Financial Crisis

[flying]

I consider this a very sad day for America

The Supreme Court on Tuesday cleared the way for Chrysler LLC's sale to Fiat, turning down a last-ditch bid by opponents that included consumer groups and three Indiana pension plans.

Pretty Bad eh Midas?

This guy has an idea..............

[midas]

I consider this a very sad day for America

The Supreme Court on Tuesday cleared the way for Chrysler LLC's sale to Fiat, turning down a last-ditch bid by opponents that included consumer groups and three Indiana pension plans.

Pretty Bad eh Midas?

This guy has an idea..............

I do wonder what it will take to wake people up ?

[midas]

Excuse me Mr Obama and Mr Geithner if from now on I look for the spin behind every single thing you say

Perspectives On TARP Repayment

It is probably worthy to keep this information in mind as pundits try to spin today's news as something constructive.

But, as with everything else with the Obama administration, this has been merely one more tactic in the chess game of confidence.

There is a long way to go. Paying off the first $68 billion is a healthy start, but western governments own roughly $450 billion in banks. If markets or the economy slump again, investors' appetite for new shares will evaporate. Of the ten banks, eight had been pressed by the government to take funds in October, amid efforts to shore up the banking system. Although some individual institutions may try to claim that they took the money unwillingly, government intervention was necessary to prevent the entire system from collapsing as banks were found to own hundreds of billions of dollars of hard-to-value assets.

Some banks have managed to issue debt without government guarantees, but the system needs to refinance some $25.6 trillion of wholesale funding by 2011: without an implicit state back stop this would be impossible.

http://www.tradercurrencies.com/currency-t...tarp-repayment/

[MJP]

http://www.cnbc.com/id/31183773

Repeat Bank Stress Tests 'Right Now': TARP Panel Chair

CNBC.com | 09 Jun 2009 | 08:23 AM ET

The Congressionally-appointed panel overseeing the Troubled Asset Relief Program (TARP) recommends running again the stress tests on US banks, as economic conditions have worsened, its chair, Harvard University professor Elizabeth Warren, told CNBC Tuesday.

"We actually make recommendations to do it all over again right now," Warren told "Squawk Box."

"We've already blown past the worst-case scenario on unemployment," she added.

Under the tests, whose results were released in May, the Obama administration asked federal regulators to examine how financial institutions would hold up under two different economic scenarios as well as how much new capital they would need to raise to shore up their balance sheets.

The tests concluded that ten banks — including some of the biggest, such as Citigroup [C 3.41 -0.01 (-0.29%) ], Bank of America [bAC 12.06 --- UNCH (0) ] and Wells Fargo [WFC 25.66 0.27 (+1.06%) ] — would need to raise almost $75 billion in capital; the firms were also required to present plans on how to do so by June 8. The government is prepared to loan money to those companies that are unable to raise capital from private sources.

The oversight panel's report noted that the unemployment rate is now 9.4 percent, with a 2008 average of 8.5 percent. "If the monthly rate continues to increase during the remainder of this year, it will likely exceed the 2009 average of 8.9 percent assumed under the more adverse scenario," the report said.

The report will be presented in its final form to the Joint Economic Committee of Congress Tuesday.

Other reasons for concern are that the model used in the Treasury's stress tests stretches on less than two years, while many commercial mortgages are coming up in 2011, 2012 and 2013, Warren said.

Although the Treasury has been more transparent on this than at any point in its history, more details are needed to boost transparency, she added.

"They need to give us more information, when you've got more information, you've got confidence," Warren said.

[MJP]

Roubini: Those Are Yellow Weeds, Not Green Shoots

Wall Street Journal

June 9, 2009, 9:40 AM ET

First, employment is still falling in the U.S. and other economies. This will be bad news for consumption and the size of bank losses.

Second, this is a crisis of solvency, not just liquidity, but true deleveraging has not really started, because private losses and debts of households, financial institutions, and even corporations are not being reduced, but rather socialized and put on government balance sheets. Lack of deleveraging will limit the ability of banks to lend, households to spend, and firms to invest.

Third, in countries running current-account deficits, consumers need to cut spending and save much more for many years. Shopped out, savings-less, and debt-burdened consumers have been hit by a wealth shock (falling home prices and stock markets), rising debt-service ratios, and falling incomes and employment.

