reality is only those delusions that we have in common...

Saturday, September 12, 2009

week ending Sept 12

Labor Day Musings - (video & charts) For those of you who think we can "grow out of this", ponder this...delinquencies are translating directly into charged-off loans at a rate that threatens the entire banking system, and despite the claims of The Fed and Treasury that "things have been stabilized" there is no evidence of this in the loan performance data. No fractional reserve system can survive with charge-off rates much beyond 1% over any material amount of time. Rates beyond 2% threaten near-imminent collapse. This is inherent in how fractional reserves work...

Banks' funding needs: Total liabilities - The Economist - AN AMERICAN judge once said that it was hard to define pornography, but “I know it when I see it”. Something similar is true of doomed banks. It is difficult to establish any archetype for failure from the past two years. Yet there was a common ingredient in most failures: an over-reliance on wholesale borrowing.

The Real Story of “Zombie Banks” - The notion of the zombie is that it would be put in its grave by its creditors if it weren't for the black magic of government credit support guarantees and loans. These institutions have very distorted incentives, just as the zombies do in the horror movies. They're looking for things that even might have negative present value but have a possibility of producing good results. It's a long shot bet...

Five Largest Banks Had A Record $1 Billion At Risk During Average Trading Day In Second Quarter - Reuters noted yesterday that the Obama administration’s plan for overhauling the financial regulatory system is “bogged down in Congress,” and in particular has “no clear path forward in the Senate.” And in the meantime, as the Wall Street Journal reported today, “companies are selling exotic financial products similar to those that felled markets and the world economy last fall. And banks’ appetite for risk has grown”...

When the Going gets Tough, the Tough Run to the Government - In the end, like teenagers who hate Mother’s strictures when all is well, but run to Mommy whenever they get in trouble, the swashbuckling oligarchs of the financial sector ran to government for cover, owning up once again to the time-honored mantra of this country’s legendary rugged individualists: When the going gets tough, the tough run to the government. ...

One Year On: Banks After the Bailout - "Today we’re taking stock of how the nation’s banks are managing, one year after the government spent billions of taxpayers' dollars to bail them out." Transcript of radio interview with Eliot Spitzer and Tyler Cowen, professor of economics at George Mason University...

Geithner defends bank bailouts at town-hall meeting - (MarketWatch) - Treasury Secretary Timothy Geithner late Thursday responded to criticism of the Obama administration's bank bailout endeavors, addressing public frustration about billions in taxpayer dollars going to bankers.
"I wouldn't give a penny to a banker, to benefit a banker," Geithner said...

Good Billions After Bad - As the Bush administration waned, the Treasury shoveled more than a quarter of a trillion dollars in tarp funds into the financial system—without restrictions, accountability, or even common sense. The authors reveal how much of it ended up in the wrong hands, doing the opposite of what was needed.

Follow the money – BBC - Since the markets began to tumble in 2008, governments around the world have spent almost $11 trillion bailing out failing banks and trying to repair the financial system. Find out how the money was spent and what it means for the taxpayers who have funded it. There are two animated slide shows.

Ken Lewis Wants You To Know He Did NOT Come Up With This Shit - New expense policy governs excessive expenses - On Sept. 13, a new policy will be posted to the Bank of America Internet site to provide further clarity around expenses that may seem excessive or luxurious.
The new policy is a requirement of the Federal government's Troubled Asset Relief Program (TARP) and is mandatory for all participating institutions...

Canada Retains Its Ranking as Home to World's Soundest Banks - Bloomberg - Canada retained its position as home to the world’s soundest banks, the World Economic Forum said today, backing the country’s efforts to trumpet its industry as a model for the world’s largest economies. The United States was 108th out of 133 countries for that indicator, one below Tanzania.

WEF ranks US among most economically unstable nations - The United States fared badly in a new assessment of world economies, with the financial crisis accentuating its weakness as one of the most economically unstable nations, the World Economic Forum said Tuesday. In contrast with its overall ranking second only to Switzerland in the WEF's 2009 Global Competitiveness Report, the United States now placed 93rd among the 133 countries in terms of macroeconomic stability.

U.S. Alone Responsible 68.4% of Global Arms Sales - Despite a recession that knocked down global arms sales last year, the United States expanded its role as the world’s leading weapons supplier, increasing its share to more than two-thirds of all foreign armaments deals, according to a new Congressional study. The United States signed weapons agreements valued at $37.8 billion in 2008, Italy was a distant second, with $3.7 billion in worldwide weapons sales in 2008...

Military Industrial Complex = Bankrupt Nation - America is operating under a form of Economic Mass Psychosis. We have forgotten the concept of FREEDOM and how it interacts with SECURITY. We have been pursuing SECURITY on behalf of special interests and we have BANKRUPTED OURSELVES in so doing, thus sacrificing our FREEDOM as well as sacrificing our TRUE SECURITY. Ever wonder how our spending on our military grew to the INSANE point that the U.S. spends nearly as much as the rest of the world combined?

Pathology of the U.S. Debt Bubble — (incl bar graphs) There is another facet to this crisis which has remained shrouded in mystery: the steady and imbalanced growth in the indebtedness of financial institutions among G8 nations. Simply put, some of these banks or financial institutions have been allowed to borrow and lend a lot more money than reasonable, disrupting, in the end, the delicate balance in world’s credit markets.

Riding The Fed Train - It is difficult if not impossible to deny the firming of economic data in recent months. But that firming has been inexorably tied to a host of fiscal and monetary stimulus measures. Fiscal stimulus is dependent upon political will and Treasury's ability to sell debt cheap. On the monetary side, the Fed looks poised to sustain that stimulus until a potentially inflationary situation emerges. What - and how many - global distortions will emerge as a result of the Fed's extended zero-interest rate policy? And what will bring the new house of cards crashing down?

Fed Vice Chairman Kohn on Monetary Policy - This speech is a review of an academic paper (and a bit wonkish) are some excerpts on two key topics: 1) how well the Fed followed the precepts of Walter Bagehot, and 2) if the Fed should target a higher inflation rate in a liquidity trap. From Federal Reserve Vice Chairman Donald Kohn: Comments on "Interpreting the Unconventional U.S. Monetary Policy of 2007-2009"

The Fed's Political Problem - Alan Blinder - As the financial crisis continues, the U.S. Congress is considering a bill that would jeopardize the independence of the Federal Reserve. This is a shame. Monetary policy should be protected from congressional politics....

Is The SEC Completely Useless? - But until something better comes along, don’t we still need the SEC’s fraud enforcement? Wouldn’t fraud run rampant without a “cop on the beat,” even one as ineffective as the SEC? Maybe not. A new study suggests that the securities market is a better regulator than the SEC...

Will Deep Pockets Always Win? It's In Roberts's Court - This year or next the supreme court could again remake the American system by permitting a flood of corporate money into our electoral campaigns, which are already drenched in dollars. Such a decision would create vast new opportunities for a particular class of Americans -- this time, corporate elites.

How Many Rabbits Are Left In The Hat? - from Rosenberg via Mish - While the Obama economics team is pulling rabbits out of the hat to revive autos and housing, there is nothing they can really do about employment; barring legislation that would prevent companies from continuing to adjust their staffing requirements to the new world order of credit contraction.

Weekend charts: the destruction of the "goods-producing" payroll The BLS establishment survey (nonfarm payroll) reports that the accumulated job loss since December 2007 is 5.02% (almost 7 million jobs... the industry contributions to total job loss show that the job destruction is heavily weighted in manufacturing and construction, which account for roughly half of the total drop in nonfarm payroll (-2.5% of the total -5%)...

The Incidence and Duration of Unemployment - Cleveland Fed - We can’t tell by looking at the rate whether people who are unemployed are staying unemployed longer or whether more workers have lost their jobs. This distinction could be important because each of these causes could result in a different set of problems for the labor force.

Recession Job Losses: 3 Views (chart)

Retail Hiring Shift May Show Growing Confidence in Recovery (Bloomberg) -- U.S. discount, grocery and restaurant chains are hiring a larger percentage of job applicants than seven months ago, signaling confidence the economy may be improving, software maker Kronos Inc. said.

