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Nouriel Roubini's Global EconoMonitor

The Rising Risk of a Hard Landing in China: The Two Engines of Global Growth – U.S. and China – are Now Stalling

For the last few years the global economy has been running on two engines, the U.S. on the consumption side and China on the production side, both lifting the entire global economy. The U.S. has been the consumer of first and last resort spending more than its income and running large current account deficits while China (and other emerging market economies) has been the producer of first and last resort, spending less than its income and running ever larger current account surpluses.

For the last few months the first engine of global growth has effectively shut down as the latest batch of macro news from the U.S. are worse than awful: collapsing consumption and consumer confidence, plunging housing, collapsing auto sales, plunging durable goods spending (while supply side indicators such as production, ISM and employment are also free falling). The U.S. is entering its worst consumer recession in decades both supply and demand data look worse than in the severe recessions of 1974-75 and 1980-82. And in due time this tsunami of awful macro news, together with ugly downside surprises to earnings will take another toll on equity valuations that are now temporarily lifted by another bear market sucker’s rally.

More worrisome there are now increasing signs that the other main engine of the global economy – China – is also stalling. Let us consider now in detail the evidence that China may be on its way to a hard landing…

The latest batch of macro data from China are mixed but all pointing towards a sharp deceleration of economic growth: official GDP data showing growth down to 9% from the 12% of a couple of years ago; sharply falling spending on consumer durables (autos); falling home sales and sharp fall in construction activity; leading indicators of the manufacturing sector (the Chinese PMI) showing a value of 44.6% (i.e. an outright contraction of manufacturing as a level below 50% indicates a contraction), its lowest level ever since its publication. 9 out of 11 PMI sub indices showed contraction – Output, New Orders, Input Prices, Purchases of Inputs, New Export Orders, Imports, Backlogs of Orders, Stocks of Major Inputs. Output index fell to 44.3 from 54.6 in September, while new orders dropped to 41.7 from 51.3, while the inventory index climbed to 51.4 from 50.5. The decline in total orders has been even stronger than in export orders, thus suggesting a weakening in both domestic and export demand. And the decline in construction activity is without doubt a major contributor to the recent weakness in industrial activity in China.

Note also that manufacturing, which accounts for 40% of China’s GDP, is slowing based on surveys of manufacturers, matching with anecdotal reports of factory closures in China’s south East coast. Industrial production has slowed to the lowest level in 6-years (output rose 11.4% in September, from 12.8% in August). While slowdown may have been exacerbated by the Olympics shut-down, it has been on a slowing trend for months. The Federation of Hong Kong Industries predicts that 10% of an estimated 60 to 70 thousands Hong Kong-run factories in the Pearl River Delta will close this year. And of course the Chinese equity bubble (P/E ratios reached a ridiculous level of 60 plus late last year) has now gone bust big time with the Shanghai index now having fallen over 60% from its bubbly peak.

There is thus now a growing risk of a hard landing in China. Let us be clear what we mean by hard landing. In a country with the potential growth of China hard landing would occur if the growth rate of the economy were to slow down to 5-6% as China needs a growth rate of 9-10% to absorb about 24 million folks joining the labor force every year; it needs a growth rate of 9-10% to move every year about 12-14 million poor rural farmers to the modern industrial/manufacturing urban sector. The whole social and political legitimacy of the regime of the ruling Communist party rests on continuing to deliver this high growth great transformation of the economy. Thus, a slowdown of growth from 12% to 5-6% would be the equivalent of a hard landing or a recession for China. And now a variety of macro indicators suggest that China is indeed headed towards a hard landing.

Note that China is an economy is structurally dependent on exports: net exports (or the trade balance surplus) are close to 12% of GDP (up from 2% earlier in the decade) and exports represent about 40% of GDP. Real investment in China is about 45% of GDP and, leaving aside the part of this investment that is housing and infrastructure spending, about half of this capex spending goes towards the production of new capital goods that produces more exportable goods. So, with the sum of exports and investment representing about 80% of GDP, most of Chinese aggregate demand depends on its ability to sustain an export based economic growth.

The trouble –however – is that the main outlet of Chinese exports – the U.S. consumer – is now collapsing for the first time in two decades. Chinese exports to the U.S. were growing at an annualized rate of over 20% a year ago; while the most recent bilateral trade data from the U.S. now show that this export growth has now fallen down to 0%. But the worst is still to come in the next few quarters: after an ok second quarter in the U.S. (boosted by the tax rebates) U.S. retailers hoped that the consumer downturn would be minor: they thus placed over the summer massive orders for Chinese (and other imported) goods for Q3 and Q4. But now the U.S. holiday season clearly looks like the worst that the U.S. will experience in decades and the result of it will be a huge overhang of unsold Chinese good. Thus, you can expect that orders of Chinese goods for Q1 of 2009 and the rest of 2009 will be sharply down dragging Chinese exports to the U.S. into sharply negative territory. And it is not just Chinese exports to the U.S.: until a few months ago the U.S. was starting to contract but the rest of the advanced economies (Europe, Canada, Japan and Australia/New Zealand) were growing at a sustained rate, thus boosting Chinese exports. But there is now strong evidence that a severe recession has now started in almost all of the advanced economies. You can thus expect that Chinese export growth to Europe, Canada, Japan, etc. will sharply decelerate in the next few quarters, thus adding to the fall in Chinese net exports. And once Chinese export growth sharply decelerates and net exports sharply fall you can expect a severe fall in capex spending in China as there is already a large excess capacity of exportable goods given the massive overinvestment of the last few years. Thus, a sharp fall in net exports and a sharp fall in real investment will likely trigger a hard landing in China. Considering the certainty of a recession in advanced economies and the high likelihood of a global recession there is now a very high probability that Chinese growth could slow down to 7% or even lower in 2009 (7% growth for China is indeed now the forecast of a leading bank such as Standard Chartered); and 7% is just a notch above the 6% that would represent a near hard landing for China.

Can aggressive monetary/credit and fiscal policy easing prevent this hard landing? Not necessarily. First note that China has already reduced interest rates three times in the last few months and easing some credit controls. But monetary and credit policy easing may be ineffective: if capex spending by the corporate sector will start to fall sharply as the fall in next exports leads to a sharp fall in the expected return on new capital spending on exportables a reduction of interest rates and/or an easing of credit controls will make little difference to such capex spending: easing money and credit will be like pushing on a string as the overinvestment of the last few years has led to a glut of capital goods. There is indeed already evidence that but corporate loan demands have diminished sharply while commercial banks have hesitated to lend while choosing to firewall risks. The government can ease money and credit but it cannot force corporate to spend and banks to lend if loan demand is falling because of low expected returns on investment.

Could fiscal policy rescue the day and prevent a Chinese hard landing? The optimists argue yes by pointing out that fiscal deficits and public debt are low in China and that China has the resources to engineer a rapid fiscal stimulus in a short period of time. But the ability of China to implement a rapid and massive fiscal stimulus is limited for a variety of reasons.

First, as pointed out by recent research (Global Insight) the combined effects of natural disasters, social strife in the West, and the Olympics have created a large hole in the central government budget this fiscal year. The Ministry of Finance may have dipped into various stabilisation funds to avoid the appearance of running a large deficit. For regional and municipal governments, the decline in turnover in local property markets has reduced the flow of fees and taxes, causing them to delay ambitious industrial development plans in some cases.

Second, a hard landing in the economy and in investment would lead to a sharp increase in non-performing loans of the – still mostly public – state banks; the implicit liabilities from a serious banking problem would then add to the implicit and explicit budget deficits and public debt. Note that the poor quality of the underwriting by Chinese banks –that financed a huge overinvestment in the economy – has been hidden for the last few years by the high growth of the economy. Once net exports go bust and real investment sharply falls we will see a massive surge in non-performing loans that financed low return and marginal investment projects. The ensuing fiscal costs of cleaning up the banking system could be really high.

Third, as pointed out by Michael Pettis – a leading expert of the Chinese economy – a surge in tax revenues in last 4 years has been more than matched by surge in spending so that if revenue growth diminishes/reverses it might not be easy to slow spending growth proportionately. Contingent liabilities from non-performing loans could also reduce resources available for a fiscal stimulus. As argued by Pettis: Total direct and indirect debt (and I am not including long term obligations like unfunded pension liabilities) is probably much higher than the official numbers which, depending on how you count, range from 15% to 30% of GDP…However, for reasons I have discussed many times before on this blog, I think actual Chinese government debt exceeds the visible debt. My guess is that without counting the possibility of rising NPLs in case of an economic slowdown (which ultimately can become contingent liabilities of the government), total government debt in China is probably 50% of GDP or higher. That means that China has a lot less room for running large fiscal deficits than we might suppose, and during the time it most needs to run a deficit – when the economy is slowing sharply – we may anyway see a surge in contingent debt as bank NPLs surge.

Fourth, while a fiscal policy stimulus has already started its scope and size has been so far relatively modest. Major stimulus measures announced by the Chinese government have included a major export tax rebate hike and a new state infrastructure plan and agreement to increase grain purchases to prop up export and investment growth. Further spending may include tax reform (value added tax to support fixed investment), more infrastructure spending, and on social security as well as government activities to provide capital to small and medium sized enterprises which can’t access credit yet. The big question is however whether the Chinese government could increase the fiscal stimulus by an order of magnitude larger than the current effort if a quick order hard landing were to occur. The answer is probably not as moving a massive amount of economic resources from the tradeable sector to the non-tradeable sector (infrastructures and government spending on goods and services) will take time and cannot be done in a short period of time: the Chinese government has massive infrastructure projects for the next 5-10 years; but front-loading most of that multi-year spending over the next 12 to 18 months (if a hard landing risks to occur) will be close to mission impossible.

In conclusion the risk of a hard landing in China is sharply rising; a deceleration in the Chinese growth rate to 7% in 2009 – just a notch above a 6% hard landing – is highly likely and an even worse outcome cannot be ruled out at this point. The global economy is already headed towards a global recession as advanced economies are all in a recession and the U.S. contraction is now dramatically accelerating. The first engine of global growth – the U.S. on the consumption side – has now already shut down. The second engine of global growth – China on the production side – is also on its way to stalling. Thus, with the two main engines of global growth now in serious trouble a global hard landing is now almost a certainty. And a hard landing in China will have severe effects on growth in emerging market economies in Asia, Africa and Latin America as Chinese demand for raw materials and intermediate inputs has been a major source of economic growth for emerging markets and commodity exporters. The sharp recent fall in commodity prices and the near collapse of the Baltic Freight index are clear signals that Chinese and global demand for commodities and industrial inputs is sharply falling. Thus, global growth – at market prices – will be close to zero in Q3 of 2008, likely negative in Q4 of 2009 and well into negative territory in 2009. So brace yourself for an ugly and protracted global economic contraction in 2009.

537 Responses to “The Rising Risk of a Hard Landing in China: The Two Engines of Global Growth – U.S. and China – are Now Stalling”

Lord SidcupNovember 4th, 2008 at 5:31 am

Is NR still confident that depression / total worldwide economic meltdown has been averted?That assertion puzzled me. And I am curious about the logic behind it.

villagerNovember 4th, 2008 at 7:09 am

My interpretation of NR is that conditions will not be as bad as the Great Depression. The conditions will be worse than any recession that we will have experienced since the Great Depression. In effect, we are experiencing something that may yet be referenced as the Great Recession. If I recall correctly, the 10-15 page submission that NR submitted recently to the US Congress offers the greatest clarity of his outlook. I thought that his submission to the Congress was excellent in its explanation and in the breadth of his discussion.

JGUNovember 4th, 2008 at 8:35 am

Dear Professor, I’m glad you picked up the China story. Based on the evidence I’m seeing (I have relatives and lots of friends living in the Shanghai area), China is definitely going to experience a hard landing, if not an outright contraction. The China hard landing will exacerbate the US recession in that medium to long term rates in US will rise significantly because of lack of more funds to buy US bonds. I think your 2 year US recession prediction is a bit too optimistic, this recession will be long and deep, I’ll call it Great Depression II.

devils advocateNovember 4th, 2008 at 1:16 pm

Dear JGUGermany just announced that it will issue German Govt Bonds to its banks for “equity”-and says that these bonds will not be sold so that the interest on the German Govt bondsthat are sold does not rise –they stated that increasing their total Govt debt – by keeping these bonds from selling -would not increase the interest on their bondsrisk of default does not exist – the National Debt does not countwell! -if it’s good enough for Germany then why not USA!!!just print away our problems

EBNovember 4th, 2008 at 3:31 pm

That’s the Japanese reciepe.The State underwrites an equity stake in a bank that in return buys an equivalent amount of government’s bonds. This reciprocal trade balances the bank’s B/S and produces a 4% profit in the bank’s P/L (4% interest income and no charge on the equity).As the government bonds are not “sold” on the market.That’s the cheapest and more efficient window dressing I know of.

GuestNovember 4th, 2008 at 5:52 am

Yes, China is the wildcard in all this that will determine whether we going to have a serious global recession like 1974 or something more severe. I think we are likely to find that China growth miracle is a fraud and will suffer the same fate as other countries with massive credit bubbles. In the end, the man has gotta get paid. The problem with China is that we have no way to authenticate the veracity of the numbers they report. Some suggest, such as Jeremy Grantham, that they may already be contracting. In the history of credit bubbles, and we now currently have the largest one of all time, you cannot show me an example of one that ended without wreaking a crushing blow to the economy, one usually associated with a depression. Of course the only difference between a recession and depression is the magnitude of the decline. While the countertrend rally may continue for awhile as we may have fallen too far too fast, there is little doubt lower lows are coming. One of the biggest tells is the Baltic Dry Freight Index which has now fallen 90% this year. Global commerce has essentially ceased and the macro numbers going forward will be horrendous. As you know, most sell side analyst are horrible at predicting earnings going forward as they are always way to optimistic. In fact, look at the Street numbers for next year. They are essentially forecasting a V shaped bottom with earnings growth resuming next year. Highly unlikely given the depth of this crisis. To understand this crisis I suggest you study the nature of the beast we are dealing with. This is a secular bear market not a cyclical bear in a secular bull. Even a sell side analyst can tell you these markest have gone no where in 11 years. We are so conditioned for V bottoms and buy the dips. If you want to understand Secular Bear markets then study the Dow Jones between 1929 and 1932 or the Nikeii starting in 1989. These are secular bear markets like we are going to be dealing with. The only question is whether it will be sharp and steep or protracted. Please do not be fooled by the near term rally currently unfolding and likely to continue for a little while. You should view this as a blessing to sell some of the trapped long positions you are still holding at substantial losses.

EBNovember 4th, 2008 at 3:40 pm

I agree with the above comment.The hard landing may even go further than professor Roubini’s figure. The professor didn’t mention that courtesy of the dollar rise, the Yuan is now more than 20% higher against the euro compared to a year ago.Now, do the maths on a 20% downsizing of exports and export related investments can take on Chinese GDP (40% exports + 40%/2 investments) x 20% = 12% fall in GDP so there is significant risk that Q2 2009 GDP falls to zero annualized.

RayTNovember 4th, 2008 at 6:01 am

NR said cash is king many times. In one interview he even mentioned Gold may be a safe place also. In an interview on BNN just this past Friday, he said the USD eventually lose its value – we are talking a years time.So my plan is to stay in cash, eventually buy gold, then perhaps in time some equities.

JYNovember 5th, 2008 at 5:17 am

i think your plan doesn’t work well… since the value of dollar is going down, why don’t you buy gold now instead of getting gold later(which you may end up w/ less amount of gold w/ same amount of dollar)

RodgerNovember 4th, 2008 at 8:20 am

Naw, he’s just working his moment in the sun for all it’s worth, and the news media are eating up any negative views they can find for now.

jomosNovember 4th, 2008 at 6:13 am

From global to more local flow of commerce ? A step back in time when family takes precedence ? Jumping off the ever speeding treadmill and slowing down the rate of change ? A place where love,faith,trust and people are the real assets ? Just what the doctor ordered! Embrace and enjoy the change,it’s coming.Priorities have to be individually reassessed.

AnonymousNovember 4th, 2008 at 6:51 am

The ancient wisdom of China has discovered a sly strategy combining diplomacy and economic cunning initially. then outright takeover after their enemies economy is in ruins.The hard landing is merely a part of the master plan of the master nation of China.

GuestNovember 4th, 2008 at 1:46 pm

China’s domestic growth could continue even in a failing global economy if they choose to mobilize more fully for war!

GuestNovember 4th, 2008 at 6:56 am

prof NR, can you pls elaborate on why you think a great depression (ok maybe not 25% unemployment) but something that is equivalent in today;s world can be avoided?…or even a japan like scenario can be avoided (this is wat i would consider a great depression in the 21st century)?…mrskeptical

heroNovember 5th, 2008 at 2:47 am

I rather enjoyed the article….:Are the Rednecks losing their power?Back to your posted article, the bankers are tooscared to lend money for fear it will not return.I believe it will continue to next year with norelief in sight. It is a systematic issue.hero

GuestNovember 4th, 2008 at 6:59 am

http://boards.fool.co.uk/Message.asp?mid=11259354

“James Purnell, the Work and Pensions Secretary, will reiterate plans at a Jobcentre Plus conference today for the recently unemployed to have the interest paid on their mortgages. Under the present Income Support for Mortgage Interest scheme, the value of homes eligible is £100,000. This will be increased to £175,000. The waiting period for the scheme will also be decreased from 39 to 12 weeks. “People need to know that there is financial help and support out there if they lose their jobs,” he will say.””But people knew that when they took out these mortgages. So they will have bought mortgage protection insurance, like I did. So in being sensible, not taking out a 125% mortgage and lying about my income, protecting the payments against possible redundancy, I’ve just been an idiot, have I?Sodding APD is entirely right – we have entered a command economy. In the space of 2 months, the USA have gone from the land of the free to a massive Communist council house estate. Businesses are now being encouraged to borrow directly from the Fed. So the state is now controlling the means of (money) production. How the hell did we end up with this bloodless coup. Was the whole world watching the Reality Celebrity Torturing instead. That’s it, I’m buying a canal boat.

Douglas TuttleNovember 4th, 2008 at 10:54 am

You may need an ocean going sail boat (wind energy) if you’re going to get away from the invasive proclivities of socialist governments. Don’t forget to take a BIG machine gun, lots of pirates out there too.

