Tag Archives: Econowatch

Uncategorized

Germany Stiffs Obamanomics; Gets it Right!

From that media stronghold of the Vast Right-Wing Conspiracy (VRWC) – the NY Times:

Defying Others, Germany Finds Economic Success

QUESTION: How to grow your economy? Germany seems to have figured something out:

Germany has sparred with its European partners over how to respond to the financial crisis, argued with the United States over the benefits of stimulus versus austerity, and defiantly pursued its own vision of how to keep its economy strong.

Statistics released Friday buttress Germany’s view that it had the formula right all along. The government on Friday announced quarter-on-quarter economic growth of 2.2 percent, Germany’s best performance since reunification 20 years ago — and equivalent to a nearly 9 percent annual rate if growth were that robust all year.

The strong growth figures will also bolster the conviction here that German workers and companies in recent years made the short-term sacrifices necessary for long-term success that Germany’s European partners did not. And it will reinforce the widespread conviction among policy makers that they handled the financial crisis and the painful recession that followed it far better than the United States, which, they never hesitate to remind, brought the world into this crisis.

ANSWER: In short, to help the economy, go in the opposite direction to Obamanomics.

Uncategorized

It Can’t Happen Here…Can It?

Chief’s Preface: “Those who cannot remember the past are condemned to repeat it” – George Santayana

A view from the land of Oz, “down under”:

Sun Could Set Suddenly on Superpower as Debt Bites

Question:

We have been raised to think of the historical process as an essentially cyclical one. We naturally tend to assume that in our own time, too, history will move cyclically, and slowly.

Yet what if history is not cyclical and slow-moving but arhythmic, at times almost stationary, but also capable of accelerating suddenly, like a sports car? What if collapse does not arrive over a number of centuries but comes suddenly, like a thief in the night?

Concept:

Great powers and empires are complex systems, which means their construction more resembles a termite hill than an Egyptian pyramid. They operate somewhere between order and disorder, on “the edge of chaos”, in the phrase of the computer scientist Christopher Langton.

Such systems can appear to operate quite stably for some time; they seem to be in equilibrium but are, in fact, constantly adapting.

But there comes a moment when complex systems “go critical”. A very small trigger can set off a phase transition from a benign equilibrium to a crisis. Complex systems share certain characteristics. A small input to such a system can produce huge, often unanticipated changes, what scientists call the amplifier effect.

Application:

Empires exhibit many of the characteristics of other complex adaptive systems, including the tendency to move from stability to instability quite suddenly. But this fact is rarely recognised because of our addiction to cyclical theories of history.
What are the implications for the US today? The most obvious point is that imperial falls are associated with fiscal crises: sharp imbalances between revenues and expenditures, and the mounting cost of servicing a mountain of public debt.

Think of Spain in the 17th century: already by 1543 nearly two-thirds of ordinary revenue was going on interest on the juros, the loans by which the Habsburg monarchy financed itself.

Or think of France in the 18th century: between 1751 and 1788, the eve of Revolution, interest and amortisation payments rose from just over a quarter of tax revenue to 62 per cent.

Finally, consider Britain in the 20th century. Its real problems came after 1945, when a substantial proportion of its now immense debt burden was in foreign hands. Of the pound stg. 21 billion national debt at the end of the war, about pound stg. 3.4bn was owed to foreign creditors, equivalent to about a third of gross domestic product.

Go to the linked article for the gory details on our current circumstances that lead to a harrowing conclusion:

For now, the world still expects the US to muddle through, eventually confronting its problems when, as Churchill famously said, all the alternatives have been exhausted. With the sovereign debt crisis in Europe combining with growing fears of a deflationary double-dip recession, bond yields are at historic lows….

We should be so blessed!

Australia’s post-war foreign policy has been, in essence, to be a committed ally of the US.

But what if the sudden waning of American power that I fear brings to an abrupt end the era of US hegemony in the Asia-Pacific region? Are we ready for such a dramatic change in the global balance of power?

Judging by what I have heard here since I arrived last Friday, the answer is no. Australians are simply not thinking about such things.

A favourite phrase of this great country is “No dramas”. But dramas lie ahead as the nasty fiscal arithmetic of imperial decline drives yet another great power over the edge of chaos.

Hopefully more of us will start to remember a few inconvenient historical facts in time to make a difference.

Uncategorized

SD Jobs Doing Well…Sunbelt States: Not So Hot!

Boom Turns to Bust

South Dakota is one of the states that is weathering the unemployment storm quite well, thank you!

How the mighty have fallen.

Nevada, California, and Florida have the nation’s weakest economies, according to a midyear review of state employment trends by Portfolio.com and bizjournals. That’s a stunning reversal from half a decade ago. Nevada and Florida finished first and second, respectively, in 2005’s midyear review. California was a respectable 11th.

But this year’s study puts Nevada in 51st place, dead last among the 50 states and the District of Columbia. California (50th) and Florida (49th) are barely a step ahead.

On the other hand…

Surprises can also be found at the top of the new midyear standings. Tiny North Dakota enjoys the nation’s strongest economy at the moment, and Alaska holds second place, according to the Portfolio.com/bizjournals rankings….