Temporary Hiring Shows Job Rebound Isn’t Imminent: Chart of Day - (Bloomberg) -- U.S. companies are still reducing the ranks of temporary workers, showing that any rebound in overall employment won’t happen soon, according to William Hester, an analyst at Hussman Econometrics. Increases in the number of temporary jobs in 1991 and 2003 preceded similar recoveries in payrolls, as the chart illustrates.

Governments Shed More Workers – WSJ - State and local governments stood out as safe havens for workers during the recession's early stages. Now even they are laying off employees as officials rush to cut costs and balance budgets.

States Face Drop in Gambling Revenues - NYTimes - — Casinos and lotteries in most states are reporting a downturn in revenue for the first time, resulting in a drop in the money collected by state and local governments, according to new state data. The decline comes as states are rapidly expanding gambling in hopes of stemming severe budget shortfalls, and it indicates that gambling is not insulated from broader economic forces...

States Shut Down to Save Cash – WSJ - Across the country, cash-strapped state governments are shutting down business for a day at a time to save money. State offices are shuttered Friday in California, Maine, Maryland and Michigan. Some state agencies are closed in Georgia and Wisconsin, and most Colorado state offices will be shuttered on Tuesday. Other states, such as Arizona, have been trying to keep their operations open while furloughing thousands of workers.

Unemployment Is Much Worse Than You Think - There's another disturbing trend in the unemployment data: In the average recession, most job losses are attributed to temporary, cyclical factors--i.e., when the economy comes back, the jobs will, too. In this recession, however, more than half of jobs lost are gone for good. Data from the BLS shows that 53.9% of the unemployed were not on temporary layoff in August, up from 39.1% a year earlier and well above the 30-year average of about 34%

Voyaging Through U.S. Jobs - In honor of Labor Day, you may want to check out Job Voyager by Flare. It provides a graphical history of the rise and fall of different types of jobs in the United States from 1850 to 2000. Launch full size version. (enter job in box)

Comparing This Recession to Previous Ones: Job Losses - NYTimes - The chart shows job losses in this recession compared to recent ones.

Not Just Jobs - PWA - The older generation is slashing spending at a higher rate percentagewise than younger Americans in response to deteriorating economic conditions. That said, if one looks at the job losses that different demographic segments have experienced (as illustrated by the graph), one might have thought that the opposite was true...

Number of Hours Worked per Civilian Sees New Low - an updated chart which shows the average number of hours worked by a civilian (calculated by taking the employment to population ratio and multiplying that by the average # of hours worked per week). After a slight "rebound" last month, we are now at a new all-time (since 1964) low.

No Growth in Private Sector in 10 Years... Manufacturing in Almost 70 Years - Over the past decade, the U.S. private-sector has lost 203,000 jobs. That’s right: Zero job growth for 10 years. I reported this same stat back in May. But, in looking at the details behind this tremendous job stall, it is apparent where the majority of the jobs lost have come from... manufacturing.

Trade Activity Up, But Rebalancing Stalled - The good news in the data was the widely touted revival of global trade, an indication of economic healing. The bad news in the data was the return of an old enemy, a pattern of unbalanced trade. The July numbers raise the possibility that the external sector will weigh on US GDP growth in the third quarter. The trade deficit rose to $32 billion in July on the back of rising import growth that easily swamped export growth. Note to that higher oil prices were not the primary culprit; goods imports drove the trend...

Manpower: Hiring Plans Hit New Low - From MarketWatch: Employers’ hiring plans for the upcoming fourth quarter dropped to their lowest level in the history of Manpower’s Employment Outlook Survey, which started in 1962. A net -3% of employers said they’ll hire in the fourth quarter, down from -2% in the third quarter, on a seasonally adjusted basis…. Before this year, the survey’s previous low point was a net 1% hiring outlook for the third quarter of 1982…

This is Unacceptable - Job Market not to "Recover" until 2014! -
The average length of time looking for a job? 24.9 weeks, the longest since 1948.
Due to population growth the U.S. must create 125,000 jobs every single month just to keep up.
9 million: The number of workers forced to take part-time jobs who would rather work more hours. 33.1: Average hours in the workweek, near this summer's record low of 33 hours.

10 years/1 decade and we lost a quarter of a million jobs!
So I'd love for an economist to explain the fundemental workings of a "jobless recovery" because in my book that is just one more oxymoronic statement. What truly scares me about this chart is the source. Since it is from the BLS I can be confident that our net loss is way the heck south of 250k.

Long-term unemployment in Canada and the US - The more I look at the US, the more I see unpleasant parallels to Canada's experience of the 1990's - what Pierre Fortin called The Great Canadian Slump. Even after we emerged from the worst of the 1990-91 recession, we still had to deal with a large current account deficit, out-of-control government deficits and significant NAFTA-induced sectoral shifts. The outlook for the US is depressingly similar.

40% of Working Age Californians Jobless - The headline statistic, which comes out of a study by the non-partisan California Budget Project, in isolation sounds worse than it is...
From the San Francisco Chronicle: A report released Sunday says two of five working-age Californians do not have a job, underscoring the challenges in one of the toughest job markets in decades.

Depression Level Unemployment: 40 Percent Unemployment in the U.S.? - when we parse the data we realize that 25,000,000 Americans are unemployed or underemployed with half a million more coming our way this Friday. The employment situation on an aggregate basis simply does not reflect the devastation of this current recession. A recession that can destroy $11.2 trillion in American household wealth is not a common recession.

Unemployment Trust Funds Nearly Broke… - Point found an interesting link on the unemployment system that has an interactive map and a table of trust fund balance by state along with the amount each state has now borrowed to keep paying unemployment benefits. LINK HERE

New Highs in Unemployment Insurance Claims - SF Fed - The number of ongoing claims for unemployment insurance (UI) benefits recently reached a historic high in the United States. In this Economic Letter, we update past work on trends in UI receipt. Our analyses identify an upward trend in UI receipt over the past two decades as the composition of the unemployment pool has shifted toward permanent job losers, which has partially reversed the earlier decline. However, this effect may have been offset by the lengthening of unemployment spells that occurred during the same period. This is likely to cause UI benefits to lapse for some recipients as the current downturn continues.

Broad Unemployment Across the U.S. - NYtimes - Interactive Map

The Real News About Jobs and Wages -- Why aren't we hearing more about the worst job and wage situation since the Great Depression? The latest employment figures show job losses continuing to grow. So why isn't the media screaming? Partly because these job and wage losses are not, for the most part, falling on the segment of our population most visible to the media. They're falling overwhelmingly on the middle class and the poor.

U.S. Poverty Rate Rises to 11-Year High as Recession Takes Toll - (Bloomberg) -- The U.S. poverty rate rose to the highest level in 11 years in 2008 and household incomes declined as the first full year of the recession took its toll, government data showed. The poverty rate climbed to 13.2 percent from 12.5 percent, and the number of people classified as poor jumped by 2.6 million to 39.8 million...

Survey: “The Anguish of Unemployment” - NPR Money highlights a new survey by Rutgers. The survey shows that the great recession of 2007-2009 may have long-lasting financial and psychological effects on millions of people, and therefore on the nation’s social fabric. Two thirds of respondents say they are depressed, over half have borrowed money from friends or relatives, and a quarter have skipped mortgage or rent payments...

Lobbyists Feel the Pinch As Downturn Hits K Street - In a year when Washington's influence industry should be thriving, with epic battles over health-care and energy legislation, lobbying in many sectors is in marked decline as defense contractors, real estate firms and other companies pull back in a down economy.

Migrants hit by global downturn - There has been a dramatic decline in the number of people going to work abroad since the start of the global downturn, according to a new report.
The research, commissioned by the BBC World Service, also showed that those already abroad are more likely to stay where they are than return home.

