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Chalmers Johnson’s Blowback – The Costs and Consequences of American Empire: Is America in Decline?

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One of the enduring myths sedulously cultivated by apologists of American foreign policy is that America, the land of the free and the brave, is besieged by malevolent foreign powers. In the realm of pure thought unsullied by empiric evidence the lone superpower bravely battles rogue states to prevent free societies from nuclear extinction. As Michael Howard, Regius Professor of Modern History at Oxford says, “For 200 years the United States has preserved almost unsullied the original ideals of the enlightenment: the belief in the God-given rights of the individual, the inherent rights of free assembly and free speech, the blessings of free enterprise, the perfectibility of man, and, above all, the universality of these values”.
   
But is the record of the ‘defender of freedom’ in contemporary history unblemished? “Two hundred years (of US history) is illustrated by a century of literal human slavery,” writes Chomsky in Deterring Democracy, “and effective disenfranchisement of Blacks for another century, genocidal assaults on native population, the slaughter of hundreds of thousands of Filipinos at the turn of the century, of millions of Indochinese, of some 200,000 Central Americans in the past decade.”

Since September 11, criticism of the Empire has attained respectability. The word Empire has appeared in mainstream newspapers and books critical of American foreign Policy have been resurrected. One such book is Blowback, written by Chalmers Johnson. Interestingly, this book, which was written during the year 1998-99, received little attention in the mainstream press. Philip Zelikowin, a former member of the National Security staff of President Bush Senior, dismissed Blowback as a comic book. The terrorist attack on the WTC changed all that and the book was reprinted seven times in less than two months.

Unintended Negative Consequences

Johnson, who is the president of the Japan Policy Research Institute and professor emeritus at the University of California, views the events of September 11 not with hysteria but with scholarly detachment. “The suicidal assassins of September 11, 2001, did not attack America,” he writes in his preface, “as political and news media in the United States have tried to maintain; they attacked American Foreign Policy. Employing the strategy of the weak, they killed innocent bystanders who became enemies only because they (assassins) had already become victims.” With refreshing candour he admits, “Many aspects of what the American government had done abroad virtually invited retaliatory attacks from nations and peoples who had been victimized.”

Recent events only confirm this. The massive bombing of Afghanistan which the US launched on October 7, 2001, killed many innocent people and inflicted untold misery on men women and children of an already war torn country. The deployment of overwhelming military force on the peasants of Vietnam in the recent decades and military action in Laos, Cambodia, Iraq, Serbia and Kosovo only produce ‘unintended negative consequences throughout the Islamic and underdeveloped worlds.’

The casual arrogance with which President Clinton ordered the firing of nearly eighty cruise missiles (at a cost of $750,000 each) into a pharmaceutical plant in Khartoum, Sudan, and an old mujahideen camp site in Afghanistan is another instance of its imperial hauteur. The military response was in retaliation to the bombings of American embassy buildings in Nairobi and Dar es Salaam. The grudging admission of error in intelligence reports came on September 2, 1998, when the US secretary of defense said he was unaware that the plant made medicines and not nerve gas. The fact that the plant made affordable medicines for the poor people of Sudan went largely unnoticed in the US media. No word of sympathy was uttered by Clinton who justified the military action on the ground of repelling ‘imminent threat to our national security’.

Clinton’s abrasive secretary of state Madeline Albright made matters worse by her tactless remark that Sudan was a viper’s nest of terrorists. In the streets of Sudan tempers ran high and street protesters waved placards accusing Clinton of diverting public opinion from his sexual misadventures with his White House subordinate. The memories of injustice linger on and the image of an arrogant superpower using disproportionate military force on small defenseless countries evokes moral outrage among the victims. The situation is ripe for terrorist attacks on the Empire leading to the endless cycle of violence and retaliation.

Johnson explains that the word "blowback" was coined by the CIA. The word was originally used in poison gas warfare "to refer to the likelihood of battlefield gasses blowing back on the forces that have released them." In its political sense it first appeared in a CIA post-action report on the secret overthrow of Mohammed Mossadegh government in Iran in 1953. The CIA helped to install the brutal regime of Shah Mohammed Reza Pahlevi who ruled Iran with an iron hand for twenty-five years. The overthrow of the Shah regime by the Islamic clerics and the persistent anti –American sentiments in the region are rooted in recent history.

In CIA argot, blowback simply means the ‘unintended and unexpected consequences of covert operations of the CIA which have been kept secret from the American public and, in most cases, from the elected representatives.’ Such covert operations are illegal, ill conceived and short term aimed at overthrowing foreign governments or helping launch state terrorist operations against target populations.

The Soviet Afghan War

One example that comes to mind is the American involvement in the Soviet Afghan war. The official version has it that US helped the mujahideen after the Russians invaded Afghanistan in Dec 24, 1979. If the memoirs of Robert Gates, former CIA Director (From the Shadow: The Ultimate Insider’s Story of Five Presidents and How They Won the Cold War) are to be believed, then a different picture emerges. It was on July 3, 1979, that President Carter signed the first directive for secret aid to be given to the opponents of the pro-Soviet regime in Kabul, i.e., six months before the Soviet invasion of Afghanistan. The French weekly magazine Nouvel Observateur pursued this extraordinary story. The weekly interviewed Carter’s national security adviser Zbigniew Brzezinski who confirmed Gates' account. The Nouvel Observateur put the following question to Brzezinski: "You don’t regret any of this today?" Brzezinski replied, "Regret what? The secret operation was an excellent idea. It had the effect of drawing the Russians into the Afghan trap and you want to regret it?" The Nouvel Observateur posed another question to Brzezinski. "And neither do you regret having supported Islamic fundamentalism, which had given arms and advice to future terrorists?" Brzezinski disdainfully answered, "What is more important in world history? The Taliban or collapse of the Soviet empire?"

What was hidden from the American public is the loss of 1.8 million Afghan lives, some 2.6 million refugees and ten million land mines left in Afghanistan as a result of US secret operation. The bombing of the WTC on 9/11 was a blowback from the same organisation, which US helped to build in Afghanistan.

Deadly Skills

What is concealed from the American public is that the US government trains the police/military of repressive regimes. In 1991, the US Congress passed a law authorising Joint Combined Exchange Training Programme (JCET). Though the law permitted the Special Forces to have overseas joint military exercises with foreign governments to train US soldiers, in actuality, the US Special forces are engaged in espionage activities. Under the guise of military exercises the Special Forces collect extensive information about the whole range of military capability of the foreign country they visit.

The Special Forces also train repressive foreign regimes friendly to US interests in lethal skills such as advance sniper techniques, psychological warfare, close quarters combat, torture techniques to elicit confessions from suspects. Evidence is slowly emerging that the Turkish Mountain Commandos were trained by the Special Forces who used the skills against the rebellious Kurdish population killing at least twenty-two thousand of them. According to the manual entitled Doctrine for Special Forces Operations the main activity of the Special Forces is to give foreign military units instructions in Foreign Internal Defense (FID). The disastrous impact of such training programmes were felt in nineteen countries of Latin America, Colombia, Sri Lanka, Pakistan, Rwanda, to name a few.

A Muscle-Bound Crackpot

Tom Plate, a columnist for the Los Angles Times, once described United States as "a muscle bound crackpot with little more than cruise missiles for brains.” US media glorify the warrior roles and justify the use of military force in world affairs. The reported statement of Madeleine Albright best exemplifies this: “If we have to use force, it is because we are America. We are an indispensable nation. We stand tall. We see farther into the future.” Echoing his concern Johnson observes, “In the decade following the end of the cold war, the US largely abandoned a reliance on diplomacy, economic aid, international law, and multilateral institutions in carrying out its foreign policies and resorted much of the time to bluster, military force, and financial manipulation.”

In pursuit of its imperial dreams US maintains its elaborate military bases all over the world. Its military expenditure dwarfs imagination. Conservative estimate places the US military expenditure in the region of four hundred billion dollars a year. According to Brookings Institution study, it costs US $5.5 trillion to build and maintain its nuclear arsenal. The Pentagon Industrial Complex sets its own agenda and it has a voracious appetite for more and more resources. The military system has become an autonomous system. With corporate interests permeating the military, the civilian control over the military is at best tenuous. Policymaking is dominated by militarism, ‘a vast array of customs, interests, prestige, actions, and thought associated with armies and wars and yet transcending true military purpose’ which is the defense of its realm.

Negative Economic Policies

The economic policies dictated by imperial ambition expose the US to blowback. The classic example of this is its relationship with East Asian client states. In the case of Japan, in order to further its cold war strategy of proving to the world that free market capitalism is the only mode of economic development, the US ‘treated Japan as a beloved ward, indulging its every economic need and proudly patronising it as a star pupil.’ The US used its influence to admit Japan into many International Institutions. The US transferred its crucial technology to Japan on concessionary terms and opened its markets to Japanese goods while tolerating Japan’s protection of its domestic market. This led to the hollowing out of key American Industries such as steel, consumer electronics, robotics, automotive, camera, and semi-conductor industries. This suicidal economic policy was also continued as a trade off to maintain US military bases in Japan. The long-term impact was that soon the American industries became uncompetitive vis-à-vis Japanese industries.

With the huge US export market made available to them, Japan, becoming a five trillion-dollar economy, pursued an aggressive export led growth. It followed its own brand of state guided capitalism steering clear of market capitalism and the command economy of the Soviets. Increasingly, it expanded its production capacity. What was hidden from economic planners was that Japan generated industrial over capacity that threatened the health of the economy. The over capacity reached crisis point when other Asian countries such as South Korea, Hong-Kong, Taiwan, Singapore, Malaysia, emulated the fast catch up strategy of Japan. ‘There were too many factories,’ writes Johnson, ‘turning out athletic shoes, automobiles, television sets, semi-conductors, petrochemicals, steel and ships for too few buyers.’ The ripple effect of the over capacity is the increased competition between American and European MNC. This has resulted in corporations cutting costs by transferring the high paid jobs from the advanced economy to low wage developing countries. The global demand is on the verge of collapse, as rich countries do not generate demand on account of market saturation or stagnant or falling income of its people. In countries like China, Vietnam and Indonesia the workers who earn low wages cannot buy the goods produced by them.

In East Asian economies financial capitalism spearheaded by the US played an important role in destabilising the economies. US played an aggressive role in making the East Asian economies to deregulate the capital market. The Wall Street Treasury Complex thrust the concept of capital mobility upon the East Asian countries. The nature of money pumped into the economy of South Korea, Thailand, Indonesia, and Philippines was hot money. The financial inflows were short term, speculative, highly liquid and could easily leave the economy. The US accumulated vast funds (around 3 trillion dollars) especially in the mutual funds. These pools of capital were invested and transferred out of the Asian economies. The result was catastrophic: East Asian economies collapsed. Big American companies bought factories and businesses for a song. Proctor & Gamble picked up several South Korean state of art Companies at a fraction of the price.

In Thailand, American Investment  firms bought service, steel, and energy companies at throw away prices. The Carlyle Group sent Bush senior to Bangkok to evaluate opportunities to buy real estate at low prices. The economic meltdown resulted in the largest transfer of wealth in the history of the world. The smoldering anger of East Asians against US predatory capitalism is a potential source of retaliatory strikes against US interests in the region.

There are worrying signs that the US is not able to pay for its huge military deployments and its military adventurism. The US uses its political clout to cajole its satellite countries to pay for its wars. For instance, Japan paid $13 billion to the US for the first gulf war against Iraq. According to Michael Hudson, author of Super Imperialism, the ballooning US balance of payments deficit is financed by the central banks of the world, which plough back the surplus dollars to buy  US Treasury bonds. Blinded by its overwhelming military power the Empire hurtles relentlessly towards the future in pursuit of its hegemonic goals. Its inept elected representatives have surrendered their judgment to a cabal of unelected military experts.

The unraveling of the Empire would have the same inevitability of a Greek tragedy: the hamartia of an inflexible empire bereft of adjustment and compromise colliding against the forces of blowback and imperial overstretch. The danger of the US alienating Europe, Russia East Asia and China politically cannot be ruled out.  The threat of the dollars not flowing back into the American economy is a real possibility. The scenario is dangerous for the US economy as it may financially implode if foreign investment dries up.

Imperial Overstretch

“The two great tests which challenge the longevity of every major power,” wrote Paul Kennedy in his magisterial survey The Rise and Fall of the Great Powers, “whether in the military /strategical realm, it can preserve a reasonable balance between the nation’s perceived defense requirements and the means it possesses to maintain those commitments; and whether it can preserve the technological and economic bases of its power from relative erosion in the face of ever-shifting patterns of production.” Kennedy holds the view that this test of American abilities will be greater because it, like imperial Spain around 1600 or the British Empire around 1900, is the inheritor of a vast array of strategic commitments which had been made decades earlier when the nation’s political, economic, and military capacity to influence world affairs seemed so much more assured. ‘The United States now runs the risk of what might roughly called “imperial overstretch”: that is to say, decision-makers in Washington must face the awkward and enduring fact that the sum total of the United States’ global interests and obligation are far larger than the country’s power to defend them simultaneously.’

Johnson believes that America is in a state of decline. The signs are there for all to see: increasing estrangement between the population and their government, loss of moral authority among the elite, the appearance of militarism and the separation of military from the society it is supposed to serve. He quotes with approval David Calleo, professor of international politics, ‘The international system breaks down not only because unbalanced and aggressive new powers seek to dominate their neighbors, but also because declining powers, rather than adjusting and accommodating, try to cement their slipping preeminence into exploitative hegemony.’

Has the bell then begun to toll for the behemoth? Johnson answers the question with scholarly sang froid: “The danger I foresee is that we are embarked on the same path as the former Soviet Union a decade ago. It collapsed for three reasons — internal economic contradictions, imperial overstretch, and an inability to reform. The United States has always been richer so it might take us longer for similar afflictions to do their work. But it is nowhere written that the United States, in its guise as an empire dominating the world, must go on for ever.” Prophetic words?

Only time will tell.

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About Socrates

  • http://www.elitebloggers.com Dave Nalle

    I have to think that the main shortcoming of your thesis is that despite the appearance of imperialism, the US is not and has never been an empire, and as a nation has no real desire to do the things which empires do, such as dominating or colonizing other nations.

    You seem to be laboring under the restrictions of terminology and paradigms of the 19th century while attempting to examine relationships between modern nations which aren’t easily pigeonholed by concepts like ‘imperialism’ and ‘colonialism’.

    Good case in point is the assumption you repeat that the ‘empire’ is characterized by overwhelming military power, when that’s certainly not true of the US. What we see demonstrated in Iraq today is how inadequate our military capabilities are to dominate even a relatively small area and disorganized enemies. When compared to real ‘imperial’ powers the amount the US spends on its military and the size of that military are insignificant.

    Dave

  • http://desicritics.org Aaman

    Dave, firstly, if it walks, talks, and quacks like a duck, it doesn’t matter whether it has an identity crisis. There’s no basis to believe imperialism died with the 19th or the 20th century. Why then did the United States appoint a pro-consul as their first act after the invasion and conquest of Iraq?

    Secondly, I’m not sure if you’ve read Carroll Quigley’s Tragedy and Hope, but in the very beginning, he talks about how civilizations move from an Age of Expansion to an Age of Conflict, characterized by a declining rate of growth and expansion, growing tensions and class conflicts, and frequent and violent imperialist wars. That sounds pretty much like the social dynamic of the United States in particular in the world today. He goes on to analyze why the Universal American Empire is a near certainty, and its eventual decay.

    The longevity of empires is much reduced, as has been pointed out elsewhere, and you seem to prove the point by your description of the difficulty of maintaining even the semblance of imperial rule in Iraq.

    Incidentally. there is a regional imperial power with greater longevity who seems to be only too ready to step into the American vacuum, but that’s another story.

  • Zharkov

    The viewpoint of the author is entirely one-sided, Leftist, and distorted. For example, he repeats the old Leftwing canard: “In countries like China, Vietnam and Indonesia the workers who earn low wages cannot buy the goods produced by them”, yet this hasn’t been true for years. Chinese workers are buying cars, homes, and other consumer products at a record rate, and although the pay scales may be somewhat lower than the U.S., the prices of their goods are also lower.

    He fails to criticize the utter depravity of 9/11, an attack without any particular purpose other than to terrorize New York City, and he suggests it’s the moral equivalent of righteous “blowback” from the poor and oppressed, yet nobody believes Saudi Arabia was poor, nor was Osama bin Ladin ever “oppressed”. The Saudi citizens who went to flight school could certainly afford it and the airline tickets required to hijack the airliners.

    What is true is that the USA has sacrificed a large portion of its industrial base to help other countries bring their living standards higher and move them into a modern age. If the resistance to moving 7th century living standards into the 21nd century is “blowback”, then perhaps it is one of those things necessary to advance the human race.

    Some criticisms are justified, and the Soviet army could have been allowed to remain in Afghanistan undisturbed as it ultimately made no difference whether they won or lost there, when collapse of the Soviet state was inevitable. What did make a difference was that guerrilla warfare methods had been taught to America’s future enemies. The CIA made many mistakes and misjudgements in dealing with the Islamic revolution because it failed to understand it, and many of those mistakes have caused American fatalities, so critical comments are merited, yet there must remain the criticism of Islam that it remains a deadly religion that results in genocide against Christians, Buddists, Hindus, and others, wherever Islam has been allowed to spread.

    The Islamic revolution is not a result of empire but developed as the result of a lack of empire when the British and French withdrew from the middle east region, and to say it is “blowback” is the ultimate in disinformation.

  • socrates

    Dear Zharkov,
    we do not advance a debate if we call a viewpoint ‘entirely one-sided, Leftist, and distorted.’By calling your response a extreme right-wing view of a neocon I do not advance the cause of rational debate either.So let me respond to the issues raised by you.

    “In countries like China, Vietnam and Indonesia the workers who earn low wages cannot buy the goods produced by them” ‘yet this hasn’t been true for years. Chinese workers are buying cars, homes, and other consumer products at a record rate, and although the pay scales may be somewhat lower than the U.S., the prices of their goods are also lower.’

    You appear to have missed the main point of the argument that shipping high wage jobs to low wage economies is beneficial to US corporations in the short term but it also replaces high wage consumers with low wage consumers. The paradox is that by job losses in US & Europe leading to loss of purchasing power in middle and lower class of consumers is not made good in countries where the consumers have poor pay.If there is compression of demand in Rich countries on account of job losses the economy gets into a tailspin of depression. The ripple effect on low cost economies would be that outsourcing would slow down and cripple the low cost economy. As things stand US is the consumer of last resort and if things go wrong there countries like China and India would also be in trouble.For the world economy to be stable the corporations in US and Europe would have to ship jobs overseas with the same pay as workers in US and Europe(a silly thing to do from the perspective of corporations).

    The terrorist attack of 9/11 may be an act of depravity but does not tell you the reasons.The flawed foreign policy of supporting and aiding the repressive Saudi ruling elites produces anger in the Middle East. Foisting of tin pot dictators elsewhere does not help US in making friends but produces angry people who would like to hurt US by acts of terrorism.Incidently, the Saudi terrorists were not poor but angry people.

    If US sacrificed its Industrial base by favoring Japan, it was not for altrusitic reasons. The primary reason was to show the world that Japan was a star pupil of capitalism. To serve the interests of cold war and to prove that communism/ socialism would never succeed Japan was propped up post II world war,for which US paid a heavy price.

    And your last comment’The Islamic revolution is not a result of empire but developed as the result of a lack of empire when the British and French withdrew from the middle east region, and to say it is “blowback” is the ultimate in disinformation.’ You are assuming that the British & French Empires were civilising influences, an assumption which betrays an elementary knowledge of history.

    Islam does not have the monopoly of violence in history.In the blood splattered pages of history Christanity does have its share of intolerence and violence too.

  • socrates

    Dear Dave,
    Thank you for your comments.

    Post cold war, US has relied less on diplomacy and more on military force and financial manipulation when it came to foreign policy. She maintains military bases all over the world and her military budget for the year 2007 was raised to a total of US$ 532.8 Billion.

    According to the Stockholm International Peace Research Institute, in 2003 the United States spent approximately 47% of the world’s total military spending of US$9106 billion.

    In view of the staggering military expenditure,it would be extremely naive to say that US does not have hagemonic intentions or that she is a weak military power as the war in Iraq was botched up.

  • http://blogcritics.org/writer/clavos Clavos

    …her military budget for the year 2007 was raised to a total of US$ 532.8 Billion.

    According to the Stockholm International Peace Research Institute, in 2003 the United States spent approximately 47% of the world’s total military spending of US$9106 billion.

    Setting aside for the moment that these two figures refer to two different years’ budgets, 533 billion is not 47% of 9106 billion, it’s more on the order of 6%. Perhaps you meant to say the world budget total in 2003 was 910.6 billion?

    In view of the staggering military expenditure,it would be extremely naive to say that US does not have hagemonic intentions

    Maybe not, when you consider that the US military has been known to pay $600 for a $10 hammer.

    I’m being facetious, of course, but my point is that it’s not logical to infer US hegemonic intentions merely from the size of its military budget.

  • http://www.elitebloggers.com Dave Nalle

    Let me echo what Clavos just said. The vast majority of US military spending goes towards efforts to provide military support for allied nations and efforts, peacekeeping and pure maintenance of our military infrastructure. As a rule the US does not invade and occupy foriegn countries on an indefinite basis as would be required for building an empire. We may have invaded Afghanistan and Iraq, but if anyone in America thought we had long-term imperial ambitions in either country the public would turn against those invasions even faster and more universally than has already been the case.

    Dave

  • socrates

    Dear Clavos,
    According to Stockholm International Peace Research Institute, the USA responsible for about 80 per cent of the increase in 2005, is the principal determinant of the current world trend, and its military expenditure now accounts for almost half of the world total. Further,World military expenditure in 2005 is estimated to have reached $1,001 billion at constant (2003) prices and exchange rates, or $1,118 billion in current dollars;

    Moreover,the figure of US$ 532.8 Billion for 2007 is understated as it does not take into account other military related expenditure such as nuclear weapons research, maintenance and production (which is in the Department of Energy budget), Veterans Affairs or the wars in Iraq and Afghanistan (which are largely funded through extra-budgetary supplements, e.g. $120Billion in 2007).

    All in all a fairly impressive expenditure when you add additional $23.4 Bil to be spend by the Department of Energy during FY’07 for the development, maintenance and production of nuclear warheads.

    I note with interest your comment’ Maybe not, when you consider that the US military has been known to pay $600 for a $10 hammer.’
    I am glad that you are facetious for it would not amuse your taxpayers to know that the US army is fighting the war in Iraq with hammers priced at $600 per hammer.

    Anyway thank you for providing the decimal point to the figure $9106 billion(910.6).

  • socrates

    dear Dave,
    In view of the clarifications provided by Clavos that the US military has been known to pay $600 for a $10 hammer,I see the error of my ways.

    Now I am inclined to believe that all US military expenditure is spent on hammers priced@$600 per piece leaving very little expenditure for the purchase of WMD.Now we know why the war in Iraq was botched up.

  • http://www.elitebloggers.com Dave Nalle

    Don’t forget the $2500 toilet seats, Socrates.

    US purchases of WMDs are another issue entirely. We spend more money today disposing of old and volatile WMDs than we ever spent making them.

    Dave

  • socrates

    Dear Dave,
    With toilet seats priced at $2,500 and hammer at $600, it may not be a bad idea to outsource the supply to China or India.

    I dare say this would release the military budget for the purchase of Weapons of Hostile Intent(WHI)to wage the war against terror.

  • Zedd

    Socrates

    Very sober article.

    It is confounding that the most glaring thing to some in your article is the use of the WORD “imperial” and not the affects of our actions.

    It is our obsession with categories that actually gets us into trouble. Our need to have good guys vs bad guys prevents us from dealing with the complexities of international interplay.

    We see ourselves as the good guys and so justified in fulfilling our needs which are supported by capitalism, which is good always.

    Politicians understand our simple categories hence the axis of evil speech. In order to proceed with the plan ahead, we had to cause a stir. Whereby there was a threat from evil forces (bad guys). After that we had to giddy up and fight the good cause.

    Imperialism is a bad guy word so it can not possibly be attached to us. Even though we colonized this country rather agressively I would say (or is it just me?)

  • http://www.elitebloggers.com Dave Nalle

    Rather than comparing flat amounts spent on military purchases, a more relevant comparison is what percentage of a nation’s GDP is spent on their military, since the two ought to be somewhat proportional. Such a comparison is a much better measure of whether a country is disproportionately warlike. It’s not easy to apply this kind of analysis to a country like China where the economy is directly controlled by the government and groups like the Red Army are essentially self-funding and non-accountable, but here are comparisons of some nations where military spending is relatively transparent:

    Saudi Arabia 5.9%
    Israel 5.8%
    Russia 3.6%
    US 3.2%
    UK 2.7%
    France 2.2%
    Australia 2.1%
    Worldwide Average 1.7%

    So as you can see, the US isn’t even in the top 3 as far as percentage of GDP spent on their military, though it like all of these countries is above the worldwide average.

    Considering that the US essentially pays the defense cost for much of western europe and many other areas of the world, our spending per GDP is actually pretty low.

    Dave

  • http://www.elitebloggers.com Dave Nalle

    Imperialism is a bad guy word so it can not possibly be attached to us. Even though we colonized this country rather agressively I would say (or is it just me?)

    Britain, Spain, France, Sweden and the Netherlands colonized this country. We didn’t colonize ourselves. Plus it was 400 years ago.

    Dave

  • socrates

    Dear Dave,
    Consider this fact: Because the U.S. GDP has risen over time, the military budget can rise in absolute terms while shrinking as a percentage of the GDP. For example, according to the Center for Defense Information, the US outlays for defense as a percentage of federal discretionary spending, has from Fiscal Year 2003 consumed more than half (50.5%) of all such funding and has risen steadily. Discretionary spending accounts for approximately 1/3 of all federal outlays.

    The military expenditure of US is placed at $522(2007) billion dollars.This expenditure dwarfs the military expenditures of other countries. For example- China 62.5,Russia 61.9, UK 51.1, Japan 44.7,France 41.6, Germany 30.2, Saudi 21.3 and so on.

    The point is if one were to list the global interventions by US from 1945 to present it would be very impressive indeed.As the interventions have been exceptionally bloody one can surmise that more than hammers were used by US to wage conflicts/war on other countries.

  • http://www.elitebloggers.com Dave Nalle

    Well duh, military expenditures can go up over time as GDP goes up. That’s true of any country which doesn’t encounter some sort of economic disaster. It’s not unique to the US.

    And as I said before, the US spending does not dwarf that of other countries on a basis of percentage of GDP which is a more reasonable comparison.

    It’s even less excessive when you consider the military actions you mention. The US has taken on the military responsibilities of much of the rest of the world to keep peace and counter oppression and given all of that activity the level of expense is surprisingly low.

    Your suggestion that our interventions have been ‘exceptionally bloody’ is a complete crock. In addition to the fact that we have not taken and occupied territory in the long-term as an empire would do, almost all of our interventions have been primarily characterized by the relatively low level of civilian casualties compared to other military conflicts. Yes, there are a couple of exceptions like Vietnam and Iraq, but in both cases the high level of civilian casualties was largely caused by the tactics of the enemy, not as a result of US policy.

    Dave

  • http://desicritics.org Aaman

    Dave – the Phillipines, Hawaii, Texas, California, the Cuban proxy state pre-1962 – long term occupation?

  • http://blogcritics.org/writer/clavos Clavos

    Cuban proxy state pre-1962 – long term occupation?

    Hold on a second — what “occupation,” long term or otherwise, of Cuba pre 1962?

    What do you mean by “Cuban proxy state”?

    And what’s the significance of 1962?

  • http://desicritics.org Aaman

    That should’ve been 1959 – and surely you not denying the client status of Cuba post the Platt Amendment – “Cuba consents that the United States may exercise the right to intervene for the preservation of Cuban independence, the maintenance of a government adequate for the protection of life, property, and individual happiness”. This remained in force until Roosevelt’s Good Neighbor policy in 1934.

    It later became a more typical American economic hegemony – In 1946,half the billion-dollar Cuban sugar industry was American-owned, and more than 25% of the cultivated land was American owned.(Foreign Policy magazine and The Dust of Empire) Indirect rule is more pernicious, in many ways, than direct rule.

    I’m glad you don’t dispute the rest of American local aggrandizement and annexation. Grover Cleveland’s secretary of state Richard Olney is another case that comes to mind, and his extended interpretation of the Monroe doctrine.

  • http://blogcritics.org/writer/clavos Clavos

    In 1946,half the billion-dollar Cuban sugar industry was American-owned, and more than 25% of the cultivated land was American owned.

    By the 1950s, the Cuban sugar industry was Cuban owned, top to bottom,; and in fact, today’s American sugar industry is Cuban owned and controlled. Are you familiar with the name Fanjul?

    Also, Cuba was not “occupied” by the US after 1934, when the Platt Amendment was repealed (repealed, except for the lease on Guantanamo).

    Had it been, Fidel would not have won his “revolution”. As it was, his pitiful little ragtag band of “revolutionaries” barely beat Batista’s army, and only because they were even more inept than Fidel’s barefoot guajiros.

    In fact, Batista blew it. Shortly after the attack on Moncada barracks, he had Fidel in custody, but at the urging of Catholic Jesuit priests, didn’t execute him. Batista’s humane gesture was Cuba’s (and the world’s) loss.

    I lived in Cuba in the late fifties; I even met Huber Matos once, briefly, in Baracoa, Oriente province, in July or August, 1958. I saw what went on. So did the Cuban people, and they’ve been voting with their feet ever since.

    I’m glad you don’t dispute the rest of American local aggrandizement and annexation.

    Kindly don’t infer anything about me simply because I chose not to respond.

  • STM

    The real issue is what’s happened since Castro took power. It must have looked great at the beginning, and even through to the collapse of the Soviet Union there must have been hope that things would steadily improve. But I wonder how the Cuban people REALLY feel now, though. 20-20 hindsight is a marvellous thing. I wonder if they’d have preferred Castro had never come out of the woodwork, knowing what they know now.

    And not being communist these days doesn’t necessarily mean bowing down to America and doing everything it wants. The road taken by Cuba was consigned to the dustbin of history by Gorbachev, who was smart enough to see the writing on the wall (literally, in that case).

  • socrates

    dear Dave,

    Your comment’Your suggestion that our interventions have been ‘exceptionally bloody’ is a complete crock.’ could be true if the entire US military budget was spent on expensive toilet seats and hammers. Sadly, the US army did acquire Tomahawk missiles, cluster bombs and depleted uranium shells which were used with deadly effect in Iraq.In Vietnam napalm bomb, cluster bombs and agent orange were used to poison the earth, the water and the gene pool.The figures of dead in Vietnam alone comes to one million.

    But there is a bright side to our discussion:not all the US taxpayers money was wasted on hammers and toilet seats as suggested by you and Clavos. The ‘puny’ military budget of about half a trillion did produce an impressive number of body bags.

  • socrates

    dear Clavos,
    Did you know Batista personally? I mean you seem to be vouching for his good character(Batista’s humane gesture).I presume you left Cuba before Castro came to power.

    Too bad Batista blew his chances!

  • Anand Menon

    The Wikepedia encyclopedia says”…Imperialism is the policy of extending a nation’s authority by territorial acquisition or by the establishment of economic and political hegemony over other nations, countries, or colonies. This is realized either through direct territorial conquest or settlement, or through indirect methods of influencing or controlling the politics and/or economy. The rule of authority of a country is based on territory, economic establishment and political influence. The term is used to describe the policy of a nation’s dominance over distant lands, regardless of whether the subjugated nation considers itself part of the empire. It is also considered the action by which one country controls another country or territory accomplished by military means to gain certain advantages. Imperialism helps one country gain power and domain over other areas. …”

    Lets face it by this simple definition the U.S is an imperial power although some people on this blog can’t see the wood for the trees….perhaps they should read William Blums’s seminal work “Killing Hope”…should give you a broad idea ….and also …ask all those people living in all those countries where the U.S has interfered in the past 100 years whether there was anything remotely “benovelent ” about their handiwork….by any stretch of the English language….

    The chickens are coming home to roost.All those adventures abroad come at a cost.During the time Bush and co. have been in power the dollar has depreciated by 40%….and it is sliding further …towards the shit creek….watch the trillion dollar housing bubble burst…deflating consumer spending…..watch the subsequent effect on the stock market balloon …which is otherwise enjoying the last wisps of Greenspan’s low interest helium swirling into the largest credit bubble in history…..watch the consequences of Empire….watch it Mr.Nalle …..and weep.

  • http://www.elitebloggers.com Dave Nalle

    Dave – the Phillipines, Hawaii, Texas, California, the Cuban proxy state pre-1962 – long term occupation?

    Clavos has already addressed the issue of Cuba. The others are even more ridiculous. Texas and California both came into the union willingly. They had to virtually force the US to annex them at a time when many American politicians were politically opposed to annexation. They also held popular votes whcih overwhelmingly favored annexation, even among the non-English speaking populations. Plus that was 150-some years ago. Why not add Louisiana and Vermont to your list while you’re at it? Silly.

    As for Hawaii, the story there is certainly a lot muddier, but its entry into the union was not terribly bloody or oppressive compared to other territorial acquisitions of the period. In the long run, coming under the protection of the US government was better for everyone concerned including the native population. You don’t hear a lot of Hawaiians complaining these days, do you?

    And I’m not at all sure where you’re going with the Philippines. There are a hell of a lot of people there who WISH the US was more heavily involved, that’s for sure. Since we reduced our interest the place has gone to hell in a handbasket. And our presence there was always a moderating and protecting one. I can only imagine how much worse things would have been without US involvement.

    Finally, one comment for Anand. The dollar has been deliberately deflated as part of an economic strategy which thus far seems to have been pretty successful. As for the ‘housing bubble’, it’s not bursting. Every expert seems to agree that the adjustments are short-term, and the impact of artifically low interest rates wore off quite a while ago. You can bleat about economic doom and gloom all you want, but the evidence just isn’t there to support it, so long as the deficits continue to go down at an accelerated rate and the value of the dollar starts to rebound correspondingly as we ought to see in the next few months.

    Dave

  • http://desicritics.org Aaman

    To take the discussion a bit further afield, consider the case of indirect, almost ‘remote control’ rule in Africa, specifically in places like the DRC (Congo), the assassination of Lumumba because he threatened to go over to the Russians, and the subsequent threat of loss of control over the natural resources, and the British control of other African nations.

    The sad part is that for the most part, the American empire is being built on the ashes of other empires – the Belgian, the French, and the British, and most of these ended in an undefined political state – furthermore, they brought in social and economic progress during their imperial rule, but not correlated with political growth and maturity, and so we have all the not-quite-nations that the United States is struggling to keep at peace, or variously, at war.

    Pax Romana != Pax Americana, although the Roman corollary is an apt one.

  • Anand Menon

    would love to watch Nalle eat crow…..watch this space

  • http://blogcritics.org/writer/clavos Clavos

    During the time Bush and co. have been in power the dollar has depreciated by 40%….and it is sliding further …towards the shit creek….watch the trillion dollar housing bubble burst…deflating consumer spending…..watch the subsequent effect on the stock market balloon …which is otherwise enjoying the last wisps of Greenspan’s low interest helium swirling into the largest credit bubble in history…..watch the consequences of Empire….watch it Mr.Nalle …..and weep.

    When I first read this, I thought the tone sounded gloating, as if this commenter hoped for all these things to happen, then I saw this:

    would love to watch Nalle eat crow…..watch this space

    And I realized that’s exactly what he wants.

    Don’t hold your breath.

    Oh, and BTW, expect more interest rate cuts later this year…

  • Anand Menon

    The Housing collapse has been documented by people in the know… Prof michael Hudson anticipated this a long time ago …nobody listened then they will be forced to listen now…

    Prof Hudson also anticipated the present state of affairs vis a vis the dollar

    Mr.Nalle….”dollars starts to rebound..”….rebound did you say??..REBOUND???….why is Dick Cheney then betting AGAINST the dollar?….He should be betting FOR the dollar…..what do you think we are?…. a bunch of idiots? here’s the link

  • Anand Menon

    As for the rest of you who read unsubstantiated Nallish nonsense….. here is some real news for a change Bankers Fear World Economic Meltdown Declining Superpower Act A Stock Market Post-Mortem

  • Ruvy in Jerusalem

    Anand,

    Normally, I woulds laugh at the stuff Counterpunch.org, particularly when it writes about Israel. Most of their stuff about Israel is knee-jerk pro-Arab bullshit.

    But when I read analyses of the economy, I sit up and listen, and pay attention. The bankers and oilmen have been lying to us through their teeth and sniggering at us as we try to figure out ways to do energy conservation and to hold on to a standard of living they are determined to destroy.

    Some of our colleagues like to look at things through rose colored glasses.

  • http://blogcritics.org/writer/clavos Clavos

    Ruvy,

    I find it interesting that you don’t believe counterpunch’s opinions on Israel, because you know more than they do, and find them to be wrong on those issues, yet you believe them on US economic issues. Why do you think they’re so wrong on one topic and so right on the other? It doesn’t make sense.

    One more point: why would the bankers and oilmen want to screw things up for the little guys? We are their customers; we are where they get their money from; if they render us incapable of buying their oil or renting their money, how will they continue to buid their wealth?

    That, too, doesn’t make sense, my friend.

    In the USA the middle class IS the economy. Henry Ford understood this perfectly, so does any modern captain of industry. WE ARE THE CONSUMERS, Ruvy, without us there is no economy.

  • Ruvy in Jerusalem

    Clavos,

    One more point: why would the bankers and oilmen want to screw things up for the little guys? We are their customers; we are where they get their money from; if they render us incapable of buying their oil or renting their money, how will they continue to build their wealth?

    Clavos,

    I realize that you sell boats to rich people. I also realize from the tenor of your comments that a weak dollar has some very good effects on certain parts of your economy.

    But I know, from personal acquaintances telling me this, that the World Bank wanted a report in the spring of 1973 telling everybody how a tripling of oil prices would benefit the world’s economy. The analyst asked to write the report couldn’t and quit, but not before letting friends at the Wall Street Journal know what was up.

    Some people get rich by watching out for the best interests of the society around them. The owner of a clothing mill in New England comes to mind. But many get rich by practicing sheer unadulterated greed. There was a tripling of oil prices in 1973, done under the cover of war and an “oil boycott” by OPEC.

    The price of oil today is at least three times what it was in 1973. In the seventies, it became a necessity for both parents to work to support a family in the United States, something that had not been true in the generation or two previous. The drying up of credit in the 1970’s made the movement of labor to cheaper countries in the American industrial Midwest, something that was likely to happen, a much more painful adjustment than it needed to have been.

    It used to was that banks made money off of investments. Today they make money off of fees charged their customers. You can’t fart in a bank anymore without getting hit up with a fee. Why is this, Clavos? Could it be that there are no more decent investments to be had? Is it a necessity that oil should cost $60/bbl when it costs $5/bbl or less at the wellhead? Why has every alternative technology to the gasoline engine been bought up and made virtually unavailable to the consumer? Who has been buying up these alternative technologies? Why?

    I didn’t need Counterpunch.org to ask those questions. But in the piece on why the market is likely to fall, a lot of interesting points are made. And the article made sense. Which is why I sent it out to my “A” list on the internet, along with the following comments.

    “You won’t normally find me reading Counterpunch.org. – particularly when they report on Israel. A greater pack of fools there has never been.

    But this piece on the stock market is a lot more persuasive – particularly because the author is not aiming his fire at Jews at all, but warning of what may happen on the market, and analyzing why the Fed no longer releases M3 data, which would give an accurate picture of the U.S economy. I have started to pay closer attention to the U.S. economy because a joke of a currency, the
    New Israeli Shekel, has been rising against the dollar and has recovered all the value it had lost in seven years, since March 2000. This is unprecedented in the history of this country’s currencies since the independence of the State, when the Palestine Pound became the Israeli Lira at $4.00 par value in 1948.

    I will make my own observations. If the dollar gets flushed down the toilet, do not assume that the euro will not follow.

    This Sukkot will be a decisive period of time. Look for a terrible Fall and a miserable Christmas. If you can, buy gold and a troy scale. and if you are Jewish, either come to Israel, or if you are here, do not leave.”

  • http://none David G.

    I’ve also recently read Johnson’s book. Socrates did an excellent job summarizing it.

    One point that he might have emphasized more is that the CIA term “blowback” refers not just to the unintended consequences of policies, but to consequences of policies of which the American people were kept uninformed. It is this denial of any context by which to understand what is happening that makes finding remedies so difficult.

    This is what makes Johnson’s analysis, written a year before 9-11, so chilling to read today. It’s why today today we still have Americans told to believe that the highjackers did it because “they hate our freedoms,” and any real discussion of the attack’s origins is forbidden because it would shine light on Israel and U.S. policies in the region.

  • http://www.elitebloggers.com Dave Nalle

    I don’t have time for any lengthy responses even to those who deserve one – got to go exploit some workers and pay them in devalued dollars.

    But a couple of quickies.

    Ruvy said:
    The price of oil today is at least three times what it was in 1973

    Incorrect. If you adjust for inflation oil today, even at $3 a gallon is slightly less expensive than it was in 1973. But I agree with those who say the price of oil needs to be higher. It needs to hit $5 a gallon in the US to force necessary changes.

    It’s why today today we still have Americans told to believe that the highjackers did it because “they hate our freedoms,”

    A comment you only see coming from the left as part of a strawman argument designed to paint those on the right or in the administration as simpleminded. But like any canard there IS a nugget of truth, as the relative freedom to behave imorally is certainly something that many Muslims hate. It’s not their primary motivation, but it makes it easier to portray westerners as evil and corrupt.

    Dave

  • MBD

    “I don’t have time for any lengthy responses…”

    Looks like David G. stopped Nalle in his tracks…

  • bliffle

    Dave Nalle:

    “The dollar has been deliberately deflated as part of an economic strategy which thus far seems to have been pretty successful.”

    That’s funny, since Dave vigorously maintained there was NO devaluation until I pointed out the facts and figures. That was when I thought it useful to pursue refutation of his claims, but soon it was apparent that Dave just invents ‘facts’ to support his unerringly partisan assertions.

    “…deliberatively…”? When did we deliberate that policy, Dave? When did we hear arguments pro and con in the congress? In the newspapers? On TV? In the Blogosphere? When did YOU vote on that issue?

    “…successful…”? So who can point to some way that devaluation has helped them?

    Well, my friend O can! Back in 2000, flush with Clinton dollars from being booked up at $150/hr. during the 90s, he bought a little villa for 70k Euros in the Loire valley, but only paid $50k US because of the favorable exchange rate. If you wanted to buy a 70k Euro villa today you’d have to pay $100k US Bush dollars. Anyhow, you couldn’t buy O’s villa because it’s gone up a lot in Euro value, too, which is a rather new phenomena in French real estate, abetted in his area by the huge influx of Brits who’ve discovered that everyone loves workers who show up on time everyday, keep their promises, and assimilate enthusiastically. Loire Valley is quickly becoming known as The Garden Of Britain.

    But that opportunity is foreclosed for most people. Even O says he couldn’t do it now as consulting fees have dropped to $70/hr with the influx of cheap and submissive engineers living 3 to an apartment.

    Anyone else have experience of dollar devaluation helping them?

  • joe

    Hey Dave
    Do we wage war on terrorism or on bloated military expenditure?
    If a toilet seat is procured for$2500 and hammer for$600 for the military the answer is quite obvious.

  • joe

    Aaman,
    Good points made by you in your comment #26.Pax Americana? i would think Pox Americana would be more apt!

  • joe

    biffle,
    one of the ugly side of globalization is low wages for white collar workers. The corporations would out source the work to low wage countries and kill jobs at home.And force the workers in Wealthy economies to accept low wages. Good old Marx got it right when he said the capitalist uses the reserve surplus labor to drive wages south.

    your story of O is heart rending.

  • http://blogcritics.org/writer/clavos Clavos

    @#39:

    “…deliberatively…”? When did we deliberate that policy, Dave?

    You’ve misquoted Nalle, Bliffthuselah. Look at your own top line, where you quoted him accurately: “The dollar has been deliberately deflated as part of an economic strategy which thus far seems to have been pretty successful.” (emphasis added)

    “…successful…”? So who can point to some way that devaluation has helped them?

    Any exporter. As the dollar weakens, American exports sell better abroad; this in turn helps the balance of payments.

    Workers. As the dollar weakens foreign labor becomes less competitive; job outsourcing decreases.

    One area I have direct, personal knowledge in:

    American built boats (Hatteras, Sea Ray, e.g., there are dozens of others as well) are selling like hot cakes in Europe and elsewhere; they’re built in North Carolina (Hatteras) and Florida and Tennessee (Sea Ray). Sea Ray, incidentally, is the world’s (not just the USA’s) largest boat builder; when its export sales go up, they are more than just a blip on the radar.

  • joe

    US military intervention is not based on benevolence but protecting US corporate interests.

    Have we forgotten the words of Major General Smedley Butler who said,“War is just a racket. A racket best described, I believe, as something that is not what it seems to the majority of people. Only a small inside group knows what it is about. It is conducted for the very few at the expense of the masses”. When General Butler retired from the army he went on record saying that while a serviceman should defend his country honorably he should never become a ‘rackeeter for capitalism.’

    And Major General Smedley Butler was not a ‘commie nutter’as Clovos and Nalle would put down but a respected member of the US Marine Core.

  • MBD

    Who do you expect me to believe — a Major General in the US Marine Corps or Clavos and Nalle?

  • STM

    Clavos: if you’re around, according to the tracker, delvery of your item has been attempted. Cheers bro

  • STM

    Despite Dave’s view that the US isn’t an empire, I beg to disagree. It’s an empire all right. As another commentator says, it looks, walks and quiacks like a duck. It’s undoubtedly about corporate imperialism. Because the US doesn’t go planting the Stars and Stripes everywhere it goes is irrelevent. It builds corporate HQs instead, and the profits largely go back to US shareholders.

    The flip side of the coin is that in my view, the US empire is stage II of the anglo-empire, and that means the US is largely a benevolent corporate coloniser.

    US companies in Australia, for instance, provide millions of jobs. The good they do around the world outweighs the bad.

    As usual, we have immediately fallen back to the default position of the loony left here: the US and its allies are bad, and everyone else – including mass murderers – must be right.

    I prefer to see it the way it really is: without the US, the world would be in real crisis.

    Yes, we know it’s not perfect, but it’s a damn sight better than some of the alternatives that have been thrown up over the past half century or so.

  • Zedd

    Dave

    sed: “They came into the union willingly.”

    You forget that this land was occupied by Native American nations. They did not come into the union willingly.

    Why do you forget this very significant aspect of our very short history.

  • Zedd

    STM

    I prefer to see it the way it really is: without the US, the world would be in real crisis.

    Without the US someone else would be in its place.

  • STM

    Yes, Zedd, and I’d really hate to think about who that might be … better the devil you know, especially when, for all its faults, it’s not as bad as many others could be.

  • http://www.elitebloggers.com Dave Nalle

    You forget that this land was occupied by Native American nations. They did not come into the union willingly.

    Actually, in the areas under discussion the native population had already been previously suppressed by colonists from Spain, so their presence was irrelevant. And as a general rule, unfair though it may seem to some, conquered peoples are not given a fair shake by conquerors. That’s the way it goes. I’m still waiting for my reparations from the Sassenach for the suffering of my ancestors back in bonny Scotland.

    Why do you forget this very significant aspect of our very short history.

    Because it’s irrelevant to anyone but those who want to make a bogus issue of it.

    I prefer to see it the way it really is: without the US, the world would be in real crisis.

    Without the US someone else would be in its place.

    And the crisis would be that whoever was in place of the US would likely be a hundred times worse.

    Dave

  • http://desicritics.org Aaman

    And the crisis would be that whoever was in place of the US would likely be a hundred times worse.

    Strangely, similar arguments have been used by every totalitarian regime and dictator in history.

  • http://blogcritics.org/writer/clavos Clavos

    Stan, me ‘at’s ‘ere; check yer email.

  • MCH

    “Who do you expect me to believe — a Major General in the US Marine Corps or Clavos and Nalle?”

    But MBD…surely Nalle’s hundreds-of-thousands of typewritten words should count for something…?

  • http://blogcritics.org/writer/clavos Clavos

    Strangely, similar arguments have been used by every totalitarian regime and dictator in history.

    That’s US alright: “totalitarian and dictatorial.”

    Life here is so horrible, I can’t understand why Americans aren’t jumping onto rafts and wending their way to cuba or haiti.

  • http://www.elitebloggers.com Dave Nalle

    I’m going to Cuba for the free healthcare right after I stop in to Haiti for the free burning tire ‘necklace’.

    It’s always good to bring up the good things the US has done in the world, because the outraged response immediately identifies the rabid, irrational America-haters whose minds are completely closed off from reality.

    Dave

  • MBD

    Dave’s mantra: If you haven’t got a reasonable or rational response, diddle with the issue, twist it until it changes shape, call it by a different name, throw in some pejoratives and epithets and try to make an attempt at being humorous.

    ___

    Dave says he “identifies the rabid, irrational America-haters whose minds are completely closed off from reality.”

    Perhaps many of those Nalle calls the “rabid, irrational America-haters whose minds are completely closed off from reality” are really normal rational folk totally connected with reality who see the US government (i.e., the Washington pols on the take and feathering their own nests) as the problem that keeps the country from being all that it could be.

    There’s nothing wrong with the country. The problem lies with the bastards in government who keep the country from being what it should and could be.

    “Be all that you can be“… not bad advice. If it was good enough for the Army, why not the pols?

    So who is rabid and irrational with a closed mind?

  • joe

    Clavos #53
    ‘Life here is so horrible, I can’t understand why Americans aren’t jumping onto rafts and wending their way to cuba or haiti.’

    I heard the US corporations are destroying jobs in the land of milk and honey and endless opportunities.Cuba may not be a bad idea. May be you could try your hand at ousting Castro.

  • joe

    stm #45

    ‘The flip side of the coin is that in my view, the US empire is stage II of the anglo-empire, and that means the US is largely a benevolent corporate coloniser.It builds corporate HQs instead, and the profits largely go back to US shareholders.’

    With profits going to US shareholders and the colonised exploited gee it is business as usual for you guys.

  • joe

    dear Dave,#54
    I’m going to Cuba for the free healthcare right after I stop in to Haiti for the free burning tire ‘necklace’.

    Going to Cuba may not be a bad idea. Health care is quite good there.How is health care in US? Are you truly screwed if you don’t have health insurance? What about drug prices are they expensive? I understand that many elderly people cannot afford to take drugs.

    will your govt allow elderly Americans to visit Cuba for health chec ups?

  • http://blogcritics.org/writer/clavos Clavos

    Going to Cuba may not be a bad idea. Health care is quite good there

    Not good enough to keep the people there. On a daily basis, they choose to risk their lives to come HERE.

    Wonder why, if it’s so bad here?

    Could it be…………………..it’s not???

  • Dr Dreadful

    I’d like to backtrack a bit, to Dave’s comment #25:

    Since we reduced our interest the place has gone to hell in a handbasket. And our presence there was always a moderating and protecting one.

    That’s exactly the kind of thing we British kept saying to ourselves about India and Africa… right up until we slunk back into Southampton with our tails between our legs.

    And what was that entity called again? Ah, yes – the British Empire.

    Quack. Quack.

  • Lumpy

    Joe what you miss in your little marxgasm about corporate exploiters is that where US businesses go they inevitably bring prosperity, typically paying double the prevailing wage and creating opportunities to create lots of new local businesses.

  • STM

    “Be all that you can be”…

    Ah yes, Quantum Potes Tantum Aude.

  • STM

    Lumpy wrote: “Joe what you miss in your little marxgasm”.

    Yes, Joe, consider yourself smacked on the wrist for being a naughty boy. Marxist-style socialism has been consigned to the dustbin of history.

    Better to fight for the rights of workers and the lower paid within a capitalist system reined in by legislation that takes these things away from the whims of employers and works at accord. I’m all for that, particularly if it means raising living standards all round. In fact, that’s ALL I’m for.

    And you miss the point of my argument: I’m arguing that the US is an empire, albeit a reasonably benevolent one compared to what you could have (Nazism, Stalinism, Sharia law and Castro’s Cuba are great examples).

  • http://www.elitebloggers.com Dave Nalle

    I’m actually open to the idea that the US is a sort of empire – though not like those which have gone before. Our expanded economic sphere of influence, where we colonize by sending businesses to other countries and growing capitalism there, has many characteristics of an empire, but mostly it’s much more positive and has few of the negatives. The Iraq War, of course, does not fit in at all with this model of economic empire.

    Dave

  • MBD

    #47… “Without the US someone else would be in its place.”

    Trade, yes. Aggression, no. Subjugation, no.

    When has any people accepted subjugation?

  • STM

    Dave, there’s really no difference at all. It’s a bit more than just expanding a sphere of influence. It’s the new imperialism, is all. But living in a country that was once under the British sphere of influence and is now under the American, I don’t have a problem with it at all.

    I could think of worse things, seriously, and you know my politics on most things is way to the left of yours and even of most “liberals” in the US. But prosperity seems a better alternative to me than some of the other alternatives.

    Just the like they are in the US, people are also knocking down the door to get in here, so there must be something in it. I don’t hold with the views ofthe unthinking, loony left who just take the default position that it’s all bad.

    It ain’t, even though it could be better.

  • http://blogcritics.org/writer/clavos Clavos

    Well said, Surfer Dude.

    Except I don’t buy your proclamations of how lefty you are, mate. Your comments and posts on BC don’t read all that extreme.

    Sorry!

  • STM

    Ah, because I support systems of government that stand up to bullies and murderers and allow people freedom of choice – even when they’re quite to the right, like the US – doesn’t mean I ain’t left.

    I am old-style left though: a believer in unions and workers’ rights, and a fair day’s pay for a fair day’s work. And there’s a big difference between that and idiots mouthing socialist platitudes they’ve read about in books.

  • http://www.elitebloggers.com Dave Nalle

    What’s left in Australia may not seem so left here in the US.

    I know I believe in unions and workers rights and a fair day’s pay for a fair day’s work (as determined by the open labor marketplace) and even collectives and coops and all that good socialist stuff.

    I just don’t believe unions should be able to operate autonomously against the best interests of their members without any member oversight, and I don’t believe unions ought to be able to shut non-unionized workers out of jobs.

    I’ve got a feeling that in Australia the unions have not been allowed to become the abusive and power-grabbing monsters they are here in the US.

    Dave

  • STM

    “I’ve got a feeling that in Australia the unions have not been allowed to become the abusive and power-grabbing monsters they are here in the US.”

    I think they have more power in some ways, but governments have set up mandatory abritration processes so that due process must be followed.

    What’s resulted has been a set of workplace laws thrashed out in the courts over a period of 100 years or so that have given workers the best set of workplace rights and conditions in the world, and the overall highest standard of living among blue-collar workers anywhere – across the board.

    However, it has been offset with increased productivity guarntees in many industries, which is really where it should.

    I know many American workers who come here are quite shocked at the rights they have in the workplace because of all the above, so I would say the two systems are very, very different.

    Howard is doing his best to dismantle them in one fell swoop, but now faces the wrath of the people for doing so. Bad misjudgement on his part, most of us think.

  • http://www.elitebloggers.com Dave Nalle

    Stan, are you familiar with how unions work in America?

    The idea of unions is a great one, but the way they are implemented here is a disgrace – worse than any failing from our government.

    They take enormous dues from members and then give the members virtually no say in how the union is run, leaving that in the hands of a small elite group which is essentially hereditary.

    They’ll sell out their members at every opportunity and don’t give a damn about forcing employers out of business if it helps consolidate their power. They even discourage government from regulating industry because they want the opportunity to use issues like workplace safety as a bargaining tool.

    Dave

  • Lumpy

    Not to mention gouging the hell out of consumers by inflating labor prices unreasonably.

  • bliffle

    I think there are only about 10 million union members in the US, and it’s been a long time since they did anything that demonstrated power. Back in the 40s, 50s and 60s there used to be regular strikes and demands. Remember John L. Lewis? All over the news demanding more pay for miners.

    When is the last time anyone had a big strike?

    I think the unions exert very little influence in the US economy.

  • bliffle

    #45 — May 7, 2007 @ 22:03PM — STM

    “The flip side of the coin is that in my view, the US empire is stage II of the anglo-empire, and that means the US is largely a benevolent corporate coloniser.”

    “… without the US, the world would be in real crisis.”

    True. Which makes it all the sadder that Bush is throwing away longterm USA world leadership over these stupid projects of his, which will fail anyhow.

  • joe

    Dear Lumpy,#61
    Ah yes…the old refrain making the world safe for Standard oil..Have you heard of sweat shops in Mexico where workers are exploited by bloated US Corporations? or Bangaladesh, Vietnam?

