zero hedge - on a long enough timeline, the survival rate for everyone drops to zero Sat 2010-09-25 09:47 EDT

Chris Whalen On The Upcoming "Worst Economic Contraction Since WWI (Forget WWII)"

Chris Whalen at Institutional Risk Analytics

The erosion of the profitability of the U.S. banking industry over the past two years under the glorious Summers-Geithner-Bernanke rescue scheme is the proverbial fly in the ointment for both major political parties. Democrats and republicans alike are going to be fed into the meat grinder over the next several years as the banking sector deals with literally hundreds of billions of dollars in direct and indirect expenses from the deflation of the mortgage bubble. For the economy, this slow process of muddle along championed by Summers and Geithner will ensure that Barack Obama becomes the Herbert Hoover of the Democratic Party. The economic carnage that will causes these losses, as we described in a recent post in Reuters, "Double Dip or Global Deflation?," is going to represent the worst economic contraction since WWI. Forget WWII. Think "shrinkage" to use the Gilded Age description for economic deflation. And frankly nothing that either the Fed or Treasury does in the near-term can change this basic economic fact of restructuring...the economic situation at BAC and among all of the legacy zombie banks continues to worsen. No amount of bullshit from Washington changes the fundamental economic situation inside the largest U.S. lenders.

Chris Whalen; dropped; Forget WWII; long; survival rate; Timeline; upcoming; worst economic contraction; WWI; zero; Zero Hedge.

billy blog Tue 2010-08-31 18:22 EDT

Monetary policy under challenge ... finally

The central bankers have been meeting in Wyoming over the weekend as part of the annual Economic Symposium organised by the Federal Reserve Bank of Kansas City...some notable presentations...suggest that key central bankers are starting to realise that the economic crisis in not over and the fiscal-led recovery is slowing and that monetary policy alone cannot provide the solution. Moreover, one leading central banker [BOE deputy Charles Bean] indicated that monetary policy is not a suitable tool for controlling longer term problems such as price bubbles in specific asset classes. This view challenges the basis of the mainstream macroeconomics consensus that has dominated the policy debate for 30 odd years and culminated in the worst financial and economic crisis in 80 years. It is certanly a welcome trend in a debate which is typically flooded with ideological input from the mainstream macroeconomics profession....

Billy Blog; challenges; final; monetary policy.

Credit Writedowns Thu 2010-08-05 20:20 EDT

Do Deficits Matter? Foreign Lending to the Treasury

L. Randall Wray

...a US current account deficit will be reflected in foreign accumulation of US Treasuries, held mostly by foreign central banks...While this is usually presented as foreign ``lending'' to ``finance'' the US budget deficit, one could just as well see the US current account deficit as the source of foreign current account surpluses that can be accumulated as treasuries...most public discussion ignores the fact that the Chinese desire to run a trade surplus with the US is linked to its desire to accumulate dollar assets...all of the following are linked...the willingness of Chinese to produce for export, the willingness of China to accumulate dollar-denominated assets, the shortfall of Chinese domestic demand that allows China to run a trade surplus, the willingness of Americans to buy foreign products, the (relatively) high level of US aggregate demand that results in a trade deficit, and the factors that result in a US government budget deficit...I am not arguing that the current situation will go on forever, although I do believe it will persist much longer than most commentators presume...there are strong incentives against the sort of simple, abrupt, and dramatic shifts often posited as likely scenarios...I expect that the complexity as well as the linkages among balance sheets ensure that transitions will be moderate and slow...

credit writedowns; deficits matter; foreign lending; Treasury.

