From Of Two Minds:
Counterfeiting is illegal because it is the false creation of value. The counterfeiter takes low-value paper and turns it into high-value money, which is fundamentally a claim on the real productive value of the economy that issues the currency and recognizes it as a proxy means of exchanging that productive value.
Counterfeiting is illegal because the counterfeiter creates no additional value--he creates only the proxy for value. Creating real value--adding meaningful goods or services to the economy--is tedious, hard work. How much easier to simply transform near-worthless paper into a claim on actual goods and services.
If this is illegal, then would somebody please arrest the Board of the Federal Reserve for counterfeiting? The Fed has blatantly printed money without creating any real value to back up their added claims on productive value. Hence they are counterfeiting, pure and simple. A government based on rule of law would arrest these fraudsters and cons at the earliest possible convenience.
http://www.oftwominds.com/blogjan12/counterfeit-policy01-12.html
Tuesday, January 31, 2012
Monday, January 30, 2012
Youth Unemployment across Europe: Europe’s Scariest Chart
I have said all along that the current global economic debacle would have a significant impact on many generations to come. That is most disheartening.
From Zero Hedge:
…the one chart that truly captures the latent fear behind the scenes in Europe is that showing youth unemployment in the continent's troubled countries (and frankly everywhere else). Because the last thing Europe needs is a discontented, disenfranchised, and devoid of hope youth roving the streets with nothing to do, easily susceptible to extremist and xenophobic tendencies: after all, it must be "someone's" fault that there are no job opportunities for anyone. Below we present the youth (16-24) unemployment in three select European countries (and the general Eurozone as a reference point). Some may be surprised to learn that while Portugal, and Greece, are quite bad, at 30.7% and 46.6% respectively, it is Spain where the youth unemployment pain is most acute: at 51.4%, more than half of the youth eligible for work does not have a job! Because the real question is if there is no hope for tomorrow, what is the opportunity cost of doing something stupid and quite irrational today?
http://www.zerohedge.com/news/europes-scariest-chart
From Zero Hedge:
…the one chart that truly captures the latent fear behind the scenes in Europe is that showing youth unemployment in the continent's troubled countries (and frankly everywhere else). Because the last thing Europe needs is a discontented, disenfranchised, and devoid of hope youth roving the streets with nothing to do, easily susceptible to extremist and xenophobic tendencies: after all, it must be "someone's" fault that there are no job opportunities for anyone. Below we present the youth (16-24) unemployment in three select European countries (and the general Eurozone as a reference point). Some may be surprised to learn that while Portugal, and Greece, are quite bad, at 30.7% and 46.6% respectively, it is Spain where the youth unemployment pain is most acute: at 51.4%, more than half of the youth eligible for work does not have a job! Because the real question is if there is no hope for tomorrow, what is the opportunity cost of doing something stupid and quite irrational today?
http://www.zerohedge.com/news/europes-scariest-chart
GS’s David Kostin: The Record Corporate Margin Juggernaut Has Just Rolled Over
From Zero Hedge:
In this week's chartology from Goldman's David Kostin there is the usual plethora of useful data, but two slides deserve a very special mention because with 39% of the S&P already reporting Q4 data, the implication is quite dire. If Kostin is correct, then the corporate margin juggernaut, which recently hit an all time high in Q3 of 2011, and which has for all intents and purposes been the one offset to deteriorating economic conditions, recurring Fed stimuli to the economy aside, has officially peaked and is now rolling over. This has huge implications for virtually everything, as it means that after 3 years of layoffs, corporate America has finally cut through all the fat and is now officially chopping into muscle with every additional layoff. It also means that going forward no matter how many workers are laid off, the corporate margin rate wil not increase. Furthermore, if Bernanke or Draghi officially launch another inflationary easing episode which more than anything exports inflation to China, which in turn reexports it back to America in the form of rising COGS, margins will compress even more. In other words, the US economy, which sadly has been "defined" as the Russell 2000 and/or the DJIA, is tipping over. And with companies posting a near record low positive earnings surprise ratio, we are once again amazed how yet another Goldman team may have well called the absolute peak in the market with its long Russell call from two days ago.
http://www.zerohedge.com/news/cutting-muscle-record-corporate-margin-juggernaut-has-just-rolled-over
In this week's chartology from Goldman's David Kostin there is the usual plethora of useful data, but two slides deserve a very special mention because with 39% of the S&P already reporting Q4 data, the implication is quite dire. If Kostin is correct, then the corporate margin juggernaut, which recently hit an all time high in Q3 of 2011, and which has for all intents and purposes been the one offset to deteriorating economic conditions, recurring Fed stimuli to the economy aside, has officially peaked and is now rolling over. This has huge implications for virtually everything, as it means that after 3 years of layoffs, corporate America has finally cut through all the fat and is now officially chopping into muscle with every additional layoff. It also means that going forward no matter how many workers are laid off, the corporate margin rate wil not increase. Furthermore, if Bernanke or Draghi officially launch another inflationary easing episode which more than anything exports inflation to China, which in turn reexports it back to America in the form of rising COGS, margins will compress even more. In other words, the US economy, which sadly has been "defined" as the Russell 2000 and/or the DJIA, is tipping over. And with companies posting a near record low positive earnings surprise ratio, we are once again amazed how yet another Goldman team may have well called the absolute peak in the market with its long Russell call from two days ago.
http://www.zerohedge.com/news/cutting-muscle-record-corporate-margin-juggernaut-has-just-rolled-over
Former Citigroup Chairman John Reed: How Did the Big Banks Get So Powerful?
From Jesse’s Café:
Bill Moyers talks with former Citigroup Chairman John Reed to explore a momentous instance: how the mid-90's merger of Citicorp and Travelers Group, and a friendly Presidential pen, brought down the Glass-Steagall Act, a crucial firewall between banks and investment firms which had protected consumers from financial calamity since the aftermath of the Great Depression. In effect, says Moyers, they put the watchdog to sleep.
Listen carefully to the rationales provided for taking down Glass-Steagall, which helped to set up the current financial crisis and collapse. This interview with John Reed by Bill Moyers is one of the most powerful and yet simple summaries of the cause of the financial crisis that I have heard.
The arguments for 'free financial markets' are being repeated again every time there is a discussion of financial re-regulation, providing reform to curb reckless speculation, and shrinking the TBTF banks and the systemic risks which they provide.
All of them are fallacious, but they are backed by amoral self-interest and more importantly, big money.
Although the great landscape of moral decay covers the widespread fraud in the mortgage markets and the foreclosures, there is fine microcosm of this outcome to be seen in the blatant theft of customer money at MF Global by the broker and his banks, as the courts and the regulators turn a blind eye to the victims.
http://jessescrossroadscafe.blogspot.com/2012/01/moyers-journal-how-did-big-banks-get-so.html
Bill Moyers talks with former Citigroup Chairman John Reed to explore a momentous instance: how the mid-90's merger of Citicorp and Travelers Group, and a friendly Presidential pen, brought down the Glass-Steagall Act, a crucial firewall between banks and investment firms which had protected consumers from financial calamity since the aftermath of the Great Depression. In effect, says Moyers, they put the watchdog to sleep.
Listen carefully to the rationales provided for taking down Glass-Steagall, which helped to set up the current financial crisis and collapse. This interview with John Reed by Bill Moyers is one of the most powerful and yet simple summaries of the cause of the financial crisis that I have heard.
The arguments for 'free financial markets' are being repeated again every time there is a discussion of financial re-regulation, providing reform to curb reckless speculation, and shrinking the TBTF banks and the systemic risks which they provide.
All of them are fallacious, but they are backed by amoral self-interest and more importantly, big money.
Although the great landscape of moral decay covers the widespread fraud in the mortgage markets and the foreclosures, there is fine microcosm of this outcome to be seen in the blatant theft of customer money at MF Global by the broker and his banks, as the courts and the regulators turn a blind eye to the victims.
http://jessescrossroadscafe.blogspot.com/2012/01/moyers-journal-how-did-big-banks-get-so.html
Sunday, January 29, 2012
Financial Times: Bun Fight with the Chaebol
The challenges Korea is facing are multi-faceted and structural in nature. The Chaebol system is a part of it. I have discussed the perils of the Chaebol system many times.
The following article at the FT echoes some critical points I have made on this blog in that it touches on the structural issues Korea has to tackle in order to enhance its innovation/productive capacity.
And yet, what this article doesn’t address is the bigger picture as to how the Chaebol system could be born and prosper in the first place and how it is not going to be dissolved without a major reset in global financial reality.
The other important point one has to see re the Chaebol problem is that among policy failures during the Park regime in the early days of industrialization, perhaps one of the biggest errors is the institutional setup the administration engineered to grow the entrenched oligarchy system among civil servants, banks and Chaebols. It has persisted, hampering the wealth creating activities such as the rule of law.
From the FT:
South Korea is flustered about sticky buns, croissants and black puddings.
In the run-up to this year’s parliamentary and presidential elections, politicians have turned bakeries and black pudding vendors into a battleground where they are trying to vaunt their populist credentials.
Politicians have demanded the families behind Samsung, Hyundai and LG – the conglomerates that dominate the economy – stop selling patisseries and black pudding. The argument runs that it is unfair for big, bad conglomerates (known as chaebol) to move into food-stall territory traditionally occupied by small vendors.
The political rhetoric is melodramatic. Lee Joo-young, a lawmaker in the ruling conservative party, said it was grossly unfair that the chaebol were challenging back-street businesses.
“It’s like [Manchester United’s] Park Ji-sung trying to win at street football in the back alleys,” he said. Even Lee Myung-bak, the country’s president, has fulminated that daughters of the heads of Samsung and Hyundai should not be running bakeries as a pastime when they are putting people out of work.
All very dramatic – but the debate misses the point.
South Korea’s politicians have an uncanny knack for identifying the nation’s most serious problems – in this case the threat to national development posed by chaebol – and then prescribing ineffective medicine.
Asking big companies to step out of food retail is cosmetic. Keeping small vendors alive artificially is a way for the government to avoid substantial questions of restructuring tiny family businesses and providing a genuine social safety net.
Most crucially, cakes are not the problem. The issue is that the chaebol are stopping South Korea building up talent in Japanese-style or German-style small specialist engineering companies. If an entrepreneur starts to build innovative strength in Korea, the chaebol buys him out to strip staff and assets. South Korea is still reliant on engineering parts from Japan, with which it runs an eye-watering deficit. As China eats into Korea’s traditional export markets, Seoul faces a race against the clock to build up boutique engineers. Politicians aren’t even trying to crack this nut.
While the mainstream politicians claim they are making headway by keeping chaebol out of the pain-au-chocolat business, few Korean voters will be convinced. The danger to the status quo is an internet entrepreneur called Ahn Chul-soo who is a popular candidate among young people for president, though he has not said he will run. He is far more candid, saying that chaebol snuff out talent by putting fine minds in “zoo cages”.
It’s hard to imagine a complete outsider like Ahn could run Asia’s fourth-biggest economy. But if mainstream politicians keep focusing on cakes, he just might.
http://blogs.ft.com/beyond-brics/2012/01/27/s-korea-bun-fight-with-the-chaebol/#axzz1kjsbwYb4
The following article at the FT echoes some critical points I have made on this blog in that it touches on the structural issues Korea has to tackle in order to enhance its innovation/productive capacity.
And yet, what this article doesn’t address is the bigger picture as to how the Chaebol system could be born and prosper in the first place and how it is not going to be dissolved without a major reset in global financial reality.
The other important point one has to see re the Chaebol problem is that among policy failures during the Park regime in the early days of industrialization, perhaps one of the biggest errors is the institutional setup the administration engineered to grow the entrenched oligarchy system among civil servants, banks and Chaebols. It has persisted, hampering the wealth creating activities such as the rule of law.
From the FT:
South Korea is flustered about sticky buns, croissants and black puddings.
In the run-up to this year’s parliamentary and presidential elections, politicians have turned bakeries and black pudding vendors into a battleground where they are trying to vaunt their populist credentials.
Politicians have demanded the families behind Samsung, Hyundai and LG – the conglomerates that dominate the economy – stop selling patisseries and black pudding. The argument runs that it is unfair for big, bad conglomerates (known as chaebol) to move into food-stall territory traditionally occupied by small vendors.
The political rhetoric is melodramatic. Lee Joo-young, a lawmaker in the ruling conservative party, said it was grossly unfair that the chaebol were challenging back-street businesses.
“It’s like [Manchester United’s] Park Ji-sung trying to win at street football in the back alleys,” he said. Even Lee Myung-bak, the country’s president, has fulminated that daughters of the heads of Samsung and Hyundai should not be running bakeries as a pastime when they are putting people out of work.
All very dramatic – but the debate misses the point.
South Korea’s politicians have an uncanny knack for identifying the nation’s most serious problems – in this case the threat to national development posed by chaebol – and then prescribing ineffective medicine.
Asking big companies to step out of food retail is cosmetic. Keeping small vendors alive artificially is a way for the government to avoid substantial questions of restructuring tiny family businesses and providing a genuine social safety net.
Most crucially, cakes are not the problem. The issue is that the chaebol are stopping South Korea building up talent in Japanese-style or German-style small specialist engineering companies. If an entrepreneur starts to build innovative strength in Korea, the chaebol buys him out to strip staff and assets. South Korea is still reliant on engineering parts from Japan, with which it runs an eye-watering deficit. As China eats into Korea’s traditional export markets, Seoul faces a race against the clock to build up boutique engineers. Politicians aren’t even trying to crack this nut.
While the mainstream politicians claim they are making headway by keeping chaebol out of the pain-au-chocolat business, few Korean voters will be convinced. The danger to the status quo is an internet entrepreneur called Ahn Chul-soo who is a popular candidate among young people for president, though he has not said he will run. He is far more candid, saying that chaebol snuff out talent by putting fine minds in “zoo cages”.
It’s hard to imagine a complete outsider like Ahn could run Asia’s fourth-biggest economy. But if mainstream politicians keep focusing on cakes, he just might.
http://blogs.ft.com/beyond-brics/2012/01/27/s-korea-bun-fight-with-the-chaebol/#axzz1kjsbwYb4
Living in a QE World
Good data points showing how central banks around the globe have engaged in “Quantitative Easing” in a coordinated manner and what the likely consequences of central banks money printing would be. It’s appalling to see how central planning of money is destroying the productive economy around the world.
From the Big Picture:
All Central bank balance sheets are exploding higher, or engaged in QE.
The degree to which central banks around the world are printing money is unprecedented.
The first eight charts below show the balance sheets of the largest central banks in the world. They are the European Central Bank (ECB), the Federal Reserve (Fed), the Bank of Japan (BoJ), the Bank of England (BoE), the Bundesbank (Germany), the Banque de France, the People’s Bank of China (PBoC) and the Swiss National Bank (SNB). Noted on the charts are significant events or growth rates.
Shown is the size of each respective balance sheet in its local currency. Note that all are exploding higher as every chart goes from the lower left to the upper right. Most are still making new all-time highs. If the basic definition of quantitative easing (QE) is a significant increase in a central bank’s balance sheet via increasing banking reserves, then all eight of these central banks are engaged in QE.
Central banks are ruling markets to a degree this generation has not seen. Collectively they are printing money to a degree never seen in human history.
Prior to the 2008 financial crisis, the eight central bank balance sheets were less than 15% the size of world stock markets and falling. In the immediate aftermath of Lehman Brothers’ failure, these eight central bank balance sheets swelled to 37% the capitalization of the world stock market. But keep in mind that the late 2008/early 2009 peak was due to collapsing stock market values combined with balance sheet expansion via “lender of last resort” loans.
Recently, the eight central bank balance sheets have spiked back to 33% of world stock market capitalization. This has come about not by lender of last resort loans, but rather by QE expansion (buying bonds with “printed money“) even faster than world stock markets are rising.
So how does this process get reversed? How do central banks pull back trillions of dollars of money printing without throwing markets into a tailspin? Frankly, no one knows, least of all central banks as they continue to make new money printing records.
Until a worldwide exit strategy can be articulated and understood, risk markets will rise and fall based on the perceptions and realities of central bank balance sheets. As long as this is perceived to be a good thing, like perpetually rising home prices were perceived to be a good thing, risk markets will rise.
When/If these central banks go too far, as was eventually the case with home prices, expanding balance sheets will no longer be looked upon in a positive light. Instead they will be viewed in the same light as CDOs backed by sub-prime mortgages were when home prices were falling. The heads of these central banks will no longer be put on a pedestal but looked upon as eight Alan Greenspans that caused a financial crisis.
The tipping point between balance sheet expansion being bullish for risk assets versus bearish is impossible to know. Given the growth rate of central bank balance sheets around the world over the past few years, we might not have to wait too long to find out. Enjoy it while it is still bullish.
http://www.ritholtz.com/blog/2012/01/living-in-a-qe-world/
From the Big Picture:
All Central bank balance sheets are exploding higher, or engaged in QE.
The degree to which central banks around the world are printing money is unprecedented.
The first eight charts below show the balance sheets of the largest central banks in the world. They are the European Central Bank (ECB), the Federal Reserve (Fed), the Bank of Japan (BoJ), the Bank of England (BoE), the Bundesbank (Germany), the Banque de France, the People’s Bank of China (PBoC) and the Swiss National Bank (SNB). Noted on the charts are significant events or growth rates.
Shown is the size of each respective balance sheet in its local currency. Note that all are exploding higher as every chart goes from the lower left to the upper right. Most are still making new all-time highs. If the basic definition of quantitative easing (QE) is a significant increase in a central bank’s balance sheet via increasing banking reserves, then all eight of these central banks are engaged in QE.
Central banks are ruling markets to a degree this generation has not seen. Collectively they are printing money to a degree never seen in human history.
Prior to the 2008 financial crisis, the eight central bank balance sheets were less than 15% the size of world stock markets and falling. In the immediate aftermath of Lehman Brothers’ failure, these eight central bank balance sheets swelled to 37% the capitalization of the world stock market. But keep in mind that the late 2008/early 2009 peak was due to collapsing stock market values combined with balance sheet expansion via “lender of last resort” loans.
