China Financial Markets Thu 2010-07-22 10:17 EDT

Do sovereign debt ratios matter?

Michael Pettis

...No aspect of history seems to repeat itself quite as regularly as financial history. The written history of financial crises dates back at least as far back as the reign of Tiberius, when we have very good accounts of Rome's 33 AD real estate crisis...we have only begun the period of sovereign default. The major global adjustments haven't yet taken place and until they do, we won't have seen the full consequences of the global crisis...there is no threshold debt level that indicates a country is in trouble. Many things matter when evaluating a country's creditworthiness...there are at least five important factors in determining the likelihood that a country will be suspend or renegotiate certain types of debt...With inverted debt, the value of liabilities is positively correlated with the value of assets, so that the debt burden and servicing costs decline in good times (when asset prices and earnings rise) and rise in bad times...Inverted debt structures leave a country extremely vulnerable to debt crises...

China Financial Markets; sovereign debt ratios matter.

winterspeak.com Sat 2010-05-22 14:02 EDT

Richard Koo, who is so close, is still wrong

winterspeak

...Richard Koo, who understands the situation in Japan (which is very very similar) quite well still makes suboptimal recommendations because he too does not understand how the financial system works...He's correct in saying that massive fiscal stimulus saved Japan. They really were on the brink of their Great Depression in the 80s, and have avoided it without going to War. This is good, but none of it was necessary, so really represents a massive failure. Koo thinks that the Govt is spending the money the private sector has saved. In fact, Govt spending is what is giving the private sector its savings! Government is not borrowing anything. Japan should really just massively slash taxes and fund its private sector. Let the balance sheets heal already! Koo does not talk about all the terrible malinvestment that the Governments fiscal spending did. The US should simply implement a payroll tax holiday until inflation starts to tick up. Right now, the US's savings desire is not as high as the Japanese's, but a double dip might get it closer. That just means the US will need even higher deficits. It took Japan 20 years to start getting comfortable with sufficiently large deficits. Now might be a good time to go long the Nikkei, actually.

closed; com; Richard Koo; Winterspeak; wrong.

Steve Keen's Debtwatch Sun 2009-08-30 14:33 EDT

It's Hard Being a Bear (Part Two)

Cassander

One of the reasons I'm still a bear on the economy is because the economists in the optimists camp are relying upon very bad economic theory. If that theory is telling them good times are ahead, that's one of the best predictors of bad times you could have. Capital Assets Pricing Model (CAPM) preached that stock market price shares accurately, that the amount of debt finance a company has doesn't affect its value, and many other notions that have gone up in smoke during the GFC. CAPM developer William Sharpe ``assumed a miracle'': all investors agree about the future and their expectations about the future are correct. Macroeconomic theory has been dominated by IS-LM model erroneously attributed to Keynes but actually due to convervative neoclassical John Hicks, which ``emasculated what was original in Keynes's General Theory, and this bowdlerised version of Keynes was then demolished by Friedman in the 1970s to usher in the Monetarist phase''

Bear; hard; part; Steve Keen's Debtwatch.

Credit Writedowns Wed 2009-08-26 16:38 EDT

The FDIC and the socialization of banking losses

With the Federal Deposit Insurance Corporation (FDIC) about to release its latest figures for banks it regulates and its own financial condition, now is a good time to review its role in this crisis. This post is about the FDIC's role in the credit crisis, how it seizes banks and why I believe this matters. [...] ``the way assets are seized and sold represents a redistribution of income from taxpayers to the acquiring entities''

banks losses; credit writedowns; FDIC; social.

Sun 2008-03-23 00:00 EDT

The Big Picture | Investing in a Post-Fact Society (a/k/a, Were the Good Times a Mirage?)

"Many of the stated economic gains have been a false ghost. Whether it was overstated job creation (NFP), understated inflation (CPI) or "inflated" growth (GDP), a shocking amount of the debate about the economic expansion has been primarily spin."

Big Picture; good times; investment; K; Mirage; Post-Fact Society.