Innovation and Economic Analysis

FT: China Extends Loans to Avoid Mass Default

2012-02-13T15:55:00.001-08:00

China seems to have quickly learned how to get the ponzi game going from the Western world.

From the Financial Times:

A mountain of debt is coming due and the principal is unpayable, so governments have agreed to extend maturities.

This could be a description of a bail-out package for Greece. Instead, it is what China is doing to prevent scores of provinces and cities from defaulting on bank loans.

The flaws in China’s fiscal system were savagely exposed during the global financial crisis when Beijing introduced a stimulus package that was largely implemented by local governments.

Lacking sufficient funding and prohibited from even borrowing money because of past excesses, provinces and cities created thousands of financing vehicles to get around the rules and raise capital in the quickest way possible. They tapped state-owned banks which, encouraged by Beijing, were happy to oblige with enormous loans.

From relatively little debt at the start of 2008, local governments finished 2010 owing Rmb10.7tn ($1.7tn). The national auditor has reported that more than a third of that debt will have matured by the end of this year.

“We are not talking about a cash flow problem. We are talking about a big cash shortfall problem,” said Zhu Ning, deputy director of the Shanghai Advanced Institute of Finance.

Critics have pointed to dangers in the loan rollover plan. Repayment delays will hinder banks’ lending abilities. Some bad loans will simply be prolonged instead of recognized. Problems will remain concealed.

Standard & Poor’s has warned the extension would be a “backward step” for the Chinese banking sector that could “shake investors’ confidence”

http://www.ft.com/intl/cms/s/0/08d45414-553c-11e1-b66d-00144feabdc0.html#axzz1mDTEHA5l

209 Hedge Funds Rejoice as Apple Passes $500

2012-02-13T15:51:00.001-08:00

From Zero Hedge:

Why is this good news for the "financial industry?" Because Apple is now the financial industry, with a record 209 hedge funds holding it (a number that has likely surged in the past 3 months). As Apple goes, so goes not only the entire Tech index, the NASDAPPLE, the global capital markets, but the entire 2 and 20 model. We wonder how long until LPs ask their hedge fund advisors why they paying management fees when everyone can just put their money into AAPL outright and bypass the whole "hegde fund" mockery.

http://www.zerohedge.com/news/aapl-500

Moody's Downgrades Italy, Spain, Portugal and Others; Puts UK, France on Outlook Negative

2012-02-13T15:48:00.001-08:00

From Zero Hedge:

You know there is a reason why Europe just came crawling with an advance handout looking for US assistance: Moody's just went apeshit on Europe. In other news, we wouldn't want to be the company that insured Moody's Milan offices.

Moody's actions can be summarised as follows:

- Austria: outlook on Aaa rating changed to negative
- France: outlook on Aaa rating changed to negative
- Italy: downgraded to A3 from A2, negative outlook
- Malta: downgraded to A3 from A2, negative outlook
- Portugal: downgraded to Ba3 from Ba2, negative outlook
- Slovakia: downgraded to A2 from A1, negative outlook
- Slovenia: downgraded to A2 from A1, negative outlook
- Spain: downgraded to A3 from A1, negative outlook
- United Kingdom: outlook on Aaa rating changed to negative

Please see the individual country specific statements below for more detailed information relating to the rating rationale and the sensitivity analysis for each affected sovereign issuer.

http://www.zerohedge.com/news/moodys-downgrades-italy-spain-portugal-and-other-puts-uk-france-outlook-negative-full-statement

Greece: The Morning After: 48 Buildings on Fire, 150 Looted, Hundreds Arrested in Athens

2012-02-13T15:43:00.001-08:00

From Athens News:

Athenians swept rocks and broken glass from the streets of their city on Monday after a night of violence that gave MPs a taste of the challenge they face in implementing a deeply unpopular austerity bill demanded by the troika.

Firefighters doused the smouldering remains of several buildings, set ablaze by hooded youths during protests against the package of pay, pension and job cuts adopted by parliament just after midnight, on Monday morning, after 10 hours of debate.

Police said 150 shops were looted in the capital and 48 buildings set ablaze. Some 100 people – including 68 police – were wounded and 130 detained, a police official said on Monday.

There was also violence in cities across the country, including Thessaloniki and the islands of Corfu and Crete.

Athenians were shocked at the burnt buildings that included the neoclassical home to the Attikon cinema dating from 1870.

"We are all very angry with these measures but this is not the way out," said Dimitris Hatzichristos, 30, a public sector worker surveying the debris.

Many citizens believe their living standards are collapsing already and the new measures will deepen their misery.

"Enough is enough!" said 89-year-old Manolis Glezos, one of country’s most famous leftists. "They have no idea what an uprising by the Greek people means. And the Greek people, regardless of ideology, have risen."

Glezos is a national hero for sneaking up the Acropolis at night in 1941 and tearing down a Nazi flag from under the noses of the German occupiers, raising the morale of Athens residents.

http://www.athensnews.gr/portal/1/53270

Greek Parliament Passes Latest Austerity Vote

2012-02-13T15:40:00.001-08:00

From Zero Hedge:

The Greek parliament just passed the latest proposed austerity plan with a majority voting Yes. Judging by the reaction of the EURUSD, which experienced a modest 40 pip short covering squeeze in the last few minutes, one would imagine that today's Greek vote outcome is surprising. It isn't: after all, all Greece has done is promise to do something it won't do in hope it can get another bailout package, this time amounting to €210 billion (of which its people will pocket a de minimis 19%). As we said earlier: "The only real questions are i) what the Greek population may do in response to this latest selling out of a population "led" by an unelected banker, which if history is any precedent, the answer is not much, and ii) how Germany will subvert this latest event, and put the bail [sic] back in Greece's court once again." Sure enough, to paraphrase what we said before, the question now is what the popular Greek response will be having learned its politicians sold it out yet again, which will likely be nothing much, as it is 1 am local time, and as everyone knows revolutions in heavily socialist countries only start between 9 am and 5 pm, with a 2 hour break for siesta. More importantly, keep a close eye on headlines out of Germany. That is all that matters.

http://www.zerohedge.com/news/greek-parliament-passes-latest-austerity-vote

2012-02-12T05:25:00.000-08:00

"Trust in the Lord and do good; dwell in his lands and enjoy safe pastures. Take delight in the Lord, and he will give you the fulfillment of your heart. Commit your ways to the Lord; trust in him and he will make your righteous efforts shine like the dawn, and your vindication like the sun. Be still before the Lord and wait patiently for him; do not worry when people succeed in their evil ways, when they carry out their wicked schemes."
Psalm 37:3-7

아직 한창 일하실 나이에 이번 주에 소천하신 최선생님의 명복을 빈다. 한국 최고의 대학을 나와 누릴 수 있는 기득권을 포기한 채 소외된 사람들의 친구가 되라는 기독교의 가르침과 대학생 친구를 절실히 원했던 고 전태일씨의 육필일기에 영향을 받아 노동 현장에 뛰어들어 두 차례나 옥고를 치르는 등 노동운동가로서 인생의 반을 보내셨고, 대부분의 노동운동가들이 정치에 입문하는 데 비해 경제적 부가가치를 구체적으로 생산하는 분야에 기여하고 싶어 첨단소재 전문 중소기업에서 전문 경영인으로서 중국시장을 개척하면서 인생의 반을 보내신 최선생님의 인생 여정은 후배들에게 시사하는 바가 크다. 우리 주위에 좋은 환경에서 좋은 교육을 받고 좋은 직장에서 본인과 가족을 위해 성실히 일하시는 분들은 많이 보지만 가족들의 희생을 감수하면서까지 사회 정의를 생각하고 나라와 사회를 위한 뜻있는 구체적인 일에 헌신하시는 분들은 그리 많지 않은 현실을 생각할 때 더욱 그러하다.

마음이 지쳐서 기도 할 수 없고
눈물이 빗물처럼 흘러 내릴 때
주님은 우리 연약함을 아시고
사랑으로 인도하시네

누군가 널 위하여 누군가 기도하네
네가 홀로 외로워서 마음이 무너질 때
누군가 널 위해 기도하네

중국 시장을 어떻게 볼 것인가

2012-02-12T05:24:00.001-08:00

제 블로그를 방문해 주시는 독자 분들은 중국의 급속한 성장은 미국과의 딜이 있었기 때문에 가능했다는 것을 아실 것이다.(덕분에 중국은 역사상 유래가 없는 trade imbalance를 유지해 왔다.)

