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This one year old selection of news. It's really funny to read forecasts that are just one year old.
Note: Despite doom and gloom stock market went from 1260 to 1460 in one year. This new stock and bonds bubble was supported by Fed.
By Sell on News, a global macro equities analyst. Originally published at Macrobusiness.
Lambert here. Note the use of the phrase "market state," invented if not exactly defined by Phillip Bobbit in his The Shield of Achilles, and portrayed as a historical inevitability.
For the last couple of years, in the wake of the financial crisis, the banking and finance community has darkly warned about the dangers of over regulating the sector. "We mustn't impede the free flow of capital", it is claimed, "otherwise efficiency and productivity will be lost and the real economy will not recover." The other camp claims that the finance sector must be reined in, re-regulated, otherwise crises will continue to happen. The dichotomy is entirely false. Finance is rules. You cannot increase or decrease the amount of rules in rules. You can only change their character. And you can decide who will set them.And that is what this argument is really about. Power. Who has the power to set the rules of finance. For a quarter of a century, governments have progressively given up their power to set the rules and given it over to private players, who, to say the least, made up their own rules: forwards, futures, options, swaps, CFDs, CDSs, CDOs, securitisation … And my favourite, volatility derivatives, which can be translated as "we make the mess, then we make
moneyfrom the mess."
False dichotomies are the stuff of political rhetoric and make no mistake, the wresting of power from government by the private sector has been a political exercise, starting in the Reagan and Thatcher years. It has been spectacularly successful. Well, up until the point where its absurdities started to result in the system almost collapsing, that is. When the serpent began to eat its own tail.
The false dichotomy about regulation inevitably led to another false dichotomy. That the only choice facing us is between bad government and good markets. You can see how it works in the Economist article on LIBOR (the London Interbank Offered
Ratethat sets the interest rate for the world). Never let a chance to blame government go past, even when the traders have been caught cold rorting the system:BOOSTERS of financial regulation are making hay from the widening scandal over allegations that LIBOR, a key interest rate, was rigged repeatedly for at least five years since 2005. Yet the trove of documents that have emerged also reveal the very flawed nature of regulation, in which government bureaucrats are asked to keep tabs on high-flying financial sorts. Transcripts of calls between officials at the Federal Reserve Bank of New York and traders at Barclays show that regulators didn't really pick up on cues, even when they spelled out misbehaviour.The same sort of bashing of government can be seen in Karen Horn's article for Standpoint, one of many examples of the rear guard action being mounted against criticisms of the ideology of the market state. Horn announces that the "anti-capitalists are coming out of the closet", eliding, as ever, democracy and markets. Underlying her critique is the neat use of dichotomies, bad government, good markets. Markets have pricing. Governments don't:Of course it is only through ignoring the pervasive evidence of government failure that they can have their cake and eat it: sure, spontaneous coordination in the marketplace is efficient and innovative, but let's rein it in as we see fit. Rules are not enough; we are entitled to some enlightened ad hoc regulation. That will make the market process non-spontaneous? Oh well, it's for our benefit, and some greater good.This circular bashing of the state is typical of the quasi logic of the pro-market apologists. The market is defined as inherently better because it has pricing and supply and demand, whereas the state is defined as inherently inefficient because it doesn't have those things. In other words, the market is the market, the state is the state, and therefore the state is not the market.
Such Manichean circularities are pursued, wittingly or unwittingly, to create the impression that, although markets may be bad at times, governments are always worse. Yet such a dichotomy of bad government v (mostly) good markets is not the choice that faces us at all, at least not in the financial markets. The choice is between good government and bad government. In the final analysis, as we are graphically seeing, governments have to set the rules. Traders rely on the basic legal structures that underpin transactions, even when they are based on assent rather than enforcement.If they are allowed too much freedom to set their own rules, it eventually collapses and guess who has to pick up the pieces? Governments. The euro crisis, for example, has become so intractable, because there is no single government underlying the currency. If one needs reminding how political finance is, go no further than Europe.
It is at this point that 25 years of the political rhetoric of the de-regulation proponents has become so damaging. Francis Fukuyama alluded to this recently in the Financial Times. He commented that the Left has no answers, and that the best way forward is for the right to rethink:If contemporary conservatives could get over their ideological aversion to the state, they would recognise that American government is both necessary and in great need of reform rather than abolition. Private sector companies haveWhat will eventually emerge is a recognition that government must set the basic rules of money. Even taking into account the fact that there are massive cross border flows of capital which are beyond the reach of any one government. The only question, I suspect, is if this will occur after yet another set of crises, or in advance, through an effort to improve the quality of government from within, as Fukuyama is urging. The reality is that, just as you cannot have a legal system without government setting the rules, you cannot have a financial system without government setting the rules.
undergone huge chang.es in recent decades, flattening managerial hierarchies, upgrading workforce skills and experimenting ceaselessly with new organisational forms.
American government, by contrast, seems trapped in a late 19th-century bureaucratic model of rules and hierarchy.
It needs to be smaller but also stronger and more effective. And this will not happen unless people see public service as a calling, rather than a despised occupation for people unable to make it in the private sector. In this regard, conservatives have an advantage because they can call people to public duty on the basis of the American nation rather than abstract ideals.
Improving government will then require the asking of some basic questions about ethics, morality and what the financial system is for. Political questions, in other words. Questions about what is a good and bad society. Of course, while the finance sector enjoys such political reach through its various funding and lobbying campaigns, such a discussion will be hard to instigate. But in the end, as we are seeing with the dysfunctionality of the system, it is inevitable. The political debate contest over the role of governments and the markets has not been conclusively resolved. Political contests never are.
"You cannot increase or decrease the amount of rules in rules. You can only change their character. And you can decide who will set them."
you can also choose to enforce them or not…or am i thinking of "laws" there and not rules.
Rather, I think the government and its cronies shouldn't have a monopoly on the money printing business period. And speaking of counterfeiting, the Secret Service gets really bent out of shape whenever anyone prints up a few 100 dollar bills in his basement, but banks are free to electronicly print up new money/credit all the time and dump it on the economy willy nilly with no one saying a word about it. It just goes to show that some people are more equal than others.
"If contemporary conservatives could get over their ideological aversion to the state, they would recognise that American government is both necessary and in great need of reform rather than abolition"
does anyone really believe "conteporary conservatives have an aversion to the state".. they love the state, they are the state, that is they LOVE the state, to serve their purposes and only their purposes. protecting their privilege and power, forever. The Left does have answers (the historical left anyway) its just the capitalist totality has spent vast amounts of resources, time, energy, lives, and money making sure the lefts solutions are never applied. never heard really, much less ever applied. or if in some rare case there is some danger of the left breaking through, crushing it, stamping it out.
Those who bash the philosophical basis of government as in the case of the writer at the quoted Economist article never allow us to see what government that it is that they really would like to have in place. Because government we will have no matter. As Mr. Lambert points out it is the nature and quality of government that is the issue. So called free marketeers always talk loudly and at great length about a limited government without saying exactly what that entails. For a simple reason: it's been much talked about at length by political writers since the times of the Renaissance in Florence, Italy and has been, at least supposedly, thrashed about a great deal so of course, perhaps the writer implies we need not worry or pretty little heads about the subject.
J. G. A Pocock, in a remarkable book entitled 'The Machiavellian Moment' points to Leonardo Bruni from Arezzo as the first noteworthy writer who wrestled with the nature of civic duty, law writing and government.
Most of the writers quoted in the article above who are busy trashing government would do well to look at Bruni's writings. Pocock-p 87- has this to say about the subject of civic virtue:
"But though Florentine thinkers might many times turn away from the image of the citizen as fully political being, this level of analysis could not be neglected. One might easily find oneself admitting that political engagement was necessary to virtue, and when engagement was to seen to have been lost or to have become subject to another's manipulation, something had to be said of what had happened and why."