Recently, the eight central bank balance sheets have spiked back to 33% of world stock market capitalization. This has come about not by lender of last resort loans, but rather by QE expansion (buying bonds with “printed money“) even faster than world stock markets are rising.
So how does this process get reversed? How do central banks pull back trillions of dollars of money printing without throwing markets into a tailspin? Frankly, no one knows, least of all central banks as they continue to make new money printing records.
Until a worldwide exit strategy can be articulated and understood, risk markets will rise and fall based on the perceptions and realities of central bank balance sheets. As long as this is perceived to be a good thing, like perpetually rising home prices were perceived to be a good thing, risk markets will rise.
When/If these central banks go too far, as was eventually the case with home prices, expanding balance sheets will no longer be looked upon in a positive light. Instead they will be viewed in the same light as CDOs backed by sub-prime mortgages were when home prices were falling. The heads of these central banks will no longer be put on a pedestal but looked upon as eight Alan Greenspans that caused a financial crisis.
The tipping point between balance sheet expansion being bullish for risk assets versus bearish is impossible to know. Given the growth rate of central bank balance sheets around the world over the past few years, we might not have to wait too long to find out. Enjoy it while it is still bullish.
http://www.ritholtz.com/blog/2012/01/living-in-a-qe-world/
Friday, January 27, 2012
The Rise and Looming Fall of China: Its Productive Capacity and the Upcoming Credit Bust
China has been able to achieve a rapid growth in the space of a few years mainly thanks to capital inflows and a positive trade balance driven in large part by its peculiar relationship with the U.S. The U.S.-based multinational corporations and banks have fully taken advantage of this deal. China got the export market and has been able to build the needed industrial base and transfer technology from abroad.
And yet, China’s innovation endeavor and productive capacity have been icing on the cake, as noted. The fundamental issue is whether, after all, their rigorous innovation/productive capacity building has benefited the few at the cost of the many.
While they have built industrial capacity, they have been blowing bubbles through excessive lending, wasteful infrastructure stimulus and speculation in the real estate market. Some like Jim Chanos argue that exports are only a small portion of China’s GDP.
China’s rapid economic growth has come with a cost. China is modeled after Japan, which has shown the perils of a command economy for the last 25 years. Of course, so is Korea. Even Western media outlet has reported China’s cool down, which was bound to happen. The looming credit bust may rock the world, given that many countries have depended on China’s growth. Perhaps people would then come to realize the nature of communism and pitfalls of a command economy colluded with Western crony capitalism.
(A detailed analysis on this topic won’t be shared due to the proprietary nature of the content.)
And yet, China’s innovation endeavor and productive capacity have been icing on the cake, as noted. The fundamental issue is whether, after all, their rigorous innovation/productive capacity building has benefited the few at the cost of the many.
While they have built industrial capacity, they have been blowing bubbles through excessive lending, wasteful infrastructure stimulus and speculation in the real estate market. Some like Jim Chanos argue that exports are only a small portion of China’s GDP.
China’s rapid economic growth has come with a cost. China is modeled after Japan, which has shown the perils of a command economy for the last 25 years. Of course, so is Korea. Even Western media outlet has reported China’s cool down, which was bound to happen. The looming credit bust may rock the world, given that many countries have depended on China’s growth. Perhaps people would then come to realize the nature of communism and pitfalls of a command economy colluded with Western crony capitalism.
(A detailed analysis on this topic won’t be shared due to the proprietary nature of the content.)
Davos Shocked To Hear That Poor People Exist
From Finance Addict:
Ok, I exaggerate. But that’s my cynical first impression after finding the following diagram in the briefing book for the gathering of the good and the great at the World Economic Forum in Davos, Switzerland.
As you can see “Severe income disparity” is #1 on the Top 5 risks list this year, after having failed to make the short list for the preceding 5 years.
Now it’s not as though the attendees of Davos were completely inattentive to the economic plight of the less fortunate all this time. “Economic disparities” was on last year’s laundry list of risks and was featured prominently in the executive summary of 2011's report. But the urgency has been ratcheted up quite a bit this year: note the new modifier “severe” and the use of the more specific “income” rather than “economic”. But wait, there’s more.
http://financeaddict.com/2012/01/davos-shocked-to-hear-that-poor-people-exist/
Ok, I exaggerate. But that’s my cynical first impression after finding the following diagram in the briefing book for the gathering of the good and the great at the World Economic Forum in Davos, Switzerland.
As you can see “Severe income disparity” is #1 on the Top 5 risks list this year, after having failed to make the short list for the preceding 5 years.
Now it’s not as though the attendees of Davos were completely inattentive to the economic plight of the less fortunate all this time. “Economic disparities” was on last year’s laundry list of risks and was featured prominently in the executive summary of 2011's report. But the urgency has been ratcheted up quite a bit this year: note the new modifier “severe” and the use of the more specific “income” rather than “economic”. But wait, there’s more.
http://financeaddict.com/2012/01/davos-shocked-to-hear-that-poor-people-exist/
Presenting the Interactive "Wiggle-Room Index" Or Which Countries Will Be Forced To Bail Out the Developed World
From Zero Hedge:
Update: literally seconds after this article was posted, we receive news that the IMF will seek Saudi contribution to the European bailout fund. There you have it - you enjoy that implicit US protection Saudi emirs? It is about to cost you.
While it is best to pray that NASA will find some very rich and not so intelligent life on Mars so it can bail out the world as it sinks deeper and deeper into a untenable debt hole (which somehow can be "filled" only by issuing more debt at least according to tenured economists at ivy league institutions), a strategy of planning for a realistic outcome may not be a bad idea. The question then is who in the world has some/any spare leverage capacity to incur even more debt and use the proceeds to fund a Eurozone-American-Chinese collapse. Enter the Economist's "wiggle-room index." The publication, best known for recently introducing the "shoe thrower index" (remember the Arab Spring and how Fed induced runaway inflation generated a "democratic" revolution across MENA?) has compiled a list of those developing world countries which still have capacity to provide credible global bailout capital (in fiat form of course - after all that is the only thing that the Ponzi understands) or as the Economist says, the "emerging economies that have the most monetary and fiscal firepower." So if you are on this list (ahem China, Indonesia and Saudi Arabia) - our condolences - you are about to be dragged into the epic slow-motion ongoing collapse of the developed world, kicking and screaming, with some 44 caliber persuasion if needed, but you will be there, before it all falls apart. The time to repay all favors to Uncle Sam is coming.
http://www.zerohedge.com/news/presenting-interactive-wiggle-room-index-or-which-countries-will-be-forced-bail-out-developed-w
Update: literally seconds after this article was posted, we receive news that the IMF will seek Saudi contribution to the European bailout fund. There you have it - you enjoy that implicit US protection Saudi emirs? It is about to cost you.
While it is best to pray that NASA will find some very rich and not so intelligent life on Mars so it can bail out the world as it sinks deeper and deeper into a untenable debt hole (which somehow can be "filled" only by issuing more debt at least according to tenured economists at ivy league institutions), a strategy of planning for a realistic outcome may not be a bad idea. The question then is who in the world has some/any spare leverage capacity to incur even more debt and use the proceeds to fund a Eurozone-American-Chinese collapse. Enter the Economist's "wiggle-room index." The publication, best known for recently introducing the "shoe thrower index" (remember the Arab Spring and how Fed induced runaway inflation generated a "democratic" revolution across MENA?) has compiled a list of those developing world countries which still have capacity to provide credible global bailout capital (in fiat form of course - after all that is the only thing that the Ponzi understands) or as the Economist says, the "emerging economies that have the most monetary and fiscal firepower." So if you are on this list (ahem China, Indonesia and Saudi Arabia) - our condolences - you are about to be dragged into the epic slow-motion ongoing collapse of the developed world, kicking and screaming, with some 44 caliber persuasion if needed, but you will be there, before it all falls apart. The time to repay all favors to Uncle Sam is coming.
http://www.zerohedge.com/news/presenting-interactive-wiggle-room-index-or-which-countries-will-be-forced-bail-out-developed-w
Thursday, January 26, 2012
¥1,086,000,000,000,000 (Quadrillion) in Debt And Rising, And Why the ¥ Will Soon Be a $: "A Lost Decade... Or Two"
From Zero Hedge:
Yesterday the Japanese Finance Ministry made a whopper of an announcement: in the year ending March 2013, total Japanese debt will surpass one quadrillion yen, or ¥1,086,000,000,000,000. This is roughly in line with the Zero Hedge expectations that by this March total Japanese debt would surpass one quadrillion yen. In USD terms, at today's exchange rate, this is precisely $14 trillion. And while smaller than America's $15.4 trillion (net of all post debt ceiling breach auctions), which was $14 trillion about a year ago, the GDP backing this notional amount of debt, which just so happens is greater than the GDP of the entire Euro area, is a modest ¥481 trillion, so by the end of the next fiscal year, Japan will have a Debt to GDP ratio of 225%. And that's not counting all the household and financial debt. So prepare to add quadrillion to the vernacular. At this exponential rate of increase quintillion will appear some time in 2015 and so on. Yet the scariest conclusion is that as Bloomberg economist Joseph Brusuelas points out, America is not only next, it already is Japan. Actually scratch that, America is worse than Japan, which at least generated a real housing bubble in the years just preceding the onset of its multi-decade credit crunch, something not even America could do in comparable terms. More importantly, "the debt-to-GDP ratio of the U.S. recently surpassed 100 percent, and it did so in the four years after the onset of the recession, compared with the six years it took the Japanese debt-to-GDP ratio to do so." The Japanese may be better than America in most things, but when it comes to destroying its economy, the US has no equal. Brusuelas' conclusion: "If below trend growth is the most probable scenario in the U.S., the most likely alternative is that the U.S. economy is headed for a lost decade… or two." So... go all in?
http://www.zerohedge.com/news/%C2%A51086000000000000-quadrillion-debt-and-rising-and-whythe-%C2%A5-will-soon-be-lost-decade-or-two
Yesterday the Japanese Finance Ministry made a whopper of an announcement: in the year ending March 2013, total Japanese debt will surpass one quadrillion yen, or ¥1,086,000,000,000,000. This is roughly in line with the Zero Hedge expectations that by this March total Japanese debt would surpass one quadrillion yen. In USD terms, at today's exchange rate, this is precisely $14 trillion. And while smaller than America's $15.4 trillion (net of all post debt ceiling breach auctions), which was $14 trillion about a year ago, the GDP backing this notional amount of debt, which just so happens is greater than the GDP of the entire Euro area, is a modest ¥481 trillion, so by the end of the next fiscal year, Japan will have a Debt to GDP ratio of 225%. And that's not counting all the household and financial debt. So prepare to add quadrillion to the vernacular. At this exponential rate of increase quintillion will appear some time in 2015 and so on. Yet the scariest conclusion is that as Bloomberg economist Joseph Brusuelas points out, America is not only next, it already is Japan. Actually scratch that, America is worse than Japan, which at least generated a real housing bubble in the years just preceding the onset of its multi-decade credit crunch, something not even America could do in comparable terms. More importantly, "the debt-to-GDP ratio of the U.S. recently surpassed 100 percent, and it did so in the four years after the onset of the recession, compared with the six years it took the Japanese debt-to-GDP ratio to do so." The Japanese may be better than America in most things, but when it comes to destroying its economy, the US has no equal. Brusuelas' conclusion: "If below trend growth is the most probable scenario in the U.S., the most likely alternative is that the U.S. economy is headed for a lost decade… or two." So... go all in?
http://www.zerohedge.com/news/%C2%A51086000000000000-quadrillion-debt-and-rising-and-whythe-%C2%A5-will-soon-be-lost-decade-or-two
Richard Koo at Nomura Concerned Keynesian Class Contracting
I agree with a commentator named “assetman’ in the comment section that both Krugman and Koo “conveniently overlook the convincing evidence that fiscal stimulus only has a temporary effect (at best) if it isn't used for productive purposes.”
From Zero Hedge:
The fear of 'turning-Greek', which is now apparently worse than 'turning-Japanese', is the anchoring bias that seems to be driving more and more countries to dramatically adjust their fiscal affairs. However, Nomura's Richard Koo (whose blood pressure was already elevated last week at the ignorance of many nations to his balance sheet recession diagnosis and treatment protocol) points out in a note this week that Greece's problems stem from fiscal profligacy, a lack of domestic savings, and dishonest reporting by the government (it does kind of ring a bell). His point being that the rest of the eurozone - not to mention Japan, US, and the UK - are suffering balance sheet recessions (unlike Greece), which occur when the collapse of an asset price bubble drives sharp increases in private savings. His problem is that traditional economists are not taught of a situation in which private sector deleveraging (which we discussed last week also) leaves fiscal stimulus as the only way to stabilize an economy and in the currrent environment of deficits being watched and denigrated by any and all politician, market participant, and talking head, Koo's borrow-and-spend 'all deficits are good deficits' medicine is hard to swallow. Koo believes that the post-Lehman world was saved by fiscal stimulus, that Greece is different, and that the anti-Koo austerity actions have 'thrown a large wrench into the works of many world economies' and while the UK is coming around to the notion that austerity is not working, he worries on recent actions in the US and Japan at a time of excess private saving. It seems to us that his argument boils down to - given the system's fragility - an Austrian solution to the broken Keynesian problem is unworkable (without depression), and he hopes that the growing doubts (recessions popping up left, right, and center) about an overriding focus on fiscal consolidation will bring people back to Keynesian (Kooian) fold. He concludes with a worrying reflection on his countrymen in the MoF that seem to have learnt none of his lessons as they look to raise the consumption tax and Japan's rising sun sets.
http://www.zerohedge.com/news/koo-concerned-keynesian-class-contracting
From Zero Hedge:
The fear of 'turning-Greek', which is now apparently worse than 'turning-Japanese', is the anchoring bias that seems to be driving more and more countries to dramatically adjust their fiscal affairs. However, Nomura's Richard Koo (whose blood pressure was already elevated last week at the ignorance of many nations to his balance sheet recession diagnosis and treatment protocol) points out in a note this week that Greece's problems stem from fiscal profligacy, a lack of domestic savings, and dishonest reporting by the government (it does kind of ring a bell). His point being that the rest of the eurozone - not to mention Japan, US, and the UK - are suffering balance sheet recessions (unlike Greece), which occur when the collapse of an asset price bubble drives sharp increases in private savings. His problem is that traditional economists are not taught of a situation in which private sector deleveraging (which we discussed last week also) leaves fiscal stimulus as the only way to stabilize an economy and in the currrent environment of deficits being watched and denigrated by any and all politician, market participant, and talking head, Koo's borrow-and-spend 'all deficits are good deficits' medicine is hard to swallow. Koo believes that the post-Lehman world was saved by fiscal stimulus, that Greece is different, and that the anti-Koo austerity actions have 'thrown a large wrench into the works of many world economies' and while the UK is coming around to the notion that austerity is not working, he worries on recent actions in the US and Japan at a time of excess private saving. It seems to us that his argument boils down to - given the system's fragility - an Austrian solution to the broken Keynesian problem is unworkable (without depression), and he hopes that the growing doubts (recessions popping up left, right, and center) about an overriding focus on fiscal consolidation will bring people back to Keynesian (Kooian) fold. He concludes with a worrying reflection on his countrymen in the MoF that seem to have learnt none of his lessons as they look to raise the consumption tax and Japan's rising sun sets.
http://www.zerohedge.com/news/koo-concerned-keynesian-class-contracting
Gold Extending Gains on Realization Fed's Only Option Is CTRL+P
From Zero Hedge:
Presented with little comment, Gold is now at $1693, about to take out $1700 and the best performing asset class of the year: YTD: Gold +8.2%, S&P +4.9%, 30Y TSY price -1.44%. Furthermore, since this FOMC statement implies more easing imminent, it simply delays full blown LSAP so its "effectiveness", read max Russell 2000, peaks with Obama's reelection campaign.
http://www.zerohedge.com/news/gold-extending-gains-realization-feds-only-option-ctrlp
Presented with little comment, Gold is now at $1693, about to take out $1700 and the best performing asset class of the year: YTD: Gold +8.2%, S&P +4.9%, 30Y TSY price -1.44%. Furthermore, since this FOMC statement implies more easing imminent, it simply delays full blown LSAP so its "effectiveness", read max Russell 2000, peaks with Obama's reelection campaign.
http://www.zerohedge.com/news/gold-extending-gains-realization-feds-only-option-ctrlp
Bill Gross’ Explains the FOMC Decision: "QE 2.5 Today, QE 3, 4, 5 … Lie Ahead"
From Zero Hedge:
Pimco just saved you lots of garbage sellside "research" "analysis" on the topic.
http://www.zerohedge.com/news/bill-gross-explains-fomc-decision-qe-25-today-qe-3-4-5-%E2%80%A6-lie-ahead
Pimco just saved you lots of garbage sellside "research" "analysis" on the topic.
http://www.zerohedge.com/news/bill-gross-explains-fomc-decision-qe-25-today-qe-3-4-5-%E2%80%A6-lie-ahead
FOMC Statement - Targets 2% Inflation - Highly Accommodative Monetary Policy Until 'Late 2014'
From Jesse’s Café:
The Fed extended its window of highly accommodative monetary policy to 'late 2014.' In a separate statement the Fed said it is targeting "2% inflation" as a target. This is the first time they have named an explicit inflation objective.
This statement shows a longer term commitment to de facto QE at least. The Fed does not need to further expand its balance sheet just yet, but rather deploy those funds strategically while engaging in swaps with other central banks to counter the financial risks globally.
I do not object to stimulus per se, but rather this type of blunt policy that does not address or repair the problems that led to the financial bubble and collapse in the first place, which is largely the reform of the financial system, the yawning gap between productive labor and mere money manipulation, and the hard choices required to resolve the TBTF banking problem and unsustainable concentration of both power and risk.
This is against the backdrop of the extended infomercial for crony capitalism coming from the financial conclave at Davos. Demagoguery and deception in support of the status quo seems to be the rule of the day in the financial sector and its associated professions and exclusive clubs.
