Tue 2010-10-12 16:01 EDT

billy blog >> Blog Archive >> Iceland ... another neo-liberal casuality

...For a real world example of the benefits of adopting a floating, sovereign, currency we can look to Argentina....At the time of the 2001 crisis, the government realised it had to adopt a domestically-oriented growth strategy. One of the first policy initiatives taken by newly elected President Kirchner was a massive job creation program that guaranteed employment for poor heads of households. Within four months, the Plan Jefes y Jefas de Hogar (Head of Households Plan) had created jobs for 2 million participants which was around 13 per cent of the labour force. This not only helped to quell social unrest by providing income to Argentina's poorest families, but it also put the economy on the road to recovery. Conservative estimates of the multiplier effect of the increased spending by Jefes workers are that it added a boost of more than 2.5 per cent of GDP. In addition, the program provided needed services and new public infrastructure that encouraged additional private sector spending. Without the flexibility provided by a sovereign, floating, currency, the government would not have been able to promise such a job guarantee. Argentina demonstrated something that the World's financial masters didn't want anyone to know about. That a country with huge foreign debt obligations can default successfully and enjoy renewed fortune based on domestic employment growth strategies and more inclusive welfare policies without an IMF austerity program being needed. And then as growth resumes, renewed FDI floods in...sovereign governments are not necessarily at the hostage of global financial markets. They can steer a strong recovery path based on domestically-orientated policies -- such as the introduction of a Job Guarantee -- which directly benefit the population by insulating the most disadvantaged workers from the devastation that recession brings...

Billy Blog; blogs Archive; Iceland; neo-liberal casuality.

zero hedge - on a long enough timeline, the survival rate for everyone drops to zero Fri 2010-07-23 11:01 EDT

Charting The Second Half Economic Slowdown

Goldman's Jan Hatzius...summarizes all the adverse trends that continue to not be priced into stocks. He notes that while the inventory cycle has boosted growth, this artificial rise is now losing steam. Key headwinds facing the economy are that fiscal policy, which has been expansionary, has now become to restrictive; that there has been no overshoot in layoffs for a mean reversion expectation; that the labor market multiplier is very much limited; that while capital spending is just modestly above replacement levels, the large output gap suggests spending should be subdued; the housing overhang is still huge and house prices have further to fall; that there are risks to US from European crisis; that inflation is dropping (and non-existent) even as utilization is low everywhere, which creates a major deflation risk; that the scary budget deficit will destroy any hope for future fiscal stimulus as public debt is surging out of control; lastly, with Taylor-implied Fed rates expected to be negative, the Fed's monetary policy arsenal is non-existent...

chart; dropped; economic slowdown; long; survival rate; Timeline; zero; Zero Hedge.

billy blog Fri 2010-07-02 18:17 EDT

A total lack of leadership

Bill Mitchell

Another G20 talkfest has ended in Toronto and the final communique suggests that the IMF is now back in charge...The line now being pushed is, as always, structural reform of product and labour markets -- which you read as deregulation and erosion of worker entitlements...They buy, without question the notion that ``(s)ound fiscal finances are essential to sustain recovery, provide flexibility to respond to new shocks, ensure the capacity to meet the challenges of aging populations, and avoid leaving future generations with a legacy of deficits and debt.'' But what constitutes ``sound fiscal finances'' is not spelt out. It is all fudged around what the bond markets will tolerate. But what the bond traders think is a reasonable outcome for their narrow vested interests is unlikely to be remotely what is in the best interests of the overall populace...A sovereign government is never revenue constrained because it is the monopoly issuer of the currency and so the bond markets are really superfluous to its fiscal operations. What the bond markets think should never be considered. They are after all the recipients of corporate welfare on a large scale and should stand in line as the handouts are being considered. They are mendicants. It is far more important that government get people back into jobs as quickly as possible and when they have achieved high employment levels then they might want to conclude the fiscal position is ``sound''...The G20 statement is full of erroneous claims that budget surpluses ``boost national savings'' when in fact they reduce national saving by squeezing the spending (and income generating capacity) of the private sector -- unless there are very strong net export offsets...The on-going deflationary impact on demand that persistently high unemployment imposes is usually underestimated by the conservatives...

Billy Blog; leadership; total lack.

