LILA RAJIVA: The Mind-Body Politic
Individuals Not Ideologies
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Archive of "Economy" Category
Shocks And Doctrines: WSJ Uses Quake To Critique Klein
Bret Stephens in the Wall Street Journal adds some nuance to Naomi Klein’s black-and-white picture of Milton Friedman’s contributions to the Chilean economy, noting how prosperity and effective enforcement of building codes have protected Chilean victims of the recent earthquake from the devastation that Haiti suffered:
“In left-wing mythology—notably Naomi Klein’s tedious 2007 screed “The Shock Doctrine”—the Chicago Boys weren’t just strange bedfellows to Pinochet’s dictatorship. They were complicit in its crimes. “If the pure Chicago economic theory can be carried out in Chile only at the price of repression, should its authors feel some responsibility?” wrote New York Times columnist Anthony Lewis in October 1975. In fact, Pinochet had been mostly indifferent to the Chicago Boys’ advice until the continuing economic crisis forced him to look for some policy alternatives. In March 1975, he had a 45-minute meeting with Friedman and asked him to write a letter proposing some remedies. Friedman responded a month later with an eight-point proposal that largely mirrored the themes of the Chicago Boys.
For his trouble, Friedman would spend the rest of his life being defamed as an accomplice to evil: at his Nobel Prize ceremony the following year, he was met by protests and hecklers. Friedman himself couldn’t decide whether to be amused or annoyed by the obloquies; he later wryly noted that he had given communist dictatorships the same advice he gave Pinochet, without raising leftist hackles.
As for Chile, Pinochet appointed a succession of Chicago Boys to senior economic posts. By 1990, the year he ceded power, per capita GDP had risen by 40% (in 2005 dollars) even as Peru and Argentina stagnated. Pinochet’s democratic successors—all of them nominally left-of-center—only deepened the liberalization drive. Result: Chileans have become South America’s richest people. They have the continent’s lowest level of corruption, the lowest infant-mortality rate, and the lowest number of people living below the poverty line.
Chile also has some of the world’s strictest building codes. That makes sense for a country that straddles two massive tectonic plates. But having codes is one thing, enforcing them is another. The quality and consistency of enforcement is typically correlated to the wealth of nations. The poorer the country, the likelier people are to scrimp on rebar, or use poor quality concrete, or lie about compliance. In the Sichuan earthquake of 2008, thousands of children were buried under schools also built according to code.
In “The Shock Doctrine,” Ms. Klein titles one of her sub-chapters “The Myth of the Chilean Miracle.” In her reading, the only thing Friedman and the Chicago Boys accomplished was to “hoover wealth up to the top and shock much of the middle class out of existence.” Actual Chileans of all classes—living in the aftermath of an actual shock—may take a different view of Friedman, who helped give them the wherewithal first to survive the quake, and now to build their lives anew.”
My Comment:
Friedman, was, of course, from an Austrian perspective, far from being an ideal free-marketer. In a devastating piece, “Milton Friedman Unraveled,” (1971), Rothbard even questioned his claim to be called a free marketer of any kind, listing among many sins, his advocacy of withholding taxes and of an absolute dollar standard.
All true, no doubt. But the fact remains, even if it was only in a very constrained sense that he advocated more freedom in the markets, he did advocate it. And as the article above suggests, contra Rothbard, even a limited advocacy of market freedom is better than an outright assault on it.
John Paul II On The Moral Basis Of Capitalism
Tom Woods cites Pope John Paul II on the moral basis of material prosperity:
“According to John Paul II, “The moral causes of prosperity . . . reside in a constellation of virtues: industriousness, competence, order, honesty, initiative, frugality, thrift, spirit of service, keeping one’s word, daring — in short, love for work well done. No system or social structure can resolve, as if by magic, the problem of poverty outside of these virtues.” These are precisely the virtues that the market economy fosters.
These ideas are not foreign to Catholic tradition: The Late Scholastics of the 16th and 17th centuries favored an economy very largely free of government controls, and John Paul II’s Centesimus Annus (1991) reflected an increasing appreciation for the moral and material benefits of non-coerced economic exchange.
The less heed we pay to slogans and propaganda, and the more we study the question on its merits, the more attractive does the market become.”
What China Wants
The Financial Times points out the quirks in the Chinese market that have Western companies racking their brains to stay on top of sales:
“The big spender in China, in years past and even more so today, is the state: private consumption as a percentage of gross domestic product has fallen from 60 per cent in 1968 to 36 per cent last year and could be as low as one-fifth in 2009 as the government ramps up capital investment.
In fact, the Chinese, who already have a world-beating savings rate of nearly 40 per cent of their income, tend to become more frugal when times are tough. As bank deposit rates decline, most of us spend more. The Chinese tend to stash away even greater sums to make up for the lost interest. The reason for this conservatism is the lack of a social safety net in China – citizens have to provide for their own medical care, old age and possible unemployment.
This makes them “penny pinching, ruthless, suspicious shoppers”, says Tom Doctoroff, north Asia director of advertising agency JWT and a writer on Chinese consumer trends. In a recession this behaviour only grows worse. “The downturn has made people keener on finding the cheapest deal,” says Yuval Atsmon, an associate principal in McKinsey’s Shanghai office. Even when they can easily afford it, buying a PC typically involves six visits to a store, and more often than not, customers will wait six months before making their decision after consulting blogs, online comparison sites and – the most important source of information in China – friends and family. Sales of copycat mobile phones, with all the functions of top models but a lower price, have soared from 17 million units in 2006 to 62 million units last year.
Brand consciousness is high, at least in the big cities, but brand loyalty is much lower than in the west. A price cut or good in-store promotion can often sway shoppers. And for cultural reasons, appealing to an individual’s taste or personal comfort typically doesn’t work, Doctoroff points out. A purchase either has to publicly signal status or wealth, like a flashy car does. Or provide a practical benefit: the latest craze in China is chocolate with added calcium, eaten not for pleasure but for the health benefits. The growing appeal of diamonds to women is not based on romance, but as a financial signal of a man’s commitment. Trust is another key issue in a country where so many consumer products are faked. Chinese mothers, for example, will pay 30 per cent more for safe baby milk – and this should favour foreign brands.
But foreign retailers and manufacturers have to cope with vast regional differences in demographics, language and culture that make it hard to plan a single marketing strategy – indeed treating China like a single country is usually a mistake. Natives of Zhejiang on the east coast like “toilet roll as rough as sandpaper”, the former head of Wal-Mart China liked to observe, a penchant thankfully absent elsewhere. Atsmon points out that cities even an hour apart can be entirely different: in southern Shenzhen, more than four-fifths of the population consists of migrant workers, mostly under the age of 35, who speak Mandarin and drink in bars. In nearby Guangzhou, migrants number just over a quarter, more people are older, enjoy watching Cantonese TV and go out to restaurants to drink with family members. Adequately addressing such niches requires an army of local suppliers, costly infrastructure and several layers of wholesalers and intermediaries. Even then, success may remain as elusive as it always has been: “No matter what you may be selling, your business in China should be enormous, if the Chinese who should buy your goods would only do so,” lamented Carl Crow, an advertising executive in Shanghai and author of the original book on how to sell to the Chinese … more than 70 years ago.”
India Changing…
Jayant Bhandari in Liberty Unbound:
“Now, as I travel through India’s smaller towns and villages, I gather many impressions, both of change and of continuity.
I stay in rooms that cost me $2 a day, and purchase all-you-can-eat food for 50 cents. I pay my driver the princely sum of $7 a day. To Westerners, these prices will appear astonishingly low, but inflation of food prices in India is close to 20%. Food is very expensive for regular folks, and speculators are being blamed. I am constantly amazed that there is never any mention of the fact that the Indian government still runs one of the most efficient printing presses in the world — printing money, of course. The only thing that limits inflation is the high rate of real economic growth. Yet the Indian government is getting extremely addicted to increasing expenditures. The government’s fiscal deficit is about 12% of GDP. To me this is like addiction to heroin. What will happen if the growth rate falters?
In an isolated place, a woman sells me a 15-kilogram bag of fruit for a total of 60 cents — fruit worth about $15 in Bhopal. Her companions think she’s won a lottery. These wretched women chase me and beg me to buy some from them. I feel sorry for the little girl who had tears in her eyes. Yet I am repelled by the fact that so many Indians easily grovel and beg. The worst is when well-off people do this. A visit to a government office in India is essential if you want to understand the degradation that the Indian public accepts even today.
I meet the top management of a company constructing a major highway. The highway was deemed uneconomical, so the government and the company agreed that they would use eminent domain to confiscate a lot more land than was necessary from the farmers, at 5% of the market value. The extra land would be converted into condos or commercial space. The poor people would subsidize development. Why should they subsidize the development of the country? This is socialism in practice, although the farmers are branded communists when they rebel. Meanwhile people in the West believe there is something romantic about poverty — a view that is not only hypocritical but pathetically wrong..…”
David Tice On King World News: Trouble Ahead….
David Tice on Eric King’s King World News, December 23, 2009
- This is not another inventory recession; this is unprecedented
- There’s trouble all over the globe - Europe, China, Japan..
- Hunker down, cut back expenditures, get out of stocks, own gold
- Look for deflation followed by competitive currency devaluation, then inflation.
Adrian Ash: Here Comes Stagflation
The whole inflation-deflation debate has always struck me as misbegotten. People use the terms to mean things so varied that it’s pointless to argue. But such as it is, I’m a firm believer in the deflationary thesis on the macro level… influenced in this by the economist Antal Fekete , and his theory of how capital is destroyed in a fiat money regime.
Nonetheless, I do see consumer prices rising.
In other words, asset prices fall, industry contracts, and unemployment levels stay high, while the stuff on the shelves costs more, insurance and tuition rates climb, and living in general becomes more expensive. (more…)
The Demonic Style: Valentine On Military Historians, Avatars, and the CIA
Insight into why the revisionist media never ‘gets’ it:
“The extent to which this practice existed was revealed in 1975, when William Colby informed a congressional committee that more than 500 CIA officers were operating under cover as corporate executives and that 40 CIA officers were posing as journalists.
“When it comes to the CIA and the press, one hand washes the other. In order to have access to informed officials, reporters frequently suppress or distort stories. In return, officials leak stories to reporters to whom they owe favors.
Recession Brings Fall In Crime Rates
The recession is dealing body blows to the rationale of many great society programs, that poverty leads to crime. First, there was the unmasking of a large part of the most affluent part of the country, its financial elites, as little better than a criminal class. Now, comes news that crime rates are down as the recession continues. (more…)
Doug Valentine: CIA Killings Spell Defeat In Afghanistan (Updated)
Update (January 12): In response to criticism (in the Comments) by a US military historian, I’ve posted a review of Avatar here at MBP, on January 11.
Update (January 12): Since this piece is so topical and sensitive, I´m taking the liberty of adding links to it, so that readers can do further reading on their own.Original Post:
“Douglas Valentine, author of the recently released account of the DEA, “The Strength of the Pack,” contributes this piece to The Mind Body Politic:
Disrupting the Accommodation: The CIA Killings Spell Defeat In Afghanistan
Why?
“Why?” The grieving family members ask. “Why did the terrorists kill our loved ones?” (more…)
Shadow Stats’ Williams Says Hunker Down For Depression
John Williams of Shadow Stats says the gig is up:
“Atlhough the hyperinflation is going to be limited largely to the U.S., the economic downturn will affect things globally. I can’t tell you how things will go with a hyperinflationary Great Depression, which is where I see things going.
