View Full Version : Global Economy in 2008


kmguru
01-10-08, 10:43 AM
Though the subprime mess and rising oil prices slammed the U.S. economy during much of 2007, other emerging markets -- especially China and India -- seem to be on a roll. China's growth rate of more than 11% is likely to continue, and India, too, should be able to sustain a high rate of GDP growth, even if it slows from last year's 9%. Latin America, meanwhile, is cautiously optimistic but could see a moderate decline in 2008.

kmguru
01-10-08, 11:06 AM
U.S. Economy and Financial Markets: Uncertainty Reigns

How best to describe the outlook for the U.S. economy and financial markets in 2008? Uncertain at best.

High oil prices and fallout from the subprime mortgage debacle continue to threaten the economy and financial markets, according to several Wharton faculty members. Although none think a recession is guaranteed, all agree that even if a recession is averted, economic growth will be agonizingly slow. "There are a lot of unknown unknowns out there," says management professor Marshall W. Meyer.

Perhaps surprisingly, none felt the U.S. presidential campaign will have much effect on the markets. As finance professor Jeremy Siegel put it, none of the candidates save John Edwards has a strongly anti-business platform, and the former North Carolina senator appears less and less likely to become the Democratic nominee. None of the others "are significantly anti-market. The market could live with Hillary or Obama, and of course it could live with any of the Republicans," he notes.

Siegel is more optimistic than many experts, thinking that the U.S. economy will slow during the first half of the year but will avert a recession and start to rebound in the second half. The chief threat, he says, is high oil and food prices, rather than the housing slowdown. "We've adapted pretty well to $3 [per gallon] gasoline, but $4 would be quite difficult," Siegel says.

"Forecasters are split about 50-50 on whether there's going to be a recession or not," he adds. "I think there's some predominance among professionals that there isn't [going to be a recession]. I'm in that optimistic group."

Siegel expects gross domestic product to grow at an annualized rate of 1% to 2% during the first half of the year, and perhaps 3% in the second half. "I'm predicting that we could rise to 3% in the second half of the year because I think that by the middle of this year, housing will hit bottom," he notes, adding that the economy could fall into recession if rising oil and gasoline prices dampen consumer spending.

As for the credit crisis, "Once this subprime crisis is sorted out, it will not be as bad as the market fears," Siegel says, predicting that the number of foreclosures and the losses in mortgage-backed securities will be smaller than many forecasters expect. "There is tremendous fear in the market today about what those losses are," he suggests. He thinks the market has overestimated the number of securities that will default on payments promised to investors.

Siegel did note that the financial markets were jarred by a recent report that unemployment in the U.S. had risen in December to a two-year high of 5%, but he doesn't think the situation will get worse, adding that the number of people with jobs had continued to rise. "The unemployment rate seems very anomalous to me. It's not likely to stay that way next month.... You've got to do some smoothing on that [statistic]. My feeling is it will go down to 4.9% or 4.8% once we get the January data."

Siegel adds he is "fairly optimistic" about the stock market, predicting a 10% to 12% return for broad market gauges like the Russell 3000 and Standard & Poor's 500.

kmguru
01-10-08, 11:08 AM
India: Shipshape at Home, Even If Global Tides Ebb

The Indian economy is likely to face pressures in 2008, and its 9% growth rate of recent years will feel the pain of a U.S. slowdown, according to economists and investment managers who spoke to Knowledge@Wharton. Led by rapid growth in Asia, India's fortunes are certainly getting increasingly "decoupled" from the U.S. economy, but the country faces other challenges. Inflationary pressures loom, but opinion is divided on whether that could force interest rates to rise. The increasing cost of capital is already beginning to sap retail and corporate borrowing appetites around the country.

"India has a 50% chance of suffering a painful downturn in 2008-09, a 30% chance of a mild downturn and only a 20% chance of continuing with rapid 9% growth," says Swaminathan S. Anklesaria Aiyar, a well-known Indian economist and columnist. Aiyar says he limits the chance of a painful downturn to 50% because, like many other advocates of the so-called "decoupling" theory, he sees a U.S. slump impacting India to a lesser extent now than it might have in earlier years.

Aiyar cites the International Monetary Fund's World Economic Outlook (October 2007), which has marked down its global growth projection for 2008 by almost half a percentage point to 4.8%, while that for the U.S. is down a full percentage point to 1.9%. It is less harsh on prospects this year in Asia, where it says "growth may moderate somewhat;" in 2007, China and India posted 11% and 9% rates, respectively.

But "it could be extremely painful" if India were to slow from 9% to 7% this year, says Aiyar. He recalls how a similar two-percentage point drop in India's growth rate in the years following the 1994-1997 Asian financial crisis flattened industrial growth. "Exports collapsed, any number of plants set up with a view to exporting in effect went bust, and the banks lending to them went bust." However, he sees Indian companies much more resilient to a downturn these days, with lower borrowing costs and healthier debt-equity ratios.

Ruchir Sharma, the New York City-based head of global emerging markets at Morgan Stanley Investment Management, says he doesn't buy the theory that India's growth rate could dip by two percentage points. He is "bullish on India" this year because he sees "quite a large opportunity" in investing there relative to his capital pool. Sharma oversees equity investments totaling some $35 billion in emerging economies, of which India accounts for a little less than $5 billion.

In terms of absolute allocations, India shares second place along with Russia and Brazil in Morgan Stanley's emerging market investments, after China, says Sharma. On the question of increasing allocations to India this year, he says his fund is already "overweight" on India with more than a tenth of total funds invested there.

Indian finance minister P. Chidambaram has also fueled optimism by hinting at income tax cuts when he unveils his annual budget in February. Chidambaram is encouraged, says Aiyar, by the dramatic growth in direct tax collections. They jumped 40% in 2006, and are expected to be 42% higher in 2007, or by Rs. 90,000 crore ($24 billion).

Interestingly, the higher tax collections are driven not just by better compliance and improved tax administration, says Aiyar. He is convinced that many businesses are bringing onto their books a lot of "black" money -- or funds that are not accounted for -- with the lure of initial public offerings. "The IPO price is a certain multiple of the book profits," he says.

kmguru
01-10-08, 11:09 AM
In Argentina, the prediction is for "6% growth in 2008, below the 7.5% recorded in 2007, and for 5.5% growth in Chile. He expects growth of 5.5% in Uruguay, 3.5% in Paraguay, 7.3% in Peru, 4% in Bolivia, 3% in Ecuador, 4.3% in Brazil and 5.8% in Colombia. In Venezuela, he projects growth of 7% as a result of large salary increases and high governmental spending. He also forecasts that Mexico and Central America will suffer a drop in their growth rate to 4%, "as a result of a slowdown in external demand related to the behavior of the American economy, as well as to declining domestic demand and restrictive monetary policy."

kmguru
01-29-08, 08:05 PM
IMF: Economy Will Slow In 2008, But No Recession
By Christopher S. Rugaber, AP Business Writer
Manufacturing.Net - January 29, 2008

WASHINGTON (AP) — The world economy will slow significantly in 2008 but the United States will avoid recession, the International Monetary Fund forecast Tuesday.
Slower U.S. growth and credit market turmoil stemming from U.S. housing market woes also will hinder the global economy, the IMF said.

''The five-year long global expansion has begun to moderate in response to the spreading effects of financial disruptions,'' Simon Johnson, director of the research department at the IMF, said during a press briefing.

U.S. economic growth will slow to 1.5 percent in 2008, Johnson said, down from an estimated growth rate of 2.2 percent in 2007. The 2008 projection is lower than the IMF's October 2007 prediction of 1.9 percent.

The IMF now sees world economic growth slowing to 4.1 percent this year, down from 4.9 percent in 2007.

The reduction is the second cut in a row in the IMF's estimate of global economic growth for this year. Last July, the IMF estimated the world economy would grow 5.2 percent in 2008, and in October the estimate was reduced to 4.4 percent.

The estimates were included in an update of the IMF's World Economic Outlook, which is issued twice a year. The next update will be issued in April.

kmguru
01-29-08, 08:08 PM
Chrysler Extends Buyout Offer
By Dee-Ann Durbin, AP Auto Writer
January 29, 2008

DETROIT (AP) — Chrysler LLC is offering buyouts of up to $100,000 (euro67,773) to hourly workers at 11 of its U.S. facilities as part of its goal to cut up to 21,000 manufacturing jobs, or nearly half its U.S. hourly work force, a company spokeswoman said Monday.

Earlier this month, Chrysler made offers to workers at four assembly sites in Toledo, Ohio; St. Louis North and South in Fenton, Missouri; Belvidere, Illinois; and Jefferson North in Detroit.

On Monday, the offers were extended to seven additional sites in Michigan, including assembly plants in Warren and Sterling Heights; the Detroit Axle, Mount Elliott Tool and Die, and Mack Avenue Engine plants in Detroit; an engine plant in Trenton and a vehicle test center in Sterling Heights. Chrysler also gave the offer to 110 employees at the company's Auburn Hills headquarters who are in an hourly bargaining unit but are paid salaries.

A truck plant in Warren is down this week but is expected to get the same buyout offers when it resumes operations.

Chrysler spokeswoman Michelle Tinson said the company has eight other U.S. facilities that are still awaiting buyout offers. The company is working with the United Auto Workers union to determine when those will be introduced.

Chrysler has approximately 45,000 UAW-represented hourly workers.

Chrysler is in the midst of a restructuring after a majority stake in the automaker was sold last summer to private equity firm Cerberus Capital Management LP. The auto company announced in November it planned to cut up to 12,000 jobs, including 8,000 to 10,000 hourly and 2,000 salaried jobs.

The cuts came in addition to 13,000 layoffs Chrysler announced last February, including 11,000 hourly and 2,000 salaried workers. Around 6,400 hourly workers had left the company under than program as of June, Tinson said, but additional retirement packages could be rolled out under that program, which was scheduled to run through 2009.

Employees have until Feb. 18 to decide whether to take the latest offers. Some workers could leave by April, but the dates they will leave the company will vary by worker and by plant.

Under Chrysler's current offer, employees who are on temporary or indefinite layoff or have at least one year of service can get up to $100,000 (euro67,773) and six months of health benefits if they agree to cut ties with the company. Retirement-eligible employees can get a $70,000 (euro47,441) lump-sum payment as an incentive to retire with a regular pension. A separate program gives workers close to retirement their full benefits if they retire early, but they get no lump-sum payment.

Ford Motor Co. and General Motors Corp. are offering similar buyouts and early retirement packages to cut costs and reduce production capacity to match sagging U.S. demand.

On Thursday, Ford announced it will offer buyouts to all of its 54,000 UAW-represented employees. Ford is offering workers up to $140,000 (euro94,883) to sever ties with the company, or incentives of $50,000 (euro33,887) for nonskilled workers and $70,000 (euro47,441) for skilled workers of retirement age. Ford said workers will begin leaving the company in April.

GM has offered early retirement packages and buyouts to 5,200 UAW hourly workers at service and parts operations but has yet to make similar offers to workers in assembly and parts plants. GM is close to agreeing with the UAW on the second round of buyouts and hopes to announce details next month, GM spokesman Dan Flores said. Once the second round is announced, the buyouts are expected to cover 46,000 workers. In the first round, GM is offering workers $140,000 (euro94,883) to sever ties with the company and a $35,000 (euro23,721) lump-sum bonus for retirement-eligible workers.

kmguru
01-29-08, 08:10 PM
Pfizer Cuts 660 Workers At Indiana Plant

January 29, 2008

TERRE HAUTE, Ind. (AP) — Drug maker Pfizer Inc. will lay off 660 workers at its Vigo County plant by midyear and possibly cut the remaining 140 positions later, dealing a setback to the state's life sciences jobs initiative.

Monday's announcement came as little surprise after the New York-based company placed 600 workers on paid leave in October when it decided to stop selling the plant's top product, the inhaled insulin Exubera, because of disappointing sales.

Those idled workers and others — 660 in all — will formally lose their jobs over three months beginning in March, leaving just 140 employees to make two other products, the low-selling antibiotics Unasyn and Cefobid.

''Due to declining demand for those products, the company is looking into the ongoing prospects of that business,'' the company said in a news release. ''Pfizer is still evaluating long-term options for the site.''

The announcement of the layoffs marked a stunning turnaround from March 2006, when Gov. Mitch Daniels hailed Pfizer's decision to hire 450 more workers in Vigo County to produce Exubera as proof of Indiana's progress in ''becoming a premier destination for companies in the life sciences sector.''

Daniels wasn't available for comment Monday on the Pfizer announcement, leaving it to his press secretary, Jane Jankowski, to provide reaction.

''I know Pfizer had great hopes for the product, so it certainly is disappointing news,'' she said.

Jankowski dismissed the notion the Pfizer cuts were a setback for the state's life sciences jobs initiative. She noted several other large job commitments in life sciences: Medco Health Solutions Inc.'s decision to build a 1,300-job automated pharmacy, Arcadia HealthCare's decision to create 400 jobs by 2010, and WellPoint Inc.'s creation of 1,200 pharmacy jobs by 2011, all in the Indianapolis area.

''We have a lot of real good, positive momentum,'' Jankowski said.

Pfizer had invested more than $300 million in the plant just south of Terre Haute since 1999 as it ramped up production of Exubera. However, the drug never met expectations and Pfizer pulled the plug on it last October just months after expanding its sales effort beyond specialists to primary care doctors.

The Indiana Economic Development Corp. offered Pfizer nearly $9 million in tax credits and training grants two years ago for the expansion, but the company never followed through with the necessary paperwork, said the agency's director, Nate Feltman.

''The state is not out anything,'' Feltman said.

Rod Henry, president of the Terre Haute Chamber of Commerce, said Pfizer has been among the largest employers in Vigo County and one of its leading corporate citizens for the past 60 years. The Terre Haute area will be hard pressed to find 600 more jobs of equal quality, he said.

''We'll bounce back. What we've got to see what we can do as a community is basically to make sure to stop the loss of Pfizer,'' Henry said.

Workers learned of their impending layoffs in meetings Monday morning. Frank Foley, the plant's senior manager, said Pfizer will provide transfer opportunities, severance pay, career and retirement counseling and other aid for the displaced workers.

''We're committed to providing whatever assistance our colleagues need,'' Foley said.

Feltman said the state would continue talking to Pfizer about possible new uses for the upgraded plant.

kmguru
01-29-08, 08:13 PM
Durable Goods Up 5.2 Percent In December:thumbsup:

By Martin Crutsinger, AP Economics Writer
January 29, 2008

WASHINGTON (AP) — Orders to factories for big-ticket manufactured goods soared in December by the largest amount in five months, welcome news for an economy buffeted by talk of recession.

The 5.2 percent increase in orders was a surprise finish for the manufacturing sector at year's end — a segment of the economy considered to have had a poor year.

The increase in orders, as reported Tuesday by the Commerce Department, was far larger than had been expected. The strength came from a big increase in demand for commercial aircraft, but even excluding the transportation sector, orders posted a solid 2.6 percent gain.

The December orders increase was more than double what had been expected. Analysts were looking for a much weaker performance, given that a key gauge of manufacturing activity had fallen to the weakest reading since April 2003. The Institute for Supply Management manufacturing index dipped to 47.7 for December. Any reading below 50 is considered recession territory for manufacturing.

The unexpectedly big jump in December closed out a lackluster year for manufacturers. Orders for the total year managed to rise by just 0.97 percent following much bigger increases of 6.31 percent in 2006 and 9.45 percent in 2005. It was the poorest showing since orders actually fell by 3.17 percent in 2002, a year when the country was still struggling to emerge from the 2001 recession.

The strength in December was led by an 11.3 percent rise in demand for transportation products. That reflected an 11.3 percent jump in orders for commercial aircraft which offset a 2.3 percent fall in demand for autos and auto parts as automakers continue to struggle with weak demand as gasoline prices have surged.

The increase in demand for commercial aircraft had been expected, given that Boeing reported receiving orders for 277 aircraft in December, up from 177 in November. The widespread strength outside of transportation was a surprise although economists cautioned that it may not last given the weakening overall economy.

Ian Shepherdson, chief U.S. economist for High Frequency Economics, predicted that the orders reports in coming months will likely ''turn rapidly south'' as the slowdown depresses manufacturing activity.

A key category of business investment, non-defense capital goods excluding aircraft, rose by 4.4 percent in December, the first increase in this closely watched category since September, and the biggest increase since last March.

The unexpectedly big jump in December closed out a lackluster year for manufacturers. Orders for the total year managed to rise by just 0.97 percent following much bigger increases of 6.31 percent in 2006 and 9.45 percent in 2005. It was the poorest showing since orders actually fell by 3.17 percent in 2002, a year when the country was still struggling to emerge from the 2001 recession.

The strength in December was led by an 11.3 percent rise in demand for transportation products. That reflected an 11.3 percent jump in orders for commercial aircraft which offset a 2.3 percent fall in demand for autos and auto parts as automakers continued to struggle with weak demand amid soaring gasoline prices.

A key category of business investment, non-defense capital goods excluding aircraft, rose by 4.4 percent in December, the first increase in this closely watched category since September, and the biggest increase since last March.

The report of the strong showing in December came at a time of growing concern that the country could be slipping into a recession as the economy has had to sustain a variety of blows from a steep slump in housing to soaring energy costs and a severe credit squeeze. The problems have, at the same time, roiled global financial markets.

The Federal Reserve was beginning a two-day meeting Tuesday, and the expectation is that the central bank will cut rates by perhaps a half percentage point as further insurance against a recession. Last week, the Fed slashed a key rate by three-quarters of a point, the biggest reduction in more than two decades and its first rate change between meetings since the September 2001 terrorist attacks.

The government will issue its first look Wednesday at the overall economy's performance for the final three months of 2007. Many economists believe that will show the gross domestic product (GDP) was rising at an anemic 1.2 percent annual rate in the October-December quarter, a significant slowdown from the 4.9 percent growth rate of the July-September period.

The report on durable goods showed that the strength was not just confined to the aircraft sector. Strong gains were also reported in demand for fabricated metal products, machinery, computers and communications equipment.

kmguru
01-29-08, 08:16 PM
Chinese Chip Maker To Open Plant, R&D Center

January 29, 2008

NEW YORK (AP) — Chinese chip maker Semiconductor Manufacturing International Corp. said Tuesday that it intends to start a new integrated circuit production project in Shenzhen, China.

SMIC said it will register an independent legal entity called the Semiconductor Manufacturing International (Shenzhen) Corp. Ltd., which will build an integrated-circuit technology research and development center. The entity will also set up an 8-inch wafer production line and a 12-inch chip fabricating plant.

SMIC said the 12-inch chip fabricating plant will have an advanced process technology licensed from International Business Machines Corp.

SMIC expects work on the project will begin in the first half of 2008.

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Looks like the effect of this will not be apparent in USA for several years. -KMG

kmguru
01-29-08, 08:18 PM
Nearly 150 Jobs Cut As Maine Shoe Plant Closes

January 29, 2008

PITTSFIELD, Maine (AP) — Nearly 150 people will lose their jobs when a shoe factory in Pittsfield closes.

SAS Shoemakers blames a reduced demand for penny loafers and other styles produced in the central Maine plant for the closing, which is scheduled to be complete by the end of the summer.

The San Antonio-based company says it makes sense to move the Maine production to its expanded facilities in Texas. A spokeswoman says the company's not abandoning the Maine jobs, but it's transferring them to Texas.

SAS plans to lay off groups of workers starting the week of April 14th. Some Maine employees may receive transfer offers.

More of this is yet to come as this type of manufacturing moves to China - KMG

kmguru
01-29-08, 08:20 PM
Tesla Gets Air Bag Waiver For Electric Sports Car:yay::thumbsup:
By Ken Thomas, Associated Press Writer
January 29, 2008

WASHINGTON (AP) — Tesla Motors received a waiver from the government on a federal air bag standard Monday, bringing it a step closer toward the production of its all-electric Roadster later this year.

Tesla, based in San Carlos, Calif., has pre-sold all of its 2008 Tesla Roadsters, a fully electric sports car that sells for $98,000. The company expects to begin deliveries in the first quarter of this year but needed the waiver to be able to sell in the United States.

The National Highway Traffic Safety Administration said it would give the company a three-year exemption from the advanced air bag rule, noting that Tesla tried to comply with the requirements and would still have standard air bags on the vehicle.

Based on information provided by the automaker, NHTSA estimates the waiver will cover 3,825 Roadsters, including 625 vehicles this year and 1,600 in each of the following two years.

NHTSA called the Roadster ''one of the most advanced full electric vehicles available'' and said the ''public interest is served by encouraging the development of fuel-efficient and alternative-fueled vehicles.''

The federal agency said Tesla posted operating losses of $43 million from 2003-2006 and that without the waiver, Tesla would ''have to cancel its pending development of an electric-powered sedan, and would ultimately have to terminate its operations.''

Tesla said in a statement last week that it had received all regulatory approvals to import the first production Roadster for sale in the United States and production would begin March 17.

Tesla has based its Roadster on the two-seat Lotus Elise sports car, which also could not comply with the advanced air bag rule and received an exemption from NHTSA in August 2006. The vehicle will be manufactured at a Lotus factory in Hethel, England, under Tesla's supervision.

Tesla also has announced plans to produce at least 10,000 all-electric, five-passenger sedans a year at a plant in Albuquerque, N.M., beginning in the fall of 2009.

kmguru
01-29-08, 08:27 PM
Jan. 29, 2008, 2:33PM
EU Leaders Call for More Transparency

© 2008 The Associated Press

LONDON — European leaders called Tuesday for greater transparency in credit rating agencies and a better way to predict global financial downturns.

"We need a better early warning system for the global economy and we need to ensure that its warnings have the force and authority to ensure that they are acted upon," Brown told reporters after a meeting of European leaders at his 10 Downing Street office.

Brown hosted French President Nicolas Sarkozy, German Chancellor Angela Merkel, Italian Premier Romano Prodi and European Commission President Jose Manuel Barroso for talks on the international credit crunch.

In a joint communique read by Brown, the leaders called for improvements in the information carried by credit rating agencies, prompt and full disclosure of banks' write-offs, and called on the EU to ensure transparency in the way that increasingly complex investments were valued.

The group said it hoped the financial market would act to regulate itself, but warned of government intervention should it prove incapable of doing so.

"While preferring market-led solutions ... if market participants prove unable or unwilling to rapidly address these issues we stand ready to consider regulatory alternatives," the statement said.

They noted the need to improve management of their economies' exposure to liquidity crises. The communique called on the Basel Committee of Banking Supervisors to propose new standards to improve its management of liquidity risk.
They also called for reform of the International Monetary Fund, saying the institution should put forward proposals on how to strengthen its international economic oversight.

kmguru
01-29-08, 08:31 PM
Asia Shares Fall As Global Economic Fears Return
2008-01-29
International Herald Tribune


By Louise Heavens

Shares in Asia fell 3 percent on Monday as concerns over the health of the global economy returned to haunt stock markets, sending investors to seek the relative safety of government bonds.

European stock markets also fell in early trading on U.S. recession fears, with the FTSEurofirst 300 index of top European shares down 1.4 percent. U.S. stock futures pointed to a lower opening for Wall Street.

"The sell-off is hitting all sectors, regardless of each company's earnings and outlook," said Kim Joong-hyun of Goodmorning Shinhan Securities in Seoul. "Although last week's U.S. interest rate cut has calmed down panic selling, a recovery from the economic woes and the financial sector's debt problems should take a long time."

The yen rose against other currencies as investors shunned riskier bets and unwound currency carry trades, while oil dropped by more than $1 to below $90 a barrel in tandem with weaker global stock markets.

"The whole market is focused on the U.S. economy, to see how bad it can get," said Tony Nunan, an energy futures trader at Mitsubishi in Japan.

Investors resumed selling after the roller coaster ride in the markets last week, when global equity markets fell because of growing despair over the U.S. economy early in the week and then rose because of a $150 billion stimulus plan.

The Nikkei ended down 4 percent as poor earnings results increased fears that the slowing U.S. economy was hitting Japanese companies. Nippon Steel surprised investors by reporting a small drop in profit for the nine months ended in December because of higher costs, sending its shares down 8 percent.

Japan's economy might be already in recession, partly because of weaker exports and sluggish consumption, Goldman Sachs said in a research report seen Monday

kmguru
01-29-08, 08:36 PM
Can India and China save the world's economy?
27 Jan, 2008, 0955 hrs IST, AGENCIES

SHANGHAI: With fears mounting of a global economic slowdown, some analysts predict developing giants China and India, with their booming growth, will help lessen the impact.

Stock market turmoil this week triggered by fears of a US recession in the wake of a massive mortgage crisis has ignited debate over whether Asia's two rising economic stars are strong enough to power the world economy.

This directly challenges the 20th-century economic adage that when the US economy sneezes the rest of the world catches a cold.

"What is occurring is the rise of other economies to balance out those of the US -- and that has to be a good thing," said Chris Devonshire, a business consultant specialising on China and India trade.

"The US has problems but these will be offset against markets elsewhere. The new world order is working," he told reporters.

China saw scorching expansion of 11.4 per cent last year, closely followed by India's 9.4 per cent, and the prospects for both economies remain strong.

"We expect China and India to support regional growth in the event of a significant slowdown in the US," said ING Barings Asia economist Prakash Sakpal.

Such a shakeup is significant because jobs and livelihoods are at stake, but also because, as financier George Soros wrote in the Financial Times, it could signal a major shift in economic power.

"The current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world."

But Zhang Ming, an economist at the Chinese Academy of Social Sciences, dismisses the notion that the Chinese and Indian economies are independent of US consumption.

"If you want to look at who is going to be the motor of global growth then you have to look at who provides the biggest market for the world's production of goods," said Zhang.




"In the short run America is still strongest. China still has a long way to go."

China, whose 3.4-trillion-dollar economy is about one-third derived from exports, could easily face economic difficulties if it were to lose the 2.5 growth percentage points garnered from trade, said Stephen Green, a Standard Chartered economist.

However, Indian exports represent only about 17 percent of its 1.1 trillion dollar gross domestic product, allowing it greater resiliency in the face of a US recession, analysts said.

"Our economy is geared to domestic demand. We are insulated so that even if there is a US recession it will not have such a direct impact on the Indian economy," said Federation of Chambers of Commerce and Industry economic adviser Anjun Roy.

But given that India's share of world trade in 2006 stood at 1.5 percent, it is not in a position to boost the world economy, Roy said, citing official statistics.

According to data published by the World Trade Organisation, China's merchandise exports last year totalled 8.0 percent of the world total, while imports stood at 6.4 percent. No cumulative figure was provided.

However, Stephen Roach, a leading economist as head of investment bank Morgan Stanley in Asia, said this week that the idea China and India could power the world economy on their own could "turn out to be a fantasy."

Roach, who is forecasting a US recession, also argued in a recent note that when the US consumer is in trouble this has great consequences for the world economy.

He calculated that the American consumer spent a combined 9.5 trillion dollars last year while Chinese only laid out one trillion dollars and Indians 650 billion dollars.

"It is almost mathematically impossible for China and India to offset a pullback in American consumption," he said.

kmguru
01-29-08, 09:09 PM
The objective of this thread is to post news in global economy mostly production, manufacturing activities that taken together present a global picture of Business and Economy.

Some will be good, others bad. The key is to present a sampling of Business activities around the world that provides a trend.

Because U.S. has the biggest economy, the thread will have more items on U.S., but I would like to see posts about other countries that has a global impact.

Thank you.

kmguru
01-30-08, 06:04 PM
100 Nepalese Factory Workers Vanish In Alabama

Manufacturing News - January 30, 2008

HUNTSVILLE, Ala. (AP) — About 100 people who came from Nepal to work at a north Alabama factory seemingly vanished from a pair of apartment buildings, along with a lot of furniture and appliances, and can't be located, officials said Tuesday.

Immigration agents are trying to determine what happened to the Nepalese workers, among hundreds brought to the United States to work at a DVD factory operated by Cinram Inc., said Lauren Bethune, a spokeswoman for the Alabama Department of Homeland Security.

''We do not in any way consider it a security threat, but we do think it is important,'' she said.

A Huntsville television station, WAAY-TV, first reported on the missing workers.

Cinram's human resources director, Peter Hassler, did not immediately return a telephone call seeking comment.

Mary and Tim Snopl told the TV station they rented apartments in two buildings last fall to about 240 workers from Nepal. They were recruited to come to the United States by a company that provides staffing for Cinram.

But Mary Snopl said scores of the workers are now missing, along with hundreds of thousands of dollars worth of furniture, televisions and kitchenware.

''I don't know if they're living in Huntsville or somewhere else, I just know they aren't living with us and they aren't working at Cinram,'' she said.

Reports last fall said Cinram had hired about 1,350 foreign workers to package DVDs at its plant in Huntsville. Cinram — which describes itself as the world's largest maker of prerecorded multimedia products — said it turned to foreign workers because the area job market couldn't fill its needs.

Bethune said about 100 immigrants were believed to be missing. Agents are trying to determine exactly what type of visas they used to enter the United States.

''It's possible that they had work visas, they expired, and they went home,'' she said.

The workers can earn $8 an hour working 12-hour shifts packing DVDs in boxes. Besides Nepal, Cinram has used foreign workers from Bolivia, the Dominican Republic, Jamaica and Ukraine.

kmguru
01-31-08, 05:15 PM
Société Générale

No Défense
Jan 31st 2008
From The Economist print edition

The humiliated French bank has plenty more explaining to do before putting its rogue-trader scandal behind it
http://www.economist.com/images/20080202/0508FN1.jpg

AN OLD line of Hank Paulson's has been dusted off since news broke of a €4.9 billion ($7.2 billion) trading loss at Société Générale, France's second-largest bank. “We will never eliminate people doing bad things,” the former head of Goldman Sachs, now America's treasury secretary, once said. “In a town of 20,000 people, there's a jail.” The question now being asked of SocGen is: shouldn't there also be a police force?

In fact, SocGen has plenty of internal cops at its high-security headquarters in the La Défense enclave of Paris. The bank's annual report for 2006 devotes 26 reassuring pages to its risk-management practices; more than 2,000 staff worked in the function that year, and lots more bodies were added in 2007. Yet none of them stopped Jérôme Kerviel, the trader accused of taking enormous unauthorised bets, from building an unhedged €50 billion exposure to European futures markets (Mr Kerviel reportedly alleges that his supervisors were aware of his activities).

On January 28th Mr Kerviel was placed under formal investigation for abuse of trust, breaching computer security and falsifying documents. Two days later Daniel Bouton, SocGen's chairman and co-chief executive, survived a board meeting to consider his handling of the affair. He was lucky. Holes have not only appeared in the bank's accounts; its initial version of events is also looking threadbare.

MORE (http://www.economist.com/displaystory.cfm?story_id=10608901&fsrc=nwl)

kmguru
01-31-08, 05:24 PM
Private payrolls add 130,000 jobs this month

By Susan A. Baird
PBN Web Editor

ROSELAND, N.J. – Hiring at U.S. companies accelerated this month from December’s four-month low, according to preliminary data released today by ADP Employer Services.

Nonfarm private payrolls grew in January to 116.1 million, adding a seasonally adjusted 130,000 jobs compared with December levels. The increase was three and a half times the previous month’s revised 37,000-job gain, though it still fell nearly 25 percent short of November’s revised 173,000-job gain.

http://www.pbn.com/static/story_images/story/1201713542.jpg

Looking at the above graph, one can see that the jobs are on a down ward trend but not to the point of last recession. That will take another two years...in the lap of the next President. Hopefully something will prevent that - KMG

kmguru
01-31-08, 07:55 PM
The Carnegie Endowment for International Peace has just published an important study on

India’s Trade Policy Choices: Managing Diverse Challenges

The study

"seeks to contribute to the knowledge base upon which the Indian government and public and the country’s international trading partners can evaluate the difficult policy choices the country faces in the realm of trade. The study uses a global trade model and a national model of the Indian economy to explore the effects of a range of possible trade choices on the economy, its sectors, its workforce, and its households."

The most significant conclusions emerging from the study are the following:

1. The country’s current commitments on trade policy through institutions such as the World Trade Organization (WTO) are modest and leave broad policy discretion over tariffs and other trade measures in the hands of national policy makers. As India pursues a new multilateral trade agreement and numerous bilateral and regional trade pacts, it is moving into uncharted territory, where the decisions it makes will constrain its existing policy space and have a significant impact on the evolution of its economy.

2. Given the relatively high levels of protection in the Indian economy, it might be expected that greater opening to trade would yield large gains. However the most striking overall result of the simulations in this study is that the gains for the Indian economy from both multilateral and bilateral trade agreements are surprisingly modest. Other studies have also shown limited gains from Indian trade opening.

3. Multilateral liberalization through the WTO’s Doha Round would produce larger gains for India than free trade agreements with any of its major trading partners, including the EU, the United States, and China. Nonetheless, a Doha agreement would represent only a small gain for the Indian economy. In the simulation presented, the gain in real income for India from Doha is $1.2 billion. Other models—using dynamic modeling frameworks in which gains in investment, productivity, and overall growth are assumed to accompany trade policy changes—have shown the Indian economy gaining from $1.6 to $2.8 billion by 2020, still very modest changes.

4. Even the highest gains projected using dynamic frameworks in global models represent only about a one-quarter of one percent (0.27 percent) gain for the Indian economy. World Bank study showed gains of $2.2 billion from an ambitious Doha outcome if additional investment is also realized, but actual losses for the Indian economy from a Doha agreement when only the direct effects of Doha changes are taken into account.

5. The simulations of the effects of world agricultural price changes on the Indian economy and households suggest that the government’s concern over potential negative effects of a Doha agreement on poverty and rural development is well founded. The results presented demonstrate that the impact of world price changes on poverty and income distribution depends on the specific patterns of production and consumption in a country. Agricultural price decreases would worsen income distribution and could significantly increase rural poverty.

6. The simulations of changes in the world prices of rice and wheat show potentially significant effects on the country if it binds its agricultural tariffs at levels that would prevent it from offsetting global price shocks. For example, a 50 percent decrease in the world price of rice could have a negative impact on India’s real income as large as the positive impact of the entire Doha agreement as simulated in the study. Even a 25 percent decrease in the price of rice has negative effects on all major components of the Indian economy, including private consumption, investment, exports, and imports. Seventy-eight percent of households would experience real income losses from such a price change, and the distributional impact would be regressive, with the poorest households losing the most.

7. As a result, it would be most advantageous for developing countries such as India to have the flexibility to respond to price shocks based on their own conditions at the time of the shock, rather than having rigid or arbitrary disciplines imposed in advance. India should continue to seek an agreement on “special products” and a “special safeguard mechanism” that gives it sufficient latitude to shield its households from negative price shocks that could increase poverty and worsen income distribution.

8.The three potential bilateral free trade agreements (FTAs)simulated in this study -- with the EU, US and China -- result in smaller gains for the Indian economy than a Doha agreement and losses for Indian households. India’s imports and exports increase slightly more as a result of the India-EU FTA than under the Doha simulation. This result is perhaps surprising at first glance, but less so after considering that tariffs are completely eliminated in the bilateral agreement, whereas they are only reduced under the multilateral simulation. The deeper tariff cuts under the bilateral agreements change the resulting domestic prices more dramatically. Given that this is India’s largest trading relationship, the impact on the country’s imports and exports is understandable. However it is worth recalling that domestic production in India increases significantly less under the bilateral agreement with the EU than under the Doha multilateral agreement. This suggests that the increased bilateral trade flows do not necessarily lead to the most efficient reallocation of resources in the Indian economy. It may also be the case that some of the increased trade is trade diversion (that is, substitution of trade with the bilateral partner of trade that would have been carried out with other trading partners) rather than trade creation. India’s imports and exports increase more modestly under the FTAs with the United States and China, reflecting the fact that these are much smaller trade relationships than that with the EU. (However, a bilateral free trade agreement with the US will produce more gains for India than a similar one with China). This suggests that the Indian government should proceed cautiously with bilateral agreements. It appears that such agreements would unambiguously increase investment in the Indian economy, a welcome development, but by extremely modest amounts. However, there would be a trade-off to achieve these investments, with reductions in household welfare under free trade with the EU and United States, at least in the short term. Given the low incomes of most Indian households and the country’s high poverty rate, inflicting even short-term welfare losses on these households is not to be taken lightly.