    If you guys are not careful your empire may be consigned the dustbin of irrevelence.

    Your corpogasm was most amusing…And guess why Marx is still popular in Wall Street? He understood the shitheads perfectly

  • http://www.elitebloggers.com Dave Nalle

    Bliffle, you’re just dead wrong about unions. They may look weak from where you are, but try building anything in Chicago and see how far you get without hiring a bunch of union layabouts just to be able to sign a contract.

    For that matter, the NEA is the most powerful union in America and it’s insanely powerful and influences national policy constantly and in very negative ways.

    Dave

  • joe

    #75
    And guess why Marx is still popular in understanding Wall Street? He understood the shitheads perfectly.

  • joe

    Dave#76

    Have you tried your hand at fiction writing?

  • joe

    #63-Stm
    ‘I’m arguing that the US is an empire, albeit a reasonably benevolent one compared to what you could have (Nazism, Stalinism, Sharia law and Castro’s Cuba are great examples).’

    ‘Throughout the world, on any given day,a man, woman or child is likely to be displaced,tortured, killed, or disappeared,at the hands of governments or armed political groups. More often than not, the United States shares the blame.’Guess who said that? Not a ‘commie’ but Amnesty International in its 1996 report.

    one can’t help recalling the immortal lines of Vice President Agnew ” The United States,for all its faults, is still the greatest nation in the country.’

  • joe

    Clavos#59
    In public health Cuba offers interesting statistics:
    Infant mortality-cuba-19 per 1000 births, Great Britain-11,Mexico-47,Guatemala-51, Argentina-32, El Salvador-60, Chile-36 (source WHO).For a population of almost 10 million there are 260 hospitals. malaria ,polio,diphtheria.This in spite of the illegal sanctions imposed against Cuba.

    Say clavos how was cuba during your pal Batista?

  • joe

    #80
    malaria ,polio,diphtheria eradicated from Cuba.

  • joe

    #68 stm
    ‘idiots mouthing socialist platitudes they’ve read about in books.’
    still a shade better than sticking big mac in our mouths, roll our eyes and watch CNN spin yarns aboutWMD.

  • http://www.elitebloggers.com Dave Nalle

    Have you tried your hand at fiction writing?

    Why yes, Joe. Take a look at this snippet.

    Dave

  • http://blogcritics.org/writer/clavos Clavos

    Joe,

    In public health Cuba offers interesting statistics:
    Infant mortality-cuba-19 per 1000 births, Great Britain-11,Mexico-47,Guatemala-51, Argentina-32, El Salvador-60, Chile-36 (source WHO).For a population of almost 10 million there are 260 hospitals. malaria ,polio,diphtheria.This in spite of the illegal sanctions imposed against Cuba.

    Medically, it’s paradise, probably every other way, too, but don’t take my word for it, ask Ricardo Alarcón.

    And yet, all the traffic between the US and Cuba is one way; they’re coming here.

    So why is everyone leaving every chance they get?

    You can bray 24/7 about how wonderful Fidel’s socialist paradise is, but the rest of the world notes the fact that the Cuban people are taking enormous risks to leave, on a daily basis.

  • STM

    Joe wrote: “still a shade better than sticking big mac in our mouths, roll our eyes and watch CNN spin yarns aboutWMD.”

    Forget about the Big Macs mate, I’m an Aussie. I prefer a meat pie with sauce (ketchup) and a cold beer.

    I never bought the line about WMD either, but having lived in Iraq as a kid and being forced to leave the place as the Baathists were coming to power probably gives me a skewed view to a certain extent, but I am glad that Saddam and his stalinist cronies were removed from power. And mate, I almost never watch CNN. It’s the BBC or ABC (the Aussie one) or nothing.

    I’m quite capable of forming my own opinions uninfluenced by American propaganda. I’d ask you too Joe, have you ever been to a communist country for any length of time? I was in the Soviet Union in the early 80s, and it wasn’t that much fun, even from the leftie point of view of my 20s. Shortages of everything, and people really struggling on a daily basis.

    Just finding toilet paper was a drama, although Pravda did come in handy. I’d rather have been struggling in America than struggling in the Soviet Union. There’s no comparison.

  • http://www.elitebloggers.com Dave Nalle

    I am glad that Saddam and his stalinist cronies were removed from power.

    I’d ask you too Joe, have you ever been to a communist country for any length of time?

    Let me second that one. And I’ve got a guess at the answer.

    I was in the Soviet Union in the early 80s, and it wasn’t that much fun, even from the leftie point of view of my 20s. Shortages of everything, and people really struggling on a daily basis.

    I was there in the mid-70s. It wasn’t much fun then either. I was never gladder not to be a native than when I walked by the lines of 100 people waiting with their ration cards at a bakery which would likely produce only 20 loaves of bread. At least by the 80s things were falling apart so the bakery was probably actually baking 100 loaves and selling them out the back door. If that’s an improvement.

    I’ve got a Russian joke for you from the 70s.

    Nixon has just arrived in hell and runs into Brezhnev during a brief break on his first day of endless roasting.

    Nixon says, “Damn, Leonid. It’s unbearable over in the American hell. The furnaces run full blast all day long.”

    Brezhnev laughs and says “Well, come on over to the Russian hell. The furnaces are broken and the spare parts factory retooled to make freezer coils to meet the 5 year plan.”

    Dave

  • STM

    Yeah, Dave .. and how about how every bastard used to carry one of those brown, polished cardboard schoolcases or a big shopping bag just in case there was a queue at GUM a bakery or butcher’s. The funniest: the queue outside the big whitegoods/electric lights/appliances shop near the space park just off Prospekt Mira that almost never had any whitegoods/electric lights/appliances except the display ones in the window. You had to be quick, or know someone.

    Sometimes people told me they just joined a queue when they saw one, and didn’t know what they were queuing for. But they did it just in case it was something good. Even the Russian smokes were shockers. Nice beer, though … and dirt cheap at the railway station bar.

  • http://www.elitebloggers.com Dave Nalle

    You ever try the fermented bread drink, Stan? Nasty, nasty stuff.

    Because we were diplos we got to shop at the special stores reserved for party members. They were amusing in their own way. For example, you couldn’t buy a rib-eye or a t-bone or any other steak or cut of beef for roasting. You could only buy filet mignon. I think it says a great deal that the embassy brought in certain staple goods from Finland by diplomatic pouch. That’s when I learned that eggs and milk could be frozen.

    Dave

  • STM

    Nah, drank plenty of vodka but never tried the bread drink but someone did try to foist something like it on me and I resisted whilst continuing to drink vast quantities of beer at the Leningrad railway station (in Moscow!). Only people who’ve been there know why you do this – because if you’re just Joe average (99.99 per cent of the population), it’s the only accessible 24-hour bar in Moscow.

    On the meat thing, I did accidentally order the horse one time at a restaurant because I saw it going past and it looked like a steak.

    I said: “I’ll have what he’s having”. Waitress: “Are you sure, Sir?”
    Me: “Course I’m bloody sure. Medium rare thanks”.

    When I complained about the gamey taste, the waitress said: “I thought you liked to eat horse”.

  • joe

    Dave,
    ‘Poverty in America? One of the richest countries in the world?

    Yes, poverty is a reality in America, just as it is for millions of other human beings on the planet. According to the US Census Bureau, 35.9 million people live below the poverty line in America, including 12.9 million children.’

    gee dave you must be one of the well heeled ones.

  • joe

    stm,
    you are lucky chum to live in Australia. With job losses in USA there may be slow boat from US to China.

  • http://www.elitebloggers.com Dave Nalle

    Wow, STM. You were in a restaurant which was both open and had an actual waitress who then actually spoke to you? Did the moon turn blue while you were there?

    dave

  • http://www.elitebloggers.com Dave Nalle

    [Edited]

    The artificially set ‘poverty level’ in the US is higher than the median income of 90% of the other countries in the world, and jobs earning above that level go begging every day throughout most of the country.

    As for ‘job loss’, I guess you mean jobs that lose their workers to higher paying jobs, right? Because even with the illegals we’re hovering on the brink of a critical labor shortage.

    Dave

  • Dr Dreadful

    Dave #86: LOL. One of my favorites is that other classic Russian joke:

    Two Muscovites are waiting in the bread line. After several hours, one of them says, “I’m sick of this. I’m going to the Kremlin to shoot Brezhnev.”

    So he stomps off, but an hour or so later he reappears and sullenly takes his place at the back of the line. His friend turns to him and says, “So what happened? Did you shoot Brezhnev?”

    The first guy shakes his head and says, “No. The line was longer there.”

  • bliffle

    “#40 — May 7, 2007 @ 21:11PM — joe

    biffle,

    your story of O is heart rending.”

    Yes, poor fellow. He may be forced to live in a province with mild weather, a lazy wide river wandering thru it, in a village of vignerons surrounded by the most glamorous chateaux in the world just a bike ride away. *Sigh*.

  • bliffle

    “#76 — May 11, 2007 @ 00:48AM — Dave Nalle [URL]

    Bliffle, you’re just dead wrong about unions. They may look weak from where you are, but try building anything in Chicago and see how far you get without hiring a bunch of union layabouts just to be able to sign a contract.”

    Chicago? Why would I do that? I’m nowhere near Chicago, never hire anyone, and don’t sign contracts, except buy or sell.

  • STM

    Dave wrote: “Wow, STM. You were in a restaurant which was both open and had an actual waitress who then actually spoke to you? Did the moon turn blue while you were there?”

    Lol. I was a good-lookin’ fella when I was young, and even got a date with an Aeroflot hostie who gave me all the Heiniken on the flight, then wine when it ran out, and took my suit to be dry cleaned after she’d spilled a pot of coffee over it. It was a given she was telling the KGB, but who cares?

    It was a hotel where I was staying – as a (recalcitrant) guest of the Soviet government.

    They had a disco too, where a really nasty young drunken Arab bloke speaking perfect English and obviously studying the nefarious activities for which the USSR was famous got really stuck into me one night because he thought I was British.

    I just let him rant for 10 minutes, then told him I was Australian and I didn’t understand anything he was talking about.

    Ah yes. The Hotel Cosmos (probably a bit after your time?), what a wonderful place. Lots of nice beetroot soup (actually, apart from the aforementioned horse, the food wasn’t too bad and believe it or not, the service was (just) OK) – a shortage of bog rolls though …

    Those were the days.

  • STM

    Bliff asked: “Anyone else have experience of dollar devaluation helping them?”

    Yes, with our dollar now regularly getting towards 85 cents of your dollar (that 10 cents makes all the difference), American car companies are once again starting to export US-made vehicles into Australia, and at really affordable prices. While we have GM (Holden) and Ford Australia here, their products, although quality, are locally designed and built and just staple fare.

    So it’s nice to see a few quality American cars (notable from Chrysler) added to the mix from around the world after a very long hiatus. That’s one benefit of a falling US dollar – it’s good for American exports, and as we all know, value-adding is the way to go. I don’t see the US economy going west just yet.

    I don’t plan to get one just yet as I’ve just bought a Froggie turbo-diesel that’s saving me a zillion in fuel costs, but my wife has been eyeing off a few and my mate has just bought a V8 Chrysler 300C wagon, which is a pretty nice car and for a big mutha, not too bad on the juice.

  • http://www.elitebloggers.com Dave Nalle

    Lol. I was a good-lookin’ fella when I was young, and even got a date with an Aeroflot hostie who gave me all the Heiniken on the flight, then wine when it ran out, and took my suit to be dry cleaned after she’d spilled a pot of coffee over it. It was a given she was telling the KGB, but who cares?

    She was probably just happy to see someone who didn’t drink themselves into unconsciousness during the course of the flight.

    It was a hotel where I was staying – as a (recalcitrant) guest of the Soviet government.

    I hate to even imagine how you ended up in that unenviable position.

    Ah yes. The Hotel Cosmos (probably a bit after your time?),

    When I was there the top hotel in Moscow was the Ukraina, though I believe they had just finished a new hotel. It might have been the Cosmos. The Ukraina was built under Stalin. It had a great lobby, but the rooms were small and a lot of them were unusable.

    Dave

  • http://www.elitebloggers.com Dave Nalle

    Speaking of US cars in Australia, I don’t suppose Dodge/Chrysler is selling their Deisel/Electric Hybrid pickup truck over there?

    Dave

  • STM

    No, not at this stage. However, the imports are Dodge and Chrysler at this stage. Hybrids aren’t that popular here. They sell a few of the Prius and the cheaper Honda hybrid, but most people who are interested in that stuff have just jerried to the fact that turbo-diesels with good emission and particulate controls are a) really clean, and b) really cheap to run (my Peugeot costs me about $25 a week in fuel, and I drive every day but Sunday from the outer suburbs to the city). Amazing – 5L/100km. I don’t know the US conversion, but it’s the equivalent of a hybrid, perhaps better.

  • http://blogcritics.org/writer/clavos Clavos

    STM sez:

    Amazing – 5L/100km. I don’t know the US conversion, but it’s the equivalent of a hybrid, perhaps better.

    It is indeed: a hair over 48 mpg…

  • sc

    The military budget of US is mind boggling.

    For fiscal year 2006, Robert Higgs of the Independent Institute calculated national security outlays at almost a trillion dollars — $934.9 billion to be exact — broken down as follows (in billions of dollars):

    Department of Defense: $499.4
    Department of Energy (atomic weapons): $16.6
    Department of State (foreign military aid): $25.3
    Department of Veterans Affairs (treatment of wounded soldiers): $69.8
    Department of Homeland Security (actual defense): $69.1
    Department of Justice (1/3rd for the FBI): $1.9
    Department of the Treasury (military retirements): $38.5
    NASA (satellite launches): $7.6
    Interest on war debts, 1916-present: $206.7

    Totaled, the sum is larger than the combined sum spent by all other nations on military security.(Evil Empire: Is Imperial Liquidation Possible for America? By Chalmers Johnson)

  • Anand Menon

    Dave Nalle..you said “Finally, one comment for Anand. The dollar has been deliberately deflated as part of an economic strategy which thus far seems to have been pretty successful. As for the ‘housing bubble’, it’s not bursting. Every expert seems to agree that the adjustments are short-term, and the impact of artifically low interest rates wore off quite a while ago. You can bleat about economic doom and gloom all you want, but the evidence just isn’t there to support it, so long as the deficits continue to go down at an accelerated rate and the value of the dollar starts to rebound correspondingly as we ought to see in the next few months…”

    this was posted in in May Nalle..well we’ve all waited….a few months…NO SIGN OF A REBOUND …YET…in fact the dollar has only plumbed new depths….now we are approaching August….and see what lies in store for the dollar..

    US Dollar Threatens to Break Key Support Level

    As for Clavos #11…you said something about selling boats didn’t you?

    hers’s some news for you if you didn’t know about it already… More Evidence of Spillover from US Housing Market to Consumer Sector

    GUYS…. PLEASE TELL ALL OF US WHAT WERE THE GROUNDS FOR YOUR OPTIMISM??

  • http://www.elitebloggers.com Dave Nalle

    Anand, have you looked at the stock market, unemployment, household income, consumer spending, or anything except for the two of dozens of economic indicators which happen to be negative while all the rest are positive?

    Dave

  • Anand Menon

    they are all going one way Nalle baby…..DOWN;)

  • http://blogcritics.org/writer.php?name=gonzo%20marx gonzo marx

    we will see today…yer gonzo predicts bigtime drop ion all markets due to HUGE losses in housing market being reported today

    how bad? dunno…but time fer one of those “corrections” it appears…i’m no market expert, so i won’t even venture a guess, but i would advise putting yer $$ in canned goods and shotguns

    Excelsior?

  • Clavos

    Or, take the opportunity to BUY.

    It has been dropping most of the past two weeks, and I’m picking up some real bargains.

  • http://blogcritics.org/writer.php?name=gonzo%20marx gonzo marx

    hey Clavos, if you can pick up real estate in this market (especially foreclosures) then you will be ahead of the game

    wait for the bottom and pick up some lender stocks really cheap (Countrywide, GM financing(read ditech), some others)

    Apple will run strong with their numbers coming out on the iPhone, but i bought shares in the 90’s at $12, so i’m pretty happy there (only stock i own)

    but the foreclosure numbers, downslide in new home sales…other factors…i don’t think folks will be jumping out of windows, but is too early to tell

    it has long been a theory for some economists that we have been driven by the housing market for the last 6-8 years…low interest rates doing most of the work…but now it appears to be catching up, the pricing bubble bursting and those cheap money adjustable rates slamming down on folks who bought too much house for their budget

    i’m hoping things sort themselves out well, but i ain’t counting on it

    Excelsior?

  • Clavos

    “it has long been a theory for some economists that we have been driven by the housing market for the last 6-8 years…low interest rates doing most of the work…but now it appears to be catching up, the pricing bubble bursting and those cheap money adjustable rates slamming down on folks who bought too much house for their budget”

    Quoted for Truth, gonzo, quoted for Truth.

    BTW, when I spoke of bargains, I was talking about stocks, not real estate.

    Oddly enough, sellers in real estate haven’t panicked yet (at least not in this market) and prices are holding fairly well still (though sales ARE way down), so there aren’t that many bargains out there yet.

    The stock market is another matter.

  • http://blogcritics.org/writer.php?name=gonzo%20marx gonzo marx

    well Clavos, the bursting of Housing added to weak dollar market value and the upcoming crises for those mortgage lenders should send housing prices WAY down soon…and stay there until interest rates get cheap again, and all those foreclosed folks get their credit right again

    add all this to gasoline prices and the ripple effect of that (check yer grocery bill lately?)

    not sure how bad it’s going to get, other Indicators look good…but a DOW over 10,000 and a NASDAQ over 2000 (mebbe 2500 cap) tells me there’s gonna be hell to pay in the next few months as things ripple out into the larger economy

    hope i’m wrong, and everything gets stable with little Pain

    but i wouldn’t bet that way

    Excelsior?

  • http://LesPaulisanexcellentguitarplayerwithanadmirablegraspofgoodjazz. bliffle

    Dave: “The dollar has been deliberately deflated …”

    Is that the same dollar deflation you insisted was non-existent a couple months ago?

  • Clavos

    As I said, gonzo, lots of opportunity out there…

  • http://blogcritics.org/writer.php?name=gonzo%20marx gonzo marx

    well Clavos, only if you are sitting on some liquidity

    wish i could take advantage of it, but medical bills and the last year on disability left me rolling pennies for a pack of smokes to help me make it through this current bout of standing in pain for the next day or so

    but i digress…

    Excelsior?

  • Clavos

    As you know, gonzo, plenty of medical bills and pain, etc. here, too, so much empathy goes out to you.

    That said, QUIT SMOKING, my friend.

    I smoked for 26 years; quit in 1985, after my father and father-in-law both died within a year of each other (both too young), from smoking related problems.

    Nobody preaches more than a reformed ——–, I know. But it’s literally life and death, gonzo.

  • http://blogcritics.org/writer.php?name=gonzo%20marx gonzo marx

    much Appreciation for the kind thoughts there Clavos

    but compared to some of my old habits (long since quit)…my friend Smoke is all i got left, and about the only thing that helps sometimes when 1500 milligrams of Vicodin doesn’t dent the pain…the Zen of a Smoke can help get through difficult moments

    have quite before, sometimes for years at a clip, and didn’t start until i was in the service

    we will see, if this gut problem ever gets resolved, i’ll quit again..but right now moderation and thoughtful care about dosage appears to work for me so far

    well, as best as can be expected

    Excelsior?

  • Anand Menon

    The bloodbath that is to be unleashed on the stock markets and financial world is a result of the consequences of empire.The present situation is anticipated brilliantly in Frank Partnoys book “Infectious Greed”.I for one am not a great fan of gloom and doom books,but this one had me hooked.If any reads it and then surveys the present situation in the global stock/ financial markets he/she would quickly understand what is meant when references are euphemistically made as to the present “credit crunch”…..which is another way of saying Greed has taken its toll.

    This really is the beginning of the end of the American Empire…the way things are going pretty soon you can take those dollars and make paper boats to float in your bathtub…thats what they are going to be worth.

  • Nancy

    Gonzo, ol’ buddy, I 2nd Clavos about the smokes – unless it’s some good Acupulco Gold you’ve got. But tobacco isn’t worth squat. I’d send you some of my oxyc. but I don’t think BushCo allows it thru the mail. Failing that, best thoughts for your relief. I’ll pray to Juju … or whomever.

    Anand, I think you’re right. Alas.

  • http://www.maskedmoviesnobs.com El Bicho

    “unless it’s some good Acupulco Gold”

    HA HA. Let me guess, you are still buying lids and listening to Cheech & Chong records. Please keep up with the lingo.

  • Anand Menon
  • Anand Menon
  • Anand Menon

    Heyy… where’s Nalle?… where’s the dollar?… where’s the quick rebound?… where’s the effing stock market?

  • Anand Menon

    MR.NALLE..STILL BELEIVE THE DOLLAR IS REBOUNDING??

    China has got the U.S by the short hair

  • http://www.republicofdave.com Dave Nalle

    Anand, do you seriously think a dollar turnaround and rebound is going to happen in a matter of 3 months?

    And please don’t waste peoples time linking to Paul Craig Roberts or any of the other Dobbsians with thier ridiculous theory about China dumping US dollar investments. A 6th grader could think that theory through and see how illogical it is.

    I posted this on another thread recently, but let me post it for you too. I tried to keep the words simple.

    When I edited this last night I was going to have some fun responding, but I was too tired, and now Clavos has beat me to it. This is a classic, Joel – the perfect mix of paranoia, hyperbole and sheer craziness. It’s like you’re channeling Lou Dobbs or something.

    Oh, what the hell, I’ll hit a couple of the highpoints.

    Ok, how does China ‘dump’ US investments? Does it discount the price and then sell them to other people? Ok, that sounds believable. Plenty of people out there to buy them. Now, whose economy does this destroy? Well, the Chinese would take a huge hit if the sold them at a discount, so they’d be damaged economically. Then other countries or banks would buy them and expect them to be redeemed at face value. They make a nice profit. Sounds good for them. But what’s the impact for the US. How does this ‘nuclear’ economic bomb impact us. The debts still have the same face value, the same interest rate and the same term of the maturity. When the new owners redeem them we get exactly the same amount for them the Chinese would have. So how, exactly, does this make the deal any worse for the US? All I see is the Chinese losing money and the buyers making money. At worst it might result in market saturation of US debt instruments making it harder for us to get credit, a temporary and likely very limited problem.

    Dave

  • Ruvy in Jerusalem

    Faling Stocks Characterized as “Mini-Panic”

    While Dave Nalle is busy dispensing the Prozac, little problems with the American sub-prime market appear to be causing some distress among investors.

    Then there is the threat of China unloading its dollars. While some will choose to inbibe Kool-ade with the Prozac Mr. Nalle dispenses, others are viewing the American dollar with a bit of alarm. Given that I have merely a few rolls of wheat pennies and about $3.50 in other American tokens (money changers in Israel will not exchange tokens of other currencies, only banknotes), I don’t really have a problem. But you Yanks might find you have one soon, depending on whether China actually decides to dump its dollars or not.

    You know, Dave, you may be technically correct in that the value of the American debt will not shrink merely because it changes hands. But in finance, as in politics and so many other things, it is perception that counts, not reality.

    There are occasionally certain advantages to being poor…

    shavua tov – have a good week,
    Reuven

    PS – By the way, the shekel seems to have dropped back in value – but the euro has risen to nearly six shekels in value – so a can of Coke costing 9½ euros in Europe, the equivalent of nearly sixty shekels – costs ten times what it does in a shwarma shop in Jerusalem. Ahh! The joys of international finance…

  • http://www.robot-of-the-week.com Christopher Rose

    I may have misunderstood your meaning, Ruvy, but there is no way a can of Coke costs 9 Euros in Europe, but rather less than one tenth of that…

  • Ruvy in Jerusalem

    Are you talking about buying a can of Coke in a mini-market or in a restaurant? What I was citing was an article about American tourists discovering just how much a can of Coke cost in a European restaurant…

    And I quoted an Israeli restaurant for my price here.

  • Ruvy in Jerusalem

    By the way, Chris, that was a Parisian restaurant, not one on the coast of Spain…

  • Anand Menon

    Mr.Nalle since you think three months is too short a time for such a robust currency and since you know so much mind telling all of us when you think the dollar is going to rebound???

  • http://www.robot-of-the-week.com Christopher Rose

    I haven’t been in every restaurant in Europe, Ruvy, but if there are any selling a Coke at way over ten times the price it is in the shops, they are surely few and far between and have mindless muppets for customers. Most restauarants in Spain, and I’ve been to a lot of them, sell a Coke for up to twice the retail price.

    Perhaps you should try and be a little more open in your explanations, for writing what you did surely gave the impression that you were talking about the general price rather than one, possibly apocryphal, exception…

  • http://LesPaulisanexcellentguitarplayerwithanadmirablegraspofgoodjazz. bliffle

    Why on earth would anyone want to drink a coke in a restaurant? Or anywhere else, for that matter. Disgusting sugary treacle made from industrial waste. If I owned a restaurant I’d charge 10 bucks too, to discourage use and mitigate the insult to my establishment.

    Grow up. stop sucking at the sugar teat.

  • Clavos

    “Why on earth would anyone want to drink a coke in a restaurant? Or anywhere else, for that matter. Disgusting sugary treacle made from industrial waste. If I owned a restaurant I’d charge 10 bucks too, to discourage use and mitigate the insult to my establishment.

    Grow up. stop sucking at the sugar teat.”

    Grow up yourself and stop trying to impose your tastes(?) and values(?) on others.

    Typical gringo.

  • Anand Menon
  • Anand Menon

    Mike Whitney:In truth, the “free market” means nothing to the men who run the system. It’s just a public relations scam designed to dupe investors into plunking their money into a system that’s rigged for the carnivores at the top of the economic food-chain.

  • Clavos

    Anand:

    How much is Whitney paying you to shill for him here on BC?

    And why do you follow a “market oracle” (talk about hubris!) who can’t even spell Dow Jones?

    “On Friday, the Dow Jone’s clawed its way back…”

  • Anand Menon

    yeah i read that bit clavos…one swallow does not a summer make…its going to be downhill all the way from here…and i’m sorry to say this …I’m a great fan of some of the U.S’S achievements in education,research,science over so many decades…but unfortunately the rot has started at the top and you guys are in decline..you can’t accuse me of being a shill when i say things you don’t want to hear.

    Tell you what …i have nothing personal against you or Nalle….but if Whitney is wrong i’m prepared to eat crow…how about that?….

  • Clavos

    Fair enough, Anand.

    As you say, one swallow does not a summer make.

    Mr. Whitney’s viewpoint is particularly acerbic and extremely one-sided; and, because you quote only him to support your opinion, the impression that you were shilling came naturally.

    There are plenty of opposing viewpoints available, which are, shall we say, less bearish? I tend to pay more attention to them. I’ve been an investor since the seventies, and I’ve done fairly well over the years.

    I see nothing on the horizon which would lead me to buy into Whitney’s alarmist predictions.

    I’ll retract and apologize for the “shill” remark.

  • Clavos

    Anand,

    Here’s an interesting and very timely essay from Jack Kemp:

  • Anand Menon

    When inflation figures are given out they don’t factor in prices of food and gosoline…two key areas of expenditure for the average american household.Without this misrepresentation the actual rate of inflation would be much much higher.This exposes the lie that the American economy is doing well,infltion is under control,blah,blah,blah….

    Actually if you look closely… Prices for Key Foods Are Rising Sharply

  • Ruvy in Jerusalem

    This piece at Desicritics by Dr. Bhaskar Dasgupta sheds a more sober view of the whole matter by quoting a rather impartial source – a report by the Comptroller-General of the United States.

  • Anand Menon

    Ruvy,its official when the Comptroller-General of the United States comes out into the open to state the obvious.

  • Ruvy in Jerusalem

    Anand,

    That was the point of citing Dr. Dasgupta. Either the American Comptroller-General has lost it entirely and the resident economic experts of Blogcritics Magazine are maintaining the only links to sanity there are – or the chief political editor of this site is dispensing Prozac and other happy pills in the face of an increasingly depressing reality.

    I tend to think the latter.

    I pointed out to the author of the Desicritics article the following:

    “I studied political science and public administration in the late 1970’s; ALL of the problems reported by the Comptroller-General in this report were problems in the late 1970’s – with one big difference. In 1977, the United States was a creditor nation that was not dependent on other nations to fund its economy or budget. The possible collapse that faces the United States is a result of being a debtor nation – something brought about by Ronald Reagan. History will not judge Reagan kindly when the dollar collapses. Nota bene, I said when the dollar collapses – not if.

    The good doctor answered as folows:

    “Yes, I see where you are coming from, Ruvy; this massive deficit finance edifice is only standing till productivity in the USA and returns in the USA are higher than other countries. As soon as that reduces, the USD will no longer be the reserve currency and then the challenge will really bubble to the market when American investments have to be funded from the open market.”

    Unfortunately, the idea that “debt is good” has become institutionalized in America. There is nothing wrong with the idea – until the creditor demands his payment – in full…

  • Clavos

    In your discussion of Dr. Dasgupta’s Desicritics article, neither of you gentlemen take note of two things:

    Collapse of the American economy could be seen as actually being a good thing for the world, though not for Americans, obviously.

    But, you reap what you sow.

    Neither the Comptroller General nor Dr. Dasgupta are totally pessimistic. Here, for your re-reading are the last paragraphs of Dr. Dasgupta’s article.

    They begin with a direct quote from Mr. Walker:

    “‘We need nothing less than a top-to-bottom review of federal programs, policies, and operations.

    In so many areas—recruiting, training and development, job classification, pay and benefits, and employee empowerment—the federal government lags behind other sectors. This is a serious problem given that, in many areas, the government is competing with these sectors for top talent. Moreover, despite the wave of federal retirements that we know are coming, few agencies have adequate succession plans in place.’

    And his closing statement?

    ‘What’s needed now is leadership. The kind of leadership that leads to meaningful and lasting change has to be bipartisan and broad-based. Character also counts. We need men and women with courage, integrity, and creativity. Leaders who can partner for progress and are committed to truly and properly discharging their stewardship responsibilities. But leadership can’t just come from Capitol Hill or the White House. Leadership also needs to come from Main Street.’

    There is much to agree with what he said, but one needs to think about this alternative viewpoint. Yes, the Roman Empire collapsed, but the core civilisational ideas survived, the idea of democracy, of separation of church and state, the establishment of the longest serving organisation (the Catholic Church), huge artistic and scientific advances, all these happened due to, after the crash and in Italy. So while ONE system of government collapsed, Rome, as Gibbons said, still lives on.

    Final word? “In Italy for thirty years under the Borgias they had warfare, terror, murder, bloodshed – but they produced Michelangelo, Leonardo da Vinci, and the Renaissance. In Switzerland they had brotherly love, 500 years of democracy and peace, and what did that produce? The cuckoo clock. So long, Holly.” – The Third Man

    All this to be taken with a grain of piquant salt!!!”

  • Ruvy in Jerusalem

    “All this to be taken with a grain of piquant salt!!!”

    This is Dr. Dasgupta’s tag line at the end of all of his articles…

    I could have gone after the good doctor’s last paragraph. Separation of religion and state only developed in the “west” when the Protestants started rebelling against the Catholics. At the end of its days, the Roman empire had a pontiff for an emperor; finally, there was no democracy in Rome, nor even the sniff of one by 450 C.E. The core idea that Rome bestowed upon the world was its language, Latin, and its many daughters.

    But his main points were to warn of an impending collapse in the United States, à la Rome, using the Comptroller-General’s words as authority.

    As for the Comptroller-General himself, he is right in his observations. The trouble is that leadership from “Main Street” will not arrive. “Main Street” is now the realm of multi-nationals who do not give a damn for America. Many of them regard themselves as “citizens of the world” rather than “Americans” and could function anyplace that there are the creature comforts they seek.

    In fact, now that I think of it, a well appointed boat is the perfect HQ for many of them….

  • Clavos

    “In fact, now that I think of it, a well appointed boat is the perfect HQ for many of them….”

    Heh.

  • Clueless

    Heres’s a parody of John Masefield’s famous poem, The Call of the Running Tide….

    Hand on sailing??…Gives you an indication as to how the “leadership” like to run their boats…

    I must go down to the sea again, in a modern high-tech boat,
    And all I ask is electric, for comfort while afloat,
    And alternators, and solar panels, and generators going,
    And deep cycle batteries with many amperes flowing.

    I must go down to the sea again, to the autopilot’s ways,
    And all I ask is a GPS, and a radar, and displays,
    And a cell phone, and a weatherfax, and a shortwave radio,
    And compact disks, computer games and TV videos.

    I must go down to the sea again, with a freezer full of steaks,
    And all I ask is a microwave, and a blender for milkshakes,
    And a watermaker, air-conditioner, hot water in the sink,
    And e-mail and a VHF to see what my buddies think.

    I must go down to the sea again, with power-furling sails,
    And chart displays of all the seas, and a bullhorn for loud hails,
    And motors pulling anchor chains, and push-button sheets,
    And programs which take full charge of tacking during beats.

    I must go down to the sea again, and not leave friends behind,
    And so they never get seasick we’ll use the web online,
    And all I ask is an Internet with satellites over me,
    And beaming all the data up, my friends sail virtually.

    I must go down to the sea again, record the humpback whales,
    Compute until I decipher their language and their tales,
    And learn to sing in harmony, converse beneath the waves,
    And befriend the gentle giants as my synthesizer plays.

    I must go down to the sea again, with RAM in gigabytes,
    and teraflops of processing for hobbies that I like,
    And software suiting all my wants, seated at my console
    And pushing on the buttons which give me complete control.

    I must go down to the sea again, my concept seems quite sound,
    But when I simulate this boat, some problems I have found.
    The cost is astronomical, repairs will never stop,
    Instead of going sailing, I’ll be shackled to the dock.

    I must go down to the sea again, how can I get away?
    Must I be locked in low-tech boats until my dying day?
    Is there no cure for my complaint, no technologic fix?
    Oh, I fear this electric fever is a habit I can’t kick

  • Clavos

    You must be a blowboater!!! :>)

    BTW, the poem’s title is Sea Fever.

  • Ruvy in Jerusalem

    I’ve recommended this Desicritics article before, and I’m recommending you look at the comments – which are highly intelligent and wide ranging – with very few pointed personal remarks.

  • Clueless

    Ruvy,around here people like to comment post-prozac.

  • Anand Menon

    Clavos sneered at articles from the Market Oracle site to which i’ve posted links…he said”And why do you follow a “market oracle” (talk about hubris!) who can’t even spell Dow Jones?”

    Please read the latest on the decline of America The War on Working Americans – Part II

  • Anand Menon

    wonder where all the optimism stems from going by some of the comments posted here… The U.S. Federal Government Is Flat Broke!

  • Anand Menon

    so while the nation goes into decline what happens to the rich… read on… Travails of the Super-Rich

  • Ruvy in Jerusalem

    Hmmm… Took a look at the Oracle.

    I guess I see why Dave Nalle and his friends here do no want to talk about how broke the American economy is without bracketing it somehow to minimize it. Debt is never a good thing. The American economy – long the head among the world’s economies – is now becoming the tail.

    Larry Edelson would be smart to buy up his gold and get himself and his family the fuck out the USA, preferably here – in Samaria or Judea. But, like most American Jews, he is probably too arrogant to even think about it. He sees the good life rapidly coming to an end – let’s hope he has the brains to save his own ass…

    I wish I could get his e-mail.

  • Anand Menon
  • Clavos

    Chris,

    Would you peruse this thread?

    Do you see a shill-like pattern here?

    (I’m reminded of the Chinese bookseller)

  • Anand Menon

    its the season for shilling. Read this…

    US Dollar is Crashing! Time for Action!

  • Anand Menon

    Fellow bloggers have you noticed how nalle and clavos have suddenly gone quiet.Claims were made that the dollar was going to rebound in afew months.The Fed has reduced rates.Now the dollar is well and truly heading for the cliff.

    Not only that….prepare yourself for bank failures in the U.S as well.Please read this article.it makes for a lot of sense…

    US Banks Brace for Financial Storm Surge as Dollar Plunge and Credit System Panic

  • Anand Menon

    Mr.Nalle…you said”Finally, one comment for Anand. The dollar has been deliberately deflated as part of an economic strategy which thus far seems to have been pretty successful. As for the ‘housing bubble’, it’s not bursting. Every expert seems to agree that the adjustments are short-term, and the impact of artifically low interest rates wore off quite a while ago. You can bleat about economic doom and gloom all you want, but the evidence just isn’t there to support it, so long as the deficits continue to go down at an accelerated rate and the value of the dollar starts to rebound correspondingly as we ought to see in the next few months.”

    Bernanke and the Saudis Punish the US Dollar! So Mr.Nalle… has the dollar rebounded????

  • Anand Menon

    You want to know the meaning of hyperinflation Mr.Nalle then you better have a look at this picture…its not very pretty…

    http://www.marketoracle.co.uk/Article2206.html

  • http://pleasestopstampingonmyhead.blogspot.com/ Colin Ricketts

    This is fairly irrelevant, but I think at least parts of the British Empire were just as free market and corporate as the American ‘Empire’… Until they were essentially nationalised and the East India Company became the British Empire in India…
    Just a thought.

  • Anand Menon

    Fellow bloggers want to highlight Nalle’s comments once again…”The dollar has been deliberately deflated as part of an economic strategy which thus far seems to have been pretty successful. As for the ‘housing bubble’, it’s not bursting. Every expert seems to agree that the adjustments are short-term, and the impact of artifically low interest rates wore off quite a while ago. You can bleat about economic doom and gloom all you want, but the evidence just isn’t there to support it, so long as the deficits continue to go down at an accelerated rate and the value of the dollar starts to rebound correspondingly as we ought to see in the next few months…”

    That hasn’t happened….the dollar is very definitely heading for the sewers…But No!…Mr.Nalle maintains that its not happening…the above comment#25 was posted with tremendous “TRUST-ME I KNOW BETTER THAN YOU” confidence back on May 7 2007…its Oct 3 2007 now as i write…five solid months and the rapid slide of the dollar is testimony to the fact that people like Nalle don’t know what they are talking about.

    MR.NALLE YOU ARE NOT FIT TO BE THE EDITOR OF EVEN A THIRD RATE RAG.YOU KNOW ZILCH….YOU CALL YOURSELF A SINISTER CABAL OF SUPERIOR WRITERS…..TELL YOU WHAT….YOUR SILENCE IN THE FACE OF IRREFUTABLE PROOF THAT WHAT YOU’VE BEEN CLAIMING ALL ALONG AS TRUE IS VERY DEFINITELY SINISTER.

    AND FORGET ABOUT “SUPERIOR”..YOU ARE NOT SUPERIOR….WE’VE ALL READ BETTER STUFF FROM PEOPLE WHO WRITE FAR FAR SUPERIOR STUFF AND WITH FAR LESS PRETENSIONS

  • Clavos

    Here’s another guy selling; in this case a website and the “expert” advice therein.

    While I value freedom of speech as much as anybody, I think those who use this site to promote products should not be allowed to do so.

    Such a practice transcends freedom to speak one’s mind; it becomes commerce.

    Worse, unlike the advertisers, they are not paying to advertise their wares, so their promotion involves the issue of fairness, as well.

  • Anand Menon

    Ok….forget about shilling…can you “superior” chaps tell all of us what were the grounds for your optimism then and what are the grounds for your optimism now vis avis the US economy?….

  • Anand Menon

    Groucho Marx “You worked yourself up from nothing to a state of extreme poverty.”

    The Credit Crisis Could Be Just Beginning…

  • Ruvy in Jerusalem

    Anand,

    I took the trouble to read the article you recommended. If Mr. Nalle has gone silent on the market and started whining about the next world emperor, this article could well explain why….

    The “almighty shekel” continues to rise against the dollar. One senses that folks are buying dollars with shekels to keep it from falling too low. American retirees who had been doing alright at NIS 4.50/$1.00 are very nervous at NIS 4.00/$1.00. That is a lot of income to lose….

    If the dollar falls lower against the “almighty shekel,” it is going to hurt lots of retirees here…. Glad I’m not one of them. I work for living.

  • Ruvy in Jerusalem

    “You worked yourself up from nothing to a state of extreme poverty.”

    Oh yeah. Those nasty jokes by Groucho Marx have and edge of reality to them. He (and his brother Harpo) lost his shirt in the Crash of ’29. Only their movies in the 1930’s saved their asses. The only reason why they were made at all was because the Marx brothers were desperate for money.

  • Lumpy

    Ruvy do u not get stock market reports from the US over there?

  • Ruvy in Jerusalem

    Lumpy, before you brag about share values, let me quote this portion of the article Anand mentioned above that I actually took the trouble to read.

    Now it may seem hard to believe, but much of the past few years’ advance in the stock market was underwritten by CDO-type instruments that go under the heading of “structured finance.” I’m talking about private-equity takeovers, leveraged buyouts and corporate stock buybacks — the works.

    So the structured finance market is coming undone; not only will those pillars of strength for equities be knocked away, but many recent deals that were predicated on the easy availability of money will likely also go bust, Das says.

    Now go read the rest of the article. The link is in comment #164.

    And no, Lumpy, we don’t get out financial data by bending over the Gemara and straining our vision. We read the paper – just like you.

  • Clavos

    Re the The Street dot com article:

    One man’s opinion, Ruvy. One man’s opinion.

    Not wrong, but not the whole picture, either.

    I’m not cashing in.

  • bliffle

    Anand: Don’t worry about dave: “Fellow bloggers want to highlight Nalle’s comments once again…”The dollar has been deliberately deflated as part of an economic strategy….” ”

    A few weeks ago he was laboring under the delusion that the dollar was improving against the Euro, and proclaiming it as another triumph of BushCo, until he was disabused with some figures from OANDA.

    He’s just a no-nothing hack.

  • http://www.republicofdave.com Dave Nalle

    Sorry, I wasn’t aware I was supposed to be following this ancient thread – hence my lack of participation.

    When I suggested the dollar would eventually turn around I definitively did NOT put a timetable on it. If you think I did, I invite you to show me where I said it.

    Let me ask you this. Do you think the dollar will NEVER recover? Do you think it’s in an endless spiral towards an eventual zero value and the repudiation of all US debt?

    Sorry, I just don’t buy that.

    To date the decline in the dollar has been stronger than we’re used to, but in comparison to other economic forces it’s been relatively limited. The dollar is down about half as much as the stock market is up over the same period, for example. Or to take another economic indicator, the dollar is down only slightly more than the GDP is up over the same period. The continuing overall strength of the economy and the stocks which represent US business means that if an effort were made to reduce the trend of the dollar declining the dollar would recover rapidly.

    And then there’s the historical issue. If you look at the value of the dollar today against currencies 30 years ago it’s stronger than it was in the 1970s. You can find many other periods if you go back through time where the dollar had weak periods followed by a return to strength. None of them led to some huge economic disaster. The Great Depression was not associated with a decline in the value of the dollar against foreign currencies – quite the opposite, in fact.

    As for my previous comments about a dollar recovery, the dollar DID go through a recovery. It was almost as low in the summer of 2005 as it is now. Yes, the recovery didn’t last, but that doesn’t mean the next upturn won’t last.

    All it would take is for the Treasury to stop printing extra money to float the debt, or even cut back a little bit and the trend would be reversed.

    As for Anand, he’s clearly just pushing a political agenda and using one-sided economic data to try to promote the ongoing myth that the US economy is on the brink of disaster.

    In fact, the weak-dollar strategy is a proven technique which was most recently used in the Reagan era from 1985 to 1989 when the dollar was weakened even more than it has been under Bush with the objective of improving the balance of trade, stimulating domestic production, and reduce the impact of excessive debt (debt being cheaper to pay off if the dollar is deflated).

    Now let me give you a hint about why Anand is so pissed off about the dollar. He’s posting from India. One of the big effects of the weak dollar is to improve the competitiveness of American products against products from other countries like India and China. It also draws investment away from their businesses and towards ours. What’s more since they trade with us a lot, when that trade starts to favor us then their economy suffers, especially if they are one of the trading partners – as India is – whose own currency has no real intrinsic value so that it can hold its own. You see, unlike other currencies, which went up when the dollar went down, the Rupee went right down with it (though not quite as severely) while India isn’t reaping the same benefits of a weak dollar that the US is.

    A strategy like this can be hard on our economic allies and trading partners, but it’s not going to last forever. This dollar deflation is much more controlled than the one under Reagan, and it will run its course.

    Dave

  • Clavos

    “This dollar deflation is much more controlled than the one under Reagan, and it’s not going to last forever.”

    And in the meantime, it is helping American exports (and the balance of payments), and American tourism.

  • Anand Menon

    This “ancient” thread is alive and kicking and very very relevant….only our”superior” editor is denying it…

    I’m not pissed off with the dollar declining….I’m very glad that it is happening …this is the beginning of the end of American influence around the world…who needs your fiat money Mr.Nalle?

    Nalle specifically said (see #25)..”Finally, one comment for Anand. The dollar has been deliberately deflated as part of an economic strategy which thus far seems to have been pretty successful. As for the ‘housing bubble’, it’s not bursting. Every expert seems to agree that the adjustments are short-term, and the impact of artifically low interest rates wore off quite a while ago. You can bleat about economic doom and gloom all you want, but the evidence just isn’t there to support it, so long as the deficits continue to go down at an accelerated rate and the value of the dollar starts to rebound correspondingly as we ought to see in the next few months.”…That was in May….this is October….in the interim we haven’t seen any sign of a rebound…..NOT A ONE…

    rather disingenous to say that he hadn’t set a timetable….now what does he mean by a few months?…three?…five?….seven?…nine?…..twelve?…maybe eighteen?….Aha!….so thats how many months a “robust” currency needs to “rebound”….you can expect more of this sort of thing from our “superior” editor…He does sound a bit like the parent of a child who’s choking on his food….and who’s reassuring everybody…..Heyyyy…no problem….he’s not turned blue in the face yet…nothing to worry

    And what else has our”superior” editor been denying…oh!.yes….”As for the ‘housing bubble’, it’s not bursting. …”(see#25)….lets look beyond the tripe being shoved at us in the mainstream right wing press and get to see the real news for a change…like Ruvy said very rightly….we can also read.

    The housing bubble is HUMOUNGOUS……and its already started taking out some of the big boys….
    “If You Don’t Know St. Joe, You Don’t Know Florida … ”
    The Fall of Florida’s Largest Land Developer
    Merrill Lynch To Write Down Nearly $5.5 Billion Against Results

    Robert Shiller, a Yale university economist, told a US congressional panel that he feared ‘the collapse of home prices might turn out to be the most severe since the Great Depression.'”Despite all the reassuring statements we’ve heard from the administration that the impact of this mess would be ‘contained’, it has not been contained, but has been a contagion that has spread to all sectors of the economy,” he said.”

  • Anand Menon

    It’s all well and good for academics, pundits, and Wall Street wonders to wax on about the “modest” impact the bursting housing bubble seems to be having on the overall economy.However, it’s not just about recent statistics and short-term trends. It’s about people’s lives, their emotions, and their outlook for the future. It’s about those who are connected to them in some way — family, friends, neighbors, coworkers, shopkeepers, bankers, etc. — and the ripple effect the spreading cancer will have on their attitudes and behavior. It’s about an entire society, growing more anxious and pessimistic and responding in ways that are increasingly self-reinforcing.

    How could anyone read the following report from the Associated Press, “Easy Credit, Bust Create a Modern Ghost Town”, and not see the potential for this rising red tide to spread from person to person to person, a la six degrees of separation, and eventually come crashing down all around us?”

  • Anand Menon

    John Mauldin writes…”In past recessions, there were generally some portions of the economy that grew beyond the respective demand for their products or services and/or a bubble in some sector burst. Such an event happened relatively quickly, and it took some time for there to be a shift of employment to other sectors and the economy to start growing again.

    If we see a recession, it is going to be because of the bursting of the housing bubble. But housing is different. There is no “mark-to-market” pricing. You can’t look up the value of your house on a computer screen like you can your stocks or bonds. People tend to think their houses are special. They know how much time and effort they put into maintaining the house, and experience has taught them that over time, if they are patient, they will get a good price for their home. They become reluctant to sell at a reduced price.

    Enter reality. Home values are starting to fall, and in some areas by a lot, for several reasons. First, because homebuilders are cutting prices in order to move inventory off the market. They have to raise cash in order to pay back loans, even if it means losing money on the sale of homes. They are in survival mode.

    D.R. Horton, the second biggest homebuilder, recently sold a San Diego home at auction for 37% less than the asking price. This was the price that homebuyers were paying in 2006. And in San Diego, it was probably an adjustable-rate mortgage with a low introductory rate.

    Hovnavian sold some 2100 homes nationwide last month in its “Deal of the Century” sale. Hovnanian spokesman Jeff O’Keefe said the company offered discounts as high as 30%. That means 30% less than what someone paid last year for the same home down the street.

    A story on Bloomberg notes that some smaller home builders are selling homes at a 40% discount in order to raise cash. D.R. Horton put 58 condominiums up for auction in San Diego. Local real estate agent Steven Moran said, “I ran the numbers and the condos sold for between 68 cents and 74 cents on the dollar based on the original asking prices.”

    The fact that some homebuilders may lose money is not a problem for the general economy. The problem is that anyone trying to sell or refinance a home in one of those neighborhoods is now going to see the value of their home come down – perhaps substantially – in the appraisal they will need for the mortgage. Appraisers look at recent sales of comparable homes to come up with a value for the home. If your neighbor’s home sells for 20% less, then your appraisal is going to come down 20% as well. And the amount of money you can borrow on your home depends upon that appraisal.

    Ok, then you can just stay in the home and make that mortgage payment. And if you made a conventional loan, that’s what you would do. You might not like the fact that your home was worth less, but you wouldn’t go through bankruptcy and risk your other assets by not making the payments.

    Except for about 2,900,000 home buyers who did not get conventional mortgages.

    Subprimes leaped to $1.3 trillion, or 73% of all Adjustable Rate Mortgages (ARMs), in the first quarter, a 17 times jump from 2001. And 57% of mortgage broker customers with ARMs were unable to refinance into new loans in August, given their low initial down payments and falling prices that have put their equity in negative territory. Estimates are that the cumulative loss on subprime mortgages will be $164 billion in home equity and cost financial institutions $300 billion.”

    As these subprime mortgages hit their reset periods and the mortgage payment goes up, many homeowners who were expecting to be able to refinance their homes are not going to be able to, as the value of their homes will be below what they owe on their current mortgages. In a lot of cases, they will not be able to make the higher payment, which can rise by over a thousand month. They can either simply put up with the higher payment if they are able, or walk away from the mortgage. Not everyone will be in that predicament, but about 20% of recent subprime borrowers are expected to end up in foreclosure.

    Now, government officials say they want lenders to work with borrowers to come up with ways to allow homeowners to keep their homes. In a rational world, a lender is better off taking a 20% loss and keeping someone in the home than losing 40%. The problem is, how does a distressed homeowner negotiate with the CDO (Collateralized Debt Obligation) which owns their mortgage, which is in turn owned by European institutions or the Chinese government?

    The original mortgage bank, if it still exists, is simply servicing the loan. More than likely, they even sold off the servicing of the loan, as that is not a high-margin business. There are now 161 mortgage banks that are either bankrupt or their lending ability is severely impaired.

    Hundreds of thousands of homes are going to come back onto the market in the form of foreclosures over the next year. Just as with the home crisis in Texas almost 20 years ago, it will take several years to go through the cycle. We have just begun. This process is going to play out over the next 15-18 months. You cannot take 10-15% of the potential home buyers out of the market (due to no subprime availability) and not expect prices to fall. Additionally, you cannot triple the supply of homes without expecting prices to fall. We only had a four-month supply of homes for sale in 2005. It is now at ten months and on its way to at least 12.

    When you both slash the number of available buyers and triple the supply, to think we can get by with a simple 10% price adjustment that will correct within less than a year is not credible

  • Anand Menon

    Jim Billie writes…”The fascist merger of state, the penultimate banking sector out of New York City , and certain corporate groups (see oil industry, military defense) stands as the most glaring threat to free market capitalism in the modern history of the nation. Yet it receives no challenge. The retrenchment from globalization forces, manifested ironically as active participation (corporate outsourcing of operations and jobs), has made public opposition muted. The recoil from the security firestorm, regardless of origin for actual threats, has confused the public perhaps as much as frightened it. As we learned seventy years ago in Central Europe , fear is a powerful tool when used in a controlled fashion. The current custodians seem to brandish aggression and arrogance, while dragged down by dishonesty and ineptitude at the same time. The world notices, and makes votes against the USDollar, which serves as a ballot. The more hidden vote is with the embrace of gold.

    MY CONTENTION IS THAT ALL MENTIONED INSTITUTIONS HAVE FAILED, THE CONGRESS, THE ADMINISTRATION, THE USFED, AND THE US DEPT OF TREASURY. A FAILED FINANCIAL STATE HAS OCCURRED. AS PROOF, THE LITMUS TESTS REGISTER FAILURES FOR THE USDOLLAR, FOR BOND PURCHASES, AND FOR THE BALANCE OF TRADE. THE MONETARY CRISIS WILL CONTINUE, ECHOED BY AN ECONOMIC CRISIS EXTENDED FROM STRUCTURAL FRACTURE. THE RELEASE VALVE WILL BE THE RISING GOLD PRICE , REGARDLESS OF THE DEPTHS REACHED BY THE USDOLLAR. WE ARE WITNESSING A FAILURE IN CONFIDENCE FOR THE USDOLLAR, THE MOST CRUCIAL ASPECT OF ANY FIAT CURRENCY. A WIDER WAR IS THE WILD CARD. …”

    He also adds..”By the way, keep in mind the latest nonsensical and utterly false mantras circulating in the markets these days. “The USDollar is declining in an orderly fashion” and “Price inflation is under control” have hit the lighted billboards with such regularity as to cause laughter to the well informed. A 15% decline in the DX dollar index in 24 months is not orderly. A 4% decline since the USFed rate cut two weeks ago in veiled desperation is not orderly. As for price inflation, it is running at 10% on an annual basis, if one bothers to count the price increases on the cross section of items within the broad economy.

    Remember that every economic mythology requires mantras as glue to hold their chapters together, as a practiced fallacious ideology. Last autumn they were “The subprime mortgage problems will be contained” and “The housing market will stabilize in the spring” and “No spillover from the banking problems to the real economy ” all spouted about broadly and prominently. Two years ago it was “Global trade surplus recycle provides a stable reliable source of capital for the United States ” when now that USTBond support relies upon a printing press increasingly. All heretical economist foundations urgently require mythology of beliefs, mantras for incantations, all profoundly untrue, to serve as false pillars upon which temporary support is gained.

    The amusing part of the story is the nonsense about how the decline will be good for the USEconomy. How will uniformly higher prices be good? How will discouragement of foreign investors be good? How will erosion of foreign central bank assets be good? Favorable conditions for US exporters is indeed actual and good, provided one can identify big export industries. Multi-national operations to be translated on favorable translations is actual and good, provided investing abroad is the priority, not at home. A new wave of job outsourcing is possible.

    The USDollar is clearly being permitted to fall, first because it must in order to resolve imbalances, but also because many key powerful global institutions are losing faith in it. The Asians are investing less in USTreasurys, and have shown a flat account since summer 2005, over two years. In fact, China is using their vast sovereign investment funds as a weapon to fight against the USGovt, in response to trade sanction legislation marching down the pike. The Arab nations must deal with powerful consequences from pegging their currencys to the USDollar. Price inflation, vastly growing money supply, construction booms gone slightly out of control, these are the consequences.

    The Arab oil producers will soon deliver a fracture blow to the PetroDollar in the coming months, or else permit forces to rip apart their economies and banking systems. A removal of a tight US$ peg by Persian Gulf oil producers means the end of the vastly important PetroDollar itself, the commercial foundation of the world reserve currency enforcement!!! The world over, revolt against the USDollar is underway, in bloom, even accelerating. A monetary crisis is underway which fails to receive proper publicity. Regardless of monetary policy or the trade imbalance, the USDollar is heading for a crisis decline.

    The US Federal Reserve has a “Sophie’s Choice” to contend with. Do they attempt to rescue the USEconomy, dragging horribly down by the housing market? Or do they attempt to rescue the USDollar, under siege globally, indefensible on numerous fronts? Sadly, the USTreasury Bond has been transformed into a War Bond, since the USGovt current leaders are engaged on an unproductive war, whose only certain outcome is the strain toward national bankruptcy.

    The USFed cast its vote two weeks ago, to defend the USEconomy and to permit the USDollar exchange rate to fall.However, another official rate cut, or a string of them in a fresh new easing cycle, will remove the favorable bond yield differential, which has supported the USDollar for two years.