중국 시장에 대해 관심을 가지고 지켜보아야 할 여러 가지 거시적인 요소들이 있지만 미국의 정책들, 중국의 재정정책, 중국의 부동산 거품이 언제까지 지속될 것인가 등등이 포함된다. 예를 들어 미국은 2014년까지 돈 찍어 내겠다고 (소위 Fed의 QE 정책) 이미 표명을 했고 이러한 정책은 달러의 debase화가 서서히 진행되고 있고, 개발도상국가에 인플레이션을 계속 수출한다는 것을 의미한다. 또한 이번 주에 중국은 돈을 풀지 않겠다고 한 반면 유럽은 계속 돈을 찍어낼 모양이다. 글로벌 시장이 중앙은행의 정책들로 인해 왜곡되고 있기 때문에 이들 정책 방향에 따른 시나리오를 수립하는 것이 필요하다.

물론 소위 smart money의 흐름도 지켜보아야 할 것이다. 중국은 investment-led growth를 해 왔다는 것은 주지의 사실이다. 서방 언론들이 중국의 cool-down을 보도하기 시작했다는 것은 이미 smart money들이 싱가폴 (이들이 park되어 있는 기지로서의 역할을 하고 있다) 등지로 빠져나갔다는 것을 의미할 지도 모른다.

중국의 발전 경로를 보면서 한국의 초기 산업화 시기와 유사한 점이 많음을 발견하셨을 것이다. 중국의 power elite들은 이미 일본의 산업발전 경로와 Plaza Accord 이후에 일본이 어떤 길을 겪어야 했는지를 잘 알고 있는 듯 하다. 따라서 쉽게 서방국가들의 정책에 휘둘리지 않을 것으로 보인다.

내가 영어로 쓴 몇몇 포스팅에서 언급했듯이 공산주의의 실체에 대해 환상을 가지지 말아야 한다는 것이다. 중국의 모든 정책기조가 과연 대다수의 국민의 이익에 우선순위를 두고 있느냐는 것이다. 중국의 Communist Party가 스스로 변화할 것인지 외부에서 변화를 강요당할 때까지 변화하지 않을 것인지는 아직 미지수이다.

글로벌 부채 싸이클이 수학적으로 한계점에 도달하고 있지만 그 과정은 서서히 진행되고 있고 이 가운데에서도 사업기회는 많기 때문에 이를 잘 발굴해 나가는 것이 필요하다.

다국적 기업들이 이미 중국으로 옮겨갔고 중국이 제조 인프라와 suppliers를 구축했기 때문에 제조산업이 쉽게 사그라들지는 않을 것으로 보인다. 그러나 중국의 급속한 경제성장에는 제동이 걸릴 것이고 시간이 걸리겠지만 일본이나 미국의 예에서도 알 수 있듯이 결국 거품은 빠질 것이고 글로벌 비지니스 싸이클의 영향을 받아 painful한 조정을 거칠 것으로 보인다.

중국이 선진국에로의 생산 전진기지로서의 마력을 잃을 때 과연 중국의 내수시장이 이를 대체할 것인가에 대해서는 부정적이다. 중국의 급속한 성장과정에서 부를 축적한 소수들의 구매능력은 매력적일 테지만 중국 중산층의 구매력이 선진국의 구매력을 대체할 만큼 확대되기를 기대하기는 어렵다고 본다.

영어로 쓴 포스팅들에서 여러 번 강조했지만 큰 그림을 파악하고 5년, 10년 후를 내다봐야 할 것이다. 삼성의 이건희 회장이 최근의 한 인터뷰에서 삼성은 어떠한 상황에서도 수익을 낼 수 있다고 자신감을 피력한 것도, 또 삼성이 왜 의료기기, 제약산업에 뛰어들고 있는 것도 이미 큰 그림을 이해하고 이를 바탕으로 시나리오를 세웠기 때문으로 보인다. 자금력과 필요한 인재를 두루 갖춘 대기업과는 달리 중소기업은 여러 가지 도전에 더욱 잘 대처해 나가야 한다.

수출 위주의 성장을 걸어온 한국도 내수시장의 확대를 단기간에 기대하기는 어려운 만큼 중국 시장의 비중이 큰 게 사실이다. 그러나 중국 시장뿐만 아닌 다른 나라와도 다각화를 꾀하는 것이 필요할 지 모른다. 한국은 특히 장수하는 하이테크 중소기업이 매우 드물기 때문에 어려운 여건 속에서도 깊이 넓게 읽고 보는 역량을 키워 단기적인 성공뿐만 아니라 지속적인 성장을 이룩해 가는 기업을 키우는 것이 한국 사회를 위한 길이기도 하기 때문이다

Michael Pettis: When Will China Emerge from the Global Crisis

2012-02-12T05:18:00.000-08:00

Michaebl Pettis’ site has been blocked from the U.S. and Korea (I don’t know about other countries). The arguments made by Wang Lan and Guo Yuhua reflect some of the key points I’m trying to get across on this blog in the Korean context.

From Mish’s Global Economic Trend Analysis:

Caixin, one of my favorite magazines, has an interview with Liu Mingkang, former China Banking Regulation Commission chairman. In it Liu says: I've said in the past, that this economic crisis will spread from the United States to Europe and finally land in Asia. Now we can see that it's already begun influencing Asia.

In 2008 and 2009 I argued that the crisis we were undergoing would affect every major economy in the world, but not necessarily at the same pace. I suggested that the US typically is quick to adjust and, given the pace of deleveraging that was already taking place, I expected that it would be the first major economy out of the crisis, probably in the next two to three years, as private debt levels continue to decline and public debt growth slows.

By now I think the prediction that the US will be among the first and China among the last to escape the crisis no longer seems as eccentric. Others are making similar predictions. There is growing awareness that China has not yet addressed the changes forced upon it by the global crisis, and will have to do so soon. It has certainly become easier to see how the crisis has spread, as Liu points out, first from the US and then to Europe and now to Asia.

It is important to note that it is not just Liu who is thinking along these lines. There were for example two other interesting articles last week in Caixin which I think are useful in understanding China. The first article, by Wang Lan, addresses the problem of State-Owned-Enterprises (SOEs) in China.

In Stifling the Nation's Vitality Wang addresses one consequence of state investment.

The vitality of the Chinese economy is being stifled by SOEs, especially central-level, or top, SOEs, and this is borne out by research. In 2010, the capital of 102 central-level SOEs was equivalent to 61.4 percent of GDP, and their earnings equaled 42.2 percent of GDP.

The second national economic census taken in 2008 reported profits of nearly 900 billion yuan by finance industry central-level SOEs. Banks accounted for 64 percent of that profit.

These gargantuan SOEs have not only failed to lead us toward a new stage of development, but they have actually inhibited the vitality of the Chinese economy by distorting resource allocation.

Wang recommends that Beijing begin a privatization process to wean SOEs from their addiction to excessively cheap capital, monopoly power, and distorted governance. This, he says, will force the SOEs to address and resolve their role in wasting capital, stifling innovation, and concentrating wealth. It will also allow China to grow in a much healthier and balanced way.

I have always thought that the least painful way for China to rebalance its economy requires that it radically redistribute income and wealth away from the state sector and to the household sector. There are many ways this can happen, some better and some worse, but privatizing SOEs and using the proceeds to clean up the banks (whose Non-Perfgorming-Loans are a future claim on households), to shore up the social safety net, and to permit SME’s more scope in which to compete is, in my opinion, the most efficient ways to do so. It would also weaken sectors that are able to restrain change in the economy.

Returning to the System

For many years we were told that privatization was pretty much out of the question in China. I disagree, and have argued often that within two or three years the constraints imposed by the current growth model will ensure that policymakers and their advisors in Beijing will be discussing privatization much more actively.

This discussion actually ties into the second Caixin article, by Tsinghua University sociology professor Guo Yuhua China: A Country Where No One is Secure.

Guo starts by referring to a deep malaise in the country:

What is the most common feeling in China today? I think many people would say disappointment. This feeling comes from the insufficient improvement in their lives that people are achieving amid rapid economic growth. It also comes from the contrast between the degree to which individual social status is rising and the idea of the "rise of a great and powerful nation."

Guo asks for a more robust social system in which the benefits of economic growth are not so heavily skewed towards a political elite and in which members of the various strata below the elite have increased opportunities of participating in the economic process:

Power is becoming too formidable and cruel. It is out of control, and without limits. It has kidnapped society and strangled reform. Facing this, finding a solution is a matter of vital importance. In a situation where special interest groups have choked off the possibility of various types of progress, building a just society and enacting reform is difficult. Moreover, there is not a ready-made civil society waiting to settle into the void.

Civil society is produced by the participation of citizens. Extrication from stagnation and the restoration of social vitality can only come from the start of civil consciousness and civil action. Only by empowering society and enlightening citizens can the strength to reform be developed.