9. Creating employment is an important goal of the Indian government, both to absorb unemployed workers, currently estimated at about 40.4 million, and also to generate opportunities for the large numbers of underemployed workers in rural areas and the estimated 7 to 8.5 million annual new entrants into the labor force. All the trade pacts simulated in this study would induce small increases in demand for unskilled labor, with a Doha agreement increasing demand by 0.9 percent (about 4 million jobs based on current employment levels). An India-EU FTA would increase demand by 0.5 percent (about 2.3 million jobs), an India-U.S. FTA by 0.3 percent (1.4 million jobs), and an India-China FTA by 0.2 percent (900,000 jobs). Although these additional positions would be welcome, they represent a very modest contribution to India’s employment needs. Clearly, employment creation will depend much more on Indian domestic demand and labor policy than on export-led growth for the foreseeable future.

10. India has liberalized its trade gradually during the past two decades while maintaining significant policy levers to achieve desired outcomes in terms of growth, poverty reduction, and income distribution. The results presented indicate that continued trade liberalization, particularly through multilateral agreements such as the Doha Round, can contribute to the country’s development and growth in the future. However it should be recognized that the gains are likely to be modest, and the possibility of negative effects is real. Trade agreements must be negotiated with great care if they are to contribute to the country’s development and broadly improve the living standards of its people.

11. Services liberalization could add to India’s potential gains, however, few offers on services of interest to india have been tabled in the Doha Round. In negotiations with the EU, significant services liberalization would be required for India to experience net gains in real income to the overall economy as well as to offset losses to households.

Thus, the results of the study indicate that continued trade liberalization, particularly at the multilateral level, can contribute to India’s growth and development. However it must be recognized that the potential gains are modest and the risks are not insignificant. Balancing the defensive interests of India’s poor households with the quest for improved efficiency and market opportunities will require careful trade negotiations and appropriate complementary measures.

The moral: Both Doha and bilateral pacts require careful negotiation if India is to realize the modest gains on offer and avoid risking large negative effects on housholds of the poor. However, there is a need for a separate study on the benefits of a free trade agreement in services between India and the EU, India and the US and India and China.

The full report can be read at http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=19871&prog=zgp&proj=zted

kmguru
02-02-08, 11:17 AM
Inflation is China's next export
By Wei Gu
Reuters
Friday, January 11, 2008

HONG KONG: Politicians in the United States might soon regret what they have been wishing for.

Having long accused Beijing of manipulating its currency to keep Chinese exports inexpensive, thus gaining an unfair trade advantage, Americans might find a troublesome new export from China: inflation.

The manufacturing sector in China can no longer offset rising prices with productivity gains because of the combined gains in the yuan - up 3 percent against the dollar in the past two months - as well as food, energy and other raw material price increases that have pushed domestic inflation to 11-year highs.

Efficiency at listed manufacturing companies in China peaked last year and has already started to deteriorate. On top of that, Beijing is considering letting land and other resource prices rise to market levels, while a more stringent labor law that took affect this week will surely push up labor costs. The question is, will China be able to pass on higher costs to global consumers?

"China's export prices were rising in the last quarter even though U.S. import prices have slowed," said Paul Cavey, the head of China economics at Macquarie Securities. "That does suggest that China does have a bit of pricing power."

What a change from the past five years. During that period China was a deflationary force, helping keep global prices low.

To be sure, Chinese exports to the United States are still slightly cheaper than they were in 2003, according to U.S. government figures. But the trend is clear. Prices have started to climb in the past year, and increases are likely to accelerate in 2008.

Underlining its concern about inflationary pressures, China's cabinet said Wednesday that it would temporarily intervene to curb price increases in necessities like food.

All this should not come as a big surprise. China cannot push the productivity envelope forever. Eventually, the law of diminishing returns will prevail. When inflation hits a country that is a global factory, the rest of the world pays more.

"When China starts to export inflation, it will feed through the rest of the world," Dong Tao, an economist at Credit Suisse, said.

Hong Kong, which gets most of its groceries and electricity from the mainland, is already feeling the heat. From food to furniture, wages to rent, almost everything is rising in the city. To add fuel to the fire, Hong Kong has to follow the Federal Reserve Board in cutting rates because its currency is pegged to the dollar. As a result, Tao expects Hong Kong inflation to average a surprising 5.1 percent in 2008, while most other analysts say it will be closer to 3.3 percent.

Western consumers will see prices jump for electronics, clothing and toys, although these gains will be masked slightly since manufactured goods account for a relatively small part of the consumer price index baskets in the United States and European Union.

Barring any policy mishaps, exported inflation from China should not rock those economies, although it comes at an inopportune time when the United States is battling a slowing economy, oil hovering around $100 a barrel, and a still-unfolding credit crisis.

In the interest of the West, and arguably for the benefit of China, Beijing seems to be heeding the advice from the West to let its yuan appreciate more rapidly. After raising interest rates six times in 2007, China seems to have decided that a faster rise in the yuan is the best monetary policy to fend off inflation.

"Beijing appears to be seriously looking at the right policy tool to deal with the rising inflation threat," Frank Gong, JPMorgan's China economist, said.

If the yuan strengthens by 10 percent in real terms, consumer inflation in China will be reduced by 0.8 percent in the near term and 3.2 percent in the long run, Jiming Ha, the chief economist of China International Capital, said. Ha expects the yuan to appreciate a full 10 percent in 2008, after rising the same amount in the two and a half years after the one-time revaluation.

Western politicians should be pleased. They have been demanding a faster rise in the yuan. But this is also a U.S. election year. Presidential hopefuls are all too aware that U.S. consumers, suffering from a housing meltdown, could be incensed by higher prices on products from China. Do not be surprised if U.S. lawmakers and presidential candidates soon start to rail against the inflation threat coming out of China. But unlike the yuan, inflation is not something that can be easily tamed by any government.

The risk is that Beijing might panic and step on the brakes too hard, and that could hinder global growth at a time when central banks elsewhere are easing monetary policy.

kmguru
02-03-08, 10:49 PM
One person's misery could be other person's good fortune....

China Tries to Restore Power; Storms Forecast to Ease

By John Liu and Li Xiaowei


Feb. 4 (Bloomberg) -- China stepped up efforts to restore power supplies and transport links to regions hit by the worst snows in more than 50 years, as forecasters said storms will ease for this week's Lunar New Year holiday.

``Disaster relief work is the top priority of the whole nation,'' China's top legislator Wu Bangguo said during a visit to the Railways Ministry in Beijing yesterday, the official Xinhua News Agency reported.

Snow and freezing rains in southern and eastern China are forecast to give way to clearer weather before the Chinese New Year begins in three days, the China Meteorological Administration said. No rain is expected between Feb. 6 and Feb. 9, which may allow the snow and ice to melt, it added.

More than three weeks of snow in central and southern China brought transport networks to a standstill, killed at least 60 people and caused economic losses of at least 53.8 billion yuan ($7.5 billion). The warmer weather may allow millions of people stranded in the southern cities of Guangzhou, Changsha and others to resume their journey home.

President Hu Jintao called on government officials to do everything possible to restore transportation and power production at a meeting with senior leaders yesterday, according a statement on the Web site of the Cabinet, the State Council.

Airports Running

All airports resumed operating yesterday, the General Administration of Civil Aviation said on its Web site.

Traffic on the Jingzhu Expressway, connecting the southern cities of Guangzhou and Zhuhai with Beijing, has been cleared, China Central Television reported, after a stretch of it was jammed with more than 10,000 vehicles yesterday. Tanks were used to clear some icy highways, Xinhua reported.

Nationwide, more than 17,000 vehicles are still stuck on freeways, the state broadcaster said.

A woman was killed in a stampede at Guangzhou railway station as hundreds of thousands of passengers sought to board a train, Xinhua reported late yesterday, adding it was the second death as a result of overcrowded railway stations. On Jan. 13, a student in Wuhu, Anhui province, died after being pushed off an overcrowded platform, Xinhua said.

About 136,000 rail passengers remained stranded at stations at 11 a.m. yesterday, state television reported. More than 92,000 passengers were waiting for trains in Guangzhou, after a peak of 800,000 people last week, it said.

Police Deaths

Three police officers died during the storms, the Ministry of Public Security said on its Web site, without giving a cause of death. More than 21,000 officers suffered frostbite and cold- related illnesses.

The government's priorities are the transportation of coal for power plants, goods needed for disaster-relief efforts and food, Wu, president of the Standing Committee of the National People's Congress, said yesterday, according to Xinhua. No effort should be spared in resuming power supplies and transport in the snow-ravaged regions, he added.

China's worst-affected areas are Hunan, Jiangxi and Guizhou provinces, which have only half their normal power capacity, the National Development and Reform Commission said in a statement on its Web site yesterday.

About 90 percent of state-owned coal mines have been asked to continue production during the weeklong Lunar New Year holiday, Xinhua said yesterday, citing the State Administration of Work Safety. China relies on coal for 78 percent of its power.

Trucks Mobilized

All of the country's railway container trucks have been mobilized to ensure the transportation of coal, Xinhua said, citing the Railways Ministry. Coal shipments were boosted to a record 42,200 trucks a day from Feb. 1, it said.

``We have the faith, courage and ability to overcome the severe natural disaster,'' Chinese Premier Wen Jiabao, who was onboard a train to disaster-hit central Hunan province, was cited as saying at the weekend by Xinhua.

PetroChina Co. and China Petroleum & Chemical Corp., China's two largest oil refiners, were asked to ``prioritize'' oil supplies for power line repairs, the National Development and Reform Commission said.

The price of vegetables in 36 cities rose more than 30 percent between Jan. 25 and Jan. 30 because of the transport problems, and only started to stabilize in the past few days, the commission, the country's top economic planner, said in a separate statement yesterday. Meat prices also gained while grains and vegetable oils were little changed, it added.

Crop damage estimates were raised to 141 million mu (23 million acres) early Feb. 1 from than the 103 million mu on Jan. 30, the Ministry of Agriculture said in a statement yesterday.

kmguru
02-03-08, 11:04 PM
Wall Street Embraces Government to Avoid Recession

By Kathleen M. Howley


Feb. 1 (Bloomberg) -- With U.S. mortgage foreclosures set to top 1 million this year and home prices falling at the fastest pace since the Great Depression, Lehman Brothers Holdings Inc. Vice Chairman Thomas Russo says the government must take action to prevent a recession.

``The direction we are heading in isn't a good one,'' Russo said in an interview. ``We need significant fiscal and monetary intervention.''

The worst drop in new home sales on record has turned financial leaders into champions of big government with everyone from Russo to executives at Citigroup Inc. and JPMorgan Chase & Co. supporting public measures to keep the housing market from sinking the economy. It's a change from Wall Street's usual stance that markets work best without government interference.

``Sentiment can change when there's money on the line, even in an industry that up to now has been doctrinally opposed to government having a role in the markets,'' said Thomas Schelling, a Nobel laureate in economics who taught at Harvard University for 30 years.

Wall Street fueled the growth of subprime lending by packaging home loans into securities and marketing them as low- risk investments. As demand rose, lending standards dropped, driving the homeownership rate to an all-time high of 69.2 percent in 2004. The median U.S. home price reached a record $230,200 in July 2006. Last month it was $208,400.

Countrywide's Loss

Now, many of the same people who profited by putting buyers into properties they couldn't afford are advocating federal help to manage the bust.

Their demands were answered this week when the House and the Senate Finance Committee approved economic stimulus plans worth $146 billion to $157 billion. The Senate version includes a tax break for banks and lenders. Losses from investments in subprime mortgages may total as much as $400 billion worldwide, Deutsche Bank AG said in November.

Angelo Mozilo, chief executive officer of Countrywide Financial Corp., supports the government's Hope Now program, a coalition of mortgage companies aimed at preventing foreclosures by freezing adjustable rates or refinancing loans of subprime borrowers.

That type of loan increased Countrywide's net income to almost $2.7 billion in 2006 when it was the biggest U.S. subprime lender. Mozilo earned $48 million that year. Countrywide reported a net loss of $703.5 million in 2007, dragged down by loans to people with bad credit, and the Calabasas, California-based company agreed Jan. 11 to be acquired by Charlotte, North Carolina-based Bank of America Corp. for about $4 billion.

`Amazing Hit'

Hope Now is being pushed by Treasury Secretary Henry Paulson, former chairman of Goldman Sachs Group Inc., and backed by firms such as New York-based Citigroup, led by Chief Executive Officer Vikram Pandit, and JPMorgan, headed by CEO Jamie Dimon.

In addition, the government expanded Federal Housing Administration mortgage funding in August to help subprime borrowers and President George W. Bush has proposed using tax- exempt bonds to refinance mortgages. Those programs won't help homeowners who have seen their property values drop below their loan balances.

The measures aren't enough, Russo said.

``The whole financial system has taken an amazing hit already and the bulk of the mortgage rate resets are still to come,'' Russo, 64, said.

Without additional government action, declining home values will prompt people to snap their wallets shut, choking the 70 percent of the economy that's driven by consumer spending, Russo said in a paper he presented at the World Economic Forum in Davos, Switzerland, last week. Russo said the paper reflected his own views and analysis, not those of New York-based Lehman, the fourth-biggest U.S. securities firm by market value.

Russo's Proposals

About $550 billion of subprime loans will reset before 2009, Russo said. Most of those borrowers will have no option except to walk away from their properties because the drop in home prices and an increase in lending standards will prevent them from refinancing or selling, he said.

Russo, in the paper originally written for the Group of Thirty, a research group led by former Federal Reserve Chairman Paul Volcker, proposes giving government-backed loans to homeowners with adjustable-rate mortgages, whether prime or subprime, in danger of default. He also supports a tax credit for people who buy homes in 2008 that would roughly triple the current tax benefits given to mortgage holders.

In addition, the Federal Reserve needs to cut its benchmark rate to 2 percent, reduce the discount rate to match it, and ``broaden access'' to the discount window where banks get government-subsidized temporary loans, he said. The Fed lowered the benchmark interest rate to 3 percent on Jan. 30, the second cut in nine days.

Quick Action

Those measures surpass the Hope Now program and the stimulus plans that passed this week. A provision in the House measure would temporarily increase in the size of loans that can be bought by Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies.

``To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months or so,'' Fed Chairman Ben Bernanke said in Jan. 17 testimony to Congress.

In backing government action, Bernanke broke from the creed of Milton Friedman, the free-market champion who said such programs don't work. Bernanke described Friedman in a 2002 speech as the man who inspired his interest in monetary policy when he was a college student.

While top regulators and executives are demanding help, some of their colleagues are shaking their heads in disbelief.

Mark Kiesel of Pacific Investment Management Co., the world's largest bond fund manager, said rescuing borrowers will worsen the economic misery for everyone. Kiesel helps oversee more than $700 billion of fixed-income investments at Pimco.

`Blunt Instrument'

``Keeping the market from correcting itself only prolongs the problem,'' he said. ``It helps a couple hundred thousand people stay in their homes a little longer, but it also may have the unintended consequence of lifting mortgage rates for everyone because if you're going to be changing the rules, investors will need to be compensated for that risk.''

David Henderson, an economist at the Hoover Institution at Stanford University in Stanford, California, agrees.

``Government intervention is a blunt instrument aimed at a particular problem that ends up hitting all of us,'' Henderson said. ``Let the housing problem work itself out.''

The camp that favors government action is growing.

Growing Group

``We look forward to continuing our work with the administration, Congress, state and local officials'' to limit the number of foreclosures, Washington Mutual's Schneider said in a statement last month in support of the Hope Now program. The Seattle-based company, the largest U.S. savings and loan, on Jan. 17 reported a fourth-quarter loss of $1.87 billion after writing down the value of its home mortgage unit.

Alex Pollock, former president of the Federal Home Loan Bank of Chicago, urges the creation of a federal lending agency based on the Home Owners Loan Corp., or HOLC, created by Congress during the Great Depression.

Robert Kuttner, co-founder of the Washington-based Economic Policy Institute, Senate Banking Committee Chairman Christopher Dodd and others have proposed similar ideas.

Many who are calling for action point to the 1930s, the last time the U.S. national median home price fell, as an example of what government should do.

Great Depression

During the worst economic slump of the 20th century, HOLC issued tax-exempt bonds and used the proceeds for below-market- rate mortgages. It refinanced one-fifth of U.S. homes between 1933 and 1936 after negotiating with the original lenders to accept less than the amount owed on the defaulted mortgage.

Former Treasury Secretary Edward Carter Glass opposed President Franklin D. Roosevelt's expansion of government after the 1929 stock market crash. Senator Robert Taft, a critic, said it was socialism. Most Americans supported Roosevelt and his ``New Deal'' plan. He won every state except Maine and Vermont when he ran for re-election in 1936.

In the 1930s, lenders were seizing homes at an average rate of 3,000 a day, adjusted for today's housing stock size. In the fourth quarter of 2007, new foreclosures averaged 2,939 a day, double the pace of a year earlier, according to RealtyTrac Inc., an Irvine, California-based real estate data company.

Statistics like these are managing to change even the most ardent opponents of big government. William McCarthy, a mortgage broker in Parker, Colorado, said he has been against federal intervention his entire life. Now 62 and facing eviction Feb. 11 after his lender foreclosed on his $199,200 mortgage, he said the government has to take action.

Suicides and Bankruptcy

``This has reached the point of being catastrophic,'' said McCarthy, who declared bankruptcy in July when his business failed after 18 years. ``I had a client who called me sobbing because his wife committed suicide rather than face eviction. Something's got to be done to help people.''

McCarthy said he took an interest-only adjustable-rate mortgage in 2005 when he and his wife, Janna, bought a 1,680- square-foot, ranch-style retirement home in Littleton, Colorado. His wife has a heart condition and needs a home without stairs, McCarthy said. They planned to sell their primary residence and refinance the ranch's interest-only loan before it reset, he said.

Risk Taking

They didn't act fast enough. In March 2006, U.S. home sales began the biggest decline in 26 years, according to data compiled by the Chicago-based National Association of Realtors. The house didn't sell. Now, they are losing both properties.

``My wife goes to bed crying every night, and there's nothing I can do,'' McCarthy said. ``The bank won't even return my calls.''

Bailing out borrowers who take risks creates a ``moral hazard'' that leads to riskier behavior as people assume the government will step in to save them, said Kiesel. In March 2006 Kiesel sold his house near Pimco's headquarters in Newport Beach, California, and rented a home in anticipation of the housing slump.

``The housing market will find its own bottom, without a government bailout,'' Kiesel said.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net .

-------------------------------------
Now, many of the same people who profited by putting buyers into properties they couldn't afford are advocating federal help to manage the bust. - But the Buyers did afford then....it is just that they lost their jobs because we buy everything from China now.

kmguru
02-04-08, 01:34 PM
What may yet to come in food supply....

Last Year's Md. Crab Harvest Second-Lowest on Record

By David A. Fahrenthold
Washington Post Staff Writer
Monday, February 4, 2008; 1:08 PM



Last year's harvest of blue crabs from the Chesapeake Bay in Maryland was the second-lowest on record, state officials said today, as environmental damage, drought and past over-fishing drove down harvest of the state's most valuable seafood catch.

About 21.8 million pounds of blue crabs were caught by watermen during the April-to-December season, officials at the Maryland Department of Natural Resources said this morning. That was 6 million pounds less than last year, and just above the all-time-low, 20.2 million pounds in 2000.

"We're concerned about the health of the blue-crab fishery, and about the health of the blue crab itself," said Lynn Fegley, who oversees blue-crab programs at the department. The fishery, in this case, means the watermen and seafood processors that depend upon the crabs.

Natural resources officials said that, in response, Maryland will soon begin seeking input from watermen, scientists and other experts about altering the rules that govern crab harvests.

"We need to figure out a way to rebuild the population of crabs in the bay," said Frank Dawson, an assistant secretary at the department. "And that's really going to take a long-term plan."

This announcement comes at a particularly fraught time for the bay's blue crabs, which have been mired at historically low population levels for about a decade. In Virginia last month, state regulators proposed a set of regulations aimed at cutting back their state's harvest from the bay.

Part of the reason for last year's poor harvest was a long summer drought, which changed the salinity of water in the Chesapeake and sent crabs fleeing up into tributaries, away from watermen's pots.

But the other causes, officials said today, may have to do with more troubling, long-term trends: a bay that once teemed with these crustaceans may be growing slowly less hospitable to them.

Pollution has created "dead zones," where crabs struggle to breathe. Warm weather has contributed to die-offs in the underwater grasses that crabs use as nurseries. And, for years, scientists have said that watermen were taking too large a portion of the bay's overall population.

Thomas J. Miller, a professor for the University of Maryland Center for Environmental Science, said today that a declining harvest could actually be a good sign -- if it signaled that more crabs are dodging watermen's traps and surviving to reproduce.

Or, he said, it could be a bad sign, if it is an indication that there are simply fewer crabs to catch.

"We really don't know the answer" yet, Miller said in a telephone interview.

kmguru
02-06-08, 09:41 AM
By Chris Isidore and David Goldman, CNNMoney.com staff writers
February 5 2008: 1:53 PM EST

NEW YORK (CNNMoney.com) -- New recession alarms shook Wall Street Tuesday as a key survey of service sector executives showed business activity retreating in January for the first time in nearly five years.

The Institute for Supply Management's (ISM) non-manufacturing index came in with a reading of 44.6, a new summary number for the report.

The 44.6 summary number is a new reading that does not have comparable readings from past reports.

The reading for business activity in the service sector plunged to 41.9 in January from 54.4 in December. Economists surveyed by Briefing.com had forecast a reading of 53.

A reading above 50 indicates growth in the sector, and a reading below 50 represents a sector-wide decline. The January reading is the first below 50 since March 2003.

The business activity reading also experienced the largest month-to-month drop in the 10-plus year history of the index.

Tuesday's report was issued roughly an hour earlier than its usual 10 a.m. release time because someone who was familiar with the report had inadvertently made a comment about it on Monday night. ISM chose to be cautious and released the report before markets opened Tuesday, an ISM spokeswoman told CNNMoney.com.

Signs of a recession. Both the 41.9 business activity reading and the 44.6 summary number represent the second lowest growth figures on record, trailing only the October 2001 reading after the Sept. 11 attacks. It's a sign that the service sector - which has carried the economy through a downturn in manufacturing - has followed that troubled sector into decline.

The enormous drop in business activity has intensified some economists' fears.

"We don't have plunges like this unless we're coming into or [are] in a recession," said Sam Bullard, economist at Wachovia. "Until we see two consecutive monthly declines, it's hard to definitively say we're in a recession, but these numbers make you think."

The service sector encompasses the retail, transportation and health care sectors. It also includes sectors that have been hit hard by problems in the economy, including finance, real estate and construction.

"The service sector is a much larger component of the economy [than manufacturing], and this is very much a recession reading," said Keith Hembre, chief economist for First American Funds, who now believes the U.S. economy has fallen into recession.

Some recent unexpected growth. Last Friday the more closely watched ISM Manufacturing reading came in at a 50.7 reading for January, up from 48.4 in December, showing an unexpected return to growth in that sector. This marks only the sixth time in the report's history that the service sector has recorded lower growth than the manufacturing sector, and it's by far the largest margin by which the service sector has trailed manufacturing.

Scary employment signal. The report also set off more alarms about the nation's labor markets, since it has been the service sector that has provided most of the job growth in recent years as factories closed or cut employment.

The ISM report showed 24% of service-sector employers had fewer employees than a month earlier, nearly double the 13% who were trimming staff in the previous reading. Only 6% were adding staff, down sharply from the 16% doing so in December. The report said employment comments on the survey included "Did not replace some positions"; "Reduced headcounts with hiring freezes in place"; and "Layoffs."

Friday the government's January employment report showed employers trimmed 17,000 jobs in the month, the first decline in employment in more than four years. But the service sector continued to add jobs in the government reading, while manufacturing and government employers trimmed their staffs.

Asguard
02-08-08, 06:59 PM
MOD HAT: if anyone else has a problem with this or any other thread please address those concerns to the mod in charge (in this case ME) or plazma in a PM. DONT TRY TO DE RAIL A THREAD!!!!!!!!

kmguru
02-08-08, 10:36 PM
Sinking Credit
Business Week February 7, 2008, 5:00PM EST
The lending industry lowered standards too far. Now it's raising them abruptly, choking consumers when they need credit the most
by Peter Coy

At the head of Canada's Bay of Fundy, the salt water can fall a breathtaking 50 feet from high tide to low tide. But even the Bay of Fundy has nothing on the U.S. economy, where money has gone from superabundant to scarce in less than a year. The latest bad news: On Feb. 4, the U.S. Federal Reserve reported a sharp constriction of credit in its quarterly survey of banks' senior loan officers.

It appears that many banks are using the liquidity supplied by big Federal Reserve interest rate cuts to heal their balance sheets rather than to make new loans. "Restraint has become widespread, deep, and generic, affecting all types of borrowers and most types of loan categories," writes George Magnus, senior economic adviser at UBS (UBS) Investment Bank in London.

If Americans can't borrow, they can't spend as much. The increasingly dire numbers suggest that a consumer-led recession is likely if not already under way. Stoking such fears, the Institute for Supply Management reported on Feb. 5 a sharp decline in its index of nonmanufacturing activity in January. The report carved 370 points from the Dow Jones industrial average, the biggest one-day loss in nearly a year.

The first story in this week's Special Report zeroes in on the latest lending sector to feel a squeeze: credit cards. To guard profitability, issuers are imposing tighter lending standards, lower limits, and higher late fees. Some are cutting the credit lines of customers who appear to be on the edge.

But such actions could help precipitate the very recession that the card issuers fear most. Citing concerns of a recession, UBS on Feb. 4 slapped sell recommendations on the stocks of three of the biggest credit-card issuers: American Express (AXP), Capital One Financial (COF), and Discover Financial (DFS).

How did we get into this mess? One reason is that when the tide of money was still rolling in, lenders skipped the traditional vetting of borrowers and gave money to anyone with a decent FICO score—and plenty of people with mediocre ones. The second story in our package explores the company behind that score, Fair Isaac Corp. (FIC), and shows how a good idea in the wrong hands can lead to bad outcomes.

---------------------------------------

What no body talks about is that good people with good scores lost their jobs. So, no matter how good your score was, that would not have helped when jobs moved overseas. -KMG

stretched
02-25-08, 07:04 PM
"Global systemic crisis / September 2008 - Phase of collapse of US real economy"

(http://www.europe2020.org/spip.php?article527&lang=en)


The end of the third quarter of 2008 will be marked by a new tipping point in the unfolding of the global systemic crisis. In the United States, this new tipping point will translate into a collapse of the real economy, final socio-economic stage of the serial bursting of the housing and financial bubbles and of the pursuance of the US dollar fall...

I hope this is slightly off centre, but the signs are unmistakable.

kmguru
02-25-08, 11:25 PM
Thank you stretched. The website has a lot of good information. Here is one worth noting

Moonbats Active Again in Massive Jobs Disaster (http://globaleconomicanalysis.blogspot.com/2007/09/moonbats-active-again-in-massive-jobs.html)

Billy T
02-26-08, 06:37 AM
"Global systemic crisis / September 2008 - Phase of collapse of US real economy"
(http://www.europe2020.org/spip.php?article527&lang=en)...Almost correct (only off by a month) - about three years ago, I posted the correct date for the start of the 6 year window in which the run on the dollar will occur (Oct08 until Oct2014) That run quickly converts into the worst depression that North America and Western Europe have ever experienced. The BRICs will will not even enter into recession, nor will some others, like Australia, N.Z., Vietnam etc. and several African states that have long term (30Year) contracts with China to supply energy, raw materials, and food stocks.

I guess I should add your source to the growing list of publications (The Economist is now at the top) I can sue for plagerism of my thoughts on the global economy. :D

stretched
02-26-08, 03:39 PM
I guess I should add your source to the growing list of publications (The Economist is now at the top) I can sue for plagerism of my thoughts on the global economy.

He he. There are more radical views out there, please tell me your views differ! :)

From "Never Been Wrong Robertson"


Legendary Funds Manager Julian Robertson Predicts Utter Global Collapse Stemming From Bursting of Property Bubble

(http://fourwinds10.com/siterun_data/business/economy/news.php?q=1202785222)

Nickelodeon
02-26-08, 03:42 PM
So Billy_T was right all these years? Doh!!

kmguru
02-26-08, 08:39 PM
Meanwhile back at the ranch

The Economy: A Mix of Bad News (http://www.businessweek.com/investor/content/feb2008/pi20080226_549123.htm?chan=rss_topStories_ssi_5)

Billy T
02-27-08, 10:10 AM
He he. There are more radical views out there, please tell me your views differ! :)...I can not read them all. However, many seem to be built on some paranoia, not upon inspection of trends and facts, as mine were. Thus in general, I suspect there is considerable difference between most of them and my POV. For example I suspect than many of these "more radical" POVs have humanity going to economic hell. My POV does not. Only the current leaders (US and western EU) will suffer badly in the coming depression. China and India (and some others in Asia) will still have "booming economies" - I.e. GDP growth rates at least twice the US average for GWB's 8 years. Brazil and other suppliers of energy, food stocks, and raw materials will not grow as rapidly ("economic colonies" never do as well as their "masters") but will have growth rates about the same as US has had until recently - I.e far from any danger of recessions.

Billy T
03-12-08, 08:49 AM
Sandy seems to have disappear (proven wrong too many times I guess) so here is some more BAD news (for Joe American, not for Sandy's rich friends, writing all those novel new mortgage forms. From her POV, those new mortgage types had nothing to do with the current problem.):

"... The average rate for {municipal} bonds whose interest is set at weekly auctions rose to 6.73 percent on March 5, up from 3.80 percent two months ago, according to an index compiled by the Securities Industry and Financial Markets Association. ..."
From:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aVs1vGz8s4Vc&refer=home

Where do you think that cities will get the extra cost? - From Joe American’s taxes on his home, of course. Perhaps Joe will trick them as the new mortgage products and their sales men tricked Joe - I.e. now that Joe has lost his job so company profits could be at all time highs (cheaper imported components via outsourcing etc) Joe will just "walk away" for the mortgage he cannot pay at the new, higher "reset" rate. Effect of that will be that the middle class who can still pay their mortgage will see their real estate tax bill jump up even more.

US and EU are headed for the GWB created depression as even the upper middle class tighten their belts. Henry ford understood long ago that the workers need a piece of the pie to buy the goods the factory owners plan to sell. GWB still thinks otherwise and Joe has been transferring wealth to the already rich via GWB's tax and other policies. First time in more than 100 years that Joe's salary has gone down in purchasing power while that of the richest is soaring to the sky.

S.A.M.
03-17-08, 03:06 PM
Gulf states to depeg from dollar?


Alan Greenspan, former chairman of the U.S. Federal Reserve, said at an economic forum in Saudi Arabia last month that de-pegging from the dollar would significantly help Gulf states battle rising inflation in the short term.

Merrill Lynch predicted Qatar and the United Arab Emirates, suffering from inflation rates of 14 percent and 10 percent, would revalue their currencies relative to the dollar or de-peg. As with Kuwait's decision, a move by Qatar or the UAE would likely anger their U.S. ally.

In a January interview with Kuwait's Aljarida daily, Steve Conlon, an economic officer at the American Embassy, said Washington was unhappy with Kuwait's currency move because it showed no confidence on the strength of the dollar.

Saudi Arabia, the world's largest exporter of oil and a very close ally of the U.S., has discouraged Arab states in the Gulf from following in Kuwait's footsteps. Saudi's finance minister, Ibrahim al-Assaf, said in December that any move to de-peg from the dollar would be an unanimous decision by members of the Gulf Cooperation Council, a loose alliance of six countries -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates -- that pump one-fifth of the world's oil.



However, Saudi Arabia is less vulnerable to the inflationary impact of the falling dollar because it has a strong domestic industrial base and grows some of its own food. It relies less on pricey imports and had a more manageable inflation rate of 6 percent in 2007. Many smaller countries in the Gulf like Kuwait, Qatar and the UAE import almost everything but oil, leaving them more exposed.

Ibrahim al-Ibrahim, an economic adviser to Qatar's emir, told the Gulf Times in January that de-pegging the riyal from the dollar was one option his country was examining to battle inflation. Other countries, like the UAE, have toed the line and said they are sticking with the dollar, but pressure will continue to build if the value of the dollar remains low.



Kuwait's decision to de-peg from the dollar last May led the dinar to appreciate 5.9 percent through the end of 2007, making imports less expensive. However, economists estimate that some 70 percent of Kuwait's inflation is due to government expenditures of huge oil revenues, a situation faced by other Gulf countries as crude prices hover near record levels. The dollar also has considerable weight in the basket of currencies to which the Kuwaiti dinar is now tied.



HSBC speculated in an October report that other countries could follow Kuwait's lead. Dollar weakness, an oil-driven economic boom and rising inflation have deepened expectations the Gulf states will revalue their currencies, said the report. But it added that overhauling a generation-long relationship is difficult because it represents a "complete break with the past and a venture into the unknown."

http://www.businessweek.com/ap/financialnews/D8VF9ARG0.htm

What would be the fallout from this?

Billy T
03-17-08, 03:16 PM
Gulf states to depeg from dollar?
http://www.businessweek.com/ap/financialnews/D8VF9ARG0.htm
What would be the fallout from this?Not very much for anyone but them, I think. Yes, it is one more step in turning the world away for using dollar as the global currency. Certainly a bigger step than Brazil and Argentina recently took with the same but smaller effect: Now their mutual trade and settlement of trade inbalance are made in each other's currency, not in dollars as they have been for years. The dollar is not only going down in value, but losing importance as a global currency, mainly in small steps like these.

No one wants to get stuck holding them when the dollar collapses, but Japan will as it needs the US 7th fleet to protect it.

S.A.M.
03-17-08, 03:22 PM
Not very much for anyone but them, I think. Yes, it is one more step in turning the world away for using dollar as the global currency. Certainly a bigger step than Brazil and Argentina recently took with the same but smaller effect: Now their mutual trade and settlement of trade inbalance are made in each others currency, not in dollars as they have been for years. The dollar is not only going down in value, but losing importance as a global currency, mainly in small steps like these.

No one wants to get stuck holding them when the dollar collapses, but Japan will as it needs the US 7th fleet to protect it.

I think they are presently only worried about inflation. Their banking system appears not to be largely vulnerable to US dollar ups and downs, though the subrprime crisis reduced their earnings.


Islamic banks have been largely shielded from the U.S. mortgage crisis, which may even open doors for expansion beyond traditional strongholds in Arab and Asian markets, Bahrain's central bank governor said.

Islamic banks should have shunned collateralized debt obligations linked to subprime, or high risk, mortgages because such complex instruments do not comply with Islamic law, Rasheed al-Maraj told the Reuters Islamic Finance summit on Monday.

Islam bans lending on interest and trading of debt. Scholars vet every stage of a transaction to ensure compliance with sharia, or Islamic law, making it unlikely that risks were lurking in the balance sheets of unsuspecting lenders, he said.
http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=a4d75850-6bd2-4807-924d-e2a8ad826383

Unless you know any different?

15ofthe19
03-17-08, 03:34 PM
He he. There are more radical views out there, please tell me your views differ! :)

From "Never Been Wrong Robertson"



(http://fourwinds10.com/siterun_data/business/economy/news.php?q=1202785222)

Interesting that you linked a faked interview on a website that also has things like this posted:

The gathering of Sananda’s “flock” is determined, also, by your own planet. The most beautiful planet in the Cosmos, has been plundered and raped until the pollution has nearly suffocated her. She has asked for her graduation into 5th Dimension, where no evil shall dwell upon her surface. This was granted to her on the occasion of the Harmonic Convergence August 17, 1987. Creator gave 25 years for her people to “wake up” and help with her restoration, the end date being 2012, but the evil ones have prevented balance from happening. With the speeding up of time due to the Photon Belt, the 25 years have passed, and you are in “overtime”. The process of cleansing has been bombarded with more evil upon her surface, air, and oceans. She is at the point of dying, and to preserve her life, she must rid herself of the negativity.