    The amazing overtone to the rate cut on September 18th, is that the USFed has actually reduced interest rates amidst unchecked money supply growth. That is opposite to normal conditions. The international vote of little confidence, possibly to turn ugly into no confidence, has been the rise in long-term USTBond yields since that fateful day of the rate cut. Another rate cut of 50 basis points in late October could result in a push upward with more force in long-term bond yields, like to the 5.0% level. The housing market would not fare well on fixed mortgage rates in reaction. An argument can be made that long-term bond yields have reversed and are now in an uptrend. The steeper USTreasury Yield Curve is evidence of that reversal. We are in a dangerous transition at a time when confidence in both the USDollar and USTreasury Bond is fast vanishing.

    My longstanding accusation is that the USFed has acted as a quasi cabinet ministry, who together with the Dept of Treasury deserve the tagteam title of Dept of Inflation. The USFed chairman deserves the shameful title of Secretary of Inflation. They talk about fighting price inflation, but they manage the growth of money and credit. Actually they mismanage it, since they turn a blind eye to grotesque money growth and credit growth. See the exploding credit derivatives and subprime mortgage bonds, for instance. The US $ money supply is growing at around 14% on an annual basis, which is actually regarded as a positive development.

    We are witnessing a failure of economic and banking stewardship, management, and performance. The entire world is held hostage. Their banking systems are reinforced by gargantuan sums of US$-based securities. To call them ‘secure’ at all is a bad joke and a misnomer in every sense. The backlash from the subprime bond export, complete with fraud, mispricing, mislabeling, and premeditation, has in no way been fully played out. ….”

  • http://www.elitebloggers.com Dave Nalle

    Anand, you clearly have much more interest in this subject than I do. And you’re angry and irrational. Carry on. I’ll comment if I see anything interesting.

    BTW, the housing bubble seems to have topped out now, and isn’t even effecting some parts of the country at all.

    Your comments all seem to be long on anti-american wishful thinking. Let’s wait a bit and see how it works out for you.

    Dave

  • Clavos

    OK, Anand, you’re right.

    The US economy is crashing, and the evil US will be destroyed.

    Now go away….

  • http://debtisslavery.blogspot.com Ed

    Housing market is over? Did the NAR tell you that?

    Come on man get real. Housing is in a free fall.

    take a look at current prices in the country here and tell me the housing crash is anywhere near over

    housing-watch.com

  • Clavos

    It’s good it’s in free fall!

    It was so overpriced people couldn’t buy homes anymore down here, especially those in the lower middle class.

    And it’s good the bankers are getting hit; they’ve ripped the rest of us off for decades.

  • Clavos

    BTW, Ed:

    Your own housing-watchdotcom citation belies your point.

    Did you notice the fine print summation below the table?

    “Total regions up=10, down=12, Unchanged=26″

    Hardly a “free fall.”

  • Anand Menon

    I’m looking forward to seeing how it works out for you too OH!”SUPERIOR” editor…

  • Anand Menon

    Clavos …since you beleive so much in the benefits to American tourism…you and Nalle should line up on main street and sell paper boat souvenirs ….made from dollars of course!…to reluctant tourists…

  • Clavos

    It’s not what I “believe,” Anand. It’s what I’m seeing going on all around me.

    I live in one of the primary US tourist destinations: Florida.

    We are having a record year; both in arrivals and in receipts.

    With the relatively cheap dollar, European and Asian tourists are jamming our hotels, restaurants, and amusement parks.

    And I know what I’m talking about; I spent thirty years working in tourism before retiring and changing careers. I now sell yachts.

    This weekend I have a client arriving from London to buy a boat from me. He says the pricing on American yachts has never been more attractive.

    And, thanks to the dollar devaluation, he’s right.

  • http://www.LydiaKray.com Lydia

    Was it 1999 that you couldn’t give your home away in California as well as other parts of the country? This is all cyclical. More mature investors saw this coming. I know of a Real Estate broker of nearly 40 years who deals with investors told me this is his 4th cycle of major ups & downs in the RE market that he has experienced. It was obviously more compounded with many unethical lenders.

  • Anand Menon

    Good for you Clavos….but can everyone sell yachts?

  • Anand Menon

    Lydia ..many people who also care deeply about what is happening to America are saying yes this is a cycle….but where the bust phase lasts slower and longer…they are talking about atleast a few years

  • Clavos

    Dumb question, Anand.

    Of course not everyone can sell yachts, but tens of thousands of people in this country are working for hundreds of companies that build them, and millions more work for other American manufacturers (autos, heavy machinery, appliances, tools, computer chips, e.g.), all of whose products are much more attractive (and competitive, despite the relatively high wage scales in the US) on international markets now.

    In 2006, the Bureau of Labor Statistics reports that almost 153,000 Americans wqere employed in the boat building industry, at a mean annual wage of $39,100.

    These figures, according to the BLS, don’t include self-employed people such as myself. In Florida, more than 4,000 people are self-employed yacht brokers like me. Thousands more are self-employed electricians, mechanics, transporters, surveyors, etc.

    The point about yacht sales was illustrative, based on direct observation, as was my point about US tourism. They are many other industries (ALL those that export) which are benefiting from the weaker dollar.

    You say:

    “…many people who also care deeply about what is happening to America are saying yes this is a cycle….but where the bust phase lasts slower and longer…they are talking about atleast a few years.”

    And maybe they’re right, but there hasn’t been enough actual evidence yet to say they are. In fact, the ill effects to the economy of the subprime shakeout and housing slowdown (not “bust”) so far have not been severe (to the economy as a whole) at all.

    Note my point to Ed in #181 in re the data site he linked.

  • http://www.elitebloggers.com Dave Nalle

    I sold my yacht some years ago. Does that count?

    You know what they call a yacht. A bottomless hole in the water you can never fill no matter how much money you throw into it.

    As for the current real estate cycle, there are many parts of the country like Austin where I live which are still going up. Compared to the down cycle in the late 80s this slump is trivial.
    That slump lasted 4 years and was nationwide.

    Dave

  • Clavos

    “I sold my yacht some years ago. Does that count?”

    Time to help the economy; buy another.

    Let’s do lunch :>)

    PS: Ya know what “BOAT” stands for?

    Break Out Another Thousand.

  • Ruvy in Jerusalem

    I’m solidly with Anand on this, even if I don’t necessarily like his politics on other issues.

    On another subject, I just hope you don’t swiftBOAT Nalle as you hustle sell him a fine yacht to travel the New Mexico desert with….

  • Clavos

    Actually, it’s Texas, Ruvy. And he can always put it on Lake Travis.

  • Ruvy in Jerusalem

    Clavos,

    I know Nalle lives in Texas – a little outside of Austin, if I remember right.. It’s just that those deserts in New Mexico seem like a great place for a yacht to sail with the wind….

  • Anand Menon
  • http://www.republicofdave.com Dave Nalle

    Actually, it’s Texas, Ruvy. And he can always put it on Lake Travis.

    For about the same amount per month as buying a new luxury SUV – which is why I no longer have a boat and no longer have to pay for a slip there. Plus, where we live now it’s just too long a drive to get to the lake.

    Dave

  • Anand Menon

    Peter Schiff writes…

    “The vast majority of economists are currently hailing the freefall of the dollar as a windfall for American business. While some domestic manufacturers may enjoy some initial benefits from a weaker dollar, they will ultimately suffer many adverse consequences as well. More importantly, the dollar’s demise is a disaster for American consumers.”
    “A cheaper dollar helps domestic manufacturers because it makes local costs, such as wages and rents, decline in relation to the costs borne by international competitors. While this is true, it also means that American workers and landlords see a corresponding decline in the real values of their pay and rent. Given that such declines negatively impact living standards, such developments hardly seem worth celebrating.

    Too often overlooked however is how the weakening dollar also works to increase costs for domestic manufacturers. A falling dollar raises the costs of raw materials, such as oil and metals, while simultaneously decreasing the relative costs that foreign competitors pay for the same supplies.

    But it is not just raw materials prices that rise. Perhaps even more important will be the prices of foreign-made components that are used in American factories. In fact, many American “manufacturers” are really nothing more than assemblers of imported components. For example, take a domestic golf club company that supposedly manufactures clubs in the good old U.S.A. Such a company might import the heads from China , the shafts from Indonesia , and the grips from Mexico . The only thing the American company actually does is put the pieces together. So as the dollar loses value, the costs of importing all of the components will rise, making the finished product more expensive for Americans.

    Another often overlooked cost of a weakening dollar is higher interest rates. Because a falling dollar diminishes the global appeal of dollar denominated debt, U.S. interest rates will inevitably rise, resulting in increasing capital costs for domestic manufacturers. Similarly, strengthening foreign currencies increases the appeal of non-dollar debt, reducing the capital costs paid by our foreign competitors.

    Furthermore, as a weaker dollar forces up domestic consumer prices, American workers, suffering from declining real incomes, will ultimately press their employers for more generous pay raises. Rising nominal wages will eventually undermine the competitive gains associated with lower real wages that initially resulted from the falling dollar. Similarly, landlords will look to raise rents to make up for the falling purchasing power of their rental income.

    Lastly, as rising interest rates and consumer prices combine to exacerbate the severity of the coming recession, federal tax receipts will inevitably decline causing the budget deficit to swell anew. A populist Congress will likely seek to impose even higher taxes on those businesses profiting during the hard times. So any advantages U.S. manufacturers might get from cheaper dollars may be lost to higher taxes.

    The bottom line is that true competitiveness comes from sound money, high savings, low taxes, minimal government regulation, hard work, and the entrepreneurial spirit. Laying the hopes of America ‘s industrial salvation on currency devaluation will only backfire, leaving American manufacturers even less competitive in the future than they are today.”

  • Anand Menon

    Here’s a brilliant overview of the whole subprime mess Satyajit Das: Financial shell games

  • Anand Menon

    The news about Northern Rock’s recent bank run in the United Kingdom has hardly received mention here in the United States .

    Yet banking conditions here are no different. Many banks have taken risks beyond their means and have put depositors at risk. The FDIC is still insuring deposits up to $100,000, but those with deposits over the insured amount had better be certain of their bank’s stability.

    The most recent bank failures here in the U.S. are not making headlines, either. Last Friday,
    NetBank
    , the first and largest internet bank was closed by the FDIC.

  • Anand Menon

    ING Direct, a Netherlands-based bank acquired some $1.5 billion of customer deposits. However the transition has not been without problems for customers.

    Miami Valley Bank (Ohio) was closed by regulators this week, leaving some $14 million of uninsured deposits in 269 accounts on the hook.

    Washington Mutual and Merrill Lynch have also warned of large subprime losses.

  • http://www.buyingone.com Christopher Rose

    Anand, it’s time you learned to format links properly. Here is a very clear explanation of how to format a link correctly.

    Thanks,

    Christopher Rose
    Blogcritics Comments Editor

  • Anand Menon

    Thanks Chris…i was wondering who did all the homework:)

  • Anand Menon
  • bliffle

    Regarding the sub-prime collapse, the die was cast when lenders were allowed to bundle home loans and sell them as assets. That absolved the lenders from downstream responsibility for loans, because once they were sold the lenders were free of liability. Technically, this made the banks little more than sales offices for Wall Street investors, and left the investors with no recourse against salesmen who would be writing bad loans. The rest is simply the working out of the scam by various con artists who became telemarketing millionaires who would loan to anyone who had a pulse, collect their big commissions and vamoose.

    I tried to explain this to a BofA banker while attempting to wrangle a particularly advantageous loan, the bottom line being: you will never be held responsible, but she was too entrenched in old banking methods to do it. So she lost a good payday.

    All of this is the result of the modern US business mantra: socialize the risk and privatize the profit. Which is why this administration uses taxpayer money to finance private enterprises. They can finance the Iraq war, for example, by employing Command Economy methods, soviet style, to secure public tax money (NO private investors would invest in an Iraq invasion) and then payout to KBR, etc.

    Why, you can loot the entire public treasury of a country this way. How interesting.

  • Anand Menon

    Bliffle…my own feeling is that this subprime mess is like a watershed….a trigger if you will …which has already set off a series of chain reactions around the world….the falling dollar is tied in with this mess…its not separate to the mess….the larger implication of all this which most people are not willing to admit just yet is the writing on the wall for American influence around the world….in a few years you can no longer expect nation states to accept Washington’s writ.Washington needs money to play its dirty games and that money has dried up ….governments around the world are increasingly loath to fund American imperial adventures and interference..by refusing to pick up useless I.O.U’s in the form of treasury bonds…..the falling dollar is testimony to that….

  • Anand Menon
  • Anand Menon
  • http://www.elitebloggers.com Dave Nalle

    Anand, out of curiosity, why are you posting all of this to this particular thread where it’s totally off topic?

    Why don’t you write all of these links and observations up into an article and submit that to BC for publication. That would be a much more effective way of getting your message out.

    Dave

  • Anand Menon
  • http://www.elitebloggers.com Dave Nalle

    And here’s a bit of reading:

    Weak Dollar Boosts US Economy

    Dave

  • Anand Menon

    No Nalle…read #204…its not totally off topic…we are discussing the decline of the American Empire….the sub-prime mess is EXTREMELY relevant….to that discussion..I’m very sorry that your “superior” intelligence just doesn’t get it.

  • Anand Menon

    Nalle …read #196…NO IT DOESNT!

  • Clavos

    Anand,

    For some time now, you’ve posted dire prediction (your own and those of others) that the US economy is crashing.

    I’ve made it clear i don’t agree, but I’m curious to know what is your purpose in posting all this gloom and doom?

    Assuming, for the sake of argument you and your experts are right, so what? Al,l you post is negative analysis; do you have a point beyond that?

    Or do you just want everyone to agree with you that the US economy is dead?

  • Lumpy

    O think someone hit on the answer to that one earlier. Anand and many of his analysts seem to be from india. I bet somehow that’s at the root of it.

  • Lumpy

    Of course what I really want to kniw is why he’s so bizarrely hostile.

  • Clavos

    If he’s from India, that would explain his being upset at the devaluation of the dollar; one of the biggest earners of foreign payments for India, as we all know, is call centers, because of cheap labor.

    A ddevalued dollar makes American labor more competitive against theirs.

    Too bad.

  • http://www.republicofdave.com Dave Nalle

    Is the devalued dollar enough to make up that deficit? If it is that alone would make it worth devaluing the dollar. I’d love to speak to someone in the US – even a prisoner – when I call tech support.

    Dave

  • bliffle

    The dollar devaluation was occuring long before the subprime fiasco started up. In fact, the admin was mildly making noises about how they were intentionally devalueing the dollar about 5 years ago, before the subprime mania began. They abandoned that ad campaign.

    The argument that devaluation helps US exports is undermined by the fact that US exports are only about 8-12% of foreign imports, and thus are relatively insignificant. So we’re trading good dollars for bad dollars.

    So the question arises, when foreigners have excess dollars but buy few US goods, what do they do with the money? The answer is that they buy US capital: buildings, property, factories, etc. As you know, capital is ‘the means of production’. Sorta like seed corn. So, we are selling our seed corn (or, giving it away) at firesale prices.

    One might well ask, “why are US businessmen willing to sell their/our capital? Are they not concerned about even their own abiity to make money in the future?” No, because they collect enormous commissions, overrides, bonuses and capital gains in the process. They’ll be long gone when the crash occurs. Just ask them.

  • http://www.republicofdave.com Dave Nalle

    Bliffle, US exports are closer to 75% of imports (2.1 trillion vs. 2.8 trillion), and that figure has increased substantially since the devaluation of the dollar which Bush did deliberately initiate in late 2002.

    Dave

  • Clavos

    From an article in London’s Financial Times, written by Harvard Economics Professor Martin Feldstein:

    “The falling dollar should not be seen as a problem for the US economy. A more competitive dollar will raise net exports, reducing the probability that the current weakness will turn into an outright recession. Looking further ahead, as the US household saving rate rises from its current low of nearly zero to a more normal level, consumer spending will slow, driving down aggregate demand. A declining dollar will then help to maintain growth and employment by raising exports and causing American consumers to shift their spending from imports to domestically produced goods and services…

    …Markets must look beyond the slogan that a strong dollar is good for America to recognise that a more competitive dollar will help sustain US growth and is necessary to correct America’s trade deficit. Governments of our trading partners must recognise that the dollar’s decline will weaken demand in their economies and should use fiscal and regulatory measures to maintain their growth and employment. With appropriate policies, the dollar’s decline will correct the imbalances that threaten the global economy without higher inflation in the US or decreased growth in the rest of the world.”

    ‘Nuff said.

  • Anand Menon

    not so quick Clavos…you can pull out your right wing think tank economists for all we care…

    This is the real deal..


    The market is crumbling, accounting’s a mess-and we owe the rest of the world about a quarter of our GDP

  • Anand Menon
  • Clavos

    “HARVARD is a “right wing think tank???”

    You’re off the deep end, Anand; you’ve lost all credibility with me.

    I can, as you put it, “pull out” as many people to refute yours as you can put up.

    So you believe yours and I’ll believe mine, but I’m not just talking; I’ve got my money where my mouth is: my entire life savings is invested in the US economy, and it’s doing VERY well, thank you.

    Bye.

  • Anand Menon

    Did I say that Clavos?…its perfectly possible for people from both ends of the political spectrum to be working in the same University….
    Harvard goes all right-wing on us

    I’m sorry to say this but Professor Martin Feldstein is wrong on this one…

  • Anand Menon

    Professor Martin Feldstein beleives that social security causes enormous losses to the Us economy…is that right wing or what?

    Feldstein’s work was seriously flawed

  • Anand Menon
  • Anand Menon

    You want to conceal from your readers that Martin Feldstein was Chairman of National Bureau of Economic Research – most recently in February 2005 …he was Ronald Reagan’s chief economic advisor and is a guru for ‘Bush-enomics.’ NBER has received over $10 million from right-wing foundations such as Bradley (Milwaukee-based, largest and most important right-wing foundation), Olin, Scaife (Richard Mellon Scaife, oil and banking, funds the “vast, right-wing conspiracy,” as Hillary Clinton claimed) and Smith Richardson. This last foundation, whose money comes from Vicks Vapo-Rub, started funding NBER’s work on the privatization of social security in the mid-90s, a project which is now at the top of the Bush agenda.

    This is the way the system works reactionary foundations support think tanks that locate and support sympathetic scholars who write the reports whose proposals are disseminated by the think tanks and mainstream media and after constant repetition, the proposals end up on the political agenda

  • Anand Menon
  • Anand Menon
  • Clavos

    OMG!!! Feldstein is EVIL INCARNATE, he’s gasp! choke! a RIGHT WINGER!!!

    Disregard everything he says; right wingers are shit!

    LEFT WINGERS RULE!!!

    Especially in economics.

    I’ve doubled my nest egg over the past five years by following the advice of right wing economists like Feldstein, Anand, so I think I’ll stick with my winners.

    Duck! The sky is falling!!!

    Sheesh. You link to a letter to the editor of the NYT written by an undergrad!

    I’m disagreeing with you, Anand. Do you think I’m going to link to left wing economists to debunk your left wing viewpoint???

  • Anand Menon
  • Anand Menon

    your bullshit stands exposed Clavos

  • Anand Menon

    You know what…some of these “undergrads” write better than you “superior” bull shitters

  • bliffle

    Clavos,

    You’ve lost all credibility with me. If you REALLY knew anything about econ you’d know that Feldstein is a prominent rightwing economist. He’s a constant advisor to Bush admin officials, providing rationalizations on demand for his well-known economic prejudices, like lowering corporate taxes, eliminating Social Security, etc.

    He may be at Harvard as a contrarian, but his prejudices and intolerance have become a problem. cf.

    Prof Feldstein – Harvard Crimson

    Incidentally, Ec 10 is where Supply and Demand is traditionally introduced, not Ec101, as often claimed by folk who never took either but claim to know lots about the subject.

  • Anand Menon
  • Clavos

    remember to close your tags, bliffle…

    “You’ve lost all credibility with me. If you REALLY knew anything about econ you’d know that Feldstein is a prominent rightwing economist. He’s a constant advisor to Bush admin officials, providing rationalizations on demand for his well-known economic prejudices, like lowering corporate taxes, eliminating Social Security, etc.”

    Then, I haven’t lost shit, bliff. Judging by your history of comments to me, I’ve never had any credibility with you.

    You’re just as dumb as Anand. Did you not see my comment #229 to him??

    I KNOW Feldstein’s a right winger!! That’s why I linked to him!!

    Like talking to a box of rocks, talking to both of you.

  • Anand Menon
  • Anand Menon

    now why would you want to link to a right winger Clavos?

  • http://www.elitebloggers.com Dave Nalle

    I’m so glad Clavos brought up Martin Feldstein. It really put a whole new flavor on this festival of propaganda and ranting.

    The market is crumbling, accounting’s a mess-and we owe the rest of the world about a quarter of our GDP

    Which is roughly comparable to or a little less than what we’ve always ‘owed’ the rest of the world in terms of percentage of GDP, and when you use the term ‘owed’ to try to put a negative spin on structured investment debt.

    Professor Martin Feldstein beleives that social security causes enormous losses to the Us economy…is that right wing or what?

    Well hell, what sensible person would disagree with that. Not just the enormous losses of taking that money out of the economy and using it inefficiently, but the enormous losses which will ensue when the system goes under and it has to be bailed out with higher taxation.

    Dave

  • http://www.elitebloggers.com Dave Nalle

    And let me leave you with this article to consider:

    In Praise of the Housing Bust

    Dave

  • Anand Menon

    A lot of Americans don’t share that enthusiasm…

    The Land of Optimism Is in the Dumps, But Refuses to Accept How It Got There

  • Clavos

    Oh puleeze, Anand!

    Citing an opinion piece from commondreams??

    Talk about zero credibility!

    I’m curious, Anand: since, as was noted upthread, you are posting from India and are not an American, why do you care what happens to the US economy?

    For the past several weeks you have been systematically trying to shake Americans’ confidence in the US economy. And, you have been doing so by citing information and opinion that, in most cases, is is either flat wrong or at least slanted.

    What’s your motivation? I don’t know, but it certainly seems suspicious, and even nefarious.

  • Anand Menon

    I don’t think all those writers and readers at commondreams or even the Guardian,U.K where that piece was originally written would agree with you Clavos.

  • Clavos

    Of course they wouldn’t, Anand (talk about belaboring the obvious!), and they are entitled to their opinions (in this country and the UK, at least, though not much of the rest of the world), as am I.

    For me, both the Guardian and commondreams are highly suspect sources because of their unrelenting partisanship,, just as those sources that are unrelentingly partisan my way are, also.

    I’m still looking for answers to my questions in comment #241.

  • bliffle

    Slime time.

  • Anand Menon
  • bliffle

    Nalle lies again,

    “Professor Martin Feldstein beleives that social security causes enormous losses to the Us economy…is that right wing or what?

    Well hell, what sensible person would disagree with that. Not just the enormous losses of taking that money out of the economy and using it inefficiently, but the enormous losses which will ensue when the system goes under and it has to be bailed out with higher taxation.”

    Actually, SS runs a surplus every year, and has for 20 years. In fact, Bush, to his discredit, is financing his invasion of Iraq with $50billion a year he purloins from that surplus.

  • Clavos

    Still waiting, Anand.

  • Anand Menon
  • Anand Menon
  • Anand Menon
  • Anand Menon
  • Clavos

    Where are your answers, Anand?

    The questions are in #241.

  • Anand Menon

    Nefearious ???…go on…what are you going to do about it?

  • Clavos

    Why, Anand?

    Why are you doing it?

    What’s your motivation, Anand?

    What are you trying to accomplish?

    How about some honest answers, Anand…

  • Anand Menon

    Its not just the subprime crisis…its many other things as well..

    looking at the larger picture…you can see a nation in decline..

    The Song That Is Irresistible: How the State Leads People to Their Own Destruction

  • STM

    Dave, (comment #1) I think you are right in the actual colonising of nations, but totally wrong in regards to the domination of other nations.

    There are ways and there are ways, and not all of it is done at the point of a gun (alhtough there IS a fair bit of that going on too).

    The new battleship diplomacy is corporate imperialism. It is how the US controls the world.

    Corporate flags flutter above American company headquarters, and they flutter above their outposts in every corner of the globe.It’s only got to fart on the NYSE, and the rest of the world goes into meltdown (look at the effect of the sub-prime crisis in the US, which impacted here very badly but had very little to do with us).

    You, possibly better than anyone, know this to be true.

    I don’t agree with must of what Aaman writes because it’s bollocks, but he’s right: if it has feathers, a bill, looks like a duck, walks like a duck, and quacks, then it probably is a duck.

    Don’t fool yourselves, you are as much an empire as the British were before you.

  • STM

    Sorry Aaman, you aren’t writing bollocks: confused you with Anand. Need to pay more attention …

  • http://www.republicofdave.com Dave Nalle

    Quite right Stan that if there is an imperialism today it would be cultural and economic in nature, and the US certainly operates heavily in those arenas. I think that what the US lacks is the conscious intent to control the rest of the world through those means which it may once have had. For example, Jim Blaine and Woodrow Wilson were genuine cultural/economic imperialists who sought to spread US influence through trade and intellectual colonization. Today that kind of organized intent seems not to exist, but just by being the kind of huge beast the US is it has a pseudo imperialistic influence economically and culturally. That pisses people off in some places, but it’s not like we can realistically do anything about it, and the alternative probably sucks more.

    And BTW, I think this article from Desicritics explains why Anand is so interested in his pet topic.

    Dave

  • Anand Menon

    let me try Dave..
    The End of Dollar Hegemony

  • Anand Menon
  • http://www.republicofdave.com Dave Nalle


    Actually, SS runs a surplus every year, and has for 20 years. In fact, Bush, to his discredit, is financing his invasion of Iraq with $50billion a year he purloins from that surplus.

    Bliffle, if you’re going to call me a liar you might want to read what I wrote and respond to that instead of just assuming I wrote something and assuming I lied and looking like an idiot, as seems to happen more and more often.

    I did NOT say a word about whether SS was rujnning a temporary and meaningless surplus.

    I said that it took money out of the economy and out of the pockets of citizens and used it incredibly inefficiently. Forcing people to give up 12% of their income or potential income for an investment which returns less than 2% at a time when a simple interest bearing account returns almost 3 times that much is a crime against the citizenry.

    And the other part of my comment was to point out that SS is going to go bankrupt no matter that it was solvent this past year. The first baby boomer just officially became eligible for SS this month. That’s the turning point at which more people will be taking out of the system than paying in, making bankruptcy inevitable under the current structure.

    These are facts and if you choose to call them lies that just makes you delusional.

    Dave

  • Anand Menon

    and the subprime crisis is being officially acknowledged now…
    Paulson, Bernanke Say Housing Woes May Last

  • http://www.republicofdave.com Dave Nalle

    Well, Anand, as Stan would say, that first link was bollocks. Full of misinformation and downright errors of fact.

    As for Mike Whitney who you link to second, he’s a certifiable ultra-left wing blogger who’s basically posting a bunch of wishful thinking paranoid nonsense which he disseminates through bogus leftist front sites like OpEdNews.com and GlobalResearch.ca which try to present propaganda as if it were not the partisan swill it is.

    I find it interesting that Clavos links to articles from the mainstream economic news sources and all Anand can come up with is bloggers with an agenda to push.

    Dave

  • Anand Menon
  • Clavos

    And Anand still has no answers for my questions.

    You do realize, Anand, that the longer you ignore me, the more you look like you have something to hide?

    Your credibility, never much, is down to zero at this point.

    Answers, Anand.

  • doubting thomas

    The Achilles heel of U.S. is its debtor status. Historically,Great Powers have dominated by being net exporters of capital. This was the case of Britain until the Second World War when the wars drained Britain of its capital. Then she gradually slipped from the great power status that she enjoyed and now she plays the second fiddle to U.S. interests.

    The remarkable feature of U.S. has been her domination of the world even though she is a debtor. The central banks of the world pump in $ money into U.S. economy and get worthless IOU’s from U.S.in the form of Treasury bills. U.S. wages wars against other nations on the basis of the loans given to her by the nations of the world. The Americans fund the stock market and the property market but not the war as that is paid for by the central banks of the world.

    The author of this article has also posted an article- End of the Dollar Hegemony on desicritics that could be viewed as a sequel to this article.

    I think Anand has also raised important issues relating to the inherent weakness of the U.S. economy and focused on various issues such as sub prime meltdown and the general instability of the economy.Some of the comments passed against Anand shows the residual McCarthyism is alive and kicking in Blogcritics.

  • Clavos

    “Some of the comments passed against Anand shows the residual McCarthyism is alive and kicking in Blogcritics.”

    Or, more likely, full-blown Smithism, Hayekism, Misesism, and Friedmanism.

  • Anand Menon

    here are comments from a real “mainstream economic news source”…they don’t get more “mainstream” than the wall street journal….and even they have bad news…

    Economists React: ‘Horrific’ Housing

    The housing picture remains especially bleak, adding uncertainty to sectors even outside of housing

    Your so called left wing bloggers were the ones who made the right calls….everyone else….including you Nalle was saying that the mess was “contained”…now they are singing a different tune aren’t they?
    Henry Paulson-The ongoing housing correction is not ending as quickly as it might have appeared late last year..And it now looks like it will continue to adversely impact our economy, our capital markets and many homeowners for some time yet

  • Clavos

    Where are your answers, Anand?

    What are you hiding?

    What interest does an Indian have in our economy?

    And why?

    Why won’t you talk about it?

    Again, what are you hiding?

  • Anand Menon

    Yaaaaaawn…

  • http://www.republicofdave.com Dave Nalle

    Anand, whatever happens in housing is inherently contained because although housing is important, it is only one element of the economy. There’s only so much damage that a drop in housing prices and a few foreclosures can actually do.

    And keep in mind that if housing values increased 200% in the last 5 years and drop 20% this year, people overall are still going to be ahead. Most of what we’re looking at here is alarmism.

    That plus Anand’s inexplicable motivations.

    Dave

  • Anand Menon

    During normal times…yes… your argument is valid Nalle…but these are extraordinarily special circumstances…this is quite unlike a Long Term Capital Management or a Dot Com Bust or a Enron scandal….each time the banks managed to hedge their risks and we didn’t have “structured finance”….now we do…the risks have grown multifold…spread around the world…and sometimes come back to the very same bank through the back door…we also have risks being held in SIV’s and hence “off the balance sheet”…the problem is this time around every 1$ supports around 30 $ of leverage which is quite insane and there is no one around to pick the dirt bombs the banks are holding.

  • http://www.elitebloggers.com Dave Nalle

    There has always been a certain amount of ‘structured finance’ even if it took somewhat different forms in the past. I remember the 1980s when people were leveraged way beyond anything you see today. And again, the overextended segment of the financial market is still limited in size. Your average investor is probably less overextended today than at other times in history. Remember the margin investment problems in the 90s?

    There’s almost always some sort of crisis looming. I just don’t see this one – which was so obvious and predictable – as being worse than most others. I’ll give you that it’s worse than Enron which was pretty trivial, though.

    Dave

  • Anand Menon

    Enron wasn’t trivial …the banks managed to hedged their risks that time…this time around the tsunami of the subprime is going to make Enron look like a ripple in a duck pond….read Frank Partnoys book Infectious Greed…..he anticipated this….and you’ll find out why…….and please don’t accuse him of being a left wing-blogger… he’s appeared before the Senate on this particular issue Testimony of Frank Partnoy Professor of Law, University of San Diego School of Law,Hearings before the United States Senate Committee on Governmental Affairs, January 24, 2002

    ….and since you like only “mainstream” news here’s more of the same Burned by Real Estate,Some Just Walk Away

  • Anand Menon
  • Anand Menon

    “Mainstream”,”Mainstream”,”Mainstream”….hmmmm…letssss seee…heyyyy….even they don’t share some of the prozac induced optimism..
    1.L.A Times… Leading Wall Street chief executives predicted a 37% chance of a U.S. economic recession in the next 12 months, according to a survey released Wednesday

    …now why should they be EVEN DISCUSSING A CHANCE of a recession if things are so good???

    2.Business Week… Housing Cools, Inflation’s Up-The latest CPI and a Fed report suggest housing’s not improving, and inflation is too high for comfort.still, the Fed’s expected to sit tight

    3.Market watch from Dow Jones….. Credit woes rock financials, led by Bank of America

    ….left wing loonies??….all of them????…

  • Anand Menon
  • Clavos

    Yaaawn.

    Fortunately for you, it’s not happening in India, Anand, so why all this phony concern for the US economy?

    Why are you so insistently trying to worry Americans about OUR economy??

  • http://www.republicofdave.com Dave Nalle

    Clavos, India is already in a recession and their market is down what, 10% in the last week? More? But Anand still isn’t going to reveal his agenda.

    And Anand, I’ve already read most of those articles. Yep, we might have a recession. Recessions happen. IMO it’s still a little too soon for one. I’d expect another short-term recovery before we have a real recession. I think we need one more crisis to trigger it. A rapid withdrawal from Iraq would probably do the job.

    Where you get the idea that anyone expects the ecoinomy to be all roses all the time is beyond me.

    Dave

  • STM

    Probably because Indians don’t have enough to worry about with their own economy. All that equality between castes, the crackdown on racism (look at how the Indian cricket authorities dealt ever so swiftly with the recent incident involving Aussie Andrew Symonds in the recent one-day series in Mumbai after the crowd taunted him with monkey noises and monkey face masks) and the very small divide between rich and poor and the subsequent lack of poverty, which now makes India a genuine first-world country.

    On a serious note: Their Royal Enfield motorbikes are pretty damn good though … originally built for the British and Indian Armies in the late 1940s/early 1950s, around 800cc and they go like the clappers. The design is the same as it was in the 50s, but jazzed up a tad, which is part of the appeal.

    They have gone on sale here recently at the very reasonable price of $8000 a pop for the standard number. How the f.ck do I know all this?

    My best mate Jezza just bought one, and we’ve been hanging around like bad smells hoping to get a go. I am now thinking of supporting the Indian economy and my own bank balance in ways other than answering the phone to Delhi call centre operators with fake anglo names at 7pm every night by letting go of $8000 for one of these doozies (those interested: check out the Royal Enfield website on google).

  • Clavos

    Hey, SS, good to hear from ya again! Where have you been, mate?

    I would LOVE one of those bikes, but the sheila who lives with me says absolutely NOT!!

    Can’t figure it out; during the first four years of our life together our only transportation was her bicycle and my old 350cc Honda Super Hawk, and she loved it. Now, the old gal’s suddenly gone all stodgy on me.

    Sigh.

    If you get one of them, Stan, I’ll come over and help you break it in?

  • STM

    Mate, you have to go and have a look at therm. They are pretty neat little numbers. I made a mistake on the cc – 350-500, but plenty of clout as they are pretty light.

    The Electra sport model is the best, and you can get ‘em with the saddle seat. We also like the British/Indian Army replica, with the ammo box steel panniers.

    (Something else to keep the legs off the road if you stack the bastard.)

    Just got back from Thailand BTW. Been there before, but not for 20 years. What an amazing place. The islands in the Andaman Sea, all accessible from Phuket and Krabi, are absolutely incredible. Crystal clear, bath-warm blue water, almost the same temperature as the air, and white sand beaches. Food’s unbelievable, people are wonderful and it’s cheap too. Compared to other places, I hardly spent anything – and did so much more than usual than you would on a tw-week break somewhere else. And that was while tipping everyone because I felt guilty, and my wife and youngest daughter spending wads of local cash at the markets in Phuket :)

  • Clavos

    I spent a week in Thailand on leave from Nam in 1966.

    I got (briefly) to Phuket, but not any of the other islands.

    I liked Thailand a lot; those long skinny boats with the auto engines on a pivot and the looong propeller shafts fascinated me; saw them all over Bangkok.

    Great people. Beautiful country.

  • STM

    “Anyone else have experience of dollar devaluation helping them?”

    Yes, the Aussie dollar has recently moved up the scale close to a tad over a $1.10 to the $US.

    Since fluctuations in the $US affect ALL other currencies one way or another, it meant that on my recent travels to Europe and Asia, I for once got a pretty good exchange rate.

    The fall in the dollar BTW is GOOD for the US economy, not bad. The US needs to be able to produce and export without depending on subsidies.

    It’s the correction we all had to have … and in reality, it means nothing to the average US citizen buying locally produced goods who can still do just as much with a Bush dollar as they could with a Clinton dollar.

    It’s good for the global economy too, which is where Anand’s argument (which smacks to me of: You poor stupid Americans are in decline, suck eggs folks us third-world countries are on the way up”) falls in a heap of sh.t.

    I’d say America is nowhere near sh.t creek yet Anand, and if they’re heading up there, it at least won’t be without a paddle.

  • STM

    I’d assume too that you and your mates never went near a Go-go bar?

  • Clavos

    Certainly not, SS!

    We were in museums and libraries and cultural centers; there was no time for that sort of foolishness!

    BTW, I have this beautiful piece of Everglades you might be interested in?

  • STM

    I’ll only buy it if it’s underwater

  • Anand Menon

    If you are going to say everything is /is not rosy then you better say it earlier than the rest…then we’ll all beleive that you are what you say you are….”a sinister cabal of superior writers”…not like this…

  • Anand Menon
  • Anand Menon
  • Clavos

    Still waiting for answers, Anand….

    And all I hear is cluck, cluck….cluck, cluck….

  • Anand Menon

    keep listening…i’m not going away in a hurry:)

  • bliffle

    Clavos is whistling past the graveyard.

  • Clavos

    “keep listening…i’m not going away in a hurry:)”

    Keep clucking, Chicken Little. I’m listening.

    And waiting.

    For my questions to be answered.

  • Anand Menon

    you prominently display”Personal attacks are not allowed. Please read our comment policy.”….

    yet how was this particular comment by someone who calls himself”Arch Conservative” allowed against this author?????…why don’t you admit it??…”Arch Conservative” is one of your own editorial team.
    Comment#1 by Arch Conservative-May I make a suggestion to the author?Why don’t you go fuck yourself!

    i think we should all be allowed to say”Go fuck yourself” to people like Clavos….I would like to ask the comments moderator why there is a double standard on blogcritics with regard to “personal attacks”…why the grand standing…????

  • Anand Menon
  • Anand Menon

    oh!..i haven’t finished…cluck…cluck…cluck….cluck…

    Credit squeeze and criticisms deepen crisis

  • Anand Menon
  • Anand Menon

    cluck…cluck…cluck….cluck…cluck…cluck…cluck….cluck…cluck.
    ..cluck…cluck….cluck..cluck…cluck.cluck…cluck…cluck….cluck…..cluck….cluck….
    The world’s big investment banks accepted collective blame yesterday for lax lending and weak practices that triggered the present global credit market turmoil and vowed to shoulder responsibility for taking corrective action

  • Anand Menon

    cluck…cluck…cluck….cluck…cluck..
    .cluck…cluck….cluck…cluck.
    ..cluck…cluck….cluck..cluck…cluck.cluck…cluck…cluck….cluck…..cluck….cluck…

    how about closing the barn door after the horse has bolted..
    Countrywide, IndyMac, Washington Mutual Downgraded by Lehman

  • Anand Menon

    cluck…cluck…cluck….cluck…cluck..
    .cluck…cluck….cluck…cluck.
    ..cluck…cluck….cluck..cluck…cluck.cluck…cluck…cluck….cluck…..cluck….cluck…

    Californian homes are overvalued by as much as 40 percent and stricter lending standards will probably contribute to “material” price declines, according to analysts at Goldman Sachs.

  • Anand Menon

    luck…cluck…cluck….cluck…cluck…cluck…cluck….cluck…cluck.
    ..cluck…cluck….cluck..cluck…cluck.cluck…cluck…cluck….cluck…..cluck….cluck…

    the bush fire is spreading… Even ‘safe’ funds play with fire – consumers view money market funds as conservative, but Fortune’s Peter Eavis reports that some have dipped their toes in risky financial waters

  • Clavos

    @#s 295, 296, 297, 208, 299:

    Yaaaawwwnn.

    You must have been foreclosed on, huh?

    You have exactly one point and have beaten into not only submission, but a premature death.

    Your comments got boring weeks ago.

  • Anand Menon

    cluck…cluck…cluck….cluck…cluck..
    .cluck…cluck….cluck…cluck.
    ..cluck…cluck….cluck..cluck…cluck.cluck…cluck…cluck….cluck…..cluck….cluck…

    Hey Clavos…start selling your boats man…do your bit for the economy….Ship shortage pushes up prices of raw materials

  • Anand Menon
  • Anand Menon

    cluck…cluck…cluck….cluck…cluck..
    .cluck…cluck….cluck…cluck.
    ..cluck…cluck….cluck..cluck…cluck.cluck…cluck…cluck….cluck…..cluck….cluck…
    ALL OF MY SOURCES…… EXTREME LEFT WING BLOGGERS????……

  • Clavos

    Left, right. Who cares???

    The point is: YOUR MESSAGE IS BORRRIIINNNGGG.

  • Anand Menon

    cluck…cluck…cluck….cluck…cluck..
    .cluck…cluck….cluck…cluck.
    ..cluck…cluck….cluck..cluck…cluck.cluck…cluck…cluck….cluck…..cluck….cluck…

    Oil & Housing: A Volatile Combination

  • Anand Menon

    In the spirit of the arch conservatives here on this site i would like to say”GO FUCK YOURSELF CLAVOS”

  • Anand Menon
  • Anand Menon

    “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens…There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” (John Maynard Keynes)

    AMERICA’S FORGOTTEN WAR AGAINST THE CENTRAL BANKS

  • http://www.buyingone.com Christopher Rose

    Anand, a few points for you:-

    1. Arch Conservative is neither a member of this site’s editorial team nor a writer for this site. He’s just an occasional commenter who can rarely make a lucid point but frequently undermines himself by moronic expression.

    2. There is always a trade-off between freedom of speech issues and maintaining a conversation interesting and/or viable. As the Comments Editor for the site, it’s an issue I struggle with every day.

    3. The comments space is for people to put their own opinions and so far you seem to be preferring to post links to the words of others rather than make a cogent argument of your own.

    Your point of view may or may not find support within these pages but you’re free to make any case you like. However enough with the linking to other articles now.

  • Ruvy in Jerusalem

    Actually Chris, Anand has made a very cogent point – that the economy of the United States is getting flushed down the toilet, and the USA is in its twilight hours as a major power because of it. His plethora of articles all support that very basic point of view.

    Folks like Dave Nalle and Clavos don’t like to hear this and look at the glass as being half full. There is nothing wrong with optimism, but it always pays to look at the glass and recognize that it may have holes in it. The American economy has a number of gaping holes in it, and when you are a debtor nation, as America now is, those holes are far more worrisome than if you a creditor nation, which America used to be.

    I should have appreciated those days more meself, Chris. I took them for granted.

    That is why there is no real news in the States anymore. The news would be too depressing. So Americans have infotainment instead…

  • Anand Menon

    Ruvy…thank you…:)…;)

    Clavos…cluck…cluck..cluck…

    Chris Rose- sorry Chris…i’ve made your job that much more tougher..i acn understand the fine line between strongly worded repostes and profanity…but after spending some time on this site i also know which way the editorial team is slanted…..tell you what chris…about those links…they are the words of your fellow americans….”real mainstream chaps”..like the wall street journal..who can see now that the emperor has no clothes….not extreme left wing loonies as the case is being made out to be.

    ..but still..Chris..you have an unenviable job….thanks for the comments..you are the most decent of the entire frigging lot…

  • Anand Menon

    and Chris..personally i don’t like em F words..but Clavos takes the cake

  • http://www.republicofdave.com Dave Nalle

    Clavos never uses those ‘F’ words. He’s remarkably restrained and civil.

    The BC editorial team has about 30 people on it. Most of them lean to the left or are moderate politically. The politics section has editors of a variety of political perspectives as well. We’ve got a conservative, a libertarian, a leftist (who’s now on hiatus) and a european left/moderate. We could add a rational socialist if we could find one with the right skills.

    Now, as for this issue about Arch Conservative, I find it interesting that different people have brought him up at the same time on different threads. It suggests a certain amount of coordination. It also comes at the same time of the appearance of several additional hardcore socialist posters who seem to hit certain threads just to back up certain other commenters. It strikes me as curiously timed and I do wonder if there’s a concerted effort here to skew the comments.

    Dave

  • Martin Lav

    Vox Populi anyone?

  • Anand Menon

    “He’s remarkably restrained and civil”…..i wanna puke

  • REMF

    “I find it interesting that different people have brought him up at the same time on different threads. It suggests a certain amount of coordination. It also comes at the same time of the appearance of several additional hardcore socialist posters who seem to hit certain threads just to back up certain other commenters. It strikes me as curiously timed and I do wonder if there’s a concerted effort here to skew the comments.”
    – Dave Nalle

    So the ultimate control freak/manipulator is now whining about a perceived “concerted effort”…? Please, spare us, Nalle.

  • REMF

    “Keep clucking, Chicken Little. I’m listening.”
    – Clavos

    Are you sure those aren’t the conservative Chickenhawks in the background you’re hearing instead…?
    (MCH)

  • http://www.republicofdave.com Dave Nalle

    MCH, you’re just frustrated that you can’t find anyone willing to associate with you in any way.

    Dave

  • http://www.buyingone.com Christopher Rose

    Anand, I ought to ban you for referring to me as an American! Much as there is to enjoy about our provincial cousins across the water, I’d rather mutilate me tender bits than live there.

    Dave, please shut up about conspiracies. you really are your own worst enemy sometimes. Rather like JOM, Joel, OA, moonraven, Arch, Ruvy, Lav, MCH, to name just a few. Hmm, now what do all of them have in common..?

  • Anand Menon
  • Ruvy in Jerusalem

    Dave, Clavos,

    The both of you will be washed away when the market does crash if you do not take precautions, precautions I’ve mentioned a number of times.

    If in the future, the market still exists, the two of you can do what Groucho Marx did in the late 1940’s after recovering from his own losses in the 1929 crash. Go to the visitors’ gallery and croon Irish Eyes Are Smilin’ and interrupt the trading.

  • Ruvy in Jerusalem

    Anand,

    About comment #295. The next time you run into “arch conservative,” don’t address him by his screen name. Address him by his real one – Bing. I find that calling people by their real names often allows you to communicate with the real person rather than the persona (mask) they adopt. Some folks, like Gonzo Marx, do not let you know their real names – but they are pretty consistent in their writing, and usually stay away from telling people to fuck themselves. In fact, communicating with Gonzo, difficult as it sometimes is, is a true intellectual exercise akin to verbal judo….

  • Silver Surfer

    Then again Ruve, why would anyone bother? Even Arch. Communicating with Anand on this topic is like negotiating with an idiot. It’s hardly rocket science is it, and he only has one argument: “The American economy is fucked, you’re all going down the pan together because you’re imperialists … and here’s another bollocks link I’ve dug up and posted from the Gularganbone Bugle, that great journal of record, that proves it.”

  • Clavos

    SS #326,

    As always; short, cogent, and very much to the point.

    Props, mate.

  • Ruvy in Jerusalem

    “Communicating with Anand on this topic is like negotiating with an idiot.”

    I honestly do not know why Anand bothers to post news that you do not want to hear. He must have gotten the hint by now that you do not want to hear that your civilization is about to be flushed down the toilet.

    Maybe he wants the satisfaction of being able to say to you “I told you so,” when the shit actually hits the fan. Like you’ll be at this site at all when it (notice I didn’t say if) all happens, right? Or maybe he enjoys waving your dirty laundry in front of your faces, joyful that you are getting yours at last. Or maybe he is the lone (not so alone, really) voice warning you of your demise in the desperate hope that you’ll pull yourselves out of the hole your civilization of exploitation has gotten you (and us) all into. This article was written also by an Indian, and neither see a hopeful prognosis for your civilization.

    But I honestly do not know. And it is not for me to really know, is it? Who am I to pretend to know another man’s motives?

    Were I to get the response he has received, I would have said, “fuck off and go to hell in your own hand-basket” I would have stopped posting long ago. You are not worth the warnings.

    Have you noticed the dearth in my writing from Israel lately? There is plenty of news, but American navel gazers do not want to know. They want their MTV and their infotainment, and their porn and their bullshit.

    Why should I bother? Perhaps Anand is a better fellow than I, so I try to write a helpful hint.

    Perhaps you are not negotiating with an idiot at all? Perhaps you’re all scared shitless of a future without you in the drivers’ seat?

  • Anand Menon

    The American economy is fucked because Americans are fucking fellow Americans….no imperialism conspiracy theories here.

  • Anand Menon

    Ruvy:)…straight from the gut:)….way to go…and please don’t stop writing from Israel:)

  • Anand Menon
  • Anand Menon
  • Anand Menon
  • Clavos

    So the economy’s crashing. What can you or I do about it, Anand??

    What are YOU doing about it? Besides worrying, I mean?

    It’s like rape (maybe it IS rape): inevitable, so just lie back and enjoy.

    Yaaawwwnnn.

    You’re GLAD the economy’s crashing, aren’t you? You’re taking special delight in linking article after article of gloom and doom, long after all the rest of us, except Ruvy, have totally lost interest.

    It’s Borrrriiiinggg, man!

    Let it go: you win!!!

    The economy is a goner!! It’s DEAD.

    Cluck, cluck, cluck.

  • REMF

    “So the economy’s crashing. What can you or I do about it, Anand??”
    – Clavos

    Help get us out of Iraq. The sooner we quit pouring money down that shithole (almost $500 billion to date), the better…

  • Clavos

    Help get us out of Iraq.

    Good idea.

    How?

    The pols don’t wanna.

    I guess we could pay some A-rabs to fly a couple of airliners into the Capitol while Congress is in session…

    Actually, I LIKE that idea.

    Better yet, let’s invite Bin Laden to run for prez, on the Al-Qaeda ticket. Bet we’d get out of Iraq right quick then.

    I’d vote for him just for the novelty of it.

  • Ruvy in Jerusalem

    Clavos to Anand,

    “You’re taking special delight in linking article after article of gloom and doom, long after all the rest of us, except Ruvy, have totally lost interest.”

    Clavos,

    Don’t flatter yourself. If it weren’t for the fact that the shekel is pretty much tied to the dollar and American multinationals run a lot of the economy, I could give a rat’s ass about what happens on Wall Street or sub-prime markets or all the other shit that you’ve lost interest in. Clavos, its your head on the chopping block first. I come later, if at all…

    I’m outta here.

  • Clavos

    “Clavos, its your head on the chopping block first.”

    In yours and Anand’s opinions, Ruvy. Not in mine.

    In mine, no one’s head is on the chopping block….

  • bliffle

    It’s always possible to get out of a bad deal, the problem is do you want to pay the cost? At what point is it less costly to get out than stay in?

    Suppose we pull out immediately and throw the Iraqis on their own devices. Let’s see what happens.

    We can always go back in if we need to. It was easy to do before.

  • Anand Menon
  • http://www.buyingone.com Christopher Rose

    Anand, I think we’ve all got the idea you’re trying to get across so enough with the link posting now. Please start to make your own points from now on or I’ll have to dust off the old delete button…

  • Anand Menon

    Just a few months ago Nalle said”Finally, one comment for Anand. The dollar has been deliberately deflated as part of an economic strategy which thus far seems to have been pretty successful. As for the ‘housing bubble’, it’s not bursting. Every expert seems to agree that the adjustments are short-term, and the impact of artifically low interest rates wore off quite a while ago. You can bleat about economic doom and gloom all you want, but the evidence just isn’t there to support it, so long as the deficits continue to go down at an accelerated rate and the value of the dollar starts to rebound correspondingly as we ought to see in the next few months.”

    Aaah!…how time flies…

    Merrill Lynch, the nation’s largest broker, reported a loss Wednesday for the third quarter and said its write-downs for bad mortgage loans and related securities was almost $8 billion, well above the firm’s own previous estimate from just a few weeks ago.

    It’s official. This is the worst year ever for layoffs in the U.S. financial-services industry — and there’s still more than two months to go

    “It’s the summer that won’t end,” said Peter Berezin, a strategist at Goldman Sachs

    practically everyday we get this kind of news from your”mainstream” press….fellow bloggers still think that the housing bubble is yet to burst????

  • Anand Menon

    Chris….I think those links are relevant….they are opinions of people who are much closer to the real action.

  • Clavos

    Anad, what do you want from us?

    OK, the housing bubble bust is horrible and is destroying th US economy. So what?

    You’re right, Anand, but so what? It doesn’t change anything nor make any difference to anybody, because if you were right all along, nothing’s changed.

  • REMF

    “Anad, what do you want from us?”

    Well, from you Clavos, how about a little less of the “know-it-all” ambiance…

  • Anand Menon

    ….and a lil bit less of the “superior” airs..;)

  • Clavos

    Will that straighten out the economy??I had no idea!!

    Right away, chaps!

    This is me; “humble know nothing.”

    Oh, wait. I haven’t experienced any negative effects from the economy.

    Sorry, forget it.

    Get someone else…

    Heh.

  • STM

    Anand’s breathless “you’re all going down the gurgler” posting and linking leaves me, well, breathless. Almost to the point of death.

    If it wasn’t so boring, it’d be hilarious. But if the strategy is to bore us to death, thus sending the US and first-world ecomonies down the pan through lack of interest (pardon the pun), it’s working.

    You are officially an artesian. Please start entertaining us and telling us what you really think in plain English, instead of linking to bits of text that may or may not support whatever your argument may or may not be.

  • Clavos

    Nice try, Stan.

    Hope it works.

  • STM

    I won’t be holding me breath.

  • Lumpy

    Anand is a well? I thought he was all wet.

    And about the ‘superior’ thing he keeps harping on. Does he not realize that it’s a slogan picked by the management of the site and not an indication that anyone here has declared themselves to be ‘superior’?

  • STM

    Latest exchange rates Down Under: $US1.00 = $A1.07. That’s the correction the greenback had to have, as it’s always appeared artificially inflated against its true value, and this is actually good for the US economy in terms of exports and the dropping of subsidies, and good for the mining and energy sector of the Australian economy, where sales of iron ore, copper, etc will continue at their current rate regardless. However …

    In India: $1US.00 = 36.57INR (Indian rupees, official rate but you’ll get a much better deal on the street). In fact I think the exchange rate is actually better for the Thai baht, which currently sits around 30 to the $A dollar. This is good for the Indian economy, though (examples: es of Royal Enfield motorcycles going through the roof, and call centre and IT sector wages and expertise too attractive for the big corporations worlwide to ignore).

    So, I think that on the back of the strength of the rising rupee, which should hit parity or near parity with the greenback sometime around 2080 if the current rates of growth and decline continue, which means we should all be really worried and start making plans now.

    The fact that most (if not all) of us will be dead by then, particularly if Anand continues to link to boring stories, shouldn’t be an issue.

  • STM

    LumpY: “Anand is a well?”

    An artesian bore.

  • Anand Menon

    Yaaaaaaaaaawn…”sub prime” trolling…time for Eric Olsen to out all the “sub-prime” editors masquerading as intellectuals.

  • STM

    Yawning Anand? Mate, you’re even boring yourself.

    The Gettysburg Address on the sub-prime housing loan crisis will that to ya.

  • Anand Menon

    In the preface to his book American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21stCentury,Kevin Phillips writes”….THE AMERICAN PEOPLE ARE NOT FOOLS. THAT IS WHY POLLSTERS, inquiring during the last forty years whether the United States was on the right track or the wrong one, have so often gotten the second answer: wrong track. That was certainly the case again as the year 2005 closed out.

    Because survey takers do not always pursue explanations, this book will venture some. Reckless dependency on shrinking oil supplies, a milieu of radicalized (and much too influential) religion, and a reliance on borrowed money—debt, in its ballooning size and multiple domestic and international deficits—now constitute the three major perils to the United States of the twenty-first century.

    The three threats emphasized in these pages could stand on their own as menaces to the Republic. History, however, provides a further level of confirmation. Natural resources, religious excess, wars, and burgeoning debt levels have been prominent causes of the downfall of the previous leading world economic powers. The United States is hardly the first, and we can profit from the examples of what went wrong before.

    Oil, as everyone knows, became the all-important fuel of American global ascendancy in the twentieth century. But before that, nineteenth-century Britain was the coal hegemon and seventeenth-century Dutch fortune harnessed the winds and the waters. Neither nation could maintain its global economic leadership when the world moved toward a new energy regime. Today’s United States, despite denials, has obviously organized much of its overseas military posture around petroleum, protecting oil fields, pipelines, and sea lanes.

    But U.S. preoccupation with the Middle East has two dimensions. In addition to its concerns with oil and terrorism, the White House is courting end-times theologians and electorates for whom the holy lands are already a battleground of Christian destiny. Both pursuits, oil and biblical expectations, require a dissimulation in Washington that undercuts the U.S. tradition of commitment to the role of an informed electorate.