Therefore self-regulation, restraint, and reform are a thin bet to say the least. The crisis is more like to continue to expand, and the taint of corruption and crime continue to spread.
http://jessescrossroadscafe.blogspot.com/2012/01/for-immediate-release-information_25.html
The Fed extended its window of highly accommodative monetary policy to 'late 2014.' In a separate statement the Fed said it is targeting "2% inflation" as a target. This is the first time they have named an explicit inflation objective.
This statement shows a longer term commitment to de facto QE at least. The Fed does not need to further expand its balance sheet just yet, but rather deploy those funds strategically while engaging in swaps with other central banks to counter the financial risks globally.
I do not object to stimulus per se, but rather this type of blunt policy that does not address or repair the problems that led to the financial bubble and collapse in the first place, which is largely the reform of the financial system, the yawning gap between productive labor and mere money manipulation, and the hard choices required to resolve the TBTF banking problem and unsustainable concentration of both power and risk.
This is against the backdrop of the extended infomercial for crony capitalism coming from the financial conclave at Davos. Demagoguery and deception in support of the status quo seems to be the rule of the day in the financial sector and its associated professions and exclusive clubs.
Therefore self-regulation, restraint, and reform are a thin bet to say the least. The crisis is more like to continue to expand, and the taint of corruption and crime continue to spread.
http://jessescrossroadscafe.blogspot.com/2012/01/for-immediate-release-information_25.html
Wednesday, January 25, 2012
Japan's First Annual Trade Deficit Since 1980; Japan’s Fiscal Pressure Intensifying
Again, Korea and China are modeled after Japan. Their growth model was flawed from the start. As pointed out, Japan’s export machine, which has propped up Japan’s ponzi game, is in trouble.
From Reuters:
Japan logged its first annual trade deficit in 2011 for over 30 years as the aftermath of the March earthquake raised fuel import costs even as slowing global growth and the yen's strength hit exports, threatening to erode the country's ability to fund its huge public debt with domestic savings.
Few market players expect Japan to immediately run a deficit in the current account, which includes trade and returns on the country's huge past investments abroad, as a steady inflow of profits and capital gains from overseas outweigh the trade deficit.
But the trade data underscores a broader trend in which Japan's competitive edge in the global market is eroding and it is increasingly reliant on fuel imports due to the loss of nuclear power, with reactors staying closed after routine checks due to public safety fears following the March disaster.
"What it means is that the time when Japan runs out of savings -- 'Sayonara net creditor country' -- that point is coming closer," said Jesper Koll, head of equities research at JPMorgan in Japan.
"It means Japan becomes dependent on global savings to fund its deficit and either the currency weakens or interest rates rise."
Japan logged a trade deficit of 2.49 trillion yen ($32 billion) for 2011, Ministry of Finance data showed on Wednesday, the first annual deficit since 1980.
Total exports shrank 2.7 percent last year while imports surged 12.0 percent, reflecting reduced earnings from goods and services and higher spending on crude and fuel oil.
In a sign of the continuing pain from slowing global growth, exports fell 8.0 percent in December from a year earlier, roughly matching a median market forecast for a 7.9 percent drop, due partly to weak shipments of electronics parts.
Imports rose 8.1 percent in December from a year earlier, in line with a 8.0 percent annual gain expected, bringing the trade balance to a deficit of 205.1 billion yen, against 139.7 billion yen expected. It marked the third straight month of deficits.
Bank of Japan Governor Masaaki Shirakawa said on Tuesday he did not expect Japan to continue logging a trade deficit as a trend and did not foresee the country's current account balance tipping into the red in the near future.
But Japan's days of logging huge trade surpluses may be over as it relies more on fuel imports, which may weaken the yen in the longer term.
Running a current account deficit would spell trouble for Japan as it means it cannot pay the cost of financing its huge public debt without overseas funds, although few analysts expect this to happen in the foreseeable future.
http://www.reuters.com/article/2012/01/25/us-japan-economy-idUSTRE80O01120120125?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed
From Bloomberg:
Japan’s government said it will probably miss its goal of balancing the budget by 2020 even with its proposed doubling of the sales tax, underscoring the scale of the nation’s fiscal challenges.
The primary budget deficit, which excludes the cost of servicing debt, will be the equivalent of 3.1 percent of gross domestic product for the year through March 2021, the Cabinet Office said in Tokyo today. Hours after the release, Prime Minister Yoshihiko Noda reiterated his call for opposition lawmakers to engage in talks on boosting the sales levy.
“To balance the budget, the rate needs to rise further,” said Takuji Okubo, chief Japan economist at Societe Generale SA in Tokyo, referring to the sales-tax level. “We’ve passed the point where we can soft-land the fiscal situation. The question is how hard the landing is going to be.”
http://www.bloomberg.com/news/2012-01-24/japan-says-it-may-miss-its-debt-goal-even-with-tax-increases.html
From Reuters:
Japan logged its first annual trade deficit in 2011 for over 30 years as the aftermath of the March earthquake raised fuel import costs even as slowing global growth and the yen's strength hit exports, threatening to erode the country's ability to fund its huge public debt with domestic savings.
Few market players expect Japan to immediately run a deficit in the current account, which includes trade and returns on the country's huge past investments abroad, as a steady inflow of profits and capital gains from overseas outweigh the trade deficit.
But the trade data underscores a broader trend in which Japan's competitive edge in the global market is eroding and it is increasingly reliant on fuel imports due to the loss of nuclear power, with reactors staying closed after routine checks due to public safety fears following the March disaster.
"What it means is that the time when Japan runs out of savings -- 'Sayonara net creditor country' -- that point is coming closer," said Jesper Koll, head of equities research at JPMorgan in Japan.
"It means Japan becomes dependent on global savings to fund its deficit and either the currency weakens or interest rates rise."
Japan logged a trade deficit of 2.49 trillion yen ($32 billion) for 2011, Ministry of Finance data showed on Wednesday, the first annual deficit since 1980.
Total exports shrank 2.7 percent last year while imports surged 12.0 percent, reflecting reduced earnings from goods and services and higher spending on crude and fuel oil.
In a sign of the continuing pain from slowing global growth, exports fell 8.0 percent in December from a year earlier, roughly matching a median market forecast for a 7.9 percent drop, due partly to weak shipments of electronics parts.
Imports rose 8.1 percent in December from a year earlier, in line with a 8.0 percent annual gain expected, bringing the trade balance to a deficit of 205.1 billion yen, against 139.7 billion yen expected. It marked the third straight month of deficits.
Bank of Japan Governor Masaaki Shirakawa said on Tuesday he did not expect Japan to continue logging a trade deficit as a trend and did not foresee the country's current account balance tipping into the red in the near future.
But Japan's days of logging huge trade surpluses may be over as it relies more on fuel imports, which may weaken the yen in the longer term.
Running a current account deficit would spell trouble for Japan as it means it cannot pay the cost of financing its huge public debt without overseas funds, although few analysts expect this to happen in the foreseeable future.
http://www.reuters.com/article/2012/01/25/us-japan-economy-idUSTRE80O01120120125?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed
From Bloomberg:
Japan’s government said it will probably miss its goal of balancing the budget by 2020 even with its proposed doubling of the sales tax, underscoring the scale of the nation’s fiscal challenges.
The primary budget deficit, which excludes the cost of servicing debt, will be the equivalent of 3.1 percent of gross domestic product for the year through March 2021, the Cabinet Office said in Tokyo today. Hours after the release, Prime Minister Yoshihiko Noda reiterated his call for opposition lawmakers to engage in talks on boosting the sales levy.
“To balance the budget, the rate needs to rise further,” said Takuji Okubo, chief Japan economist at Societe Generale SA in Tokyo, referring to the sales-tax level. “We’ve passed the point where we can soft-land the fiscal situation. The question is how hard the landing is going to be.”
http://www.bloomberg.com/news/2012-01-24/japan-says-it-may-miss-its-debt-goal-even-with-tax-increases.html
Simon Johnson on the Deepening European Crisis: “Dreams vs. Reality”
Simon Johnson is an MIT professor and a former IMF chief economist.
From Zero Hedge:
Successive plans to restore confidence in the euro area have failed. Proposals currently on the table also seem likely to fail. The market cost of borrowing is at unsustainable levels for many banks and a significant number of governments that share the euro. In three short sentences, the Peterson Institute for International Economics' (PIIE) Simon Johnson introduces the clear and present danger that Europe has become in a comprehensive article on the deepening European crisis. The circular nature of the realization of sovereign credit risk realities and the subsequent effective insolvency of banks exacerbates a credit crunch and exaggerates problems in the real economy - most specifically in the periphery. Johnson outlines five measures that are needed to enable the euro area to survive but the big bazooka of up to EUR5tn just for the PIIGS is what the PIIE senior fellow fears as the ECB is pushed down a dangerous path. The coordination of 17 disaparate nations leaves the former IMF man greatly concerned as the unique nature of this crisis leaves "four economic, social, and political events as possible causes of systemic collapse with each at risk of occurring in the next weeks, months, or years and these risks will not disappear quickly." As European sovereign bonds are now deeply subordinated claims on recessionary economies, it is no surprise that Johnson ends by noting that Europe's economy remains in a dangerous state.
http://www.zerohedge.com/news/dreams-versus-reality-former-imf-chief-economist-europes-last-stand
From Zero Hedge:
Successive plans to restore confidence in the euro area have failed. Proposals currently on the table also seem likely to fail. The market cost of borrowing is at unsustainable levels for many banks and a significant number of governments that share the euro. In three short sentences, the Peterson Institute for International Economics' (PIIE) Simon Johnson introduces the clear and present danger that Europe has become in a comprehensive article on the deepening European crisis. The circular nature of the realization of sovereign credit risk realities and the subsequent effective insolvency of banks exacerbates a credit crunch and exaggerates problems in the real economy - most specifically in the periphery. Johnson outlines five measures that are needed to enable the euro area to survive but the big bazooka of up to EUR5tn just for the PIIGS is what the PIIE senior fellow fears as the ECB is pushed down a dangerous path. The coordination of 17 disaparate nations leaves the former IMF man greatly concerned as the unique nature of this crisis leaves "four economic, social, and political events as possible causes of systemic collapse with each at risk of occurring in the next weeks, months, or years and these risks will not disappear quickly." As European sovereign bonds are now deeply subordinated claims on recessionary economies, it is no surprise that Johnson ends by noting that Europe's economy remains in a dangerous state.
http://www.zerohedge.com/news/dreams-versus-reality-former-imf-chief-economist-europes-last-stand
Apple’s Year End Cash Equivalent of $97.7 Billion Makes It the 58th Largest Economy in the World
The New York Times recently reported the working conditions of the Chinese workers at FoxConn who make the Apple products. One can’t help but rethink the social responsibility of a corporation.
From Zero Hedge:
After generating $37.9 billion in cash, short and long-term equivalents in 2011, and a record $16 billion in Q4 alone (of which $11.8 billion in Long-Term Marketable Securities: Treasurys? Pretty soon Apple will be a bigger monetization force than the Fed), the company's total cash and equivalents horde is now just shy of $100 billion, or $97.6 billion. And with cash growing at 20% in the quarter, extrapolating into the future, means that the company will hit $1 trillion in cash by Q1 2015. Looked at otherwise, if Apple were a country, and its cash was equivalent to GDP, it would rank as the world's 58th largest economy, above such countries as Slovakia, Iraq, Luxembourg, and Syria. At least now we know where all that money that is not going to pay mortgages, is going. Next question: how long until uncle Sam demands windfall tax, or until the FoxConn workers learn to read press releases and politely request a pay raise or they all jump?
http://www.zerohedge.com/news/apples-year-end-cash-equivalent-976-billion-makes-it-58th-largest-economy-world
From Zero Hedge:
After generating $37.9 billion in cash, short and long-term equivalents in 2011, and a record $16 billion in Q4 alone (of which $11.8 billion in Long-Term Marketable Securities: Treasurys? Pretty soon Apple will be a bigger monetization force than the Fed), the company's total cash and equivalents horde is now just shy of $100 billion, or $97.6 billion. And with cash growing at 20% in the quarter, extrapolating into the future, means that the company will hit $1 trillion in cash by Q1 2015. Looked at otherwise, if Apple were a country, and its cash was equivalent to GDP, it would rank as the world's 58th largest economy, above such countries as Slovakia, Iraq, Luxembourg, and Syria. At least now we know where all that money that is not going to pay mortgages, is going. Next question: how long until uncle Sam demands windfall tax, or until the FoxConn workers learn to read press releases and politely request a pay raise or they all jump?
http://www.zerohedge.com/news/apples-year-end-cash-equivalent-976-billion-makes-it-58th-largest-economy-world
Tuesday, January 24, 2012
David Stockman: Crony Capitalism and the Entitled Class of Wall Street Financiers
David Stockman is a former budget director for President Reagan.
From Bill Moyers:
Moyers & Company explores the tight connection between Wall Street and the White House with David Stockman, former budget director for President Reagan.
Now a businessman who says he was “taken to the woodshed” for telling the truth about the administration’s tax policies, Stockman speaks candidly with Bill Moyers about how money dominates politics, distorting free markets and endangering democracy. “As a result,” Stockman says, “we have neither capitalism nor democracy. We have crony capitalism.”
Stockman shares details on how the courtship of politics and high finance have turned our economy into a private club that rewards the super-rich and corporations, leaving average Americans wondering how it could happen and who’s really in charge.
“We now have an entitled class of Wall Street financiers and of corporate CEOs who believe the government is there to do… whatever it takes in order to keep the game going and their stock price moving upward,” Stockman tells Moyers.
http://billmoyers.com/segment/david-stockman-on-crony-capitalism/
From Bill Moyers:
Moyers & Company explores the tight connection between Wall Street and the White House with David Stockman, former budget director for President Reagan.
Now a businessman who says he was “taken to the woodshed” for telling the truth about the administration’s tax policies, Stockman speaks candidly with Bill Moyers about how money dominates politics, distorting free markets and endangering democracy. “As a result,” Stockman says, “we have neither capitalism nor democracy. We have crony capitalism.”
Stockman shares details on how the courtship of politics and high finance have turned our economy into a private club that rewards the super-rich and corporations, leaving average Americans wondering how it could happen and who’s really in charge.
“We now have an entitled class of Wall Street financiers and of corporate CEOs who believe the government is there to do… whatever it takes in order to keep the game going and their stock price moving upward,” Stockman tells Moyers.
http://billmoyers.com/segment/david-stockman-on-crony-capitalism/
McKinsey: Americans Are Deleveraging
From Zero Hedge:
As comparisons between US and European debt to GDP levels and the finger-pointing of who is deleveraging more continues, McKinsey notes (in their quarterly Debt and Deleveraging article) that there may be a light at the end of the tunnel for the US as private-sector deleveraging has been rapid since 2008. However, reading on a little, we find that the light at the end of the tunnel may well be the front of the oncoming train of financial distress as some two-thirds of the 4% ($584bn) in US household debt deleveraging is from defaults on home-loans (and other consumer debt). Of course, with homebuilder stock prices surging (notably rather dramatically relative to lumber or ABS/CMBS), consensus has once again agreed that the bottom in housing is in. McKinsey's initial forecast that the pent-up foreclosures and implicit deleveraging will bring us back to trend by 2013 seems like a pipe-dream and we tend to agree with their more conservative perspective that reversion in household debt will not be to trend but to pre-credit-bubble levels, implying a 22% further reduction (or a couple more trillion dollars of defaults).
http://www.zerohedge.com/news/americans-are-deleveraging-not-because-they-want
As comparisons between US and European debt to GDP levels and the finger-pointing of who is deleveraging more continues, McKinsey notes (in their quarterly Debt and Deleveraging article) that there may be a light at the end of the tunnel for the US as private-sector deleveraging has been rapid since 2008. However, reading on a little, we find that the light at the end of the tunnel may well be the front of the oncoming train of financial distress as some two-thirds of the 4% ($584bn) in US household debt deleveraging is from defaults on home-loans (and other consumer debt). Of course, with homebuilder stock prices surging (notably rather dramatically relative to lumber or ABS/CMBS), consensus has once again agreed that the bottom in housing is in. McKinsey's initial forecast that the pent-up foreclosures and implicit deleveraging will bring us back to trend by 2013 seems like a pipe-dream and we tend to agree with their more conservative perspective that reversion in household debt will not be to trend but to pre-credit-bubble levels, implying a 22% further reduction (or a couple more trillion dollars of defaults).
http://www.zerohedge.com/news/americans-are-deleveraging-not-because-they-want
Council on Foreign Relations: Charting the U.S. (Un)Recovery in Historical Context
From the Council on Foreign Relations website:
How does the current recovery compare to those of the past? The following charts provide a series of answers, plotting current indicators (in red) against the average of all post–World War II recoveries (in blue). The x-axis shows the number of months since the end of the recession. The dotted lines are composites of prior recoveries representing the weakest and strongest experiences of the past. The recovery's start date is set using the recession dates established by the National Bureau of Economic Research's Business Cycle Dating Committee. By the committee's methodology, the current recovery began in June 2009. Despite some bright news recently, the pictures underline the economy's weakness since that date.
http://www.cfr.org/geoeconomics/quarterly-update-economic-recovery-historical-context/p25774
How does the current recovery compare to those of the past? The following charts provide a series of answers, plotting current indicators (in red) against the average of all post–World War II recoveries (in blue). The x-axis shows the number of months since the end of the recession. The dotted lines are composites of prior recoveries representing the weakest and strongest experiences of the past. The recovery's start date is set using the recession dates established by the National Bureau of Economic Research's Business Cycle Dating Committee. By the committee's methodology, the current recovery began in June 2009. Despite some bright news recently, the pictures underline the economy's weakness since that date.
http://www.cfr.org/geoeconomics/quarterly-update-economic-recovery-historical-context/p25774
Monday, January 23, 2012
Apple, the U.S., Manufacturing Decline, and a Squeezed Middle Class: How America Lost Out on iPhone Work
This is by design. One has to see the bigger picture here. The thing is Apple couldn’t have moved its manufacturing operation in the first place without the complicit involvement of the U.S. government and financial entities, as noted on more than a few occasions. Further, as the Financial Times has reported China’s cool down, perhaps smart money has already exited China.