You might want to do a little research on that "interview". :D

Try to stick to things like FT or The Economist. I really don't want to get my economic news from Tom Cruise.

Billy T
03-17-08, 04:47 PM
I think they are presently only worried about inflation. Their banking system appears not to be largely vulnerable to US dollar ups and downs, though the subrprime crisis reduced their earnings.
Yes inflation is their concern. When their currency has a firm tie to the dollar, it will take more of their currency to buy a bushel of wheat, etc. as the purchasing power of the dollars falls. (China has let the Yuan appreciate about 16% in last year, not IMHO because of pressure from US Congress etc, but because inflation is a growing problem in China –especially in politically sensitive parts of the economy like food costs. –Pork is up more than 50% now. The CCP is scared of reactions by the masses when they cannot buy food, but thus far the material living standards are rapidly advancing for the typical Chinese worker – in stark contrast to what is happing to the typical US worker, my “Joe American.”

I am not very knowledgeable about "Islamic bonds" etc. but think that instead of the forbidden "interest" they get a piece of the "action." For example, if Ford want to build a factory in Dubai and for some reason (perhaps related to local tax on it) it is better to borrow the money locally, some part of Ford's profit on the cars made in that factory, perhaps for 20 years, would be sent to the Dubai bank that financed the factory (and of course they get the loan repaid too at the end of the agreed 20 year period or amortized annually.) No interest is paid - just the same amount of money, on average, but the lender is keeping some of the risk – e.g. the cars may not sell etc.

I advocate that the lender keep some of the risk so he is more cautious about the loans he makes. With the new loan types permitted under GWB, such as Liar Loans etc, the lender can (and did) sell away the risk, so only a quick profit was of interest to the lender, not whether or not the loan could be re-paid after the introductory rate period expired. Etc. Now that GWB has screwed Joe American, perhaps the US can adopt something like the Islamic bonds - it really is better for the society than what GWB's administration has allowed to be created.

S.A.M.
03-17-08, 05:50 PM
I advocate that the lender keep some of the risk so he is more cautious about the loans he makes. With the new loan types permitted under GWB, such as Liar Loans etc, the lender can (and did) sell away the risk, so only a quick profit was of interest to the lender, not whether or not the loan could be re-paid after the introductory rate period expired. Etc. Now that GWB has screwed Joe American, perhaps the US can adopt something like the Islamic bonds - it really is better for the society than what GWB's administration has allowed to be created.

London has anticipated you. :p

http://www.azcentral.com/business/articles/0310biz-islamicfinance0311-ON.html


After taking a battering from the global credit crisis, London has a potential ace up its sleeve as it seeks to restore its reputation as a global financial center: its premier position in the Islamic banking industry.

The British government will decide next week if it will issue a sovereign Islamic bond, or sukuk, a new avenue into a market that's estimated by Standard & Poor's to eventually reach $4 trillion.

Billy T
03-22-08, 05:52 PM
London has anticipated you. ...Well at least I have anticipated the Economist by years!

Their current issue's cover article on central banks / Wall Street is excellent. Basically it says "Ben did good.” with creative action on Bear Stearns, but...
It is at:

http://www.economist.com/opinion/displaystory.cfm?story_id=10880718

But of course I'd say that - in fact, most of it I did in many posts here, years ago. :D

That issue's article here:

http://www.economist.com/finance/displaystory.cfm?story_id=10881032

is also good. There you will find:

"... Modestly higher inflation or jumpier currencies seem a small price to pay for preventing the collapse of America's financial system. Alas, modest shifts cannot be taken for granted. The darkest scenario—that investors panic at the Fed's loose policy, sending the dollar into free-fall—is becoming worryingly plausible.* A real dollar crash would force the Fed to raise rates, making America's predicament much worse and even sending the global economy into recession. ..."

The Economist dpoes not have the last part, just quoted, quite right. (Probably they do not read my long posts all the way to the end. :shrug:) It should end:
"... sending the US and EU into world's worst-ever depression, reducing China's GDP growth rate to about 3%, and making suppliers of food stock, raw materials, and energy, like Brazil into "economic colonies" of Asia."
But I guess that is too many words for the editor to swallow.

I really must get my plagiarism action against them started soon. ;)
-------------------
*Several years ago, I even specified WHEN the run on the dollar will occur: In the 6 year window Oct 2008 till Oct 2014, with the first three years much more probably than the last three the way things are going now.

S.A.M.
03-22-08, 08:32 PM
Hey Billy!

I just came across this article on my blog feeds.

http://falkvinge.com/2008/03/why-us-is-collapsing.html

What is your opinion of it?

I'm particularly interested in your opinion on the Bretton Woods system, the Nixon shock and the fractional reserve banking system.

nirakar
03-22-08, 09:55 PM
Their current issue's cover article on central banks / Wall Street is excellent. Basically it says "Ben did good.” with creative action on Bear Stearns, but...
It is at:

http://www.economist.com/opinion/displaystory.cfm?story_id=10880718



I don't know that I agree with the Economist. They like the avoiding of the near term crisis by the government intervening to preserve th value of the sorts of derivatives that Bear Stearns was involved with.

I am not sure that propping up an unsustainable economy is a good thing. Let's have our shock and get it over with. The Economist would not agree that status quo is unsustainable .

nirakar
03-22-08, 10:09 PM
The Thursday/Friday rise in the Dollar made no sense to me. The bigger fall in gold and oil can be attributed to them having risen too far.

Why would a fall in Gold raise the Dollar against other currencies?

A similar rise in the dollar happened after the Fed lowered rates a few months ago. It might be market manipulation. Market manipulation can't last more than a few days. Last time the dollar continued it's downward slide after a brief strange blip upwards.

You would think the Dollar would fall more against the Euro if the ECB does not lower interest rates.

Billy T
03-23-08, 04:31 PM
I if it is tweaked a little bit don't know that I agree with the Economist. They like the avoiding of the near term crisis by the government intervening to preserve the value of the sorts of derivatives that Bear Stearns was involved with.

I am not sure that propping up an unsustainable economy is a good thing. Let's have our shock and get it over with. The Economist would not agree that status quo is unsustainable .You are correct, IMHO, including your last sentence - I.e. the Economist and I do foresee the future differently, but they have been coming around to my POV with approximately a two year time lag. - That is why I can so frequently accuse them of plagiarism. I predict that by 2010 they will have articles about the coming depression. - It is just their time lag effect which makes them currently not agree with me on that.

Specifically I said what you do that in the long run the FED's action is just starting the next (and last) "6L cycle" some time ago in post at:

http://www.sciforums.com/showpost.php?p=1502039&postcount=1

Billy T
03-23-08, 05:01 PM
The Thursday/Friday rise in the Dollar made no sense to me. The bigger fall in gold and oil can be attributed to them having risen too far. Why would a fall in Gold raise the Dollar against other currencies?Gold and commodities, including oil rose as dollar fell with decreasing conficdence in it. (They are price in dollars.) In the short term, Ben's rather creative intervention (FED never before facilitated a takeover by direct guarantee against losses and a loan. - In the LTC case of a decade or so ago, it was by "arm twisting" that FED got others to bail them out, as I recall.)

The market liked to see Ben really had "What it takes."I.e. “Ben did good.” (short term). - See my recent post with links to the current issue of the Economist. This restored some confidence in the dollar and that "unwound" some of the move into Gold and commodities that has driven them higher in last year or so. It had little to do with the Euro.

Yes, it was "manipulation," but by Ben's FED, not some sinister market groups in secrete. And yes it will not last long in reversing the dollar's*slide down, unless the ECB does cut rates as you suggest. (They may, but as the other Economist article I gave link for describes well, the ECB staff has had a different experience - hyper inflation, which makes them more cautious about monetary stimulation than the FED, which never went thru that.)
*Gold’s pull back may still grow. –It will if one of the central banks decides to sell. The US may be forced to sell if the Treasury cannot roll the maturing notes. Either that or run the dollar printing presses (or raise interest rates – not a very Keysian choice in a recession!)

Billy T
03-23-08, 06:00 PM
Hey Billy! ... http://falkvinge.com/2008/03/why-us-is-collapsing.html What is your opinion of it?

I'm particularly interested in your opinion on the Bretton Woods system, the Nixon shock and the fractional reserve banking system.It is too long for me to do more than skim but basically correct, I think. I not sure about the importance of music downloading for free etc and do not do that - that seems more like some agenda than significant "waterloo" of economics or fascism to me.

Yes he is right, Brentton woods did have the major effect of making the dollar the universal currency, but IMHO, it would have follow from the relative industrial might of the US after WWII by some mechanism anyway, even if there never was a Brentton Woods.

On "Nixon shock" that was also inevitable. In fact, it was an echo of the killing of the silver certificates in 1964 - I played a very very minor role in that in that I was in the crowd outside the US treasury on the last day they gave out silver dollars. Next day they repudiated the promise written on the silver certificates. After it all settled down, about a month later, I was in DC and just out of curiosity when in with one and asked for my one dollar in silver - they gave me small wax paper envelope with silver dust in it. They were then ready for me and my kind!

It was a fascinating experience. I made a post about it years ago. Few of about 5000 waiting on the streets of DC all thru the night with 1000s of dollars in cash in their pockets got in that last day. My father had $3000 in silver certificates in his all night long but did not get in. I arrived at sunrise, with only $100 saw the line and quickly understood that they was no point in going to the end of it. Talked my father out of $1000, and when line degenerated in to the chaos I expected, I fell in behind two businessmen who had driven up for Florida in hopes of getting a bag of the rare coins we knew the treasury was holding still. We knew the treasury had to let them out and some were individually worth $5000 to coin collectors - or simply repudiate the pledge printed on the silver certificates.

One of these business men had a son at Catholic university, who with 5 of his fraternity brothers, locked arms to make a "flying wedge" with the two business men protected behind it. I was just behind them and got my $1000 bag + one $100 dollar bag as that wedge plowed thru the crowd/ mob. I managed to not step on anyone they knocked down. Most valuable coin I got was worth only about $100dollars. It was one the Treasury people had missed when they rebagged the coins so no valuable ones would be given out. Eventually, about a year later they were auctioned off. My father and I split the coins that after noon - only 10 were worth more than $10 and we gave them to my children. As I emerged from a back door of the treasury with my two bags of coins, I was offered (by people who did not get in) up to $3000 dollars for the $1000 bag, but I refused. Later wished I had accepted as when my bag of coins was opened and sorted, we understood the Treasury had already gone thru it removing the very valuable coins.

More details at my old post as to how and why line collapsed, role of DC police, the Treasury guards, and an unbelievable, but true, story of how many uniform packages of money that looked like lunch bags, which the business men had brought from Florida were sold, most UNOPENED, back thru the line inside the treasury building from one total stranger to another so that only $100 bills would be counted by the single clerk attending us. - We all expected the window to slam shut any minute and did not want him slowing counting the 1000 one dollar bills in each of these lunch bags. We wanted to get to the window, and trusted we could sell the unopened bag to the next person in the line. The bags disappeared from my view around a corner. I do not know what finally happened to them. But if I had had my lunch in brown lunch bag, wrapped up with blue tape, I could have sold it for $1000 without danger as it too made its way back thru the line!

S.A.M.
03-23-08, 06:16 PM
Wow that is quite something! :eek:

nirakar
03-25-08, 02:03 AM
Specifically I said what you do that in the long run the FED's action is just starting the next (and last) "6L cycle" some time ago in post at:

http://www.sciforums.com/showpost.php?p=1502039&postcount=1

6L cycle was clever, looks true too. More liquidity is here like you called. Last time before the crash? Which sector will step up and use leverage to do which stupid thing next?

I hate debt. It leaves no room for error. It is only good if you have a sure thing or are running a Ponzi scheme and have a get out of jail free card.

That being said, a time may come soon when loading up on debt and buying assets may make sense because unexpected double digit inflation may almost be a sure thing.

nirakar
03-25-08, 02:39 AM
Gold and commodities, including oil rose as dollar fell with decreasing conficdence in it. (They are price in dollars.) In the short term, Ben's rather creative intervention (FED never before facilitated a takeover by direct guarantee against losses and a loan. - In the LTC case of a decade or so ago, it was by "arm twisting" that FED got others to bail them out, as I recall.)

The market liked to see Ben really had "What it takes."I.e. “Ben did good.” (short term). - See my recent post with links to the current issue of the Economist. This restored some confidence in the dollar and that "unwound" some of the move into Gold and commodities that has driven them higher in last year or so. It had little to do with the Euro.

Yes, it was "manipulation," but by Ben's FED, not some sinister market groups in secrete. And yes it will not last long in reversing the dollar's*slide down, unless the ECB does cut rates as you suggest. (They may, but as the other Economist article I gave link for describes well, the ECB staff has had a different experience - hyper inflation, which makes them more cautious about monetary stimulation than the FED, which never went thru that.)
*Gold’s pull back may still grow. –It will if one of the central banks decides to sell. The US may be forced to sell if the Treasury cannot roll the maturing notes. Either that or run the dollar printing presses (or raise interest rates – not a very Keysian choice in a recession!)

Now I am hearing that the explanation for the little commodities crash was that leveraged commodity owning hedge funds got margin calls and that turned a dip into a plunge. Some say the dip in commodities was caused by profit taking in part to mask losses in credit default swaps. Then again CNBC and MarketWatch feel obligated to come up with an explanation for everything even when they also don't really understand why something happened.

I still have not heard why the Euro should dip after the Fed cuts interest rates while the ECB holds firm. I don't know who was buying dollars. Some may have expected a larger Fed rate cut.

If the US government sold gold last week that would make sense of what I saw, but I thought US government sales of gold would be in the news. maybe the US government could quietly sell Gold. Somebody sold Gold and or Gold futures and somebody bought Gold. If the sellers were American Hedge funds and the buyers were not Americans, then that could make the Dollar rise.

Billy T
03-25-08, 05:47 PM
6L cycle was clever, looks true too. More liquidity is here like you called. Last time before the crash? Which sector will step up and use leverage to do which stupid thing next?...That being said, a time may come soon when loading up on debt and buying assets may make sense because unexpected double digit inflation may almost be a sure thing.Thanks - I thought so too, but my "6L cycle" phrase did not catch on.

As far as "the next sector" to "bubble" that is both hard to call and I think probably "non-existent". I.e. the problem as I see it is that it will not be limited to one sector. In dollar terms the whole economy will "bubble" (Except perhaps some regulated monopolies will not get to adequately raise their prices fast enough to compensate for the falling dollar. - Hence, perhaps some electric company will just stop making power at a loss.)

If that is correct, your final observation may be great idea. Load up on fixed rate debt to buy something of real and lasting value. Perhaps that may even be part of why it is so hard to borrow now - too many want to do just that.

Years ago, with sort of that same idea, I thought it would be both fun and profitable to learn how to make silver articles for sale. - That was when silver was less than $4/oz. My idea was buy some silver for $X and sell fabricated articles for at least $3X. I figured some sex related silver "art work" would be easy make* and to sell at only 3 or 4 times it melt-down value. Then with my ~ $3X profit 100% reinvested to buy more silver next stage was a $9X sale etc. I even contacted Handy and Harding, I think it was, to get details on buying silver in bulk, but unfortunately real life got in the way so I not make my millions that way.
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*Grease up the original, pour liquid rubber over it. When rubber mold is dry
peal it off. Then (and this my "special touch") purposely distort the mold before pouring the wax in.- As each distortion would be unique and different from the original "original" - all my products would be originals. Next step is of course to make plaster of Paris female mold over the wax and then melt out the wax to pour the molten silver into the plaster of Paris mold. (This is the so called "lost wax" method is easy cheap way to make copies, but my mod of it with intentional distortions it makes "originals," especially if you do a little finishing work on them by hand and engrave some name on the bottom, like "Picassio" to legally boost their value by confusion.) It is much easier to make these solid items than the typical hollow ones,

After a few years, your "working inventory" of silver is more than 1000 pounds and you have many finished pound or so items that all will recognize has having "intrinsic value" when dollar is mainly good for toilet paper.

If you do this, tell me. - I will then tell you where to send me my free silver "original"

2inquisitive
03-26-08, 05:13 AM
Billy T,

The "6L Cycle":

LIQUIDITY caused the “dot.com bubble.” When it burst Greenspan’s FED, fearful that the world was heading into recession, possibly becoming a depression, pumped out more money. This lead to:
Billy, I think I will critique your "6L Cycle" a little. I am no economist, but I do see some omissions and generalizing to a fault. Liquidity did not cause the dot.com bubble, excess speculation did. Speculators poured money into anything with 'dot.com' attached to the name, with no emphasis on the fundamentals of the 'business'. That caused the bubble, much the same as the more recent speculators bought properties in 'hot' markets hoping to resell at a profit at a later date. All bubbles will eventually burst, catching the later investors in the pyramid scheme.

LOANS to unqualified people, who could not afford the house they bought, but both buyer and lender were confident that rising home prices would bail them out of any trouble, and it did for several years. The buyers refinanced their mortgage at lower rates provided by the FED and often for longer terms with lower monthly payments once they had some unrealized capital gain. This put cash in their pockets, which they quickly spent. This lead to a:
The FED does not (not in the past, anyway) make mortgage loans or refinance loans. They made low-interest, short term loans to regular BANKS, not the non-banks that were mostly responsible for those new financial 'gadgets'. These new players were the Investment 'non-banks', hedge funds, etc. Regular commercial and consumer banks are limited by regulations as to the amount they can leverage, usually to have at least 1/9 of their assets as cash on hand. Those new players in the mortgage market, such as Bear Stearns, had no such regulations. Even CountryWide Financial, the largest mortgage writer, was not a true bank and was not regulated as one. That led to outlandish leverage of their capital, such as the $34 dollars in loans for each dollar of capital they had. Like the dot.com bubble, their pyramid scheme was destined to fail if there was a downturn in property values. But also like the dot.com bubble, the burst also affected financial institutions that were more conservative in their loans.

LINKAGE between increasing home price and the general economic prosperity, but jobs were being exported and “Mac –Jobs” replaced the lost higher-paying factory jobs. Joe American’s real wages went down for a several years and his ability to carry his mortgage decreased. That is his home became a:
Yes, losing factory jobs definately hurt the low and lower-middle income Americans, as well as the economic health of the US. The 'service sector' also includes the high-income financial sector, which I think destorted the true loss of income suffered by Americans.

LIABILITY, not an asset that he could borrow more against to live better but business, importing more services and goods from cheap Asian sources was prospering as never before, even when selling less in many cases. The US might have been able to avoid depression and only have mild recession if it were not for the
Agreed, with the exception that a great depression is not necessarly assured. More on the reason later.

LEVERAGE, which pooled many of these low quality mortgages together in packages...
Yes, and I addressed who was leveraging the most in the first segment.

LIQUIDATION that is happening today, not only in the US, but in EU also. A large French firm, tied to the US mortgage market, just went under and hundreds of billions (if not trillions?) of stock values have evaporated over night around the world in one day. (High leverage means that only a few percent drop in homes values or increase in the default rates completely wipes out all equity of the investors holding the bag at the end of the re-sale chain. It threatens the entire banking system, but I expect that it will still be possible for central banks to save the system one more time with more
Yes, with the exception of 'one more time'.

LIQUIDITY (starting this “6L cycle” again) before this house of cards all comes crashing down in history’s worst depression with the dollar collapsed to pennies of current value. The EU central bank is trying. It pumped out 125billion dollars today alone! - Here we go again, but this is the last time, I predict, before the crash.
Here is where I really disagree with your crystal ball, Billy. The banks have become adverse to risk in this shakey market. Investors have also become much more selective in where they invest their money. The reason commodities, such as gold, oil, wheat, etc. have increased so much is mostly due to the current falling dollar. They place their dollars in commodities as a shelter. But the dollar will not fall forever. The dollar was over-valued in the past (another bubble), but the G7 nations will not allow it to fall too far. Major economies in the world are dependent on the relative stability of the exchange rate, if one currency fails, it greatly affects their own economies. Possible exceptions are very poor countries and oil exporting nations. You may ask, what can the G7 and China do about the fall? Simple. They sell their own currency and buy dollars. An excess of Euros, yen, etc. on the market causes their currency to fall in value, buying dollars removes the dollar's excess and increases its value, stabilizing the currency exchange rates. I think, and hope, the dollar has farther to fall, but you will see the effects of the buying when it takes around $1.65 to buy a Euro. A lower valued dollar will open up the US's export market, while decreasing imports into the US. That means more jobs in the manufacturing sector, fewer in the import and financial sectors. Some people, mostly the very low income segment and those in the import and financial segments, will suffer more than others but it will be good for the US in the long run. There will be no catastropic economic collapse, but many financial institutions that were too speculative will fail. Oh, and when the dollar stabilizes, interest rates will increase and the dollar will become attractive to foreign investors again. That's what my crystal ball shows me and its a new one, still clear. :D

Billy T
03-26-08, 10:59 AM
...Billy, I think I will critique your "6L Cycle" a little. I am no economist, but I do see some omissions and generalizing to a fault. Liquidity did not cause the dot.com bubble, excess speculation did. Speculators poured money into anything with 'dot.com' attached to the name, with no emphasis on the fundamentals of the 'business'. That caused the bubble, much the same as the more recent speculators bought properties in 'hot' markets hoping to resell at a profit at a later date. All bubbles will eventually burst, catching the later investors in the pyramid scheme.Thanks for taking the time to critique it. On this first point I agree with you. (I have not read others yet -giving my replies as I do.) It would have been more correct for me to have said "Liquidity ENABLED the dot. com bubble." Certainly the speculators (and investors) could have done something else with the money burning a hole in their pockets. Good point. I will try to be more careful, but cannot now correct the old OP.


The FED does not (not in the past, anyway) make mortgage loans or refinance loans. They made low-interest, short term loans to regular BANKS, not the non-banks that were mostly responsible for those new financial 'gadgets'. These new players were the Investment 'non-banks', hedge funds, etc. Regular commercial and consumer banks are limited by regulations as to the amount they can leverage, usually to have at least 1/9 of their assets as cash on hand. Those new players in the mortgage market, such as Bear Stearns, had no such regulations. Even Country Wide Financial, the largest mortgage writer, was not a true bank and was not regulated as one. That led to outlandish leverage of their capital, such as the $34 dollars in loans for each dollar of capital they had. Like the dot.com bubble, their pyramid scheme was destined to fail if there was a downturn in property values. But also like the dot.com bubble, the burst also affected financial institutions that were more conservative in their loans.Again, you are 100% correct, but I never said that the FED originated mortgages or refinanced loans. I said that the FED made the US economy awash with funds at low cost - i.e. I said the FED made the liquidity that enabled the new "designed to fail" mortgages. -Did not cost much to the originators to supply the cash to unqualified buyers, especially when these failure prone mortgages were quickly moved off the books as "SIVs" or "CDOs" usually as discussed under my "Liabilities" section of OP. (Someone, perhaps you, has already noted for me that mortgages often originate from non-banks, so I now try to say "originator" instead of "bank." - Using "bank" just reflects my age - all most all originators were banks when I had any mortgage. Language evolves like physic does - via death of the older generation - I still keep my milk in the "icebox," not the "refrigerator" even thought that box has made ice, instead of required it, for more than 50 years.)


Yes, losing factory jobs definitely hurt the low and lower-middle income Americans, as well as the economic health of the US. The 'service sector' also includes the high-income financial sector, which I think distorted the true loss of income suffered by Americans.
Agreed, with the exception that a great depression is not necessarily assured. More on the reason later.
Yes, and I addressed who was leveraging the most in the first segment.
Yes, with the exception of 'one more time'.I lumped these four together as "reply" (We agree.) is for all four, but will defend "one time" etc. below your last text section.

...The banks have become adverse to risk in this shakey market. Investors have also become much more selective in where they invest their money. The reason commodities, such as gold, oil, wheat, etc. have increased so much is mostly due to the current falling dollar. They place their dollars in commodities as a shelter. Still 100% in agreement, but then you continue:
...The dollar was over-valued in the past (another bubble), but the G7 nations will not allow it to fall too far. Major economies in the world are dependent on the relative stability of the exchange rate, if one currency fails, it greatly affects their own economies. Possible exceptions are very poor countries and oil exporting nations. You may ask, what can the G7 and China do about the fall? Simple. They sell their own currency and buy dollars. An excess of Euros, yen, etc. on the market causes their currency to fall in value, buying dollars removes the dollar's excess and increases its value, stabilizing the currency exchange rates. I think, and hope, the dollar has farther to fall, but you will see the effects of the buying when it takes around $1.65 to buy a Euro. A lower valued dollar will open up the US's export market, while decreasing imports into the US. That means more jobs in the manufacturing sector, fewer in the import and financial sectors. Some people, mostly the very low income segment and those in the import and financial segments, will suffer more than others but it will be good for the US in the long run. There will be no catastropic economic collapse, but many financial institutions that were too speculative will fail. Oh, and when the dollar stabilizes, interest rates will increase and the dollar will become attractive to foreign investors again. That's what my crystal ball shows me and its a new one, still clear. :DWhat you say here is: Dollar will stabilize after ceasing to be "overvalued." (To compactly capture, reasonably accurately, what you see in your crystal ball.) That is certainly a logical possibility, but I think you are forgetting one thing. I probably would have too except I live in Brazil, which for about two years has been doing what you suggest will happen AND NOW HAS HIT A LIMIT.

Why has what you foresee already happened (for two years) in Brazil and not in most other nations (yet)? Answer follows:

Brazil has been concerned with "de-industrialization" as some sectors of the economy have contracted, jobs had disappeared and politicians do not like that. (E.g. Clinton and Obama in their speeches in Ohio etc.) In last two years the central bank has been "propping up the dollar" by buying it, just as you predicted. Brazil's foreign reserves have gone from ~ 50 billion to nearly 200 billion dollars. This "pumped out" a lot of Real, which had to be "sterilized" to avoid bad inflation, by selling bonds locally. (To "soak up" the circulating Real.) These bonds carry an interest rate of 12 to 15% and the dollars bought earn less than 6% when rolled into US treasury issue. Government has been losing money at unsustainable AND RAPIDLY INCREASING rate as the volume of "sterilizing bonds" sold increases.

Brazil earns a lot more dollars now that there has been a surge up in commodity prices and has the highest real interest rates in the world. (Must have very high rates to sell all those bonds "soaking up" the Real that bought the dollars to keep the Real from getting even stronger.) These high rates, also make a flood of dollars into the country, which have no buyers, except the government - This is a strong feedback situation. Dollars enter; Gov. buys with Real; Gov. sells bonds to Sterilize; market for bonds saturates at old interest rate; interest rate raised; more dollars enter. ... etc. (and there are others mechanisms too, especially China's annually buying more food and iron ore, sending more dollars to Brazil). Government would never admit it, but it must be secretly happy to see soy bean etc farmers getting LESS for their crops with the current (probably temporary) contraction of commodity prices!

Government cannot do much more along the lines you predicted -it is too costly. Thus, controls on currency flow are being considered. Two weeks ago dollars coming to Brazil to earn interest now pay a 1.5% tariff -that also helps keep the "hot money" (short term) out. The old exception that allowed foreigners to buy Real bonds more cheaply than locals has been cancelled. Talk is of removing duties on imports (So more dollars will leave Brazil). Dollar slide really has been problem especially for commodity exporters. Only about four years ago it took ~4R$ to buy a dollar; now less than 1.7 will often. I.e. the dollar in Brazil only has about 45% of its value of four years ago! What has already happened in Brazil will happen in other countries also is my crystal ball image.

Normally the falling dollar would stabilize as prices of goods US exports drop. Unfortunately, as the US de-industrializes (look at Ohio etc) and becomes more of a service than durable goods provider the cost of the labor increases relative to the materials in the potential exports. There are many Non-US locations with smart people and computers willing to provide these services (and increasing doing so) with labor cost of 1/5 those of the US. For exports to rise significantly, even with dropping dollar, the cost of US labor must drop very significantly. For example, if labor is 80% of the cost of average export, and competitor has 1/4 the labor cost, then the competition has big advantage. Let do numeric example: US product/services now sold outside US for $1000 has $800 of labor and $200 of material cost. Competitor has $200 dollar cost labor and $200 cost of materials and offers product for $400. (He also is probably happy with smaller profit margin, but to keep it simple I neglect that and the cost of compliance with regulations and environmental laws, etc all of which make it worse if included) So either US salaries must drop 75% or the competitor's currency appreciate by factor of 2.5 (or some combination) Let’s assume USS worker will not work for less. (He can't pay his debt as it already is.) A factor of 2.5 drop in dollar means it is only worth 40 cents. -I.e. that is about what has happened in Brazil (It is worth 45% of what it was.) Note also that this example has not yet given the US any advantage in exports - the "40cent dollar" has only prevented loss of ground in international trade when the 1/4 labor competition gets his computers etc. up to US standards and begins to take jobs away.

Fact is that US has an insolvable balance of payments problem, is losing jobs, especially the high pay more "industrial" ones making products where both US and the potential competitor must pay the same for much the cost (I.e. not labor intensive product.) and an increasing debt burden to carry, made significantly worse by GWB's economic policies and needless wars.

SUMMARY: Yes, US will again some competitive advantage as the dollar’s drop against the Europeans, but not any against the Vietnamese etc. working of 1/4 or less. Both US and EU are headed for depression. Asia will not need US to buy it production in about a decade, and then there is no reason* for them to lend the US money. That will be when the debt kills the dollar and US and EU plunge into depression. Pumping more dollars out (starting the next 6L cycle) with not solve the problem then - it will only make it worse. That is why the 6L cycle initiated now with FED (and ECB etc.) increasing liquidity / bailing out the financial system is "saving" the economy "for the last time." This time, thanks to GWB, it really is different.

Again, THANKS for reading and thoughtful reply. Few posting here do that.
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*In fact just the opposite: There is a strong reason for them NOT to finance the US debt. The quicker they can send the US and EU into deep depression the lower will be their cost for importing the oil, food stocks, and raw maqterials they need to keep their factories "humming" producing goods for the Asian market (China's domestic sales up 18.8% in 2007) and as payments for the suppliers in Africa and South America of the energy, food stock, and raw material shipped to Asia under the 30 year contracts now being signed.

Billy T
03-26-08, 02:43 PM
Chinese curse: "May you live in interesting times." - We do:

"...The Fed's aim is to "protect its balance sheet, and ultimately protect U.S. taxpayers, ... The central bank's creativity in the face of new challenges deserves praise, but the circumstances that led the Fed to modify its lending facilities raises significant policy considerations that need to be addressed,'' Paulson said. "These changes require us all to think more broadly about the regulatory and supervisory framework that is consistent with the promotion and maintenance of financial stability.''

Paulson said it would be premature to assume that the Fed will make its new lending facility permanent, calling recent market conditions "an exception to the norm.'' Bear Stearns was "found itself facing bankruptcy,'' he said. "At this time, the Federal Reserve's recent action should be viewed as a precedent only for unusual periods of turmoil,'' he said.

As Paulson's speech came to a close, top lawmakers on the Senate Finance Committee announced plans to review the terms of the Bear Stearns-JPMorgan deal. ..."

From:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aK88OjYI2ncg&refer=home

Billy T comment: US has been cursed by GWB.

2inquisitive
03-26-08, 05:22 PM
Billy T,

Brazil's foreign reserves have gone from ~ 50 billion to nearly 200 billion dollars. This "pumped out" a lot of Real, which had to be "sterilized" to avoid bad inflation, by selling bonds locally.
Yes, a country's foreign reserves increases when it exports (sells) more product than it imports (buys). This happens to all exporting nations, whether exporting oil, manufactured goods, 'services', or commodities. Those extra funds must then be invested in such things as infrastructure or outside the country to stem inflation.

These bonds carry an interest rate of 12 to 15% and the dollars bought earn less than 6% when rolled into US treasury issue. Government has been losing money at unsustainable AND RAPIDLY INCREASING rate as the volume of "sterilizing bonds" sold increases.
You have lost me here, Billy. What kind of bonds are you speaking of, or you speaking of treasuries? The reason Brazil's bonds pay such high interest is because of the inflating Real. No one would buy them if they didn't return true value over the inflationary currency that they are redeemed in.

These high rates, also make a flood of dollars into the country, which have no buyers, except the government - This is a strong feedback situation. Dollars enter; Gov. buys with Real; Gov. sells bonds to Sterilize; market for bonds saturates at old interest rate; interest rate raised; more dollars enter. ... etc.
I am lost again Billy. I have bought several items directly from China, Hong Kong, Korea and Italy. All were directly from the manufacturer, except the one from Italy which was from a distributor. In all cases, my dollars had to be converted into their currency at the exchange rate at the time of the transaction. No 'dollars' were sent to the manufacturer to be converted by them through their government. The phrase 'no buyers' for the dollar does not make sense to me in the context of importer/exporter. Could you explain your reasoning?

(and there are others mechanisms too, especially China's annually buying more food and iron ore, sending more dollars to Brazil).
It is the manufacturers in China that are buying your food and iron ore. Where did the manufactures get the dollars? Surely US importers do not bundle up a bunch of dollars in a box and send the package to the manufacturer in China to pay for their purchase. Either your or my interpretation of the US dollar as the world standard currency is faulty. I think all it means is that the dollar is used as the conversion standard, not that purchases must be paid for in actual paper dollars.

Only about four years ago it took ~4R$ to buy a dollar; now less than 1.7 will often. I.e. the dollar in Brazil only has about 45% of its value of four years ago!
Yes, about four years ago the Real crashed, lost much of its value compared to most of the other currencies in the world. Most of that 45% is due to the Real regaining past value, not to a falling dollar. The US dollar is currently doing something similar to what the Real did four years ago. It is losing value, but the dollar has yet to lose as much value as the Real did. Did the de-valuation of the Real cause an economic collapse of Brazil? Seems Brazil has weathered the collapse and is doing fine now, except for the inflation.

Normally the falling dollar would stabilize as prices of goods US exports drop. Unfortunately, as the US de-industrializes (look at Ohio etc) and becomes more of a service than durable goods provider the cost of the labor increases relative to the materials in the potential exports.
Billy T, the US is still one of the largest exporting nations in the world. It only seems we export little because we import so much, the largest importing nation in the world. That is what the trade imbalance is, its not that we don't export, we just import excessively leading to the closing of factories and loss of jobs in the manufacturing sector. As I have continually said, the imports of manufactured goods will decrease with the weaking dollar and exports from America will become more affordable for the rest of the world. That is what leads to a balanced trade ratio and economic stability.

For example, if labor is 80% of the cost of average export, and competitor has 1/4 the labor cost, then the competition has big advantage. Let do numeric example: US product/services now sold outside US for $1000 has $800 of labor and $200 of material cost. Competitor has $200 dollar cost labor and $200 cost of materials and offers product for $400. (He also is probably happy with smaller profit margin, but to keep it simple I neglect that and the cost of compliance with regulations and environmental laws, etc all of which make it worse if included) So either US salaries must drop 75% or the competitor's currency appreciate by factor of 2.5 (or some combination)
The competitor's currency must appreciate relative to the dollar, i.e. the dollar can fall as it is doing. The impact of material costs is directly related to what you are manufacturing. Some products, silicon chips for example, have a low material cost. The US must compete in high value items, we cannot compete in the inexpensive manufactured goods catagory. Every country has to maximize their advantages to be competative in the world market. Norway would be foolish to try to compete with Brazil in exporting alcohol from sugar cane, for example.