It’s the type of thing that will tend to lead to significant political change. People tend to vote their pocketbooks. You could have the rise of a third party. You could even have rioting in the streets. I’m not formally predicting that — anyone can run these different scenarios. For the individual, what you need to do, from an investment standpoint, look to preserve your wealth and assets. Don’t worry about the day-to-day fluctuations in the markets. What I’m talking about here is over the long haul…
[Gold is] going to be highly volatile, as will the dollar, over the near term, but longer term, physical gold I would look at as a primary hedge for preserving the purchasing power of your wealth and assets. Maybe some physical silver. Get some assets outside the U.S. dollar. I might even look to move some assets physically outside the United States. The key here is to look at a longer range survival package, battening down the hatches, and preserving your wealth and assets during a very difficult time. Once you’re through that, you’ll have some extraordinary investment opportunities, and I can’t tell you what it’s going to be like on the other side of this crisis.”
My Comment
In response to a reader, I added my comment (Dec 28):
This is the way I see it.
1. There is asset price deflation going on (house prices falling), since the prices reflected unrealistic future projections of housing growth driven by derivatives built on the mortgages.
Now that those projections have been called into question, the derivatives have been repriced as junk, and the underlying securities, the homes, have to return to a more appropriate price leve.2. This means that all artifical economic activity associated with the housing bubble also has to decline. So there´s economic contraction. That has taken down the commodity markets with it (except for gold, which is up as a hedge against the dollar and as a speculative play right now)
3. I don´t pay too much attention to individual figures coming out on the economy that seem to indicate an improvement in things, because
a. Many of the numbers are inaccurate or deliberately misleading.
b. Economics is not a mathematical science. It´s an art. Static numbers cannot tell you about the social mood, political factors and gestalt that drive the market.Now, market prices are bit more reflective of those things because they´re dynamic, so the prices of commodities and stocks can be good indicators. But there again, which prices -the price of gold, the price of money in the US, the price of commercial borrowing?
c. There´s also market manipulation..very severe manipulation. So again, the market indicators have relevance but its upto individual analysis how to tease out the relationships.
4. That said, and despite the fact that we have a credit contraction going on (a decline in the monetary base) that doesn´t mean that at some point the money pumped into the banks won´t find ways of entering the economy….if it hasn´t already, in some disguised fashion. (I realize the word ´money´ is being used in different ways here, as it is through out the debate, which is the reason for so much confusion..but that´s a long story..)
5. It´s highly probable that as the slowdown shows its true face, governments everywhere are going to be simultaneously devaluing..leading to local inflation.
6. Searching for hard assets, funds are again going to drive prices of certain essentials upward..leading eventually to commodity prices soaring even while there is a general economic contraction
Thus you could have simultaneously a high level of inflation - perhaps not hyperinflation, I would guess around 15%’20% - as well as a depression
Social Media Machinations Of the Financial Press
A piece of Orwellian obfuscation by one Tom Sykes at Daily Kos *(see note at the bottom of this post) goes into the file, rip-roaring propaganda:
“I want to be clear on something up front. I think hedge-funds are a menace and should be outlawed. I think Goldman Sachs is a criminal conspiracy and its whole leadership should be indicted.
There are plenty of commentators, like Paul Krugman in the New York Times today and Matt Taibbi in his article in Rolling Stone, that have done great reporting on Goldman and on hedge funds.
But what we’re seeing is how a really odious character named Patrick Byrne is trying to hijack this issue…”
My Comment:
Byrne hijacked Taibbi? The liberals busted Goldman Sachs and naked short-selling and the hedge funds?
Aren’t Goldman Sachs and the hedge-funds the money men who funded the whole left-establishment..and wasn’t it people on the right libertarian side who busted them, and in fact called the whole financial crisis?
The libs were on the case only in 2008 when everyone was on the case and you’d have to have been blind not to notice.
This kind of revisionism makes me question the impetus behind the Rip Van Winkle awakening of the MSM on the financial crisis.
Either it shows that the MSM can’t see what’s going on in front of its collective nose, which argues that its working hypotheses are wrong (the kinder interpretation), or it shows rank dishonesty (the truer interpretation, likely).
I’d go with the first interpretation, only the hatchet job the press keeps doing on anyone from the other side of the political spectrum suggests that the second interpretation is the right one.
As I’ve repeated ad nauseum, Taibbi seems to have lifted my Goldman Sachs piece of 2006 (Money Week) as well as a bunch of other articles written in 2007-2008 (see ABOUT) . You can read it on the net and then go back and see what Taibbi wrote, only about three years after I did. (He probably pinched stuff from at least one other person as well). You will also see that I wrote more than half-a-dozen articles on Goldman after that in 2006 and 2007 (check this site). In 2008, everyone began writing about Goldman. I figure someone at Rolling Stone got worried that the population was beginning to wake up to which side really had the goods, and decided to co-opt the issue before their intellectual ineptness was too evident.
Otherwise, I’m hard pressed to explain why they don’t think they need to source and attribute correctly. They can’t all be such intellectual charlatans? Right?
As for naked short selling, Byrne has been waging that campaign since 2005.…and some others on the right, even before him. Even people who don’t think there’s an NSS hedge-fund-media conspiracy involved have long ago conceded that NSS is a problem (see this Motley Fool piece from 2005), and that it’s difficult to figure out what’s really going on, because the DTC/SEC, for example, won’t/can’t release the figures needed to assess the situation.
(Now, why would anyone think conspiracy when there’s stone-walling going on…)
Matt Taibbi basically borrowed Byrne’s argument. And having taken the argument, the establishment is now trying to discredit the person who made it first (see Ritholtz here and here, even before the Facebook brouhaha).
It’s not irrelevant that in coming to his conclusions, Ritholtz cites only the very same journalists whose credibility is shot by the evidence of their collusion with hedge-funds. That is certainly a bizarre way to report on a topic.
Mind you, this should not be taken to be an endorsement on my part of Byrne’s business practices or accounting, about which I know only what I have read. And that of course has mostly been written by his critics and critics of the NSS thesis, like Dow Jones reporter, Carol Remond.
But Remond, despite her reputation as a respected reporter on penny-stock scams, is seriously compromised in her reporting on this issue because of alleged collusion with hedge funds.
I say alleged, to be on the safe side, but to my eyes the evidence is convincing.
On the other hand, Overstock has repeated accounting problems that its foes argue are the real reason for its NSS campaign.
How serious these problems are is hard to say.
Of the two accountants who routinely denounce Byrne’s business practices in multiple postings that take up a remarkably (and suggestively) disproportionate space on their blogs, one, Sam Antar, has been convicted of one of the most extensive cases of embezzlement in recent history. Antar also claims the mantle of reformed felon without any evidence that restitution of the embezzled funds took place. He escaped prosecution only by turning in his own family. This is not a confidence-builder. Actually, there’s some evidence of further wrong-doing involving one Barry Minkow that’s also posted on the Deep Capture blog. Antar and Mankiw are practicing greenmail, according to this piece.
(Its author uses the term loosely. Greenmail, in recent US financial history, is what Michael Milken is infamous for - a type of corporate raid. And Milken is one of the central villains in the Deep Capture story of the corruption of Wall Street. Since I researched this period for a book I was planning to write on Goldman Sachs, I’m conversant enough with the subject to say with some confidence that Byrne is on the right track on this).
The other accountant who criticizes Byrne, Tracy Coenan, seems to be another ally of Antar and equally over- concerned with the accounting problems of Overstock, to the neglect of other companies.
Yet these are the only two accounting experts I see cited by Weiss.
Could there be other things wrong with Overstock?
Perhaps.
I have no way of knowing. But what I do know doesn’t so far make me think the problems are related in any way to the thesis of Deep Capture. The accounting errors don’t seem especially egregious, compared to the rest of what is going on in the market that the reform movement that Byrne spearheads is trying to tackle.
So is Deep Capture’s work discredited because of Byrne’s alleged and real problems?
No.
Overstock could very well be mismanaged and Byrne could be guilty of accounting shenanigans. That has nothing whatsoever to do with the extensive, indeed, mind-boggling, ties between supposedly neutral financial reporters and the hedge-funds that Deep Capture report on. The evidence the site has collected is shocking and undercuts any defense of the neutrality of the reporters in question (Bethany McLean, Remond, Weiss, Herb Greenberg, Roddy Boyd, etc).
To return to the media manipulation story.
After Taibbi put the two stories on Rolling Stone, Goldman and Penson came out and shot them down.
Taibbi, strangely, for a supposed target of Goldman and for all his righteous indignation over NSS, vanishes on the latter subject (NSS) and retracts parts of the former.
So what happens?
The entire Goldman argument gets reduced to “Goldman corrupted the regulators,” which works very well if you want more government and more regulators (and we are not fundamentalists on either subject). The good part of that from the point of view of the MSM is that that lets them displace the outrage on one or two figures (Rubin, for example), while using GS as a whipping-boy to funnel off popular rage from any effective overhaul/criminal prosecution, as well as to deflect it from the evidence of conspiratorial criminal activity.
(Yes, there are conspiracies, Virginia, and often the ones protesting loudly that they don’t exist are part of them…unwittingly or not).
Take this piece at Business Insider by Ritholtz, which sets up the boundaries of establishment discourse, with Taibbi and Gasparino at either end. What it does is to come down roughly “midway” between the two in a way that conveniently does nothing to change the centrist liberal establishment discourse.
(At least, that’s my take).
Now, Taibbi comes from a well-established media background, with a father who was an NBC TV man.
It’s hard to believe he doesn’t know the ethics and etiquette of sourcing. In fact, it’s downright impossible.
We’d have to conclude that
1. He was tasked with co-opting the stories for political or national security reasons.
2. Or lacks journalistic integrity, a deficiency fairly rampant these days….
3. Or wants to protect the left-liberal establishment on the issue….
4. Or some combination of the above.
Note:
*Tom Sykes is apparently a sock-puppet created by Gary Weiss, the former Forbes and Business Week reporter, at least, according to the considerable evidence amassed at Deep Capture.
Note: I have sent several mob/corruption-related articles to the Deep Capture team and consider myself a supporter of their research, which I’ve tried to link and forward to others, as well as to more generally publicize. I don’t think that prevents me from assessing the merits of their claims objectively. I don’t, for example, condone any social engineering attacks on social media sites like facebook, no matter what the legal status of such attacks is. Frankly, the work Deep Capture is doing on market/media corruption is too important for its members to get into such unworthy activities. Nor do I think bringing in personalities, family members, or even private networks of journalists is particularly important or even necessary. The point is not whether a journalist talks to or is friendly with another journalist….or even hedge-fund. The point is whether their work is significantly biased by the friendship and whether they disclose the friendship and attempt to correct for it. I appreciate a number of left and liberal writers, even when I disagree with them, because I find them intellectually honest and reasonably objective (complete objectivity being impossible as well as unnecessary). That’s not a very high standard to demand now, is it?
Are We All Keynesians Now?
Peter Robinson in Forbes, writing about Professor Samuelson´s death, on why we aren´t all Keynesians now:
“Question: “Everyone,” you claim, “understands … that there can be no solution without government.” Are you aware that Harvard economist Robert Barro called the Obama stimulus package “garbage?” “This is probably the worst bill,” Barro insisted, “since the 1930s.”
Had you noticed that Stanford economist John Taylor has warned against responding to the crisis with a government intervention? “[P]olicy makers,” Taylor wrote recently, “should rethink the idea that frequent and large government actions and interventions are the only answer to our current economic problems.”
Are you aware that nearly 300 economists signed a petition opposing a federal stimulus? “Notwithstanding reports that all economists are now Keynesians,” the petition declares, “we do not believe that more government spending is a way to improve economic performance.”