Broader (BLS) Unemployment (Chart)

Depiction of a System in Decline - productivity/wages - "The implications of this chart are staggering...."

if you havent read enough about unemployment by this time, here's more takes on the report: Paul Krugman, Spencer, Calculated Risk, Calculated Risk II, Brad DeLong, Real Time Economics, Andrew Leonard, Credit Writedowns, The Curious Capitalist, The Big Picture, Robert Reich.

How Bad Will Unemployment Get, And What Can We Do About It? - On the national level, high unemployment is both cause and effect concerning other problems with the economy. As we’ll see below, high unemployment results from a weak economy and - in turn - weakens the economy. Until the causes of, and solutions to, high levels of unemployment are understood, we will not be able to solve the problem.

Jobs report points to better profits, at workers' expense - In the context of many other economic reports since June pointing to the beginning of a recovery, the underlying employment data suggest that the early benefits of any recovery will flow directly to many companies’ bottom lines. That's good for stock prices.

Top 1 Percent of Americans Reaped Two-Thirds of Income Gains - Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928, according to an analysis of newly released IRS data by economists

The Myth of a Jobless Recovery - As with all oxymorons, no intelligent person would/should be foolish enough to add these buzz-words to his/her lexicon. By definition, an “economic recovery” means a net increase in economic activity, which also dictates positive wealth-generation. When an economy is producing wealth, this must also result in job-creation.

The Gospel of Economic Prosperity: Lessons from the Great Depression Part XVIII. Pretend and Spend and Success will Come. - The gospel of infinite prosperity is back in full bloom. Echoing from the television talking heads and radio pundits preach that the economy is on the mend because we have spent our way into prosperity. This recovery, as we are led to believe, is occurring even though jobs are being lost at the rate of 2.4 million a year and this is somehow good...

Nobel economist sees a roaring recovery - At the ripe age of 78, Nobel economist Gary Becker finds himself the pin-up hero for libertarians around the world convinced that massive government response to the Great Contraction of 2008-2009 is not only unnecessary but almost certainly a threat to economic freedom as well.

Economy Will Be Back In Recession By Early Next Year - The bearish case, meanwhile, is that this recession is different--a deleveraging recession--and that full recovery will take years. The key element of this latter view is ongoing weakness in consumer spending. To wit:
Consumers still account for 70% of the spending in the economy.
Consumer spending growth will be constrained.

Dissecting The Keynesian Myth Of Pent-Up Demand - please tell me where the pent-up demand is? Show me how the roasted demand-pigeons will fly into the mouths of the priced-for-perfection equities. The rally in equities seems to imply that Western consumers have set aside thousands of dollars and Euros in every one of the bubble years. But if that is the case, why are they continuing to default on their debt obligations? Indeed, why are they spending less and less and paying off more and more of their debt?

Roubini: U-shaped recovery is possible - "I believe that the basic scenario is going to be one of a U-shaped economic recovery where growth is going to remain below trend ... especially for the advanced economies, for at least 2 or 3 years," he said at a news conference here.

Double-dip recession risk rising: El-Erian (Reuters) - The U.S. economy faces an increasing risk of stalled growth in 2010, the chief executive of top bond fund Pimco said on Friday, adding that rallies in the equity and bond markets have outpaced economic trends.

The Coming Consequences of Banking Fraud - The Double Dip Recession, or the “W” shaped recovery, should not be discussed in the realm of economics but rather in the more apropos realm of financial fraud. The fact that the upleg of the “W” shaped recovery that is occurring now will inevitably crumble in spectacular fashion will not be a result of any free market principle, but rather the direct consequence of a fraudulent scheme executed by an elite global financial oligarchy, otherwise known as Central Banks.

Bank Of China Representative: "The Real Economic Crisis Is Just Starting" - Interview with Zhu Min, Bank of China Vice President: "It's not only overconfidence, it's overmyopic: Wall Street feels the crisis never happened. It seems to me the financial crisis is not over yet, but it has stabilized from a cliff drop. That's one thing. The real economic crisis is just starting."

Depression versus Recession? - Ritholtz - Despite most of the economics profession declaring the recession over — I think they are premature — I got into an interesting debate with Mish last night over the state of the economy. I have been calling this the “Great Recession,” and suggested the worst of it is over, and we are now in a not-so-great, ordinary recession. Mish believes we are in something far worse: A Depression (See Depression Debate – Is this a Depression?)

August 2009 FIRE Economy Depression update – Part I: Snowball in Summer Credit crunch induced commodity, goods and services supply crash meets government money wave. Can the Fed and Congress stop what they started? The major difference between the 1980 to 1983 recessions and the one that started in Q4 2007: the Fed created the 1980 to 1983 recessions on purpose. This one is running on its own, out of control, with no apparent obstructions to brake the fall.

Economist: U.S. won't tolerate a 'Lost Decade' - The long-simmering problems that boiled over into a global financial crisis last September require a strong government hand in the workings of the U.S. economy and financial system, according to economist and author James K. Galbraith. In a wide-ranging interview, he shared his views on how the crisis has changed our economic system.

Financial Crisis and Reform Déjà Vu -The financial crisis has set a lot of records so far; it's certainly the worst US banking crisis of my lifetime. Some see such crises as unique events; each one is singular and there's not much to be learned about how to handle one from looking at past crises. For example, there's no precedent that I know of for a banking crisis involves the failure of the biggest counterparties for credit default swaps.

Alan Greenspan: 'This will happen again' - The world will suffer another financial crisis, former Federal Reserve chief Alan Greenspan has told the BBC. "That is the unquenchable capability of human beings when confronted with long periods of prosperity to presume that it will continue." Mr Greenspan described the behaviour as "human nature".

What We’ve Learned: Our (Increasingly) Non-Market Economy - Economists haven’t gotten many things right lately, and we don’t even agree on what we’ve gotten wrong. We still talk about the market as though it is the economy, and about the economy as if it is a market. This talk misleads us, for three big reasons...

Understanding Why Most “Economists” Simply Get it WRONG…
Are you a highly educated “economist”? If you’ve been “highly trained” then the odds are that your mind has been simply programmed full of misconceptions, half truths, bad math, lies, and marketing manipulations. Perusing the latest reports at the St. Louis Fed I came up with this just released and very fine tax payer funded work...

Priceless: How The Federal Reserve Bought The Economics Profession - The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found. This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists.

Serious credit crunch remains; and it will until the labor market turns - the Kansas City Fed measures the Kansas City Financial Stress Index (KCFSI), which is an composite index of 11 financial variables that reflects stress in the financial system. What does it imply about credit flow right now? It's anemic; except for revolving home equity lines of credit, credit extended across all loan types is just a few %-points higher than in January 2008 (nearing two years ago), and falling.

Fed must not leave rates too low: Hoenig - Hoenig, who is regarded as one of the Fed's most hawkish, or anti-inflation officials, will be a voting member of its policy-setting committee next year: "In this environment, one of the Federal Reserve's major challenges will be how to pull back its highly accommodative monetary policy without undermining the recovery and without igniting inflationary expectations"

Easy money fuels all markets, but not forever - Reuters - "Asset classes are up due to massive credit, fiscal, and monetary stimulation that is bleeding into them," "Essentially, this bullish action in several markets may be a sign that the 109 percent year-over-year increase in the monetary base may finally start translating into money supply growth,"

Recovery and the fear of inflation - The economy is still limping, job losses are still rising, and consumers are still reluctant to open their wallets. So it’s the perfect time to worry about . . . inflation? Apparently so, because, of late, the cries of inflation hawks have grown increasingly loud. Unless the Fed starts slowing things down, they say, we’ll face price jumps that qualify as “hyperinflationary”.

The Latest Inflation Hawk Conspiracy Theory - The inflation hawks have come up with a convoluted explanation for why the market doesn’t seem to be indicating looming hyper-inflation—they’re saying investors think the government will fudge the CPI to under-report inflation...

A tale of two inflations - For some time now, the disparity between price increases for imported goods and price increases for domestic goods and services has been of great interest to me and, after working through all of the applicable Labor Department data on this subject, it quickly becomes clear that there is an interesting story to tell here about two very different types of U.S. inflation in recent years - domestic inflation and imported inflation.

