed rate 30-year mortgage, this means Joe America’s 2008 monthly mortgage payments were roughly $1,022.

So, right off the bat, Joe’s monthly income is cut to $2,438.

According to the US Department of Agriculture, the average 2008 monthly food bill for a family of four ranged from $512-$986 depending on how “liberal” you are with your purchases. For simplicity’s sake we’ll take the mid-point of this range ($750) as a monthly food bill.

This brings Joe’s monthly income to $1,688.

Now, Joe needs light, energy, heat, and air conditioning to run his home. According to the Energy Information Administration, the average US household used about 920 kilowatt-hours per month in 2008. At a national average price of 11 cents per kilowatt-hour this comes to a monthly electrical bill of $101.20.

Joe’s now down to $1,587.
Now Joe needs to drive to work to make a living.
...
According to AAA, the average cost per mile of driving a minivan (Joe’s a family man) in 2008 was 57 cents per mile.
...
and you’ve got a monthly driving bill of $712.
...
Now, assuming Joe’s family is one of the lucky ones (depending on your perspective) they’ve got medical insurance. ... But according to eHealth Insurance, the average monthly premium for family policies in February 2008 was $369.

So if Joe has medical insurance on his family, he’s now down to $508.

Throw in cell phone bills, cable TV and Internet bills, and the like, and he’s maybe got $100-200 discretionary income left at the end of the month.

Aah, but that's still in the black, you may say. But note that this avg joe wasn't avg at all in that he was a saver, a conservative spender.

This analysis covers all of the basic necessities of the average American household: mortgage payments, food, energy, gas, driving expenses, and medical insurance. It also assumes that Joe:

1) Didn’t overpay for his house
2) Made a 20% down-payment of $45K on his home purchase
3) Has no debt aside from his mortgage (so no credit card debt, student loans, etc)
4) Only has one car in the family and drives 15,000 miles per year
5) Keeps his energy bill reasonable
6) Does not eat out at restaurants ever/ keeps food expenses moderate
7) Has no pets
Pays for health insurance but has no monthly medical expenses (unlikely with two kids)
9) Keeps his personal budget under control regarding cable TV, Internet, and the like
10) Doesn’t spoil his kids with toys, gadgets, trips to the movies, etc.
11) Doesn’t take vacations.

However, even if the above assumptions applied to the average American, you’re still only looking at $100-200 in “wiggle” room for spending per month!

And the bottomline?

I also wish to note that my analysis didn’t include real estate taxes and numerous other expenses that most folks have to pay. So even if you are extremely frugal and careful with your money, it is impossible to “get by” in the US without using credit cards, home equity lines of credit or burning through savings. The cost of living is simply TOO high relative to incomes.

This is why there simply cannot be a sustainable recovery in the US economy. Because we outsourced our jobs, incomes fell. Because incomes fell and savers were punished (thanks to abysmal returns on savings rates) we pulled future demand forward by splurging on credit. Because we splurged on credit, prices in every asset under the sun rose in value. Because prices rose while incomes fell, we had to use more credit to cover our costs, which in turn meant taking on more debt (a net drag on incomes).

And on and on.

Does this mean the market is about to tank? Not necessarily, stocks have been disconnected from reality since November if not July. Bubbles (and we ARE in a bubble) take time to pop and this time around will be no different.

Best Regards,

Very smooth and convincing only. Of course, kindly don't be convinced only. Skepticism is healthy after all. Only.

Jai ho.

[Neshant]

War......What War?
http://www.youtube.com/watch?v=n4Zoyz4l-VA

[Neshant]

The Last Resort
http://www.youtube.com/watch?v=dA1wB9RRiZ8

the gross mispricing of risk is catching up

[Hari Seldon]

Neshant, those youtube vids are excellent. Tks for posting.

[Hari Seldon]

If The U.S. Economy Is Experiencing A Recovery Why Does It Seem Like Things Keep Getting Worse?

Ya, why indeed. Makes one wonder if this is what the recovery feels like, what'll the second dip be like.

The talking heads on all the major news shows keep telling us that the U.S. economy is experiencing a recovery. Usually the term "recovery" is accompanied by a qualifier such as "jobless", but they continue to use the word recovery anyway. We are told that the greatest financial crisis since the Great Depression is behind us and that the great American economic machine is roaring back to life and everything will be back to normal soon. So why does it seem like things keep getting worse? Why does it seem like the American Dream is out of reach for more Americans than ever? Why does it seem like economic pain is spreading to more families and more businesses?

The doomer answer is well-known.

Well, maybe it is because things are getting worse.

But the green shooters are skeptical (healthily so). More power to them I say. For all our sakes, lezhope the recovery is indeed here.

[Hari Seldon]

Doomer president Sri AEP is back!