And have you happened to glance at any recent polls? According to the Rasmussen organization, more than half of Americans believe the Obama stimulus bill will either hurt the economy or have no impact.
If dozens of economists and more than half the American people are against you, then who is this “everyone” of whom you spoke?”
Rick Ackerman On the Deflationary Argument
“Our grasp of deflation’s logic began with the 1976 book, The Coming Deflation, by the late C.V. Myers, and continued with Davidson and Rees-Mogg’s The Great Reckoning. Although Myers’ work was obviously premature, the concepts it emphasized are timeless, particularly this one: “Ultimately, every penny of very debt must be paid – if not by the borrower, than by the lender.” This is the crux of the inflation vs. deflation debate, and because of the way Myers framed it, we’ve never had any doubt that the U.S. would eventually experience a catastrophic deflation. We were early in thinking the financial system would topple as a result of the allegedly “mild” recession of 1990-91 and its S&L crisis. In retrospect, it’s clear that we lacked the imagination to see that the huge amounts of Third World debt that threatened the global economy at the time were relative chump change compared to the galactic sums that Bush, Obama and the Federal Reserve have put into play in the last three years in hopes of saving the system.”
My Comment
I posted this to support my reiterated position that the recession cannot possibly be corrected as simply as advocates of the stimulus programs like to argue. It´s been in the making for more than a quarter of a century. Can a few months change everything so fast? I could be mistaken, but I don´t think so,…
I also posted the Ackerman piece to counter the establishment media spin that Nouriel Roubini was so much “ahead” of others in predicting the recession.
I call Roubini an establishment figure because of several things, including the fact that he does business with Larry Summers. Here is Roubini warning about housing in 2006...
He himself said the earliest he predicted the housing crash was in July and August 2006.
But by then, even a layman, like yours truly had already done that, and done it earlier - July 2005
And I was, at least in part, drawing on my reading of Mises. org, Lew Rockwell, and The Daily Reckoning, when I wrote the piece…which is where they spotted me on the web, and offered me a gig.
(As I said, I´m always walking into synchronicities in my life..)
Compare that with what other experts were saying in 2005, which is, there´s no housing bubble. That´s Ritholtz, by the way, who writes the excellent blog, The Big Picture (At least, Ritholtz also did say that housing was extended).
But then, in that same piece, Ritholtz also predicted that 2008 would be a good time to reenter the housing market. Oops. [Dec 12. On second thoughts, maybe oops isn´t really warranted. Housing may not have bottomed out everywhere, but I´ll bet you could have picked up good bargains in a few places in 2008]
That shows that you can have very good number-crunching skills, but then miss some of the…..dare I say it?…big picture.…because the big picture has nothing to do with number-crunching but with perspective
And that takes a knowledge of history…. and not simply economic history either. It takes a broader knowledge of the world than professional money-managers usually have.
Meanwhile, compared to Austro-libertarians (see those cited above in Ackerman´s post), Roubini was some twenty-five years late in his analysis.
Yet the media studiously ignores Austrian theory and Austrian theorists (Mark Thornton, for example, called the housing bubble exactly on time and called gold $1200 back in 2005) and stamps approval on people who were either late or wrong…and turns to them for solutions.
Why is all that important? Because it shows the intellectual dishonesty that is at the heart of the corruption of the system. Fraud and force go together, and for political and financial fraud to succeed, they need intellectual and academic fraud to cover their sins… and prep the soil.
Deep lack of trust of anyone who adheres to a rival political theory (or to a rival political party)…. and the arrogance of power…lead the establishment media to rewrite history…. and this intellectual dishonesty is the rag behind which the emperor (the state) hides his moral nudity.
Climate-Gate: Media Ignored Scientific Back-Trackers
This story back in September ought to have made a lot of headlines, but didn´t. Perhaps it will now:
“When a leading proponent for one point of view suddenly starts batting for the other side, it’s usually newsworthy.
So why was a speech last week by Prof. Mojib Latif of Germany’s Leibniz Institute not given more prominence?
Latif is one of the leading climate modellers in the world. He is the recipient of several international climate-study prizes and a lead author for the United Nations’ Intergovernmental Panel on Climate Change (IPCC). He has contributed significantly to the IPCC’s last two five-year reports that have stated unequivocally that man-made greenhouse emissions are causing the planet to warm dangerously.
Yet last week in Geneva, at the UN’s World Climate Conference — an annual gathering of the so-called “scientific consensus” on man-made climate change – Latif conceded the Earth has not warmed for nearly a decade and that we are likely entering “one or even two decades during which temperatures cool.”
The global warming theory has been based all along on the idea that the Atlantic and Pacific Oceans would absorb much of the greenhouse warming caused by a rise in man-made carbon dioxide, then they would let off that heat and warm the atmosphere and the land.
But as Latif pointed out, the Atlantic, and particularly the North Atlantic, has been cooling instead. And it looks set to continue a cooling phase for 10 to 20 more years.”
My Comment
Now why would Latif come out with this suddenly? Maybe he had a peek at some of that data the CRU scientists were trying to hide and decided to dissociate himself in advance from a scandal threatening to blow up…
More Fall Out From Dubai On Indian Market
“Segments of the economy such as consumer durable and core industrial growth that are driving the current recovery in the Indian economy are purely a function of domestic stimulus initiatives and remain to that extent relatively insulated,” HDFC Bank said in a report today.
However, areas such as exports, remittance, banking and construction as well as real estate are likely to see further damage, the report added.
Exports are going to be the most affected by Dubai woes, as the UAE region is now India’s largest export destination toppling the United States.
Besides, bullion trading in Dubai is likely to be impacted, which may have ripple effect for India as around $29 billion of gold from the country is being traded in Dubai.”
Dubai Govt. Unable to Pay Debt
“The government of Dubai is in major financial trouble.
The government late Wednesday said it would restructure Dubai World and announced a six-month “standstill” on repayments of the state-run wide-ranging conglomerate’s debt.
Government-owned Dubai World is a conglomerate with interests in real estate, ports and the leisure industry. The firm carries around $60 billion in liabilities. Credit agencies Moody’s Investors Service and Standard & Poor’s downgraded the debt of a range of government-related firms, including DP World, after the restructuring announcement.
The dollar amounts involved with Dubai are relatively small in this tranche (compared to the real estate debacle0, but this continues to indicate the shortage of dollars to support the current capital structure.
As one would expect, markets are reacting negatively. International stock markets are down across the board. The dollar is climbing.”
More at The Telegraph.
My Comment
We´ve been watching this story since we first read it via Peter Cooper, who has some other insightful comments on his blog, Arabian Money.net.
“The Private Equity World Middle East 2009 conference this week attracted a good crowd and many sponsors. However, the gloom and despondency among delegates and speakers is tangible. Why are these canny business operators so depressed?
Basically they do not believe in the recovery and see a double-dip in the global economy as stimulus packages are withdrawn. The current uptick has left businesses too highly priced and their owners overconfident in the opinion of private equity firms.”
Cooper has also noted that gold sales in Dubai have crashed, although with the increase in general investor interest, he thinks this won´t have a major impact on the world gold market. Cooper also thinks the China boom is driven mostly by government stimulus money and is very vulnerable to a collapse.
His opinion comes with regional expertise behind it, while mine is simply based on my sense that the 2008 crash was only a preview of coming attractions…but still, I´m wary of the move in gold. My sense is that speculative money is pushing up the price and it could go down fast short-term. Long-term fundamentals remain good, of course.
Now, this is Thanksgiving and trading is thinner that usual, so market fluctuations do get amplified. Also, the move down in gold shouldn´t be taken out of context. It´s only to be expected, given its strong performance recently. But nonetheless, the strengthening of the dollar and the sell-off in the markets is significant.
Also significant is the fact that the Dubai government made the announcement after the local stock market had closed and on the eve of the Eid holiday that runs upto December 6.
Here are the numbers:
[(Note: the Asian markets sold off on Thursday, the other figures are opening figures in Europe and America.]
Update: there was some recovery in the markets by the close of Friday.
[Note also: First set of figures is from AP, Friday, November 27, 5:34 AM.]
Figures in brackets are from IBNLive.
Japanese Nikkei 225 down 3.2% (2.28%)
Australia down 2.9%
Shanghai down 2.4% (1.82%)
(India´s Sensex down 2.67%, Nifty down 2.8%)
Hang Seng (Hong Kong) down 4.8% (3.45%)
Kospi in S. Korea down 4.7% (4.01%)
Europe, down over 3% on Thursday, slid further:
FTSE 100 (UK) (down 3.2% on Thursday) 0.3%
DAX (Germ) (down 3.25% on Thursday) 0.4%
CAC-40 (France) (down 3.4% on Thursday) 0.6%
The Canadia market (TSX) dropped over 200 points.
On Wall Street, the Dow is down this morning by 2% and the S&P by 2.5%
Oil down by $4.17 to $73. 79 a barrel in Europe ($72.39 in Asia).
The dollar climbed back up from a 14 yr low of 84.81 yen to 86.33 and moved above parity to the Swissie.
Gold fell from a high above $1192 on Thursday to as low as $1136 (a move of $52 $56, which isn´t that big a deal for it, but nonetheless could be an indication of future downside volatility)
Looks like in a market sell-off, as before, the dollar gains..
This is why price-chasing is a danger.
Secy of IMF - Siddharth Tiwari
On November 21 an Indian was named Secretary of the IMF, according to Press Trust of India:
“With a proven track record in managing complex work programmes, Indian economist Siddharth Tiwari has been named as the Secretary of the IMF by its Managing Director Dominique Strauss-Kahn.
Tiwari, currently Director of the Office of Budget and Planning, is set to assume the position, which was held by Shailendra Anjaria before his retirement from the IMF earlier this year.
“Mr Tiwari has the experience and skills” to promote consensus building, which is a critical goal of the IMF Board and Management, Strauss-Kahn said in a statement.”
Buffett Bets Big On US Economy
Warren Buffett’s Berkshire Hathaway fund has pumped $34 billion into Burlington Northern Santa Fe Corporation, the USA’s second largest railroad.
“Berkshire’s $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry,” Buffett said in a statement.
“Most important of all, however, it’s an all-in wager on the economic future of the United States. I love these bets,” he said.”
More at AP.
What A Billionaire Can Buy
For those who think that nationalism is the threat, rather than transnationalism, consider this:
“Bill Gates, America’s richest man with a net worth of $50 billion, has a personal balance sheet larger than the gross domestic product (GDP) of 140 countries, including Costa Rica, El Salvador, Bolivia and Uruguay. The Microsoft ( MSFT - news - people ) visionary’s nest egg is just short of the GDP of Tanzania and Burma.”
More here at Forbes.
Faber: Indian Central Bank One of the Best in the World
“Where does India fit in your preferred or not preferred list right now of markets?
A: I think the Reserve Bank of India (RBI) has one of the best monetary policies in the world because they supervise the financial sector very closely. They have maintained relatively tight monetary policies and also they pay attention not only to core inflation which is not representative of the cost of living increase and is not representative of inflation in the system but the RBI also pays attention to rising and falling asset prices. So I have to give them credit for being one of the best Central Banks in the world.
My Comment:
Faber goes on to argue for a pull-back in markets everywhere (maybe immediately, maybe after a further 10% rise), for a snap-back of the dollar in the near term (by around 10%), and for substantial further decline in the market, and over the next 2-3 years, in the dollar.
I like the point he makes in the quote that inflation isn’t just “core” inflation - the rise in prices in the stuff on the grocery shelves - but should also include asset price inflation. Because then you’d have a better judgment of what was going on in the markets.
My own take is that the media is misjudging some of the numbers coming from the emerging markets. The Chinese figures are likely to be highly over-optimistic and inflated, maybe by as much as 50% or more. The Indian market is also not that transparent….
