Financial Crisis

[flying]

Some of the work that Alan Greenspan has done on this is very interesting.

Of course a bull market in prices made people think otherwise - between 2000-2005 the average American household was supplementing his income by around US$2500 p.a. through equity withdrawals. As a result he really wasnt getting richer, in 1960 equity made up 70% of home owners homes by 2006 it made up 50% despite the bull run in prices. If you were to assume a 40% drop in prices since then, equity now makes up 20%. Meaning that the average home has about the same amount of equity as 1960 and around 10x the debt.

Good points.....

You know the quotes in your post is made by Peter Schiff not I

It was quotes from the article I linked. Which by the way I really think is a great article! He does not dwell on hyper inflation etc... But makes some very interesting/good points

Speaking of Greenspan here is a funny quote from that same article....

http://mises.org/story/3493

And what Bernanke is doing? The things that Bernanke is doing now dwarf what Greenspan did in irresponsibility. I still say that it's a tough race. I said that there's a race to see who's going to go down in history as the worst Fed chairman ever. And Greenspan is probably still in the lead, but Bernanke is hot on his tail.

And the only reason that Greenspan is still winning is because he was there longer. But as far as for how many years he's been at the helm, it's going to have to go to Bernanke.

But, so the combination of Obama/Bernanke is way worse than Bush/Greenspan, but it's the same philosophy. Nothing has changed. This might as well be the third Bush term. He is doing the same exact stuff.

[Abrak]

I guess looking at the UK current account there must have been a general decline in manufacturing but the size of the deficit also reflects, say in 2007/2008, excess consumer demand from the asset bubble. Economists also (maybe rather optimistically) see the decline in manufacturing as 'crowding out' by the success of the capital account - namely the growth of service sectors such as banking (!) or football and presumably the attractiveness of the country to billionaires to bring their ill-gotten gains. So despite constant C/A deficits sterling has actually appreciated to the further detriment of manufacturing competitiveness over the years.

Yep, Labour has seen the growth of the so called service industry as a replacement for the messy manufacturing industry. After all, the banking industry doesn't pollute, doesn't require huge numbers of union organised employees, doesn't require the purchase of commodities and generates humongous profits out of thin air. In fact, it must be the most efficient means of wealth production that the human has ever invented. Pity that so little actually trickles down to the general population.

No wonder there are suddenly billions and trillions of tax payers future earnings available to bail out the odd hiccup along the way. We need this little train to keep us all running into the next century. Once it has been put back in the tracks, we will be saved!!!!

Economists love manufacturing bases because they employ capital making the employees inherently more secure in an economic downturn while services are more flakey - sales off 30%, make 30% of employees redundant. But the UK had no choice because the rise of productivity meant that manufacturing was a lost battle. If you take the car industry in the UK, it has been relatively successful (mainly thanks to creative destruction from Maggie) we produce more cars than 20 years ago but employ half as many people.

Not only technological change, there has also been the rise of the worker bee. Now there are literally totally billions of these massively unproductive workers who are willing to be paid peanuts with the aspiration of owning an ipod, one day. 120 million Chinese produce less manufacturing output than 12.5m Americans. Even Japan, which is the most manufacturing based major economy, has shed 30% of its manufacturing jobs in the last 20 years.

So although I blame labor for a lot of things (including abandoning their philosophy) as well as Gordon Brown (how he can whinge about bankers after his call on gold).

Sterling was strong for two reasons

- a misguided idea that the UK economy was strong

- a much higher interest rate compared to the USD, EUR and JPY.

Once Brown slashed the interest rates, then Sterling collapsed.

I was thinking more on a 20 year view.

By the way you cant blame Brown for the high rates - the misguided view was the markets not his. If interest rates were lower think how much more overinflated the asset bubble would have become and 50% of people would have been property developers by the time it had burst. And as you well know the collapse of the bubble economy was bound to hit sterling whether he slashed interest rates or not.

It is because of events like this I dont believe in a world currency unlike you. Countries are not the same and need independent monetary policy even if they are relatively incompetent. Otherwise incompetent monetary policy is simply thrust upon them. Applying the same monetary policy of Germany to Spain and Latvia (through a peg) is proving disastrous. If the UK had had EU interest rates in 2006/07 I dread to think how much worse things could have got.

[Abrak]

And what Bernanke is doing? The things that Bernanke is doing now dwarf what Greenspan did in irresponsibility. I still say that it's a tough race. I said that there's a race to see who's going to go down in history as the worst Fed chairman ever. And Greenspan is probably still in the lead, but Bernanke is hot on his tail.