But the severity of the economic recession has been tempered in states with affordable housing, especially those in the heartland that stretches from the Gulf of Mexico to the Canadian border. Six of the top 10 states are located within that broad belt, including North Dakota (first place), Texas (third), South Dakota (fourth), Nebraska (sixth), Louisiana (seventh), and Utah (10th)

Not too shabby.

Uncategorized

Stickin’ It to Wall Street…or Main Street?

…send not to know
For whom the bell tolls,
It tolls for thee.
– John Donne

Finance Overhaul Casts Long Shadow on the Plains

So…you think that the recently passed financial reform bill is going to righteously stick it to those high-rollin’ Wall Street finance dudes? Not likely.

The impact may hit a lot closer to home than you might have thought:

Farmer Jim Kreutz uses derivatives to soften the blow should the price of feed corn drop before harvest. His brother-in-law, feedlot owner Jon Reeson, turns to them to hedge the price of his steer. The local farmers’ co-op uses derivatives to finance fixed-price diesel for truckers who carry cattle to slaughter. And the packing plant employs derivatives to stabilize costs from natural gas to foreign currencies.

Far from Wall Street, President Barack Obama’s financial regulatory overhaul, which may pass Congress as early as Thursday, will leave tracks across the wide-open landscape of American industry.

Designed to fix problems that helped cause the financial crisis, the bill will touch storefront check cashiers, city governments, small manufacturers, home buyers and credit bureaus, attesting to the sweeping nature of the legislation, the broadest revamp of finance rules since the 1930s.

Historically, the more that government gets involved in the market, the worse things get. (Remember, most of the the alleged negative effects of the free market are really the product of business and/or regulatory arrangements that have hindered the free market’s operation.)

I get a bad feeling about this one.

National Insecurity, Obamunism

Economic Recovery? Really?

Remember, the economy is on the way to recovery.  B.O. says so!

Stock market time bomb?

Even the world’s most savvy stock-market giants (e.g., Warren E. Buffett) have warned over the past decade that derivatives are the fiscal equivalent of a weapon of mass destruction (WMD) – potentially lethal. And the consequences of such an explosion would make the recent global financial and economic crisis seem like penny ante. But generously lubricated lobbyists for the unrestricted, unsupervised derivatives markets tell congressional committees and government regulators to butt out.

While banks all over the world were imploding and some $50 trillion vanished in global stock markets, the derivatives market grew by an estimated 65 percent, according the Bank for International Settlements. BIS convenes the world’s 57 most powerful central bankers in Basel, Switzerland, for periodic secret meetings. Occasionally, they issue a cry of alarm. This time, derivatives had soared from $414.8 trillion at the end of 2006 to $683.7 trillion in mid-2008 – 18 months’ time.

The derivatives market is now estimated at $700 trillion (notional, or face, value, not market value). The world’s gross domestic product in 2009: $69.8 trillion; America’s, $14.2 trillion. The total market cap of all major global stock markets? A mere $30 trillion. And the total amount of dollar bills in circulation, most of them abroad: $830 billion (not trillion).

One of the Middle East’s most powerful bankers conceded recently that even after listening to experts explain the drill, he still does not understand derivatives and therefore doesn’t trust them and won’t have anything to do with them. And when that weapon of mass destruction explodes, he explained, “Our bank’s customers, from all over the world, will be saved from the disaster.”

Keep those numbers in mind as you consider this:

Today’s massive new derivatives bubble is driving the domestic and global economies, far outstripping the subprime-credit meltdown.

Hopefully not belatedly, Congress is considering legislation to curb the use of derivatives and other methods that artificially boost returns. But 13 members of Congress or their wives used derivatives to magnify their daily moves.

“We have met the enemy and he is us!”

And one measure proposed by Sen. Blanche Lincoln, Arkansas Democrat, would bar banks from trading in derivatives. This, in turn, would push almost $300 trillion beyond the reach of regulators. Derivatives would become still more opaque. Some say abolish derivatives trading in the U.S. and push it offshore.

Possible results?

The now-bloody Greek tragedy over its debt crisis is echoing through the Federal Reserve and the halls of Congress. Greece’s public debt exceeds 100 percent of its economy versus 90 percent (at $13 trillion) for the United States. If you add unfunded U.S. liabilities for Social Security, Medicare and Medicaid, the long-term shortfall is $62 trillion, or about $200,000 for each American. At least that’s the estimate of the Peter G. Peterson Foundation. And Peter Peterson himself says he’s now in the business of promoting awareness about public borrowing.

With probable trader error plunging the Dow Jones into a 1,000-point tailspin and back up in 16 minutes, economic and financial prognostication made astrology look respectable. Could Greece be a harbinger of ugly things to come for the rest of the world? Prominent investor Marc Faber, hedge fund manager Jim Chanos and Harvard’s Kenneth Rogoff told Bloomberg China’s economy will slow and possibly “crash” within a year as the nation’s property bubble is set to burst.

Meanwhile the economic recovery continues apace, with the unemployment rate moving back to 9.9%, or 17.1% if ALL of it is counted.

This sort of progress can easily result in recovering the experience of the 1930.

Maybe that’s what B.O. means.  Isn’t Obamunism marvelous?