People Leaving Florida and California..
When bad times came in earlier days, Americans were likely to up and leave town for greener pastures.
This time, they’re hunkering down. It’s the new depression mentality.Those that are moving seem to be moving out of the two states that had the biggest booms in housing - Florida and California.The reason is clear. With the housing market in crisis, the economies of the two sunshine states have been hit proportionately hard.
CNN Money reports:
“The Florida economy is based on growth and home construction,” said Lang. With building projects dying on the vine, unemployment soared to 7.6% for the state in 2008. It’s now up to 10.7%.
The same job problems plague many California cities, especially Central Valley towns like Stockton, Fresno and Merced. Construction-related job losses helped send state unemployment to 8.7% by December 2008 from 5.9% a year earlier. Today, some cities report breathtakingly high unemployment rates: 30.2% in El Centro; 17.6% in Merced; and 17.2% in Yuba City.
So, if people aren’t heading for the good life in California and Florida, where are they going?
D.C., Alaska and Wyoming. (Seriously………To be fair, however, small populations in these places convert modest in-migration increases into large percentage gains. They’re each among the smallest states (or district) in the Union. That’s just the opposite of California and Florida where each percentage point represents hundreds of thousands of people….In terms of net migration — those moving in minus those leaving — Texas was the star performer in 2008, with the population growing by 140,000.”
My Comment:
I thought of Texas - way back in 2003. Houston or San Antonio, I thought. I liked the fact that Houston had a large Asian community and was reckoned one of the best places to begin a new business and one of the best places for immigrants. Property was also reasonably priced and the place had a healthy libertarian community. It’s reputed to be a safe, family-friendly city - and greener than you’d think. And there are all those jobs in the energy business.
But there are negatives. Both places are a long way off from anywhere else. In many ways, you’d be going to a new country. To get to any other city in Texas, let alone anywhere else, is a long haul. Houston’s roads are congested. The housing is largely modern - no old architecture. The weather is extremely hot and humid, and there’s hurricane season. I told a friend of mine he’d find me on a ranch, chewing baccy, spitting, and eying down rattlesnakes. I’d fit right in, I said. I probably would have. But I would have lost something in fitting in. In Uruguay, subtly, I feel I gain by fitting in.
And the prison system - not that I was planning on ending up in it - has serious problems. I am not sure it would have been the ideal place for a political blogger.
I still wonder about Texas and if I made a mistake coming here. My reasoning was that if I was going to uproot that much, I might as well go abroad, where I’d also have the advantage of being out of the country. But I admit to being conflicted about it all…still.What made up my mind for me ultimately was the privacy issue. You can move to Texas, but you can’t move out of the way of the snoop state. And you can’t get away from litigators and stalkers…from enemies with their malevolence and the government with its benevolence….
Weak Housing Figures Hit Gold, Boost Dollar
“Resales of U.S. homes dropped 2.7% in August to a seasonally adjusted annual rate of 5.1 million, the first decline in five months, prompting the National Association of Realtors to again plead for more taxpayer subsidies for their business.”
That’s sent spot gold below $1000 and pushed the dollar higher.
Aha. So Ben Bernanke finishes his little piece of quackery yesterday, delivering it in the best bedside manner (the patient is doing so much better etc. etc..), and the silly patient refuses to cooperate and slides right back into his coma…
Read the whole piece at Market Watch, if you can do it without popping a blood vessel.
Here’s Lawrence Yun, chief economist of the National Association of Realtors (which is the lobby for the real estate agents) “pleading” for more tax payer moolah in order to have a “self-sustaining” recovery.
How does a recovery based on taxing people amount to a “self-sustaining” recovery?
Huh?Slap on the forehead. Silly me. Subsidized self-sustaining recovery is exactly the right phrase. Goes right along with war is peace, strength is ignorance and the rest of the Orwelliana lining the cabinets of US Govt. Incorp.
And how about this gem:“Most economists had not been anticipating a decline in sales.”
Oh really? Most economists hadn’t? And why hadn’t they?
After all, IO loans (interest only loans) are waiting to be reset, the tax payer rebates from April have been used up, commercial real estate is collapsing, foreclosures are spreading to the higher end of the market, the impact of the first wave of government finance and mortgage subsidies is about to run out, so why in the world (heavy sarcasm alert) would economists worry about anything, right? Why in the world would they anticipate anything?
Thinking bad, evil thoughts about the economy is the job of us bloggers. It’s our unpatriotic, unprofessional duty to tell you what’s really going on instead of the moonshine being handed out.Professional economists it seems are too busy professing economics to actually tell you anything marginally helpful about the economy.
The Ghost Ships of Singapore
“Some experts believe the ratio of container ships sitting idle could rise to 25 per cent within two years in an extraordinary downturn that shipping giant Maersk has called a ‘crisis of historic dimensions‘. Last month the company reported its first half-year loss in its 105-year history.
Martin Stopford, managing director of Clarksons, London’s biggest ship broker, says container shipping has been hit particularly hard: ‘In 2006 and 2007 trade was growing at 11 per cent. In 2008 it slowed down by 4.7 per cent. This year we think it might go down by as much as eight per cent. If it costs £7,000 a day to put the ship to sea and if you only get £6,000 a day, than you have got a decision to make.
‘Yet at the same time, the supply of container ships is growing. This year, supply could be up by around 12 per cent and demand is down by eight per cent. Twenty per cent spare is a lot of spare of anything - and it’s come out of nowhere.’
These empty ships should be carrying Christmas over to the West. All retailers will have already ordered their stock for the festive season long ago. With more than 92 per cent of all goods coming into the UK by sea, much of it should be on its way here if it is going to make it to the shelves before Christmas.
via Lew Rockwell.
Argentina and Uruguay Fight Over Polluted Water at the Hague
The Pentagon, among others, has made the point that riparian disputes are going to be at the top of the agenda in global politics in the coming years. Water is essential to survival and central to border disputes between China and India, Pakistan and India, and even in Latin America, where water is abundant.
In this case, Uruguay’s construction of two paper mills on the River Uruguay has set off a dispute with Argentina, which claims the construction is in violation of a long-standing treaty and is polluting the river as well as the Argentina tourist town on the other side of the border. The two countries have taken the dispute to the Hague, which is now hearing the case.
What’s my interest in this?
Uruguay remains comparatively unpolluted next to its neighbors, but the paper mills, which will boost Uruguay’s exports by 15% are symptomatic of increased development that could very well change that picture shortly. Uruguay’s attraction as a farming country is the relatively cheap cost of good quality soil, abundant water, and a history of organic use . But with multinationals and governments gobbling up land all over the world, you wonder how long that will continue.
The area around the middle of the border with Argentina, especially at the lower end, near Colonia (the Soriano area), has the highest quality soil and is intensively cultivated. Argentines often buy there because of the proximity to Buenos Aires, via the ferry at Colonia. The farming tends to horticulture, with potato farming and dairy well represented. I haven’t looked in that region because of the high prices - a hectare can run to over $8000, and I’ve seen prices as high as $20,000 and more, depending on the improvements and the location of the land.
In the middle of the border area, in the department of Paysandu, land usage runs to cattle farms and wheat.
Further north, in Salto, a pretty university town, citrus farming takes precedence, as the soil isn’t as high in fertility.
All these areas are well watered by rivers, like the Uruguay and the Rio Negro, which cut through the relatively flat, unspectacular land. But these are also the areas where land prices have shot up the most recently because of the influx of Argentines, looking for a safer place for their money and freedom from increasingly onerous agricultural laws….
Economic Freedom in US in Decline..
An interactive map of world economic freedom at the Cato Institute (2007)
Cato also has the 2009 Economic Freedom of the World Annual Report which shows the US number 6 in the world, much lower than the number 2 spot it held in 2000.
China Files WTO Complaint Over US Tire Tariffs…
In the news:
“Beijing filed a World Trade Organization complaint Monday over new U.S. tariffs on Chinese tires, stepping up pressure on Washington in the latest in a series of trade disputes.
The conflict is a potential irritant as Washington and Beijing prepare for a summit of the Group of 20 leading economies in Pittsburgh on Sept. 24-25 to discuss efforts to end the worst global downturn since the 1930s.”
More here at AP.
My Comment:Begin the trade wars..or rather, so continue the trade wars.
America dumps subsidized farm products in China, China levies penalties on exporters who don’t use 40% Chinese parts in their products….it’s all part of the effort to shore up exports to prevent the economy of either country from sliding further into depression…The Over-Medicated and the Under-Medicated
From Dissident Voice, a piece by Joseph Grosso on the drug companies’ recreation of the definition of disease:
“This year will see the publication of the new edition of the Diagnostic and Statistical Manual of Mental Disorders (DSM-V), the field bible for mental health professionals. If earlier editions are any indication the latest one will feature and slew of newly established disorders all to be treated with the latest anti-depressants or anti-psychotics……
Other disorders, both mental and physical, conjured up or legitimized in recent years include Social Anxiety Disorder, Premenstrual Dysphoric Disorder, Irritable Bowl Syndrome, Estrogen Deficiency disease, Osteoporosis, not to mention the always stretching boundaries of ADD (see Adult ADD) and ADHD to include more and more drug takers. It can’t be said that the effort of branding new disorders and expanding the very concept of what disease is has been a failure for the drug companies. Prescription drug use has skyrocketed over the past two decades. Americans now spend money on prescription drugs in amounts that equal or surpass the amount spent on higher education and automobiles. Their profits enable to have a death lock over the country’s political process. The predictable flipside being that, according to a 2005 survey by the National Center on Addiction and Substance Abuse the number of Americans who admitted to abusing prescription drugs doubled from 1992-2003.
While American children living in the suburbs get pumped with medication for all sorts of overstated or marketed illnesses, children living in the planet’s rapidly expanding slums perish of preventable digestive-tract diseases rooted in contaminated drinking water and overall polluted conditions. In sub-Saharan Africa alone neglected tropical diseases (NTDs) are the most common conditions affecting the region’s poorest 500 million people. A recent assessment published in the journal PLoS Neglected Tropical Diseases estimates that hookworm, an infection that weakens immune systems and causes anemia, occurs in 40-50 million school aged children. Schistosomiasis, the second most prevalent NTD claims 192 million victims and is ‘possibly associated with increased horizontal transmission of HIV/AIDS.’ There are many others (Lymphatic filariasis, onchocerciasis, roundworm) often overlapping in the same individuals. Why put all of them under the banner of ‘Neglected’? The WHO webpage puts it thusly:
The misery caused by neglected tropical diseases is largely hidden. Affected people live almost exclusively in remote rural areas and sprawling shantytowns, where lack of safe drinking water, poor education, poor sanitation, substandard housing and where access to health care may be virtually non-existent… Neglect also occurs at the level of research and development. The incentive to develop new diagnostic tools, drugs, and vaccines is low for diseases with a market that cannot pay…”
White Hats Telling White Lies
My piece on Team Obama’s propaganda effort on behalf of its economic interventions,
“Green Shoots and White Lies,” is up at Lew Rockwell this morning.I’m posting the part that sums up a few of the biggest whoppers the administration is pushing to get those old animal spirits juiced up again. Will the PR work? Well, no one ever went broke underestimating the intelligence of the public. Tell a lie big enough and tell it often enough and people will buy it.
White Hats Telling White Lies:
Fudge One:
Goldman Sachs had a great quarter, making a profit of $3.5 billion and the government made $1.4 billion on its investment in Goldman Sachs. The government also got a 15% return on its investment in the eight biggest banks.
