The following video shows that Silicon Valley is in trouble in terms of jobs, wages, and growth.
http://video.forbes.com/fvn/tech/silicon-valley-faces-trouble
Some argue that we have to face consequences propelled by the ongoing deepening nature of the economic depressions.
Many saw this coming, but it’s still a shock to think it has really arrived.
However, let’s remember that there is much for us to be grateful.
On an anecdotal note, nowadays I’m sort of into Chopin. I play a Chopin’s piece almost everyday. I never enjoyed and appreciated my piano playing this much before. I thought the other day that Chopin was a tool to convey God’s work. His pieces impress me beyond words. I’ve been fortunate in many ways. I’m grateful for that.
Sunday, February 28, 2010
Sunday, February 21, 2010
U.S. Median Income and Failure of Financial Engineering
An excellent post by Jesse explains why real median incomes are important to a nation’s well-being and how financial engineering has ruined the welfare of the U.S.
From Jesse's Cafe:
The housing bubble did nothing for real median incomes in the US but it did wonders for the insiders in the financial sector.
This is why the average Joe in the States went into debt to continue to maintain their consumption.
Until this situation is addressed, there will be no sustained economic recovery in the US. The US Census Bureau only goes to 2007, but it is highly likely that the median income has taken another serious downturn in the latest financial crisis.
Why care? For several reasons.
First, the median wage is the bulwark of general consumption and savings, and the prosperity of a nation. It must match the character of the social fabric, or place a severe strain on the contract between classes and peoples. A nation cannot survive both slave and free without necessarily resorting to repression.
Second, in any relatively free society, the reversion to the mean in the distribution wealth and justice is never pleasant, and often bloody and indiscriminate.
Why doesn't 'greed is good' work? Because rather than work harder, a certain portion of the population, not necessarily the most productive and intelligent, will immediately seek rents and income obtained by unnatural advantages, by gaming the system, by cheating and coercion, by the subversion of the rule of law, which will sap the vitality of the greater portion of the population which does in fact work harder, until they can no longer sustain themselves.
What will take the place of these modern economic myths? Time will tell, and it will vary from nation to nation. But the wind of change is going to be blowing a hurricane.
http://jessescrossroadscafe.blogspot.com/2010/02/failure-of-bubble-nomics.html
From Jesse's Cafe:
The housing bubble did nothing for real median incomes in the US but it did wonders for the insiders in the financial sector.
This is why the average Joe in the States went into debt to continue to maintain their consumption.
Until this situation is addressed, there will be no sustained economic recovery in the US. The US Census Bureau only goes to 2007, but it is highly likely that the median income has taken another serious downturn in the latest financial crisis.
Why care? For several reasons.
First, the median wage is the bulwark of general consumption and savings, and the prosperity of a nation. It must match the character of the social fabric, or place a severe strain on the contract between classes and peoples. A nation cannot survive both slave and free without necessarily resorting to repression.
Second, in any relatively free society, the reversion to the mean in the distribution wealth and justice is never pleasant, and often bloody and indiscriminate.
Why doesn't 'greed is good' work? Because rather than work harder, a certain portion of the population, not necessarily the most productive and intelligent, will immediately seek rents and income obtained by unnatural advantages, by gaming the system, by cheating and coercion, by the subversion of the rule of law, which will sap the vitality of the greater portion of the population which does in fact work harder, until they can no longer sustain themselves.
What will take the place of these modern economic myths? Time will tell, and it will vary from nation to nation. But the wind of change is going to be blowing a hurricane.
http://jessescrossroadscafe.blogspot.com/2010/02/failure-of-bubble-nomics.html
Saturday, February 20, 2010
Corruption and Deficit Problems in the U.S.