Billy T
03-27-08, 03:15 PM
Here is an irony for you:

"Aiming to treble bilateral trade to $10 billion mark by 2010, India and Brazil on Wednesday {26March08} discussed ways to help the developed world tide over the economic slowdown. …”

From:
http://www.financialexpress.com/news/India-Brazil-talk-trade-ties-global-economic-slump/288778/

Also in that article is India's recognition that it needs food help from Brazil in soy beans, already. For years, I have been posting fact that Brazil and some other suppliers of raw materials, food stocks and energy will become "economic colonies" of Asia, when the US and EU are in deep depression GWB has assured will come.

--------Not from above link, but my local paper today:
Just yesterday, Hugo Chavez and Brazil's president formally signed the agreement to build a new 200 thousand barrel per day refinery here in Brazil. The ground leveling work is already nearing completion as the deal was all but formally signed in December 2007. The signing ceremony was at the site. Both were needlessly wearing hard hats in the photos as if they were doing the work! Politicians are “too much.”

Brazil's oil company will operate it and own 60%. It will process the heavy oil Brazil must now sell to others. Brazil has been oil energy self sufficient for a few years, but on a cash basis a net importer as the heavy oil it sell to buy the lighter crude it needs to import is less valuable than the lighter oil. Brazil has recently more than doubled it proven reservers of oil and that newly discovered off shore oil is "light and sweet;" but it is deep - about 8000 meters, but field is already producing small quanties to better define just how large the field is.

Brazil may be able to help keep some poorer Americans from staving about a decade from now*, if Japan, India and China etc. are not buying all the food and alcohol Brazil can export. Both China and Japan already have 30 year supply contracts signed. Japan is funding construction of a large alcohol facility by a company I have stock in and as I uderstand that deal will take 30% of the production for 30 years as payment.
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*Hugo has been selling heating oil to them below market price for years now. Brazil should do no less, IMHO.

Billy T
03-27-08, 06:00 PM
...Yes, a country's foreign reserves increases when it exports (sells) more product than it imports (buys). This happens to all exporting nations, whether exporting oil, manufactured goods, 'services', or commodities. Those extra funds must then be invested in such things as infrastructure or outside the country to stem inflation.Currencies, dollar include, "fly around the world in seconds." - I do not usually mean green dollars are coming to Brazil by "Dollars are coming to Brazil." but as most things are still priced in dollars, I tend to speak that way. The excess (more than the country need to import things) of currencies coming to a country do not cause "inflation" - just the opposite. They make the local currency more valuable if the government does not soak up those that no local person or company wants to hold. It is simply supply and demand - too little demand for the excess flux of dollars entering make the local currency able to buy more, just like any item in excess supply.

Yes, it is possible to import more things to build the infrastructure etc. (or just consume) but there are other limits on how much and how rapidly that can be done.


You have lost me here, Billy. What kind of bonds are you speaking of, or you speaking of treasuries? The reason Brazil's bonds pay such high interest is because of the inflating Real. No one would buy them if they didn't return true value over the inflationary currency that they are redeemed in. Again you misunderstood and have part of it backwards. I was speaking of the bonds Brazil issues, payable later in Reais if sold in the local market and Dollars or Yen or Euros if sold externally. Last year, however for the first time, with the Dollar so sick and the Real so strong, Brazil started selling bonds promising to pay in Real externally also. This is good for Brazil as it transfer the risk of dollar recovery to the bond buyer. Dollar collapse is not a problem as Brazil on those Reais bonds; as a sovern nation, Brazil can just print Real when the bonds come due, if need be. (As the US is now or soon will be doing. That causes inflation.)

Interest rates paid on Reais Brazil's bonds were much higher a few years ago. Thus to buy one of those older bonds now you need to pay about 35% ABOVE face value! Brazil's currency is not inflating much - about at the same rate or less at times than the dollar. A few times the monthly rate has even negative! - Many people want to buy its bonds as that is a good way to earn highest real rates in the world and the bonds themselves can soon be sold at a premium, if Brazil continues to cut the interest rates. Only reason it is not now cutting is that the economic conditions of the majority of its previously poor population is improving so rapidly that the factories cannot keep up with the surge in demand for refrigerators, cars, etc. if financing them were cheaper. (Exactly the opposite problem from the US, where the rates are low to stimulate buying by workers becoming progressive less able to buy.) Brazil is keeping a tight rein on credit buying to avoid inflation.

Lula, Brazil's president in second term now was very left wing labor leader who even called for repudiation of the national debt, but he is also very smart. (A remarkable history - poorly educated with illiterate parents he got his first shoes at age 12!) After being elected, he did a 180 degree turn and paid the IMF debt off with the wave of prosperity the surge in demand and prices for the commodities gave Brazil.


I am lost again Billy. I have bought several items directly from China, Hong Kong, Korea and Italy. All were directly from the manufacturer, except the one from Italy which was from a distributor. In all cases, my dollars had to be converted into their currency at the exchange rate at the time of the transaction. No 'dollars' were sent to the manufacturer to be converted by them through their government. The phrase 'no buyers' for the dollar does not make sense to me in the context of importer/exporter. Could you explain your reasoning? See first part this reply again. There is always a buyer if the price is low enough. The Brazilian government buys when no one else will as does not want the dollar to drop in value so much that local exporting industries cannot make a profit selling for dollars and paying their workers in Real. Brazil is doing all it can to help keep the dollar from collapsing and has been paying a big financial cost to do so as I explained in last post to you. Some other nations are too and will continue to do so long as items are priced in dollars, but that is changing now.


It is the manufacturers in China that are buying your food and iron ore. Where did the manufactures get the dollars? Surely US importers do not bundle up a bunch of dollars in a box and send the package to the manufacturer in China to pay for their purchase. Either your or my interpretation of the US dollar as the world standard currency is faulty. I think all it means is that the dollar is used as the conversion standard, not that purchases must be paid for in actual paper dollars. Again see my first reply section. The only green dollars that actually come to Brazil are in tourist pockets and criminal's suitcases to pay for drugs etc.


Yes, about four years ago the Real crashed, lost much of its value compared to most of the other currencies in the world. Most of that 45% is due to the Real regaining past value, not to a falling dollar. The US dollar is currently doing something similar to what the Real did four years ago. It is losing value, but the dollar has yet to lose as much value as the Real did. Did the de-valuation of the Real cause an economic collapse of Brazil? Seems Brazil has weathered the collapse and is doing fine now, except for the inflation.True. The 4R$ to the dollar peak was about five years ago, when Lula was still an "unknown," un-trusted president. (Would he really repudiate the debt, as he had said he would, etc.) Everybody who had any real wealth in Real, was desperate to get it safely out of the country. Brazil had a history of defaults and even had confiscated local bank deposits! Thus there was back then a huge demand for dollars, not a huge flux of them (not literally)* into the country as there is now.
--------------------
*Although if you had "green paper" ones, you could get even 5 or 6 real for each dollar from someone who could not explain why they had the Real they were selling you and did not want any record of the transaction. For similar reasons, it is estimated that the Russian mafia has more green dollars than currently circulate in the US!

Billy T, the US is still one of the largest exporting nations in the world. It only seems we export little because we import so much, the largest importing nation in the world. That is what the trade imbalance is, its not that we don't export, we just import excessively leading to the closing of factories and loss of jobs in the manufacturing sector. As I have continually said, the imports of manufactured goods will decrease with the weakening dollar and exports from America will become more affordable for the rest of the world. That is what leads to a balanced trade ratio and economic stability.
The competitor's currency must appreciate relative to the dollar, i.e. the dollar can fall as it is doing. The impact of material costs is directly related to what you are manufacturing.Standard text book POV, which I tried to explain the problem with in my last post's quantative example. I will try again below your text:
Some products, silicon chips for example, have a low material cost. The US must compete in high value items, we cannot compete in the inexpensive manufactured goods category. ...Again you missed the point. Yes each country must try to compete where it has some natural advantage. For the US that is mainly the now expiring consequences of the fact that WWII did not happen in the US and in the fertile fields of the mid west. I.e. the US had and is still "coasting on" a great relative advantage at the end of WWII. It also had by far the best schools, with a few exceptions of equality. High value added items with mainly design and other man-power productions cost are exactly where the US cannot much longer compete as its labor cost are so much higher.

You have it backwards again! Where was your “low-material-cost / high-value-added” digital camera, your computer, your TV, your cell phone, etc. actually made! The rest of the world is rapidly cancelling out the end of WWII advantage US had and building good schools* now too. Micro -soft send it designer to India for training etc. The cost of reading an X-ray and writing the report is essentially 100% labor. That is why many routine ones taken in large centers now go thru the internet at night to a doctor in India for this. As I numerically illustrated in the prior post, the smaller the percentage of total production cost that is the material cost is, the HARDER it is for the US to compete. New York is no longer the world's financial center - London is by several measures. I am sure it will surprise you but the world's third largest stock exchange is, as of two days ago, in Sao Paulo, Brazil! (The Brazilian equivalent of NYSX and Nasdaq just merged and expect a 25% saving in processing costs.) In a decade, Wall Street will be a minor financial player as financial services are 100% labor costs. US and EU banks are not in trouble only because of sub prime mortgages. They are on their way to become "branch offices" of Dubai, UAE, perhaps even of Brazil China and India in the following decade. Etc.

This is same argument I frequently had with Quadraphonics six or more months ago. Do not look to how great US now is or has been to estimate where it will be. Look at the trends.

Rest of the world has more modern factories, is rapidly advancing in technology; graduating more than an order of magnitude more of well trained engineers*, already leading in many technical area where a decade ago only Japan had anything comparable. Twenty years from now the main contributor US's exports will be the crops grown in the fertile fields of the mid west. There will no longer be any exports with mostly labor cost in their production, even if Joe American is trying to get buy on half of his current purchasing power as a salary. Study the numerical example I gave in early post until you see why this is true.

*China has a well funded plan to make 50 regional “MITs or better” in the next decade and is already hiring some of the best professors to be found anywhere in Western universities to help get them started. China can build labs quickly at least than half the cost and afford to import the most modern equipment for them.
China has the world’s only routinely operational magnetic levitated train, the world’s highest railroad, the largest dams, the longest bridges, is building new power plant every 8 days, (some are nuclear “pebble bed” designs), the largest of just about any technical project you can name, including the world’s largest building – the new airport, 3 Km long and built in 4 years!

China has problems with pollution, but so did the US and EU in their early industrialization era. (Nothing in China is as bad as Pittsburg was when it was the “steel capital” of the US. – On a windless weekday, you could not see across a wide street because of the smog!) A Chinese designed, built and launched space craft is circling the moon as I type.

2inquisitive
03-27-08, 10:07 PM
Billy T,

There is always a buyer if the price is low enough. The Brazilian government buys when no one else will as does not want the dollar to drop in value so much that local exporting industries cannot make a profit selling for dollars and paying their workers in Real. Brazil is doing all it can to help keep the dollar from collapsing and has been paying a big financial cost to do so as I explained in last post to you.
Great! You finally put it in print. Don't you recognize a subsidy when you see one? ;) Analysis. The Real has increased in value when compared to the dollar. If Brazilian Manufactures sold their goods to the US at the current exchange rate (sold in Real), their products would cost the US buyers more dollars when the US customer converted their dollars into Real. This would increase the price of the Brazilian product in the US (like your shoes you mentioned at one time) and decrease sales. What the Brazilian manufactures are doing is selling their products for dollars instead of Reals that have already been converted. The Brazilian government is then converting the manufacture's dollars into Reals at a higher than market exchange rate. That is a loss for the Brazilian government and a subsidy paid to the manufactures. That does not help the US and does not 'support' the value of the dollar on the world market in any way, it is entirely for the benefit of the Brazilian exporters and the Brazilian economy.

High value added items with mainly design and other man-power productions cost are exactly where the US cannot much longer compete as its labor cost are so much higher.

You have it backwards again! Where was your “low-material-cost / high-value-added” digital camera, your computer, your TV, your cell phone, etc. actually made!
This is where I think you have it backwards! :D The US could not compete in the recent past because the dollar was over-valued when compared to Chinese and other emerging-market currencies. It is all about currency international exchange rates. A chinese factory worker can buy a home and care for his family on the wages he earns. Why do you think this is true? Because in his economy, he is not that low-paid. He can buy almost as much as the US factory worker. The difference in labor costs comes from the exchange rate of the two currencies, not how much each worker makes when converted into dollars. Suppose the exchange rate of the dollar dropped to 10 yuan and the chinese worker kept earning the same wages in yuan. He would not see a great increase in his local buying power for products produced in China. The labor costs on his manufactured product would remain essentially the same in China, he would not have to pay much more or less for the product in China. BUT, the same product would increase about ten times in price in the US. That would eliminate the labor incentive to manufacture cameras, cell phones, computers, etc. in China for US consumption. It would also make US manufactured products much cheaper than they currently are for the chinese consumer to buy. By adjusting the international exchange rates, the price of goods can either greatly increase for imported products, or greatly decrease for the country's exports without changing the wages paid per hour to the local factory worker.

nirakar
03-27-08, 10:53 PM
. He can buy almost as much as the US factory worker.
I doubt that this is true for China, It is not true for India. In India, unskilled workers and even somewhat skilled people like an experienced welder do not get paid comparable buying power to their American counterparts. The Indian factory worker's house will in no way resemble an American factory worker's house.

It is about supply and demand. The ratio of available workers to potential employers is worse for the workers in India than it is for the workers in the USA.

For the highly skilled college educated the disparity in wages between the USA and India is caused by exchange rates. For the less skilled the oversupply of labor relative to demand for labor is the main cause of their low pay.

Billy T
03-28-08, 08:02 AM
...For the less skilled the oversupply of labor relative to demand for labor is the main cause of their low pay.This is both true and more significant than many realize. Not only are the salaries, especially of the IT workers rapidly increasing as demand in this field (Air plane personnel also, and a few others) increasing more rapidly than the supply of the available educated workers, but as the rupee grows stronger, even their old salary would buy more. The supply of IT workers is so tight that all of the major outsourcer doing the "back room" work and modifying /designing programs for US companies have set up their own "in-house" schools. The typical “new to the company” Indian IT worker (who will do more than enter data) spends his first (OR MORE) paid year mainly going to companies "in-house" school.

Same effect is true / happening in China also. I do not have the data on India, but in China in 2007 the domestic consumption increased by 18.8% and about half of that was due, I think, to the fact than the yuan is growing stronger.

kmguru
04-01-08, 08:54 PM
Another indicator for Global economy:

http://money.cnn.com/2008/03/27/technology/moritz_cisco.fortune/index.htm?postversion=2008032716

Billy T
04-05-08, 04:05 PM
If you are interested in topic of thread and have 21 minutes available and are willing to sit thru a few self-promotional inserts by the Bloomberg interviewer, then it is hard to beat listening to George Soros at:

http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vrYRnlw1Rv.Y.asf

For a good understanding what the global economy needs and what is likely to be coming. (I say that as he agrees with what I have been posting here for a few years.) Things like a "tipping point is near" "willingness to hold dollars is dangerously dropping," "China is growing - its Yuan is still under valued and will appreciate at least 10% /year" - this will add to US inflation as Wall_Mart raises it prices … etc.

The FED has just been given more work to do. - Its job of trying to control inflation while stimulating the economy, making jobs, etc.* was not hard enough and getting boring, I guess. :rolleyes:

He told that he gave 27 million dollars to the anti-GWB forces in the last election campaign as he thought the world would be “MUCH BETTER OFF, if GWB were not elected president of the US." - But he will give much less this time as it does not make so much difference now. - He did not explicitly say, as I do, that a new "greatest ever" depression is now unavoidable. In fact, he openly supports Obama as only he has the "charisma to unite the country" and represent "new blood." He makes a good point about value of "experience" - I.e. it is not very important as the next president will have access to the same, often conflicting, POVs regardless of who he or she is. What is important is the judgment to select among these adviser's conflicting recommendations correctly. - More of why he support Obama even though he has never spoken with him.
--------
*I always knew I would never get the Nobel Prize for my modest contributions to physics, but now expect one in "ECONOMICS" for following suggestion:

Ben should fire up his helicopter again, but this time it is loaded with a special type of dollars. They suddenly self destruct - turn to dust - at random intervals but all gone are gone in about a week. If the fleet of helicopters is small then let everyone know this fact. Their velocity thru the economy in that week (and all the regular dollars which look exactly the same), is still limited by the speed of light, but it will break all prior records by several orders of magnitude. – Thus, only a few helicopter trips over some major US cities can make an "instant recovery” of the economy with no permanent increase in the money circulating to drive inflation. - Who wants the honor of nominating me FOR THE ECONOMICS PRIZE? :shrug: I'm too :o to do it myself.

S.A.M.
04-05-08, 04:57 PM
*I always knew I would never get the Nobel Prize for my modest contributions to physics, but now expect one in "ECONOMICS" for following suggestion:

Ben should fire up his helicopter again, but this time it is loaded with a special type of dollars. They self destruct in about a week - turn to dust. If the fleet of helicopters is small then let everyone know this fact. Their velocity thru the economy in that week (and all the regular dollars which look exactly the same), is still limited by the speed of light, but it will break all prior records by several orders of magnitude. – Thus, only a few helicopter trips over some major US cities can make an "instant recovery” of the economy with no permanent increase in the money circulating to drive inflation. - Who wants the honor of nominating me FOR THE ECONOMICS PRIZE? :shrug: I'm too :o to do it myself.

:roflmao:

That was fun!

I'm gonna listen to George Soros now.

Billy T
04-05-08, 05:16 PM
...That was fun! ...What do you mean "fun" - I am serious. Certainly the CIA labs can make these special dollars in a week.* Note I have edited my post to describe them better - they suddenly turn to dust and do so at random intervals during the week. If not too much trouble please edit your post of my suggestion by cut and past the edited version into your quote.

I must say SAM, I was sort of counting on you to nominate me so the suggestion would have the weight of two "Bricks." - Guess I will need to PM some of the Russian posters active here. :(

-------------
*They made the "Saddam is ordering uranium Nigerian letter" in only three days after GWB asked for it, so rumor has it. That required learning what Nigerian stationary looks like.** They certainly know well what the US dollars looks like - Many millions have passed thru their hands and even two planes loads have disappeared recently - making them disappear one at a time should be easy. ;)

**Unfortunately, the pressure of time made the CIA copy from an older version of the Nigerian atomic energy agency stationary - so everyone later knew it was a forgery, but by then GWB had invaded Iraq so it severed it purpose OK.

S.A.M.
04-05-08, 05:18 PM
What do you mean "fun" - I am serious. Certainly the CIA labs can make these special dollars in a week. Note I have edited my post to describe them better - they suddenly turn to dust and do so at random intervals during the week. If not too much trouble please edit your post of my suggestion by cut and past the edited version in your quote.

I must say SAM, I was sort of counting on you to nominate me so the suggestion would have the weight of two "Bricks." - Guess I will need to PM some of the Russian posters active here. :(

I can see major repercussions to world economy with disappearing dollars of more than one kind!:D

Raphael
04-07-08, 04:04 AM
Billy T,

... jobs had disappeared and politicians do not like that. (E.g. Clinton and Obama in their speeches in Ohio etc.) ]

and

Unfortunately, as the US de-industrializes (look at Ohio etc) and becomes more of a service than durable goods provider the cost of the labor increases relative to the materials in the potential exports.


Don't believe everything that the democratic candidates say about Ohio. They are interested in votes and not facts. It is true that Ohio's maufacturing has taken a beating, but 90% of that loss was in Automobile plants, Steel foundries, and Auto Parts suppliers. (see a pattern?)

Manufacturing still makes up 15.3% of Ohio's $461 billion GDP. And while you claim this "de-industrialization" is the doom of exporting potential, Ohio's exports have increased from 12.6 billion in 2003 to 42.4 billion in 2007.

Billy T
04-07-08, 07:55 AM
...Don't believe everything that the democratic candidates say about Ohio. They are interested in votes and not facts. ...Absolutely my point. I was not making any comment about Ohio, only illustrating my point that closing of factories gets the attention of politicians very quickly. - be that in Ohio, or in Brazil, which is what my post was speaking of. I only mentioned Ohio as many more know about the factories closed there than those closed in Brazil.

The reason why these factories are closing is entirely different: In USA it is mainly the relatively high cost of labor compared to in Asian countries or Mexico etc. In Brazil labor cost are competitive, but Brazil suffers from the "Dutch disease." I.e. the combination of the world's highest real interest rates and every increasing earnings on exports of food stock and raw materials, especially iron ores (World's largest exporter, with China as main customer. China has agreed to a 73% increase in the price per ton for 2008!)

Thus, the flood of dollars into Brazil just will not stop. It is making the Brazilian Real too strong. The Brazilian factories that once dominated many markets with high labor items, such as shoe, are closing or closed. They get paid in dollars, which are rapidly losing value and must pay their workers in Real which are rapidly increasing in value - The sales no longer cover the cost of production - negative profits.

A couple of years ago, I sat in the ladies shoe department of NYC Macy, (the main store, near 34th st) while wife shopped. Bored, I began to pick up shoes and see where they were made. 3/4 came from Brazil, but bet next time I do this less than 10% will be "Made in Brazil." Brazil has world's largest cattle herds - lots of cheap leather and cheap labor, but now with the excessively strong Real, cannot sell its shoes externally at a profit. That is example of the "Dutch disease." - So called as when oil and gas were discovered in the North Sea, the sudden flux of dollars into Holland, put their manufactures out of business also as the Gilder rose rapidly in value. Now that the Dutch use the Euro, the rise in the currency is less rapid when something like that happens, but Germany is exporting a lot, earning dollars etc. so the Euro is rising in value as the dollar falls.

kmguru
04-08-08, 07:24 PM
Falling Dominos department

http://www.reuters.com/article/businessNews/idUSN0833823520080408?feedType=RSS&feedName=businessNews

NEW YORK (Reuters) - Shares of First Marblehead Corp (FMD.N: Quote, Profile, Research), one of the largest securitizers of student loans, plummeted on Tuesday after a major client filed for bankruptcy protection.

First Marblehead shares fell $3.20, or 41.6 percent, to $4.50 in premarket trading.

The decline came after The Education Resources Institute Inc, which calls itself the largest not-for-profit guarantor of U.S. private education loans, filed Monday for Chapter 11 bankruptcy protection. It said rising borrower defaults and credit market problems damaged liquidity, and that its viability would be threatened absent a bankruptcy filing.

Billy T
04-09-08, 04:28 PM
Falling Dominos department

http://www.reuters.com/article/businessNews/idUSN0833823520080408?feedType=RSS&feedName=businessNews...

Also well worth reading is WSJ's report of Paul Volker's speach to NYC financial group: http://online.wsj.com/article/SB120769723589099695.html?mod=googlenews_wsj

Billy T
04-12-08, 01:52 PM
"...``The turmoil in global financial markets remains entrenched and more protracted than we had anticipated,'' the officials said in their statement. ``Near-term global economic prospects have weakened.''
The G-7 pledged to implement further monetary and fiscal policies ``as appropriate'' without giving details. ..."

Billy T translating the G7's above text into plain English: "Its serious, but we haven't got a clue about what to do."

Quote above from:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a7Yh8jULL1W8&refer=home

Michael
04-13-08, 09:10 AM
The TV told me the "slow down" would be mild and not last much longer than early next year. Now, are you telling me the TV doesn't know something?!? That doesn't make sense...

Billy T
04-13-08, 09:41 AM
The TV told me the "slow down" would be mild and not last much longer than early next year. Now, are you telling me the TV doesn't know something?!? That doesn't make sense...If you believe everything TV tells you there is no hope for you. You should even question at least half of what TV shows you. Trust you logic operating on well established facts is a better rule.

S.A.M.
04-13-08, 10:22 AM
I think Michael is being facetious, or maybe I just hope he is. :eek:

Carcano
04-13-08, 04:07 PM
Meanwhile, the unelected leader of the US economic system, who will remain in power for the next 12 years, has publicly declared that his ongoing devaluation of the dollar is just groovy.

Bernanke explained, under questioning from Ron Paul, that the eroding dollar is only a problem for Americans buying foreign goods!!!???

You mean like oil...Ben? :bugeye:

Or everything at Walmart?

Michael
04-13-08, 06:58 PM
Haaa yes I was just kidding :)

Michael
04-13-08, 10:07 PM
Today BBC mentioned the dollar may drop in value soon.

S.A.M.
04-13-08, 11:12 PM
China has begun dumping the dollar, inspite of teh effects on inflation and growth.

Rice prices are going up in India, so I anticipate that middle men will start hoarding to artificially raise prices. Which could mean more inflation, inspite of the rice export ban.

Hmm time for the Asian policy makers to think quick on their feet. More dollars or less?

Billy T
04-14-08, 07:36 AM
...Bernanke explained, under questioning from Ron Paul, that the eroding dollar is only a problem for Americans buying foreign goods!!!??? You mean like oil...Ben? :bugeye: Or everything at Walmart?Walmart, also known as "ChinaMart," has been increasing the prices. They had to as Yuan was more than 8 to the dollar and is now less than 7/$. – I.e. about 15% more valuable. This is making it doubly hard on Joe American: The purchasing power of his salary has been dropping, even for US made items, and prices at ChinaMart are up about 15%.

For years, the US has been wishing the Yuan were allowed to rise in value rather than try to understand and fix the Balance of Payments problem by US actions.* As they say: "Be careful what you wish for - you might get it." In this case, more inflation, which makes the dollar less desirable to hold, forces interest rates to rise, this slows domestic production, making more dollars chasing less domestic goods, more inflation... Etc. - I.e. a positive feed- back loop which ends in dollar collapse, I think, that rapidly converts to the worst depression ever in US and EU.

As Joe goes, so goes the US – down the tube. Why cannot the Neocons understand this? Henry Ford did years ago.

---------------
*Blame someone else is always easier for politicians. GWB's policies have often been exactly the wrong thing to do. Starting a needless expensive war is obviously one, but his corn to alcohol program has made less of the mid west's fertile land available for export of food stocks. Really the main natural advantage the US has in global commerce is this agricultural potential of the mid west. Many countries, can design and manufacture things better and at less expense than the US can now. Financial services jobs etc. are also leaving the country. Even many medical jobs, such as reading X-rays**, getting a "tummy tuck" are being exported. Soon the only jobs not exported will be cutting someone hair, delivering a pizza, or trying to sell one of the growing surplus of unsold homes. etc.

**While emergency X-rays are still "read" in the US, many routine ones taken at major clinics, go thru the internet to a doctor in India who reads them and writes the report in English of course, while the US sleeps. That report, at 1/3 the cost, is back at the clinic the next AM, waiting for the local doctor to return to the clinic.

Ironically, the creation of the internet was a military projects intended to make the US more secure; but in fact is helping to destroy the US economically. (The military mind, seldom gets things correctly.)

2inquisitive
04-14-08, 06:14 PM
SAM,

China has begun dumping the dollar, inspite of teh effects on inflation and growth.
"Dumping the dollar" is a misnomer began by Billy T. China is using its foreign currency reserves (mostly dollars) to invest in corporations and financial stocks rather than 'stuffing them in a mattress'(holding them). Only a few years ago, China did not have adequate foreign reserves to invest, in fact China borrowed $800 million from The IMF, the maximum amount they could get. They have since became a large exporter of manufactured goods, much of which is sold to the US. China has an imbalance of trade with the US, exporting much more than they import. That is where the excessive US dollar reserves comes from. Much of those foreign reserves are invested in the US and Europe.

The second part of your statement "inspite of the effects on inflation and growth" is unconnected to diversifing their foreign currency reserves. Growth comes from a healthy export economy, inflation is a direct by-product of that growth. It is not the only reason for inflation, as an increase in the cost of imported goods also contributes to inflation, as well as a higher standard of living for the working class (increase in wages).


Rice prices are going up in India, so I anticipate that middle men will start hoarding to artificially raise prices.
Yes, rice and all grains are going up worldwide. The middlemen can contribute to price increases by hoarding, causing a shortfall of supply to consumers. Speculators in the commodities market will also drive up prices. The consumers themselves can also contribute to price increases by 'hoarding' (buying and keeping on hand a larger than normal supply). They do that, of course, because they want to make sure their families have rice to eat in case of a severe shortage and because they know rice will only increase in price in the future. 'Buy it before it gets too expensive', which causes a short term shortage guaranteed to increase the price.

Which could mean more inflation, inspite of the rice export ban.
The rice export ban is good for the Indian poor of course, but it shits on the people of other countries that depend on imported rice to feed their families. There is always this give and take, what is good for one country's health can have devastating effects on other nations. In the US, our achilles heel is oil. SAM, you do realize oil will be India's achilles heel in a very few years, don't you? As your country's economy and standard of living improves, rice and food will take a back seat to energy, energy to power your industry, fuel your greater and greater number of cars and mechanize your farming for greater productivity. Mechanizing your farming will mean increased numbers of ex farm workers getting jobs in factories, for which they will need transportation and fuel to get to work and back home. Sound familiar?

S.A.M.
04-14-08, 06:30 PM
2inquisitive:

I was basing my "China is dumping the dollar" not on Billy T (although I believe he is correct), but this:


Chinese Central Bank Vice Director Xiu Jian said that his country is planning to shift much of its $1.4 trillion national currency reserve from dollars to more stable currencies, such as the euro or Canadian dollar.

China has divested approximately 5 percent of its $400 billion holdings in the U.S. Treasury and established a $200 billion fund to help diversify its investments in equities and stocks around the world.
http://www.naturalnews.com/023005.html


The rice export ban is not good for anyone currently, rice prices are through the roof and its the middle man who benefits, not the poor farmer or the consumer. We need to tackle this ridiculous system.

As for energy, yeah, we are going to have serious problems if we don't catch up on the infrastructure. SOON.

Michael
04-14-08, 06:36 PM
I would think the farmer would get more for his rice?

S.A.M.
04-14-08, 06:48 PM
I would think the farmer would get more for his rice?

There are many reasons why the farmer may not get a higher price.

1. Small, poor farmers eat almost all the rice they grow, higher prices do not benefit them at all.

2. Middle farmers do not have the means to store their rice and immediately sell it all after harvest. Since November (the last harvest) to April, the price has increased 122%

3. The rich farmers who have large plots of land, mechanised irrigation and harvesting and storage sheds, will benefit from the windfall.

Guess how many farmers fall into category 3.

kmguru
04-14-08, 06:54 PM
Here is a related article on Food Shortages:

Global Food Crisis: The Fury of the Poor (http://www.spiegel.de/international/world/0,1518,547198,00.html)
Around the world, rising food prices have made basic staples like rice and corn unaffordable for many people, pushing the poor to the barricades because they can no longer get enough to eat. But the worst is yet to come.

While India can reduce its energy shortages through nuclear energy, no one there seems to be interested as they did not sign the nuclear deal with the U.S. and hence prohibited from buying nuclear fuel and technology. Talk about stupidity...

2inquisitive
04-14-08, 06:59 PM
SAM, one has to look at more than one viewpoint to arrive at a logical conclusion. Billy T constantly post only those bits that support his bias. Articles in any type of media are often biased to support the writer's or publication's particular viewpoint. Some are biased to the point of including complete fabrications. I am not stating your link was a fabrication, but it is biased to present a particular viewpoint. Here is a different take presented by China's Premier Wen Jiabao:

China practices diversification of its foreign exchange reserves to ensure their security. Yes, we do plan to set up a foreign exchange investment company, and it will not be under any government department... It will be under government oversight and regulation and should preserve and increase the value of the assets...

I know by raising this question, you may wonder whether the overseas investment to be made by this newly established agency will affect US dollar-denominated assets. China's foreign exchange reserves mainly consist of US dollar denominated assets. This is the fact. China's holding of US dollar denominated assets is mutually beneficial in nature. The setting up of a Chinese foreign exchange investment agency will not affect the US dollar-denominated assets.
further analysis:

It wouldn't be logical for China to invest their dollars in a way that diminishes their value. As some have been trying to point out, even if that were feasible, it would be the financial equivalent of shooting oneself in the foot, or worse. It just wouldn't be logical.

I do understand that logical economics isn't always what drives politicians; however, the massive worldwide market in dollar-denominated assets will make it difficult if not impossible for any single country, including China, to dent the dollar by much—even if its politicians were willing to risk shooting their country's foot off. [In fact, I think the only country in the world whose politicians might be able to pull that off is the USA.]
http://www.optimist123.com/optimist/2007/03/chinas_premier_.html

kmguru
04-14-08, 07:00 PM
2. Middle farmers do not have the means to store their rice and immediately sell it all after harvest. Since November (the last harvest) to April, the price has increased 122%


The Chinese government have collection centers and storage warehouses for their mid-level farmers. Why India can not do the same?

kmguru
04-14-08, 07:04 PM
even if that were feasible, it would be the financial equivalent of shooting oneself in the foot, or worse. It just wouldn't be logical.

The Chinese are not stupid. We are counting on that...

Billy T
04-14-08, 07:06 PM
...While India can reduce its energy shortages through nuclear energy, no one there seems to be interested as they did not sign the nuclear deal with the U.S. and hence prohibited from buying nuclear fuel and technology. Talk about stupidity...Brazil signed, but has its own U235 enrichment centrifuges and probably huge amount of uranium (only tiny fraction of land has been prospected as what was found is more than sufficent for domestic needs. All the bottled water sold from 100s of springs in Brazil, tells the radioactive content, but it may be mainly K40! - Brazilains, like most of the world did prior to 1950, think that is good for you or at least not harmful! People once went to sit in caves for health benefits. The more radioactive caves charged more. Prior to going to Hungary, I found an old pre-WWII guide book in the JHU library, which rated the caves.)

Anyway, I digress, but in a few years, Brazil will be glad to sell you some U235.

S.A.M.
04-14-08, 07:09 PM
The Chinese government have collection centers and storage warehouses for their mid-level farmers. Why India can not do the same?

Have you seen the government storage facilities (http://www.hindustantimes.com/StoryPage/StoryPage.aspx?id=7fcf97e9-74e4-4b7f-9dbf-7ed1187e8625&&Headline=30%25+crops+damaged+in+transit)? 30- 50% of produce is lost because we're still bickering over irradiation for long term storage. OOh a first (http://www.organicconsumers.org/irrad/haryana.cfm)!

Not that the government is totally (http://www.ipsnews.net/news.asp?idnews=41429) clueless.


The unveiling of a populist budget by India on the weekend, which promises indebted farmers a big rise in social expenditure, has received accolades from a most unexpected audience -- China’s land privatisation lobby.

Pledges in the budget to increase spending for health care and education and wipe out or reduce debts owed by some 40 million farmers have been hailed by China’s academics as an "inspirational example" for the world’s most populous country.

But yeah, loss of crops is a major issue. We're really behind in basic infrastructure.


SAM, one has to look at more than one viewpoint to arrive at a logical conclusion. Billy T constantly post only those bits that support his bias. Articles in any type of media are often biased to support the writer's or publication's particular viewpoint. Some are biased to the point of including complete fabrications. I am not stating your link was a fabrication, but it is biased to present a particular viewpoint. Here is a different take presented by China's Premier Wen Jiabao:

further analysis:

http://www.optimist123.com/optimist/2007/03/chinas_premier_.html

I would trust a banker before a politician. Which is why I prefer independent media sources.

Billy T
04-14-08, 07:24 PM
Hi 2inQ:
...http://www.optimist123.com/optimist/2007/03/chinas_premier_.htmlI went to your link but could not find any of your quoted text there. It is clearly old as China has had its sovern wealth fund for more than a year. -One of its first investments was in the Blackstone Group - China has lost a bundle on that, so your link is not only old, but wrong.

It is also wrong about it forever being "illogical" for China to sink the dollar by dumping it. Certainly true now, but as I have previously stated, when China does not need to significantly export to the US (because of its rapidly growing internal demand -18.8% up in 2007 and large and growing obligation to deliver goods to the African and South American countries under the 30 year trade agreements it is signing for fuel, raw materials and food stocks) it will be to China's advantage if US and EU economies go into deep depression as then the price for oil and raw material will be much less for China than if others also had growing economies.