Fourth, the financial system — despite the policy backstop — is severely damaged. So the credit crunch will not ease quickly.

Fifth, weak profitability, owing to high debts and default risk, low economic — and thus revenue — growth, and persistent deflationary pressure on companies’ margins, will continue to constrain firms’ willingness to produce, hire workers, and invest.

Sixth, rising government debt ratios will eventually lead to increases in real interest rates that may crowd out private spending and even lead to sovereign refinancing risk.

Seventh, monetization of fiscal deficits is not inflationary in the short run… slack product and labor markets imply massive deflationary forces. But if central banks don’t find a clear exit strategy from policies that double or triple the monetary base, eventually either goods-price inflation or another dangerous asset and credit bubble (or both) will ensue.

Eighth, some emerging-market economies with weaker economic fundamentals may not be able to avoid a severe financial crisis, despite massive IMF support.

Finally, the reduction of global imbalances implies that the current-account deficits of profligate economies (the U.S. and other Anglo-Saxon countries) will narrow the current-account surpluses of over-saving countries (China and other emerging markets, Germany, and Japan). But if domestic demand does not grow fast enough in surplus countries, the resulting lack of global demand relative to supply — or, equivalently, the excess of global savings relative to investment spending — will lead to a weaker recovery in global growth, with most economies growing far more slowly than their potential.

So, green shoots of stabilization may be replaced by yellow weeds of stagnation if several medium-term factors constrain the global economy’s ability to return to sustained growth. Unless these structural weaknesses are resolved, the global economy may grow in 2010-2011, but at an anemic rate.

http://blogs.wsj.com/economics/2009/06/09/...t-green-shoots/

[badge]

Does anyone know of a decent site to get Thai SET charts? I can only find US indices as below. Im not very convinced about the accuracy of the Volume, although 2blnTHB is roughly $50m, which I could believe is the total Thai turnover on a good day?

Many thanks.

[flying]

Does anyone know of a decent site to get Thai SET charts? I can only find US indices as below. Im not very convinced about the accuracy of the Volume, although 2blnTHB is roughly $50m, which I could believe is the total Thai turnover on a good day?

Many thanks.

http://www.quote.com/global/stocks/chart.action?s=%24SET-IDX

Use the controls at bottom & then Get Chart

Edited June 10, 2009 by flying

[flying]

Peter Schiff on The Daily Show with Jon Stewart 6/9/09: "The Economy"

http://www.youtube.com/watch?v=_nPbnQG-rcg

Good

[SoCal]

Thanks Flying,

I really enjoyed that. Would be interesting to see how he would vote if he won the senate seat. Sadly, my faith was lost a long time ago.

Unfortunately they are creating a much bigger problem further down the road, but that seems to be the theme of the last +30yrs.

Oh well, let the band play on.

Reminds me of the closing scenes of the Titanic.

[12DrinkMore]

Wow - I believe you have a romantic view about how capitalism works.

Hardly romantic, just seems realistic that the undeveloped markets of people with savings and no debts and eager to work will be much more lucrative in the medium and long term.

The over-indebted maxed out credit card holders of the US and UK, heading into negative equity on their houses and with the threat of unemployment over their heads are not going to be in shopping malls today or tomorrow buying new TVs and washing machines.

Or maybe indeed the worst is over? In the last few days there have been more positive reports, maybe time for me to prise open another bottle?

And what does this mean?

“Recovery here depends on recovery abroad,” Geithner, who departs for weekend meetings in Italy with counterparts from some of the world’s biggest economies, told lawmakers yesterday.

http://www.bloomberg.com/apps/news?pid=206...id=aafmOqYK2v6Q

And I thought we were all waiting with baited breath for the US consumers, stimulated by trillions of USDs shoved up their bums, to burst into the GM stores and put down orders for the latest SUV. OH! Wait a minute, didn't they just go bust? :D

But anyway, from the same report

Some regions are faring better than others. China may expand 7.5 percent this year, according to the median forecast in a Bloomberg survey.

and

“Orders were strong in both April and May thus far, so all that’s looking good,” Vice President Ron Slaymaker (Texas Instruments) said on a conference call this week. “Asia is the biggest driver of growth with the U.S. and Europe continuing to lag.”