    The financialization of the United States economy over the last three decades—in the 1990s the finance, real-estate, and insurance sector overtook and then strongly passed manufacturing as a share of the U.S. gross domestic product—is an ill omen in its own right. However, its rise has been closely tied to record levels of debt and to the powerful emergence of a debt-and-credit industrial complex. Excessive debt in the twenty-first-century United States is on its way to becoming the global Fifth Horseman, riding close behind war, pestilence, famine, and fire…..”

    Note that this was written long before the August 2007 credit crisis – the Fifth Horseman is now apparently on the move.

  • http://www.republicofdave.com Dave Nalle

    Oops. New home sales up 3.4% for September in an unexpected reversal of the real estate slump. I hope Anand survives the good news.

    dave

  • Anand Menon

    Nalle is wrong…how does one arrive at these disingenous statistics??..The sales figures do not account for canceled sales contracts, which have surged in recent months, especially since the seizing up of some mortgage markets. Builders have reported cancellation rates as high as 68%.Sales are reported when a contract is signed, not at the closing of the sale. Home builders have reported a large increase in cancellations in recent months, with some builders reporting that 50% of orders are cancelled. Cancellations are not reflected in the government data, so the reported sales are likely overstated, and inventories are unstated.
    the full story here…
    ‘Take this one with a large truckload of salt-Michael Gregory, BMI Capital Markets

  • Anand Menon
  • Anand Menon

    The committee’s chairman, Democratic senator Charles Schumer, said: “From New York to California, we are headed for billions in lost wealth, property values and tax revenues. The current tidal wave of foreclosures will soon turn into a tsunami of losses and debt for families and communities.”

    Experts say that the housing slump has already knocked 1% off America’s economic growth rate. “That’s obviously not good,” said Richard Iley, senior US economist at BNP Paribas in New York, who believes that there could be real damage if house prices drop by as much as 10%.It looks as if nationwide house prices are really slipping into the mire for the first time since the 1930s,” he said. “These are heavy blows raining in on the American consumer who, for years, has been heroically resilient.”

  • Anand Menon

    Here’s how everybody’s faring..its a veritable who’s who..tabulated results from the Wall Street Journal(did you notice?…”mainstream”)….across the board we have both big and small fish taking the hit…
    Subpar Earnings: Companies Blame
    Housing, Credit Problems for Weakness

  • http://www.elitebloggers.com Dave Nalle

    Again, you’re operating on the ridiculous assumption that a decline in housing prices harms everyone, when the truth is that as some suffer a tiny bit from seeing their houses that went up 200% in the last 5 years go down 10% leaving them with only 180% profit, others will benefit from more affordable housing, leaving them with more disposable income, benefitting the economy in general.

    Dave

  • Anand Menon

    Yes the economy is being benefitted Dave…how long do you think it will take?….a “few” months?

  • Anand Menon

    Nalle tried giving us his “juiced” market numbers on housing…..it doesn’t just stop with housing…its inflation figures,unemployment,GNP and GDP data and deficit data…other indicators of the overall state of the economy.

    The site deepcaster notes”…The other major form of government (including agency) and Fed market manipulation can most accurately be called indirect. It consists of “massaging” or hiding various statistical measures and data to create results that suit the manipulator’s (usually, whatever Presidential Administration has power at a given time) preferences, insofar as its political, economic, or financial or market goals are concerned….”

    “…Mr. Walter J. (John) Williams operates an excellent and revealing website business named shadowstats.com, in which he analyzes the U.S. government’s and The Fed’s “manufactured statistics” and develops statistics which have a better correlation to reality (i.e. his Shadowstats)……Williams says that regarding “what used to be called the GNP but is now widely followed as the GDP, (and) the CPI, and the employment numbers, all have had biases built into them that result in overstating economic growth and understating inflation – – both of which are admirable political goals.”

    Williams has analyzed and compared the way in which the unemployment figure was historically calculated versus the way it is calculated today. He concluded that if it “were calculated (today) the way it was during the Great Depression, it is now running at about 12%.” As well, he says, “Real CPI is now running at about 8%. And the real GDP is probably in contraction.” Clearly, the government’s methodologies that generated these bogus numbers are all designed to paint a more favorable picture of the economy and the markets than is the reality.

    He explains why contemporary unemployment numbers are bogus. Today, the unemployment number does not include those unemployed who have been discouraged and out of work for more than a year. So they are taken out of the work force completely automatically. This results in knocking about 5 million unemployed out of the broader measures of unemployment.

    Thus, unemployment is about 50% higher than is commonly alleged. And thus, “Today unemployment is really up around 12%.”

    These distortions have very real, and usually adverse, consequences for citizens. Consider, Williams says, the methodology developed several years ago by Mike Boskin and Alan Greenspan for generating the Consumer Price Index. In their (erroneous in Williams’ and Deepcaster’s) view the CPI was supposedly overstating inflation so they “fixed” it from its prior condition of (allegedly) overstating inflation.

    And here is how they did it:

    Originally, the whole purpose of the CPI was to “measure the change in the cost of a fixed basket of goods over time.” But Boskin and Greenspan said that we should allow for substitution because people can buy hamburger when the price of steak goes up.

    But, of course, “if you allow substitutions you aren’t measuring a constant standard of living, you’re measuring the cost of survival.” Williams correctly concludes.

    But the effect of this statistical chicanery is very real and very adverse to, for example, retirees because the CPI was, and is, being used to adjust Social Security payments to compensate for increases in the cost of living.

    The Boskin-Greenspan “fix” was implemented in the Clinton Administration.

    In a similar manipulatory vein, the Bureau of Labor Statistics (BLS) during the Clinton Administration constructed and began to employ a weighting regimen whereby if the price of something went up it automatically got a lower weight in calculating the CPI, but if it went down in price it automatically got a higher weight. The result, of course, was, and still is, to further shaft those people (like Social Security recipients) whose income was dependent upon the CPI measure.

    “If the same CPI were used today as it was used when Jimmy Carter was President, Social Security checks would be 70% higher,” Williams dramatically emphasizes.

    But perhaps the most outrageous aspect of the government’s numbers-manufacturing business has to do with its using “hedonic pricing.” (“Hedonics” is the study of how to create pleasurable sensations.) Hedonic pricing is the practice of creating pleasant (to the government manipulators and to a credulous public) pricing.

    Using its hedonic method, the BLS says the price really doesn’t go up for a product that has “improved” in quality because the consumer is getting greater benefit or pleasure from it. Therefore, if computer power increases by a factor of 10, but the sticker price of computers has only increased by a factor of 2, then the hedonically adjusted price would be much lower for CPI calculation purposes even though the computer is actually twice as expensive (in dollars actually paid) as it was years earlier.

    Williams also notes that sometimes data manipulation attempts are overt, such as the time during the administration of George Bush I, in which a computer industry official was approached and asked to boost his sales reports to the Bureau of Economic Analysis. Williams is careful to point out that manipulation is a bipartisan phenomenon.

    In the Clinton Administration, the manipulation resulted from the CPI numbers being re-set using weighting. “They also changed the employment data. They basically reduced the number of people being surveyed in the inner cities (which had more unemployment (Ed.)) and then claimed they replaced them statistically. But the effect was immediate. You saw a drop in all the unemployment measures that would normally be influenced by inner-city surveying. Thus, of course, the statistical replacement reflected a lot less unemployment than actually existed.”

    The adverse effect of this “numbers manufacturing” extends far beyond its adverse affects on any particular group such as retirees. If someone relies on these buggy statistics and invests in the stock market based on happy economic reports, they may well lose the money (and will likely lose purchasing power) because of that reliance. Williams says “I am…disgusted by both parties at this point, especially because we have no one of substance taking on very severe issues, like the trade deficit and federal deficit that are going to create terrible times for people in this country if they are not addressed.”

    Williams focuses on what he considers, and what Deepcaster considers, “so dangerous that if it isn’t addressed – – and I am afraid maybe that even if it is addressed – – that it has gone past hope of repair; and that is the fiscal condition of the Federal Government.”

    Typical statements of the budgetary condition of the government (by whatever administration is in power) do not include accrued pension and retiree benefit liabilities. Certainly this is not a small omission – – and usually results in differences between the official numbers and the real numbers.

    Williams notes “where the official federal deficit in 2004 was reported at about $412 billion and the GAAP-based deficit was around $616 billion they said that if you added the net present valuing of the under-funding of Social Security and Medicare, the one-year deficit in 2004 was $11.1 trillion.”

    In fact, the 2005 statement (of the U.S. government) shows that total yet unfunded downstream federal obligations at the end of September were $51 TRILLION, Williams calculated.

    Of course, foreigners are financing most of this deficit spending. Williams notes that last year alone, foreign investors bought enough U.S. Federal Debt to cover all the debt issuance of the U.S. Treasury. But we have no assurance that this will continue. Indeed, once this foreign buying even begins to slow, U.S. interest rates must rise to finance our debt, the interest costs on which are already running at nearly $3 billion per day.

    As Deepcaster has repeatedly noted after the current deflationary episode has passed, this process will likely eventually lead to a very high rate of inflation, high interest rates and a very sharp decline in the dollar, quite possibly followed by a deflationary depression. Williams notes (consistently with Deepcaster’s view): “Once the selling pressure starts it’s going to be massive. You’re going to see a lot of dumping of U.S. securities, particularly Treasuries.”

    “To absorb them you’re going to see a sharp spike in rates or the Fed will step in, provide liquidity in market………..the end result, when it does all come together, will be something akin to hyperinflation. But at the same time, you’ll also have a very depressed economy.” …That possibly could evolve into a hyperinflationary depression as much as I hate to use that term.”

    Williams concludes by saying “so we’re talking about a global crisis of unprecedented proportions. Probably one that could lead to the collapse of the current currency system.”…As crazy as it sounds, I think the only thing they will be able to do is go back on some kind of gold standard.” And, indeed, gold and silver are the Bedrock Assets so far as Deepcaster is concerned. And this is why the Fed-led Cartel makes such forceful efforts to cap their prices.

    Finally, Williams talks about where we are today. Indeed, he says we are already in a recession. “What I found is that if you adjust the real GDP numbers that the government releases for the myriad revisions and redefinitions…you’ll find that there is a happy overstatement of growth of about 3% on a year-over-year basis.” The problem very simply is this – – the consumer is the primary driving force behind economic activity and the only ways that consumers can fuel consumption growth are through rising income, debt extension, or savings liquidation, that’s where he gets his cash.

    But the U.S. consumer is not really seeing any income growth. (And, Deepcaster notes, the purchasing power of his U.S. Dollars continues to decline.) “Now this is where the playing around with numbers really gets good.” We’ve already talked about hedonics and all the other manipulations of the CPI. But they all pale next to the impact of imputations in the GDP that are an outgrowth of the theoretical structure of the national income accounts.

    “Any benefit a person receives has an imputed component…when the government puts all of it’s imputations into income, its growth generally remains positive and has very little relation to reality.”

    How do we know when the end is near? Deepcaster and Williams agree on the answer. “If I were looking for one factor to signal the onset of some really serious problems, I would watch the dollar. If you start to see a sharp sell-off, or if the selling starts to pick up a little steam and begins to look like a panic, or you start to hear talk of an Asian country dumping a little extra in the way of dollars, it will be a sign of really bad times to come.” Ominous!

    And we must not omit the “US.” Federal Reserve (the defects of which – – so far as the National Interest is concerned – – are well documented in G. Edward Griffin’s superb book, The Creature From Jekyll Island: A Second Look at the Federal Reserve).

    The Fed chose to stop reporting M3 in March, 2006, clearly to hide their massive monetary inflation, running, as of October, 2007, at 14% per year (according to shadowstats.com) a doubling time of only 5 years!

  • http://www.republicofdave.com Dave Nalle

    Good point on unemployment from Walter J. Williams, but I have to clarify that if you do calculate a more complete unemployment figure and then look at it over time, our current unemployment is STILL historically low compared to past periods and also when compared to other industrialized nations.

    Dave

  • http://www.republicofdave.com Dave Nalle

    Oh, and let me add that using your proposed method you get 26% unemployment in germany and almost 30% in France, so 12% looks damned good.

    Dave

  • STM

    Traditionally, whether housing prices are dropping or not – which they do in countries like the US and Australia, in a constant rise-and-fall cycle dictated by the market and the bursting bubble at the peak – most homeowners will continue to pay their mortgages at whatever their current rate is until prices cycle upwards again. Usually, when prices fall, it’s a buyer’s market – which means more building and buying activity. Should home prices fall heavily in the US, expect more lending, more frenetic building activity, more buying, and less selling. The result: the cycle upwards begins again.

    While it’s true that some non-bank lenders and investors will lose, in the long-term most will also recover. And most mortgaged owners will hold on to their places, paying off the mortgage and waiting for the next upwards cycle, by which time they will likely have acrued some considerable capital gain in their pile of bricks and mortar. In Sydney, for example, housing prices have boomed in the past decade, but are now flattening out after a small decline. Example, a house in my suburb bought for $190,000 in 1995 sold a few weeks ago for nearly $700,000 with minimal improvements.

    A year ago, the asking price would have been closer to $800,000. The boom-and-bust cycle again. But the capital gain is still extraordinary.

    Anand is writing from India, is he not, where the housing market may not operate on that kind of cycle (most people in India don’t own their own homes, which is the opposite of tcountries like the US and Australia), and doubtless without that kind of capital gain – and seems to be writing this from the bizarre perspective so beloved of leftie university students around the world. That’s the one that says: “You’ve been running the world for too long, you are too rich for your own good, now we’d like a bit, so let’s grab a little bit of bad news, cross our fingers and hope it turns into another Wall St crash so that you capitalists all go down the pan together and the rest of us suddenly become more relevent.”

    The big problem is Anand, you don’t know what you’re talking about and most of us can recognise bollocks when we see it. Foreclosures there may be, housing crisis there won’t be.

    The market is already recovering nicely from the sub-prime crisis, despite the odd hiccough, and the truth is, mate: the sky ain’t falling in relation to this. And as I say, the fall in the greenback could actually be highly beneficial for the US, especially when it comes to exports and the killing of costly subsidies. Suddenly, US goods are again on our supermarket shelves, and US cars are on our roads again for the first time since the late ’60s.

    One swallow doesn’t make a summer. In this case, the effect might be beneficial, as investors are now going to be tad more wary of swallows.

  • Anand Menon

    1.Job growth over the last five years is the weakest on record. The US economy came up more than 7 million jobs short of keeping up with population growth.

    2.Over the past five years the US economy experienced a net job loss in goods producing activities. The entire job growth was in service-providing activities–that cannot be outsourced: couriers and messengers, food services and drinking places, health care and social assistance, educational services, temporary help, retail, and credit intermediation, waiters, waitresses and bartenders, and state and local government.Administrative and waste services (largely temporary help and employment services) account for 35% of the new service jobs. The remainder are accounted for by construction , retail trade , healthcare and social assistance , and waitresses and bar tenders .

    3.US manufacturing lost 2.9 million jobs, almost 17% of the manufacturing work force. The wipeout is across the board. Not a single manufacturing payroll classification created a single new job.

    4.The knowledge jobs that were supposed to take the place of lost manufacturing jobs in the globalized “new economy” never appeared. The information sector lost 17% of its jobs, with the telecommunications work force declining by 25%. Even wholesale and retail trade lost jobs. Despite massive new accounting burdens imposed by Sarbanes-Oxley, accounting and bookkeeping employment shrank by 4%. Computer systems design and related lost 9% of its jobs. Today there are 209,000 fewer managerial and supervisory jobs than 5 years ago.

    5.Offshore outsourcing and offshore production have left the US awash with unemployment among the highly educated. The low measured rate of unemployment does not include discouraged workers. Labor arbitrage has made the unemployment rate less and less a meaningful indicator.

    6.In the past unemployment resulted mainly from turnover in the labor force and recession. Recoveries pulled people back into jobs.Unemployment benefits were intended to help people over the down time in the cycle when workers were laid off. Today the unemployment is permanent as entire occupations and industries are wiped out by labor arbitrage as corporations replace their American employees with foreign ones.

    7.The slight decline in the unemployment rate reported now and then is not the result of new jobs; it is the result of large numbers of discouraged people, many with university degrees, dropping out of the work force. They cannot find employment and have given up looking.

    8.US imports are now 50 percent greater than US exports, putting tremendous pressure on the US dollar. US dependence on imported manufactured goods has resulted in exploding trade deficits, which are growing more than five times faster than the US economy. The explosive growth of the US trade deficit since 1990 has turned $3.3 trillion of US assets over to foreigners.

    9.Economists believe that decline in the dollar’s exchange value will correct the US trade deficit by reducing imports and increasing exports. Once upon a time a case could be argued for this logic. But that was a time before US corporations took to outsourcing jobs and locating production for US markets offshore.US imports of goods and services rise each time a US factory moves offshore or a US job is outsourced. Goods and services produced offshore by US corporations for US customers count as imports and worsen the trade deficit. The US cannot reduce its trade deficit by increasing sales to China of goods made by US firms in China. As Charles McMillion, president of MBG Information Services, concisely summarizes: “Outsourcing is export substitution.”

    10.The dismal US performance in job and pay growth is despite a most stimulative monetary and fiscal policy . If the lowest US interest rates in memory, tax cuts and the biggest budget deficits in US history cannot create jobs and boost pay, what can?

    11.Americans are constantly reassured that America is the leader in advanced technology and intellectual property and doesn’t need jobs making clothes or even semiconductors. McMillion puts the lie to this reassurance. During Bush’s presidency, the US has lost its trade surplus in manufactured Advanced Technology Products (ATP). The US trade deficit in ATP now exceeds the US surplus in Intellectual Property licenses and fees. The US no longer earns enough from high tech to cover any part of its import bill for oil, autos, or clothing.

    12.The first world gainers from globalization are the corporate executives, who gain millions of dollars in bonuses by arbitraging labor and substituting cheaper foreign labor for first world labor. For the past decade free market economists have served as apologists for corporate interests that are dismantling the ladders of upward mobility in the US and creating what is the worst income inequality on record.

    This is not the picture of a healthy economy in which growth in high productivity, high value-added jobs fuel the growth in consumer demand and provide savings to finance Washington’s red ink. What we are looking at is an economy that is coming unglued from the loss of jobs that provide ladders of upward mobility and from massive trade and budget deficits that are resulting in unsustainable growth in indebtedness to foreigners.The US economy has been kept alive by low interest rates, which fueled a real estate boom. Consumers have kept growth alive by refinancing their home mortgages and spending the equity in their houses. Their indebtedness has risen.Debt-fueled growth is qualitatively different from economic growth that results from an increase in high value-added jobs. Economists who look at the economic growth rate and conclude that things are fine are fooling themselves and the public.

    Now that the real estate boom is over, what will be the source of the new spending power?

    who will buy Clavos’s leaky yachts??

  • STM

    Lol. What a load of bollocks. I reckon you’re just making this up as you go along. Perhaps Wall Street can offer you a job – the place thrives on bullsh.t. You’d be a walk-up start, Anand.

  • Clavos

    “who will buy Clavos’s leaky yachts??”

    The same people who have always been buying them, Anand.

    People who can afford to spend from $500,000 to $130M on their recreation aren’t disturbed by events like the subprime hiccup.

    On the contrary, because of the decline in the dollar’s value, this year’s Ft. Lauderdale Boat Show (underway now) is flooded with Europeans and Asians eager to snap up the “bargains” (from their POV) available this year; crowds are record-setting this year.

    Sorry, Anand. I hate to burst your bubble!

  • STM

    Sh.t, all those rich foreigners coming to the US to buy yachts off Clav, and all I can afford is an $8000 Indian (-built) motorbike.

    Ah, but what a bike it is. And it’ll be even better when I talk the missus into letting me buy one (she’s close to giving me the nod, I reckon). If India can build motorcycles like the Royal Enfield, they may yet rule the world.

    Keep yer fingers crossed Anand.

  • Anand Menon

    130m on a leaky boat….good luck to them

  • Anand Menon

    Richard Berenson of Specialty Finance Group writes…”If our country’s debt problems in the private sector were simply limited to the $1.5 trillion of subprime mortgages that needed to be repaid, restructured or foreclosed, the situation might be manageable. But they’re not, and it isn’t.

    It’s widely understood now that this mess was caused by a Federal Reserve that pumped up home ownership (for everyone in America) and then proceeded to cut interest rates too low for too long, and by credit market participants who threw common sense and basic loan underwriting to the wind.

    In looking back at this era of easy lending, the orgy was effectively facilitated by Wall Street’s ability to irresponsibly underwrite loans and then look the other way. Risky mortgage securities were packaged and sold in the secondary market to suckers who bought into the theory that the housing market would only go up.

    As equity extraction becomes a thing of the past, a recession seems inevitable. I predict there will be continued credit surprises – mostly on the downside – as employment weakens, jobs are lost, and bills go unpaid. As a consumer-led recession unfolds, personal income and corporate revenues won’t cover many debts, and the game of always being able to refinance has ended. So, for many borrowers the game is already over; they just don’t know it yet.

    The credit cycle has clearly turned. Financial institutions, such as banks, have only begun to add to the massive loan loss reserves they’ll need to shelter from the storm of at least $2 trillion of consumer, commercial real estate, corporate, and single family mortgage loans, that could easily roll over into default. And that’s not all. Loan loss reserves are also being set aside as banks brace for the stress that has begun to appear in commercial mortgages and mortgage securities. See the table below:

    No Shortage of Loans That Can Go Bad

    (Federal Reserve Flow of Funds)

    June 30, 2007

    Loan type Dollar Amount in trillions

    Single and Multifamily 11

    Corporate Credit 6

    Commercial Mortgages 2.4

    Consumer Credit 2.5

    Note: These are loans we can see, so the magnitude of the risk is known as the debts above have actually been recorded on individual and corporate balance sheets. The scary part is the magnitude of the derivative loans we haven’t seen yet.

    In the world of easy money and the exponential increase of artificial liquidity and credit, there is also the “shadow world” of derivatives.

    A derivative allows a market participant to make money or hedge a position as if they owned a financial instrument, yet they’re not required to put the asset on-balance sheet (or post the capital) the same way they would have to if the asset were on-balance sheet.

    Why is this important? As Hank Paulson, Secretary of the Treasury, runs around trying to bail out the Structured Investment Vehicles (“SIVs”), it’s become pretty obvious. These SIVs provided a way for huge banks, like Citibank, to hold another $400 billion of assets but conveniently keep them off-balance sheet. Up until a few weeks ago, the financial press hadn’t even heard of a SIV. Now, suddenly, they’re threatening the core of the financial system because the loans might have to go back on-balance sheet and tie up precious equity capital!

    The big players love derivatives because they allow massive off-balance sheet leverage. However, the hedge funds and mortgage companies that have all blown up recently (along with some Wall Street firms and Bear Stearns) have learned a hard lesson: mixing massive credit losses with high leverage is a formula for quick and definitive financial death. While leverage may be positive to the bottom line on the upside, it can quickly kill on the downside.

    While SIVs are continuing to rock the system, they are a mere rounding error compared to Credit Default Swaps (“CDSs”) and other major derivatives. (CDSs are the most widely traded credit product.) See the Table below:

    Over the Counter Derivatives

    Bank for International Settlements

    Notional Amounts – December 2006

    Dollar Amount in trillions

    Interest Rate Contracts 292

    (Bets on interest rates)

    Foreign Exchange Contracts 40

    (Bets on foreign currency)

    Credit Default Swaps 28

    (Bets on corporate credit)

    The $28 trillion of CDSs is a staggering number! It’s more than double the U.S. GDP, and is more than four times the total of all outstanding corporate debt. The off-balance sheet “shadow world” of credit actually dwarfs the on-balance sheet visible world.

    As the Music Man says, “There is a lot of gambling going on here in River City”.

    In real speak this means the financial players reap all of the benefits on the upside, while the investors assume most of the risk on the downside. The “gamboling” going on is off-balance sheet and, therefore, hidden from the investor’s view.

    In July and August we all learned how cruel the markets can be. When the market value (gain to one party, and loss to the other) of mortgages and mortgage derivatives spiked in value very quickly, quite a number of firms, and funds, simply failed. It was very sudden. Derivatives are by design extraordinarily leveraged, so small changes in the financial markets can affect their value in a big way. A sizable wave in the financial markets can easily be magnified and turned into a tsunami of market losses. With the current level of credit derivatives all sitting off-balance sheet (and unnoticed like the SIV’s recently were), unsuspecting investors could wake up to discover more alarming losses amounting to a few trillion dollars that were neither anticipated nor welcome.

    Finally, the financial institutions that have exposure to on-balance sheet credit risk are the Who’s Who of major hedge funds, major banks, and Wall Street investment banks. Guess who the major counterparties are in the derivatives market? Why, they’re the same major players! So, while Bear Stearns has become the poster boy for all that’s wrong with subprime mortgages, don’t worry. Other firms like JP Morgan Chase, Morgan Stanley, Citibank, Merrill Lynch, and even Goldman Sachs, may have their pictures posted alongside Bear Stearns’ in the “Hall of Shame” when corporate credits turn down. Crumbling credit combined with deadly leverage can prove fatal to portfolios invested in financial stocks.

  • Anand Menon

    Scott B. MacDonald writes…”Over the past thirty years, the United States has sought and to some extent achieved a guns and butter economy; that is the pursuit of both political-military objectives and an affluent lifestyle. On the political front, it has dominated the international system, presiding over the defeat of the Soviet Union, its hegemonic rival during the Cold War, and forming a successful military coalition to liberate Kuwait in the first Iraq war. It became even more unilateral under the Bush the younger administration, with aggressive policies against militant Islam and Iraq in Middle East and South Asia.

    At the same time, the consumer-driven U.S. economy continued to expand, with the last great burst being the spike in homeownership in the 2003-2006 period. Homeownership since the mid-1950s was long stuck at 65 percent of the total population, but by year-end 2006, on the back of cheap credit and lax underwriting standards, it reached 69 percent. Significantly, countries such as China, Japan and Germany benefited from the U.S. guns and butter economy, content to sell their exports and finance their purchases via the buying of U.S. debt. This was the upside of globalization.

    But in July 2007 the U.S. financial system signaled that the era of cheap money and lax standards was over. Two Bear Stearns hedge funds collapsed and panic hit credit markets, pounding the stock and bond values of any company associated with mortgage lending and housing. By August the rout filtered into the derivatives market (especially those structured financial products that contained exposure to U.S. sub-prime debt), negatively impacting European and Asian bank and insurance investment portfolios.

    The contagion eventually rippled into London’s inter-bank market, forcing central banks to inject considerable amounts of liquidity to keep the system running. Even then, nervousness about the standing of banks, especially those dependent on short-term commercial paper for mortgage lending, forced the UK’s Northern Rock into a government rescue. This was the downside of globalization.

    The U.S. economy is edging toward a significant slowdown in what is left of 2007; it will take concerted effort and luck to avoid a recession. The housing sector is hitting depths associated with the 1930s. The Fed’s September 18th cuts in the discount window and in Fed Funds gave markets a temporary relief, a situation helped along by private sector actions to consolidate the financial sector. This is reflected in Bank of America’s purchase of Countrywide Financial shares and Citigroup’s stepping up with credit lines for GMAC. But there remains a long distance to the shore of economic safety.

    A shadow is being cast by a deficit of unresolved problems in an economy overloaded with debt, a retreating federal responsibility for national infrastructure, and large (and seemingly unending) overseas burdens. In the short-term, the problem that looms on the horizon is that the housing meltdown is finally chipping away at the consumer, who in the butter part of the U.S. economy, accounting for about 70 percent of GDP. The consumer relied on home equity (and foreign capital) to finance the ongoing parade of goods and drove many households into negative territory in terms of savings. Why save when you are penalized (taxed) on savings amidst an unrelenting society-wide pitch to consume? Easy money during the Greenspan years helped keep the guns and butter economy afloat without too many major adjustments. That dynamic has changed.

    On the short term side there is going to be further bad news on housing. There is a very real prospect of steeper declines in housing prices, pushed along by a growing inventory (already 9 months of new homes waiting to be sold not to mention those homes taken off the market by frustrated would be sellers). In addition, there is a huge resetting of adjustable rate mortgages over the next 12 months, with a large spike in March 2008. Adding to the list of woes is the increasing pace of personnel downsizing in the mortgage industry and declining profitability in the financial sector.

    On the longer-term side of the equation, the economic landscape is chilling, considering the massive structural problems. The guns part of the economy is a concern – the war in Iraq and other missions (Afghanistan and Africa) cost somewhere between $3-5 billion a day. In August, the Congressional Budget Office (CBC) estimated as of June 2007 up to $500 billion has been spent on combat operations in Iraq. The CBO also noted that if the United States were to maintain 75,000 troops in Iraq over the next five years, the nation would have to pay an additional $900 billion. Moreover, there are further costs attached to training police and ground forces in Iraq and Afghanistan as well as long-term health costs associated with wounded personnel.

    There are other structural problems – a long term imbalance between government expenditures and revenues (related to ongoing pressure for tax cuts). There is a massive problem with national infrastructure – it is aging rapidly and needs to be upgraded with a price tag of $1.6 trillion. That includes roads, bridges, ports and other public utilities.

    Any doubt of the infrastructure problem one need only point to the July 2007 steam conduit that exploded in Manhattan – the piping was laid 83 years ago when Calvin Coolidge was president and was part of a system that started to provide energy to New York City in 1882. In August 2007, a 40-year old bridge in Minneapolis collapsed, leaving several dead in the accident’s wake. The national infrastructure is literally falling down around the population, but the most recently passed Senate transportation and housing bill contained at least $2 billion for pet projects that include a North Dakota peace garden, a Montana baseball stadium and a Las Vegas history museum.

    Equally important is the issue of Medicare, Medicaid and Social Security, the combined basis of which is expected to grow 22 percent faster than the economy over the next decade. This should come more sharply into focus next year when the first of 78 million baby boomers become eligible for early Social Security benefits.

    American politics have reached a very dysfunctional stage, with considerable energy given to the indulgence of maintaining an economy and the debt required to keep it going, with little thought being given to the adjustments now in motion. Along these lines, it is easier to blame the outside world for troubles at home, hence the turn to protectionism (with a number of bills pending in the U.S. Congress). The plunging value of the U.S. dollar and the huge sell-off in U.S. securities by foreigners in August ($163 billion) should convey the message that not all is well and that unless there is an effort to start living more within one’s means, the rest of the world is going to stop financing the North American credit glutton. The days of guns and butter for the U.S. economy are over; what is going to replace it is a much more volatile world, with substantial questions over the U.S. dollar as the major international currency and the ability of the U.S. consumer to absorb the world’s exports. As the U.S. adjusts to this changing scenario, so will the rest of the global economy. It is not going to be an easy transition….”

  • http://www.republicofdave.com Dave Nalle

    130m on a leaky boat….good luck to them

    At $130m I bet it includes one damned fine bilge pump.

    Dave

  • Clavos

    Yep. A very good pump. Several, in fact.

    Here she is, her name is Kismet

    And here’s one we’re selling.

  • http://www.republicofdave.com Dave Nalle

    My, those are pretty swanky, Clavos. Out of my price range, though.

    Do you ever deal in sailboats, or is it all just motors with you? The time will come in a few years when I’m going to be looking for something along the lines of a classic Columbia 50.

    Dave

  • Clavos

    I sell ‘em all, Dave. And, as a lifelong rag bagger, I know sail fairly well. Don’t lose my email address. :>)

    And though the swanky ones get all the press, I currently have 4 listings under $100K, and several between $100K and $500K.

    Anand is right to the extent that the market for boats priced below $500K has slowed (though not died) somewhat.

    But the folks who can afford $1m or more for a boat don’t even blink when there’s an event like the subprime crisis (unless, of course, they happen to be in the subprime business.)

    Today, I showed a listing I have that’s priced at $569K to a gentleman whose card says he’s CEO (and owner) of a firm involved in “Bridge Financing, M&A, Venture Capital.” A guy in the business of lending capital, who in the middle of a “nationwide financial crisis,” precipitated by a crisis in the lending sector can still afford a $500K boat.

    Maybe he’s an anomaly, but there are tens of thousands of people at that show, and lots of ‘em are buying.

  • http://www.republicofdave.com Dave Nalle

    Even if I could afford $1 mil for a boat I’d have a hell of a time convincing myself that was a wise way to spend the money. Having to work for a living has conditioned me that way.

    Of course, if I did have a million or two to spend I’d get a custom built Hinckley.

    Venture capital guys have scary weird cash flow. Get the money up front before it disappears into some goofy project that goes down the tubes.

    Dave

  • Anand Menon

    Look man I am happy that you are selling em boats and doing well for yourself…..but boats are only a small part of the overall economy…..so please cash in while the going is good and like Dave said ….take down a full advance….you know when your “Kismet” might change.(Kismet from Turkish/Arabic/Hindi=fate,fortune,destiny)

  • Ruvy in Jerusalem

    Anand,

    You have enough material in quotes and your own comments for several articles here, all with the same rosy theme of flush America down the drain!

    Instead of latching on to CS Sridhar’s (Socrates) article, you should write a few of your own. Your comments and extensive references are a welcome change from the Prozac dispenser (Dave Nalle), and the happy rowboat salesman (Clavos). Clavos has very legitimate points to make in fields like air transport (where he is an expert), and Dave Nalle has legitimate points to make in articles about my neck of the woods, where he was raised.

    But when Clavos talks about the economy, it all very quickly gets back to yachts and the rich folks he deals with, because that is his entrée into understanding the American economy. That is not meant as a criticism. When I talk about the American economy, it comes from my dealings with the bellow over the belt slobs customers who ordered double whoppers with cheese, large fries, a diet soda and a chicken sandwich chaser. And Dave, you should have stuck to the Middle East as your knowledge base. Even if I don’t necessarily like what you have to say all the time, it gives you a more cosmopolitan view than you show here on BC.

    My friend and neighbor from Texas, Mike, who was a cop and a farmer before he moved here, has a more cosmopolitan view of the world than you display.

  • Anand Menon

    Ruvy..I’m not saying “America SHOULD be flushed down the toilet”…I’m saying”America is flushing ITSELF down the toilet and doing nothing about it”….runaway finance is a direct consequence of negative economic policies and imperial overstretch… two of the points mentioned in Socrates’s article…..we can’t look at this sub-prime crisis in isolation ….the clock didn’t start ticking with the sub-prime crisis….its been happenning slowly but surely at home ground for many years now…deregulation coupled with globalisation has resulted in an unravelling of the problems….starting with the financial world…..with the result that Americans are no longer numero uno.

  • Anand Menon

    Lets try and put that 28 trillion into perspective.

    Lets say Clavos sells a yacht for a million ,which is one followed by six zeroes=1000,000

    Now a thousand million make a billion ,that is one followed by nine zeroes=1000,000,000

    Again a thousand billion make a trillion,that is one followed by 12 zeroes=1000,000,000,000

    we are talking about 2 trillion which is 2 thousand thousand million of commercial mortgages and about 28 trillion which is 28 thousand thousand million of derivates riding tenously piggyback on the whole scam.

    Which gives us according to Richard Benson a total of 30 trillion dollars at stake,which is a 30 thousand thousand million dollars.Now fellow bloggers please tell us how many boats will Clavos have to sell before the economy recovers?

  • Clavos

    Dave,

    “Get the money up front before it disappears into some goofy project that goes down the tubes.”

    Mine is a cash only business, Dave. Though some of my buyers get financing, my sellers all are paid in full at closing, and before the buyers get possession.

    Typically, if this VC guy wants the boat I showed him, he’ll make an offer (accompanied by the required 10% deposit) within the next 24-48 hours, and the deal will be closed within the next 10 days. It would go even quicker, but the buyer has the right to perform a sea trial (test drive), and have the vessel hauled out of the water and surveyed (inspected by an expert). Typically, it takes a week or so to make all the arrangements, hire surveyors, etc.

    Interestingly, when the deal is $1M +, the buyer is almost always paying from his own resources; It’s the deals under $500K where most of the financing is, and in those, I help them hook up with the banks only; the banks either accept or reject them and assume all the risk.

    We get all cash at closing (plus the trade-in vessel, if there is one). Zero risk for my firm or me.

    On any deal that goes south before closing (and some obviously do, of course), all I have invested is some of my time.

  • bliffle

    #382 is pretty good. Worth reading. It highlights the leverage problem we have.

    When you total up all the paper assets in primary and derivative USA financial instruments you get about $550trillion (the rest of the world is about $200trillion) which is riding on about $45trillion Net Asset Value of all the real capital assets in the USA. That’s about 12 to 1. We’re all betting on margin with a margin requirement of only about 8%. Remember the crash of 1929? Commonly blamed on the low margin requirements then in force.

    This is what makes economists sweat. A highly leveraged economy has poor resistance to economic shock and is subject to cascading collapse.

    Incidentally, the Bank of International Settlements was created in the 1930s specifically to bailout the finances of Germany. It was felt that a German collapse would lead to a European War. Well, Germany was bailed out and look what happened. One of the founders of BIS was George Bush’s grandfather.

  • Anand Menon

    Chris Rose what happened to my comment #382…thoughts by Richard Benson?

  • Silver Surfer

    Imagine going to a dinner party and encountering Anand – right across the table from you or worse, sitting next to you and no-one else in the immediate vicinity (three chairs each side, and no-one opposite) speaks English.

    “So Anand, what did you think of JK Rowling’s decision to out Dumbledore …?”

    “Well, if you look at the sub-prime lending crisis in the United States, and its impact on global financial markets, you can see that America is headed down the gurgler and here’s why according to the pundits (*produces yellowed, crumpled tear sheet of latest sub-prime story from the Hindustan Times and begins to quote from it … extensively*) …”

  • Clavos

    LOL, Stan!

    How are you mate?

    PS Wanna buy a boat?

  • Silver Surfer

    Only if it floats! I’d rather get one of Anand’s mates to sell me one of their motorbikes. I was watching a British WWII drama on UKTV tonight on cable and part of the period setting was, you guessed it, a RAF pilot riding a Royal Enfield in rural England … doubtless made in India, given that these bikes haven’t been made in the UK since the 1960s.

    It looked pretty damn good too.

    On the dinner party bit. I’m always disappointed when I go to a dinner party with Indians (I’ve been to three, including one in the UK), and looking forward to chewing over the latest cricket Tests, about which Indians are as passionate as us, I nearly always encounter someone who wants to talk about the global economy. If it was Anand though, I think I’d put poison in the vindaloo – even my own, if I had to, assuming I was still awake.

  • Anand Menon

    Unfortunately the Indian mainstream press is as lousy as the American mainstream press.You’d never read about the subprime in the Hindustan Times or the Times of India or any other rag.

    Do you have anything to add to the debate [Gratuitous vulgarity deleted by Comments Editor] ?

  • Anand Menon

    Thank you Rose..i’ve never had the scissors dealt on me…guess there’s always a first….pls do me a favour…#373 should appear as #382…otherwise it doesn’t make any sense…

  • Clavos

    “Do you have anything to add to the debate”

    There IS no debate, Anand.

    For weeks now, the entire thread has been nothing but you posting link after link (that is, when you’re not posting articles in the entirety).

    No debate, just an unending diatribe.

  • Silver Surfer

    Anand, since when did you worry about anything making sense? As Clav points out, for weeks on end, you’ve just carried on about the decline of the US economy … ad nausem.

    Perhaps you should start writing your own stuff instead of posting links and cutting and pasting – Desicritics would be the ideal place :)

    I’m sure they’d love you over there.

  • Anand Menon

    Thank you for your advice Silver Surfer…and since Clavos is convinced that selling boats is good for the American economy you should do your bit and buy from him…he’s still got another 30 million million to go;)

  • STM

    No thanks, I don’t trust blokes who wear strange-looking hats :)

  • Clavos

    Anand,

    Please don’t put words in my mouth.

    I never said selling boats was good for the American economy; I only said that selling boats isn’t being hurt by the housing crisis or the subprime crisis or any of the other crises which, over the past few weeks, you’ve so assiduously enumerated are wrong with the American economy.

    I really don’t care if selling boats is good for the American economy or not. It’s good for Clavos, and that’s good enough for me.

  • Clavos

    And you watch whose titfer you’re making fun of, you weird-speaking, wrong-side-of-the-road-driving, wallaby herder, you.

    Next time, I’ll sic moonraven on ya.

  • STM

    I reckon if I bought a boat from Clav, it would be bad for the Australian economy, since we’ve got more bloody boats here than you can poke a stick at, all floating around on harbourside moorings – so why would you need to go to Florida to nab one when you can get a nice one in New South Wales?

    I bet Clav will say it’s the quality that counts, plus the bonus of being able to negotiate a sales contract with someone who actually speaks English.

    “And for an extra $5000, you get an extended warranty, plus a bucket … “

  • Clavos

    Actually, mate, I’ll give ya the quality of Aussie (and Kiwi) boats; their reputation is fair dinkum all over the world, though here in God’s country we do have to re-progam them to go down the proper side of the waterway.

  • STM

    PS, on the global economy: a litre of Coke is way more expensive in Australia than a litre of petrol – at least double the cost.

    The petrol tastes better too, but that’s another story.

  • STM

    Bugger me Clav, do they stick the steering wheels on the wrong side over there on the boats as well?

  • http://drdreadful.blogspot.com Dr Dreadful

    do they stick the steering wheels on the wrong side over there on the boats as well?

    If my friend Alicia’s boat is anything to go by, Stan – no!

  • Anand Menon

    “Hurried Potty and The Order of the Commodes”…thats the level of debate you chaps are capable of…

  • Clavos

    “”Hurried Potty and The Order of the Commodes”…thats the level of debate you chaps are capable of…”

    How would you know? Your style of “debating” is to present nothing but other people’s words and ideas, without presenting any original thought of your own to which to respond.

    You don’t know what debate is, Anand.

  • Anand Menon

    and whats yours?cluck?cluck?cluck?….buy a boat?…cluck?cluck?cluck?…..ride my enfield?cluck?cluck?

  • STM

    We know how much you love a good mass debate Anand, but did it ever occur to you that we just don’t really want to join in?

  • STM

    And stop clucking about. Doesn’t a goose hiss?

  • Silver Surfer

    Ah, but here’s the rub, and it’s a very important one.

    People in Europe getting paid in Euros (or GBP, for that matter) generally don’t get anywhere near as many of ‘em as people in the US who are getting paid in dollars.

    Which means, in the wash-up, currencies being valued against eache other is an artificial construct designed for the exchange markets, especially when it comes to purchasing power.

    Because, as everyone knows, as an example, back home in Oz, I get paid in Aussie dollars. Let’s say I earn A$100,000. I can do just as much with that in Sydney as I could with US$100,000 in NYC. More, probably. But my dollar is worth a bit less. And it’s only when I take those dollars and try to exchange them for US dollars or Euros that I start to lose.

    Even so, on a recent trip to Europe, I was still earning more than a person in similar employment earning euros, even given the big exchange rate discrepancy at the time (now less, and the same with the US dollar). That’s why any of these discussions must take into account two other little things: average earnings and purchasing power parity, which are weighed against the exchange rate to get an idea of annual personal earnings.

    Down here though, it all means diddly fucken squat unless I’m buying imported luxury brands.

    In the past year or so, the $A has been climbing steadily out of the 80c range and has hit US97 cents this week.

    And I’ll be fucked if it’s made one scrap of difference to how I live, except that my mortgage interest rate has gone up slightly. What I do know is that real poverty is near non-existent in my country, and that’s telling when you compare to places like China and India, which might have booming economies but still can’t lift the vast majority of their people out of the gutter – literally, too, much of the time.

    The whole thing is bollocks – the fall of the greenback is a needed correction for a currency that’s been artificially inflated by the machinations of Wall St for far too long. Now, the machinations aren’t working, every bastard’s losing, and the dollar is where it’s supposed to be. That doesn’t mean it’s weak, or that the US economy is going down the gurgler despite Anand’s attempts to apply the little knowledge learned in high-school economics classes to serious debate on these threads. Even Socrates, who appears capable of threads of rational thought on occasion, is wrong about this. And no amount of “suck eggs, you rich bastards, you’re all going down the gurgler – now it’s India’s (or China’s) turn” type of sentiment makes any difference.

    I guess the telling factor is the traffic betweeen countries. People from China and India are literally bashing down the door to get into Oz, but it’s mostly one-way apart from the odd hippy going for a holiday in Goa.

    [Edited]

  • troll

    surfer dude – while I agree with your analysis of the ‘dollar correction’ your claim that *What I do know is that real poverty is near non-existent in my country* is overstated – according to the Human Poverty Index about 14% of your population lives on less than half of your country’s median income as compared with Sweden’s 6% and the US’ 17%

    while Chinese poverty and Australian poverty are qualitatively different they are both real

    HPI data seems to indicates that the level of poverty that a society is willing to tolerate is one factor that differentiates the developed socialist countries from the more balls out successful capitalist ones

  • Triedntested

    The US dollar is still officially the world’s reserve currency, but it cannot purchase the services of Brazilian super model Gisele Bundchen. Gisele required the $30 million she earned during the first half of this year to be paid in euros.

    Even as Gisele throws off the dollar’s hegemony, Brazil, Venezuela, Ecuador, Bolivia, Argentina, Uruguay, Paraguay, and Columbia are declaring independence of the IMF and World Bank, instruments of US financial hegemony, by creating their own development bank, thus bringing to an end US suzerainty over South America.

    An empire that has lost its backyard is finished

  • Clavos

    “An empire that has lost its backyard is finished”

    Ya think???

  • Tracker

    Have been reading some of the comments here.It looks more and more like the subprime crisis is going to take a major player ,The Citigroup down with it.
    Citigroup Fighting For Its Financial Life

  • ThirdMan

    The troubles at the Finance companies are spreading to other parts of the economy.

    Art house sotheby’s reported a less than satisfactory sale .Shares in Sotheby’s, the art auction house, dropped more than 28 per cent in heavy trading yesterday after a disappointing sale of Impressionist and Modern art in New York on Wednesday night was followed by two analyst downgrades.The sale, the second big auction of a two-week season, brought in $270m, about a third lower than estimated, with a quarter of the works failing to sell. Some dealers pointed to the flat sale as evidence that the boom in art prices was coming to an end. There were also concerns over the level of price guarantees that Sotheby’s has offered to -sellers.

    And now tech stocks are in trouble.Since technology companies rely heavily on Wall Street, it’s been a growing question as financial giants have taken one massive hit after another.If the trouble on Wall Street continues or worsens, the consequences for tech could be severe because financial-services companies are far and away the most ravenous consumers of tech in the U.S. As financial services continues to struggle in the wake of the subprime mortgage shock, raising more questions about future earnings and layoffs, the specter of an overall tech-spending crunch is beginning to loom. “We think that information-technology spending could slow down quite a bit in the next 12 months, based on what’s happened in the last month,” says Stephen Minton, vice-president for worldwide IT markets research at tech researcher IDC.The reason? The sheer size of Wall Street’s tech budgets. The financial-services industry accounts for 23% of all business spending on hardware, software, and tech services, or 18% of the $432 billion U.S. total once consumer buying is included. Over the years, banks and investment firms have come to represent an ever-increasing proportion of total tech demand, as they developed ever-more-complicated financial products and trading strategies that required faster computers, more number-crunching software, and more efficient networks.Not all segments of tech would be affected equally. Hardware companies, such as PC makers, storage manufacturers, and mainframe sellers, including IBM, Dell, and Sun Microsystems (JAVA), would feel the biggest impact. Software companies that make business-intelligence and collaboration software, such as Oracle and SAP (SAP), would also be hit.

  • Triedntested

    The dollar has lost 34 percent of its value since 2001, and currency forecasters predict the decline will continue because of global concern that last month’s interest rate cuts by the Federal Reserve and softening home sales point to larger economic woes for the U.S.Just this week, the dollar fell to record lows in world currency markets as writedowns for bad debts mounted at big financial institutions such as Citigroup and Merrill Lynch.The big fear, though, isn’t that business columnists and supermodels will turn their back on the dollar, it’s that dollar-holding countries will.China, for example, has amassed much of its reserves in dollars, and it now sees those cash piles losing value.Political murmuring from China calling for the government to buy more euros and fewer dollars sparked global concern, adding to the dollar’s decline this week.Facing trade sanctions over what many economists contend is the manipulation of its currency, the yuan, China has threatened to dump massive amounts of dollars on the world market, a move that could send the greenback into a free fall.

    As the global denominator of choice, the dollar’s slide has broad implications.Oil, for example, is priced in dollars. As the dollar falls, Americans face sharper increases in gasoline prices than consumers in Europe, where the stronger currency blunts the rise at the pump.In September, Saudi Arabia refused, for the first time, to cut interests rates along with the U.S. Federal Reserve, which may be a sign that the kingdom is turning to other currencies to shield its economy from the dollar’s fall, London’s Telegraph newspaper reported.Russian President Vladimir Putin last year called for a Russian stock exchange that would trade oil in rubles, and Iran, which now collects about 85 percent of its oil payments in currencies other than the dollar, recently struck a deal with Japan to sell oil in yen.Such moves may be early signs that emerging world oil powers are trying to break the dollar’s hold on the global energy market.

  • Tracker

    Ben S. Bernanke, chairman of the Federal Reserve, told Congress on Thursday that the economy was going to get worse before it got better. Mr. Bernanke warned that the economy was about to “slow noticeably” as the housing market continues to spiral downward and financial institutions tighten up on lending.Mr. Bernanke offered a rocky outlook for the months ahead. He said the battered housing market had yet to hit bottom, that delinquencies and foreclosures were likely to rise and that the depression in home-building was “likely to intensify.” He predicted that personal spending would advance more slowly, because consumers were less confident and because of tighter credit conditions. On top of all that, he said, “further sharp increases in crude oil prices have put renewed upward pressure on inflation and may impose further restraint on economic activity.” Oil traded just above $95 a barrel on Thursday, down slightly from the day before but still near its recent record highs. In an early sign of the political pressure that the Fed is likely to face if the economy falters next year, Senator Brownback, who recently abandoned his Republican campaign for president, pleaded with Mr. Bernanke to cut rates in time for the Christmas shopping season.“It seems to me that now is the time,” Mr. Brownback said. “When those gas prices get up to $3 a gallon, it seems to hit some sort of psychological point in consumer’s mind that ‘I have less to spend,’ and that’s a reality for them.”

    Subprime mess?-CONTAINED???

  • ThirdMan

    “Sentiment readings are now out of the caution area and into the DANGER zone,” wrote Robert Brusca, chief economist at Fact and Opinion Economics. “Things do seem to be unraveling a bit faster.”
    The current economic conditions index fell to 91.0 in November from 97.6 in October.
    Overall sentiment is at its lowest since widespread worries about oil prices after Hurricane Katrina. This month’s reading is at 75.0, below Wall Street’s expectations of 79.5 and the prior month’s reading of 80.9.
    The sliding consumer sentiment readings in recent months “is not untypical of the pattern seen when the economy is entering recession,” wrote John Ryding, chief U.S. economist for Bear Stearns.The consumer expectations index for November reached 64.7 — also the lowest level following Hurricane Katrina — down from 70.1 in October.
    Ian Shepherdson, chief U.S. economist with High Frequency Economics, wrote that the expectations index “is more worrying now because we can see no reason why it should improve” soon.
    He added that confidence is much more likely to continue to slide than recover.
    “The timing of this plunge in sentiment, coming just before the holidays, could not be worse,” he wrote. “This is the time of year when retailers make their money, but the holiday season is shaping up to be a disaster.”U.S. retailers on Thursday reported their worst October sales IN 12 YEARS, hurt by unseasonably warm weather, record high oil prices, and consumer worries about the housing and credit markets.

    So that is BAD NEWS.

  • Anand Menon

    This article just about sums it all up …..
    The Long Fall-A Market Without Parachutes

  • bliffle

    You boys are too pessimistic. Perhaps the economy is crumbling, but just look at the Emperors new clothes! See how splendid they are?

  • Anand Menon

    splendid!splendid indeed!…
    Charles Hugh Smith says…”You cannot properly anticipate the coming wealth destruction unless you understand that the entire model rests on financial instruments (derivatives) which mask and distort risk.”
    Empire of Debt – The Great Unraveling Begins

  • Anand Menon

    Aha!…so where were the investment banks hiding their losses?…Nouriel Roubini writes..”Suddenly markets and investors are discovering that many financial institutions were parking a large fraction of their asset in the level 3 bucket where they avoid using market prices to evaluate such assets but rather rely on “model valuations” and “unobservable inputs”. But now the forthcoming FASB 157 regulation will prevent them (unless heavy political lobby leads to a postponement of its implementation on November 15th) from playing such accounting tricks and force them to use market prices – when available even in illiquid market conditions – to price these assets….”

    The bloodbath in credit and financial markets will continue and sharply worsen

  • Clavos

    I’m beginning to think you’re right, anand. To the point I’ve already converted all my money to gold, so now my hope is that the US economy truly collapses; I mean REALLY, TOTALLY collapses, taking the entire world’s economy along with it.

    That will mean several billion of the world’s poor will likely starve to death in short order, and once we’re rid of them, the rest of us can get on with rebuilding. In the meantime it’ll be open season on the weak. What fun!!

  • http://www.elitebloggers.com Dave Nalle

    Clavos, I’ve followed your lead, but seeing how high the price of gold is I’ve cashed in all of my investments and bought guns, bottled water, dehydrated food and I’m stockpiling diesel and propane.

    Then I’m putting all the rest of my money into really high-quality printed porn, because I’m positive that when the internet and DVDs no longer work because we have no electric power printed porn will become the primary medium of exchange.

    Dave

  • Anand Menon

    After reading the stuff that you write…it might not be a bad idea Nalle

  • Anand Menon

    The bad news is coming thick and fast now…aul Kasriel, director of economic research at Northern Trust, noted recently, profits from the financial sector now account for 31 percent of total United States corporate earnings — up from 20 percent in 1990 and 8 percent back in 1950. Profits from this country’s financial engineers now far exceed those generated by mechanical engineers. But we still can’t tally the losses for which these engineering geniuses are responsible. “No one knows how big the challenges in the financial sector are,” Mr. Kasriel said. “What I do know is that we have never had a more highly leveraged economy than we have today. We have never had a more highly leveraged household sector and we have never had a more highly leveraged housing sector than we have today.”While consumer spending has provided a major propellant to the economy in recent years, troubling signs that the consumer may finally be dropping rather than shopping have cropped up. Chain-store sales have been weak for two months in a row, and shares of major retailers fell on Friday on concerns about weaker consumer spending. The University of Michigan said last week that consumer confidence had fallen to its lowest point in two years.Mr. Kasriel’s point about the economic impact of a damaged financial services sector is this: If you think corporate spending will replace flagging consumer spending as a driver for the economy, think again.

  • Anand Menon

    This is the new regulation thats sounding the death knell for major banks in the US and the UK.
    Why FAS 157 strikes dread into bankers

  • STM

    Anand: “This is the new regulation thats sounding the death knell for major banks in the US and the UK.”

    Rubs hand with glee, anticipating takeover of world economy by India.

  • STM

    I just thought I’d throw something in here on the Gisele front.

    Do you reckon Gisele would be smart enough to realise that if she’s getting paid US$100,000 for a job, they aren’t going to pay her 100,000 euros instead?

    I don’t, and I bet she has nothing to do with the running of the company either, at least when it comes to juggling the books and the bucks.

    And – do you think she realises that once the money is shoved in the bank wherever it is that it goes in (Brazil, possibly, d’ya think?), it’s then subject to all the usual flows and fluctuations of the international currency market.

    Nah, I don’t think she does. She’s a super model, remember, not a rocket scientist or an expert on global economics. I can just imagine all those fashion companies in the US and elsewhere, converting US dollars to the euro rate, and then paying Gisele exactly what she would have been paid in the first fu.king place. And then wondering why on Earth they’d bothered.

    It’s hilarious that you blokes are touting a supermodel – someone whose main claim to fame is looking good in a bikini/dress/heels/latest pants/fashion accessories – as some sort of example of how the US economy is going down the chute.

    If you knew anything at all about economics, you’d know that the fall in the dollar is a correction to a currency that was artificially inflated on Wall St and by its many minions around the world, and that King dollar needed to get rid of a couple of bolshy barons and earls in order to survive and stay strong. It’s needed to do it for a while, and the sub=prime crisis was merely the catalyst. What’s happening is good for the US and the rest of the world, and doesn’t in any way indicate the end of the US dollar as one of the world’s strongest currencies.

    As Paul Keating would have said, it’s the correction we had to have.

    Tune back in, say, in a year or so and we’ll see if I’m not right.

    And the Gisele argument, at least, really shows the paucity of your position.

    Anyone can madly troll the internet posting links about what’s going to happen. Not understanding the real reasons and the real effects/results is another matter completely.

  • Clavos

    “The bad news is coming thick and fast now.”