From The New York Times:
When Barack Obama joined Silicon Valley’s top luminaries for dinner in California last February, each guest was asked to come with a question for the president.
But as Steven P. Jobs of Apple spoke, President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?
Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.
Why can’t that work come home? Mr. Obama asked.
Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.
The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.
http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?_r=1&pagewanted=1&ref=business
From The New York Times:
When Barack Obama joined Silicon Valley’s top luminaries for dinner in California last February, each guest was asked to come with a question for the president.
But as Steven P. Jobs of Apple spoke, President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?
Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.
Why can’t that work come home? Mr. Obama asked.
Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.
The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.
http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?_r=1&pagewanted=1&ref=business
Sol Sanders: America’s Love Affair with China
From Zero Hedge:
But those Shanghai office towers across the river in Pudong were already standing empty a decade ago – not that you would know from any contemporary reporting. Former Prime Minister Rhu Rongji publicly pleaded with provincial bureaucrats to stop fabricating figures because it made it impossible for him to know what was going on. Only a year ago provincial GDP figures didn’t jibe with the national totals. But, never mind, our academics – and most of the financial media – kept right on, grinding out incredible gobbledygook about economics “with Chinese characteristics”, how its GDP make it No. 2 [despite subsistence living standards for the majority of its people], and how Chinese growth would save the world, etc., etc.
Now even The Financial Times, among the loudest indiscriminate propagandists for China straight-line projections, has taken a deep breath, predicting coming problems, perhaps even disaster. Ut oh! The Chinese boom has depended on export markets now drying up in the U.S. and the EU. It has relied on unlimited infrastructure expansion but government “stimulus” is leading to inflation. Virtually zero rural investment and protectionist trading are driving up food prices where most Chinese live. Banks’ newly created debt dumps are being used to lend to Party-favorites so there just might be a credit problem. The government is shifting to subsidized housing [but still beyond the reach of wage-earners] to deflate a real estate bubble, the only place “hot money” could go with government “planned” investment.
http://www.zerohedge.com/contributed/sol-sanders-follow-money-no-102-america%E2%80%99s-love-affair-china
But those Shanghai office towers across the river in Pudong were already standing empty a decade ago – not that you would know from any contemporary reporting. Former Prime Minister Rhu Rongji publicly pleaded with provincial bureaucrats to stop fabricating figures because it made it impossible for him to know what was going on. Only a year ago provincial GDP figures didn’t jibe with the national totals. But, never mind, our academics – and most of the financial media – kept right on, grinding out incredible gobbledygook about economics “with Chinese characteristics”, how its GDP make it No. 2 [despite subsistence living standards for the majority of its people], and how Chinese growth would save the world, etc., etc.
Now even The Financial Times, among the loudest indiscriminate propagandists for China straight-line projections, has taken a deep breath, predicting coming problems, perhaps even disaster. Ut oh! The Chinese boom has depended on export markets now drying up in the U.S. and the EU. It has relied on unlimited infrastructure expansion but government “stimulus” is leading to inflation. Virtually zero rural investment and protectionist trading are driving up food prices where most Chinese live. Banks’ newly created debt dumps are being used to lend to Party-favorites so there just might be a credit problem. The government is shifting to subsidized housing [but still beyond the reach of wage-earners] to deflate a real estate bubble, the only place “hot money” could go with government “planned” investment.
http://www.zerohedge.com/contributed/sol-sanders-follow-money-no-102-america%E2%80%99s-love-affair-china
Nomi Prins: Bailouts + Downgrades = Austerity And Pain
An excellent post summing up how the global financial entities colluded with central banks have made the normal economic cycle disrupted and ordinary people’s lives harsh. Those who run a company as well as ordinary folks should be aware of this from the macro perspective.
From her blog:
Nowhere in S&P’s statement about “global economic and financial crisis”, did it clarify that sovereigns were hit due to backing their largest national banks (and international, US ones) which engaged in half a decade of leveraged speculation. But here’s how it worked:
1) Big banks funneled speculative capital, and their own, into local areas, using real estate and other collateral as fodder for securitized deals with derivative touches. 2) They lost money on these bets, and on the borrowing incurred to leverage them. 3) The losses ate their capital. 4) The capital markets soured against them in mutual bank distrust so they couldn’t raise more money to cover their bets as before. 5) So, their borrowing costs rose which made it more difficult for them to back their bets or purchase their own government’s debt. 6) This decreased demand for government debt, which drove up the cost of that debt, which transformed into additional country expenses. 7) Countries had to turn to bailouts to keep banks happy and plush with enough capital. 8) In return for bailouts and cheap lending, governments sacrificed citizens. 9) As citizens lost jobs and countries lost assets to subsidize the international speculation wave, their economies weakened further. 10) S&P (and every political leader) downplayed this chain of events.... The die has been cast. Central entities like the Fed, ECB, and IMF perpetuate strategies that further undermine economies, through emergency loan facilities and bailouts, with rating agency downgrades spurring them on. Governments attempt to raise money at harsher terms PLUS repay the bailouts that caused those terms to be higher. Banks hoard cheap money which doesn’t help populations, exacerbating the damaging economic effects. Unfortunately, this won't end any time soon.
http://www.nomiprins.com/thoughts/2012/1/17/bailouts-downgrades-austerity-and-pain.html
From her blog:
Nowhere in S&P’s statement about “global economic and financial crisis”, did it clarify that sovereigns were hit due to backing their largest national banks (and international, US ones) which engaged in half a decade of leveraged speculation. But here’s how it worked:
1) Big banks funneled speculative capital, and their own, into local areas, using real estate and other collateral as fodder for securitized deals with derivative touches. 2) They lost money on these bets, and on the borrowing incurred to leverage them. 3) The losses ate their capital. 4) The capital markets soured against them in mutual bank distrust so they couldn’t raise more money to cover their bets as before. 5) So, their borrowing costs rose which made it more difficult for them to back their bets or purchase their own government’s debt. 6) This decreased demand for government debt, which drove up the cost of that debt, which transformed into additional country expenses. 7) Countries had to turn to bailouts to keep banks happy and plush with enough capital. 8) In return for bailouts and cheap lending, governments sacrificed citizens. 9) As citizens lost jobs and countries lost assets to subsidize the international speculation wave, their economies weakened further. 10) S&P (and every political leader) downplayed this chain of events.... The die has been cast. Central entities like the Fed, ECB, and IMF perpetuate strategies that further undermine economies, through emergency loan facilities and bailouts, with rating agency downgrades spurring them on. Governments attempt to raise money at harsher terms PLUS repay the bailouts that caused those terms to be higher. Banks hoard cheap money which doesn’t help populations, exacerbating the damaging economic effects. Unfortunately, this won't end any time soon.
http://www.nomiprins.com/thoughts/2012/1/17/bailouts-downgrades-austerity-and-pain.html
Subordination 101: A Walk Through for sovereign Bond Markets in a Post-Greek Default World
From Zero Hedge:
Yesterday, Reuters' blogger Felix Salmon in a well-written if somewhat verbose essay, makes the argument that "Greece has the upper hand" in its ongoing negotiations with the ad hoc and official group of creditors. It would be a great analysis if it wasn't for one minor detail. It is wrong. And while that in itself is hardly newsworthy, the fact that, as usual, its conclusion is built upon others' primary research and analysis, including that of the Wall Street Journal, merely reinforces the fact that there is little understanding in the mainstream media of what is actually going on behind the scenes in the Greek negotiations, and thus a comprehension of how prepack (for now) bankruptcy processes operate. Furthermore, since the Greek "case study" will have dramatic implications for not only other instances of sovereign default, many of which are already lining up especially in Europe, but for the sovereign bond market in general, this may be a good time to explain why not only does Greece not have the upper hand, but why an adverse outcome from the 11th hour discussions between the IIF, the ad hoc creditors, Greece, and the Troika, would have monumental consequences for the entire bond market in general.
http://www.zerohedge.com/news/subordination-101-walkthru-sovereign-bond-markets-post-greek-default-world
Yesterday, Reuters' blogger Felix Salmon in a well-written if somewhat verbose essay, makes the argument that "Greece has the upper hand" in its ongoing negotiations with the ad hoc and official group of creditors. It would be a great analysis if it wasn't for one minor detail. It is wrong. And while that in itself is hardly newsworthy, the fact that, as usual, its conclusion is built upon others' primary research and analysis, including that of the Wall Street Journal, merely reinforces the fact that there is little understanding in the mainstream media of what is actually going on behind the scenes in the Greek negotiations, and thus a comprehension of how prepack (for now) bankruptcy processes operate. Furthermore, since the Greek "case study" will have dramatic implications for not only other instances of sovereign default, many of which are already lining up especially in Europe, but for the sovereign bond market in general, this may be a good time to explain why not only does Greece not have the upper hand, but why an adverse outcome from the 11th hour discussions between the IIF, the ad hoc creditors, Greece, and the Troika, would have monumental consequences for the entire bond market in general.
http://www.zerohedge.com/news/subordination-101-walkthru-sovereign-bond-markets-post-greek-default-world
McKinsey: Lessons from Japan: the Final Resolution of Japan’s Enormous Public Debt Has Yet To Come
From Zero Hedge:
Japan provides a cautionary tale for economies today. In the 1980s, a lending boom fueled a dual asset bubble in real estate and equities.
Household and corporate debt surged; total debt increased from 243 percent of GDP to 387 percent in a decade. The bubbles collapsed in 1989 and sparked a deep recession, but debt has continued to rise, reaching 512 percent of GDP in mid-2011 (Exhibit 16). Even so, Japan has had very little growth—an outcome that no country wishes to replicate.
Japan’s crisis response stands in sharp contrast to those of Sweden and Finland. Private-sector debt reduction did not begin until nearly eight years after Japan’s crash. The very large debt of non-financial businesses meant that companies could not afford to invest in growth, slowing the economic recovery and preventing a stock market rebound. Their impaired loans clogged bank balance sheets, curbing lending and raising uncertainty about the health of the banking system. Neither the public nor the private sectors made the structural changes that would enable growth.
Meanwhile, partly as a result of public investments aimed at stimulating the economy, Japan’s public debt has grown steadily. At 226 percent of GDP, it is nearly double the level of some eurozone-crisis economies. Yet Japan has avoided a sovereign debt crisis, largely because more than 90 percent of the debt is owned by Japanese investors: Japanese banks hold nearly $5 trillion in government bonds, and insurers and pension funds hold $4.5 trillion. But the price—two decades of slow growth—has been high, and the final resolution of Japan’s enormous public debt has yet to come.
http://www.zerohedge.com/news/japans-final-resolution-has-yet-come
Japan provides a cautionary tale for economies today. In the 1980s, a lending boom fueled a dual asset bubble in real estate and equities.
Household and corporate debt surged; total debt increased from 243 percent of GDP to 387 percent in a decade. The bubbles collapsed in 1989 and sparked a deep recession, but debt has continued to rise, reaching 512 percent of GDP in mid-2011 (Exhibit 16). Even so, Japan has had very little growth—an outcome that no country wishes to replicate.
Japan’s crisis response stands in sharp contrast to those of Sweden and Finland. Private-sector debt reduction did not begin until nearly eight years after Japan’s crash. The very large debt of non-financial businesses meant that companies could not afford to invest in growth, slowing the economic recovery and preventing a stock market rebound. Their impaired loans clogged bank balance sheets, curbing lending and raising uncertainty about the health of the banking system. Neither the public nor the private sectors made the structural changes that would enable growth.
Meanwhile, partly as a result of public investments aimed at stimulating the economy, Japan’s public debt has grown steadily. At 226 percent of GDP, it is nearly double the level of some eurozone-crisis economies. Yet Japan has avoided a sovereign debt crisis, largely because more than 90 percent of the debt is owned by Japanese investors: Japanese banks hold nearly $5 trillion in government bonds, and insurers and pension funds hold $4.5 trillion. But the price—two decades of slow growth—has been high, and the final resolution of Japan’s enormous public debt has yet to come.
http://www.zerohedge.com/news/japans-final-resolution-has-yet-come
Survival of the Unfittest: Japan Or the U.K.?
From Zero Hedge:
The spread differential between Japan sovereign CDS and UK sovereign CDS (both denominated in USD) is near its widest on record (Japan 55bps wider than UK). Furthermore, Japan's CDS trades notably wider (101bps in 5Y) than its bond's yields (which are the domestically held and subdued by local savings unlike the USD-denominated CDS market) while UK CDS trades 24bps inside its Gilts 5Y yield - quite a difference. Flows have surged into both the Japanese and British markets as AAA safe havens 'were' in demand (until the all-clear appears to have been signaled recently?). The critical point here is that these two nations have devastatingly unsustainable debt/GDP ratios (which show no sign of deleveraging - unlike the US - ignoring unfunded liabilities) with both at just about 500% in total debt/GDP, and yet in general UK trades far better than Japan. McKinsey's 'Debt and Deleveraging' note today points to significant increases in leverage for Japan, Spain, and France (and UK in the middle ground of rises in leverage for now). Of course none of this matters as clearly this debt will never be paid back and/or interest coverage will approach 100% of GDP (and perhaps that is the 100bps premium in CDS for JPY devaluation probability?).
http://www.zerohedge.com/news/survival-unfittest-japan-or-uk
The spread differential between Japan sovereign CDS and UK sovereign CDS (both denominated in USD) is near its widest on record (Japan 55bps wider than UK). Furthermore, Japan's CDS trades notably wider (101bps in 5Y) than its bond's yields (which are the domestically held and subdued by local savings unlike the USD-denominated CDS market) while UK CDS trades 24bps inside its Gilts 5Y yield - quite a difference. Flows have surged into both the Japanese and British markets as AAA safe havens 'were' in demand (until the all-clear appears to have been signaled recently?). The critical point here is that these two nations have devastatingly unsustainable debt/GDP ratios (which show no sign of deleveraging - unlike the US - ignoring unfunded liabilities) with both at just about 500% in total debt/GDP, and yet in general UK trades far better than Japan. McKinsey's 'Debt and Deleveraging' note today points to significant increases in leverage for Japan, Spain, and France (and UK in the middle ground of rises in leverage for now). Of course none of this matters as clearly this debt will never be paid back and/or interest coverage will approach 100% of GDP (and perhaps that is the 100bps premium in CDS for JPY devaluation probability?).
http://www.zerohedge.com/news/survival-unfittest-japan-or-uk
Thursday, January 19, 2012
Charles Hugh Smith: The Substitution of Debt for Productivity
From Of Two Minds:
If you leverage $100 per month in surplus capital in a household into a $100,000 home equity loan that is squandered on luxury cruises, a new kitchen, boats and dining out, then that explosion of spending boosts "growth" like a shot of cocaine.
But then what happens when the borrowed money has all been spent? What happens when the borrower defaults? The underlying assets--the boat, home, etc.--can all be auctioned off, but a massive loss remains to be swallowed by the lender.
Needless to say, the bankrupt borrower will be unable to borrow another $100,000 any time soon, even if interest rates are lowered to near-zero.
That's what happens when you try to fool Mother Nature by substituting debt expansion for increases in meaningful productivity. Eventually the surplus that is being leveraged into debt reaches the point where it cannot leverage any more debt, and the over-leveraged borrower defaults at the first financial bump.
An economy that is dependent on constant massive increases in debt to fund its "growth" is not sustainable. In a very real sense, the U.S. has been fooling Mother Nature for 30 years. Now we've overleveraged the nation's shrinking pool of surplus capital and assets, and the last rabbit has been pulled from the magician's hat. Mother Nature (i.e. reality in the form of a transparent, marked to market balance sheet) is about to take her revenge on all those who reckoned she could be fooled forever by ever-expanding debt.
http://www.oftwominds.com/blogjan12/productivity-debt01-12.html
If you leverage $100 per month in surplus capital in a household into a $100,000 home equity loan that is squandered on luxury cruises, a new kitchen, boats and dining out, then that explosion of spending boosts "growth" like a shot of cocaine.
But then what happens when the borrowed money has all been spent? What happens when the borrower defaults? The underlying assets--the boat, home, etc.--can all be auctioned off, but a massive loss remains to be swallowed by the lender.
Needless to say, the bankrupt borrower will be unable to borrow another $100,000 any time soon, even if interest rates are lowered to near-zero.
That's what happens when you try to fool Mother Nature by substituting debt expansion for increases in meaningful productivity. Eventually the surplus that is being leveraged into debt reaches the point where it cannot leverage any more debt, and the over-leveraged borrower defaults at the first financial bump.
An economy that is dependent on constant massive increases in debt to fund its "growth" is not sustainable. In a very real sense, the U.S. has been fooling Mother Nature for 30 years. Now we've overleveraged the nation's shrinking pool of surplus capital and assets, and the last rabbit has been pulled from the magician's hat. Mother Nature (i.e. reality in the form of a transparent, marked to market balance sheet) is about to take her revenge on all those who reckoned she could be fooled forever by ever-expanding debt.
http://www.oftwominds.com/blogjan12/productivity-debt01-12.html
Michael Krieger: “The Building Tension”
From Zero Hedge:
The reason I don’t write about markets so much anymore is because I don’t believe there are markets any longer. Sure there are flashing prices on the screens for various assets and those can be addicting to look at on a daily basis, but I think these “markets” are now merely a mechanism for government propaganda and a method to ultimately fleece more money from the uniformed masses that play in it by the casino operators and their puppets in government. It’s basically a hologram. I have alluded to this in recent interviews, but I myself feel extremely uncomfortable being involved at this point in a way I have never felt before. For now, I am still willing to play the game with some of my own capital but I fear I may regret this decision and that the smart thing would be to pull out completely and go entirely into hard assets as well as real estate abroad. This game is not safe.