AnonymousNovember 4th, 2008 at 7:17 am

I live in Beijing and there is no question things are slowing down here. People should not underestimate the political element to any attempts by the PRC government to keep growth going. We are 8 months away from the 20th anniversary of June 4, 1989. Those demonstrations were really spurred by economic problems and corruption. The main lesson the Party learned was that if they could deliver the material goods they could stay in power. Now this global slowdown may be too much for the Party to handle, but they are not going to go down without a fight, and when it comes to running deficits and pouring money into the economy, even at the expense of medium and longer term distortions, you can expect them to throw everything they have at the problem. It is likely a matter of life and death for the regime, and many of the people in it. Most Americans may have forgotten who Nicolae Ceausescu was, but I guarantee the Party leadership has not, and they have especially not forgotten how he and his wife came to their end. Those are the stakes

kilgoresNovember 4th, 2008 at 7:54 am

High stakes indeed. Hope violence can be averted, for the sake of the Chinese people. Also hope any problems in China don’t manifest themselves in some attempted projection of force outside the PRC, e.g., deciding that now is a good time to try to bring Taiwan back into the national fold. That would prove colossally destabilizing.SWK

Free TibetNovember 4th, 2008 at 8:29 am

I really don’t know all that much about China. I was there once. I know the Chinese have a long and checkered history of their own and that understanding that history is key to understanding China. There have been many Chinese Ceausescus. I’m sure the party knows that history better than I. I’m sure too that you are right about the fragility of the status quo. You don’t have to know much. You can feel it everywhere.What I don’t understand is why the party is so adamant in their pursuit of western industrialized development using an obsolete 1960’s Japanese model. They have an internal market of 1,300 million potential consumers! To a westerner accustomed to demographically mature markets it makes our jaw drop. Real growth, real wealth, real benefits are possible. Everybody talks about how “smart” the Chinese are. My feeling is that if they were really smart none of this would have happened.

hazletonNovember 4th, 2008 at 9:10 am

@AnonymousIf you live in Bejing, how do you have access to this blog? I could not access any decent U.S. blogs when I visited there. The only ones I could access were the ones under the radar.

kilgoresNovember 4th, 2008 at 9:45 am

There are means of circumventing state control, such as using a proxy server hosted by a friendly foreigner, but I’m sure our friend would be reticent to reveal publicly exactly how he does it.SWK

JohnRyskampNovember 4th, 2008 at 11:07 am

Right here, darlings. Just waiting for the stand in place order to go into effect–you know, ban housing evictions.Macrotwits like Nouriel pay NO attention to facts on the ground. Neither do socialists, neither do their opponents. NO ONE pays attention to facts on the ground, because they all want to exercise power. They stand united against ANY new individually enforceable rights.In the meantime, the facts on the ground deteriorate. And if you don’t think so, look at bank lending: even the doddering Irwin Kellner sees it now.Banks deal with the facts on the ground. If business activity is declining, they do not lend. A decline in business activity is an assault on the facts on the ground.What are our libertarians, socialists, Obamaniacs (those Syrian mafia wastrels!), corporate thug types going to do about the facts on the ground?You know what Stalin would do with them!!

GuestNovember 4th, 2008 at 7:43 am

Some opposing views on whether or not China is an export led economy as Roubini contends:

“Note that China is an economy is structurally dependent on exports: net exports (or the trade balance surplus) are close to 12% of GDP (up from 2% earlier in the decade) and exports represent about 40% of GDP.”

An old Chinese myth ( Jan 3, 2008 – Economist)“Contrary to popular wisdom, China’s rapid growth is not hugely dependent on exports”Is China Export-Led? ( Sept. 2007 – UBS Research)“Today we thought we would turn our attention to what is probably the biggest and most pervasive “Chinamyth” of them all: the idea that China is an export-led economy.”China’s Economic Rise—Fact and Fiction (July 2008 -Carnegie Endowment )

GuestNovember 4th, 2008 at 7:59 am

and in support of Roubini’s comments:Don’t count too heavily on China’s domestic market (Novemver 2008 -Michael Pettis Blog – referenced by Roubini )“There is almost no question that the transition to domestic consumption is necessary for China’s long-term development, but I am concerned that too many people seem to think that this is a rather easy and straightforward process, and that it can happen quickly enough to bail China out of the global slowdown. “

Imelda BlahnikNovember 4th, 2008 at 8:20 am

Thank you for posting those links – very interesting, a useful corrective to the conventional wisdom that China has followed the export oriented development model of Taiwan, South Korea, etc.

SteveNovember 4th, 2008 at 10:18 am

Roubini clearly states net exports as 12% which is the component in GDP. These are final sales. Looking at the ratio of exports to GDP is a good measure of overall economic activity within a nation. GDP is generally written as an identity: GDP = C + I + G + (X – M) Where X is gross exports and M is gross imports. Gross exports, if significantly large, represents a large share of domestic employment. The export sector, if it contracts, has a multiplier effect greater than the net export number would have you believe.

GuestNovember 4th, 2008 at 12:46 pm

Thanks for the formula (I am not an economist) but I was aware of the 12% vs. 40% concept e.g. net exports. What I find confusing is that his conclusion in this section implies that exports and related investments account for 80% of GDP, which doesn’t seem to follow from the arugment he has just made. e.g. he states that 22% of GDP relates to export related capex investments, which if combined with net exports totals 34% and not the 80% he references in his conclusion.

Note that China is an economy is structurally dependent on exports: net exports (or the trade balance surplus) are close to 12% of GDP (up from 2% earlier in the decade) and exports represent about 40% of GDP. Real investment in China is about 45% of GDP and, leaving aside the part of this investment that is housing and infrastructure spending, about half of this capex spending goes towards the production of new capital goods that produces more exportable goods. So, with the sum of exports and investment representing about 80% of GDP, most of Chinese aggregate demand depends on its ability to sustain an export based economic growth.

SteveNovember 5th, 2008 at 8:29 am

Roubini was not stating an identity but showing that the ratio of gross exports and investment to GDP equaled 80% of China’s GDP. He could have been clearer. Looking at gross exports and investment together is something that economists do very often. These are additions and balance with leakages from imports and savings. For those critics of the supposed myth of the importance of exports to China’s growth they ignore what Roubini pointed out that investment was also a component of the inputs to exports. China produces capital goods that are used to produce exports. When you factor in the domestic production devoted to the export market you get an interdependency that is hard to unravel when you are looking strictly at gross exports and domestic consumption by themselves. The export multiplier in an undergraduate macro text is: 1/(1-(MPC –MPM)) where MPC is the marginal propensity to consume and MPM is the marginal propensity to import. China’s export multiplier is probably quite large so a change in exports has a disproportionate effect on total output in the following period. If the multiplier is 2 (perhaps unrealistic) then a $1 change in exports is a $2 change in total output in the following period. The size of the multiplier is directly related to the relative size of the MPC the obverse of which is the MPS or the marginal propensity to save. A high savings rate is what is driving a high investment rate. Growth takes place at the margin.

J ChrisNovember 16th, 2008 at 2:35 am

The Economist article rehashes its core arguments from the UBS article, and the UBS article is flat out dangerously/spuriously wrong in one key area: the significance of export growth contribution to total growth (2.5% out of the 11% or so in 2007). The UBS author says: “…the real culprit [of net export growth] is the sharp decline in import growth since 2004 – which, as we have argued many times before, is due to excess capacity creation in domestic heavy industrial sectors. In other words, net exports may be contributing an unusually strong amount to overall growth, but this has nothing to do with export demand or growing external dependence. Instead, it’s all about rising domestic supply displacing import suppliers … i.e., about reducing exposure to the global economy.”He shows a graph of export and import growth rates 2000 forward. But if he had shown previous years (as he should have), the graph would have shown how export growth was stagnant for years up to 1999, exploding from $200B to the $1,200B it is today. To me that says exports are a big focus of the government, a windfall they shrewdly rode throughout the credit boom. And if imports declined due to “domestic supply displacing import suppliers,” well that doesn’t detract from the fact that exports have been a massive growth contributor, or it means China has tried to some extent to vertical integrate downstream and be a supplier for the export sector (in which case this shift to domestic production makes them even more reliant on export).It may be unfair to mention that this author writes for a bank that is a poster child for dangerous bad calls, but then again I don’t appreciate having to spend a couple hours to ferret out his spurious analysis.

OuterBeltwayNovember 4th, 2008 at 7:43 am

This is a bit OT, pls overlook.AfA, 2Cent, Mark:That was a dynamite workout. Here’s what I learned:a. My version of the model was off by 1000x; AfA ID’d error.b. Two other people corroborated the amended result. AfA, 2Centc. Mark identified one of the key environmental constraints (radiation pattern impact)d. The team of us ran a complex, multi-component model to ground in less than 12 hours (clock time, not labor hours) of enjoyable collaboratione. We validated the concept that all U.S. energy could be provided by a solar array about the size of Delaware, using today’s technologyMaybe soon we’ll start on the “how” question.For now, take a bow, gents. A fine piece of work.

HubbsNovember 4th, 2008 at 8:09 am

Now recalculate for the effects of the new phosphorescent based PV (photovoltaics) to the current flourescent based electro-voltaics, which are much less efficient

OuterBeltwayNovember 4th, 2008 at 8:36 am

Tks, Hubbs. If you get a sec can you post a link?Also, there’s new advances in thin-film deposition tech, wherein the cell is put on a roller, like a broom handle so cell doesn’t have to “track” the sun to get orthogonal-angle presentation (max efficiency).There’s a lot of new stuff coming. Did anyone see the Air-car? What’s the skinny on that?Is Gloom-n-Doom Absolutely Ordained From Above?Or can a nimble people snatch another day from ‘neath the sword?

MANovember 4th, 2008 at 9:58 am

@ OB.I haven’t had a chance to thank you properly… I said in the past that you were a “must read” and I meant it. IMO – you have a similar open mind and extremely vast/broad range of knowledge that I’ve appreciated sharing thoughts with. (I’ve been researching much of the stuff you posted over on my blog)I hope you put your mind to good use… or plan to… or have someone who sees that potential. (some great minds can get lost in the crowds. I’ve seen it plenty of times)Miss America

OuterBeltwayNovember 4th, 2008 at 11:17 am

MA:I’m landing on it with both feet. You and I need to hook up.I invite you to drop me a line at outerbeltway at yahoo dot com at your conv.

GuestNovember 4th, 2008 at 10:41 am

Concerning Solar PowerNo need to worry about collection efficiency if you use the following companies approach to solar energy.http://www.ens-newswire.com/ens/oct2008/2008-10-23-092.aspPacific Gas & Electric has Ausra’s technology under contract to build a 800 Megawatt solar electric generating plant in San Louis Obisbo, CA – which will come online in 2010 – enough for 120,000 homes and will do this 24/7 by storing thermal energy in liquified salt for night time use. The cost is actually competitive with oil fired plants @11 cents a kilowatt hour.Their computer simulations indicate they would need about 100 square miles of sun baked desert in Nevada, etc. – such a size would supply all the electrical needs of the USA. And we spent $700 Billion trying to protect our oil supply in Iraq.

BKNovember 4th, 2008 at 12:04 pm

I meant, doesn’t make much sense spending ridiculous sums of money and wasting the lives of America’s youth, to defend our oil interests.Makes a lot more sense to develop a technology for energy around a more abundant resource. In this case…nearly limitless. The more resource we dedicate to pursuing solar energy, the more efficient we will be at collecting it…and that will provide further incentive to move forward, etc.The trick is getting the MAJORITY of people behind it. I was cheering $5 gasoline because it would FORCE us to move on to something else. As long as oil related energy is cheap, the MAJORITY has no incentive to change habits. This is the most discouraging hurdle in my opinion.

ThetaNovember 4th, 2008 at 3:01 pm

I’m sure someone else has already come across this but I thought I’d share anyway.http://www.cmd.act.gov.au/__data/assets/pdf_file/0005/2939/Solar_Power_Plant_Pre-feasibility_study.pdfThis is a feasibility study published in September detailing two studies in Australia, one on solar thermal and one on Photovoltaics. It contains some interesting cost and maintanence analysis and some good background information. In skimming both papers it seems that they have done a decent job of identifying limiting factors as well as considering environmental impacts. I’d give a better summary but I still haven’t found time to really read through it.Anyway I thought it might help. 🙂

OuterBeltwayNovember 4th, 2008 at 5:45 pm

Theta:This study is recent (Oct 2008), through, and very well done. If anyone’s looking for a good survey of the current state of the art of solar power plants (industrial scale) this is a great place to start.Thanks!

London BankerNovember 5th, 2008 at 2:47 am

@ Outer Beltway, 2cents, Miss America and ThetaI keep saying that my optimism in these darkening times draws on a faith in the collaborative nature of mankind to define a set of common interests, innovate solutions and cooperate on the infrastructure and rules to make implementation practical.The set of you commenters here on the Professor’s blog determined an area of mutual interest, collectively outlined the problem and prospective solutions, and are now driving policy formation which could influence the course of implementation.It’s pretty stunning. Kudos.

AnonymousNovember 4th, 2008 at 7:43 am

A SIMPLE QUESTION: If China’s debt to GDP is 50% why can’t they keep flooding the economy with money like we are doing since we have had 70% debt to GDP underTruman/Ike era, Clinton and now Bush. Go to zfacts.com/p/318.html and check it out for yourself.

cmitchNovember 4th, 2008 at 7:47 am

If China experiences a hard landing, how will that affect their ability to finance the USA’s government deficit and increasingly expensive bailout/fiscal stimulus plans? If they cannot afford to keep buying the USA’s treasury notes, will that finally lead to a desperate attempt at creating money and hyperinflation?

GuestNovember 4th, 2008 at 8:01 am

Reality Check!1)the professor’s first priority in his advice is to prevent dislocation for the common man who has no faultin The Mother of Credit Bubbles. If we are going to bedogmatic and suggest that we should let the markets work and a lot of incompetent industry should go bankrupt, then ordinary people will get hurt. It may be a good idea to avoid this. I think we all agree that once you blowup so many serial bubbles the consequenceson Main Street can be devastating. I suggest we all hold our dogma in check and be pragmatic in the situation in hand.2)If all the Central Banks coordinate and the Sovereign Wealth Funds intervene out of self interest, there maybe a chance to avoid a Great Depression. The dollar maybe able to hold its value for at least 5 years, becausethe world around the United States is going into a deflationary chaos that motivates capital to move totreasuries in the United States. Long Term the professor is right, the US is PROFLIGATE TOAST!!

London BankerNovember 4th, 2008 at 8:46 am

Observing China’s geostrategic diplomacy over the past few years, it seems to me that they have prepared pretty well for the collapse of the financial bubbles. Their pacts with resource-rich countries are long term partnerships, where China provides the finance, engineering and expertise and gets reliable commodity supplies in return. This model should be less severely impacted by the meltdown in currencies and credit.China has also used this model to expand the market for its products away from the US. The primary Chinese export market is already the EU, not the US, and exports to Asia, Africa and the Middle East are growing strongly. As China is in the enviable position of financing its trade toward geostrategically important markets, it can choose to rebalance lost markets in the US with growing markets elsewhere.Of course, if it does that, it will also cut back on its finance to the US – leading to a credit constraint on the fiscal bailouts Washington and Wall Street have embraced so enthusiastically. Relations between Washington and Beijing will sour very quickly if Beijing determines that a dollar invested in Africa yields 80 cents worth of export orders where the same dollar invested in the USA yields only 5 cents of export orders because 95 cents gets captured by Wall Street.

MANovember 4th, 2008 at 9:52 am

Hey there LB.Sorry I didn’t get a chance to comment on your trek through ancient trade routes. My shortened summary would be, I’m in total agreement that “truth” concepts will be paramount in the coming distressed future. When times are tight, the public’s vision grows much sharper to see through lies/corruption/etc… thus, the holistic, truth oriented, utopia we call for becomes more of a reality.…but based on that statement alone, it would be hypocritical to find any value in China. I say this because China still does not have “freedom of speech” rights. If writing “subversive” or “contrarian” opinions of facts about your country can get you jailed… then we will never be able to find “truths” as “lies/corruption/etc…” will be allowed to occur without examination, judgment, inspection, etc…Don’t you see the contradiction here? The press, knowledge, facts are controlled through fear. (here, they’re just controlled by Rupurt Murdoch! Hahaha.) We can blog, spread the word, leak information, whistle blow… These acts in China are CRIMINAL.Until that changes, everything their government sells us is artificially flavored.Thus – Ch-Enron (sorry I keep going back to that phrase, but free speech is a sticking point for me.)Regardless of our differences on this topic… welcome back. (since I forgot to say it)Miss Americap.s. I swore that you were not really on the Ridgeway Trail… but instead taking advantage of the Madonna/Guy Ritchie breakup. (Swooping in on the Material girl) “like a virgin… touched for the very first time”

London BankerNovember 4th, 2008 at 12:14 pm

How interesting that you have more interesting fantasies about what I could get up to than I do! I chose the prosaic Ridgeway, not the Material Girl.Mrs Ritchie is not my type. I’m pretty certain from what I know of her history that I am not her type either.

PeteCANovember 4th, 2008 at 9:07 am

China faces a great challenge. How they respond will determine if they ultimately succeed, or go into a severe recession like the rest of the world.China must re-tool and re-structure its industry, and go after a different set of consumers in the world. China needs to substantially broaden its manufacturing to meet the needs of consumers worldwide. It must also release its peg on the US dollar, in order to attract the foreign investment it needs to perform these steps.These are bold steps that require vision. Quite possibly there are leaders of industry & manufacturing within China who understand what must be done. However, the country is still governed by the Communist Party, and it is very likely that they will not take the bold steps that depart from old approaches. Therefore, there is doubt about whether China can achieve the flexibility and vision to steer correctly through ths global economic downturn.It will be interesting to see what happens.PeteCA

GuestNovember 4th, 2008 at 3:30 pm

I agree! It appears to me that “Group think” and no freedom of speech as MA mentioned will make it difficult for them to consider Paradigm shifts. However, as LB stated, they may come to recognize change is good for them. I see the “poles” changing very slowly.hlowe

JimmyTheBankerNovember 4th, 2008 at 9:10 am

Killer data to rally on! This should boost the Dow to 10K no sweat!10:00 a.m.U.S. Sept. factory orders down 2.5% vs. 0.2% expected10:00 a.m.U.S. Sept. factory orders ex-transportation down record 3.7%All of these “record” drops are starting to give me “depression” jitters…

GuestNovember 4th, 2008 at 9:25 am

I find this unbelievable that stocks are at new highs for the day, even after this report. You can’t tell me stocks priced in this horrible news when they were looking for a drop of .2 and it came in -2.5, -3.7 ex-transports!!I guess when the controling interests have shares to get rid of, the con game must persist.

NoviceNovember 4th, 2008 at 9:48 am

It’s election day silly, the market is required to have a rally day today and probably all week- but we’ll see.I find it interesting that there seems to be this elation reflected in the markets when the bad news ends up better than projected- so just project everything to be really bad, and when the numbers come back better than that, then it’s good news????Do they think we are stupid?Novice

SeadragonNovember 4th, 2008 at 9:26 am

I am mainland Chinese living in Singapore, and working in the shipping industry. I would have lots more faith in China than most of you. The Chinese have worked hard and saved for the past 30 years – its political leaders are clever and determined. I would say they are world class compared to most leaders in the West who have a time horizon till the next election and all afraid of telling the voters the truth. So far they have been consistent in doing what is right, rather than what is politically popular, the bailouts in Japan which led to the lost decade, the bailouts and stimulus packages that the US government is engineering. The message from Western government is – we are going to help you, rather than – it is going to be painful, so you MUST spend less and save more. There is none of these non-sense in China. So don’t count the leadership out. For the past 30 years they have done an outstanding job.The 2nd thing is – don’t count the Chinese consumer out yet. There are 1.2 billion Chinese vs 300 million Americans. I think sharp appreciation of the Yuan, which gives real purchasing power to the Chinese customers – could help a lot. Why would China work/save hard to export, in return for IOUs from the US government, a fiat currency from a government of deterioriating financial standing? If the government is smart to really give the Chinese consumers spending power, consumism has a tremendous long way to go in China.Yes property market is bad, but unlike America, where people buy 2nd/3rd houses without any money of their own, there is tremendous demand for first time home buyers. Family formation and urbanisation are very strong. If the prices are lower, demand is there.I agree so far, China has been importing for re-export by and large. Even iron ore, which is a raw material to make raw steel, is not only for construction and infrastructural projects, as widely assumed. A lot of the raw steel is for construction of capital goods for export. Now this story has ended. The next story is China is going to import for domestic consumption. This story has just begun.I look forward to constructive comments from all

GuestNovember 4th, 2008 at 9:46 am

Very interesting post that is consistent with some of the opinion (links in earlier post by Guest on 2008-11-04 07:43:00)that suggests China’s growth is driven by domestic demand and not exports.