    Good. The thicker and faster, the better.

    “Chain-store sales have been weak for two months in a row, and shares of major retailers fell on Friday on concerns about weaker consumer spending.”

    Excellent. As soon as the US economy crashes, guess which shithole of a country comes right after it?

    You got it: India. The only market (and the only employer) you have is US.

    We won’t have to talk to any more Indians every time we call to do business with an American company.

    And you can all go back to begging in the streets.

  • STM

    Ooh aah Clav, I reckons you might get into a bit of stroife there. You know as well as I do that only about 70 per cent of Indian society lives in abject poverty.

    Chris will be over with his knife.

    Anand and Brian ARE annoying buggers but. And I think they’re just here to stir the pot.

    They’re crap at it though.

    Moonraven should hold pot-stirring classes.

  • Clavos

    Aaahh. Now THERE’s a true artist, is mr.

  • Anand Menon

    Heyy…some of our people have been begging for quite some time now….are YOUR people ready to beg in the streets???

  • http://drdreadful.blogspot.com Dr Dreadful

    “Ooh aah Clav, I reckons you might get into a bit of stroife there.”

    It’s rather a shame that this is a written blog. Hearing an unreconstructed Aussie doing a Mummerset accent for the appreciative ears of a Swedish-American who grew up in Mexico would be quite a treat.

    But back to the topic. We’re all doomed! Dooooommmed!!!!!

  • Anand Menon

    doom and gloom??….of course!…from “mainstream” sources mostly nowadays…and from your fellow americans…what are you call them now for repeating the obvious truth…extreme left wing bloggers???

    Perfect Storm for the American Consumer

  • Clavos

    No, Anand.

    But, if you’re right, our economy is going down the tubes, and yet, you seem more worried about it than we are.

    Why is that?

  • Anand Menon

    You want “mainstream” news???A $2 Trillion cut in lending may be coming our way, according to Goldman Sachs (GS). The slump in global credit markets may force banks, brokerages and hedge funds to cut lending by $2 trillion and trigger a “substantial recession” in the U.S., according to Goldman Sachs Group Inc. Goldman’s forecast reduction in lending is equivalent to 7% of total U.S. household, corporate and government debt, hurting an economy already beset by the slowing housing market. Wells Fargo & Co. Chief Executive Officer John Stumpf said yesterday that the property market is the worst since the Great Depression.

    Wells Fargo has minimal exposure to CDOs and asset backed commercial paper, but the company is not immune from overall credit deterioration and what is interesting here is the overall structure of how WFC handled weakening markets: they followed the typical, reasonable path toward risk aversion by tightening credit standards and in certain markets ceasing originations altogether.

    The transition from easy credit conditions to tighter credit conditions tends to induce one thing: even tighter credit conditions. In other words, risk aversion begets more risk aversion. Key to understanding this transition is understanding from where it began.

    But beyond the obvious Merrill Lynch-like portfolio write downs, there are other implications to all of these structured asset write downs. For asset-backed commercial paper issuing vehicles holding downgraded debt, it may mean even greater and greater dependence on their short term liquidity lines provided by banks. (Which in turn puts the banks in the position of further on-balance sheet loans (all requiring loan loss reserves), which in turn requires the banks to issue more debt, which puts further pressure on bank leverage ratios – which ultimately reduces the availability of new credit.

    S&P said it slashed its ratings on Carina CDO Ltd’s top tranche of securities by 11 notches to the junk level of BB from the top-notch triple-A after it received a notice on Nov. 1 saying that the controlling noteholders had told the trustee to liquidate. S&P also chopped its ratings on the subordinate levels of the CDO, with two falling to CCC- and eight to CC. The ratings were first assigned in November 2006. “We believe the liquidation process has begun,” S&P said in its statement.Carina CDO Ltd., the CDO in question, is the first CDO to begin unwinding.The most senior class of Carina CDO Ltd. were lowered to BB, two levels below investment grade, from AAA, while another AAA class was slashed 18 steps to CCC-.For all intents and purposes that means it is practically bankrupt.”The chance of material losses to noteholders is high, New York-based S&P said,” according to Bloomberg.

    The liquidation of the Carina CDO was one of the issues Citigroup (C) was concerned about in their conference call this week; the point at which holders of senior notes say they are no longer willing to risk the fact that the current cash flows will continue on without impairment.
    In the conference call Citigroup Chief Financial Officer Gary Crittenden said that although the ABX Indices were implying serious value declines in real estate and ultimately cash flow impairment, Citigroup is not yet seeing these cash flows impaired.
    As a result, they are not yet conceding defeat to the ABX Indices and not yet willing to mark accordingly, opting instead for a projected range.
    Crittenden put it like this: “I guess our view is that it’s unlikely that those very high levels of price reduction in real estate will take place so what’s actually happening is implicitly the market is saying that the cash flows associated with those securities have become more risky and so as we have thought about valuing those cash flows we have put different discount rates on those cash flows and that’s reflecting the range that you see in the estimate here and we’ll see obviously how that actually plays out over time.”
    It took less than a week for the first move in this waiting game to play out.

    The forced liquidation of the Carina CDO will likely have a domino effect, spreading into the pricing and ratings of other CDOs.

    At this point it’s a game of faith.

    Once investors lose faith the “reality of pricing” detaches itself from tangible meaning, creating a new world with different rules.

    Citigroup, and other firms, have been hoping to ride out the irrationality of the ABX Indices.

    They haven’t counted on the fact that what once appeared irrational might soon dissolve into reality.

    Socrates writes..”In East Asian economies financial capitalism spearheaded by the US played an important role in destabilising the economies. US played an aggressive role in making the East Asian economies to deregulate the capital market.”

    what you see now unfolding before your very eyes is the result of all that derugulation being played out on home soil.you have become a nation of subprime consumers.

    Peter Schiff writes..”In reality, America is a nation of subprime consumers.For most of recorded history, nations have paid for their imports with exports. When a nation runs a trade deficit, and instead pays for imports with its own currency, it in effect issues an IOU to the seller to buy an exported good at a future date. After all, the currency of the nation running the deficit is only legal tender in the country of issue, and is therefore useless to other nations unless it can be exchanged for goods in the issuing country or exchanged for other currencies. However, no matter how many times the currency is passed around, at some point the final holder must spend the money on something in the issuing country.

    By providing goods in exchange for IOUs, foreign nations are in essence engaged in vendor financing. This concept came to mass attention during the dot.com boom, when many telecommunications equipment companies sold their goods to give cash to poor start-ups in exchange for credit or stock positions (in effect, IOUs). When the dot coms went bust, the equipment providers were forced to restate earnings as losses.

    As the world surveys the landscape of the American economy, it will notice an industrial base too hollow to produce sufficient quantities of exportable consumer goods necessary to make good on our outstanding IOU’s (U.S. dollars). As those dollars continue to lose value, the losses will suddenly become increasingly apparent. Just as lenders eventually figured out that loaning money to borrowers who could not pay them back was a bad idea, nations will discover that selling products to Americans who can not afford to pay for them is just as foolish.

    Think about this. Currently, foreign tour operators are organizing shopping tours, where foreign citizens fly to America for the specific purpose of buying goods cheaper here than they can buy the same goods in their own countries. Of course, most of the goods they are buying, such as clothing, electronics, jewelry, etc., were not made in America in the first place. How absurd is it for Italians to come to New York to buy Italian made shoes cheaper than they can find them in Milan? Does it make sense for foreign producers to offer products to Americans for less than their own citizens? Of course not. In short order the free market will correct this by raising prices here in America and lowering them in the rest of the world.

    Many naively believe that this scenario is unlikely as foreigners will indefinitely prop up the U.S. economy in order to preserve their “best” export market. However, the same argument could have been made regarding mortgage lenders and subprime borrowers. After all, based on the outsize fees generated by subprime lending products, risky borrowers were clearly the mortgage industry’s best customers. Given their profitability, why didn’t lenders simply extend subprime borrowers even more credit to preserve the market? The obvious answer is that at some point lenders discovered that the market was not worth preserving. They realized that the short-term profits came at the expense of far greater future losses.

    The same revelations are about to be made around the world as other nations realize that selling consumer goods to Americans is a losing proposition, as the profits they believe they are earning today will simply evaporate tomorrow. When that happens, just as subprime borrowers are losing access to mortgage credit, America’s subprime consumers will find far fewer bargain basement imported products at their local Wal-Mart….”

  • Anand Menon

    its not just supermodels who are abandoning the dollar…

    Indian tourist sites refuse entry to dollar

  • Clavos

    What’s your point, Anand?

    Do you even have one, or do you just like to cut-and-paste?

  • Silver Surfer

    Do me a fucking favour Anand. After being pestered by every second person in India, I can tell you that Indian tourists sites refuse entry to no one, especially wsterners with fistfuls of dollars, Aussie or US. The reality is, most countries have their own currency and demand you exchange some of it.

    You are now officially a joke. As punishment for your ongoing foolishness, I hope you remain stuck in India for life, unable to wangle some excuse to leave like so many others of your countrymen.

  • Thirdman

    The dollar is in free fall.Opec is considering other”hard” currencies.Can’t see how long the dollar hegemony is going to last.In any case the depreciation of the dollar is not going to be orderly.One should expect inflationary pressures at home.

  • Lumpy

    Ah. Good old inflation. Earmark of a booming economy. Bring it on!

  • RobM

    err.I’m not so sure Lumpy.I think Anand has a point or two to make.Its going to be stagflation rather than plain vanilla inflation this time around.The effects of the unravelling financial credit crunch make that clear.
    would like to quote Frank Barbera who says”The US Stock Market most likely logged an important short term low in today’s session, a bad news bottom if there ever was one with the likes of Fannie Mae and Freddie Mac experiencing a Richter scale 10.00 type quake. Clearly, all of the evidence that has continued to pour from the Financial Sector suggests that the hemorrhaging of Structured Finance is only in the first inning. For most Americans, the upcoming economic contraction will pose enormous risks as the odds are high that over the course of time, a collapse in confidence and widespread defaults within the credit markets will bring the American financial system to a full-blown crisis. We hate to sound negative, but the numbers being bandied about by those few analysts that probably have a grip are in the trillions, implying that this downturn will probably rival or exceed that scene during the Great Depression. It is a sad day indeed, and no doubt when the full extent of this developing economic-financial crisis is revealed, there will be much weeping and gnashing of teeth, and a draconian clamp down on derivatives and non-traditional lending practices — all after the fact.”

    so that in effect would mean we are nowwhere near the end of the bottom as yet.

  • Stan Moore

    I watch markets with keen interest.If what Anand says is true we need to watch out for 1.major indices 2.statements from official sources 3.the stock market itself

    and so far the major indices sector by sector, are breaking down below critical support levels on the charts plunging in a virtual free-fall and signaling the beginning of an imminent, unavoidable, potentially deep recession in America.

    Credit-default swaps on bank debt jumped to a record on concern lenders will add to more than $50 billion of writedowns worldwide on securities linked to subprime mortgages.

    Contracts on the Markit iTraxx Financial Index, a benchmark for the cost of protecting the bonds of banks and insurers against default, rose 5 basis points to 62 basis points, the highest since its start in 2004. Contracts on Barclays Plc, the U.K.’s third-biggest bank, rose 6 basis points to 70 basis points, and Swiss Reinsurance Co., the world’s biggest reinsurer, climbed 10 basis points to 61 basis points.

    Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded bank, posted a 63 percent drop in second-quarter profit on losses linked to credit cards and U.S. mortgages. U.S. mortgage finance company Freddie Mac said yesterday it may need to raise as much as $6 billion to boost capital because of the worst housing slump in at least 16 years.

    “Everything is signaling that the market may switch to panic mode,” Philip Gisdakis, a credit analyst at UniCredit SpA in Munich, said in an interview today. “The news flow is so bad and there is no relief in sight.”

    Just in the last few days, the Dow Jones Transportation Average broke down below its low made in August, the last time the market was spooked by fears of a credit crunch.And just yesterday, the Transports confirmed their downward path with a second, even more significant breakdown — this time below the 4,500 level, crossing into new low territory for the year.Don’t be surprised to see the Dow Jones Industrial Average do precisely the same thing.Indeed, some bellwether Dow industrials have already broken down and are now in a free fall.Consider General Motors, for instance.Over the past 14 months, GM touched down to the $29 level on five separate occasions. And each time, it bounced back — thanks to new hopes and new promises from the auto industry, from the Fed and even from auto workers.But this week, it has broken down below the critical $29 level, another signal that the Dow Jones Industrials is headed for a similar fate.Or consider Citigroup — a bellwether not only for the Dow, but also for the entire banking and financial sector. Its shares have crashed just in the last few days, plunging through their critical $43 level, and now also in a free fall.Even more dramatic is the crash in Fannie Mae’s shares. It’s not a Dow component. But it’s the weather vane for the entire mortgage industry, which, in turn is at the heart of the credit crunch that’s sinking our economy.Freddie Mac yesterday reported that it lost $2-billion (U.S.) in the third quarter, took a $1.2-billion provision for credit losses and absorbed $3.6-billion in mark-to-market losses. Now it is threatening to cut its dividend in half and is seeking other sources of financing, just to keep its capital levels above mandated minimums.The news sent shares of Freddie Mac and its larger government-created mortgage cousin, Fannie Mae, off a cliff. Freddie opened down 33 per cent, Fannie down 23 per cent, and they stayed around there all day.First, the problems at Freddie Mac, far from being isolated, could represent the most serious threat yet to credit markets. As suppliers of mortgage funds, Freddie Mac and Fannie Mae are pretty much by definition providers of liquidity to the mortgage market.

    While the U.S. government is unlikely to let either of them go under, their woes could tighten the noose around the neck of many of the mortgage lenders who rely on them. And as many pundits have been warning, all it would take is the failure of one decent-sized financial company to create an investment market crisis.

    Statements from officials
    ————————-
    1.Henry Paulson told the The Wall Street Journal the number of potential defaults on home loans “will be significantly bigger” next year than in 2007 and that his view on how to approach the problem had shifted over time.

    “We’re never going to be able to process the number of workouts and modifications that are going to be necessary doing it just sort of one-off,” he told the Journal. “I’ve talked to enough people now to know there’s no way that’s going to work,” the report quoted him as saying. Paulson wants the mortgage-service industry to establish criteria that would allow big groups of borrowers qualify for loans with better terms – a shift from an earlier approach of dealing with problems on a case-by-case basis.

    2.Federal Reserve policy makers lowered their growth forecast in October and expressed concern about credit-market losses, even as they described the interest- rate cut as a “close call.”.“Most members saw substantial downside risks to the economic outlook and judged that a rate reduction at this meeting would provide valuable additional insurance against an unexpectedly severe weakening in economic activity,” according to minutes of the Federal Open Market Committee’s Oct. 30-31 meeting. “Many members noted that this policy decision was a close call.” Records of the gathering, which buttressed speculation that the Fed will reduce borrowing costs again next month, were accompanied by estimates and phrases that highlighted risks to growth. The language contrasted with the October statement, which said the dangers of a slower expansion and faster inflation were “roughly” equal.The overriding message from the Fed was that the U.S. economy is slowing severely. While the earlier rate cuts were designed to fend off a financial crisis, future ones will be aimed at what is threatening to morph into an economic crisis. For equity markets already witnessing an earnings slowdown, that’s hardly good news.

    Soif you think the Fed is going to save the day through further rate cuts, be careful what you wish for.Further Fed rate cuts could also come with some unwelcome consequences. The rate cuts of the past two months have fuelled an exodus from the U.S. dollar and sapped foreign demand for U.S.-dollar-denominated assets – something that has the potential to snowball, now that foreign investment inflows are no longer outpacing the huge U.S. current account deficit, exposing the currency and the U.S. economy to more painful adjustments. The medicine could prove as bad as the disease.

  • Anand Menon

    And there are people here saying “The dollar has been deliberately deflated as part of an economic strategy which thus far seems to have been pretty successful. As for the ‘housing bubble’, it’s not bursting. Every expert seems to agree that the adjustments are short-term, and the impact of artifically low interest rates wore off quite a while ago. You can bleat about economic doom and gloom all you want, but the evidence just isn’t there to support it, so long as the deficits continue to go down at an accelerated rate and the value of the dollar starts to rebound correspondingly as we ought to see in the next few months…”

  • Anand Menon

    Henry Paulson “shifts his views over time”…hilarious:))

  • Clavos

    ZZZZZZZZZZZZZZZZZZZZZZZZZZZ……….

  • Anand Menon

    some people prefer to sleep at the wheel while the ship of state is being buffetted and tossed about on the high seas….let sleeping dogs lie

  • Clavos

    The buffeting and tossing, coupled with your incredibly boring, repetitive and one-note comments are a powerful soporific, Anand.

    Besides, there’s nothing I can do about it, except ride it out. I don’t have access to the wheel of the Ship of State….

  • Stan Moore

    There is a genuine crisis in how the world VIEWS prices crude oil – and with it, THE US DOMINANCE OF FINANCE AND POLITICS.
    “Some sort of change in currency regimes is inevitable,” says Citigroup Global Markets in a note studying the pressure on Middle Eastern oil-producing nations to stop pegging their currencies to the US Dollar.

    “The fundamental reasons for a revaluation are so strong.”

    Last weekend, Iranian president Mahmoud Ahmadinejad argued at a meeting of the Opec oil cartel for a switch to pricing crude in a stronger currency othan the US Dollar. Yesterday, the Al-Riyadh newspaper in Saudi Arabia quoted Abdel-Aziz Aluwaisheg – the Saudi head of research at the Gulf Co-operation Council (GCC) – as saying that his government was considering a revaluation of the Riyal.

    In September, the Saudi government broke rank and failed to cut its interest rates alongside the US Fed for the first time. Now “there is a common desire in the GCC to revalue member currencies and shift from a Dollar peg to a currency basket,” Aluwaisheg was quoted.The destruction of wealth now guaranteed by Negative Real Yields will only urge the Opec oil cartel – whose Middle Eastern members alone now sit on $3,500 billion in oil-generated currency reserves – towards refusing Dollars in payment.

    The Dollar-pegged economies of the Gulf “face an inflationary threat and do not want to import an interest-rate policy set for the recessionary conditions of the United States ,” as Hans Redeker of BNP Paribas put it recently.

    Inflation in Saudi Arabia has now reached 4% per year. The United Arab Emirates is suffering 9.3% inflation, a 20-year record. In Qatar , inflation has reached 13% year-on-year.

    Kuwaiti central bank governor Sheikh Salem Abdulaziz al-Sabah claimed in October that de-pegging the Dinar from the US Dollar – and pegging it instead a basket of major world currencies – had helped Kuwait reduce its domestic inflation rate, now running near to 5% per year.

  • RobM

    The world’s biggest derivatives markets could suffer serious liquidity problems until the end of the year, bankers have warned.The sharp slowdown in these markets is a serious warning sign of the growing problems in the financial world as they are usually highly liquid, turning over vast amounts of trade every day.

    According to the Bank for International Settlements, over-the-counter equity, credit and interest rate derivatives markets are worth $400,000bn, dwarfing the $60,000bn in the value of share trading on the world’s 10 biggest stock exchanges.

    As worries over the health of the financial system weigh heavily on banks and funds, the vast over-the-counter markets in equity, credit and interest rate derivatives have seen trading volumes slow to a trickle.Spreads on high-yield corporate bonds and the yen-dollar exchange rate also leapt dramatically, while liquidity evaporated in many corners of the credit markets.Other worrying signs for bankers and traders include the elevated levels in interbank money market rates and on the Chicago Board Options Exchange Volatility index – known as the Vix and often described as Wall Street’s fear gauge – which is trading close to four-year highs.

    Peter Sutherland, chairman of both Goldman Sachs International and BP, joined those voicing concern. “The US economy is in a mess,” he told TV3, an Irish TV channel, on Sunday. “There is a whole big issue…which has not fully played out in regard to providing credit and liquidity to institutions, so I think it is a dangerous period for the world. I think we are going to go through next year, certainly the first half of next year, with considerable traumas.”

    Suki Mann, credit strategist at Société Générale, added: “Liquidity has been very poor for a while, but last week it just got worse. There is so much hanging over the market – oil, the dollar level, the banking sector problems, subprime, the monolines, worries over recession in the US – it has deterred people from getting involved.”

    The sharp slowdown in these markets is a serious warning sign of the growing problems in the financial world as they are usually highly liquid, turning over vast amounts of trade every day.

    One factor undermining investor confidence is that the projected size of this year’s credit shock is now rising rapidly. The US government initially forecast $50bn losses on subprime securities. However, investment banks now expect $200bn-$500bn subprime losses – and additional massive losses in other debt markets, such as credit card loans.A second problem is continued deep uncertainty about which institutions hold these losses.

    Lawrence Summers, former US Treasury secretary, writing in Monday’s Financial Times, says: “The odds now favour a US recession that slows growth significantly on a global basis.”

    There are people arguing in this post about how the falling dollar is good for Americans.Can’t see how.AT the Dubai Air Show this month Airbus secured the largest single aircraft order in history. The 80-plane deal with the Emirates airline is worth about $20 billion (£10 billion) and adds to an estimated $82 billion backlog for the European manufacturer this year.The order should have been the crowning achievement in a fantastic year. Airbus has been flying high in 2007 on orders for the A380, the biggest passenger plane in the world, and praise for the soon-to-be launched A350. Before Dubai the European giant had already won more than 1,000 orders and pulled ahead of its rival Boeing in the sales race.

    But even as Airbus heads for a record-breaking year, its profits have gone into a tailspin, dragged down by the weakness of the US dollar. It’s a story that is worrying executives and investors on both sides of the Atlantic.

    The weakness of the dollar may be great news for the European shoppers heading for New York but it is “life-threatening” for Airbus, its chief executive, Tom Enders, told employees in Germany. “The dollar exchange rate has gone beyond the pain barrier,” he said.

    Most of Airbus’s expenses are in euros, but aircraft are sold in US dollars. For every 10 cents that the greenback falls against the euro, Airbus loses a billion euros in unfavourable foreign exchange. On Friday the euro was worth $1.48, up from $1.35 at the beginning of the year.

    .

    Paul Krugman writes.”How did things go so wrong?Part of the answer is that people who should have been alert to the dangers, and taken precautionary measures, instead blithely assured Americans that everything was fine, and even encouraged them to take out risky mortgages. Yes, Alan Greenspan, that means you.
    But another part of the answer lies in what hasn’t happened to the men on that Fortune cover – namely, they haven’t been forced to give back any of the huge paychecks they received before the folly of their decisions became apparent.Around 25 years ago, American business – and the American political system – bought into the idea that greed is good. Executives are lavishly rewarded if the companies they run seem successful: Last year the chief executives of Merrill and Citigroup were paid $48 million and $25.6 million, respectively.But if the success turns out to have been an illusion – well, they still get to keep the money. Heads they win, tails we lose.”

  • Stan Moore

    “There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dimissed as the primative refuge of those who do not have the insight to appreciate the incredible wonders of the present.”
    – John Kenneth Galbreith, A Short History of Financial Euphoria

  • RobM

    Hey Stan…here’s another quote..
    “The US economy is in a mess. There is a whole big issue…which has not fully played out in regard to providing credit and liquidity to institutions, so I think it is a dangerous period for the world. I think we are going to go through next year, certainly the first half of next year, with considerable traumas.” Peter Sutherland, chairman Goldman Sachs International, Financial Times, November 26, 2007

  • Clavos

    Rough economic times ahead, no doubt about it..

    That’s so cool!!

    I can’t wait to see all the rich fat cats get up the ass.

    Especially those arrogant Americans.

    Gonna be fun to watch!!

  • Anand Menon

    When i started out posting links i was accused of linking to “extreme left wing bloggers”…whoever that is…see #263.Nalle specifically said”As for Mike Whitney who you link to second, he’s a certifiable ultra-left wing blogger who’s basically posting a bunch of wishful thinking paranoid nonsense which he disseminates through bogus leftist front sites like OpEdNews.com and GlobalResearch.ca which try to present propaganda as if it were not the partisan swill it is.

    I find it interesting that Clavos links to articles from the mainstream economic news sources and all Anand can come up with is bloggers with an agenda to push.”

    In other words only “mainstream ” sources are accepted on blogcritics.

    So lets have “mainstream ” guys talking…

    Federal Reserve Bank of Dallas President Richard Fisher said he’s “very concerned” about the chance of faster inflation, and policy makers are weighing that risk against having “healthy, working” financial markets.

    Heyyy…there are people here arguing inflation is good….then why are certain key people “concerned”?

    President George W. Bush’s economic advisers today reduced their outlook for economic growth in 2008 to 2.7 percent from a 3.1 percent rate projected in June. The unemployment rate will rise to 4.9 percent, compared with 4.7 percent previously estimated, according to the Council of Economic Advisers’ semi- annual forecast.

    Read that properly…so the economy is doing well with a falling dollar and a housing crisis coupled with rising inflation…that’s why they’ve reduced the outlook …..thats why the unemployment rate is rising.

    The real story.The number of Americans filing first-time claims for unemployment benefits rose more than expected to the highest in nine months, pointing to further slowing in the labor market.

    Initial jobless claims increased by 23,000 to 352,000 in the week that ended Nov. 24, the most since February, the Labor Department said today in Washington. The number of people staying on benefit rolls was the highest in almost two years.

    Companies are axing jobs as the worst housing recession in 16 years and record energy costs drag down growth, economists said.

    some more “mainstream” chaps…

    A slowdown in employment would remove what Federal Reserve Vice Chairman Donald Kohn yesterday called a “pillar” of support for consumer spending, which makes up two-thirds of the economy.

    “When you look at consumer confidence and jobs measures you have to think that whatever you thought of in terms of consumer spending has to be given a haircut,” said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. “That jump in jobless claims isn’t good news.’

    Here’s a mainstream chappie …they don’t get more mainstream than Ben Bernanke…all these months he was trying to pretend that the whole sub-prime mess was “contained”…now that the bad news cannot be ignored anymore he’s been forced to come out in the open .Federal Reserve Chairman Ben S. Bernanke said volatility in credit markets has “affected” the economy’s prospects and policy makers must decide whether the risks between growth and inflation have now shifted.

    “The outlook has also been importantly affected over the past month by renewed turbulence in financial markets,” Bernanke said in a speech in Charlotte, North Carolina. “The committee will have to judge whether the outlook for the economy or the balance of risks has shifted materially.”

    “The combination of higher gas prices, the weak housing market, tighter credit conditions, and declines in stock prices seem likely to create some headwinds for the consumer in the months ahead,” Bernanke said. “Continued good performance by the labor market is important for maintaining the economic expansion.”

    Bernanke echoed the views of his deputy Donald Kohn that officials must take account of the “deterioration” in credit markets when they next meet.Donald Kohn used phrases like, “the consequences of the recent turbulence in financial markets” and “developments in housing and mortgage markets are a root cause of the financial market turbulence” and “should the elevated turbulence persist”.”Headwinds” for the consumer and “deterioration” in credit markets….all in a few months…hmmmm…how did that happen Nalle?…with the help from a “strong dollar” no doubt?…which fuelled inflation?…which is soooooo good for the economy nah?

    The use of the word “turbulence” conjures up an image of a solidly constructed aircraft that is making its way through uncertain and rapidly changing weather conditions that the airplane clearly had not created.How does Donald Kohn get off talking about “turbulence” in financial markets as some sort of external event which the Fed had no hand in creating?

    This is completely opposite of what Alan Greenspan did when he sat in the big chair at the Federal Reserve, helping to create money and credit on scales never seen before.

    The “turbulence”, both then and now, was facilitated and encouraged by easy money policies over many, many years which are now coming home to roost.

    The decline of an empire begins at home

  • Clavos

    Anand,

    If you’re right, then soon the economy of the United States will crash and burn.

    And when it does, it will certainly take all the rest of the world’s economies with it.

    I’ll be laughing the whole time.

    I’ve got no allegiances, no ties, nothing tangible.

    Nothing to lose.

    As the songwriter said, “Freedom is just another word for nothing left to lose.”

    Which is why your posts are meaningless.

  • STM

    Imagine the fall-out in India? All those call centres and the burgeoning IT industry down the shute.

    Back to exporting curry powder and tea.

  • Clavos

    And begging in the streets…

  • http:.//ruvysroost.blogspot.com Ruvy in Jerusalem

    Hmmm…

    I was looking up the phrase “sinking dollar” yesterday to see how the news of same was being covered up at Google and Yahoo. A while ago, before Bernanke took over the Fed from Greenspan I wrote that the “Jew Greenspan” would be blamed for an economic collapse.

    Pat Buchanan was in there with a well written article that felt sorry for the poor Bernanke catching the ball of recession from the quarterback, Greenspan. Look it up, kids.

  • Anand Menon

    I was never a great fan of our cyber-coolies… they deserve to go down the chute

  • Anand Menon

    This has nothing to do with religion or blaming Jews Ruvy…these miserable,malevolent,incompetents transcend all that

  • RobM

    When I had nothing to lose,
    I had everything.
    When I stopped being who I am,
    I found myself.
    – Paulo Coelho (Eleven Minutes)

  • Stan Moore
  • Clavos

    “Golden jackass?” “Hat trick??”

    And then this:

    “Articles in this series are promotional, an unabashed gesture to induce readers to subscribe.”

    Where DO you guys come up with these off-the-wall economics “experts”???

  • STM

    I think it’s wonderful that the US dollar fell (marginally) to a level that gave me for once a decent exchange rate on the Euro (yes, folks, they’re all connected on those currency markets) with the Aussie dollar for my recent trip to Europe.

    And yet the greenback remains among the strongest of the world’s currencies. Go figure, as they say in the states. The correction of an artificially inflated currency and one we had to have.

    I’ve just had a look at the sky, and it’s still up there. And just as well for you, Anand

    Your argument is at best wishful thinking (for some bizarre reason you’d like the US to fall, and boy, wouldn’t you blokes be in real strife over there if that happened), and at worst it’s bollocks.

    Probably a combination of both.

    And now on something different: I for one can’t wait until India come out here and get their blurters spanked in the four-Test series :)

    Tendulkar’s good, but he doesn’t like 100mph rock-hard cricket balls getting hurled off rock-hard Aussie wickets straight at his head/body/hips/elbows/thighs.

    Unless he can duck and dance, I’m predicting a real collapse, especially in the top order – unlike the greenback.

  • STM

    Sorry Anand, forgot to mention groin in with all those other likely targets. As you know, cricket’s only gentlemanly before you get smacked all over the body by a pace bowler hurling mini versions of an exocet missile. Brett Lee should fit the bill this time around as executioner, despite the Bollywood hit song.

  • Stan Moore

    its not just off the wall guys.Have a look at the Wall Street Journal…its the same thing

  • Anand Menon

    we have Morgan Stanley now officially speaking of a recession.The “R” word is now officially out on the streets.
    the bank’s US team said the credit crunch had started to inflict serious damage on US companies

  • Clavos

    Who cares?

    Do you, Anand?

    You’re not even an American. (luckily for you!)

    Are you celebrating now that our country has crashed and burned?

  • http://www.republicofdave.com Dave Nalle

    Clavos, just keep enjoying Anand’s surrealistic bizazrro-world postings. They’re like some sort of absurdist comedy in the face of real economic news.

    Dave

  • Clavos

    Dave,

    Every time I read one of his posts (with the theme from The Twilight Zone playing in the back of my head) and try to compare it, not only to what I read daily, but also to what I see all around this particular corner of the USA, I have to wonder where he gets these ideas.

    Following up the story in your link above, retail here in South Florida hit a new all-time record on the post-thanksgiving shopping arena, according to virtually ALL the local media outlets.

    So, ya got any marshmallows?

  • http://www.republicofdave.com Dave Nalle

    I just had some yummy hot chocolate with marshmallows, actually.

    I learned an interesting thing in conjunction with the retail shopping boom info I linked to. Turns out that 70% of the US GDP is domestic consumption.

    That being the case, imagine how well buffered our economy is against the kinds of things Anand keeps bringing up.

    And I haven’t even mentioned that we had record smashing GDP growth for the last quarter, at 4.9%, which is fantastic, though weak when you look at the insane GDP growth of some of our trading partners. Everywhere in the developed world except for Western Europe posted huge GDP numbers, which means countries we do a lot of business with like India and China.

    Dave

  • Clavos

    It seems to me that the only place I hear the gloom and doom scenario to this intense of a degree, is on the Web.

    Out in the real world, there’s a sense that we have some problems which definitely need attention and corrective measures, but I don’t get a sense of general, catastrophic malaise such as we see here and elsewhere on the Web from the likes of Anand and his fellow Chicken Littles.

  • Jacob

    I was told to cheer up, things could be worse. So I cheered up, and sure enough, things got worse.

  • http://www.republicofdave.com Dave Nalle

    The only stat I see out in the real world that leaves me wondering is the persistently low consumer confidence index. It seems biszarre given all the positive economic news that it should be so low, and it’s been low since well before the housing/loan crisis began. I think maybe Anand’s bizarre syndrome is somehow connected to that.

    Dave

  • Clavos

    That IS puzzling, especially when held up against results like the after Thanksgiving binge, because those are usually the first things to be hit when confidence sinks.

    Maybe, just maybe, consumer confidence isn’t as low as the “experts” think it is.

    Not for nothing did Carlyle dub economics the “dismal science;” but of course, he was actually referring to Thomas Malthus’s terribly wrong-headed economic ideas.

  • http://www.republicofdave.com Dave Nalle

    Or maybe depressed consumers shop compulsively, which would suggest that every bad number is a good number waiting to happen.

    Dave

  • Clavos

    Hasn’t Comments Editor Christopher Rose repeatedly posted clear guidelines indicating that long articles are not to be posted in their entirety, but rather linked to, so as not to use up expensive bandwidth??

  • Anand Menon

    what are you complaining about Clavos?…i think RobM has effectively rebutted Nalles and your silly arguments…Chris Rose…please your discretion and judgment… i think the comments are relevant and should stay

  • Clavos

    “RobM” hasn’t rebutted shit, Anand.

    He has merely pasted another person’s article in its entirety into this thread, unnecessarily costing the owners money by doing so. There are excellent reasons why doing so is discouraged.

    If “RobM” wants to present his own arguments, fine. Cut-and-paste is not debate, and “rebuts” nothing.

    Finally, Stan Roubini (NOT “RobM”) argues (and not entirely convincingly) that US is headed for a recession, not the cataclysmic meltdown you have been arguing through “RobM” and all your other avatars.

    So, we might experience a recession in 2008.

    ::Yawn::

    The US economy is cyclical; I’ve lived through several recessions just in my lifetime.

  • Anand Menon

    Its not Stan Roubini….its Nouriel Roubini..Professor of Economics
    and International Business
    Stern School of Business, New York University…He served in various roles at the Treasury Department, including Senior Advisor to the Under Secretary for International Affairs and Director of the Office of Policy Development and Review (July 1999 – June 2000). Previously, he was a Senior Economist for International Affairs on the Staff of the President’s Council of Economic Advisors (July 1998 – July 1999).

    Roubini spent one year at the Hebrew University of Jerusalem before receiving his B.A. summa cum laude in Economics from the Bocconi University (Milan, Italy) in 1982. He received his Ph.D from Harvard University in 1988.

    Professor Roubini is the author of several books, including: Bailouts or Bail-ins? Responding to Financial Crises in Emerging Economies, Political Cycles and the Macroeconomy, and International Financial Crises and the New International Financial Architecture.

    we’d much rather listen to him than the crap you write.

  • Anand Menon

    recession,meltdown,shitcreek,gurgler,cataclysmic meltdown,hard landing….whatever but 2008 is not gonna be nice:)))

  • Clavos

    “recession,meltdown,shitcreek,gurgler,cataclysmic meltdown,hard landing….whatever but 2008 is not gonna be nice:)))”

    IF Roubini is right, so what???? It’s happened before; it will happen again.

    What’s your point????

    Do you have one????

  • http://www.my-virtual-income.com Christopher Rose

    I was going to leave RobM’s comment as it would have been his first and it’s only right to cut newcomers a little slack.

    Then I noticed that Anand’s comment urging me to let it stand came from the same IP address and that pissed me right off so I deleted it.

  • Clavos

    I thoughtn so, Chris. From my comment #380:

    “not the cataclysmic meltdown you have been arguing through “RobM” and all your other avatars.”

  • Lumpy

    Re: 483.

    Crawfish, pie-eyed, spambot, boomtown, ireland, tax cut, muldoon, tramp steamer.

    So there.

    BTW I still see ‘RobM’ commenting up there. I wonder how many other comments here are also Anand shilling for himself..

  • NR

    Crucial questions about the global economy
    in 2008
    􀂃Will the US experience a soft landing or a hard landing (recession)?
    􀂃Will the current financial markets crisis (liquidity and credit crunch) get worse or better?
    􀂃Will the US Fed ease, how much and will this easing prevent a recession?
    􀂃Will the rest of the world decouple from the US slowdown/hard landing or recouple?
    􀂃Should we worry about global inflation or deflation?
    􀂃What is the risk of stagflation (negative growth and rising inflation)?
    􀂃What are the implications of the outlook for the various asset markets and asset prices?

    Summary Answers
    􀂃The US will experience a hard landing (recession) that will be severe and protracted rather than mild
    􀂃The liquidity and credit crunch will get worse and the risk of asystemic financial crisis is rising
    􀂃The Fed easing will be “too little too late”and it will not prevent a recession
    􀂃The rest of the world will not decouple; it will rather recouplewith the US hard landing leading to a global economic slowdown
    􀂃Existing inflationary pressures (from oil, energy, commodities) will fizzle out once you have a US recession and a global economic slowdown.
    􀂃True stagflation requires an exogenous –politically driven –negative supply side shock to oil prices (such as war with Iran).
    􀂃Risky assets (equities, credit spreads, housing, commodities, emerging market assets, the US dollar) will get hurt. Cash is king in 2008.

    Vicious circle between US recession &
    a systemic financial crisis
    􀂃The US will experience a severe recession (at least four quarters starting in Q1 of 2008) that will be deeper and more protracted than the mild recessions of 1990-91 and 2001
    􀂃This recession will sharply increase financial losses (that willadd up to more than $1 trillion) and lead to an even more severe liquidity and credit crunch
    􀂃A systemic financial crisis cannot be ruled out
    􀂃The liquidity and credit crunch will in turn make the economic downturn more severe and protracted
    􀂃So the US will experience vicious circle of economic downturn and financial turmoil/losses/stress

    Why a US recession?
    􀂃A US housing crisis/recession that is the worst housing bust in US history and is getting worse rather than bottoming out
    􀂃Financial losses spreading from sub-prime to near prime and prime mortgage, to commercial real estate, to auto loans and credit cards, to leveraged loans, and soon enough to corporate bonds and CDS
    􀂃A severe liquidity and credit crunch that is getting worse and spreading also globally
    􀂃Oil at $100 a barrel
    􀂃Falling real investment (capital) spending by the corporate sector and, soon enough, in commercial real estate

    Why a US recession?
    􀂃A growing weakness in the labor markets with little job and income generation
    􀂃Forward looking measure of aggregate supply (manufacturing ISM, excess inventories of unsold goods) signaling recession ahead
    􀂃A shopped-out consumer (whose spending is 70% of GDP) that is now faltering
    􀂃Net exports increase and government spending cannot compensate for the fall in housing, capex spending and private consumption
    􀂃The US recession will formally start in Q1 of 2008

    1997-2006 biggest housing boom/bubble in US history
    1997-2006: Housing boom and bubble (real home prices up by 100%) driven by:
    􀂃Low Fed Funds rate (easy monetary policy) after 2001
    􀂃Low long term interest rates given global excess of savings relative to investment
    􀂃Traditional US policy of subsidization and favorable tax treatment of housing
    􀂃Lack of regulation/supervision leading to reckless lending, not just in subprime
    􀂃Financial innovation/securitization leading to reckless lending practices and loose credit standards
    􀂃Deluded expectations of permanent home price appreciation

    Massive bust of the housing bubble since 2006
    􀂃The US is now experiencing the worst housing recession in its history
    􀂃Housing starts have fallen sharply (more than 40%)
    􀂃But new home sales have fallen even more (over 50%)
    􀂃Thus rising glut of unsold new and existing homes that is now atunprecedented level. Glut will worsen in the year ahead
    􀂃Thus, downward pressure on prices already down 6% nominal or 10% real from peak
    􀂃Home prices need to fall 20% to 30% before they bottom out
    􀂃Housing starts need to fall another 25% to 900K or below before they bottom out and the gap between supply and demand is narrowed
    􀂃The US economy-wide recession will make the housing recession even deeper and longer.

    Worst housing recession in US history
    􀂃Sharply rising delinquencies, defaults and foreclosures
    􀂃20% (30%) fall in home prices will lead to a fall of $4 ($6) trillion in housing wealth/equity
    􀂃Subprime alone will cause up to 2.2 million foreclosures
    􀂃But a 30% fall in home prices means that 10 million households will have negative home equity, thus providing a large incentivefor such households to default on their mortgages
    􀂃This will be the worst housing recession in US history

    The coming consumer-led US recession
    􀂃Private consumption is over 70% of GDP
    􀂃Until 2006 US consumers used their homes as their ATM machine as home prices were rising leading to negative savings
    􀂃But now US consumers/households are shopped-out, saving-less, debt-burdened and at a tipping point while home prices are falling
    􀂃A private consumption faltering will trigger an economy wide recession
    􀂃Holiday retail sales were mediocre and falling in real terms relative to 2006. They will perform even worse in 2008

    Negative shocks buffeting the US consumer
    􀂃Fall in housing wealth as home prices are falling (20% fall willlead to $4 trillion home value losses; 30% fall will lead to $6 trillion losses)
    􀂃Falling home equity withdrawal (HEW) now shrinking from a peak of $700 b (AR) to below $200 b
    􀂃High household debt ratios (136% of income) and rise in debt servicing costs as ARM mortgages are sharply resetting
    􀂃Severe credit crunch in mortgages now spreading to consumer credit (auto loans, credit cards, etc.)
    􀂃Oil at $100 imposing an income levy on consumers

    Negative shocks buffeting the US consumer
    􀂃Sharp fall in consumer confidence and polls showing that a majority of Americans expect a recession in the next 12 months
    􀂃Recent fall in stock markets (10% correction) leading to negative wealth effect
    􀂃Weakening of the labor market
    􀂃Mediocre real income growth with rising income and wealth inequality (Middle Class economic “malaise”and “squeeze”)

    Can the Fed rescue the economy from a hard landing? No, as…
    􀂃The Fed has been behind the curve for a year now in its mistakenassessment of the risks of a recession
    􀂃Whatever the Fed does now is “too little too late”
    􀂃The economy suffers of problems of insolvency, not just illiquidity, that monetary policy cannot resolve
    􀂃After 2001 the Fed slashed rates from 6.5% to 1% and long rates fell 200bps
    􀂃We still got a recession then as we had then a glut of tech capital goods

    Can the Fed rescue the economy from a hard landing? No, as…
    􀂃Today we have instead a glut of housing, consumer durables, autos and motor-vehicles
    􀂃When you have a glut capital spending becomes interest rate-insensitive. Easing money is like pushing on a string as it takes time to work out a glut and the related insolvencies
    􀂃There are limits to how much the Fed can ease rates now: inflation concerns, risk of free fall of the dollar, risk that foreigners will pull the plug on the external financing of the huge US current account deficit
    􀂃Fed easing will only put a floor on the depth and length of the recession. It will not prevent it. As in 2001 the Fed cannot prevent a recession

    A severe liquidity and credit crunch will get worse
    􀂃This is a severe financial crisis
    􀂃A crisis of the Anglo-Saxon financial system (Martin Wolf)
    􀂃First crisis of financial globalization and securitization (Roubini)
    􀂃The credit crunch will get worse over time
    􀂃The financial losses spreading from sub-prime to near prime and prime mortgage, to commercial real estate, to auto loans and credit cards, to leveraged loans, and soon enough to corporate bonds and related CDS
    􀂃Financial losses in subprime alone may be as high as $400 and total losses in the financial system may end up being over $1 trillion
    􀂃This is not just a subprime mortgage problem. We have a subprime financial system
    􀂃Risk of a systemic financial crisis

    Changing nature of systemic risk with financial innovation
    􀂃In the old times (1960s-1980s): banks held the credit risk of their lending on balance sheet. “Originate and hold”model
    􀂃Then when many bad loans/mortgage were made defaults would rise, a credit crunch would ensue and then a recession (S&L crisis in late 1980s/early 1990s)
    􀂃New model since 1980s: securitization (“originate and distribute”model). Banks not holding the credit risk but transferring to others.
    􀂃Argument made that systemic risk should become lower as credit risk is spread out of the banks to capital markets and investors, domestic and abroad, as you slice and dice the risk
    􀂃Problem: systemic risk turned out to be now as high as in the past: massive domestic and global financial contagion and now risk of a hard landing of the economy.
    􀂃So what went wrong?

    What went wrong?
    􀂃It was not just a sub-prime mortgage mess
    􀂃Same reckless practices as in sub-prime occurred in near prime, prime, Alt-A, home equity loans, piggyback loans
    􀂃Reckless practices such as:
    -No down payment
    -No verification of income/assets/jobs (LIAR loans)
    -Interest rate only mortgages
    -Negative amortization
    -Teaser rates
    -Hybrid ARMs
    􀂃60% of all mortgage origination in 2005-2007 had these toxic reckless characteristics

    Why reckless lending?
    1.Regulators/supervisors were literally asleep at the wheel:
    􀂃They were cheerleading every form of financial innovation
    􀂃They allowed and supported reckless lending practices in mortgages
    􀂃Laissez-faire ideology of free market fundamentalism
    2.Securitization food chain led to wrong incentives and poor monitoring of lending

    Securitization food chain led to wrong incentives & distortions
    Securitization food chain: Everyone now gets a fee (not investment income) and does not hold the credit risk (wrong set of incentives as there is little incentive to monitor the quality of the loans):
    􀂃Mortgage broker maximizing its income by maximizing the volume of approved mortgage
    􀂃Mortgage appraiser having an incentive to inflate the value of the home
    􀂃Mortgage originator bank transforming the mortgages into RMBS and getting fat fees
    􀂃I-Bank turning RMBS into CDO tranches (and into CDOs of CDOs, and CDO cubed) and getting fat fees
    􀂃Credit Rating Agency rating or misrating RMBS and CDOs and being paid by the issuers. Conflict of interest

    Securitization food chain led to failure of market discipline
    􀂃Finally no market discipline as final investors buying the toxicwaste (RMBS, CDOs) were greedy and clueless about new, complex, exotic instruments that were illiquid, priced to model rather than to market and mis-rated by rating agencies.
    􀂃How can anyone rate and price correctly a CDO of CDOs of CDOs (CDO-cubed)?
    􀂃Problems in the securitization chain: information, asymmetries, adverse selection, moral hazard.

    Similar problems and credit excesses outside of mortgages
    􀂃The US experienced a broad and massive credit boom/bubble beyond mortgages
    􀂃Indeed, similar problems and excesses in credit/lending practices did occur outside of mortgages in broader credit markets
    -Excessive credit and excessive leverage,
    -Reckless lending at dangerous terms/conditions
    -Poor risk management and wrong incentives to search for yield and take excessive risk
    -Underestimation of liquidity risk (for non-banks) in many other asset/credit financial intermediaries

    Problems in broader credit markets
    􀂃Private Equity and LBOs done at extremely high debt to earning ratios (eight as opposed to three a few years ago) and financed with leveraged loans/CLOs
    􀂃Rise of conduits and SIVs (financed with ABCP) subject to severe liquidity and credit risk
    􀂃SIVs/conduits created off-balance sheet to avoid regulation and supervision of on-balance sheet items. But credit enhancements and liquidity lines made these de facto –if not de jure –part of the sponsoring banks.
    􀂃Severe credit and liquidity risk and unraveling of SIVs and ABCPfinancing rolled off
    􀂃Hedge funds and highly leveraged institutions (HLIs) that took much leverage and made risky investments
    􀂃Money market funds that invested in toxic RMBS/CDOs
    􀂃Investment banks/broker dealers with large and varied exposure to risky ABS instruments
    􀂃Banks’poor management of credit and liquidity risk and run on banks (Northern Rock in the UK)

    Seizure of liquidity and credit when the crisis emerged in 2007 summer
    􀂃All these non-bank players (like banks) are subject to liquidity risk as they borrow short/liquid and invest/lend long/illiquid
    􀂃Then, when things blew up in summer of 2007 the uncertainty about size of the losses and who is holding the toxic waste ledto panic and risk aversion and liquidity hoarding.
    􀂃Thus massive seizure of liquidity and credit in many markets: subprime, near-prime, RMBS, CDOs, CLOs, LBOs, SIVs, ABCP, money/interbank markets , etc.
    􀂃The most severe financial crunch of the last 20 years
    􀂃Contagion spread from the US to Europe and other capital marketsas many of these toxic instruments were sold abroad. Financial contagion.

    Why monetary policy is relatively ineffective to deal with the crunch
    Monetary injections by central banks to address the liquidity/credit crunch are relatively ineffective (as persistently high Libor spreads suggest) because of:
    􀂃Existence of non-bank financial institutions (a “shadow banking system”)
    􀂃Insolvency rather than illiquidity alone
    􀂃Uncertainty rather than risk

    A large “shadow banking system”that does not have access to LOLR
    Growth of a large “shadow financial system”:
    􀂃PE and LBOs/leveraged loans/CLOs
    􀂃SIVs, conduits and ABCP
    􀂃Hedge funds and HLIs
    􀂃Money market funds including state funds
    􀂃Investment banks/broker dealers
    􀂃Monoliner bond insurers

    A large “shadow banking system”that does not have access to LOLR
    􀂃All these non-bank players are subject to severe liquidity/rollover risk as they borrow short/liquid and invest/lend long/illiquid
    􀂃They did not manage their liquidity risk very well.
    􀂃This shadow banking system –unlike banks -does not have direct (or even indirect) access to the lender of last resort (LOLR) support of central banks
    􀂃Thus, liquidity injections by central banks have been hoarded byliquidity strapped, risk averse and counterparty risk-averse banks and other depository institutions, the only ones having access to the central banks’LOLR support

    Insolvency rather than just illiquidity
    􀂃Liquidity problems versus credit problems
    􀂃1998 LTCM crisis: liquidity problems alone. Monetary easing was effective
    􀂃2007: severe credit/insolvency problems that monetary policy cannot address
    -Millions of defaulting households
    -200 mortgage lenders gone bankrupt
    -Many homebuilders gone bust
    -Many highly leveraged institutions have gone belly up
    -Even corporate defaults rates will sharply rise now that the slosh of liquidity is gone and junk bond spreads are high again
    -Corporate default rates in 2006-2007 were artificially low and will surge in 2008 leading to even wider junk bond spread and large losses on credit default swaps (CDS)

    Risk versus Uncertainty
    􀂃“Risk”is priceable while generalized “Uncertainty”cannot be measured or priced
    􀂃Great opacity, lack of information/disclosure and lack transparency in modern Anglo-Saxon globalized financial system
    􀂃Two types of unmeasurable uncertainty:
    -Size of the losses is unknown. $200b, 300b on subprime alone? Or more? It depends on how much home prices will fall. Creation of illiquid, exotic, complex instruments that are priced to model rather than to markets.
    -Uncertainty on who is holding the toxic waste (the Where is Waldo? problem)
    􀂃This uncertainty leads to lack of trust, confidence, and large counterparty risk; everyone is hoarding liquidity and unwilling to lend

    Risk of a systemic and contagious financial crisis
    􀂃Contagion from subprime to near prime and prime. Subprime RMBS and CDO market semi-dead and expected defaults (see ABX) massive
    􀂃Contagion to consumer credit (auto loans, credit cards, student loans)
    􀂃Contagion to commercial real estate (CMBX spreads)
    􀂃Contagion to failed/postponed/restructured LBOs with problems for leveraged loans and CLOs
    􀂃Meltdown of SIVs, conduits and ABCP paper market
    􀂃Massive losses for banks and other financial institutions that have not been fully recognized yet

    Risk of a systemic and contagious financial crisis
    􀂃Soon contagion to corporate bonds and rising default rates
    􀂃Risk of massive losses ($250b according to Bill Gross) on creditderivative swaps (CDS)
    􀂃Risk of bankruptcy of some large systemic financial institution
    􀂃Total financial losses could be above $1 trillion
    􀂃End of a massive credit cycle/bubble
    􀂃Transmission of financial losses and contagion from the US to other world capital markets (especially Europe) as securitization spread ownership of risky asset to investors across the globe
    􀂃Risk of credit crunch in Europe as this region depends on banks –relative to capital markets -more than the US
    􀂃Process of re-intermediation of financial activity back to the banking system and reduction in size of securitization

    Risk of a systemic and contagious financial crisis
    􀂃This reintermediaton will exacerbate the liquidity and credit crunch as banks have higher liquidity and capital ratios than the shadow financial system
    􀂃Reduction in capital of banks/financial institution will lead toa multiple contraction in credit/lending ($200 b losses lead to a credit contraction of $2 trillion according to Goldman Sachs)
    􀂃Bank recapitalization –via sovereign wealth funds and other sources –will not be large enough to prevent this capital destruction and ensuing credit crunch
    􀂃We reached a Minsky Moment and the bust of this Minsky credit cycle

    Why re-coupling rather than decoupling of the rest of the world?
    􀂃Will the rest of the world decouple from the US hard landing or recouple with it?
    􀂃If the US had a soft landing the rest or the world (ROW) would decouple
    􀂃But conditional on a hard landing the real economies of ROW willnot decouple
    􀂃2007 was the year of decoupling as US was in a soft landing mode
    􀂃2008 will be the year of recoupling (Goldman Sachs, Morgan Stanley) as the US experiences a recession
    􀂃When the US sneezes the ROW gets the cold as the US is 25% of global GDP
    􀂃And in 2008 the US will experience a severe case of pneumonia not just a mild cold. So the contagion to the rest of the world willbe severe with a global economic slowdown
    􀂃Certainly the financial –as opposed to the real –contagion has already been massive (see European financial markets)

    Channels of recoupling and global interdependence
    􀂃Direct trade channels
    􀂃Indirect trade channels
    􀂃Effects on commodity prices
    􀂃Effects of a weaker $ on other countries’s competitiveness is extremely important
    􀂃Transmission of financial contagion and crunch across the globe
    􀂃Impact on consumer/business/investors’confidence
    􀂃Rise in international investors’risk aversion
    􀂃Common shocks such as high oil prices hurting all oil importers
    􀂃Other common shock: beginning of deflation of housing bubbles across the world (already in Spain, UK, Ireland; soon in Italy, France, Portugal, Greece, Turkey, Central Europe, Baltic nations, Australia, New Zealand)
    􀂃Now less room for macro (monetary/fiscal) policy stimulus than after 2001

    Which countries are most at risk?
    􀂃The rest of the world will not experience a full fledged recession like the US one. But the economic slowdown will be more severe than the one expected by the consensus
    􀂃Risk of a 2008 recession in parts of Europe (UK, Spain, Ireland but also Portugal, Italy, France, Greece)
    􀂃Countries that trade a lot with the US will be hurt more (Mexico, Canada, China, East Asia)
    􀂃Risk of a significant economic slowdown in China (because of itsdependence on net exports and export growth) and –via China –in the rest of East Asia
    􀂃Emerging markets with weaker fundamentals (current account deficits and fiscal deficits and other balance sheet vulnerabilities) more at risk of a global credit crunch hitting them
    􀂃Commodity exporters –in Asia, Latin America, Africa –will suffer of falling commodity prices in a global slowdown

    Inflation (stagflation) or deflation?
    􀂃High oil, energy and commodity prices
    􀂃Rising headline and core inflation
    􀂃Concerns about rising inflation and stagflation (low growth and rising inflation)
    􀂃But stagflation requires negative supply side shocks
    􀂃While a US recession and global economic slowdown is a negative demand side shock that will lead to lower –not higher –inflationary pressures

    Why lowering inflationary pressures in a global economic slowdown?
    􀂃US recession leads to a fall in aggregate demand and lower pricing power of firms
    􀂃Slack in labor markets reduces growth of wages and labor costs
    􀂃Fall in global demand reduces commodity prices (oil, energy, metals, food, etc.)
    􀂃Global economic slowdown driven by lower demand reduces inflationary pressures around the world
    􀂃To get stagflation you need a large negative supply side shock (for example a war with Iran that spikes the price of oil)

    Implications of outlook for asset prices: bear market in equities
    􀂃In US recessions S&P500 index falls by about 28% nominal (and 21% real) as earnings sharply fall
    􀂃The stock market is now pricing a Bernanke put: hope that Fed ease may prevent a hard landing. Market rallies every time the Fed eases and/or announces future easing
    􀂃But these rallies are increasingly short-lived and running out of steam as the drumbeat of bad economic news dominates over time the effects of Fed easing
    􀂃We are at the last legs/stages of an equity sucker’s rally (as the one in April-May 2001)
    􀂃This rally will be over and a equity bear market in full swing –as in 2001-once investors realize that the Fed easing will not prevent a recession
    􀂃Foreign equity markets will also suffer as financial and real recoupling will occur and as markets are highly correlated during episode of stress and high risk aversion
    􀂃Such foreign equity markets have not priced yet the global recoupling with the US recession

    Implications for major asset classes/prices
    􀂃Credit spreads (and CDS spreads) are to widen much more as corporate defaults sharply increase
    􀂃Higher corporate junk bond spreads that have already risen from 200bps to over 500bps
    􀂃Lower home prices in the US and across other bubbly housing markets lead to further home equity losses
    􀂃Much more losses on RMBS, CDOs and related securitized products as the economic recession makes the financial losses larger and recovery values lower
    􀂃Financial firms’losses will increase over time and thus their equity valuations will get even worse than the recent weakened levels. CDS spreads on financials will widen further

    Implications for major asset classes/prices
    􀂃Lower long term government bond rates
    􀂃Policy rates reduced especially in the US, UK, Canada but also –to a lesser extent –in Eurozone and Japan
    􀂃US Fed Funds rate below 3% by the end of 2008
    􀂃Steepening of yield curves as policy rates are reduced while long rates fall by less
    􀂃Further dollar weakness on a traded weighted basis. Also fall ofthe British pound and Canadian dollar as they are both overvalued
    􀂃Fall in the currency values of countries with large current account and fiscal deficits
    􀂃Fall in commodity prices (including oil and energy) as global demand falls
    􀂃Even gold will fall from its highs as fundamental demand is reduced in a global slowdown and as speculative demand falls once globalinflation pressures are reduced
    􀂃Contagion to emerging market stocks, currencies and bonds for countries with weaker economic and financial fundamentals

    Conclusion
    􀂃US recession and global economic slowdown in 2008
    􀂃Central banks are behind the curve and Fed easing will not prevent a US recession
    􀂃Severe financial losses (over $1 trillion) and systemic risk for the financial system
    􀂃Recoupling of the rest of the world with a global economic slowdown
    􀂃Cash is king: avoid a variety of risky assets
    􀂃Further sharp and persistent re-pricing of risk
    􀂃The credit boom/bubble party is over!