The Wall Street Examiner Sun 2010-05-09 10:02 EDT

The Minsky Cruise (part 3, Business)

...While non-financial domestic corporate profits have shrunk from a Korean War inspired 11% of GDP to average around 5% of GDP since 1970, the financial sector's profits have been growing...The love affair with finance and disdain for what, during the tech boom, we called the "bricks and mortar" industry- and admittedly a failure, by some in those industries, to accept the transition to maturity- has inspired, for want of a better word, envy in the non-financial sector. While financial sector stocks seem to levitate on their own, non-financial sector stocks, if intent can be inferred from behavior, are believed to require a boost. I suspect the use of options as payment has something to do with this as well...Additionally, the non-financial sector, since the mid-80s has- a true sign of envy- opted to copy finance, by breaking into that field. GE Capital and GMAC Financial are two prominent examples...To paraphrase Nixon, "we're all Ponzis, now."

business; Minsky Cruise; Part 3; Wall Street Examiner.

zero hedge Fri 2010-04-23 20:02 EDT

How Lehman, With The Fed's Complicity, Created Another Illegal Precedent In Abusing The Primary Dealer Credit Facility

Five months ago, Zero Hedge observed the nuances of the Federal Reserve's Primary Dealer Credit Facility (PDCF) and concluded that this artificial liquidity boosting construct was nothing more than yet another scam to allow banks to extract ever more money from taxpayers, with the complicit blessing of the Federal Reserve Board Of New York (as the original piece also provided an in-depth discussion of the triparty repo market which is now a parallel to the buzzword of the day in the form of Lehman's "Repo 105" off balance sheet contraption, it should serve as a useful refresher course to anyone who wishes to understand why while Repo 105 with its $50 billion in liability contingency may have been an issue, the true Repo market, with over $3 trillion of likely just as toxic assets, is where the real pain in the future will come from). The PDCF would allow assets of declining and even inexistent value to be pledged as collateral, thus making sure that taxpayer cash was funneled into sham institutions holding predominantly toxic assets, and whose viability was and is limited, yet still is backed by the Fed, which to this day continues to pour our money into them. Today, with a tip from the NYT's Eric Dash, we demonstrate just how grossly negligent the Federal Reserve was when it came to Lehman's abuse of the PDCF, and how the trail of slime of Lehman's increasingly obvious manipulation of its books goes to the very top of the Federal Reserve Bank of New York, and its then governor - a very much complicit Tim Geithner...

abuse; created; Fed's Complicity; Illegal Precedent; Lehman; Primary Dealers Credit Facility; Zero Hedge.

Jesse's Café Américain Thu 2010-04-01 11:50 EDT

Brown's Bottom Is an Enormous Issue In the UK: Was This a Bailout of the Multinational Bullion Banks Involving the NY Fed?

Jesse

The bottom referred to, of course, is the bottom of the gold price, and the sale of approximately 400 tonnes of the UK's gold at the bottom of the market...There is also a credible speculation that the sale was designed to benefit a few of the London based bullion banks which were heavily short the precious metals, and were looking for a push down in price and a boost in supply to cover their positions and avoid a default. The unlikely names mentioned were AIG, which was trading heavily in precious metals, and the House of Rothschild. The terms of the bailout was that once their positions were covered, they were to leave the LBMA, the largest physical bullion market in the world...long before AIG crafted its enormous positions in CDS with the likes of Goldman Sachs, requiring a bailout by young Tim and the NY Fed, it was engaging in massive short positions in the metals markets, especially silver, and may have required a bailout by England to preserve the integrity of the LBMA....the gold sale provided a front-running opportunity for that most rapaciously well-connected of Wall Street Banks, Goldman Sachs.

Bailout; Brown s bottom; Enormous Issue; Jesse's Café Américain; Multinational Bullion Banks Involving; NY Fed; UK.

naked capitalism Fri 2010-03-19 15:24 EDT

China's Exporters Hanging by a Thread?

Has the Chinese export sector become hostage to WalMartization, the ability of powerful retailers to squeeze vendor profit margins?...Vice Commerce Minister Zhong Shan, in an exclusive interview Thursday ahead of a visit to the U.S., said that the profit margin on many Chinese export goods was less than 2%. Most exporters absorbed the appreciation in the value of the yuan that followed its revaluation in 2005 by boosting innovation and cutting costs, but many were forced to close, he said. A further rise in the currency's value would endanger more exporters' survival, which China can't afford, he said... ...2% margins on export-oriented businesses is not representative of any sort of real competitive advantage. A real competitive advantage when it comes to exporting would show double-digits profit margins. This whole sector is hanging by a thread...nearly none of the activity China has engaged in since the downturn is secular or self-sustaining.

China's Exporters Hanging; naked capitalism; Threaded.

China Financial Markets Thu 2010-03-04 08:47 EST

Stuck in neutral -- what Japan's rebalancing can teach us

Michael Pettis

...A few days ago I read a good article (``Stuck on Neutral'') about Japan [from] the Economist...about Japan's post-1989 rebalancing, ...discusses why, in spite of every attempt, Japan has not been able supposedly to rebalance the economy and achieve any real growth during the two lost decades after 1990. Private consumption never took off to drive economic growth...After many years of excess investment driving growth, Japan's rebalancing process, which occurred after corporate, bank and government debt levels prevented the investment party from continuing, locked the country into many years of slow growth because it had to grind through years of debt-fueled overinvestment...it doesn't matter what individual policies we take to boost consumption if these polices don't in the aggregate represent a real transfer of income to the household sector, as they did not in Japan...Japan's experience suggests one of the risks China faces...Chinese household consumption will undoubtedly rise as a share of Chinese GDP over the next decade or two, but the process nonetheless can be disappointing for growth. It depends on lots of other moving parts, most importantly perhaps the change in investment and the speed with which income is transferred to households. And the change in investment might depend on debt capacity constraints and the extent of earlier overinvestment.