So Abrak, as a hard nosed capitalist (opposed to my romantic capitalistic view), where would you invest your money to provide the maximum gain from your capital? In the 350 million debt ridden US consumers or the 2 billion Asian consumers/producers?

"These capitalists generally act harmoniously and in concert, to fleece the people" Abe Lincoln

Edited June 10, 2009 by 12DrinkMore

[12DrinkMore]

Maybe one of you US guys can explain how the mortgage interest rates work in the States.

In the UK they are based on the bank base rate, so go up when it goes up and down when it goes down. This means that with the current UK ZIRP mortgages for those fortunate to have taken out a variable rate are, in some case FREE, WHOPPEE, but not for my savings where 2% is doing well.

But it seems that the US hasn't quite got a grip on this and

http://www.bloomberg.com/apps/news?pid=206...id=aZb6bu33Whng

even with the same ZIRP

The average rate on a 30-year fixed-rate loan surged to 5.57 percent, the highest since November, from 5.25 percent the prior week.

Borrowing Costs

At the current 30-year rate, monthly borrowing costs for each $100,000 of a loan would be $572, or about $44 less than the same week a year earlier, when the rate was 6.25 percent.

The average rate on a 15-year fixed mortgage rose to 5.10 percent from 4.80 percent the prior week. The rate on a one-year adjustable mortgage increased to 6.75 percent last week from 6.61 percent.

So you guys pull down the base rate to zero in an effort to keep borrowing costs lower, and the cost of borrowing shoots up through the roof to possibly amongst the highest in the world for housing, hardly stimulating real estate buyers, but at the same time leaving my few remaining depreciating USDs attracting no interest (reminder to self, sell them) at all.

What's the grand scheme here?

Edited June 10, 2009 by 12DrinkMore

[Chaimai]

In the UK they are based on the bank base rate, so go up when it goes up and down when it goes down. This means that with the current UK ZIRP mortgages for those fortunate to have taken out a variable rate are, in some case FREE

Just for clarification - no they are not. They usually go up or down with Base Rate but changes are not always passed (up or down).

UK Base Rates are 0.50%. Typical Variable rates are 4% plus. Abbey is 4.24, Halifax 3.5%, Nationwide 3.99 and Northern Rock 4.79% - C & G are 2.5% because they had a 'price promise' not to be more than 2% above Base Rate.

I don't know of anyone paying 'zero' but my Tracker mortgage is 0.14% above Base Rate and I know a couple of people just under 0.50%.

Mortgage rates will reflect cost of funding i.e. what the lender has to pay on deposits or for wholesale funding - remember that 3 month LIBOR is 1.255%.

Fixed rates of circa 4% can be had on 2 year deals and around 5% on 3 year fixes. Rates are firming a bit and many UK lenders have withdrawn products and replaced them with higher priced ones.

12D - your 2% savings rate is the reason why many older people are now buying investment property. In my area a £100k purchase will give a rental return of 6%. I imagine that they see the prospect of capital growth a greater probability than any reduction. We are talking about sagely people here, not hot-headed speculators.

Edited June 10, 2009 by Chaimai

[12DrinkMore]

Just for clarification - no they are not. They usually go up or down with Base Rate but changes are not always passed (up or down).

All the variable rate mortgages tied to the base rate have to follow the base rate.

I don't know of anyone paying 'zero' but my Tracker mortgage is 0.14% above Base Rate and I know a couple of people just under 0.50%.

Well, that is more or less zero for a mortgage.

And 1,500 customers of C&G are now paying nothing to own their own home.

http://news.bbc.co.uk/2/hi/business/7924201.stm

12D - your 2% savings rate is the reason why many older people are now buying investment property. In my area a £100k purchase will give a rental return of 6%. I imagine that they see the prospect of capital growth a greater probability than any reduction. We are talking about sagely people here, not hot-headed speculators.

Anybody buying into the UK property market at the moment will IMO (which is worth every penny, and many others) not be looking at a capital gain for many years. However, if they are lucky to find a decent tenant who pays on time and doesn't trash the property, then the return over the couple of percent on a deposit account MIGHT be higher.

But I have not seen any indication in the press that the BTL lot are actively in the market, rather on the contrary there are a lot of vacant unsellable BTL speculations around.