Tue 2010-06-01 18:54 EDT

billy blog >> Blog Archive >> In the spirit of debate ... my reply Part 3

Bill Mitchell

The debate seems to be slowing down which means this might be my last response although we will see...I urge all those who are interested in finding out more about the employment guarantee approach to price stabilisation to read our major Report (released in December 2008) called Creating effective local labour markets: a new framework for regional employment policy...productive is not confined to contributing to the profit bottom-line of a capitalist enterprise. There are many things that deliver social returns that will never spin a private profit. Even mainstream economics says optimality should be defined in terms of social costs and benefits. It is just that they never get to that level and slip back always into the private returns mould...It also seems that conservatives in the US are starting to take to modern monetary theory. My colleague Warren Mosler has been giving modern monetary talks to the arch-conservatives in the US at the Tea Party meetings... would advocate that banks be regulated into going to back to being banks and outlawed from being merely commission recipients for securatised package deals etc. I would prevent banks from doing anything other than taking deposits and making loans. All the rest of the behaviour that the banks have been involved in would be outlawed...

Billy Blog; blogs Archive; Debate; reply Part 3; Spirit.

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.

Sun 2010-02-28 13:32 EST

GEAB N°42 is available! Second half of 2010: Sudden intensification of the global systemic crisis -- Strengthening of five fundamental negative trends

Marie-Helene Caillol

LEAP/E2020 is of the view that the effect of States' spending trillions to <<; counteract the crisis >> will have fizzled out. These vast sums had the effect of slowing down the development of the systemic global crisis for several months but, as anticipated in previous GEAB reports, this strategy will only have ultimately served to clearly drag States into the crisis caused by the financial institutions. Therefore our team anticipates, in this 42nd issue of the GEAB, a sudden intensification of the crisis in the second half of 2010, caused by a double effect of a catching up of events which were temporarily <<; frozen >> in the second half of 2009 and the impossibility of maintaining the palliative remedies of past years...The sudden intensification of the global systemic crisis will be characterised by the acceleration and/or strengthening of five fundamental negative trends: . the explosion of the bubble in public deficits and a corresponding increase in state defaults . the fatal impact of the Western banking system with mounting debt defaults and the wall of debt coming to maturity . the inescapable rise in interest rates . the increase in issues causing international tension . a growing social insecurity.

2010; available; fundamental negative trends; GEAB N°42; Global systemic crisis; strengthen; Sudden intensification.

The Economic Populist - Speak Your Mind 2 Cents at a Time Sun 2010-02-07 18:20 EST

Is Residential Real Estate a Ticking Time Bomb?

...First is the latest SIGTARP report saying the Government has become the mortgage market with U.S. taxpayers shouldering the risk. From the SIGTARP report we have a 100% government mortgage market at this point...Fannie and Freddie now have an unlimited bailout and it is estimated they have lost $400 billion dollars. The plan is to purchase $1.25 trillion mortgage backed securities from these two GSEs until the end of March...The number of homeowners who are strategically walking away from their mortgages is up to 10% this year...All of the above free money, the government pouring in trillions of dollars to prop up the housing market. Yet while price declines have slowed, prices are still declining and the above simply cannot go on forever. In fact one thing isn't going on forever. The Fed will stop buying MBSes at the end of March, 2010. So, when our government created illusion does pop, do we then have the real housing bubble implosion?

economic populist; Mind 2 Cents; residential real estate; speaking; ticking time bomb; Time.

Jesse's Café Américain Mon 2009-12-28 21:07 EST

Who Is Buying All These US Treasuries (And Can They Keep It Up in 2010)?

Jesse

...according to the government, US households are absolutely piling into US sovereign and corporate debt at record levels, and at record low interest rates. And almost no one but the Fed is buying Agency Debt...this is why I think we might see quite a bloodbath in the bonds in 2010, as mom and pop get skinned by the Street for weighing in so heavily on this one sided trade in US sovereign debt. The US household sector is a slow moving convoy, presenting a traditional and tempting target for the Wall Street wolf packs...Sprott Asset Management says: "Our concern now is that this is all starting to resemble one giant Ponzi scheme. We all know that the Fed has been active in the market for T-bills...under the auspices of Quantitative Easing, they bought almost 50% of the new Treasury issues in Q2 and almost 30% in Q3...We are now in a situation, however, where the Fed is printing dollars to buy Treasuries as a means of faking the Treasury's ability to attract outside capital. If our research proves anything, it's that the regular buyers of US debt are no longer buying, and it amazes us that the US can successfully issue a record number Treasuries in this environment without the slightest hiccup in the market."