Notes on This Week’s Column: Inflation Fears - - My column this week is about the curious fact that we’ve seen a resurgence of inflation fears even though the economy is still struggling and even though there’s no sign of price pressure either in current inflation data or in more forward-looking numbers (like the yield on the ten-year bond). A sampling of the inflation hawks’ cries can be found here, here, here, and here. A study by the New York Fed, by contrast, offers up one reason why the Fed’s pumping of money into the economy has not been inflationary: banks are holding massive excess reserves.

The inflation permahawks - It’s hard to find someone who’s worried about inflation right now who isn’t always worried about inflation. If you stay worried about inflation for decades, of course, eventually you’ll be able to claim justification.

SF Fed Economist Suggests 2% Inflation Target May Be Too Low -- In a paper to be presented Thursday afternoon at Brookings Institution, John Williams, a top staff economist at the SF Fed, extracts some lessons from the way the global crisis has forced central bankers to bring interest rates down near zero — effectively exhausting their main tool to support the economy. He asks whether they might in normal times want to allow a bit more inflation, and hence higher interest rates, to give themselves more room to lower rates if they get into this predicament again.

Overcoming America's Debt Overhang: The Case for Inflation - The graph shows total debt outstanding in the United States, both secured and unsecured, as a percentage of GDP. Greg Mankiw, former Chair of the Council of Economic Advisors, argues that the Fed must make a credible commitment to inflation over the medium term in order to produce negative real interest rates, avoid a deflationary trap, and boost demand. In arguing in the Financial Times for a "pre-announced, temporary, globally co-ordinated bout of moderate inflation," the London School of Economics' Tim Leunig notes that 4 percent annual inflation would "help government finances by inflating away 10 per cent of total government debt...

A comment on the Deficit and National Debt - President Bush argued in February 2001 that his fiscal policy "returns ... the surplus to the American taxpayers". In his 2001 testimony to Congress, then Fed Chairman Alan Greenspan supported President Bush by offering projections of "an on-budget surplus of almost $500 billion ... in fiscal year 2010". Greenspan offered a projection of "an implicit on-budget surplus under baseline assumptions well past 2030 despite the budgetary pressures from the aging of the baby-boom generation, especially on the major health programs."

America and Its Deficits: Are We Broke Yet? - At some point this starts to matter, right?
Well, yes, at some point it does have to start mattering. But one of the great mysteries of modern politics and economics is where exactly that point might be.

How Much Debt Is Too Much? - The latest budget projections show the national debt rising from $5.8 trillion last year to $7.6 trillion this year and $14.3 trillion in 2019. According to the Congressional Budget Office (CBO), the debt will rise from 40.8% of the gross domestic product in 2008 to 53.8% in 2009 and 67.8% in 2019. At what point are the economic consequences in terms of inflation, higher interest rates, slow growth or a collapsing dollar so severe that radical action is required?

Why Default On US Treasuries Is Likely - Many predict that the government will inflate its way out of this future bind, using Federal Reserve monetary expansion to fill the shortfall between outlays and receipts. But I believe that it is far more likely that the United States will be driven to an outright default on Treasury securities, openly reneging on the interest due on its formal debt and probably repudiating part of the principal.

Treasurys Debate: Who Would Buy a Sell-Off? - Inflating or repudiating has dire consequences for the many countries who hold and continue to buy large amounts of U.S. debt. Quite a few countries own too much to just sell because who would buy? Additionally the extent to which the greenback is the currency used in many transactions globally and the number of countries that peg to the greenback creates an urgency to seek out a globally coordinated solution.

Federal Reserve Balance Sheet Update: Week Of September 9 - Securities held outright: $1,501 billion (an increase of $128.7 billion MoM, resulting from $32.6 billion in new Treasury purchases, $82.4 billion increase in MBS and $13.7 billion in Agency Debt), or $10.7 billion increase sequentially.

ROUBINI: The Dollar Might Crash* - "If markets were to believe, and I’m not saying it’s likely, that inflation is going to be the route that the U.S. is going to take to resolve this problem, then you could have a crash of the value of the dollar,” Roubini said. “The value of the dollar over time has to fall on a trade-weighted basis, but not necessarily relative to euro and yen.”

The Wait for Financial Reform - NYtimes - We are barely emerging from the greatest financial crisis since the 1930s. From last September to March, it was downright frightening. Yet by the time Congress left town for its summer recess, financial reform appeared to be losing steam.

Wall Street Bundles Life Insurance - NYtimes - The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds.
The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.

Credit Rating Agencies Took “Bribes” for Higher Ratings - You may have heard how the big ratings agencies - Moody's, S&P and Fitch - "sold their soul" by rating toxic assets and mismanaged companies much more highly than they should have been rated. But as the following discussion shows, the ratings agencies effectively took bribes for higher ratings, just like people who knowingly authenticate forged art so that they will earn a higher fee

Accountants Misled Us Into Crisis - That is one of the clear lessons of the financial crisis that drove the world into a deep recession. We now know the major banks were hiding dubious assets off their balance sheets and stretching rules if not breaking them. We know that their capital was woefully inadequate for the risks they were taking.

Tactical Error: Health Care vs Finance Regulatory Reform - I believe the brain trust behind the Obama White House has made a huge tactical error. There was a narrow window to effect a full regulatory reform of Wall Street, the Banking Industry and other causes of the collapse. Instead, the White House tacked in a different direction, pursuing health care reform.This was an enormous miscalculation.

Wall Street's Mania for Short-Term Results Hurts Economy - Its particularly disappointing that so little attention was paid this week to a report by a panel convened by the Aspen Institute on the "short-termism" that has now become hard-wired into the culture of Wall Street and corporate America. Their complaint is that the focus on short-term financial performance by investors, money managers and corporate executives has systematically robbed the economy of the patient capital it needs to produce sustained and vigorous economic growth...

Restricting bankers’ bonuses won’t help address root causes of the crisis - Telegraph - The desire for retribution against banks and their highly paid workers is understandable, but should run no deeper than the desire for retribution against all those who failed in their duties, allowing the financial system to seize up – including regulators, central bankers and politicians.

U.S. Government The New Sub-Prime Lender - With the U.S. housing market now experiencing its worst collapse in history as the aftermath of that bubble, and with no “bottom” in sight, the U.S. government is once again trying to take the easy way out – this time by trying to re-inflate the same bubble which has just burst.

Mortgage Markets: The Public Option - Only one lender of consequence remains: the federal government...nearly 90 percent of all new home loans are funded or guaranteed by taxpayers...If the government got out of the mortgage business, old-fashioned bank lending would revive. But the interest rates would be higher than the artificially low rates being offered by government agencies...

Faltering Construction Loans = More Bad News for Banks -
Reports filed by banks with the Federal Deposit Insurance Corporation indicate that at the end of June about one-sixth of all construction loans were in trouble. With more than half a trillion dollars in such loans outstanding, that represents a source of major losses for banks.”

Troubles For ‘Prime’ Borrowers Intensify – WSJ - The mortgage-delinquency rate among so-called subprime borrowers reached 25% in the first quarter but appears to be leveling off, rising only slightly in the second quarter. The pace of delinquencies for prime borrowers is accelerating. Since prime loans account for 80% of U.S. bank exposure to mortgages and credit cards, these losses could ultimately exceed those from weaker borrowers.

Housing Bottom - Oh Really? - The U.S. propaganda machine was positively giddy last month when the latest “existing home sales” data showed a “jump” to an annualized rate of 5.2 million units. This mindless euphoria was epitomized in a Bloomberg article, “We can count on housing no longer being a drag on the U.S. economy.”
Oh really? Just a few days earlier, it was announced that foreclosures had set another all-time record in July...

Median Incomes and Economic Obsolescence of Large Homes - One thing that has led me to believe that the housing market is largely at bottom is the fact that many houses are selling at less than replacement cost. The report on median incomes released yesterday, though, suggests to me a flaw with my line of reasoning. While the average new house has grown about 20 percent in size over the past ten years, median household incomes have actually fallen a bit. If house size is a proxy for house quality, then house quality has outstripped the ability of people to pay for it.