And the only reason that Greenspan is still winning is because he was there longer. But as far as for how many years he's been at the helm, it's going to have to go to Bernanke.

But, so the combination of Obama/Bernanke is way worse than Bush/Greenspan, but it's the same philosophy. Nothing has changed. This might as well be the third Bush term. He is doing the same exact stuff.

Well lets get things straight here. There is absolutely no doubt that Alan Greenspan largely created this mess (along with the bankers). He very deliberately geared up the US economy to the housing bubble. He knew what he was doing and is one of the leading acedemics on this philosophy and its effects on growth. His work on the subject is on this thread. He must take the blame for a totally misguided and ultimately disastrous policy.

It is way to early to judge Bernanke, maybe he brought us back from the brink of financial disaster. To the extent his policies look irresponsible it is part of his underlying philosophy so if you thought his policies were essentially bad why elect him. To quote 'The U.S. government is not going to print money and distribute it willy-nilly ...although there are policies that approximate this behaviour.' This is from 2002. There are many incredibly intelligent economists (Krugman, Roubini) who argue that deflation in the US is unavoidable but Bernanke argues deflation must be avoided at all costs since it is so destructive and counter productive (reducing nominal GDP is not the answer to a high debt to GDP ratio). In March this year inflationary expectations over 10 years were 0% - that is as close to deflation as the economy has been since the 1930s. Bernanke has always said he would wish to undertake irresponsible actions to prevent deflation and criticized Japan for not doing so. The risk is hyperinflation but then again the 1970s were a lot better than the 1930s.

I am inherently Keynesian but I do not see the argument that you cannot have inflation when aggregate demand falls short of supply. I can also see the inherent logic of inflating your way out of debt crisis. If the Keynesians were right presumably Helicopter Ben's suggestion of taking helicopters and sprinking newly created money throughout the US would actually cause growth while he just sees it as a way of curing deflation. He has written books on the failure of Japan - that each policy was too little too late and they never created inflationary expectations which would have engendered spending. So his irresponsible policies are quite deliberate and have a very deliberate aim.

[Abrak]

I wonder by the way how many of the 'Bernanke is irresponsible' are simply those who didnt believe he would do what he always said he would do and are just deflationists in disguise. Here is a nicely argued deflation view from about 3 months ago justifying their heavy weighting in USTs. I think I am right in saying their major fund is down something like 30% this year (although I havent checked).

http://www.hoisingtonmgt.com/pdf/HIM2009Q1NP.pdf

BTW, apart from this year I think their track record has been pretty good.

[12DrinkMore]

Here are some figures for the UK Housing Equity Withdrawal.

First of all a graph (I'm disappointed that the BoE didn't produce something a little more professional)

http://www.bankofengland.co.uk/statistics/...008/dec/hew.gif

and then an EXCEL table dating back to 1970.

http://www.bankofengland.co.uk/statistics/.../dec/tablea.xls

And here is the GDP performance from 2004 to 2009, the gdp is now around 1.4 trillion Quid.

http://www.statistics.gov.uk/cci/nugget.asp?id=192

So, taking HEW in 2006 was 50 Billion (around 3.8% gdp), 2007 42 (around 3% gdp) Billion and 2008 9 Billion (but check out the massive quarterly drops for 2008 (Q1 6,584, Q2 -1,779, Q3 -5,887, Q4 -8,018)

Abrak seems to have a handle on interpreting this sort of data. But surely if the HEW was removed from the gdp, we would have been in negative gdp and a therefore more or less a recession for the last four years or more. A similar situation to the US. Greenspan had obviously been taken on board by the Labour government.

But the huge swing from taking out more debt to, in the last quarter of 2008, a repayment of 8 Billion Quid, will, if carried on through 2009, surely kill all chances of Brown's miraculous economic recovery heading to the next election.

All this economic stuff is beginning to shake my belief in Grandma, who never lent or borrowed a penny and never had a bank account, preferring various hiding places in the house to keep her (very small) stash. Maybe I should just spend, and then borrow, and then spend again, borrowing to pay off the interest? Seems to work at the national level, why not for me? It just doesn't seem fair.

[teletiger]

WSJ.

"Obama is expected this week to propose the most sweeping reorganization of financial-market supervision since the 1930s, a revamp that would touch almost every corner of banking."