The real estate bubbles in primarily the UK and US have set off this crisis, and it irritates me immensely, to put it mildly, that the solution is seen to be re-inflating these bubbles in the short term, to allow Our Leaders to stay in power for another session.

Edited June 10, 2009 by 12DrinkMore

[MJP]

Does anyone know of a decent site to get Thai SET charts? I can only find US indices as below. Im not very convinced about the accuracy of the Volume, although 2blnTHB is roughly $50m, which I could believe is the total Thai turnover on a good day?

Many thanks.

http://www.set.or.th/en/index.html

[AlexLah]

Just a few thoughts,

The US peeps are saving more so spend less, how is that saved money used?

Many people each month loose jobs so can spend less.

Stimulus package finances maintenance of roads, bridges and army camps and such.

They have no idea where the first 350 Billion of stimulus money went.

Why is the FED hiring a former Enron employee to confince congress not to audit, or a limited audit of the Fed.

Obama promised more transparency so why does he not insist to create it?

Are those banks using stimulus and savers money to influence the money market?

[Chaimai]

All the variable rate mortgages tied to the base rate have to follow the base rate.

Variable rate mortgages DO NOT follow base rate - read the article that you posted the link to and you will see that it is at the discretion of the lender, which is why Base Rate is 0.5% and variable Rates are circa 4%. TRACKER mortgages have to track against whatever the contract says - usually tarcks to Base Rate but some track at a rate relative to the lenders SVR.

But I have not seen any indication in the press that the BTL lot are actively in the market, rather on the contrary there are a lot of vacant unsellable BTL speculations around.

You will see a lot of 'clusters' of investment properties for sale - such as ill-founded widespread developments in Manchester and Ipswich (where local professionals had predicted disaster even before the financial crisis.

You should have learned by now that the media either focus on specific extreme or, generalise. I have always said that I can only speak about my area and what I see every day - not what I read elsewhere. I am seeing older individuals buying sensibly priced properties in the right place - location, location, location/PRICE !

Property (if you want to hold it) should always be seen as a long-term investment - I have no time for short-term speculation that only distorts the market. What I am seeing now is a sensible switch (usually)from cash to bricks and mortar. Pick your asset risk and invest accordingly.

[flying]

They have no idea where the first 350 Billion of stimulus money went.

Why is the FED hiring a former Enron employee to confince congress not to audit, or a limited audit of the Fed.

http://www.cnbc.com/id/31204170

[flying]

Oops wrong place

Edited June 11, 2009 by flying

[12DrinkMore]

Variable rate mortgages DO NOT follow base rate - read the article that you posted the link to and you will see that it is at the discretion of the lender, which is why Base Rate is 0.5% and variable Rates are circa 4%. TRACKER mortgages have to track against whatever the contract says - usually tarcks to Base Rate but some track at a rate relative to the lenders SVR.

All right fair do's, I mistakenly wrote variable rate instead of tracker.

You will see a lot of 'clusters' of investment properties for sale - such as ill-founded widespread developments in Manchester and Ipswich (where local professionals had predicted disaster even before the financial crisis.

presumably "local professionals" refers to property salespersons, aka estate agents aka various other less polite terms. I wonder if they were warning the punters off buying the properties?

You should have learned by now that the media either focus on specific extreme or, generalise. I have always said that I can only speak about my area and what I see every day - not what I read elsewhere. I am seeing older individuals buying sensibly priced properties in the right place - location, location, location/PRICE !

So are we to take your observation as a specific extreme or a generalisation.

And if you are seeing these older gits, pockets stuffed with Quids, out buying property every day, then there must be some sort of miniboom taking place in your area. There will always be a bit of background noise of people buying for whatever reason, but are you seeing a distinct growth trend that will lead to the Greatest House Price Boom Ever, ensuring we have to endure Brown for another five years, or is it parents buying a house for their kids hoping to avoid inheritance tax, for example?

Actually, as you mentioned that 100,000 Quid would give me a six percent income plus many tons of bricks and mortar, what sort of building could I expect for it? I am still convinced that house prices have a way to fall and that growth will be slow after the bottom has been reached.

