Financial Crisis

[12DrinkMore]

British Bond Auction

http://www.bloomberg.com/apps/news?pid=206...id=aMM2dasD.bg4

June 16 (Bloomberg) -- Britain sold 7 billion pounds ($11.5 billion) of 25-year gilts, more than the amount planned, offering investors a yield almost as high as longer-maturity debt.

Is this bad or good news?

I can't work it out.

Ninety-four percent of the securities were bought by domestic investors, the debt office said.

So only 6% were sold to foreign banks/investors/countries. That doesn't look good, foreigners are not so keen on the Quid.

The last and only other occasion that the U.K. sold bonds through banks was in 2005, when it offered 50-year inflation-protected securities for the first time.

Asset-Purchase Plan

Using financial institutions to sell debt rather than issuing securities at auctions reduces the risk of failure because underwriters offer the securities directly to investors such as pension funds and insurance companies after determining demand and prices. Britain couldn’t find enough buyers at a sale of bonds in March, the first so-called uncovered transaction since 2002, fueling concern the nation’s rising debt load was overwhelming demand.

And that doesn't sound good.

“I guess the market is running on an assumption that the quantitative-easing program will continue” and the bonds sold today will be eligible for purchases, Stopford said.

And that sounds <deleted> awful.

So the idea is that Darling chucks out all these bonds onto the streets and then Mervyn King, just around the corner, buys 'em all back, presumably giving the middleguys a percentage for holding them a couple of weeks? Why can't King just buy them at face value from Darling and leave the "profit" in the hands of the taxpayers?

This is all such a big farce.

[12DrinkMore]

I shudder to think what places like Compton, Watts or South Central Los Angeles will look like in another few years

Alex will be certainly able to provide a few dismal pictures. He hasn't posted his arsenal for a few weeks, maybe it's time for another peek in his cupboard?

And from Abrak

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.

I agree that looks like being the destiny of the West. And hasn't that turned into a lost 17 years in Japan, with no sign of these elusive green shoots? But I am still convinced that Asia will come out of this and provide the world economy with a boost. But it possibly won't help the west.

Tomorrow a couple of economic stats are due from the UK. I wonder if CPI inflation has finally come DOWN to the magic 2% and where will the unemployables be?

Well, I popped that question in after the event.

http://www.independent.co.uk/news/uk/polit...ed-1706287.html

Inflation falls much less than expected

The Consumer Prices Index (CPI) edged lower to 2.2 per cent in May from 2.3 per cent in April, the Office for National Statistics (ONS) said.

But experts had been expecting a even steeper fall - to below the Bank of England's 2 per cent inflation target for the first time in almost two years.

So we're STILL stubbornly above the 2% inflation rate.

Edited June 16, 2009 by 12DrinkMore

[AlexLah]

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

Please look this docu and understand what has been done to divide the blacks and whites, rich and poor in the US.

I think it is time you peeps unite, get out of the "Bubble" and stand up.

[flying]

I wonder who is buying the slack?

Oh ......We are

When they dont buy it we buy it back ourselves.

Vicious merry go round isn't it?

China's holding of US bonds drops first time in 11 months

http://www.chinadaily.com.cn/china/2009-06...ent_8288001.htm

Edited June 16, 2009 by flying

[Abrak]

I agree that looks like being the destiny of the West. And hasn't that turned into a lost 17 years in Japan, with no sign of these elusive green shoots? But I am still convinced that Asia will come out of this and provide the world economy with a boost. But it possibly won't help the west.

I just wish you and Flying would stop coming up with this China based consumption growth model argument.

I just hate the argument that because the US based consumption and debt driven economy has imploded, China's economy should now be driven by consumption and debt. It also amounts to an internal combustion growth theory - assume capital, employs lots, they consume whatever you manufacture. If life was that simple wouldnt everybody already have done it.

If you look at Chinese growth this year it is largely reliant on 2 factors (1) a US$568m economic stimulus 15% of GDP (this is being spread over 2 years) and (2) 30% lending growth as of April. As a result the savings glut evident in the past has disappeared. The whole point about China's inherent growth and the US's lack of it is (1) the peg to the dollar allowed it to leach off US growth rates and (2) it has, more importantly, it has a high savings ratio. Now you can maintain the illusion of growth through gearing up your financial sector and consumption but it will end in tears.

Remember....