SeadragonNovember 4th, 2008 at 9:49 am

It was an export-led economy. But things are about to change. I believe policy measures could unlease a very long lasting consumption boom in China.

JGUNovember 4th, 2008 at 10:54 am

How would you expect this to change when things are becoming bad both outside and inside of China? Can you explain your logic here? Chinese like Japanese are ultra conservative in nature, they won’t spend other people’s money like Americans, I can hardly see a consumption boom when asset prices are dropping, and salaries are dropping too (yes, it is true). As much as I wish China well (I’m a Chinese living in US), I just don’t see China to end up well in short term. Granted, China’s long term outlook should be bright, but, no magic for the short term. China is going to experience a hard landing.

GuestNovember 4th, 2008 at 11:20 am

I totally agree. China’s economy is full of bubbles, but they created an amazing manufacturing infrastructure that will still exist after the crisis is over.What I just do not know is if political stability can be preserved if things get really bad.

AnonymousNovember 5th, 2008 at 5:57 am

The 9% GDP growth China today can be broken down into 3 parts. One third (3%) of that is contributed by export, or better yet, net export. This part will vaporizes in the forseeable future. Another 3% comes from infrastructure investments which can be supercharged by the Communist Party as we speak to make up for some, but not all of the damage by slowing export. It will be done and it will be effective. I just can’t promise you that it will completely offset the net export factor. Note the jobs creation power of government infrastructure spending is tried and true in China’s past.The last 3% of the GDP growth is contributed by consumption. Yes, believe it or not, Chinese do consume and consumption growth has been on pace with GDP growth in the recent past. This part will weaken although you will see nothing like the slowdown of export here. The stimulation of rural consumption in the latest series of land reform (and some others) will be by the slowdown in urban consumption and negative wealth effect.So give or take, GDP growth in China will slow from 9% to somewhere between 5%-7%. Which is really what China has gone through in the past. Just remember 1998/1999 post Asian financial crisis and the 1989 Tiananmen Square. It will be tough but the Chinese will manage through. Please don’t confuse a credit bubble 1930s style or Japan 1989 style with an old-fashion slowdown recession like US 2001/1991/1981. This China slowdown will be a lot like the latter than the former. And the people who said that China will turn into chaos if GDP growth goes below 8% are just like those who said two years ago that the US economy would break if oil goes about $76. What an arbitrary factoid that was.Of course in a highly fluid interrelated system financial-economic system today, no one should be certain about any prediction. More importantly if every pundits believe China is going to crash and burn like the American-European world, then it MUST be true. Kind of just like how the whole world was predicting heightened inflation up until 2 months ago. Welcome deflationary spiral.

kilgoresNovember 4th, 2008 at 9:50 am

Actually, there is some hope that as American industry is forced to rebuild itself (having atrophied for decades as America allowed itself to become more and more dependent on inexpensive Chinese products of manufacture), it will find some new opportunities to sell to this vast Chinese consumer population. The trade imbalance is long overdue for a correction in this regard.SWK

SeadragonNovember 4th, 2008 at 10:01 am

Read Peter Schiff. It will take considerable pain to lower the living standards of Americans and make them produce again, but it will happen eventually.

kilgoresNovember 4th, 2008 at 10:41 am

I disagree. I think that change will come much faster than many anticipate.I’m not a big Schiff fan, either. He’s interesting, but a little too certain he’s right about a little too much, in my view.SWK

GuestNovember 4th, 2008 at 1:05 pm

Peter Schiff wrote two books filled with investment theories that “are not working” as he publicly admitted on Bloomberg TV..His decoupling theories failed as all global markets are going down along the US.The guy is clueless.

SeadragonNovember 5th, 2008 at 12:19 am

gentlemen,I disagreed – a smart guy may not be a rich guy, and vise versa, that is why people asked if you are so rich, why ain’t you smart? Success as an investor may not necessarily mean that one is more correct in his worldview, or vice versa.As far as Peter Schiff investment record is concerned, the jury is still out. Emergeny market equities fell down much more sharply due to the deleveraging process and repatriation of money into the US, on the part of the (mainly US) hedge funds and investment banks. Asian companies and our industries have much better fundamentals, but we as investors suffered much more. Life is not fair, but it will probably be fair over a longer term.

AnonymousNovember 4th, 2008 at 10:20 am

I am a Singaporean that live in china before. It is very hard to believe that china will not be facing any recession in the future.These days when you travel around certain parts of china at night. You can find lot of apartments that are not light up. The average wages of workers in china cannot afford any property. That one bubble.While the shanghai stock market is another big bubbles. The way it rises in a year time by 3 fold sounds a bit crazy.Most important, the chinese working in Singapore keep saying they are working in area that singaporean refuse to work but forgotten that they are lowering the wages for example from SGD 4000 to 1500 SGD. Which is why it is more easy to bribe a chinese than a singaporean. For example, I heard of a case which a very smart chinese engineer stolen very important data that is accumalted over the years and sell it to a chinese company for money.Sometime, During Chirstmas period when community memebers giving free meals to the poor and elderly. You can seem the chinese construction workers rushing to get those free meals and it seem to them it is their rights to get those meals.They do this just to save lunch,dinner money.The chinese do not has global thinking and faces any recession yet. This is why it is all the way to prosper. This is not how thing work in history. The chinese are not totally prepare for any recession yet. Just like the American not preparing it during 1929. China still got a lot of thing to learn and be more modest. As chinese has one proverb “Every decade the river will goes east then goes west” Which means you are not alway so lucky not to meet a recessionPS: Singaporean Chinese already know that those made in china food products have problems a long time ago. Singaporean ancerstors used to be from china of course we know the little tricks of the chinese. The chinese like to boast a lot. Face is the most important to them. They like to act as everything are ok until one day everything cannot be covered. This is china tradition. Everyone get used to it.

kilgoresNovember 4th, 2008 at 10:43 am

That’s going to be a difficult cultural idiosyncracy for a lot of Westerners to accept. In the end, though, I suspect the West will move a little further to the East, and the East a little further to the West, and our cultural differences will find common ground somewhere in the middle.SWK

devils advocateNovember 4th, 2008 at 3:05 pm

your pride in china and its leadership is both obvious and in my humble westerner’s opinion well-deservedI doubt that land ownership will make 700 Chinese farmers feel like spending their new wealth-land is ancestral and not easy to sell-land is real unlike paper money-habits die hardI doubt that the highly intelligent chinese government can make the highly intelligent chinesewant to spend when people are losing their jobs, incomes are dropping and prices have risen so muchnouriel is probably rightand the chinese will start to spend when “things get better”translated, this means when USA goes back to buying more again from china

Wolf in the WildsNovember 4th, 2008 at 10:43 pm

I think the main problem is not so much that the political leadership in China is incompetent. I suspect their attempt to shift more demand to domestic sources came a little too late. One number that makes me cringe everytime I think of China is the number of jobs they have to create each year just to maintain employment(16million when I last looked). So far, that has been done by export industries. Anecdotal evidence is that export oriented industries are shutting down or reducing output/headcount. Domestic demand do not contribute to GDP on the scale that it should be in the case of China. Yes, they do have a lot of people, but remember that a lot of them are not the middle class. Its a bit like India, though India’s domestic component is a lot higher than China’s. The demographic mix in China does not argue for a quick rise in domestic consumption. If anything, increased layoffs from export industries will make wealth creation even more difficult. In order to maintain growth, there will be a major fiscal push (infrastructure development) but that will not save the toymakers or any other export-consumer based companies. There will be pain. Of that there can be no doubt. The question lies in whether the country can change fast enough to prevent severe social instability despite the pain.On another note, because of the impact of global depression on China, it is unlikely that they would be able to fund the rest of the world. I suspect they will convert their reserves to hard assets to pump prime the economy. The same goes for all other reserve rich countries (with the probably exception of Japan). So the Americans should not expect the calvary to come to their rescue. They are surrounded by their own injuns.BTW I am a Singaporean living in HK.

SeadragonNovember 5th, 2008 at 12:26 am

This is a fair comment. My faith in the political leadership there does not stem from pride – but from personal experience that things have becoming better every year for the past 30 years in a row. Most in China understands that this “factory of the world” model is broken, because the Western consumers can’t go on, and China ends up with very little value (they made 2 dollars out of every pair of shoes) plus untold environmental damage and health costs. The question is how fast they can switch. I am still not convinced about hard-landing (5-6% growth) next year.Everything is relative, Chinese central government has the resources to do what they want to do.

Wolf in the WildsNovember 5th, 2008 at 1:49 am

I don’t think you are going to see 10%. That is because there is a lead time for all this plans. I suspect it would be closer to 7% (which would qualify as a “hard landing” though in any other country that is stupendous growth). This is the first true slowdown after massive capacity expansion. If we look at recent history, the one country this most resembles is pre-97 Korea. I think there is some cause for hope that China will come out of it stronger, as long as they continue with the right policies. They do have the resources. But there will be corporations in China that will be insolvent and there will be some risk of social unrest if municipals do not implement central government policy well. That to be is the bigger risk. The level of corruption at municipal levels remain rampant.If I were the Chinese Government, I would try to revive the rural sector. The harvest yields are too low. Investment in that space can make China food independent. And controls over pollution can also hep the country grow. This is the opportunity for china to step up to the plate and change the country for the better. I hope they succeed.

Abe B.November 4th, 2008 at 9:27 am

I have some questions for this blog that relate to free trade. It would be good to get any and all thoughts.Recently the press and media have focused on the blame for increasing inequality in the US on Wall St. It seems to me that at least some of this blame is misplaced. In my mind the route cause of the rise in inequality and current instability is wage competition that has occurred between the manufacturing sectors in the developed economies and same sectors in China/East Asia. We have got to the point now that the majority of manufacturing is more profitable outside of developed economies primarily because wages are lower. While this cheapens all goods, the outsourcing of manufacturing activity also removes the ability of economies to add value and grow in a sustainable manner.Thinking about the problem of rising income inequality and the destruction of western economies in this way suggests that we may see a trend of developed nations increasing barriers to trade in an attempt to boost their manufacturing sectors and the sustainability of their economies.Questions:* Based on my thoughts above, I feel that once unemployment starts to rise above 10%, selected trade barriers may benefit the developed economies of the US and Europe. In this view, I disagree with mainstream economic theory as represented by the The Economist that will say that such trade restricting policies are wrong. What impact do you think that trade barriers would have on the economies of the West and the rest of the world?* Can anyone point me to good discussions of the impact of trade policy after the Great Depression or other earlier slumps?

GuestNovember 4th, 2008 at 12:14 pm

I’ve been thinking about this quite a bit. When NAFTA was passed, we were told that manufacturing jobs that are lost here in the US would be replaced with better jobs. So far, I haven’t seen any such new jobs. On the other side, we were told by Ross Perot that “that great sucking sound” we’ll be hearing is job loss in America.Henry Paulson, a couple of weeks ago, stated that this financial debacle should not be used as an excuse to instate protectionist policies. I really don’t understand why.

AnonymousNovember 6th, 2008 at 12:03 pm

Bingo. If US instates protectionist policies, things will most certainly get as ugly, as they got in the 1930th.

wdm, nyNovember 4th, 2008 at 9:45 am

I know a lot, but not much about China…common sense and experience would lead me to believe that there is big trouble brewing.I do have the unusual opportunity to informally track containers at the Port of Newark and anecdotal experience there:After years of ever higher stacks of empty COSCO, YANG MING containers this spring and summer the stacks evaporated (US exports from low dollar?) and workers told me imports were very slow, exports booming..now the stacks are building up again because exports dried up but some imports still flowing and the workers say the port is “dead”.

SeadragonNovember 4th, 2008 at 9:58 am

East-bound container trade (transatlantic trade) has been imbalanced for years. Laden containers were shipped from China to the US, empty containers had to be repositioned back to China to load.In the past 18 months however, there has been a trend of increasing West-bound container trade. The reason was that bulk carriers (ships carrying bulk commodities) had been charging very very high day rates, so many shippers start to utilise containers (which had been shipped back to China empty) for grain and other agricultural products (US main exports), even though loading/discharging for a container ship takes much longer time than bulk carriers. It was cheaper that way.However, with the collapse in BDI shipping index, bulk carrier rates dropped to near zero. It doesn’t cost anything to hire a bulk carrier to ship cargo westward anymore, so nobody uses container ships anymore.That was what happened.

London BankerNovember 4th, 2008 at 9:59 am

The Fed doubled its balance sheet between January and November and now will grow it the same amount again in just three months. This is very, very bad.I expect to see post-election capital flight from the USA as the thousands of Republicans looking at losing their influence and jobs in Washington and elsewhere start hiding as much loot as possible offshore, and the bankers and fraudsters they have served in corporate America will be looting and hiding as much as they can too.Look for the dollar surge to reverse as finance for the fiscal deficits dries up with foreign disgust and domestic capital flight intensifies.

GuestNovember 4th, 2008 at 10:37 am

The implication in your post is that the corruption follows party lines. That is categorically incorrect.One need look no further than the roster of campaign contributors and recipients to understand that “the bankers and fraudsters” are non-partisan and their main beneficiaries are both Democrat and Republican (and in that order).It will be interesting to see how the new administration and a congress dominated by democrats will deal with the theme of corruption. I suspect there will be more bluster and less action lest they expose themselves in the process.

London BankerNovember 4th, 2008 at 11:57 am

Fair enough. I agree Democrats are every bit as complicit in the crimes of the corporatists as the Republicans. However, the Democrats will be coming into power. The thousands of Bush appointees are looking at losing power – and probable investigations and indictments. There are probably over 6,000 political appointees in Washington. These hacks have unreviewable Paulson Power to seize taxpayer funds for themselves. I expect them to make the most of it.

Pecos BankerNovember 4th, 2008 at 10:14 pm

If the dollar collapses, what happens to the Euro? Also, a dollar collapse will be good for precious metals,commodities and energy, I would think.

GuestNovember 4th, 2008 at 9:56 am

None of it matters. Fed has almost quadrupled its balance sheet, the monetary base has exploded, and stocks or well past the worst of worry. Ted spreads are down, FF at 1%, new President and Congress, CRISIS OVER! Get long, get borrowed, everything is back to normal. Bonds and stocks aren’t worried, why are you?

SeadragonNovember 4th, 2008 at 10:16 am

Interesting comments on the Feb – this is what the part I don’t understand about Professor NR’s prediction of Stag-Deflation. I am sorry to me it reads like part of the diversion tactic of the Feb – saying that inflation risk has subdued so they could lower interest rates? Yes there is slack in a lot of places, but not when depressed prices of crude oil and agriculture commodities creates “supply destruction”? IEA predicts without further investments, oil production would decline 9% per year – and at usd 60 per barrel there won’t be investments. Pls note – depressed oil prices will lead to destruction to investments of all alternative energies (which could only compete if oil is at say usd 200 barrel). There is no chance that oil and agricultural commodity prices will stay depressed. There is NO slack at all when it comes to these.Whatever the Fed did has debase the USD completely. The base money that the Fed and other central banks injected into the financial system is even larger than that for 2007. No money is generated for now because the banks are not lending – money is generated when loans are made -because for now the banks don’t trust their counterparts (other banks), and there are very few projects worth financing – but once things stablised the huge money creation process will begin. DBS bank in Singapore is turning away deposits. They have too much money and no outlet for it. But that may change.Warren Buffet says: “Buy American, I am”. Fair enough. But if Buffet doesn’t want to stay with T bonds why shall Japan and China buy more? Deflation will be a good reason to stay with T Bonds.American doesn’t produce anything anymore. If USD goes down, there will be substantial import inflation. Isn’t it true?Sorry professor, I have lots of respect for you but stag-deflation? Next 6 months yes but beyond that, huge inflation.

GuestNovember 4th, 2008 at 10:42 am

If you are watching ted spreads and Libor as your signal that everything in the global economy is just rosy, then you are clearly missing the boat here. The financial crisis is only the symptom. The prospects for a global recession/depression is the illness. Keep watching the Baltic Dry Index. This is a clear signal that we are facing a recession of huge proportions and as I said earlier, global commerce has come to a screeching halt. Besides the prospects of China slowing down and contracting we have the prospects of a very serious and nasty pension crisis in this country. Get with it people, no one has made any money for the last 11 years. Couple this with the largest demographic ever in world history going into retirement it only can mean one thing-DISASTER. The concept of capital appreciation based on borrowed money has failed miserably. Remember, we have witnessed the largest build up of debt ever known to mankind. As the baby boomers go into retirement, or try to go into retirement, they will have to save more and spend less. It’s not rocket science. This is going to lead to demand destruction which in and of itself is deflation. This is what Bernanke and Paulson are scared of the most. Wait until the market gets a real sniff that defaltion is on its way. Let’s see how the markets react then. My god, most analysts are still talking about the prospects for inflation. Give me a break, inflation is dead. We are most certainly going to 0.5% Fed Funds at the December meeting. There are no bullets left. You cannot force people to borrow and banks to lend. The velocity of money has completely collapsed. The banking system based on leverage is dead. The great growth miracle that the US suposedly witnessed for the last 30 years was a fraud propagated by debt. Take debt out of the equation and you have no growth. Now, the debt needs to be repaid as consumers, businesses and banks repair their balance sheets. There are no quick fixes as we are accustomed to. This is a multi-year event and the prospects for a V shaped bottom are Zero. You are absolutely crazy if you place any merit in Sell side analysts and their ability to predict future earnings. They have a horrible track record and a huge conflict of interest. 2009 earnings forecasts are patently absurd. Don’t get fooled by the strength of this rally. We came down very quickly and this type of market action driven by short covering is to be expected. Oh yes, those who use stop/losses are adding fuel to the fire here. Stop losses destroy value instead of really adding any. They make you cut and run when you should be adding to the trade. Please understand what is going on here, I beg of you………..

GuestNovember 4th, 2008 at 12:20 pm

Thanks for the insight. You can’t talk the economy up and especially a stock market that has nothing to base its numbers on but talk. Your point about the bias in the forecasters is true, of course. We have been swamped by this hype for years, and, now, the piper is going to have to be paid. These people have lied over and over and over that this is the recovery: how many bottoms are there in this house of cards?

