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mises
Joined: 05 Nov 2007
Location: retired
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 Posted: Sun Nov 29, 2009 9:59 am Post subject: |
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| The financial crisis provoked a global front to stimulate economies through massive spending. But this was fuelled by a staggering amount of borrowing. Now governments are realizing that a new calamity looms - higher taxes and slashed social programs |
http://www.theglobeandmail.com/report-on-business/a-world-awash-in-debt/article1380944/
Are 'the people' really going to tolerate a situation whereby banksters and foreigners are earning on the higher taxes and decreased services?
The Globe article is good, but the Globe never found a moderate Liberal position it didn't like. Yes, the US will go broke -default-. See Sprott's "Dead Government Walking". |
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mises
Joined: 05 Nov 2007
Location: retired
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Pluto
Joined: 19 Dec 2006
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| Posted: Sun Nov 29, 2009 7:26 pm Post subject: |
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SDRs may be on the way sooner than you think:
From the Financial Times:
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We must get ready for a weak-dollar world
By Jeffrey Garten
Published: November 29 2009 20:02 | Last updated: November 29 2009 20:02
The two most significant structural consequences of the recent financial debacle are the massive deficits and debts of the US and the shift of economic power from west to east. There is only one effective way for governments to address the combined impact of both: press for a sea change in currency relationships, especially a permanently and greatly weakened dollar.
The roots of this situation are well known. The American budget deficit of this past fiscal year reached 10 per cent of gross domestic product, the largest since the aftermath of the second world war. Meanwhile, the net external debt of the US nearly tripled last year to $3,500bn and it is projected to increase by nearly $1,000bn every year for the next decade. All this underestimates the problems of a country where unfunded liabilities for baby boomer entitlements are in the stratosphere, infrastructure deterioration is scandalous and many large states are out of money. To close the gaps, taxes would have to be raised to sky-high levels and spending brutally slashed. It would take a miracle if America�s political system � one rife with vicious partisanship and riddled with well-financed special interests � could do either, let alone both.
Washington will therefore have little choice but to take the time-honoured course for big-time debtors: print more dollars, devalue the currency and service debt in ever cheaper greenbacks. In other words, the US will have to camouflage a slow-motion default because politically it is the easiest way out.
There is another factor pushing America towards a weaker dollar: lacking the domestic consumer demand that came with the unrestrained credit of the past 15 years, the US is desperate to find buyers abroad, especially in emerging markets where the middle class is growing and infrastructure requirements are soaring. A cheaper dollar could make US products and services more competitive.
Meanwhile, in the coming decade, the big emerging markets of Asia will be growing twice as fast as the US and three times faster than the European Union. By 2020, China, India, Indonesia, Korea and Vietnam together could generate more wealth than the the US, Japan and the EU combined. China, India, and South Korea have all been amassing dollar reserves and will be looking to reduce them. While imports into leading industrial countries have slowed, intra-Asian trade is booming and need not be financed only in dollars. The bottom line: Asian currencies are likely to strengthen against the dollar.
A much cheaper dollar is a sad development for the US, even though it is inevitable. It will make the US poorer, since Americans will pay higher prices for everything they buy from abroad � clothes, computers, cars, toys, food, you name it. It will make the US military presence abroad more expensive, since the cost of contractors and local suppliers will escalate in dollar terms. It will slow imports, removing competition that is essential to hold down the general price level in America, thereby making inflation more likely. It will send the wrong price signals for a country that prides itself on creating sophisticated, highly valuable products, for a low dollar will encourage producers to compete on price more than quality. It will diminish the political influence and prestige that the US has had while the dollar has been king.
Moreover, the US dollar has been at the heart of the global economy for well over half a century. Its demise, if not smooth and gradual � hardly certain � could lead to an era of competitive devaluations and other mercantilist trade policies.
An alternative to a global monetary system that has been centred on the dollar is now imperative. That means a multi-currency framework including the euro, the yen, the renminbi and significant issuance of an IMF-backed currency called �special drawing rights�. This regime will take time to devise, but it should start now.
That is why Tim Geithner, US Treasury secretary, should invite his colleagues in the UK, eurozone, Japan and China to meet secretly, perhaps between Christmas and New Year, to start discussions out of the public spotlight (to avoid spooking markets). The big question: what kind of monetary system will best serve the world given deep-seated changes in the balance of economic power, and what process can be followed to develop it?