According to the writer at the Economist we may just blame naughty, simple minded and petulant bureaucrats for our current financial mess without looking at one of the key factors now causing the vehicle known as representative democracy to traverse headlong into the bottom of the proverbial abyss at the far side of the cliff of economic catastrophe that is our lot. We should be looking to such writers as the Economist is wont to keep scribbling as the primary source of shaming us into feeling guilt for caring about the nature of government; this then I suppose, keeps the political arena free of messy democratic involvement of the intellectually unwashed masses who, when they do awake from their current desire to alpha wave the whole mess to oblivion, might decide to stop their subscription to the likes of the Economist.
Jack Abramoff:I Know the Congressional Culture of Corruption, by Jack Abramoff: ...No one would seriously propose visiting a judge before a trial and offering a financial gratuity, or choice tickets to an athletic event, in exchange for special consideration from the bench. Yet no inside-the-Beltway hackles are raised when a legislative jurist -- also known as a congressman -- receives a campaign contribution even as he contemplates action on an issue of vital importance to the donor.During the years I was lobbying, I purveyed millions of my own and clients' dollars to congressmen, especially at such decisive moments. I never contemplated that these payments were really just bribes, but they were. Like most dissembling Washington hacks, I viewed these payments as legitimate political contributions, expressions of my admiration of and fealty to the venerable statesman I needed to influence.Outside our capital city (and its ever-prosperous contiguous counties), the campaign contributions of special interests are rightly seen as nothing but bribes. The purposeful dissonance of the political class enables congressmen to accept donations and solemnly recite their real oath of office: My vote is not for sale for a mere contribution. They are wrong. Their votes are very much for sale, only they don't wish to admit it. ...
April 26, 2012 | Finance Addict
Say what you will about Lloyd Blankfein, the CEO of Goldman Sachs, but for all his failings he's probably quite intelligent. Here's what he said in response to a question on the upcoming Facebook IPO from Eric Schatzker of Bloomberg TV. (Hat tip to Barry Ritholtz at The Big Picture):
If we ever added an S to the end of BRIC to make it BRICS, you might have to throw Silicon Valley in there.
Goldman, as you might know, is the firm that invented the BRIC acronym. Sorry, South Africa. Looks like the geeks beat you to it.
But did Lloyd just call the top of a new tech bubble? The main question that seems to be on the lips of everyone in the tech scene (and a good many people outside of it) is, "Are we or aren't we in a tech bubble?" Arguments tend to break down as follows:
- No, we're not in a tech bubble.
Paul Graham is the founder of YCombinator, the so-called Harvard of startup incubators. With such a personal and financial stake in the industry, you wouldn't expect him to acknowledge a bubble. Here's how he explained his position during an interview with Bloomberg West last month:
In every market prices rise and fall, like a sine wave. Prices are kind of high now. They'll probably go down in the future, right? But high prices is not a bubble. A bubble is like a mania, right? I mean, people are thinking, "I gotta get in or I'll get left behind", right? And I don't feel that people are thinking that now [...] I mean, I was there for the first bubble and that was a mania!
- Yes, we are in a tech bubble.
Dave Winer is a software developer and long-timer blogger. The following are verbatim excerpts from his recent post:
- We're believing there's value because we want to believe.
- We're bundling young people into things called startups, and selling them to investors for ever-increasing amounts of money.
- In an effort to bring more suckers in, they just passed a law that makes it legal to pimp these startups to people who don't know anything.
- It just doesn't matter if the businesses are any good, not to satisfy the bubble. As long as more suckers are coming in.
- We may be in a new tech bubble but who cares.
Justin Kan, who has founded a few startups of his own, has this to say:
The truth is that the technology sector as a whole over any length of time is a positive-sum game even if the economy doesn't grow at all, because it is taking business away from other industries (i.e. those other industries will experience negative gains adjusted for population growth; that is, they are shrinking in relation to everything else). A retraction of investment interest in this will slow but not stop the disruption.
But maybe the best, final word on this topic comes from an informal poll on Hacker News, which is a sort of Reddit for tech geeks.
As you can see the majority, about 72%, think that things are looking pretty bubblelicious.
Oil sure isn't pricing in a recession. QE3 and we get to $120 easy.
If I were within 15 years of dying I would be loading up with debt extended as far out as could be. If inflation hits,
great, if not, I've had a great time. As it is I'm stuck in the middle.
Oil sure isn't pricing in a recession. QE3 and we get to $120 easy.
That's what's disturbing. Oil is as high as it is when there is a recession in Europe and a major slowdown in China.
Imagine if the global economy were booming!
It's bizarro world when the Dems have become the party of fiscal responsibility, relatively speaking.
Of course, the GOP brought this on themselves with W's massive increases in the size of govt(DHS, military) and reckless tax cuts.
It's bizarro world when the Dems have become the party of fiscal responsibility, relatively speaking.
It is all derivatives at this point. The Dems are fighting to retain control of the upper house by repositioning themselves as the less fiscally irresponsible party. They aren't promising responsibility, they are pretending to be less irresponsible.
Rob Dawg wrote:
They aren't promising responsibility, they are pretending to be less irresponsible.
You would have thought that the GOP intelligentsia would have nominated a man of finer fiscal prowess. But alas, Romney is the epitome of everything that is wrong.
This will be interesting as they turn to Paul Ryan for financial insight as he will be gutted in minutes.
YouTube - Smith - Baby Its You ('69)
Marc Faber : The World is heading toward a Major Crisis |
MARC FABER BLOG
It is safest to buy U.S. Treasuries because the U.S. can print money. It will pay the interest. But you are earning only 1.6%, and the cost of living is increasing by about 5% a year around the world. You are getting a negative real return. - in Baron's round table June 2012 (?)
1.1% GDP likely does not translate into any growth at all, in real terms.
If you take in population growth and continued productivity gains from automation, it is actually pretty bad.
goldman sachs "experts" ... TEN DAYS ago -
"Here are some comments from Goldman Sachs:
We expect a middling June employment report to be released on Friday morning, with a 125,000 gain in nonfarm payrolls and a flat 8.2% unemployment rate. We raised our payroll number from 75,000 earlier today in response to 1) more online help-wanted advertising, 2) fewer layoff announcements, 3) a better ADP, 4) slightly lower initial jobless claims in the latest (post-survey) week, and 5) decent readings in the employment components of the ISM manufacturing and nonmanufacturing survey (despite disappointments in most other components).
If the report broadly matches our expectations, it would probably dampen speculation about an imminent return to balance sheet expansion from the Federal Reserve."
While economists may waste lots of hot air debating this, that and the other about the future growth trajectory of the US economy, in the aftermath of Goldman's cut of US GDP to just a 1.1% annualized rate of growth. And with the fiscal cliff, debt ceiling, Europe, China, and a plethora of other unknowns up ahead, this number will certainly decline further. Now here lies the rub: as the chart below shows total US marketable debt has doubled in the past 4 years, or an annualized growth rate of just above 21%. And as Zero Hedge has shown before, total US Debt/GDP is on the verge of crossing 102%, the highest since WWII.
Simply said, the divergence between the two data series will only accelerate as every incremental dollar of debt generates ever less bank for the GDP buck. And that, from a "sustainability" perspective, is what the problem is in a nutshell.
Jesse's Café Américain"A quarter of Wall Street executives see wrongdoing as a key to success, according to a survey by whistleblower law firm Labaton Sucharow released on Tuesday."The financial system has become a culture of white collar crime and control fraud. We all know it by now.