By definition, the longer the period of tension building the more explosive the release will be when it ultimately happens. This period has already been going on for almost five months with only minor releases so I think we are already staring down the barrel of something horrific. Should they actually succeed and delaying the release until after the election I expect the release scenario to be downright cataclysmic. Should they succeed to delay it that far I hope I am wise enough to pull the remainder of my assets out of this casino beforehand and get entirely physical.
http://www.zerohedge.com/news/michael-krieger-summarizes-building-tension
The reason I don’t write about markets so much anymore is because I don’t believe there are markets any longer. Sure there are flashing prices on the screens for various assets and those can be addicting to look at on a daily basis, but I think these “markets” are now merely a mechanism for government propaganda and a method to ultimately fleece more money from the uniformed masses that play in it by the casino operators and their puppets in government. It’s basically a hologram. I have alluded to this in recent interviews, but I myself feel extremely uncomfortable being involved at this point in a way I have never felt before. For now, I am still willing to play the game with some of my own capital but I fear I may regret this decision and that the smart thing would be to pull out completely and go entirely into hard assets as well as real estate abroad. This game is not safe.
By definition, the longer the period of tension building the more explosive the release will be when it ultimately happens. This period has already been going on for almost five months with only minor releases so I think we are already staring down the barrel of something horrific. Should they actually succeed and delaying the release until after the election I expect the release scenario to be downright cataclysmic. Should they succeed to delay it that far I hope I am wise enough to pull the remainder of my assets out of this casino beforehand and get entirely physical.
http://www.zerohedge.com/news/michael-krieger-summarizes-building-tension
Keystone Aftermath Arrives: Canada Pledges To Sell Oil to Asia, As US Becomes Source of "Uncertainty"
From Zero Hedge:
America's loss is China's gain. In the aftermath of the Keystone XL fiasco, which will see not only a number of jobs "uncreated" but a natural source of crude lost, Canada is already planning next steps. Which will benefit Shanghai directly and immediately. As Bloomberg reports, "Prime Minister Stephen Harper, in a telephone call yesterday, told Obama “Canada will continue to work to diversify its energy exports,” according to details provided by Harper’s office. Canadian Natural Resource Minister Joe Oliver said relying less on the U.S. would help strengthen the country’s “financial security.” The “decision by the Obama administration underlines the importance of diversifying and expanding our markets, including the growing Asian market,” Oliver told reporters in Ottawa." Ironically, it is diversifying away from the US, with its ever soaring, politically-predicated uncertainty, that is a source of stability and diversification. But it is not only crude. Wonder why no jobs are being created? Wonder why despite record low mortgage rates there is no bottom in sight for housing? Simple - nobody can plan one month, let alone one year ahead for any US-based venture or business. The political risk is simply too great - whether it is contract law (see GM and Chrysler) or simple solvency (see record high levels of cash hoarded by companies), it is there, and as long as it is there, there will be no hiring, no capex spending, no growth, and no real improvement in the economy, the real economy, not that defined by where the Russell 2000 closes on any given day.
http://www.zerohedge.com/news/keystone-aftermath-arrives-canada-pledges-sell-oil-asia-us-becomes-source-uncertainty
America's loss is China's gain. In the aftermath of the Keystone XL fiasco, which will see not only a number of jobs "uncreated" but a natural source of crude lost, Canada is already planning next steps. Which will benefit Shanghai directly and immediately. As Bloomberg reports, "Prime Minister Stephen Harper, in a telephone call yesterday, told Obama “Canada will continue to work to diversify its energy exports,” according to details provided by Harper’s office. Canadian Natural Resource Minister Joe Oliver said relying less on the U.S. would help strengthen the country’s “financial security.” The “decision by the Obama administration underlines the importance of diversifying and expanding our markets, including the growing Asian market,” Oliver told reporters in Ottawa." Ironically, it is diversifying away from the US, with its ever soaring, politically-predicated uncertainty, that is a source of stability and diversification. But it is not only crude. Wonder why no jobs are being created? Wonder why despite record low mortgage rates there is no bottom in sight for housing? Simple - nobody can plan one month, let alone one year ahead for any US-based venture or business. The political risk is simply too great - whether it is contract law (see GM and Chrysler) or simple solvency (see record high levels of cash hoarded by companies), it is there, and as long as it is there, there will be no hiring, no capex spending, no growth, and no real improvement in the economy, the real economy, not that defined by where the Russell 2000 closes on any given day.
http://www.zerohedge.com/news/keystone-aftermath-arrives-canada-pledges-sell-oil-asia-us-becomes-source-uncertainty
Wednesday, January 18, 2012
World Bank Warns Emerging Nations
From the Financial Times:
Developing countries should take steps to plan for a global economic meltdown on a par with 2008-09 if the European sovereign debt crisis escalates, the World Bank warned on Wednesday in its latest economic forecasts.
Predicting significantly slower global growth in 2012 than it expected last summer even if the eurozone muddles through its crisis, World Bank economists said that if financial markets deny funds to eurozone economies, global growth would be about 4 percentage points lower than even these figures, with poorer economies far from immune.
Andrew Burns, head of macroeconomics at the Bank, told journalists in London: “Developing countries should hope for the best and prepare for the worst.”
Stressing the importance of contingency planning, he added: “An escalation of the crisis would spare no one. Developed and developing-country growth rates could fall by as much or more than in 2008-09.”
The world economy would find it much more difficult to grow out of a new economic crisis, the World Bank warned, because rich countries had little monetary or fiscal ammunition available to stem any vicious circle and poorer countries now have “much less abundant capital, less vibrant trade opportunities and weaker financial support for both private and public activity [than in 2009].”
http://www.ft.com/intl/cms/s/0/dc86e646-405b-11e1-9bce-00144feab49a.html#axzz1jr2u81gZ
Developing countries should take steps to plan for a global economic meltdown on a par with 2008-09 if the European sovereign debt crisis escalates, the World Bank warned on Wednesday in its latest economic forecasts.
Predicting significantly slower global growth in 2012 than it expected last summer even if the eurozone muddles through its crisis, World Bank economists said that if financial markets deny funds to eurozone economies, global growth would be about 4 percentage points lower than even these figures, with poorer economies far from immune.
Andrew Burns, head of macroeconomics at the Bank, told journalists in London: “Developing countries should hope for the best and prepare for the worst.”
Stressing the importance of contingency planning, he added: “An escalation of the crisis would spare no one. Developed and developing-country growth rates could fall by as much or more than in 2008-09.”
The world economy would find it much more difficult to grow out of a new economic crisis, the World Bank warned, because rich countries had little monetary or fiscal ammunition available to stem any vicious circle and poorer countries now have “much less abundant capital, less vibrant trade opportunities and weaker financial support for both private and public activity [than in 2009].”
http://www.ft.com/intl/cms/s/0/dc86e646-405b-11e1-9bce-00144feab49a.html#axzz1jr2u81gZ
China Brings US Treasury Holdings to One Year Low; Russia Cuts Treasury Exposure by 50% in One Year
From Zero Hedge:
Today's TIC data confirmed what Zero Hedge readers have now known for quite some time: namely that foreigners are selling US paper. And while we have used contemporaneous Custody Account data from the Fed to present that in the past 7 weeks foreigners have sold a record amount of bonds, we now get confirmation via TIC that in November the selling continued, especially at the biggest non-Fed holder of US paper, China, which saw its holdings down to $1,132.6 billion, the lowest in the past year. Yet where the selling is just relentless is in Russia, which has quite demonstratively slashed its US Treasury holdings in half in the past year from $176 billion to under $80 billion. Putin is not happy, and is not afraid to show it.
http://www.zerohedge.com/news/china-brings-us-treasury-holdings-one-year-low-russia-cuts-holdings-50-one-year
Today's TIC data confirmed what Zero Hedge readers have now known for quite some time: namely that foreigners are selling US paper. And while we have used contemporaneous Custody Account data from the Fed to present that in the past 7 weeks foreigners have sold a record amount of bonds, we now get confirmation via TIC that in November the selling continued, especially at the biggest non-Fed holder of US paper, China, which saw its holdings down to $1,132.6 billion, the lowest in the past year. Yet where the selling is just relentless is in Russia, which has quite demonstratively slashed its US Treasury holdings in half in the past year from $176 billion to under $80 billion. Putin is not happy, and is not afraid to show it.
http://www.zerohedge.com/news/china-brings-us-treasury-holdings-one-year-low-russia-cuts-holdings-50-one-year
Obama Considering Nominating Summers for World Bank
From Bloomberg:
President Barack Obama is considering nominating Lawrence Summers, his former National Economic Council director, to lead the World Bank when Robert Zoellick’s term expires later this year, according to two people familiar with the matter.
Summers has expressed interest in the job to White House officials and has backers inside the administration, including Treasury Secretary Timothy Geithner and current NEC Director Gene Sperling, said one of the people. Secretary of State Hillary Clinton is also being considered, along with other candidates, said the other person. Both spoke on condition of anonymity to discuss internal White House deliberations.
Lael Brainard, the Treasury undersecretary for international affairs, is compiling a list of potential candidates to replace Zoellick, who was nominated to a five-year term that began in July 2007 by then-President George W. Bush. By tradition, the U.S. president chooses the leader of the World Bank while the head of the International Monetary Fund is selected by European leaders. The nomination is subject to approval by the World Bank’s executive board.
http://www.bloomberg.com/news/2012-01-18/summers-under-consideration-to-lead-world-bank-when-zoellick-s-term-ends.html
President Barack Obama is considering nominating Lawrence Summers, his former National Economic Council director, to lead the World Bank when Robert Zoellick’s term expires later this year, according to two people familiar with the matter.
Summers has expressed interest in the job to White House officials and has backers inside the administration, including Treasury Secretary Timothy Geithner and current NEC Director Gene Sperling, said one of the people. Secretary of State Hillary Clinton is also being considered, along with other candidates, said the other person. Both spoke on condition of anonymity to discuss internal White House deliberations.
Lael Brainard, the Treasury undersecretary for international affairs, is compiling a list of potential candidates to replace Zoellick, who was nominated to a five-year term that began in July 2007 by then-President George W. Bush. By tradition, the U.S. president chooses the leader of the World Bank while the head of the International Monetary Fund is selected by European leaders. The nomination is subject to approval by the World Bank’s executive board.
http://www.bloomberg.com/news/2012-01-18/summers-under-consideration-to-lead-world-bank-when-zoellick-s-term-ends.html
Tuesday, January 17, 2012
Brandon Smith: Decentralization Is the Only Plausible Economic Solution Left
From Alt-Market:
The great lie that drives the fiat global financial locomotive forward is the assumption that there is no other way of doing things. Many in America believe that the U.S. dollar (a paper time-bomb ready to explode) is the only currency we have at our disposal. Many believe that the corporate trickle down dynamic is the only practical method for creating jobs. Numerous others have adopted the notion that global interdependency is a natural extension of “progress”, and that anyone who dares to contradict this fallacy is an “isolationist” or “extremist”. Much of our culture has been conditioned to support and defend centralization as necessary and inevitable primarily because they have never lived under any other system. Globalism has not made the world smaller; it has made our minds smaller.
By limiting choice, we limit ingenuity and imagination. By narrowing focus, we lose sight of the much bigger picture. This is the very purpose of the feudal framework; to erase individual and sovereign strength, stifle all new or honorable philosophies, and ensure the masses remain completely reliant on the establishment for their survival, forever tied to the rotting umbilical cord of a parasitic parent government.
http://www.alt-market.com/articles/521-decentralization-is-the-only-plausible-economic-solution-left
The great lie that drives the fiat global financial locomotive forward is the assumption that there is no other way of doing things. Many in America believe that the U.S. dollar (a paper time-bomb ready to explode) is the only currency we have at our disposal. Many believe that the corporate trickle down dynamic is the only practical method for creating jobs. Numerous others have adopted the notion that global interdependency is a natural extension of “progress”, and that anyone who dares to contradict this fallacy is an “isolationist” or “extremist”. Much of our culture has been conditioned to support and defend centralization as necessary and inevitable primarily because they have never lived under any other system. Globalism has not made the world smaller; it has made our minds smaller.
By limiting choice, we limit ingenuity and imagination. By narrowing focus, we lose sight of the much bigger picture. This is the very purpose of the feudal framework; to erase individual and sovereign strength, stifle all new or honorable philosophies, and ensure the masses remain completely reliant on the establishment for their survival, forever tied to the rotting umbilical cord of a parasitic parent government.
http://www.alt-market.com/articles/521-decentralization-is-the-only-plausible-economic-solution-left
$10 Trillion Liquidity Injection Coming? Credit Suisse Hunkers Down Ahead of the European Endgame
From Zero Hedge:
When yesterday we presented the view from CLSA's Chris Wood that the February 29 LTRO could be €1 Trillion (compared to under €500 billion for the December 21 iteration), we snickered, although we knew quite well that the market response, in stocks and gold, today would be precisely as has transpired. However, after reading the report by Credit Suisse's William Porter, we no longer assign a trivial probability to some ridiculous amount hitting the headlines early in the morning on February 29. Why? Because from this moment on, the market will no longer be preoccupied with a €1 trillion LTRO number as the potential headline, one which in itself would be sufficient to send the Euro tumbling, the USD surging, and provoking an immediate in kind response from the Fed. Instead, the new 'possible' number is just a "little" higher, which intuitively would make sense. After all both S&P and now Fitch expect Greece to default on March 20 (just to have the event somewhat "priced in"). Which means that in an attempt to front-run the unprecedented liquidity scramble that will certainly result as nobody has any idea what would happen should Greece default in an orderly fashion, let alone disorderly, the only buffer is having cash. Lots of it. A shock and awe liquidity firewall that will leave everyone stunned. How much. According to Credit Suisse the new LTRO number could be up to a gargantuan, and unprecedented, €10 TRILLION!
http://www.zerohedge.com/news/10-trillion-ltro-coming-credit-suisse-hunkers-down-ahead-european-endgame
When yesterday we presented the view from CLSA's Chris Wood that the February 29 LTRO could be €1 Trillion (compared to under €500 billion for the December 21 iteration), we snickered, although we knew quite well that the market response, in stocks and gold, today would be precisely as has transpired. However, after reading the report by Credit Suisse's William Porter, we no longer assign a trivial probability to some ridiculous amount hitting the headlines early in the morning on February 29. Why? Because from this moment on, the market will no longer be preoccupied with a €1 trillion LTRO number as the potential headline, one which in itself would be sufficient to send the Euro tumbling, the USD surging, and provoking an immediate in kind response from the Fed. Instead, the new 'possible' number is just a "little" higher, which intuitively would make sense. After all both S&P and now Fitch expect Greece to default on March 20 (just to have the event somewhat "priced in"). Which means that in an attempt to front-run the unprecedented liquidity scramble that will certainly result as nobody has any idea what would happen should Greece default in an orderly fashion, let alone disorderly, the only buffer is having cash. Lots of it. A shock and awe liquidity firewall that will leave everyone stunned. How much. According to Credit Suisse the new LTRO number could be up to a gargantuan, and unprecedented, €10 TRILLION!
http://www.zerohedge.com/news/10-trillion-ltro-coming-credit-suisse-hunkers-down-ahead-european-endgame
The Rise Of Activist Sovereign Hedge Funds, the "Subordination" Spectre, And the Real "Coercive" Restructuring Threat
From Zero Hedge:
When Zero Hedge correctly predicted the imminent rise of the "activist sovereign hedge fund" phenomenon first back in June 2011 (also predicting that the "the drama is about to get very, very real") few listened... except of course the hedge funds, such as Saba, York, Marathon, and others, which realized the unprecedented upside potential in such "nuisance value", long known to all distressed debt investors who procure hold out stakes, and quietly built up blocking positions in European sovereign bonds at sub-liquidation prices. Based on a just released IFRE report, the bulk of this buying occurred in Q4, when banks were dumping positions, promptly vacuumed up by hedge funds. More importantly, we learn from IFRE's post mortem of what is only now being comprehended by the market as having happened, is the realization that the terms "voluntary" and "collective action clauses" end up having the same impact as a retailer (Sears) warning about liquidity (and the result being the start of the death clock, with such catalysts as CIT pulling vendor financing only reinforcing this) to get the vultures circling and picking up the pieces that nobody else desires. As a reminder, it was again back in June we predicted that "the key phrase (or two) in the proposed package: "Voluntary" and "Collective Action Clauses"." Why? Because what this does is unleash the prospect of yet another word, which is about to become one of the most overused in the dilettante financial journalist's lingo: "subordination" or the tranching of an existing equal class of bonds (pari passu) into two distinct subsets, trading at different prices, and possessing different investor protections (we use the term very loosely) with the result being an even greater demand destruction for sovereign paper.
http://www.zerohedge.com/news/rise-activist-sovereign-hedge-funds-subordination-spectre-and-real-coercive-restructuring-threa
When Zero Hedge correctly predicted the imminent rise of the "activist sovereign hedge fund" phenomenon first back in June 2011 (also predicting that the "the drama is about to get very, very real") few listened... except of course the hedge funds, such as Saba, York, Marathon, and others, which realized the unprecedented upside potential in such "nuisance value", long known to all distressed debt investors who procure hold out stakes, and quietly built up blocking positions in European sovereign bonds at sub-liquidation prices. Based on a just released IFRE report, the bulk of this buying occurred in Q4, when banks were dumping positions, promptly vacuumed up by hedge funds. More importantly, we learn from IFRE's post mortem of what is only now being comprehended by the market as having happened, is the realization that the terms "voluntary" and "collective action clauses" end up having the same impact as a retailer (Sears) warning about liquidity (and the result being the start of the death clock, with such catalysts as CIT pulling vendor financing only reinforcing this) to get the vultures circling and picking up the pieces that nobody else desires. As a reminder, it was again back in June we predicted that "the key phrase (or two) in the proposed package: "Voluntary" and "Collective Action Clauses"." Why? Because what this does is unleash the prospect of yet another word, which is about to become one of the most overused in the dilettante financial journalist's lingo: "subordination" or the tranching of an existing equal class of bonds (pari passu) into two distinct subsets, trading at different prices, and possessing different investor protections (we use the term very loosely) with the result being an even greater demand destruction for sovereign paper.
http://www.zerohedge.com/news/rise-activist-sovereign-hedge-funds-subordination-spectre-and-real-coercive-restructuring-threa
Monday, January 16, 2012
Greek Default Fears Grew
From Reuters over Yahoo Finance:
Greece sent senior officials to Washington on Monday for meetings with the International Monetary Fund as it raced against the clock to break a deadlock in debt swap talks that has raised fears of an unruly default.