Hard hitting as usual. Good fare. Ensoi.
The Greek people are being punished for Europe's errors

Seems Greece is in worse shape than Argentina circa 2001. Increasingly default looks like the bestest option only. Read on

Argentina's public debt was 62pc of GDP in 2001: Greece will top 120pc this year. Its budget deficit was 6.4pc: Greece's was 16pc last year on a cash basis. Its current account deficit was 1.7pc: Greece's was 11.2pc in 2009. The cleanest option for Greece is an Argentine default with a 65pc haircut for creditors, and exit from the euro. Argentina recovered fast after liberation. Greece could expect "decent growth" by mid 2011.

True, but Greece is just "the tip of the iceberg", in the words of China's central bank. The design faults of EMU have left all Club Med trapped in debt deflation or perma-slump. Europe's banks are in turn stuck with fatal exposure. You cannot safely uncork Greece without risking a chain reaction. This has echoes of Credit Anstalt, the Austrian bank that collapsed in June 1931.....{AEP just can't help running into a GD1 parallel or anecdote onlee, like any tru-blu doomer onlee. Jai ho.}

Yet let us be honest. This is not a bail-out for Greece. It is a bail-out for European creditors that account for most of Greece's €391bn external debt (163pc of GDP). As such it is the first line of defence against greater sums at risk across Club Med. The EU rescue shifts the debacle onto taxpayers in order to prevent a systemic crisis, just like the bank bail-outs after the Lehman failure. The question is whether German Landesbanken with wafer-thin capital ratios can withstand a second crisis after losing so much already on US subprime debt.

As for blaming Greece, let us remember that the European Central Bank stoked property booms in much the same way as the Greenspan Fed. It let the growth rate of M3 money balloon to 12.3pc by late 2007, against a 4.5pc target, pouring petrol on the fire in Club Med, Ireland, and Eastern Europe. Greece can perhaps claim its entry terms into the euro were violated by the ECB. Yet the Greeks are being singled out for punishment under the rescue terms. Mr Johnson says they will have to transfer 8pc to 9pc of GDP each year to foreign creditors from 2012 onwards. No nation will tolerate such debt servitude for long.{My India did, and for far longer. Never forget even if you forgive }

[Hari Seldon]

Britain's dwindling pension culture is setting stage for another financial crisis

Interesting read.

How even the famous stiff upper hip lip gets quivering and quaking when nest eggs turn to bust eggs only.

Millions of Britain's private sector workers face poverty in retirement

Public sector workers have it much better, relatively, of course.

Poverty in the UK? wow, whuddathunkit, eh?

[Neshant]

A teacher draws approx $42K/year pension at retirement. Try to calculate what kind of portfolio is needed to generate those kinds of returns. Its about 1.4 or 1.5 million dollars minimum for those guaranteed pension checks!

In other words, the private sector worker spends all his life working to finance the retirement of someone else. Meanwhile 70% of private sector workers don't even have a pension! The public sector ripoff of the private sector is one of the biggest ongoing rackets.

----
The Increasingly Massive Fund
http://www.youtube.com/watch?v=ZdT58k4cACw

[SwamyG]

The Fourteenth Banker The blog is supposed to have been created for bankers from large banks who want to speak out....
From the About Us page....

Despite being with a big bank, I support reform legislation ending TBTF, separation of Commercial and Investment banking, an independent consumer protection agency and other meaningful reforms. Why? I have seen first hand the perversions that happen because of some who believe that the an institution exists for them and the stockholders primarily. Countless others have been hypnotized by this illusion as well. Free market idealism is conveniently permissive of unbridled self interest. I believe in the free market. In fact, this blog is a free market of ideas and is meant to lead to a free market in banking where institutions self police as a matter of competitiveness. I have hopes of a free market where being in community in a responsible and consistent way is the path to prosperity, a free market where we recognize that if we take care of the community, the community will take care of us. It takes a sort of faith. Or does it? Is not all successful business enterprise based on providing more value than is consumed?

[Neshant]

his opinions would change quickly if his job was on the line due to the free market.

banking, financing & high rolling has been exposed as a racket which feeds off the productive economy through middle man fees and scamming/gaming the system.

[svinayak]

http://benhennig.postgrad.shef.ac.uk/wo ... bt2010.jpg

http://economix.blogs.nytimes.com/2010/ ... ?src=busln

Mapping World Debt
By CATHERINE RAMPELL


Benjamin David Hennig, SASI Research Group, University of Sheffield
Click image for larger version.
This map, by Benjamin Hennig of the University of Sheffield’s SASI Research Group, shows the debt load around the world. The size of each country represents the total external debt of that nation (using 2010 World Bank estimates). The color of each country, on the other hand, shows the size of national debt relative to the size of each country’s economy.