AnonymousNovember 4th, 2008 at 4:31 pm

Can’t agree more on this comment.Just a nuance on the illness. The real one in my view is that the US is just a consuming economy (as NR is saying) with a financial asset bubble cover up. Now is time for the country to wake up and find a way to contribute to the world economy manufacturing. Otherwise foreign workers will get tired of being the slaves of America. This is the real illness in my view.

Pecos BankerNovember 4th, 2008 at 10:27 pm

Any suggestions for someone facing retirement and trying to protect savings, given your deflation scenario? Obviously getting out of debt is important, but what else could you recommend–gold, foreign currencies such as the Euro, etc?

GuestNovember 5th, 2008 at 4:06 am

Yes, save all you can and eschew debt. Cash is king in this environment assuming it is worth anything by the time the destruction is completed. CAsh is king in a deflation because as the deflationary forces wreak havoc on the economy and more and more people/businesses are wiped out, the relative purchasing power of a dollar becomes much greater. He who loses the least will be the winner. This is all about survival.

London STUDNovember 5th, 2008 at 7:55 am

Cash is King? Is that USD or CHF or EUR? What should one do if they have the ability to safely hold all of the above?

SeadragonNovember 5th, 2008 at 12:35 am

i agree things are bad, but can’t see how it is going to be stag-deflation rather stagflation. There is so much money in the system, and people say that Fed will take it out of circulation when things get better. But I am not American, so sorry I don’t buy this. Greenspan didn’t take anything out. Bernanke won’t either. Their “solution” is more spending and more debt, when the real problem was caused by too much consumption and leverage. Can you imagine an overweight guy saying – I will eat as much as I want, and when I put on 30 kg more I swear that I will go on a diat??????Bernanke studied depression and deflation. He knows how to inflate his way out of trouble. It is unnoticable and relativeless painless to inflate, it will be so painful to deflate. If the US has no political will to become fiscally disciplined now, you think they will when they have more debt?I don’t get it.

GuestNovember 5th, 2008 at 3:58 am

You don’t get it Seadragon because you are not understanding that as Anna Schwartz so eloquently put, Bernanke is fighting the “last war”referencing the remedies for the Great Depression. This is not the same thing. There is no liquidity problem because the world CB’s have flooded the system. The banking phase of the crisis may be over but the crisis in the real economy is just beginning. It is a velocity of money problem. Too many are focusing on overnight and 30 day Libor. What you should be focusing on are long dated credit spreads. They have hardly budged and could get wider before this is over. You can inflate all you want but if there is no end user demand for those currencies then this will not avoid a deflationary situation as demand destruction sets in. It’s like trying to pull a car uphill with a rope. US savings rate is very low. This comes at a time when we have the largest demographic bulge in world history. All hard assets will be on the offer as the baby boom generation tries to retire. They have saved hardly anything and been party to 2 massive capital gains failures: 2000 stock market bubble and ensuing property bubble. This also comes at a time similar to the Great Depression when a unusually disproportionate amount of wealth is owned by a disproportionately small number of persons. It is this small minority who control all the wealth in the US who will now begin to retrench. They too will save more and spend less because they have less. The market has not yet really sniffed deflation yet. Sure the concept has been bandied about but is not in the price. Short end yields are set to collapse as US interest rate policy comes against the zero boundary. US will go to 0.5% at December meeting. Study what happened in Japan when they first went to 0.5%. The front end of the yield curve collapsed and then the long end followed as people were in a stampede for quality yield. This will also happen in Britain and Germany. Yes, Bernanke studied the Great Depression, and therein lies the problem………

SteveNovember 5th, 2008 at 9:28 am

One example: Sony is trading well below its book value of its plants, patents, etc. When will the market value of its plants, patents, etc. catch up with the market value of its stock? That is deflation.

CuriousGeorgeNovember 4th, 2008 at 10:09 am

SO Rich (MA), since apparently you know the “cards” before they are dealt, how long does this rally last before the sheeple are raped again?

MANovember 4th, 2008 at 11:17 am

For money that’s locked in, I’m in the buy 8-8,500 and sell the 9,500-10 camp for a while.I’m also buy gold and oil south of 750 & 70….but as specualtive investing goes, I wouldn’t buy or sell anything that I wasn’t afraid of losing.Don’t forget… I am NOT an investor.I am an observer.Miss Americap.s. to be honest, I will likely reshuffled back to safe (in my 401k) if the market ends 2% up today.

AnonymousNovember 4th, 2008 at 10:18 am

So is the general consensus that we will all be poor? Scraping by to earn enough to eat? No more technological advancements? And money not worth the paper it is printed on? Why bother living anymore then. And why concern ourselves with global warming? With such a great depression months away, nothing will be produced and there will be no more emissions. Great site to come to, for hope and inspiration

GuestNovember 4th, 2008 at 10:28 am

If you don’t already know how, learn how to hunt and fish. Learn how to build fires and boil water. Learn how to teach your children, not about political correctness or that there is no losing in the game of life, but the skills they need to thrive and survive. Learn how to raise horses and till the land with oxen for we are about to see 200 years of social progress evaporte before our eyes.

GuestNovember 4th, 2008 at 12:45 pm

No. No. No. The fact is that we are at a crossroads. A dismal picture can be painted if the plutocrats are able to keep control of resources and populations as they are striving to do. But these times present an opportunity to turn back from this future and restore markets and communities to prosperity through the growth that comes from giving individuals the power to control their own destinies.It’s an ill wind that blows no good: a window has opened whereby the people can begin to break the ropes of their financial bondage. Pray God they do not pass it by.

GuestNovember 4th, 2008 at 10:45 am

@AfA, 2 cents, etc.Concerning Solar PowerNo need to worry about collection efficiency if you use the following companies approach to solar energy.http://www.ens-newswire.com/ens/oct2008/2008-10-23-092.aspPacific Gas & Electric has Ausra’s technology under contract to build a 800 Megawatt solar electric generating plant in San Louis Obisbo, CA – which will come online in 2010 – enough for 120,000 homes and will do this 24/7 by storing thermal energy in liquified salt for night time use. The cost is actually competitive with oil fired plants @11 cents a kilowatt hour.Their computer simulations indicate they would need about 100 square miles of sun baked desert in Nevada, etc. – such a size would supply all the electrical needs of the USA. And we spent $700 Billion trying to protect our oil supply in Iraq. Go figure.Check out Ausra’s website.

2centsNovember 4th, 2008 at 10:32 pm

@ GuestThat is similar to the unit I spec’d in my calculations. Collectors are generally more efficient that solar cells, but there is no free lunch. Efficiency DOES still matter.By the way I’ve corrected my numbers on the previous post … the earth is quite big enough.

GuestNovember 5th, 2008 at 6:32 pm

The area needed is 100 miles on a side (100 miles X 100 miles) or 10,000 square miles. That would only replace the current electricity usage and would not include the needs of our rapidly increasing population. It also does not include the energy supplied by oil and natural gas that is not used for electrical production. $700 billion won’t get you very far in terms of replacing oil, natural gas and coal.

PeteCANovember 4th, 2008 at 11:00 am

USD index dropping pretty quickly this morning. Maybe LB is right. The Republicans are packing their bags (and shipping their valuables out of the country), and foreigners are starting to flee US assets. Or it could be that hedge funds are starting to move $$ overseas using carry trades based on the US dollar.PeteCA

GuestNovember 4th, 2008 at 11:19 am

Does that mean the Dems (who are no different than the Reps) get to keep their valuables in the country? It may just be that the prospect of a clean sweep by the Dems means ever larger deficits, higher taxes, protectionism and slower growth e.g. a weaker dollar.

GuestNovember 4th, 2008 at 12:51 pm

The neocons in the Bush Administration came from the ranks of the Democrats with their big government ideas and now that the Republicans will be returning to limited government ideas after this defeat, the neocons will be switching back to the only big government party left, i.e. the Democrat Party.

guestNovember 4th, 2008 at 11:19 am

what we have going on in stocks is a 3 week cup-n-handle break out and it says we don’t stop running for another 7% or so. S&p just re-claimed 1,000…

GuestNovember 4th, 2008 at 11:32 am

I have a difficult time thinking that folks will want to go long into the close today – too much downside and very little upside – Might be worth dabbling in the ultrashort S&P which is getting pounded – (as write the S&P falls below 1000)

AfANovember 4th, 2008 at 11:24 am

Professor, why not cross the Rubicon and say it:Fifth, a fiscal policy stimulus to the supply side (China) is unproductive, if the demand side (OECD countries) is torn. A slowdown in China is a direct cause of a recession in industrialized countries, how could China stimulate more production even if they have the resources to do so. That just doesn’t make any sense.More importantly:Sixth, if China and other emerging markets slow, that means lower current account surplus and thus, less “reinvestable” foreign currency funds, that in the face of historical debt issuance by developed countries to bailout and shore up their economies.We are indeed living through interesting times.

GuestNovember 4th, 2008 at 11:30 am

“They like to act as everything are ok until one day everything cannot be covered. This is china tradition. “It is also an american tradition!

Nick OutramNovember 4th, 2008 at 11:42 am

“And in due time this tsunami of awful macro news, together with ugly downside surprises to earnings will take another toll on equity valuations that are now temporarily lifted by another bear market sucker’s rally.”-Mmmm, I don’t like the look of that at all. Lots of cash on the sidelines that is going to get swept up in the rally only to dissolve away to nothing if true…That really will make a bottom as Wall Street is pretty much gearing up for ‘the worst is over’: From Excite today:”Analysts believe much of the bad news is already factored into stock prices.Matt King, chief investment officer of Oakland, Calif.-based Bell Investment Advisors, said investors are moving into the market in anticipation of the economy improving.”It’s pretty typical of how bear markets end,” said Matt King, chief investment officer of Oakland, Calif.-based Bell Investment Advisors. “The stock market recovers well ahead of the economy.””Another Sucker ready to bite dust??-Nick.

bythewayNovember 4th, 2008 at 12:06 pm

Cash on the sidelines?This is from Mish, enjoy:Sideline Cash NonsenseThere’s that sideline cash nonsense again. Sideline cash does not come into the market except at IPO time and secondary offerings. Otherwise there is a seller for every buyer. If someone buys $50 million of Microsoft with “sideline cash” someone else will have $50 million in “sideline cash” to buy stocks with. I remain amazed at the number of people who manage money that do not know how the stock market even works.http://globaleconomicanalysis.blogspot.com/

Octavio RichettaNovember 4th, 2008 at 12:21 pm

Yes, but when credit expands and liquidity increases as it seems to be the case now, the players get fresh chips to gamble with. The party goes on…

JimmyTheBankerNovember 4th, 2008 at 12:31 pm

I agree-what about when money appears from all the ferries loaded with cash from the Fed? That is pure liquidity which causes a burst in demand which causes prices to rise.

Octavio RichettaNovember 4th, 2008 at 12:51 pm

Datz what I mean. The most liquid game in town when you get fresh dough is the equity market. So banks say forget about lending money to questinable outfits, we will trade for our own account and lend money to hedge funds that don’t have extreme leverage (i.e., a strong balance sheet). It looks like extreme deleveraging is over…

Octavio RichettaNovember 4th, 2008 at 12:15 pm

So late Friday I asked: Are we going to have an election week rally? No-one answered so I will ask again: Will this last or is it just today?

CaponeNovember 4th, 2008 at 12:36 pm

OR, I am trying to draw novice “technical” parallels to the periods following the 29 and 87 crashes, my GUESTIMATE is today or tomorrow will be the NEAR/immediate term high with some (at least 50%?) retrace of this 17% rise from 8,200 in the DOW in the near term days and or weeks. Against this idea, I really do not want to play the buy or sell the O’Bama victory at all. Additionally, we have been rallying substantially on bad numbers as everyone knows. I do not like to fly in the face of that action either. So, strictly looking at charts… there is a trend line above in the DOW at 9,750ish… 9,750 is also the top of the initial bounce following the crash. IF we were to exceed 9,750 WITHOUT a retrace, this bounce without a retrace so far would surpass both 87 and 29 in relative terms. Both retraced at least 50% at this point…

CaponeNovember 4th, 2008 at 12:52 pm

BTW, I just read up above and please see MA before reading any of my crap… I missed this entire move up unlike Mr. MA…

Octavio RichettaNovember 4th, 2008 at 12:54 pm

Just to be on the safe side, I took out 50% of my stock position today. So I am now down to about 7% stocks, and plan to reduce it further as the market goes up as I believe the lows will be retested at some point in time if not in 2008, in 2009.

GuestNovember 4th, 2008 at 1:05 pm

If McCain wins markets up at least 10% for the week maybe more**If Obama wins and Congress is contained up 5% for week.If it’s a clean sweep – spike up and down 5% for the week.If results are delayed markets down up to 10%**** if there is any sort of civil unrest all bets are off.My own guess is that it will be # 2 and we will see a nice rally on Weds and back to reality by Friday but up for the week. For today I would be surprised to see the gains hold.

JimmyTheBankerNovember 4th, 2008 at 1:09 pm

Octavio, if any of us knew that for sure, well, I at least, would be in Tahiti sipping little umbrella drinks on my 177 ft yacth anchored 200 yards off the beach surrounded by scantily clad 20 somthing females in thong bikini’s who live to serve only me and my never ending supply of Ben Franklins…catch my drift?Your best bet is Rich, he has the bat phone…

Octavio RichettaNovember 4th, 2008 at 2:34 pm

One BF seems to be the WW going rate for quality in “efficient” markets (i.e., OUTSIDE the US). You wish you were in Tahiti but where are you now?

octavio RichettaNovember 4th, 2008 at 2:54 pm

I changed my mind. Stayed with the 15% equity exposure. People seem to be very upbeat about the election and Paulson’s latest idea for a short squeeze. IMHO, Goldilocks are back for a while.

Forensic economistNovember 4th, 2008 at 3:25 pm

In 1980 there was a rally when Reagan was elected. It lasted all of one day, then economic fundamentals took over.Neither Obama nor McCain are going to cause more new cars to be purchased or more carpenters to be hired anytime in the next six months.It is too soon for the markets to even anticipate the end of the recession.

Sam KapoorNovember 4th, 2008 at 1:52 pm

Prof Roubini,Well thought out article. Can you express your views on another large emerging country INDIA. Where can i read your detailed testimony to Congress.

GuestNovember 4th, 2008 at 2:22 pm

Posted similar above but I think this is an important issue as it is central to Roubini’s argument:

“Note that China is an economy is structurally dependent on exports: net exports (or the trade balance surplus) are close to 12% of GDP (up from 2% earlier in the decade) and exports represent about 40% of GDP. Real investment in China is about 45% of GDP and, leaving aside the part of this investment that is housing and infrastructure spending, about half of this capex spending goes towards the production of new capital goods that produces more exportable goods. So, with the sum of exports and investment representing about 80% of GDP, most of Chinese aggregate demand depends on its ability to sustain an export based economic growth.”

What I find confusing is that the conclusion in this critical section implies (or leads the reader to believe) that exports and related investments account for 80% of GDP in China.This doesn’t seem to follow from what precedes e.g. he states that aprox 22% of GDP is tied to export related capex investments, which if combined with net exports totals 34% versus the 80% he refers to.

GuestNovember 4th, 2008 at 2:32 pm

Where are all the buyers coming from?? Any selling is met with instant recovery. Looks like we are headed right back to a plus 300 point close today. That is like a 20% rally in 2 weeks!

GuestNovember 4th, 2008 at 2:40 pm

Some owners deserting factories in Chinahttp://www.latimes.com/business/la-fi-factory3-2008nov03,0,7768849.story

CaponeNovember 4th, 2008 at 3:13 pm

c’mon it is only 17% in 6 days in the DOW 😉 if we are going to have a “Savior has cometh” rally following O’Bama’s election it has to come on top of a very steep impressive upside rout…

GuestNovember 4th, 2008 at 3:18 pm

The Alaska Division of Elections will not certify the final tallies in the state’s two congressional races for 10 days, FOX News learned Tuesday.The Division of Elections on Tuesday night will only count votes cast Tuesday. Absentee votes won’t be counted for 10 days.

econ365November 4th, 2008 at 3:21 pm

I think what will happen first is that Chinese exporters will extend their terms with their U.S. customers, which in turn will be guaranteed by the Chinese Government. This will give the U.S. time to recover without China having to face a “hard” landing.

GuestNovember 4th, 2008 at 3:47 pm

Stocks surge as investors anticipate yearend rallyBy SARA LEPRO – 34 minutes agoNEW YORK (AP) — Investors believing that Wall Street is on the verge of a yearend rally have piled into the market, brushing off more weak economic data and propelling the Dow Jones industrials up 300 points.Some analysts said the market was up on relief that the presidential election was about to be over. But others said investors were anticipating a yearend rally and buying to be sure they didn’t miss out on its start.Volume was light, which tends to skew price moves, but analysts nonetheless see more improvement in the market’s tone after last month’s devastating selling.The Dow is up 305 points, up 3 percent, at the 9,625 level, its best close in four weeks. The broader indexes were up more than 3 percent.

Lord SidcupNovember 4th, 2008 at 5:06 pm

Am off to bed now.Am hoping to wake up to the new post-racial society.Thanks to you all.Good night.

P1AQLNovember 4th, 2008 at 5:07 pm

@Prof. Roubini, Meteor hit confirmation?I posted this a while back …

@Prof. Roubini,I am surprised India and China don’t appear in your list.China has no financial institutional infrastructure to support a combined equity market and real-estate market downturn. A second look at the graph of Shanghai index suggests that the landing could end up in a meteor hit.India’s RBI is forced to protect the middle class and tighten the noose on real-estate. With the Sensex in a complete bear run, both wheels are coming off just as in China. Make that meteor hit #2.If you think that Miami-Dade and IE are bubble country, check out the outskirts of Shanghai and New Delhi (National Capital Region). Entire cities with multiple towers have been built on speculation with no residents or operating businesses in sight. The arrogance seems to be: If God can create so can Man. (Couldn’t resist the capital M)Are the following stories any different?1.http://www.tradingmarkets.com/.site/news/Stock%20News/1711595/Quote with emphasis added: “The real estate developer got sales income of CNY 4 billion in the first half of the year, one quarter of the full-year goal. It plans to spend CNY 3.5 billion in buying more lands in the second half, said Xu Shitan.The company has slashed the full-year sale income goal from CNY 17.4 billion in the face of tepid property transactions due to the stiffer macro control measures.”2.http://economictimes.indiatimes.com/Real_estate_sector_facing_severe_cash_crunch/articleshow/3130151.cmsQuote with emphasis added: “Industry sources told SundayET that the liquidity crunch has forced many developers to pick up cash from the unorganised market at interest rates as high as 35% to 50% annually.”Best,Print First Ask Questions Later.Reply to this comment By Prt1stAskQLater on 2008-06-26 05:43:14

Best,P1AQL.

P1AQLNovember 4th, 2008 at 5:30 pm

Prof. Roubini wrote the key line:

In a country with the potential growth of China hard landing would occur if the growth rate of the economy were to slow down to 5-6% as China needs a growth rate of 9-10% to absorb about 24 million folks joining the labor force every year; it needs a growth rate of 9-10% to move every year about 12-14 million poor rural farmers to the modern industrial/manufacturing urban sector.