This is becoming a pretty contentious debate. Over the past several months, in fact, we have seen a noticeable surge in articles and reports like this one – often by very prominent academics and policy advisors – criticizing the power of special interests in China. Their main concern seems to be over the constraints these special interests impose on further Chinese development, with the entrenched interests that have benefited over the last decade or two having become so powerful that they are making it increasingly difficult for China to adjust.

I apologize for the rather abstract and dry description in this and the three previous paragraphs of what is actually a gripping and very interesting topic, but for perhaps obvious reasons this is something about which I am reluctant to say too much. Still, anyone trying to predict China’s economic outlook for the next few years should be very aware of this fierce debate.

http://globaleconomicanalysis.blogspot.com/2012/02/suspended-michael-pettis-china.html?x#echocomments

Wolf Richter: Japan Inc. Seeks Salvation Overseas

2012-02-12T05:12:00.000-08:00

Again, Korea is modeled after Japan. Those who have read my blog know what “Japan Inc.” means. Korea is facing similar problems Japan has to deal with (e.g., wage and currency arbitrage).

From Testosterone Pit

Japanese companies spent $70 billion on acquisitions overseas in 2011—a record. Healthcare was the largest sector, $20.6 billion. Armed with a ferociously strong yen, they’re trying to escape the pressures at home. After the Fukushima disaster, one nuclear power plant after another has been taken off line for maintenance. And they stay off line. Now, only four of the 54 are still operating. Fossil fuel plants cannot keep up with demand during peak periods, and electricity rationing—a Third-World phenomenon—has become part of corporate life. Companies also face a stagnant economy and a dwindling working-age population.

And so they seek their fortunes overseas. For example, Sumitomo Mitsui Financial Group and Sumitomo Corp. are acquiring the aircraft leasing business of bailed-out Royal Bank of Scotland for $7.3 billion. But even smaller companies, including many that had not ventured abroad before, are jumping into the fray. For example, Takara Tomy Group acquired US toymaker RC2, and Toyo Seikan bought US based Stolle Machinery.

In addition, Japanese multinationals are expanding their existing production capacity overseas. On the forefront are the automakers. Mired in stagnation, high costs, and energy challenges at home, they’re now shifting production to plants overseas. Most recently, it was Honda and Nissan with investments in China, Mexico, and, yes, the US to produce cars for local and export markets. And one of them is outright exciting. Read.... Manufacturing Supercars in America.

Electronics makers are also struggling in Japan. Last year was particularly rough: the March 11 earthquake and tsunami, Thailand's historic floods that shut down whole segments of the components industry, the strong yen, a hesitating global economy, and shrinking consumer demand at home. And then, in the fourth quarter, TV sales cratered.

But there are consequences. Shifting investment and production to locations overseas contributed to the first annual trade deficit in more than 30 years—just when Japan can least afford it: national debt will surpass one quadrillion yen by March 2013, the end of the next fiscal year, the Ministry of Finance announced in January. About $14 trillion. A breathtaking 240% of GDP. By comparison, Greece’s debt is a paltry 160% of GDP.

The forecast is based on the budget that the cabinet approved on Christmas Eve when it hoped that no one would pay attention, apparently. After excluding two acknowledged accounting shenanigans, the deficit jumps to a horrid ¥54.4 trillion. The government will have to borrow 56.2% of every yen it spends in 2012, a record even for Japan. But the government has an ingenious solution: a miracle. For more on that vertigo-inducing debacle, read... The Endgame: Japan Makes A Move.

The other solution is a consumption tax hike from the current 5% to 8% by April 2014 and to 10% by October 2015. To make it more palatable, government officials have gone on roadshows. The revenues would be used to stabilize the tottering social security system and reinforce the welfare system, they claimed—rather than for corporate subsidies or for the bailout of TEPCO, owner of the Fukushima nuke. But sales taxes hit low-income workers the hardest. And according to recent polls, 79.5% of the Japanese are opposed to them.

Once it starts, it’s never enough. On Saturday, Prime Minister Yoshihiko Noda said that the consumption tax could be raised even beyond the 10% currently proposed. So the trend is clear.

http://www.testosteronepit.com/home/2012/2/6/the-endgame-japan-inc-seeks-salvation-overseas.html

Japan Machine Orders Fall 7.1% as Yen Climbs

2012-02-12T05:09:00.000-08:00

Again, one has to understand what’s going on in Japan in the larger context, considering many macro factors.

From Bloomberg:

Japan’s machinery orders fell at the fastest pace in three months in December as a faltering global economy and gains by the yen dimmed the outlook for exporters.

Bookings, an indicator of capital spending, decreased 7.1 percent from the previous month, the Cabinet Office said in Tokyo today, after surging 15 percent in November. The median estimate of 29 economists surveyed by Bloomberg News was for a 5 percent decline.

Japan’s exports fell for three straight months through December as European leaders grappled with the debt crisis that is driving the euro region into a recession. Spending may rebound as earthquake reconstruction work kicks in and today’s report showed companies forecasting a 2.3 percent increase in orders this quarter.

Japan’s lower house of parliament on Feb. 3 approved Prime Minister Yoshihiko Noda’s 2.5 trillion yen ($32 billion) recovery package from the earthquake and tsunami, the fourth supplementary budget since the disaster. The government forecast in December that Japan’s economy will grow 2.2 percent in the year starting April after a projected 0.1 percent contraction this fiscal year.

The International Monetary Fund estimates that Japan’s economy will grow 1.7 percent this year, compared with a likely 1.8 percent expansion for the U.S. and an estimated 0.5 percent contraction for the euro area

http://globaleconomicanalysis.blogspot.com/2012/02/japan-machine-orders-drop-71-exports.html

iEconomy: How Apple Distorts the Market

2012-02-12T05:05:00.001-08:00

From Zero Hedge:

As rumors of the imminent iPad3 (and FoxConn hacking) spread across the web and a general sense of cult-like euphoria washes away the reality of a considerably weaker earnings picture (and outlook) than even downgraded expectations had prepared for, we present two charts, via JPMorgan, of just how grossly distorted the picture of US economic health (implicitly via US corporate earnings) has become, thanks to Apple. While ignoring Apple as a provider of 'wealth' is akin to Monty Python's "What Have The Romans Ever Done For Us?" comment, we worry that so much 'expectations' burden should fall on the shoulders of a company that relies on constant 'successful' innovation and constant low cost wages (no growth) to merely maintain current growth and earnings while facing constant and massive competitive threats from every side of its business (especially with austerity/recession/credit-constrained Europe as the largest sequential growth driver in the last surprising quarter). While 'Let Them Eat PSI' is the clear message for the Greeks, it would appear the US investor is truly satisfied by its extra large helping of iPad meals, even as 'explicit' job creation in the US via this main driver of US earnings remains de minimus (recognizing of course the peripheral impact of developers into this infrastructure that however do not amount to too much in terms of earnings or GDP as is painfully obvious from these charts). As goes AAPL, so goes the US?

http://www.zerohedge.com/news/ieconomy-demonstrating-how-apple-distorts-market

Kiss Hopes of Chinese Easing Goodbye: January Inflation in China Soars to Highest Since October

2012-02-09T06:18:00.001-08:00

From Zero Hedge:

Yesterday when we discussed the surprising non-cut in the Australia cash rate, we asked "is China re-exporting the lagging US inflation it imported over 2011? " and said that "It means that Chinese inflation continues to be far higher than what is represented... and wonder: did the RBA just catch the PBOC lying about its subdued inflation?" Lastly, we concluded: "Furthermore, the PBOC did 26 billion yuan in repos, meaning it is set to conduct a net liquidity withdrawal for this week according to Credit Agricole. Withdrawing liquidity when the market expects RRR cuts?" Sure enough, as usually happens when assuming sentiment manipulation by a centrally planned powerhouse such as the US, and in far lesser degree these days, China, we were right. The news just out of China is that January inflation soared far beyond expectations, with CPI printing at 4.5% Y/Y, compared to estimates of a decline to 4% from December's 4.1%. This was the highest inflation since October. We will simply repeat our conclusion from yesterday, which while speculation then is now confirmed: "Chinese easing is a long way off... and in a market defined solely by hopes for central bank intervention this is not good." Practically, this means that the PBOC just told the world that no easing will come from China in a long time, and that the Fed and the ECB are alone in reliquifying the market. It also means that one can kiss the Chinese growth dynamo story goodbye, and once the US finally recouples with the rest of the world, the only hope will be a new announcement of QE in March so it hits its maximum efficiency in time for Obama's reelection campaign.

http://www.zerohedge.com/news/kiss-hopes-chinese-easing-goodbye-january-inflation-china-soars-highest-october

Nomura: The “Alarming Fall” in Chinese Electricity Consumption

2012-02-09T06:11:00.000-08:00

Again, one has to understand the bigger picture and macro factors re what’s going on in China.