The rest is sub only.....mugs....It will be out there, free.

NO no no.........go back to 1913, then maybe you'll get a handle on the problem.

Regards.

[Abrak]

WSJ.

"Obama is expected this week to propose the most sweeping reorganization of financial-market supervision since the 1930s, a revamp that would touch almost every corner of banking."

The rest is sub only.....mugs....It will be out there, free.

NO no no.........go back to 1913, then maybe you'll get a handle on the problem.

Regards.

And so that everyone can go to bed with a warm fuzzy feeling that there might eventually be some payback, here is a graph in advance of the reregulation of the banking industry.

[Abrak]

So 12Drinkmore,

Great figures but utterly depressing. Incidentally the chart is a bit misleading because it is quarterly.

If you want to know my back of the fag packet calculations it is this. Greenspan estimates a 2.0-2.2% boost to US growth from an average MEW or HEW of US$563bn a year from 2000-2005. The multiplier to GDP is more like 0.5x based on the US figures because approximately 60% goes towards paying back non-mortgage debt about half the balance is saved and half is spent in consumer spending in that year. So as I dont know how to adjust the various multipliers lets just work off the number compared to disposable income.

We will assume that your HEW is equal to Greenspan's MEW. MEW made up 6.7% of total US disposable income between 2000 and 2005 while it accounted for 4.8% of UK disposable income. So pro-rata that against the estimated GDP boost and you end up with about +1.5% growth coming from HEW. I think the UK grew real 2.8% over the period so HEW accounted for about half. How realistic that is I havent a clue (for a start the structure of non-mortgage debt could be different) but it sounds about right. It doesnt surprise me that the US shows no growth without MEW because they have a second structural problem which is their peg with China that I reckon reduces growth about 1% annually. It would be odd if the UK showed no underlying growth even without HEW.

BTW does anyone know whether repayment of borrowings is regarded as savings or spending in income statements? Afterall deposit rates are going to be artificially low and lending rates artificially high as good savers and good borrowers subsidize silly bankers for bad lending. So there will be no incentive to save but every incentive to repay loans.

[flying]

Well lets get things straight here. There is absolutely no doubt that Alan Greenspan largely created this mess (along with the bankers). He must take the blame for a totally misguided and ultimately disastrous policy.

It is way to early to judge Bernanke, maybe he brought us back from the brink of financial disaster. To the extent his policies look irresponsible

No doubt as everyone has agreed. Greenspan should be hung.

By the same token when he tried to speak out he was taken to the woodshed by the powers that be.

As for Bernanke it is never too early to stop the further collapse of the financial system.

His policies not only look irresponsible they are. It is obvious & the house will fall soon enough. So funny we saw Greenspan & agree he screwed the pooch by creating a bubble. Yet applaud Bernanke as he creates the mother of all bubbles. If you thought Greenspan was *disastrous* wait..........

Strange days indeed

[Abrak]

Flyer,

You missed my point. If you care to look up 'Bernanke Doctrine' in Wikipedia you will see that acting irresponsibility in the face of deflation is part of his philosophy. So to the extent people didnt want irresponsibility, they shouldnt have elected him rather than complaining that he implements policies he sees as imperative to solving the underlying problem. Remember he works under 2 assumptions 1) the cure for deflation is inflationary 'expectations' which will be only be enhanced by monetary irresponsibility and 2) to the extent it is hyperinflationary it is a cost worth bearing.

If you take a quick look at his underlying theories you will see his policies reflect them and if you wanted a more responsible approach to monetary policy you shouldnt have elected him in the first place. If there is criticism to be made it really should be aimed at the Government not him.

Now whether economists should be stick to writing theoretical journals or put in charge of the Fed to conduct grand experiments is a different matter. (Incidentally the one thing the Wiki article misses is the conclusion to his Doctrine which is that he is unsure whether it will result in hyperinflation.)

[flying]

Flyer,

You missed my point. If you care to look up 'Bernanke Doctrine' in Wikipedia you will see that acting irresponsibility in the face of deflation is part of his philosophy.

No I understood & have read his helicopter theories.

I do not agree but as you say someone elected him.

A neck needs not stretch very far to see what is happening now is insane & will have dire consequences.

But the nice thing about all of this is it is history being written.

[Abrak]

A couple os [eople asked a very good question the other day, just how much further can you call the 'rally' a 'bear market rally' simply on the basis that you missed it. Having worked out the fundamentals behind the rally I missed I am now resorting to technicals to continue calling it 'bear market'. To be honest I am not wholely convinced but they are quite comforting.