Note the giant red balloon that represents Ireland, Great Britain and Western Europe, versus the thin blade of green that represents much of East Asia. This contrast might help you understand why the West is getting fidgety about Eastern tigers like China.

You can find many other maps scaled to adjust for different economic factors — like life expectancy, physicians working per 100,000 people, and trade union membership rates — here.

[Hari Seldon]

What on earth is to become of the next generation?

TAE post on an email from a Gen Y'er indicting the legacy (costs) that the Boomers (and gen X'ers) to an extent are set to leave behind. On all fronts - debt, energy reserves, unfunded obligations, environmental record, war etc

Read in full. Entertaining courtroom drama style piece. Denny Crane and Alan Shore couldn't have done better, imho.

Awesome retort to Gen Y whining and blame-gaming only. Posting in full. Ensoi.

So,my younger brother, each generation is naturally self-rightous at the point where it enters the adult world and realizes that the ideals it was assiduously taught through childhood and youth, are broadly compromized, corrupted and hypocritical in practice.

We, the boomers brought you the Summer of Love, protested the Vietnem war until it ended, brought you civil rights in a land that had tacit slavery.

A big V-8 in a cheap old car that you fixed-up yourself was a GOOD thing.It was what was happening. The generation that we all owe is the generation that brought us through the Great Depression and WW-2. Now, let me say, that the Great-Generation has had the benefit of their greatness in old age, and well they deserve it.

Your generation will live in a world of exhausted resources, and will screw the Baby-Boomers in a way that few generations have ever been screwed by their offspring.

This is inevitable. The debt we saddled you with is the "reductio-ad-absurdum" of what has become of the world economic system instituted as a solution to the Great-Depression and WW-2. It worked well, but successive generations gamed it. This is the way of our species. You would have done the same. Just watch what you do in 30 years. (Nothing personal, of course, business is business.)

So, there is this "generational cycle" thing, and some people believe it like a religion, and some deride it viciously, but it seems like a pretty useful broad model. A Bolshevik economist,named Kondratiev worked this out historically. We go through a 4 generation cycle of collapse and rebuilding. In the US it was the Revolutionary War, the Civil War and Great Depression/WW-2, and now the cycle is coming around again.

Your benefits at the start of this include an access to information (and tripe, lies and BS) unparalleled in human history,an extremely sheltered youth, a world where you have more choices (good and BAD) than ever before possible, and all the information and resources you need right-now, to position yourself for the collapse we have scheduled for the day after tomorrow.

You have your youth, but you are the softest, weakest, most dependent generation ever, {crisis and crisis alone separates the men from the boys. That crisis is coming sometime, nobody knows when} unable to find your way home without a GPS and a car. You got fat on the junk food that the generation before us invented, as a snack, and we boomers perfected as a drug. You play shooter games, and the Army recruits you to shoot civilians on computer screens from helicopters. Howrude will be your generational awakening? As rude as any ever, and you will react viciously, turning the elderly boomers who can no longer work, into Soylent Green, because you are no better than the boomers, just spiteful, just as human, just as ready to show some fresh cruelty, while decrying the cruelty visited upon you (reference modern Israel).

That being said, there are some in every generation who are thoughtful, some who are good and bad leaders, and many who just try to do whatever their part seems to be. You are thoughtful, but the thoughtful have their Achilles heels as well, and failure to examine one's own programming is the most common. Feed shit into the best cognitive processor in the world, and you still get garbage-in-garbage out. Your kids and especially your grandkids, will hold you to have been so fortunate to have known all this, to have had the freedom to choose anything on the buffet.

What will it be kid? Make your choice. Make it once. That's how much time you have. All bets are final.

Wah wah. The defense rests. The prosecution may rise now.....

[Hari Seldon]

The Future of American Jobs

Notes from a sober, nay restrained, and certainly reluctant (aren't we all?) doomer only.

Good read, imho.

Many of my students at Berkeley who will be graduating in June are worried about the job market. I understand their worries. But they and other new college grads have less cause for concern than most American workers. Let me explain.

And how. Gr8 explanation. Almost convincing only. Read and judge.

The only thing stopping me from believing it in toto is the massive intellectual firepower, reputation and heft the green-crapshoot camp has deployed in favor of certain 'recovery'.

The likelihood, therefore, is that as the economy struggles to recover and today’s jobless begin to find work, the median wage will continue to fall—as it did between 2001 and 2007, during the last so-called recovery.
{the similarities end there. '01-'07 also saw a sustained rise in asset prices that fed into the wealth effect that in turn drove consumption that in turn stimulated jobs. So much so that the #jobs lost in the dotcom bust were recovered by 2003. Anyone wanna bet we'll see a redux post 2008?}

More Americans will be working, but for pay they consider inadequate. The approaching recovery will be tepid because so many people will lack the money needed to buy all the goods and services the economy can produce.

