Nouriel Roubini's Global EconoMonitor

RGE Monitor – Weekly Roundup

Greetings from RGE Monitor!

Check out all the great contributions that were published during the past week on RGE’s Nouriel Roubini’s Global EconoMonitor, RGE Analyst’s EconoMonitor, Finance & Markets Monitor, Peterson Institute for International Economics Monitor, Global Macro EconoMonitor, U.S. EconoMonitor, Emerging Markets Monitor, Asia EconoMonitor, Latin America EconoMonitor and Europe EconoMonitor.

This past week on Nouriel Roubini’s Global EconoMonitor, Nouriel, speaking at the Seoul Digital Forum, expressed that there are “Still more yellow weeds than green shoots as the global economy has not bottomed out yet”, and realistically cautioned that there is still too much optimism that a recovery is just around the corner.  Nouriel also spoke of the possibility that North Korea could liberalize its economy while maintaining its political system if it follows the path taken by China and Vietnam.

The Crisis and How to Deal with It was the topic of a symposium where Nouriel sat on a panel with Paul Krugman, George Soros, Bill Bradley and others.

Finally, for a captivating profile of Nouriel in The New Republic, check out Prophet Motive.

On the RGE Analyst’s EconoMonitor, Ayah El Said and Rachel Ziemba discuss the implications of the UAE’s decision to withdraw from the GCC Monetary Union. This decision came two weeks after a major milestone; selection of Saudi Arabia to be the home of the GCC Central Bank. The most important question is whether the monetary union will proceed or not. If it proceeds, the UAE’s withdrawal may imply an even more Saudi-dominated union, with Bahrain already under the Saudi wing. Read: Another Blow To The GCC Monetary Union: the UAE Pulls Out

In a recent presentation on The Role of Financial Derivatives In The Origin And Spreading of the Subprime Crisis, RGE Monitor’s Elisa Parisi-Capone provides an overview of the macroeconomic environment, the regulatory changes, and the financial innovations that fostered the exponential growth of the OTC derivatives market as well as its unraveling upon a run on the ‘shadow banking’ system. In conclusion, leverage in all its forms is key.

The RGE Analyst Team tackles the health of residential and commercial property markets around the world in The State of Real Estate Around the World: No Signs of Stabilization?

On the Finance & Markets Monitor, Lucian Bebchuk, in Near-Sighted Stress Tests, goes over the methodology used by the regulators to stress test the U.S. banks.  He points out the limitations of the stress tests and describes what needs to be done to address them.

Charting Too Big to Fail by Tyler Durden analyses the seemingly positive impact that the U.S. government’s TALF intervention in the CMBS market has had on spreads.  However, the uncertainty in the long term outlook for commercial real estate is profound, the author concludes. 

Fall in Libor May Overstate Improvement in Interbank Lending Market by Yves Smith parses an article from Bloomberg, dealing with interbank lending rates.  The author concludes that even though rates have come down, it does not necessarily mean that banks are becoming more willing to lend to each other.

Also on Finance & Markets Monitor:

Fighting Derivatives Regulation by Barry Ritholtz

Quick Hits by Macro Man

Street Fighters: Good Information and Good Fun by Jeffrey Miller

Irony of the Day: S&P Opinion on Sovereign Debt by Jeffrey Miller

BankUnited Closed, FDIC Named Receiver, Sold to Ross, Carlyle, and Blackstone by Tyler Durden

BankUnited goes bust and is replaced by BankUnited by Edward Harrison

Sell American. I Am. by Macro Man

Geithner Plan vs. Paulson Plan by James Kwak

Gold bullion glitters brightly by Prieur du Plessis

Random musings on the market direction by Edward Harrison

What the stress tests reveal about Obama’s thinking on banks by Edward Harrison

Deep Thoughts from Bob Janjuah by Tyler Durden Summertime by Macro Man

Five-Minute Macro by Macro Man

U.K.’s Nationwide releases robust earnings and capital report by Edward Harrison

On the Peterson Institute for International Economics Monitor, Michael Mussa in World Recession and Recovery: A V or an L? analyzes in detail why he believes that despite this recession being the deepest of the post-war era, he is optimistic about the U.S. economy.  He also provides observations on the causes of the present global recession, and on economic performance and prospects for the rest of the world.

In A Crisis Calls for a “Crisis Round”, Arvind Subramanian offers possible solutions to the new forms of protectionism that are taking shape throughout the world.

Also on the Peterson Institute for International Economics Monitor:

The Economic Crisis and the Crisis in Economics by Simon Johnson North Korea: Take Away Their Mercedes by Marcus Noland To Save the Banks We Must Stand Up to the Bankers by Simon Johnson

On the Global Macro EconoMonitor, Mark Thoma discusses the danger of a sudden unwinding of global imbalances that could extend and potentially deepen the recession in Global Imbalances and Future Crises. He cautions that a permanent reduction in global imbalances will depend mainly on decisions taken outside the US, specifically in countries like China and if China considered investing in US financial assets as a money-losing proposition it could pull the plug resulting in a  dollar crash, forcing the Fed to raise interest rates, plunging the US back into recession.