Barely a month after an injection of bailout funds helped avert bankruptcy, Greece is back at the centre of the euro zone crisis as fears of a default and a subsequent euro zone exit overshadow a mass credit downgrade of euro zone countries.
Cash-strapped Athens needs a deal with the private sector within days to avoid going bankrupt when 14.5 billion euros of bond redemptions fall due in late March.
But Athens is quickly running out of time on the bond swap front. A deal must be sealed before senior inspectors from the EU, IMF and ECB "troika" arrive in Athens at the end of the week to agree details of a second, 130-billion-euro bailout.
Furthermore, an agreement in principle is needed by the end of this week if it is to be finalized in time for the March bond redemptions, Charles Dallara, head of the Institute of International Finance who represents Greece's private creditors, told the Financial Times.
Banking sources say Athens is not the problem in the talks, pointing the finger at terms insisted on by the so-called troika of EU, ECB and IMF lenders keeping Greece afloat with aid.
In a bid to resolve the impasse, a government source said the head of Greece's debt agency and a senior adviser were travelling on Monday to Washington to meet IMF officials - just a day before a team of technical experts from the troika arrives in the Greek capital.
One banking source said official sector creditors had asked for a coupon of less than 4 percent, irking banks for whom it would have meant losses of over 75 percent on the bonds.
A second source involved in the discussions said the troika had pushed for a coupon of 2 to 3 percent that banks deemed unacceptable, below the 4 percent level that Greece and France proposed. Banks considered a 4 to 5 percent coupon sustainable for Greece, the source said.
Without a more palatable offer, the level of participation among private creditors could slip to below the level needed to ensure the deal is considered voluntary, the source said.
http://finance.yahoo.com/news/greece-dispatches-officials-u-default-161722585.html?l=1
Greece sent senior officials to Washington on Monday for meetings with the International Monetary Fund as it raced against the clock to break a deadlock in debt swap talks that has raised fears of an unruly default.
Barely a month after an injection of bailout funds helped avert bankruptcy, Greece is back at the centre of the euro zone crisis as fears of a default and a subsequent euro zone exit overshadow a mass credit downgrade of euro zone countries.
Cash-strapped Athens needs a deal with the private sector within days to avoid going bankrupt when 14.5 billion euros of bond redemptions fall due in late March.
But Athens is quickly running out of time on the bond swap front. A deal must be sealed before senior inspectors from the EU, IMF and ECB "troika" arrive in Athens at the end of the week to agree details of a second, 130-billion-euro bailout.
Furthermore, an agreement in principle is needed by the end of this week if it is to be finalized in time for the March bond redemptions, Charles Dallara, head of the Institute of International Finance who represents Greece's private creditors, told the Financial Times.
Banking sources say Athens is not the problem in the talks, pointing the finger at terms insisted on by the so-called troika of EU, ECB and IMF lenders keeping Greece afloat with aid.
In a bid to resolve the impasse, a government source said the head of Greece's debt agency and a senior adviser were travelling on Monday to Washington to meet IMF officials - just a day before a team of technical experts from the troika arrives in the Greek capital.
One banking source said official sector creditors had asked for a coupon of less than 4 percent, irking banks for whom it would have meant losses of over 75 percent on the bonds.
A second source involved in the discussions said the troika had pushed for a coupon of 2 to 3 percent that banks deemed unacceptable, below the 4 percent level that Greece and France proposed. Banks considered a 4 to 5 percent coupon sustainable for Greece, the source said.
Without a more palatable offer, the level of participation among private creditors could slip to below the level needed to ensure the deal is considered voluntary, the source said.
http://finance.yahoo.com/news/greece-dispatches-officials-u-default-161722585.html?l=1
Portugal Downgraded to Junk: Bond Yields Rise Sharply
From the Wall Street Journal:
Portuguese borrowing costs rose sharply Monday as some investors were forced to sell their government bond holdings after Standard and Poor's Corp. downgraded the country to junk status late Friday.
Portugal is now rated as non-investment grade by all three major rating companies. Moody's rates the country at Ba2, Fitch at BB+ and Standard and Poor's at BB.
Non-investment, or junk, bonds have an increased risk of default and pay a higher yield than investment grade bonds to compensate investors for holding the extra risk.
The yield on the two-year and five-year government bonds rose in excess of two percentage points Monday to yield 13.49% and 16.80%, respectively, while the 10-year benchmark rose by just over one and a half percentage points to yield 13.55%, according to data from Tradeweb.
"Now that Portugal is rated as junk by all three agencies, there is forced selling by investors as it [Portugal] is removed from various bond indices and funds," noted one trader familiar with the matter. "It doesn't help that the markets are thin due to the U.S. holiday which makes price movements even more erratic."
Investors are also worried that Portugal may have to follow Greece and re-structure their government debts as they are unable to access the funding market.
The spread between Portugal's government bonds and German bunds hit record levels Monday with the 10-year spread widening by over one and a half percentage points to 1225 basis points.
http://online.wsj.com/article/BT-CO-20120116-705871.html
Portuguese borrowing costs rose sharply Monday as some investors were forced to sell their government bond holdings after Standard and Poor's Corp. downgraded the country to junk status late Friday.
Portugal is now rated as non-investment grade by all three major rating companies. Moody's rates the country at Ba2, Fitch at BB+ and Standard and Poor's at BB.
Non-investment, or junk, bonds have an increased risk of default and pay a higher yield than investment grade bonds to compensate investors for holding the extra risk.
The yield on the two-year and five-year government bonds rose in excess of two percentage points Monday to yield 13.49% and 16.80%, respectively, while the 10-year benchmark rose by just over one and a half percentage points to yield 13.55%, according to data from Tradeweb.
"Now that Portugal is rated as junk by all three agencies, there is forced selling by investors as it [Portugal] is removed from various bond indices and funds," noted one trader familiar with the matter. "It doesn't help that the markets are thin due to the U.S. holiday which makes price movements even more erratic."
Investors are also worried that Portugal may have to follow Greece and re-structure their government debts as they are unable to access the funding market.
The spread between Portugal's government bonds and German bunds hit record levels Monday with the 10-year spread widening by over one and a half percentage points to 1225 basis points.
http://online.wsj.com/article/BT-CO-20120116-705871.html
Korean Workers’ Wage Gap Hit Highest Level in 2011
From Yonhap:
The gap between workers in the highest and lowest wage brackets hit its widest margin ever last year, a labor research institute said Sunday, pointing to the country's increasing wage polarization.
Last year, the country's highest wage bracket representing the top 20 percent of wage earners took home 5.4 times the salary received by the lowest bracket representing the bottom 10 percent, the Korea Labor Institute said.
http://english.yonhapnews.co.kr/news/2012/01/15/0200000000AEN20120115001300315.HTML
The gap between workers in the highest and lowest wage brackets hit its widest margin ever last year, a labor research institute said Sunday, pointing to the country's increasing wage polarization.
Last year, the country's highest wage bracket representing the top 20 percent of wage earners took home 5.4 times the salary received by the lowest bracket representing the bottom 10 percent, the Korea Labor Institute said.
http://english.yonhapnews.co.kr/news/2012/01/15/0200000000AEN20120115001300315.HTML
Sunday, January 15, 2012
Saturday, January 14, 2012
Jeffrey Sachs: The Price of Civilization
From Jesse’s Café:
At the root of America's economic crisis lies a moral crisis: the decline of civic virtue among America's political and economic elite. A society of markets, laws, and elections is not enough if the rich and powerful fail to behave with respect, honesty, and compassion toward the rest of society and toward the world. America has developed the world's most competitive market society but has squandered its civic virtue along the way. Without restoring an ethos of social responsibility, there can be no meaningful and sustained economic recovery.
I find myself deeply surprised and unnerved to have to write this book. During most of my forty years in economics I have assumed that America, with its great wealth, depth of learning, advanced technologies, and democratic institutions, would reliably find its way to social betterment. I decided early on in my career to devote my energies to the economic challenges abroad, where I felt the economic problems were more acute and in need of attention. Now I am worried about my own country. The economic crisis of recent years reflects a deep, threatening, and ongoing deterioration of our national politics and culture of power.
The crisis, I will argue, developed gradually over the course of several decades. We are not facing a short-term business cycle downturn, but the working out of long-term social, political, and economic trends. The crisis, in many ways, is the culmination of an era-the baby boomer era- rather than of particular policies or presidents. It is also a bipartisan affair: both Democrats and Republicans have played their part in deepening the crisis.
http://jessescrossroadscafe.blogspot.com/2012/01/sachs-price-of-civilization.html
At the root of America's economic crisis lies a moral crisis: the decline of civic virtue among America's political and economic elite. A society of markets, laws, and elections is not enough if the rich and powerful fail to behave with respect, honesty, and compassion toward the rest of society and toward the world. America has developed the world's most competitive market society but has squandered its civic virtue along the way. Without restoring an ethos of social responsibility, there can be no meaningful and sustained economic recovery.
I find myself deeply surprised and unnerved to have to write this book. During most of my forty years in economics I have assumed that America, with its great wealth, depth of learning, advanced technologies, and democratic institutions, would reliably find its way to social betterment. I decided early on in my career to devote my energies to the economic challenges abroad, where I felt the economic problems were more acute and in need of attention. Now I am worried about my own country. The economic crisis of recent years reflects a deep, threatening, and ongoing deterioration of our national politics and culture of power.
The crisis, I will argue, developed gradually over the course of several decades. We are not facing a short-term business cycle downturn, but the working out of long-term social, political, and economic trends. The crisis, in many ways, is the culmination of an era-the baby boomer era- rather than of particular policies or presidents. It is also a bipartisan affair: both Democrats and Republicans have played their part in deepening the crisis.
http://jessescrossroadscafe.blogspot.com/2012/01/sachs-price-of-civilization.html
Wolf Richter: Greece – Disagreement Everywhere, Rift in the Troika
From Testosterone Pit:
Austerity measures are taking their daily toll on Greece. Suicides and attempted suicides have jumped by 22.5% since 2009. The unemployment rate rose to 18.2%. RTL, the largest radio network in Europe, lost 50% of its advertising revenues in Greece since the start of the crisis—and decided to leave. And now pharmacies are having difficulties obtaining medications.
Yet more cuts are coming. To impose them, Prime Minister Lucas Papademos even threatened private sector unions (and everyone else) with the nuclear option—disorderly default.
But now the Troika itself is in disarray. It surfaced today at an IMF press briefing in Washington: the IMF no longer supports austerity as a guiding principle.
Mid March, Greece will either default or receive the next bailout tranche. Its economy is in shambles, its society in turmoil, and its finances ruined. There are no easy solutions. Every move is painful. And someone has to pay.
http://www.testosteronepit.com/home/2012/1/12/greece-disagreement-everywhere-rift-in-the-troika.html
Austerity measures are taking their daily toll on Greece. Suicides and attempted suicides have jumped by 22.5% since 2009. The unemployment rate rose to 18.2%. RTL, the largest radio network in Europe, lost 50% of its advertising revenues in Greece since the start of the crisis—and decided to leave. And now pharmacies are having difficulties obtaining medications.
Yet more cuts are coming. To impose them, Prime Minister Lucas Papademos even threatened private sector unions (and everyone else) with the nuclear option—disorderly default.
But now the Troika itself is in disarray. It surfaced today at an IMF press briefing in Washington: the IMF no longer supports austerity as a guiding principle.
Mid March, Greece will either default or receive the next bailout tranche. Its economy is in shambles, its society in turmoil, and its finances ruined. There are no easy solutions. Every move is painful. And someone has to pay.
http://www.testosteronepit.com/home/2012/1/12/greece-disagreement-everywhere-rift-in-the-troika.html
Q4 Spanish Unemployment Soars By Most Since Lehman, Hitting 23.4%
From Zero Hedge:
For anyone convinced that yesterday's S&P two notch downgrade of Spain to A is the last one for a while, we have some bad news: in Q4 Spanish unemployment soared by the most since the Lehman collapse, hitting what new PM Mariano Rajoy called an "astronomical" 5.4 million. This compares to 4.978 million people unemployed at the end of Q3 2011. Since the official number is not yet public and will be released on January 27 we will take his word for it. In which case it becomes clear that in Q4 the Spanish economy experienced a Lehman-like collapse, losing more than 400K people, or the most since the bankruptcy of Lehman brothers. In percentage terms this means that Spanish unemployment rose by a ridiculous 2%, or from 21.5% to 23.3%, in one quarter! And since Spain is a country of the Keynesian persuasion, we can only assume the number includes a whole bunch of meaningless birth/death and seasonal adjustments, but we'll leave it at that. Incidentally, it means that by the time the mean reversion exercise, with cost-cutting and what not is complete, Spanish unemployment will be well north of 30%, and 2 out of 3 people aged between 16 and 25 will be out of a job, if ot more. It also begs the question just what the real unemployment picture in the US, which lately has put the Chinese Department of Truth to shame, would be if reported on a realistic, unadjusted, and not "workforce contracted" basis. The chart below shows you everything you need to know.
http://www.zerohedge.com/news/q4-spanish-unemployment-soars-most-lehman-hits-astronomical-233
For anyone convinced that yesterday's S&P two notch downgrade of Spain to A is the last one for a while, we have some bad news: in Q4 Spanish unemployment soared by the most since the Lehman collapse, hitting what new PM Mariano Rajoy called an "astronomical" 5.4 million. This compares to 4.978 million people unemployed at the end of Q3 2011. Since the official number is not yet public and will be released on January 27 we will take his word for it. In which case it becomes clear that in Q4 the Spanish economy experienced a Lehman-like collapse, losing more than 400K people, or the most since the bankruptcy of Lehman brothers. In percentage terms this means that Spanish unemployment rose by a ridiculous 2%, or from 21.5% to 23.3%, in one quarter! And since Spain is a country of the Keynesian persuasion, we can only assume the number includes a whole bunch of meaningless birth/death and seasonal adjustments, but we'll leave it at that. Incidentally, it means that by the time the mean reversion exercise, with cost-cutting and what not is complete, Spanish unemployment will be well north of 30%, and 2 out of 3 people aged between 16 and 25 will be out of a job, if ot more. It also begs the question just what the real unemployment picture in the US, which lately has put the Chinese Department of Truth to shame, would be if reported on a realistic, unadjusted, and not "workforce contracted" basis. The chart below shows you everything you need to know.
http://www.zerohedge.com/news/q4-spanish-unemployment-soars-most-lehman-hits-astronomical-233
S&P Downgraded 9 Eurozone Nations; Euro-Zone Policies Have Fallen Short
From CNN:
Standard & Poor's said Friday that it has downgraded the credit ratings of nine euro area governments, including AAA-rated France and Austria.
S&P lowered its rating for Italy, Spain, Portugal and Cyprus by two notches. The move means Italian bonds are now rated BBB+, dangerously close to the junk bond level that could make it even harder for the government to raise money.
France and Austria both had their top-tier credit rating lowered by one notch to AA+, said S&P. But Germany, Finland, the Netherlands and Luxembourg all maintained their AAA ratings.
S&P cut the ratings of Malta, Slovakia and Slovenia by one notch.
Specifically, the agency pointed to weakening economies, tightening credit conditions across the eurozone, rising interest rates for a growing number of nations and the "deleveraging" of both governments and households.
http://money.cnn.com/2012/01/13/markets/sandp_europe_downgrade/index.htm?hpt=hp_t1
From MarketWatch:
Standard & Poor’s credit analysts said Saturday that Euro-zone policy makers have failed to address the “broadening and deepening” financial crisis the region now faces, leading the agency to issue long-term downgrades on nine countries, including Cyprus, Italy, Portugal, Spain, Austria, France, Malta, Slovakia and Slovenia.
Perhaps most notably among the cuts late Friday, S&P downgraded France and Austria to AA+ from AAA, leaving only Germany, Netherlands, Finland and Luxembourg left as AAA-rated countries in the currency group. Portugal and Cyprus were downgraded to junk-bond status.
During a conference call Saturday morning, S&P credit analyst Moritz Kraemer said policymakers have yet to come up with solutions to the “systemic stresses” that plague Euro-zone nations during its debt crisis.
Among these problems, he said, are tightening credit conditions; weakening prospects for economic growth in the region; and continued disagreement among government officials over how the situation should be addressed.
http://www.marketwatch.com/story/euro-zone-policies-have-fallen-short-sp-2012-01-14?siteid=rss&rss=1
Standard & Poor's said Friday that it has downgraded the credit ratings of nine euro area governments, including AAA-rated France and Austria.
S&P lowered its rating for Italy, Spain, Portugal and Cyprus by two notches. The move means Italian bonds are now rated BBB+, dangerously close to the junk bond level that could make it even harder for the government to raise money.
France and Austria both had their top-tier credit rating lowered by one notch to AA+, said S&P. But Germany, Finland, the Netherlands and Luxembourg all maintained their AAA ratings.
S&P cut the ratings of Malta, Slovakia and Slovenia by one notch.
Specifically, the agency pointed to weakening economies, tightening credit conditions across the eurozone, rising interest rates for a growing number of nations and the "deleveraging" of both governments and households.
http://money.cnn.com/2012/01/13/markets/sandp_europe_downgrade/index.htm?hpt=hp_t1
From MarketWatch:
Standard & Poor’s credit analysts said Saturday that Euro-zone policy makers have failed to address the “broadening and deepening” financial crisis the region now faces, leading the agency to issue long-term downgrades on nine countries, including Cyprus, Italy, Portugal, Spain, Austria, France, Malta, Slovakia and Slovenia.
Perhaps most notably among the cuts late Friday, S&P downgraded France and Austria to AA+ from AAA, leaving only Germany, Netherlands, Finland and Luxembourg left as AAA-rated countries in the currency group. Portugal and Cyprus were downgraded to junk-bond status.
During a conference call Saturday morning, S&P credit analyst Moritz Kraemer said policymakers have yet to come up with solutions to the “systemic stresses” that plague Euro-zone nations during its debt crisis.