Wealthy Families Succumb to Bankruptcy as Real Estate Crashes - (Bloomberg) -- Wealthy individuals’ Chapter 11 bankruptcy filings jumped 73 percent in the second quarter from a year earlier, according to the National Bankruptcy Research Center, a research firm in Burlingame, California. More individuals or families with at least $1,010,650 in secured debt and $336,900 unsecured are using Chapter 11 of the U.S. bankruptcy code typically associated with business reorganizations.

Interest Only Loans: Another Time Bomb - From the NY Times: The House Trap - An analysis for The New York Times by the real estate information company First American CoreLogic shows there are 2.8 million active interest-only home loans worth a combined total of $908 billion. The interest-only periods, which put off the principal payments for five, seven or 10 years, are now beginning to expire.

U.S. foreclosures near record, peak in late '10: report - (Reuters) - U.S. mortgage foreclosure filings in August hovered near July's record high despite broad efforts to keep borrowers in their homes and will probably rise for another year, according to a report released on Thursday...The pipeline of early stage foreclosures and delinquent loans is still probably going to overwhelm the system's ability to quickly modify terms...

Option ARM Disaster Arrival: Mortgages More Problematic than Originally Thought. $134 Billion Recasting in Next Two Years. 94 Percent Made only Minimum Payment. Only 35,000 of the 1 million Option ARM loans Modified. Option ARMs are back in the limelight showing that they have not gone away. These toxic mortgages allowed borrowers a buffet of payment options. However, in recent data released this week we are told that things are much worse than we had initially thought...

Fitch on Option ARM Recasts - Of the $189 billion securitized Option ARM loans outstanding, 88% have yet to experience a recast event ... Of these loans that have not yet recast, 94% have utilized the minimum monthly payment to allow their loans to negatively amortize.

Real Estate - The 800,000 Pound Deflationary Gorilla - The housing market is rapidly deteriorating under the surface. A housing price collapse is a highly deflationary event because it affects so many banks and individuals. We are not close to a bottom in the real estate market and it is essentially almost impossible for it to come before the 2011-2012 time frame...Banks are now hiding foreclosures and refusing to list foreclosed homes on the market! Even worse, banks are allowing people who stop paying their mortgage to stay in their homes for 2 YEARS OR MORE without taking back the house.

Treasury: Millions More Foreclosures Coming - before the House Financial Services Committee, Subcommittee on Housing and Community Opportunity: "We recognize that any modification program seeking to avoid preventable foreclosures has limits, HAMP included. Therefore, even if HAMP is a total success, we should still expect millions of foreclosures... "

FHA Lenders with High Default Rates - HUD has a great tool to track FHA lender performance: Neighborhood Watch Early Warning System - the overall FHA default rate is 4.63%...the winner is Mortgage Depot Inc. with a 48.65% default rate...

Cramdown Is Back: Banks Against Homeowners, Round 2 - House Financial Services Committee Chairman Barney Frank (D-Mass.) tells the Huffington Post he plans to revive the effort to give bankruptcy judges the authority to renegotiate home mortgages -- by making it part of this fall's much-anticipated financial regulatory reform bill.

The Great American Affordability Scheme - There was a time when mortgage loans were provided for maximum 50% or 60% of the purchasing price, and when they were standard paid off in 5 or 10 years. At today's prices, compared to people's incomes, that is unthinkable.

US consumption datapoint of the day - By the early ’90s, American families had, on average, twice as many possessions as they did 25 years earlier. By 2005, according to the Boston College sociologist Juliet B. Schor, the average consumer purchased one new piece of clothing every five and a half days.

University of Michigan Consumer Sentiment -(graph)- From MarketWatch: Consumer sentiment improves in early Sept, UMich - "Consumer sentiment improved sharply in early September, according to media reports on Friday of the Reuters/University of Michigan index. The consumer sentiment index rose to 70.2 from 65.7 in August." Although this is being reported as a "sharp increase" and above expectations, sentiment is still low - and this is just a rebound to the June levels.

Who is increasing their spending - debtors or creditors? - I don't know the answer, but I do know it's the right question to ask. Low interest rates encourage spending and recovery, but this can mean that debt either rises or falls, depending on who does the extra spending...if the people doing the extra spending are debtors, rather than creditors....then there is a danger that the recovery will stall...

Tracking the Consumption Decline - Econbrowser - Figure 1 shows how the year-on-year growth in consumption has hit very low rates, lower than at any period in the past forty years. In Figure 2, I show individual component year-on-year growth rates. (Durables, nondurables and services are 10%, 21.8%, and 68.1% of nominal consumption, respectively.) In Figure 3 I show the log level of real consumption (blue line), converting consumption measured in Ch.2005$ into Ch.2000$

LIVING IN BEVERLY HILLS - There appears to be many more BMW and Mercedes vehicles on the road than people with enough income to own one of these vehicles. How can this be? I was befuddled. After a little research it became quite clear. The graphs below tell the whole sordid story. Borrow today, live like a Beverly Hills hotshot, roll the loan or lease into the next loan or lease in 3 years, and don’t be troubled about the future.

Credit Debt Has Dug a Two-Decade Hole - Consumer credit debt has risen to $2.5 trillion from $400 billion in 1980. Consumers have an average of 5.4 credit cards with $973 billion outstanding. Excluding mortgages, the average American with a credit file is responsible for $16,635 in debt, according to Experian. It’s taken Americans three decades of overspending and under-saving to get into this pickle.

Census Bureau: Real Median Household Income Fell 3.6% - From the Census Bureau: The U.S. Census Bureau announced today that real median household income in the United States fell 3.6 percent between 2007 and 2008, from $52,163 to $50,303... There were 39.8 million people in poverty in 2008, up from 37.3 million in 2007. Meanwhile, the number of people without health insurance coverage rose from 45.7 million in 2007 to 46.3 million in 2008

A Decade With No Income Gains - The typical American household made less money last year than the typical household made a full decade ago...that’s the big news from the Census Bureau’s annual report on income, poverty and health insurance; these numbers are adjusted for inflation.
In the four decades that the Census Bureau has been tracking household income, there has never before been a full decade in which median income failed to rise.

A Lost Decade for US Households? Try a lost Generation (or two)! - a set of indicators that clearly delineates a prolonged and precipitous decline of America gets so little coverage, zero outrage, and generates complete inaction. The Census Bureau reported that median household incomes slid over the last decade. Of course, this new figure also means that household incomes only increased ~$5k (inflation adjusted dollars) or ~11% over 35 years! All of this so called gain has to do with improvements in the household's second income.

Consumer Credit Deflating… While the whole world of “economic experts” are talking about and bracing for inflation, consumer credit (credit being the largest part of the money supply) is CONTRACTING at a RECORD PACE. That’s what exponential curves do when they have peaked. The math does not allow anything to grow unabated year after year into infinity, that only occurs in the minds of idiot politicians and poorly trained economists who received their education in the land of fiat – America.

U.S. Consumer Credit Falls by a Record $21.6 Billion (Bloomberg) -- U.S. consumer credit plunged more than five times as much as forecast in July as banks restricted lending terms and job losses made Americans reluctant to borrow. Consumer credit fell by a record $21.6 billion, or 10 percent at an annual rate, to $2.5 trillion, according to a Federal Reserve report...

Americans slash their borrowing by a record rate. Is this a good thing? - The Wall Street Journal paints a gloomy picture: "The credit conditions bode ill for a quick rebound in consumer spending, which accounts for 70% of gross domestic product" I understand the economic
argument the Journal is trying to make but how much of it is based on the illusion (or perhaps the crutch) of credit-based wealth?

Will the Demand for Assets Fall When the Baby Boomers Retire? - CBO - Today CBO released a background paper examining whether the demand for assets, such as stocks and bonds, will fall after the retirement of the baby-boomer generation—the segment of the nation’s population whose oldest members turned 62 in 2008. As a population ages, the share of older, retired people selling assets increases relative to the share of younger, working people buying them.