Truth:
Goldman had a great quarter only because it moved its reporting calendar to cut out December 2008, when it had a loss. And the government only made a profit on the TARP money it gave to Goldman because
* It funneled more money via the bailout of insurance giant AIG to AIGs counterparties, including Goldman (which took in $13 billion of the AIG money).
* Warren Buffett made a pre-TARP financial investment in Goldman.
* Goldman got the benefit of exceptionally low interest rates from the government at the expense of savers and to the benefit of borrowers.
* Goldman was issued FDIC-guaranteed bonds.Without that extra welfare thrown at it, Goldman would actually be broke, not showing a profit. Ditto for the other banks.
Fudge Two:
The labor market is getting better because jobs are growing. The unemployment rate fell from 9.5% in June to 9.4% in July.Truth:
That number only shows a slowing in the growth of unemployment. And even that small improvement has been offset by other aspects of the labor market that are worsening quite sharply:
* The duration of unemployment is increasing
* Temporary jobs are declining.
* The percentage of the eligible population receiving unemployment insurance has increased (0.1 percentage point to 4.7%. by September).
* The four-week moving average of initial claims has moved to its highest level in a month.Even when jobs have been added, they’ve been created by government spending and they’ve been in areas like education, health, and government. In the purely private economy, in manufacturing, construction and retail, job losses have been huge. (“Brown manure not green shoots,” Nouriel Roubini, Forbes, July 9, 2009.)
Note: Recent improvement in the ISM (Institute of Supply Management) Index that signals expansion of production (and thus hiring) also needs to be discounted against the huge price inflation an increasingly pressured dollar will entail. That’s beside the effects of a hike in the Federal Funds rate that’s bound to follow a dollar-crashing scenario.
Note: The ISM is a leading indicator of executive expectations for future productions, orders, inventories, hiring, and deliveries.
Fudge Three:
Increases in real personal income in April and May will increase consumer spending.
Truth:
The increases were caused by tax-rebates and unemployment benefits kicking in, and most of it was saved, not spent (80 cents on the dollars). There was a temporary lift in consumer spending, but it petered out quickly. And as unemployment rises, benefits decline, and credit tightens in the future, consumption will decline even further
Fudge Four:
The bank stress tests came out better than expected.
The bank stress tests led Ben Bernanke to conclude that nearly all of the banks had enough capital to absorb higher losses should the economy worsen, and that the Treasury stood ready to provide more.
(AFP, “Hope is alive for green shoots,” May 11, 2009)
Truth:
The bank stress tests used an unemployment figure of 10.3% (the most adverse case). But unemployment is likely to be 11% and above by next year. If you take into account discouraged and partially employed workers, some economists suggest the figure is more likely to be 16%.
Another point. The stress tests overlooked all the other ways in which the government was paying for the banks, through FDIC guarantees and cheaper loans, for instance.Fudge Five:
The housing market is improving.
In July, the Pending Home Sales Index was up 3.2%. Another improvement was in the value of U.S. homes. In the second quarter that number fell year-on-year (the 10th consecutive quarterly decline), but it fell by a smaller amount than in the previous quarter, for the first time since 2007.
Truth:
The improvement in home sales has been mostly in the lower end of the market and it largely reflects foreclosure sales and government credit, not real improvement in the market.
The slowdown in price decline has been offset by negatives in other areas:
* 23% of all homeowners owe more on their mortgages than their houses are worth.
* 22% of all home sales nationwide in June were foreclosure resales.
* 29.2 percent of all homes sold in June were sold for less than the owners originally paid.(Portfolio.com August 11, 2009)
Loan problems aren’t confined to subprime. Prime mortgages are going underwater too.
Meanwhile, the market also has to deal with the decline in commercial real estate, which is undergoing one of the greatest contractions in retail in decades. Rents, even in the best urban shopping districts, have been declining.
(Colliers International Spring 2009 Retail Report, May 14, 2009).
Beyond commercial real estate, there are also all the other plagues about to visit us, when personal loans, auto loans, and student loans tighten over the coming years.
Bottom line?
There is no real basis for sustained optimism about the economy yet.How Green Are Our Shoots!
I’m working on a new piece on the propaganda effort on the economy coming out of Team Obama. Here’s a part:
“How green are our shoots!
Thus say both Chairman Ben Bernanke and Treasury Secretary Tim Geithner.
And the public believes them. How come?It all began in March. In the first televised interview by any sitting Fed chairman in 20 years (CBS 60 Minutes), Bernanke used the term, “green shoots” for the first time. He pointed out that the Dow Jones index had recovered from 12 year lows in 2008 and the banking system had stabilized. No more big banks would fail, he predicted (AFP, March 15, 2009).
Two months later, His Timness echoed Big Ben. Geithner cited reduced spreads on corporate and muni bonds, the reduction in costs in credit protection at the big banks, and smaller risk premiums in the interbank market. He too said the economy was recovering. (Tim Geithner, Statement before the Senate Banking Committee, May 20, 2009)
In June, World Bank President Robert Zoellick joined the ’shooters.’ Zoellick is a former US trade representative notorious for forcing US government subsidies and trade policies inimical to small farmers onto emerging markets. Zoellick noted “signs of global recovery,” but cautioned that they might be killed off if protectionism were adopted (Reuters, June 8, 2009)
Translation: foreigners had better not object to US government-managed trade policies…or the global recovery will fold.Put out….or look out.
Zoellick added his own revealing metaphor to the shooter lexicon: “Right now there is a low-grade fever; it isn’t full influenza, but we need to keep a close watch…”.[my emphasis]
[Oddly, Zoellick's own employees at the World Bank contradicted their boss's assessment in a report only a couple of weeks later (See "World Bank Global Economic Outlook" below]
In May billionaire hedge-fund manager George Soros was seeing green. And in July , chief wonk of the Obama economic team Lawrence Summers detected greenery in remarks to the Peterson Institute for International Economics.
Green shoots were now being sighted by everyone:
*In July the International Monetary Fund published its World Economic Outlook update
The Fund revised expected global growth in 2010 upward to 2.5%. The main source of the improvement, it claimed, was a brightening outlook for Asia.*Simon Johnson, IMF economist–turned-Peterson-Institute-spokesman-turned green-shooting-star even went on PBS to announce, “we are turning some sort of corner.” (August 20, 2009)
*Surveys of economists and business leaders in the summer showed that, in contrast to only a few months earlier, slightly more than half thought that the economy had bottomed.”
There’s a lot more I’m working on. Hope to have it on Lew Rockwell tomorrow, although I’d like to see it on some left-anarchist sites too. What began as a bit of trivia hunting (I was trying to figure out when the “green shoots” meme started) ended up throwing some interesting light on politics, the media, and the economy….
World Bank Global Outlook: No Green Shoots
This harsh reality is reflected in the World Bank Global Outlook Report of June 22, 2009.
It notes the following for 2009:*Global growth is set to fall by 2.9%
*World trade is likely to shrink by nearly 10%
*Industrial production in rich countries will drop by 15% from August 2008
*Developed economies will contract by 4.5% in 2009 and grow only in 2010 and 2011
*The US economy will decline by 3%
*Private capital flows to developing countries are likely to be halved, from $US 707 billion (2008) to $US 363 billion (2009)
*Industrial production in developing countries, excluding China, is set to fall by 10%.
*GDP growth in developing countries will fall from 5.9% (2008) to 1.2%.
Commercial Real Estate Worsening..
Commercial Mortgage-Backed Securities (financial instruments backed by debt derived from commercial real estate mortgages) are in growing trouble, says the Wall Street Journal:
“The CMBS sector is suffering two kinds of pain, which, according to credit rater Realpoint LLC, sent its delinquency rate to 3.14% in July, more than six times the level a year earlier. One is simply the result of bad underwriting. In the era of looser credit, Wall Street’s CMBS machine lent owners money on the assumption that occupancy and rents of their office buildings, hotels, stores or other commercial property would keep rising. In fact, the opposite has happened. The result is that a growing number of properties aren’t generating enough cash to make principal and interest payments.
The other kind of hurt is coming from the inability of property owners to refinance loans bundled into CMBS when these loans mature. By the end of 2012, some $153 billion in loans that make up CMBS are coming due, and close to $100 billion of that will face difficulty getting refinanced, according to Deutsche Bank. Even though the cash flows of these properties are enough to pay interest and principal on the debt, their values have fallen so far that borrowers won’t be able to extend existing mortgages or replace them with new debt. That means losses not only to the property owners but also to those who bought CMBS — including hedge funds, pension funds, mutual funds and other financial institutions — thus exacerbating the economic downturn...”
My Comment
So there you have the reality under the green shoots hype. The economy might be showing good signs - why wouldn’t it, the amount of money that’s been thrown into it - but in the long-run, the refusal to let the underlying problem correct itself only drags out the crisis and makes it worse. And that’s just CMBS, one part of the entire commercial real estate market. The whole market is $6.7 trillion.
The failing loans make up about 1/60th of the entire market, but since they’re widely dispersed in individual and institutional portfolios, their impact will be far greater and more cumulative than their numbers would suggest. That was what happened with residential ARMs.
We explain the whole crisis in “Mobs, Messiahs, and Markets” (check out the new paper-back edition that came out from John Wiley, August 24, 2009) - look at the financial sections - “Flattening the Globe” (that explains the un-Friedmanesque facts behind globalization) and the section called “Bubble Kings.”
It’s a quick and easy but thoroughly researched run-down of what happened in the financial markets. You’ll be able to figure it out, even if you never took a course in economics.
In fact, it might be harder for you if you did take college economics, where the underlying premise is that static models can do better than real world analysis in predicting what’s going to happen.
How many of these academic experts, including Ben Bernanke, anticipated what might happen and explained clearly and accurately why it would happen? None, it looks like.
There’s a lot of revisionism going on now..People are rewriting what they said two years ago or five, or even farther back. But the truth is, the emperor (expert opinion) has been caught out wearing a g-string. And nothing much else.
The experts are buck (excuse the term) naked….
Milton Nascimento Sings the Jet Samba
Brazil’s Milton Nascimento sings Anton Carlos Jobim’s musical celebration of Rio de Janeiro, Samba do Avaio (The Jet Samba) . The lyrics reference the statue of Christ the Redeemer that towers over the city and the Guanabara.
Minha alma canta
(My soul sings)
Vejo o Rio de Janeiro
(Seeing Rio de Janeiro)…..Cristo Redentor
Braços abertos sobre a Guanabara…Housing To Recover Peak Only in 2020, Says Expert
A gloomy forecast of where the US housing market is going at US News & World Report — Nowhere.
“Economist Celia Chen of Moody’s Economy.com has published a forecast suggesting that residential real estate could take 10 years to recover in most states-and 20 years in Florida and California.
Chen predicts that house prices will stop falling by the second quarter of 2010……..
By the time house prices stop falling, they’ll be down 43 percent from peak prices reached in 2006, as measured by the Case-Shiller home-price index.
That will mark the deepest housing correction since 1890, and probably ever in the United States (meaningful data go back only to the late 19th century)……….
Nationwide, price levels won’t regain the peaks of 2006 until 2020. In the worst-hit states, Florida and California, the rebound will take until 2030. Five other states won’t hit their 2006 peaks until after 2023. Anybody who doubts that it could take that long should consider the real estate bust in Japan, where prices are still down by half from the peaks they reached 15 years ago.
Other states, mainly those where the housing boom was muted, will bounce back faster. Homes in Texas, Oklahoma, and a handful of southern and Farm Belt states could regain peak prices within seven years, after falling by less than 10 percent.“My Comment
The article goes on to point out, correctly, that housing takes up about 17% of the economy, so a prolonged Japanese-type slump makes any kind of “green shoot” being hyped today more likely to be astro-turf than lawn.