1) Savings are the engine of growth for any economy. Without foregoing significant levels of current consumption, it is impossible to develop capital. The resources, labor, and capital necessary to fuel further capital formation and hence greater future output can only be freed for future consumption by consuming less today.

2) It is caught in a poverty trap in so far as it has almost infinite population. The amount of capital per person only increases so long as capital is being accumulated. The question for growth in per capita income is whether the net capital accumulation is large enough to keep up with population growth.

In other words to the extent it uses consumption and debt to boost short term growth rates it is simply destroying long term growth.

If you take these basic economic truths literally then the US with no savings (in fact a MPC of 106%) over the last 8 years should have shown no growth, or in fact real GDP should have declined.

Well everything is masked by debt & wealth effects and all you need to do to show no growth is take out Mortgage Equity Withdrawals. Personally (and this is more of a conspiracy theory) I think they are using a biased GDP deflator in their numbers so that real growth has been negative.

I dont know about you but I somehow feel that inflation is always a tadge higher than the reported CPI. And CPI is not reflected in monetary data. Over the last 20 years governments have been a lot smarter about manipulating inflation numbers than they were before. Everyone readily admits this...from a 1999 report to Congress..

"A final reason for the slowing of reported price indexes has been methodological changes to both the CPI and the indexes used in the national income accounts"

Of course the Government argues that old methodology overpriced goods (for which there is some reason) while I would argue the new methodology 'generally' underprices. (If the Government introduces an additive to petrol to make it greener and this raises the petrol price 5% there will be a 5% adjustment to petrol due to its increased quality (while I just reckon the price has gone up.) If the price of steak goes up while the cost of hamburgers goes down they will put more hamburgers in the index and less steak. This is not fair on a straight line basis because to the extent I eat more hamburgers than steak my quality of life has gone down. Asset prices are of course not included.

If you look at CPI based on 1980 methodology which was a fixed basket of goods (in other words high inflationary biased) it looks like this.

Now you might think those numbers look too high but dont you think the official numbers look too low. Here is CPI based on 1990 methodology.

Now start applying these sorts of numbers to your real GDP number and your growth totally goes out of the window.

And if anyone simply wants to denounce this conspiracy theory on the basis of unemployment numbers, they have to know that the Government has revised the basis on which it calculates those too.

[jcon]

I wonder who is buying the slack?

Oh ......We are

When they dont buy it we buy it back ourselves.

Vicious merry go round isn't it?

China's holding of US bonds drops first time in 11 months

http://www.chinadaily.com.cn/china/2009-06...ent_8288001.htm

From that article (a stellar piece of literature, btw. not):

"The decline in the China holding "seems to stem from net selling of Treasury bills," said Chirag Mirani of Barclays Capital Research."

That, my friends, is why they pay Crirag Mirani the big bucks. Barclays CR = poopy diapers.

Abrak, you have alienated 99% of TV readers with your economic analyses lol. TV readers like pictures (ala Plarex) or posts about ATM withdrawal fees, or perhaps something about owning land. (are you a trader - you mentioned 'missing a rally' - just wondering - and yes this spring 'energy' rally was ridiculous but one heck of a money-maker.)

[AlexLah]

You are rite Jcon, I and some others here like nice pictures.

Hows about this?

[Abrak]

You are rite Jcon, I and some others here like nice pictures.

Hows about this?

Yeah so here is where you and (maybe most TVers) and I disagree. You see a nice picture, I just see a tarty dog. I would much rather look at a chart of 20 year inflationary expectations or go for a swim.

Edited June 16, 2009 by Abrak

[jcon]

^^^^^ haha agreed! I see a man dressed in purple. I'd rather suffocate myself with those papers of charts of 20 year inflationary expectations than have to look at that heinous creature again.

Plarex: You are weird. Of course you post your usual pictures and crap, but you also have these creepy photos of women/men-momen on rooftops of what appears to be a building (in Thailand?). I've seen you post these before, and they look kinda like you shot them yourself, which is really creepy. But you are Dutch, right?

[flying]

I just wish you and Flying would stop coming up with this China based consumption growth model argument.

Listen if you want to say I said something quote it.

I never said what you claim above.

I said why should China keep selling to a customer that pays with depreciating IOU's

[flying]

From that article (a stellar piece of literature, btw. not):

Yeah yeah yeah ....its the China Daily what do you want?

In the end the prize will be the same.