Bad behaviour drives out the good, if the bad behaviour is seen to be a quick route to success amongst the morally weak and ambivalent.
As the former CEO of Citigroup, one of the biggest TBTF banks, observed during the widespread credit derivatives fraud:
"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."The government, the regulatory bodies, the media, economists, and the corporate executives bear a heavy responsibility for this.
They will not admit it, and they cannot reform it, because they themselves are caught in the credibility trap.
Right now white collar crime in the financial system is all carrots and no sticks. The problem is obvious.
Don't whine. Don't pout. Don't complain. Do something.
Many Wall Street executives says wrongdoing is necessary
By Lauren Tara LaCapra
Jul 10, 2012
(Reuters) - If the ancient Greek philosopher Diogenes were to go out with his lantern in search of an honest man today, a survey of Wall Street executives on workplace conduct suggests he might have to look elsewhere.
A quarter of Wall Street executives see wrongdoing as a key to success, according to a survey by whistleblower law firm Labaton Sucharow released on Tuesday.
In a survey of 500 senior executives in the United States and the UK, 26 percent of respondents said they had observed or had firsthand knowledge of wrongdoing in the workplace, while 24 percent said they believed financial services professionals may need to engage in unethical or illegal conduct to be successful.
Sixteen percent of respondents said they would commit insider trading if they could get away with it, according to Labaton Sucharow. And 30 percent said their compensation plans created pressure to compromise ethical standards or violate the law.
"When misconduct is common and accepted by financial services professionals, the integrity of our entire financial system is at risk," Jordan Thomas, partner and chair of Labaton Sucharow's whistleblower representation practice, said in a statement...
The American Revolution, as embodied in the Constitution, was first and foremost a practical matter of governance, although deeply embedded in philosophical first principles, and not particularly as given to broadly idealistic and Utopian change as was the French. In other words, it was carefully and thoughtfully limited.
The French Revolution was much more expansive, as if the American Revolution, the War of 1812, and the great Civil War, and the rise of the Imperial Presidency were combined into one short period of history, without the definition of a stable and well-defined government of the people with God given rights and an overarching natural law first being established as a cultural icon.
Idealistic theories, such as the natural perfection of capital markets, and a growing centralized power jealous of its prerogatives, if not greedy for more of them, are a dangerous combination when confronted by limitations and threats to that power.
This reminds me very much of the modern Anglo-American financial system, which seeks to promote and hold on to theories and methods that have been proven false, but which support the enormously influential but unsustainable status quo. And so society falls into a sort of cognitive dissonance, and official psychosis.
But again, the caution. This is a complex chapter in history, and it is still being written.
... ... ...
The representatives of the French people, organized as a National Assembly, believing that the ignorance, neglect, or contempt of the rights of man are the sole cause of public calamities and of the corruption of governments, have determined to set forth in a solemn declaration the natural, unalienable, and sacred rights of man, in order that this declaration, being constantly before all the members of the Social body, shall remind them continually of their rights and duties; in order that the acts of the legislative power, as well as those of the executive power, may be compared at any moment with the objects and purposes of all political institutions and may thus be more respected, and, lastly, in order that the grievances of the citizens, based hereafter upon simple and incontestable principles, shall tend to the maintenance of the constitution and redound to the happiness of all. Therefore the National Assembly recognizes and proclaims, in the presence and under the auspices of the Supreme Being, the following rights of man and of the citizen:
1. Men are born and remain free and equal in rights. Social distinctions may be founded only upon the general good.
2. The aim of all political association is the preservation of the natural and imprescriptible rights of man. These rights are liberty, property, security, and resistance to oppression.
3. The principle of all sovereignty resides essentially in the nation. No body nor individual may exercise any authority which does not proceed directly from the nation.
4. Liberty consists in the freedom to do everything which injures no one else; hence the exercise of the natural rights of each man has no limits except those which assure to the other members of the society the enjoyment of the same rights. These limits can only be determined by law.
5. Law can only prohibit such actions as are hurtful to society. Nothing may be prevented which is not forbidden by law, and no one may be forced to do anything not provided for by law.
6. Law is the expression of the general will. Every citizen has a right to participate personally, or through his representative, in its foundation. It must be the same for all, whether it protects or punishes. All citizens, being equal in the eyes of the law, are equally eligible to all dignities and to all public positions and occupations, according to their abilities, and without distinction except that of their virtues and talents.
7. No person shall be accused, arrested, or imprisoned except in the cases and according to the forms prescribed by law. Any one soliciting, transmitting, executing, or causing to be executed, any arbitrary order, shall be punished. But any citizen summoned or arrested in virtue of the law shall submit without delay, as resistance constitutes an offense.
8. The law shall provide for such punishments only as are strictly and obviously necessary, and no one shall suffer punishment except it be legally inflicted in virtue of a law passed and promulgated before the commission of the offense.
9. As all persons are held innocent until they shall have been declared guilty, if arrest shall be deemed indispensable, all harshness not essential to the securing of the prisoner's person shall be severely repressed by law.
10. No one shall be disquieted on account of his opinions, including his religious views, provided their manifestation does not disturb the public order established by law.
11. The free communication of ideas and opinions is one of the most precious of the rights of man. Every citizen may, accordingly, speak, write, and print with freedom, but shall be responsible for such abuses of this freedom as shall be defined by law.
12. The security of the rights of man and of the citizen requires public military forces. These forces are, therefore, established for the good of all and not for the personal advantage of those to whom they shall be intrusted.
13. A common contribution is essential for the maintenance of the public forces and for the cost of administration. This should be equitably distributed among all the citizens in proportion to their means.
14. All the citizens have a right to decide, either personally or by their representatives, as to the necessity of the public contribution; to grant this freely; to know to what uses it is put; and to fix the proportion, the mode of assessment and of collection and the duration of the taxes.
15. Society has the right to require of every public agent an account of his administration.
16. A society in which the observance of the law is not assured, nor the separation of powers defined, has no constitution at all.
17. Since property is an inviolable and sacred right, no one shall be deprived thereof except where public necessity, legally determined, shall clearly demand it, and then only on condition that the owner shall have been previously and equitably indemnified.
July 16, 2012
The problems are:
1) that the investor community - and perhaps society, auditors, the political establishment plus the institutions themselves - have become "inculturalated" (to use one of Yves' words !) to such low standards.
2) that the same parties above have bought into the well spun (but nonetheless completely false notion) that the CEOs of the TBTFs are indeed a small, esoteric and virtually impossible to replicate or replace "Atlases" who keep these behemoths aloft. Quite how this bizzare illusion not only took hold in the first place but was then propagated and finally accepted as a fact by so many otherwise intelligent people is a complete mystery to me. But that is certainly the perception.
3) regardless of the imposition of fines, restatement of phantom "profits" and very uncertain inherent profitability in the medium to long term the view seems to be that, from these entities, there will always be gravy available. This sentiment isn't entirely illogical - after all, what is the point of being a TBTF if you can't still extract unearned rents no matter what ? If your business model is effectively a licence to extort more-or-less consequence free - with only the most outrageous excesses subject to token claw backs - then there's no reason why that won't continue to pay off. It's just a case of "by how much" rather than "if".
So where, then, are the imperatives to change ?
No, it'll take another crisis to finally drive a stake though the hearts of this lot. It will come in time, but to quote "just because something is inevitable doesn't make it imminent". In the meantime, why wouldn't you keep on grabbing ? Only good conscience prevents it and that is one commodity which is in short supply.
Boards of director are hirlings of management, selected for cosmetic reasons related to gender, race, previous condition of importance. Their job is to apply the rubber stamp and collect their emoluments, sit through a monthly lunch without noticeable gastric embarrassment. Boards of directors are a fiction. When was the last time one of them actually did anything? You think these clowns worry about media outrage? They worry only about losing these profitable gigs on multiple Boards, which is what happens when they stop toeing the management line.