The following article discusses how corrupt the cable news shows and ex-elected officials-turned-lobbyists in the U.S. are.
http://www.thenation.com/doc/20100301/jones/single
Meanwhile, ABC News reports on how the federal budget deficit will reach $1.267 trillion. David Walker is saying that it won’t be long until there won’t be enough money to even pay the interest o the National Debt.
http://abcnews.go.com/Politics/national-debt-budget-deficit-scary-forecast-taxpayers/story?id=9854459
http://www.thenation.com/doc/20100301/jones/single
Meanwhile, ABC News reports on how the federal budget deficit will reach $1.267 trillion. David Walker is saying that it won’t be long until there won’t be enough money to even pay the interest o the National Debt.
http://abcnews.go.com/Politics/national-debt-budget-deficit-scary-forecast-taxpayers/story?id=9854459
Friday, February 19, 2010
Britain Is As Bad Off As Greece
Perhaps at risk of worse deficit crisis than Greece
From Telegraph:
Economists said that the scale of the shortfall in the budget could this year mount to above £180 billion – higher than even the Chancellor’s forecast of a record £178 billion.
Such a deficit would, at 12.8 per cent of British gross domestic product, be even greater than the deficit faced in Greece, which is facing a full-scale fiscal crisis and may need to be bailed out by fellow euro nations or the International Monetary Fund.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7266097/Britain-at-risk-of-worse-deficit-crisis-than-Greece.html
From Telegraph:
Economists said that the scale of the shortfall in the budget could this year mount to above £180 billion – higher than even the Chancellor’s forecast of a record £178 billion.
Such a deficit would, at 12.8 per cent of British gross domestic product, be even greater than the deficit faced in Greece, which is facing a full-scale fiscal crisis and may need to be bailed out by fellow euro nations or the International Monetary Fund.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7266097/Britain-at-risk-of-worse-deficit-crisis-than-Greece.html
Tuesday, February 16, 2010
Lessons From Iceland’s Financial Crisis
From VoxEU:
What can be done to reduce the likelihood of a repeat performance – in Iceland and elsewhere? Here are eleven main lessons from the Iceland story, lessons that are likely to be relevant in other, less extreme cases as well.
Lesson 1. We need effective legal protection against predatory lending just as we have long had laws against quack doctors. The problem is asymmetric information. Doctors and bankers typically know more about complicated medical procedures and complex financial instruments than their patients and clients. The asymmetry creates a need for legal protection through judicious licensing and other means against financial (as well as medical) malpractice to protect the weak against the strong.
Lesson 2. We should not allow rating agencies to be paid by the banks they have been set up to assess. The present arrangement creates an obvious and fundamental conflict of interest and needs to be revised. Likewise, banks should not be allowed to hire employees of regulatory agencies, thereby signalling that by looking the other way, remaining regulators may also expect to receive lucrative job offers from banks.
Lesson 3. We need more effective regulation of banks and other financial institutions; presently, this is work in progress in Europe and the US (Volcker 2010).
Lesson 4. We need to read the warning signals. We need to know how to count the cranes to appreciate the danger of a construction and real estate bubble (Aliber’s rule). We need to make sure that we do not allow gross foreign reserves held by the central bank to fall below the short-term foreign liabilities of the banking system (the Giudotti-Greenspan rule). We need to be on guard against the scourge of persistent overvaluation sustained by capital inflows because, sooner or later, an overvalued currency will fall. Also, income distribution matters. A rapid increase in inequality – as in Iceland 1993-2007 and in the US in the 1920s as well as more recently – should alert financial regulators to danger ahead.
Lesson 5. We should not allow commercial banks to outgrow the government and central bank’s ability to stand behind them as lender – or borrower – of last resort. In principle, this can be done through judicious regulation, including capital and reserve requirements, taxes and fees, stress tests, and restrictions on cross-ownership and other forms of collusion.
Lesson 6. Central banks should not accept rapid credit growth subject to keeping inflation low – as did the Federal Reserve under Alan Greenspan and the Central Bank of Iceland. They must take a range of actions to restrain other manifestations of latent inflation, especially asset bubbles and large deficits in the current account of the balance of payments. Put differently, they must distinguish between “good” (well-based, sustainable) growth and “bad” (asset-bubble-plus-debt-financed) growth.
Lesson 7. Commercial banks should not be authorised to operate branches abroad rather than subsidiaries if this entails the exposure of domestic deposit insurance schemes to foreign obligations. This is what happened in Iceland. Without warning, Iceland’s taxpayers suddenly found themselves held responsible for the moneys kept in the IceSave accounts of Landsbanki by 400,000 British and Dutch depositors. Had these accounts been hosted by subsidiaries of Landsbanki rather than by branches, they would have been covered by local deposit insurance in Britain and the Netherlands.