From Business Insider:

We mentioned this first last night, that data for January showed a shock 7.5% year-over-year fall in Chinese electricity consumption -- the first such fall on record excluding the crisis.

Here's a chart from Nomura's Zhiwei Zhang and Wendy Chang comparing electricity production to industrial production. They call it an "alarming fall."

Speaking of China, here's a great chart from Reuters' Scotty Barber on Germany, and its exports to both America and China.

http://www.businessinsider.com/nomura-on-the-alarming-fall-in-chinese-electricity-consumption-2012-2

Bud Conrad: The Fed Resumes Printing

2012-02-08T05:22:00.000-08:00

As noted many times, the Fed’s policy is impacting the lives of ordinary folks around the globe.

From Casey Research:

The problem with printing money and promising to do so for years ahead of time is that the negative consequences of inflation only happen after a delay. As a result, it's difficult to know if a policy has gone too far until years down the road at times. Unfortunately, if confidence in the dollar is lost, the consequences cannot be easily reversed. One problem for the Fed itself is that it holds long-term securities that will lose value if rates rise. The federal government faces an even more serious problem when interest rates rise, as higher rates on its debt mean greater interest payments to service. Due to this federal-government debt burden, the Fed has an incentive to keep rates low, even if the long-term result is higher inflation. However, for now the Fed's statement suggests it sees inflation as "subdued," so it's putting those concerns aside for now.

http://www.caseyresearch.com/articles/fed-resumes-printing?ppref=ZHB420ED0212B

Country Specific Blog Censorship by Google

2012-02-08T05:21:00.000-08:00

Mish의 블로그를 수년째 읽어왔다. 물론 그의 의견에 다 동의하는 것은 아니지만 그가 블로그를 통해 전하려는 메시지의 본질을 이해하고 있고, 그로부터 많이 배웠고 고맙다는 말을 그에게 몇 번 했다. 부인이 많이 아파 생에 대해 어느 정도 통달한 듯한 느낌도 받는다. 구글에 로그인 할 때마다 거의 로그인 중인 불이 켜져 있어 도대체 언제 잠을 자나 싶을 정도이다. 주로 내 블로그에서 그의 블로그로 클릭해서 넘어가는데 다행히 한국에서는 아직 괜찮은 것 같다. Keep the faith, Mish!

From Mish’s blog:

Today I learned my blog is being redirected to another URL name in some countries. This is a new "feature" in Blogger that Google added beginning a few weeks back.

Instead of exposing a single "Blogger" to the world then censoring it to meet the requirements of local governments, Google decided to mirror content into country-specific domains then redirect users from foreign countries to the mirror associated with their country. If that country decides to censor something, it will somehow be noted on any page so the reader knows they're seeing a filtered view.

http://globaleconomicanalysis.blogspot.com/2012/02/country-specific-blog-sensorship-by.html

Charles Hugh Smith: Counterfeit Money, Counterfeit Policy

2012-01-31T15:51:00.001-08:00

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

Youth Unemployment across Europe: Europe’s Scariest Chart

2012-01-30T15:59:00.001-08:00

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

GS’s David Kostin: The Record Corporate Margin Juggernaut Has Just Rolled Over

2012-01-30T15:57:00.001-08:00

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

Former Citigroup Chairman John Reed: How Did the Big Banks Get So Powerful?

2012-01-30T15:55:00.001-08:00

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

2012-01-29T05:31:00.001-08:00

"Peace I leave with you; my peace I give to you. Not as the world gives, do I give it to you. Do not let your heart be troubled and do not let it be afraid."
John 14:27

Financial Times: Bun Fight with the Chaebol

2012-01-29T05:27:00.001-08:00

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

Living in a QE World

2012-01-29T05:15:00.000-08:00

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/

The Rise and Looming Fall of China: Its Productive Capacity and the Upcoming Credit Bust

2012-01-27T16:50:00.001-08:00

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.)

Davos Shocked To Hear That Poor People Exist

2012-01-27T16:35:00.001-08:00

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/

Presenting the Interactive "Wiggle-Room Index" Or Which Countries Will Be Forced To Bail Out the Developed World

2012-01-27T16:26:00.001-08:00

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

¥1,086,000,000,000,000 (Quadrillion) in Debt And Rising, And Why the ¥ Will Soon Be a $: "A Lost Decade... Or Two"

2012-01-26T15:59:00.001-08:00

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

Richard Koo at Nomura Concerned Keynesian Class Contracting

2012-01-26T15:58:00.001-08:00

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

Gold Extending Gains on Realization Fed's Only Option Is CTRL+P

2012-01-26T15:53:00.001-08:00

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

Bill Gross’ Explains the FOMC Decision: "QE 2.5 Today, QE 3, 4, 5 … Lie Ahead"

2012-01-26T15:52:00.001-08:00

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

FOMC Statement - Targets 2% Inflation - Highly Accommodative Monetary Policy Until 'Late 2014'

2012-01-26T15:50:00.001-08:00

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

Japan's First Annual Trade Deficit Since 1980; Japan’s Fiscal Pressure Intensifying

2012-01-25T05:40:00.000-08:00

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

Simon Johnson on the Deepening European Crisis: “Dreams vs. Reality”

2012-01-25T05:33:00.001-08:00

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

Apple’s Year End Cash Equivalent of $97.7 Billion Makes It the 58th Largest Economy in the World

2012-01-25T05:26:00.000-08:00

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

David Stockman: Crony Capitalism and the Entitled Class of Wall Street Financiers

2012-01-24T19:55:00.000-08:00

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/

McKinsey: Americans Are Deleveraging

2012-01-24T19:49:00.000-08:00

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

Council on Foreign Relations: Charting the U.S. (Un)Recovery in Historical Context

2012-01-24T19:40:00.000-08:00

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

Apple, the U.S., Manufacturing Decline, and a Squeezed Middle Class: How America Lost Out on iPhone Work

2012-01-23T22:25:00.000-08:00

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 existed 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

Sol Sanders: America’s Love Affair with China

2012-01-23T22:15:00.001-08:00

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

Nomi Prins: Bailouts + Downgrades = Austerity And Pain

2012-01-23T18:58:00.001-08:00

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

Subordination 101: A Walk Through for sovereign Bond Markets in a Post-Greek Default World

2012-01-23T18:51:00.001-08:00

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

McKinsey: Lessons from Japan: the Final Resolution of Japan’s Enormous Public Debt Has Yet To Come

2012-01-23T18:40:00.001-08:00

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

Survival of the Unfittest: Japan Or the U.K.?

2012-01-23T18:35:00.001-08:00

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

Charles Hugh Smith: The Substitution of Debt for Productivity

2012-01-19T17:07:00.001-08:00

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

Michael Krieger: “The Building Tension”

2012-01-19T17:03:00.001-08:00

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

Keystone Aftermath Arrives: Canada Pledges To Sell Oil to Asia, As US Becomes Source of "Uncertainty"

2012-01-19T16:56:00.001-08:00

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

World Bank Warns Emerging Nations

2012-01-18T15:24:00.000-08:00

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

China Brings US Treasury Holdings to One Year Low; Russia Cuts Treasury Exposure by 50% in One Year

2012-01-18T15:19:00.000-08:00

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

Obama Considering Nominating Summers for World Bank

2012-01-18T15:09:00.001-08:00

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

Brandon Smith: Decentralization Is the Only Plausible Economic Solution Left

2012-01-17T15:59:00.001-08:00

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

$10 Trillion Liquidity Injection Coming? Credit Suisse Hunkers Down Ahead of the European Endgame

2012-01-17T15:57:00.001-08:00

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

The Rise Of Activist Sovereign Hedge Funds, the "Subordination" Spectre, And the Real "Coercive" Restructuring Threat

2012-01-17T15:54:00.001-08:00

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

Greek Default Fears Grew

2012-01-16T15:57:00.001-08:00

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

Portugal Downgraded to Junk: Bond Yields Rise Sharply

2012-01-16T15:56:00.001-08:00

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

Korean Workers’ Wage Gap Hit Highest Level in 2011

2012-01-16T15:53:00.001-08:00

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

2012-01-15T00:00:00.001-08:00

“May the Lord bless you and keep you; and make his face shine upon you and be gracious to you; May the Lord lift his face towards you and give you peace.” Numbers 6:24-26

Jeffrey Sachs: The Price of Civilization

2012-01-14T23:52:00.000-08:00

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

Wolf Richter: Greece – Disagreement Everywhere, Rift in the Troika

2012-01-14T23:45:00.000-08:00

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

Q4 Spanish Unemployment Soars By Most Since Lehman, Hitting 23.4%

2012-01-14T23:36:00.000-08:00

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

S&P Downgraded 9 Eurozone Nations; Euro-Zone Policies Have Fallen Short

2012-01-14T23:29:00.000-08:00

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

Wolf Richter: When the White House Touts Falling Wages

2012-01-12T15:53:00.001-08:00

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

Societe Generale: China Entering the Danger Zone: Four Critical Themes

2012-01-12T15:46:00.001-08:00

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

Foxconn Workers at Apple Factory Threaten with Mass Suicide Re Their Working conditions

2012-01-11T15:56:00.001-08:00

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

China’s Gold Imports from Hong Kong Surge to Highest Ever? – PBOC Buying?