[badge]

Britains planning permission structure has helped ward off the kind of rampant over-construction Ireland and Spain are reeling from, but not by much. The argument that Britain 'is an island' with 'not enough space' is nonsense too. Japan is an island 50% larger than the UK, with over twice as many inhabitants. In the last dozen years average property prices there are down -35%. Hong Kong is partly island, likewise in the last dozen years avg house prices are down -35%. In Singapore over 12yrs theyre down -12%. UKs are up 158% over the same period. Germanys are up 2%. Americas are up 90%, Ireland 182%, Spain 175%, OZ 150%... and these figures are inclusive of the last 2yrs declines!

Now im certain construction co.s in Japan and Hong Kong have been profitable over the last decade, but im also certain your average landlord hasnt, or its been bloody hard work.

Homes are precisely that, theyre not to be treated as capital gains instruments as theyre often thought of and portrayed in the UK.

Its clearly demonstrated that over the years UK property prices fluctuate above and below the median trendline. on the vast upswings its rises above before turning, during recessions and on down swings its swings below before turning back up. Its currently 2yrs into going down, after its largest swing up ever and we're almost at the median line, indicating to me on a very basic level, we're perhaps halfway through the downturn.

Still 2yrs too soon to be buying property in UK in my opinion.

[12DrinkMore]

It's over! Does it mean the end of this thread? Will Alex not be able to put up post #2,500?

Analysts: 'The recession has ended'

Economy has stopped shrinking, says leading group of analysts

http://www.independent.co.uk/news/business...ed-1702147.html

So it's all back on track, the GBP will be up to 72 THB, 2 USD and 5% interest on deposits. The UK population can once again sink idly back into their sofas and watch house price documentaries on the 62 inch LCD TV confirming that another 20 grand can be "equity released" to buy the new car and take that three week luxury holiday in the Caribbean.

The banks are all solvent and repaying the bailouts. And the toxic debts and CDS's, and CDO's and Sub-Prime are all in the black. All the billions of QE are being sucked out of the system and Darling is happily pushing the "delete" key to remove it all from existence. (Some hope, Brown will want his hands on them first)

Aaaaah, this is such a relief. But there will be one thing I'll miss in the utopia of financial freedom, where we all have billions of Quids to dispose of, and that, of course, is the TV "Financial Crisis" thread, which is now redundant.

But OH NO! What is this coming to disturb my blissful existence again? Surely there can be no dissenting voices, we are definitely out of the woods?

So is the recession over? View from the frontline

Theo Paphitis, owner of Ryman and star of the Dragons' Den series: "I don't think we are anywhere near the end of the recession. We have probably had a bit of growth but this will definitely be a W-shaped recession. We have got a lame duck Government."

Sir Martin Sorrell, founder of the advertising agency WPP: "We hadn't noticed. The second half looks a little better than last year but that's because the comparative period was so weak. If you're asking have we seen a significant change in economic conditions, [then] no, we haven't."

Sir Philip Green, retail billionaire: "Businesses are not being funded properly. Unless the banking sector starts doing business we are going to continue bumping along where we are."

Lloyd Blankfein, chief executive officer of Goldman Sachs: "I think it's going to be a long protracted [global] recession. There is no reason to think this is it... So many things have to be sorted out. Why would this be the recovery? The chances are it's not."

So do I pitch in we the "National Institute of Economic and Social Research" or does Blankfein have his fingers on the pulse of economic recovery (or possibly his thumbs firmly pressed on the carotid artery of recovery), who can we believe?

http://www.independent.co.uk/news/business...in-1702187.html

Yet if consumption and investment continue to decline, the inventory effect may turn out to be no more than a one-off boost. Unless business starts actively to restore stocks to pre-bust levels, as opposed to simply not cutting stocks any further, eventually these more negative forces will reassert themselves and the economy will begin contracting again.

That's why everyone is still so cautious about calling the end of the downturn. Any recovery that is taking place is still a long way from being self sustaining.

A number of City economists reckon that consumption is about to pick up too. Certainly the rise in disposable incomes caused by rock bottom mortgage rates gives good reason to think it might do. Unfortunately, any such revival is the very reverse of what's necessary to deal with the structural problem at the heart of the UK economy.