Can you fix your link so it works?

2inquisitive
04-14-08, 07:35 PM
SAM,

Have you seen the government storage facilities? 30- 50% of produce is lost because we're still bickering over irradiation for long term storage. OOh a first!
SAM, it is kind of ironic, but a friend of mine is an immigrant from India, a chemist with a PhD. He owns his own company in the US and was instrumental in the beginnings of the food irradiation process. He used to complain about the same unfounded skepiticism concerning food irradiation during its early stages in the US.

kmguru
04-14-08, 07:36 PM
Far from maximising the utilisation of its agricultural produce; the government estimates that on an average 15-30 per cent of the country’s food gets damaged while on its way from the farm to the fork.

Quoting a 2007 report by Rabo India Finance, the Agriculture Ministry admitted last year that Rs 58,000 crore worth of agricultural food items get wasted every year because of lack of refrigerated transport and cold storage facilities.

When did average Indians started using fork? :D

58,000 crore comes out to be only about $14 million dollars! Something does not sound right.

S.A.M.
04-14-08, 08:04 PM
When did average Indians started using fork? :D

58,000 crore comes out to be only about $14 million dollars! Something does not sound right.

Food is much cheaper in India (relatively speaking). Milk is Rs 17 to Rs 20 a liter, for instance, which translates to around 50 cents. For fresh milk thats a steal. :p


SAM,

SAM, it is kind of ironic, but a friend of mine is an immigrant from India, a chemist with a PhD. He owns his own company in the US and was instrumental in the beginnings of the food irradiation process. He used to complain about the same unfounded skepiticism concerning food irradiation during its early stages in the US.

Yeah, I've been to the Food Irradiation Center at BARC and its such a waste of technology in a country where people are dying of malnutrition!!!!

Michael
04-14-08, 08:21 PM
I simply think there are too many people. If we're having a hard time making enough food now - what will things be like when there are another couple of billion more people in Asia? The only country that seems to be doing something serious about population control is China. And most Chinese I know say there are WAY too many people crammed in the coastal cities.

When the next feminine happens it'll be hundreds of millions of people that are affected.

All fertilizers are made from oil so it seems that as oil becomes more scarce that food will be harder to grow. Not to mention that countries such as the USA are using farm land to grow fuel - which they will continue to do.

I think the first real step forward has to address the size of the populations.

2inquisitive
04-14-08, 08:38 PM
Billy T,

I went to your link but could not find any of your quoted text there. It is clearly old as China has had its sovern wealth fund for more than a year.
The quoted text was a direct cut & paste. The article was from March, 2007.

One of its first investments was in the Blackstone Group - China has lost a bundle on that, so your link is not only old, but wrong.
And how do you come to the conclusion the link was 'wrong'? The Premier stated China would be investing many of their dollars in US assets, which they did and are still doing.

It is also wrong about it forever being "illogical" for China to sink the dollar by dumping it. Certainly true now, but as I have previously stated, when China does not need to significantly export to the US
You ignore too many facts, Billy T. China has huge investments in the US and Europe and continue to expand them. Destroying the economies of the US and Europe would destroy the value of those investments. You also ignore that the US is a member of the Group of Seven, composed of some of the wealthest nations on Earth. As in a military war, those nations are commited to supporting each other's currency against any 'financial war'.

it will be to China's advantage if US and EU economies go into deep depression as then the price for oil and raw material will be much less for China than if others also had growing economies.
Billy T, there is a world economy now, all nations except the poorest will be affected financially by a depression in the wealthest nations. The price of oil is not based on the wealth of any importing nation. If demand decreases because of financial crisis in a few nations, OPEC and other producers will simply decrease output to eliminate any oversupply in the market to keep their oil price stable. Almost all oil exporting nations have substancial investments in the west and would not look favorably on any nation that threatened to destroy those assets, even if they don't like western politics.

kmguru
04-14-08, 09:06 PM
Almost all oil exporting nations have substancial investments in the west and would not look favorably on any nation that threatened to destroy those assets, even if they don't like western politics.

That sounds logical. And besides, crude oil conversion is controlled by western nations/companies....

kmguru
04-15-08, 07:40 AM
At the home front...

Retailing Chains Caught in a Wave of Bankruptcies
By MICHAEL BARBARO

The consumer spending slump and tightening credit markets are unleashing a widening wave of bankruptcies in American retailing, prompting thousands of store closings that are expected to remake suburban malls and downtown shopping districts across the country.

Since last fall, eight mostly midsize chains — as diverse as the furniture store Levitz and the electronics seller Sharper Image — have filed for bankruptcy protection as they staggered under mounting debt and declining sales.

But the troubles are quickly spreading to bigger national companies, like Linens ‘n Things, the bedding and furniture retailer with 500 stores in 47 states. It may file for bankruptcy as early as this week, according to people briefed on the matter.

Even retailers that can avoid bankruptcy are shutting down stores to preserve cash through what could be a long economic downturn. Over the next year, Foot Locker said it would close 140 stores, Ann Taylor will start to shutter 117, and the jeweler Zales will close 100.

The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.

Retailing is a business with big ups and downs during the year, and retailers rely heavily on borrowed money to finance their purchases of merchandise and even to meet payrolls during slow periods. Yet the nation’s banks, struggling with the growing mortgage crisis, have started to balk at extending new loans, effectively cutting up the retail industry’s collective credit cards.

“You have the makings of a wave of significant bankruptcies,” said Al Koch, who helped bring Kmart out of bankruptcy in 2003 as the company’s interim chief financial officer and works at a corporate turnaround firm called AlixPartners.

More (http://www.nytimes.com/2008/04/15/business/15retail.html?pagewanted=1&_r=1&th&emc=th)

Billy T
04-15-08, 09:35 AM
...And how do you come to the conclusion the link was 'wrong'? The Premier stated China would be investing many of their dollars in US assets, which they did and are still doing.I opened the link but it was just some sort of "home" page and no clear way to find your text. In that sense "The link was wrong" but what I was really calling “wrong” was following part that I could read in your quote:
"... It will be under government oversight and regulation and should preserve and increase the value of the assets... "
That is wrong as I illustrated with the first investment China made in the Blackstone Group. China has lost about half of what it invested in Blackstone.

I am very skeptical of anyone, even well-recognized very -successful experts, like George Soros who "broke the BoE" and made billions telling me:
"oversight and regulation and should preserve and increase the value of the assets"
When that is asserted about a bunch of inexperienced communists government officials, who are just starting to invest in volatile assets like stocks, that is just silly; perhaps even too silly to be called "wrong" !!!

Even George makes big mistakes. - He bought heavily into India stocks about 6 months ago and if sold current would have more than billion dollar loss! I was lucky. I sold 2000 sh of IBN (ADRs of an Indian bank) at $71, very near its historic peak (yesterday you could buy it at $38/sh 38.21 at the close). I sold mainly to raise cash to buy 4000sh of US bank Citi, which had 18 billion loss in subprime mess that beat C down more than 50%. A few weeks ago, I dumped the C and fully re-established my larger than 2000sh position in IBN, with considerable net profit, despite small loss on the C, but more importantly in the long run, my cost basis in some of my IBN moved up from about the $15/sh of 6 years ago when I bought IBN to move out of dollars to ~$40/sh. The IRS will love me again this year, but I will clean out some losers still this year. (Selling at 71 something bought at 15 does tend to make money.) I was just lucky - Like Soros, I did not foresee the collapse in Indian stock, but they do tend to have a "high beta." They will be back soon.


...You ignore too many facts, Billy T. China has huge investments in the US and Europe and continue to expand them. Destroying the economies of the US and Europe would destroy the value of those investments. You also ignore that the US is a member of the Group of Seven, composed of some of the wealthiest nations on Earth. As in a military war, those nations are commited to supporting each other's currency against any 'financial war'. Part I made bold is true if dollar collapses and the assets are US Treasury bonds, as each of them will only pay it nominal "face value" when it matures. It is not necessarily true and probably is false, if the investment is in a productive growing concern, such as an ADR traded on the NYSX, in dollars like my SBS. (The world's largest water and sewer company, serving not only the 4th largest city of the world, Sao Paulo where I live, but the entire state.)

Those ADRs I bought also about 6 years ago, when I started “getting out of dollars," at about $5/ADR. They now trade near $50/ADR. (It helps a lot to foresee what is coming long before the crowd.) In the Brazilian currency, the Real, in which that company's stock trades they are up only about 600, not 1000%. My “extra gain” in the ADRs is not "real." It is due to the fact that the US dollar has lost value relative to the Real (and most every currency in the world but still at a non-disastrous rate of the "run to get out" that is coming soon.) Point of these details is to help you understand that when a sovern fund invest in real asset, making its profits LOCALLY, NOT FROM US SALE, the dollar can go to hell and you do not lose value. All that happens is that after the run on the dollar, if someone wants to buy that real non-US money maker, he will need a wheel barrel to take the required volume of dollars to the stock broker selling the shares!

SUMMARY: No, I did not "ignore too many facts" -You just do not understand some important ones. Namely that buying US Treasury bonds now is a terrible investment (TIPs excluded) but buying real assets (not pieces of paper with promises printed on them) doing well outside of the US (or EU) can be a very good investment.* At least, like all my ADRs, in those companies, your are protected against the collapse of the dollar, even if the company does not grow its profits per share. (This post is long as I like to teach. I am trying to educate you on something it seems you do not understand. If you do already, I mean no offense.)

Fortunately, for me, I understood all this before the finance minister of many countries did. When they did, they set up sovern funds to buy real assets, instead of their traditional US Treasury bonds. I also have a second big advantage over them. I.e. I only have a few million to invest -they have billions. If they tried to invest in SBS or IBN any significant part of their funds, they would drive the price of those ADRs sky high and surely in the long run lose money. I am just a "little guy" who saw it all coming and even told you in advance in posts here! I was confident that few would believe me, just as few now believe that the run on the dollar will come between Oct2008 and Oct 2014 as I have also been stating for a few years.


...Billy T, there is a world economy NOW, all nations except the poorest will be affected financially by a depression in the wealthiest nations. The price of oil is not based on the wealth of any importing nation. If demand decreases because of financial crisis in a few nations, OPEC and other producers will simply decrease output to eliminate any oversupply in the market to keep their oil price stable. Almost all oil exporting nations have substancial investments in the west and would not look favorably on any nation that threatened to destroy those assets, even if they don't like western politics.Post is already too long so in brief:
Note the NOW I made bold. Now is not important. When China and other Asian nations are the center of the financial and productive activity, the US can go to hell and that will HELP them, not hurt China, as you and most people think, based on "now" conditions. Suppliers of food stocks, raw material and energy, like Brazil will be growing as "economic colonies" of Asia, not in deep depression as the US and EU will be.

OPEC has a long history of "cheating" on it agreed totals when the demand for oil can be met.** Soon it probably will be a "sellers market" as demand at even $200/ barrel will exceed supply until the US and EU do collapse. (Rich Indians and Chinese driving cars instead of riding bikes, etc.)
-----
*Especially good as others try to get out of dollars also. There is no way the shares in Sao Paulo's (or any other) water company should appreciate 600% real in six years, except for a flood of dollars trying to buy something of lasting value.)

**This is an example of the classic economics problem of the "commons" - So called as back when many lands were held by the king for the common good and any one could put his cow there, it was to the advantage of each individual to do so, but a disaster because of overgrazing. Yes, if they can pump more oil, individual countries will cheat as they always have and their action will lower the price all receive for each barrel. On the down side of peak oil that will be history -totally irrelevant. Then only the collapse of US and EU will lower the price of oil for China. GWB is such a disaster that China may not need to "dump dollars" to lower the price of oil. GWB, with his needless wars, and "screw Joe American" tax and tariff policies, probably has already assured that the US will collapse without any "push from China."

2inquisitive
04-15-08, 10:07 PM
Billy T,

I opened the link but it was just some sort of "home" page and no clear way to find your text.
The link works perfectly for me. Did you click the link or try to copy & paste it into a search engine?

That is wrong as I illustrated with the first investment China made in the Blackstone Group. China has lost about half of what it invested in Blackstone.
Did you notice the "should" in the quote? Because they lost money on one stock, does that mean they lost money on all their investments from the fund? Get real, Billy.

When that is asserted about a bunch of inexperienced communists government officials, who are just starting to invest in volatile assets like stocks, that is just silly; perhaps even too silly to be called "wrong" !!!
What makes you think the Chinese don't hire or appoint experts to handle the regulation and oversight of their investment fund? If you expect them to lose their money, why would you expect them to become a world economic powerhouse?

SUMMARY: No, I did not "ignore too many facts" -You just do not understand some important ones. Namely that buying US Treasury bonds now is a terrible investment
I never mentioned US Treasury bonds. Any sixth-grader understands that a falling currency on the world market is the same thing as an inflationary currency on the world market. Investing in treasuries by a foreign investor is the almost the same as investing in a currency, except for the interest accured. If the interest paid isn't enough to outweigh the depreciation of the currency, then the investor loses value.

but buying real assets (not pieces of paper with promises printed on them) doing well outside of the US (or EU) can be a very good investmen.
Well of course buying assets (stocks)that are doing well is the goal of any investor. But there are normally a few Blackstones in any large portfolio. I'm sure you have had a few 'Blackstones' too, Billy. BTW, how are your alcohol stocks doing? I'm not trying to give you investment advice, but there is a chance 'ethenol fuel' will become a four-letter word if world hunger increases.

What you ignore is that if a country is in a deep depression, its stocks will fall, not increase in value. I remember the poll you posted about whether the dollar would fall to, what was it $1.55 per Euro?, or the NY stock exchange would hit 15,000 first. You seem to be confusing two different things. The drop of the dollar is primarly due to the lowering of prime borrowing rates by the Fed. That effectively eliminates most of the carry trade, the influx of foreign dollars destined as loans in the US financial sector. The carry trade borrows funds from stable economies with low interest rates (mostly Japan with a .5% prime rate) to loan in stable economies with high interest rates (such as Brazil and Australia). That influx of money will cause the Real or Australian dollar to increase in value on the world market IF, and a big IF, those countries can control local inflation. Brazil and Australia will again have to increase interest rates to cool the economy and control inflation, which will mean even more investors will want to benefit from those high interest rates. As the Real and Australian dollar gains strength on the world market, it will eventually mean the exports from those countries become too expensive for other nations. That is the part you ignore, Billy T. The exports from the US become cheaper on the world market because of the cheaper dollar, and exports from the nations with currencies that are strengtening on the world market will increase in cost to other nations. What comes around, goes around. In the short term, a year or so, the US and other G7 nations will have to bite the bullet because of their recessions, but it will NOT be the total collapse you speculate. In the stock market it is called a 'correction', which is what is happening on the world market.

Billy T
04-18-08, 09:41 AM
Under the head line: PANIC TIME AT THE FED
Forbes wrote:

"U.S. Treasury Secretary Henry Paulson's blundering is becoming more breathtaking with each passing week. At the end of March he rolled out a grand plan to crown the Federal Reserve as the nation's new financial stabilizer. The Fed a stabilizer? That's who created the financial mess we're in.

If this wasn't bad enough, Secretary Paulson then donned his cheerleader's uniform and encouraged Beijing to let the Chinese Yuan appreciate against the greenback. All the while favoring in this fashion a debasement of the U.S. currency, Paulson proclaimed that we should remain calm and confident because the economic fundamentals are sound. He reminds me of the stockbroker who performed a valuable service to his partners by always being wrong. ..." :D

FROM: http://www.forbes.com/forbes/2008/0505/108.html?partner=globalnews_newsletter

I always liked "gallows humor."

PS to 2Q, I will get to your post soon, but still processing my Emails.

I strongly recommend reading this entire article. I learned something I did not know or understand from it! The FED has a structural error, compared to the Australian "FED" in how it follows the rate of inflation. Possibly part of why the US dollar has lost 11% in one year against the Australian dollar, is the much better performance of the Australian "FED."

Billy T
04-19-08, 04:14 PM
Sorry to take so long to get back to you:
...Get real, Billy. ... What makes you think the Chinese don't hire or appoint experts to handle the regulation and oversight of their investment fund? If you expect them to lose their money, why would you expect them to become a world economic powerhouse?
all I said was that the idea that "there should be no losses because some communists, with no experience are regulating the investments of China's sovern funds" is not either obvious nor what has happened. Yes, after being burned a few times more, like on their Blackstone group ~50% loss, they probably will sub contract the job of managing their funds to some experienced capitalists. I.e. it is those communistic regulators who need to "get real." After making a huge mess with their banking system, they finally did "get real" and allowed western banking experts to buy into the Chinese banks and straighten them out. (I.e. change simple things like no longer let the bank's loans go mainly to state owned firms lossing money because the "losers" needs the funds more than the ones which are profitable.)

...BTW, how are your alcohol stocks doing? I'm not trying to give you investment advice, but there is a chance 'ethenol fuel' will become a four-letter word if world hunger increases.It pretty much already has, I think. Today CNN had program the could have been taken from my thread "How DUMB can US voters be?" or one of mine about the merits of sugar cane alcohol and the evils of "corn alcohol." It did not say much about the $0.54 import duty on cheaper alcohol with 8 fold energy gain. It did mention the $17 billion cost of the government's subsidies to corn growers and alcohol produced form Corn in US, how all the Politicans had to promisses to continue or expand this expensive nonsense (Iowa has first primary) and noted that the laws now requires doubling of the current alcohol (from corn) production (by 2020, I think). I was extremely glad that today, for the first time, CNN was careful to say "CORN alcohol" when telling all the negative things (like will it not reduce oil imports and actually adds to the pollution, more than buring gasoline would, etc. as well as great cost to tax payer and higher cost driving.)

Unfortunately, the tide is turning in the US investment community against "alcohol" without making any distinction between sugar cane and corn alcohol, so my investment in Brazil's third largest producer, has had a negative return on paper (except for about 20% of the time, when it was showing a paper profit) but I am in for the long haul as said earlier. -Thus all this is of no concern to me although it would have been better to have bought in at the lower price that has been possible in the 9 or so months I have held Sao Marthino.

I am not very good at "market timing" so don't try. I can (at least I have so far) foresee accurately 10 or more years into the future, but not 10 months. In Brazil, I can live well on my social security and small annuity I bought so I am mostly a "buy and hold" guy. I am quite confident Sao Marthino will do well on that time scale. Their cane fields are almost all level enough for mechanical haresting. Hand cutting is being phased out and in few years more will be illegal as it requires burning the fields before cutters go in and this both waste valuable organic matter and makes terrible local pollution for a few days. Another advantage they have is a Japanese company is funding very large new refinery and basically taking 30% of its production for 30 years as the payment. - effectively giving about a 25% boost in total production at very little cost to the share holders. Eventually, others will learn that there is a big difference between corn and sugar cane alcohol and the stupid, costly, subsidies will be gone. Fact that only 1 or 2% of the agricultural land in Brazil is growing cane is a big plus also. - Even as Brazil's alcohol production grows, so will its food production. (Better crop seeds etc. will make the yield per acre continue to rise as it has for years yet.)


...What you ignore is that if a country is in a deep depression, its stocks will fall, not increase in value. I remember the poll you posted about whether the dollar would fall to, what was it $1.55 per Euro?, or the NY stock exchange would hit 15,000 first. You seem to be confusing two different things. The drop of the dollar is primarly due to the lowering of prime borrowing rates by the Fed. That effectively eliminates most of the carry trade, the influx of foreign dollars destined as loans in the US financial sector. The carry trade borrows funds from stable economies with low interest rates (mostly Japan with a .5% prime rate) to loan in stable economies with high interest rates (such as Brazil and Australia). That influx of money will cause the Real or Australian dollar to increase in value on the world market IF, and a big IF, those countries can control local inflation. Brazil and Australia will again have to increase interest rates to cool the economy and control inflation, which will mean even more investors will want to benefit from those high interest rates. As the Real and Australian dollar gains strength on the world market, it will eventually mean the exports from those countries become too expensive for other nations. That is the part you ignore, Billy T. The exports from the US become cheaper on the world market because of the cheaper dollar, and exports from the nations with currencies that are strengthening on the world market will increase in cost to other nations. ...Nothing here completely false, but perhaps not well thought thru in some cases, especially part of your post I made bold as I will soon illustrate with a real numerical example from last 12 months, but first note:

The dollar has hit 1.59 to the Euro. I still think that it is possible the Dow will hit 15000 by end of first half 2008 but admit not very likely now. (I did not foresee the magnitude of the US's current economic problems correctly - they are worse than I expected.) The only way for the Dow to get to 15,000 by 30 June is for the dollar drop to accelerate. (I.e. if it takes about 23% more dollars to "buy the Dow" and US economy does not get even worse, then Dow should be “near 15,000.”) Oil cost is rising at that rate now, but only part of the rise is due to dollar dropping in value. Part is due, I think to fact demand from Asia especially is pushing global production over the peak of "peak oil" now. That peak may be "flatter" than many expected, including me, as Brazil's PetroBras seems to have discovered a huge new oil field. It is deep - about 8000+ meters in 2000m of water so will be expensive oil, but may cap price at $200/brl for a while. No one knows, but some think it is third largest in the world, and perhaps even more than Saudis still have. Current issue of Economist has some, but not the latest, information on it.)

Also note that it may or may not get too expensive (to export) as the local currency becomes more valuable, as in Brazil's case. Perhaps the buyer will badly need the product and continue to buy it. For example, the Brazilian real has greatly increased in value, but China needs Brazil's enriched iron ore (their largest supplier) so they just agreed to a 65% INCREASE in the price. Brazil will export more and be paid more per ton - probably gain about twice the funds it did last year - How can you call that a drop in sales? :D

Same is true of soy beans, Brazil will sell more and get about 80% higher price per kilo for them - people need to eat. What it states in your economics books "Ain't necessarily so." as song from Porgy and Bess more correctly puts it.

Likewise, the US may export LESS food stocks, despite the economic theory saying with dropping dollar value it will export more. (Those economic books did not imagine the US could have a president as stupid and self-serving as GWB.)
What will probably happen as food prices rise due to diversion of land to alcohol corn, is that the non-Iowa politicians will pass a law making it illegal to export food crops that have had price rise of 20% in last year (or something like that) so US will export Less as dollar drops. Food production is really the only thing US can do better than Asia can now.

Now for your better understanding of "carry trade", please consider this real example:
Carry trade is much more complex than just the interest rate differentials you site. Often that is the LESS importance factor than the changes occurring in exchange rates, which you do not even mention. Even if the interests rates were the same there can still be a profitable "carry trade."

What is important is can you pay back the loan in one country later when you liquidate the investment made in another with the dollars you borrowed? In the case of the US the low interest (actually negative in real terms) rate does encourage the carry trade, say to invest in Brazil, but more important is the presumed fact that when time to sell the Brazilian Reals only a fraction of them will be required to buy back dollars and to pay off the loan in these depreciated dollars.

For example, with real numbers of last year: you could have borrowed $1000 and invested in very safe bank application and gained slightly more than 12% in 12 months.
(You put the 12% interest earned less the 6.5% charged on the US dollar loan in your pocket.)
Now with slightly less than 82% of the original principle of the investment you buy back the $1000 and pay off the loan. This is possible as the dollar has lost 18.4% against the Real in last 12 months. I.e. the change in currency exchange rates is responsible for >75% of your gain and the interest rate differential for less than 25%. Total gain is 18.4+5.5% = 23.5% gain on very safe bank investment!

This is of course why buying US treasury bonds is such a lousy investment now. Why so many "Sovern Funds" are being created to buy real assets instead of US Treasury paper. I.e. buying a US bond is lending dollars to the US when what is profitable, as illustrated above, is borrowing dollars from the US.

2inquisitive
04-21-08, 05:48 AM
Billy T,

Another advantage they have is a Japanese company is funding very large new refinery and basically taking 30% of its production for 30 years as the payment. - effectively giving about a 25% boost in total production at very little cost to the share holders.
Did you not know your favorite US company, Cargill, also owns a large refinery in San Paulo state? The US already buys all the ethanol it can get from Brazil, THE largest buyer. Even a year ago, there were protests in Brazil over using land for alcohol instead of food production.

RIO DE JANEIRO, March 7 (Reuters) - Hundreds of Brazilian peasants briefly occupied an iron ore
mine on Wednesday and invaded a sugar mill in the latest of several protests ahead of U.S.
President George W. Bush's visit to the country.

A spokeswoman for the Via Campesina (Peasant Way) group said over 500 female activists had
occupied the Capao Xavier mine owned by Brazil's CVRD (VALE5.SA: Quote, Profile , Research)
(RIO.N: Quote, Profile , Research) -- the world's biggest iron ore miner -- in Minas Gerais
state early on Wednesday. Police quickly removed them from the premises.

The four-hour-long protest was aimed "against transnational companies and the financial system,
which seek control of the natural resources in the country," the group said in a statement.

The group also invaded U.S. grain trader Cargill's Cevasa sugar and ethanol mill in Sao Paulo
state on Wednesday, but the company said its operations were not affected.

The MST said in a statement the aim of the protest was to show support for small farmers working
for the domestic market and to condemn "multinational companies... who bring hunger, devastation
and unemployment".

It said Bush's visit was aimed at "guaranteeing supplies of low-cost ethanol" which would consume
lands that otherwise could be used by small family-run farms to produce food.
http://www.mstbrazil.org/?q=reutersonbushbrazilvisitprotests

Also note that it may or may not get too expensive (to export) as the local currency becomes more valuable, as in Brazil's case. Perhaps the buyer will badly need the product and continue to buy it. For example, the Brazilian real has greatly increased in value, but China needs Brazil's enriched iron ore (their largest supplier) so they just agreed to a 65% INCREASE in the price. Brazil will export more and be paid more per ton - probably gain about twice the funds it did last year - How can you call that a drop in sales?
Now Billy, you know I was speaking of manufactured products becoming more expensive as the Real increases in world value. China's comsumption will continue to hike the price of oil, raw materials and food. But how many of those millions of people living in those apartments in San Paulo work in those mines located thousands of miles away? Increases in the price of manufactured goods will mean fewer exports, factory closings and job loss. It is what has happened in the US cities. If I were a rich American living in San Paulo, I would be a little concerned about the comming protest and riots. Got plenty of ammo? :D Rich Americans are not too popular in Brazil even today, are they?

Same is true of soy beans, Brazil will sell more and get about 80% higher price per kilo for them - people need to eat.....Likewise, the US may export LESS food stocks, despite the economic theory saying with dropping dollar value it will export more.
Billy T, the US has had a thriving export market in soybeans even while the dollar was over-valued. Why do you think the buyers in poor countries would pay Brazil a much higher price for soybeans when they could buy them from the US much cheaper? A lower valued dollar and a higher valued Real gives the price advantage to the US exporter. The US farmer can grow much, much more food crops if allotments are increased for the farmers. The allotments were put into place to prevent an oversupply of product on the world market. An oversupply drops prices recieved for the produce too low, causing the farmer to lose money on the crops. The farmer cannot stay in business if money received for his crops does not exceed what it costs him to plant and harvest them.

Billy T
04-22-08, 09:38 AM
...Did you not know your favorite US company, Cargill, also owns a large refinery in San Paulo state? The US already buys all the ethanol it can get from Brazil, THE largest buyer. Even a year ago, there were protests in Brazil over using land for alcohol instead of food production.I think you know Cargill, a privately owned, non-stock company -the largest in the world, I think, is not my favorite. I suspected they might have some control over part of Brazil's alcohol production, but do not know much about the ownership of it - many are privately owned by rich people in private companies. I tend to try not to buy into what is obvious, but the supplier of things "the obvious" is buying. I would love to own part of Didini, who is world leader in making the large stills, cane crushers, etc. that the expanding alcohol industry is buying, but they too are private. More on them, in English at:
www.anba.com.br/ingles/especial.php?id=393 (There see they are already sellin in 40 countries and making new jobs as they expand.)

I did not know US was greatest customer of Brazilian alcohol, if that is what you are stating. Japan & Brazil have joint company, building ships to transport it to Japan and several long term contracts for alcohol supply. Shipping to US would cost less obviously, but the import duties discourage export to US more than the difference in shipping cost aids US soon, there will be no surplus to sell to US - the current US stupidity of favoring Japan etc. as the export destination in long term contracts, will have long lasting consequences, even when US's current stupidity ends.

MST is Portuguese for Movement without land. They are a political organization very similar to the "shining path" in that they destroy things, are communistic and want to reverse the privatizations that have taken place in Brazil for ideological reasons. For example, before the telephones were privatized only the very rich had cells phones and they only worked inside the major cities. You had to wait several years to get a conventional telephone installed, so if you had one, you could "sell the line" for about $5000. Many people Invested in telephones for sale later. Likewise the interstate roads, pre-privatization they were full of holes that only had patches installed every 4 years, as elections neared. (Made many jobs briefly) I own shares in Aracruz, world's most efficient and largest producer of short fiber wood pulp. They have perfected the eucalyptus tree - doubled the yield per acre (in part by dramatically reducing the years from planting to harvest) the Women of MST invaded the main research plantation one night and worked all night pulling up the tiny trees - about 10 years of genetic progress was lost.
Yes I know that group of communists well. - Their recent efforts are to block the trains taking iron ore to the port for export. They want to destroy any productive thing they can (Often they invade farms and kill the cattle, etc.) They are a mix of anarchist and communists. Occasionally they do operate in cities - usually breaking into banks or government offices in mass with women and children.

...Now Billy, you know I was speaking of manufactured products becoming more expensive as the Real increases in world value. China's comsumption will continue to hike the price of oil, raw materials and food. But how many of those millions of people living in those apartments in San Paulo work in those mines located thousands of miles away? Increases in the price of manufactured goods will mean fewer exports, factory closings and job loss. It is what has happened in the US cities. ...Yes, The factories that have high labor cost are closing - we call it "de-industrialization" This has strong political consequences so the central bank has been buying up part of the flood of dollars, sort of "buyer of last resort" to try to stem the growing strength of the Real. (Reserves are up from 50 to 200 billion even though most of the external debt has been paid off. Brazil is now a "net creditor nation." - has more value in its foreign holdings than total external debt, both public and private total!)

I do not mind the closing of these factories as I think Adam Smith was correct - every nation should do what it can best and trade - Brazil has lots of fertile land (in millions of hectares) 176.5 in pasture, 63.1 in food and fiber crops, and only 7.7 in sugar cane (and all that is growing cane is at least 500 miles from the Amazon forest) and lots more than that total not in natural forests but not now being productively used for food, fiber or fuel production(typically, abandoned pasture, or huge tree farms.) lots of rain fall and long growing season (year long for some crops)

Thus, IMHO, Brazil should make mainly agricultural and mineral* products plus high value products like airplanes, cars (world's no 3 or 4 in planes and making 3 million of world’s most advanced cars this year.) Like the developed world, the jobs of the city are ever more in services, and sales. There are at least 40 different banks (not branches) I can walk to from my apartment, probably about same number as NYC, London or Frankfort. Sao Paulo is the financial center of South America. The real problem in Brazil (in addition to corruption) is education and wealth redistribution, not wealth generation. Being a net oil exporter with huge natural gifts in agriculture and minerals - has a flood of wealth pouring in.



...Billy T, the US has had a thriving export market in soybeans even while the dollar was over-valued. Why do you think the buyers in poor countries would pay Brazil a much higher price for soybeans when they could buy them from the US much cheaper? A lower valued dollar and a higher valued Real gives the price advantage to the US exporter. The US farmer can grow much, much more food crops if allotments are increased for the farmers. The allotments were put into place to prevent an oversupply of product on the world market. An oversupply drops prices received for the produce too low, causing the farmer to lose money on the crops. The farmer cannot stay in business if money received for his crops does not exceed what it costs him to plant and harvest them.
Like Brazil, but not as much, the US has a great natural gift in the mid west for agricultural production. Unfortunately it is being diverted to corn to alcohol nonsense – where it is not economically viable without great assistance from the tax payers to the already very rich, like the owners of Cargill. You are correct (I hope, as I get only about ½ now for dollars I bring to Brazil.) the strong real will weaken some when others can sell soybeans etc to Asia as cheaply as Brazil can, but as the US is already selling along side of Brazil (some years even more soybeans than Brazil, but not now that the corn to alcohol nonsense is in place) the price has adjusted already. (I.e. both can export at current price and make more than their costs but probably not for much longer can the US continue exporting soy beans.)

Now that food prices are high, is a good time for US to stop using tax payers dollars to help the very rich owners of agribusiness get even richer. But there is an aspect to these subsidies not well discussed that I want to point out:

Many very poor countries also have considerable agricultural potential. They also have very cheap labor, in some cases very malnourished. With their primitive oxen plows etc. the local farmer could not sell to the near by city as it could import from the US (Or Brazil etc.) more cheaply. This has been the case for decades. Now the kids of that farmer do not know how to farm, how to harness an ox etc. The US’s farm subsidies are the primary reason why that kid is dying of starvation now. If they had not existed three decades ago, he would be a profitable farmer now and possibly saving to buy a US made Zenith TV that now jobless Joe American could have been making for export in the now closed Zenith factory. Farm subsidies are a huge distortion of the GLOBAL economy and have made millions of extremely poor people so a few very rich can get richer and contribute to politicians of both parties in the US and in EU also.
-----------
*Brazil makes the steel it needs for domestic use, but should stop selling ore and sell steel instead. Some new steel plant are underconstruction. I think mainly with Japan, l but perhaps one is even being made with Chinese funds and technology. (China is both world's largest producer and consumer of steel. Their technology is much superior to that of the US, which still makes steel in some WWII plants.) China will still get the steel, and pay less in shipping charges when they make it in Brazil.

2inquisitive
04-22-08, 07:26 PM
Billy T,

Yes, The factories that have high labor cost are closing - we call it "de-industrialization" This has strong political consequences so the central bank has been buying up part of the flood of dollars, sort of "buyer of last resort" to try to stem the growing strength of the Real. (Reserves are up from 50 to 200 billion even though most of the external debt has been paid off. Brazil is now a "net creditor nation." - has more value in its foreign holdings than total external debt, both public and private total!)
Billy, Brazil is following in the exact same footsteps that the US did, as far as "de-industrialization" is concerned. The Brazilian government is subsidizing the industrial sector by letting the manufacturers sell in dollars and then buying the dollars at a higher than exchange value. The question is, how long will the government be able to afford to do so?

I
do not mind the closing of these factories as I think Adam Smith was correct - every nation should do what it can best and trade - Brazil has lots of fertile land (in millions of hectares) 176.5 in pasture, 63.1 in food and fiber crops, and only 7.7 in sugar cane (and all that is growing cane is at least 500 miles from the Amazon forest) and lots more than that total not in natural forests but not now being productively used for food, fiber or fuel production(typically, abandoned pasture, or huge tree farms.) lots of rain fall and long growing season (year long for some crops)
And that will lead to the same situation that the US is in. The large city populations are not located where the jobs are. If the factories in or near the cities close, the working class lose their jobs.

What is ignored by Wall Street and many economists is that an increasing economy does not always translate into increasing standards of living for the average citizen. For the last decade or so, the wealth has been concentrated in the financial and import sectors of the US economy. For instance, Kodak is a US company but it imports almost everything it sells today. Kodak can make large profits on Chinese made cameras, they pay the US government large taxes on those profits, the government also collects import duties on the cameras. Kodak and the US government make money, but no manufacturing jobs are created for the portion of the population that is not highly educated.

As you mentioned before, the companies like Cargill are mechanizing your agricultural sector for increased productivity. That also means fewer jobs per hector of land farmed. More job loss for the working class, even if the Brazilian 'economy' grows from the alcohol sales. The wealth is concentrated in corporate sector and the people that own large amounts of land. They will soon put many small farmers out of business because they can't compete with the mechanized sector and can't afford the expensive machinery for small patches of land. Some of the small farmers may have to sell their land to the corporations and look for a job in the manufacturing sector. Will the manufacturing job be there? The Brazilian economy is growing, but the working class will be left out. Civil unrest and protest will be the result.