Over Ten Years, Bush Tax Cuts Cost 2.5 Times As Much As House Democrats’ Health Care Plan - One of the main criticisms opponents of health reform have been wielding is that it is simply too expensive...However, as a new report from Citizens for Tax Justice (CTJ) pointed out, “many of the lawmakers who argue that the health care reform legislation is ‘too costly are the same lawmakers who supported the Bush tax cuts,” which cost almost $2.5 trillion over the decade after they were first enacted (2001-2010).

Malpractice - When it comes to health care, economists ignore their own rules. Fundamental economic principles tell us that goods should be sold at their marginal cost of production—the cost of producing one more unit of the good. The price–equals–marginal–cost principle maximizes economic efficiency and limits opportunities for fraud and corruption. Unfortunately, when it comes to health care, these principles are routinely violated.

Krugman: Why the public option matters - First, even a public plan with limited bargaining power will help hold down overall costs...Second, a public plan would probably provide the only real competition in many markets....Third is the politics. Remember, to make reform work we have to have an individual mandate. And everything I see says that there will be a major backlash against the idea of forcing people to buy insurance from the existing companies.

The Public Plan Is Not the Same Thing as Cost Control - one of the themes I'm seeing in a lot of the commentary is that the absence of a public plan is essentially equivalent to the absence of cost control, and the presence of a public plan is pretty much the presence of cost control. For the public plans on the table, that's not true, at least not in any way I can see.

Health Care in Japan: Low-Cost, for Now - Aging Population Could Strain System -- Half a world away from the U.S. health-care debate, Japan has a system that costs half as much and often achieves better medical outcomes than its American counterpart. It does so by banning insurance company profits, limiting doctor fees and accepting shortcomings in care that many well-insured Americans would find intolerable.

Improved Health Insurance Reform Flowchart - an updated flowchart that illustrates how many of the currently uninsured will end up with Medicaid, subsidized individual insurance, or unsubsidized individual insurance; how many people will end up using the Public Option; and what exactly those "new consumer protections" will accomplish.

California's Real Death Panels: Insurers Deny 21% of Claims - Reuters - PacifiCare's Denials 40%, Cigna's 33% in First Half of 2009 - More than one of every five requests for medical claims for insured patients, even when recommended by a patient's physician, are rejected by California's largest private insurers, amounting to very real death panels in practice daily in the nation's biggest state.

Pyrrhic victory on health reform? - By the bizarre, dysfunctional rules of Washington policymaking, Republicans seem poised to score a big win. Either they'll kill health reform or they'll force Democrats to pass such a watered-down mishmash that they will have endless fodder for election-year attacks in 2010 and beyond. That would be a Pyrrhic victory... it will just be a matter of time before the inevitable happens and insurance becomes unaffordable for most middle-class households and businesses...

Health care, without the politics - Noisy health-care debate overlooks free clinics' struggles - Over the past year, free clinics across the country have seen a 20 percent decrease in donations and a 40 percent to 50 percent increase in patients. Last year, the clinics — which largely have been excluded from the health care debate — treated 4 million people. This year, they'll serve some 8 million...

And here is the text for the Obama Health Care speech.

An Address To Our Schoolchildren - Neither Republicans or Democrats want you to see this graph. This is how much each American, from 1970 to today, is in debt because of our government's policies...Let me be clear: In the last two years your mother, father, school teacher, grandma and grandpa have stuck each and every American with $10,000 in personal debt, and since 2000 the amount of debt you have had forced upon you has doubled.

Social Security Trust Fund Shocker: $6 Billion August Deficit - The Social Security Trust Fund reported an August net deficit of $5.865 Billion. This is the largest monthly deficit in nineteen years. The Actuarial analysis of the Fund is misdirected. Their focus is based on the future value. It should be focused on the here and now.

Schools Aided by Stimulus Money Still Facing Cuts - NYTimes - How much the federal money has succeeded in stabilizing schools depends on the state. In those where budget deficits have been manageable, stimulus money largely replaced plunging taxpayer revenues for schools. But in Arizona, California, Georgia and a dozen other states with overwhelming deficits, the federal money has failed to prevent the most extensive school layoffs in several decades, experts said.

Surge in Homeless Children Strains School Districts - NY Times - A national surge of homeless schoolchildren is driven by relentless unemployment and foreclosures. The rise, to more than one million students without stable housing by last spring, has tested budget-battered school districts as they try to carry out their responsibilities — and the federal mandate — to salvage education for children whose lives are filled with insecurity and turmoil.

Blame the universities? - Economist - DAVID LEONHARDT starts out his piece (NYTimes) today with a provocative opening: "If you were going to come up with a list of organizations whose failures had done the most damage to the American economy in recent years...I would suggest that the list should include a less obvious nominee: public universities...the American system of higher education may be the best in the world. Yet in terms of its core mission — turning teenagers into educated college graduates — much of the system is simply failing.

Harvard, Heal Thyself - Harvard Medical School is exactly the kind of private institution on which the public welfare depends. No doubt the easiest, albeit not the only, way to undermine Harvard's mission would be to invite the pharmaceutical industry to offer secret bribes to its faculty in order to ensure that their research and teaching reflected not their scholarly judgment but the profit motives of these mega-corporations. This may, however, be just what is happening...

Harvard and Yale endowments suffer heavy losses - (Reuters) - Harvard and Yale, America's two richest universities, said on Thursday their endowments lost roughly 30 percent of their value last year, showing how severely the financial crisis battered even the world's best managers. Both schools warned about the declines late last year when their presidents told students, faculty and alumni about upcoming heavy cutbacks...

College for $99 a Month - The next generation of online education could be great for students—and catastrophic for universities

German bloggers’ Internet Manifesto on journalism’s future makes waves - After stirring up their own country, the German blogger elite has launched an international version of their Internet Manifesto in English. Fifteen authors of Germany’s most popular blogs have signed a declaration about how journalism works today...

There Is Another Shoe To Drop In The Global Economic and Financial Crisis – And The Focus Will Be On Europe’s Perifery - it is noteworthy just how many in the “weaker” countries have often sought refuge in the global nature of the crisis, rather than asking themselves just what it is exactly about their own particular economy that makes them “weaker”, and more vulnerable, and why the crisis has struck more severely “here” rather than “there”...

Interest rates ‘could rise sharply early next year’ - UK Telegraph - Interest rates could start to rise early next year – and by more than in previous cycles, according to an economist at a City fund manager. This would cause a large rise in mortgage repayments for borrowers on tracker and other variable-rate mortgages, some of whom are staying afloat financially only because interest rates are currently at an all-time low

Mortgages: bank profit margins hit record high – UK Telegraph - Bank profit margins on mortgages have hit a new record with the latest figures which disclose the discrepancy between their costs and rates charged to customers.

In August, QE hit the economy - What are UK banks up to? Last month, their cash deposits at the Bank of England fell by 6 percent. In crude cash terms, banks withdrew almost ₤10 billion. In the previous six months, banks had accumulated huge deposits. This was due to quantitative easing. The BoE was buying up bank holdings of Treasury paper. In return, it paid for this paper by increasing bank deposits held at the Bank of England. This was how the BoE were "printing cash"; it was generating big increases in reserve balances. In principle, UK banks could have withdrawn that cash and used it to create new credit. However, during the first half of this year, banks preferred to park the money in the vaults of the Bank of England. That all changed in August, when for the first time since QE began, deposits shrank.

UK 'could face blackouts by 2016' - The government's new energy adviser says the UK could face blackouts by 2016 because green energy is not coming on stream fast enough.
David MacKay, who takes up his post at the Department of Energy on 1 October, says that the public keep objecting to energy projects.

World's Stocks Controlled by Select Few - Companies from US, UK and Australia have the most concentrated financial power.- A recent analysis of the 2007 financial markets of 48 countries has revealed that the world's finances are in the hands of just a few mutual funds, banks, and corporations. This is the first clear picture of the global concentration of financial power, and point out the worldwide financial system's vulnerability as it stood on the brink of the current economic crisis.