Lesson 8. We need strong firewalls separating politics from banking because politics and banking are not a good mix. The experience of Iceland’s dysfunctional state banks before the privatisation bears witness. This is why their belated privatisation was necessary. Corrupt privatisation does not condemn privatisation, it condemns corruption.
Lesson 9. When things go wrong, there is a need to hold those responsible accountable by law, or at least try to uncover the truth and thus foster reconciliation and rebuild trust. There is a case for viewing finance the same way as civil aviation: there needs to be a credible mechanism in place to secure full disclosure after every crash. If history is not correctly recorded without prevarication, it is likely to repeat itself.
Lesson 10. When banks collapse and assets are wiped out, the government has a responsibility to protect jobs and incomes, sometimes by a massive monetary or fiscal stimulus. This may require policymakers to think outside the box and put conventional ideas about monetary restraint and fiscal prudence temporarily on ice. A financial crisis typically wipes out only a small fraction of national wealth. Physical capital (typically three or four times GDP) and human capital (typically five or six times physical capital) dwarf financial capital (typically less than GDP). So, the financial capital wiped out in a crisis typically constitutes only one fifteenth or one twenty-fifth of total national wealth, or less. The economic system can withstand the removal of the top layer unless the financial ruin seriously weakens the fundamentals.
Lesson 11. Let us not throw out the baby with the bathwater. Since the collapse of communism, a mixed market economy has been the only game in town. To many, the current financial crisis has dealt a severe blow to the prestige of free markets and liberalism, with banks – and even General Motors – having to be propped up temporarily by governments, even nationalised. Even so, it remains true that banking and politics are not a good mix. But private banks clearly need proper regulation because of their ability to inflict severe damage on innocent bystanders.
http://www.voxeu.org/index.php?q=node/4612
What can be done to reduce the likelihood of a repeat performance – in Iceland and elsewhere? Here are eleven main lessons from the Iceland story, lessons that are likely to be relevant in other, less extreme cases as well.
Lesson 1. We need effective legal protection against predatory lending just as we have long had laws against quack doctors. The problem is asymmetric information. Doctors and bankers typically know more about complicated medical procedures and complex financial instruments than their patients and clients. The asymmetry creates a need for legal protection through judicious licensing and other means against financial (as well as medical) malpractice to protect the weak against the strong.
Lesson 2. We should not allow rating agencies to be paid by the banks they have been set up to assess. The present arrangement creates an obvious and fundamental conflict of interest and needs to be revised. Likewise, banks should not be allowed to hire employees of regulatory agencies, thereby signalling that by looking the other way, remaining regulators may also expect to receive lucrative job offers from banks.
Lesson 3. We need more effective regulation of banks and other financial institutions; presently, this is work in progress in Europe and the US (Volcker 2010).
Lesson 4. We need to read the warning signals. We need to know how to count the cranes to appreciate the danger of a construction and real estate bubble (Aliber’s rule). We need to make sure that we do not allow gross foreign reserves held by the central bank to fall below the short-term foreign liabilities of the banking system (the Giudotti-Greenspan rule). We need to be on guard against the scourge of persistent overvaluation sustained by capital inflows because, sooner or later, an overvalued currency will fall. Also, income distribution matters. A rapid increase in inequality – as in Iceland 1993-2007 and in the US in the 1920s as well as more recently – should alert financial regulators to danger ahead.
Lesson 5. We should not allow commercial banks to outgrow the government and central bank’s ability to stand behind them as lender – or borrower – of last resort. In principle, this can be done through judicious regulation, including capital and reserve requirements, taxes and fees, stress tests, and restrictions on cross-ownership and other forms of collusion.
Lesson 6. Central banks should not accept rapid credit growth subject to keeping inflation low – as did the Federal Reserve under Alan Greenspan and the Central Bank of Iceland. They must take a range of actions to restrain other manifestations of latent inflation, especially asset bubbles and large deficits in the current account of the balance of payments. Put differently, they must distinguish between “good” (well-based, sustainable) growth and “bad” (asset-bubble-plus-debt-financed) growth.
