Indonesians in Jakarta clamber to the top of greased poles to reach prizes hung at the top of them during a game played to celebrate the country’s Independence Day on Aug. 17. The anniversary marks the 64th year of the country’s independence from the Netherlands.
Aug 172009
Godfrey Hodgson | 12 August 2009
Barack Obama‘s stalled healthcare-reform plan reveals how crucial features of the American political system operate. Read more…
A Palestinian boy flies a kite during a festival on the beach of Khan Younis, south of the Gaza Strip. The festival was organized by the United Nations Relief and Works Agency (UNRWA). In July this year, thousands of children in the same area set a new world record for number of kites flown simultaneously during a similar event also organized by the UN agency, which provides aid to Palestinian reufgees.
If the length of the train of this wedding dress represents how long the love between the happy couple will last, then this bride and groom should certainly expect to be growing old together. The aerial shot taken in China’s Jilin province shows the longest wedding train in the world, measuring more then 2 kilometers.
At least one observer has argued that the current recession is not as bad as that of the 1980-82 recession, when those two separate recessions (1980Q1-1980Q3; 1981Q3-1982Q4) are considered as one (see [1] [2]). Here is my interpretation of this assertion, updated to use the latest GDP data, and normalizing (log) GDP on the recession start dates.
Figure 1: Log GDP relative to 2007Q4 (blue), log forecasted GDP relate to 2007Q4 (teal), and log GDP relative to 1980Q1 (red). Source: BEA GDP 2009Q2 advance (July 2009), WSJ survey of forecasters (July 2009), NBER, and author’s calculations.
Notice that, using the WSJ mean survey forecast from early July, the current downturn will exact a bigger (percentage) output loss than the 1980Q1-1982Q4 recession; if we assume the current recession trough ends up being 2009Q2, then the cumulative loss relative to previous peak will be 9.6 percentage points, while that for the “1980-82 recession” will be 2.5 percentage points.
Originally published at Econbrowser and reproduced here with the author’s permission.
The Most Expensive House in The World
The German island of Sylt has long been a playground for the country’s rich and famous. Prices there, though, have gotten out of hand of late. In the city of Kampen, the world’s most expensive home is now for sale — and it’s a lot smaller than you might think.
A balloonist in Bristol, southwest England checks the ropes as he prepares for take-off Friday. Bristol’s annual International Balloon Fiesta is Europe’s largest hot air balloon festival and attracts thousands of spectators. This year’s perfect weather conditions allowed more than 100 balloons to rise into the skies above the city on the river Avon.
Aug 032009
Bertrand Delgado and Italo Lombardi analyze economic events in Latin America for the weeks between July 20th and the 31st and their impact on macroeconomic conditions moving forward. They focus on monetary policy, inflation, economic activity, labor dynamics, trade accounts, industrial production, and fiscal data. Please read: Latin America – The Week Ahead July 27– 31.
In Iceland Proves That in a Financial Crisis, Breaking Glass and Trashing Currency is a Good Remedy, Yves Smith looks at Iceland, which has been weathering a dramatic devaluation and is recovering remarkably well.
It’s hard to imagine that the monetary policy talk can get any nuttier, but we’ve likely only just begun. After all, despite the Federal Reserve growing its balance sheet by 140 percent and dropping rates essentially to zero, the bankruptcies just keep on coming. Ex-Fed governor Wayne Angell told Larry Kudlow’s CNBC audience, “monetary policy always works!” Although Angell does stipulate that it takes time before the tromping on the monetary gas pedal will spin the economic tires and spray the prosperity gravel.
But good grief, the Fed started cutting rates in September 2007, dropping the federal-funds rate from 5.25 percent to 4.75 percent, and it was cut, cut, cut until daddy set the target rate at 0 to .25 percent in December of last year. In the meantime, one trillion dollars has been added to the M-2 money supply.
Despite all this money creation, Circuit City, Sharper Image, Goody’s, Gottschalk’s, Comp USA, Levitz Furniture, Chrysler, General Motors, General Properties, and — most recently — Eddie Bauer have filed for bankruptcy protection. And personal bankruptcy filings are up in every state and soaring in Nevada, Georgia, Alabama, Tennessee, Indiana, and Michigan.
In May, forty-eight states had more people out of work than in the previous month or year, with the national unemployment rate increasing from 8.9 percent to 9.4 percent. Moreover, California, Nevada, North Carolina, Oregon, Rhode Island, and South Carolina had their highest rates of unemployment on record. Maybe Mr. Angell will change his mind when he gets laid off. Just how long are we supposed to wait for this monetary magic to work?