First for some basics for those not familiar with technicals.

One of the platitudes most constantly quoted in Wall Street is to the effect that one should never sell a dull market short. That advice is probably right oftener than it is wrong, but it is always wrong in an extended bear swing. In such a swing the tendency is to become dull on rallies and active on declines.

- William Peter Hamilton, The Stock Market Barometer (1909).

Volume tends to expand in the main direction of the trend. In a bull market, advances accompanied by increasing volume or declines on diminishing volume are taken to be bullish. Conversly, in a bear market, declines are accompanied by increasing volume and advances show diminishing volume. Volume should always be studied as a trend (relative to what has preceded).

- Richard Russell, The Dow Theory Today

The bottom is preceded by a period in which the market declines on low volumes and rises on high volumes. The end of a bear market is characterised by a final slump of prices on low trading volumes. Confirmation that the bear trend is over will be rising volumes at the new higher levels after the first rebound in prices.

- Russell Napier, Anatomy of the Bear (his study of the four great stock market bottoms of 1921, 1932, 1949, and 1982).

So in case you are confused, volume is important.

The first chart doesnt surprise me and has nothing to do with volume. The end of a bear market (in blue) is inherently boring, while bear market rallies (the 5 most recent)(in red) are marked by steep declines followed by sharp rallies. Ultimately one can get very excited by the extent of the rally but it has only taken us back to the beginning of January. There have been some big bull market recoveries off their lows but they have been marked by gentle declines beforehand.

This I find a fairly convincing chart in that we are yet to see the volume especially in relation to the size of movement. The 5 most recent bear market rallies are in red and the beginning of bull runs in blue. Bull runs can start on low volume but typically only if there is a marginal gain.

The last chart only goes on to reiterate this point. Which is that with a bull market not only do you see an increase in volumes but volumes are correlated with the gain in the market. And this is the basic point which is there is too little volume in this market for it to have made a convincing bottom.

I suppose we really shouldnt mix fundamentals with technicals but they do fit nicely together. Bull markets are generally about PE expansion rather than earnings growth although given there are no earnings this time could be different. The market or stocks are usually valued on PEs and there is currently no E. This would normally allow you to pick up stocks cheap. The current PE of the S&P500 is about 950 rising to 3800x by 3Q, so current PEs arent going to do us much good. If we take a look at the rolling 10 year average of earnings it is 55 and heading down, probably to be 55 again in 2015 in real terms (anyones guess at inflation). So the market is on 17.6x rolling 10 year MVA.

Compare this with the chart since 1950.

And in my view the market since 1950 is heavily biased by the 1990 data. So if you go back further you see...

Now if you look at a meaningful bear market, 1932, 1949 and 1982 you always got a buying opportunity below 10x rolling ten year (and remember this may move from 55 to 40 over the next 3 years - the annual number is currently 7). So it really would be disappointing if I didnt get to pickup the S&P below 500 within the next 5 years.

Reasonably heroic assumptions put the E at say 65 in 2015 and the 10 year MVA at 55. So the upside is say 40% in 6 years assuming a current PE of 20x and a 10 year MVA PE of 24x which is beginning to look off the chart in the 1900 data set. So as far as I can see, if this is the beginning of a bull market you have effectively missed the whole thing.

To the extent this is just a whinge about missing a huge rally, I agree.

[Abrak]

A neck needs not stretch very far to see what is happening now is insane & will have dire consequences.

But the nice thing about all of this is it is history being written.

But what do you really mean by insane? Dont you mean inflationary fears and a level of inflation that could well be detrimental to real growth? Because if you do then his policies are achieving everything he wants them to achieve. Remember he is arguing with the likes of Krugman, who he recruited to Princeton, who virtually argues that deflation is an unstoppable force. I think Bernanke will win that argument.

Just read the Hoisington (how to lose 30% when markets are going up deflation argument) and you will see that the reason that everyone assumes deflation is that they inherently assume there is noone insane enough at the reins of the Fed to combat it, that has turned out to be a very poor assumption indeed. And incidentally while you presumably refer to hyperinflation as dire, I have seen noone argue that debt deflation is less dire.