Like Brazil, but not as much, the US has a great natural gift in the mid west for agricultural production. Unfortunately it is being diverted to corn to alcohol nonsense – where it is not economically viable without great assistance from the tax payers to the already very rich, like the owners of Cargill.
Again you only refer to one segment of US agriculture. The US midwest agriculture is mostly dominated by large corporations and owners of extremely large tracts of land. Brazil's south-central region will soon be the same. In the US, the alcohol refineries are located in the midwest near the largest concentration of corn production. In Brazil, the refineries are located in the south-central region near the largest concentration of sugarcane production. It is too expensive to transport corn or sugarcane from distant locations in either country to make alcohol production profitable. Brazil also has infrastructure problems such as good roads connecting remote farmers to the refineries. You ignore the southern US, which still has mostly family owned farms and vast amounts of agricultural land. These farmers do not sell their corn for alcohol production. It is mostly used for animal feed and food products. A friend of mine that owns several thousand acreas of land used to grow corn, but stopped when the money he received for his crop failed to cover his expenses in producing the crop. He had also stopped planting winter wheat for the same reason. Part of the problem was transportation costs, which meant his grain brough less on the local market where he had to sell. He hasn't started growing corn again yet, but he is again growing winter wheat as he can now make a profit due to price increases. In the summer, he grows mostly soybeans because there are local buyers and processors. His main worry now is weather-related problems. It costs him much more today because of large increases in equipment prices, fuel costs, fertilizer, etc., etc. The money is borrowed to cover the costs of planting and growing the crops. If he experiences a weather-related crop failure, he still will have to make payments on his equipment, pay back the loans for seed, fertilizer, fuel, etc. Those expenses are so great, one year of crop failures could bankrupt him.

Many very poor countries also have considerable agricultural potential. They also have very cheap labor, in some cases very malnourished. With their primitive oxen plows etc. the local farmer could not sell to the near by city as it could import from the US (Or Brazil etc.) more cheaply.
No, that is bullshit Billy T. The very poor countries are overpopulated with respect to the amount of food they produce internally. Part of the problem is low production per acre due to unprotected crops (insects, plant fungus, etc.) part is weather related, and part is storage and distribution problems. Their governments import additional food to feed their populations. The US furnishes much of this food, a lot of it in the form of free aid to the worst affected nations.

The US’s farm subsidies are the primary reason why that kid is dying of starvation now.
Again, bullshit. ALL countries except some of the poorest African nations subsidize their farmers in one way or another. India and China do it in the form of fuel subsidies or caps on fuel costs. Brazil does also in the form of diesel subsidies. Cars in Brazil are banned from using diesel, restricted to gasoline or alcohol. The farmer gets the diesel used in his equipment for about half the cost of gasoline because the Brazilian government subsidizes the fuel. In the US, diesel is not subsidized and cost more than gasoline.

Billy T
04-23-08, 01:13 PM
To 2Q:

We are not far apart in POVs, so I just make some observations.

There are always two distinct economic problems or tasks. One is to make the pie bigger (communistic system usually much worse than capitalistic systems in this) and to divide the pie "fairly" or at least sufficiently so that there is little violent social reactions. (Socialistic systems usually better here.) Some "middle way" like common in Scandinavia seems best compromise.

Brazil's pie is rapidly growing (mainly due to external factors and great natural gifts) and the division of it is improving. Brazil has 5 defined social/economic groups A at top and E at bottom. For example, if family owns a car, they are not D or E. Under President Lula the lot of D & E has improved very much. There is a program (which preceded Lula, but he expanded) to pay the lower groups if their kids go to school instead of beg in streets or work at very menial jobs, like stacking sun dried bricks in sheds out of the rain etc. The gap between A & E classes is enormous still, but being reduced.

High labor percentage jobs are, in a globally completive world, always carried on the backs of the "exploited poor." (Not to say that they would be better off without these jobs.) These jobs are the ones Brazil is "trading in" as China has already done, to a large extent. For example, the cutting of sugar cane had 18,000 less workers this year despite the expansion of the area planted. Every year a dozen or so cutters literally die from (heat?) exhaustion as they are paid by how much they cut under the hot sun. Mechanization is reducing the need for the cutters. Didini etc are hiring more to design, test, and make the machines, but most of the former cutters need much more schooling before they can work in some high value producing factory. Brazil is following China and India (or the US of 7 decades ago) and becoming more efficient producer - growing the pie and also now slicing it up better. There is perhaps something to be said psychologically and politically for the "family farmer" but not economically.

Brazil's government is trying to help the family farmer, especially in the bio-diesel area. Units mounted on the back of trucks come to the farm and press the oil for the oil crops etc. Some even process it into a crude fuel the farmer can use. The dry NE is having a large river diverted to supply that area with badly needed water. There appears to be more intelligent government actions of the "self help" nature as opposed to the "hand out" nature in Brazil than in the US, largely directed at keeping the poor from moving more to the cities by making the rural life more profitable.

You state: "... The very poor countries are overpopulated with respect to the amount of food they produce internally. Part of the problem is low production per acre due to unprotected crops (insects, plant fungus, etc.) part is weather related, and part is storage and distribution problems. ..." and that is true, but the solution is better, education (especially in birth control) and capital for the increase in yields on the farms. This capital will not come so long as the large scale highly capitalized US farmer can sell at lower price in the poor farmer's local market. That is one reason why I oppose the farm subsidies in the US.

I do not know if you are correct or not about: "ALL countries except some of the poorest African nations subsidize their farmers in one way or another. ..." I tend to doubt it as surely some do not. I also suspect that not one gives even half the per capita or per acre subside that the US does. CNN has just started a week long series on the food/fuel problems - In the promo I heard Sunday eve for it they stated that the US subsidies total 17 billion dollars. (Annually I think) and this does not count the other interventions that protect the US market from foreign competition.

If the farmers get less than market cost for their diesel, that is news to me. I have shares in Embraer and just read a few days ago that there are more than 100 alcohol powered planes operating in Brazil (Most are "crop duster") and that Embraer is working on the "second generation" (motor designed for alcohol instead of modified mainly.) It is hard for me to believe that they buy diesel for half the regular price as you say if alcohol power planes are selling well. Here at the filling station diesel is less than gasoline but more expensive than alcohol. As far as I know the Brazilian farmer get only two subsidies: lower than market cost loans, but not by much, from the government controlled Bank of Brazil (It is the largest bank in Brazil and I own shares in it too, but either of two private banks would have been a significantly better investment for me.) and the agricultural service in research, soil testing, etc. are essentially free. Many of the farmers pledge their crops for these loans and Bunge (I have shares in them also.) does this also especially for the fertilizer Bunge sells the farmers. - The big farmers are now trying to break many of these contracts in the courts as in some case they can sell at current market for twice the price. - (I think the little farmers will be covered also.) They want the option of stepping back in time to make it a cash buy with interest for late payment, not deliver the tons of soy promised etc. I bet they win their case - Brazilian courts tend to have more respect for "justice" than for contracts. (Part of the mechanism for better "division of the pie" - I spoke of at start.) They will no doubt argue that they took all the risk of "no rains" etc. and should get the benefit of the current higher prices, not a gigantic international corporation.

2inquisitive
04-24-08, 01:40 AM
Billy T,

If the farmers get less than market cost for their diesel, that is news to me.
Petrobras is a state-owned energy company in Brazil. Brazil controlls the price of diesel fuel, fixed at an artificial low which is offset by higher than normal gasoline prices. It is a support for the alcohol industry (lower prices for alcohol vs gasoline) and a diesel support for the farm and trucking industries. The latest price for I found for diesel in Brazil was .36 Euro per liter from a european publication. That is about $2.22 per gallon, which includes road taxes collected by Brazil on the fuel. In the US, diesel sells for about $4.20 per gallon, including federal road taxes of $.18 per gallon. I don't know how much road tax Brazil collects, but know it does collect the tax from articles I have read. Most countries, including the US, do not collect the road tax from fuel to be used in farm equipment. The US dyes the farm version of diesel to prevent truckers from illegally using the fuel. The dye coats the fuel tanks and fuel delivery systems. Trucks are checked at inspection stations to see if the dyed farm fuel has been used. Farmers must have their own diesel storage tanks and pumps, to which the dyed fuel is delivered by distributors.

I have shares in Embraer and just read a few days ago that there are more than 100 alcohol powered planes operating in Brazil (Most are "crop duster") and that Embraer is working on the "second generation" (motor designed for alcohol instead of modified mainly.) It is hard for me to believe that they buy diesel for half the regular price as you say if alcohol power planes are selling well.
All "crop dusters" I know of are gasoline powered, not diesel. They must have very high performance, high revving engines to carry out the acrobatic maneuvers with full tanks of liquid fertilizer. It is much more cost effective to spray liquid fertilizer from a plane than drive a tractor slowly through the crops only fertilizing a few rows at a time and possibly damaging taller crops with the tractor axels, tires, etc. Converting a gasoline engine to alcohol is technically very easy. The problems arise if the plane (or car) has metal or rubber components in the fuel delivery system that are incompatible with alcohol.

As far as I know the Brazilian farmer get only two subsidies: lower than market cost loans, but not by much, from the government controlled Bank of Brazil (It is the largest bank in Brazil and I own shares in it too, but either of two private banks would have been a significantly better investment for me.) and the agricultural service in research, soil testing, etc. are essentially free.
Billy T, because you may not know of the various subsidies does not mean they don't exist. Some are obscure, such as reduced prices for fuel and the government buying the crops to prevent an excess on the market which lower prices. Others are more direct, such as the Brazilian government's subsidy on coffee beans. Here is a cut & paste and link:

Last year, Brazil subsidized sales of 5 million bags of arabica coffee in two auctions. The government gave subsidies of as much as 39.99 reais ($24) per bag to ensure farmers received 300 reais per bag. To qualify for the subsidy, growers had to agree to sell the beans to roasters and exporters at a minimum price of 260 reais per bag.
http://www.bloomberg.com/apps/news?pid=20601086&sid=aL8GK72pmfJw&refer=latin_america

Billy T
04-24-08, 10:26 AM
...Petrobras is a state-owned energy company in Brazil. Brazil controlls the price of diesel fuel, fixed at an artificial low which is offset by higher than normal gasoline prices. It is a support for the alcohol industry (lower prices for alcohol vs gasoline) and a diesel support for the farm and trucking industries. The latest price for I found for diesel in Brazil was .36 Euro per liter from a european publication. That is about $2.22 per gallon, which includes road taxes collected by Brazil on the fuel. ...
PetroBras is a stock company (I own shares in it, via ADR PBR.a There are two other ADRs: PZE & PBR ) but the government still owns slightly more than 51%, appoints the director etc. They also control the price of gasoline in Brazil - it is too low, much below current value in export. (In the last 3 years, while oil has more than doubled, the price of gasoline has gone up in Brazil less than 10%!!!!) It will go up more after the election.

Part I made bold of your post is simply wrong, both in fact and in logic. This keeping artfically low price for gasoline domestically (about 2.60R$/L now I think but I buy alcohol at 1.19R$/L, as even with only 0.7 of the energy it is cheaper per mile) HURTS the sales of alcohol. Pertobras does sell some alcohol, but I think they buy it from some of the approximately 100 different producers. Even the largest tend to have only a few refineries. The reason why my investment on one of them (San Martinho) is currently showing a loss is that the demand is less than the production, which is expanding with an "eye for the future" * These independent producer get NO help from the government - they get lots of hurt in the form of keeping gasoline artificially cheap to not anger voters.

...All "crop dusters" I know of are gasoline powered, not diesel. They must have very high performance, high revving engines to carry out the acrobatic maneuvers with full tanks of liquid fertilizer. It is much more cost effective to spray liquid fertilizer from a plane than drive a tractor slowly through the crops only fertilizing a few rows at a time and possibly damaging taller crops with the tractor axels, tires, etc. ...I would think (but do not know) that none are diesel also as diesel needs stronger (heavier) engines for same power even though diesel is more efficient. One of the advantages of alcohol, in addition to possiblity the farm may make it, (probably does in "drinking quantities";)) is that it give more power than gasoline as it too can use higher compression ratios - but they need not be so high as to eliminate the spark plugs. I do not know but think the "second generation" alcohol powered planes Embraer is working on will have higher power to weight motors than gasoline motors can have. - just putting gas in your flex-fuel car LOWERS the power slightly. Hard to believe but true - see the specs on any of brazil's flex-fuel cars - they give data for both 100% gas and 100% alcohol in tank.

...Others are more direct, such as the Brazilian government's subsidy on coffee beans. ...Traditionally, Brazil has grown lower quality coffee in large volume (say compared to Columbian coffee). Government is trying to get Brazil in on the "Starbucks" market, but cut down old and plant new trees etc. without some government assistance is not very popular idea. This is a "transition problem." Also as your link clearly states, the guarantee of a minimum price is to try to end the concentration of sales just after harvest. Part of reason for lower quality, I think, is that presently the coffee growers strive to be the first to harvest and sell before the price drops. Do not sun dry the beans as long as they should etc.) I.e. this is not like the chronic subsidies in the US. It is not even an assured gift of money as in the US. Probably, no funds will be given in 2008 as the world price of coffee is up, like most food stocks as farmers will get from the market more than the minimum price government is guarantying. Even your link says "MAY" get guarantee again in 2008. I.e. unless the crop looks like it will be big, or global prices fall, they probably will not even get the guarantee!

As I do not believe your: "The latest price for I found for diesel in Brazil was .36 Euro per liter from a European publication. " is correct can you give a reference?
0.36€ x3.7 = 1.332€/ gallon. If €/$ was 1.5 when your article was written that is only 2.00$/gallon, which I would agree is less than half market cost for diesel, if true. As I said, I do not pay much attention to price of diesel at the pump, but think it about 2.30R$/L, which with currently $/R$ = 1.68 = 1.37$/L or $5.06$/gallon for diesel at the pump in Brazil now. (More than your $4.20/Gallon for diesel in US. Our $5.73/Gallon gas price is more than even $4 gas in the US, but the more efficient Brazilian cars probably make the per mile costs about the same.)

You aqre correct that the government does buy an store food crops (as does the US I think Does US gov still have 100s of tons of butter that has been rancid for years? - Why not use it to make diesel, if it does?) Just today in paper I read that Brazil will join many others and not export any rice from the supply it controls and is asking others with rice not too also. They are considering doing the same with corn. Brazil has never exported corn before but is starting to as GWB's stupidity has made corn price increase enough to cover the cost of shipping it. Agrentina has banned the export of wheat, and Brazil imported more than half of its wheat needs from them. - I guess we will be eating corn bread for a while.
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*If the democrates get the white house, it will not take them long to kill GWB's stupid corn to alcohol program and the barriers to importing cheap fuel that does not supply funds to terorists or support the "religious" schools in Saudi Arabis that fill them with enought hate of the US that they gladly flew into US buildings on 9/11. There is a multi-year backlog of orders for the quipment needed to build refineries at Didini, so even if not currently profitable to expand, need to buy now for the day when US is less stupid (less under Saudi control by their agent, GWB).**

**Buying a small oil company as a present to GWB before he was even Gov. of Texas, was a great investment by the Saudis. - Also showed GWB's management skills - It is hard to bankrupt an oil company, but George was able to. - His training for bankrupting the entire USA later.

2inquisitive
04-24-08, 08:17 PM
Billy T,


Part I made bold of your post is simply wrong, both in fact and in logic. This keeping artfically low price for gasoline domestically (about 2.60R$/L now I think but I buy alcohol at 1.19R$/L, as even with only 0.7 of the energy it is cheaper per mile) HURTS the sales of alcohol.
Billy, 2.60 Real per liter is 9.84 Real per gallon. Converted into dollars, that is $5.88 per gallon for gasoline. Gas averages about $3.56 per gallon in the US today. A barrel of oil costs the same for Brazil as it does for the US and all other countries. Brazil places a high tax on gasoline, but places none on alcohol. The price of gasoline is artifically high in Brazil, not low. That is done to promote Brazilian alcohol sales over gasoline, a form of subsidy for domestic alcohol use.


As I do not believe your: "The latest price for I found for diesel in Brazil was .36 Euro per liter from a European publication. " is correct can you give a reference?
0.36€ x3.7 = 1.332€/ gallon. If €/$ was 1.5 when your article was written that is only 2.00$/gallon, which I would agree is less than half market cost for diesel, if true.
As I said, I got the price from a European trade publication, but they did not list the date of the article. I was writing another post last night with more info, but I lost my internet connection for several hours. :mad: The "pump price" of diesel does not reflect what the farm industry pays for their diesel. Part of that high tax on pump gasoline subsidizes the low price the farm industry pays for diesel for their tractors and harvesting equipment. For instance, in the US taxes are not collected for farm diesel. The farmers must have their own storage tanks and pumps, to which distributors deliver farm diesel with a dye added to it. The dye is to prevent truckers from using the diesel on which no road tax is collected. The dye coats the fuel tanks and all parts of the fuel delivery system when used. Trucker must stop at inspection stations which check the fuel tanks for dye, among other things. I have read more than one article where it was stated Brazil sells farmers diesel at artifically low prices prices, offset by the high gasoline taxes.

You aqre correct that the government does buy an store food crops (as does the US I think Does US gov still have 100s of tons of butter that has been rancid for years? - Why not use it to make diesel, if it does?)

I just read that the US has 171 biodiesel plants that are soon to be producing biodiesel from all kinds of stuff, from algae to animal fats. I know that I read of of two such plants under construction in my home state several months ago. Brazil started their alcohol program about 29 years ago, but the US has just recently gotten serious about alternative fuels to oil. It will be awhile before the US program is mature. The 'alcohol from corn' is just a basic beginning because the farmers in the midwest had plenty of land and the necessary farm equipment for growing corn. Corn is only temporary, but it may be a small number of years before the technology and supply of other feedstocks and processes displace corn as the common method.

Brazil has never exported corn before but is starting to as GWB's stupidity has made corn price increase enough to cover the cost of shipping it.
I am not interested in your political rhetoric, Billy T. ALL commodities, ALL grains, raw materials and oil are increasing in price. Emerging markets, gaining wealth, have increased consumption which has lead to tight supplies. The drop in the value of the US dollar has resulted in many investors entering the commodities market for safety and profit, driving up the price of commodities even further. The higher grain prices is a godsend for the world's farmers, but a travesty for the poor that cannot afford the increased prices. The US has not banned corn or any other food exports, but many nations have banned rice exports, which the poorest nations depend on for food.

Agrentina has banned the export of wheat, and Brazil imported more than half of its wheat needs from them. - I guess we will be eating corn bread for a while.
Well, you could eat rice instead of bread. Seems Lula does not care about the starving people in the poor countries, as he has also banned rice exports:

Brazil grows more rice than it consumes and has a reserve that will safeguard the country's supply...Brazil will not meet recent requests by African and Latin American countries for shipments totaling nearly 500,000 tons of rice,
http://biz.yahoo.com/ap/080424/brazil_rice.html?.v=1

Let me bring up one more point about the $.54 "tariffs" the US places on Brazilian alcohol. They are hardly ever actually collected. There are mainly two ways of bypassing the tariff. (1) there is a trade agreement between the US and Brazil that allows the importation of jet fuel by Brazil from the US to offset the alcohol tariff on a gallon per gallon basis. Brazil imports a lot of jet fuel from the US. I imagine the tariff will be eliminated before the new offshore oil fields in Brazil are developed and jet fuel refineries are constructed in Brazil. (2) A lot of Brazilian alcohol is shipped to Carribean nations before it is dehydrated. Cargill and others built dehydration facilities in the Carribean, from which the dehydrated alcohol can be shipped with no tariffs collected. The tariffs are more political than anything else.

Billy T
04-25-08, 10:32 AM
To 2Q:

Some months ago, I read about the taxes on gas and fuel alcohol in my local newspaper: It stated (contradicting your unsupported assertion) that both were equally taxed based on their energy content. I.e. Alcohol has only 70% as much tax as gasoline per liter as it has only 70% of the energy.

Please support with some reference your assertion that fuel alcohol is not taxed in Brazil. Drinking alcohol is of course much more heavily taxed. I have been keeping my eyes open for a couple of years to try to learn what they add to fuel alcohol to keep people from drinking it - still do not know, so if you find out in search trying to support your claim, please tell me.

Also I thought that blue dye was added to both gas and diesel in the USA and sold cheaper to farmers. - Almost sure that was the case 20 years ago. As far as I know that is not done in Brazil - Farm fuel is same as car and truck fuel and does not have any parallel distribution system. I agree my not knowing of it does not mean it does not exist, but I as have about a $15,000share interest in the Brazilian alcohol industry, I read a lot of reports and get at least 6 related Emails every business day. Consequently, as you contradict my belief, I again ask you for some reference which asserts either the use of dye or lower sales price for farm fuels occurs in Brazil.

The farmers do get some government supports in several minor ways. One you mentioned for rice is that the government buys some and uses it to try to stabilize the price. As rice is in the news, today paper (page B6 of Folha de S.Paulo) has some details: Gov. will sell by auction 55,000 tons on 5May to help hold price down. Brazil normally exports 1,500,000 tons and should do at least that in 2008 as price may become R$8 for the 5Kg sacks. THERE IS NO PROBITION ON PRIVATE EXPORT (only foreigners may not bid on sales from government stocks, which are not disclosed but a small fraction of Brazil's annual production.) Brazil has imported thus far in 2008 an average of 66,000 tons monthly, mainly from Argentina and Uruguay, but Argentina just put ban on more exports of most food stocks. (There is now a "war" between the government and the farmers. - The government is foolishly fighting inflation with the short-term measure of price controls. Some farmers are even being sent to jail for holding back their crops, etc.) Climate problems have reduced global production by 3,000,000 tons and many in Asia now eat rice twice per day. These are the main fundamental reasons why rice has increased in price so much, but restriction of exports (sort of government hoarding) and private hoarding, at all levels (even the extra bag bought at SAM’s Club) are making the problem worse – helping some die of hunger.

Another way the Brazilian government helps the farmers, was also in today's paper. Farmers pay back loans in installments over several years. (A good plan as they make more money in some years than in others.) The “due date” of installment now due thru September are set back until 1 October, and those from three earlier harvests are set back until 1 July. This farmer debt total is 66 billion Reais. Also 15 billion R$ due from areas where there was drought or flood loss of the crop is forgiven. (They cannot pay it anyway and no point in putting them into bankruptcy, as is done in the US.) This is possible as the Government does have more than 51% of the stock of the Bank of Brazil from where the farmers mainly borrow.

I made a separate post on two oil companies waking up to the threat of alcohol, which was also in today’s paper, at
http://www.sciforums.com/showpost.php?p=1835076&postcount=319

Here I Just mention that the largest producer of Alcohol, COSAN, makes only 4% of it in 17 refineries with 500,000 hectare of cane (owned or total with purchases?) and has 35,000 employees. Cosan, just paid US$954 for 1,500 "gas station" that were ESSO (still use that old name in Brazil) to become first fully vertical cane- to-pump of the industry. Until 2004 Cosan was owned by Ometto family for 4 generations. Most of the hundreds of refineries still are private. San Marinho, one of the few publicly owned, is 3d or 4th largest and owns only three plants. Point is that unlike government controlled PetroBras, the Brazilian alcohol industry is not consolidated, but fragmented and highly competitive and without government subsidies or help to these rich owners by the left leaning government.

In US of course it is very different. Joe American, may be having his house foreclosed but will send 17 billion dollars of his taxes to a few wealthy agribusinesses. – 80% will go the 10% largest farm corporations, Cargill being one still family owned. Joe either has a big heart or is ill informed and/or dumb as he votes for congressmen doing this every year


It is only because the price of gas is low in US by comparison to ALL in EU and Brazil, that you are stating:

"The price of gasoline is artificially high in Brazil, not low."

(Reminds me of the proud mother watching her son Jonny in a parade and stating: “Look everyone is out of step but Jonny.”)

Only the US prices are out of line - artificially low so as Detroit can sell its gas hogs, instead of the smaller cars the rest of the world uses. This stupidity will cost the US dearly as we now enter the era of expensive energy.
Brazil and EU countries have taxed gasoline higher to make the stock of cars on the road more efficient. It will take the US a decade or more to adjust - time the US does not have. More of US stupidity on display.

2inquisitive
04-26-08, 03:07 AM
Billy T,

Some months ago, I read about the taxes on gas and fuel alcohol in my local newspaper: It stated (contradicting your unsupported assertion) that both were equally taxed based on their energy content. I.e. Alcohol has only 70% as much tax as gasoline per liter as it has only 70% of the energy.
Here is support for my "unsupported assertion". May I ask you to support your unsupported assertion that alcohol and gasoline is taxed equally based on energy content? First is a short review of the ProAlcool program.

The 1986 rebound from the oil crisis and the discovery of oil deposits by Petrobras weakened
the main argument for developing the bioethanol sector, namely independence from oil imports.
The drop in oil prices in 1986 meant that the public purse was no longer able to subsidise ethanol
purchase prices, owing to the excessive differential between the price of petrol and that of
ethanol, which was borne by the Brazilian state.
Developments on the sugar market, which had become more attractive for sugar cane producers,
also played a not insignificant role. Each year, sugar cane producers played off sugar against
ethanol, depending on the price of sugar on the world market.
- During the 1990s, the programme underwent a radical reform. Since 1999 the ethanol market
has been opened up, with an end to guaranteed prices;
The main changes in the ProAlcool programme have been:
- a shift towards the fuel mixture option by withdrawing specific aid for the purchase of
vehicles running on pure ethanol;
- a tax break for ethanol. For example, in the states of Mato Grosso and Sao Paulo, the tax
relief is equivalent to the cost price of ethanol, which means that ethanol sales are almost
wholly exempted from tax.
http://www.europarl.europa.eu/meetdocs/2004_2009/documents/nt/692/692070/692070en.pdf
Brazil stopped subsidizing the purchase price of vehicles that ran on pure alcohol only, but now subsidize flex-fuel vehicle prices.


The October 2007 issue of National Geographic has an information-packed article about ethanol (”Green Dreams,” by Joel K. Bourne, Jr.). The magazine’s Web site also has an interactive biofuel page summarizing key facts about gasoline, corn ethanol, cane ethanol, cellulosic ethanol, and algae ethanol. Some highlights:

In July 2007, the retail price per gallon of gasoline in the U.S. was $3.03 compared to $2.62 for corn ethanol. However, to get the energy equivalent of a gallon of gasoline, corn ethanol cost $3.71.
In June 2007, the retail price per gallon of gasoline in Brazil was $4.91 compared to $2.92 for sugarcane ethanol. To get the energy equivalent of a gallon of gas, sugarcane ethanol cost $3.88. National Geographic does not explain why gasoline is so expensive in Brazil. As Jerry Taylor noted in a lecture available elsewhere on Facts About Ethanol, Brazil imposes a “steep tax” on gasoline. This raises the question: Could ethanol compete with gasoline, even in Brazil, on a truly level playing field?
http://factsaboutethanol.org/?p=264
In this last link, there is another link to a Power Point presentation of Jerry Taylor's lecture. As I said earlier, the price of a barrel of oil is the same on the world market. The price of gasoline in the US is lower than many nations because the US only adds Road Taxes to the retail sale. The Federal road tax is $.18 per gallon, and the state tax varies state-by-state, but is also low. Most countries with a universal health care program, such as the EU, tax fuel heavly to pay for health care and other budget expenses. The US only taxes fuel to pay for road and bridge construction and maintence. That is why farmers don't have to pay those taxes, because farm equipment is off-road use. Trucks that transport farm products over the roads do have to use regular retail diesel.

Consequently, as you contradict my belief, I again ask you for some reference which asserts either the use of dye or lower sales price for farm fuels occurs in Brazil.
I didn't state Brazilian farmers didn't pay road taxes on fuel for farm equipment, only that it was a practice in many nations. I have read in several articles that Brazil places a high price on petrol to offset a low diesel price, but I do a lot of reading and seldom bookmark the articles I read. I have difficulty finding the exact same articles months later. Often the reference to fuel prices have nothing to do with the headline or scope of the article.

Climate problems have reduced global production by 3,000,000 tons and many in Asia now eat rice twice per day. These are the main fundamental reasons why rice has increased in price so much, but restriction of exports (sort of government hoarding) and private hoarding, at all levels (even the extra bag bought at SAM’s Club) are making the problem worse – helping some die of hunger.
I agree with your statement, except about buying restrictions at SAM's Club (and CostCo) as being examples of hoarding. Those stores are selling to the US population (not exporters) and are preventing hoarding by restricting the amount of rice purchased by their customers.

Another way the Brazilian government helps the farmers, was also in today's paper. Farmers pay back loans in installments over several years. (A good plan as they make more money in some years than in others.) The “due date” of installment now due thru September are set back until 1 October, and those from three earlier harvests are set back until 1 July. This farmer debt total is 66 billion Reais. Also 15 billion R$ due from areas where there was drought or flood loss of the crop is forgiven. (They cannot pay it anyway and no point in putting them into bankruptcy, as is done in the US.) This is possible as the Government does have more than 51% of the stock of the Bank of Brazil from where the farmers mainly borrow.
Yes, I have read where Brazil supports its farmers by offering special low-interest loans for the purchase of equipment, fuel, fertilizer, seeds to plant, etc. I think that is a good idea, but the US farmer does not get those special loans from the government. They must borrow at commercial banks and purchase crop insurance in case of crop failure. The crop insurance does not pay full market value for lost crops however, but maybe enough for equipment payments and planting expenses. The farmer still makes little, if any, profit.

Billy T
04-26-08, 12:53 PM
..Here is support for my "unsupported assertion". May I ask you to support your unsupported assertion that alcohol and gasoline is taxed equally based on energy content? Thanks. Your link (in its "history section") does indicate that in 1999 tax relief for alcohol was granted by two states. No tax relief for alcohol by the federal government. Those states would have given that tax relief to a new gasoline refinery also, but there are 100 new small alcohol refineries for every new one producing gasoline, so question never came up. Finally, Brazil and Hugo Chaves are going to buildthe first new one in Brazil in many decades to process heavy crude.
I.e. States did compete for most new factories back then by granting property tax, etc. relief. (The income tax on the new jobs more than made up for the relief granted which was usually for 5 years.) This is now illegal. So I continue to think what I read in newspaper several months ago (Gasoline and alcohol have same tax on their energy content) is true, but can not now cite which issue (an unless you read Portugues, would not do you much good anyway.)

The “current situation” section of your link does not state there is any different tax treatment today. I think it is a good summary as of late 2007. For others, here it is in its entirety, but I could change its “nearly 40%” to “slightly more than 50%” in the bold section. (The “10 million tonnes” is probably about 12 now, but I do not have the correct value. 700 new flex fuel cars are sold every day now and all use 100% alcohol as it is much cheaper than gasoline.) I also added a foot note:

“Today the ethanol production sector in Brazil is booming. Sugar cane producers are looking for new markets which are more profitable than the export of sugar, for which world prices are currently low. It is also important to note the powerful influence of world sugar market trends on the ethanol market. There are still now in Brazil almost 3 million “dedicated" cars (i.e. running on ethanol alone) and
some 16 million running on a mixture of ethanol and petrol. The Brazilian government has also, by means of a tax deduction, resumed subsidies on the purchase of so-called "Fuel Flexible Vehicles (FFV)" (2) which can run either on pure ethanol or on a mixture. In view of their success, FFVs are now being produced by most manufacturers on the market. Total consumption of ethanol as a fuel has risen to some 10 million tonnes (nearly 40% of Brazilian petrol consumption).
The current boom on the Brazilian ethanol market is even attracting foreign investors* (including the main European sugar producers), and accounts for the plans to build up to 14 new factories in the State of Sao Paulo alone. The stated objective is to bring ethanol on to a new world market: the biofuels market. To that end, the first ethanol port terminal, with a storage capacity of 32 000 tonnes, was built in Santos in 2005. The main market targeted by Brazil is Japan, whose government is currently looking at the possibility of imposing compulsory ethanol levels in petrol of between 3% and 10%; Japan has very limited production capacities. The USA and the European Union are also under consideration as markets in the long term. At present, however, in order to encourage internal production, ethanol imports onto these markets are still subject to customs duties (EUR 19.2 /hectolitre in the EU), which for the moment makes them less economically interesting. …”

I do not know what the ”subsidies” on FFV mentioned refers to. They are >90% of the new sales of domestically made cars, but I think that is because they cost the same and are much cheaper to run on alcohol. Initially the FFV were about US$100 more expensive, but now that the fixed cost is distributed over 10 times greater production volume the gas only car is actually more expensive to make. One company, I think VW, has stopped making any gasoline cars so all their factories can be utilized for the FFV cars. Brazil exports many and will make 3 million in 2008. Most will soon stop making gasoline powered cars. - They are lossers now in Brazil.

I will reply to rest of your post later as must leave house now.

*British Petroleum two days ago paid approximate, US$1 million (1.66e6R$) for 50% in new large alcohol producer and PetroBras is planning 2.5 billion US$ in 10 new alcohol plants plus another million in a alcohol pipeline more than 1000km long to a port from the interior not yet used for much agricultural production. (Still far from the Amazon forest of course as they and the huge wet-lands of Pantanal are legally off limits.) More details oil companies see the future fuel is alcohol at:
http://www.sciforums.com/showpost.php?p=1835076&postcount=319about

Billy T
04-26-08, 06:29 PM
Can continue my reply now:
...The Federal road tax is $.18 per gallon, and the state tax varies state-by-state, but is also low. Most countries with a universal health care program, such as the EU, tax fuel heavly to pay for health care and other budget expenses. The US only taxes fuel to pay for road and bridge construction and maintence. That is why farmers don't have to pay those taxes, because farm equipment is off-road use. Trucks that transport farm products over the roads do have to use regular retail diesel.There may be something to be said for this type of thinking, I guess. :shrug: (I.e. money is "ear marked" for particular uses.) My first wife did it all the time: "No that is the grocery money, the movie and beer money is all gone." even if we had plenty of money liquid in the bank.

I have never been a fan of "ear marked money." - For me tax on gas is just the tax on gas. I think it should have been set at level to make the cars smaller and more efficient in the US (as the rest of the world did); to help with the balance of payments problem; and to discourage the migration to the suburbs in recognition that the cheap energy era would end and one did not want to be stuck with the unsustainable "suburban infrastructure" the US has now, which will take decades to significantly change. - Time the US does not have. I.e. set the gas tax level to help the society even if the gas tax is a dozen times higher than the cost of keeping roads and bridges repaired. Not doing this is IMHO another example of stupidity and short sightedness, fortunately mainly limited to the US.


...I agree with your statement, except about buying restrictions at SAM's Club (and CostCo) as being examples of hoarding. Those stores are selling to the US population (not exporters) ... I am not sure, but think the US is an exporter of rice. Certainly buying more bags of rice at SAM's club than one ever has before done, up to their four big bag limit, is hoarding. A few days ago the SAM's clubs in Florida ran out of rice and when this was reported on CNN, they were not able to find anymore (at price they wanted to pay).

On Brazilian bank loans to farmers, I am not sure, but think they are at same rate as other loans with the same risk, but do admit that they often have their terms extended or their principle is partially forgiven. (As stated earlier the government control Bank of Brazil makes most of them so the government can do this.) Brazil does a lot of this and not just for farmers. Not rare to read in the newspaper that some old taxes, still not paid, can be paid until date X with all the interest and penalty forgiven. - Rational is that it is better to collect something than pay lawyers etc. I think the US is now doing some of this "government interference" with contracts in the subprime mortgage loans.

Back when Brazil had terrible inflations, the courts tended to ignore contracts to be "fair," whatever that means instead. For example, if you borrowed X and contract called for it to be repaid 3 years later and no index was included in the contract to correct for the inflation, the courts would make a "fair adjustment." Converting to dollar terms, they would not let you pay back a $1000 loan with six cents, even if that is what the contract would allow. This attitude is still strong - the courts like to be "fair." E.g. "It was not the farmer's fault the MST killed his cows - forgive the debt he incurred to buy them with Bank of Brazil." is what the court may order.