Actually, housing takes up more than 17% of the economy. If you factor in all the related services, from construction to home furnishings to financing, it probably takes up between 30%-40% of the economy.
Add to that the ongoing slump in commercial real estate, world-over, and you can see why some of us are legging it.
Some anecdotal evidence:
I spoke to an Indian management consultant recently. He’d just returned from visits to China and Cambodia and was extremely pessimistic about the prospects for real estate recovery there economic recovery in China. He suggested a mark-down of about 40% from current prices.
Offices are sitting vacant everywhere. Traveling in the north of Morocco in 2008, I visited one of the hot-spots of investment - the coast from Tangier to Tetuane. Hotels and apartment complexes were springing up on every available expanse of beach. But a businessman who was involved in exporting and importing clothes (from China) and semi-precious stones (from India) was skeptical. He said a lot of the residential boom there was tied up with the government’s effort to develop tourism and some of it was driven by drug money in search of a place to hide. Business, he said was not so good. He’d been trying to sell a warehouse for over a year, and despite a 15% markdown, had found no takers. He showed me a warehouse full of inexpensive women’s clothes, suits for $4-$5, made in China.
There were no buyers to be had. He was even thinking of shipping them to the US, because shipping costs had fallen so low. At least in the US, he said, you could find a market….
Everything, it seems, depends on the American consumer….
Kevin Carson on the Revolutionary Potential of Barter
From a Kevin Carson comment on his own blog, Mutualist.org:
“So long as an industry is controlled by a handful of firms with the same organizational culture, using some form of oligopoly pricing, colluding to spoon out incremental improvements, and using push distribution methods for whatever crap they agree is the “new thing” this year, calculational chaos doesn’t cause much of a competitive penalty for any particular firm.
The main thing that will cause them real harm, IMO, that will cause the “walls to come tumbling down” for American state capitalism the same as for the old Soviet system, is the looming singularity in small-scale production technology that will enable much of the population to meet a large share of its needs through direct subsistence production for use in the household/informal/barter economy. (That’s the theme of one of the sections in forthcoming Ch. 15)”
My Comment
Carson is always an interesting and productive thinker, and this snippet is from commentary on a blog post of his about the seizure of some of his writings by the police. The commentary goes from this incident to discuss various other things, including whether big business is really no different from the state, and if it is, how that fact can be squared with the wealth it produces.
Carson argues that its wealth is produced despite the existence of the same “computational chaos” suffered by states, because big business enjoys subsidies, cost-externalizations, and benefits deriving from its size and privileged relationship to the state. That means its wealth isn’t really “its” wealth but the appropriation of wealth actually created by others. (I’ve made much the same argument myself).
Small-scale production and barter withdraw the life-blood of the huge corporations - which is the consumer. The direction of consumption away from the corporate economy is thus an effective form of direct revolutionary action against the corporate state.
Now, one man’s revolutionary struggle is another man’s budget shopping. but why quibble? The main thing is to reclaim the human being as the focus of economic theory, rather than any spurious “economic man,” “factor of production,” or “felicific calculus”…
Financial Follies: Condo Builders Under Water
In the news today, AP reports:
“Multifamily construction plunged 46.1 percent to an annual rate of 90,000 units after a 23 percent fall in March. Permits for multifamily construction dropped 19.9 percent to 121,000 units. Analysts said apartment construction is being hurt by a glut of condominiums on the market and by tightening credit conditions for commercial real estate.”
My Comment
Oh, my. This made my day. Condo flippers and developers are in big trouble.
Overlook the opening of this article, with that plaintive reference to a ” modest rebound in single-family home construction in April” that “raised hopes.”
Hopes should not be raised. That’s pretty clear by now. Not unless you’re being paid to pump houses for some rash developer who ran out of buyers for his pet eye-sore. We can think of a number of things that should be raised - black flags, eyebrows, interest rates…..but not hopes.
I’ve been checking condo prices all over the world and it’s the same news. From Panama to Kuala Lumpur, from Miami to Baltimore. Commercial developers are in trouble.
If that doesn’t warm the cockles of your heart and put a smile on your face, I don’t know what will. These wretched companies drove up housing by 100-300% (and more) in some cities and literally chased people on small or fixed incomes out of places they’d been living for years.
And don’t tell me they added any real value.
In New York. construction in one building was so shoddy, the Buildings Department had to intervene. I personally inspected a condo where, when the owner kicked the wall, her foot went right through. Many of them were aesthetic monstrosities that ruined the skyline, polluted the air, and destroyed the architectural beauty of the places where they metastasized.
Now there’s a glut and the developers are losing their shirts.
Miami’s condo king, Jorge Perez, is sitting on top of a market with the biggest glut in the country. Since 2003, nearly 23000 condos were added to downtown Miami, and 33% of them remain unsold. The financial hurricane hit just when Perez, the “tropical Trump,” had opened his newest project, Icon Brickell, a boutique hotel combined with over 1,640 luxury apartments and squeezed into three towers. Only 18 units have sold so far. Perez (once estimated to have a net worth of $1.3 billion) is in big money trouble. His company, Related Group, lost $1 billion in 2008 and ran up debt of $2 billion, $700 million from Icon Brickell alone.
It just doesn’t get better than that….
Award Winning Research Proves that Fed Fiddled Us Into Disaster
A Distinguished Academic Research Award went to researchers who showed that Bernanke’s tinkering with the interest rate converted a minor recession in 2004 into a full-fledged implosion of the credit markets in 2008:
“In a correlative movement with the rise in the price of oil, the Federal Reserve moved from a low accommodative interest rate policy to one of a steady and consistent increase in interest rates between 2004 and 2007. The switch in policy, to higher interest rates, combined with the financially corrosive effects of low initial variable interest rates, between 2001 to 2004, converting to much higher indexed variable interest rates, between 2005-2008, became a prime cause of the financial services mortgage crisis of 2008. The study suggests that the Federal Reserve’s sustained manipulation of interest rates between 2000-2008 had a deleterious effect on financial lenders and individual borrowers.”
– “Federal Reserve Interest Rate Manipulation between 2000-2007 and the Housing Mortgage Crisis of 2008,” by Dr, Fred M. Carr and Dr. Jane A. Beese, August 8, 2008, of the University of Akron’s .K. Barker Center for Economic Education.
My Comment
(later)
Why Pork-Chop Health-Care Doesn’t Work
Donald J. Boudreaux on why collectivized health care solutions don’t work (hat-tip to Cafe Hayek):
“Collective efforts — which, in practice, mean “imposed by government command” — typically allow each of us to free-ride off of each other’s resources. And when I get to spend your money and you get to spend mine, it’s a sure bet that that money will be spent wastefully.
Consider Medicaid and Medicare — huge socialized health-care programs. Funded with tax dollars, these programs allow the millions of Americans covered by them to consume medical services without paying the full cost of those services. The predictable result is that these services are over-consumed.
To see why, ask the following question posed by my George Mason University colleague Russell Roberts. If you go to dinner with a large group of strangers and you know that the bill will be split evenly, aren’t you more likely to order pricier dishes and drinks than you would order if you, and you alone, were responsible for picking up your full tab?
The answer is surely “yes.” Let’s say that you’d be content to order the pork chop priced at $15, but would get even greater enjoyment from ordering the rack of lamb priced at $25. If you alone were responsible for your tab, you’d order the lamb only if it is worth to you at least the extra $10 that it costs. So suppose that you value the lamb by only $8 more than you value the pork chop. In that case, you’d order the pork chop. You wouldn’t spend an extra $10 to get extra satisfaction worth only $8.
But if the bill is evenly shared among, say, 10 diners (yourself and nine others), then if you order the lamb, your share of the higher bill will be only $1. That’s $10 split evenly 10 ways. You’ll order the lamb.
You might think that this sharing arrangement is good. After all, in this example, the cost to you of getting something you valued more (the lamb rather than the pork chop) was reduced. It became sensible for you to order the lamb.
Look more deeply, though. What happened is that society (here, the 10 diners) was led to supply something that wasn’t worth its cost. The lamb was worth to you only an additional $8, but to make it available to you, society spent $10. Ten dollars were used to raise the welfare of society by only $8. (You’re a member of society, so any improvement in your welfare counts as an improvement in the welfare of society.) That’s a waste of $2…”
My Comment
(Check back later tonight)
Paul Volcker Praises the Grace of Government
The Bureau of Economic Analysis released the Q1 ‘09 GDP numbers.
The annual rate of decline came in at the expected 6.1% (a decline of 6.3% in real GDP).
Calculated Risk has an optimistic assessment of the Q1 numbers.
The optimistic case rests on the following:
- Declining residential investment contributed more to the GDP slump in Q1′09 than in Q4 ‘08 and will likely come to an end by Q2′09, in keeping with its role as a leading indicator of recession.
- Simultaneously, the contributions of lagging indicators (like unemployment, declining investment in equipment & software, and declining non-residential investment) have increased.
- The over-weighting of lagging indicators in the decline of GDP signals the end of recession.
- Real personal consumption expenditure (PCE) was up in positive territory (2.2%) in Q1′09, where it was negative (4.3%) in Q4′08.
Mish Shedlock is less optimistic. He says that the Q1 ‘09 rise in PCE is either an outlier or temporary, and will be followed by another dip in 2010-11 and more trough for a few years.
Meanwhile, former Fed chairman Paul Volcker, head of Barack Obama’s economic team, thinks the economy is “leveling off,” according to this Bloomberg report.
Highlights of what Volcker is reported to have said:
- Bernanke is “doing a great job”
- the economy is functioning “by the grace of government intervention”
- a strong recovery is “going to take a while”
- “systemically important institutions” are going to be kept afloat
- the expansion of the Fed’s balance sheet to more than $2.2 trillion as of last week will likely lead to inflationary problems in 2-3 years, but not immediately
- Glass-Steagall (repealed in 1999) isn’t likely to be resuscitated but proprietary trading and commercial banking activity should be kept apart (Lila: how?)
- no regulation of hedge funds is likely but in the case of those that get too big capital requirements and a cap on leverage might be imposed (Lila: this is vague and opens the door to selective regulation)
- regulation of executive compensation isn’t likely but there could be a “quid pro quo” for federal aid. It would have to be a “culture of exchange” with Wall Street (Lila: more weasel words that allow for selective regulation).
Altogether, I thought Volcker’s comments were evasive, inadequate, and temporizing.
IMF: G-20 Fiscal Stimulus On Target
In the news:
The IMF says the G-20 fiscal stimulus will reach its 2% target.
Bloomberg reports on the figures spent so far:
“The G-20 countries will spend $820 billion on stimulus measures in 2009, up from a March estimate of $780 billion, and will spend $660 billion in 2010, the fund estimated.
The IMF also revised its forecast for budget deficits in G- 20 countries as a result of fiscal expansion. Today’s report calculates that budget deficits in the G-20 this year will increase by 5.5 percentage points of gross domestic product relative to 2007 and 5.4 percent in 2010. In March, the fund forecast a 4.7 percentage-point rise this year and a 5.1 percentage-point jump next year.
Strauss-Kahn said yesterday that governments should start to discuss “exit strategies” from the emergency spending once the crisis passes.
The fund’s estimate for financial-sector support also increased today to 32.1 percent of GDP, up more than 3 percentage points from the March estimate….”
My Comment (check back for more):
Domininique Strauss-Kahn, a member of the Socialist party and a former finance and economy minister in Lionel Jospin’s “Plural Left” government became the new managing director of the International Monetary Fund on September 2007, replacing Spain’s Rodrigo de Rato.