Poverty, growth, and sustainability - The extent and depth of poverty in the world today is a crushing and immediate problem. The economies of most countries in the world continue to reproduce life circumstances for the extremely poor that make it all but impossible for them to participate in normal, productive lives.

Eurointelligence: G20 agrees all is well. What would we do without them? - It seems that the US position fully prevailed....we are basically at the same position that we would be in if there had never been a G20. For those with excessive time on their hand, the Wall Street Journal has the full “We the G20 finance ministers and central bankers“ communiqué.

To fix the system we must break up the banks - FT OpEd - In coming up with solutions that address the immediate crisis but fail to tackle dangerous systemic issues, the Group of 20’s emerging ideas on the banking industry bear a striking resemblance to the Americans’ response to the dotcom crash of 2001-02...

G20 rules spark fears of more bank bail-outs - France and Germany may be forced to semi-nationalise more of their stricken banks after the G20 imposed new, stricter rules on banks' balance sheets.

G20 Summit, IMF Meeting: What To Expect? -As we wade through a long line of international economic meetings – G20 ministers of finance last week, G20 heads of government in Pittsburgh coming up, IMF-World Bank governors meeting in Istanbul early October (and all the associated “deputies” meetings, where the real work goes on) – it seems fair to ask: what should we expect from the forthcoming summit sequence?
Nothing meaningful.

America and eastern Europe: End of an affair? - The Economist - AFTER two decades of sometimes fervent Atlanticism in the ex-communist world, disillusionment (realism) is growing. A new poll (see chart) by the German Marshall Fund, a think-tank, shows that western Europe is now much more pro-American and pro-NATO than the ex-communist east.

How Your Stimulus Dollars Are Making Japan And Europe Rich - slide show - You know all that money the government is spending to save the economy and the planet? A lot of it is headed into the coffers of foreign corporations because they're the ones that know how to build most of the stuff your stimulus dollars are buying.

Does the world have the courage to deal with its debts? - Deflation is spreading from the core of the global system to the most unexpected regions of the world. It has even reached Latin America. Prices are sliding in Peru, Chile, Colombia, Paraguay, Bolivia, Ecuador, Guatemala, and El Salvador, to the consternation of everybody.

UN wants new global currency to replace dollar - In a radical report, the UN Conference on Trade and Development (UNCTAD) has said the system of currencies and capital rules which binds the world economy is not working properly, and was largely responsible for the financial and economic crises. It added that the present system, under which the dollar acts as the world's reserve currency, should be subject to a wholesale reconsideration.

China to diversify out of U.S. dollars - For months now, the Chinese have signalled growing unease with U.S. monetary policy. And now comes the clearest signal yet that they are moving away from the dollar. Cheng Siwei, a former vice-chairman of the Standing Committee, said point blank that the Chinese central bank was about to actively diversify new reserve assets away from the U.S. dollar and into currencies like the Yen and the Euro.

China issues bonds to “promote the RMB in neighbouring countries - The yuan bond issue, worth about $879 million, will ‘‘promote the RMB in neighboring countries,’’ referring to the renminbi currency, ‘‘and improve the yuan’s international status,’’ the Finance Ministry said in the statement on its Web site. ‘‘The first step toward internationalization is regionalization,’’ Shi Lei, a foreign currency analyst at Bank of China in Beijing, said in an interview.

China's firms surpass US rivals - The money-earning capability of China's top 500 enterprises has exceeded that of their United States counterparts for the first time, as the sweeping financial crisis pummeled many US firms. Net profits for the Chinese companies stood at $170.6 billion in 2008, well above the $98.9 billion for US companies in the same period.

China’s Fat Banking Years Are Fading, And Risks Are Rising - Since the stock-holding reform, China 's banking sector has seen some years of fat profits, but now for the first time it is experiencing a real test of the economic cycle. There has already been a substantial decline in profits, and accumulating non-performing loans (NPLs) and credit risk are likely to become apparent with the withdrawal of the government's stimulus policies.

Housing construction is increasing again (China Daily)
The government is attempting to pass the baton of growth from State-funded infrastructure investment to the private housing sector, a risky but necessary move to sustain the economic recovery. Construction cranes sprouting in big cities, busy furniture shops and soaring property sales all show that the transition is going smoothly so far.

Bank of China’s Zhu Sees ‘Bubbles’ in Asset Markets (Bloomberg) -- Bank of China Ltd., which led the nation’s $1.1 trillion lending spree in the first half, said ample liquidity has caused “bubbles” in stocks, commodities and real estate. “The potential risk is that a lot of liquidity goes to the asset market,” Vice President Zhu Min said in an interview in Dalian today. “So you see asset bubbles in commodities, stocks and real estate, not only in China, but everywhere.”

China's Buying The World! - China is sitting on $2 trillion worth of Treasuries and other foreign paper that is becoming worthless with each passing day. What's an ambitious, developing country to do? Put the dollars to work. Last year China spent $41 billion on acquisitions, up from $143 million in 2002, according to the FT. Since December China has spent $13 billion on acquistions says Bloomberg. It plans on spending much more than that in the coming months, cashing in on steep discounts left and right. Here's what China has been buying lately

China Wants Our Real Estate! - Apparently it's not enough for China to own all the world's resources -- it needs to own other stuff too, like real estate in the U.S. After sitting out most of 2008, China's sovereign wealth fund is looking to dive in to real estate once again, says The Wall Street Journal. The China Investment Corp. is in talks with private equity groups and wants to snap up distressed assets in the U.S. taking advantage of certain government programs, like the PPIP.

China’s industrial production rises 12% - China’s industrial production grew at a faster pace in August, reports Bloomberg. Output gained 12.3% from a year earlier, after climbing 10.8% in July, compared with an 11.8% median estimate of economists surveyed

Enter China’s consumers - Two thousand and nine may just be the year that marks the rise of the Chinese consumer and the Chinese brands that they will covet. A rapidly growing middle class is expected to do some serious shopping...

Backpedaling, China Eases Proposal to Ban Exports of Some Vital Minerals - NYTimes - Chinese officials said on Thursday that they would not entirely ban exports of two minerals, dysprosium and terbium, vital to manufacturing hybrid cars, cellphones, large wind turbines, missiles and computer monitors, although they would tightly regulate production. China produces more than 99 percent of the world’s supply...

Michael Perelman: A Different Environmental Threat: Peak Rare Minerals, China, and Green Technology - One of the keys to Green Technology may be buried in China. It has only recently begun to appear in the media, but for very different reasons. A couple of years ago, the New Scientist published a piece about the risks of the scarcity of rare minerals...these minerals are crucial for high technology, including both military and so-called Green Technologies.

The vote that changed Japan - The Economist - The electorate has thrown out not just a party but a whole system. The vote, in which the Democratic Party of Japan (DPJ) broke the half-century lock of the Liberal Democratic Party (LDP) on power, marked the overdue destruction of Japan’s post-war political system.

Japan: The Triumph of Crony Corporatism Over the Individual - The former Japanese Central Banker Toshiro Muto says that '"in principle equity values should be set by the market and authorities should avoid manipulating prices because doing so would hurt the stock market’s reputation." Apparently in this case 'in principle' means 'theoretically, as is convenient," because Mr. Muto goes on to recommend that the Japanese Central Bank buy stocks to support the Japanese banking cartel, which has crippled that country for the past fifteen to twenty years.

Japan’s debt - FT - Japan’s scrapping of “wasteful” government projects should knock a few trillion from total borrowings this year. Not that it makes much difference. Japan has created a monster of a government bond market that needs to be fed. This year’s budgeted increase in JGB issuance is a whopper: Y130,000bn, on top of Y846,000bn outstanding.

Non-ferocious Japanese orders - Japanese machinery orders fell to a record low in July of 665bn yen ($7.2bn) in July, according to data released on Thursday. The 9.3 per cent decline was more than twice the 3.5 per cent drop forecast by economists. What’s really interesting is the fact that much of the weakness came from non-ferrous metal orders. These fell sharply after surging in the previous month. Orders were also weighed down by steep drops in “other transport machinery” and general machinery

Japan May Need to Buy Stocks, Ex-BOJ Deputy Muto Says - Bloomberg - The Nikkei 225 Stock Average is at a 26-year low, eroding banks’ capital and making them reluctant to lend. Finance Minister Kaoru Yosano said today that the government has a “strong will” to combat the credit squeeze resulting from the stock-market slump.