2inquisitive
04-27-08, 07:58 AM
Billy T,

Thanks. Your link (in its "history section") does indicate that in 1999 tax relief for alcohol was granted by two states. No tax relief for alcohol by the federal government. Those states would have given that tax relief to a new gasoline refinery also, but there are 100 new small alcohol refineries for every new one producing gasoline, so question never came up. Finally, Brazil and Hugo Chaves are going to buildthe first new one in Brazil in many decades to process heavy crude.
I.e. States did compete for most new factories back then by granting property tax, etc. relief. (The income tax on the new jobs more than made up for the relief granted which was usually for 5 years.) This is now illegal. So I continue to think what I read in newspaper several months ago (Gasoline and alcohol have same tax on their energy content) is true, but can not now cite which issue (an unless you read Portugues, would not do you much good anyway.)
OK, I looked up some more information to support my contention that Brazil does subsidize alcohol over gasoline. Billy, I don't doubt for a minute what you read in your local newspaper was really printed, but I do doubt truth of the article. The paper was probably printing what the Lula government told them to print. Kind of like the WMD stories printed in the US papers. I never believed those either, except for maybe the potential for chemical weapons. It is just politicians telling us what they want us to believe.


Several steps to make ethanol attractive to consumers by selling it at the pump for 59
percent of the price of gasoline. This was only possible because the gasoline price was
established by Government at a value approximately double the price in USA. Some
years later ethanol sells for 80-85% of the price of gasoline at the pump station. To
preserve this ratio and simultaneously guaranteeing a remuneration of US$ 400/m3 of
ethanol to producers, requires a cross subsidy from the sales of conventional fuels.
Since its inception the fuel price policy adopted to open the way for the use of ethanol was the
following: the government indexed the consumer price of alcohol to the price of gasoline and
charged for gasoline a price which was approximately double the price in the United States.
The proceedings of this "tax'' on gasoline were used to reduce the cost of other petroleum
derivatives (LPG and nafta), and in the case of ethanol to cover its higher production costs.The justification for such a policy was the beneficial environmental and social consequences
of the program.
For example, each liter of gasoline sold by PETROBRAS to distributing companies is
overcharged US$ 0.14, while diesel oil is overcharged US$ 0.01. Through this mechanism it
has been possible to pay producers US$ 0.40/l and sell ethanol in the retail market by US$
0.65/l. On the other hand, gasoline is sold to the distribution companies by US$ 0.34/l (0.20
which is its real price plus 0.14 which is the intrasectorial fuel subsidy) and commercialized at
US$ 0.75/l in the pump station. Such cross-subsidies have the disadvantage that it is tightly
controlled by the Government through the sales price of ethanol, gasoline and diesel oil.
Apart from this cross-subsidy, which was created to subsidize ethanol through taxation in
gasoline and diesel oil, other economic incentives -either to producers or consumers- are practically nonexistent today. In the Northeast region, however, incentives are still offered to
producers within the context of regional development policies.
http://www.premia-eu.org/public_files/D2b_ethanol_Brazil_Oct2005.pdf
Now, these figures were from 2005, so I looked up the amount of taxes collected on gasoline today. I'm sure you recognize the source.
http://www2.petrobras.com.br/produtos_servicos/ing/Composicao/Preco_Gasolina.asp

If you'll notice the price structure, you will see that only 29% of the R$2.49 price of a liter of gasohol is due to the cost of gasoline charged by Petrobras. All gasoline sold in Brazil is government mandated to contain from 20% to 25% alcohol. All is required to contain 25% alcohol today, as it has been for an extended period of time. The 1/4 of the liter that is alcohol costs R$0.2024. The 3/4 of the liter that is gasoline costs R$0.7404. Not including taxes and distribution, a liter of alcohol would cost R$0.81. A liter of pure gasoline would cost R$0.99. Considering the improved milage obtained with pure gasoline, it would be more expensive to drive using alcohol. Even if the bottom fell out of the price of a barrel of oil, you would still pay 41% more for gasoline than alcohol because the Brazilian government controls the price of retail gas at the pump, set to be 41% more expensive than alcohol.

BTW, that $.54 tariff the US has on the books was supposed to offset the $.51 tax deduction given to US blenders of gasoline/alcohol. The blenders recieve the $.51 tax deduction regardless if the alcohol is produced in the US or Brazil. The US taxpayer is subsidizing Brazilian alcohol to the tune of $.51 per gallon when the tariff is not collected, like in the case of alcohol shipments that go through Caribbean countries. Here is another link because I know you will want at least one. (I can give others, also :D)

U.S. corn-derived ethanol costs 30% more because the corn starch must first be converted to sugar before being distilled into alcohol. Unfortunately, despite this cost differential in production, in contrast to Japan and Sweden, the U.S. does not import Brazilian ethanol because of strict U.S. trade barriers (tariffs) corresponding to a levy of a 54-cent per gallon – a levy designed to offset the 51-cent per gallon blender's federal tax credit that is applied to ethanol no matter its country of origin.
http://en.wikipedia.org/wiki/Ethanol_fuel_in_Brazil
Like many wiki articles, the writer of this one had a mistake about the US not importing Brazilian alcohol. I have read many articles on the US imports of Brazilian alcohol, including estimated amounts.

Billy T
04-27-08, 06:51 PM
To 2Q:

Also in your second link (Primera 2005 report) you will find on page 23:
“…After including all the costs (capital, commercial, labour, and social taxes) associated with processing the cane into ethanol, direct labour and social taxes account for 20 to 25 % of the cost of producing ethanol (both growing and processing it). Agricultural labour and social taxes account for more than 60 % of total labour costs. With the liberalization of hydrous alcohol prices in 1999, government intervention largely stopped. Today, authorities regulate the market through changes in the blending rate for anhydrous alcohol and occasional purchases for or sales from strategic reserves and credits for storing ethanol. [12] In ethanol, feedstock makes up the largest part of the overall cost. Brazil has the advantage of having the lowest feedstock costs of all fuel ethanol producers. ....” I note that the dollar farm land values and labor costs at the mimium scale have about tripled and doubled respectively under Lula since they colected their data, so this tax on alcohol is greater now.

These are taxes on alcohol production, only. The production and growing cane is labor and land intensive. (The cane cutters and other workers “social security” payments are made by their employer and the real-estate taxes on the land, mainly.) No directly corresponding tax on gasoline exists. Petroleum does however, effectively pay taxes that alcohol does not also. (All minerals in Brazil, not just oil, belong to the government which collect various fees when they are extracted and in granting license rights to take them from the Earth. Even the states nearest the ocean oilwell sites take a cut.) Thus it is really hard to know how the total of the relative taxes compare.

Much in your 2005 study is no longer valid. Brazil has greatly open up the oil industry at all levels since then and greatly increased it known off shore reserves. Today 71 different corporations are licensed to explore for oil and gas! (All of the oil companies you will ever know the names of and even Vale, the world’s largest exporter of iron ore and some very wealthy persons, such as Eike Basista’s OGX corporation, which has invested 1.3 billion US$ - mainly Eike’s own funds, I think.- data from page B4 of F. de S. Paulo, 20 April 08 issue.) Page B4 of the 25 April 08 issue gives a brake down of the distributer’s market share in article telling that COSAN, Brazil’s largest alcohol producer, had just bought the 1,550 ESSO stations for 954,000,000 US$.

About a month ago, PetroBras got the previously independent distributor Ipiranga in a complex three way share-swapping deal with Brazil’s largest petro-chemical company, BrasChem (think that is correct name in English and that they owned most of Ipiranga.) but it is not yet consolidated. (Some stations will no doubt close or be sold.) A host of small companies have 16.9% of the market. (Many sell “gas” below the cost of gas from PetroBras by illegally adding untaxed paint thinner, etc. I have a 4-wheel drive Russian made Lada, which is able to use low quality gas – but it could hardly go up hills with the cheapest I tried once.) Here it the remainder of the Market Share percentages:
In %:
34.7 BR (PetroBras)
17.2 Ipiranga (Now BR, but may need to divest some to others to drop BR total below 50%)
13.0 Shell
08.1 Texaco
05.9 ESSO (now COSAN)
03.6 Ale Sat (A local net with OK gas slightly cheaper – but no service available usually.)
00.8 YPF (Argentina’s state company, Repsol, mainly near boarder, I think. – I have never seen one.)

Both alcohol and petroleum industries in Brazil are very rapidly changing. Your 2005 report is not reliable now. For example, your link’s statement:
““The proceedings of this "tax'' on gasoline were used to reduce the cost of other petroleum derivatives (LPG and nafta)…”
Was true, but I am almost sure has completely flipped now. A few months ago, before the 3-way deal, BrasChem was demanding that the price of gasoline be increased so nafta from PetroBras would be no higher than the global price. BrasChem’s main plant making polypropylene monomers, etc. is literally adjacent to the main PetroBras refinery and get its nafta via a large, short pipeline. Both units were built by government (and still are the largest petro-chemical complex is at least South America. - Forbes had article on the complex recently. The 3-way deal and stock swap has made more common and less adversary interest between PetroBras and BrasChem, so after the next election, I bet the price of nafta does not go up (perhaps come down?) while gasoline prices certainly will go up. I.e. the above quote will be true again. Gasoline needs to be higher so nafta can have lower cost and polypropylene a more viable export, despite the strong Real. I suspect this was the main reason for the 3-way deal. But PetroBras is surely happy to expand it distribution network. Even Ipiranga stock holders are happy as the share price rose dramatically. (Another big scandal as that was caused several days prior to deal announcement by ”insiders” buying.)

Consolidation in the alcohol industry is just beginning. Never have I seen in any of the reports I get for San Martinho any mention of a “guaranteed price.” Quite the contrary, I often see statements like:
““Margins have been low and even negative at times because of the rapid expansion and new refineries making production exceed demand.”
Here is an exact quote from San Martinho’s third quarter 2007 report (published 10Dec07):
““Adjusted EBITDA was R$ 20.2 million in the quarter, down 54.9% against the 3Q07, also owing mainly to weak sugar and ethanol prices in the period.”
It is little wonder that my investment in them is currently showing “negative profit.” I am in for the long haul and when Japan starts converting to alcohol cars my investment will be more than OK as they are IMHO the best positioned for the future. COSAN’s shares fell approximately twice more in percent, and many of the small single refinery companies will not survive the current over-production, low-prices stress. (Good for the larger one absorbing their assets at bargain prices.)

SUMMARY: I still tend to belief that the DIRECT taxes are the same now and based on the energy content, as paper reported a few (Perhaps even 6 ?) months ago; however I now understand better thanks to your articles that it is almost impossible to tell which is favored more in the overall effects of government taxations and fees.

Certainly, Lula is like most politicians, especially presidents, able to influence the news, but the two main newspaper of Sao Paulo are among the world’s best, IMHO, if you do not mind reading some day-old news. (They ought to be. – They steal from all the world’s best newspapers, plus Bloomberg, Dow Jones, AP, BBC, etc.) Often they are very critical of the government, with their investigative reporters exposing some new scandal at least once every month.
Lula is as a big a supporter of sugar cane alcohol and critic of corn based alcohol as I am. He defends well fact that Brazil’s expanding alcohol production is not a part of the rapid increase in food prices. If there is no sudden adverse weather problems, Brazil will actually have record setting production of several food crops in the current harvest. Lula does blame, as do I, the diversion of large amounts of US food crop land to alcohol production, but states that the other, more important, factor (many poor eating more and better, especially in Asia) is “a cause for joy.” He should know as he was often was hungry as a youth in family so poor that he got his first shoes at age 12.

I think we have so little difference now that we should let thread alone on this, but I thank you for your diligent search/discovery of references and hope you enjoyed my contributions, which were relatively easy as just thing I have read in my newspaper or stock reports with no searching.

kmguru
05-02-08, 11:21 AM
Jobs: 'Not as bad as we thought' (http://money.cnn.com/2008/05/02/news/economy/jobs_april/?postversion=2008050210)

Either someone is cooking the books...or the economy is recovering with all the jobs going to China....it is a miracle....:D

kmguru
06-19-08, 02:34 PM
McCain pushes nuclear power

The candidate calls for building 45 reactors by 2030 and endorses research into clean coal technology.

By Bob Drogin, Los Angeles Times Staff Writer
June 19, 2008
SPRINGFIELD, MO. -- Sen. John McCain proposed Wednesday to dramatically increase America's commitment to nuclear power, calling for a crash program to build 45 reactors by 2030 and a long-term goal of building 100 such plants across the country.

On the second day of a campaign swing devoted to energy security, the presumptive Republican presidential nominee also committed to spending $2 billion a year for research and development "to make clean coal a reality" in an effort to reduce the nation's dependence on foreign oil.

http://www.latimes.com/news/nationworld/washingtondc/la-na-campaign19-2008jun19,0,241561.story

Yay!!:bravo::xctd::yay:

kmguru
06-21-08, 01:28 PM
North American semi equipment bookings decline 37%, SEMI reports


Semiconductor Equipment and Materials International (SEMI) data shows that North America-based providers of semiconductor manufacturing equipment saw $79 worth of orders received for every $100 of product billed for in May. Bookings for the month declined year over year for the first time since 2005.

Read More... (http://email.electronicnews.com/cgi-bin2/DM/y/h6ZT0ONSwU0WZi0DdTq0EU&rid=769995069)

kmguru
06-21-08, 01:35 PM
Nanosolar’s coating machine: Better than printing money?

Solar energy at a buck a Watt – Nanosolar grabbed headlines last year when it pegged the target price of its printed solar cells at $1/W.

This week, Nanosolar put up a video of its 1GW (in annual production) solar ink coating machine, which the company says costs $1.65M. The coater, which works in a normal factory environment, and coats metal film with a proprietary ink based on a Copper-Indium-Gallium-Diselenide (CIGS) compound, is just a continuous-process printing machine, and is inherently cheaper and simpler than traditional silicon wafer deposition processes used in today’s photovoltaic cells. True, the efficiency of the Nanosolar technology is less: 14% compared to ~25% silicon wafer efficiency. But 14% is still very practical.

So, in essence you have a machine you pay $1.65M for and feed in CIGS ink and metal foil, and at the end of the year you have produced 1GW worth of thin-film solar cells which you sell for about $1/W, or about $1B worth of product. Yeah, I’m beginning to see Nanosolar’s business model.

Read More (http://www.edn.com/blog/1470000147/post/1980028598.html?nid=3351&rid=769995069)

http://graphics8.nytimes.com/images/2008/02/01/business/01solar.600.1.jpg

Billy T
06-21-08, 02:37 PM
...Solar energy at a buck a Watt – Nanosolar grabbed headlines last year when it pegged the target price of its printed solar cells at $1/W. ...
True, the efficiency of the Nanosolar technology is less: 14% compared to ~25% silicon wafer efficiency. But 14% is still very practical. ...I do not believe either of those efficiencies, but will try to check my memory*, which tells me that the theoretical limit on silicon solar solar cell is 22%. It has to due with the fact that all photons less than the band gap energy can only produce heat, not lift electron up into the conduction band. (This could be aided by doping to create some states not so far below the conduction band but there are problems with significant doping also.)

There are other limitations in that you must get the energy out as some combination of current and voltages and there is internal disipation inside the cell when that is done. (Open circuit and short circuited cells give zero power.) Sometimes sellers of photo cells like to speak of the quantum efficiency (ratio of electrons pumped up into the conduction band to the number of photons absorbed). This ignores the energy loss when the photon has more than the band gap energy so let the seller talk about higher efficiency. Perhaps the printed cell can get 14% quantum efficiency. Quantum Efficiency is limited by the fraction of the solar photons that have more than the band gap energy.

All phontos with more than exactly the band gap energy difference still only lift one electron up (inintially to a higher resonate level but in micro seconds it cascades down to the un-occupied conductin band levels with release of heat. When this is combinded with the solar spectral distibution, it results in 78% (by memory) of the solar energy becoming heat.

Some have suggested and actually made solar cells with two different materials so that the photons without sufficient energy to elevate electrons in the first material (the larger band gap one) pass thru it (often, if it is thin) and can be usefully absorbed in the second. This technology is only economically attractive in unusual circumstances (Like on a space craft where larger collection area required to compensate for the lower efficiency has big weight cost)

I am not good at searching - can you find independent indication (not from the company selling), of what their Printed cells do achieve in efficiency? I will be very surprized if they can get better than 8%.

PS - This does not belong in the "Global Economy" thread.
-----------------
*Later by edit: Memory not bad for more than 30 years recall:

" ... "We have somewhere between 20 and 30 layers of semiconductor material," explains David Lillington, president of Spectrolab, Inc., which developed the new cell. The resulting layers in one single solar device respond to different spectra of light. The top layer, for example, captures the energy of blue light while the middle layer absorbs green and the bottom uses red. Such triple-junction solar cells are specially tuned to work with concentrated light, in this case the wattage of 240 suns. The resulting efficiency nearly doubles that of standard silicon solar cells, which hover at 22 percent. ... "

From: http://www.sciam.com/article.cfm?id=superefficient-cost-effec&ref=rss

Billy T
06-23-08, 06:52 PM
For those interested here is link to some details about NanoSolar PV cells:

http://www.nanosolar.com/cache/PVSEC17_ns_dft.pdf

It is some four pages (of a Journal?) published in Toyko, but in English. Four or five times in the article is it is claimed that "Nanosolar’s rapid thermal processing of nanoparticle-based coatings resulted in solar-cell efficiencies confirmed by the National Renewable Energy Laboratory (NREL) to be 14.5%, which amounts to a world record for any printable solar cell." to quote from near end of section 1 text.

The article gives 8 references, but none supporting this claim. I remain skeptical, but obviously some investors with money are not. Thus far, not one cell has been provided to any independent organization's test, which has then published their results for its performance, at least I was not able to find any comments directly from NREL about this break thru. Perhaps some one more skilled in searching than me can.

You can not buy any. Their entire production is being shipped to a few who agree to secrecy terms: Here is how the CEO states this:

"Our product will be introduced into the market through a very small group of the most distinguished wholesalers there exist.

For instance, our first 100,000 panels are set to go into a very small number of private commercial installations where we deploy them in fenced or otherwise secured environments. ...

{We are} Focusing on a small number of non-public deployments simply makes everything so much easier for us to manage initially. Plus this also has the benefit of allowing us to secure an additional period of proprietary protection for all the new and product features we have.
All of the remainder of our 2008 product allocations are spoken for already too (for quite some time already in fact). This means that if your local system integrator has not secured any quantities from us, which typically will be the case, the next opportunity is in 2009. "

From:
http://www.nanosolar.com/blog3/

Which seems to be one of several official company blogs. The quote above was in answer to: "How to get hold of our product?" and posted by CEO, Martin Roscheisen on 8 Sept 2007. (There are many post by him there arranged chronlogically.)

Carcano
06-23-08, 08:02 PM
It is some four pages (of a Journal?) published in Toyko, but in English. Four or five times in the article is it is claimed that "Nanosolar’s rapid thermal processing of nanoparticle-based coatings resulted in solar-cell efficiencies confirmed by the National Renewable Energy Laboratory (NREL) to be 14.5%, which amounts to a world record for any printable solar cell." to quote from near end of section 1 text.
Thats the trouble with the most promising companies...they tend to have all the private investors they need, meaning you cant buy stocks.

Same goes for the new ZINK printing technology.

kmguru
07-23-08, 09:00 PM
Here is an opinion by Senator Jim Webb

Class Struggle
American workers have a chance to be heard.

BY JIM WEBB
Wednesday, November 15, 2006 12:01 a.m.

The most important--and unfortunately the least debated--issue in politics today is our society's steady drift toward a class-based system, the likes of which we have not seen since the 19th century. America's top tier has grown infinitely richer and more removed over the past 25 years. It is not unfair to say that they are literally living in a different country. Few among them send their children to public schools; fewer still send their loved ones to fight our wars. They own most of our stocks, making the stock market an unreliable indicator of the economic health of working people. The top 1% now takes in an astounding 16% of national income, up from 8% in 1980. The tax codes protect them, just as they protect corporate America, through a vast system of loopholes.
Incestuous corporate boards regularly approve compensation packages for chief executives and others that are out of logic's range. As this newspaper has reported, the average CEO of a sizeable corporation makes more than $10 million a year, while the minimum wage for workers amounts to about $10,000 a year, and has not been raised in nearly a decade. When I graduated from college in the 1960s, the average CEO made 20 times what the average worker made. Today, that CEO makes 400 times as much.

In the age of globalization and outsourcing, and with a vast underground labor pool from illegal immigration, the average American worker is seeing a different life and a troubling future. Trickle-down economics didn't happen. Despite the vaunted all-time highs of the stock market, wages and salaries are at all-time lows as a percentage of the national wealth. At the same time, medical costs have risen 73% in the last six years alone. Half of that increase comes from wage-earners' pockets rather than from insurance, and 47 million Americans have no medical insurance at all.

Manufacturing jobs are disappearing. Many earned pension programs have collapsed in the wake of corporate "reorganization." And workers' ability to negotiate their futures has been eviscerated by the twin threats of modern corporate America: If they complain too loudly, their jobs might either be outsourced overseas or given to illegal immigrants.

More... (http://www.opinionjournal.com/forms/printThis.html?id=110009246)

Billy T
07-26-08, 09:48 PM
Here is an opinion by Senator Jim Webb...More... (http://www.opinionjournal.com/forms/printThis.html?id=110009246)Thanks fo link. It is very good article but about a decade too late.

GWB has screwed "Joe American" so much that dollar collapse, rapidly followed by worst ever depression, in US and EU is now unavoidable.

I will vote for McCain as I do not want the first black president to get the blame for what GWB has made inevitable.

kmguru
07-27-08, 01:09 PM
I think Obama will be the President. Unfortunately, he would not be able to fix GWB's screw up. So the next black president will take another 100 years....

Jim Webb has a new book: "A Time to Fight"

His website: http://www.jameswebb.com/

In Charlie Rose Show: http://www.charlierose.com/shows/2008/07/21/1/an-hour-with-us-senator-jim-webb

kmguru
08-19-08, 09:14 AM
Searching for the naked truth

The real problem with abusive short-selling


FOR much of this financial crisis, America’s Securities and Exchange Commission (SEC) has cut a pathetic figure, relegated to the sidelines as a hyperactive Federal Reserve tried a variety of creative measures to keep the system afloat. When the market watchdog finally did get in on the act, it was highly controversial: a temporary order restricting short-selling the shares of 19 financial firms deemed systemically important, including Fannie Mae and Freddie Mac, the two troubled mortgage agencies.

The ban on “naked” short-selling—the sale of shares one has not yet borrowed—was announced on July 15th and allowed to lapse on August 12th. Its stated aim was to aid “price discovery”, but many suspected it was a share-support operation. This week saw feverish analysis of what, exactly, it had achieved, and what role, if any, abusive short-selling and other forms of manipulation may have played in exacerbating banks’ woes.

As regards the ban’s efficacy, arguments can be mustered on both sides, and no clear verdict has emerged. The value of the companies on the list rose sharply while it was in place, but the entire market was rallying. Short-sellers do not seem to have been deterred: for the nine American stocks on the list, short positions fell only slightly. And bid-ask spreads on the 19 stocks widened, suggesting the ban damaged market efficiency.

More... (http://www.economist.com/daily/columns/marketview/displaystory.cfm?story_id=11951246&fsrc=nwl)

Billy T
09-05-08, 01:17 PM
Here is the complete list of Bloomberg's "Breaking News" links at 2:20PM EDT on 4Sept08:



•Payrolls in U.S. Fall More Than Forecast; Jobless Rate at Five-Year High

•Mortgage Foreclosures in U.S. Rise at Fastest Pace in Almost Three Decades

•Oil Falls to Five-Month Low on Dollar Gain, Increase in U.S. Jobless Rate

•HSBC's Green Predicts Financial Market Power Shift From New York to Asia

•Nokia Slides the Most Since April After Forecasting a Drop in Market Share

•Russian Stocks, Bonds Tumble; Central Bank Shores Up Ruble After Conflict

•Continental Air Adds $15 Charge for First Checked Bag to Offset Fuel Costs

•Highway Trust Fund Needs $8 Billion Bailout as U.S. Drivers Reduce Mileage

•U.S. Navy Ship Arrives at Georgian Port Where Russian Soldiers Stationed

It is too depressing to open any - I will have a beer and take a nap (who said I was dumb?)

kmguru
09-12-08, 08:02 PM
some items to add:

http://www.sciforums.com/showpost.php?p=2006463&postcount=97

kmguru
09-12-08, 08:22 PM
PowerPoint on Three impending disasters

Manufacturing decline
Oil Crisis
Infrastructure Collapse

see, work in progress at: http://globalmakeover.com/sites/economicreconstruction.com/static/JonRynn/DemocracyOrDisaster_files/frame.htm

Billy T
09-13-08, 10:18 AM
...See, work in progress at: http://globalmakeover.com/sites/economicreconstruction.com/static/JonRynn/DemocracyOrDisaster_files/frame.htmI did. It is a good start but only did quick skim. One thing I noticed is some statements about "services" do not apply to many services. I.e. accounting, etc. services easily go thru the internet - no need to do locally. Even reading routine X-rays taken in US is now sometimes done by Indian doctors who write the report, while US is asleep and deliver it back to US early the next day.

Thus you need to separate "services" into those that must be local (cutting hair, flipping Big Macs, etc) from more knowledge based services, which can be non-local, via the internet.* This will tie in well with your basic point: US is converting to local service economy - Everyone will try to live by trading sex for haircuts etc.
-----------------
*One hears a lot about how "telecommuting will reduce oil demand, save the US" etc. - but that is nonsense. The telecommuter will be in India. Your link in post 126 shows many already are (and not just the "call center" workers.)

kmguru
09-13-08, 10:33 AM
Like most economists, they find out the root cause, but not necessarily solutions. That requires engineering expertise. I sent this to the Obama campaign, let us see if they are smart enough to pick it up and run with it....

Billy T
09-20-08, 01:50 PM
Here is the text of plan to stick Joe American with the toxic trash the banks had:

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.
The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.
{Billy T comment:
This limitation to US institutions is "window dressing." UBS, etc. will just sell their trash to an American firm who will then dump it on Joe American. I.e. it is a Global bail out of the institutions who had no fear of risk, if a profit was to made. - And their courage has now been justified, by the "too big to fail" argument of a government that has been favoring the already rich and screwing Joe for 8 years. Who was in command, facilitating merger, deregulating, reducing corportate and capital gains taxes, etc. when they got so big? This captain will not go down with the ship - The Saudis have made him rich. (and well they should as GWB expanded oil demands and distracted Joe with the silly alcohol from corn idea that only increases Joe taxes and food cost without reducing the Saudi profits.)}

(b) Necessary Actions.
The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other
provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

---------
READ it all at:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aS7kIVsK77hs&refer=home

Come on Joe lets give a cheer for GWB. Not only did he lower your salary's purchasing power, start needless war under his Bush Doctrine (strike first, and jail "enemies" without bothering the courts)* but GWB even gives you kids ~800 billion dollars more** of debt, while making historic transfer of your wealth to the rich, who really support him. That would be a "Bronx cheer" of course.
*GWB knows who they are, trials not needed.
** George's "leaving Office" present, in addtion to having already doubled the national debt. With a trillion and a half, spent in 30 days, you can really grow "big government," creating new federal administration branch offices all over DC - that should help the local real estate market.

Michelle Redford
09-28-08, 04:51 AM
Oh, the economy is struggling. Here in Europe all the stock markets are trading low, it's just not how it used to be. I assume it's got to do with the "dollar fall" and several other factors.

kmguru
09-28-08, 08:48 PM
Perhaps that is because, the Europeans followed American highly levaraged business model- Greed is contagious....:D

Billy T
09-30-08, 12:22 PM
...Greed is contagious....:DYes and wide spread:

SUMMARY (of CEO miss-management rewards):

$361.7 million – Country Wide.
$11.6 million – Fanny May
$12.9Million – Freddy Mac
$42.3 million – Bear Sterns
$186.5 million – Lehman Bros.
$25.4 million – AIG
$66.0 million – Merrill Lynch
$36 million – Washington Mutual
$16 million - Wachovia
$35.6 million – Citigroup
Total of only the CEOs at 10 financial firms = 794 million dollars, OR: About a hundred million each, on average, when side benefits like the corporate jet, private estate in the Caribbean* for meetings, etc. are included.
------------------------
*You would think they could have at least sent Joe American a “Wish you were here.” post card now that they expect him to bail their firms out, instead of send them to jail. Why some (along with many others at lower levels in smaller firms) SHOULD go to Jail, see blue text at:
http://www.sciforums.com/showpost.php?p=2028165&postcount=24
------------------------

I forget the exact number, but Home Depot’s CEO of has the record with his golden parachute alone bringing the total for 11 men to more than a billion dollars, not counting the fringe benefits! Below are their names and a few details. See more at:
http://articles.moneycentral.msn.com/Investing/CompanyFocus/as-banks-broke-down-ceos-cashed-in-slide-show.aspx?OCID=eml_msnnl_6009.13.5.47&REFCD=emmsnnl_6009.13.5.47

A spike in bad loans hammered Countrywide in 2007, and in January it agreed to be purchased by Bank of America. CEO Mozilo's total take-home pay for 2005-07 was $361.7 million, most of it from options.

Fannie Mae fueled the housing bubble by guaranteeing more and more risky loans and purchasing too much subprime debt. Shareholders got wiped out, and CEO Daniel Mudd still took home $11.6 million during the boom years of 2005-07, including $8.3 million in bonus pay.

Freddie Mac CEO Richard Syron did just fine. He took home $12.9 million from 2005-07, including $8 million in bonuses. But regulators did snag his golden parachute, worth an estimated $9.8 million.

Bear Stearns CEO James Cayne cashed out millions in stock before the fall. He took home $42.3 million in his final three years on the job, 2005-07, including $29.8 million in bonus pay

Lehman Bros. CEO Richard Fuld. walked away with $186.5 million from the prior three years. Fuld got most of that by cashing out options. But he also took home $36.8 million in bonus and incentive pay.

AIG shareholders were virtually wiped out in the deal, but CEO Martin Sullivan, who got the boot in June, came out of it a multimillionaire. He raked in $25.4 million in take-home pay over three years.

Merrill Lynch CEO Stan O'Neal left with $66 million for 2005-07, including $32.6 million in bonuses

Under Kerry Killinger, Washington Mutual the largest U.S. savings and loan lost $19 billion but Killinger took home $36 million in 2005-07 including $11 million in bonus pay for his performance.

Wachovia’s CEO G. Kennedy Thompson, who left in June, did well during his tenure. He took home $16 million during 2005-07, including $10 million in bonus pay.

Citigroup wrote down > $57 billion in losses. CEO while the mess developed, Charles Prince, earned $35.6 million in bonus pay during the boom years of 2005-07 and took home a total of $41.5 million.

Billy T
10-01-08, 01:23 PM
Here are Bloomberg's News Stories at 14:35 ET (too scary a list for me to open any):

•GE Gets $3 Billion Buffett Investment, Plans $12 Billion Common Stock Sale
•Manufacturing in U.S. Contracts at Faster Pace Since Last Recession in '01
•Senate Votes Tonight on $700 Billion Bank Rescue; House May Decide Friday ....*
•Lehman's Hedge-Fund Clients Left in Lurch as Prime-Brokerage Assets Frozen
•Ford Motor's, Honda's September U.S. Auto Sales Tumble as Credit Tightens
•Libor One-Month Rates Rise on Rescue Speculation; Overnight Costs Decline
•Fed Emergency Rate-Cut Odds Rise as Index Signals Recession, Analysts Say
•Bush, Paulson Lobby Industry, Congress in Bid to Salvage Bank Rescue Plan ......*
•More American Troops Needed `Quickly' in Afghanistan, U.S. Commander Says

--------------------
*Bad news too as some version of Paulson's plan will probably pass and be signed into law, but it does not even consider the basic cause and only makes sure that this mess will all repeat again soon as none of those responsible for it are punished; they are rewarded instead. (See adjacent post 133 for some of the biggests winners)

For what is needed (Five things) and Plan that might work, See:
http://www.sciforums.com/showpost.php?p=2025940&postcount=1

madanthonywayne
10-01-08, 02:51 PM
Is there any kind of sunset on all this additional power we're granting the government to deal with this crisis?

Roman
10-01-08, 03:31 PM
Is there any kind of sunset on all this additional power we're granting the government to deal with this crisis?

Are you kidding?
Of course not! This is America!
Granting additional power to the government in times of crises is what we do, despite their repeated demonstration that they won't give it up!

Goddamn plebs.

kmguru
10-01-08, 05:16 PM
I had the following concept that no one is talking about. I checked this with several of my engineering firends who think my concept is sound. I would love to hear anyones view. I could be totally offbase....:bawl:

Since 2001, America has been losing Trillions in economy and hence the financial crisis. No one is talking about it.

YEAR.............Trade Deficit..............Equivalent loss in economy (Conservative)
...................Billions....................Bil lions (due to circulation of money)

2001............... 410...............2460
2002............... 470 ............2820
2003............... 535.............3210
2004...............651..............3906
2005...............766..............4596
2006...............817..............4902
2007.............. 790..............4740

This resulted in severe unemployment and underemployment. People are living from their 401(k) or parents savings.

Yet no one talks about it

Billy T
10-02-08, 03:32 PM
Here is oxford analyitic's list of global stress points (No. 1 is highest danger times probability) See:
http://www.oxan.com/oxweb/GlobalStressPoints.aspx?
for display of danger and probability separately on 2D plot.

1 SCIENCE/TECHNOLOGY: Internet collapse (x)
2 CHINA/TAIWAN: Armed hostilities (x)
3 US/IRAN: US strike on Iran (x)
4 INTERNATIONAL: Human avian flu pandemic (x)
5 UNITED STATES: Deep recession (x)
6 INTERNATIONAL: Oil price collapse (x)
7 INTERNATIONAL: Return to protectionism (x)
8 INTERNATIONAL: Terrorist dirty bomb (x)
9 LATIN AMERICA: Disruption to hydrocarbons sector (x)
10 IRAQ: Collapse of state institutions (x)
11 INTERNATIONAL: Chemical/biological attack (x)
12 RUSSIA: Cross-border military aggression (x)
13 NIGERIA: Unrest curtails onshore oil production (x)
14 INDIA/PAKISTAN: Armed hostilities (x)
15 PAKISTAN: State collapse (x)
16 INTERNATIONAL: Commodity price bust (x)
17 SCIENCE/TECHNOLOGY: Increasing climate regulation (x)
18 LEBANON: Civil war (x)
19 ARGENTINA: New sovereign debt default (x)
20 NORTH KOREA: Military conflict (x)
21 HORN OF AFRICA: Return to 'hot' wars (x)
22 CENTRAL ASIA: Risk of major disorder (x)
23 BALKANS: Return to serious disruption (x)

They do not even mention "dollar collapse" - That was interesting to me as that would be No1 in my list. - I must be "way outside the box" again; thinking the un-thinkable. :shrug:

kmguru
10-06-08, 12:31 PM
I sent the post no. 137 to both Obama and McCain Campaign. Replies:

Obama:

"Thank you for contacting us, and for sharing your policy ideas for Senator Obama and Senator Biden. Barack and Joe know well that Washington does not have a monopoly on good ideas, and neither do they. That is why it's important to hear from everyone, and we will take your solutions under consideration."