If there was an easy solution the Japanese would have found it. The best economists cannot offer a solution merely that we should bow to the inevitable. As I see it Bernanke's worst case is better than Krugman's best case and all cases are dire, so if it takes someone to undertake seemingly insane policies to try and resolve what many see as an unresolvable problem, I am at least impressed that he has the courage of his convictions. Personally the only people I see as insane are those who hold dollars.

BTW, Flyer, if your crystal ball happens to be looking at the unemployment numbers and then taking okun's law and extrapolating, which could get you to a depression, you are simply looking in the wrong direction.

[flying]

But what do you really mean by insane? Dont you mean inflationary fears and a level of inflation that could well be detrimental to real growth?

No I mean insane...Stupid...Idiotic...all along those lines.

This amount of money being created is all of those things.

Folks will cry but but but we have always had a deficit.

Yes but those deficits were borrowed to produce something & we use to actually produce something.

This deficit is against stuff we consumed............that is all stuff that has been consumed or destroyed & also for advice.

Have we ever paid so much in history for advice? We are literally bailing the folks who gave us the koolaide that killed us.

Folks use to go to school to be something or someone that produced. Now they go to school in the hopes of making big bucks advising.

I dont care if Bernanke went to the college of Jesus Fuc*ing Christ if in the end his policy proves he is a mental midget that is doing nothing to help the real people. His help is only prolonging the inevitable for the real people.

Meanwhile the chosen will gather their golden parachutes & their ponzi cash & move to their island compounds. Same as the owner of the company that fed Bernie Madoff all his clients.

Like I said history is being written I only hope these supposed experts are made to pay equally in the end. No more Alan Greenspan type " Yes I take responsibility for this I screwed up" apologies accepted. Especially no more well this is what we inherited & needed to act fast excuses either.

Send them all to 12drinkMore & leave them alone with him. He will know what to do

[Naam]

But what do you really mean by insane? Dont you mean inflationary fears and a level of inflation that could well be detrimental to real growth?

No I mean insane...Stupid...Idiotic...all along those lines. This amount of money being created is all of those things.

what alternative solution would you suggest Flying? let the banks go "Lehman"? wasn't sep/oct 2008 and the mess we are still in a taste of what could have happened? or do you find it stupid and idiotic that the bakery near you is not for sale for a single Krüger Rand?

[flying]

what alternative solution would you suggest Flying? let the banks go "Lehman"? wasn't sep/oct 2008 and the mess we are still in a taste of what could have happened? or do you find it stupid and idiotic that the bakery near you is not for sale for a single Krüger Rand?

You have me confused with another. I have no interest in bakeries.

As for KR's I have a few but still hold 80% cash USD in my liquid assets.

Not for long though.....

As for your question YES I would have let them all die like they should have.

Taken the medicine like we should have.

Now it will be much more painful & slow to recover. If any recovery is possible.

All they did was delay the inevitable & give certain groups more time & $$$

But that is IMHO only.

As I said before history is being written & we will see what it reads.

[flying]

Here is a cheery little article.

Seems they are having a party/meeting & the US has not only not been invited...They have been turned away...

article

There are meetings being held Monday and Tuesday in Yekaterinburg, Russia, (formerly Sverdlovsk) among Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization. The United States, which asked to attend, was denied admittance. Watch what happens there carefully. The gathering is, in the words of economist Michael Hudson, “the most important meeting of the 21st century so far.”

And more of the same....

another article

[midas]

Here is a cheery little article.

Seems they are having a party/meeting & the US has not only not been invited...They have been turned away...

article

There are meetings being held Monday and Tuesday in Yekaterinburg, Russia, (formerly Sverdlovsk) among Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization. The United States, which asked to attend, was denied admittance. Watch what happens there carefully. The gathering is, in the words of economist Michael Hudson, “the most important meeting of the 21st century so far.”

And more of the same....

another article

OMG

Remember Anya on the Icleand blog you posted said it would take a year............

Will it even last that long .....................?

[midas]

I am looking at other soruces to see to show how the green shoots are yellow weeds.

When you look around you see an entirely different picture

For example ........

According tothe IEA in May 2009, the world electricity consumption dropped in 2009 for the first time since

World War II and this is a clear signal that the world economy is very far from an economic revival.

http://www.eia.doe.gov/steo

and look at the unemployment rates in countries around the world...................

America

US jobless rate up to 8.9% the highest in 26 Years.

Japan

Japan's jobless rate hit the highest in five years at 5 % in April. In the reported month, 3.46 million people were without jobs,

up 25.8 % from April last year.