In Don’t Get Carried Away Now!, Edward Hugh warns that though floating Brazil and India is a very attractive and very desirable proposition as consumers in those countries can certainly take on and sustain more leveraging while the two countries can even to some extent support external deficits as they develop, they will need to do this in a balanced way without distortions. So policy decisions are now urgently needed to impose measures and structures which help avoid a repeat of the ‘Iceland’ in what is now a very imminent future.

In Dollar’s slide hurting foreign investors, Prieur du Plessis presents graphs that compare the performance of the US 10-year Treasury Note in US dollar terms with the same bonds from the viewpoint of a European investor and notes that if the dollar falls apart it will affect almost all investments, US and foreign. The sliding dollar is already putting pressure on Treasury bonds, particularly the long-term 30-year maturities causing creditors like China to cut back.

Also on the Global Macro EconoMonitor:

David Rosenberg: Market musings & data deciphering by Prieur du Plessis

An example of important climate change research hidden, lest it spoil the media’s narrative by Fabius Maximus

World Economic Reports (May 14-21): still bad, but flood of shocking reports ebbs by Rebecca Wilder

Global Economies Plummet by Barry Ritholtz

Third Lesson from the GFC: Built to Fail by Satyajit Das

Design A Country Rescue Package Here (Comment Competition) by Simon Johnson

How long will this glut continue? Signals suggest a while by Rebecca Wilder

US and European Employment Rates by Mark Thoma

Reader survey results: probabilities, halos, and leaders by William Easterly

New Oil Shock is “Inevitable” by Paul Kedrosky

On the Emerging Markets Monitor, Brad Setser develops an interesting analysis of China’s NIIP, showing and how the country certainly has more money than is commonly thought: ‘The (almost) $2.5 trillionaire …’. China Economist wrote a piece on the risks involved on China’s massive holdings of US papers: “Dollar Trap” Snaps Shut. Finally Syed Basher analyses the GCC monetary union: ‘GCC monetary union: What criteria should we use to determine the location of the common central bank?

On the U.S. EconoMonitor, Yves Smith concludes that a GM Bankruptcy Appears Certain, covering the “current state of play” between the government, bondholders, and GM management as well as assembling a “picture of the end game.”

While in The Economics of CAFE and in CAFE, Part Two, James Kwak drinks in the full implications of the mandated increase in cars’ fuel efficiency for consumers, automakers, and the environment.

Now that the government holds the reins at GM and Chrysler, Robert Reich proposes What Industrial Policy Should Be by arguing that “Industrial policy ought to fill in where the market fails … providing basic research to help spur new technologies and industries”  as well as align large structural economic transformations with public goals.

Also on the U.S. EconoMonitor:

Greenspan’s Capital Idea by Mark Thoma

The List: What the business press did (and didn’t do) while the financial crisis was brewing by Barry Ritholtz

Are we citizens? Or peasants? by Fabius Maximus


“Do Schools Make Inequality Worse?” by Mark Thoma

Is the Bond Hangover Cure of Inflation Worse than the Disease by Yves Smith

The Only Sure Way to Fund Universal Health Care by Robert Reich

More Job Losses = Greater Foreclosures by Barry Ritholtz

More thoughts on the fake recovery by Edward Harrison

The Crisis Is Over, And We Wasted It by Simon Johnson

Case Shiller Index Declines 19.1% in Q1 ‘09 by Barry Ritholtz

“I Have 13 Bankers in My Office” by James Kwak

Sotomayor and the Republicans by Robert Reich

Mass layoffs declining in private sector; heating up in public sector by Rebecca Wilder

House Prices Continue to Slide by Menzie Chinn

When Will the Recession End? by Barry Ritholtz

Niall Ferguson, poet-laureate of the American Empire by Fabius Maximus

On the Asia EconoMonitor, Michael Pettis looks at the long-term effects of cheap funding for Chinese state-owned enterprises and the possibility that consumption in the US will remain restricted.  Given the context of strained trade relations, these trends are worrying.  Read: The coming of a US savings culture?

Edward Hugh analyses Japan’s drop in GDP and finds that weaker domestic demand was the biggest contributor to the decline, with a sharp drop in business investment.  However there are signs that the contraction may be slowing.  Read: Japan’s Economy Contracts At An Annualised 15.2% In The First Three Months Of 2009

On the Latin America EconoMonitor, Bertrand Delgado and Italo Lombardi reviewed the main economic releases in Latin America for the week of May 25th to the 29th, and made revisions to Mexico’s economic outlook for 2009 and 2010.  Please read: Latin America – The Week Ahead

On the Europe EconoMonitor, Edward Hugh analyses how Hungary’s small, open economy will be subject to more turbulence in today’s profligate carry-trade environment.  Read: Is Hungary Set To Become The New Iceland?

Then, No easy way out of the debt maze, David Smith comments on the IMF’s annual health check of the UK economy, noting that future low levels of inflation will impede the government’s ability to get out of debt, even with quantitative easing.