[Naam]

Abrak, you have alienated 99% of TV readers with your economic analyses lol. TV readers like pictures (ala Plarex) or posts about ATM withdrawal fees, or perhaps something about owning land.

not to forget youtube clips as evidence that due to a zillion conspiracies the skies will be falling (any time from now)

[moe666]

I thought the sky had already fallen.

[Naam]

I thought the sky had already fallen.

according to some doom&gloomers "you ain't seen nuttin' yet!"

[midas]

I think it is time you peeps unite, get out of the "Bubble" and stand up.

I wonder how they factor this into charts of 20 year inflationary expectations ?

[midas]

From that article (a stellar piece of literature, btw. not):

Yeah yeah yeah ....its the China Daily what do you want?

In the end the prize will be the same.

What about this one then..........?

Awakening ahead on bond delusion

Those in the US who like to harp on the fact that purchases of Treasuries "continue" and that Chinese and other central banks are "stuck" with the dollar have an eventual rude awakening in store for themselves. China isn't stuck with its present high levels of exposure to the dollar. It has a range of effective options which, over a relatively short period of time of a very few years, will enable it to significantly decrease its exposure to the dollar and roll back its reliance upon the dollar and the US market in ongoing global trade. The same is true for other central banks in Russia, India, Brazil and across the emerging markets.

http://www.atimes.com/atimes/China_Business/KF16Cb01.html

[flying]

What about this one then..........?

Awakening ahead on bond delusion

Those in the US who like to harp on the fact that purchases of Treasuries "continue" and that Chinese and other central banks are "stuck" with the dollar have an eventual rude awakening in store for themselves.

Funny eh?

http://money.cnn.com/2009/06/16/news/econo...sion=2009061610

( good Nouriel Roubini video too )

Funny because it does not matter how many facts may pop up in the coming months. It would only be termed doom or gloom or falling skies

I think perhaps many have lived in LOS too long & have the No Tink Too Mutt syndrome.

Drives them nuts if folks want to discuss world events & how it may relate to the financial booms & busts.

I have said before I am no doom & gloomer & to tell you the truth do not really care which way it blows. I think of myself as pretty well prepared for most things & have mentioned that before.

But I do find this all very interesting & it is in fact history being made. Anyone who does not think so must have lived much longer than I...Perhaps during WWII? I dont know but for me it is all very interesting. I never thought at my age I would say so often........" Wow I did not know that!"

Interesting times indeed.

Edited June 17, 2009 by flying

[flying]

More BRIC News

BRICs May Buy Each Other’s Bonds in Shift From Dollar

http://www.bloomberg.com/apps/news?pid=206...id=aWgZ7EeTvFbk

BRIC, SCO Discuss "Super-Sovereignty" Currency, USD Alternatives

http://www.chinastakes.com/2009/6/BRIC-SCO...ternatives.html

IMF must be happy about the new income

China now believes that a long-term dollar decline is inevitable, and the risk to the value of its $2 trillion foreign exchange reserve has become realistic, if not imminent.

[Naam]

I think perhaps many have lived in LOS too long & have the No Tink Too Mutt syndrome. Drives them nuts if folks want to discuss world events & how it may relate to the financial booms & busts.

some of them are rather amused and find it entertaining -not when "folks" want to discuss world events- but when they issue their guilty verdicts left and right, quote a thousand sources which do they same, but neither they nor the quoted sources can present alternative viable solutions

[midas]

I have said before I am no doom & gloomer & to tell you the truth do not really care which way it blows. I think of myself as pretty well prepared for most things & have mentioned that before.

But I do find this all very interesting & it is in fact history being made. Anyone who does not think so must have lived much longer than I...Perhaps during WWII? I dont know but for me it is all very interesting. I never thought at my age I would say so often........" Wow I did not know that!"

Interesting times indeed.

"The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic."

— Peter Drucker

[flying]

some of them are rather amused and find it entertaining -not when "folks" want to discuss world events- but when they issue their guilty verdicts left and right, quote a thousand sources which do they same, but neither they nor the quoted sources can present alternative viable solutions

I think I have mentioned before that they should clean up their own stinkin mess eh?

Why should we wipe their a$$ after they screwed the pooch?

But by all means if you can/want to unwind this mess they created & feel inclined to be their janitor then jump in there.

But really what are the viable alternatives to theft....lying...cheating, They cannot even unravel the bundles themselves.