2010; buy; Jesse's Café Américain; keeping; Treasury.

The Big Picture Fri 2009-10-23 09:03 EDT

Dick Alford on Opportunities Lost by the Fed

Richard Alford (via Chris Whalen)

Against a backdrop of continued financial fragility and extraordinary policy actions, policymakers are discussing re-balancing global growth, restoring financial stability, and the future of the Dollar as the world's reserve currency. In 2005, Edwin Truman proposed a list of policy measures that if followed would have reduced the US external imbalance and placed the reserve status of the Dollar on better footing. Truman's proposal differed from the standard litany of US fiscal discipline, Dollar adjustment, and increased demand in surplus countries. It called upon the Federal Reserve to slow the growth in US demand. More recent research, by Shin and Adrian, suggests that if the Fed had heeded Truman's prescription, then monetary policy would have also mitigated the recent turmoil in financial markets...

Big Picture; Dick Alford; Fed; opportunity lost.

naked capitalism Sun 2009-10-11 17:06 EDT

Asian Countries Intervene to Prop Up Greenback (Dollar Bind Edition)

An unannounced but evidently coordinated effort to arrest or at least slow the fall of the dollar is underway. The Financial Times indicated that Asian central banks were aggressive dollar buyers on Thursday, but the information came via currency traders rather than an official pronouncement. Thailand, Malaysia and Taiwan made substantial purchases; Hong Kong and Singapore also intervened today. The action may also have a secondary objective of rejiggering their currency values versus China's, since China repegged the renminbi against the dollar...

Asian Countries Intervene; Dollar Bind Edition; greenback; naked capitalism; prop.

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.

Jesse's Café Américain Tue 2009-09-22 09:15 EDT

Confessions of a 'Flationary Agnostic

Jesse

I have no particular allegiance to either the hyperinflation or the deflationary camps. Both outcomes are possible, but not yet probable. Rather than being a benefit, occupying the middle ground too often just puts one in the middle, being able to see the merits in both arguments and possibilities, and being unwilling to ignore the flaws in each argument...The growth rate of dollars is slowing at the same time that the 'demand' for dollars, the velocity of money and the creation of new commercial credit, is slowing. GDP is negative, and the growth rate of money supply is still positive, and rather healthy. This is not a monetary deflation, but rather the signs of an emerging stagflation fueled by slow real economic activity and monetization, or hot money, from the Fed. The monetary authority is trying to lead the economic recovery through unusual monetary growth. All they are doing is creating more malinvestment, risk addiction, and asset bubbles...Using money as a 'tool' to stimulate or retard economic activity is a dangerous game indeed, fraught with unintended consequences and unexpected bubbles and imbalances, with a spiral of increasingly destabilizing crises and busts. The Obama Administration bears a heavy responsibility for this because of their failure to reform the system and restore balance to the economy in any meaningful way.

confessed; Flationary Agnostic; Jesse's Café Américain.

Thu 2009-05-07 00:00 EDT

Beat the Press Archive | The American Prospect

first quarter wage growth slowed below inflation rate, reducing consumer purchasing power

American Prospect; beat; Press archival.

Wed 2008-07-23 00:00 EDT

naked capitalism: China to Slow Yuan Appreciation?

China; naked capitalism; Slow Yuan Appreciation.

Sat 2007-08-25 00:00 EDT

Katrina: Slow As Molasses | Campaign for America's Future

Katrina: Slow As Molasses, by Digby; Karl Rove used Katrina to capture Louisiana for Republicans | Campaign for America's Future

America s future; campaign; Katrina; Molasses; Slow.