... ... ...
BEIJING (AP) -- The International Monetary Fund cut its growth forecast for China's slowing economy Monday and said a "hard landing" was still possible.
The IMF reduced its China growth outlook for 2012 by 0.2 percentage point to 8 percent and for 2013 by 0.3 point to 8.5 percent. That is far stronger than the United States and Europe, but China's slowdown has dampened hopes it might make up for weak Western demand and drive global growth.
China's second-quarter growth fell to a three-year low of 7.6 percent as exports, consumer spending and factory output weakened. Analysts say a rebound might begin in the second half but could take longer and be weaker than previously expected.
"There are tail risks of a hard landing in China, where investment spending could slow more sharply, given overcapacity in a number of sectors," the IMF said in its latest World Economic Outlook.
A prolonged slowdown could have global repercussions, reducing China's substantial imports of oil, iron ore and other commodities from Australia, Brazil and Africa and for industrial components from Asian countries that look to China as a major export market.
The IMF said China, along with developing world giants Brazil and India, is suffering from twin declines in global and domestic consumer demand, as well as the impact of interest rate hikes and other curbs imposed earlier to cool overheated economies.
"Policies have been eased since, and this easing should gain traction in the second half of 2012," it said. "Nevertheless, concerns remain that potential growth in emerging market economies might be lower than expected."
Investor uncertainty about growth prospects of developing countries also is rising, leading to capital outflows and currency depreciation, the IMF said.
Beijing has cut interest rates twice since the start of June. It is pumping money into the economy through higher investment by state-owned industry and more spending on building low-cost housing and other public works.
Beijing is moving cautiously after its 2008 stimulus pushed up inflation and spurred a wasteful building boom. Authorities say curbs imposed on home sales to cool surging housing prices will remain in place, even though allowing more construction could quickly boost growth.
Wen, the top economic official, said last week that supporting investment should be a priority, a tacit acknowledgement that efforts to boost domestic consumption and exports were not working as quickly as the government wanted.
Lower Chinese demand for some commodities already has led to lower global prices, the IMF said. That will mean lower revenues for suppliers in Africa and Latin America that have enjoyed an economic boom driven by sales to China.
On Thursday, the Asian Development Bank cut its growth forecast for developing Asia to 6.6 percent from April's outlook of 6.9 percent. It cited Europe's financial crisis, the slow pace of the U.S. recovery and lower growth in China and India.
Jul 13, 2012 | Salon.com
I have called this false ideology, "Corporatism masquerading as Liberty," because it is a sort of crony capitalism steeped in the language of liberty that some are using to remove the protections we have built up to uphold and safeguard our individual rights. The goal of this corporatism is to give corporations the sorts of liberties that permit them to use their size, influence and money to tilt the playing field to their advantage. Absent any kind of regulatory oversight, these behemoths can run roughshod over individuals, trampling their rights and liberties in the process.
The burgeoning LIBOR price-fixing scandal is just the latest example of how out-of-control our credit markets have become because of this false notion that subjecting corporations to regulatory oversight is bad. LIBOR was supposed to be a way of figuring how much banks have to pay to borrow from each other based on daily price quotes from a group of the world's biggest banks. This is the very core of our credit markets. And it affects everything from private students loans to variable rate credit cards. But after Lehman Brothers went bust, banks started submitting "fake" numbers for fear that "real" numbers would make them look bad. Apparently everyone was doing it. Recently, the scandal caught up with British giant Barclays, which was forced to pay a fine for its misdeeds. Many more banks will be found out for manipulating LIBOR interest rates before this is over.
Think back to the Great Depression. What we lost then and now and what we need to regain is trust. To be frank, I don't know how we can win that trust in our system back. But, when it comes to credit markets, I know where we can start.
First, we need to make sure there are no more bailouts. While the bailouts have prevented a Great Depression for now, they have engendered a deep sense of cynicism and resentment which has negatively impacted credit and growth. Second, we need to know that our largest financial institutions are well-capitalized enough to withstand large economic shocks. Without this knowledge, no one can separate liquidity from solvency -- exactly the problems banks had during the Great Depression. Third, we need to enforce regulations through sound regulatory oversight and civil or criminal penalties. Self-regulation is a pipedream promoted by corporatists. And we see that time and again where regulations are not enforced, financial institutions turn to excess that leads to panic and crisis.
The liberal part of the Kremlin and the comprador elite are rejoicing for one simple reason – they believe that the WTO "will open up" Russia and convert it to a new Latin America country as it should in the classic scenario. But the classic scenario was possible in 2004, in 2007, even in 2010 it had a couple of years, but in 2012 the classic scenario does not work.
Comprador liberals are blinded by the "neo-liberal economics" that they are quite confident in the effectiveness of old tools and have not noticed most obvious structural changes in the global economy. Meanwhile a prominent Western economic guru Paul Krugman repeats Mr. Hazin and suggests that we are experiencing a crisis comparable to the depression 30′s and even worse. If this is true, then to predict what will happen to the WTO in 2015-16 is difficult to impossible… The typical line thinking "Russia needs to open to the West" of the comprador part of the elite is nothing but a self-revealing fantasy. It is also possible that in the process of negotiations and finding proper compromises for Russia entry into the WTO was "exchanged" with something valuable like a downshift in the political interference and the relative political calm after the return of Putin. If so, then this barter deal also contains some winning cards for Russia.
Patriotic Forces (at least genuine part of them) expressed outrage about the entry into the WTO. And rightly so. Generally, the more they put a highly critical, but constructive arguments against the WTO, the better Russian government will be able to defend the national interests in the "After WTO" economy. But while we critique the deal we should not forget that a number of countries already in WTO managed to defend their own economic interests and even reap some benefits in the development of their economies. This is true for China, for example. Or more generally for all BRICS countries -- members of the WTO. It is clear that they are still sensitive to the WTO rules and get less preferences than the Western countries that dominate WTO. Still they managed to adapt and even became powerful enough to counterattack Western countries in some areas.
I would like to stress that BRICS which, except Russia, consists of WTO member countries is now powerful enough to create their own international development bank since those countries gained enough strength to defend their economic interests. It will take some time but the crisis will expose a new reality and it turns out that the WTO center of power might move toward new countries, the developing countries. And they might be able to formulate a new, better rules for international trade. It might be possible even without changing the name of the organization. The name might remain, but the rules change. And to ensure that that those rules were developed with Russia's participation, it is necessary to participate in all more or less influential international organizations. Including the WTO. I think this is something like a stated position of the Russian "gosudastvennikov" in power.
The grand "reload" of the dollar reserve currency system (generated by the natural course of events) might give a chance not only to the owners of the Fed who will try to dispose maximum amount of debt and enslave additional regions of the would, but also for the rest of the world, which at the lowest point of the "reset" may be able at least partially get rid of parasites sitting on their shoulders. Russia at this point (and it's pretty close – I think, no later than 2015, but can also begin this fall) should not be a closed economy, but on the contrary, be as open to the world to take part in the formation of the new system. Economic stress – not a dollar is now a factor that might open the international system, and the world for an alternative system of relations. Many public political forces demand that Russia go in opposite direction – to close the economy and go into hiding. This is a destructive way. Even China, which seem to have ideological constraints (albeit weak and conditional), even he, in recent years more and more widely and openly integrated into the world economy: using treaties about all kinds of unions it actively negotiates with individual countries, regions as well as buying up land around the world, and so on. Russia should behave the same way in the economic sphere, and be even more active in the ideological. Indeed, the WTO – is not only opening their own markets to others, but the opening of other markets for themselves.