2012-01-11T15:54:00.001-08:00

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

China’s Debt Maturity Problem Has Arrived

2012-01-11T15:51:00.001-08:00

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

Any North Koreans Found Not To Have Cried Hystrically at Kim Jong-Il’s Passing May Spend 6 Months in a Labor Camp

2012-01-11T15:47:00.001-08:00

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

China Reflating the Bubble: Stocks Rise Most in 3 Months on Loan

2012-01-10T15:56:00.001-08:00

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

Dee Woo: The Making of China’s Epic Hard Landing

2012-01-10T15:50:00.001-08:00

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

Why Bernanke Has Failed, and Will Continue to Fail

2012-01-10T15:45:00.001-08:00

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

Wolf Richter: “German Success Recipe” or Blip?

2012-01-09T15:59:00.003-08:00

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

Sweden Showing How to Cut Debt and Weather the Recession

2012-01-09T15:59:00.001-08:00

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

Portugal Business Leader Moving His Family Holding Company to Holand Due to Uncertainty over Euro

2012-01-09T15:58:00.000-08:00

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

2012-01-08T00:00:00.001-08:00

“Seek his will in all that you do, and he will make your paths straight and guide your steps.”
Proverbs 3:6

The Illusion of Asian Economic Miracle and Fallacy of Their Innovation Success

2012-01-06T17:56:00.003-08:00

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.)

Top Three Central Banks Account For Up To 25% of Developed World GDP

2012-01-06T17:56:00.001-08:00

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

The 2-Product, 2-Customer Wonder Called Australia

2012-01-06T17:55:00.001-08:00

From Lighthouse Investment Management

Australia is the sixth-largest country (2.9m square miles) on earth, just a tad smaller than the contiguous United States (3.1m). They are a little short on people (22.8m), which comes handy, since they dig up their entire country and sell the dirt to China.

Australia has a remarkably low government dept-to-GDP ratio (29% ), low unemployment (5.2%), a moderate budget deficit (3.4% of GDP) and moderate inflation.

However, Australia has been running current account deficits of up to 6% of GDP for more than 50 years. The “mates”, until recently, didn’t like to save, hence most investment has to be financed by borrowing from foreigners.

I was curious as to how much of the success was due to exporting dirt to China. From the Australian Bureau of Statistics you get the following data about their top-10 export markets (accounting for 82% of all exports)

http://www.lighthouseinvestmentmanagement.com/2012/01/05/the-2-product-2-customer-wonder-called-australia/

Samsung to Build Chip Plant in China

2012-01-04T15:55:00.001-08:00

More manufacturing job loss for Korea. This has been all planned.

From Xinhua:

Samsung Electronics, the world's largest maker of memory chips, planned to build a semiconductor plant in China to produce NAND flash memory chips based on 10- nanometer class technology, the economy ministry said Wednesday.

According to the Ministry of Knowledge Economy, Samsung submitted an application for the factory construction to the ministry on Dec. 6, before getting approval Wednesday. The ministry made the decision after holding two meetings of the industrial technology security committee in a bid to assess the potential technology leaks and the need for the firm to expand to China.

Samsung planned to start building the plant within the first half of this year after being approved by the Chinese government, according to the ministry. The company aimed to begin the factory' s operation in the second half of next year.

The Chinese plant, where 10-nano class NAND flash memory chips were planned to be manufactured, would be able to produce 100,000 wafers of 12-inch size per month after being built. Samsung began operating its latest factory in South Korea from September last year to mass produce 20-nano NAND flash memory chips.

http://news.xinhuanet.com/english/sci/2012-01/04/c_131342127.htm

Reserve Currency Status Doesn’t Last Forever

2012-01-04T15:51:00.001-08:00

From Zero Hedge:

Simply put, "it does not last for ever" should be ringing in the ears of every investor in the world with more than a few millisecond return horizon. And neither do any and all chartalist conventions which rely on the articial construct of reserve permanence, for one simple reason - being artificial, means the theory is flawed from the beginning. But it is JPMorgan's Michael Cembalest who frames it the best, "I am reminded of the following remark from late MIT economist Rudiger Dornbusch: 'Crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.'"

http://www.zerohedge.com/news/worlds-reserve-currency-whats-past-epilogue

World Bond Issuance to Top $8 Trillion as Rally Seen Fading

2012-01-03T15:57:00.001-08:00

From Bloomberg:

Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs.

Led by Japan’s $3 trillion and the U.S.’s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to data compiled by Bloomberg.

The amount needing to be refinanced rises to more than $8 trillion when interest payments are included. Coming after a year in which Standard & Poor’s cut the U.S.’s rating to AA+ from AAA and put 15 European nations on notice for possible downgrades, the competition to find buyers is heating up.

“The buyer base for peripheral Europe has obviously shrunk at the same time that the supply coming to the market is increasing, which is not a good combination,” said Michael Riddell, a London-based fund manager at M&G Investments, which oversees about $323 billion.

Investors should be most worried about the period after the ECB’s second three-year longer-term refinancing operation scheduled in February, according to Ignis’s Thomson.

“The amount of liquidity that has been supplied by central banks, with more to come from the ECB in February, suggests the first couple of months will be a sort of phony war as far as the supply is concerned,” Thomson said.

http://www.bloomberg.com/news/2012-01-03/world-s-biggest-economies-face-7-6-trillion-bond-tab-as-rally-seen-fading.html

Charting the Extinction of American Disposable Income

2012-01-03T15:54:00.001-08:00

From Zero Hedge:

It was the best of times, it was the worst of times. Given today's excitement at a rallying equity market, we are already hearing chatter on raising GDP estimates even though macro data is benefiting from standard seasonal improvements. However, while these good times are rolling for some (who, we are not sure), Sean Corrigan (of Diapason Commodities) points to our real disposable income. The man on the street's spend-ability has seen the worst five years' growth in half a century. For four decades, US real per capita disposable income has risen at ~20% a decade. For the average working man, that is a doubling of disposable income in a typical working life. The last 5 1/2 years, however, have seen no change whatsoever - the worst performance in at least half a century.

http://www.zerohedge.com/news/charting-exitinction-american-disposable-income

30 Statistics That Show the U.S. Middle Class Is Dying

2012-01-03T15:41:00.001-08:00

From Zero Hedge:

Once upon a time, the United States had the largest and most vibrant middle class that the world has ever seen. Unfortunately, that is rapidly changing. The statistics that you are about to read prove beyond a doubt that the U.S. middle class is dying right in front of our eyes as we enter 2012.

The decline of the middle class is not something that has happened all of a sudden. Rather, there has been a relentless grinding down of the middle class over the last several decades. Millions of our jobs have been shipped overseas, the rate of inflation has far outpaced the rate that our wages have grown, and overwhelming debt has choked the financial life out of millions of American families. Every single day, more Americans fall out of the middle class and into poverty. In fact, more Americans fell into poverty last year than has ever been recorded before. The number of middle class jobs and middle class neighborhoods continues to decline at a staggering pace.

The following are 30 statistics that show that the middle class is dying right in front of our eyes as we enter 2012....

#1 Today, only 55.3 percent of all Americans between the ages of 16 and 29 have jobs.

#2 In the United States today, there are 240 million working age people. Only about 140 million of them are working.

#3 According to CareerBuilder, only 23 percent of American companies plan to hire more employees in 2012.

#4 Since the year 2000, the United States has lost 10% of its middle class jobs. In the year 2000 there were about 72 million middle class jobs in the United States but today there are only about 65 million middle class jobs.

#5 According to the New York Times, approximately 100 million Americans are either living in poverty or in "the fretful zone just above it".

http://www.zerohedge.com/contributed/30-statistics-show-middle-class-dying-right-front-our-eyes-we-enter-2012

Euro Zone Manufacturing PMI Showing Fifth Month of Contraction

2012-01-02T15:55:00.001-08:00

From Reuters over Yahoo Finance:

Euro zone manufacturing activity declined for a fifth consecutive month in December, although at a slightly slower rate than November's 28-month record low, a survey showed on Monday, suggesting the decline would continue in the early months of 2012.

Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) rose slightly in December to 46.9 from November's 46.4, but marked its fifth month below the 50 mark that divides growth from contraction. It was unchanged from an earlier preliminary reading.

Survey compiler Markit said levels of production and new orders fell in all of the euro zone countries covered by the survey for the second month running.

"Despite the rate of decline easing slightly in December, production appears to have been collapsing across the single currency area at a quarterly rate of approximately 1.5 percent in the final quarter of 2011," said Chris Williamson, chief economist at Markit.

"The survey also points to a strong likelihood of further declines in the first quarter of the new year, with producers cutting back headcounts, inventories and purchasing."

The euro zone economy is already stuck in a recession that will last until the second quarter of 2012, Reuters polls of economists suggested last month. They forecast the economy will probably see no growth this year.

Business and consumer confidence in the currency bloc has been eroded by a weakening global economy and by euro zone policymakers' failure to make progress on resolving the euro zone debt crisis. Austerity measures imposed to try and cut high debt levels in the currency bloc risk further undermining euro zone economies this year, analysts say.

The new orders component of the December PMI survey also picked up slightly, to 43.5 in December from 42.4 the previous month, but it remained weak and Markit warned of a persistent and worrying divergence in order levels and output.

"Worryingly, new orders are falling at a far faster rate than manufacturers have been cutting output, meaning firms have been reliant on orders placed earlier in the year to sustain current production levels," said Williamson.

"This is particularly evident in Germany, and suggests that operating capacity will be slashed in coming months unless demand revives."

http://finance.yahoo.com/news/euro-zone-manufacturing-downturn-extends-090015380.html

The Most Significant Developments of 2011 with Trends in 2012

2012-01-02T15:51:00.001-08:00

From Jesses’ Café:

As always the four great variables in human history are weather, disease, war, and religion. The first two are of God and the latter of men.

Weather spans a wide range of natural phenomenon including earthquakes, and similarly religion includes secular movements and philosophies such as fascism and communism, essentially godless religions that involve the ordering of the relationship of the individual with a higher power that is not supernatural.

As I am comfortable with stagflation as an economic forecast, stocks most likely will not perform well in real terms. However, they could be targeted by the Fed as they implement nominal GDP growth and it puts more weight on selective inflation within the stagnant real economy.

http://jessescrossroadscafe.blogspot.com/2011/12/most-significant-developments-of-2011.html

2011-12-31T23:15:00.001-08:00

“What is good, and what does the Lord require of you?
To act justly,
to love mercy
and to walk humbly with your God.”
Micah 6:8

A happy and healthy New year to everyone; thank you all

Charting 2011

2011-12-29T15:58:00.001-08:00

From the Economist:

In 2008 banks were saved by governments. The question that dominated 2011 was how to save governments. The euro-area sovereign-debt crisis metastasised from a problem affecting small, peripheral states to one that threatens the single currency itself. The rise in Italian bond yields in particular marked a dangerous new stage in the saga (chart 1). European banks, stuffed full of government bonds, have suffered a severe funding squeeze since the summer (chart 2). The euro was oddly resilient against the dollar, but Switzerland and Japan intervened to hold down their currencies as investors sought shelter (chart 3).

Faced with skittish creditors, countries in Europe tried to instil confidence by cutting spending (chart 4). Austerity and growth do not mix, however. Euro-area GDP remains below its pre-crisis level. American output did at least regain that mark in 2011 (chart 5) but US unemployment remained very high.

The emerging economies again outshone their rich-world counterparts in terms of growth and jobs. But fears about inflation (chart 6) slowly gave way to fears about growth as the year went on and Europe’s problems worsened. Emerging-market stocks dropped sharply in the summer as investors put their money into less risky assets (chart 7). Gold also benefited from another year of fear. The metal was set to post its 11th consecutive annual gain in 2011 (chart 8). Google searches for “gold price” rose whenever measures of market uncertainty did (chart 9). If governments aren’t safe, after all, what is?

http://www.economist.com/node/21542191

U.S. Auto Industry Drifts Off to China

2011-12-29T15:56:00.001-08:00

From testosteronepit:

Though practically every car sold in the US today contains Chinese-made components, the announcement that a few Chinese-made cars would arrive in Canada raised a lot of eyebrows. It would be a Honda Fit assembled in the same plant where the European version, the Jazz, has been built for years. But Chinese-designed and branded vehicles have not made it yet. Chinese automakers, of which there is a whole slew, are scrambling to improve their technologies from nice-looking but shoddy copy-and-paste models to reliable products that would be competitive in developed markets. It’s a government priority. And they’re getting there through the back door.

http://www.testosteronepit.com/home/2011/12/28/the-us-auto-industry-drifts-off-to-china.html

Goldman Sachs: BRIC Decade Ends as Growth Peaked

2011-12-29T15:51:00.001-08:00

From Bloomberg:

In the past decade, mutual funds poured almost $70 billion into Brazil, Russia, India and China, stocks more than quadrupled gains in the Standard & Poor’s 500 Index and the economies grew four times faster than America’s.

Now Goldman Sachs Group Inc. (GS), which coined the term BRIC, says the best is over for the largest emerging markets.

BRIC funds recorded $15 billion of outflows this year as the MSCI BRIC Index sank 24 percent, EPFR Global data show. The gauge, which beat the S&P 500 by 390 percentage points from November 2001 through September 2010, has trailed the measure for five straight quarters, the longest stretch since Goldman Sachs forecast the countries would join the U.S. and Japan as the top economies by 2050.

“In emerging markets, we’re waiting for things to get worse before they get better,” said Michael Shaoul, the chairman of Marketfield Asset Management in New York who predicted in February that developing-nation stocks would fall this year. The $845 million Marketfield Fund (VONEMBI) has topped 97 percent of peers in 2011, data compiled by Bloomberg show.

“The slowdown we’re seeing in the BRICs will continue for most of the first half,” Mahendran said. “Compared to the U.S., corporate profits haven’t been that good as companies face higher wages, higher interest rates and currency volatility, and at best, we’ll only start to see the effects of monetary policy loosening in the second half of 2012.”

“There will be a lot of volatility, but as people realize the underlying structural weaknesses of the BRIC economies, you’ll see money coming out,” Deutsche Bank’s Smith said in a telephone interview on Dec. 19.

China’s economic data have trailed estimates for the past two months, based on Citigroup Inc.’s Economic Surprise Index, a gauge of how much reports are missing economist projections in Bloomberg News surveys. Chinese manufacturing contracted by the most since 2009 in November, while new home prices declined in 49 of 70 cities tracked by the government the same month.

http://www.bloomberg.com/news/2011-12-27/bric-decade-ends-with-record-stock-outflows-as-goldman-says-growth-peaked.html

Art Cashin Exposes the Behind the Scenes Panic in Europe

2011-12-28T15:59:00.001-08:00

From Zero Hedge:

Think "all is fine" in Europe after today's largely irrelevant Italian bill auction (the auction was for 6 month debt - even Greece can raise that kind of money)? Think again. Here is the Fermentation Committee Chairman explaining why Europe is so hard pressed to create a fake sense of calm, allowing those who know the real story to take advantage of the situation while they still can, and sharing the behind the scenes truth you won't get anywhere else. Certainly not SWIFT.

http://www.zerohedge.com/news/art-cashin-exposes-behind-scenes-panic-europe

Japan Industrial Output Slumps

2011-12-28T15:57:00.001-08:00

Japan has been kicking the can down the road for the last 20 years. Their monetization has worked largely due to its export machine. It is now in trouble.

From Bloomberg:

Japan’s rebound from the March earthquake and tsunami sputtered in November as production and retail sales tumbled, deepening the nation’s return to the deflation that first took hold a decade ago.

Industrial output slumped 2.6 percent from October, more than all the forecasts in a Bloomberg News survey of 29 economists, a government report showed today in Tokyo. Retail sales slid 2.1 percent. Consumer prices excluding fresh food fell 0.2 percent from a year earlier after a 0.1 percent decline the previous month.

The weakening economy, hurt by Europe’s debt crisis and plans by companies from Panasonic Corp. to Nissan Motor Co. to shift production abroad, may undermine Prime Minister Yoshihiko Noda’s plan to raise taxes and cut the world’s largest debt burden. Lawmakers told reporters in Tokyo today that a tax panel set up by Noda’s party has proposed doubling the nation’s sales tax by 2015, a move opposed by some ruling party members who’ve threatened to quit over the issue.