Americans will once again be employed, {that's the good news} but they will also be back on the downward escalator of declining pay they rode before the Great Recession. {and that's the bad part, in an era of inflation in *essential* goods and services, declining pay translates directly into lower living stds}

But to be fair to Rob Beithner, he's not as much of a doomer as some others ot there. He's far more measured and hence, believeable.

[SwamyG]

Things are indeed funny in Unkiland. Commentators, analysts, radio talk show hosts are voicing the partisan way. The democrats are crowing about the economy doing good, the republicans are lamenting at the bad state of economy and country. My local radio talk show host, who spent hardly any time on the defecits during Bush jr years now opines how defecits are bad ityadi.

The glass will remain half empty half full. Just that people who call have switched their positions.

[Neshant]

Robert Prechter Interview with some german broadcaster

Part I : http://www.youtube.com/watch?v=-Q2PA5cCjtQ
Part II : http://www.youtube.com/watch?v=mBTe4tuWpO0
Part III : http://www.youtube.com/watch?v=4F3bDsd31-0
Part IV : http://www.youtube.com/watch?v=hCaXWA30hMg
Part V : http://www.youtube.com/watch?v=o0rfyhRlFvk

[Neshant]

The Neo-Keynesian Religion
http://www.youtube.com/watch?v=TtoavxJvsU4

[Hari Seldon]

prad,

Mostly agree. Let's wait and see how things play out.

The excitable Karl Denninger on a roll (as usual). Good column here.

This IMO is the money quote:

Greece should tell the EU and ECB to bugger off. Stick the banks over there with their losses; default all their externally-held debt. Declare their externally-held Treasuries worthless by fiat and leave the Euro. Arrest and prosecute everyone involved in government book-cooking, including the banksters that conspired with them.

{which brings up the question - what after default? OK, so access to int'l mkts is cutoff but what does that mean in practical terms? }

Without external borrowing a crushing austerity would be imposed as government spending would be forced to immediately contract to that which could be taxed,

{IOW, nations, their gubmints and their people would be forced to live off what they produced - no frontloading future
consumption etc only. Not as simple as it looks, certainly not as easy since duniya's long forgotten that state of existence, addicted to fiat money backed by vaporware instead of gold. Ask Iceland. But the choice for Greece and soon the other PIIGS (and who knows, even the UQ after sri Brown's forgone ascension) may be slightly more palatable if the other option is equal austere adversity under the terms of any bailout deal/IMF 'guidance'. Ask Ireland today and the Asian Tigers of 1997.}

but the benefits, once the pain was endured, would belong to the Greeks, not the bankers from France and Germany.

{Clincher. That should nail it, IMO. We'll see. Argentina and Russia defaulted in 2001 and 1998 resp., and are better off for it, IMHO.}

Issue a non-debt-backed currency and tell the bankers to stuff it, relegating them to pursuit of profit in the private markets, not on the back of the government and citizens via taxation.

Radical? Maybe.

But this much I do know - we currently live in a world where outright and abject fraud is perfectly ok provided it is committed by a banker. The display in the Senate Committee for Investigations was literally jaw-dropping...

Oh, read it all only.

[Ameet]

Defaults Rise in Loan Modification Program

http://www.nytimes.com/2010/04/15/busin ... f=business

The number of homeowners who defaulted on their mortgages even after securing cheaper terms through the government’s modification program nearly doubled in March, continuing a trend that could undermine the entire program.


Banks Resist Plans to Reduce Mortgage Balances

http://www.nytimes.com/2010/04/14/busin ... f=business

[Ameet]

Fed Shouldn’t Reveal Crisis Loans, Banks Vow to Tell High Court

http://www.bloomberg.com/apps/news?pid= ... n4E&pos=13

The biggest U.S. commercial banks will take their fight against disclosure of Federal Reserve lending in 2008 to the Supreme Court if necessary, the top lawyer for an industry-owned group said.

Continued legal appeals will delay or block the first public look at details of the central bank’s $2 trillion in emergency lending during the 2008 financial crisis.

The U.S. Court of Appeals in Manhattan ruled March 19 that the central bank must release the documents. A three-judge panel of the appellate court rejected the Fed’s argument that disclosure would stigmatize borrowers and discourage banks from seeking emergency help.

“Our member banks are very concerned about real-time disclosure of information that could cause a run on the banks,” said Paul Saltzman, the group’s general counsel, in an interview yesterday. “We’re not going to let the Second Circuit opinion stand without seeking a review.”

[Chinmayanand]

Interesting report by Marc Faber a good read.

[Neshant]

House of Cards..
http://www.youtube.com/watch?v=uSWSL5awfIE