A separate question – a resentment of Russian industrialists. In my opinion, it has two components. The first – a sincere concerns that some industries and enterprises of the Russian industry could suffer a loss. In fact, with full transition to the WTO rules, such effects will occur. This is not no secret, and the amount of damages vary according to various estimates from 5 to 23 billion dollars (but only with the full accession to the WTO). It's a lot of money. They say that they overlap with additional income from the WTO in other industries, but the fact remains that some industries and businesses will suffer greatly. And this is unfortunate. But when you take such an important and difficult decision, we must understand that the loss in some areas can't be avoided. You just need to honestly and correctly estimate the ratio of losses and gains. I think the strategic benefits far exceed the loss from the accession to the WTO (which, according to Putin, is 50 to 50), which means that the Russian government has the right to take such a step.
Another component of the resentment of Russian industrialists – is the fear of competition. Our entrepreneurs, with all due respect to them is still very inert people. Without a profit of 100% or more, they did not lift a finger. Unless absolutely necessary, they will never go for the modernization of production, and will only be to the maximum squeeze out of the old infrastructure of profit. Fierce competition with businessmen from other countries for which a profit of 10% – is the ultimate dream, will serve our dealers a great lesson. Help them make the right conclusions. Putin has tried for years to convince them about things that stiff competition from global players will convince them at once. And stop arguing about modernization with anyone. At the same time, I have no doubt that Putin and the Russian government will protect our business as much as they can. I think this has no doubt and Konstantin Babkin, who, nevertheless, lobby the power that be to prevent entry into the WTO. Why? Because he is afraid not withstand stiff competition. And partly because he wants to score political points. He dreams in the future to say: Well, I told you so! I warned you!
No entry into the WTO – is certainly not an easy decision. And if you think this decision is incorrect, it is necessary to protest, as well as to offer another solution and to justify it. But not to engage in hysteria. Do not try to play on the uncertainty surrounded any complex problem and important decision. Do not divert the conversation toward demagogic "everything is sold" and do not put stupid slogans such as "Putin you need to choose: Russia or the WTO." If you see that the critics began to use such cheap tricks, this is a signal for you – beware the manipulation! If you see that they throws at you some figures and expert estimates, depict the apocalypse after the entry into the WTO, then give it at least one question: if everything is so bad, why did Russia under the contract is able to provide subsidies to agriculture 9 billion rubles while today they do it at the annual rate of 4.5? Are we this way kill our own agro-industry completely ?
To sum up, I would like once again emphasize that the global financial system and all its structures in its present form have a limited time span, some say months, well, may be years. If so, then even if we joined the WTO on the most onerous conditions, during this period it could not bring fatal harm to Russia's economy before it collapses with the global financial system. In this case we will sustain a minor injury, and can reap serious political benefits. It's not just an economic decision, how the geopolitical. This is a part of positioning your pieces on the Grand Chess Board.
Simon Johnson:The Market Has Spoken, and It Is Rigged, by Simon Johnson, Commentary, NY Times: In the aftermath of the Barclays rate-fixing scandal, the most surprising reaction has been from people in the financial sector who fully understand the awfulness of what has happened. Rather than seeing this as an issue of law and order, some well-informed people have been drawn toward arguments that excuse or justify the behavior of the Barclays employees.This is a big mistake.. The behavior at Barclays has all the hallmarks of fraud... Anyone who takes personal responsibility seriously should want all those involved to be held accountable – to the full extent of the law in all jurisdictions. Anything that lets individuals escape consequences will further undermine the legitimacy that underpins all markets. ...Nevertheless, five arguments put forward in the last 10 days ... attempt to provide some sort of cover for what happened at Barclays. None of these arguments have any merit.First, it is argued that this kind of cheating around Libor has been going on for a long time. This may be true, but it is a sad and lame excuse... Second, it is also asserted that "everyone does it." This is not any kind of defense – try it next time you are accused of fraud. ...Third, Libor-rigging is defended as a "victimless crime." This is untrue. Traders at Barclays and other banks gained from this series of manipulations, so someone else lost. ...Fourth, some contend that it is the regulators' responsibility and fault that there was cheating on Libor. It is certainly the case that there was regulatory capture at work... But who does the capturing in regulatory capture? Big banks work long and hard and lobby at many levels to push regulators toward paying less attention.Fifth, the weakest argument is, "It was only a few basis points, here and there"... Either the Libor reporting process and, consequently, the pricing of derivatives has been corrupted by a criminal conspiracy, or it has not. There is no "just a little" in this context for the enormous global securities market. ...How will this play in American politics? There is still time for politicians on the right and on the left of the political spectrum to get ahead of the issue. Digging in around specious arguments in favor of price-fixing cartels is not the way to go.Power corrupts, and financial market power has completely corrupted financial markets. ...
There's also the argument that regulating the industry will harm economic growth, but look at the growth rates we currently have -- thanks in large part to an out of control financial sector -- to see the folly of that claim. Deregulation of the financial industry did not bring us the robust economy that we were promised, it brought disaster, fraud, and who knows what else, and more oversight is clearly needed.
March 14, 2012 | PaulCraigRoberts.org
One of the great economic myths is that markets are rational. Not a day passes without this myth being disproved scores of times, but the myth persists.
For example, today (March 14) Bank of America/Merrill Lynch reported that "yesterday US markets started the day off with a strong rally after the solid retail sales report. . . . tailwinds are helping boost global equity markets today."
The "solid retail sales report" for February consists of 1% nominal gain. That is, the increase is not deflated by the month's inflation rate, which will be released on March 16. In other words, if very much of the 1%nominal gain in retail sales is due to higher prices, the inflation adjusted gain will not be statistically significant. The "rational market" took off without waiting to find out whether the gain was real.
Moreover, as statistician John Williams has established, the official Consumer Price Index (CPI) understates inflation. If an honest measure of inflation was used, retail sales could be in negative territory.
The "rational market" loves deception as long as it provides an excuse for equities to rise. The Federal Reserve's focus on "core inflation," which does not include rising food and energy prices, allows Federal Reserve officials to maintain that the inflation rate remains below target. By pretending that there is no inflation, the Federal Reserve continues to support banks with near zero interest rates while depriving savers and retirees of interest income. With no income from savings, people are forced to consume their capital. Thus, the Federal Reserve's policy makes bankers richer and the country poorer.
Meanwhile, those whose old age security is based on pensions are confronting insecurity. Many with private pensions were harmed by the financial crisis. Those dependent on Social Security and Medicare are finding that these programs are being blamed for budget deficits caused by multi-trillion dollar wars of choice. Those expecting pensions from state and local governments are finding that governments are unable to make good on underfunded pension benefits.
State and local governments counted on a growing economy and rising consumer incomes to provide the tax base to make good on underfunded pensions. These governments did not foresee that US corporations would destroy their tax base by moving manufacturing, engineering, IT, research and design jobs overseas. The absence of growth in real incomes for the vast majority of the people and the capture of productivity gains by capital at the expense of labor have added to the budget woes of most state and local governments.
John Rauh at Northwestern University estimates that the unfunded obligations of state and local governments amounts to $4,400,000,000,000, an amount that is within the ballpark of Joseph Stiglitz and Linda Bilmes' estimate of the cost of the Iraq and Afghanistan wars.
Money that could have saved Americans' pensions instead was allocated to profits for armament corporations and to advance Israel's territorial hegemony.
When the Occupy Wall Street movement says that Washington rules for the benefit of the 1%, OWS is not far off the mark.
Actually, Ron Paul clearly dispelled the "war for oil" nonsense. He explained that the purpose of our wars in the Mid East are two-fold:
- Continued support for Israel and
- To make sure that the U.S. $ remains the currency of exchange for the oil trade.