Since the late 1980s I have believed that a strong dollar was in the US and world interest. Now, however, the context has fundamentally changed. The issue is no longer whether the dollar is in long-term decline but which of two options will be taken. Should Washington and other capitals calmly and deliberately manage the transition to a new era, or, by default, should they let the market do it, with the risk of massive financial disturbances. Today, governments have a choice. Soon they may not.
The writer is the Juan Trippe professor of international trade and finance at the Yale School of Management |
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Kuros
Joined: 27 Apr 2004
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| Posted: Sun Nov 29, 2009 9:52 pm Post subject: |
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A weak dollar is good for the US, too.
It can no longer rely on imports, and must manufacture some of its own goods. It can no longer afford a large military, and must be more modest in how it risks its youthful flesh and blood. It can pay off its debt more easily.
The happy-happy-happy about Asia is a crock, though. Give me a break.
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| Meanwhile, in the coming decade, the big emerging markets of Asia will be growing twice as fast as the US and three times faster than the European Union. By 2020, China, India, Indonesia, Korea and Vietnam together could generate more wealth than the the US, Japan and the EU combined. |
Yes, this will happen as long as everything works out perfectly for those developing economies (plus Korea), as we know it always does . . . |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Sun Nov 29, 2009 10:03 pm Post subject: |
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The low dollar is good for exports idea is commonly held but I'm not so sure about it. Inflation diminishes the capital held by firms in real terms, making investments more difficult (expensive). Capital formulation is key for future production. It is certain that inflation helps existing exporters but I am now convinced that this help comes at the expense of of future exporters.
Also, it isn't clear that it is possible to inflate out of debt:
http://ftalphaville.ft.com/blog/2009/08/04/65156/the-debt-inflation-myth-debunked-by-ubs/
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| The problem with the idea of governments inflating their way out of a debt burden is that it does not work. Absent episodes of hyper-inflation, it is a strategy that has never worked. Government debt: GDP burdens tend to be positively correlated with inflation. Market mythology has created the idea that inflation will help reduce government debt ratios. The facts do not support the myth. OECD government debt rises as inflation rises. Meaningful reductions in government debt will require a low inflation future. |
I agree with you about Asia. Bubbles everywhere.. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Sun Nov 29, 2009 10:06 pm Post subject: |
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| mises wrote: |
The low dollar is good for exports idea is commonly held but I'm not so sure about it. Inflation diminishes the capital held by firms in real terms, making investments more difficult (expensive). Capital formulation is key for future production. It is certain that inflation helps existing exporters but I am now convinced that this help comes at the expense of of future exporters.
Also, it isn't clear that it is possible to inflate out of debt:
http://ftalphaville.ft.com/blog/2009/08/04/65156/the-debt-inflation-myth-debunked-by-ubs/
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| The problem with the idea of governments inflating their way out of a debt burden is that it does not work. Absent episodes of hyper-inflation, it is a strategy that has never worked. Government debt: GDP burdens tend to be positively correlated with inflation. Market mythology has created the idea that inflation will help reduce government debt ratios. The facts do not support the myth. OECD government debt rises as inflation rises. Meaningful reductions in government debt will require a low inflation future. |
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But surely a gov't can fiat lower interest rates to make it less painful to pay off their own debt.
And to your first point, if the US dollar can't invest as well abroad (but of course even with a weak dollar there will always be places where the dollar goes far), won't that constrain it to local investments? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Sun Nov 29, 2009 10:21 pm Post subject: |
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| But surely a gov't can fiat lower interest rates to make it less painful to pay off their own debt. |
Yeah, that's the theory. I don't know of any example where that has worked. The decline in spending would have to exceed the decline in the currency. Though that's assuming perfectly open trade. And it could get messy quickly. I don't know. There are too many variables and the prevailing monetary theories are, I believe, demonstrably false.
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| And to your first point, if the US dollar can't invest as well abroad (but of course even with a weak dollar there will always be places where the dollar goes far), won't that constrain it to local investments? |
I suppose so. If inflation has eroded the currency I don't know if it matters. Imagine trying to raise/form capital in Zimbabwe (an extreme example) to open a factory etc. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Mon Nov 30, 2009 9:15 am Post subject: |
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http://www.kitco.com/ind/Field/nov112009.html
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Zimbabwe: A Fresh Start
In February 2009 Zimbabwe was the only country in the world without debt. Nobody owed anyone anything. Following the abandonment of the Zimbabwe Dollar as the local currency all local debt was wiped out and the country started with a clean slate.