Lesson 7. Commercial banks should not be authorised to operate branches abroad rather than subsidiaries if this entails the exposure of domestic deposit insurance schemes to foreign obligations. This is what happened in Iceland. Without warning, Iceland’s taxpayers suddenly found themselves held responsible for the moneys kept in the IceSave accounts of Landsbanki by 400,000 British and Dutch depositors. Had these accounts been hosted by subsidiaries of Landsbanki rather than by branches, they would have been covered by local deposit insurance in Britain and the Netherlands.
Lesson 8. We need strong firewalls separating politics from banking because politics and banking are not a good mix. The experience of Iceland’s dysfunctional state banks before the privatisation bears witness. This is why their belated privatisation was necessary. Corrupt privatisation does not condemn privatisation, it condemns corruption.
Lesson 9. When things go wrong, there is a need to hold those responsible accountable by law, or at least try to uncover the truth and thus foster reconciliation and rebuild trust. There is a case for viewing finance the same way as civil aviation: there needs to be a credible mechanism in place to secure full disclosure after every crash. If history is not correctly recorded without prevarication, it is likely to repeat itself.
Lesson 10. When banks collapse and assets are wiped out, the government has a responsibility to protect jobs and incomes, sometimes by a massive monetary or fiscal stimulus. This may require policymakers to think outside the box and put conventional ideas about monetary restraint and fiscal prudence temporarily on ice. A financial crisis typically wipes out only a small fraction of national wealth. Physical capital (typically three or four times GDP) and human capital (typically five or six times physical capital) dwarf financial capital (typically less than GDP). So, the financial capital wiped out in a crisis typically constitutes only one fifteenth or one twenty-fifth of total national wealth, or less. The economic system can withstand the removal of the top layer unless the financial ruin seriously weakens the fundamentals.
Lesson 11. Let us not throw out the baby with the bathwater. Since the collapse of communism, a mixed market economy has been the only game in town. To many, the current financial crisis has dealt a severe blow to the prestige of free markets and liberalism, with banks – and even General Motors – having to be propped up temporarily by governments, even nationalised. Even so, it remains true that banking and politics are not a good mix. But private banks clearly need proper regulation because of their ability to inflict severe damage on innocent bystanders.
http://www.voxeu.org/index.php?q=node/4612
Friday, February 12, 2010
Unfolding Sovereign Debt Crisis
There has been much talk over unfolding Greece’s sovereign debt crisis this week, yet Greece is just one of several global financial concerns. The advanced economies like the U.S., Japan, and the U.K. face serious sovereign debt problems as mentioned before. Quite a few EU countries including Greece, Ireland, Spain, Portugal, and Italy have to deal with the debt deleveraging as well.
How will the worldwide debt crisis unfold in the coming years? Could the worldwide debt unwind without pain for much of humanity? It could be resolved if sound interventions, not short-term gimmicks for political purposes, are put in place, but it doesn’t seem to look that way as politicians including the EU bureaucrats try to postpone the massive world debt crisis
Government spending in Greece is over 51% of GDP. China’s internal spending to GDP is 7:1. Japan’s national debt is 200% of GDP. The U.S. has the largest amount of debt in the world. The U.S. are at over $100 trillion in debt and still counting (Some argue that its real debt-to-GDP ratio is 130%.)
In the meantime in a policy meeting Wednesday, Korea’s Finance Minister Yoon Jeung-hyun said Korea’s fiscal status is sound compared to other advanced economies. He explained that Korea’s fiscal deficit accounts about 5% of last year’s GDP, which is far below the European average of 12%.
However, some scholars like Kim Chung-shik at Yonsei University warn that there is a high chance Korean will repeat the financial crisis. For example, Korea’s debt increased to 35.6% of GDP last year. Furthermore, the National Statistical Office has announced that the number of unemployed in January exceeded 1 million for the first time in 9 years, driving the jobless rate from 3% to 5%.