  • Clavos

    And your point would be…?

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    Gee!

    Sounds like fun!

    But NR,
    ?Can you eliminate the question marks from he beginnings of the sentences?

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    In short, NR’s point may well be that unless you’re selling to people who want to make a fast getaway, you may not e selling too many boats in the next twelve months, Clavos….

    Maybe you can concentrate on houseboats?

  • Clavos

    Not true, Ruvy.

    The luxury boat market (and the mansion market as well, according to an article in today’s Miami Herald) have never been better.

    The truly rich are insulated by their wealth from the cyclical ups and downs of the financial markets (which by the way, are still ahead of their levels a year ago).

    Housing prices, too, are still well above their levels of three years ago. My rental house in St. Petersburg has lost about 30% off its peak of two years ago, but is still worth 500% of what I paid for it in 1989.

    These are facts usually ignored by the doom-and-gloom set.

    These, and the fact of the cyclical nature of markets.

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    Clavos, if what you say is true, then that would explain your view that all this news comes from the doom and gloom set.

    It appears, from what you write, that the class you serve (as a vendor) perceives itself to be immune from the market. And indeed they may well be.

    But the rest of us are not. What is tiresome for you to read is not necessarily tiresome for us…..

  • Clavos

    I understand what you’re saying, Ruvy.

    But, as you read what the doom and gloom crowd have to offer, remember to keep your critical radar working; also your bullshit meter.

    There is a high probability of a recession in th US during 2008, which, because of the sheer size of the US economy will undoubtedly impact much of the Western world at least, but Ruvy, keep in mind that this is nothing unusual or new.

    Financial markets are, by their very nature, cyclical. We have had downturns before (remember the 1970s?), and have always survived them. Indeed, the more agile folks usually manage to better themselves and increase their net worth during down cycles by seizing the opportunities presented during those periods.

    The US housing market got into a bubble situation; prices rose to unrealistic levels, and a shakeout was inevitable. We will survive it, and most middle class people in this country will be very little affected by it.

    Better you should worry about what the towel heads do to the oil market. That’s a crisis in the making of heroic proportions, and this country is definitely not doing enough yet to develop alternative fuels. The thing about oil is that its price is in everything bought and sold; either directly, as an ingredient in the manufacture of the item (even luxury boats, which are built of fiberglass, which is made from petroleum), or indirectly, as a cost of transportation to market, a production cost for energy, etc.

  • NR

    my point is that if you’ve got any spare cash keep it under your mattress.

    …and sorry about the question marks.The only question marks that remain are about the state of our economy.

  • Clavos

    One last point, Ruvy:

    Particularly on this thread, for nearly a year now, there has been a series of commenters with a common thread of posting the most dire predictions of looming disaster in the US and world markets.

    The commenters are clever; they post just enough real, verifiable facts to give their predictions some semblance of legitimacy and verifiability.

    But they are unanimously extremely pessimistic, and the facts on the ground just don’t warrant their pessimism.

    At the risk of sounding paranoid, I believe these people are engaged in a systematic and coordinated attempt to undermine the American (and by extension, the world’s) public into losing confidence, not only in their economy, but also in their society’s ability to deal with the crisis they so gloomily (and exaggeratedly) predict.

    Just my two cents worth…

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    Clavos,

    I understand you fully. Naturally, when reading the doom and gloom stuff, it is very important to keep the bullshit meter working and clean. But certain things do not lie. The two shekel coin, a little nickel sized coin for convenience, is worth 53¢. Eight months earlier two shekels would have been worth 44¢. Bear in mind that this currency is a joke. But its rise in value against the American dollar is not. In spite of this, prices have risen here, for the most part – telling me that the real value of the dollar has gone down, and the real value of the American economy has gone down with it.

    I’ve also got to tell you; alternative fuels are already being made and are on the market in a limited way. I can’t give out details, but one promises to break the electricity and fuel oil market when used more widely.

    The point is that it has been developed here. We come up with the stuff and you guys need it awful bad.

    As to the ragheads and oil, you’ve got to realize that it is not really the ragheads controlling the price of oil. The trick is for the oil and banking firms to to allow the ragheads to run around spouting how they control the market – after they get the oilmen and bankers consent to say so. Kind of like the husband who gets his wife’s permission to tell the world how he is the boss around the house.

  • Anand Menon

    Hello everybody!…I’m almost too scared to say “Happy New Year” now!

    I agree with Clavos’s assessment that markets are cyclical, the difference being that the trough part of the cycle( which is the rough part)is going to last just a bit longer this time.Ever wondered Clavos that the “systematic and cordinated” attempt maybe to alert readers to the dangers of runaway freemarket/neoliberal/fundamentalist policies and not to “undermine” the faith in their economy as the case is made out to be.Take a long hard look folks…things have come to this because of outright fraud….all perpetrated in the name of public good.

    This is economic blowback.

  • http://www.my-virtual-income.com Christopher Rose

    I’m willing to believe that a new development could break the fuel oil market but electricity? What is this wondrous invention?

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    I’m willing to believe that a new development could break the fuel oil market but electricity? What is this wondrous invention?

    Sorry, Chris. Some things can be hinted at until they actually hit the market. Till then…..

  • Anand Menon
  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    Anand,

    When I was about eleven or twelve years old I attempted to design a steam engine that would be used in cars. Knowing nothing about chemistry, I used water for my fuel. A year later, I saw virtually the same design as mine in the World Book Encyclopedia Yearbook we got using a different fuel (I don’t remember the fuel). Naturally, some oil firm bought the process. G-d forbid that we should not have to buy petroleum….

  • http://www.my-virtual-income.com Christopher Rose

    You want me to believe that an immigrant security guard is privy to information that would change the nature of physics and reconfigure the global economy based simply on your say so? There’s more chance of me signing up to believe in your mysticism!

    Anand, no, something that could replace electricity…

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    Chris, the nice thing about this world is that you get to believe what you want – until G-d calls you on the carpet. So believe what you want….

  • http://www.my-virtual-income.com Christopher Rose

    I don’t have the luxury of believing what I want to, Ruvy. Unlike you, my reality is constrained by facts not fancies. As there are no facts to support the existence of any gods, I won’t waste my time believing in them, nor fairies, dragons, pixies and assorted other mythical beings. You just go right on believing any old thing that tickles your fancy though.

  • Anand Menon

    I’ve heard of wireless electricity being developed at MIT…but a replacement for electricity?…thats radical

  • NR

    All these months we only heard that the economy was doing well,on the road to recovery,blah,blah,blah.Everyone was in denial.How about this…for the first time we are seeing the two leading Democrat contenders talk of a recession.We hear phrases like”struggling economy”,”economy is worsening”,”stimulus package”,”tax rebate”….when you read all this you know one thing….The “R” word is now official.The politicians and “news” anchors will be on TV speaking about an economic stimulus package. We’ll leave them to talk about tax cuts, interest rate freezes, etc. What is disheartening to hear from these people is that they think the consumer needs to spend, so whatever the government does, it needs to put money in the pockets of the people. I’m all for that, but it will help to pay that rising cost of living, and not to pay for more discretionary retail goods. The Federal Reserve can cut rates, but rate cuts will not restore the enormous amount of capital that has been lost by financial institutions and investors or help them with margin calls. Rate cuts will not pay the rising costs for our food and heating oil. Rate cuts will not restore the confidence which is necessary for our markets to function properly.

    Tax rebates urged to rescue economy

    Clinton, Obama step up calls for economic stimulus

  • Clavos

    “How about this…for the first time we are seeing the two leading Democrat contenders talk of a recession.”

    Well, of course the dems are talking about a recession; it helps them in the race for the presidency. If there’s a recession, they can blame it on the reps, thus garnering more votes.

  • R.Borosage

    In the January Myrtle Beach Republican debate, the candidates were asked what they would do to get the economy going in the event of recession. The answers expose just how preposterous conservatism has become.

    John McCain, who at least admits he doesn’t know much about economics, said the first thing we need to do is” stop the out-of- control spending…. As president, I know how to do it. I’ll wield that veto pen, and I won’t let another pork-barrel earmark spending bill cross my desk without vetoing it. I’m called the sheriff by my friends in the Senate who are the appropriators, and I didn’t win Miss Congeniality.”

    Charming, but completely wrong headed. A recession is caused by lack of demand. The squeeze on working families has them tightening their belts. Companies lay off workers. State and local governments, mandated to balance their budgets, choose between deep cuts in spending on education and health care or increased taxes. Only the federal government is able to act – by spending money or cutting taxes, adding to a short term deficit to get the economy moving. (The Federal Reserve can also try to lower interest rates, but with the dollar sinking and credit markets shattered flooding the market with money may just feed inflation without much effect. And in fact, the Fed’s previous interventions under Alan Greenspan helped blow up the bubble that triggered this mess).

    Rudy Giuliani just released a big tax cut plan, so you’d expect him to take McCain apart. Nope, the Mayor was as lost as McCain: “You also have to cut spending as significantly as you cut taxes. You have to be willing to impose cut-backs on each one of the federal agencies, the civilian agencies. “The main things you have to guard against are overtaxing, overspending, overregulating and over-suing.” “Over regulating?” We’re suffering a credit and housing collapse that derives directly from the LACK of sensible regulation to hold lenders to basic standards like reviewing borrowers’ ability to pay.

    Mike Huckabee showed that he could feel people’s pain, and then suggested he’d increase it, calling once more for his “fair tax” that would cut taxes on the wealthy and increase them on working and poor people. Not exactly a remedy for the economy no matter what condition it is in.

    Libertarian Ron Paul at least was true to his principles, which he stated as unintelligibly as possible. After ruling out monetary or fiscal relief, he called for attacking this with the “Austrian theory of the business cycle. For the few of you not familiar with Austrian economists, the Austrian theory of the business cycle is simply to let her rip… “The longer you delay the recession, the worse the recession is,” said Paul.

    In this crowd, only former Governor Mitt Romney offered a passing glance at common sense. Before lurching into his requisite pander about fighting for every job in Michigan, he urged that we “stop the housing crisis (without telling us how), and “immediately cut taxes” on middle income Americans. He then argued that we get “gas prices under control” by becoming energy independent and invest in research and development, good ideas that would take far too long to have any effect on turning around a recession.

    The contrast with the Democratic field is stark. Once more John Edwards drove the debate, releasing a serious short term stimulus plan, mixing tax rebates for low income people with direct spending and aid to the states. Hillary followed with the largest plan, with a good mix mirroring that of Edwards. Obama’s plan relied almost entirely on tax cuts, quicker but less effective than direct spending.

    Democrats on the Hill seem more muddled. The conservative Blue Dog Democrats are reported as demanding that the tax cuts and spending of any stimulus “be paid for,” which would, of course, eliminate their stimulus effect. This preposterous proposition apparently has led Speaker Nancy Pelosi and Sen Harry Reid to seek pre-emptive agreement with Bush on a plan. That virtually ensures that what emerges will be too small and too weighted towards tax cuts. (The President suggested that repealing the estate tax permanently would be a stimulus. Other than titillating the Paris Hilton’s of the world, it isn’t clear what he had in mind).

    This debate has just begun, but it’s got to get a lot bolder. This is a $13 trillion economy wounded by successive body blows. It will take a lot to get it turned around. Consider the last recession after the collapse of the dot.com bubble and the shock of 9/11. The Fed lowered interest rates to the lowest levels in memory; Bush racked up record deficits with massive top end tax cuts and increased spending on the military and homeland security; Chinese and Japanese central bankers lent the money needed to prop up the dollar and limit inflation – and still we witnessed a slow recovery in which employment as a percentage of the population and income never returned to pre-recession levels. Now the economy is weaker, the damage more serious, and the Chinese and Japanese more sober. It is going to take heavy lifting to get this economy moving again.

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    The dollar seems to have had a bad week here, Clavos. I’ll translate the Hebrew headlinein this link from Globes (the Israeli version of FT) for you….

    “The dollar strengthens itself by 1%; but by week’s end it has increased in value only .1%. The representative rate is NIS 3.78/$1.00.”

    At the close of the business day today (which ends early due to the Sabbath) the dollar had dropped back to NIS 3.7715.

    Now to illustrate the unreal world of the value of the dollar to you.

    We did Sabbath shopping this morning. A 750 gram box of Kellogg’s Cornflakes reflects the falling value of the dollar, going down in price to a “mere” NIS 20 (about $5.30). But there is real inflationary pressure in the economy: fifteen slices of 9% fat yellow cheese (the Israeli equivalent of American or Canadian cheese) cost NIS 40 (about $10.60) or 70¢ a slice of cheese!!!

    Dairy products produced internally cost more than the American (actually British) imported cereal. In fact any dairy product that is not larded with fat or sugar is a killer on the wallet.

    Why do I continually pelt you with news of the shekel? Because the shekel is as valuable as Monopoly money. It’s a fuckin’ joke! And your dollar is going down against it….

    The end of comment #506 is very telling.

    Now the economy is weaker, the damage more serious, and the Chinese and Japanese more sober. It is going to take heavy lifting to get this economy moving again.

  • William Swagell

    The term “spin doctor” was invented in the mid-eighties and was conjured up to describe a public relations professional who can be employed to put a “positive spin” on almost any situation or problem.

    Clients hire “spin doctors” proactively to show their corporate strategies in the most flattering or favourable light; or engage them in desperation to exercise “damage control” after being exposed to bad press or publicity that might harm corporate profitability, reputation or brand value.

    Politicians use “spin doctors” to generate propaganda in a more subtle form during political campaigns; to sway public opinion; to put the most favourable slant on their intentions; or to deflect blame for bad policies and actions taken.

    This culture of spin has exploded onto the scene thanks to the global telecommunications and media revolution that has seen people everywhere connected up as never before. Instant information now flows around the world, unrestricted by national boundaries, via the internet, global television networks and cell phones. In this new hi-tech world media coverage is critical in moulding public opinion and even financial markets.

    The danger is that these experts of “spin” may at times mask transparency or fool the public with distorted information and half truths so that it is impossible to recognize the cross-over point between “spin” and outright lying.

    Spin Doctors on the Economy.

    “Spin”: “This is not a rescue. Given the dislocation, we saw a good investment opportunity for us and other investors.”

    David Viniar, CFO Goldman Sachs, August 13, 2007.

    This was the spin put on the announcement by Goldman Sachs that it (and some “other” high profile investors) would pump $3 billion into their Global Equity Opportunities Hedge Fund after the fund plunged 30% the week before. Goldman also offered to waive entrance fees and cut in half its performance fee in order to attract new investors to the ailing fund. Observers were sceptical this move would prevent further withdrawals from occurring adding that some of the high profile “other” investors may desperately be investing more in an attempt to protect their current investment against massive redemptions or a fire-sale of assets.

    “Spin”: “This economy is pretty good. There’s definitely some storm clouds and concerns, but the underpinning is good…I hope you can tell I’m an optimistic fellow.”

    George Bush, December 17, 2007.

    This from the mouth of the man who, when previously asked at a press conference;

    QUESTION: Do you think there’s a risk of a recession? How do you rate that?

    BUSH: “You know, you need to talk to economists. I think I got a B in Econ 101. I got an A, however, in keeping taxes low and being fisky…fiscally responsible with other people’s money.”

    Spin Doctors on Real Estate.

    “Spin”: “Repudiating fears that it was overly exposed to the US consumer, Centro showpieced a Q&A with Peter Linneman, a professor at the University of Pennsylvania, in a recent quarterly report (in September 2007). The wave of home loan defaults, said Linneman, could actually provide a fillip to consumer spending. Having been liberated from the burden of their monthly mortgage payments, the consumer would have more cash to splash on shopping sprees. ‘Sub-prime defaults and delinquencies are leaving more money in consumer pockets, as they have stopped servicing their mortgage debt’.”

    Michael West (The Australian December 14, 2007).

    Three months later Centro’s share price plummeted over 80% and had four billion dollars wiped from its value when its access to short term funds (to fund long property purchases) was cut off by the global liquidity crunch. Centro is the second largest shopping centre owner in Australia, and the fifth largest in the USA.

    Michael West’s wry response to that quote was… “Perhaps the homeless defaultees could store all their purchases in the neighbour’s garage. Perhaps garages could be hived off from (houses) and securitised with a AAA-rating …just on the yield of course…from S&P and Moodys.”

    Perhaps Centro should now use another of Linneman’s quotes to try and talk up its prospects as it negotiates to sell off its shopping centre assets to circling predators:

    “Spin”: “The good news is the consumer is in great shape. By the way, people ask the question, a variation of Shawn’s, which is how long can the consumer carry the economy? The answer is forever. All there is is that people like you woke up this morning having more crap than you’ll ever need saying honey I am going to go to work and make some more money so I can buy even more crap.”

    Prof. Linneman, Realtors Commercial Alliance conference August 23 2007.

    Do I detect a bit of cynicism in there somewhere?

    But special mention must be made of the doyen of “spin doctors”, David Lereah who retired in March of 2007 as spokesman and chief economist for the National Association of Realtors. Wikipedia describes how “Lereah’s penchant for putting out positive spin on dismal housing numbers led critics to dub him the Baghdad Bob of real estate.” As well as publishing “WHY THE REAL ESTATE BOOM WILL NOT BUST – And How You Can Profit From It” in 2006, some of his gems include:

    “Spin”: “If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years… (such action being) very unsophisticated.”

    Los Angeles Times, August 28, 2005.

    “Spin”; “In October 2005 Lereah was busy calling the bubble believers ‘Chicken Littles’.

    Chicago Tribune, September 2006.

    “Spin”; “We need a price decline, we were overbloated… In 2007, it will be a flat year, maybe 1 percent (sales) drop, and that’s it. After 2007, we’ll be back to expansion again.”

    Realtor convention New Orleans, November 2006.

    As it turned out, house prices slumped 12% in Miami and Tampa and 11% in Detroit in 2007, with Lehman Brothers economist Michelle Meyer saying… “I don’t think we’ve hit the bottom yet. The housing shock is only about halfway over and housing prices will continue to fall well into 2009.

    Lereah also enlisted the support of then Federal Reserve chairman Alan Greenspan during his last few presentations by showing a large slide of a beaming Greenspan who was quoted as saying (October 2006);

    “Spin”; “Most of the negatives in housing are probably behind us. The fourth quarter should be reasonably good, certainly better than the third quarter.”

    But the “I So Wish I Hadn’t Said That Award” still goes to Anthony Hsieh, chief executive of Lending Tree Loans, an internet-based mortgage company (are they still in business?) who was more disparaging;

    “Spin”; “If you own your own home free and clear, people will often refer to you as a fool. All that money sitting there, doing nothing.”

    Los Angeles Times, August, 2005.

    Good call Anthony!

    The Master of Spin.

    “Spin”; “American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed rate mortgage…the traditional fixed-rate mortgage may be an expensive method of financing a home.”

    Alan Greenspan, February 23, 2004.

    The quote above was still being featured prominently in 2006 at the top of a web site belonging to SAINT LAWRENCE MORTGAGE recommending ARMs (are they still in business?).

    “Spin”; “…homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade.”

    Alan Greenspan, February 23, 2004.

    “Spin”; “Innovation has brought about a multitude of new products, such as subprime loans…extending credit to a broader spectrum of consumers. Where once more-marginal applicants would have simply been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending…constructive innovation that is both responsive to market demand and beneficial to consumers.”

    Alan Greenspan, Federal Reserve conference, April 8, 2005.

    Two years later we find the Bush administration trying to launch emergency rescue measures to freeze interest rates for some 250,000 of the most vulnerable ARM borrowers in an attempt to stave off a deluge of foreclosures in a collapsing housing market. Now however, retired Greenspan is urging caution and warning that reneging on lenders contracts may undermine confidence in the American way of doing business and encourage a flood of litigation.

    Well, I’ve got news for him…according to Geoff Kitney (European correspondent The Australian December 15-16, 2007) Greenspan needn’t worry because… “British Prime Minister Gordon Brown, reflecting a growing view in Europe that the rest of the world is paying a price for the consequences of cowboy capitalism in the US said on Thursday that the action by the central banks (pumping out US$500 billion) was ‘a wake-up call for the global economy…The existing institutions aren’t good enough. I’m going to make it my business to reform those institutions.”

    And even though Greenspan is now trying to deflect criticism and blame from himself by blaming all those around him…

    “Spin”; He writes (in his recently published memoirs) that Bush’s failure to curb spending was “a major mistake” and that Republican congressmen were “feeding at the trough”. “The Republicans in Congress lost their way,” he says. “They swapped principle for power. They ended up with neither. They deserved to lose [the 2006 congressional election].”

    Graham Paterson, TIMESONLINE September 16, 2007.

    Wow…talk about the dog biting the hand that feeds it.

    It’s good to see Secretary of Treasury Paulson, who is no mean hand at spin doctoring himself, isn’t about to take it lying down when he says… “I can’t undo the excesses of the last six years…house prices rising at an unsustainable level, easy credit. When you have these kinds of excesses it takes a while to work your way through it.” Fox Business Network, December 17, 2007.

    Yep… “the last six years” was definitely on Greenspan’s watch.

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    Clavos,

    According to Globes, the dollar continues to drop against the shekel – I guess I was wrong about the cessation of trading for the Sabbath.

    Now the representative rate is NIS 3.7635/$1.00.

    If it gets down to NIS 3/$1, I’m popping open the 32 year old bottle of cognac I have. All the retirees I know living on American pensions will need a drink – badly.

  • Clavos

    Editors,

    There’s a hell of a lot of cut-and-paste, without attribution going on in this thread.

    Two of the last posts are obviously entire articles lifted from other sources. At least one of them, #306, doesn’t even have a typo.

  • Clavos

    Ruvy,

    I’ve never disagreed with you that the dollar is devaluing. It obviously is.

    I’m sorry that your Americans on dollar incomes over there are hurting because of it. It’s tough I’m sure. But they chose to live in Israel.

    And you see, to those of us living here in the USA, the devaluation of our overvalued currency is, as I’ve explained to you previously, helping the economy by making American products more competitive in foreign markets. As a result, US exports (and revenue) are skyrocketing. Our deficit has been decreasing for several months now, as a result.

    On the home front, foreign made goods ARE more costly, but we still make almost everything we need in the USA, so instead of Toyotas or Hondas, Fords and Chevys are becoming the better choice for American consumers.

    This could have been a real economic shot in the arm for GM and Ford, except that some time ago, the Japs were smart enough to start building a lot of their cars here in the USA, which means they too, are benefiting (to some degree) from the less expensive dollar. But still, the American companies are helped by the devaluation.

    We grow all our own food domestically. In recent years inexpensive foreign produce (chiefly from Latin America) has undercut the US farmers. So now, the US produce is once again competitive at home. There’s more money in the US farmer’s pocket, and now he’ll buy a John Deere, instead of another Kubota.

    And so forth…

  • NR
  • andrew b. lee

    america is by FAR the best place to live in america. has anyone been to europe? they charge you for water! they have security guards at restaurant bathrooms? who’s stopped at a mcdonald’s in the states just to take a piss? in europe they have a guard at the bathroom! a hamburger is over $5!

    yes, america has its flaws, but our system is the best, i’d have to say. however, that DOES NOT mean that we shouldn’t discuss its (which means, our) flaws. the reason for all the hullabaloo from people about the direction our govt and country is going in is because it is deviating from the path that our constitution gives us.

    for all you ardent democrats and republicans out there, bill moyers said “loyalty to ideals, not parties.”

    EXACTLY. that is what we should all be doing. the crap that bush jr. and co. have gotten us into isn’t a republican problem. as a californian born and raised, i’m pretty sure that alot of our current problems are “blowback” from clinton and bush sr. era actions. sept.11 would have happened whether gore or bush was in office.

    i can’t guarantee that gore wouldn’t have invaded afghanistan and iraq. clinton is quoted as saying that he ‘couldn’t afford to stand up to’ the entrenched military interests.

    our problems aren’t caused by republicans or democrats. that is so naive. it’s bigger and more complex than that. but no matter what you say, if you adhere to the ideals of our constitution, i don’t think we can really excuse our actions abroad.

    just as one can no longer doubt global warming, if one just looks a little bit, one cannot doubt that the military industrial complex is real and that it is not a monster created by democrats or republicans. it’s there, most all politicians have to work with it, and it’s a problem.

  • http://pointlessannointed.blogspot.com/ Colin

    Where exactly in Europe was this Andrew? I’m British (living in Wales) and it’s certainly nothing I or any of my family (who travel to France, Spain and Italy) have ever experienced anywhere in Europe.

  • http://drdreadful.blogspot.com Dr Dreadful

    As a fellow traveller to Europe, Colin, I’m pretty sure that Andrew… isn’t. Like most of his compatriots, he’s probably never even left the US.

    He’s just making things up based on rumors he’s heard.

  • http://pointlessannointed.blogspot.com/ Colin

    It’s a shame Americans don’t travel more. It might make the world a better place.

  • Clavos

    “It’s a shame Americans don’t travel more. It might make the world a better place.”

    Actually Colin and Doc, having spent 30 years working for international airlines, I can tell you unequivocally that, on a per capita basis, Americans travel internationally more than any other nationality.

    Conversely, the USA is also the world’s #1 tourist destination.

  • Clavos

    Correction. The following statement:

    “Conversely, the USA is also the world’s #1 tourist destination.”

    Is no longer true. In recent years, the USA has slipped to #3, behind France and Spain.

  • http://pointlessannointed.blogspot.com/ Colin

    Is that really true Clavos? How has it become such a cliche then that they don’t, that passport ownership is rare, that America is insular?

    Well, well, well – you live and learn. My apologies to the globe trotting US of States.

  • Clavos

    Stereotypes, Colin.

    Do you Brits really have bad teeth? Is your cuisine that awful?

    Are the Germans really that dour?

    Mexicans that lazy?

    etc., etc…

  • http://drdreadful.blogspot.com Dr Dreadful

    I can’t speak for the Germans and Mexicans but…

    Let’s put it this way: I’ve seen some sets of teeth which… well, you could keep intruders out of your yard by cementing them to the top of your wall.

    And yes, British cuisine IS that bad. Case in point: the haggis. I mean come on. Why do you think we all guzzle Indian, Chinese and kebabs constantly?

    However, I’ve said before, say now and will say again (until everyone tells me to shut up and perhaps beyond) that British teeth are by no means the world’s worst. Oh no siree. The dental appendages of the Japanese archipelago make us Brits look like a nation of Osmonds.

    ;-P

  • STM

    Clav asks: “Do you Brits really have bad teeth? Is your cuisine that awful? Are the Germans really that dour?”

    Yes. All true, and well-travelled man that you are you know it, although the Poms do have better teeth these days. But the tucker … eeek!

    And those Germans. Yes, they are a dour lot mostly. My country: the ugly Aussie … loud mouthed, arrogant hot heads who drink too much and who’d prefer a punch-up to a feed if offered the choice – true again.

    It’s also true that MOST Americans (I’m not saying all) are geographically challenged. Passport ownership among US citizens is rare per capita, and MOST Americans would struggle to name five countries in Asia and Europe AND their capital cities, and what systems of government they have.

    There’s no excuse for it either, particularly given America’s place in the world. What it means, ultimately, is that MOST people who are able to vote in the US don’t have much of a clue as to how US policies affect the outside world, or indeed how many of those countries operate, whether they are allies of the US, or even where they are.

    Sorry Clav, but that stuff is true. I’ve experienced it first hand, but chose to keep my gob shut at the time as I didn’t want to offend anyone, because one failing Americans don’t have is a failure to be kind and hospitable.

    I realise these are generalisations, but a lot of generalisations do have some basis in fact.

  • Clavos

    Nonetheless, Stan, the point that started this part of the discussion is also true:

    Despite all the stereotypes about Americans and their ignorance (or perhaps it’s disinterest more than ignorance) of foreign countries, geography, etc., it’s a FACT (and has been for more than thirty years) that more Americans leave home to visit foreign countries annually than any other single nationality.

    And that’s without counting troops…:>)

  • Clavos

    Maybe we’re just stupid; though we go more than anyone else, we don’t learn from it…

  • STM

    I don’t buy the notion that Americans are stupid.

    Far from it … you don’t get to be the most powerful country in the world by being collectively stupid.

    I have a plausible and simple theory about it all.

    Yes, Americans are big travellers, but not per capita.

    Those who do go overseas tend to go a fair bit … to Canada, Mexico, Central America, the caribbean, etc. A lot do go to Europe, too, granted.

    However, I believe there is a mindset among many travelling Americans that comes from years of isolation and a certain insularity born of not having any need to know anything about anywhere else.

    Thus, in my experience, Americans tend to travel in groups, and often on package tours, or they go to places that almost exclusively frequented by Americans. They also tend not to go backpacking around the world when they are young (there are of course always exceptions to the rule), and often don’t know very much about the places they do go to and because of the aforementioned, still don’t know much about those places when they get back.

    Which is a shame, really, as America and Americans generally (who I’ve found to be among the friendliest people on the planet, without doubt and Doc would back me up here I’m sure) have so much to offer the world, that not being interested in other places (apart from troop build-ups :) except for superficial issues like how good the hotel is just works against America IMO.

    However, people who criticise America and Americans at least need to visit the US to see it for themselves. They won’t find much to dislike.

    It works both ways. As I’ve said before, contempt prior to investigation is a foolish thing.

  • Clavos

    “However, I believe there is a mindset among many travelling Americans that comes from years of isolation and a certain insularity born of not having any need to know anything about anywhere else.”

    That’s it, in a nutshell.

    That also covers why most Americans are monolingual; more so than any other developed Western nation.

  • STM

    I will also here pour cold water on the mistaken belief that hardly any Americans hold passports.

    I have heard figures quoted as low as five per cent, which is bollocks, and has been touted as a reason why Americans don’t travel (except you haven’t needed a US passport to travel to a lot of neighbouring countries like Canada, Mexico, and the caribbean).

    The real figure is between 18-20 per cent, which isn’t that different to a lot of countries. (*Puffs chest out and tells punters the figure in Oz is about 50 per cent … well, we’re so isolated here in our extreme comfort at the arse-end of the world, you just have to travel to get any idea of what goes on elsewhere*)

    And the figure for Americans is a lot more than China :)

  • STM

    On Americans:

    The only two times, ever, anywhere, where I’ve been told by cabbies that they won’t accept my fare: New York and Miami.

    In New York, by an American guy who had lived in a nice beachside suburb of Sydney for 15 years (and who got me to JFK from downtown Manhattan in good time during rush-hour when I was running extremely late after sleeping in).

    He just wouldn’t take the money, and said he he was trying to talk his Aussie-born wife (who wanted to stay in NYC) into going back to Oz to live because he liked the outdoors lifestyle.

    In Miami, by a USN veteran who had been stationed in Australia during WWII. Not only did he refuse to take my money, which was a fair sum too as I’d caught the cab in South Beach across town to pick up mail from a friend of my father, he took me to to a great jewish deli on the way back where he bought me the best pastrami sandwich I’ve ever eaten.

    With the sandwich and a drink thrown in, that was about $50 for the return journey and the waiting time, which was a good whack of dough in 1980.

    He immediately recognised my accent and said: “You won’t be paying today”.

    That’s a fairly good indicator of what Americans are really like, in my experience.

    So to those who don’t know, I’d suggest: find out for yourself instead of repeating all the nonsense you read or hear. No it’s not perfect, but it’s not bad either – and a lot better than plenty of other places.

  • http://drdreadful.blogspot.com Dr Dreadful

    I’ve not been anything like that lucky, Stan, but Americans will certainly fall over themselves for you once they hear a British or Aussie accent (which, BTW, they often can’t tell apart). I also get people – well, women – asking me simply to say something – “anything… just so I can listen to that accent”!

  • STM

    Yes, I love American women too :)

    Why wouldn’t you???

  • http://www.my-virtual-income.com Christopher Rose

    Whilst there is not really any excuse for the kind of international ignorance which allegedly leads many US citizens to think of Paris, Texas, before Paris, France, it has to be remembered the US is a very large place.

    With only half the population of Europe in almost twice as much land area, it is practically unoccupied by my standards. Similarly, if you allow the notion that the European Union is one country, the number that have been “abroad” or need to own passports would be very much reduced.

    Most of my own travel has been within the EU and nowadays I could travel from the Atlantic shores of Ireland to the Russian border without producing a passport once.

  • troll

    since spending some time as a ‘vagabond and drifter on the run’ (LG) as a kid I’ve developed an ambivalence about the voyeuristic nature of tourism to the extent that I resist going anywhere without a damned good reason and a personal invitation

    …probably oughta retire to a cave and recycle a stone for a few decades I guess

    (I would emerge at election times to agitate against voting of course)

  • Silver Surfer

    You should agitate instead for compulsory voting, so the people actually DO have a voice :)

  • troll

    …yes they do and they should shut the @#%$# up

  • Silver Surfer

    Rosey: “With only half the population of Europe in almost twice as much land area, it is practically unoccupied by my standards”.

    OK then Rosey, what would you consider (occupation wise) a country twice the size of Europe with only 20 million (very lucky) people living in it??

    Desolate?

    Or the quivalent of a roomful of bastards?

  • troll

    surfer dude – what are Oz’ primary industries – ? (seriously…just wondering)

  • http://www.my-virtual-income.com Christopher Rose

    Well, I’d consider it a colony!

  • http://pointlessannointed.blogspot.com/ Colin

    Stereotypes indeed Clav. By the way, despite being extremely left wing by American standards I have not nor have I ever been (apart from one stoopid incident as a drunken student) anti-American – anti the American government on many an occasion but not the good people of the big ol’ place… Hell, almost all my heroes are yanks – writers, musicians, film directors, actors, political types and so on and so on. It’s such a huge mixture and melting pot that America can show hundreds of faces to the world and still hide so much. I’m old and wise enough now to realise that what the media, or Hollywood shows is but a sliver of a slice of a tranch of a snicket.
    I think there’s much in what Stan says (he is after all a fighting ossie so I’m not gonna disagree with him), the only places I’ve ever encountered American travellers (not settlers) has been in Ludnud and Oxford where they do tend to travel in packs.
    If there is a pub in Central Ludnud without an Australian somewhere on the premises, usually behind the bar I am yet to enter said pub.
    English teeth shouldn’t be bad, as until recently we had free dental care – I blame the Sex Pistols for that. The food is getting better. But most of us live in Castles still – I’m orf to beat some sense into the local dart-hurling peasantry shortly.

  • Silver Surfer

    Troll: “surfer dude – what are Oz’ primary industries – ? (seriously…just wondering)”.

    What, apart from propping up breweries?

    OK … mining (gold, minerals, coal, etc), wool, beef, cotton, agriculture, food crops, running the gamut from tropical fruits in the north, to citrus fruits in the more arid areas, to an entire island state of orchards (Tasmania), fisheries and, believe it or not, motor-vehicle manufacturing, mainly.

    All of which bring in the big export bucks – we even export cars to the middle east and the US, rebadged though.

    The mining boom is being ridden on the back of exports for the Asian powerhouses. Iron ore is the big one. This continent is literally made of iron. That’s why our dust is red.

    We do OK for a small country, but apart from our mining and agriculture sectors, we are small players really.

  • http://pointlessannointed.blogspot.com/ Colin

    Hey up Stan, hope yer well…
    Isn’t a lot of Uranium from a land down under?

  • Silver Surfer

    G’day Colin.

    How are you bearing up old son??

    Yes, much uranium in the ground (lots of everything in the ground), and let’s hope the bastard stays there.

    One day, someone will work out how to use it properly and then we can get it. Until then, I say we leave it exactly where it is.

    Rugby season started today, BTW, kind of – it’s Australia Day (well, Saturday was) and NSW played Queensland in a Super 14 pre-season opener.

    NSW won, for a change. Queensland can lose nearly every game in the Super 14 but if they come out and beat NSW for their one victory in a season, they’ve had a good year.

    They really are all crackers up there. It’s the heat, you know.

    It fries their brains. White fellas aren’t meant to live in that kind of climate.

    I know, because all my immediate family are Queenslanders thanks largely to my not organising things very well.

  • Silver Surfer

    Doc: “the haggis”

    Och the noo Doc, the haggis isn’t that bad y’know. It tastes pretty damn good … it’s just the thought of what’s in it that turns most people off, but it’s not a bad feed.

    I’ll bet my balls that Robbie Burns wrote a poem about it. There’ll be one somewhere.

  • http://pointlessannointed.blogspot.com/ Colin

    Pretty good thanks Stan – my blog reports continued sobriety, which is odd! Isn’t the world bright!?!

    Six nations starts next week with a visit for the mighty Wales to WORLD HEADQUARTERS OF EVIL, or Twickenham.

    I’ve wrongly attributed the quote to George Orwell in the past, but I believe now that was liberal historian Arnold Toynbee who wrote (paraphrasing), “A bomb under the West Stand at Twickenham on international day would put the cause of facism in this country back a generation.”

    Now I live in Wales, I can really see the hot house the coach operates in – it’s front page news nearly every day. Gatland’s talking us up but I always fear the worst against the Saes and they’re sticking with much of the World Cup grizzled old bastards squad with some exciting young uns too. Hey ho. They’ve also snagged Vainakola (my spelling, completely wrong) “The Volcano”, a Tongan New Zealander rugby league convert who plays for my beloved Gloucester… I definitely fear him, he’s very much on the massive and extremely quick side – he may well tread poor little Shane Williams into the turf.

    Adam Gilchrist’s retirement’s quite big potatoes over here – a bit of a genius I must say. Super 14’s is only shown on Sattelite telly over here so I can’t watch it but I gather it’s a top notch competition.

  • http://pointlessannointed.blogspot.com/ Colin

    And what’s all this with the tennis hooligans (hoons even)? Bizarre in the extreme, I can’t imagine anyone fighting over tennis… Although from what was reported here it was nationality ruccus – Greeks V Serbs? I know you have a fair number of ex-Yugoslavs down there, Mark Viduka, the ex-Leeds and now Newcastle (via Boro) footballer came from a club called Melbourne Croatia I think.

  • Silver Surfer

    Mate, I think it was Greeks, Croats and Serbs – although the Greeks actually weren’t involved in the fighting but were booted out anyway cause they appeared to be involved. Well, that’s always on the cards. Good to see people moving to Australia to start new and better lives but forgetting to leave their old animosities at home.

    We’ve had some beauties, too … the best being a soccer match between a Croat team and a Serb team. In the end, and they were just like a lower suburban grade, they had to get the police in.

    Now one team I believe is banned from the competition completely and the other is under constant threat of being punted.

    Sometimes these guys are third-generation Australians, too. It’s a worry.

    But I guess the only reason they fit in is because they are as mad as the rest of us.

  • Silver Surfer

    “WORLD HEADQUARTERS OF EVIL, or Twickenham.”

    Lol. You ain’t wrong there Colin.

    Yes, Gilly’s departure is a huge story here. Really, he is one of the best cricketers ever produced by this country.

    That rugby league bloke … Lesley Vainakolo?? He can play a bit, but he’ll try and do the pacific islander side-step (ie run straight over you).

    Shane Williams just needs to stand his ground and tackle him low … and that’ll be the end of Lesley (famous last words?).

    All the islanders and maori are tough bastards though, and the maori are tough bastards for the full 80 minutes and then for about 10 hours afterwards.

    I used to play against them. I always got smashed from one end of the park to the other.

    Could be a torrid afternoon at the HQ of evil.

  • http://pointlessannointed.blogspot.com/ Colin

    I once got a free meal in a Chinese restaurant in Mayfair – owned, slightly bizarrely by a Serbian woman – by the simple means of bad-mouthing Croats as a bunch of Nazi supporting Catholics (something I’m not very proud of, and, yes, I was very, very drunk at the time)… There was an Oz teen soap that played on the immigrant issue rather well, I can’t remember the name now and it must be nearly 20 years ago when it was shown on the Beeb over here – it was very good and featured largely Greek and Italian second gen immigrant kids who played football, warring with native Australians who despised the game and played Aussie Rules and Rugby. Your kids might have seen it Stan, it was all based around a high school and much more hard hitting than the Neighbours, Home and Away styley thing.

  • http://drdreadful.blogspot.com Dr Dreadful

    In answer to troll’s query in #536 and supported by much of the subsequent discussion, I would have to say that in my view Australia’s primary – in fact, only – industry is sport.

    I mean, they have a population smaller than an Anglican church congregation yet are persistent world champions in several sports and are always to be found near the top of the Olympic and Commonwealth Games medals tables.

    Seriously, every second Aussie must be a world or Olympic champion in something.

  • troll

    well duh Dreadful old boy – you do realize that the Aussies are the result of a secret experiment in eugenics the brainchild of some decadent Royal and funded by the BoE ….don’cha – ?

  • Clavos

    I knew there was some explanation…

  • troll

    it was crude of me to bring it up…Chatham House rule and all

  • http://pointlessannointed.blogspot.com/ Colin

    I’m distantly related to an Aussie cricketer – Neil Harvey…

    Although Wales have benefitted from it in the past I’m not great fan of the nationality changing stuff in Rugby. Thanks for the spelling correction Stan, shameful as he plays for my team, Glawster! And he’s been going great guns for us helping us to the top of the Premiership.

    In Wales’ favour is the arrival of Gatland – who’s talking a good game (although in that mumbly New Zealand way – open yer mouths ferchrissakes Kiwis!) and we’ve snagged Shaun Edwards as defensive coach. England think they’re cheese on toast at the moment and could be complacent whereas Wales have a lot to prove after the appalling world cup.

    Yer right Doc, a most sporting nation indeed… And the soap operas and actors and pop starlets do pretty well too (thanks to the stirling work of Sir Les Patterson I assume).

  • andrew b. lee

    jesus christ. ok, i have been to europe this past summer with my family, just me, my brother, and my mother. we went to london, oxford university, and paris. and yes, we have found that a lot of the restaurants in downtown london and paris, where the tourists tend to congregate, charge for everything. i’m not saying that europe is crap. far from it. if i came across that way, my mistake, i was too hasty.

    i was just trying to balance out the dialogue a bit. one side accuses of people who support chalmers johnson’s positions that they hate america and that they should move away since they hate america so much and so forth.

    europe is gorgeous. europe has qualities that i think america will never have. however, europe also does not have some of the conveniences america has. i realize that my family and i were tourists in the big city (where things are usually expensive), but i also noted that things are different besides that.

    things, in general, are more expensive in europe. why? europe doesn’t have illegal immigrant mexicans that we can employ for 50 cents an hour, wich drives down costs. there are some things in europe that americans don’t have, like universal healthcare, and americans have things like dollar value meals at mcdonalds, while in europe a burger costs like, 10 bucks.

  • andrew b. lee

    and why did no one respond to my comment about loyalty to ideals and not ideology, parties, or institutions????

    doesn’t that comment resonate more than ‘america is a great place to live!’ ???

    what i’m trying to say is, all you ‘hardcore’ republicans and democrats, crawl out of your little ideological holes and use your heads, not the punchlines the politicians give you.

    jesus christ

  • http://drdreadful.blogspot.com Dr Dreadful

    americans have things like dollar value meals at mcdonalds, while in europe a burger costs like, 10 bucks.

    Yeah, but, Andrew, you were in Europe. Of course American food is going to cost more than it does at home. It is, believe it or not, regarded as exotic!

    I do hope you at least sampled the local cuisine, rather than spending all your time scouring the continent for overpriced burgers, steaks and pizzas.

  • http://drdreadful.blogspot.com Dr Dreadful

    BTW, Andrew, inflation certainly seems to be galloping in Europe. A burger only cost $5 when you commented yesterday…

  • STM

    Lol. A McDonald’s meal costs $10 in Europe. What a lot of rubbish. Where were you Andrew. The boutique burger bar on St Germain??

  • andrew b. lee

    oh of course! the bakery items in europe are like NOTHING in america. le boulangerie, a supposedly french bakery chain store in america, is fraud!
    my family spent most of our time eating at family-run corner store delis. the store owners were very nice to us and with our language deficiencies and gave us more than we ordered, often giving us a little more than the kilogram or so we ordered of this and that.

    europe was great, and as a college studnet i’m actually planning to return for a study abroad program for the summer in either spain, greece, or germany.

    yes, my experience of europe was incomplete, of course.

    WHY IS EVERYONE ONLY POINTING OUT MY COMMENTS ON WHAT LITTLE I SAW OF EUROPE???

    does no one find my comments on the sins of being an ideologue compelling??? it doesn’t pay to always be conservative or liberal, right???

    yes, in order for society to function the citezenry must trust the government, but the citezenry’s duty is also to have a healthy cynicism along with an open mind.

    america’s problems aren’t all brought about by the republicans, nor is it all the democrats. the system is breaking.

  • andrew b. lee

    i was exaggerate! letsee…when i was in paris, a hamburger cost about…3 euros. that’s about 6 american dollars. 6 dollars, 10 dollars, either way, its a lot more than 1 dollar!!!
    either way, we never bought “american” food while in europe.

  • http://drdreadful.blogspot.com Dr Dreadful

    Andrew, I largely concur with your other comments. But you did come across as a whiny American tourist when you spoke of Europe, and being natives of that continent, Colin and I felt compelled to take issue with you.

    I’m glad that your experience of Europe was by and large good, and that you enjoyed it enough to want to go back.

    I didn’t realize La Boulangerie was a chain. We have one here in Fresno, California which is managed by a Frenchman. The food is French in style, but inauthentic in its mediocrity!

  • STM

    But it’s at least good to see you coughed up a bit of your hard-earned Andrew and took the family somewhere else for a taste of a bit of european “kulcha”, as we say in Oz.

    We have been bemoaning here the fact that Americans aren’t great travellers, and therefore often don’t have much of an idea of what goes on outside America.

    If you want $1 cheeseburger value meals at McDonald’s (Maccas), come to Australia for your next holiday. Just stick your fingers in your ears so you can’t hear the accent, and pretend the cars are driving on the wrong side of the road like they do in the US, and voila! You’ll never know the difference!

    I do suggest taking a course in Australian as a second language, however, before hand.

    Failing that, catch up here by propping yourself at the bar of any pub. Within hours, it won’t matter who understands who, because everyone will be speaking gibberish anyway.

  • http://drdreadful.blogspot.com Dr Dreadful

    Andrew, have you ever taken a wander through the gloriously fake streets of the Paris casino in Las Vegas, where an after-dinner mint will set you back about $20?

    :-D

  • STM

    Andrew: “america’s problems aren’t all brought about by the republicans, nor is it all the democrats. the system is breaking.”

    Bingo. Lobby groups and big-dollar donations to political parties (how DO they get around McCain-Fiendgold??) have meant, at least in the past 60 years or so, that America is no longer really a democracy (in the modern sense of the word) as really two big parties only vy for the affections of the electorate, and the voice of the people isn’t really heard.

    I know people will want to dong me over the head for saying this, but it’s how I see it as an outside observer and keen America-watcher.

    The last time America was a democracy (in the modern sense) was in the 1960s (civil rights era) and the ’70s (Vietnam moratorium protests, and a press determined to inform the public and bury a corrupt president).

    And what a democracy it was. That’s the way to tell the government what you think.

    Unfortunately, and it’s a problem in Australia too, no matter who you vote for – politicians still get elected.

  • STM

    Doc: “Andrew, have you ever taken a wander through the gloriously fake streets of the Paris casino in Las Vegas, where an after-dinner mint will set you back about $20?”

    I have spoken to Americans who are certain this kind of thing gives them a taste of euro-kulcha (or Egyptian :).

    I see it more as an American cultural experience, however.

    Fascinating stuff, though, and fun.

  • BE
  • Persona

    #563…”That’s the way to tell the government what you think..”…its also time to tell them to stop the dollar from sinking further..take a look at this..

    “Euros Accepted” signs pop up in New York City

  • STM

    Persona: If you think the falling dollar is a major problem for the US, with respect you don’t know much about the basics of how economies work. First, it won’t affect the average American (those who aren’t buying imported luxury goods from Europe and Japan) and your dollar will still buy as much as it did at the supermarket or the car yard or the real-estate agents a year ago provided you buy (North) American goods and produce.

    I will give you some examples:

    The big problem for the dollar was always that it was artificially inflated by the goings on in Wall St and driven by a culture of greed, and that US exports were protected by tariffs and therefore while looking profitable on paper, were actually costing the US economy and made US manufacturing and producing for export totally not viable. The fall in the dollar is not huge, in terms of currency fluctuations, and was the correction it had to have. It simply takes it down to where it should have been for a long time.

    When you are trying to slow an economy down and reduce inflation, interest rates invariably go up in concert with other factors like debt exposure by the banks – especially mortgage interest rates. In the US, many companies have paid lower wages to workers in a bid to compete on world markets, so the fall in the dollar and a corresponding increase in exports may ultimately lead to some general wage rises in the US that increase spending a little.

    The other upside: America’s problems are partly a result of an inability to compete in simple cost terms in global manufacturing, so any fall in the dollar helps reinvigorate export markets.

    As an example: rather than rely on exports, and because of its geographical isolation, Australia has largely produced its own motor vehicles since the late 1940s, and very few American cars were seen in the road since the 1960s.

    In the past year, as the US dollar drops and the Australian dollar rises, US-built cars are returning to Australia and New Zealand in numbers, and Detroit must feel it’s worthwile as Australians and Kiwis drive on the left, which means all cars exported there must be reconfigured to right-hand drive – no small investment because it means retooling production lines.

    American fruits and produce are in the supermarkets in the off-season when they aren’t grown Down Under, and the prices are good.

    So it’s the opposite side of the coin: while the $A continues to climb to near parity with the $US, Australians realise, unlike many Americans, that it is not really a good thing because it affects exports, leads to inflation, and the Reserve Bank of Australia, in trying to rein in consumer spending and slow down the economy, has veen forced to lift interest rates, which affects the average Joe. The Australian economy is affected by a budget surplus, while such domestic insanity in the US as massive taxcuts at the top end offered by the Bush administration and a budget in the red have affected the US.

    The fall in the greenback may be just the thing the US needed to kick-start its ailing export industries, and these are the things that made the US wealth in the first place. I notice that US interest rates are currently right down.

    If I’m not wrong, Americans are renowned for getting going when the going gets tough so there’s that aspect too that will work in your favour.

    It’s an absence of those other factors, not sub-prime mortgage crises and credit squeezes, or a long war in Iraq (America has traditionally grown stronger in time of war) that has really knocked the US economy in the long term. The credit squeeze has just highlighted the problems inherent in the US economy, and some that are made worse by Bush’s policies.

    Simply, it hasn’t been able to compete on global markets in most areas except in those industries the US government props up with generous tariffs.

    Also, it’s worth noting that while currencies like the Euro and the British pound are worth more than the dollar, the average worker over there gets a lot less of ‘em in his or pay packet.

    When you add it all up, taking into consideration factors like buying-power parity, earnings and the cost of living, it still works out that the middle-class in the US are still slightly better off, or at the very least, not worse off.

    The only problem comes when you go on vacation there and your buck doesn’t stretch the way it did. But like I say, that was just a bonus for people with a dollar set artificially at too high a level for too long.

    King dollar was a myth, and a foolish one, and you are now seeing the result of the thinking.

  • http://www.republicofdave.com Dave Nalle

    Stan, it’s refreshing to see a comment from someone who actually knows what the hell they are talking about and doesn’t just repeat someone else’s talking points.

    They refuse to believe it from me, but maybe from someone outside the US it will be more convincing.

    Dave

  • STM

    Thanks Dave,

    Believe it or not, while it was bad for my going-on-holiday exchange rate (and having had two overeseas trips in the past few months, including one to Europe, where I was grateful that my buck got more bang both against the Euro and the Thai Baht) things are not as rosey as they were when our dollar was worth less.

    Because we have underlying inflation here driven by the rising dollar, a very strong economy and a dependence on mining and minerals exports feeding the Asian powerhouses, it would be far better for our ecomony for the $A to be worth LESS against the $US dollar. As I say, having lived through a time when it bought be only 60 cents US, it was a drama going overseas. But at home it made no difference.

    People drove Australian cars, or cars imported from countries like Spain, Japan, South Africa and Thailand, where the economies were stacked up more evenly against ours, and bought mostly goods grown and produced in Australia. Petrol was cheap, too, so it was all good. I actually think my buck went further than it does now.

    My mortgage rate has now risen to 9 per cent, which is a spin off of the rising $A and an economy growing too quickly. This is the Reserve Bank’s attempt to slow growth.

    Most Americans don’t realise that the lowering of the $US could actually bring huge benefits to the United States, of the kind not seen for years, at least once the dust settles – especioally if Americans get in there, roll their sleeves up, and start doing what they do best.

    Take my tip … the fervent hope in Australia is that the US dollar goes up against ours. We want ours to be worth less, not more.

  • troll

    gee – with all of the motivational benefits that will come with a weakened US dollar it’s a wonder that anyone ever advocated a strong one

  • STM

    Troll, it’s not a joke. The strong dollar was partly responsible for the US balance of trade deficit and the US being in the red. It’s not a good thing.

    As can be seen from the fallout. Propping it up artificially for so long through the machinations on Wall St did no favours to the United States.

    Some of America’s best-known finance gurus have known the truth for some time, and have seen the fall coming.

    However, many don’t think there will be a recession.

  • http://www.republicofdave.com Dave Nalle

    No one ever seems to talk about the balance of trade figures when the economy is on the table, but throughout my life imports have been a minimum of twice as high as exports and often much more. Well right now we’re within a stone’s throw of import/export parity, which we haven’t had since the 1960s. Yes, it’s hard on our trading partners, but I’m shedding few tears for Japanese heavy industry.

    The truth is that the weak dollar has done more for US industry and business and workers than any bailout or protectionism or union empowerment plan ever to come out of the left.

    Dave

  • Les Slater

    Dave,

    Your numbers may be entirely correct but are different than those I have. I checked the figures that I have on an old spreadsheet of mine and find that from 1960 to 1970 the U.S. generally had a trade surplus. As we get into the 70’s there’s definitely a deficit, however through 1983, never at a ratio of more than 1.22. Between 84 and 87 it was around 1.4, settling down to no more than 1.27 through 2001, and then between 1.42 and 1.56 through 2006, which was the end of my spreadsheet. I checked figures for November 2007 and found $142.3B for exports and $205.4 B for imports, giving us a ratio of 1.44.

    Les

  • STM

    It’s still a deficit though less, and what you have to remember is this: many unprofitable US industries and farmers have been propped up by tariffs and incentive paid for by the taxpayer.

    That doesn’t help much, because while it looks OK on paper, in reality it’s something very different.