Finally, Edward Hugh argues against the validity of what some might call a new economic orthodoxy; that fiscal contraction, leading to fewer taxes, could be considered an expansionary fiscal policy because it will lead to higher private sector consumption.  Read: The New Orthodoxy Is Upon Us

Also on the Europe EconoMonitor:

The IMF on the UK by David Smith

First quarter GDP fall confirmed at 1.9% by David Smith

Europe’s Economic Activity Looks Up (a bit) In May by Edward Hugh

69 Responses to “RGE Monitor – Weekly Roundup”

AnonymousJune 1st, 2009 at 11:28 am

Professor, do you still maintain that the recent stock market rally is Bear market sucker’s rally? Is this not a rally made possible by courtesy of Central bank printing press?

GuestJune 1st, 2009 at 12:45 pm


GuestJune 1st, 2009 at 1:46 pm

inflation vs deflation, inflation will always triumph over deflation because of CBs’ print presses. cuz CBs can print unlimited money.

AnonymousJune 1st, 2009 at 2:33 pm

Inflation? Who cares about inflation right now?Consumption is history is already at 0%Inflation may be an issue in 5 years from nowWe don’t even know if we’ll still be aliveWhat about the short and medium-term?And finally, does the professor still believes this is A BEAR MARKET SUCKER’S RALLY?

AnonymousJune 1st, 2009 at 11:51 am

Inflation v. Deflation———————-From previous thread:Taleb long inflation: Rosenberg @ Gluskin Sheff (formerly with Merrill Lynch) makes a forceful argument for a lack of inflation:INFLATION FEARS OVER-RATEDThere is no sustainable inflation without the labour market coming along for the ride because wages/salaries are the most important variable in the corporate cost structure; and what we see, for the first time in recorded history, is wage deflation. Ask the auto workers, financial sector employees or those 200,000 public servants in California who are being asked to accept a 5% pay cut if there is inflation in their sectors.A just-released Hewitt survey also showed that 16% of U.S. companies have made base salary reductions so far in this recession, and a further 21% intend to follow suit. In the 2000-01 downturn that had the Fed consumed with deflation fear, the share of companies cutting base salaries was so negligible that Hewitt didn’t even publish the results (see page 47 of BusinessWeek – Cutting Salaries Instead of Jobs).How is the working class responding? By being thankful that they have a job (this is not the 1970s at all for those believing we are heading for some stagflation era – this is still about deflation, pure and simple). All anyone needs to know is that union bargaining power is now so weak that the number of Americans who were on strike in May totalled zero, nada, zippo; and that has been the case all year long. When we start seeing workers form a picket line and garnering concessions instead of giving them, we’ll start to reassess the inflation landscape.—Smart people on both sides.

HubbsJune 1st, 2009 at 11:54 am

From Zerohedge: Goldman to raise another 200 billion through stock?It seems the govt is using GS as its golden carrot to suck in more sidelined cash from individual investors.How have the relative contributions by institutional investors (GS) vs individual investors changed over the past year or two? Are the big institutions capturing a bigger percentage of the trades by volume and dollars, and thus able to drive the market higher?Now that homes and jobs are on the ropes, the only thing left for the financiers to get is the savers cash sitting on the sidelines, and then pull the rug from under us.Got no home, got no car, got no job, and now got no savings.”You need management Rocky. You need management””Yeah, but I got no locker.”

GuestJune 1st, 2009 at 12:10 pm

stock markets have never been about creating wealth but redistributing them among 80% losers and 20% winners. What Obama administration is doing with Wall Street will prove criminal – they actually doing the pump and dump and the naive retail investors will be sucked in and lose their shirts. the consequence of artifical pumping will be disatrous for the main street – after losing jobs and homes, now they will lose their savings sucked in the fake rally. Meanwhile all the insiders are profiting like party. America’s days are doomed.

MichelleJune 1st, 2009 at 4:57 pm

Their savings won’t be sucked away, at least not in the short term. The Fed will keep priming the pump until enough retail buying can take over so the Fed can bow out slowly, or at least that’s what I project. The only way we will see huge stock market plunges going forward is if we have another deleveraging process, and if the Fed is on board like I believe they are, this will not happen. Buy on dips.

MichelleJune 1st, 2009 at 5:09 pm

I guess I’m gonna have to say this one more time: The market is not trading on fundamentals! Once all of you figure this out, everything else will be much clearer.Stock share prices got annihilated, deleveraging was insane, and the Fed knows that everyone’s 401(k)’s turned into 201(k)’s. If these retirement funds aren’t rebuilt, how are folks ever going to retire and leave the workforce in order to make room for the younger generations? The obvious answer is liquidity injections, and expect it to continue.

GuestJune 1st, 2009 at 12:07 pm

Sections from two columns in today’s San Francisco Chronicle provide important background in the discussions on the California budget morass.First, the Matier & Ross column names names and details on the 480 retired city workers or their survivors receiving $100,000 or more in pension money.Former police chief Earl Sanders, for example, gets $222,768 a year for life. Current police chief Heather Fong, 53, will make $229,500 for life after she retires this year.The second item from the Chronicle comes from Caille Millner’s “Personal Perspective” column.She writes: “Californians are frozen by delusions, knocked out by denial. We seem to be convinced that someone or something will gallop in on a white horse and rescue us from decades of our bad decisions. The only thing that may wake us is a cold hard dose of reality.”Concludes Millner: “I am not sure what it will take for the voters to wake up, but clearly current conditions aren’t enough. So let the Legislature cut. Let the students drop out of college. Let the parks close. Let the poor die in the street. Let the pain come until everyone can feel it.”Oh, please! Yes, the voters of California need to wake up. Already, they are starting to realize that sending more of their money to government is buying more special interest government. Now, they need to vote to cut what really needs to be cut: the people deciding where to spend and where to cut.