How will the worldwide debt crisis unfold in the coming years? Could the worldwide debt unwind without pain for much of humanity? It could be resolved if sound interventions, not short-term gimmicks for political purposes, are put in place, but it doesn’t seem to look that way as politicians including the EU bureaucrats try to postpone the massive world debt crisis
Government spending in Greece is over 51% of GDP. China’s internal spending to GDP is 7:1. Japan’s national debt is 200% of GDP. The U.S. has the largest amount of debt in the world. The U.S. are at over $100 trillion in debt and still counting (Some argue that its real debt-to-GDP ratio is 130%.)
In the meantime in a policy meeting Wednesday, Korea’s Finance Minister Yoon Jeung-hyun said Korea’s fiscal status is sound compared to other advanced economies. He explained that Korea’s fiscal deficit accounts about 5% of last year’s GDP, which is far below the European average of 12%.
However, some scholars like Kim Chung-shik at Yonsei University warn that there is a high chance Korean will repeat the financial crisis. For example, Korea’s debt increased to 35.6% of GDP last year. Furthermore, the National Statistical Office has announced that the number of unemployed in January exceeded 1 million for the first time in 9 years, driving the jobless rate from 3% to 5%.
Wednesday, February 10, 2010
Elizabeth Warren Says the Banks Are the Culprit
Elizabeth Warren who has been speaking the truth wrote an op-ed for Tuesday’s Wall Street Journal.
From WSJ:
Banking is based on trust. The banks get our paychecks and hold our savings; they know where we spend our money and they keep it private. If we don't trust them, the whole system breaks down. Yet for years, Wall Street CEOs have thrown away customer trust like so much worthless trash.
Banks and brokers have sold deceptive mortgages for more than a decade. Financial wizards made billions by packaging and repackaging those loans into securities. And federal regulators played the role of lookout at a bank robbery, holding back anyone who tried to stop the massive looting from middle-class families. When they weren't selling deceptive mortgages, Wall Street invented new credit card tricks and clever overdraft fees.
http://online.wsj.com/article/SB10001424052748703630404575053514188773400.html
From WSJ:
Banking is based on trust. The banks get our paychecks and hold our savings; they know where we spend our money and they keep it private. If we don't trust them, the whole system breaks down. Yet for years, Wall Street CEOs have thrown away customer trust like so much worthless trash.
Banks and brokers have sold deceptive mortgages for more than a decade. Financial wizards made billions by packaging and repackaging those loans into securities. And federal regulators played the role of lookout at a bank robbery, holding back anyone who tried to stop the massive looting from middle-class families. When they weren't selling deceptive mortgages, Wall Street invented new credit card tricks and clever overdraft fees.
http://online.wsj.com/article/SB10001424052748703630404575053514188773400.html
Sunday, February 7, 2010
The Problem in Haiti is the Same One Everywhere
While we are disheartened by the havoc of Haiti earthquake, this is not the first time Haiti grabs international attention. Haiti has had the structural problem, and the problem with Haiti represents the same one everywhere not only in the third world countries but in advanced countries: A handful of elite have run the country for their personal well-being.
The following article, “Mud Cookie Economics in Haiti” was written by a Haitian journalist. He was the winner of the Censored 2008 Real News Award for Outstanding Investigative Journalism.
http://www.haitiaction.net/News/HIP/2_10_8/2_10_8.html
Poor Haiti, the nation they would have us believe is close to a failed state, needs our help once again.
The truth is that while the poor suffer through the current nation building exercise by the UN that forces them to resort to eating dirt, Haiti’s rich are getting richer. Ask the wealthy families like Bigio, Mev, Brandt and the rest of Haiti’s wealthy elite whether they have enough to eat. They were already fantastically wealthy by Haitian standards and have grown more so since Aristide’s ouster in 2004.
All of this has been imposed by the UN who have served as a proxy for the Bush administration’s concept of working with the private sector as the only avenue for helping the poor in Haiti. UN development experts ask us to believe that creating more business opportunities for Haiti’s wealthiest families will result in a demonstrable windfall for the poor. It’s the new neo-liberal agenda that incorporates the old Reaganomics trickle-down theory being instituted by the UN in Haiti. A new name for it might be appropriate in the Haitian context, Mud Cookie economics.