It is now a country without a functioning Central Bank and without a local currency that can be produced at will at the behest of politicians. Since February 2009 there has been no lender of last resort in Zimbabwe, causing banks to be ultra cautious in their lending policies. The US Dollar is the de facto currency in use although the Euro, GB Pound and South African Rand are accepted in local transactions.
Price controls and foreign exchange regulations have been abandoned. Zimbabwe literally joined the real world at the stroke of a pen. Money now flows in and out of the country without restriction. Super market shelves, bare in January, are now bursting with products. |
Real interesting stuff. The whole article is worth a read. So Kuros, I guess it is possible to inflate out of debt and I was wrong. You have to push it pretty hard though. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Mon Nov 30, 2009 11:47 am Post subject: |
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http://www.theprovince.com/business/Condo+lineups+return/2282391/story.html
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Condo lineups return
Investors brave the rain for shot at a pre-sale
The buzz is back.
In scenes rarely seen since the Vancouver real-estate market peaked in early 2008, a horde of hungry investors lined up for hours in a downpour Saturday to get first dibs on pre-sale condo units in a tower to be erected in Yaletown. |
From the 22 rules of trading:
http://www.dacharts.com/articles/_22rulestrading.htm
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| 6. "Markets can remain illogical longer than you or I can remain solvent," according to our good friend, Dr. A. Gary Shilling. Illogic often reigns and markets are enormously inefficient despite what the academics believe. |
No doubt. |
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Reggie
Joined: 21 Sep 2009
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| Posted: Mon Nov 30, 2009 1:39 pm Post subject: |
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The US government will definitely remain illogical longer than the USA can remain solvent.  |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Mon Nov 30, 2009 9:28 pm Post subject: |
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| Dec. 1 (Bloomberg) � �I just wrote my first reference for a gun permit,� said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank. |
http://www.bloomberg.com/apps/news?pid=20601110&sid=ahD2WoDAL9h0
Goldman does hire forward thinking individuals.
And NNT, going out in style (Taleb's piece in italics):
http://www.zerohedge.com/article/nassim-taleb-protests-bernanke-reappointment-going-self-appointed-exile
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Nassim Taleb Protests Bernanke Reappointment By Going Into Self-Appointed Exile
And so economists begin their protest against the perpetuation of the farce that is US economics, and the madman in charge of the USS Titanic - Ben Bernanke. Nassim Taleb has decided to go into exile courtesy of the imminent reappointment of the man who not only caused the near destruction of the financial system, but with his actions has sealed the fate of America's middle class. In a post titled "Good Bye! The reappointment of Bernanke is too much to bear" Taleb bids farewell and shares his disgust with the bullshit that the Wall Street - D.C. cabal has become, and the certain destruction that it is leading this once great country to. While we may or may not agree with Taleb's expression of disappointment, it, together with ever more vocal demonstrations of anger at Bernanke's second term by more and more prominent politicians, presents an increasing social problem for Obama, who has now bet the farm as well as taken out a CIT-funded 3rd lien on the success of Bernanke's policies, as well as sacrificed the future of the US middle class so that Wall Street can enjoy another record bonus year.
From the HuffPo:
What I am seeing and hearing on the news -- the reappointment of Bernanke -- is too hard for me to bear. I cannot believe that we, in the 21st century, can accept living in such a society. I am not blaming Bernanke (he doesn't even know he doesn't understand how things work or that the tools he uses are not empirical); it is the Senators appointing him who are totally irresponsible -- as if we promoted every doctor who caused malpractice. The world has never, never been as fragile. Economics make homeopath and alternative healers look empirical and scientific.
No news, no press, no Davos, no suit-and-tie fraudsters, no fools. I need to withdraw as immediately as possible into the Platonic quiet of my library, work on my next book, find solace in science and philosophy, and mull the next step. I will also structure trades with my Universa friends to bet on the next mistake by Bernanke, Summers, and Geithner. I will only (briefly) emerge from my hiatus when the publishers force me to do so upon the publication of the paperback edition of The Black Swan |
To have fame and FU money...
Here's what NNT is upset about:
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| Ben Bernanke was Wrong |
http://www.youtube.com/watch?v=9QpD64GUoXw
Really, really, really wrong. |
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ontheway
Joined: 24 Aug 2005
Location: Somewhere under the rainbow...