BobJune 1st, 2009 at 1:27 pm

>>Now, they need to vote to cut what really needs to be cut: the people deciding where to spend and where to cut.<BINGO!

GuestJune 1st, 2009 at 12:18 pm

“Stock Market Investors Mindset of Guaranteed Economic Destruction” | By Gary NorthMay 30, 2009 — Most people will not change. Too radical. Not going with the flow. Not betting against the herd.The best examples in the 20th century were Jews in Germany in 1933. They stayed. This included Jewish bankers, all of whom could have left. They thought they could deal with Hitler. They did not read Mein Kampf. They did not take it seriously.About 7% did leave early: 38,000 out of 523,000. More left after 1938. By 1941, about 160,000 remained in Germany. Then emigration was closed by the Nazis. Earlier, it was encouraged. The data are here–(United States Memorial Holocaust Museum): some price, almost all could have left. There were countries that would have let them in. They would have had to learn a new language. They would have arrived in poverty. But Jews had faced those options ever since the Assyrian captivity in the eighth century B.C. So what?They all would not have escaped the Nazis. Some would have moved to other European countries that were overrun by Germany after 1939. But they could have tried to get away. They stayed. They refused to acknowledge the warning signals. “It can’t be that bad.” It got worse.Jews had an answer for worrywarts. “No problem. We can handle it.”The Armenians went through the same thing. The Turkish massacres of 1895 were a foretaste. Most stayed behind. Then came the genocide of 1915.NO PROBLEM!Look back at the economy in October 2007. The Dow was at 14,000. The banks were booming. Real estate was down a little, but the experts gave no warning. They were wrong. All of them.The U.S. government is running a $1.8 trillion deficit this year. Federal tax receipts are down 34%, which means that the deficit will go above $2 trillion. No one cares. No one says, “This is the end. The American economy will never again be what it was.”Think “2007.” Would you have believed that Chrysler and GM were both headed for bankruptcy? In October 2007 GM shares were at $43. Now they are at $1. There was an industry called investment banking. Bear Stearns, Lehman Brothers, and Goldman Sachs were not part of the commercial banking system. To survive, a few made the transition in September 2008. Some did not make the cut.Merrill Lynch is gone. Bank of America and Citigroup were bailed out by the government. They would have gone under. They sell for a fraction of what they did in 2007.And what do most people say? “No problem.”There is no problem for which their answer is not “no problem.”Medicare will go bust. Social Security will go bust. “No problem.”The unemployment rate keeps rising. “No problem.”When people refuse to face reality, because reality is going to be more painful than anything they have experienced, they look for signs that the problems they cannot avoid without changing are really not that bad. They look for offsetting good news.They think the status quo ante will return. The U.S. government is about to spend another $30 billion to buy a dead carcass of a company. It has already spent $20 billion. “No problem.”The government will let the company stiff bondholders for $27 billion in exchange for 10% of the company, 72% owned by the government and 17% by the United Auto Workers medical insurance fund. “No problem.”Bondholders were originally told that it would take a 90% vote to authorize this. The government has changed the rules. It will determine after the May 30 vote by bondholders what percentage must approve. “No problem.The company will never return to what it was. “No problem.” People will not buy as many cars as before from a company run by the government and the United Auto Workers. “No problem.”The Dow rose 100 points on the rumor that the largest bondholders will accept the deal. The deal is a disaster, but investors are in “No problem” mode. Somehow, the wipeout is less of a wipeout.Who is going to buy a GM car instead of a Japanese car? Here is a company that is about to break its contracts with thousands of its dealers. “No problem.” Yet buyers are expected to trust a GM warranty.Oldsmobile is gone. “No problem.” Pontiac is going. “No problem.” Cadillac sells its cars with an ad of a flash model putting the pedal to the medal. Hot stuff! The company thinks people with money will not see through this ad. The Cadillac division has lost its way. “No problem.”The price/earnings ratio for the S&P 500 is over 120. Traditionally, 20 was regarded a sell. The investor pays $120 on the hope that the stock will retain a dollar of earnings, and pay investors some minimal percentage of these earnings as dividends. “No problem.”We are watching the investment world adopting a lemming mentality that has always produced losses. “This time it’s different. No problem.”CONSUMER CONFIDENCEThe