Now the word is that zero-percent interest rates are just too darn high. That’s why we haven’t seen a reinflation of bubble America. The Financial Times reports the existence of a Federal Reserve staff memorandum that makes the case for a negative-five-percent federal-funds rate. Meanwhile, Japanese authorities are toying with the idea of outlawing cash in their country. Despite using every fiscal trick in the book and keeping interest rates at zero percent for a decade, that economy has been mired in a postbubble depression. So the current theory “would suggest that nominal interest rates of [negative four] percent might be closer to what is required to rescue the economy from another deflationary spiral,” reported the Times Online.
The talking heads and policy wonks are trying to tell us that we’re not borrowing enough, and that’s why we’re in a depression and why the Japanese economy has been depressed for more than a decade.
However, the real reason we’re in a depression is because businesses and individuals borrowed too much and invested it poorly. Economist Murray Rothbard explained that a depression is the recovery stage: “The liquidation of unsound businesses, the ‘idle capacity’ of the malinvested plant, and the ‘frictional’ unemployment of original factors that must suddenly and en masse shift to lower stages of production — these are the chief hallmarks of the depression stage.”
That’s why monetary policy isn’t working and won’t work. People must save and pay off their debts. The malinvestments of the boom must be liquidated. New liquidity and zero-percent interest rates will only create new malinvestments, not a sound economy.
But you won’t hear that on TV or read it in the New York Times. The Nobel Prize–winning economist and Gray Lady columnist Paul Krugman is now worried about the “paradox of thrift,” the theory that, when consumers save too much en masse, the economy is worse off because there is not enough consumption.
But as economist Frank Shostak explains, it is savings — not demand — that enables the expansion of production of goods and services. “In short, no effective demand can take place without prior production,” Shostak writes. “If it were otherwise, then poverty in the world would have been eradicated a long time ago.” In other words, you can’t print production and prosperity, much as the Fed may try. And Ben Bernanke is trying.
For those not familiar with Krugman’s policy suggestions, he wrote back in August 2002 that “[t]o fight this recession, the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
Sir Alan followed Krugman’s advice, and look where we are now. More of the same will only create more financial pain.
Douglas French is president of the Mises Institute and author of Early Speculative Bubbles & Increases in the Money Supply. See his tribute to Murray Rothbard. Send him mail. See his article archives. Comment on the blog.
Washington’s enormous expansion of the government’s spending share of GDP to over 40 percent — including Bailout Nation, TARP, and government takeovers in numerous industries — is eerily reminiscent of Old Europe’s old policies. In a twist of irony, Europe seems to be moving toward a lower-tax-and-spend-and-regulate, Ronald Reagan–type approach, while we in the U.S. are regressing to the failed socialist model of Old Europe. This makes no sense.
Here’s the clincher: Year-to-date, Dow Jones stocks are off 7 percent, while China stocks are up 71 percent. The world index is up 4 percent. Emerging markets are up 25 percent. They’re all beating us. None of this is good.
We’re going the wrong way. That’s why stock markets are not voting for the United States anymore.
Washington Is Going the Wrong Way – Larry Kudlow, CNBC
Jul 092009
A cross-country trip to discover what the stimulus looks like from the ground.
Jun 192009
Bankruptcy Epitaphs 2009–And We’re Only In June! – Reformed Broker
The VIX:VXV ratio is flashing a warning sign for the stock market. (VIX and More)
Note that while this basic interpretation of the VIX:VXV ratio sets parameters for long and short entries, it does not include recommendations about exits or how to incorporate the VIX:VXV ratio into a trading system.
May 232009
“Wall Street will market the VIX as bullish no matter what it does.” (Daily Options Report also Trader’s Narrative, Freakonomics)
We should take it as good news that after a substantial stock price run up on Monday, the VIX responded on Tuesday by falling — a sign that the increase was moving us toward lower future volatility.