“Fundamentally, Japan’s economy is on a downward slope,” said Yoshimasa Maruyama, chief economist at Itochu Corp. “Exports are falling and negatively impacting Japan’s economy due to the global slowdown.”

Other data also suggest Japan’s recovery may be stalling. Exports fell for the second straight month in November from a year earlier and capital spending in the third quarter dropped 9.8 percent. Large manufacturers are more concerned about business prospects, with the Bank of Japan’s Tankan quarterly index of corporate sentiment falling to minus 4 this month. A negative figure indicates pessimists outnumber optimists.

The financial situation in the euro area, Japan’s third- biggest export destination, also shows no sign of improving, with 10-year Italian government bonds hovering around 7 percent. Fitch Ratings on Dec. 17 lowered the credit outlook of Spain, Italy and AAA-rated France, citing Europe’s failure to find a “comprehensive solution” to its crisis.

The appreciation of the yen is hurting exports, Japan’s finance minister, Jun Azumi, said on Dec. 24. The finance minister has indicated he’s prepared to sell the currency in the foreign-exchange markets. The Finance Ministry said last week that it plans to raise the issuance limit for bills to fund intervention to an unprecedented 195 trillion yen.

http://www.bloomberg.com/news/2011-12-27/japan-factory-output-falls-on-global-slump.html

The End Game: Japan Makes Another Move

2011-12-27T15:56:00.001-08:00

It is appalling to see how the Japanese government has screwed over its ordinary citizens who don’t seem to know what might lie ahead. The same goes for Korea as well while it has to deal with slightly different issues. The political leadership has failed to act in defense of the general public. That is a tragedy. It is disheartening to see Japan and Korea destroying the future for the next generation.

From testosteronepit:

It’s a doozie. On December 24, the cabinet approved a draft budget for fiscal 2012 whose headline numbers were horrid enough: ¥90.3 trillion ($1.173 trillion) in outlays, ¥42.3 trillion in tax revenues, and a deficit of ¥48 trillion. 49% of the outlays are to be covered by issuing bonds, a record even for Japan. But it gets worse. Accounting shenanigans gloss over the fiasco by removing two items from the general budget: the reconstruction budget of ¥3.8 trillion and pension payments of ¥2.6 trillion. When they’re included, the deficit jumps to ¥54.4 trillion.

Despite the near-zero interest rate policy the Bank of Japan has been pursuing for years, interest expense on the debt—at 230% of GDP by far the highest in the developed world—will eat up ¥21.9 trillion in 2012, a stunning 51.8% of tax revenues! If yields on 10-year JGBs were to rise from 1% to 2%.... Better not think that way. Keeping yields near zero is simply a matter of survival.

Funding these deficits and rolling over the gargantuan debt has been made possible by the institutional setup and cohesive psychology of Japan Inc.: 95% of JGBs are held within Japan. Individuals directly or indirectly hold over 50%. Government-owned or controlled institutions hold over 40%.

But two of the strengths of the Japanese economy that have supported the absurd deficit levels—a high savings rate and a large trade surplus—have collapsed.

http://www.testosteronepit.com/home/2011/12/26/the-endgame-japan-makes-another-move.html

Japan Will Raise More Cash from Debt Issuance Than Taxes for Fourth Year in a Row

2011-12-26T18:23:00.000-08:00

What is going on in Japan, China, Europe and the U.S. will impact our economy and ordinary folks’ lives in many ways.

From Zero Hedge:

While the world is watching Europe and the US for signs of imminent decoupling, and now has added China to its insolvency focus list, things in Japan, which is "fine" courtesy of a self-destruct autopilot, are just getting plain ridiculous. As we reported earlier this year, Japan's marketable public debt, already the largest in the world at $11.2 trillion compared to America's $10 trillion (of course this assumes the whole SSN sleight of hand is funded, which it isn't), is due to surpass ¥1 quadrillion any month now (aka the exponential phase). And that's just the beginning. As Bloomberg reports, "Bond sales to the market will climb to a record 149.7 trillion yen ($1.9 trillion), while the national budget’s reliance on debt for funding will rise to an unprecedented 49 percent in the year starting April 1, Japan’s government said Dec. 24. The government said it plans to sell 44.2 trillion yen of new bonds to fund 90.3 trillion yen of spending in next fiscal year’s budget. It estimates that tax revenue will total 42.3 trillion yen in fiscal 2012, meaning that new bond sales will exceed tax revenue for a fourth year." In other words, in a world increasingly disconnected form any sort of reality, very soon no taxes at all will be needed: after all each and every government (or uber-union in teh EU's case, once the imploding Eurozone turns to the final Deus Ex - a fiscal protectorate issuing joining Eurobonds) will simply fund all its cash needs by printing its own money. Naturally, anyone daring to suggest that this is beyond idiotic will be given an MMT 101 manual and/or incarcerated for grand treason. And any last voices of sanity will be promptly muted: "I think the reliance on bonds to compile budgets is reaching its limit,” Japanese Finance Minister Jun Azumi said Dec. 24, after the announcement of the budget plan.

http://www.zerohedge.com/news/japan-will-raise-more-cash-debt-issuance-taxes-fourth-year-row

China Insolvency Wave Begins

2011-12-26T18:21:00.000-08:00

From Zero Hedge:

Remember, back in the day, when a bankruptcy was simply called a bankruptcy? Naturally, this was well before ISDA came on the scene and footnoted the living feces out of everything by claiming that a bankruptcy is never a bankruptcy, as long as the creditors agree to 99.999% losses at gunpoint, with electrodes strapped to their testicles, submerged in a tank full of rabid piranhas, it they just sign a piece of paper (preferably in their own blood) saying the vaseline-free gang abuse was consensual. Well, now we learn that as the global insolvency wave finally moves to China, a bankruptcy is now called something even less scary: "deferred loan payments" (and also explains why suddenly Japan is going to have to bail China out and buy its bonds, because somehow when China fails, it is the turn of the country that started the whole deflationary collapse to step to the plate). After all, who in their right mind would want to scare the public that the entire world is now broke. Certainly not SWIFT. And certainly not that paragon of 8%+ annual growth, where no matter how many layers of lipstick are applied, the piggyness of it all is shining through ever more acutely. Because here are the facts, from China Daily, and they speaks for themselves: "China's biggest provincial borrowers are deferring payment on their loans just two months after the country's regulator said some local government companies would be allowed to do so....Hunan Provincial Expressway Construction Group is delaying payment on 3.11 billion yuan in interest, documents governing the securities show this month. Guangdong Provincial Communications Group Co, the second-largest debtor, is following suit. So are two others among the biggest 11 debtors, for a total of 30.16 billion yuan, according to bond prospectuses from 55 local authorities that have raised money in capital markets since the beginning of November." So not even two months in and companies are already becoming serial defaulters, pardon, "loan payment deferrers?" And China is supposed to bail out the world? Ironically, in a world in which can kicking is now an art form, China will show everyone just how it is done, by effectively upturning the capital structure and saying that paying interest is, well, optional. In the immortal words of the comrade from Georgia, "no coupon, no problem."

http://www.zerohedge.com/news/china-insolvency-wave-begins-nations-biggest-provincal-borrowers-defer-loan-payments

A Few Chinese Bad News

2011-12-26T18:19:00.000-08:00

Some good data points on China

From EconMatters:

From what we discussed so far, it is evident a pronounced China slowdown in the next year or so is inevitable with the nation's export-centric economy struggling with waning global demand, while undergoing domestic structural economic and demographic shifts. Moreover, there could be some hidden debt bombs as a recent Bloomberg finding suggests that China's banks may be understating their exposure to runaway local borrowing by possibly billions of dollars that is raising fears of a government bailout.

How Beijing steers its economic and monetary policies in the next 2-3 years will be key to balance the country's inflation, growth and stability. While we see a very low probability of a hard landing case for China, but if Jim O'Neill is right about how much the world depends on China's growth, then don't count on that much world prosperity, at least in 2012.

http://www.econmatters.com/2011/12/few-chinese-bad-news-bears-that-could.html

2011-12-23T17:56:00.003-08:00

“Love always protects,
always trusts,
always hopes,
and always perseveres
And now these three remain: Faith, hope and love
But the greatest of these is love.”

Corinthians 13: 7 & 13

Merry Christmas to all.