Conference Board announced that consumer confidence is up to 55. The 50 figure is neutral. Yet consumer confidence is a lagging indicator historically. When it rises, the stock market usually falls.The indicator is a reflection on what the stock market has done recently. To use consumer confidence as a justification for buying stocks is nonsense. This is like saying, “I will buy stocks because the public is confident, which based on the fact that stocks have risen.” If that strategy worked, stocks would never stop rising.Even hard-money newsletter readers are beginning to doubt that the recent good news is in fact “less worse than expected” bad news. This is the stuff of dreams that do not come true.Readers look at the reports, and the reports look awful: falling home prices, rising unemployment, an astronomical Federal deficit. But the media say we are close to a bottom – the bottom of a crash that none of them forecasted.Readers think, “by the standards of late 2007, what we are seeing daily was inconceivable.” Optimists speak of a slow, weak recovery. Pessimists speak of hyperinflation and depression simultaneously. But as the chorus proclaims “No problem,” the public mindlessly picks up this refrain.”We have nothing to fear but . . . fear itself!” Yet as FDR delivered those words, Hitler was consolidating power in Germany. Stalin was beginning the purges. A quarter of the U.S. work force was unemployed. But Roosevelt began the refrain: “No problem.” Four years later, unemployment was still 20%. The Federal deficit had ballooned.Happy days were not here again.Your friends don’t want to hear your pessimism anymore. They don’t want to change. They will refuse to change.In 1934, Ludwig von Mises realized that Hitler, an Austrian, would seek to bring Austria under German hegemony. He warned Jewish economists to leave. They had been his students at his famous seminar in Vienna. Fritz Machlup believed him, and came to the U.S. So did Gottfried Haberler. Mises went to Switzerland as a professor, leaving his great personal library behind. He fled to the U.S. in 1940, after France had fallen. He never got a full-time teaching job again.A few listened. Most did not. “No problem.”HEARING, THEY WILL NOT HEARPeople count the costs of making a change. This is wise. Jesus taught:For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it? Lest haply, after he hath laid the foundation, and is not able to finish it, all that behold it begin to mock him, Saying, This man began to build, and was not able to finish. Or what king, going to make war against another king, sitteth not down first, and consulteth whether he be able with ten thousand to meet him that cometh against him with twenty thousand? Or else, while the other is yet a great way off, he sendeth an ambassage [ambassador], and desireth conditions of peace (Luke 14:28–32).In short, count the costs. This is what people have refused to do. They have counted the cost of doing something radical. It’s high. They have counted the immediate cost of doing nothing new. It seems low. They prefer doing nothing.But what about the long term? What about:1. Retirement (no Social Security or Medicare)2. The Federal Deficit ($1.8 trillion this year)3. Federal Reserve’s monetary base (doubled)4. Falling house prices5. Rising unemployment6. The war in Afghanistan (forever, until our defeat)”No problem!”How do you reason with these people? Answer: you don’t, if you value your time and your privacy. If you turn out to be wrong, you will be ridiculed or at least treated as a child. If you are correct, you will be hated. You will also be hit up for money. If you are a Christian, you will be told you are heartless. You will become a line of credit for those whose mantra was “No problem!”They don’t want to change. They will not change. They will not listen to you.And when things turn out much worse than even most newsletter writers are forecasting, you will be hated. Are you prepared for this?Do you have a real plan to deal with what is obviously an unfolding disaster: rising government ownership, massive deficits, rising unemployment, falling house prices, busted retirement pensions, rising interest rates (falling corporate bonds), and Federal Reserve inflation on a scale never seen in American history?Or do you think you can delay. “No problem!”CONCLUSIONWe live in today’s world. It’s bad, but it’s not a catastrophe. We must keep our heads above water.A Tsunami is coming. In such a scenario, you have got to get out of the water and off the beach. But few people ever do, unless they have seen a tsunami. Few have.Allocate some percent of your wealth to tsunami-avoidance. Do it quietly. Do not discuss this with your big-mouth brother-in-law.What do you really think is likely to happen? Not what you would prefer will happen.Think, “General Motors in October 2007″Think Chrysler, Merrill Lynch, and Lehman Brothers.No one saw it coming. It came.Problems. Big, big problems.