Over the last 20 years, the UK has had the lowest savings rate of any OECD nation, knocking even the US into second place. In this "spend now, worry about the consequences later" world, Britain's economy prosperity has come to rely disproportionately on consumption and the boom in house prices. Investment in the future has gone by the wayside, which for an ageing society creates a potentially devastating deficit for the future.

The savings deficit is one thing; alongside it runs a now burgeoning fiscal deficit which also has to be addressed urgently. The renewed row that broke out in Parliament yesterday about who is going to cut how much out of which departmental budget is all so much political noise.

The only thing we know for sure is that whoever occupies Number 10 after the next election is going to have to make deep cuts across the board. Even the marginal increases pencilled in by Labour in nominal terms will mean real cuts once inflation is taken into account. That too is hardly conducive to a robust, long term economic recovery. Neither of the two main political parties yet seem prepared to admit the scale of the challenge faced.

Green shoots or none, it's an austere future that beckons.

Well, that's a relief!

It looks like the "Financial Crisis" thread still has a while to run....

[Abrak]

But anyway, from the same report

Some regions are faring better than others. China may expand 7.5 percent this year, according to the median forecast in a Bloomberg survey.

and

“Orders were strong in both April and May thus far, so all that’s looking good,” Vice President Ron Slaymaker (Texas Instruments) said on a conference call this week. “Asia is the biggest driver of growth with the U.S. and Europe continuing to lag.”

So Abrak, as a hard nosed capitalist (opposed to my romantic capitalistic view), where would you invest your money to provide the maximum gain from your capital? In the 350 million debt ridden US consumers or the 2 billion Asian consumers/producers?

"These capitalists generally act harmoniously and in concert, to fleece the people" Abe Lincoln

Now that is a bit like putting a gun to my head and asking me to choose between Newin and Chalerm for PM. I would simply say pull the trigger.

You see while I believe that the US's growth model was always unsustainable I also believe the same about China's. China's growth of 7.5% isnt quite as impressive as it looks, it needs to grow at about 6% to stand given its demographics and its growth was boosted by a US$600bn economic stimulus package (far bigger than the US, an economy 3x its size). You see while the US fundamentals are crappy China faces a virtually impossible task - according the NY Times it needs 8% growth to maintain employment while CNN says 15% of manufacturing workers have lost their jobs since the crisis.

http://www.nytimes.com/2008/11/05/business...1.17544564.html

http://edition.cnn.com/2009/WORLD/asiapcf/...jobs/index.html

My main point though is that its profit model to turn itself from a 1st world country into a second world country is based on the Thai model and while it worked for Thailand it wont work for China. Here's how it worked for Thailand, first peg your currency at an under valued rate to the US$, this attracts foreign investment keen to export dollar related products and capital in general. Growth increases, money supply expands, property and stockmarket prices go through the roof. Wages tend to rise to. It always helps if you throw in financial liberalisation. At this point the local populace begin to leverage up on the wealth that has been created for them through rising asset prices. The steel trader decides to build a steel mill. And his wife a Gucci hand bag. This is just as well because all that inherent inflation has meant that the marginal productivity of capital and labour has been falling, foreign investment has slowed and some investors have put on their runners and gone to Vietnam. So a middle class emerged.

Of course it went a bit too far. With falling productivity the economy eventually became dependent on ever increasing amounts of foreign debt but luckily or unluckily their were lots of foreign banks to provide it. So asset prices continued to rise but the P went up rather than the E (and by the steel trader didnt really know much about operating a steel mill.) The bankers did pull out eventually and everything collapsed for a while but luckily there was no foreclosure (and it could have worked with out ending up in a financial crisis although by 2006 ROA ex financials was 3% while interest rates were 12%.)

But while this can work for a country like Thailand with 50m people it cannot be extrapolated to a country with over a billion. I think there are already signs of falling productivity (some say it is cheaper to manufacture in Thailand). I think there is already a bad debt problem (as long ago as 2004, Ernst & Young put bank sector bad debt at US$950bn.) In China there has to be growth or there are riots on the streets. So I see two scenarios (1) there has been inflation and competitiveness is falling in which case as with the peg there is no monetary policy there must be ever increasing economic stimulus to keep things going or (2) there hasnt been any inflation and the yuan is seriously undervalued and the peg is a serious drag on the US in terms of the export of capital and jobs (and inflation BTW) and its recovery which will ultimately lead to the break in the peg and a loss of China's competitiveness.