Germany

unemployment rate is at 8.2% the worst since the Second World War

Europe

Europe's unemployment rate rose to 8.9 % in March, the highest in more than three years.

The rate will increase to 9.9 % next year and 11.5 % in 2010, the EU commission forecasts.

[flying]

OMG

Remember Anya on the Icleand blog you posted said it would take a year............

Will it even last that long .....................?

None know

But if I had to guess I would guess longer.

My guess would be 2011-2012

Not that we won't be going through h*ll on the way there.

But like I said History is being written so we will all get to see soon enough.

[midas]

OMG

Remember Anya on the Icleand blog you posted said it would take a year............

Will it even last that long .....................?

None know

But if I had to guess I would guess longer.

My guess would be 2011-2012

Not that we won't be going through h*ll on the way there.

But like I said History is being written so we will all get to see soon enough.

The same time frame as Gerald Celente

http://www.youtube.com/watch?v=BzQabWBVTg0

[flying]

The same time frame as Gerald Celente

http://www.youtube.com/watch?v=BzQabWBVTg0

Thanks that was good.....

I really liked what he said about quality at 4 minutes

It is exactly how I feel now.

You know that article I posted a little while back?...

http://mises.org/story/3493

It was Peter Schiff at his best.

Such common sense is hard to refute.

It & a few other things has a lot to do with my guesstimate

[midas]

The same time frame as Gerald Celente

http://www.youtube.com/watch?v=BzQabWBVTg0

Thanks that was good.....

I really liked what he said about quality at 4 minutes

It is exactly how I feel now.

You know that article I posted a little while back?...

http://mises.org/story/3493

It was Peter Schiff at his best.

Such common sense is hard to refute.

It & a few other things has a lot to do with my guesstimate

Did you notice this is exactly what Gerald Celente said.

" And, of course, when Roosevelt came in, we had a sound economy, beneath the surface. We had a productive economy, we saved, we made stuff, we exported. We didn't have a huge social-welfare state --- nobody got checks from the government --- we were in much better shape. If they did that much damage to a sound economy, imagine what they could do with the one we got now. "

The big difference now is the " huge social-welfare state " is crumbling just like in California and there were not so many pi**ed off people then that were being squeezed like lemons as there are now and are armed with privately owned guns

[flying]

Did you notice this is exactly what Gerald Celente said.

" And, of course, when Roosevelt came in, we had a sound economy, beneath the surface. We had a productive economy, we saved, we made stuff, we exported.

Yes....That is what I mean about common sense.

You dont need to guess whether the USD is too big to fail etc...

Just look around & see what is going on & what has been going on for a long time.

Then think about what is being put forth & wonder is it possible?

We have made a living out of being customers.

That was great work while we could get it but the jig is soon up.

So many say something along the lines of.......

They need us..........We are their #1 customer

They are on the back of the big tiger etc etc.....

Yes they did need a customer......but how long should they sell to us & get IOU's for payment?

Then watch us devalue those IOU's

They know they are not going to get paid...They *know* it

How long before they say...sh!t we may as well sell it to our own workers & create our own middle class. It is better than this.....

I think the jig is truly up & while it may take a while for them to reposition & unload the paper they got from us it will happen. They will reduce their exposure to us & I do not blame them one bit.

PS: a video about the meeting.. opens in Windows media player

http://www.abc.net.au/reslib/200906/r385783_1800778.asx

[12DrinkMore]

I am looking at other soruces to see to show how the green shoots are yellow weeds.

When you look around you see an entirely different picture

and look at the unemployment rates in countries around the world...................

This is the big conundrum....

The unemployment figures have been assigned to that strange class of "lagging indicators".

In the UK, joblessness is also set to grow, with new numbers out tomorrow widely expected to see the jobless rate set decisively higher than when New Labour came to power in 1997. The TUC said yesterday that the number of people losing their jobs will carry on increasing until at least the autumn of next year. On the evidence of the last recession, unemployment will continue to rise for 18 months after the economy returns to growth.

http://www.independent.co.uk/news/business...ar-1706149.html

Even after we reach a return to growth (presumably by a couple of quarters of increasing gdp, although there is some confusion amongst economists about what is a recession (but generally in the mainstream defined as two quarters of a falling gdp) and a recovery, we will still rising unemployment for another EIGHTEEN months.

http://news.bbc.co.uk/2/hi/uk_news/8102121.stm

Figures released last week by the Office for National Statistics showed that overall UK unemployment was rising faster in this recession than at any time since the 1980s.