Basically, there's no way the U.S. can steal oil from these countries and make it palatable to the U.N. The rest of the world would immediately cry foul. Plus, we don't need to steal the oil when we're already getting it at a tremendous discount and connected corporations move in and garner all the contracts for numerous industrial trades within the conquered region. What's most important is that the U.S. $ remain the unit of exchange for the multi-trillion-dollar oil trade. Were that to end, trillions of U.S. dollars would come home to roost, creating a sudden, massive inflation of the currency to the tune of Zimbabwe. There would be unprecedented poverty, rioting and unrest almost overnight. To keep the music playing, the U.S. has to make sure the Mid East keeps playing ball.
Market fundamentalist imagine the "free" market is both rational (it is not) and peacemaking (it is not,) so Ron Paul would proffer nonsense to insulate his idealistic beliefs.
War-for-oil, or more precisely, power projection to preserve the petrodollar, is realpolitik.
"The conquered region" has been subjugated to allow the "free market" to work, as you say, "move in and garner." Daniel Quinn calls such behavior Taker Culture.
Now and then, even market fundamentalists have an honest moment, and fail to whitewash the aggression underlying their ideology.
"[The Native Americans] didn't have any rights to the land … Any white person who brought the element of civilization had the right to take over this continent." ~Ayn Rand, US Military Academy at West Point, March 6, 1974
Same philosophy with oil. Move In and Garner. The Right To Take.
we dont want iraqi oil– we want control of it for leverage on china and india
and the 'we' are also the major westrn oil companies who have negotiated great contracts for themselves in iraqi oil
we. the people, were granted the honor of footing the bill
Robert Reich is pleased to see the Justice Department crackdown on "Big Pharma," but doesn't think think the government is doing anywhere near enough to solve the problem:How Not to Get Big Pharma to Change Its Ways, by Robert Reich: Earlier this week the Justice Department announced a $3 billion settlement of criminal and civil charges against pharma giant GlaxoSmithKline - the largest pharmaceutical settlement in history - for improper marketing prescription drugs in the late 1990s to the mid-2000s.The charges are deadly serious. Among other things, Glaxo was charged with promoting to kids under 18 an antidepressant approved only for adults; pushing two other antidepressants for unapproved purposes,... and, to further boost sales of prescription drugs, showering doctors with gifts, consulting contracts, speaking fees, even tickets to sporting events.$3 billion may sound like a lot of money, but during these years Glaxo made $27.5 billion on these three antidepressants alone,... so the penalty could almost be considered a cost of doing business.Besides, to the extent the penalty affects Glaxo's profits and its share price, the wrong people will be feeling the financial pain. ... Not a single executive has been charged - even though some charges against the company are criminal. ...The Glaxo case is the latest and biggest in a series of Justice Department prosecutions of Big Pharma for illegal marketing prescription drugs. ... The Department says the prosecutions are well worth the effort. By one estimate it's recovered more than $15 for every $1 it's spent.But what's the point if the fines are small relative to the profits, if the wrong people are feeling the financial pinch, and if no executive is held accountable?The only way to get big companies like these to change their behavior is to make the individuals responsible feel the heat.An even more basic issue is why the advertising and marketing of prescription drugs is allowed at all, when consumers can't buy them and shouldn't be influencing doctor's decisions anyway. Before 1997, the Food and Drug Administration banned such advertising on TV and radio. That ban should be resurrected.Finally, there's no good reason why doctors should be allowed to accept any perks at all from [drug] companies... It's an inherent conflict of interest. Codes of ethics that are supposed to limit such gifts obviously don't work. All perks should be banned, and doctors that accept them should be subject to potential loss of their license to practice.
Simon Johnson, summarizing Dennis Kelleher of the blog Better Markets, says banks have the same problem:... Global megabanks have an incentive to deceive customers, including both individuals and nonfinancial corporations. Their size confers both market power and the political power needed to conceal the extent to which they engage in economic fraud. The lack of transparency in derivatives markets provides them with an opportunity to cheat, but the abuses are much wider – as the Libor scandal demonstrates. The ripoff is not just of retail investors. ...
This has motivated Samuel Brittan of the Financial Times to rethink his view of competitive markets. Sort of:As one of the few commentators to have always favored competitive market capitalism I have had to ask myself a few questions. Apart from scandals such as the Libor rate fixing, we have had the behavior of banks before the great recession; a trend to much greater concentration of income and wealth, squeezing the living standards of ordinary citizens; and one could go on.
So, after asking himself these questions, what does he propose?:Yet if anyone expects me to issue a clarion call for more state ownership and control, they will be disappointed. ... What then has gone wrong? ... Few of us like competition; and the tendency to form closely knit groups to keep outsiders at bay is probably as old as the human race. For pre-capitalist examples one has only to think of the medieval guilds, whether of craftsmen or Master Singers. More subtle are the practices of bankers, as they come disguised as services for customers. In summary, success has depended more on whom you know than what you know. Hence the catchphrase "crony capitalism". ...The biggest obstacle to reform is that insiders can devote time and energy to maintaining their position. For ordinary citizens, political reform is a sideshow that hardly repays such efforts. The protests in financial canters are a well-meant but ill-focused attempt to offset this bias.Yet nil desperandum. The UK corn laws were repealed and the US antitrust acts were passed; and in time both the financiers and the Eurocrats will be brought down.
So, no cause for despair? Not so sure about that (the changes he describes did not come easily). It feels a bit like the Libor scandal has produced a turning point, but the power hold on politicians is still as strong as ever. We've seen how some Democrats react if Obama so much as points a finger in the direction of the financial industry, and if Romney is elected does anyone think the government will get tougher with big banks, big pharma, or big anything else?
Jesse's Café AméricainPeople forget, but there are times in history when the financial markets fall out of favor with investors because they lose confidence..
And they now have very good reasons to doubt just about anything that Wall Street says.
I think the low volumes indicate that the Wall Street wiseguys are pushing their luck. Once trust is lost, it is difficult to get it back.
And if justice long denied comes in a rush to Wall Street, hell may come with it. History shows us that.Telegraph
Bank forecasts futile now all trust has gone, says analyst
By Alistair Osborne
6:23PM BST 02 Jul 2012
Sandy Chen, bank analyst at Cenkos Securities, said it was pointless revising forecasts until Barclays came clean over what had gone on.
"Analysts spend 99pc of their time crunching numbers, but underneath the complicated edifice of earnings forecasts lies a basic foundation of trust," he said.
"In essence, the price movements in markets track the flow of conversation around one basic question – 'Do I trust them and their promised returns?' Without the trust, nothing stands."Mr Chen said revelations that Barclays chief executive Bob Diamond had held talks in 2008 with the Bank of England over Libor simply clouded the issue further.
"The trust has been breached. Until the banks clear their names, we expect the markets for their shares and bonds will remain dysfunctional," he said. "Without full management clarity, transparency and responsibility... we think forecast revisions are futile."