Interesting things to note about Strauss-Kahn:
- He’s part of the European Council on Foreign Relations, launched in October 2007 (i.e. just after DSK became IMF chief), which in an expression of pan-Europeanism in world affairs. Rubbing shoulders with DSK, according to Source Watch are such notable globalists as George Soros (Chairman of the Open Institute), Stephen Wall (Chairman of the influential PR firm Hill & Knowlton, advisor to Tony Blair), and Timothy Garton Ash (whose influential book, The Magic Lantern, cheered on the 1989 revolutions in Eastern Europe). Note: Hill & Knowlton was the outfit that concocted the story about Iraqi soldiers killing babies that became a provocation for the 1991 Gulf War.
- Strauss-Kahn has been linked to the financial scandal around ELF Aquitaine, a state-owned oil giant through which former President Francois Mitterand allegedly channeled money to Germany’s Christian Democrats. Strauss-Kahn’s wrong-doing was apparently less serious than some of the fraud and corruption with which other French government officials and company heads were charged (including money-laundering, influence peddling, falsification of documents, and bribery)
- Money from the ELF oil company, as well as from the Taiwan frigates scandal, passed through “unpublished accounts” at Clearstream Banking, the clearing division of Deutsche Bourse, based in Luxembourg. The ELF affair and the Taiwan frigates scandal were the two major financial scandals that hit France in the 1990s. And in both, Clearstream was a platform for money-laundering and tax evasion.
Liberals Prefer Bureaucrats to Citizens…
“A less publicized case of arrogant disregard for people occurred in Carmel Valley, California, during the 2008 fires. Ivan Eberle, a well-known wildlife photographer, was commended for heroism in saving the Monterey Institute for Research Astronomy observation station on Chews Ridge from a raging wild fire. A few days after the fire, he was visited by six Monterey County Sheriffs and charged with the crimes of battering a firefighter and interfering with a firefighting crew in the line of duty.
Calling the charges “ironic” and “truly bizarre,” Eberle said he felt that his “constitutional rights were violated to an egregious degree.” To him, the charges filed by the fire department were in retaliation for his public criticism, as he had spread the word that the firefighters refused to help him save the observatory, which is also his home. To Eberle, the firefighters were acting with “willful negligence or dereliction of duty.”
Eberle believes the bogus charges stem from his quick actions to save the observatory. When a large tongue of flames raced toward propane tanks next to a grove of pines, he unrolled a fire hose from the facility’s hydrant and bumped into a sleep-deprived firefighter. Although the observatory is the only structure on Chews Ridge, Eberle single-handedly saved it. Nobody from the fire department would help. Similar to the theme of Fahrenheit 451, the firefighters seemed to have forgotten their primary purpose.
So how could such arrogant misconduct occur? Some have pointed to the consolidation of local volunteer fire departments with more formal, government-operated ones. Years earlier in 2001, the Valley Volunteers Inc. in Carmel Valley Village merged with a government fire department in the Mid-Valley area. The merger quickly turned sour. In 2004, the volunteer fire department circulated a petition for “detachment,” arguing that their privately raised million-dollar fund had been squandered and that the two groups had different philosophies on how to operate a fire department. Although explicitly told that a detachment could easily be arranged if either side found the merger unsatisfactory, the LAFCO government agency in charge of such disputes refused to allow the separation. Many of the citizen firefighter quit the department, saying that they were being “treated as subordinates” by the new consolidated fire department.
The most dangerous threat from Vichy liberals is that they do not trust ordinary people to do the right thing. Instead, government control and bureaucracy are substituted to run society. Politics and officiality overshadow anything that citizens attempt to do, preventing society from self-organizing into a system to which people are willing to dedicate valuable time and money. Unfortunately, as consolidation grows, so does an attitude that only government can solve problems, leaving the citizenry defenseless and dependant. Obviously, government has gotten too big for it britches, and its arrogance is showing through….”
“The Arrogant Self-righteousness of Vichy Liberals,”
L.K. Samuels, Libertarian Perspectives, Dec. 28, 2008
Jim Rogers Likes Farmland…
An interview with commodities guru, Jim Rogers, in Newsweek, April 11,2009 :
“Does the future growth of China factor into your bullishness?
China is tiny in comparison to the U.S. economy. Anyone who thinks that the commodities story is driven by China needs to do more homework. In the 1970s, everyone was in recession, and you still had declining supply [in oil] and higher prices. Asia wasn’t even in the game then. China was run by Mao. But now, of course, there are those 3 billion people in Asia who are in the game. It’s just another factor.Are we going to see another food-price spike sometime soon?
Definitely. I think you should move back to Indiana and marry a farmer. There are times in history when the money lenders have been in charge, and we just came through one of those periods. But it wasn’t always that way. Wall Street was a backwater in the ’40s, ’50s, ’60s and ’70s, and it will be again. Farmers are going to be the ones driving Lamborghinis, and the traders are going to have to learn to drive tractors.What about technological advances? Another green revolution could easily drive prices down …
Sure, there’s always something that will end a bull market. But if you think we’re anywhere near that point now, think again. Even if everyone in the world decided to put a windmill on their head, it’s going to take decades for that to really change things. In the meantime, you’ve got to put your money somewhere. And as we’re already seeing, even the value of cash can be wiped out.I guess that’s one reason the Chinese are so worried …
Well, if I were running the Chinese central bank, I’d buy oil, wheat and zinc. Which is what folks there are already doing.”Update:
Jim Rogers is involved with two direct farmland investment funds: Agcapita (Canada) and Agrifirma (Brazil), according to a comment.
Comment
I agree with Rogers on this and always have.
Unfortunately, until recently it was hard to invest in commodities without going through a trading platform. Now you can buy and sell commodities as ETF’s, although their risks and performance can and will vary from the underlying commodity, so you can end up being in the right sector and still losing money.
But nonetheless, trading will work for a while. Who knows what happens after.
After that, yes, you might think of getting some nice little fruit or veggie farm, where you can stomp around, pull beets out of the ground and milk your pet goat…
At least, that’s the fantasy.
Meanwhile, however, you could do worse than get a rental property near the water. Where is the question. Forbes tells us that Florida is one of the worst places to buy now
But don’t believe everything in Forbes.
When you see block houses for $50-60k near water and when your hear the Obamites are going to be putting money (or rather credit) into infrastructure, and and every effort is being made to reflate the real estate bubble and create jobs programs in select cities, I’m afraid follow the trend makes sense…
Just make sure the numbers work and your horizon is more than 5 -7 years.
AIG Is A Criminal Scam (Update)
Karl Denninger quotes AIG investigators:
“In fact, our investigation suggests that by the time AIG had entered the CDS fray in a serious way more than five years ago, the firm was already doomed. No longer able to prop up its earnings using reinsurance because of growing scrutiny from state insurance regulators and federal law enforcement agencies, AIG’s foray into CDS was really the grand finale. AIG was a Ponzi scheme plain and simple, yet the Obama Administration still thinks of AIG as a real company that simply took excessive risks. No, to us what the fraud Bernard Madoff is to individual investors, AIG is to the global financial community.As with the phony reinsurance contracts that AIG and other insurers wrote for decades, when AIG wrote hundreds of billions of dollars in CDS contracts, neither AIG nor the counterparties believed that the CDS would ever be paid. Indeed, one source with personal knowledge of the matter suggests that there may be emails and actual side letters between AIG and its counterparties that could prove conclusively that AIG never intended to pay out on any of its CDS contracts.
(Karl Denninger talking) Read that folks. Then read it again. Then read it AGAIN. More excerpts:
There are two basic problems with side letters. First, they are a criminal act, a fraud that usually carries the full weight of an “A” felony in many jurisdictions. Second, once the side letter is discovered by a persistent auditor or regulator examining the buyer of protection, the transaction becomes worthless. You paid $6 million to AIG to shift risk via the reinsurance, but the side letter makes clear that the transaction is a fraud and you lose any benefit that the apparent risk shifting might have provided.
(Denninger) And finally, the last nail in the coffin:
The key point is that neither the public, the Fed nor the Treasury seem to understand is that the CDS contracts written by AIG with these various non-insurers around the world were shams - with no correlation between “fees” paid and the risk assumed. These were not valid contracts as Fed Chairman Ben Bernanke, Treasury Secretary Geithner and Economic policy guru Larry Summers claim, but rather acts of criminal fraud meant to manipulate the capital positions and earnings of financial companies around the world.
Indeed, our sources as well as press reports suggest that the CDS contracts written by AIG may have included side letters, often in the form of emails rather than formal letters, that essentially violated the ISDA agreements and show that the true, economic reality of these contracts was fraud plain and simple. Unfortunately, by not moving to seize AIG immediately last year when the scandal broke, the Fed and Treasury may have given the AIG managers time to destroy much of the evidence of criminal wrongdoing.
Only when we understand how AIG came to be involved in CDS and the fact that this seemingly illegal activity was simply an extension of the reinsurance/side letter shell game scam that AIG, Gen Re and others conducted for many years before will we understand what needs to be done with AIG, namely liquidation. Seen in this context, the payments made to AIG by the Fed and Treasury, which were then passed-through to dealers such as Goldman Sachs (NYSE:GS), can only be viewed as an illegal taking that must be reversed once the US Trustee for the Federal Bankruptcy Court for the Southern District of New York is in control of AIG’s operations….”
That’s a post by Karl Denninger, citing comments by AIG investigators
My Comment
Well.. finally some people are catching on. It’s ALL a scam, folks. One gigantic ball of criminality. Told you so.
All this high falutin’ stuff about who’s going to fix what when is nothing more than jive talk to cover up for crime. I’ve always said that. Here in June 2006, here in July 2006 On September 19 2008 and September 30, 2008 and this year again, and again and again.
These folks live in each other’s pockets, buy each other’s businesses, swap each other’s debts…. and crimes….. We have a mafia in power. All this talk about fixing this and fixing that is beside the point…and misleading. There’s a fix alright. It’s the fix cooked up by the regulators, the bankers, and the politicians.
What we really need now is the FBI busting in and handcuffing people and dragging them off to sticky little jail cells where they can be subjected to all forms of inquiry within the law.
We’ve been saying this till our throat hurts.
But, of course, we weren’t the right sort (well-connected Wall Street money manager), and no one paid any attention…and now it’s a bit late. The paper trail has probably gone cold.
But atta boy, anyway, Karl.
Update: Apparently, this post confused a number of people.
James Klicker writes to let me know that Ritholz’s post is what Denninger is riffing off.
Let me clarify. The post above is Karl Denninger’s commentary on a post by Barry Ritholz (of The Big Picture). However, my interest was not in the fact of AIG’s criminality (Ritholz’s post), but in Denninger’s forthright reaction.
Compare it to the wussy cover-up for AIG’s chief executives, especially Hank Greenberg, which a lot of people seem to favor.
AIG’s criminality has been known for a long time. I wrote about it on September 19, 2008, purely on what I’d gathered from skimming off-shore newsletters, which had been documenting the criminality in the company since the 1980s. My interest is less in AIG’s criminality (which is so obvious you’d have to be wilfully blind not to notice) but why it is that so many people rushed to claim niceties of contract law for a company whose contracts were obviously fraudulent to begin with. Sounds like the usual media deflection…
Give Immigrants Residency to Prop Up Housing Market
“The Obama administration should seriously consider granting resident status to foreigners who buy surplus houses in this country. This makes more sense than the president’s $275 billion housing bailout plan, which Americans greeted with a Bronx cheer.”