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| Posted: Tue Dec 01, 2009 8:42 am Post subject: |
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| mises wrote: |
http://www.kitco.com/ind/Field/nov112009.html
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Zimbabwe: A Fresh Start
In February 2009 Zimbabwe was the only country in the world without debt. Nobody owed anyone anything. Following the abandonment of the Zimbabwe Dollar as the local currency all local debt was wiped out and the country started with a clean slate.
It is now a country without a functioning Central Bank and without a local currency that can be produced at will at the behest of politicians. Since February 2009 there has been no lender of last resort in Zimbabwe, causing banks to be ultra cautious in their lending policies. The US Dollar is the de facto currency in use although the Euro, GB Pound and South African Rand are accepted in local transactions.
Price controls and foreign exchange regulations have been abandoned. Zimbabwe literally joined the real world at the stroke of a pen. Money now flows in and out of the country without restriction. Super market shelves, bare in January, are now bursting with products. |
Real interesting stuff. The whole article is worth a read. So Kuros, I guess it is possible to inflate out of debt and I was wrong. You have to push it pretty hard though. |
Long ago, on a gold thread, I wrote about how the Zimbabwe economy would bounce back quickly if they could dump their fiat money and go on a gold standard, of course, private sector money would be even better.
There is no need, and in fact it is better, if the government does noting and just gets out of the business of providing money.
In Zimbabwe today, we can see a related experiment. The Z dollar is gone. There is NO government issued money. Money comes from outside the country. It circulates. Dollars, Euros, etc.
If it is legal, you can expect a gold based currency to begin soon in Zimbabwe. It would be privately issued, and sound. This would displace most of the other semi-fiat currencies now circulating. It's probably prohibited though.
At this point for the US, the best thing for the long run might just be a total collapse of the dollar and a debt jubalee. Abdication of all government entitlements and programs. Repeal of all taxes on income and property. And, let the banks or anyone issue currency. You would see numerous gold backed currencies in place within a few weeks if not just a few days. The economy would boom, growth would exceed 10% per year and unemployment would disappear. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Dec 01, 2009 9:07 am Post subject: |
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| Ontheway, I agree with you, I think. I'll be watching Zimbabwe very closely. I don't know if the hoards of liberal arts consultants will allow an African state to exist without capital controls, price controls, people controls etc for any length of time. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Dec 01, 2009 9:24 am Post subject: |
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Cash for renos:
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| WASHINGTON -- The Obama administration is talking to big home-improvement retailers about using more federal dollars to encourage homeowners to replace leaky windows and insulate the walls as part of a broader effort to spur hiring. |
http://online.wsj.com/article/SB125967194482271175.html
Gold hit 1200$. Lots of upside left:
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We just came across a Bloomberg News article quoting an official from the state-owned Assets Supervision and Administration Commission (Ji Xiaonan, the Chief) as saying �we recommend China increase its gold reserves to 6,000 metric tons within three-to-five years and possibly to 10,000 tons in eight to 10 years.� China�s reserves, after a 76% buildup since 2003, currently stand at 1,054 tons, so we are talking here about the prospect of some pretty heaving buying in coming years.
If China were to lift their gold reserves to 5,000 tonnes, which is equivalent to about two years of global production, that shift in demand would boost the gold price by $800/oz to around $2,000 ($1,978) based on our models. If China moves towards 10,000 tonnes, well, that would end up taking the gold price to $2,623/ounce if our calculations are in the ball-park. |
http://www.zerohedge.com/article/gold-price-double-china-prepares-increase-its-gold-holdings-tenfold
Now, if the gold standard was such a stupid idea that Serious People laugh at, why is China (and others) planning such massive purchases? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Dec 01, 2009 10:59 am Post subject: |
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I've noticed that !Green Shoots! is no longer being used by the Ministry of Truth, but they might want to dust it off and giver another go:
http://www.zerohedge.com/article/chrysler-november-sales-drop-25-below-expectations
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Chrysler's core Jeep brand sales were down 25% YoY. And even with such perks as:
* 0 percent financing for up to 60 months
* Consumer cash of up to $3,000
* All-wheel drive at no cost with the purchase of a Chrysler 300
* A no-cost DVD system with the purchase of a Chrysler Town & Country minivan
* Attractive financing rates and a no-cost service/maintenance program for 3 years/36,000 miles
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http://www.gallup.com/poll/124505/Americans-Spending-Fri-Sat-Down-08.aspx?CSTS=alert
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| Estimated daily spending for the two days after Thanksgiving this year is an average of $106, compared to a daily average of $116 last year. This is an 8.6% drop, similar to what the National Retail Federation has reported. |
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