Among these problems, he said, are tightening credit conditions; weakening prospects for economic growth in the region; and continued disagreement among government officials over how the situation should be addressed.
http://www.marketwatch.com/story/euro-zone-policies-have-fallen-short-sp-2012-01-14?siteid=rss&rss=1
Thursday, January 12, 2012
Wolf Richter: When the White House Touts Falling Wages
This article presents several issues I have discussed on this blog.
From Testosterone Pit
150 factory workers in China threatened to jump off the roof of an iPhone factory unless they received a raise. Similar stories are accumulating. Inflation, especially in food and other essentials, has been rampant over the last few years—and to make ends meet, desperate workers sometimes take drastic measures. These anecdotes underscore a major trend in China: skyrocketing cost of labor.
In the US, it’s the opposite. Since 2000, real wages (adjusted for inflation) have declined. The White House even touts this horrid statistic in its just released paper, Investing in America: Building an Economy That Lasts. Clearly, the paper is not intended for the rank and file. It outlines how current policies are making America competitive with low-wage countries like China. And one of the principal strategies is ... lowering wages:
The paper also touts the administration’s claim of having created 3.2 million jobs over the last 22 months. But these numbers are based on surveys, formulas, and statistical adjustments. The BLS’s Employment Participation rate, which the paper wisely leaves unmentioned, measures the percentage of people age 16 and older who have jobs. It’s the least corruptible employment number available—and at 58.5%, it's where it was in 1983.
The long decline from 64.7% (April 2000) parallels another statistic in the paper: from 2001 - 2007, three million manufacturing jobs were lost. Those were the Bush years, obviously. But what happened during the Obama years? Unmentioned, but just as bad.
So the net of outsourcing and insourcing among large companies still favors outsourcing. But under certain circumstances and on a small scale, companies might try to insource. And that is a step in the right direction.
Smaller companies face different dynamics. It has always been expensive, difficult, and risky for them to offshore production. Many have done it, lured by cheap wages, only to learn costly lessons. And now anecdotal evidence is piling up that they’re having second thoughts. The paper lists KEEN, a footwear maker, and Master Lock as examples of companies that have brought back jobs. I personally know one consumer products company that shut down its manufacturing operations in China and relocated production back to the US (though it still operates plants in other parts of the world). And this is a trend that will likely accelerate.
But low-wage countries will continue to draw jobs away from the US. The numbers couldn’t be clearer: in 2011, the trade deficit with China hit another record north of $320 billion. So taking credit for a wave of ‘insourcing’ from China, as the paper does, has an aura of political grandstanding.
But you can't blame the Chinese. They're trying hard to get into the circle of developed countries.
http://www.testosteronepit.com/home/2012/1/11/when-the-white-house-touts-falling-wages.html
From Testosterone Pit
150 factory workers in China threatened to jump off the roof of an iPhone factory unless they received a raise. Similar stories are accumulating. Inflation, especially in food and other essentials, has been rampant over the last few years—and to make ends meet, desperate workers sometimes take drastic measures. These anecdotes underscore a major trend in China: skyrocketing cost of labor.
In the US, it’s the opposite. Since 2000, real wages (adjusted for inflation) have declined. The White House even touts this horrid statistic in its just released paper, Investing in America: Building an Economy That Lasts. Clearly, the paper is not intended for the rank and file. It outlines how current policies are making America competitive with low-wage countries like China. And one of the principal strategies is ... lowering wages:
The paper also touts the administration’s claim of having created 3.2 million jobs over the last 22 months. But these numbers are based on surveys, formulas, and statistical adjustments. The BLS’s Employment Participation rate, which the paper wisely leaves unmentioned, measures the percentage of people age 16 and older who have jobs. It’s the least corruptible employment number available—and at 58.5%, it's where it was in 1983.
The long decline from 64.7% (April 2000) parallels another statistic in the paper: from 2001 - 2007, three million manufacturing jobs were lost. Those were the Bush years, obviously. But what happened during the Obama years? Unmentioned, but just as bad.
So the net of outsourcing and insourcing among large companies still favors outsourcing. But under certain circumstances and on a small scale, companies might try to insource. And that is a step in the right direction.
Smaller companies face different dynamics. It has always been expensive, difficult, and risky for them to offshore production. Many have done it, lured by cheap wages, only to learn costly lessons. And now anecdotal evidence is piling up that they’re having second thoughts. The paper lists KEEN, a footwear maker, and Master Lock as examples of companies that have brought back jobs. I personally know one consumer products company that shut down its manufacturing operations in China and relocated production back to the US (though it still operates plants in other parts of the world). And this is a trend that will likely accelerate.
But low-wage countries will continue to draw jobs away from the US. The numbers couldn’t be clearer: in 2011, the trade deficit with China hit another record north of $320 billion. So taking credit for a wave of ‘insourcing’ from China, as the paper does, has an aura of political grandstanding.
But you can't blame the Chinese. They're trying hard to get into the circle of developed countries.
http://www.testosteronepit.com/home/2012/1/11/when-the-white-house-touts-falling-wages.html
Societe Generale: China Entering the Danger Zone: Four Critical Themes
From Zero Hedge:
As both anecdotal, local and hard evidence of China's slowing (and potential hard landing) arrive day after day, it is clear that China's two main pillars of strength (drivers of growth), construction and exports, are weakening. As Societe Generale's Cross Asset Research group points out, China is entering the danger zone and warns that given China's local government debt burden and large ongoing deficits, a large-scale stimulus plan similar to 2008 is very unlikely, especially given a belief that Beijing has lost some control of monetary policy to the shadow banking system. In a comprehensive presentation, the French bank identifies four critical themes which provide significant stress (and opportunity): China's economic rebalancing efforts, a rapidly aging population and healthcare costs, wage inflation and concomitant automation, and pollution and energy efficiency. Their trade preferences bias to the benefits and costs of these themes being short infrastructure/mining names and long automation/energy efficiency names.
They detail their concerns about the Chinese economic outlook (weakening exports, housing bubble about to burst, local government's debt burden, and large shadow banking system), and show that China has no choice but to transition to a more consumption-driven economy leading to waning growth for infrastructure-related capital goods and greater demand for consumer-related manufacturing. Overall they see a hard-landing becoming more likely.
http://www.zerohedge.com/news/china-enters-danger-zone-socgen-presents-four-critical-themes
As both anecdotal, local and hard evidence of China's slowing (and potential hard landing) arrive day after day, it is clear that China's two main pillars of strength (drivers of growth), construction and exports, are weakening. As Societe Generale's Cross Asset Research group points out, China is entering the danger zone and warns that given China's local government debt burden and large ongoing deficits, a large-scale stimulus plan similar to 2008 is very unlikely, especially given a belief that Beijing has lost some control of monetary policy to the shadow banking system. In a comprehensive presentation, the French bank identifies four critical themes which provide significant stress (and opportunity): China's economic rebalancing efforts, a rapidly aging population and healthcare costs, wage inflation and concomitant automation, and pollution and energy efficiency. Their trade preferences bias to the benefits and costs of these themes being short infrastructure/mining names and long automation/energy efficiency names.
They detail their concerns about the Chinese economic outlook (weakening exports, housing bubble about to burst, local government's debt burden, and large shadow banking system), and show that China has no choice but to transition to a more consumption-driven economy leading to waning growth for infrastructure-related capital goods and greater demand for consumer-related manufacturing. Overall they see a hard-landing becoming more likely.
http://www.zerohedge.com/news/china-enters-danger-zone-socgen-presents-four-critical-themes
Wednesday, January 11, 2012
Foxconn Workers at Apple Factory Threaten with Mass Suicide Re Their Working conditions
From Telegraph:
Around 150 Chinese workers at Foxconn, the world's largest electronics manufacturer, threatened to commit suicide by leaping from their factory roof in protest at their working conditions.
The workers were eventually coaxed down after two days on top of their three-floor plant in Wuhan by Foxconn managers and local Chinese Communist party officials.
Foxconn, which manufactures gadgets for the likes of Apple, Sony, Nintendo and HP, among many others, has had a grim history of suicides at its factories. A suicide cluster in 2010 saw 18 workers throw themselves from the tops of the company's buildings, with 14 deaths.
"We were put to work without any training, and paid piecemeal," said one of the protesting workers, who asked not to be named. "The assembly line ran very fast and after just one morning we all had blisters and the skin on our hand was black. The factory was also really choked with dust and no one could bear it," he said.
Several reports from inside Foxconn factories have suggested that while the company is more advanced than many of its competitors, it is run in a "military" fashion that many workers cannot cope with. At Foxconn's flagship plant in Longhua, five per cent of its workers, or 24,000 people, quit every month.
http://www.telegraph.co.uk/news/worldnews/asia/china/9006988/Mass-suicide-protest-at-Apple-manufacturer-Foxconn-factory.html
Around 150 Chinese workers at Foxconn, the world's largest electronics manufacturer, threatened to commit suicide by leaping from their factory roof in protest at their working conditions.
The workers were eventually coaxed down after two days on top of their three-floor plant in Wuhan by Foxconn managers and local Chinese Communist party officials.
Foxconn, which manufactures gadgets for the likes of Apple, Sony, Nintendo and HP, among many others, has had a grim history of suicides at its factories. A suicide cluster in 2010 saw 18 workers throw themselves from the tops of the company's buildings, with 14 deaths.
"We were put to work without any training, and paid piecemeal," said one of the protesting workers, who asked not to be named. "The assembly line ran very fast and after just one morning we all had blisters and the skin on our hand was black. The factory was also really choked with dust and no one could bear it," he said.
Several reports from inside Foxconn factories have suggested that while the company is more advanced than many of its competitors, it is run in a "military" fashion that many workers cannot cope with. At Foxconn's flagship plant in Longhua, five per cent of its workers, or 24,000 people, quit every month.
http://www.telegraph.co.uk/news/worldnews/asia/china/9006988/Mass-suicide-protest-at-Apple-manufacturer-Foxconn-factory.html
China’s Gold Imports from Hong Kong Surge to Highest Ever? – PBOC Buying?
From GoldCore:
The run into Chinese Lunar New Year has again seen higher than expected Chinese demand for gold and China's voracious appetite for gold is surprising even analysts who are positive about gold.
As Chinese people's disposable incomes gain and concerns grow over inflation and equity and property markets, Chinese consumers and investors are turning to gold as a long term investment hedge.
There is informed speculation that commercial Chinese banks may have taken advantage of the recent price dip to build stocks of coins and bars and accumulate bullion.
China's demand for physical gold bullion has rocketed past India with the country now overtaking India in the third quarter as the largest gold jewellery market according to the World Gold Council.
There is also informed speculation that some of the buying was from the People's Bank of China with one analyst telling Bloomberg that “there is always the possibility that some purchases were made by the central bank.”
http://www.goldcore.com/goldcore_blog/chinas-gold-imports-hong-kong-surge-highest-ever%E2%80%8E
The run into Chinese Lunar New Year has again seen higher than expected Chinese demand for gold and China's voracious appetite for gold is surprising even analysts who are positive about gold.
As Chinese people's disposable incomes gain and concerns grow over inflation and equity and property markets, Chinese consumers and investors are turning to gold as a long term investment hedge.
There is informed speculation that commercial Chinese banks may have taken advantage of the recent price dip to build stocks of coins and bars and accumulate bullion.
China's demand for physical gold bullion has rocketed past India with the country now overtaking India in the third quarter as the largest gold jewellery market according to the World Gold Council.
There is also informed speculation that some of the buying was from the People's Bank of China with one analyst telling Bloomberg that “there is always the possibility that some purchases were made by the central bank.”
http://www.goldcore.com/goldcore_blog/chinas-gold-imports-hong-kong-surge-highest-ever%E2%80%8E
China’s Debt Maturity Problem Has Arrived
From Zero Hedge:
We have discussed the seemingly irrepressible demand to lend companies money (for the implicit FX trade) in Dim Sum bond format a number of times and in the last few weeks yields on these bonds have risen further as the reality of a notable contraction in mainland credit conditions (along with a rationalization of the lax restrictions within the bonds themselves) starts to hit investors. Overnight, Bloomberg reports that Shandong Helon, a Chinese fiber maker and the first to lose its investment-grade rating (fallen angel), missed a 397mm Yuan loan payment, only serving to further stoke fears of the knock-on effects of a slowing Chinese economy dragged lower by global growth fears (except for the US which is off in faerie land), as ratings downgrades surged last year. Incredibly, no Chinese company has defaulted on its domestic debt since the country's central bank started regulating the market in 1997, according to Moody's but as Bloomberg notes, there is some 2 trillion yuan of bank facilities set to mature in 2012, compared to 33 billion yuan of bonds - leaving a very crowded-out market of shorter-dated debt rolls soaking up what little credit is willingly available. With Dim-Sum bond yields (based on our index of sizable issues) up over 30% (80bps) from early September and European-based USD strength slowing any CNY-FX decay these holders hoped for, we agree with Gao Zhanjan (of Citic Securities), via Bloomberg, that "there will slowly be more substantive defaults in the future".
http://www.zerohedge.com/news/chinas-debt-maturity-problem-has-arrived
We have discussed the seemingly irrepressible demand to lend companies money (for the implicit FX trade) in Dim Sum bond format a number of times and in the last few weeks yields on these bonds have risen further as the reality of a notable contraction in mainland credit conditions (along with a rationalization of the lax restrictions within the bonds themselves) starts to hit investors. Overnight, Bloomberg reports that Shandong Helon, a Chinese fiber maker and the first to lose its investment-grade rating (fallen angel), missed a 397mm Yuan loan payment, only serving to further stoke fears of the knock-on effects of a slowing Chinese economy dragged lower by global growth fears (except for the US which is off in faerie land), as ratings downgrades surged last year. Incredibly, no Chinese company has defaulted on its domestic debt since the country's central bank started regulating the market in 1997, according to Moody's but as Bloomberg notes, there is some 2 trillion yuan of bank facilities set to mature in 2012, compared to 33 billion yuan of bonds - leaving a very crowded-out market of shorter-dated debt rolls soaking up what little credit is willingly available. With Dim-Sum bond yields (based on our index of sizable issues) up over 30% (80bps) from early September and European-based USD strength slowing any CNY-FX decay these holders hoped for, we agree with Gao Zhanjan (of Citic Securities), via Bloomberg, that "there will slowly be more substantive defaults in the future".
http://www.zerohedge.com/news/chinas-debt-maturity-problem-has-arrived
Any North Koreans Found Not To Have Cried Hystrically at Kim Jong-Il’s Passing May Spend 6 Months in a Labor Camp
From Zero Hedge:
From Interfax: "North Korean citizens, who did not take part in the mourning ceremonies for the country’s late Leader Kim Jong-il, are facing up to six months in labor camps, Interfax reported January 11. According to the South Korean media sources, “People’s Courts” took place all over the country starting December 29 to condemn those who did not show enough emotion after the death of “the great leader” Kim Jong-il. The People’s Court hearings were reportedly over by January 8. The behavior of those people, who criticized the three-generation principle of ruling the country, was also a matter of discussion during the court meetings. It was reported earlier that 2012 calendars were fully taken out of stores because the date of death of the late Leader Kim Jong-il was not marked in them." That said, we doubt anyone will punish the capital markets for crying hysterically should Bernanke's printer finally kicks the ghost.
More brainwashed theater below - the guy at 1:23 minutes in however is sure to get an extra portion of rice for his performance:
http://www.zerohedge.com/news/any-north-koreans-found-not-have-cried-hystrically-kim-jong-ils-passing-may-spend-6-months-labo
From Interfax: "North Korean citizens, who did not take part in the mourning ceremonies for the country’s late Leader Kim Jong-il, are facing up to six months in labor camps, Interfax reported January 11. According to the South Korean media sources, “People’s Courts” took place all over the country starting December 29 to condemn those who did not show enough emotion after the death of “the great leader” Kim Jong-il. The People’s Court hearings were reportedly over by January 8. The behavior of those people, who criticized the three-generation principle of ruling the country, was also a matter of discussion during the court meetings. It was reported earlier that 2012 calendars were fully taken out of stores because the date of death of the late Leader Kim Jong-il was not marked in them." That said, we doubt anyone will punish the capital markets for crying hysterically should Bernanke's printer finally kicks the ghost.
More brainwashed theater below - the guy at 1:23 minutes in however is sure to get an extra portion of rice for his performance:
http://www.zerohedge.com/news/any-north-koreans-found-not-have-cried-hystrically-kim-jong-ils-passing-may-spend-6-months-labo
Tuesday, January 10, 2012
China Reflating the Bubble: Stocks Rise Most in 3 Months on Loan
From Bloomberg:
China’s stocks rose the most in three months after new lending and money supply exceeded estimates in December, boosting speculation the government is relaxing monetary policies to bolster economic growth.
Chinese new loans totaled 640.5 billion yuan ($101 billion) last month, the highest amount since April, the People’s Bank of China said yesterday. That exceeded the estimates of all 18 economists surveyed by Bloomberg. M2, a measure of money supply, rose 13.6 percent, the fastest pace since July, it said. That compared with the 12.9 percent median of 18 estimates.
Premier Wen Jiabao called for measures to boost confidence in the nation’s stock market, the Shanghai Securities News reported today, citing his comments at the National Financial Work meeting. He urged reforming initial public offerings and improving companies’ dividend payouts, according to the report.
The premier’s comments signal the government may take more measures to boost stocks, including allowing social security funds to buy equities, David Li, UBS’s chairman and country head for China, said in an interview in Shanghai. Funds may flow out of the property market and into stocks as the government isn’t showing any inclination to ease curbs in the real-estate industry because prices “are still high,” he said.
Central bank governor Zhou Xiaochuan said yesterday the nation must be ready to combat possible shocks from Europe’s debt crisis and an uncertain U.S. economic outlook. China cut the reserve requirement for the first time since 2008 on Nov. 30 as Europe’s debt crisis eroded demand for its exports.
http://www.bloomberg.com/news/2012-01-09/china-s-stocks-rise-to-highest-level-in-2012-on-money-supply-lending-data.html
China’s stocks rose the most in three months after new lending and money supply exceeded estimates in December, boosting speculation the government is relaxing monetary policies to bolster economic growth.