So I'd choose Thailand.

[Abrak]

Neither of the two main political parties yet seem prepared to admit the scale of the challenge faced.

Green shoots or none, it's an austere future that beckons.

Well, that's a relief!

It looks like the "Financial Crisis" thread still has a while to run....

It certainly will.

The one thing I find particularly annoying is the fact that politicians are refusing to face up to the fact that there is any problem at all. The Obama Government CBO forecasts for 2011-2014 show real GDP growth in the US averaging nearly 4%. Hands up who believes that!

They essentially assume that this is a cyclical down turn and the problem is an 'output gap' namely a massive shortage of demand relative to competitive supply. While anyone can see it is more a case of unsustainable consumer demand financed by increasing amounts of debt which will render much of the supply uneconomic.

So QE reflates the bubble, consumers spend and borrow more and you have out the fire with gasoline!

[Naam]

So I'd choose Thailand.

Abrak, i enjoy reading your postings, your assumptions and conclusions although i don't agree with some of them. but do i understand you properly that you are betting the ranch on Thailand?

[midas]

First we had Angelo R Mozilo, the CEO of Countrywide charged with fraud and now we have

these two - Paulson and Bernanke being accused of threatening Kenneth Lewis -

the whole US financial system is rotten to the core

Bring on H.R. 1207 ASAP

Investigators: Fed Threatened Bank CEO

According to an internal memo prepared by the committee's Republican staff, Paulson and Bernanke "put a gun to the head" of Lewis and Bank of America's board of directors to force the merger even though Lewis "felt it was his duty to his shareholders to try his luck in the legal system and back out of the deal." ( this is the US Federal Reserve riding roughshod over the shareholders just like they did this week with the Chrysler Bondholders- is there a dangerous trend developing here for the markets ? )

As proof, Republicans cite several documents including an e-mail by an employee at the Richmond Federal Reserve who said Bernake had made it clear that if Bank of America backed out and needed financial assistance, "management is gone."

http://www.cbsnews.com/stories/2009/06/11/...in5079938.shtml

Edited June 11, 2009 by midas

[Abrak]

So I'd choose Thailand.

Abrak, i enjoy reading your postings, your assumptions and conclusions although i don't agree with some of them. but do i understand you properly that you are betting the ranch on Thailand?

Well I often like to invest counter cyclically and invest in something that everybody else thinks is crap. Thailand has already had one of the most dramatic political and economic declines in Asia post war so I look at it as a stock with essentially has fairly solid fundamentals that was worth 10 went to 50 and is now 3.

You are right to a large degree in that I used to bet the ranch on Thailand, I dont have a plan B and that my biggest worry about this crisis is that Thailand might become an unacceptable place to live. In reality though, I sold my major business here a couple of years ago (the outlook for corporate profitability looks pretty bleak for the foreseeable). If I lived in the place with the best fundamentals, I guess it might be Norway but it does seem bloody cold and I dont know the language!

[12DrinkMore]

You see while I believe....

.....

So I'd choose Thailand.

Is our main contention that you believe all growth has to be funded externally, whilst I believe that we are now at the turning point where growth in Asia can be funded through it's own internal growth and development?

I absolutely agree that up until now there would have been little economic and technological development without firstly the investment made by Western companies in Asia and secondly the consumption of the products by the West. But surely as more and more production capacity is shipped out of the West there comes the time when there is not enough productive capacity, or jobs, to support the West in the West? A state we probably reached a few years ago, since which we have been living on vapour wealth created through real estate inflation and the destructive financial lot.

It will be hard for the 20 million workers who have to return (maybe temporarily) back to the farms, but that still leaves a huge 110,000,000 workers who have successfully moved from farms to the cities. Workers who 20 years ago had absolutely no ambition, but now require infrastucture, housing, mobile telephones and lcd TVs, all of which will grow the economy. An incredible advance.

And if growth of less than 7% or so will cause riots in China, what sort of negative growth will cause riots in the US or UK? Or even, as seems to be increasingly likely, an economy similar to Japan, no growth for a decade and still no growth in sight? The West has grown up expecting all the privileges as being a right. Asia still realises that TVs, mobile phones, cars have to be worked for (although in Thailand having a mobile phone is now considered to be a right, take THAT away and there will surely be riots...). What happens when that great icon of freedom and Western society, the automobile, is no longer affordable for the jobless?