It’s all going to script …I previously posted a comment onhttp://www.rgemonitor.com/blog/roubini/226654/at Prt1stAskQLater on 2007-11-15 02:47:33

When Ben boards the helicopter to save the banks, here’s what will happen:1. Dollar will tank taking Yuan down with it.2. China will maintain the peg (and the China Price), allow rampant inflation within to continue to move 14 million people to urban areas for employment to prevent a revolution. The Yuan appreciates, employment in China dies a quick death. 3. Europeans will cease exports and go into depression. Airbus must have given the farm away to the Saudi’s recently because Boeing has a winner in the Dreamliner. Because at 1.6x of Dollar they might as well be toast.4. Rest of the world will go into depression (having already surrendered the peg)America will suffer a lesser depression than others and will be still relatively well off.While at Goldman Sachs Hank Paulson emphasized that Goldman never had a take on whether the economy was good or bad; the goal at Goldman is simply to be ‘relatively better than others’ at ALL TIMES. That’s what being RICH is about. Don’t you get it?If America goes into a deep recession, then Ben will CAUSE a Global Recession by killing the dollar. Again, America will be better off. Did you not forget all the US debt holders are outside the US and debt issuers are inside with a negative savings rate? It pays to inflate the currency now. Germany tried doing that but forgot that they couldn’t control the world which led to Germany’s drive for global domination. Germany had it backwards.The US has got it right. They control the world. Now they are free the inflate. AT WILL.Print First Ask Questions Later.Reply to this comment By Prt1stAskQLater on 2007-11-15 02:47:33

P1AQL.

GuestNovember 5th, 2008 at 9:18 am

some of these “predictions” are like the otherwise heard “if Obama wins the election he will be assassinated”. Well Obama has won and is still with us.

CaponeNovember 4th, 2008 at 5:33 pm

take a look at the long term VIX chart with open high low and closes and note the highs in 98 and 02/03. guess where the level is ? 45ish where was the low today with the DOW up 17.7% in 6 days ? 44.25 ! close 47.73 Is 45ish now 10 year trend “support.” stay tuned… 60% of my chips say yes… had i seen this earlier in the day, it would have been more. remarkable coincidence. this is based off of yahoo finance – see linkhttp://finance.yahoo.com/echarts?s=%5EVIX#chart4:symbol=^vix;range=my;indicator=volume;charttype=ohlc;crosshair=on;ohlcvalues=1;logscale=off;source=undefined…from the desk of an amateur…

GuestNovember 4th, 2008 at 7:17 pm

Capone, is this reflecting that the market is trending toward higher volatility levels and that today’s volatility level is a continuation of this high 10-year support, as opposed to former support levels in investor confidence? If so, how do you interpret that? How is it remarkable? And what do you mean, “60% of my chips say yes?” Thanks.

CaponeNovember 4th, 2008 at 9:09 pm

honestly, i am short here and in confirmation bias mode now to a degree. this is not that big of a deal. however, it is interesting to me that the vix after spiking to 90 and declining like a rock happened to stop at 45 today. if you draw a simple line across the highs going back to 1990, 45 was the high of the spikes in 98 and 02/03. to say this is “support” now may be a stretch since this is the VIX we are talking about… this also happens to be around the 50 DMA in the vix. if it were to be a near term low in the VIX, this would indicate a pull back from the 6 day 17.7% upside crash in the DOW and 18.9% in the S&P 500. i am 60% short and the rest cash as of the close…

P1AQLNovember 4th, 2008 at 5:39 pm

I said over at Brad’s Blog …You could not get Asians to consume. e.g. Why do you never worry about body odour in Asia? Because there’s feces on the road-side! And that’s OK! Why don’t Asian’s have pretty manicured front and back-yards? Because it rains like nuts four months in the year!I apologise for the large block quotes. I wish there were a way to cross link prior comments.http://blogs.cfr.org/setser/2008/01/23/the-pboc-s-dilemmas/

Prt1stAskQLater responds:@bsetser on 2008-01-24 12:59:04 wrote:“China is actually taking policy step to encourage exports (itnervening to limit rmb appreciation) and to discourage domestic demand (lending curbs, fiscal surplus, etc). that is what drives me crazy. tis the wrong policy mix — china should be subsidizing its own poor, not the United states’ rich (see Blackstone). “Dr. Setser, I’ve been a lurker. But I’ve had my handle on NR’s blog before. I would say that China is subsidizing it’s poor through employment. The employment is provided by huge investments in export related factories. The Chinese need to absorb the rural-urban migration; 10-14 million annually. Besides, employment keeps people busy, if you know what I mean.You could not get Asians to consume. e.g. Why do you never worry about body odour in Asia? Because there’s feces on the road-side! And that’s OK! Why don’t Asian’s have pretty manucured front and back-yards? Because it rains like nuts four months in the year!

Best,P1AQL.

AnonymousNovember 4th, 2008 at 5:58 pm

I work for one of the largest retailers in the U.S. Part of my job involves the tracking of department sales data on a weekly basis. Here is the sales trend for just two categories over the last two months:Toy sales are down 30% company wideSeasonal sales (xmas trim/lights/decor) down 30% company wideI would guess that 80 – 90% of the products in these two categories are imported from China. These kind of decreases are going to have a HUGE impact on China in the near term. We are already scrambling to make price cuts on this stuff far before the xmas season (never seen this before). Sales numbers are going to VERY ugly for retailers this holiday season.

GuestNovember 4th, 2008 at 10:12 pm

Looks bad for not only Wangfujing Street but Main Street as well. Thanks for this early and very significant information regarding Christmas 2008. Yours is probably some of the first specific information out regarding upcoming Christmas toy and decoration sales — which is one reason I like Roubini: you get the market trends here first.

GuestNovember 4th, 2008 at 6:34 pm

The fact is that Main Street is going down because Wall Street is going up. It’s getting pretty obvious, isn’t it, that the bankers are transferring the real value economy to themselves and lying about it?I mean, they just stole, AGAIN, another hunk off the real value of pensions, savings in CDs and treasuries, ad nauseam, with their below-inflation-rate money transfer and stuffed it in their pockets. And they’re planning another heist in December, BLAST THEIR EVIL HIDES. And the likes of MSN Money Market Update hypsters cover their crimes by telling us that the market went up today “benefiting from some better-than-expected quarterly earnings results, improvement in the credit market and a report that a broader range of financial firms may receive INVESTMENTS FROM THE TREASURY.”Yesterday’s manufacturing report was horrible: so the hypsters had to come out with some kind of gimmick today to show that it’s a “strong” economy” that’s lifting the markets rather than a 50-ton 18-speed hydraulic tow truck wrecker:“October 2008 Manufacturing ISM Report On Business®–PMI at 38.9%”November 3, 2008 — DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report’s information reflects the entire United States, while the regional reports contain primarily regional data from their local vicinities. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of October 2008.“Prices Dropping–New Orders, Production, Employment and Inventories Contracting–Supplier Deliveries Faster”(Tempe, Arizona) — Economic activity in the manufacturing sector failed to grow in October for the third consecutive month, and the overall economy concluded 83 consecutive months of growth, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.The report was issued today by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “The PMI indicates a significantly faster rate of decline in manufacturing when comparing October to September. It appears that manufacturing is experiencing significant demand destruction as a result of recent events, with members indicating challenges associated with the financial crisis, interruptions from the Gulf hurricane, and the lagging impact from higher oil prices. This is the lowest level for the PMI since September 1982 when it registered 38.8 percent. In this report, we see inflationary pressures dissolving as the Prices Index fell to 37 percent, the lowest since December 2001 when it registered 33.2 percent. Export orders also contracted for the first time following 70 months of growth.”PERFORMANCE BY INDUSTRYThe two industries reporting growth in October — listed in order — are: Apparel, Leather & Allied Products; and Computer & Electronic Products. The industries reporting contraction in October are: Petroleum & Coal Products; Nonmetallic Mineral Products; Wood Products; Fabricated Metal Products; Furniture & Related Products; Textile Mills; Machinery; Plastics & Rubber Products; Primary Metals; Printing & Related Support Activities; Transportation Equipment; Miscellaneous Manufacturing; Electrical Equipment, Appliances, & Components; Paper Products; Food, Beverage & Tobacco Products; and Chemical Products.WHAT RESPONDENTS ARE SAYING …· “Credit market causing suppliers to run closer on terms.” (Food, Beverage & Tobacco Products)· “Appear to be bouncing along the bottom — volume is good but pricing is tough.” (Primary Metals)· “Although the volume was down compared to last month, the volume was still higher than last year at the same time.” (Chemical Products)· “Hurricane in Houston disrupted production for 10 days at our plant.” (Fabricated Metal Products)· “Delivery issues continue across our range of purchased commodities as suppliers trim inventory commitments.” (Electrical Equipment, Appliances & Components)Manufacturing at a Glance October 2008 (Percentage Point Change):PMI -4.6% Contracting, Faster; New Orders –6.6% Contracting, Faster; Production, -6.7% Contracting, Faster; Employment –7.2% Contracting, Faster; Supplier Deliveries –3.3% Contracting, From Slowing; Inventories +0.9% Contracting, Slower; Customers’ Inventories +1.5% Too High, Faster; Prices –16.5% Decreasing, From Increasing; Backlog of Orders –5.5% Contracting, Faster; Exports –11.0% Contracting, From Growing; Imports –3.0% Contracting, Faster. OVERALL ECONOMY Contracting, from Growing (One Month). Manufacturing Sector Contracting Faster (Three Months).For full report:http://www.ism.ws/certification/content.cfm?ItemNumber=5722&navItemNumber=5618

wangziNovember 4th, 2008 at 7:30 pm

Professor, I normally agree with your columns, but this one not so much.There’s a fundamental difference between China as a growth engine, and the USA. The US “growth engine” has become almost entirely debt-fueled and reliant on unsustainable consumerism and neo-colonialism. China’s economy, in contrast, is based on savings, investment, infrastructure, education and technological enterprise. IOW, things that actually generate wealth.I’m getting really tired of the China-bashing articles lately, when it’s unequivocally the feckless policies of the USA and Britain that have brought about this mess. I’m not saying yours is like theirs, but too many articles put China in a similar boat as the USA. It’s not even close.Yes, China’s economy is still too export-dependent, but China has already been making major moves to change that and focus more on domestic infrastructure, and scientific and tech innovation. Besides, China still has big markets in Brazil, Russia, Latin America and the Arab world, where their natural resource riches are enabling them to still grow, and where China has been smart to cultivate links.China’s growth will likely slow a bit, but overall, they’ll be fine.

GuestNovember 4th, 2008 at 7:43 pm

U.S. Economy: Factory Orders Slide More Than Forecast (Update2)Nov. 4 (Bloomberg) — U.S. factory orders fell in September as demand for petroleum, chemicals and durable goods excluding cars and aircraft tumbled.Total orders declined 2.5 percent after a 4.3 percent drop in August, the Commerce Department said today in Washington. Non- durables fell 5.5 percent, the most in two years. Excluding transportation equipment, bookings dropped by the most on record.“The economy hit an air pocket in late September when the credit markets melted down,” Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said in a Bloomberg Television interview. “We are likely to see considerable weakness in new orders going forward” because manufacturing purchasing-manager surveys “fell off a cliff” in October.A record share of U.S. banks has tightened terms for business loans, a Federal Reserve report showed yesterday, making it harder for companies to finance capital spending. Economies in Europe and Japan are also now contracting, making it likely that the record American export boom will fade.U.S. Treasuries rose, with benchmark 10-year note yields falling to 3.73 percent at 4:14 p.m. in New York. The Standard & Poor’s 500 Stock Index climbed 4.1 percent to close at 1,005.75 on optimism a retreat in money-market rates will help unblock lending.

AfANovember 4th, 2008 at 9:11 pm

So which is your final figure?- 29,123 km² About the size of MD/RI, or- 7709 km² About the Size of DE/RIAnd, thanks for the update. I hope I would have more time to read studies and research this field.

2centsNovember 4th, 2008 at 10:46 pm

AfAI believe the MD/RI is OB’s #’s using my logic while the DE/RI number is my #’s using my logic!Pleasure!

OuterBeltwayNovember 5th, 2008 at 8:24 am

2c:Would you mind grabbing your logic/data/sources that you posted here and putting them aside into a doc on your computer for a little while?In a few months, I’m going to have need for an example of collaborative internet-based work. At that time, I’d like to invite you to participate. This exercise produced some valuable artifacts – not just the outcome, but the process is quite interesting.W/respect to the current topic, the two sets of numbers are close enough to call identical at this stage of the analysis given the variability of the rest of the implementation factors (cell efficiencies, location, tracking, cell mfg economics, what-not). We can declare victory on the “is there enough power from the sun” question.Now it’s about market dynamics, information flow, business models, bottom-up participation, and all the rest of the “test-and-rollout” mechanics. The generic aspects of that process is what I’m working on – the idea -> team -> implementation continuum. How does it work, and what can be done to change the game drastically?MA, AfA, if you’re on-deck, I suggest that this may be of interest to you, too.outerbeltway at yahoo dot com is my e-mail address. Movers and shakers are welcome anytime. Feel free.

MANovember 5th, 2008 at 10:59 am

Hello OB.I plan on getting in touch… I’ve just been very busy.Don’t be alarmed by my email address when you see it (10/15 years ago when I first joined AOL, it was a nickname that baseball circles knew me by. For nostalgic purposes, I kept it and still use it)Miss America

MarkNovember 5th, 2008 at 3:21 pm

We can declare victory on the “is there enough power from the sun” question.Careful! This is only _half_ the question. The other half has to do with how much per capita energy we can expect down the road. Where this really leads is to the question of growth (which I have been harping on ad nauseum for nearly two[?] years now). I have challenged local “change advocates” to watch the Albert Bartlett presentation on Arithmetic, Population and Energy as a prerequisite for advancing any changes; I put this challenge up to people here as well.”Well intentions” are often derailed by reality. Everything must be tested against realities (not hope or economic gain).

GuestNovember 4th, 2008 at 9:14 pm

Libor’s Biggest Drop Fails to Match Fed Rates

Nov. 5 (Bloomberg) — Credit markets are still creaking even after the biggest decline on record in the rate banks say they charge each other to borrow dollars.The London interbank offered rate, or Libor, for three-month loans fell to 2.71 percent yesterday, from 4.82 percent on Oct. 10. The rate is still 171 basis points more than the Federal Reserve’s target interest rate for overnight bank loans, compared with an average of 22 basis points in the five years before the global credit crisis began in August 2007.

Bloomberg Libor Article Nov 5

Wolf in the WildsNovember 4th, 2008 at 11:44 pm

LIBOR is a fictatious rate at the moment. NO BANK can get any 3 month funding in the money markets. It may help ARM resets at the margin but until we get interbank lending to extend beyond 1week, it is pointless. And the credit market will enter into a negative feedback loop that will make the last 12 months look like a walk in the park.

P1AQLNovember 5th, 2008 at 2:15 am

Agreed. I think there could even be stigma attached to taking 3M LIBOR at these high rates. Does anyone have data to support this line of thought though?

kilgoresNovember 5th, 2008 at 6:29 am

Never mind the last 12 months. Just look at the last month. The credit markets seized up in a serious way the week of 15 September. Automobile sales in October, to take an example, dropped by huge amounts (nearly 50% in the case of GM). It is not difficult — though all too painful — to imagine what such a negative feedback look in the credit markets would do to the real economy in the next year.SWK

Leo70November 5th, 2008 at 8:16 am

You meant positive feedback loop. Remember that in control systems, negative loops are good, positive loops are bad.

kilgoresNovember 5th, 2008 at 10:12 am

Good of you to point out that misnomer (I almost put it in quotes). I was just using the same nomenclature as Wolf in the Wilds. The use of the term ‘feedback loop’ alone probably would have sufficed.SWK

GuestNovember 4th, 2008 at 9:48 pm

Exit polling, because of sampling companies’ extreme diligence in selecting representative samples for calling elections on election night, are said to be the most accurate forms of opinion polls in existence. Hence, the following early findings (reported here from politico.com) are among the most dependable available:”Exit polls: Economy top issue”November 4, 2008 6:16 PM EST –The economy dominated voters’ concerns at historical levels in the presidential election Tuesday, according to preliminary exit polls conducted by The Associated Press and the major television networks.Fully 62 percent of voters said the economy was the most important issue, six times more than cited the war in Iraq (10 percent), health care (9 percent) or terrorism (9 percent).Not since 1980, in the shadow of a gas crisis and stagflation, did the economy dominate voters concerns as it did Tuesday. Back then, almost seven in ten voters named either the economy or inflation, jobs and unemployment or balancing the federal budget as the top issue on their minds.In 2004, only 20 percent of voters cited the economy, while 22 percent cited moral values, 19 percent terrorism and 15 percent Iraq. In 2000 as well, the economy/jobs, taxes, education, social security and world affairs all carried roughly equal weight among the voters.This marked issue contrast in four years explains, in large part, why Democrat Barack Obama came into Election Day the strong favorite, both in national and state polling. Voters have seen Obama throughout most of the general election campaign as the more capable steward of the economy. Nearly all voters agreed the economy was in poor shape.Eight in ten said they were worried the economic crisis would harm their family’s future, while about half said they were “very worried.” At least four in 10 said their family’s financial situation worsened since 2004.And a stunning two-thirds expressed concern about affording health care.Additionally, more than half of the electorate said they opposed the $700 billion government financial bail-out…http://www.politico.com/news/stories/1108/15270.html

Richard FriedmanNovember 5th, 2008 at 12:45 am

Voting won’t change the Great Recession we are in. There are alot of solutions to the problems that need to be put into action. Obama is in. Let’s get to work.

Detlef GuertlerNovember 5th, 2008 at 2:33 am

Not yet, Guest. He is elected, but not inaugurated. So he has some time left to design his apollo program. Hopefully he`s not heading for the moon, like JFK did, but for the sun, like MA, OuterBeltway et al. propose.

Detlef GuertlerNovember 5th, 2008 at 11:15 am

Not just solar power, jomos: complete energy independence within 10 years. No more sheikhs, no more Chavez’, no more war for oil. You’ll need an awful lot of money and work and research and creativity and all that jazz to get there within 10 years (and of course a lot of solar power plants, somewhere in Nevada), but you can manage it.

GuestNovember 6th, 2008 at 4:26 pm

Detlef–Are you saying this in awareness that there IS an Apollo program already in existence for this very issue? It’s the Apollo Alliance: motto–Clean energy, Green Jobs:”Remaking U.S. energy policy is the kind of opportunity that comes along once in a generation. We have a new president, many new members of Congress, and new leaders across the country – just the right conditions for bold, new ideas to grow. The Apollo Alliance has the comprehensive plan to make it happen, and with your support we can start getting our new leaders on board immediately. Our work begins this week.”See http://apolloalliance.org/

kilgoresNovember 5th, 2008 at 6:31 am

Apparently, the European markets are down based on banking issues, not the Presidential election results.SWK

AfANovember 5th, 2008 at 7:43 am

There were always banking issues these days, the global markets are supposed to rally today never mind the bad news.Or that the world is turning anti-American, isn’t it P1AQL? 🙂

Octavio RichettaNovember 5th, 2008 at 4:06 am

The significance of Obama’s election goes well beyond small talk on whether electing him makes any difference on how quickly will the economy/markets recover or whether . The US is indeed a great country. I am proud of being a citizen of the US. To be honest to you, if I didn’t like it so much down here in Argentina I would pack and go back home; with home for me being the USA, not Venezuela.