Jul 03, 2012 | Economist's View
I marked the initiation of Fed easing cycles since 1995. Notably, multiple sub-50 ISM readings have traditionally triggered Fed easing, with the 2007 rate cut being something of an outlier. Of course, we have yet to start the tightening cycle this time around, but it is safe to say that ongoing sub-50 readings were generally consistent with ongoing easing. On balance, a first look of the data thus suggests additional Fed easing. Notice, however, that a sub-50 reading does not always indicate a fresh recession is on the way. Not by a long-shot. Two not-necessarily exclusive issues are likely at play. First, the drop in the ISM index might be indicative of external issues that are insufficient to trigger a recession in the US. In other words, recessions are domestic events; the external sector alone is simply too small to overwhelm the internal tide. Second, the appropriate application of monetary policy might have been sufficient to safeguard against recession given the relatively small external threat. I think it is clear that new orders sagged as a result of external weakness:
Both the 1998 and 2001 easings followed sharp falls in the export index. Less so for the 1995 easing, but some external weakness was clearly at play. The 2007 easing was primarily a domestic issue; at the time, the external sector was source of strength. The general story, however, is that the Federal Reserve has tended to lean against external weakness. Not because, as some Fed officials have erroneously suggested, policymakers believed they could "solve" the external problems, but because they hoped to minimize the domestic impact. Yet another reason to believe additional Fed easing is on its way. As always, however, the story is not clear cut. Note the employment index:
Fed easing has traditionally been associated with labor market weakness. Soft weakness is not evident in this report, consistent with the belief (also identified by Nomura, via FT Alphaville) that manufacturers do not believe the external weakness is sufficient to derail the recovery. This should be particularly important with regards to additional Fed easing at this juncture, as policymakers have made it clear that progress, or lack thereof, in the labor market is a critical indicator. By this measure, then, the ISM report would not trigger additional easing. Much more important is the next employment report and the initial weekly claims reports leading into the next meeting. Finally, when considering the recession implications of the ISM report, I also watch the imports component:
The theory is that a sharp drop in domestic demand - the type associated with recessions - should cause a drop in imports. By this measure, the domestic-side of the coin is not yet joining in the external weakness. A strike against seeing this ISM report as an indicator of impending recession.
The ISM report is murkier than the headline drop would suggest. It is clearly consistent with external weakness. The global economy is obviously struggling. As of yet, however, the story told by the employment and import sub-indexes is that the domestic economy is proving relatively resistant. Maintaining that resistance, however, may be dependent on additional monetary easing. Indeed, in the past, the Federal Reserve has tended to take out such insurance. But in the past, the zero bound has not been a constraint. This time it is. Will the Fed deliver easing with the necessary force to serve as adequate insurance? I am wary that this report gives us much direction on that point, especially given the relatively solid reading on employment. Ultimately, this report is probably a small piece of the puzzle; the employment data remains the key.
Not to sound like a broken record, again, but direct government hiring via infrastructure projects is the most effective tool left in the bag.
Monetary policies are constrained. Further easing will only artificially boost asset prices without unlocking the employment door. The so-called 'wealth effect' will be seen by most folks as merely inflation as commodity prices, particularly petroleum, rise.
Crowds exhibit a docile respect for force, And are but slightly impressed by kindness, Which for them is scarcely other than a form of weakness. Their sympathies have never been bestowed upon easy going masters, but the tyrants who vigorously oppressed them. It is to these latter that they always erect the loftiest statues. It is true that they willingly trample on the despot whom they have stripped of his power, but it is because having lost his power he resumes his place among the feeble who are to be despised because they are not to be feared. The type of hero dear to a crowd will always have the semblance of a Caesar, His insignia attract them, His authority overawes them, and his sword instils them with fear. ~ from "The Crowd"
BREAKING II: CHINESE MANUFACTURING GROWTH SLOWS - Bloomberg/Beijing: "China's manufacturing expanded at the weakest pace in seven months as overseas orders dropped, and South Korea cut its estimate for export growth this year, underscoring risks to Asian economies from Europe's debt crisis. The Purchasing Managers' Index fell to 50.2 in June from 50.4 in May, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said ... South Korea's Ministry of Knowledge Economy lowered its projection for overseas sales to an increase of 3.5 percent from 6.7 percent, citing a slowdown in major economies. Manufacturing data from China, the world's biggest exporter, signal the government may need to add stimulus to arrest an economic slowdown that probably extended into a sixth quarter. The downturn is rippling through Asian nations, with South Korea's sales to China, its biggest market, stalling in the first 20 days of June" China's Manufacturing Growth Weakens as New Orders Drop - Bloomberg
Recession now much more likely - MarketWatch First Take - MarketWatch
"Manufacturing is no longer a dominant part of the U.S. economy, accounting for about 19% of the economy's gross output and about 9% of employment."
"By itself, the decline in the ISM index below the benchmark 50% level does not mean that the economy is in a recession, but it does make it much more likely. A reading of 49.7% is consistent with slow, but positive growth of about 2.4%, according to the ISM."
Oh god....just stop.
Another fine buying opportunity....
Marc Faber- Markets Are Rallying Because They Were Oversold, The EU Summit Was Another Cosmetic Fix - Business Insider
Recession now much more likely - MarketWatch First Take - MarketWatch
The decline in the ISM was led by the biggest one-month drop in new orders since October 2001, just after the Twin Towers were destroyed. The new-orders index now stands at 47.8%, a level that's extremely rare outside of recessions.
KarmaPolice wrote on Wed, 4/4/2012 - 5:23 am
Doomer's head go boom...
The thing that gives me pause is none of the liquidity operations (QE, Twist, LTRO) have happened without a 50%-100% pullback first. So it kind of seems like rally on bad news may be self defeating. Politically infeasible? Although with the connections, one would assume a crash could be orchestrated. After the election would have better optics.
So the big lesson is simple: trust those who work in the tradition of Walter Bagehot, Hyman Minsky, and Charles Kindleberger. That means trusting economists like Paul Krugman, Paul Romer, Gary Gorton, Carmen Reinhart, Ken Rogoff, Raghuram Rajan, Larry Summers, Barry Eichengreen, Olivier Blanchard, and their peers. Just as they got the recent past right, so they are the ones most likely to get the distribution of possible futures right.
... .... ....
...in July 2011, the ten-year US Treasury bond rate crashed to 2%, and it was below 1.5% at the start of June. The normal rules of thumb would say that the market is now expecting 8.75 years of near-zero short-term interest rates before the economy returns to normal. And similar calculations for the 30-year Treasury bond show even longer and more anomalous expectations of continued depression.
The possible conclusions are stark. One possibility is that those investing in financial markets expect economic policy to be so dysfunctional that the global economy will remain more or less in its current depressed state for perhaps a decade, or more. The only other explanation is that even now, more than three years after the US financial crisis erupted, financial markets' ability to price relative risks and returns sensibly has been broken at a deep level, leaving them incapable of doing their job: bearing and managing risk in order to channel savings to entrepreneurial ventures.
The United States Federal Reserve's recent announcement that it will extend its "Operation Twist" by buying an additional $267 billion of long-term Treasury bonds over the next six months - to reach a total of $667 billion this year - had virtually no impact on either interest rates or equity prices. The market's lack of response was an important indicator that monetary easing is no longer a useful tool for increasing economic activity.
The Fed has repeatedly said that it will do whatever it can to stimulate growth. This led to a plan to keep short-term interest rates near zero until late 2014, as well as to massive quantitative easing, followed by Operation Twist, in which the Fed substitutes short-term Treasuries for long-term bonds.
These policies did succeed in lowering long-term interest rates. The yield on ten-year Treasuries is now 1.6%, down from 3.4% at the start of 2011. Although it is difficult to know how much of this decline reflected higher demand for Treasury bonds from risk-averse global investors, the Fed's policies undoubtedly deserve some of the credit. The lower long-term interest rates contributed to the small 4% rise in the S&P 500 share-price index over the same period.
Yes, the US economy has been on a weak recovery trajectory over the past three years. But at least it's a recovery, claim many – and therefore a source of ongoing resilience in an otherwise struggling developed world. Unlike the Great Recession of 2008-2009, today there is widespread hope that America has the capacity to stay the course and provide a backstop for the rest of the world in the midst of the euro crisis.