  • Les Slater

    STM,

    “…while it looks OK on paper…”

    I wasn’t saying anything looked OK, I was just pointing out that the statistics I have are quite different than Dave’s. The statistics I have undercut his conclusions.

    “It’s still a deficit though…”

    Yes, and as I’ve pointed out in my #573, have been so since the 70’s. At present, at least as of November 2007, the ratio of imports to exports was 1.44, a clear deficit.

    Les

  • STM

    Clears that up then …

  • Persona

    And Nalle said..”As for the ‘housing bubble’, it’s not bursting. Every expert seems to agree that the adjustments are short-term, and the impact of artifically low interest rates wore off quite a while ago….”

    Hmmmm….look at this..
    Families Flock to Foreclosure Fairs

  • bliffle

    Dave often makes astonishing statements, often citing ‘facts’ that are simply untrue. For example, only a few weeks ago he was denying any devaluation of the dollar, but that was before he flip-flopped and decided it was a brilliant Bush strategy.

    I’ve decided that, for myself, he is simply untrustworthy and unreliable. I can’t believe what he says.

    This statement of his may reveal the cause of his unreliability:

    “The truth is that the weak dollar has done more for US industry and business and workers than any bailout or protectionism or union empowerment plan ever to come out of the left.”

    His obvious bias to the Bush administration, whatever political ideology THAT may represent beyond “me first”, colors everything he says.

    My recommendation: don’t believe anything Dave says.

  • http://www.republicofdave.com Dave Nalle

    Bliffle, that’s such utter biased bullshit that you ought to be ashamed of yourself. I’m hardly a defender of the Bush administration, and when I provide facts they are hard facts and backed up. I guess you feel frustrated by that, but until you can come up with some facts on your own, you’re kind of stuck with nothing but unsubstantiated personal attacks like your last comment.

    Not agreeing with you doesn’t make me a liar, but stating blatant untruths about me makes you exactly that.

    Dave

  • Clavos

    “but until you can come up with some facts on your own, you’re kind of stuck with nothing but unsubstantiated personal attacks like your last comment.”

    Bliffle never substantiates. All he ever does is post long, rambling anecdotal assertions with no attributions, links or sources for his bizarre claims.

  • Clavos

    From an opinion piece by Robert Samuelson published in today’s WaPo:

    “Though cruel, foreclosures and falling home values have the virtue of bringing prices to a level where housing can escape its present stagnation. Helping today’s homeowners makes little sense if it penalizes tomorrow’s homeowners. An unstoppable free-fall of prices seems unlikely. Slumping home construction and sales have left much pent-up demand. What will release that demand are affordable prices.”

  • http://drdreadful.blogspot.com Dr Dreadful

    This thread is fascinating.

    Every few weeks it abruptly explodes into a frenzy of finger-pointing and acrimony, then goes back to sleep.

    I can’t think of another thread that’s been sustained for quite this long, except maybe the Harley-Davidson one.

  • Persona

    Robert Samuelson also adds in that piece..”To be sure, all this weakens the economy. No one relishes evicting hundreds of thousands of families from their homes. Eroding real estate values make many consumers less willing to borrow and spend….”

    This subprime crisis is not just about fre-falling home prices…its tied in in with the banking and finacial industry which have securitised all these mortgages.Lax lending standards,Unregulated financial innovation and a rating industry in bed with the rated parties has resulted in a credit crunch which now assumes astronomical proportions…some estimates say as much as 17% of U.S G.D.P….that is no small amount by any stretch of the imagination…what are the costs of a systemic break down of the banking and finacial industry?….what are the costs of a bail out?…why should there be a bail out?….why should we privatise profit during times of excess and socialise risk when things get out of hand because of outright fraud and greed?

    It is simplistic to say that falling home prices are good..Has anyone considered the cost of this mess that we are into?…Professor Nouriel Roubini seems to do so..
    The Staggering Fiscal Costs of Bailing Out a Financial System in Crisis

  • STM

    Bliffle, the falling dollar has helped US industry and exports.

    That’s a fact.

    When you’ve got the highest-valued currency in the world, it’s not very attractive to other countries to buy your goods.

    It’s also a lot easier for Americans to buy goods from overseas that are produced with cheap labour and bought with a high-value greenback against a weaker foreign currency.

    By patently not understanding this basic tenet of Dave’s argument, you obviously don’t know much about how global trade works.

    I’ll agree that a lot of what Dave says is, in my opinion, bollocks … but not all of it.

    In this case, he happens to be dead right.

    The falling dollar might actually be America’s way out of its current malaise as people once more start buying goods produced in the US.

    And I believe much of the reason for America’s problem is not Bush’s fiscal policy but Wall Street’s machinations.

    In regard to those who trade currency: By propping up the dollar at an unreasonable level to benefit a few (ie, themselves), they have harmed hundreds of millions of their fellow Americans.

    “King dollar” was a myth perpetuated on Wall St, and a dangerous one. It’s now seen for what it really is as the dollar is corrected and settles to the level it should have been long ago.

  • Persona

    Buying goods manufactured in the U.S….and what are those goods pray?…..ever since we started outsourcing and off-shoring we have have only managed to destroy american jobs and our manufacturing base.which industry or sector is going to turn it around??

  • Ruvy in Jerusalem

    Buying goods manufactured in the U.S….and what are those goods pray?

    Persona,

    How about selling sex? You know, since Madison Avenue has used sex to soak you all dry, why not offer the real thing to foreigners visiting your shores, and soak them dry – in every sense of the word?

    America has lots of nine year old, ten year old and twelve year old kids sexualized by Madison Avenue and the entertainment industry. Why not recruit them in a patriotic crusade to out-fuck the Filipinas, Thais, Cubans – you name ‘em! Medicare could be expanded to include plastic surgery to make every male and female willing to serve in such a patriotic crusade a Venus or an Adonis to seduce guys and gals living overseas (we won’t mention names to protect the yet innocent).

    Since the only other thing you guys do is make cars and car parts, you can use cars as payment to the lucky teens who get to screw the most foreigners and bring in the most of those undervalued dollars back to your own shores. The Saudis, Japanese, and Chinese (the folks holding the undervalued dollars) will love it!!

    American women are beautiful, and dress like whores – why shouldn’t they be whores? That is how lots of Arab men think, you know.

    After all, don’t all Americans look like the actors on Smallville?

    This is not entirely a satirical or sarcastic suggestion. When the Russians cut Cuba out of their supply line, Castro did almost exactly what I outlined above…

    Soon it may be your turn.

  • Persona

    Ah Ruvy….the pussy economy to the rescue…heyyyy..now why didn’t we think of that?….maybe all that business should be conducted in all those foreclosed homes which could be leased out by the banks for this purpose….y’know they could recover what the’ve put in;)…..for the really high-end customers perhaps Clavos could in the same spirit of patriotism lend one of his boats….we could anchor his yachts just out from the coast…..the new “off-shoring”;)….very good Ruvy!!

  • STM

    Persona: “Buying goods manufactured in the U.S….and what are those goods pray?…..”

    Motor vehicles for a start.

    With the dollar down against the euro, Americans would be smart to buy American-manufactured vehicles again instead of cars imported from Japan or Europe.

    Motor vehicles includes farm machinery and trucks.

    On that note, American-manufactured cars haven’t been seen in Australia or New Zealand since the 1960s, but are now starting to return as the $A and $NZ climb against the greenback.

    That involves considerable finiancial input from Detroit in what is a competitive market – Australia has its own very good motor vehicle design and manufacturing industry – as cars in the antipodes drive on the left, which means steering wheels have to be reconfigured for right-hand drive.

    That’s not cheap and at least Detroit is making an effort to build its export markets outside the western hemisphere and the mid-east. It’s those kinds of things the US is starting to do, but it wouldn’t have been competitive a few years ago because of the respective values of the currencies.

    All is not doom and gloom persona. Lower value currency on the international market is only a problem when you travel outside your own country, and has all kinds of benefits for export and manufacturing.

    Unlike Americans who don’t seem to know how this stuff works globally, Australians are praying that the $A dollar falls again against the $US and the Euro.

    Things were far better for the average Joe Blow when that was the case, especially given that even low-level underlying inflation can be a downside of a very strong economy, which is what is happening Down Under.

    One of the spin-offs from that is mortgage interest rates have risen 12 times to 9 per cent in the past five years as the Reserve Bank tries to slow the economy down.

    The US has the opposite problem, and the sub-prime crisis is not the cause of it. It’s a drastic indicator of underlying problems in the US mostly related to balance of trade and budgets in the red.

  • Ruvy in Jerusalem

    Stan,

    I suppose you could do an internet search and dig up all the products Americans make (like Amana refrigerators, IH tractors or yachts), but the truth of the matter is America just does not produce enough anymore. Too much is produced in Sri Lanka, India, Thailand, China, all at slave wages – or no wages at all!

    And the Americans have spent themselves into a hole they cannot dig themselves out of….

  • STM

    That’s my point Ruvy. The falling dollar sets a platform for a return to US manufacturing on a giant scale … something it does very well.

    That’s where its wealth came from in the first place – not from bits of paper being traded on Wall St.

  • Ruvy in Jerusalem

    That’s where its wealth came from in the first place – not from bits of paper being traded on Wall St.

    We agree on where wealth comes from.

    But Stan, you’re talking about building a platform from rotten timbers. I’ve got to admire that sunny optimism of yours, but your idea is fifty years too late – even for hard working immigrants who want to build a dream.

    Heh! They’d be better off in Australia – running a gang!

    That is the essential theme of the article, Stan – America in Decline…..

  • Persona

    who’d want to pick up our gas-guzzling shoddily designed cars?…General Motors and Ford are deeply in the red….and Ruvy is right…you want to start from the basics…the platform is made of rotten timbers….you want to return to the US manufacturing on a large scale…hell!..you need money for that..where do you borrow money from???..only the banks…who are tightening their lending and hoarding on cash..all because of our credit crunch….which is the result of economic blowback..just think about this….the rates at which municipalities borrow has climbed to 20%!…

    you guys have some hope

  • Persona

    I’m sorry if people here don’t understand how serious the situation is.I take the liberty of reproducing some things that Prof Nouriel Roubini has to say about the present credit situation…we are on the cusp of a very important event….the rapid unravelling of the credit and finance markets…..i hope Chris Rose bears with me on this one…i think its extremely relevant to the discussion.

    Risk of a systemic crisis is rising: the markets are becoming “utterly unhinged”, the financial system is “broken” and “everybody’s in de-levering mode”
    Nouriel Roubini | Mar 06, 2008

    I have been away from blogging most of the week as I have been traveling to Abu Dhabi, Saudi Arabia, Dubai and Turkey.

    Certainly concerns about the US economy, the credit crunch, the stability of the US financial system and the plunging value of the dollar are rising even among official authorities (central banks and sovereign wealth funds) that I have met in region in recent days.

    Here are some of the spreading financial concerns and rising risks in financial markets…

    My 12 steps scenario to a systemic financial crisis is becoming more likely by the day. First of all, credit losses are spreading in every corner of the financial system and the credit crunch is getting more severe by the day. We are also observing a return of the liquidity crunch as interbank spreads are widening again.

    And this time around central banks will be less likely to control such spread via massive liquidity injections as such spreads are now reflecting more widening credit premia that central banks cannot control than widening liquidity premia that central banks can partially control. Now the liquidity and credit crunch in the muni bonds market, the TOB and ARS markets is becoming more severe. And as I argued in my previous piece the seizure of the market for state and local government debt reflects in part a significant increase in the actual risk that local government will default.

    Indeed, local governments that are rapidly losing their tax base (as fees from developers collapse and property taxes plunge) are having massive problems in cutting spending: a lot of such spending in on the salaries of unionized public employees. And local governments having to choose between firing such employees and defaulting on their debt will choose to default. In my last column I reported on the default risk in Jefferson County. And today Bloomberg reported that:

    Alabama County Won’t Pledge $184 Million for Swaps

    Jefferson County, Alabama, in a move that may cost it $184 million, said it wouldn’t pledge reserves against $5.4 billion of interest-rate swaps tied to sewer debt that its bankers may demand. Jefferson County, where Birmingham is located, faced a March 7 deadline to put up the $184 million in collateral or buy insurance to meet its obligations to JPMorgan Chase & Co. and three other banks on 13 swaps after its sewer debt was downgraded by Standard & Poor’s and Moody’s Investors Service.

    “The county commission faces difficult decisions on the sewer system debt. However, these decisions will not be made at the expense of the county’s employees,” Jefferson County Commission President Bettye Fine Collins wrote in a memo to the workers. (bold emphasis added) While Collins said filing for bankruptcy was an option, “its not something that they’re considering,” said Leigh Butler, a Collins aide. The county will not cut jobs, dip into its pension fund or curb health and other benefits to generate cash to bail out the sewer system, Collins wrote to employees.

    Jefferson County, its interest expense on $3 billion in floating-rate obligations skyrocketing, is caught in a faltering credit market that has more than doubled costs for many borrowers in the municipal-bond market. Investors are no longer willing to trust much of the insurance backing the bonds, as the guarantors face subprime mortgage losses, leaving the county paying interest rates as high as 10 percent.

    Ditto for the case of city of Vallejo that is also on the verge of default. As reported by Bloomberg under the headline California City Moves Closer to Bankruptcy Filing :

    Vallejo, a city of 135,000 outside of San Francisco, moved closer to bankruptcy after negotiations with its labor unions collapsed.

    Bondholders will likely be asked to sacrifice some of their investment if the city seeks bankruptcy protection, an attorney for the municipality said last night. Vallejo faces ballooning labor costs and declining housing-related sales-tax revenue, leaving budget officials projecting that money will run out within weeks.

    The city council is scheduled to consider a resolution tomorrow to file for Chapter 9 bankruptcy protection, after negotiations with labor unions to win salary concessions broke down Monday. (bold emphasis added)

    Vallejo is the first of many cities and local governments in California and the West that are under serious fiscal strain and likely to default rather than having public employees take a wage or job hit. The Jefferson Country Commission President was quite explicit on this. This attitude will be the root of the coming local government defaults. As he put it: “However, these decisions will not be made at the expense of the county’s employees…” Note he did not even bother to say “the county’s citizens and employees”; he only spoke of the “employees”. This answers the question where the loyalty of such local politician resides: certainly they could not care less about bondholders. Also, it might be difficult for elected State judges to take harsh action against municipal entities against a strong stand by the local officials.

    Add to all of this turmoil and credit woes the spread of the liquidity and credit crunch even to the previously super-safe agency debt. As reported by Bloomberg:

    Agency Mortgage-Bond Spreads Rise; Markets `Utterly Unhinged’ By Jody ShennMarch 6 (Bloomberg) —

    Yields on agency mortgage-backed securities rose to a new 22-year high relative to U.S. Treasuries as banks stepped up margin calls and concerns grew that the Federal Reserve may be unable to curb the credit slump. The difference in yields, or spread, on the Bloomberg index for Fannie Mae’s current-coupon, 30-year fixed-rate mortgage bonds and 10-year government notes widened about 21 basis points, to 237 basis points, the highest since 1986 and 103 basis points higher than on Jan. 15. The spread helps determine the interest rate homeowners pay on new prime mortgages of $417,000 or less.

    The markets have become “utterly unhinged,” William O’Donnell, a UBS AG government bond strategist in Stamford, Connecticut, wrote in a note to clients today. A lack of liquidity has “led to stunning air-pockets in price levels.” Investors are realizing that banks have little room to make new investments amid rising losses and a flood of unwanted assets, said Scott Simon, head of mortgage-backed bonds at Pacific Investment Management Co. The world’s top banks have reported more than $181 billion in asset writedowns and losses, been stuck with $160 billion of leveraged buyout loans, and bailed out $159 billion of structured investment vehicles.

    “Everything is telling you the financial system is broken,” Simon, whose Newport Beach, California-based unit of Allianz SE manages the world’s largest bond fund, said in a telephone interview today. “Everybody’s in de-levering mode.” (bold emphasis added)

    So loaded terms like markets becoming “utterly unhinged” and the financial system being “broken” are now becoming common.

    Add to this utter financial mess the loan defaults by Thornburg Mortgage Inc. and a Carlyle Group bond fund (Carlyle Capital Corp.) after they failed to meet margin calls. Carlyle Capital Corp. is the publicly traded mortgage bond fund of the second largest private equity firm. If a group like the Carlyle one is unwilling to rescue one of its bond funds what does this signals about the reputation and financial problems of such private equity funds?

    In the meanwhile the market delusion that the monolines’ necessary and unavoidable downgrade can be avoided is rapidly eroding. As reported by Bloomberg:

    Ambac to Sell Half the Company; Bet May Not Pay Off (Update7) March 6 (Bloomberg) —

    Ambac Financial Group Inc., the bond insurer seeking capital to salvage its AAA credit rating, will sell half the company in a bet some investors said won’t pay off. Ambac said yesterday it plans to issue $1 billion of common stock, more than doubling the number of shares outstanding. The New York-based company will also offer $500 million of units that convert to shares in 2011. Investors had anticipated Ambac would be bailed out by banks, which would pledge their own funds to support a capital raising of as much as $3 billion, enough to overcome record losses on subprime-mortgage debt. Instead, the company announced it would raise half that amount in a transaction that would push down the value of its stock. “The new offering is highly diluting to existing shareholders,” said Jim Ryan, an insurance analyst at Morningstar Inc., said in an interview with Bloomberg Television. “The market was looking for a backstop, to say the least.” …

    “Based on our estimate that Ambac will eventually absorb about $11 billion of losses from insured CDOs and mortgage-backed securities related exposures, $1.5 billion of new capital at first blush does not seem like enough to fix the capital adequacy problem,” Andrew Wessel, an analyst at JPMorgan Securities in New York, said in a March 6 research report. CDOs, or collateralized debt obligations, package pools of securities then split them into pieces with different ratings.

    $1.5 billion of new capital to cover at least $11 billionof losses? Which investors do credit rating agencies think they are going to fool again after reaffirming their AAA rating of MBIA and Ambac? Do they think that investors are that stupid or naïve?

    So given this increasing mess it is no wonder that US equity markets fell by more than 2% today and they are now at risk of a crack as investors’ nervousness is surging. In my 12 step scenario analysis I pointed out how a falling stock market, rising margin calls and fire sales in illiquid markets could lead to a vicious circle of cascading asset prices well below market fundamentals and further financial distress:

    Tenth, stock markets in the US and abroad will start pricing a severe US recession – rather than a mild recession – and a sharp global economic slowdown. The fall in stock markets – after the late January 2008 rally fizzles out – will resume as investors will soon realize that the economic downturn is more severe, that the monolines will not be rescued, that financial losses will mount, and that earnings will sharply drop in a recession not just among financial firms but also non financial ones. A few long equity hedge funds will go belly up in 2008 after the massive losses of many hedge funds in August, November and, again, January 2008. Large margin calls will be triggered for long equity investors and another round of massive equity shorting will take place. Long covering and margin calls will lead to a cascading fall in equity markets in the US and a transmission to global equity markets. US and global equity markets will enter into a persistent bear market as in a typical US recession the S&P500 falls by about 28%.

    Eleventh, the worsening credit crunch that is affecting most credit markets and credit derivative markets will lead to a dry-up of liquidity in a variety of financial markets, including otherwise very liquid derivatives markets. Another round of credit crunch in interbank markets will ensue triggered by counterparty risk, lack of trust, liquidity premia and credit risk. A variety of interbank rates – TED spreads, BOR-OIS spreads, BOT – Tbill spreads, interbank-policy rate spreads, swap spreads, VIX and other gauges of investors’ risk aversion – will massively widen again. Even the easing of the liquidity crunch after massive central banks’ actions in December and January will reverse as credit concerns keep interbank spread wide in spite of further injections of liquidity by central banks.

    Twelfth, a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices will ensue leading to a cascading and mounting cycle of losses and further credit contraction. In illiquid market actual market prices are now even lower than the lower fundamental value that they now have given the credit problems in the economy. Market prices include a large illiquidity discount on top of the discount due to the credit and fundamental problems of the underlying assets that are backing the distressed financial assets. Capital losses will lead to margin calls and further reduction of risk taking by a variety of financial institutions that are now forced to mark to market their positions. Such a forced fire sale of assets in illiquid markets will lead to further losses that will further contract credit and trigger further margin calls and disintermediation of credit. The triggering event for the next round of this cascade is the downgrade of the monolines and the ensuing sharp drop in equity markets; both will trigger margin calls and further credit disintermediation.

    So, based on the events of this past week we are already close to steps 10 through 12 of my systemic financial crisis scenario…The trigger for this further stock market crack may be a much worse than expected employment report tomorrow Friday. So – to paraphrase Bette Davis in “All About Eve” fasten your seat belts as the it’s gonna be a bumpy ride in the next few days and weeks…

  • Doug N

    The worse than expected employment report has come through…the US has lost 63000 jobs in february!….think about that…thats 63000 people who have to worry about making their bills on time

    the past fortnight has seen a lot of action in the credit markets.Traders have become increasingly jittery.Just look at this string of bad news…we’ve never seen anything like this!

    March 6 – Bloomberg (Shannon D. Harrington): “The cost to protect corporate bonds from default soared to a record as hedge fund failures and rising bank funding costs stoked concern that a financial institution may collapse. Credit-default swaps tied to Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and Wachovia Corp., the nation’s four biggest banks, climbed to the highest on record. A benchmark gauge of credit risk in the U.S. and Canada reached the highest since it started trading in October 2003. ‘There’s so much concern about a market failure,’ said Gregory Peters, head of credit strategy at Morgan Stanley… ‘It’s a situation where there’s just a general lack of trust and there’s a heightened fear of the unknown.’”

    March 6 – Dow Jones (Deborah Lynn Blumberg): “In yet another sign of just how jittery financial markets have become again, U.S. Treasurys are just about the only security accepted in the securities repurchase market Thursday. Super-safe Treasurys are being scooped up like hotcakes and mostly on an overnight basis in the repo market, where dealers go to finance their positions by lending and borrowing securities from each other on a short-term basis. The 10-year note is the most popular thus far, with most other Treasury issues in demand as well. Other securities – such as agency debt issued by the Congressionally-chartered housing finance companies Fannie Mae and Freddie Mac – and deals to loan out any types of securities for longer than overnight were struggling. The focus on overnight loans backed by Treasurys… comes Thursday as some mortgage bond funds failed to meet margin calls, leading them to sell high quality, liquid assets to make up for the loss. That drove market participants to gravitate once again to only the safest possible securities as trust dwindled… ‘Dealers are tightening up lending standards for non-Treasury securities in the repo market,’ said Carl Lantz, fixed income strategist at Credit Suisse… noting that the financing of mortgage securities in general is becoming more difficult. Agency mortgages ‘are typically something you think of as stable,’ Lantz added, but are now becoming especially volatile.”

    March 7 – The Wall Street Journal (Carrick Mollenkamp and Serena Ng): “The financial turmoil is taking on a new dimension: Banks that lent money to hedge funds and other big risk-takers are asking for some of it back. Loans from banks and brokerages had allowed hedge funds, which manage some $1.9 trillion in clients’ money, to amass many times that amount in investments. But as the value of mortgage-backed bonds and other investments has dropped in recent weeks, the lenders are demanding that borrowers put up more cash or assets. This is producing a negative cycle that has policy makers deeply worried. When investors rush to dump assets, prices fall and lenders feel compelled to make further demands, or ‘margin calls,’ which cause even more selling.” …’The appetite for risk is dropping sharply,’ said Steven Abrahams, chief interest-rate strategist at Bear Stearns… In the early stages of the financial turmoil, the riskiest securities… were hit by selling. Now, as margin calls intensify, hedge funds and others find they must unload even assets perceived as high-quality, such as bonds backed by the government-sponsored mortgage giants Fannie Mae and Freddie Mac.”

    March 7 – Bloomberg (Edward Evans and Cathy Chan): “Carlyle Group’s mortgage-bond fund was suspended in Amsterdam trading after creditors forced the sale of some holdings, jeopardizing shareholders’ capital. Lenders who issued default notices have liquidated some residential mortgage-backed securities held by the fund and may sell more as talks continue, Carlyle Capital Corp. said… The fund had ‘substantial’ margin calls and additional default notices from lenders yesterday… Carlyle Capital said yesterday it had failed to meet margin calls, prompting creditors to seek immediate repayment… Carlyle increased its mortgage holdings last year, selling $300 million of shares in Carlyle Capital. The fund used leverage to buy about $22 billion of AAA rated mortgage debt issued by Fannie Mae and Freddie Mac. ‘This marks a further savage step in the ongoing credit implosion of recent months, Keith Baird, an analyst at Bear Stears…wrote… ‘The liquidation of the fund cannot be excluded nor the potential loss of capital, rendering the shares worthless.’”

    March 7 – Reuters (Laurence Fletcher): “Hedge funds under pressure from a combination of tightening credit lines, illiquid investments and investor redemptions are increasingly moving to stem investor outflows, industry experts told Reuters… An increasing number of funds are using gates — which can typically limit investor exits to between 10 and 25% of assets per quarter. Alternatively they are suspending investor redemptions entirely so the managers don’t have to undertake a fire sale of assets in difficult markets to pay exiting investors. ‘We see a lot of situations that aren’t total write-offs but where it’s more a question of suspending dealing or a gate,’ said one fund of hedge funds manager… ‘These situations are increasing.’ Prime brokers — who provide services such as financing for trading and settlement of trades — have become increasingly concerned in recent months about funds, particularly in the credit area, who may be leveraged, have suffered large losses or are holding illiquid investments.”

    March 6 – The Wall Street Journal (Liz Rappaport, Joellen Perry and Deborah Lynn Blumberg): “Despite repeated doses of medicine from central banks, short-term lending markets around the world are struggling again. In both Europe and the U.S., the rates that banks charge each other for short-term loans remain elevated, a sign of how cautious banks still are about using their capital. In other markets, investors are signaling distress at banks. For example, the cost to buy insurance against a bank debt default is soaring, in some cases to more than 20 times the cost last summer.”

    March 6 – Bloomberg (Joseph Galante and Edward Evans): “Carlyle Group’s publicly traded mortgage bond fund failed to meet margin calls and said it received a notice of default as banks call in loans against even the highest-rated bonds… The Carlyle fund raised $300 million in July and used loans to buy about $22 billion of AAA rated agency mortgage securities issued by Fannie Mae and Freddie Mac, securities that have the ‘implied guarantee’ of the U.S. government, according to Carlyle. ‘The credit crisis is spilling over to the next asset class, agency bonds,’ said Philip Gisdakis, senior credit strategist at UniCredit SpA in Munich. ‘There’s never just one cockroach. If you see one highly leveraged hedge fund going bust, then there’s another on the way.’”

    March 5 – Bloomberg (Jody Shenn): “The extra yield that investors demand to own agency mortgage-backed securities over 10-year U.S. Treasuries reached the highest since 1986… The difference in yields on the Bloomberg index for Fannie Mae’s current-coupon, 30-year fixed-rate mortgage bonds and 10- year government notes widened about 12 basis points, to 215 basis points, or 79 basis points higher than Jan. 15… Some owners have been selling the debt ‘to make room for the cheaper alternatives or to lighten up because they anticipated further unraveling’ in the financial markets, UBS AG analysts led by Laurie Goodman wrote… Agency securities, which are guaranteed by government-chartered companies Fannie Mae and Freddie Mac or federal agency Ginnie Mae, were the ‘most liquid’ bonds they could sell, they wrote. Spreads are also widening as ‘hedge funds continue to de- lever,’ or scale back bond-secured borrowing… Banks and securities firms are raising the collateral they require on loans or taking other steps that discourage borrowing…”

    March 4 – The Wall Street Journal (Lingling Wei): “Overwhelmed by margin calls from its creditors, home-mortgage lender Thornburg Mortgage Inc. said it has to sell assets or raise capital to stay in business. The news knocked off more than half of the market value of the company, which is structured as a real-estate-investment trust, and it dragged down shares of other mortgage lenders. It also raised fears that Thornburg would join hundreds of other nonbank home-mortgage lenders and brokers that have gone out of business over the past year. While most of the others were subprime lenders, Thornburg specializes in selling ‘jumbo’ mortgages…”

    March 5 – Bloomberg (Michael McDonald): “Auction-rate bond failures show no sign of abating after investors abandoned the market for variable-rate municipal securities. Almost 70% of the periodic auctions in the $330 billion market failed this week as investment banks stopped buying the securities investors didn’t want. Yields on the debt averaged 6.52% as of Feb. 28, up from 3.63% before demand evaporated in January… ‘Even if the auction-rate market survives, we’re not going to see the kind of rates we’re used to,’ said Roger Roux, chief financial officer at Rady Children’s Hospital in San Diego, which spent an additional $940,000 on its auction bonds since rates reset as high as 15% last month.”

    March 5 – Dow Jones (Michael Aneiro): “On Tuesday, a consortium of bankers gathered in New York to try to prevent an ailing Alabama municipality’s finances from disappearing down its own sewer system. Jefferson County, Ala. is in talks to refinance its sewer revenue debt, which include interest rate swap agreements it entered with four banks: Bank of America, Bear Stearns, JPMorgan Chase and Lehman Brothers. In the wake of recent credit market problems, the terms of those swaps agreements mean the county is on the hook for a $184 million collateral payment that must be made by March 7. Adding to the county’s woes, Moody’s…followed Standard & Poor’s and cut to junk status its underlying rating on Jefferson County’s $3.2 billion in outstanding sewer revenue bonds…. If the county is unable to negotiate a rescue plan this week, it could result in the largest-ever municipal default, roughly double the size of the infamous Orange County, California, debt default in 1994.”

    March 3 – Bloomberg (Pierre Paulden): “Distressed debt levels have risen to the highest since August 2003 as investor fears of increased defaults amid a slowing economy fuel a flight from high-yield, high-risk assets. At the end of February about $180 billion of junk bonds, or 24.8% of the market, traded at more than 1,000 basis points above U.S. Treasuries, compared with $8 billion a year earlier, JPMorgan Chase & Co. analysts…led by Peter Acciavatti said… The dollar value of bonds that traded at or below 70 cents on the dollar is up 93% since the start of the year to $70.2 billion. Twelve companies with high-risk loans have already defaulted this year…”

    March 5 – The Wall Street Journal Europe (Joellen Perry): “Fears that stalked European credit markets last year, pushing money market interest rates higher and prompting major central bank interventions, are back. Longer-term European money-market rates, elevated since the start of the year, are rising sharply. On Wednesday, rates at which euro-zone banks lend to each other for three months hit 4.398%, above the ECB’s 4% policy rate and their highest since Jan. 18… Longer-term rates are rising despite ECB policy makers’ ongoing efforts to maintain market calm in the three-month market.”

    March 4 – Bloomberg (Lukanyo Mnyanda): “The difference in yield between Italian 10-year bonds and benchmark German bunds increased to the most in almost a decade as slumping stock markets prompted investors to shun all but the safest government debt.”

    March 4 – Bloomberg (Lester Pimentel): “Emerging-market bond sales plunged 65% this year as mounting subprime mortgage losses dried up demand for higher-yielding debt. Developing-nation debt issuance totaled $15.5bn in the first two months of this year, David Spegel, head of emerging-markets strategy…at ING Bank NV, said…”

    March 3 – Bloomberg (Hamish Risk): “Derivative trading fell 21% to $539 trillion in the fourth quarter, the biggest drop in at least 14 years, as the freeze in money markets reduced the need to hedge risks, the Bank for International Settlements said. Interest-rate futures, contracts designed to speculate on or hedge against moves in borrowing rates, led the fall in exchange- traded contracts with a 25% decrease to $405 trillion during the three months ended Dec. 31…”
    Currency Watch:

    March 4 – Bloomberg (Sandrine Rastello and Meera Louis): “European finance ministers said they are ‘increasingly concerned’ the euro’s advance to a record against the dollar risks deepening the economic slowdown in the region… ECB President Jean-Claude Trichet, who initially declined to comment yesterday, turned back to reporters to say that the U.S. government’s ‘strong dollar’ policy is ‘very important.’ ‘In the present circumstances, I consider very important what has been affirmed and reaffirmed by the U.S. authorities, including the secretary of the Treasury and the president of the United States of America, according to whom a strong-dollar policy is in the interests of the United States,’ Trichet said.”

    The dollar index declined 0.9%, ending the week at 73.03. For the week on the upside, the Swiss franc gained 1.7%, the British pound 1.5%, the Taiwanese dollar 1.2%, the Euro 1.0%, the Danish krone 1.0%, and the Japanese yen 0.8%. On the downside, the South African rand declined 3.4%, the New Zealand dollar 1.6%, the Australian dollar 1.4%, the Mexican peso 1.2%, the Brazilian real 1.1%, and the South Korean won 1.0%.

  • STM

    “ECB President Jean-Claude Trichet, who initially declined to comment yesterday, turned back to reporters to say that the U.S. government’s ‘strong dollar’ policy is ‘very important.’ ‘In the present circumstances, I consider very important what has been affirmed and reaffirmed by the U.S. authorities, including the secretary of the Treasury and the president of the United States of America, according to whom a strong-dollar policy is in the interests of the United States,’ Trichet said.”

    That’s because the Europeans understand that the Euro being the world’s strongest currency works against them, especially when it comes to exports.

    No one in the US govt seems to have worked that out yet.

    An artificially strong dollar isn’t necessarily that good for the US, except where it might massage the egos of those in the US govt responsible for watching it slide in the first place.

  • STM

    So much gloom, so little time.

    Come on guys, we all know you’re not fair dinkum.

  • STM

    However, much of the hoo-ha, gnashing of teeth and wailing in the US in regard to the falling value of the US dollar does beg one serious question.

    Does anyone actually in charge in the US understand that America’s woes are largely down to the fall in exports and a declining manufacturing sector, brought about by the big corporations’ willingness to send manufacturing offshore. All so that shareholders can pull in a few extra bucks on the bottom line.

    What makes it unattractive for other countries to buy US-made (or grown, or produced) goods is the disparity between their currencies and the US dollar. It’s simply cheaper to buy stuff from elsewhere.

    What America was once good at – making stuff and selling it – is now being done, largely thanks to US corporations hoping to save money on wages, in China, India, South America … you name it, anywhere but America.

    Jobs have gone too – call centres (look at the big credit card operations like Amex) are now based overseas because wages are lower and it improves the bottom line.

    Most people living outside the US understand that any currency measured lower against the US dollar is good for their economies, especially if they are exporting.

    A high US dollar is an impediment to US manufacturing and exports. So the falling dollar could be a bonus provided the US is able to revive exports in the manufacturing and farm sectors.

    That’s how wealth is made, not by nervous, panicky lunatics in pin-striped suits shuffling bits of paper around on Wall St.

    But has anyone in Washington worked that out yet??

  • Persona

    very true STM…but “provided the US is able to revive exports in the manufacturing and farm sectors”…it can’t…not for a few years atleast…

  • AM

    The worst fears of consumers, investors and Washington officials were confirmed on Friday, as deepening paralysis on Wall Street collided with stark new evidence of falling employment and a likely recession.
    Sharp Drop in Jobs Adds to Grim Economic Picture

    Dangerous Cracks Appearing in Job Market

  • Mikew

    “Housing is in its “deepest, most rapid downswing since the Great Depression,” the chief economist for the National Association of Home Builders said Tuesday, and the downward momentum on housing prices appears to be accelerating.

    “Housing is in a major contraction mode and will be another major, heavy weight on the economy in the first quarter,” said David Seiders, the NAHB’s chief economist.” (“Rapid Deterioration”, MarketWatch)

    On Friday, banking giant USB estimated that credit woes would end up costing financial institutions $600 billion, three times more than their original estimate of $200 billion. But USB’s forecast does not take into account the $6 trillion of lost home equity if housing prices fall 30 per cent in the next two years. (which is very likely) Nor does it account for the potential losses in the structured finance market where $7.8 trillion of loans (which are presently in “pooled securities”) have gone into a deep-freeze. There’s no way of knowing how much capital will be drained from the system by the time all of this plays out, but if $7 trillion was lost in the dot.com bust, then it should greatly exceed that figure.

    The housing bubble was entirely avoidable. It was the policies of the Federal Reserve which made it inevitable. By fixing interest rates below the rate of inflation for almost 3 years, Greenspan ignited speculation in housing and created a false perception of prosperity. In truth, it was nothing more than asset-inflation through the expansion of debt. The Fed’s actions were complimented by repeal of regulatory legislation which prevented the commercial banks from dabbling in securities trading. Once the laws were changed, the banks were free to peddle their mortgage-backed securities to investors around the world. (A-rated mortgage-backed bonds are currently fetching just 13 per cent of their face value!) Now, those sketchy bonds are blowing up everywhere leaving large parts of the financial system dysfunctional.

    As investors continue to run away from anything remotely connected to mortgages; the price of risk, as measured by the spread on corporate bonds, has skyrocketed. In fact, investors are even shunning overextended GSEs like Fannie Mae and Freddie Mac. As the number of foreclosures continues to soar, the aversion to risk will intensify triggering a savage unwinding of leveraged bets in the hedge funds as well as a wider paralysis in the finacial markets.

    There’s absolutely no doubt now that the storm that is currently ripping through the financials will soon bring Wall Street to its knees.

  • Clavos

    AM:

    You should put quotation marks (or attribute) passages you lift verbatim from the media.

    “The worst fears of consumers, investors and Washington officials were confirmed on Friday, as deepening paralysis on Wall Street collided with stark new evidence of falling employment and a likely recession.”

    Those are not your words.

    You commenters who keep gleefully posting all this gloom and doom are merely trying to undermine the confidence of the American people.

    Unfortunately, since you don’t live here, you don’t see that we are not so easily demoralized by a few anonymous posts on a blog, especially when we’ve already read your comments in our newspapers.

  • Ruvy in Jerusalem

    Clavos,

    The point of all these postings is not to demoralize you; you’re very foolish to look at them that way. The point is to wake you up. Not you personally; you have been paying reasonably close attention to this thread, fighting a rearguard action against the bad news that continues to pile up about the American economy.

    You’ve indicated before that you don’t appear to care if the American economy crashes. And given that there are over 300 million Americans, I’m sure that there are about 300 million points of view on the situation you all find yourselves in.

    Stan has been attempting to make lemonade out of lemons (see comments #588 and #597, but all the sugar from Down Under is not going to sweeten the gall and ashes your country will have to taste in the near future. Bear in mind that in saying this, I’m not just talking about Americans I don’t know. Most of my family still resides there, and I fear that many of them, pensioners, will lose what money they have in the market, and when your government can no longer cough up Social Security checks (I’ll be shocked to see any money coming my way from the system) will find themselves in dire straits indeed.

  • AM

    couldn’t have put it better Ruvy;)

  • NR

    Serious concerns about a systemic financial crisis or a meltdown have been recently expressed by a number of very distinguished observers and analysts. Larry Summers recently warned that “we are facing the most serious combination of macroeconomic and financial stresses that the U.S. has faced in a generation–and possibly, much longer than that”; he then added the country has “never been in more need of serious economic thinking than we are now”; he warned that “the current estimates of mortgage losses are $400 billion…Those estimates are substantially optimistic.”; and then argued that “It’s a grave mistake to believe in the self-equilibrating properties of economies in the face of large shocks…Markets balance fear and greed. And when fear takes over, the capacity for self-stabilization is not one that can be relied upon.” ….conditions in financial markets have significantly worsened … stock markets are falling day after day; margin calls are hitting hedge funds and highly leveraged institutions; highly leveraged private equity firms are in serious trouble; more large mortgage lenders are going belly up; credit derivatives spreads for corporate bonds are widening even for high grade bonds; even the super safe agency debt spreads are now widening; the muni bonds, TOB and ARS markets are in a seizure; the liquidity crunch is back with a vengeance forcing the Fed to sharply increase the size of its liquidity operations; but since such widening spreads in interbank rates are now representing more credit premia rather than liquidity premia monetary injections are likely to become increasingly impotent in addressing such widening spreads. Market observers are now using terms such as the markets are becoming “utterly unhinged”, the financial system is “broken” and “everybody’s in de-levering mode” to describe the rising panic in financial markets. ….

    in the broader economy we are having stores with weak sales and sometimes even closures…Economic woes lead to retail retrenchment

  • PCR

    As of March 12 crude oil for April delivery hit $110 per barrel. The US dollar fell to a new low against the Euro. It now takes $1.55 to purchase one Euro.

    These new highs against the dollar are the ongoing story of the collapse of the US dollar as world reserve currency and corresponding collapse of American power.

    Here is the picture: The US economy, which has been kept alive by enormous debt expansion that has over-reached its limit, is falling into recession. The traditional way out by expanding the supply of money and credit is blocked by the impaired banking system, the levels of consumer debt, the collapsing value of the US dollar, and rising inflation.

    The Bush regime is attempting to bypass the stalled credit expansion by sending Americans $600 checks, money that will mainly be used to reduce existing credit card debt and not to fund new consumption.

    The US is dependent on foreigners not only for energy but also for manufactured goods and advanced technology products. The US is dependent on foreigners to finance our consumption of $800 billion annually more than the US produces. The US is dependent on foreigners to finance its red ink wars, and the US government’s budget deficit is now expanding as tax revenues decline with the declining economy.

    The bottom line: US power is enfeebled. US power depends on the willingness of foreigners to finance our wars and on the willingness of foreigners to continue to accumulate depreciating dollar assets.
    The US cannot close its trade deficit. Oil prices are rising, and offshore production of goods and services for US markets results in a dollar-for-dollar increase in imports, while reducing the supply of domestic goods available for export.

    The US cannot close its budget deficit while it is squandering vast sums on wars that serve no US purpose, handing out $150 billion in red ink rebates, and falling into recession.

    US living standards, which have been stagnant for years, will plummet once dollar decline forces China off the dollar peg.

  • Mike

    In his prepared statement, Bernanke announced that the Fed would add $200 billion to the financial system to shore up banks that have been battered by mortgage-related losses. The news was greeted with jubilation on Wall Street where traders sent stocks skyrocketing by 416 points, their biggest one-day gain in five years.

    Yesterday’s action by the Federal Reserve proves that the banking system is insolvent.

    The stock market was headed for a crash this week, but Bernanke managed to swerve off the road and avoid a head-on collision. But nothing has changed. Foreclosures are still soaring, the credit markets are still frozen, and capital is being destroyed at a faster pace than any time in history. The economic situation continues to deteriorate and even unrelated parts of the markets have now been infected with subprime contagion. The massive deleveraging of the banks and hedge funds is beginning to intensify and will continue to accelerate until a bottom is found. That’s a long way off and the road ahead is full of potholes.

    “In the United States, a new tipping point will translate into a collapse of the real economy, final socio-economic stage of the serial bursting of the housing and financial bubbles and of the pursuance of the US dollar fall. The collapse of US real economy means the virtual freeze of the American economic machinery: private and public bankruptcies in large numbers, companies and public services closing down massively.” (Statement from The Global Europe Anticipation Bulletin (GEAB)

    So far, the Fed’s actions have had only a marginal affect. The system is grinding to a standstill. The country’s two largest GSEs, Fannie Mae and Freddie Mac, which are presently carrying $4.5 trillion of loans on their books, are teetering towards bankruptcy. Both are gravely under-capitalized and (as a recent article in Barron’s shows) Fannies equity is mostly smoke and mirrors. No wonder investors are shunning their bonds. Additionally, the cost of corporate bond insurance is now higher than anytime in history, which makes funding for business expansion or new projects nearly impossible. The wheels have come of the cart. The debt markets are upside-down, consumer confidence is drooping and, as the Financial Times states, “A palpable sense of crisis pervades global trading floors.” It’s all pretty grim.

    The banks are facing a “systemic margin call” which is leaving them capital-depleted and unwilling to lend. Thus, the credit markets are shutting down and there’s a stampede for the exits by the big players. Bernanke’s chances of reversing the trend are nil. The cash-strapped banks are calling in loans from the hedge funds which is causing massive deleveraging. That, in turn, is triggering a disorderly unwind of trillions of dollars of credit default swaps and other leveraged bets. Its a disaster.

  • http://www.republicofdave.com Dave Nalle

    I see the official economic nonsense and propaganda thread is still alive and kicking. Let’s see what bogus statements I can debunk in the 10 minutes before lunch.

    Mike offers some rich fodder:

    Foreclosures are still soaring

    Except that they aren’t in places like Amarillo, Pittsburgh,, or New York or many, many other areas of the country. The truth is that foreclosures are declining nationwide except in specific problem areas which were overbuilt and have generally weak local economies.

    Oh and wait…the WSJ says that the Subprime Crisis is Over. What on earth will we do if the sky stops falling?

    More later, perhaps.

    Dave

  • Ruvy in Jerusalem

    Dave, my father-in-law is a supreme optimist, having always believed that over time, the market would rise. And for a good part of his life, he was right. In 1987, when lots of others panicked, he kept his head, and persuaded his daughter not to sell stock either. I benefited from his advice, even though I considered him terribly optimistic. And his nerve in playing the market made him lots of money. He did pretty damned well for a postal worker feeding six people.

    Well, dear old dad has had the optimism knocked out of him by events of late. Yesterday, he sent us two e-mails: the first dealt with the high price of gas, and admitted that i was wise to sell our house when we did (in 2001 to immigrate here), saying that since, housing prices have taken a steep dive. The second e-mail noted the large numbers of foreclosures he has been seeing in the Twin Cities area.

    My father-in-law was raised during the Depression. When he starts worrying, I know trouble is brewing.

  • Ruvy in Jerusalem

    Oh, yeah, and I know this really impresses you, but the New Israeli Shekel, which is less and less of a joke currency, is now work over 29¢, or NIS 3.433 to the dollar.

  • Mike

    For the vast majority of Americans this country is already in decline. We don’t need the Wall Street Journal to tell us otherwise. Besides that article to which Nalle has provided a link is full of qualified ifs ,buts and maybes… the author isn’t very sure himself… and more telling… most of his readers aren’t taken in by the nonsense… just look at some of the comments posted to that particular thread by David Gaffen The Subprime Crisis Is Over! (We Think)

    Now you’ve got to ask…who is we???

    [Edited]

    Stop fooling us with your bullshit Nalle

  • Sidhu

    Violent economic blowback indeed.Brings to mind a quote…”The roots of violence are wealth without work, pleasure without conscience, knowledge without character, commerce without morality, science without humanity, worship without sacrifice, and politics without principles.” Mahatma Gandhi.

  • socrates

    In my article The End of Dollar Hegemony, I had pointed out that US in her pursuit of imperial ambition dangerously exposed herself to financial instability. This was primarily on account of conducting wars abroad with borrowed capital through the issuance of Treasury Bills with low rates of interest.

    The decline of US could be gleaned by the fact that she seeks to dominate the world even though she is a debtor nation. Even Britain in her heydays as an Imperial Power was a net exporter of capital.

    In my article Blow back the same point was raised when i highlighted the dangers of Imperial overstretch.When a nation loses the ability to pay for its wars its days are numbered.

  • Ruvy in Jerusalem

    This article in Hebrew at Globes.co.il describes how the Bank of Israel, under the control of the American Stanley Fischer, is buying up dollars to drive its value back up to 3.60 shekels.

    Heh, when the dollar becomes garbage, Stan Fischer has us pick it up! So not only were Jews rag-sheenies in the Midwest United States, now they are the rag-sheenies of the financial world!

  • Ruvy in Jerusalem

    This English article in Globes is a lot less explanatory than the Hebrew one, merely indicating that the Bank of Israel is taking the rare action of intervening in currency trading buy selling shekels…. That is the reason originally linked to the Hebrew article in telling you this little tale of an American appointee (that’s really what Fischer is) at the Bank of Israel trying to stall the dollar’s decline (and look good with American retirees at the same time)….

  • Ruvy in Jerusalem

    This article by William Engdahl, talks about the misfortunes of the Carlyle Fund and other companies in the United States. My heart bleeds for the them, of course.

    Engdahl is the author of the book, A Century of War, which explains why the United States is on the skids. Unfortunately, his book rings true in its account of events over the last fifty years of the twentieth century, when I grew up and lived there.

  • Mike

    Ruvy that link to the troubles at Carlyle is very revealing….it only goes to show how rapidly events are unfolding….in January the Peloton fund was given an award …now the partners are selling their plush office in Soho…its a bloodbath…only problem is our know-all head in the sands editor can’t see it….he doesn’t like his news unless it meets the approbation from such “mainstream” sources as the Wall Street Journal…well..tell you what…. the journal has said that we are in deep shit in an article today..Recession Is Inevitable

  • Mike

    We need to pay more attention to people like Socrates.”..US in her pursuit of imperial ambition dangerously exposed herself to financial instability”….so much so that the dollar is losing its luster…can you ever have imagined a headline like this a year ago Dollar losing clout around the world when Nalle was claiming there was no sub-prime crisis….nay….sneering at the rest of us for even daring to hint at such a thing as a sub-prime crisis and a falling dollar…by the way that link is from MSNBC and not from some commie-left wing-nutter blog

  • Clavos

    You guys are freaking out over a normal stage in the business cycle. We have had several recessions during my lifetime. We’ve survived every one of them.

    As for the dollar value slipping: it should be devalued. For years, the dollar has been overvalued; now that it’s sinking relative to other currencies, american goods are once more competitive overseas, and american exports are skyrocketing.

    The only reason for the american dollar to be the world’s monetary standard is american hubris in wanting to keep it that way.

    And that’s a stupid reason.

    I notice that, while you’re all eager to whine about the deficiencies in the american economy, none of you has made even one suggestion as to how to correct those deficiencies.

    Why not?

    If the american economy is crashing, why aren’t you doing something about it? Why are you wasting time posting whiny comments on a blog?

  • troll

    *We’ve survived every one of them.*

    whose ‘we’ brownish white boy – ?

    then you say: *none of you has made even one suggestion as to how to correct those deficiencies.*

    yet Socs already said: *…US in her pursuit of imperial ambition dangerously exposed herself to financial instability. This was primarily on account of conducting wars abroad with borrowed capital…*

    isn’t there at least the kernel of a proposal here – ?

    …and I won’t even go into the possibility of replacing the capricious invisible hand with a kinder gentler market

  • troll

    (that would be ‘who’s’)

  • Clavos

    “whose ‘we’ brownish white boy – ?”

    The nation, of course, which has not only survived but continued to grow and prosper overall throughout my lifetime (a lotta years).

    “isn’t there at least the kernel of a proposal here – ?”

    Barely a kernel. Should we attempt to stay out of ALL wars? Is there not a possibility, nay a probability that some group or nation will decide to come after all the goodies we harbor? And, were that to happen, should we stick to our “no more war” plan and simply pack up all the goodies for them and hand them over?

    “…and I won’t even go into the possibility of replacing the capricious invisible hand with a kinder gentler market”

    A noble ideal. What non-capricious hand would you propose guide this “kinder, gentler market?” The no less capricious and also inept and corrupt hand of our government? Perhaps the hand of another nation’s government? Or that of the UN? NATO? Chavez? Castro? Canada? OZ?

    In any case, my admonishment above was valid, since your “kinder gentler” embryo of a suggestion is the first in th thread…

  • Ruvy in Jerusalem

    A friend of mine likes to stream in TV from the States, and visiting him a couple of days ago, I got to see Jay Leno’s Tonight Show. After having watched Johnny Carson for many years, I found the aging Leno disgusting in his humor – this was just a small taste of what America has degenerated to, Clavos. And yes, it bothered me that my friend would watch this trash. I didn’t stay. I went home.

    If the crap I saw on my friend’s streaming TV is the kind of crap that occupies the minds of Americans, I fail to see how they can rise to their former glory. Even a cheap dollar would not help a rotting people build on the rotting timbers of an abandoned industrial base. This is not said with contempt, it is said with sadness.

    Do remember, I grew up in Brooklyn, lived in Minnesota and when I saw American culture beginning to grab my sons, fled here. I didn’t come here out of idealism, or even necessarily out of desire, but the recognition that it was what I had to do to make sure that we would see Jewish grandchildren. And I have paid a price in doing so.

    But that doesn’t change the sad fact that America is on the way down and on the way out….

  • Clavos

    “But that doesn’t change the sad fact that America is on the way down and on the way out….”

    If, as you say, it IS on it’s way down and on it’s way out, because it is so degenerate as you describe, then how can that be sad?

    It can only be good that such a foul, noisome people and place are on the verge of extinction.

    And, if you’re wrong, then it will be around to foul the rest of the world (for its culture is, as you saw in your friend’s house, being exported all over the world on a daily basis) for generations to come.

    Something to look forward to…

  • http://drdreadful.blogspot.com Dr Dreadful

    If Ruvy is offended by Leno, then goodness only knows what he’d make of The Moment of Truth

  • http://www.republicofdave.com Dave Nalle

    Stop fooling us with your bullshit Nalle

    If it’s bullshit then it must be damned good bullshit to be fooling all of you paragons of truth.

    Last night before I went to bed I had this thread weighing on my mind trying to figure out the motivation behind people like Mike who are doing everything they can to create a sort of propaganda storm of unrelated tidbits of marginally meaningful data and then add it all together into some grand sign that the sky is falling.

    It occured to me that the most likely motivation is that they are laying the groundwork for the time next year when Hillary is in office and needs the pretext of an economic crisis in order to clamp down, nationalize industries and start restricting our rights and taking away our earnings at an accelerated rate. They are giving her convenient ‘emergency’ a back story to make her seizure of more absolute power more feasible.

    And if that’s not their intention, then they’re just fools playing into the hands of the forces of oppression and that may be worse.

    Dave

  • Bennett

    “They are giving her convenient ‘emergency’ a back story to make her seizure of more absolute power more feasible.”

    Not that the bar for this type of manipulation hasn’t been set pretty high by the current administration.

    So you’ve decided that Clinton will be the next Prez?

    Hmmm, a female dictator. I’m sure we can’t wait.

    After eight years of GWB’s heh heh laugh and missing oratory skills, I have to say that four years of Senator Clinton’s forced laughter will quite possibly send me to the asylum.

  • http://www.republicofdave.com Dave Nalle

    When she laughs I get visions of a hyaena, Bennett. When she cries I see crocodiles, of course.

    And MCH, my much vaunted ‘fortified compound’ is on top of a hill (for the tactical advantages, of course) so when the sky falls it will hit here first.

    Dave

  • Mike

    There’s no difference between McCain,Bush,Clinton and that Black Clinton…you’re barking up the wrong tree Nalle.

  • Mike

    #618 Clavos “You guys are freaking out over a normal stage in the business cycle. We have had several recessions during my lifetime. We’ve survived every one of them”…this is NOT a normal stage in a business cycle.The present crisis had its genesis in the last downturn when former fed Alan Greenspan lowered interest rates to stimulate the economy.Structured financial products like derivates which were practically non-existent in the 80’s exploded into a notional 516 trillion market…yes you read that right..out of which 17 trillion is tied to the present crisis…a lot of this explosion in paper money….and not real wealth….was due to financial derugulation whereby leverage could be increased many times ones capital reserve and liabilities could be taken off the balance sheet.Throw in fraud and greed,crony capitalism, coupled with no oversight by the powers that be and rating agencies isssuing AAA ratings to toxic waste and you have a recipe for disaster.This disaster has been 6 years in the making….that is one BIG bubble…i didn’t say that its the end of the world….just that the pain is going to last longer and deeper….no one like losing money….the Bush family has lost money in the Carlyle fund…but its a drop in the ocean to what the’ve made for themselves over the years….for the rest of us…amongst other things we are faced with the stark specter of unemployment….beleive me people are going to be laid off….good people..there’s a brilliant analysis/review by CR Sridhar on this phenomenonBook Review: Bait and Switch by Barbara Ehrenreich – White-Collar Blues

  • Mike

    We also have the problem of inflation.It doesn’t matter what newspaper you picked up. I doesn’t matter what TV show you watched. Records fell like no time in recent history.$1.55 on the Euro, $1.00 on the Yen, $1000 Gold, $110 oil…When the government releases economic statistics for prices and employment, a magic mirror is used to make numbers look much better than they really are…. Both the Democrats and Republicans use this smoky mirror when they control the Presidency, and neither party dares to glance into it in fear it may shatter from the reflection. Washington is a company town and a political machine that spends trillions of our tax dollars to mislead the public.

    The inflation numbers are very important to the economy…Bureau of Labor Statistics – with arm twisting and urging from the Federal Reserve – made two major changes to the price indexes…First, Hedonic (quality) adjustments were added. An adjustment for quality says that if my new computer runs faster and has more memory, I have a more valuable computer for the money, so the real price is only $1,000, even though I paid $2,000.

    Next, weights for the goods in the price indexes were changed. ..In the old index, if the price of beef went up, the price you paid for it went up. Now, if I loved filet mignon but stopped buying it because the price was too high – and I began buying chicken instead – the price of beef didn’t really go up because I “chickened out”. ….Without magic, prices actually rose considerably and for the same number of dollars spent, my standard of living went down.