Despite this, employment in public sector occupations such as education, health, and public administration were up 2% year-on-year.

I guess this can't continue much longer.

One riddle that has me puzzled is the gdp itself.

Take any other financial data over a timeline of say a decade, and see how they go up and down like demented yo-yos. Stock market indices, currency exchange rates, house prices. Or look at the price of stuff like oil, gas, raw material, gold, silver. They are all gyrating up and down on a wild roller-coaster. The rise in house prices of 300% over the last decade put 2.7 trillion quid onto the total value of the private property market. The fall has taken 20% off this, removing 800 billion quid in two years. And unemployment is forecast to shoot up by another million or so to over three million by then end of next year.

But the sum of all this economic activity, the final indicator of where we are, the gdp, remains as steady as a rock, never varying by more than a couple of percent. And even when unemployment is forecast to rise for the next two years, the gdp is forecast to grow. Amazing, how does it manage it?

[flying]

But the sum of all this economic activity, the final indicator of where we are, the gdp, remains as steady as a rock, never varying by more than a couple of percent. And even when unemployment is forecast to rise for the next two years, the gdp is forecast to grow. Amazing, how does it manage it?

[midas]

I am looking at other soruces to see to show how the green shoots are yellow weeds.

When you look around you see an entirely different picture

and look at the unemployment rates in countries around the world...................

This is the big conundrum....

The unemployment figures have been assigned to that strange class of "lagging indicators".

Yes but that's very convenient terminology isnt it ?

But I am waiting to read where all these unemployed people are likely to be re-employed once the

" lag " is over ................?

[Abrak]

and look at the unemployment rates in countries around the world...................

America

US jobless rate up to 8.9% the highest in 26 Years.

Japan

Japan's jobless rate hit the highest in five years at 5 % in April. In the reported month, 3.46 million people were without jobs,

up 25.8 % from April last year.

Germany

unemployment rate is at 8.2% the worst since the Second World War

Europe

Europe's unemployment rate rose to 8.9 % in March, the highest in more than three years.

The rate will increase to 9.9 % next year and 11.5 % in 2010, the EU commission forecasts.

Unemployment rates should not be used as a forecasting tool as it is a lag indicator. If you go back a couple of pages you will consensus analysts forecasts for when there will be a quarters growth (by end 2009) and when unemployment will start coming down which is in the 2nd half of 2010. During the last recession it was a lag indicator of growth by 3 years. For instance if you use US unemployment numbers and assume unemployment moves in line with the economy apply ukon's law (1% increase in unemployment = 3% decline in GDP from natural rate) you would be expecting an 8-10% GDP contraction if the trend continues. But in reality the unemployment numbers now simply reflect the acceleration of decline last year.

Rather than looking for yellow weeds (try private sector lending) or green shoots (nearly every lead indicator) you are better off reading this interesting interview with Paul Krugman.

http://www.guardian.co.uk/business/2009/ju...globalrecession

It is rather depressing reading and, I suspect, simply confirms most peoples gut feeling which is that the world economy is set for a sort of Japanese decade of lost growth. I tend to agree. Also while seeing no growth for the foreseeable future he does see the likelihood of a 'mechanical bounce'. So if you go looking for yellow weeds and find green shoots dont worry, because the green shoots arent going to blossom into anything and the yellow weeds will soon take over.

He argues that monetary policy will be in ineffective as interest rates are zero (Bernanke disagrees) but he does put down his bullish on the UK to effective monetary policy. Unfortunately his bullishness is based on the collapse of sterling a policy that cant be aggregated. His solution is pretty feeble - which is to increase fiscal stimulus - he knows it too because he avoids the question about 'crowding out'.

Monetarists argue that an increased fiscal stimulus would be growth neutral because it would crowd out private sector lending (or increase deleveraging) through higher rates (to finance the increased deficit) and because people might spend less due to perceived increased taxes in the future. So to me if Krugman was running the ship he would have replaced the monetary irresponsibility of Bernanke by his own fiscal irresponsibility (say a US$3trn instead of US$2trn deficit) without achieving much. (Look at Japan.)

And to the extent I call his solution feeble, I only mean it is not much of a solution, which probably means the problem is unresolvable. Given that the underlying problem is high debt to GDP, fiscal irresponsibility doesnt seem much of a cure while an inflationary stance by the Fed should resolve things at least quicker than Japan through the nominal inflation of GDP. Deflation is a self-reinforcing spiral of the problem.