Octavio RichettaNovember 5th, 2008 at 4:10 am

The significance of Obama’s election goes well beyond small talk on whether electing him makes any difference on how quickly will the economy/markets recover. The US is indeed a great country. I am proud of being a citizen of the US. To be honest to you, if I didn’t like it so much down here in Argentina I would pack and go back home; with home for me being the USA, not Venezuela.

Octavio RichettaNovember 5th, 2008 at 4:10 am

The significance of Obama’s election goes well beyond small talk on whether electing him makes any difference on how quickly will the economy/markets recover. The US is indeed a great country. I am proud of being a citizen of the US. To be honest to you, if I didn’t like it so much down here in Argentina I would pack and go back home; with home for me being the USA, not Venezuela.

GuestNovember 5th, 2008 at 4:43 am

Obama is indeed bringing a glimmer of hope/light (neon,candle,torchlight thats your choice)for a changeRemember he represents the thoughts of millions of US citizens, and that is a need to change(for the good)he is projected as the saviour of US economyNow imagine if DJIA went down 300 points today, i know its not a big figurebut consider the morale implicationthe headline is already out in Europe, “EU mkts falls after Obama wins”i guess thats why OR is jitteryour saviour is shot before he even officially called Mr prez

A Young Anglo AfricanNovember 5th, 2008 at 4:52 am

Hi Americans!I know not all of you voted for Obama – but to those many of you who did: you have really shown the true mettle of your fantastic country.Things are not looking particularly rosy for the USA (or the world) at the moment – and we don’t know yet whether Obama is the man to lead you through the dark. But one thing for sure was that the old algorithm was not working and you now have at least a chance to turn things around.And as much as it may pain some to hear it; your leaders are seen as our leaders too – and your great display really sets a magnificent example for the entire world.Thanks again, America. And welcome back!

GuestNovember 5th, 2008 at 7:37 am

Of the 118m votes counted so far 62m were for Obama. I wonder how long it will take before the generic theme of “change” to starts to wear thin.

OuterBeltwayNovember 5th, 2008 at 7:55 am

You have no idea how delighted we are to get this chance to fix things.McCain’s concession speech and Obama’s acceptance speech were two sides of the same coin: We must join as a TEAM.The question is not whether Obama is the right leader. The question is whether we are the right people. Leaders cannot go anywhere the people aren’t already.Don’t ever forget that. Our job is to “get there” even if we have to drag our boat-anchor leaders along with us.Yesterday’s victory marks the handover of the world’s problems from the Cro Magnons that created those problems to the next-generation humanoids that make claim to solving them.Will this be another ‘sixties, with lots of sentiment and no follow-through?Or is this actually the moment when we decide to play like a team, and do the fundamental work we should have started in the 70s and be finishing up with today.We’re 30 years behind schedule. Let’s get cracking.Teamwork, baby. Teamwork!

AfANovember 5th, 2008 at 8:12 am

Great post OB, as usual, and I agree on your vision about leadership vs. people, to some extent. It is first and foremost the responsibility of people to inaugurate the change they want/need, leadership is just a reflection of this dynamics (although there are other circumstances when these do not work this way, but this is not a post for disagreement).What is the position description and requirements (to be a teamplayer, that is)?

OuterBeltwayNovember 5th, 2008 at 8:35 am

Whoa. AfA, that is one heck of a good question.I’m going to ponder that this AM, will be back to you w/first cut answer.Hmmm. What are the key traits of a “good team player”.Kneejerk answer: someone that understands what you have to give, and what it’s possible to get by virtue of joining a team. Someone that accepts the deal, and expects/insists that the rest of the team members live up to the contract as well, with allowances for momentary weakness by any/all of the other team members. That is what makes a healthy team.It ain’t all roses, that’s for sure.Let me do some thinking. Ya blinded me with Science on that one 😉

PKBNovember 5th, 2008 at 9:43 am

Reseach on Teams & Personality has shown that a team member with a high level of ‘Ability’ and a high level of ‘Concienciousness’ is highly regarded by other team members (i.e. significant non-linear interaction affects). A team member with a low level of ‘Agreeableness’ often performs well in a zero sum negotiation. Just some food for thought.

PeteCANovember 5th, 2008 at 8:56 am

Mr Obama represents a change for America. This is a watershed event. We will support him and try to move on. It will not be easy to fix the problems affecting the USA, or some of the things that we have done to the world. But we will try.PeteCA

GSMNovember 5th, 2008 at 5:31 am

Not to be a party pooper, but let’s step back and take a deep breath. W had to go, sure. And change can now take place. But the godawful mess remains.This is regime change. Whether it will be successful however, is still a major unknown. Goodwill, energy and enthusiasm are all good things. But this crisis will take more, MUCH more than that to resolve.So, congratulations people of America- you have thus far done the right thing. But get over your celebrations quick please- roll up your sleeves and get straight to work as you have no time whatsoever to waste in cleaning up this godawful mess.

GuestNovember 5th, 2008 at 9:28 am

And let the partisans not forget that it was Pelosi and Frank and Reid who led the knock down, drag out for bailout of the billionaire plutocracy. It was B. Clinton who gave us NAFTA and set up the Goldman Sachs heist. The views of anyone who still remains a partisan at this juncture in America’s history are to be taken lightly, if at all. Many Republicans and Independents (a great number of whom are former Republicans — myself included) voted for Obama (and don’t “sir” me), and many Democrats, particularly in the South, voted for McCain. It is those people who are capable of looking beyond party politics who will forge the solution if America as we know it is to survive. Knee-jerk partisans are the problem, not the solution.And, I guarantee, if Obama fails to lead for all the people and plays the old politcal game that the Democrat joker takes all, he will be out in four years and many congressmen in two. Mark my word — the people are serious this time around, and in no mood for politics as usual.I appreciate your sincerity, GSM

bcdogsNovember 5th, 2008 at 8:59 pm

Reign of Error, that is without a doubt one of the best ways to describe Ws whole eight years, kudos and thanks for the chuckles…

AnonymousNovember 5th, 2008 at 6:46 am

While the election of Obama is a great historical event for our country; let us remember, that our NEW president still has to work with the OLD ideas of both parties: the same people who have been responsible for their lack of oversight and their pandering to the corporate world! The solution so far has been to throw as much money as possible back to these same wolves who have raided the American hen house and now the whole world has egg on it’s face!

Wild BillNovember 5th, 2008 at 6:48 am

Before we all bow down and worship our newly elected golden calf, keep in mind, he voted for the pork-festooned bailout. Surely his economic advisors must have briefed him. When Paulson first proposed the bailout, he included provisions that would insure no review or strings attached of any kind. In the face of such audacity, shouldn’t Obama’s economic advisors have been able to warn Obama of the consequences that were entirely predictable? Now that those predictions have come to pass and the more than 800 billion has been transferred from the American people to the banking aristocracy, shouldn’t we ask Obama why he voted the way he did?I gave neither candidate my vote because of the bailout issue. I am glad Obama won because of my opposition to the war in Iraq, but I could not back him with my vote because in the final analysis, he is complicit in transferring (stealing)an enormous amount of wealth from the very people he has promised an increasing share of the nation’s wealth. If you believe I am being overly simplistic by focusing on this one issue and giving it too much priority, please tell me why.Perhaps his other attributes will ameliorate thee affects of his flawed vote. Perhaps his eloquence and intelligence will redound to the unification of our fractured economy and society, perhaps he will get the opportunity to appoint some Supreme Court justices that give the constitution back to the people.While I speculate on the “perhapses”, perhaps Obama will engender a higher level of political involvement in our citizens that will cause them to demand more accountability to the people who elected him.

Octavio RichettaNovember 5th, 2008 at 7:42 am

Great post! I am glad Obama won but that does not change the fundamentals in the short-medium term.In retrospect, I now see the will of the people as humbling. Following 9/11,the people rallied behind the president’s office by giving Bush the benefit of the doubt: We elected him not once but TWICE. And the big fool squandered the opportunity big time. There is no way one can tell the future but based on the information at hand; we did the right thing then, and we did the right thing now.IMO, there is no way Bush would have been elected twice without 9/11. He shall remain in my mind as the 9/11 president and part of the “package” terrorists delivered.

GuestNovember 5th, 2008 at 6:48 am

As I read the congratulatory posts above what is striking is the perception that things have somehow changed with regard to the underpinnings of this financial crisis. Please note that among the leading candidates to replace Paulson is another Goldman alumnus, John Corzine and president of the Federal Reserve Bank of NY, Tim Geithner. Talk about having the fox in the hen house or should I say White House.

AfANovember 5th, 2008 at 7:56 am

Come on Guest, give US a break 🙂 We know things are bad, worse than bad, they are awful. But please leave US alone. Seriously, even if it is ephemeral, delusional, wishful and anti-Ryskamp positivity that could be as productive and long lasting as HOPE, please give the world or at least this board a breather to chase away “negative” energy. However, do not invest or trade on this emotional break.

GuestNovember 5th, 2008 at 10:47 am

Guest made a very pertinent point, AfA. What do you mean, “please leave US alone?” Someone has to hold these politicians’ clay feet to the fire: if not you, then Guest. If not now, then when?Democrat partisans are pontificating today, failing miserably in hiding their party colors. Today they’re talking all teamwork and bonhomie: yesterday they talked naked partisanship and spite. It’s all hot air, their new heaven and a new earth and a worshipful leader. What does it mean? To them it means the old Democrat Party line of socialism, taking from Peter to give to Paul, ownership by Big Brother. They’re drunk on words and power and expectations, not teamwork and restoration and liberty.I’m hoping Obama is different. We’ll see. I expect Obama to be a liberal, but I also expect him to be a manager. Bush was a puppet: his handlers were hoodlums. I, too, feel better about America today.

AfANovember 5th, 2008 at 12:32 pm

That post (mine) was somewhere between sarcasm and wishful thinking. I was never lured to believe that the outcome of the elections would have substantial difference on the outcome of the economy, but as you said, for one moment I stopped and said “I’m hoping Obama is different”.

perceptionsnowNovember 5th, 2008 at 6:54 am

What is the Motor of the World and why is it stopping?Let me say from the start, that the world and its financial system are now more interlocked than any other time in history and that the butterfly effect is very real. We have also stepped into the unknown, into a new paradigm and there is no going back!What is the Motor of the World?There will be many opinions, some will say China is now the motor of the world, some will say modern computers, some the US, some Oil, some this and some that. The truth is there are probably over 6 Billion opinions and most opinions would be at least partially true, given a particular time frame.It would be correct to say that China has been a very significant force in global economics, certainly in the last 10-15 years. Certainly, the impact of computers and related electronics, over the last 50 years, has truly moved the world.And, over 150 years, the US and Oil have been inseparable, as the driving forces of the global economy. Such a large part of the global economy today can be traced back to the US and it’s partnership with Oil.But, in back of everything, the steady and un-relenting growth in population has always been the engine of economic growth, at national and global levels.However, that motor is stopping!How did we get here?Population Growth & Aging -It took all of history, up to the year 1800 AD, for humanity to reach our first Billion people. Baby Boomers had their origins in the population explosion that started as the Great Depression was ending; they were a large part of our 3rd and 4th Billion.The population explosion really took off in 1945, it Peaked in 1956, then levelled out to 1964, before slowing significantly since then. Now, at over 6 Billion people, we are starting to exhaust the earth’s capacity to support human species.A continuation of past growth would have seen the global population increase to 10 Billion by 2050 and 20 Billion by 2150. Clearly, that is not likely to happen, as population growth is slowing and the global population may start to fall, in the not too distant future.Why, because we are now bumping into immovable objects, such as Peak Oil, Climate Change and Peak Food Production, all driven by the Global population.With a few relatively minor interruptions, the period 1945 to 2005 was the greatest Global economic BOOM in history. In particular, the period 1995-2005 was a Growth Tsunami, driven by the Peak earning and spending capacity of US & other Global Baby Boomer consumers.In addition, around the same time, technology drove massive gains in productivity, leverage multiplied and interest rates in the US remained artificially low, for far too long, following the events of 9/11.This was a perfect storm, for making money.Peak Oil -To make life more interesting, Oil has also gone from $10 to nearly $150 a barrel, in just a few short years. Whilst there may have been some external influences, the main reason for this huge increase was Supply & Demand.And, while there are arguments for Abiotic Oil, Coal & Gas, there are drawbacks for these “replacements” and in some cases they may create more environmental problems.Oil prices have since retraced to lower levels, in expectation of a substantial fall in oil usage, arising from a slowing economy.Transport, Plastics, Medicines, Chemicals, the list is almost endless, that are dependent on oil, no wonder the US has had such a long lasting love affair.When historians look back, they really will say, “did they just burn all that oil”.Climate Change -Climate is our greatest asset, but changes are also starting to impact us now, as can be seen in the lack of water in some parts of the planet, increased storm severity in others and the melting of Glaciers and Polar Caps.We have already passed major climate tipping points, the planets climate is set to get very difficult for humanity, including a possible new ice age. Sure, we can take the chance that the scientists have it wrong, but then if their right, this could be an Extinction Event.Do we have the right to play Roulette, with the survival of future generations.Peak Food Production –With the total global population busting at the seams, we must make sure everything possible is done to ensure food production is provided for the increasing population, right?Wrong, instead, we are diverting large parts of agricultural production away from food production and into the production of diesel, as a replacement for Oil.Even if we wanted to boost Food production, Climate Change is and will continue to, raise serious questions on our present and future capacity, to deliver enough food, to keep the surging global population fed.Where are we now and where to next?Whilst the sub-prime debacle in the US has its own distinct origins, including NINJA mortgages (Greed), it has highlighted falling Real Estate values and New Housing starts, which has separate Demographic origins.In economic terms, the primary driver of the real global economy is consumer demand. The largest demand driver is the 45-55 age group, primarily in the USA, due their big earning and spending capacity.Demographic levels are already being re-shaped, as nearly two Billion Baby Boomers have commenced a 20 year transition from being big spenders, to big Retirement savers, to thrifty Retirees, before leaving us forever, in increasing numbers.This massive aging of the global population is changing the dynamics of the world economy, with the bulk of Boomer wealth likely to pass on before they do and as the generations following behind the Baby Boomers, are relatively less in numbers.In particular, Real Estate and New Housing markets, particularly in the US & Europe have already fallen and continue to do so, arising from a lowering in demand, led by thrifty and retiring Boomers.As if housing issues were not enough, the aging process will also introduce some $50 Trillion in unfunded Health and Social Security costs.So, we now see:1) Supply (Oil) & Demand constraints.2) A massive de-leveraging of financial markets, including some $500 Trillion in Derivatives.3) Government Budget deficits continue to expand, due to the current Credit/Housing Crisis.4) Massive increases Health and Social Security Costs, again expanding deficits.5) Problems arising from Climate Change and Food production.You can guess what awaits with Taxes, in the near future, to pay for past indulgences.And, with Debt levels already at historical highs and past fixes, either not able to be used or possibly set to cause more harm, than help.Now, we are just past the Peak of a once in history Population Growth Mega Cycle.Now, expectations build of a slowing economic future, as reflected in stock markets and oil prices, next is reality.Now, the perfect storm is reappearing, this time it is a Cat 5 in financial demolition!What Futures await?The very basis of modern life will be shaken, the magnitude of the quake, will be 9.9.Whether we arrived at this situation, by accident or design, we are never likely to know, although events suggest a mixture of both, seems probable. So, the design has now been set in motion and we are now into the first quarter, of the highest stakes game, ever played!Unlike the Great Depression, we are now truly between a rock and a really hard place.The truth is, there is no magical, Hollywood, easy fix.The truth is, there is no pot of gold at the end of the Kansas rainbow.The truth is, things are going to be tough, for quite some time.Had corrective decisions been made earlier, then it may have been possible to reduce some of the worst side effects, regrettably, that did not happen.Regrettably, if we opt for a better now, then future generations will pay for our mistakes and indulgence. That reasoning is not acceptable and can not succeed!As we look to the future, we need to look thru different eyes, thru different thought processes.The days of Smoke & Mirrors, of Shock & Awe, of the Desire to Acquire & Retain Power, of Self interest, at the expense of societal interest, must end.Can we make those changes, the answer is YES!Will the required changes be made? Now there, is a $64 Trillion question!The answers will come on these boards and others, in other forums, in politics, in business and the answers will need to come quickly.There are discussions that must take place and Mindsets that must change; the time has come to look beyond borders and elections.Good luck & watch the Debt!

GuestNovember 5th, 2008 at 7:14 am

We have 2 choices: 1)continue printing unlimited amounts of money-how do think our debt has grown from 1-10 trillion and 70% of GDP or 2)tax the people to death. Since number 2 will never occur, what will be the ultimate result of number 1?How about a new one world currency to replace the collapse of all others?! “The maximum control of people is easiest during the greatest crises!”

Pecos BankerNovember 5th, 2008 at 8:53 am

You left out the military. If we cut back the military to what is actually needed (perish the thought!), we can probably fund health care and social security. That will never happen, of course.

Miss ItalyNovember 5th, 2008 at 7:39 am

W ObamaIf I can give a prespective from Europe: most see, correctly, this as an historic moment. Let me skip the racial meaning, many are more qualified than me to talk about that.But a few more things are clear.1. USA shows it’s ability to change, fast. I wouldn’t minimize the anger against the Bush administration, that for a long time was able to seduce a whole country with their war against terror.2. Europe has a feeling that it can restart working seriously with America. Anyone that still thinks that America can pursue any foreign policy alone and that all diplomatic work is just a waste of time is pathetic. The era of UN ambassadors like Bolton is over (hopefully forever).That he will start radical new actions on the financial crises it’s a big question, probably we already now the sad answer, but this is not on the table right now. What we see is the close of a very sad era for USA and the world and the start of an administration lead by a smart and capable man.W Obama W America

AfANovember 5th, 2008 at 7:58 am

You are making me feel anxious now, what do the W’s stand for? Wasn’t he supposed to leave office soon?

AfANovember 5th, 2008 at 8:02 am

Dammit, that was in response to Miss Italy.SGG, this is your day to talk up the markets. Don’t count on Paulson and Bernanke, if you see what I mean.

GuestNovember 5th, 2008 at 8:06 am

Non violent regime change. Democracy works. Race doesn’t matter anymore. Acknowledgement of our interdependency between individuals, parties, governments. Refreshing. I know we have enormous challenges, but I feel good about what ‘We the People’ accomplished last night.

GuestNovember 5th, 2008 at 8:24 am

Well done America …This battle for democracy has been won, but the war isn’t over.Congratulations!– a foreigner —

JubileeNovember 5th, 2008 at 9:36 am

“race doesn’t matter anymore…”The unexamined story of this election (so far) is that 96% of African Americans voted for Barack Obama.Clearly, race matters now more than ever… for better or for worse.