    Why is it so important for the government to fudge and mangle the price indexes?… Well, many government payments like social security and other benefits are tied to inflation, and America is broke…. Fudging the price indexes to cut the level of reported inflation is a great way of directly sticking Grandma with a hidden tax increase.

    Moreover, economic statistics such as the Gross Domestic Product, (“GDP”) are reported by taking the inflated GDP numbers and adjusting them for inflation….. So, if the inflation numbers are understated by even two to three percent, GDP will be overstated by the same percentage. If, because of underreporting for inflation they can overstate economic growth by several percent, not a single politician or government employee – including the staff at the Federal Reserve – would complain…. Remember, Washington is a company town where the American people get to pay the salaries and benefits for all government employees!

    Indeed, with all this price fixing, the US government, Federal Reserve, and Wall Street stock touts thought that a recession was impossible….. In order to show negative GDP, the actual economy would have to be falling by more than three percent.

    This means that the recession is actually much worse than the government admits to

    The reports on employment and unemployment are also critical economic statistics. For employment, the Bureau of Labor Statistics (“BLS”) has two surveys…. The first is the Payroll Survey which queries businesses about how many people they employ. This survey has a special mirror called the BLS Birth/Death computer model…. In February 2008, the computer model added 135,000 jobs to the total before seasonal adjustment…. Without the computer model, February’s payroll employment would have fallen by 198,000 jobs, not the reported drop of 63,000!

    The second is the Household Survey. This survey is conducted by contacting people to inquire whether they are working, if they would like to be working, and when they last looked for work. (The Household Survey in February did show a sharp drop of 255,000 jobs.) The unemployment rate is calculated using the Household Survey data, but magical “smoke and mirror” tricks are used to keep the unemployment rate down when it’s reported to the public. An example would be last month, when the Household Survey dropped 644,000 people from the labor force. If these workers had remained in the work force, the unemployment rate would have jumped to 5.3 percent.

    If you dig a little deeper, the Household Survey also shows 1.6 million people marginally attached to the labor force….. In this case, the magical logic is “If you haven’t looked for work in the past four weeks, you’re not included as unemployed! In other words, these workers are not just marginal, they’re invisible!

    Next, the employment numbers are bulked up. In February, there were 4.9 million part-time workers who would prefer working full-time…. Again, the magical logic used is “if you worked an hour during the week, you’re fully employed!

    We are only half-way through this crisis.Imagine what will happen when more jobs are lost.

  • Clavos

    It’s still just another in a long line of recessions. Sure, lots of people will lose their jobs, but where is it written that everyone is guaranteed a job for life?

    Lots of people will also lose their houses in the subprime crisis, but just as many will pick those houses up for a song from whomever winds up with them and eventually turn around and sell them for a profit.

    Such distress purchases in wholesale lots are already going on here in Miami in the condo market, where speculators are buying 10, 15, even 20 unsold condos at a time from the developers, who, to avoid bankruptcy, are dumping them for whatever they can get.

    It’s not the end of the world. It’s not even the end of the US.

    And, even if it is, whining about it on a blog isn’t going to fix it, so what do you think you’re accomplishing?

  • Clavos

    “We are only half-way through this crisis.”

    Actually, it hasn’t been going on long enough for it to even be a recession officially yet.

    It’s just beginning; so if you’re so scared already, you should be suicidal by this time next year…

  • Mike

    Listen Nalle ,Clavos…THE PRESIDENT OF THE UNITED STATES thinks we are in trouble President Bush on Friday acknowledged more starkly than ever that the economy has slipped into trouble….Shortly after Mr. Bush spoke, Ben S. Bernanke, the Federal Reserve chairman, issued fresh warnings about the gathering wave of home foreclosures …do we need to listen to YOU??

  • Mike

    You don’t think its a recession???…heres Nalles favourite Wall Street Journal again…he loves the wsj doesn’t he?Most economists in survey think recession is here

  • troll

    Clavos – What non-capricious hand would you propose guide this “kinder, gentler market?” The no less capricious and also inept and corrupt hand of our government? Perhaps the hand of another nation’s government? Or that of the UN? NATO? Chavez? Castro? Canada? OZ?

    sadly – as history shows – easy materialist solutions such as government tyranny will not solve the problem…the adjustment needed is in attitude

    something along the lines of each of us realizing that he is his brother’s keeper and that if it works at all then it works for all…such an understanding makes it more difficult to fuck another over for a percentage

    (in fact I have more hope that the irrational demands of ‘religious’ belief will get us through to a more appropriate ethic rather than any government action…which is why I consider myself closer to Ruvy’s pov than say Dave’s so called rationalism)

    Should we attempt to stay out of ALL wars?

    yes

    Is there not a possibility, nay a probability that some group or nation will decide to come after all the goodies we harbor? And, were that to happen, should we stick to our “no more war” plan and simply pack up all the goodies for them and hand them over?

    we won’t need to as ‘they’ will already own our chit from today’s wars

    and finally – I’ve never met ‘the nation’ but I do know lots of Americans (and ferners) and these living breathing folk are my concern…climbing out of this economic trough over the backs of the poor is unacceptable

    capitalism is absurd

  • Clavos

    Mike,

    You misunderstand me. What I was saying is we are waaaay less than “halfway through” the recession, as you suggest in #630; it’s barely beginning.

    A year from now, you will know we are in a recession.

    Meanwhile, what do you propose to do about it, other than whine on a blog?

  • Clavos

    troll,

    Can’t argue with the morality of the brother’s keeper thing.

    The priests have been teaching it for 20 centuries; hasn’t caught on yet.

    I believe that humans (as a group; not necessarily any given individual) are inherently NOT good, which explains why no one has listened to the shamans for two thousand years.

    If I’m right, and history certainly points that way, then you’re going to need something with a lot more authenticity and attraction to it to accomplish what you say you want to accomplish.

    Otherwise, you’ll be left by the roadside as the majority continues moving on.

  • http://www.BuyingOne.com Christopher Rose

    Hi Clavos, just wanted to chime in that I completely disagree with your opinion that humans are inherently not good. That’s just pessimistic grumpy old man speak.

    There is a lot of good in the world and, as more people emerge from conditions of grinding poverty, there is more and more of it.

  • Clavos

    Chris,

    I would expect you to think that way; in fact, I’ll venture to say I may well be the only person on BC who believes the way I do.

    To think my way is to abandon all hope for mankind ever pulling itself out of the mire, and most people prefer hope to despair.

    As a realist (as opposed to idealist), I’m comfortable with the idea, however, and I think that if one looks at the totality of mankind’s history, one cannot avoid the reality that the scale is tipped decidedly on the side of evil up until now.

    And the beat goes on…incessantly.

  • http://www.BuyingOne.com Christopher Rose

    Clavos, I don’t see any basis for you to characterise your opinion as realism. As I said, you’re being pessimistic.

    Nor do I think my view is idealistic. Indeed, looking at the “totality of mankind’s history” rather tends to support my view that humanity is slowly evolving out of the dark ages.

  • Clavos

    Chris,

    The Dark Ages are so named because they were a period when learning and intellectualism almost died out altogether, not because they were a particularly cruel time in the history of humanity.

    You say I’m a pessimist, and perhaps I am, but my outlook is no less valid than yours, except in your mind, because you are an optimist.

    As for mankind’s slow progression toward the light:

    I would remind you that the twentieth century saw some of the worst genocides in history; Hitler, Pol Pot, assorted smaller massacres all over Africa, Darfur, etc.

    Mind you, I’m not saying we’re getting worse; only that we’re not getting better.

    Nor do I believe we ever will.

  • bliffle

    Clavos’ Hobbseian beliefs sound like ideological infections from the rich clients and associates. It can happen to anyone if they associate long enough with powerful people who repeat the Survival Of the Fittest idea that is often espoused.

    But Clavos is insufficiently curious so he doesn’t examine what really happens as people become more powerful, that they understand less and less of the purposes of the organization and more and more about mastering the means of increasing their own power witin the organization. And that they seek more and more reward for less and less personal risk.

    That’s why those organizations must fail eventually.

    Look at the government of George Bush. As he’s become better at reinforcing his own power the consequences of that power have become more expensive and less productive. The same can be said of Bear Stearns and even the Fed Reserve itself.

    But there are a great number of people who are in awe of Great Men and never cease making apologies for them.

  • Clavos

    Bliffle’s facile and far removed analysis of my thinking is very amusing.

    Having never met me he has arrived at insights to my psyche based on pixels on a screen.

    Amazing!

    I haven’t even mentioned “survival of the fittest,” nor am I talking about it. I addressed ONLY the real acts of evil that humans have inflicted and continue to inflict on each other.

    And I’m speaking of acts of evil performed by all manner of people, powerful and impotent, rich and poor, alike.

    Again, the history of humanity is replete with incidents that amply demonstrate man’s inherent inhumanity to man.

    bliffle writes:

    “But there are a great number of people who are in awe of Great Men and never cease making apologies for them.”

    I don’t know any “Great Men” bliffle. I DO know a number of wealthy men, most of whom are rather unprepossessing and unremarkable (many of the younger ones are computer nerds); my only real interest in them is separating them from some of their cash in exchange for a new toy…

    Save your psychobabble nonsense for someone you actually know and who needs it, bliffle.

  • http://www.buyingone.com Christopher Rose

    Being optimistic or pessimistic is pretty much a matter of choice, Clavos. I just find it more rational to pick the former.

    I think the evidence supports the idea that we are getting better. WWII wasn’t as bad as WWI in terms of brutality and slaughter, the USA and the USSR managed to avoid nuclear war, and there hasn’t been a major war for a long time now.

    As to the Dark Ages, they were indeed a period in which human culture and knowledge hardly developed at all. On the other hand, over 90% of everything we now know was learned or discovered in the last hundred years.

    In a sense, we are very much in the last days of the Dark Ages and, as our understanding and knowledge is increasing seemingly exponentially, the future holds great promise. I just hope I will live long enough to see enough of it.

  • Mike

    Clavos your favourite Prof Harvard University economist Martin Feldstein further sounded alarms yesterday, saying: “I believe the US economy is now in recession,” and that it could “become the worst recession we have seen in the postwar period.”

  • Mike

    Clavos you misunderstand me i didn’t say we were half-way through the recession,i said we are half way through the sub prime crisis.

    And since you’ve alraedy indicated elsewhere on this thread that you don’t care really care about what happens to the american economy…i don’t see why you should be so taken with my “whining”…..perhaps you should go back to doing what you do best…selling boats to those people who are unaffected by all this “whining”

  • Clavos

    “Being optimistic or pessimistic is pretty much a matter of choice, Clavos. I just find it more rational to pick the former.”

    Agreed. I find it more rational to be pessimistic.

    I agree with you that much of what we now know came within the last 150 (no longer just 100 if one goes back to the dawn of the industrial age) years. In fact, my favorite anecdote to illustrate that point is my maternal grandmother, who died a a year or two after the moonwalk, but who courted my grandfather in a horse and buggy.

    “I think the evidence supports the idea that we are getting better. WWII wasn’t as bad as WWI in terms of brutality and slaughter…”

    Yes, advances in war defensive technology helped hold them down in WWII, but more advanced knowledge didn’t prevent the war in the first place; and in fact that war was sparked by one of the more egregious examples of the evil of humanity in history, so I don’t think it represents advancement in that area, except advancement toward more evil.

    “…the USA and the USSR managed to avoid nuclear war, and there hasn’t been a major war for a long time now.”

    Both accomplished by dint of pushing the fight off onto surrogates, which practice IMO, is more evil than fighting your own battles, even if it involves fewer casualties.

    Greater learning, in fact, seems to have broadened the opportunities for inhumanity (nuclear weapons, e.g.), even as low tech evil thrives: spousal abuse, gangbangers killing each other wholesale for sneakers, teenagers beating the homeless for amusement, beating gays, selling subprime mortgages to the unsophisticated and unwary, the entire narcotrafficking world, etc., etc.

    And,

    In a sense, we are very much in the last days of the Dark Ages and, as our understanding and knowledge is increasing seemingly exponentially, the future holds great promise. I just hope I will live long enough to see enough of it.” (emphasis added)

    I don’t think even your grandchildren will.

  • Clavos

    i said we are half way through the sub prime crisis.”

    Not even that.

    “Clavos your favourite Prof Harvard University economist Martin Feldstein…”

    Mike, you’ve confused me with someone else. I don’t even know who Martin Feldstein is. However, what you quote him as saying sounds entirely reasonable and possible to me.

    So what? Is there something you or I can do about it? If so, what?

    BTW, interesting spelling of “favorite,” there, Mike. Is it possible you’re not an American?

    “i don’t see why you should be so taken with my “whining”

    Um, Oh I dunno…

    …Because whining isn’t constructive; it doesn’t accomplish anything toward improving the situation??

  • http://www.republicofdave.com Dave Nalle

    I think I’ve figured Mike out. He’s writing on the assumption that his readers are enumerate and will be scared by any number he posts if it looks large, even though if they actually understand the context they’d realize it’s just meaningless scaremongering.

    Case in point:

    when the Household Survey dropped 644,000 people from the labor force. If these workers had remained in the work force, the unemployment rate would have jumped to 5.3 percent.

    That would be the gigantic jump of .2% or 1 in 500. To an end total which is historically just below average unemployment. Still low, just not extremely low.

    If you dig a little deeper, the Household Survey also shows 1.6 million people marginally attached to the labor force

    That would be slightly under 1% of the total labor force, roughly equivalent to the people who take on a second job for Christmas or work in trades where they work on a project by project basis, and a number which has fluctuated around the same level histoically for ages.

    See, 1.6 million and 655,000 sound like scary big numbers, but in the context of the enormous labor pool they’re actually quite small.

    You can easily do the same thing with the massive deficit and debt. If you want to scare people you go on and on about 9.4 trillion dollars of debt or $300 billion in deficit. You don’t mention that as a percentage of GDP that debt is less than under Truman, Eisenhower, Kennedy, Reagan, Bush I and Clinton and they all had higher deficits as a percentage of GDP during their administrations as well. In fact, the only period when debt and deficits weren’t higher after adjusting for inflation and comparing with GDP was the late 1960s and 1970s when the economy was in terrible shap, much worse overall than anything we’re experiencing now. And you certainly mustn’t mention that the deficit has been declining because of careful budget management and we’re expected to break even and move into surpluses within 5 years if we stay on this same course.

    On that topic an interesting side issue occurred to me. One side benefit of devaluing the dollar is that all that debt we’ve built up is suddenly actually worth much less than it once was. With the dollar devalued as it has under Bush, that $9.4 billion is really more like $5 billion if it’s paid back in current dollars. What a scam!

    And BTW, I’m a pessimist too. I just think it makes more sense to worry about the real threats rather than trying to fearmonger about aspects of the economy which are cyclical and hardly out of control. A bunch of real estate trading hands with one group of people losing money and another picking up bargains and making money is hardly a disaster in the long run.

    Dave

  • Les Slater

    From today’s WSJ:

    “The Federal Reserve’s decision to invoke a Depression-era law so that it could lend to Bear Stearns shows how seriously it believes the financial system is at risk.”

  • Mike

    “I don’t even know who Martin Feldstein is”…see comment #219…you quoted him as an authority…talk about selective amnesia.

  • Mike

    “1.6 million and 655,000 sound like scary big numbers”….they are.Les …you and I are just conducting a conversation with the deaf here..

  • Ruvy in Jerusalem

    Chris,

    You wrote I think the evidence supports the idea that we are getting better. WWII wasn’t as bad as WWI in terms of brutality and slaughter, the USA and the USSR managed to avoid nuclear war, and there hasn’t been a major war for a long time now.

    What have you been smoking? And can you send some over here? I could use delusions like these to get me out of the dumps when I have to deal with the news around here.

    WWII was not was bad as WWI in terms of brutality – it was a whole lot worse!! At least eleven millions were killed in concentration camps under German control, several million civilians died in bombings, like of London and Germany, several more million civilians died during the German invasion of Russia – then there were the atom bombs dropped on Japan. We haven’t even gotten to the soldiers who died! And then there is the simple fact that each and every single death, military or civilian, affected at least fifty people….

    Talk about progress!

    The Armenian holocaust of WWI laid the groundwork for the German holocaust of WWII, which laid the groundwork for the murderous events in China during the 1950’s and 1960’s, which laid the groundwork for the holocaust in Cambodia in the 1970’s, which then laid the groundwork for war and holocausts in Sudan, Ethiopia and central Africa. It gets sickening to continue.

    And while there hasn’t been a major war since WWII – I fear to think what such a war would be like – have you ever heard of nickel and diming? If you haven’t, get some of those red-blooded Americans on the list to explain the term. There have been the wars here, the partition of India and the subsequent wars between Pakistan and India, the war between Iran and Iraq, Korea, Vietnam – not major wars, mind you, just nickels and dimes in the bucket. And then for the penny-ante stuff, you have had Northern Ireland….

  • Ruvy in Jerusalem

    Clavos,

    Reading your more recent comments here, I realize that you are just as pessimistic as I am – except that you think the whining is all premature! While I do understand, do try to understand that lots of folks remember the Great Depression, and fear a repeat. A lot of folks have already had a lick of hell and don’t want second helpings. They see History coming to get them and they don’t like it….

  • bliffle

    Gee, devaluing the dollar sounds like such a good idea maybe we should reduce it all the way to zero! Then we’d all be rich!

    Why didn’t anyone before Bush think of that?

  • http://www.republicofdave.com Dave Nalle

    Les …you and I are just conducting a conversation with the deaf here..

    No, you’re conducting a conversation based on different principles which some of the readers just don’t agree on.

    You’re approaching the issue from a perspective where you start from the assumption that the system is doomed to failure and you then look for signs of that failure. Some readers come from the perspective of looking for what the economy is doing and drawing conclusions from that.

    I come at it from the perspective of someone trained as a historian and in fact an economic historian. I look for what in the current economy is truly and significantly different from or similar to other historical trends or events. I put the current situation in historical context. In that context it’s very clear that while there are certainly problems today, the situation is nowhere near as desperate as it was in the crisis periods of the 70s and 80s. We’re spoiled by the relative stability of the 1990s where the worst crisis was the paltry tech bust.

    Dave

  • bliffle

    I guess that the dems will ask Nalle to rationalize billions of debt when they bring in UHC. I’m sure he’s already enthusiastic about doing it.

  • Ruvy in Jerusalem

    I come at it from the perspective of someone trained as a historian and in fact an economic historian.

    Funny, how the trained historians are so often the last to see history happening in front of their eyes….

  • http://www.republicofdave.com Dave Nalle

    Gee, devaluing the dollar sounds like such a good idea maybe we should reduce it all the way to zero! Then we’d all be rich!

    Why didn’t anyone before Bush think of that?

    It’s an old idea, Bliffle. When the Greenback movement first gained popularity one of their promises was to reduce the real value of the dollar to 50% of the face value so that the wealthy would be half as wealthy and it would do no harm to those who had nothing.

    FDR effectively implemented this plan when he took us off the gold standard.

    Dave

  • Clavos

    By golly, Mike you’re right!

    I did quote ol’ Prof. What’s-his-name in #219.

    The thing is, what I was quoting was the particular passage he wrote, because it supported my point of the moment, not really him, though I did of course credit him.

    And, he’s certainly NOT my “beloved professor;” I never even sat in on, much less took, one of his classes at Harvard.

  • Mike

    I don’t think i suggested anywhere that you took classes with the Harvard professor,its just that you seem to pick and choose authorities and discard them at your convenience.see what you said Clavos…#235″I KNOW Feldstein’s a right winger!! That’s why I linked to him!!”…note the emphasis on KNOW…now you say..”I did quote ol’ Prof. What’s-his-name ”

    “What’s-his-name”…really Clavos!…you quote an authority,even KNOW his leanings but can’t …..conveniently…remember his name when the same authority says we are in a recession…….you say “I was quoting was the particular passage he wrote, because it supported my point of the moment”….why don’t you quote the SAME authority with the SAME vehemence and SAME degree of conviction now that he’s taken a stand in direct contravention to the one you and Nalle are taking??…..c’mon you guys KNOW such a lot… tell us some more ….its going to be fun watching you guys put your foot in the mouth

  • Clavos

    Mike, I believe my most recent comments have acknowledged that we are probably headed into a recession, have they not?

    Have I not also mentioned that recessions occur periodically in our economy?

    What more do you want from me?

    I’m not going to start worrying about it; there’s nothing I (or any other ordinary citizen) can do to prevent it, so there’s no point in worrying.

    And I’m certainly not going to start whining about it.

    I might start investing in China, though.

    Just in case…

    Got any good tips?

  • Mike

    Here’s a link to “ol’ Prof. What’s-his-name”…a summing up of what he’s been saying lately…the comment at the end of that article is quite revealing…it says”Comment: Given who Feldstein is and what a free-market cheerleader he has always been, this statement is a signal of what is being planned for the near future.”

    U.S. faces severe recession: NBER’s Martin Feldstein

  • Clavos

    OK. Since you asked, I’ll broaden it…

  • http://www.republicofdave.com Dave Nalle

    Perhaps we need to redefine the term ‘recession’. Even Mike should be able to admit that our current situation doesn’t fit the traditional criteria for a recession since we haven’t had two consecutive quarters of negative growth. So perhaps we need a different term for what we’re currently experiencing. It’s not quite stagflation either unless the rate of inflation continues to accelerate. How about calling it a ‘slump’ or a ‘downturn’. Those sound good.

    Dave

  • Ruvy in Jerusalem

    Got any good tips?

    I’ll give yawl the same tip I’ve been giving you for a while now. Buy gold coins, a troy scale, and sit on both against the time that the dollar finally collapses.

    Just to correct the economic historian on the list.

    Roosevelt’s action raising the price of the ounce of gold against the dollar and pulling gold coins out of circulation was referred to as “going off the gold standard”.

    In reality, the United States remained on the gold standard, redeeming dollars for gold, until the French nearly cleaned out Fort Knox over thirty years ago by redeeming euro-dollars and Nixon finally de-linked the dollar from the price of gold.

    I’ve been a gold bug ever since, sensing that no currency system can last for too long without something solid – like gold or silver – to refer to as a final standard.

    It appears that I’m being proven right.

    And America is being nailed to a cross of gold, dipped in oil….

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    I’ll add a couple more points, speaking both as a historian/political scientist, and as a coin collector.

    A “coin” is a piece of metal with intrinsic value closely matching the value stamped on the metal – to wit:

    a silver half dollar, half dime, dime, quarter, franc, reichsmark, shilling, etc.;

    a “token” is a piece of metal that does not have the intrinsic value stamped on it – to wit:

    the aluminum francs of the Third and Fourth Republics, the cupro-nickel coinage of the Federal Republic of Germany, the French Fifth Republic, Switzerland, United Kingdom, United States, etc., etc.

    The first “token” that I’m aware of was the cupro-nickel five cent piece minted in the late 19th century in the United States. This was followed in short order by the cupro-nickel coinage of imperial Germany, specifically the 20 pfennig coin, and other small change in Eastern Europe. Tokens became common in Europe as the currencies of the continent lost real value after WWI and silver coins were either hoarded or withdrawn from circulation. The United States stopped using coins altogether in the mid-1960’s with the introduction of the cupro-nickel dime, quarter, half dollar and dollar tokens.

    The point of the comment? Tokens were introduced in the early Twentieth Century as a response to inflation. But when common currency and coinage loses its intrinsic value as a matter of policy, real devaluation over time is sure to follow, as the principle of “intrinsic” value in money is violated.

    This was not understood during the middle years of the last century, when bankers looked for a way to free themselves of dependence on gold.

    Only now is this becoming obvious.

  • troll

    …I’m not sure why our rationalists/realists cling so desperately to their definition of recession – here’s how the NBER puts it (apologies for the lengthy quote):

    “A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion.”

    and:

    “Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER’s recession dating procedure?

    A:: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. According to current data for 2001, the present recession falls into the general pattern, with three consecutive quarters of decline. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, “a significant decline in economic activity.” Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.

    Q:Could you give an example illustrating this point?

    A:On July 31, 2002, the Bureau of Economic Analysis released revised figures for gross domestic product that showed three quarters of negative growth in 2001-quarters 1, 2 and 3-where previously the data had shown only quarter 3 as negative. This revision shows why the committee does not rely on a simple rule of thumb such as two consecutive quarters of negative growth, nor relies on GDP data alone, in making its determinations, but rather looks at a broader array of statistics. In November 2001, the committee determined the date of the peak in activity in March 2001 using its normal indicators. The two-quarter-decline rule of thumb would not have allowed the declaration of the recession until August 2002, let alone a declaration that it had begun early in 2001, as in the statement that the committee made in November 2001. It was not until eight months later that revisions in the GDP data showed declining real GDP for the first, second, and third quarters of 2001.

    Q: Isn’t a recession a period of diminished economic activity?

    A: It’s more accurate to say that a recession-the way we use the word-is a period of diminishing activity rather than diminished activity. We identify a month when the economy reached a peak of activity and a later month when the economy reached a trough. The time in between is a recession, a period when the economy is contracting. The following period is an expansion. Economic activity is below normal or diminished for some part of the recession and for some part of the following expansion as well. Some call the period of diminished activity a slump.”

    (I haven’t read all of the comments and don’t know that this hasn’t been pointed to before)

  • troll

    Clavos asks what one can do about the recession…Ruvy says buy gold

    my suggestion – learn a skill that owners find indispensable

  • troll

    (…the more arcane and difficult the better)

  • Mike

    i think troll gave us your answer Nalle.

  • Clavos

    “my suggestion – learn a skill that owners find indispensable”

    Agreed. One such is selling them their toys, which I’ve been doing for years.

    The “owners” as you call them, are not affected by the economic ups and downs; at most, they represent a slight “bump in the road” to them.

    Sales of boats valued at <$500K started slumping a year ago. Those above that level, and especially $1M and above are actually accelerating, particularly with European buyers. The deal I’m working on now involves a Russian buyer, Hungarian seller, and the boat is located in Croatia.

  • Mike

    Bear Sterns has had to be bailed out by the Fed.

    What are the consequences of a world in which regulators rescue even the financial institutions whose recklessness and greed helped create the titanic credit mess we are in? Will the consequences be an even weaker currency, rampant inflation, a continuation of the slow bleed that we have witnessed at banks and brokerage firms for the past year?

    The Fed is still trying to convince markets that the financial system is merely experiencing “liquidity” problems. But if liquidity were the only issue, all the pumping the Fed and other central banks have been doing already should have cleared up this problem.

    The problem isn’t one of liquidity. It’s one of solvency: loans banks made (especially through the derivatives market) are worth less now than when they made the loans. Because they made way (100 ways) too many of them, banks in general have no capital left. You can’t make loans if you don’t have capital.

    So the Fed has to give the banks capital. This latest scheme is extremely troubling, especially for the already-battered dollar. The Fed is taking on “AAA mortgages” from the banks in exchange for Treasury Bills to give banks the capital. Of course we don’t know the price they are taking on these mortgages at and that is the crux of the matter. Everything is price.

    So now the Fed has mortgages on its balance sheet instead of T-bills. Why is this so troubling? It is a slippery slope to more currency debasement.

    Let’s say the mortgages continue to deteriorate in price (which is highly likely given the nature of our rating system to make them AAA) and then the banks are in no shape to take them back. If the Fed is stuck with declining assets it too will have a capital problem. But if the Fed loses capital it won’t go bankrupt like a regular company: It will just print the money to make up the difference. Literally.

    If the Fed loses $50 billion, it can physically print (tell the Treasury to print) the currency to make up this difference. If there currently is $700 billion of physical currency in circulation, printing $50 billion new money would immediately devalue the dollar by 7%.

    If the Fed takes on riskier and riskier loans, it becomes more and more negative for the dollar. A collapse in the dollar is a de-facto bankruptcy by the Federal Reserve and the U.S. in general.

    This is what Wall Street and finally our economy is looking at

  • Clavos

    OK, Mike.

    Your multitude of links to other people’s writings have proved beyond a shadow of a doubt that the US economy is moribund, and will likely result in a crash even worse than 1929’s.

    So what do you propose be done about it?

    Do you have a solution?

    I’m still waiting to hear.

  • http://www.republicofdave.com Dave Nalle

    Just to correct the economic historian on the list.

    Roosevelt’s action raising the price of the ounce of gold against the dollar and pulling gold coins out of circulation was referred to as “going off the gold standard”.

    In reality, the United States remained on the gold standard, redeeming dollars for gold, until the French nearly cleaned out Fort Knox over thirty years ago by redeeming euro-dollars and Nixon finally de-linked the dollar from the price of gold.

    You need to read more closely, Ruvy. What Roosevelt did was to take the US off the gold standard while keeping the gold reserve. The key element of that being that he printed more paper money than could be backed by the gold reserve – about twice as much, and later presidents followed suit. The net result was a radical devaluation of the dollar.

    Dave

  • http://www.republicofdave.com Dave Nalle

    I’m actually with troll here. I think the NBER’s definition is far more comprehensive and meaningful than the more common definition. I think that a broader definition of recession does make some sense.

    But what’s also built into the NBER definition is an awareness that recessions are part of the natural economic cycle, that essentiallly as soon as you pass a peak a recession starts and then lasts until you hit a trough and head up to the next peak.

    Under that definition you can have very brief micro-recessions or larger more intense recessions.

    But looking at the historical record, most of our recessions seem to last for 18 months or less. The worst recession since the depression was the post-Clinton recession in gross numbers. The Ford-Carter recession was the worst as a percentage of GDP. Compared to both of those the current recession is much less intense. It looks like it’s about half-way through and is going to be about 2/3 as bad as the Clinton recession and half as bad as the Ford-Carter recession, based on the rate of decline and depth of decline over time.

    Best guess is that it will start to turn around in the next 6 months and we’ll be out of recession sometime in 2009. A very nice break for the next president who will get credit for economic developments he has no actual role in, just as Bush got blamed for the Clinton recession.

    Dave

  • Mike

    At this stage Clavos we don’t know if it will be as bad as 1929.It will be bad if the Fed tries to transfer the losses onto the tax payer through the back door as it is doing now.The most pessimisitic of the economists Nouriel Roubini feels we are in for a hard landing and a long and protracted deep recession.He’s mentioned that the previous dot com bubble resulted in a recession that lasted only two quarters.This bubble has had 6 years to build and burst and hence we are looking at atleast…he mentions that….atleast… 8 quarters….which is 2 years.

    Its not an Armageddon situation.But there is no denying there will be pain …lots of it.

    The falling dollar presents the problem of oil exporting countries with their currencies pegged to the dollar of importing inflation into their economies.Faced with this there is a very real chance that they could come off the dollr peg.This would mark a techtonic shift in world power as it would essentially signal the end of dollar hegemony and by extension US world power.All because of a credit crunch.

  • bliffle

    Mike is the only one on BC who is looking at the facts that are important.

    We have $500trillion in extrinsic paper assets riding on $45triliion of intrinsic real assets in the USA. That’s a 9% margin rate, similar to what we had just before the 1929 collapse, the ensuing years of poverty, 25% employment, breadlines, and an economy that was only rescued by FDRs regimentation of manufacturing for war purposes. Even with that it took 20 years just to get started out of the Depression caused by irresponsible financial manipulations. Think we can do any better next time? We aren’t even trying to do things right.

  • Clavos

    “Mike is the only one on BC who is looking at the facts that are important.”

    But still…no solution.

    The long litany of horrors he IS posting serve no purpose other than to frighten people powerless to do anything about the situation.

    And I still contend that is precisely his and other doom-and-gloom posters real intent.

    Economic crises are as much about confidence (and the loss thereof) as they are about the actual numbers.

    As to the possible loss of dollar hegemony and consequent loss of US world power; that can be seen as a GOOD outcome. We are not a people comfortable with hegemony, as the last 50 years of our history has shown. We don’t handle leadership well; most of the rest of the world is pissed off at us, they see us as mishandling the world’s problems, so we are better off relinquishing that role.

    Being the world’s economic and political leader has been costly for us; if we no longer have that power we are relieved of the responsibility of spending our resources on the rest of the world and can then concentrate them here at home.

    For those who are anti immigration: no longer being the world’s economic leader will eliminate our attractiveness to the world’s disadvantaged and they will probably stop coming.

    I vote for Australia to be the next world leader; let them take it on, they have more balls than we do; they’re better suited for the role.

  • http://www.republicofdave.com Dave Nalle

    At this stage Clavos we don’t know if it will be as bad as 1929.

    But we can still root for a second depression, right Mike?

    Dave

  • Mike

    about 1% of the population of the US controls 80% of all the stock and money on the market.They are the real movers and shakers.They are NOT getting their news from Mike on Blogcritics….or from Nalle or you Clavos…they KNOW the actual situation on the ground and its not very nice…so when you say”he IS posting serve no purpose other than to frighten people powerless to do anything about the situation”…you are rather overestimating the power and influence of this rag.

  • Clavos

    By your own numbers, Mike, virtually everyone who reads this “rag,” as you call it, is powerless to do anything about that which you are propagandizing.

    And, if BC is such a powerless and non-influential “rag,” why do you deign to favor us with your nihilistic propaganda?

    Why are you wasting your time and effort (and BC’s bandwidth)?

  • Mike

    a lot of the readers don’t think its propaganda..I kind of like getting under the skin of guys like you..thats all;)

  • http://www.republicofdave.com Dave Nalle

    about 1% of the population of the US controls 80% of all the stock and money on the market.

    I’d say this says all there is to say about Mike’s ability to actually analyze anything or even get basic facts straight.

    Which top 1% are you talking about? The top 1% in income? They earn only about 20% of the total income in the nation. Or perhaps you mean the top 1% in total assets? They control about 34.4% of the nation’s assets. Less if you count in home ownership.

    So you just pulled that 80% figure out of your ass, right?

    And BTW, despite the highly publicized growth in the gap between rich and poor – which has been growing slightly for the last 5 years or so – historically the wealthy control substantially LESS of the nation’s assets than they did in the past.

    Dave

  • troll

    ‘root for a second depression’…’nihilistic propaganda’ – ?

    what are you talking about

  • Mike

    …and you pulled that” dollar rebound” and ” no recession” from your ass right Nalle?

  • troll

    …despite the highly publicized growth in the gap between rich and poor – which has been growing slightly for the last 5 years or so – historically the wealthy control substantially LESS of the nation’s assets than they did in the past.

    since we’re in a battle of un-sourced fact here’s some historical perspective:

    the gap has been growing steadily since WWII and is presently greater than at any time since pre WWI

  • bliffle

    “But still…no solution.”

    there’s no one solution. But if you really thought about it you would see that there are several solutions that every one of us must undertake and teach our children:

    -abandon failed experiments. Like the Iraq invasion.

    -don’t rationalize the irrational. Stop trying to prop up failed policies.

    –don’t be lazy. Stop acceppting simplemeinded notions like communism and ‘free markets’. Both are demonstrated failures. You have to work harder, think harder, and be more honest.

    -don’t put idiots in positions of power that demand good judgement. Just look at the messes naifs like Bush have caused.

    -don’t be distracted by trivia. Look at all the people fooled into voting for bogus candidates over trivial issues, like gay marriage, birth control, etc.

  • Les Slater

    A solution? How about nationalizing the banks?

  • Clavos

    “A solution? How about nationalizing the banks?”

    Yeah, that’s always a good one. Let the most inept and corrupt organization in the country run them.

    Sigh.

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    Les, if you want to nationalize the banks, you gotta wait until AFTER the revolution – then you can hoist the workers flag and sing, “Workers of the world, unite! All we have to lose is our chains!”

    Until the revolution, when we all will HAVE to like peaches and cream, you don’t want the banks in the hands of the government….

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    In the meantime, Les, see if you can write a hip-hop version of The Internationale. With the money you make, buy gold coins and a troy scale…..

  • Les Slater

    Clavos and Ruvy,

    I was hoping someone would respond. I do think nationalizing the banks would be a good thing but that’s not what I was talking about. The reality is this is what is now beginning to happen. Bear Stearns has been NATIONALIZED. It happened between yesterday and this morning.

    Les

  • bliffle

    Funny, I thought the most inept and corrupt were already running the banks.

    They’re too inept to do a good job, and so corrupt that they have to bribe the government to bail them out.

  • Clavos

    “Funny, I thought the most inept and corrupt were already running the banks”

    No, the government is only just now stepping in.

    Now we get to see how the people who handled the response to Katrina and the wars in Iraq and Vietnam screw it up.

    We ain’t seen nuthin’ yet…

  • http://www.republicofdave.com Dave Nalle

    A solution? How about nationalizing the banks?

    Ooh, there’s an idea. And let’s take away all private income and savings too! Then we can seize all private property and put it on a long-term lease from the government. And let’s make sure everyone dresses the same and lives in apartments of identical square footage too!

    Sounds great.

    Dave

  • Les Slater

    Dave,

    I was talking about something already happening, right here in capitalist America.

    Les

  • troll

    …let’s start a pool: the bet is on how many billions (trillions) in puplic money will go into de-leveraging over the next couple of years

  • Mike

    Les is right…a quasi nationalisation of Bear Sterns has already taken place.Bear has been bailed out using tax payers money.

  • Mike

    A history lesson

    In August 1979, Paul Volker was appointed as Chairman of the Federal Reserve by Jimmy Carter… He faced double-digit inflation and a country struggling through a decade-long malaise…. Showing unusual political courage, Volker took bold action to limit the money supply, jack up interest rates, and promptly threw the country into a recession. …He faced the strongest protests and political attacks against the Fed since the early 1920’s…. Volker’s stern medicine brought inflation down from nearly 14% in 1981 to 3% by 1983…. The recession also contributed to some of the highest unemployment rates since the Depression.

    The point of this history lesson is that it took strength and courage to not pander to politicians, Wall Street, and every special interest group damaged by higher interest rates…. The fact that Volker could take this action says even more about the 1970’s than individual courage…. The country had suffered for most of the decade from growing inflation and the aftermath of the Vietnam War. …It was ready for change, even if the medicine was painful.

    The contrast today could not be more stark. The Federal Reserve, under intense political pressure, has chosen to bail out the banking system, and hopefully, the economy, while worrying about inflation and the imploding dollar in future years…. The fact that the US has not had a serious recession in over 25 years is not necessarily wonderful news. There has been very little market rebalancing and creative destruction from poor economic decisions….. The decades of bubbles, excesses and misallocation of resources created by the Fed’s unlimited fiat money printing have led us to this spot between a giant rock and a very hard place.

  • Mike

    Northern Rock In England has already been nationalised.India has a long list of nationalised banks doing pretty well.The requirement of the day is better laws and better regulation….but then the “free-marketers” don’t want that …the name of the game is ….as is happening right now privatisation of profit during the good times and socialisation of losses during the bad.

  • Les Slater

    Mike,

    Bear hasn’t just been bailed out; it’s been nationalized. This is something new.

    Bear was desperately seeking a buyer, even at a fire sale price, but could not find one. Morgan considered it but would not do it without help from the Fed. The Fed fronted the capital for JP to buy Bear but Bear belonged to Chase in name only. Part of the deal is that the Fed maintains rights to exercise control over all major decisions regarding Bear’s portfolio. Hence Chase only owns the shell; the Fed owns the assets. It’s been NATIONALIZED.

    Les

  • Mike

    More than what we ought to do …heres someone who feels strongly about what we ought NOT to do..The Financial Tsunami Part IV:
    Asset Securitization – The Last Tango

    and troll…about how many trillions would go into deleveraging….for that we’d have to put a tentative cost to the whole subprime mess….and since the Fed has very clearly given signals that it intends to bail out the big boys the tax payers will end up footing the bill…so how much is the cost?…between 1 and 2.7 trillion or between 7 to 19% of GDP! says Nouriel Roubini…The Staggering Fiscal Costs of Bailing Out a Financial System in Crisis ….REGISTER TO READ THE WHOLE ARTICLE…ITS FREE

  • Mike

    Les thanks for those comments…i mentioned quasi nationalisation simply because its a state subsidised rescue too

  • bliffle

    I believe that Bear Sterns is not really nationalized, rather, that the buyout by Morgan is coppered by the Fed. The result is that the USA taxpayer stands to lose whatever the Bear/Morgan combine loses, but to gain nothing. that’s a terrible deal. Would you do it?

    It fits in with the modern Big Business motto: “Privatize the profit and socialize the risk”.

  • http://www.republicofdave.com Dave Nalle

    The Bear-Stearns deal is a lot more like the S&L bailouts of the 1980s, where the government financiallly backed up banks that bought out other failing banks. Each of those deals was on a smaller scale than Bear-Stearns, but together they certainly added up to a lot more.

    As for Bear-Stearns, it did itself in. The colossal level of their overextension into high risk hedge funds is so irresponsible that it’s mind-boggling. The current deal which will ultimately salvage something for their investors at what will basically be no cost to the public is nothing like nationalization. It’s a straight buyout by another private company with the only difference being that about 12% of the financing for the buyout is backed by the government rather than private banks in a form which will ultimately be paid off and not be a permanent minority ownership position for the government. It’s actually more like a federal loan guarantee.

    Dave

  • Mike

    In capitalism’s extreme crisis Bernanke, acting beyond his mandate, invokes a law that hasn’t been used since the 1960s so the Fed can become the creditor for an institution that attempted to enrich itself through wild speculative bets on dubious toxic investments which are now utterly worthless.

    The Bear Stearns bailout has ignited a firestorm of controversy about moral hazard and whether the Fed should be in the business of spreading its largess to profligate investment banks.

    The New York Times summed it up like this in Saturday’s edition:”If the Fed hadn’t acted this morning and Bear did default on its obligations, then that could have triggered a widespread panic and potentially a collapse of the financial system”.

    Pam Martens writes..”..”if you’re a Wall Street miscreant you’re thrown a lifeline; if you’re a Wall Street crime fighter you’re thrown a land mine.While mainstream media called the Bear Stearns bailout the first brokerage bailout since the Great Depression, in truth it was the second in seven months.

    The first brokerage bailout came without all the media fanfare because it arrived not on the wings of a public announcement but in five pages of indecipherable Fed jargon addressed to the General Counsel of Citigroup.

    Here is the effective message sent by the Federal Reserve to Citigroup in its letter of August 20, 2007: now that we have allowed you to become both too big to fail and too big to bail by repealing the depression era investor-protection law known as the Glass-Steagall Act at your mere beckoning, we have to bend more rules to keep you afloat. So, for example, the rule that says the Federal Reserve is not allowed to lend to brokerages, just banks, from its discount window can be tweaked for you by lending up to $25 billion to you and then we’ll let you lend it to your brokerage arm. The Federal Reserve Act rule that says a bank can’t loan more than 10% of its capital stock and surplus to its brokerage affiliate, we’ll let you go as high as about 30% and say it’s in the public interest.

    By giving Citigroup an exemption from Rule 23A of the Federal Reserve Act, by allowing it to funnel up to $25 Billion from the Fed’s discount window to its brokerage clients who were getting hit with margin calls, the Federal Reserve and Chairman Ben Bernanke telegraphed an incredibly dangerous message to global markets: we’re just as unaccountable as Wall Street…”

    The Federal Reserve as enabler under Alan Greenspan created today’s problem and today’s Crony Fed under Ben Bernanke is killing off what’s left of U.S. financial credibility.

    …and Now…the Federal Reserve is taking the breathtaking step of making direct loans to all brokerage firms which are primary dealers for Treasury securities!!!

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    Dave,

    If you read the pieces Mike sets forth, you realize that your sarcastic solution – stripping everybody of their wealth – appears to be in the cards, once the consequences of trying to be the final arbiter of a bankrupt economy sink in. Except that folks will be lucky to have homes at all. Eventually, the whole rotten structure comes tumbling down, and that is what appears to be happening.

    And when it does, the dollar goes down the toilet. This is not a “cyclical business event” – it is the beginning of a meltdown.

  • http://www.elitebloggers.com Dave Nalle

    Mike, why draw an arbitrary line between banks and other financial institutons? Plus Bear-Stearns IS a bank, among other things, so in this case that division doesn’t even apply.

    You also totally mischaracterize what is going on here as being something other than a government facilitated buyout of a failing bank. That’s all we’re seeing and you’re trying to blow it up into something entirely different when it just isn’t.

    The precedents for this kind of action by the federal government are longstanding, and while we’d all probably rather not have the government in the financial bailout business, the inevitability of it is hard to deny.

    As for Ruvy’s comment, he seems to have completely misunderstood the current situation by trying to cram it into his apocalyptic world view. But at least his reasons for trying to misconstrue what’s going on are honestly crazy rather than more sinister as I think Mike’s are.

    Dave

  • Mike

    Adrian Ash wrote an article on the 13th of this month which goes against the grain of mainstream thought that we should be bailing out the big boys..He quotes from a World Bank report by Patrick Honohan and Daniela Klingebiel….remember this is a World Bank report …not something picked up from a left wing nutter-blog

    “we find no evidence that accommodating policies reduce fiscal costs.” That’s exactly how two senior economists at the World Bank put it in a 2002 report. They’d just finishing studying 30 years of systemic banking crises across 94 countries. Near misses – so-called “borderline crises” – hit 44 nations.

    And on average, the World Bank economists found, “governments spent an average of nearly 13% of GDP cleaning up their financial systems” as a result of the bail-out programs they tried to implement.

    “Indeed, each of the accommodating measures examined,” they continued – citing “open-ended liquidity support, blanket deposit guarantees, regulatory forbearance, repeated (and thus initially inadequate or partial) recapitalizations, and debtor bail-out schemes – appears to significantly increase the costs of banking crises.”

    given the current collapse of real estate markets, banking models, hedge fund credit lines and short-term liquidity the world over since last August – back when Gold Bullion traded one-third below today’s current price – who in their right mind would bother to read a study of 113 truly system-wide banking crises in 93 countries between 1970 and the year 2000…?

    No one running monetary or fiscal policy in the G7 group of top economies, that’s for sure!

    “If the countries in our sample had not pursued any such [supportive or bail-out] policies, fiscal costs [borne in the end by the tax payer] would have averaged about 1% of GDP – little more than one-tenth of what was actually spent,” write Patrick Honohan and Daniela Klingebiel in their report, published in Jan. 2002.

    What’s more, trying to bail out or support failing banks did nothing to reduce the economic drag that followed, according to Honohan and Klingebiel’s analysis. The so-called “output dip” never responded to government meddling – not unless the central bank stepped in to ease liquidity problems at crisis-hit banks with unlimited cheap loans.

    That kind of support – the support first given to Northern Rock as it started to belly-up in Sept. last year, just before the UK government issued a blanket promise to settle all banking deposits – is only one step removed from the market-wide support now being offered to New York brokers today. Yet it “actually appears to have prolonged crises,” write the two World Bank bean-counters, “because recovery took longer” following liquidity loans to effectively insolvent banks.

    In other words, the only sure way of prolonging a financial crisis is to try and delay it. Say, by putting tax-payers “on risk” with $200 billion in mortgage-backed loans.

    “Things could have been worse,” the World Bank goes on. If every country hit by a systemic banking crisis during the 30 years to 2000 had piled in with liquidity support (like the G7 central banks are offering today) or blanket depositor guarantees (as the UK government did with Northern Rock), the final bill of trying to clear up the mess early would have risen sharply.

    Throw in regulatory forbearance – letting “zombie” banks continue their operations, even though they’re technically bust – plus repeated recapitalizations and debtor bail-outs, and “fiscal costs would have reached more than 60% of GDP.”

    Nasty rumors about “living dead” bank stocks keep whacking the broader markets in the City, Tokyo, Frankfurt, La Defense and on Wall Street right now. And so far, tax payers aren’t on the hook for recapitalizations; UBS and Citigroup have gone to Asian and petro-wealth funds for that. Ben Bernanke has so far only demanded that subprime lenders write off the value of outstanding loans, rather than calling on Congress to issue the checks direct.

    But if the authorities sat on their hands during this crisis, the fiscal cost might equal one per cent of GDP, the World Bank report suggests. Donning a cape, tights and mask instead – and pretending they can unwind the mal-investments caused by record low-interest rates from the Fed after the Tech Stock Bubble burst – the cost may rise 60 times over.

    That’s more than a 98% saving, if only the G7 authorities would sit back and let the failed banks fail.

    “Fiscal outlays are not the only economic costs of bank collapses,” note Honohan and Klingebiel. “The losses covered [by tax-payers] – which are caused by bad loan decisions – reflect wasted investible resources. Furthermore, a government’s assumption of large, unforeseen bailout costs can destabilize fiscal accounts, triggering high inflation and a currency collapse – costly in themselves – as well as adding to the deadweight cost of taxation.”

    High inflation and a currency collapse, you say? As a rule, smarter investors spotting this trouble in good time can switch into hard currency to hedge their domestic inflation risk.

    But today’s systemic banking crisis crosses all developed economies…from North America to Japan and Australia onto Europe and the United Kingdom. So unlike the Asian Crisis of 1997, you can’t flee the Thai Baht by hedging with Dollars today. Nor can you flee the Hungarian Forint for the safety of French Francs or Deutschemarks as you could when 25% of Budapest’s banking assets were caught in a mass bank failure in 1993.

    Where to go? What to use as a hedge against all currency risk?

  • Mike

    Bear Sterns is a securities firm ,a brokerage,a primary dealer, a non-bank financial institution…if it was a bank it would have had access to Fed Funds …direct….

    Bear Sterns has a lot of powerful friends…powerful enough that Bernanke and the four Fed governors voted to become creditors to Bear Stearns Cos., a securities firm that isn’t a bank..The Telegraph notes…”It was not an easy decision: not since the 1960s had the US central bank authorised the provision of funds to institutions other than a regulated depository bank. Bear Stearns, a brokerage, was not one.”….

    note that everybody?….BearSterns is NOT a regulated depository bank…..Nalle doesn’t know the difference…or he simply ignores it…thats his grasp of finance.

    Traditionally regulators have helped commercial banks in financial panics, but not investment banks, which do not hold customer deposits. But the 1999 repeal of the Glass-Steagall Act, the Depression-era law that separated investment banks and commercial banks, led to consolidation within the financial industry that has made such distinctions harder to make.

    “I don’t remember a Fed action aimed at a noncommercial bank; this is the kind of thing you see in this post-regulatory environment,” said Charles Geisst, a Wall Street historian at Manhattan College.

    non-banks institutions don’t have access – based on the Federal Reserve Act – to the lender of last resort support of the Fed unless a very special and unusual procedure and vote is taken.

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    Dave,

    My “honestly crazy” (thank you for realizing I’m being honest) point of view is backed up by the facts. Let’s give you a couple of links to chew on.

    According to a currency chart from Globes On-Line at the moment, (10:00 Jerusalem Time) the dollar has slipped below NIS 3.40 at NIS 3.3915, is worth less than the Swiss franc, and the Canadian dollar. In spite of the efforts of Stan Fisher to prop the dollar, it has fallen anyway. Anyway, you can check through the day if you wish hitting reload to get accurate figures.

    This news analysis from Arutz Sheva speaks for itself – in English.

    Where to go? What to use as a hedge against all currency risk?

    Like I said earlier. To hedge against currency collapse, buy gold coins. If you haven’t got the guts for that, buy Swiss francs.

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    This article in English from Globes On-line gives a very brief overview of the continued fall of the dollar against the shekel, and perhaps more tellingly, against the euro.

    As we approach noon here in Israel (11:13 in the morning), the dollar has now dropped to NIS 3.382. I think that Wall Street markets open up about 16:00 our time, and it should be interesting if anybody here decides to be the “rag-sheeny” picking up the falling dollar, the way “rag-sheenies”, Jewish rag buyers, used to buy up other people’s trash in the early 20th Century.

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    A final thought (for now) on the rise of the shekel and the decline of the dollar. The next psychological line in my eyes for the shekel to reach, if it continues its rise, is NIS 3.333; at that point the shekel will be worth thirty cents a piece, and will be at a point it was over 13 years ago relative to the dollar. I do not think it will reach this line quickly – if it does, then events will be truly moving faster than I have foreseen….

    Price rises in food have been predicted here by Osem Foods. After PessaH, it expects its own prices to rise by an average of 10% – the rising price of grain and cooking oil being the main drivers in the equation. This means that Israelis will probably buy less refined food (which is Osem’s main product), more bread makers, more flour and more basic products to make their own foods.

    All these things (the rise in prices, the rise in the value of the economy here, the government that purposely violates the Torah, the “generation with the face of a dog”), are signs, according to our sages, that messianic redemption is near. Note, I’m not predicting this redemption, I’m reading off the signs for you. Ignore them if you wish. Scoff at all this if you wish. You do so at your own peril.

  • Mike

    Ruvy,….one of the reason why you see a marked rise in food prices is because there has been a flight of capital from equities to commodities including food.This will continue until we have a major correction in those markets…

    i too beleived at some point that we would be hit by stagflation …that is inflation coupled with stagnant economy…however I have revised my point of view to what most economists hold today …that is that the deflationary aspects will take over as supply far outstrips demand.We are going through a short and painful period of stagflation and then we would get into the deflationary phase once the recession is in full swing….simply because there would be fewer buyers…..in 2008 cash is king.

  • Cannonshop

    Market Cycle. There’s a bright spot in that, if you can manage it, a crash on the market makes it easy to get in with small, and if you can hold on to it, get decent returns when it finally DOES recover.

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    Market Cycle. There’s a bright spot in that, if you can manage it, a crash on the market makes it easy to get in with small, and if you can hold on to it, get decent returns when it finally DOES recover.

    Cannonshop, try going back to 1933, and explaining that to someone burning his furniture to heat his home because he hasn’t got a quarter to put in the gas meter. The closest folks came to “decent returns” in those days was playing with monopoly money and landing on FREE PARKING.

    Historically, the Israeli currency always went down against the dollar, no matter what the market cycle. In the early part of this decade, the shekel nearly went from 4/$1 down to 5/$1 before stabilizing at around 4.7 to the dollar for several years. Around two years ago, a change started to occur – slowly – where the shekel rose against the dollar.

    The last time the shekel was at the rates we see now was April, 1997. A year ago, it was hovering at 4.1-4.2/$1, and now it is at 3.38/$1. All this had nothing to do with “market cycle”. It had to do with the slow deterioration of the dollar based on the fact that American bankruptcy has been slowly dawning on its creditors. You can go to this chart to get historical data on the shekel if you want. Just press the month and year and hit “go”.

    Have fun!

  • bliffle

    “Mike, why draw an arbitrary line between banks and other financial institutons? ”

    Illustrates Nalles ignorance of basic financial institutions. In case anyone had doubts.

  • troll

    (thanks for the link Mike)

  • bliffle

    Some might wonder why top execs, at Bear Sterns for example, pursue investment strategies that hold such peril for their own companies. The answer is that the execs payouts are not tied to the success of the company. They write their own contracts and will win no matter what happens as long as gross changes occur in the companies fortunes. Yes, if the company prospers they will benefit, but if the company fails they will not suffer.

    We would all understand this, as investors, if we really had a view into boardroom shenanigans, which we do not. Few investors appreciate the adversary relationship that exists between a company and it’s CEO.

    It is the de-coupling of executive personal fortune from company fortune that has driven the widespread mismanagement of USA business for the past 30 years.

  • Mike

    Ruvy…we got your point…its about a 20% appreciation in a year..and your central bank tried to intervene….no wonder you have inflation…Ouch.

    Troll…anytime…we’d like you to join in more often:)

    Bliffle..very good point..The average CEO from a Fortune 500 company now makes 364 times an average worker’s pay, reports the Institute of Policy Studies. This is up from a 40-to-1 ratio in 1980.

    And they’re getting rich despite the huge losses being wracked up on Wall Street. Bonuses for those toiling on Wall Street totaled $33.2 billion in 2007, down just 2 percent, according to New York state comptroller’s office. Overall compensation and benefits at seven of the Street’s biggest firms totaled $122 billion, up 10 percent since 2006 — even though net overall revenue for these firms fell 6 percent.

    But even the traditional investment banks can’t match the outrageous compensation captured by private equity and hedge fund managers, a few of whom manage to pull in more than $1 billion in a single year. Thanks to a tax loophole, these characters pay income tax at a rate less than half of what a dentist making $200,000 a year pays.

    High CEO pay is often defended as the just reward for outstanding performance, but the report shows that this correlation is a myth. .Countrywide lost $1.6 billion, Merrill Lynch lost $10.3 billion and Citigroup lost $9.8 billion.When Stanley O’Neal left Merrill Lynch in October 2007, he was given a retirement package worth $161 million.Citigroup ousted Prince in November, but he still took home a $10 million bonus, $28 million in unvested stock options and $1.5 million in yearly perks. Mozilo, who remains at Countrywide’s helm while the firm’s merger with Bank of America is pending, has been granted $120 million in retirement compensation.

    Not only is executive pay going through the roof, but it is also linked to the decline in the fortunes of workers. Far from the rising tide of executive pay lifting all boats, wage costs are being