Foreign reserves achieve new high - Japan Times - Japan's foreign exchange reserves rose in August by $19.6 billion to a record $1.042 trillion, largely due to an increase in its holdings of special drawing rights at the International Monetary Fund, the Finance Ministry said Monday. The ministry said Japan received allocations of the equivalent of $15.3 billion worth of SDRs, a synthetic currency, from the Washington-based lender late last month.

Tax Havens – Another One Bust – The Cayman Islands - Guess who could be holding the bag? Yes, the British taxpayer could be called to the rescue yet again. It is argued if there is a major crash in this jurisdiction it will be a major event on the scale of those in 2008 that nearly triggered a catastrophic failure in the world’s monetary systems. Because these tax havens are secrecy jurisdictions there is no means of knowing beforehand who will be affected, to what extent, and with what collateral damage.

Bankruptcy threat brings new concept to the Cayman Islands … taxes
• UK refuses request to bail out Cayman Islands
• Workers' benefits not paid as state runs out of cash

Africa and the Global Economic Crisis: Weathering the Storm - IMF's blog - Before the global recession, sub-Saharan Africa was generally booming. Output grew by about 6½ percent a year between 2002 and 2007—the highest rate in more than 30 years. Hopes were high that the region was slowly but surely turning the corner...Then, in a great reversal of fortune, the global
economy went into a tail-spin. Initially, we hoped that the fallout in Africa would be limited.

Africa desperately needs trade links: a pictorial essay - we can forget sometimes that international trade is not optional for a very small, very poor country. If there are any kinds of returns to scale at all in many sectors then a tiny domestic market will rule out any serious domestic production in many sectors So trade will be a necessity, specializing in what each small, poor country can do, and importing everything else.

Oil boom fuels mystery of the missing island in the Mexican Gulf - The disappearance of Bermeja is no laughing matter – it would allow Mexico to extend its maritime border some 55 miles further north, helping it to fight off what it sees as American encroachment on its claims to potentially vast oil reserves in the Mexican Gulf. Some have scented skulduggery on an epic scale and conspiratorially minded Mexican nationalists have seized on the mystery as an opportunity to bludgeon America...

If We Can't Get Oil from Mexico... The news from Mexico just continues to get worse with bad news from all three of their biggest oil fields, even as our perennial cornucopian talks of “a Mexican surprise.” Mexico itself is not likely to be able to come up with much of an answer.
The President just changed the head of Petroleos Mexicanos (Pemex) as the revenues that the state gets from sale of its oil (making up nearly 40% of the federal budget) dropped 30% in the first half of the year.

Mexico to enjoy $8bn windfall from oil bet - Mexico is set to earn a record $8bn from financial contracts it bought last summer as insurance against weaker energy demand and lower oil prices this year, the Financial Times has learnt.

Speculators and the oil price - The Economist - On September 4th the CFTC added more evidence by releasing what it said were more transparent data on market positions. What do the new data show? On the New York Mercantile Exchange (NYMEX) swap dealers and managed money were both long on oil in the week to September 1st—the former by more than a 2-to-1 ratio. Producers and users, by contrast, are net short on oil by similar margins.

Norway Aug oil output falls to 1.91 mln bpd - (Reuters) - Norway's oil production fell to a preliminary 1.91 million barrels per day on average in August from 2.07 million in July, the Norwegian Petroleum Directorate said on Friday. Non-OPEC producer Norway is the world's sixth biggest oil exporter and western Europe's biggest gas exporter. Oil companies on the Norwegian shelf are struggling to maintain production against a long-term declining trend at maturing North Sea oilfields.

Oil Spin - Foreign Policy - Last week, four of the world's most outspoken oil aficionados waded into the controversy of peak oil, publishing articles packed with myth and distortion. This "Gang of Four" all claimed the issue was silly, moot, or simply a myth. Ignore the optimists. Peak oil is real.

Not all hydrocarbons created equal - Historically, the price ratio between oil and natural gas has been around 7:1. As I write, it is almost 27:1. Maybe there is a good fundamental reason why someone is paying 27x the price for hydrocarbons with 6x the energy content. But if the price ratio continues to rise, some method will eventually be developed to supply natural gas power to vehicles.

Nature turning left as we look right - We have cried about the man made global warming issues back and forth and we have climatologists arguing still over whether it is really happening, what is happening and how it is happening... (incl links to several articles on greenhouse gases)

New York City Braces for Risk of Higher Seas - WSJ - Sea level may rise faster near New York than at most other densely populated ports due to local effects of gravity, water density and ocean currents, according to four new forecasts of melting ice sheets. The forecasts are the work of international research teams that included the University of Toronto, the National Center for Atmospheric Research in Boulder, Colo., Florida State University and the University of Bristol in the U.K., among others.

Climate change and developing country growth - VoxEU - In fifty years, 3.4 billion people in developing countries will approach advanced country income levels with consumption, energy use, and emissions patterns to match. This column says that advanced countries should lead the way with technology and a global strategy to reduce the carbon intensity of their economies. That will lay the groundwork for developing economies to follow a sustainable path as they graduate to higher income levels.

Monkeys Follow Economic Rules Of Supply And Demand - ScienceDaily — A monkey that has acquired the sole power to hand out apples is generously rewarded with grooming sessions by the other monkeys in its group. But as soon as another monkey can hand out apples as well, the market value of the first monkey is halved. The monkeys therefore unerringly obey the law of supply and demand.

Scanning Your Brain to Relax Incentive Compatibility - forthcoming in Science: “We have shown that by applying tools from neuroscience to the public-goods problem, we can get solutions that are significantly better than those that can be obtained without brain data”

Listening to Lithium - Would putting the drug in drinking water make the brain healthier—but affect personality? Low-dose lithium might raise the levels of neurotrophic factors in the brain. These factors, made by the brain for the brain, encourage new cell growth, allow for new connections among existing cells, and prevent deterioration in the face of stress.

This is your Brain on Rose-Coloured Glasses - Sure, being in a good mood changes the way you see the world, but it also looks like it changes the way the brain works. It turns out that people in a positive mood took in more information about the world around them, while people in a negative mood took in less.

The ultimate hack: reverse engineering the human brain - Scientific American
neuroscientists now say that within a decade it will be possible to create a digital model that replicates all functions of the human brain...Such a model would reside on a supercomputer, allowing researchers to test theories about the brain and better understand how electrical-magnetic-chemical patterns in this mysterious organ convert into our perceptions...

Why People Believe in Conspiracies - Scientific American - Why do people believe in highly improbable conspiracies? Previous columns have provided partial answers, citing patternicity (the tendency to find meaningful patterns in random noise) and agenticity (the bent to believe the world is controlled by invisible intentional agents). Conspiracy theories connect the dots of random events into meaningful patterns and then infuse those patterns with intentional agency.

Don’t be fooled: swine flu still poses a deadly threat – New Scientist - Swine flu has still not grown more severe, as many feared it would but as the pandemic’s second, autumn wave begins in the northern hemisphere, the virus is posing a different threat. While H1N1 mostly causes mild disease, some people – estimates suggest fewer than 1 per cent – become deathly ill, very fast. This pandemic is like two diseases. Either you're off work a few days, or you go to hospital, often to the intensive care unit. There's no middle ground.

‘E-Bomb’ Doomsday Conference - It’ll fry pace makers, destroy iPhones, and turn laptops into useless paperweights. It’s the scariest thing most people outside the Washington Beltway have never heard of: electromagnetic pulse weapons. Electromagnetic pulse, or EMP, is a burst of electromagnetic radiation that fries electronics. The effects of a nuclear EMP were first observed after the 1962 Starfish Prime nuclear test, which knocked out satellites and electronics. EMP weapons are specifically designed to maximize this electronics-killing effect...

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