GuestNovember 5th, 2008 at 10:31 am

The 96% figure needs further development. Your position seems to infer that skin color was the only factor. How about other factors such as unifying the country, trying to be included in the system and not being left behind. These feelings were part of 62+million voters of all races, creeds and colors as Americans. This was an electoral landslide, of pent up frustration. I would point out that the crucial independent vote Obama carried was largely white college educated. The reciprocal of you statistic is relevant as well, why couldn’t conseratives generate more support from minorities? Take this opportunity to welcome the fact that America is moving beyond skin color, and leading the world again in doing so. I am a white, 45 year old male, with masters level education in Virginia, and I proudly voted for Obama. I am also proud that this country has the confidence to seek change for the better. Fear and biggotry was defeated last night, don’t be left behind. What is clear is that there were 62 million voters who were 100% fed up with the status quo.

JubileeNovember 5th, 2008 at 12:05 pm

Guest,I don’t think you’re taking my comment in the spirit it was intended. It is clear that voters of all “races, creeds, and colors”, as you put it, want Barack Obama to be the President of the United States. I think that’s wonderful. I, personally, didn’t vote for him, nor the other major party candidate… but that doesn’t mean that I don’t think he’ll do his best to lead the country in the direction he feels it should go.My point is that, based upon the data, it seems like only *part* of America is “moving beyond skin color” – and, last night, it wasn’t the African Americans. If you honestly believe that 96% of a racial group voted for Barack Obama because they believed in and agreed with his fiscal, social, and military policies, then I would respectfully submit that you are willfully looking past the obvious. As for me, I would speculate that somewhere upwards of 80% of the 96% of African Americans that voted for him did so solely on the basis of skin color – and that is just as racist as any white man voting for another white man solely on the basis of *his/her* skin color.I recognize this is not a popular topic – and not something that many people in the nation want to address at this point in time. I am happy for Barack Obama. I am also happy for those black folks who have worked so hard, fought so valianty, and overcome so much; I cannot imagine the joy they must feel today. But racism is racism, and we ought not look away simply because the once oppressed now find themselves in a position of power. It might not seem like a big story when only 13% of the electorate is black – but can you honestly say that no one would notice if *60%* of the electorate were black, and 96% of them voted for Barack Obama? I think it would be naive to say they wouldn’t…God bless America – there’s so much to look forward to, so much to achieve, and so much to work on. We’ll all be busy for the next four years!

GuestNovember 5th, 2008 at 12:43 pm

Jubilee, 96% of all the readers on this blog took your remark at face value and in the spirit it was intended.

GuestNovember 5th, 2008 at 1:19 pm

@ Juibilee – notwithstanding my sarcastic “Kool-Aid” comment to the guest who first responded to your comment “Fear and biggotry was defeated last night” – you are exactly right in your observations that –

“Clearly, race matters now more than ever… for better or for worse.”

The fact that such a reasonable comment elicits such a strong reaction simply adds validity to the point you were making.On a similar level there are arguments being made by some (including African American leaders) that declarations similar to the one made by guest may actually prove to be a setback in the quest for equality, as there is clearly much left to be done.Declaring it defeated is tantamount to saying it no longer exists as a threat.

GuestNovember 5th, 2008 at 1:33 pm

But again, I would say that skin color is now irrelevant. African Americans voted for Obama for a multitude of other reasons. A desire, as Americans, to unify the country was just one, education,healthcare are others. It would be just as fallacious to say 96% of the whites who voted for Mccain did so just because he is white. It makes no sense. Skin color as the sole causal relationship of your argument as to why African Americans voted for Obama is short sighted and myopic. As a white male, I can imagine several causes that motivated the vote other than skin color. Dig deeper and you may see true feelings of hope and, yes, hurt in the vote. Skin color is more of a coincidence after these deep feelings are understood. Slightly less superficial would be the claim that because Obama is a Democrat is the reason 96% of blacks voted for him. See it doesn’t make sense. Let us give African Americans the credit they deserve as free thinking Americans, capable of relating their own hopes and pains in their vote. One analysis may conclude that African Americans, and women too, for that matter, each value their votes more than other demographics because of having been denied the priviledge for so long. Give credit where credit is due. This victory transended race.

JubileeNovember 5th, 2008 at 1:52 pm

Guest (who first responded),You mention that you can “imagine several causes that motivated the vote other than skin color.”One way of restating my argument is that I “imagine that the vote of African Americans was motivated by skin color”.I suppose the important thing is that both of us are only “imagining”. Only those who cast votes know why they voted the way they did…Because I can’t “prove” my point – at least not by the standards of science – I’ll let this post be. Each of us has a “gut feeling” about this issue – and that’s healthy, as long as we can respect each others opinions. I have no desire to argue the point further, although I’m certainly interested to hear what others think.

GuestNovember 5th, 2008 at 4:14 pm

Of course race matters.And ANY Democrat (Black, White, Asian, Purple, whatever) would have been elected over the Republicans this election because of the last 8 years which have been terrible.

kilgoresNovember 5th, 2008 at 6:40 pm

Where are these mysterious purple people of which you speak? I always HEAR about them, but I never get to SEE them. I hear a lot of talk about the green ones, too, and I have yet to spot any of them, either. ;-)SWK

kilgoresNovember 5th, 2008 at 6:51 pm

96% of African-Americans voted for Barack Obama? That’s really disappointing. I mean, before Mr. Obama ran for president, black folks voted 100% for white men. In fact, so did white voters. What IS the world coming to? Millions of black and white voters — not to mention Latinos, Asian-Americans, and a whole range of others — have now cast their lot with a half-black, half-white Democratic candidate, abandoning tradition. What DO they see in him? Land sakes! Must be a racial thing against the white Republican candidate. Clearly a step backwards for race relations in this country. We should have kept on electing white men, regardless of what they and their party have done or stand for or say they’ll do to… uh, FOR us…SWK

Octavio RichettaNovember 5th, 2008 at 8:16 am

With all the bubble blowinf $$$$$ floating around and Obama’s energy strategy; can anyone guess where the next bubble will be?:-)

AnonymousNovember 5th, 2008 at 8:28 am

of course-the financial conmen pick a sector that the gullible public is most sensitive to, get those companies stock prices rising and begin their selling while the public keeps bidding up the price! And POP GOES THE NEXT BUBBLE! Isn’t predatory capitalism great!

AnonymousNovember 5th, 2008 at 9:12 am

Here is one thing I do not understand:Why is the currency of Switzerland so highly valued?The country may have lower taxes than some other European nations but has more expenses that need to be paid outside of taxes. So the end result is not that different from the other socialistic European nations. Take for example the mandatory health insurance: for a family of 3 this will easily cost 750 CHF (or more) per month.Besides Switzerland is not even particularly dynamic nor modern. Try for example to find a department store or grocery store that is open on Sundays. You can’t (with the exception of some tiny food shop on a train station). The country is still following its ancient religious rituals according to which Sundays should be dedicated to some higher beings. On other weekdays all of the stores close no later than between 6PM-7PM.From a purely capitalistic point of view, what should be higher valued is the currency of some country like Singapore. In Singapore the amount of tax due for a 100K SGD income is only about 5500 SGD. This is partly because people are expected to take more of a control over their own life rather than depending on some socialistic government policies. This and the fact that Singapore work hours are not governed by some religious beliefs has lead to the fact that people put a lot more effort in working in Singapore than in Switzerland. Most shopping are not only open on Sundays but also until late in the evenings.So if capitalistic markets are supposed to set the value of a currency, it is strange that the currency of Singapore is lower than the currency of Switzerland.

NateNovember 5th, 2008 at 9:49 am

What was the point of that rant? That because they are a religious country they are not good capatilists? Please find something intelligent to write about or do us a favor and just don’t write.

AnonymousNovember 5th, 2008 at 10:31 am

bah, it wasn’t a rant. It was a question.You can just skip the words referring to religion if it is too painful to read.The fact is that Switzerland is about as static an economy as Sweden was in the 1980’s, but with a mentality that stems from the 18th century. So since the markets are supposed to set the value of a currency, they should favor countries where the workforce is more available and less regulated. The Swiss mentality is to have even bicycles registered with a sticker – an unnecessary waste of bureaucracy.

GuestNovember 5th, 2008 at 11:55 am

your definition of “socialistic” seem to be a little “american”.I like to live in a country with medical insurance for everyone and another “socialistic” benefits and without Guantanamo.

AnonymousNovember 5th, 2008 at 5:53 pm

It was an example of the regulation in Switzerland.Besides when it comes to Switzerland the issue is also not just no shopping on Sundays, but the actual reason for no shopping on Sundays. Shops are closed on Sundays for the same reasons as why you cannot use a washing machine on Sundays (even when the machine is in your own apartment). It is not just that Switzerland is unnecessarily regulated, it is unnecessarily regulated for the wrong reasons.The Swiss have of course the right to keep their system as they wish, but since markets are supposed to set the value of a currency, they should favor countries where the workforce is more available and less regulated.

GuestNovember 5th, 2008 at 5:38 pm

In fact medical insurance for everyone is good. In Switzerland you just have to pay for it outside of your taxes. In that country it is the same with some other social costs: they are deducted outside of the tax deduction.These can easily add to considerable amount per year and if the same percentage amount was deducted in taxes, there would not be much of a tax rate difference between Switzerland and other northern European countries.My point was that Switzerland is not some low tax pro-market country but a country with northern European taxes and unnecessary bureaucratic regulation. From a purely capitalistic point of view money should flow to where this is not the case.

PeteCANovember 5th, 2008 at 9:24 am

Last week I commented – while looking at John Hussman’s data – that the present recession did not seem to match historical trends.This week it’s a different financial analyst – but the same conclusion. Take a look at the data plotted by Frank Holmes here. See the bottom charts in the following article. The author of the article is trying to argue a different point, but I’m not ressured by his data!http://www.financialsense.com/fsu/editorials/holmes/2008/1103.htmlIt does not look to me as though the current recession matches the comparison plots very well. The drop so far in the current 2008 data series has been much more serious. We’re either in the WORST recession since 1929, or some other animal with a different name. I’m not making any claims or predictions. Just looking at trends in the data and noticing issues that I see.PeteCA

Fred VoetschNovember 9th, 2008 at 4:30 am

Another expert who makes all the same old mistakes with charts that never take into account a full generational cycle of at least 80 years.These people are brainwashed to think that the 80’s and 90’s are going to repeat themselves over and over and the market will never receed back to the long term mean of approx 5,000, and that’s after it will likely go far below that level.Please don’t listen to these people without learning the basics of economics and human psychology.

GuestNovember 5th, 2008 at 9:24 am

LOLOLOL the dow rallied 100 points on this, is there no shame?10:00 a.m.U.S. Oct. ISM services index 44.4% vs 50.2 in Sept.10:00 a.m.U.S. Oct. ISM services below consensus 47.5%

GuestNovember 5th, 2008 at 9:30 am

Yeah, the housing makret has bottomed-Mrtg apps fell like 30% this morning too:9:31 a.m.[GGP] General Growth Properties shares fall 16% in early trading9:31 a.m.[MBI] MBIA shares fall 18% in early trading9:30 a.m.[ABK] Ambac shares fall 32% in early trading

GuestNovember 5th, 2008 at 9:32 am

PPT alive and well. The pawns of the powers that be have lots of stocks to clear out before year end so this will rally no matter how bad the news until they clear their books!

GuestNovember 5th, 2008 at 9:49 am

I´d like to know if anyone in this blog has an opinion about Ted Butler´s announcemet of a wholesale silver shortage…Is it true? Is it a valid analysis?

PeteCANovember 5th, 2008 at 10:05 am

Call up your local precious metals dealer.Offer to buy some silver coins. And see what they say to you.If they say “No”, then offer to buy the coins at a substantial price above current “market” prices for silver. Then see what they say again.And why don’t you report back the results to the discussion forum here.PeteCA

AnonymousNovember 5th, 2008 at 4:40 pm

Hi,on a recent thread, i mentioned that, here in Turkey, I can buy gold with only 20-25% premium over the spot price. i can buy 24k gold bars for the rge bloggers and send them over, just drop me a mail at gold @ adafon.netIT Manager from Turkey…

OuterBeltwayNovember 5th, 2008 at 9:53 am

AfA: OK, delivering on the assignment.Job description for a “good” team memberThe job of a team member is to:a) precisely understand the mission, goals, objectives and processes of the team (strategy and tactics).b) understand the give-get deal; what I give, what I get. If the deal’s not right, fix it, bond to it.c) execute your side of the deal. Deliver your deliverables.d) insist that the other members of the team do their part, unless they are temporarily unable. If they’re unable, fix that problem.e) understand exactly what it is that makes the team greater than the sum of the parts, and make sure that “delta” is expanding via every transaction the team member conducts with the rest of the team. Understand what the Key Success Factors of the team are, and make sure they happen.Those are the duties. The deliverables are:a. A valid contract among the parties. Meeting of the minds, confluence of intent. Consensus on “what” and “why” and to a (much) lesser degree “how”b. Adaptation of the contract as environmental and team-member conditions change.c. Execution of the contract. The sum of the parts (value created by the group) continues to exceed the value contributed by each team member individually (hence the benefit of the group)From the foregoing, it should be obvious that one cannot be a good team member without a crisp understanding of where the group is going, how it’ll get there, and the role of the individual in making the mission happen.That is what “citizenship” is. Rational, coherent, effective social behavior.

AfANovember 5th, 2008 at 11:19 am

read c:jobdescription.obanalyze c:jobdescription.obcomment c:jobdescription.ob***PROCESSING****THIS MAY TAKE FEW HOURS***PLEASE WAIT***Operating System: Win95

AfANovember 5th, 2008 at 12:37 pm

It seems I do not possess some of the attributes of a teamplayer, I have difficulty changing from status quo and leaving legacy systems, I still use the same e-mail account from 15 years ago.

PeteCANovember 5th, 2008 at 10:02 am

News today …”The banks have got to open up credit to business: they have the means to do it,” said prime minister Francois Fillon, accusing lenders of hoarding cash. “We don’t think the banks are stepping up to task as necessary. We can withdraw the credit that we have extended to them under the state’s contract with the banks, and that will put them in difficulty. At that moment the question arises whether we should take an equity stake, change their managers, and assume control over their strategy.”Perhaps someone can explain the concept of “pushing on a string” to Mr. Francois Fillon. He apparently beleives that if you restore the reserves in banks to healthy levles, then apparently money will just magically flow out into the economy. Sorry Mr Fillon – but it just does not work that way in a recession. The French Gov’t is going to have to do the same thing as many other governments … some very hard thinking about where the future economic trends are going and how France will fit into a re-structured world. That problem is much harder to solve.Firing bank managers and insisting that money be loaned simply will not work.[Not that I’m all that sympathetic to a generation of bankers who played the game with enormous amounts of leverage].PeteCA

AfANovember 5th, 2008 at 11:08 am

I’m laughing. Fillon knows as much about economy and financial industry as Bush does, i.e. NADA. He is a pure bureaucrat (the one behind the 35 hours/week law – Loi Fillon). So, no wonder such bureaucrats cannot think beyond a machinist approach. The frightening thing is that these guys are capable of informally nationalizing/socializing the industry by appointing management that “does what is told”: imagine a financial bureaucratic industry.The difference between there and US is that Bernanke is trying to nationalize/socialize the industry by flooding the market.

African boyNovember 5th, 2008 at 10:11 am

In Africa, peopel have rallys all the time:morning rally, noon time rally. afternoon rally, evening rally, nighttime ralley, on the bed ralley, at job ralley……

GuestNovember 5th, 2008 at 10:34 am

Dan Greenhaus is with the Equity Strategy Group of Miller Tabak + Co. He put out this fascinating analysis of what “Novembers” typically hold in store for us after nasty “Octobers”Dan writes:Okay, so we all know October was down a fantastically ugly 16.94%, the steepest decline since 1987 when that October declined 21.76%. Going back to 1950, there have been 23 years in which October has been down by *any* amount from the prior September for an average decline of 3.15%. Subsequent to those 23 years, the following November saw an average gain of exactly 1%, while the following two months, at the end of December, saw gains of a much more substantial variety; up 3.54%. But of course the decline in this past October was outsized in comparison to the average October decline, so let’s narrow this down a bit. Using only instances in which October saw a decline of 3% or more (eight such instances), the average gain at the end of November was 1.67% while the average gain at the end of December was 3.70%. To a degree, this is not entirely surprising as one would assume that the steeper decline would lead to a steeper rebound. But in most of those instances, the decline was relatively modest. As I said, those 23 declines averaged about 3.15%, a far cry from October 2008. The only analogous decline was the drop in October in 1987 which led to a subsequent 8.53% drop in November 1987.As I noted, the depth of the decline we just went through in October has only one parallel in the post 1950 time frame, which is 1987. So the next logical step is to head back to the 20s and 30s to get a handle on what occurred in that time period. Unfortunately, the Octobers of that time didn’t fare too much better. October 1929 was down 19.93%, October 1930 was down 8.88%, October 1932 was down 13.86%, October 1933 was down 7.82% and October 1937 was down 10.25%. In the first three instances I noted, the subsequent November was actually down an additional 13.37%, 3.31% and 5.89% respectively and November 1937 was down another 10.25%. Only November 1933 saw a gain, moving higher 10.27%.The point is that while we would be inclined to think that a drop of the magnitude we just witnessed would, at the very least, produce a dead cat bounce, that assertion is not entirely supported by history.From Barry Ritholtz

GuestNovember 5th, 2008 at 10:53 am

California – “the left coast” trend setting leader of the United States and the world November 5, 2008LOS ANGELES – California voters have defeated duel initiative campaigns for clean energy and alternative fuel, heeding the warnings ofenvironmentalists who said both would tarnish the state’s green image.Calif. rejects clean power initiative

Forensic economistNovember 5th, 2008 at 11:17 am

One of (Prop 10) them was a huge subsidy for Boone Pickens’ natural gas business. California voters may be inconsistent (voted for Kerry and Schwarzenegger in the same election) but not stupid.

GuestNovember 5th, 2008 at 11:09 am

We now know what the election means! Thank goodness, we can hear the hooves of the little bulls coming. As Bloomberg puts it on “Breaking News”: “After Worst Year Since ’37, Obama May Wind Up Inheriting Next Bull.”And that’s Bull, with a capital “B.”

JimmyTheBankerNovember 5th, 2008 at 11:09 am

Service sector shrinks as new orders dropWednesday November 5, 11:11 am ETBy Ellen Simon, AP Business WriterService sector contracts sharply in October as new orders, employment declineNEW YORK (AP) Hotels, construction firms and retailers saw business shrink in October as slower spending and declining employment sent the service sector into contraction, another gloomy sign for the economy.The Institute for Supply Management, a trade group of purchasing executives, said Wednesday its service sector index suffered a sharper-than-expected drop to 44.4 in October from 50.2 in September.Wall Street economists surveyed by Thomson Reuters expected a reading of 47.5. A reading below 50 signals contraction.”In short, horrible, but only to be expected in the wake of the equity plunge and the subsequent collapse in confidence,” said Ian Shepherdson, chief economist at High Frequency Economics, a private research firm.Asked in a one time question whether the financial crisis was affecting business, 82.2 percent of respondents said they had reduced spending, hiring or both, according to the ISM report.New orders, deliveries, backlogs and inventories all fell.