It’s becoming more than obvious by now that this approach isn’t working and what Haiti really needs is a level economic playing field to challenge the disparity between the haves and have-nots. The aforementioned wealthy families have proven over time to be unreliable providers and partners to Haiti’s poor majority. They are in fact predatory monopolists controlling markets and not free market capitalists competing on a level playing field in Haiti. No amount of investment by the international community or charity will alter that fact. This is the real message behind the recipe for mud cookies the poor are forced to eat in Cite Soleil today.
In today’s Haiti it’s all about supporting business and the private sector while abandoning the rest of the population to be cared for by charities. That’s what Bush, the UN and the cadres of economic experts have left Haitians with after all is said and done. It clearly favors those who already have the capital to invest while increasing dependency on foreign largess for the rest. It seems clear enough that until the monopolist hold by a few families on the Haitian economy is addressed, we can expect to hear more about mud cookies in the future.
The following article, “Mud Cookie Economics in Haiti” was written by a Haitian journalist. He was the winner of the Censored 2008 Real News Award for Outstanding Investigative Journalism.
http://www.haitiaction.net/News/HIP/2_10_8/2_10_8.html
Poor Haiti, the nation they would have us believe is close to a failed state, needs our help once again.
The truth is that while the poor suffer through the current nation building exercise by the UN that forces them to resort to eating dirt, Haiti’s rich are getting richer. Ask the wealthy families like Bigio, Mev, Brandt and the rest of Haiti’s wealthy elite whether they have enough to eat. They were already fantastically wealthy by Haitian standards and have grown more so since Aristide’s ouster in 2004.
All of this has been imposed by the UN who have served as a proxy for the Bush administration’s concept of working with the private sector as the only avenue for helping the poor in Haiti. UN development experts ask us to believe that creating more business opportunities for Haiti’s wealthiest families will result in a demonstrable windfall for the poor. It’s the new neo-liberal agenda that incorporates the old Reaganomics trickle-down theory being instituted by the UN in Haiti. A new name for it might be appropriate in the Haitian context, Mud Cookie economics.
It’s becoming more than obvious by now that this approach isn’t working and what Haiti really needs is a level economic playing field to challenge the disparity between the haves and have-nots. The aforementioned wealthy families have proven over time to be unreliable providers and partners to Haiti’s poor majority. They are in fact predatory monopolists controlling markets and not free market capitalists competing on a level playing field in Haiti. No amount of investment by the international community or charity will alter that fact. This is the real message behind the recipe for mud cookies the poor are forced to eat in Cite Soleil today.
In today’s Haiti it’s all about supporting business and the private sector while abandoning the rest of the population to be cared for by charities. That’s what Bush, the UN and the cadres of economic experts have left Haitians with after all is said and done. It clearly favors those who already have the capital to invest while increasing dependency on foreign largess for the rest. It seems clear enough that until the monopolist hold by a few families on the Haitian economy is addressed, we can expect to hear more about mud cookies in the future.
Tuesday, February 2, 2010
Why Is China Curbing Bank Lending?
After injecting hundreds of billions of dollars for stimulus coupled with hundreds of billions of bank lending ordered by the government, China has been controlling the bank lending and restraining the stimulus. Thanks to its huge stimulus program and extra bank lending, China’s GDP was growing at around 10%, the real estate bubble has been re-inflated and the stock market doubled. As the Chinese government restrained the lending in an attempt to curb inflation, the stock market collapsed. Who is/would be suffering from these policies most?
Meanwhile, the Korea Composite Stock Price Index fell under the 1,600 level for the first time in two months to close at 1,595 points on February 2nd, on China’s move to clamp down on its bank lending.
It seems that China has de facto economic power for now, and many countries including Japan play along with it, like it or not.
Meanwhile, the Korea Composite Stock Price Index fell under the 1,600 level for the first time in two months to close at 1,595 points on February 2nd, on China’s move to clamp down on its bank lending.
It seems that China has de facto economic power for now, and many countries including Japan play along with it, like it or not.
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