So, while I am on a bit of a typing run. Haven't posted so much for a long time, and as you brought up the topic, what determines the relative value of a currency? The US has muttered that the Yuan is too low, but that surely means that the US has enjoyed the benefit of buying lower priced goods? And if the problem is one of where the production facilities are located, then surely the US should make itself more attractive to companies to produce in the States?

Or is there another toxic reason behind it all? Namely that if the Yuan wasn't pegged to a large extent to the US, then the dam_n financial bastards could speculate and drive the Yuan up and down? Which would take effectively extract profits OUT of the many producers and the many many Chinese and INTO the pockets of the banks.

This is the reason why I would like to see a world currency. It would effectively move curtail the banks leave the profits where they should be left, in the manufacturing companies. Unless somebody can point out an exception, I really cannot think of a single advantage to either tourists or international manufactureres, importers, exporters that wildly fluctuating exchange rates bring that exceeds the massive profit taking that the banks have awarded themselves in ensuring that all transactions flow through themselves.

There we go, another rant over and it's time for a break.

BTW I didn't quite understand your 1st/2nd world references. Doesn't seem to comply with what I understood. But never mind, Thailand is not a bad place to be, although, as Naam pointed out, it might be premature to swap the ranch for a paddy field. Owning farmland in the States is one of the few investments with a positive future.

[AlexLah]

Have a look, it is a bit sad actually...

[12DrinkMore]

Have a look, it is a bit sad actually...

He's the one who didn't know.... or maybe he did?

Look how bored the guy is. Obviously no excitement, no challenge in his life, just reading out boring figures.

Hah! Was he wondering just how long it would take before his dreams of trying out Quantitative Easing were called into reality and he could be the saviour from his self created crisis?

Nowadays he looks much more self-assured and is a "man with a mission".

Ah, the games people play.

Edited June 11, 2009 by 12DrinkMore

[Abrak]

12drinkmore,

Sometimes you write the most interesting things and sometimes it looks as if it was written by the politburo.

For instance, you are honestly going to tell me that things are kinda fine and dandy in China (7% growth and all that) combined with 'it will be hard for the 20 million workers who have to return (maybe temporarily) back to the farms, but that still leaves a huge 110,000,000 workers who have successfully moved from farms to the cities.' You ask with 7% growth in China what sized recession will cause riots in the UK? When the real question should be is if 18% of the manufacturing workforce is made unemployed with 7% growth and a US$600bn economic stimulus what would have happened without it? Doesnt this tell you that the Chinese growth story is inherently flakey?

Of course growth can be funded internally but to what extent? To a large extent it depends on profitability. For instance a bank can only grow its loan portfolio in line with ROE after dividends without increasing gearing or resorting to additional funding. The exchange rate is fixed so monetary policy is severely limited. China is only just self funding at the moment in that its current account equals its fiscal deficit. To be fair it has plenty of room on the funding side but its going to need it in the future.

As for the world currency idea it has the obvious advantage that noone would have a monetary policy and the obvious disadvantage that noone would have a monetary policy. Latvia, Ireland and Spain would all have given it the big thumbs up 3 years ago and be spitting in your soup now I guess. (And you would get a unanimous vote from Zimbabwe apart from a couple of abstentions from a printer and calculator retailer.) There is virtually no government on the planet worth giving a monetary policy to at the moment (with apologies to a few minorities) so on the face of it, it seems a grand idea. If you add up all the current accounts on the planet, there is a large current account deficit which is theoretically impossible, so someone is trading with Martians. If they get to control the money supply then, I am all for it.

BTW, 12Drinkmore, the reason I get so passionate about this issue is because China has so much to do with this crisis and Greenspan was in total denial just as Bernanke is above because they are both so supply side economists. Greenspan kept interest rates way too low for way too long because unemployment was rising and inflation wasnt between 2002-2005. What he didnt realize is that he was simply importing deflation exporting jobs through the trade account while he was virtually ignoring a massive inflationary asset bubble.

Edited June 11, 2009 by Abrak