GuestNovember 5th, 2008 at 11:21 am

Note that possible candidate Timothy Geithner works for Goldman Sachs, i.e. Stephen Friedman, Goldman Sachs chair of the New York Fed, where all Federal Reserve decisions are made.“Summers, Emanuel Candidates for Obama Administration (Update1)”Nov. 5 (Bloomberg) — Barack Obama’s top priority will be appointing a Treasury secretary and White House chief of staff. The leading candidates: two Clinton administration stalwarts, Lawrence Summers and Representative Rahm Emanuel.It’s unlikely the president-elect can assemble a Cabinet and staff within 10 days as some have advised, say people who have discussed this with him in recent days, all of whom asked for anonymity. Still, given the financial crisis and two wars, Obama, 47, is bound to move more quickly than either of his two predecessors in making key personnel decisions.Summers, 53, is favored to return to the Treasury post that he held under President Bill Clinton because Obama values his experience and familiarity with markets and global leaders, a crucial asset during the markets crisis.Still, people close to the president-elect stress no final decision has been reached and that Timothy Geithner, president of the New York Federal Reserve, is also a strong contender. Geithner would also be welcome by many in the financial community; at age 47, he would be a fresh face in an administration that ran on a mantra of change…http://www.bloomberg.com/apps/news?pid=20601087&sid=aeCd8KKVyyJQ&refer=home

GuestNovember 5th, 2008 at 11:32 am

Geithner is president of the New York Fed – Corzine another candidate was Paulson’s predecessor at Goldman. Emanuel was a senior staffer in the Clinton White House — I guess this is what Obama means by change…

AnonymousNovember 5th, 2008 at 11:55 am

And Bush 41 used to get criticised for “failing upwards”. Failing upwards seems to be the standard American method of promotion.

Lord SidcupNovember 5th, 2008 at 12:07 pm

Well if he picked people who hadn’t had these kinds of jobs before that would be attacked also; “more inexperience” etc etc. So anyone he appoints is thus totally unsuitable.

GuestNovember 5th, 2008 at 12:35 pm

that’s sort of the point. From a candidate who campaigned on change, his first executive actions are to go back to the future; unless of course the only qualified candidates are Goldman or Clinton alumni.

GuestNovember 5th, 2008 at 1:22 pm

A one-term relatively inexperienced senator has just been elected president of a superpower and you are saying, incorrectly, that if he doesn’t appoint an old hand with “experience,” he will not be able to handle the criticism: that he is damned if he does and damned if he doesn’t. A man concerned about criticism cannot move.Starting now, every decision Obama makes will be met with a combination of praise and criticism. But one of the benefits of being the president is that you lead in spite of it. He was elected to correct the problem, not to perpetuate it.There are vast numbers of people of experience who are not part of the Washington plutocracy. There are 50-year veterans of banks and brokerages and every manner of investment institution that are not “insiders” and who have incredible knowledge, influence and experience. Change does not mean bringing back the old order.

GuestNovember 5th, 2008 at 11:45 am

Make me heave — CNBC assuring viewers that today’s sell-off has nothing to do with the election results – yesterday they were crowing it was an Obama election day rally — Pravda would be more balanced in its reporting

KJ FoehrNovember 5th, 2008 at 12:19 pm

Today we and the world celebrate, with great relief, that our 8-year national nightmare has ended. In one day we have been transformed from a nation in despair, without real leadership, to a country with a leader that comes but once in a lifetime. A true leader who has won the respect, admiration, and support of not only a majority of Americans, but of countless millions around the world.Yesterday we were an unfortunate people with woefully inadequate leadership; today we are a truly fortunate people whose hopes have rightly been restored by a great leader. We may wonder what it was like to live in the presence of a great leader like Abraham Lincoln who saved our nation, and whose words still endure to inspire us now like those of very few others. Well, I believe we will now know what it is like to live in the presence of such greatness; I see it in Barack Obama.There is a saying that when serious trouble comes, a great leader emerges to guide us. Just as George Washington emerged to help us win independence and to reject monarchy in favor our presidential form of leadership. Just as Lincoln emerged to save the nation from breaking apart and to end the shameful exploitation of slavery. And just as Franklin Roosevelt emerged to lead us through the depression and WW2.Now Barack Obama has arisen seemingly from nowhere, in just 5 short years, to become the leader who can guide us through this new economic crisis and through the quagmire of Iraq and Afghanistan and a seemingly perpetual war on terrorism, and to overturn the disgraceful, unAmerican policy of preventive war that has turned the world against us. This is not the America of our forefathers. But President Obama will restore our reputation in the world so that we will not meanly lose, but instead will nobly save “the last great hope of mankind.” (see excerpt from Obama’s acceptance speech below)Let no one say now that America lacks great leadership. We have it in Barack Obama. Many have compared him with John Kennedy, but in my opinion he will exceed even that standard and will take a place in history alongside the greatest of our leaders: Washington, Jefferson, Lincoln, FDR, and soon Obama.After enduring eight long and difficult years of the worst presidency in my lifetime (going back to JFK), I feel very fortunate, thankful, and proud to now witness the beginning of what I believe will be the greatest president of my lifetime.From Obama’s acceptance speech last night:“…And to all those watching tonight from beyond our shores, from parliaments and palaces to those who are huddled around radios in the forgotten corners of our world – our stories are singular, but our destiny is shared, and a new dawn of American leadership is at hand. To those who would tear this world down – we will defeat you. To those who seek peace and security – we support you. And to all those who have wondered if America’s beacon still burns as bright – tonight we proved once more that the true strength of our nation comes not from our the might of our arms or the scale of our wealth, but from the enduring power of our ideals: democracy, liberty, opportunity, and unyielding hope.”Lastly, I have never seen a president who was less beholden to “the powers that be” as Barack Obama. What he said last night is true and exemplifies his independence from the rich and powerful and his devotion to the common people:“…It was built by working men and women who dug into what little savings they had to give five dollars and ten dollars and twenty dollars to this cause. It grew strength from the young people who rejected the myth of their generation’s apathy; who left their homes and their families for jobs that offered little pay and less sleep; from the not-so-young people who braved the bitter cold and scorching heat to knock on the doors of perfect strangers; from the millions of Americans who volunteered, and organized, and proved that more than two centuries later, a government of the people, by the people and for the people has not perished from this Earth. This is your victory.”And this…“…So let us summon a new spirit of patriotism; of service and responsibility where each of us resolves to pitch in and work harder and look after not only ourselves, but each other. Let us remember that if this financial crisis taught us anything, it’s that we cannot have a thriving Wall Street while Main Street suffers – in this country, we rise or fall as one nation; as one people.”From the words of Lincoln”We shall either nobly save, or meanly lose, the last great hope of mankind.” December 1, 1862 Message to CongressThe Gettysburg Address, November 19, 1863.“…It is for us the living rather to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us–that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion–that we here highly resolve that these dead shall not have died in vain, that this nation under God shall have a new birth of freedom, and that government of the people, by the people, for the people shall not perish from the earth.”

Riding out the StormNovember 5th, 2008 at 12:24 pm

man and i thought Jesus was cool. Maybe we’ll start the church of Obama! What does this have to do with economics? Please go somewhere else and spew the propaganda.

guestNovember 5th, 2008 at 12:43 pm

Absolutely right, of all the things he said the most frightening was his desire to create a federally funded “armed civilian force” to deal with domestice terrorism. Can you imagine KJ up there with a weapon demanding your “worship” Obama.

GuestNovember 5th, 2008 at 12:53 pm

I wonder if the uniforms will include brown shirts? But relax it’s only eight years, unless of course term limits get modified.

painterNovember 5th, 2008 at 1:20 pm

“…So let us summon a new spirit of patriotism; of service and responsibility where each of us resolves to pitch in and work harder and look after not only ourselves, but each other. Let us remember that if this financial crisis taught us anything, it’s that we cannot have a thriving Wall Street while Main Street suffers – in this country, we rise or fall as one nation; as one people.”I say over throw wall street. and put the bastards in jail

bcdogsNovember 5th, 2008 at 8:22 pm

It remains to be seen how a great a leader Obama will be. Great oratory skills does not a great leader make. The man can and does give great speeches, though I have heard the same things over and over again so many times, that I think that I am now repeating them in my sleep. Time will tell what kind of leader he will be. Myself, I just vote for what I considered the lesser of two, not really fantastic, choices. Had my state not been battleground, I would have voted third partyI expect many to become very disillusioned with him in rapid time. The higher someone is put on a pedestal, the further they have to fall.No offense intended, but I’d be much more interested in seeing a discussion of how Paul Volker, as one of Obama’s economic advisors will effect economic policy than excerpts of yesterday’s speech…Would you hazard an opinion on the Volker thing or just send me to the Obama webpage to read there?

OuterBeltwayNovember 5th, 2008 at 12:50 pm

Rahm Emanuel as Obama Chief of Staff.Hmmmmm. What does that mean?Before I begin, may I suggest, as background reading, this bio on Rahm EmanuelDrawing heavily upon the bio I just got done reading, my interpretation of the situation is this:a. The U.S. mid-eastern political situation will likely remain grid-locked, with all the negatives that implies (cost, distraction). Rahm Emanuel is probably not the right person to champion a change in U.S. posture toward Israel’s detractors.b. Obama’s legislative agenda will either move very quickly and well, or it’ll be a contentious trainwreck. Don Regan (Reagan I Chief of Staff) and Rahm Emanuel have some personality traits in common.c. Chicago machine politics will take up residence in the White House. Chicago is politically corrupt. One wonders how long the relationship between Emanuel and Obama goes back, who they know in common, and what the quid-pro-quo conversations were. There are always quid-pro-quos at that level of politics. Wonder what they are. What does Chicago want?There is a curious analogue here. Does anyone remember the plight of poor Harry Truman? He was a product of the Pendergast machine of Kansas City, MO. Truman played the machine game until he got into office, and then things changed a bit.One certainly wonders just how clever Obama truly is.The Treasury nomination is another interesting decision, but it looks very, very much like we’ll be getting “more of the same” from that posting, too.We are not seeing Change yet. President-elect Obama, if you expect to survive the onslaught of events, you’d better kick your staff selection performance up a notch.

JohnRyskampNovember 5th, 2008 at 12:55 pm

Ha ha! Who warned of this a LONG time ago? I did. I recommend you go back and read Evelyn Pringle’s “Curtain Time” articles about Obama. Of course Emanuel is Rezko scum. EVERYONE in Chicago politics is in the Combine. You don’t get ANYWHERE in Chicago politics unless you are a member of the Combine.And you’re wrong about HST. He was a hack machine pol until the day he did. A completely uneducated idiot. FDR must have been nodding when they put that prune on the ticket!!!Obama’s job is to loot the last nickel there is in the United States, and then retiring to Belize.”c. Chicago machine politics will take up residence in the White House. Chicago is politically corrupt. One wonders how long the relationship between Emanuel and Obama goes back, who they know in common, and what the quid-pro-quo conversations were. There are always quid-pro-quos at that level of politics. Wonder what they are. What does Chicago want?”

OuterBeltwayNovember 5th, 2008 at 1:27 pm

John:Before you give yourself whiplash from taking bows, let’s review:a. All politics, especially at the national level, is driven by “machines”. There are no national-level exceptions, and everyone except the rank mouth-breathers knows thisb. The game is all about applying pressurec. The machine can be pressured. Just saying it exists doesn’t exert pressure. In fact, it increases the strength of the machine.So how do you plan to move the machine?

JohnRyskampNovember 5th, 2008 at 12:50 pm

HI:Here’s an update on the results of Roubini’s suggestions regarding the avoidance of “systemic risk.” What a total sellout dog this little Harvard monkey is. Is Goldman Sachs paying him off? How UTTERLY ridiculous. Any IDIOT knew that banks would not have loaned ANY of that money. They were going to use it to shore up their own balance sheets, pick off competitors, and thereby consolidate oligopoly in the banking industry. And of course, this introduces MORE, not LESS, risk into the system, because it simply prolongs the bubble and imbalances in the economy. Now that the United States is firmly in a liquidity trap, and sinking FAST, what does Nouriel recommend? Bridges to nowhere!! Yes, let’s rake leaves from one side of the road to another in order to put money in people’s pockets. I now suggest that you read up on our impossibly corrupt bond market, and the way these idiotic public works projects are suggested BY THE BOND MARKET ITSELF, in order to place the bonds and manage the proceeds. The cause is corruption, the effect is corruption, corruption corruption corruption. Brought to you by Harvard University, and its army of morbid, police state goons. Wanna read a real creepy, police state goony book? Read Larry Tribe’s latest piece of fascist dreck, The Invisible Constitution.Put these people’s names down for elimination once the revolution comes. A nice LONG list.Thank you Nouriel! Fuhrer, we thank you! Why not change your name to Dr. Schacht? Are you pushing MEFO bills on the Syrian mafia pimp Obama? Dogs!BLOOMBERG-11/5–While cutting the U.S. target rate during the past 13 months to 1 percent from 5.25 percent, Fed Chairman Ben S. Bernanke has created six loan programs channeling at least $700 billion in cash and collateral into money markets as of Oct. 22.“The Fed is trying to give Novocain to the markets,” said Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York. “It’s all about buying time.”Central bank operations helped the MSCI World Index of stocks rise almost 20 percent since falling to a five-year low on Oct. 27. Company borrowing costs have declined, with yields on the highest-ranked 30-day commercial paper, or CP, falling today to the lowest level since June 2004. The market, used by companies to cover daily expenses, grew last week for the first time since Lehman’s collapse.Limited ImpactCash injections have had a limited impact because instead of lending the extra money received in auctions, some financial institutions are holding it on deposit with central banks. Banks lodged a record 296 billion euros ($381 billion) overnight with the ECB yesterday. The daily average in the first eight months of the year was 427 million euros.

Detlef GuertlerNovember 5th, 2008 at 1:08 pm

Revolutions usually have no elimination lists – the fellow revolutionists eliminate each other once they were successful. Best examples: Russian and French revolution.Elimination lists usually come with a coup d’etat. Hitler in Germany had one, Pinochet in Chile, Franco in Spain, and of course Sulla and Octavian in Rome. None of them a revolutionist – all of them dictators and mass murderers. Is that the career you’re heading for, John Ryskamp?

jugglingcdosNovember 5th, 2008 at 7:00 pm

down 400… :)people are putting High Hopes on ObamaHow will people react when he starts turning to the darksideBillions of probable losses with high probability of materializing = certain extreme measure/safety netwho will he choose the guy in black armani suit OR the boot wearing Jackhmmm vote, bailout??

Sunil KhaitanNovember 6th, 2008 at 12:23 am

Think the only way for China to escape from this ‘hard-landing-scenario’ would be if the coporate capex is substituted by state capex and given the state of the economy, the risk of crowding out of corporate investment by government being more than a proactive investor is just not there…Also a fact often under-appreciated in this context is that the power of Chinese State Machinery is far higher than that of its western counterparts (at the cost of a weaker monetary authortiy)and as Roubini points out given the fact that the whole premise of a communistic economy is employment for the proletariat, it would be difficult for the government to shy away from a fiscal stimulus (even at the cost of fiscal deficits)…

AnonymousNovember 6th, 2008 at 3:08 am

Here is a story I received from my manager…you guys tell me what ya think…Let’s put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:The first four men — the poorest — would pay nothing; the fifth would pay $1, the sixth would pay $3, the seventh $7, the eighth $12, the ninth $18, and the tenth man — the richest — would pay $59.That’s what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement — until one day, the owner threw them a curve.”Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily meal by $20.” So now dinner for the ten only cost $80.00.The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But what about the other six — the paying customers? How could they divvy up the $20 windfall so that everyone would get his “fair share?”The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, Then the fifth man and the sixth man would end up being PAID to eat their meal. So the restaurant owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.And so the fifth man paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of his earlier $59. Each of the six was better off than before. And the first four continued to eat for free.But once outside the restaurant, the men began to compare their savings. “I only got a dollar out of the $20,” declared the sixth man who pointed to the tenth. “But he got $7!””Yeah, that’s right,” exclaimed the fifth man, “I only saved a dollar, too . . . It’s unfair that he got seven times more than me!”.”That’s true!” shouted the seventh man, “why should he get $7 back when I got only $2? The wealthy get all the breaks!””Wait a minute,” yelled the first four men in unison, “We didn’t get anything at all. The system exploits the poor!”The nine men surrounded the tenth and beat him up. The next night he didn’t show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered, a little late what was very important. They were FIFTY-TWO DOLLARS short of paying the bill! Imagine that!And that, ladies and gentlemen, journalists and college instructors, is how the tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore.

ForrestNovember 6th, 2008 at 9:43 pm

I fear that the majority of voters are diners 1-5, and are expecting quite a lot from the President-elect.When will people learn that they cannot vote bread and circuses to themselves?

GuestNovember 8th, 2008 at 2:41 am

You must have aced your public finance courses. Poor people DO pay taxes: payroll taxes.Rich men in Europe have much less chance of being beat up than their counterparts in Congo… where in fact they DON’T pay taxes and the market is delightfully, and destructively, free. If you love the free market, consider moving to Kenya, where you can pay $5 for a litre of privately provided water instead of pennies…

nonNovember 6th, 2008 at 7:14 am

Basically Roubini’s attitude toward global economy is pessimistic all the time. He wears pesimistic glasses to watch the world, seriously lacking an economist’s ability to analyze data and others. Like a doctor, he treats every patient as dying people, regardless of his or her disease.

GuestNovember 10th, 2008 at 3:35 am

Where is the China stimulus package of 600b coming from? If it is coming from Chinese printing press then inflation like in Brazil in the 80’s is going to eat all the economy. Remember that Brazil was like China in the 70’s (The country of the future). Brazil was the manufacture of US and EU. With the oil shock of the 80’s Brazil went into 2 lost decades of hyper inflation. As China, Brazil had huge social/political issues like:• Huge social imbalance, lots of poor people from countryside with few very rich people in the cities,• People from country side going to cities for big construction, factory expansion then cities overcrowded with poor people which were left with nothing after the “miracle” disappeared in the 80’s creating the “favelas”. Working people with no job preferred to stay in the cities instead of going back to the countryside creating huge poverty areas around the cities.• No internal consumer base. The economy was export dependent.• Complete lack of democracy in the early 80’s combined with a series of corrupted democratic and populist governments. The lack of justice, widespread corruption is never good for economy.Today Brazil is going out of this huge failure but still struggling with a social debt that is going to last for many decades still.In my view, China will have long years of stagnation or even worst.Note: If this Chinese stimulus package is coming from foreign reserves (800 B USD) this means that significant amount of US treasury notes will be out there for sell? This is not good for Dollar as China was buying US treasury notes not selling them.

Hugo PenteadoJanuary 22nd, 2009 at 11:38 am

Chinese growth will be stopped by the planet, because economy can be bigger than the planet, although economists do not recognize that. This will happen sooner than later.

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