‘Conceived By Someone Who Never Worked in a Real Job’
Financial Armageddon has long highlighted the disconnect between Main Street and Wall Street. Even now, after an extraordinary number of banks and brokers have failed or are still being bailed out, and thousands of financial industry workers have lost their jobs (excluding those at the top, who should have been the first to go) or had bonuses and salaries slashed, there are still plenty of clueless “experts” running around — including those who have the power to invest other people’s money — who claim to see all manner of “green shoots” sprouting up throughout the economy. While I could be wrong when it comes to my admittedly pessimistic views about where the bottom is (and when we might reach that point), even a cursory glance at what is happening around the country makes me feel reasonably confident that we aren’t there yet. To cite just one example, I refer to the following post from Clusterstock, entitled “About That GDP Inventory Decline…”
An executive who works for a massive global industrial company observes that the much-celebrated decline in inventories in the GDP numbers should not be taken as a sign that GDP is suddenly about to start accelerating:
I watched with some amusement as analysts decided that reduced Inventories in the GDP data boded well for future GDP figures. While, all else equal, certainly lower would be better, the fact is we are slashing inventories (and trying to do so even more) because there are no orders. None. We do take “orders” (non-binding, no cash down payment) which are what is optimistically shared with the Street but binding orders with cash down payments do not exist today, haven’t for over 8 months now. When one lands it is company news and because a government entity somewhere backed it. And trust me, if we aren’t getting orders neither are the next 5 guys.
I suppose either the analysts – and the market, which has been juicing our stock (thanks for that) – are correct and the orders are about to start rolling in, or they are going to be somewhat disappointed later this year when our backlog starts to run dry. I hope they’re right. But I assure you the absolute last thing that’s going to happen is for us to start *growing* inventories without the orders - that strategy can only possibly be conceived in a cubicle somewhere, occupied by someone that never worked in a real job. [MP here: don't you just love that last bit?]
Check out this photo from today’s Times, about Iceland’s rejection of the free-marketeers.
Investing Rules For the “End of Civilization”
By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) — In his 2008 bestseller, “Wealth, War and Wisdom,” hedge fund manager Barton Biggs warns that investors must “assume the possibility of a breakdown of the civilized infrastructure.”
And to prepare for a breakdown of civilization, “your safe haven must be self-sufficient and capable of growing some kind of food … It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc.” Bloomberg Markets suggested that by “etc.” he meant guns, as Biggs added “a few rounds over the approaching brigands’ heads would probably be a compelling persuader that there are easier farms to pillage.”
The end of Wall Street
Chapter Three: This final chapter of the crisis on Wall Street tells the story of the $700-billion bailout, as seen through a reporter’s eyes, and looks at what’s ahead for the global economy.
That warning’s not from a hippie radical. Biggs was a respected Wall Street guru at Morgan Stanley for 30 years. As the chief global strategist Institutional Investor magazine put him on its “All-America Research Team” 10 times. Smart Money said: “Biggs is without question the premier prognosticator on the international scene and a mover of markets from Argentina to Hong Kong.”
Biggs is advising America’s wealthy elite. But what about Main Street Americans? Investors often ask me where to invest today, even Bogleheads and investors committed to the Lazy Portfolio strategy. They see the Goldman Conspiracy manipulating this rally. That worries many.
What do you believe? What value do you give to “the future.” First, answer these three questions: What’s your investment strategy if you know you might die on Dec. 21, 2012, or possibly this year after getting a negative diagnosis from an oncologist or maybe not till 2050 when the United Nations says global population will be 50% higher (from 6 billion now to 9 billion), while demand for energy, oil, gas and coal doubles and the global supply of those commodities remains relatively constant.
Disaster films, terminal illnesses, 2050 and ‘The End’
Behavioral economists have answers. But your gut’s also good at predicting. So here’s what you’ll likely do:
Yes, that’s how doomsayers label the worst-case scenario. It also must be what Ultra-Conservative-Guru Biggs worries about in his darker moments.
So back to the question: What will Main Street investors do? Here again, even with the planet’s survival threatened, they’ll go watch “2012,” be entertained, experience a catharsis, feel relieved, and afterwards, have dinner, slip back into denial. And later, they’ll vote against anything that offers solutions to future problems, especially if it raises taxes.
Why? Very simple: Our “Brains Aren’t Wired to Fear the Future,” writes New York Times columnist Nicholas Kristof. We’re wired to respond to crises, while pushing off the real big problems (health care, Social Security, etc.)
That’s basic behavioral economics: Over tens of thousands of years, evolution has programmed our brains so that collectively we will behave counter-productive with the future, making an “End of Civilization” scenario inevitable, a foregone conclusion, a self-fulfilling prophecy. Why? Because our brains are handicapped, we are literally incapable of acting soon enough to solve the problem.
Six simple rules
But there must be a very small percentage of you out there with a desire to make your remaining days on Earth as pleasant as possible for you and your loved ones. So here are “Six New Rules till the End of Civilization 2050.” If they don’t scare you, hopefully they’ll amuse you. Or better yet, wake you up, maybe get you into action … before it’s too late … before your grandkids are fighting over what little is left:
Read the rest Investing Rules For the “End of Civilization” – Paul Farrell, MarketWatch