GuestJune 1st, 2009 at 7:00 pm

Although the market is clearly unbalanced and unpredictable right now, it bears noting that Gary North is a chronic doomsayer. He was essentially one of the 4 horsemen of the Y2K apocalypse, predicting systemic failure of the majority of the world’s computers on 1/1/2000, followed by the collapse of civilization. A “tsunami avoidance fund” is obviously a good idea for everyone, but North’s “no problem!” drumbeat/mantra comes from his ever-misplaced fatalism (for Y2K, it was: “The code is broken. It cannot be fixed. The panic is inevitable.”), so his ranting should be taken with a heap of salt.

ToothFairyJune 1st, 2009 at 7:33 pm

Yes, I get the same vibe and I have never heard of North before reading this post (is he kin to Ollie?).But I can’t help but wonder why North consumed such a percentage of this article talking about Hitler/the Jews/escape from Germany.Is there something more sinister that he is alluding to here? Perhaps the original Guest who posted can comment on the intentions of the author as well as the contributor.

MarkJune 1st, 2009 at 8:14 pm

I don’t think so. Even I have wondered what moves people who are staring in the face of ultimate disaster. What makes people pick up their feet and move when the majority do not? I think the analogy is very good.BTW – I’ve got no real knowledge of North, other than a stupid landlord (evangelical moron) who, in a heated debate, accused me of following “Gary North.” It’s freaking common sense folks, balance things out, prepare for tough times: my old landlord would think that all he had to do was to sit out in a field and pray that god sent him food- yeah, good luck with that! (meanwhile he was sitting on a big fat pension and his wife worked for a major defense contractor; I hope These people stay!)Mark

GuestJune 1st, 2009 at 12:23 pm

“The next crisis has already begun” 6/1/09We’ve survived a financial meltdown, and we’re working through a recession. But another phase — when all the money printing melts down the dollar — is just getting started | By Bill Fleckenstein MSN MoneyThis week I’d like to update readers on the funding crisis. That’s the third in the three-baseball-game analogy that I dreamed up last fall (read “Economy sinks as we save bankers”) as a way to think through the enormous problems we faced.The first and second games (crises) — the credit meltdown and the economic downturn — have been pretty easy for folks to understand, as they were front and center in the news.The view from the dugoutEssentially, the financial crisis now lies behind us (with the economic crisis in full bloom, the recent economic “bounce” notwithstanding). That’s due to all the moves put together by former Treasury Secretary Hank Paulson and other government officials. Those actions stopped the vaporization of the financial system, essentially giving everyone a do-over.But therein lay the seeds for the funding crisis — which, as I noted in my daily column at on May 21, appears to have started.This is a much more subtle but pernicious crisis in some ways, as it’s not so apparent but is disastrous in the long term.My reason for saying so? Because if the dollar is called into question (as now appears to have begun) and if the Federal Reserve’s monetization cannot lower interest rates (and in fact causes them to rise, due to the consequences of printing so much money), then the Fed is trapped. The more it tries to solve the problem by printing more money, the worse it all becomesHow that will play out exactly, how long it will take and what the road map along the way might look like is difficult to say, due to the many permutations of how events might interact.But the ultimate outcome will be a weaker currency, more inflation and higher rates until such time as the printing press is finally taken away from the Fed. ….

JPJune 1st, 2009 at 12:36 pm

I was talking to a head equity analyst guy who works at a large retail and institutional invesment management company in early May. He was convinced that the credit crises is over on Wall Street and a recovery is underway. WTF? What about the small businesses that make up 90% of our economy? Every business owner I’ve talked to is saying the opposite – revenue is down, margins are down, credit lines pulled or cut and they can’t get loans, taking personal pay cuts to keep the business going, using personal funds to finance the business, etc.I think the sub prime meltdown was just the first step down to get us to what should have been the baseline economy – basically all the “fake” gains of NINJA loans, AAA CDOs and CMBS, repeal of the Glass-Stegall act, etc. I think the recession on the “real” economy is just getting started.

GuestJune 1st, 2009 at 1:04 pm

Consumption Down, Saving Rate Increases in AprilEquity Analysts are always convinced that the “crises” is over, whether it is or is isn’t: it’s the job. Here’s more input on your observations posted by CalculatedRisk on 6/01/2009 08:44:00 AM.From the BEA: Personal Income and Outlays, April 2009Personal income increased $58.2 billion, or 0.5 percent, and disposable personal income (DPI) increased $121.8 billion, or 1.1 percent, in April, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $5.4 billion, or 0.1 percent. … The pattern of changes in income reflect, in part, the pattern of reduced personal current taxes and increased government social benefit payments associated with the American Recovery and Reinvestment Act of 2009….Real PCE — PCE adjusted to remove price changes — decreased 0.1 percent in April, compared with a decrease of 0.3 percent in March….Personal saving as a percentage of disposable personal income was 5.7 percent in April, compared with 4.5 percent in March.A few points:· Incomes increased sharply boosted by the stimulus plan.· Consumption declined from March to April, and Q2 is off to a fairly weak start.· Personal saving as a percentage of disposable personal income was the highest in 14 years.This graph (see link) shows the saving rate starting in 1959 (using a three month centered average for smoothing) through the April Personal Income report. The saving rate was 5.7% in April. (5.1% with average)The saving rate was boosted by the stimulus package, but this suggests households are saving substantially more than during the last few years (when the saving rate was close to zero). The saving rate will probably continue to rise (an aging population usually pushes the saving rate higher) and a rising saving rate will repair household balance sheets, but this will also keep pressure on personal consumption