Think again. Since the first quarter of 2009, when the US economy was bottoming out after its worst postwar recession, exports have accounted for fully 41% of the subsequent rebound. That's right: with the American consumer on ice in the aftermath of the biggest consumption binge in history, the US economy has drawn its sustenance disproportionately from foreign markets. With those markets now in trouble, the US could be quick to follow.
Three regions have collectively accounted for 83% of America's export-led growth impetus over the past three years – Asia, Latin America, and Europe. (Since regional and country trade statistics assembled by the US Department of Commerce are not seasonally adjusted, all subsequent comparisons are presented on the basis of a comparable seasonal comparison from the first quarter of 2009 to the first quarter of 2012.)
Not surprisingly, Asia led the way, accounting for 33% of the total US export surge over the past three years. The biggest source of this increase came from the 15-percentage-point contribution of Greater China (the People's Republic, Taiwan, and Hong Kong). Needless to say, China's unfolding slowdown – even under the soft-landing scenario that I still believe is most credible – is taking a major toll on the largest source of America's export revival. The remainder of the Asian-led US export impetus is spread out, led by South Korea, Japan, and Taiwan – all export-led economies themselves and all heavily dependent on a slowing China.
...Alternatively, in a moderate export-downturn scenario, with real exports falling by 5% over a four-quarter period, real GDP growth could slip below the 1% "stall speed" threshold – leaving the US economy vulnerable to a recessionary relapse. By way of reference, the assumption of a 5% export downturn pales in comparison with the precipitous 13.6% decline in real exports that occurred in 2008-2009. As such, this "what if" is a cautiously optimistic assessment of the downside risks stemming from weak external demand.
Greenspan's warning in 1998 came at a time when US exports accounted for only about 10.5% of GDP. Today, that share stands at a record-high 14%, as post-crisis America has made a big bet on an export-led revival. The current global slowdown is not on a par with what occurred in the late 1990's or the more wrenching shocks of 3-4 years ago – at least not yet. But today's global downturn can hardly be dismissed as unimportant for the US or anyone else.
In an era of globalization, there are no innocent bystanders. There are certainly no oases of prosperity in the face of yet another major shock in the global economy. America's growth mirage is an important case in point
The Institute for Supply Management's manufacturing index fell to 49.7% from 53.5% in May, in the first reading below the 50% line indicating expansion or contraction since July 2009. Read "Recession now much more likely."
... ... ...
The U.S. economy is confronting the headwinds from the euro-zone debt crisis as well as the moribund post-recession recovery.
"Clearly this is the biggest sign yet that the U.S. is catching the slowdown that is well underway in Europe and China," said Paul Dales, senior U.S. economist at Capital Economics, in a note to clients. "But it is worth remembering that a reading of below 47.0 is required to be consistent with another recession. This means the index is still consistent with a growing economy, albeit at an annualized rate of a little below 1%."
- Lagarde: threat of fiscal cliff may hurt growth this year
- IMF cuts 2013 U.S. growth forecast
- IMF says U.S. needs credible fiscal consolidation plan
...She said the potential for a deterioration in the euro zone debt crisis was the other main risk facing the United States.
The U.S. economy is facing $4 trillion worth of expiring tax cuts and automatic government spending reductions, and most analysts do not expect Congress to act to soften the blow until after the congressional and presidential elections in November.
"It is critical to remove the uncertainty created by the 'fiscal cliff' as well as promptly raise the debt ceiling, pursuing a pace of deficit reduction that does not sap the economic recovery," the IMF said in its annual health check of the U.S. economy.
...In addition to the looming budget tightening, the United States is expected to hit the $16.4 trillion statutory limit on its debt sometime between the election and the end of the year. If Congress fails to raise it, it would lead to a U.S. default. Most analysts expect Congress to strike a post-election deal to avoid the "fiscal cliff" and buy time for lawmakers to work on a long-term budget and tax plan. But the uncertain outlook already appears to be weighing on business hiring and investment decisions.
The Fund forecast a modest 2 percent growth in the United States this year and shaved its projection for 2013 to 2.25 percent from 2.4 percent the IMF forecast in April.
But it warned that the already modest forecast for next year could prove much too optimistic if Congress fails to relax the fiscal tightening of about 4 percent of gross domestic product contained in current law.
If Congress does not act, the economy could contract early next year and annual growth could come in well below 1 percent, the IMF said.
"We believe that fiscal consolidation is necessary but not just any fiscal consolidation. It has to be sensible and certainly not excessive," Lagarde told a news conference.
..."Continued policy action is needed to boost the recovery," Lagarde said. "We believe that the U.S. authorities do not have a lot of space available - they have limited space actually - to act but they should use it to support the recovery."
The IMF said U.S. monetary policy was appropriately "very accommodative" and emphasized that the Federal Reserve had room for further easing should economic conditions worsen.
The U.S. central bank has held overnight interest rates near zero since December 2008 and has bought $2.3 trillion in bonds in a further effort to lower borrowing costs. Last month it extended a program to reweight its bond holdings toward longer-dated securities to push long-term interest rates lower.
The Fed has said it is prepared to do more to spur a stronger recovery if needed and a raft of weak data has kept speculation alive that it might soon launch another round of bond purchases to lift the economy.
July 3, 2012 | Viewpoint
The government of the United States should "restore order" in its own economy, because if the United States to pluck from the financial precipice, come to the aid will be no one, warned on Tuesday after the regular annual review of the U.S. economy, the director of the International Monetary Fund, Christine Lagarde.
However, she stressed that she believes in "the wisdom and foresight," the U.S. authorities.
The main conclusions of the IMF on the review limited to the fact that "economic recovery in the U.S. is still lukewarm, and depends on the increased risk - in the light of the financial strength of the euro area and the uncertainty surrounding the financial and budget plans", ITAR-TASS reported.
This is clearly reflected in the numbers: this year the fund expects U.S. GDP growth by 2% in 2013 - by 2.3%. At the same time the U.S. federal budget deficit projected to reach 7.5% and 6%, respectively. National debt should reach in the current year 106.7%, and in the future - to increase to 110.7%.
External risk factors emanating from the euro zone, more or less obvious. Among internal threats Lagarde, together with specialists reviewed, first of all emphasized the danger to the United States off the "financial cliff" in the event that the administration and Congress fail to agree on the prevention of sequestration of the budget in 2013.
... budgetary expenditures in the U.S. in 2013 will be reduced by approximately 4%, it can "slow the annual growth to a level much less than 1%, and in early next year - and to the negative growth growth, with significant negative consequences for an already fragile global economy now. "
In the same context, the IMF and the mention of the need for Washington to increase again in early 2013 the U.S. debt ceiling, which is fraught with "the return of the risk of greater uncertainty and disruptions in financial markets."
Liaquat Ahamed, author of Lords of Finance, The Bankers Who Broke the World, discusses the parallels between the Great Depression and the Financial Crisis of today at The American Academy of Berlin.
I concur heartily with Mr. Ahamed on the primary causes of the bubble and collapse, especially with regard to the enormous policy errors of the Greenspan Fed.
But I always find it annoying that the conscious, widespread fraud that was promoted by Wall Street, both in 1929 and in the most recent crisis, is rarely discussed as the major corrupting influence that distorted both economic and monetary policy and the real economy.
I cannot speak to the 1920s, but there is little doubt in my mind that there was a concerted effort to game and corrupt the financial system that gained a major momentum in the 1990s, and that culminated in the financial collapse and economic malaise and instability that is plaguing the world today.
One needs look at the actions of Messrs. Greenspan, Rubin, and Weil, and the political administrations during Clinton and Bush and Obama, to begin to penetrate the veil of secrecy.
The only mania and madness of the people was in trusting the words of demagogues and conmen, and their associated supporters and enablers. And even today people continue to mouth their false slogans and fatal prescriptions.
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained growth and recovery.
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