There is one thing that I think both Krugman and Bernanke agree on. That is that US growth potential would be substantially increased by a significant decline in the dollar.

[12DrinkMore]

Here's a couple of good articles in that excellent Asia Times

First of all a bit about the BRIC countries trying to slide out of the USD without causing too much extra crisis

http://www.atimes.com/atimes/Global_Economy/KF17Dj03.html

And then a piece about the failure of the bailouts and stimulus programs to do anything other than give the finance wideboys more cash.

http://www.atimes.com/atimes/Global_Economy/KF17Dj02.html

And check out the following, just to show what a scam the whole finance world is

Now a small house, Amherst Holdings, has beaten the Wall Street titans at their own horrid game, according to the Wall Street Journal. It found a pool of $29 million of particularly repulsive California subprime mortgages, then sold $130 million notional of CDS on them, pocketing around $100 million in premiums, since this waste was so toxic the big houses were prepared to pay up to 80% to insure against it. Clear so far? It sold insurance for four-and-a-half times the maximum possible loss. But hey, that's finance.

Then it quietly went round and paid all the debts of the lucky homeowners owing the $29 million. At that point, since there were no defaults, it was able to keep the $100 million in premiums (net of the loan repayments, a $70 million profit). Simple, really! Wall Streeters are furious and, inevitably, suing, but in fact Amherst's coup was a perfectly legitimate use of this corrupt and foolish structure, far more so than many of the shenanigans undertaken by the likes of Goldman Sachs - after all, Amherst's operation PREVENTED a number of defaults and foreclosures.

Neat, a cool 70,000,000 USDs collected from the other greedy bastards, who had assumed they were onto a winner. But it shows how ludicrous the situation is, where a debt can be insured for multiple times the actual debt itself. That the total of the premiums to ensure the debt is far above the total value of the debts shows just how crazy the finance world is.

It is like ten independent people insuring Somchai's car in Chiang Mai, a guy they have never met and a car they have no interest in unless he destroys it.

Instead of simply paying out the CDO/CDS bets placed with AIG, the government should have calculated the total loss in the original default (which was probably peanuts) and then only paid out a TOTAL of this amount. But, of course, the wideboys had already thought about this, and made it almost impossible to work out who owed who what.

I hope that there will be more "Amherst Holdings" springing up. It could just conceivably sort out the whole housing market :D

(and I wonder what the justification for getting furious and suing is? Surely the unwritten code of the finance world, "we only screw the government and the tax payers, but not ourselves" has not been broken )

[midas]

Unemployment rates should not be used as a forecasting tool as it is a lag indicator. If you go back a couple of pages you will consensus analysts forecasts for when there will be a quarters growth (by end 2009) and when unemployment will start coming down which is in the 2nd half of 2010. During the last recession it was a lag indicator of growth by 3 years. For instance if you use US unemployment numbers and assume unemployment moves in line with the economy apply ukon's law (1% increase in unemployment = 3% decline in GDP from natural rate) you would be expecting an 8-10% GDP contraction if the trend continues. But in reality the unemployment numbers now simply reflect the acceleration of decline last year.

But this time around be prepared for the possibility that people without technological skills will not be able to find work again. And if you read this article the severity of the true situation is already being masked by temporary workers being classed as employed

http://www.msnbc.msn.com/id/31127909/page/2/

It is rather depressing reading and, I suspect, simply confirms most peoples gut feeling which is that the world economy is set for a sort of Japanese decade of lost growth. I tend to agree. Also while seeing no growth for the foreseeable future he does see the likelihood of a 'mechanical bounce'. So if you go looking for yellow weeds and find green shoots dont worry, because the green shoots arent going to blossom into anything and the yellow weeds will soon take over.

Ok as far as USA is concerned, if Krugman is telling us to prepare for similar economic and social conditions to what the Japanese had put up with, I am already asking myself what the social implications of this could be on American society ? What good is measuring " US growth potential " if the side affect of this crisis seriously damages the already fragile social enclaves in some parts of America ?. For example over a protracted period of tough times, the very disciplined Japanese would contain their hardship better than American citizens living in suburbs occupied mainly by African-American or Latino that could already be described as disadvantaged. Do you get my meaning ? These places could become powder kegs. With the gradual collapse of the Californian economy already happening through cutbacks, I shudder to think what places like Compton, Watts or South Central Los Angeles will look like in another few years