I would love to hear how anyone could walk in there & say ok I'm here to help.

You three up against the wall. What is the viable solution to stop the devaluing of our currency?

Edited June 17, 2009 by flying

[Naam]

some of them are rather amused and find it entertaining -not when "folks" want to discuss world events- but when they issue their guilty verdicts left and right, quote a thousand sources which do they same, but neither they nor the quoted sources can present alternative viable solutions

I think I have mentioned before that they should clean up their own stinkin mess eh?

brilliant idea! but how?

[Naam]

"The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic."

— Peter Drucker

the greatest bullshit in times of turbulence is not the turbulence, it is believing in one's own bullshit.

— Wally Naam

[Abrak]

What is the viable solution to stop the devaluing of our currency?

I would simply assume that devaluing the currency IS the policy objective.

Incidentally, I dont why there is such a fuss about China not buying treasuries because at the end of the day it really doesnt have the money to. Its fiscal deficit will offset it current account surplus. It could finance the fiscal deficit domestically but that would crowd that the stimulus it was trying to create.

A much clever ruse by the Chinese would be to issue Chinese denominated yuan bonds abroad. I expect this would finance some decent growth for a while. To me, having some yuan in one portfolio, would seem pretty sensible but then you work out that it takes you over a year to accumulate a reasonable amount and you dont bother. Still presumably this will happen.

[flying]

What is the viable solution to stop the devaluing of our currency?

I would simply assume that devaluing the currency IS the policy objective.

So robbing someones savings is acceptable then?

[flying]

some of them are rather amused and find it entertaining -not when "folks" want to discuss world events- but when they issue their guilty verdicts left and right, quote a thousand sources which do they same, but neither they nor the quoted sources can present alternative viable solutions

I think I have mentioned before that they should clean up their own stinkin mess eh?

brilliant idea! but how?

Exactly..........So the least they could do is stop mucking it up further.

Step aside or better yet step up & slip the noose on.

Which is another question...........Yes I know you prefer answers but...........

How many have been prosecuted so far for this? It seems pretty obvious all this was not caused by above board SOP

Even Bernie.... I almost forget his name.... who had his private version of this mess still resides in comfort afaik

I think I can honestly say none of the criminals would dare ask the folks on the street/injured parties to clean up the mess.

They know what the broom would be.

Edited June 17, 2009 by flying

[Misty]

How many have been prosecuted so far for this? It seems pretty obvious all this was not caused by above board SOP

Even Bernie.... I almost forget his name.... who had his private version of this mess still resides in comfort afaik

Do you mean Bernie Madoff? Depends on how you define comfort.

Bernie Madoff is in jail. He's pled guilty to an 11-count criminal complaint, admitting to defrauding thousands of investors, and was convicted of operating a Ponzi scheme that has been called the largest investor fraud ever committed by a single person. Federal prosecutors estimated client losses, which included fabricated gains, of almost $65 billion. At his June 29, 2009 sentencing, he faces a possible life sentence in prison, and up to $170 billion in restitution.

[12DrinkMore]

A little (in fact very little) more on the 134,000,000,000 USDs worth of bonds that turned up in a suitcase in Italy.

http://www.bloomberg.com/apps/news?pid=206...id=a62_boqkurbI

Wonder why this hasn't attracted the attention of the main stream media?

[jcon]

OK this just popped up on my Yahoo mail start page:

"House passes $106 Billion war funding bill"

wtffffffff??!!??$??@?$%??#$?%#$^?%?

Hundreds of billions of dollars used to be a lot in Washington, but now I guess you just push all kinds of money through whenever you please... 700 billion here, 100 billion there... jeez...

[Abrak]

What is the viable solution to stop the devaluing of our currency?

I would simply assume that devaluing the currency IS the policy objective.

So robbing someones savings is acceptable then?

You do ask complicated questions? I dont think a devaluation of a currency necessarily implies devaluation of domestic savings. It does of course imply devaluation of external savings held by foreign countries. However, the major holder China has its currency pegged to the dollar (which incidentally is one of the reasons Bernanke is finding it so hard to devalue) and so in theory its savings arent devalued either. More to the point those savings are to some extent ill-gotten in that they were largely achieved via the beg (which effectively is a beggar my neighbour policy.)

But if the dollar doesnt go down quite naturally on fundamentals, Bernanke still has several policy tools left to force it down.