GuestJune 1st, 2009 at 1:26 pm

Deficits up, tax receipts down–Ben Bernanke’s prescription for “recovery”–Federal Tax Receipts Off 28 Percent YoYby CalculatedRisk on 4/10/2009 02:46:00 PMFrom Rex Nutting at MarketWatch: Budget deficit triples to $957 billion for year“The U.S. federal budget deficit rose to a record $956.8 billion in the first six months of the fiscal year … the Treasury Department reported Friday.”…“In March, the deficit widened to $192.3 billion from $48.2 billion in March 2008. Outlays rose 41% to $321.2 billion from $227 billion, while receipts dropped 28% to $129 billion from $178.8 billion.”[A graph] shows the year-over-year change in total Federal tax receipts.For March 2009, receipts were off 27.9% compared to March 2008.For individual income taxes, receipts were off 27.3%.For corporate income taxes, receipts were off 89.6% (from $32.6 billion in March 2008 to $3.4 billion in March 2009).For Social Security payroll taxes – Employment and General Retirement (off-budget) – receipts were flat.The year-over-year decline in receipts is similar to the previous recession, but that decline was a combination of a weak economy and tax changes. This decline is all about the economy – especially the sharp decline in corporate tax receipts. blogger for Free Dominion reports: TrimTabs real-time data indicates that net take-home pay, which is defined as after-tax wages and salaries plus income tax refunds plus government tax credits and tax rebates, is down a staggering 16.3 percentage points y-o-y so far in May, compared to a decline of 4.3 percentage points y-o-y in the period of February through April 2009. U.S. government is running a $1.8 trillion deficit this year. Federal tax receipts are down 34%, says Gary North above.Said ABC News correspondent Jake Tapper on May 11 — The director of the Congressional Budget Office today updated his projections for the budget and economic outlook and is now anticipating a $1.8 trillion deficit this year, and $1.4 trillion in 2010.The director of the Congressional Budget Office updated his projections for the budget and economic outlook to $1.8 trillion deficit this year, and $1.4 trillion in 2010, up from CBO director Douglas W. Elmendorf’s January 2009 projection of a $1.2 trillion deficit this year. In short, the US government is borrowing 50 cents for every dollar it spends.The new projected deficit is four times the 2008 deficit, which was a record high for its time.

GuestJune 1st, 2009 at 12:40 pm

2s10s30s Breaking Out…Tyler Durden June 1 1:13 PM Zero HedgeThe PPT is now hiring a specialist who will overhaul the trading system, and be able to buy both SPOOs AND 10 Years at the same time. The current infrastructure allows for the purchase of just one of the two at a time. Today, it’s NOT the 10 Year.Also, the spread of the 10 year (which is getting pounded as is) to the 30 year mortgage is again on fire. Although as Goldman has $200 billion of follow on offerings still left to price, we will likely get 8% mortgages before the “buyers” in 10 Yr/30 FNMA appear out of nowhere.

PeteCAJune 1st, 2009 at 2:12 pm

The Gov’t THINKS they can manipulate markets at will.The Gov’t THINKS they know better than anyone else how to conduct a bankruptcy proceeding for GM.The Gov’t THINKS they can still get someone to buy all their debt this year.But – if the Gov’t was really thinking, they would be madly shutting down all those derivatives trades at the Wall Street banks.PeteCA

GuestJune 1st, 2009 at 2:58 pm

I agree. This move is absolute proof of the depth of the morass the financial manipulators are in. It is too obvious a move for anyone to make unless they are in a dire situation.

GuestJune 1st, 2009 at 12:53 pm

NY Times: The Fall of the Mallby CalculatedRisk on 5/31/2009 12:16:00 PMThe NY Times has a graphic of the performance of a theoretical mall: The Fall of the Mall (ht Ann, Pat).The graphic compares the performance of a number of retailers from Q1 2008 to Q1 2009.The best performers are a dollar store, a movie theater and a pharmacy.The worst performers are Saks, Abercrombie & Fitch, Bebe and some others.This is a theoretical mall where all the retailers are still in business. In reality many stores are vacant, and many malls are dead or dying. See the WSJ: Recession Turns Malls Into Ghost TownsOne industry rule of thumb holds that any large, enclosed mall generating sales per square foot of $250 or less — the U.S. average is $381 — is in danger of failure. By that measure, [Eastland Mall in Charlotte] is one of 84 dead malls in a 1,032-mall database compiled by Green Street.

GuestJune 1st, 2009 at 1:54 pm

A 3-year-old boy examined his testicles while taking a bath.’Mum’, he asked, ‘Are these my brains’?’Not yet’, she replied.

Guest too lucyJune 1st, 2009 at 9:13 pm

g,well ricky, it could be, but it is notnecessarily timmy, although his proboscisdoes have a certain phallic resemblance.ridiculous you say! i think not. the dnasequence is full of many such recursions.

NoviceJune 1st, 2009 at 2:37 pm

So GM files bankrupcy chapter 11, possibly costing another 250,000 jobs and how do the markets react???With a rally of course. It’s maddening.

GuestJune 1st, 2009 at 7:39 pm

What’s good for shareholders is great for the economy didn’t you know that? The media has bludgeoned you to death with that concept you should know it to be true by now.

GuestJune 1st, 2009 at 6:10 pm

which non-US currencies are likely to hold their value if/when the dollar tanks (or, which ones stand to hold up well during the continued downturn)? anyone? anyone?

Average JaneJune 1st, 2009 at 7:30 pm

Oh, I just had to share this with all of y’all. Fits right in with the “no problem” crowd.An advertising supplement to the real estate section of my local newspaper, and I quote:”Just as daffodils and tulips are popping up in neighborhoods across the country, so too do ‘for sale’ signs adorn lawns across the country. Given the current economy, does this mean that it’s a good time to buy your first home? The answer is a resounding ‘Yes!’ for Eric Wright, assistant director of admissions at Brown Mackie College-Louisville, who has more than a decade of experience in the mortgage industry. ‘It is probably the best time to buy or refinance ever,’ he said. ‘It is a buyer’s market and interest rates are the lowest they have been in history.’. . .”The National Association of Realtors Housing Affordability Index reported a 13.6 percentage point increase to 166.8 in January, which — according to the association — signifies a record high. In simple terms, this means that a single family earning nearly $60,000 annually could afford a home that costs $283,400 with a 20 percent down payment. A year ago, a single family with the same earnings and down payment could afford a $263,300 home.. . .”The FHA insures loan products that benefit first-time home buyers — many of which offer down payments as low as 3.5 percent of the purchase price. After meeting FHA credit qualifications, borrowers are eligible for 97 percent financing. The upfront mortgage insurance premium can be financed into the mortgage upfront.”[Sound of head banging against brick wall.]No problem.