Comment:
A great proposal and one I wrote up here on March 6 2009….
http://www.google.com/search?hl=en&q=lila+rajiva&start=30&sa=N
Lila Rajiva: The Mind-Body Politic. Individuals Not Ideologies ….. Lila Rajiva on Washington Won’t Let Skilled Immigrants Solve Housing Crisis …
lilarajiva.org/ - 57kSome of my pieces have this weird way of getting tucked behind the others, even when they’ve been opened many more times.
The immigration piece only shows up on the second or third page when you do a search for Lila Rajiva. Same for this piece:
The Paulson Putsch
Sep 25, 2008 … Lila Rajiva [send her mail] is the author of the ground-breaking study, The Language of Empire: Abu Ghraib and the American Media (MR Press, …
www.lewrockwell.com/rajiva/rajiva10.html - 56k - Cached -But this one with far fewer hits is on the first page.
Three Card Capitalists.
Oct 1, 2008 … Lila Rajiva [send her mail] is the author of the ground-breaking study, The Language of Empire: Abu Ghraib and the American Media (MR Press, …
www.lewrockwell.com/rajiva/rajiva11.html - 35k
It’s from the same site, Lew Rockwell, so I don’t see why Google wouldn’t put that on the first page of a search. Got to figure that out.
Dollar Index Imponderables
“The nightmare scenario that is staring us in the face, right here, right now isn’t hyperinflation. It is in fact a collapse of monetary systems driving demand for dollars through the roof in a crescendo of attempted redemptions into collapsed (”no bid”) asset prices - a demand that Ben will not be able to meet, as the collateral backing those dollars will have all been exchanged for toilet paper. Whether Bernanke holds all this trash on his balance sheet or manages to scam Treasury into exchanging it for T-bills, the result is the same - there is no collateral behind Bucky and as employment collapses no production to replace it with either.
The mad scramble will be on, and as it happens trade will be choked off by not a collapsing dollar but other currencies collapsing around the world.
Paradoxically, the DX, or dollar index, will skyrocket - not go through the floor - as this plays out….”
- Karl Denninger
Comment:
Glad to know there’s one person who worries on the same lines as I do…but on different grounds.
Mine is from purely technical instinct. I still feel GLD is not performing the way it should given the economic scenario. I still think if hyperinflation is bad here, it will be worse in countries that will also be compelled by central bank policies to suffer inflation. I still think the Euro is a mighty strange animal. I still think gold prices are manipulated and economics statistics are massaged. I think the stock market indices are sometimes manipulated to create panic reactions. We’ve proof from l’affaire Madoff that paper can be printed up that is meaningless as far as revealing actual trades, or buy or sell orders.
And if everyone is telling you to sell dollars, hey, someone out there is buying, right? So, diversify by all means, and ditch the dollar if its prospects don’t look sound - and they don’t. But remember we’re living in a world of managed perceptions, rigged markets, phony alerts, white ops and black ops. Ours not to figure out each of the details - that’s a pure waste of time.
Ours is to defend ourselves, observe, keep our money in our shoes, our heads down and our powder dry. And wait.
And on that note, I observe that gold is trading right where it began before the whole AIG bail- out stuff started cluttering up the papers (just above 950) and the dollar index is above
84 (which means it got knocked down 3-4 points)above 83 (which means it got knocked down 4-5 points).
I’ll leave you to figure out whether that is good, bad, or ugly, in the circumstances.
Supporting my view also here’s another of my favorite analysts, Puru Saxena, recommending that you don’t add to gold right now, at least not quite. And he’s also recommending oil/energy/pm stocks in emerging markets. Well, I’ve just nibbled at a few of those last week. [I don't give out too many details on this because I'm not a professional financial adviser and don't want my errors to become yours. My beat here is different. This is a commentary on the media and the markets].
Helicopter Ben Drops A Money Bomb
Peter Grant notes that the currency markets were taken by surprise and anticipates global debt monetization and currency depreciation (expected but not so soon and so fast):
“The Fed did indeed announce that it would seek to buy up to an additional $750 bln in MBS, bringing the total projected purchases of such assets up to $1.25 trl. They also announced that they would buy up to an additional $100 bln in agency debt, bringing that total up to $200 bln. On top of all that, the FOMC decided that late next week the Fed would begin purchasing up to $300 bln in longer-term Treasuries, with emphasis on the 2 to 10-year segment of the yield curve. Purchases will be conducted by primary dealers two to three times per week through competitive auctions….”
Karl Denninger warns that the bond market will sell into the purchase:
“The BOE executed their first “QE” operation today.The “bid to cover” was an astonishing 7.35 This means that for every bond purchased 7.35 were tendered, or made available by willing sellers……the BOE now has seen exactly what happens when you promise as a government to overpay for something - everyone hits your bid immediately!”
Meanwhile, Boris Schlossberg notes that the bond market here has so far accepted the stunning move with yields on the 10 year bond falling by 50 basis points in 24 hours, while the dollar collapsed across the board. He explains Bernanke’s decision as reflecting the fact that foreign capital flows are going to be hard to sustain (i.e. the Chinese aren’t going to be buying treasuries for much longer).
Global Super-Currency To Flood the World
Edmund Conway
Monday, March 16, 2009
The International Monetary Fund is poised to embark on what analysts have described as “global quantitative easing” by printing billions of dollars worth of a global “super-currency” in an unprecedented new effort to address the economic crisis.
Alistair Darling and senior figures in the US Treasury have been encouraging the fund to issue hundreds of billions of dollars worth of so-called Special Drawing Rights in the coming months as part of its campaign to prevent the recession from turning into a global depression.
Should the move, which is up for discussion by the summit of G20 finance ministers this weekend, be adopted, it will represent a global equivalent of the Bank of England’s plan to pump extra cash into the UK economy.
However, economists warned that the scheme could cause a major swell of inflation around the world as the newly-created money filters through the system. The idea has been suggested by a number of key figures, including billionaire investor George Soros and US Treasury adviser Ted Truman.
Simon Johnson, former chief economist at the IMF, said: “The principle behind it is that everyone would get bonus dollars and instead of the Federal Reserve having to print them, everyone gets them.
“The objective is to create a windfall of cash. However, if everybody goes out and spends the money it could be very inflationary.”
Comment:
The Gold Anti Trust Action Committee (GATA) (which has this article on their website) has been one of the first groups to allege manipulation of the gold price. They’ve launched a Freedom of Information Act (FOIA) inquiry into the actual quantity of gold reserves held by the US, and they allege that it’s likely to be half the official amount because of secret sales, leases, and other arrangements promising it out. Rising gold prices indicate an erosion in savings, so a stifled gold price is part of government “propaganda” to keep people from figuring out that they’re losing their savings.
I also found an excellent piece by Antal Fekete on their site. Fekete, a renowned Hungarian mathematician, critiques a recent article by NY Times columnist and rock-star Keynesian, Paul Krugman, in which Krugman blames Asians for the financial crisis. The article, “Revenge of the Glut,” claims that Asian savings caused excess spending and debt. Fekete correctly calls this a piece of nonsense.
Instead, he points out something I haven’t seen any other writer talk about - the fact that while low interest rates are a good thing for business, falling interest rates aren’t. What falling rates do is make the cost of old loans more burdensome. A falling interest rate environment raises the cost of debt liquidation and thus erodes capital. Eventually it eats up the entire capital base of firms and banks, which is why we are seeing an across the board collapse of banks and auto companies.
Low interest rates thus feed the derivative bubble which in turn drives the interest rate lower and lower. Ultimately the savings and capital of the whole economy are destroyed. That’s what we are living through.
I’m actually working on a piece myself on Krugman’s article and how it ties in with the propaganda of the last two weeks.
I hope to have it ready tomorrow. Meanwhile, here’s a great line from the Fekete article for you to think about:
That’s the nature of the so-called Keynesian revolution. It is not a branch of economic science; it is a branch of Leninism, a blend of collectivist ideology reinforced with unmatched expertise on conspiracy, street fighting and barricades.
Obamanomics Doesn’t Work….
“Let’s assume that the Obama administration succeeds in collecting an extra $31.8 billion in taxes from the rich (and never mind the coming loss in tax revenues due to corporate profits evaporating and millions of unemployed Americans no longer earning taxable incomes). The president and his team would need to trim more than $800 billion from the deficit. Since total military spending—including expenses for Iraq and Afghanistan—will be approximately $664 billion this year, Obama could theoretically abolish defense spending and still not achieve his budgetary goal.
The only possible way to rein in runaway deficits is to slash runaway federal spending…..”
“Into the Financial Abyss,” Mark Hendrikson, Frontpage Magazine.
[*Thanks to Lew Rockwell for that twist to our President's versatile name... ]
Blaming Asians Instead of the Federal Reserve
“At no point did Asian savers force Fannie Mae to reduce down payments on houses or reduce mortgage rates. At no point did Asian savers force American banks to allow consumers to use their home equity as ATM machines. At no point did Asian savers force the Bush administration to run deficits to pay for foreign wars and domestic welfare. At no point did Asian savers force government-sanctioned ratings agencies to rubber stamp risk assessments. And at no point did Asian savers force Alan Greenspan to lower interest rates.
Neither the US government nor its federally controlled housing agencies had to spend the money it received from Asia. In fact, they could have refused the money altogether. No means no, right?
In addition, the government could have paid off its obligations and maintained a balanced budget. Instead it spent it all and continued borrowing. As a consequence, it is pure balderdash to insinuate that the uptick in Asian savings somehow coerced the House Committee on Ways and Means to appropriate billions in extra liabilities. No one in Asia pointed chopsticks, bamboo, or a gun at Larry Summers, Paul O’Neall, Dennis Hastert, Bill Thomas or American consumers and told them to spend the money.
True enough, Asian countries produced relatively cheap goods that Americans wanted to buy, but it was the Federal Reserve alone that created the “cheap” money that was then lent to Americans who in turn bought products from China.
In fact, the only “hot” money in the global system was that created by the Federal Reserve. Every dollar that the Chinese and Japanese used to buy US Treasury bonds originated from the Federal Reserve. And as much as they would have liked to do it, no evidence has surfaced to suggest that China, Japan, South Korea, or any other Asian country was involved with counterfeiting money. That responsibility is left solely with the Federal Reserve’s own printing press…..”
More at Mises.org by Tim Swanson
Comment:
Well, there you go. The Mises bloggers have it right. The fault, dear Brutus, lies not in our trading partners but in our Federal Reserve policies that we are underproducing….
Trust the MSM to shift blame away from the banksters and from their man in DC and instead blame the Chinese. Here’s Paul Krugman of the New York Times whinging about the Asian glut. And here’s the Economist doing its own version of deep thinking…i.e. obfuscating the issue.
Look, there was a huge flood of savings from Asia, true. But, Asian savings is held in US dollars and bonds for a reason.
*The mortgage industry doesn’t exist in the same way there. So, while Americans can hold their savings in the form of home payments (mortgage equity), Asians usually have to hold them as deposits in a bank.
*Asian central banks have to adjust their policies to the Fed’s policies and keep their currencies cheap internationally. That helps strengthen their exports. They need to do that in part in order to build up reserves in foreign currencies that are hard (convertible), since their own currencies are not.
*If they don’t have hard currency reserves, Asian banks become vulnerable to capital flight when a financial crisis makes people withdraw money not only from the banks, but from the national currency and save it in a Western currency (pound or dollar or Euro, for example).
The “glut of savings” which Krugman and Greenspan are complaining about looks a bit different if you understand that
1. It’s not comparable to our savings (it should rightly be compared to how much savings we have in our houses)
2. It’s induced by central banks policies that are in turn instigated by Federal Reserve policy here
3. It protects against currency crises of the kind that we saw in the 1990s, where countries with high reserves saw their currencies actually appreciate, while currencies elsewhere were destroyed.
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