Chinese new loans totaled 640.5 billion yuan ($101 billion) last month, the highest amount since April, the People’s Bank of China said yesterday. That exceeded the estimates of all 18 economists surveyed by Bloomberg. M2, a measure of money supply, rose 13.6 percent, the fastest pace since July, it said. That compared with the 12.9 percent median of 18 estimates.
Premier Wen Jiabao called for measures to boost confidence in the nation’s stock market, the Shanghai Securities News reported today, citing his comments at the National Financial Work meeting. He urged reforming initial public offerings and improving companies’ dividend payouts, according to the report.
The premier’s comments signal the government may take more measures to boost stocks, including allowing social security funds to buy equities, David Li, UBS’s chairman and country head for China, said in an interview in Shanghai. Funds may flow out of the property market and into stocks as the government isn’t showing any inclination to ease curbs in the real-estate industry because prices “are still high,” he said.
Central bank governor Zhou Xiaochuan said yesterday the nation must be ready to combat possible shocks from Europe’s debt crisis and an uncertain U.S. economic outlook. China cut the reserve requirement for the first time since 2008 on Nov. 30 as Europe’s debt crisis eroded demand for its exports.
http://www.bloomberg.com/news/2012-01-09/china-s-stocks-rise-to-highest-level-in-2012-on-money-supply-lending-data.html
Dee Woo: The Making of China’s Epic Hard Landing
From Zero Hedge:
Overall, there are both internal structural factors and external global factors, which contribute to the making of an epic hard landing in China. China will be really vulnerable when the US and Europe both unleash the quantitative easing. These are things China has no control of. Nevertheless, the best China can do to avoid the worst is to continue the painful structural adjustment: marketize the “big four”-dominated banking industry to allow for more efficient monetary allocation; Transform the labor intensive low value-added economy to the high value-added knowledge economy; reform the wealth redistribution system to empower the broad consumer base and honor its promise of a consumption-led economy.
While the US enjoys the luxury provided by the dollar’s world currency status and diplomatic alliance with many major trade partners to export its liquidity and inflation, China enjoys none of that. They should look at the dollars in their hands with fear and doubt. So called Beijing consensus makes little sense, because the world is fast changing, pegging a country’s growth to a certain set of policy tools or a certain reserve currency (the US dollar) is equally dangerous. The battle between Keynes and Friedman has long proven the only consensus is to adapt and change. Right now China needs to adapt and change fast. Or this will be the best time in history to short China.
http://www.zerohedge.com/news/guest-post-making-chinas-epic-hard-landing
Overall, there are both internal structural factors and external global factors, which contribute to the making of an epic hard landing in China. China will be really vulnerable when the US and Europe both unleash the quantitative easing. These are things China has no control of. Nevertheless, the best China can do to avoid the worst is to continue the painful structural adjustment: marketize the “big four”-dominated banking industry to allow for more efficient monetary allocation; Transform the labor intensive low value-added economy to the high value-added knowledge economy; reform the wealth redistribution system to empower the broad consumer base and honor its promise of a consumption-led economy.
While the US enjoys the luxury provided by the dollar’s world currency status and diplomatic alliance with many major trade partners to export its liquidity and inflation, China enjoys none of that. They should look at the dollars in their hands with fear and doubt. So called Beijing consensus makes little sense, because the world is fast changing, pegging a country’s growth to a certain set of policy tools or a certain reserve currency (the US dollar) is equally dangerous. The battle between Keynes and Friedman has long proven the only consensus is to adapt and change. Right now China needs to adapt and change fast. Or this will be the best time in history to short China.
http://www.zerohedge.com/news/guest-post-making-chinas-epic-hard-landing
Why Bernanke Has Failed, and Will Continue to Fail
From Of Two Minds:
Ben Bernanke's zero-interest rate policy (ZIRP) and command-economy efforts to maintain mispricing of risk, debt and assets are destroying capital and capitalism. No wonder his policies have failed so miserably.
Bernanke's policy is to punish capital accumulation and reward leveraged debt expansion. Rather than enforce the market's discipline and transparent pricing of risk, debt and assets, Bernanke has explicitly set out to re-inflate a destructive, massively unproductive credit bubble.
This is why Bernanke has failed so completely, and why he will continue to fail.
He is not engaged in capitalism, he is engaged in the destruction of capital, investment discipline and the open pricing of risk, debt and assets.
http://www.oftwominds.com/blogjan12/why-Bernanke-failed01-12.html
Ben Bernanke's zero-interest rate policy (ZIRP) and command-economy efforts to maintain mispricing of risk, debt and assets are destroying capital and capitalism. No wonder his policies have failed so miserably.
Bernanke's policy is to punish capital accumulation and reward leveraged debt expansion. Rather than enforce the market's discipline and transparent pricing of risk, debt and assets, Bernanke has explicitly set out to re-inflate a destructive, massively unproductive credit bubble.
This is why Bernanke has failed so completely, and why he will continue to fail.
He is not engaged in capitalism, he is engaged in the destruction of capital, investment discipline and the open pricing of risk, debt and assets.
http://www.oftwominds.com/blogjan12/why-Bernanke-failed01-12.html
Monday, January 9, 2012
Wolf Richter: “German Success Recipe” or Blip?
The German case is always interesting in that it has also pursued the export-driven economic model, while its model is somewhat different from the Asian’s. This article, agree or not, got me rethinking several issues re the purpose and substance of innovation and policy apparatus.
From Testosterone Pit:
Despite the Eurozone debt crisis, the German economy has been on a roll, with unemployment at a 20-year low. Exports surpassed €1 trillion for the first time ever. The Federation of Wholesale and Foreign Trade even issued a card to commemorate the moment. For the year, exports rose 12%. In 2012—based on demand from Asia, Latin America, Africa, and Eastern Europe—exports are expected to grow 6% to €1.139 trillion—when GDP is only €2.37 trillion ($3.1 trillion)!
But during the financial crisis, export orders fell off a cliff, causing GDP to plunge 2.1% in the fourth quarter of 2008 and a horrid 3.8% in the first quarter of 2009. Annualized, those two quarters printed a double-digit decline in GDP. The worst two quarters in the history of the Federal Republic. The German economy lives and dies by its exports.
But the recovery was steep and enormous. So it’s perhaps just natural that gloating would infect the German media when, from their perch of success, they look at the economic mayhem in other parts of Europe. Even the Handelsblatt falls pray to it from time to time. I bookmarked its October 17 article, The German Success Recipe Is Called Industriousness and Boredom, because it was just too much. Now the first shadows have appeared, and the “German success recipe,” despite its strengths, might turn out to be a blip.
http://www.testosteronepit.com/home/2012/1/6/german-success-recipe-or-blip.html
From Testosterone Pit:
Despite the Eurozone debt crisis, the German economy has been on a roll, with unemployment at a 20-year low. Exports surpassed €1 trillion for the first time ever. The Federation of Wholesale and Foreign Trade even issued a card to commemorate the moment. For the year, exports rose 12%. In 2012—based on demand from Asia, Latin America, Africa, and Eastern Europe—exports are expected to grow 6% to €1.139 trillion—when GDP is only €2.37 trillion ($3.1 trillion)!
But during the financial crisis, export orders fell off a cliff, causing GDP to plunge 2.1% in the fourth quarter of 2008 and a horrid 3.8% in the first quarter of 2009. Annualized, those two quarters printed a double-digit decline in GDP. The worst two quarters in the history of the Federal Republic. The German economy lives and dies by its exports.
But the recovery was steep and enormous. So it’s perhaps just natural that gloating would infect the German media when, from their perch of success, they look at the economic mayhem in other parts of Europe. Even the Handelsblatt falls pray to it from time to time. I bookmarked its October 17 article, The German Success Recipe Is Called Industriousness and Boredom, because it was just too much. Now the first shadows have appeared, and the “German success recipe,” despite its strengths, might turn out to be a blip.
http://www.testosteronepit.com/home/2012/1/6/german-success-recipe-or-blip.html
Sweden Showing How to Cut Debt and Weather the Recession
From Bloomberg:
Sweden faces a difficult year, like every other European economy, but unlike the rest of the European Union, it’s equipped to cope. There are lessons here, especially for the EU’s other non-euro countries.
Scandinavia’s biggest economy will see growth slow to less than 1 percent in 2012, down from an impressive 4.5 percent in 2011, according to the National Institute of Economic Research. Sweden relies heavily on exports to the rest of Europe, and the EU’s protracted economic crisis will set it back.
The value of monetary independence is the first and most important Swedish lesson. Sweden stayed out of the euro system when the currency was introduced in 1999, and in the past several years, the government has used this monetary flexibility to the full.
Hence Sweden’s second lesson: Fiscal stimulus isn’t a necessary condition for economic recovery. Through the course of the recent recession, the government’s cyclically adjusted budget stayed in surplus. As a result, Swedish government debt stands at less than 40 percent of gross domestic product, among the lowest of any rich country.
Note, therefore, that this isn’t the old Swedish model. Taxes on labor have been cut and the country’s once-lavish welfare state is being squeezed.
This suggests a third lesson, political rather than economic: Fiscal conservatism can be popular. Sweden is reluctant to put its hard-won fiscal strength at risk. Rightly so. Sweden is better placed than most to deal with the further economic setbacks the EU seems determined to dispense.
http://www.bloomberg.com/news/2012-01-05/view-sweden-shows-europe-how-to-cut-debt.html
Sweden faces a difficult year, like every other European economy, but unlike the rest of the European Union, it’s equipped to cope. There are lessons here, especially for the EU’s other non-euro countries.
Scandinavia’s biggest economy will see growth slow to less than 1 percent in 2012, down from an impressive 4.5 percent in 2011, according to the National Institute of Economic Research. Sweden relies heavily on exports to the rest of Europe, and the EU’s protracted economic crisis will set it back.
The value of monetary independence is the first and most important Swedish lesson. Sweden stayed out of the euro system when the currency was introduced in 1999, and in the past several years, the government has used this monetary flexibility to the full.
Hence Sweden’s second lesson: Fiscal stimulus isn’t a necessary condition for economic recovery. Through the course of the recent recession, the government’s cyclically adjusted budget stayed in surplus. As a result, Swedish government debt stands at less than 40 percent of gross domestic product, among the lowest of any rich country.
Note, therefore, that this isn’t the old Swedish model. Taxes on labor have been cut and the country’s once-lavish welfare state is being squeezed.
This suggests a third lesson, political rather than economic: Fiscal conservatism can be popular. Sweden is reluctant to put its hard-won fiscal strength at risk. Rightly so. Sweden is better placed than most to deal with the further economic setbacks the EU seems determined to dispense.
http://www.bloomberg.com/news/2012-01-05/view-sweden-shows-europe-how-to-cut-debt.html
Portugal Business Leader Moving His Family Holding Company to Holand Due to Uncertainty over Euro
I’m concerned that Chaebols could do something like this as things unfold. That is one of the reasons why big-business centered economic structure is detrimental to the health of the economy.
From Reuters:
Soares dos Santos, who is chairman of the board of Jeronimo Martins, caused a stir in Portugal this week when it emerged that his family holding company that controls the country's second largest retailer had moved to Holland.
Soares dos Santos told weekly Expresso the decision to move the holding company, which holds 56 percent of Jeronimo Martins, was motivated by a desire to guarantee investments and avoid "fiscal instability" in Portugal.
But it was also because of uncertainty over Portugal's continued existence in the euro.
Portugal is currently going through tough austerity under a 78-billion-euro bailout by the European Union and IMF which has sent the country into its deepest recession in decades.
Soares dos Santos said the decision to move the holding to Holland had also been motivated by lack of financing by Portuguese banks, which have been hit hard by the euro zone debt crisis.
http://www.reuters.com/article/2012/01/07/us-portugal-business-leader-says-uncerta-idUSTRE8060C620120107
From Reuters:
Soares dos Santos, who is chairman of the board of Jeronimo Martins, caused a stir in Portugal this week when it emerged that his family holding company that controls the country's second largest retailer had moved to Holland.
Soares dos Santos told weekly Expresso the decision to move the holding company, which holds 56 percent of Jeronimo Martins, was motivated by a desire to guarantee investments and avoid "fiscal instability" in Portugal.
But it was also because of uncertainty over Portugal's continued existence in the euro.
Portugal is currently going through tough austerity under a 78-billion-euro bailout by the European Union and IMF which has sent the country into its deepest recession in decades.
Soares dos Santos said the decision to move the holding to Holland had also been motivated by lack of financing by Portuguese banks, which have been hit hard by the euro zone debt crisis.
http://www.reuters.com/article/2012/01/07/us-portugal-business-leader-says-uncerta-idUSTRE8060C620120107
Sunday, January 8, 2012
Friday, January 6, 2012
The Illusion of Asian Economic Miracle and Fallacy of Their Innovation Success
The so-called Asian economic miracle and innovation capacity building have been by design as a result of interdependency between the East and the West to a certain extent.
Their economic growth model predicated on a command economy is flawed from the start.
The structure and participation of the global capital markets have been a driving force for their rapid economic growth and innovation success.
While some Asian countries have been able to build their productive capacity and boost manufacturing employment for a certain period of time through this reciprocal relationship coupled with their own hard work and successful strategies including smart technology transfer, they have engaged not only in such wealth creating activities but also in wealth destroying activities such as wasteful stimulus and bubble blowing.
In a sense, innovation/productive capacity building in Asian Countries has been icing on the cake.
The rise and fall (or becoming Korea-based multinationals seeking maximum profits worldwide) of chaebols may have to be understood in the larger context as well.
Again, a critical matter is whose benefits Asian countries’ innovation apparatus and endeavor have served most. If innovation and rapid economic growth have triumphed at the expense of citizens in the long term, what good would that do for the overall health of the economy and the wellbeing of the general public? Without the general public, there would be neither economy nor innovation.
Given that purchasing power in their biggest export markets including Europe and the U.S. is waning, the crescendo has passed. Further, the unwinding of the bubbles and the woes of the banking sector would act as a drag on Asian countries’ productive economy.
One of the most important lessons would be: innovation and productive capacity are the forces that allow the wealth of a nation to develop and grow, yet innovation endeavor alone can’t sustain the real economy. A nation needs to develop and maintain a long-term approach to economic growth and innovation apparatus.
(A detailed analysis on this topic won’t be shared due to the proprietary nature of the content.)
Their economic growth model predicated on a command economy is flawed from the start.
The structure and participation of the global capital markets have been a driving force for their rapid economic growth and innovation success.
While some Asian countries have been able to build their productive capacity and boost manufacturing employment for a certain period of time through this reciprocal relationship coupled with their own hard work and successful strategies including smart technology transfer, they have engaged not only in such wealth creating activities but also in wealth destroying activities such as wasteful stimulus and bubble blowing.
In a sense, innovation/productive capacity building in Asian Countries has been icing on the cake.
The rise and fall (or becoming Korea-based multinationals seeking maximum profits worldwide) of chaebols may have to be understood in the larger context as well.
Again, a critical matter is whose benefits Asian countries’ innovation apparatus and endeavor have served most. If innovation and rapid economic growth have triumphed at the expense of citizens in the long term, what good would that do for the overall health of the economy and the wellbeing of the general public? Without the general public, there would be neither economy nor innovation.
Given that purchasing power in their biggest export markets including Europe and the U.S. is waning, the crescendo has passed. Further, the unwinding of the bubbles and the woes of the banking sector would act as a drag on Asian countries’ productive economy.
One of the most important lessons would be: innovation and productive capacity are the forces that allow the wealth of a nation to develop and grow, yet innovation endeavor alone can’t sustain the real economy. A nation needs to develop and maintain a long-term approach to economic growth and innovation apparatus.
(A detailed analysis on this topic won’t be shared due to the proprietary nature of the content.)
Top Three Central Banks Account For Up To 25% of Developed World GDP
From Zero Hedge:
For anyone who still hasn't grasped the magnitude of the central planning intervention over the past four years, the following two charts should explain it all rather effectively. As the bottom chart shows, currently the central banks of the top three developed world entities: the Eurozone, the US and Japan have balance sheets that amount to roughly $8 trillion. This is more than double the combined total notional in 2007. More importantly, these banks assets (and by implication liabilities, as virtually none of them have any notable capital or equity) combined represent a whopping 25% of their host GDP, which just so happen are virtually all the countries that form the Developed world (with the exception of the UK). Which allows us to conclude several things. First, the rapid expansion in balance sheets was conducted primarily to monetize various assets, in the process lifting stock markets, but just as importantly, to find a natural buyer of sovereign paper (in the case of the Fed) and/or guarantee and backstop the existence of banks which could then in turn purchase sovereign debt on their own balance sheet (monetization once removed coupled with outright sterilized asset purchases as is the case of the ECB). And in this day and age of failed economic experiments when a dollar of debt buys just less than a dollar of GDP (there is a reason why the 100% debt/GDP barrier is so informative), it also means that central banks now implicitly account for up to 25% of developed world GDP!
http://www.zerohedge.com/news/top-three-central-banks-account-25-developed-world-gdp
For anyone who still hasn't grasped the magnitude of the central planning intervention over the past four years, the following two charts should explain it all rather effectively. As the bottom chart shows, currently the central banks of the top three developed world entities: the Eurozone, the US and Japan have balance sheets that amount to roughly $8 trillion. This is more than double the combined total notional in 2007. More importantly, these banks assets (and by implication liabilities, as virtually none of them have any notable capital or equity) combined represent a whopping 25% of their host GDP, which just so happen are virtually all the countries that form the Developed world (with the exception of the UK). Which allows us to conclude several things. First, the rapid expansion in balance sheets was conducted primarily to monetize various assets, in the process lifting stock markets, but just as importantly, to find a natural buyer of sovereign paper (in the case of the Fed) and/or guarantee and backstop the existence of banks which could then in turn purchase sovereign debt on their own balance sheet (monetization once removed coupled with outright sterilized asset purchases as is the case of the ECB). And in this day and age of failed economic experiments when a dollar of debt buys just less than a dollar of GDP (there is a reason why the 100% debt/GDP barrier is so informative), it also means that central banks now implicitly account for up to 25% of developed world GDP!
http://www.zerohedge.com/news/top-three-central-banks-account-25-developed-world-gdp
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