MarkJune 1st, 2009 at 8:25 pm

I _had_ a “friend” who was in the mortgage business. He managed to put me on his mailing list, which didn’t go over too well with me: anyone who knows me knows that I am able, and do, comment on anything/everything. Anyway, it was similar to this crap and I replied to him that he should refrain from sending the “newsletters” to me because I knew better. Talk about blow a gasket! He commenced to tell me that there was no housing bubble (this was back in 2007, just as it was becoming obvious) and that I was a horrible person, blah, blah blah. Have to wonder if this poor fool is still in the denial stage: plastic people still are.Mark

GuestJune 1st, 2009 at 8:42 pm

I still do not see that housing is at reasonable levels. We may be at 2003 prices, but there had been a run-up in the market before then.

HayesJune 1st, 2009 at 8:18 pm

the following speaks for itself and speaks volumes (note the comment I have highlighted from this short article)Meet GM’s Dismantler: Brian Deese”au6553 :June 1st, 2009 at 12:28 pmYou’re not reading closely enough. He isn’t a lawyer, because he never even finished law school, much less passed a state bar.To keep score – he’s not an economist, is not an expert on bankruptcy, hasn’t bothered to finish his law degree, doesn’t have an mba, and has no background in the auto industry. This is positively stunning.”

BasherJune 1st, 2009 at 9:27 pm

Question: Do you think that a qualified person of even minimal integrity could do what Larry Summers imposes on him OR is a flunky like Deese a more likely candidate to be a “team player?”BTW, is Deese from Texas also?

MarkJune 1st, 2009 at 8:35 pm

A must read!Paul Hawken: You Are Brilliant, and the Earth is Hiring[Excerpt:]But let’s begin with the startling part. Hey, Class of 2009: you are going to have to figure out what it means to be a human being on earth at a time when every living system is declining, and the rate of decline is accelerating. Kind of a mind-boggling situation – but not one peer-reviewed paper published in the last thirty years can refute that statement.Basically, the earth needs a new operating system, you are the programmers, and we need it within a few decades.This planet came with a set of operating instructions, but we seem to have misplaced them. Important rules like don’t poison the water, soil, or air, and don’t let the earth get overcrowded, and don’t touch the thermostat have been broken. Buckminster Fuller said that spaceship earth was so ingeniously designed that no one has a clue that we are on one, flying through the universe at a million miles per hour, with no need for seatbelts, lots of room in coach, and really good food – but all that is changing.There is invisible writing on the back of the diploma you will receive, and in case you didn’t bring lemon juice to de code it, I can tell you what it says: YOU ARE BRILLIANT, AND THE EARTH IS HIRING. The earth couldn’t afford to send any recruiters or limos to your school. It sent you rain, sunsets, ripe cherries, night blooming jasmine, and that unbelievably cute person you are dating. Take the hint. And here’s the deal: Forget that this task of planet-saving is not possible in the time required. Don’t be put off by people who know what is not possible. Do what needs to be done, and check to see if it was impossible only after you are done.[End Excerpt]Mark

Guest too lucyJune 2nd, 2009 at 12:30 am

so,birthdrinkeatdevelopreproducenestnurtureliberateliberate ( we are here )liberate .it seems pretty simple. how could we screwit up so badly for so many people? i must have missed something important.??

MorbidJune 2nd, 2009 at 5:01 am

Missing something important.Yeah, we all have and you will not find the answers in economics.The Native American Indians lived your list of human attributes – and they didn’t screw things up. Is there a clue in their lifestyle perhaps?When the white man entered into the Great Plains there was an estimated 60 million buffalo. Those Native Americans lived a sustainable lifestyle it seems. Partly I guess because there was never a population explosion like we are living through.If you want to see the Middle Finger of the Apocalypse check out one of Mark’s favorites – The Olduvai Theory

It has often been said that, if the human species fails to make a go of it here on Earth, some other species will take over the running. In the sense of developing high intelligence this is not correct. We have, or soon will have, exhausted the necessary physical prerequisites so far as this planet is concerned. With coal gone, oil gone, high-grade metallic ores gone, no species however competent can make the long climb from primitive conditions to high-level technology. This is a one-shot affair. If we fail, this planetary system fails so far as intelligence is concerned. The same will be true of other planetary systems. On each of them there will be one chance and one chance only. (Hoyle, 1964; emphasis added)

It seems the only way out is for Mother Nature to unleash a natural catastrophe of some kind that will bring the human population back in line with naturally sustainable levels.

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