China Financial Markets; Japan's rebalancing; neutral; stuck; teach.

zero hedge Sun 2010-01-03 16:28 EST

TrimTabs Asks: Who Is Responsible For The Non-Stop Market Rally Since March; Gives Some Suggestions

TrimTabs' Charles Biderman

If the money to boost stock prices did not come from the traditional players, it had to have come from somewhere else. We do not know where all the money has come from. What we do know is that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers. Why not support the stock market as well?

gives; March; Non-Stop Market Rally; response; suggesting; TrimTabs Asks; Zero Hedge.

Thu 2009-11-19 10:14 EST

Business & Technology | Part two | WaMu: Hometown bank turned predatory | Seattle Times Newspaper

David Heath

What few people knew was that bank executives crafted a radical new business strategy in 2003 that was intended to boost profits. The new WaMu used huge sales commissions and misleading marketing to hawk risky and overpriced loans to borrowers. In short, WaMu became one of the nation's biggest predatory lenders. The strategy eventually failed, not only bringing down Washington Mutual but deceiving borrowers, costing thousands their homes. In particular, the bank promoted as its "signature loan" a complex product known as the option ARM. This adjustable-rate mortgage, much like a credit card, gave borrowers the choice of making low minimum payments. But that option didn't cover the interest and only dug them deeper into debt.

business; Hometown bank turned predatory; part; Seattle Times Newspaper; Technology; WaMu.

Dr. Housing Bubble Blog Tue 2009-10-13 20:03 EDT

No Country for Old Jobs: 10 Charts Showing the Fragile Recovery. Home Sales, Buying versus Renting, Unemployment, and Real Economy Data.

...Until jobs start showing up, any talk of a rebounding housing market is moot especially with this entire artificial stimulus still bouncing around the economy. And collapsing tax revenues are not a good sign. I don't buy the jobless recovery argument and the government tends to agree. If all is well, why is the U.S. government and Fed buying $1.25 trillion in agency debt to lower mortgage rates, putting in place an $8,000 tax credit, boosting car sales with gimmicks, encouraging risky low money down loans with FHA insured products, and extending unemployment insurance to a record 92 weeks in states like California? Do these things sounds like policies of a booming economy?

10 Charts Showing; Buying versus Renting; country; Dr. Housing Bubble Blog; Fragile recovery; home Sale; old job; Real Economy Data; unemployment.

Mon 2009-10-05 11:23 EDT

New Bubble Threatens a V-Shaped Rebound

Andy Xie

...What we are seeing now in the global economy is a pure liquidity bubble. It's been manifested in several asset classes. The most prominent are commodities, stocks and government bonds. The story that supports this bubble is that fiscal stimulus would lead to quick economic recovery, and the output gap could keep inflation down. Hence, central banks can keep interest rates low for a couple more years...I think the market is being misled. The driving forces for the current bounce are inventory cycle and government stimulus. The follow-through from corporate capex and consumption are severely constrained by structural challenges. These challenges have origins in the bubble that led to a misallocation of resources. After the bubble burst, a mismatch of supply and demand limited the effectiveness of either stimulus or a bubble in creating demand...he structural challenges arise from global imbalance and industries that over-expanded due to exaggerated demand supported in the past by cheap credit and high asset prices. At the global level, the imbalance is between deficit-bound Anglo-Saxon economies (Australia, Britain and the United States) and surplus emerging economies (mainly China and oil exporters)...The old equilibrium cannot be restored, and many structural barriers stand in the way of a new equilibrium. The current recovery is based on a temporary and unstable equilibrium in which the United States slows the rise of its national savings rate by increasing the fiscal deficit, and China lowers its savings surplus by boosting government spending and inflating an assets bubble.

New Bubble Threatens; Shaped Rebound.

Fri 2008-11-07 00:00 EST

Jesse's Café Américain: Escape Velocity: Take it to the Limit One More Time Like Its 1933

Jesse's Café Américain: Escape Velocity: Take it to the Limit One More Time Like Its 1933; Fed boosting monetary base to record levels

1933; escape velocity; Jesse's Café Américain; limit; take; Time.

Tue 2007-10-30 00:00 EDT

Perceived as safe, some money-market funds take chances to boost yield - The Boston Globe

"breaking the buck"

boosting yields; Boston Globe; money-market funds take chances; perceived; safe.