Quotes of the Day: Ron Paul Edition

2011-12-23T17:56:00.001-08:00

From the Burning Platform:

THOSE IN POWER FEAR RON PAUL AND HIS MESSAGE OF LIBERTY, FREEDOM, AND RESPONSIBILITY. THE QUOTES BELOW ARE THE TRUE REFLECTION OF THE MAN AND HIS IDEAS. IDEAS CAN CHANGE THE WORLD. DO YOUR PART TO FIGHT THE MISINFORMATION CAMPAIGN BEING WAGED BY THE CORPORATE MEDIA AND THEIR POLITICAL HACKS BY SENDING THIS LIST OF QUOTES TO EVERYONE IN YOUR EMAIL ADDRESS BOOK.

“Liberty is lost through complacency and a subservient mindset. When we accept or even welcome automobile checkpoints, random searches, mandatory identification cards, and paramilitary police in our streets, we have lost a vital part of our American heritage. America was born of protest, revolution, and mistrust of government. Subservient societies neither maintain nor deserve freedom for long.”
- Ron Paul

“Failure of government programs prompts more determined effort, while the loss of liberty is ignored or rationalized away…whether is it is the war on poverty, drugs, terrorism…or the current Hitler of the day, an appeal to patriotism is used to convince the people that a little sacrifice of liberty, here or there, is a small price to pay…The results, though, are frightening and will soon become even more so.”
- Ron Paul

“When the federal government spends more each year than it collects in tax revenues, it has three choices: It can raise taxes, print money, or borrow money. While these actions may benefit politicians, all three options are bad for average Americans.”
- Ron Paul

“A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank.”
- Ron Paul

“Let it not be said that no one cared, that no one objected once it’s realized that our liberties and wealth are in jeopardy.”
- Ron Paul

“It is no coincidence that the century of total war coincided with the century of central banking.”
- Ron Paul, End the Fed

http://www.theburningplatform.com/?p=26739

Brandon Smith: The Economic Solutions of Vampires

2011-12-23T17:55:00.001-08:00

From Alt-Market:

Just as in nature, the economic world has its own bloodsucking vermin in the form of banking elites which are a wretched drain on the whole of the human race. Without their vicious and predatory presence, I envision a world so rapturously above and beyond what we wallow in today that it is impossible to describe. The disgust many feel when considering the virulent feeding habits of the common mosquito or the slithering leech does nothing to compare to the utter gut churning revulsion I feel when studying the financial habits of banks like the Federal Reserve and the “too big to fails”. They are without a doubt the most malignant form of social cancer imaginable.

And yet, after nearly four years of ongoing fiscal exsanguination, a sizable portion of the American populace is still looking to these pests for economic comfort and reassurance, just like farm animals consistently grazing near the entrance of a vampire bat cave, as if it is a shelter from harm. Worst of all is the willingness by which investors still, to this day, commit their savings and their livelihoods to the stock market meat grinder. Let’s be honest; the typical American daytrading investor is a complete moron. They have absolutely no sense of the fundamentals of our financial structure nor the eccentric rules by which it operates. They only have the faintest inkling of the functions of the highly manipulated stock market. They foolishly believe that what little money they make today riding the wave of an illegitimate liquidity driven rally they will actually get to keep. For them, stock investment is no different from buying a scratch-off lotto ticket at a hillbilly gas station; it is a cheap and tawdry game rife with failure but exciting to play, if only for a fleeting guilt addled thrill.

To be fair, they play because the game is indeed “rewarding”, at least, initially. The first taste is so sweet that it soils the plasma; the very skin of the cellular membrane of the financial mind becomes saturated. It swells within the weakening heart of a culture, and overrides its sense of logic. It makes us do terrible and stupid things, and we clasp our hands together and pray that it will never end. But, of course, an ending is painfully inevitable. The more we indulge, the more it takes down the road to satisfy us. We become an addict nation, riding the chemical wave of a pharmaceutical roller coaster fed by the opiates of fiat and fantasy.

The bottom line; we are being drained of our lifeblood as a country.

http://www.alt-market.com/articles/438-the-economic-solutions-of-vampires

Japan Records Trade Deficit in October: Japan Balance of Trade Chart

2011-12-21T14:56:00.000-08:00

As noted, Japan’s robust trade balance has propped up its ponzi game until recently. It’s now in trouble, and it wouldn’t get better any time soon.

From Trading Economics:

Japan reported a trade deficit equivalent to 274 Million JPY in October of 2011. Exports have been the main engine of Japan's economic growth in the past six years. Japan imports raw materials and processes them into high technology products. Japan’s major exports are: consumer electronics, automobiles, semiconductors, optical fibers, optoelectronics, optical media, facsimile and copy machines. Its main trading partners are The United States, China and European Union. This page includes: Japan Balance of Trade chart, historical data and news.

http://www.tradingeconomics.com/japan/balance-of-trade

ECB's Balance Sheet Now Far Bigger Than Fed's, More Levered Than Lehman, PIIGS Exposure Up 50% in 6 Months

2011-12-20T15:56:00.000-08:00

From Zero Hedge:

While well-known to most, what may be lost on all those calling for the ECB to commence outright printing, is that as today's Bloodmberg chart of the day shows, the ECB's balance sheet is not only far greater than the Fed, at $3.2 trillion compared to $2.9 trillion for Ben Bernanke, but at 30x leverage, has the same risk as Lehman did at its peak. However, one major distinction between the Fed and the ECB is that while the Fed continues to be shrouded in almost impenetrable secrecy on an absolute basis, it is transparent as a wet t-shirt competition during Spring Break at Panama City Beach compared to the ECB. From Bloomberg: "Without information on the quality of assets on the ECB’s balance sheet or how far it’s willing to allow leverage to increase, investors may doubt the bank’s ability to prop up the financial system, and demand higher yields to buy some countries’ bonds, he said. "Sovereign spreads could rise again if investors become uncomfortable with ECB leverage without a fully detailed rescue package,” said Tyce. “The ECB is providing liquidity and confidence to the banking system, yet all the while its own leverage and balance sheet size is hitting new highs. It seems likely that the market will begin to watch the rising leverage with interest and growing concern."

http://www.zerohedge.com/news/ecbs-balance-sheet-now-far-bigger-feds-more-levered-lehman-piigs-exposure-50-6-months

Japan’s Nearly ¥1 Quadrillion in Debt

2011-12-19T23:48:00.000-08:00

From Zero Hedge:

Scouring through the news screens, we nearly fell of the proverbial chair after reading the following Bloomberg headline paraphrasing a Nikkei report: "Japan May Buy Chinese Govt Bonds, Nikkei Says....Japan is seeking to diversify forex funds and strengthen economic cooperation with China by helping make yuan more international. Japan may purchase a total of $10b worth in stages." Naturally, there are two interpretations: the ugly one is that Japan, the 3rd largest holder of US debt after the Fed and China, is considering gradually abandoning the dollar or, as the term is better known in polite circles "diversifying." The second one, and the far more amusing one, is that Japan will somehow bail out China by providing the much needed credit money that will translate into GDP (at a sub 100% ratio of course, because as is well known by now the world has reached the stage where one unit of debt generates less than one unit of incremental growth). The reason why this is amusing is because as the chart below shows, Japan's debt is now a hair's width below ¥ 1.... quadrillion. And yes, ignore the fact that the demographic squeeze in Japan is already forcing households to proceeds to monetize the largely domestically held debt. So, we wonder, where will the JGB debt curve go next in the deflationary basketcase that is Japan? As for where it has been, see below.

http://www.zerohedge.com/news/quick-look-japans-nearly-%C2%A51-quadrillion-debt

GS’s Take on Kim Jong-il’s Demise

2011-12-19T23:47:00.000-08:00

From Zero Hedge:

Following the sudden and surprising death of North Korea's "Dear Leader", many are wondering what this means for risk, especially in the Pacific rim. In other words, was last night's selloff warranted? For what it's worth, here is Goldman's Goohoon Kwon with a take of how the institutional audience is trying to comfort itself that all shall be well, and that power vacuums are all inherently rational and perfectly predictable. Just ask Egypt. And Robespierre.

http://www.zerohedge.com/news/goldmans-take-kim-jonh-ils-demise

China Engaging in New Form of Imperialism: Beats Out World Bank as Biggest Lender to Africa

2011-12-19T23:45:00.000-08:00

From Shanghaiist:

In accordance with rapidly-waning Western influence on the African continent, China has surpassed the World Bank as biggest lender to the credit-poor developing world in the past year, according to US-based Asia Society.

China has signed a multitude of billion dollar deals with some of the world's poorest nations, ranging from investments in hospitals, malls and power stations to new roads, railways, and other institutions. African countries such as Zambia and Angola see the footprint most visibly, where billboards, road signs, and even ATMs are now displaying Chinese characters. And then there's the plethora of Chinese trade delegations flying over to sign deals some consider to be a new form of imperialism.

http://shanghaiist.com/2011/12/14/china_lending_more_than_world_bank.php