McCain:

No reply

kmguru
10-06-08, 08:26 PM
Interesting item:

The growth of U.S. trade with China since China entered the World Trade Organization in 2001 has had a devastating effect on U.S. workers and the domestic economy. Between 2001 and 2007 2.3 million jobs were lost or displaced, including 366,000 in 2007 alone. New demographic research shows that, even when re-employed in non-traded industries, the 2.3 million workers displaced by the increase in China trade deficits in this period have lost an average $8,146 per worker/year. In 2007, these losses totalled $19.4 billion.1

The impacts of the China trade deficit are not limited to its direct effects on the jobs and wages of those displaced. It is also critical to recognize that the indirect impact of trade on other workers is significant as well. Trade with less-developed countries has reduced the bargaining power of all workers in the U.S. economy who resemble the import-displaced in terms of education, credentials, and skills. Annual earnings for all workers without a four-year college degree are roughly $1,400 lower today because of this competition, and this group constitutes a large majority of the entire U.S. workforce (roughly 100 million workers or about 70% of all workers, Bivens (2008a)). China, with nearly 40% of our non-oil imports from less-developed countries, is a chief contributor to this wage pressure.

http://www.epi.org/content.cfm/bp219

Billy T
10-17-08, 08:28 AM
An informative summary of how the current mess was created is at:

http://www.forbes.com/global/2008/1027/016.html?partner=globalnews_newsletter

After noting the greed, leverage, CDOs etc. all built on wide spread belief that a "greater fool will buy the house" bubble it concludes with:

"The first casualties of the market's newly acquired realism jolt authorities into a rude awakening, but for good reasons at this point they avoid calling a spade a spade. They are hopeful that the damage can be contained and a gradual cure will be possible. Besides, they know that too frank an assessment of the system's fragility can itself precipitate a devastating crash.

It takes more than a year and a number of piecemeal and increasingly expensive interventions for U.S. financial authorities to finally admit that, despite all their efforts, widespread panic and financial collapse could truly be around the corner. One can almost imagine the circumspect Fed Chairman Ben Bernanke, when asked by Treasury Secretary Hank Paulson on the night of Sept. 17 what institution should be saved next in order to contain the crisis, responding by building on Judy Garland's classic line from The Wizard of Oz: "Paulson, 'I've a feeling we're not in Kansas anymore!' We need to go massive or else.…" They both then go to ask President Bush for the green light to seek congressional approval for the largest bailout in history.

Not surprisingly, officials have a hard time explaining to the public why such a rescue is warranted. They can't openly discuss what's really at stake: a run on the financial system, the occurrence of which would mean bankruptcy for a multitude of financial institutions and the collapse of the U.S. payments system. This, in turn, would paralyze the entire American economy, bringing about layoffs of a magnitude not suffered here since the early 1930s. To avoid throwing gasoline on the fire, political leaders can only vaguely hint to the public that the bailout is about preventing such a calamity, not simply about fixing a credit crunch. But one can be certain that it is the specter of a depression that proves persuasive in the behind-closed-doors negotiations on Capitol Hill and leads to the approval of the bailout ..."

Billy T made sections bold and his comment follows:
They can put even red paint lipstick on this pig GWB and Republican Trickle Down policies have made, but it is still a pig and the depression is coming.
At least future generations will learn that screwing Joe American for the benefit of the already wealthy few hurts all. - A dam expensive education, but perhaps some form of "Social Capitalism" will emerge that works for the benefit of all. - Something resembling what the Nordic countires have followed for nearly a century.

kmguru
10-17-08, 09:34 AM
Unless the underlying cause is removed, if we get out of this, would not another "run on the financial system" happen several years down the road?

Billy T
10-17-08, 04:34 PM
Unless the underlying cause is removed, if we get out of this, would not another "run on the financial system" happen several years down the road?Sure. I did not fore see the current crisis of frozen financial system. I did fore see that the debt had grown so large and war expenses added on top that there would come a day when a run on the dollar would occur. Actually I expected the DOW to be nearly twice its current value as the decline of the dollar accelerated. (Takes more of less valuable dollars to buy the assets (or anything else) represented by the DOW.

The unavailability of essential credit completely reversed the financial picture from what I expected. The dollar has risen as people who must have cash now to stay in business are taking it out of the profits they have made, in the BRICs mainly. Thus, stocks and other investments in the BRIC countries are now depresssed by the surge of foreigners selling (often via funds that focused on these BRICs). When these BRIC stocks are sold, the payment is in the currency of the BRICs, which must be sold to buy the dollars (or Euros & Pounds) the sellers need. Thus, the local currencies of the BRICs are all down as they are in surplus from surge of buying of dollars.

Here is prediction based on this analysis:

When the credit is available again in US and EU, this will all reverse. I.e. Investors will want to re-invest in the BRICs, which are growing economies (approximately 10 trimes faster than the most optimistic growth forecast for the US). So they will be buying the BRIC currencies again and driving up the BRIC stock markets again. I.e. with the dollar relatively strong and BRIC stock down, the really attractive buying opportunity is not in US or EU, but in the BICKs, but I do not trust China or Russia long term. Buy in Brazil and India, via ADRs, if you have dollars.

S.A.M.
10-17-08, 05:05 PM
How do we buy ADRs in India?

Billy T
10-18-08, 09:44 AM
How do we buy ADRs in India?You could via any US broker if you have dollars to pay with. My problem is how do I directly buy shares in Indian firms?" Often I must pay a premium over the current cost of direct buying in India (Fortunately I can at least avoid that for Brazilain shares, but there usually is not much if any premium on the ADR.) India constrains the amount of foreign ownership, expecially of Banks. Last time I looked (more than a year ago) ICICI bank was up against this limit. I.e. if you want to buy its ADR, (IBN by stock symbol) you will need to pay what some one already owing an ADR of it is asking - more than the underlying shares of ICICI and the current exchange rate would make it if more foreigners could own shares in that bank.

I do not know about the Indian stock exchange's listings., but in Brazil there are some BDRs (Brazilain Depostory Reciepts) of American companies. The whole point of XDRs, is that they represent shares in some country OTHER THAN X, which you can buy and sell using the currency of country X. (no foreign exchange losses)

VISIT: http://www.adr.com/ and then click on the left most sub menue "DR search." Then you can restrict your search to a particular country (or in many other ways) Once you find an XDR of interest click on it and get deatils of that company.

It is a great free service. - I feel guilty using it and never paying anything.

If you plan using Ruppees to buy non-indian firms, I would advise against that. (I seldom give advise, but feel quite sure this is not wise for you now) It would have been better back when less than 40 rupees bought a dollar. I don't know what it is now, but all of the BRIC have had American based mutual funds etc. selling (Forcing their stock markets down and their currency to weaken wrt the dollar.) They have no choice, even though most wish they could just ride it thru, because the people who bought shares of the fund are selling to get the cash they need and the banks will not lend (and some just because of fear).

Wait until this credit is available to them again and then this will all reverse - the Rupee will be stronger and the indian stocks, which have been very badly beaten up by the lack of available loans and fear, will double in less than a year. - I just bought more of IBN - at same price I paid about 5 years ago! I.e. currently I am just even on my holdings of IBN, which is my main holding in India. (all my 6 fold gains at the peak have been wipped out ON PAPER, but I am in for the long haul - they will return as India has 7% GDP growth, not the negative one of the US. Do not use rupees to buy in the US now.

S.A.M.
10-18-08, 09:54 AM
ICICI has been hit by Lehman exposure, though they claim to have sufficient liquidity to cover it. I don't know how you would directly buy shares in Indian firms, we go to Dalal Street and do it directly from the Stock Exchange there.

Billy T
10-18-08, 10:15 AM
ICICI has been hit by Lehman exposure, though they claim to have sufficient liquidity to cover it. I don't know how you would directly buy shares in Indian firms, we go to Dalal Street and do it directly from the Stock Exchange there.Yes. That is true, but more important was the organized rumor mill that the police are now investigating. ICICI is solid - it makes much of its loans from deposits, not like the typical US bank which borrows more that 100% of deposits to make long term loans. That risky policy of most US banks is why many are in trouble (they were lending money borrowed, not their own)

The larger banks in Brazil are also solid (52% of deposit held by the government by law currently) Why they must charge extremely high interest rates on their loans (and pay the world's highest REAL interest rates on the savings accounts in them - My "world has gone to hell surive on funds" are invested there. - The interest alone will cover my cost of living.) This high reserve requirement plus the greater than 13% base interest rate are the main controls keeping the Brazilain economy from an unsustainable double digit GDP growth and with a low inflation rate. They could be relaxed if Brazil ever needed to stimulate - here the problem is keeping inflation and growth rates about equal and under control. US will soon have "hair curling" inflation rate.

kmguru
10-18-08, 10:26 AM
Here is another interesting item:

Crisis may make 1929 look a 'walk in the park' (http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2821629/Crisis-may-make-1929-look-a-'walk-in-the-park'.html)

http://www.telegraph.co.uk/telegraph/multimedia/archive/00885/money-graphics-2007_885225a.gif

Twenty billion dollars here, $20bn there, and a lush half-trillion from the European Central Bank at give-away rates for Christmas. Buckets of liquidity are being splashed over the North Atlantic banking system, so far with meagre or fleeting effects.


Read more from Ambrose Evans-Pritchard (http://www.telegraph.co.uk/money/main.jhtml;jsessionid=FSMJQLIHJOIUVQFIQMGSFFOAVCBQ WIV0?menuId=242&menuItemId=10299&view=COLUMNIST&grid=F7&targetRule=14)
Is the crisis getting worse? Get the latest comment (http://www.telegraph.co.uk/subprime)
The financial outlook in 2008: Experts' predictions (http://www.telegraph.co.uk/money/main.jhtml;?xml=%2Fmoney/exclusions/hubpages/outlook2008/outlook2008.xml&_requestid=529790)

Billy T
10-24-08, 08:04 AM
“$49 billion left {US} mutual funds in September alone. We've {MorningStar} been tracking redemption data since January 2000, and that's the largest one-month outflow that we've seen to date. Yet, it looks like October is on pace to beat it. … The markets for stocks and bonds have a natural mechanism in place to deal with it; for every seller, there has to be a willing buyer at that price, or the sale can't happen at that price. Not so with mutual funds. Mutual fund owners have the right to sell back their shares on any day they please …If those redemptions force the fund manager to sell securities at lower prices, the investor who redeemed doesn't bear the cost. Rather, it is spread across the entire pool of investors still in the fund. … Cashing in during a fear-stricken period like the one we're in now is like watching a bad horror flick where the plot is clear and predictable from the very start.” {Billy T made his prediction of where it all ends some years ago –world’s worst depression.}
From: http://news.morningstar.com/articlenet/article.aspx?id=259687

In addition to this self accelerating feedback there is the un-winding of the carry trade, especially with Japan. (Now dollar only buys 92 Yen. Not long ago it would buy 120. If you borrowed yen back then, even at only 1% interest to invest in high yield country like Brazil (getting ~15% interest) and now if your Yen loan must be paid, your great gain has turned into a great loss, which is growing bigger as the Yen gets stronger still. Fact that you must buy Yen to pay off the loan is demand for Yen, which is driving the value of the Yen even higher. This is another factor pulling funds from the BRICs etc. where high yields were available, but BRIC stocks are depressed – a bad time to sell – So both to un-wind carry trade and to get essential business funds, which banks will not lend foreigners are selling in the BRICs.* For example, In Brazil stocks have lost more than 50% of their peak value in local currency (less in dollars) as foreigners have pulled 7.6 billion dollars out of Brazil (during June, July & August) and 5.2 billion more in September. Even holders of Gold are selling it to raise cash and have driven the value of gold down to $692/ oz, despite most thinking all the new dollars being pumped out will surely make for increased rate of inflation. (Look how steep the yield curve has become – Only with much higher than short term bond interests can long term bonds be sold.). Even China, is “hurting” if you can call an 8% GDP growth rate projected for 2009 “hurting.” With the double whammy of oil down >50% from the peak and these above drivers, the Russian stocks have lost more than ¾ of their peak values. India is almost in the same boat as the Russian, at least in Rupees, if not in dollar values.
--------------------------
*I invested in Brazil and India more than 6 years ago –as I foresaw all this coming. My paper gains, averaging about 700% at the peak, have been cut (on paper) to only about 250% now; however it is important to note three things, essentially certain to happen:

(1) The flood of new dollars and credit guarantees WILL free up the frozen banks, thus ending the selling of mutual funds and directly owned assets in the BRICs,which was forced by business that must replace essential equipment or to restock or pay salaries, etc.

(2) The un-winding of the carry trade WILL complete, ending also this forced selling in BRICs and the value of the Yen (in dollars) will drop (more than 100 required to buy a dollar again) at least until the dollar run begins.

(3) High interest rates WILL be required to sell treasury bonds, even the short term ones and probably there will be “negative sales" of the longer term bonds. (Not "rolled" redemptions exceeding sales - this making even more debt to finance.) The need for borrowing will surge (GWB’s trillion dollar budget defict in 2008 assures this, even before the tax cuts both McCain and Obama are promising.) As the average duration of the US debt gets shorter, and interest rates climb (existing bonds worth less), there will come a day when the holders will no longer bear their growing losses – just want to get out at the current loss before it gets greater – a “bear market” run on the dollar, as all try not to be the last to sell. – Where will these funds go?

Answer: into more stable currencies of the BRICs (and Canada, Australia and NZ plus a few others) and gold etc. Brazil, with no foreign debt and ~200 billion dollars in reserves, inflation well controlled, major exporter of food stocks, mineral, and increasing of oil energy, is especially attractive. I.e. My investment here will surpass their old peaks, and in dollars (which are then rapidly dropping in value) soar to the heavens, but who wants dollars after the run begins?

Can you spell: “Depression”? (Worst ever in US and EU, with “run-away” inflation as dollar and Euro lose value.) – I warned you some years ago with posts . Hope at least some of you did buy TIPs, if not assets in Brazil and India. (I said back then, and still do, that I do not trust Russian and China, not to simply confiscate foreigner’s investments. Stick with democracies.) GWB’s stupid policies: Republican trickle down tax relief for the rich (which built the modern factories in China etc.) and needless wars have made that depression unavoidable now. Have you not notice that nothing** the central banks do seems to be working? But they will, at the cost of run-away inflation, get the banks lending again. (No one, even the banks will want to be stuck holding dollars that are dropping rapidly in value.)

**Oct. 24 (Bloomberg) ”The cost of borrowing in dollars overnight in London rose as the increased likelihood of a global recession spurred banks to hoard cash [b]even after policy makers pumped record amounts of the U.S. currency into financial markets.[b] …”
{more will still be required, more debt, but Hey – What are printing presses for if not to print dollars and Euros? :shrug: :confused: :eek:}

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=aHVZp4cYDJ8Y&refer=home

Read the full article to see how busy those printing presses have been already; for example: ECB is sure doing its part - On Oct. 21 its lending to banks reached a record 773.2 billion Euros ($979 billion). Etc. for many others.

I have an old thread called “How dumb can US voters be.” I made it a few weeks prior to GWB’s second election – that gave me my answer.

kmguru
10-24-08, 08:20 AM
Billy T: Can you watch the following video and give your opinion as to what has to happen that will prevent these large swings. What I want to do is design an intelligent computer software and sell it to the Treasury that watches world financial trade and reports in a dynamic way to take action before the disaster. Whether I can do it, I am not sure...If you are the boss, what type of intelligent software you need? (If I am successful, we will talk offline)

http://www.charlierose.com/shows/2008/10/23/2/a-conversation-with-david-smick

http://www.charlierose.com/shows/2008/10/23/1/a-conversation-with-paul-krugman-2008-nobel-prize-winner-economics

Billy T
10-24-08, 10:15 AM
Billy T: Can you watch the following video and give your opinion as to what has to happen that will prevent these large swings. ...I listened to first (with lap top's speaker pressed to one ear while jumping between CNN & BBC TV viewing) He would not agree with my expectation of a coming depression, but was intersting. One point especially: his first job more than 50 years ago with Bear Sterns as clerk paid $32/week and BS was only one of "hundreds" of investment banks. Now there are none! Back when investment banks made investment (instead of derivatives to sell to others). They, as he said, built the railroads, the factories, the American industry. Now one need only look at China's still 8% growth, new electric plant every week coming one line, etc. to see where the investment is building infrastructure, more effcient factories etc. America is now populated with fast buck con-men at the top of the financial firms not what it once was. "As yea sow, so shall yea reep." - still applies. (US can not get wealth by one bunch of lawyers suing another over some money scheme gone sour. You must produce something of value, not out trick someone else.)

The other link did not work -told me Krugman not available now, but I have seen his getting to be routine talk after the Nobel several times. He has been one of the strongest critics of the GWB admistration with a wide NYTimes voice (nothing I was not saying earlier, but only few hundred at most read me here and most just skim my long posts as too boring.)

I have little faith in computer programs, aidding much but you can try. I will try to answer specific questions, but not sure what you want my opinion about - I have been posting it, mainly to try to make it clear that if the depression comes when Obama is POTUS, he bears NO BLAME. - Duty of old civil rights leader to make this clear. He will be blamed by the red necks and many Republicans, none -the - less as they seldom own the messes they make. I do not think the high volity can be stopped - it is simple greed vs fear sweeping over the markets in waves. Computer can neither experience not anticipate these irrational human emotions, IMHO.

kmguru
10-24-08, 02:57 PM
(US can not get wealth by one bunch of lawyers suing another over some money scheme gone sour. You must produce something of value, not out trick someone else.)


That is exactly my sentiment for a long time...

As to computer programs, do not think what can be done or not, all I am asking is if there was a hypothetical program that watches over millions of transactions and uses the same logic as the product basis of these investment institutions...what it should be looking for? The Treasury is saying that the Office of Financial Stability will hire a lot of analysts to watch over these activities. The opposition is saying that, the wall street will be a step ahead doing high risk ventures that the analyst will neither have time or can not analyzed convoluted products going through so many hands. The seer number of transactions make it impossible for say 100 people to keep tab on everything.

So, what should my theoretical AI be looking for given the available data from various sources. Assume, human emotion is part of the program as it will be integrated to human elements.

The reason I am asking you is that you have a better understanding of uncontrolled variables, transfer functions, feedback systems etc....(a system dynamic model aspect)

The other reason is...as you say...it is not over...and just starting...have you read the book Black Swan (Nassim Taleb) yet? I am picking up Smick's book (The world is curved) today from the library.

Billy T
10-25-08, 04:06 PM
From 13 October issue of Forbes:

"Consumer spending accounts for three-quarters of the $14 trillion U.S. economy. But this time spendthrift Americans, reeling from multiple blows, may not be able to come to the rescue. Their homes are still falling in value; stock market volatility has set everyone on edge; cash-out refinancing has nearly disappeared; and credit from other sources will soon run dry. People are losing their jobs. Personal debt (mortgage and other) hovers at 100% of annual GDP. Even if people wanted to spend it's harder than ever to do so. Says former Bear Stearns economist Conrad DeQuadros, now at consultancy RDQ Economics: ' The greatest pain is yet to come.'..."

"International Monetary Fund study says a triple witching hour of housing bust, stock market bust and credit contraction--a nasty confluence that hasn't happened in the U.S. since the Great Depression--could prolong the economic pain for several years. Home values, according to the S&P/Case-Shiller Index, are off 19% from two years ago and still falling, albeit at a decelerating pace. {More recent data shows a 5.5% increase in sales volume because average price fell 9% in last month! Some people now selling regardless of price - panic selling, like in stock market.} Falling values mean that even if you've been dutifully making mortgage payments, you end up owning less and less of the roof over your head. The average ownership stake now stands at 45%, down from 56% in 2002 and 75%-plus in the 1950s. If your equity shrinks, you have less access to credit and can't use your home as a piggy bank to pay for vacations, renovations, iPods and flat-screen TVs. ..."
See full article at:
http://www.forbes.com/forbes/2008/1013/046.html?partner=daily_newsletter
Blue insert by Billy T.

kmguru
10-25-08, 06:44 PM
Consumer spending accounts for three-quarters of the $14 trillion U.S. economy.

One thing I did not understand is that when USA claims to have a $14 Trillion GDP, does that make any difference as to whether the country produces actual goods or borrows money to import goods? Are they the same thing?

Billy T
10-25-08, 07:27 PM
One thing I did not understand is that when USA claims to have a $14 Trillion GDP, does that make any difference as to whether the country produces actual goods or borrows money to import goods? Are they the same thing?I do not know details of GNP, but guess that paying with saved or borrowed money is the same. I think that GNP grows only by the "value added" in real commerce. For, example if I pay $6 for some wool , make a sweeter and sell it for $18 then GDP increased by $12. If A's cat has 5 kittens and none are sold, then no change in GDP; but if one is sold to B for $10 and other four sold to C for $5 each, GDP has grown by total of $30.

Where it gets tricky is how to recognize "false tranactions." For example, C sells all four to B for $10 each, increasing GDP by $20 more (to a total of $50) as C made $5 on each. Now B soon discovers 5 cats is too much and his is out $50 but he gives them all back to A, who does not want them either. A puts them in a sack with brick and throws them in the river, restoring same condition as pre birth, but seems like GDP is up by $50 as if no kitten were ever born.

Summary of Gains:
A got $10
B got -$50
C got $20

Damn if I see how GPD grew by $50.

As I said, I do not know the details. Where is quadraphonics when I need him?

kmguru
10-25-08, 09:00 PM
Real GDP since 1820. Not much has changed...it looks like a steady 1.8% rise over the long run

http://2.bp.blogspot.com/_hFBrxxmKMXs/SOUT0d79YNI/AAAAAAAABFs/_NQFaG_KkBQ/s400/graph_2_SF.png

http://bubblemeter.blogspot.com/2008/10/two-centuries-of-american-per-capita.html

Over these years we had violent financial crashes of various types, bank panics, piles of recessions and a huge depression, many foreign wars and one enormous domestic war, had a central bank and didn’t, were on the gold standard and weren’t, had governments topple in scandal and multiple leaders assassinated, and what did it all amount to in the medium to long run? In per-capita income terms: Nothing. The overall trend does not bend or shift. Every bad year was followed by a good year that returned us to trend.

The US average growth rate of real per capita incomes over the last 190 years has been 1.8% a year, and the same rate over the last 10 years has been…. 1.8% a year.

Stare at that graph: The Great Depression was traumatic in countless ways, but astonishingly, it’s not clear that we are any worse off today than we would be if the whole thing never occurred. Anyone who made such a claim in the 1930s would have been scoffed at, but that’s what happened.

kmguru
10-25-08, 09:10 PM
Interesting on GDP

GDP measures the market value of everything produced by labor, plants and properties in the U.S. — a total of $14.3 trillion for the second quarter. The government agency charged with calculating the first estimate of each quarter's GDP has less time to do so than a ten-branch bank has to file an earnings report.

GDP is a crucial variable in setting monetary policy, such as short-term interest rates, but critics say the effort to gather and calculate the data is underfunded, hobbled by government agency infighting and overly reliant on assumptions.

Criticisms of second-quarter GDP were more granular. Disbelievers say it was skewed by some of the conventions that make it consistent from one quarter to the next and strip out foreign inflation.

The first problem with calculating GDP is how unwieldy it is.

GDP is supposed to be a summary of the domestic economy. So a $30 copay to a West Virginia internist, a $3,000 rental payment for a Cleveland office and a $30 million shipment of U.S.-built backhoes from the Port of Los Angeles are all supposed to be baked in.

So are haircuts, tuition payments, employer's payments for benefits, each shopping spree by a British tourist in New York City and every penny spent domestically by the government — whether an Indiana dog catcher fills up a town truck with diesel or the Navy orders a U.S.-made aircraft carrier.

http://www.iht.com/articles/ap/2008/09/08/america/Uneasy-Economy-GDP-Challenged.php

kmguru
11-08-08, 05:49 PM
The credit crunch reaches Brazil Inc (http://www.economist.com/world/americas/displayStory.cfm?source=hptextfeature&story_id=12562273)

JUST a few months ago, Brazil’s economy was growing at its fastest pace since the mid-1990s, driven by record commodity prices and record credit growth. The country’s president, Luiz Inácio Lula da Silva, declared confidently that “Bush’s crisis” in the United States would not affect Brazil. It all looks very different now. Credit is becoming scarcer and banks more suspicious of each other.

http://media.economist.com/images/20081108/4508AM1.jpg

Billy T
11-09-08, 07:45 AM
... The country’s president, Luiz Inácio Lula da Silva, declared confidently that “Bush’s crisis” in the United States would not affect Brazil. It all looks very different now. Credit is becoming scarcer and banks more suspicious of each other. ...I have never suggested that Brazil would not be affected as the US and EU sink into depression. I have said that Brazil would become an "economic colony" of Asia, but have a modest, but still positive, GDP growth of a couple of percent. (and that China's would drop to only twice that US's long term average, if the depression comes soon - before all their production capacity is needed to satisfy domestic demand and the long term contracts China is signing in Africa and South America.) Politicians often say things that they believe their public wants to hear. Lula is no exception in this regard.

Years ago, every Brazilian state had it own bank. Sao Paulo's was called BaneSPa but about 3 years ago the Spanish bank, Santander, bought it. These state banks were very bad for Brazil as the governors and even local mayors of the same party, used them to fund "make work" projects that helped get them re-elected around election times (no one of voting age wanting a job was unemployed for a few months) etc. Fortunately few (>25% ?) still exist. Bank of Brazil, the largest still until the merger between Itau & Unibank is official (great photo, BTW of two adjacent offices one of which will surely be closed). Just today Bank of Brazil* announced it will pay 13 billion Reais for bank Votorantim (a competitor, but not a state bank)

Banks all over the world are consolidating both for the economies your photo illustrates and to hold their own in the increasingly global financial world.

Now about that tight money - yes it is growing tighter here, but that is mainly because the inflation of the last 12 months is now 6.41%. In Jan 2008 the prior 12 months inflation was only 4.56%. The goal is 4.5+or- 2%. I am quite confident that at the next meeting (of Brazil's FED) the interest rate will NOT be reduced to stimulate the economy as has repeatedly happened in the US. Brazil is very serious about keeping inflation below 6.5% so I expect the basic rate to go to 14% from the current 13.75%.

The US has abandoned any effort at controlling inflation. It will have both depression (low economic activity, high unemployment, etc.) and inflation.

GM may not be able to pay its workers before Obama is POTUS, if the CEO is not just saying that to increase the probability that the US bails GM out. If GM goes bankrupt, Ford will quickly follow despite having borrowed much more before the credit crisis hit. This is because in bankruptcy, GM will be able to tear up it contracts with the UAW and produce more cheaply than Ford until it too goes bankrupt. I bet both are in bankruptcy by end of 2009, or before. GWB transferred so much wealth to the already rich that Joe American cannot afford a new car now.
--------------
*BB is a hybrid - Federal government owns more than 50% but many including me, are share holders also. It is subject to too much political pressure to fund projects of national interest.

kmguru
11-10-08, 04:57 PM
DHL To Cut 9,500 Jobs In U.S. (http://www.manufacturing.net/News-DHL-To-Cut-9500-Jobs-In-US.aspx?menuid=38)

FRANKFURT, Germany (AP) -- Deutsche Post AG will close all of its DHL Express service centers in the U.S., cut 9,500 jobs there and eliminate U.S.-only domestic express shipping by land and air, the company said Monday, citing heavy losses and fierce competition.

The Bonn-based company said the new round of cuts are on top of another 5,400 job cuts it already announced and blamed heavy losses at the unit, which competes with rivals UPS Inc. and FedEx Corp.

Deutsche Post investors cheered the decision, sending the company's shares up 7 percent to 10 euros ($12.90) in Frankfurt trading.

The cuts are part of a wider plan to curtail operations in the U.S., including domestic ground and delivery services though its international shipping to and from the U.S. would continue. The Express unit currently employs some 18,000 workers.

However, Deutsche Post said the U.S. remained a key market and that its other operations there, including freight and global mail and other logistics, won't be affected by the closings.

Deutsche Post's U.S. logistics unit employs more than 25,000 workers in the U.S.

Billy T
11-11-08, 07:49 PM
...However, Deutsche Post said the U.S. remained a key market and that its other operations there, including freight and global mail and other logistics, won't be affected by the closings.

Deutsche Post's U.S. logistics unit employs more than 25,000 workers in the U.S.So less than 25,000 US jobs to be lost. I think, but do not know, that circuit city going under will kill more US jobs than DHL's cut back.

kmguru
11-11-08, 09:06 PM
circuit city demise is 5 years in the making. I had the opportunity in working there then and learned a lot from my interview process.

Vkothii
11-11-08, 11:08 PM
The US car manufacturing industry is looking increasingly shaky, the predictions are firming that it won't survive the crunch, another zinger for young George.

Billy T
11-12-08, 07:42 AM
http://zfacts.com/metaPage/lib/National-Debt-GDP.gif

Note that about 1 trillion more has been added since the 30Sept08 end of the data displayed in the graph and GDP growth is now negative, so Reagan, and two Bushes have burdened the US economy as much debt as WWII did! But of course, it is the Democrates who are the "big spenders" :rolleyes:
circuit city demise is 5 years in the making. ...Essentially ALL of the US's current troubles are 5, or even up to 8, years in the making as Joe American's real purchasing power has been decreasing during this "post-Clinton" period, while the rich have had (until recently) about 25% (or more) gain in their wealth. The surpluses Clinton had and the budget handed to GWB with surplus of 125million were immediately converted into a string of ever larger deficits, finance mainly by foreigners, especially Asians and oil producers.

The damage GWB was doing to USA is why I started the thread "How Dumb can US voters be?" about 4.5 years ago in a failed effort to deny GWB a second term.
I foresaw* even back then that he, and his Republican "trickle down" ideology was building the modern factories in China that were taking Joe's jobs away.

Some laws do exist in economic behavior. One is: Investors invest where they think the return on their investment will be greater.

Five years ago the GDP growth rate in China was more than four times the US's GDP growth rate, and the market four times larger also.
If GWB gave you a big tax reduction freeing up funds for you to invest where would you build your new car factory?

Trickle down works, but the investment need not (and did not) build factories in the USA - Instead it built factories in China and then the competition closed factories in the USA.

In hindsight - even most Republicans can understand this, but some like religious fanatics, are too blinded by their faith to see the obvious.
---------------------------------
*Early in GWB’s first term, during his first recession, I received a $300 “stimulus check” from US treasury under the “Trickle Down” Theory. I had no need of it and never buy anything just because I have money in my pocket, so I went to the bank to deposit it to my savings account. There was a line, and I saw two others doing the same thing. That is when first understood how badly GWB was running the US economy. My $300 probably was lent to some corporation investing in a Chinese factory.

I should have been a “good Joe” and bought some not-imported beer with it. Sorry I behaved badly and contributed to the comming depression.

Billy T
11-13-08, 04:38 AM
Still headed down, but how low will it go? Will there be a bounce up before the depression starts? - I think so, but perhaps not if GM dies before 20Jan09.
http://www.kciinvesting.com/article_images/lei111208.gif
Source: National Bureau of Economic Research, Bloomberg

"...This chart shows the year-over-year change in the US index of leading economic indicators (LEI) going back to the early ’80s. The LEI is nothing more than an index that summarizes the performance of 10 key economic indicators, including building permits, stock prices, interest rate spreads and manufacturing orders.

When it comes to economic analysis, sometimes it helps to keep it simple. When the year-over-year change in LEI falls below zero, the US is likely slipping into recession. As you can see, the LEI called the recessions in 2001, the early ’90s and the early ’80s.

The US economy is in recession and so are some of Europe’s largest member states. I suspect that the US recession will be longer and more severe than either the 2001 retrenchment or the recession of the early 1990s. ..."

FROM: http://www.kciinvesting.com/articles/9663/1/Supplying-the-Energy-Demand/Page1.html

Billy T
11-21-08, 07:18 AM
"GMAC has filed to become a bank, a shot at getting a slice of the $700 billion Troubled Asset Relief Program bailout. Private equity firm Cerberus Capital Management LP owns 51% of GMAC. General Motors Corp. (GM) owns the other 49%"- Reuters reported.

Billy T comments:
I too am filing to become a bank holding company. I have three banks under my control: Pink Piggy, OCB (old cigar box); and Coffee Can. I dare them to discriminate against us little guys. We will act once Obama is POTUS, if they do. - Yes, that is a threat.

PS after close of market today GM stock's total value will barely cover the legal fees of the filing for GMAC to become a bank holding company. Fortunately Cerberus will pay 51% so GM will still have funds to file Chapter 11.

Billy T
12-01-08, 06:22 PM
I have been saying for years it would come to this (FED buying Treasuries or "printing press money"):

" ... Bernanke has created more than $2 trillion of emergency lending programs in the past year, using the Fed’s balance sheet and money-creation authority to cushion the economy from the worst financial crisis in seven decades. ... “Although further reductions from the current federal funds rate target of 1 percent are certainly feasible, at this point the scope for using conventional interest-rate policies to support the economy is obviously limited,” Bernanke said in remarks to the Austin Chamber of Commerce.

One option is for the Fed to buy “longer-term Treasury or agency securities on the open market in substantial quantities,” Bernanke said. “This approach might influence the yields on these securities, thus helping to spur aggregate demand.” ..."
From: http://www.bloomberg.com/apps/news?pid=20601087&sid=ajcLVDMwN5To&refer=home

Billy T comment:
Yes it sure will increase demand for real assets to preserve value as the dollar's value side rapidly down. At present still, there is demand for "safety of dollars," but with trillion dollar annual deficits extending as far into the future as one can see, there will come a day soon when some simple little boy says:

"Look Mom, The king has no clothes!"

2inquisitive
12-01-08, 09:46 PM
Billy T,

I have been saying for years it would come to this (FED buying Treasuries or "printing press money"):
Billy, I am no economist, but neither are you :D. The 'money creation authority' you placed in bold does not mean the Fed is 'running the printing presses'. For the most part, the 'money' that is created is electronic, not physical dollar bills. Here is a little cut & paste for those that are interested in how it works:

Open market operations are the means of implementing monetary policy by which a central bank controls its national money supply by buying and selling government securities, or other financial instruments. Monetary targets, such as interest rates or exchange rates, are used to guide this implementation.[1]

Since most money is now in the form of electronic records, rather than paper records such as banknotes, open market operations are conducted simply by electronically increasing or decreasing ('crediting' or 'debiting') the amount of money that a bank has, e.g., in its reserve account at the central bank, in exchange for a bank selling or buying a financial instrument. Newly created money is used by the central bank to buy in the open market a financial asset, such as government bonds, foreign currency, or gold. If the central bank sells these assets in the open market, the amount of money that the purchasing bank holds decreases, effectively destroying money.

The process does not literally require the immediate printing of new currency. A central bank account for a member bank can simply be increased electronically. However this will increase the central bank's requirement to print currency when the member bank demands banknotes, in exchange for a decrease in its electronic balance. Often, the percentage of the total money supply consisting of physical banknotes is very small. In the United States less than 5% of common 'money' actually exists in the form of physical banknotes or coins.

In the U.S., the Federal Reserve (Fed) most commonly uses overnight repurchase agreements (repos) to temporarily create money, or reverse repos to temporarily destroy money, which offset temporary changes in the level of bank reserves.[2] The Fed also makes outright purchases and sales of securities through the System Open Market Account (SOMA) with its manager over the Trading Desk at the New York Reserve Bank. The trade of securities in the SOMA changes the balance of bank reserves, which also affects short term interest rates. The SOMA manager is responsible for trades that result in a short term interest rate near the target rate set by the Federal Open Market Committee (FOMC), or create money by the outright purchase of securities.[3] Very rarely will it permanently destroy money by the outright sale of securities.[citation needed] These trades are made with a group of about 22 banks or bond dealers who are called primary dealers.

Money is created or destroyed by changing the reserve account at a bank. The Fed has conducted open market operations in this manner since the 1920s, through the Open Market Desk at the Federal Reserve Bank of New York, under the direction of the Federal Open Market Committee.
http://en.wikipedia.org/wiki/Open_market_operations



Billy T comment:
Yes it sure will increase demand for real assets to preserve value as the dollar's value side rapidly down.
Yes, that is the whole point, Billy. Those 'real assets' are homes, autos, business assets, stocks, etc. Increasing demand for those assets increases the price of them. In case you haven't noticed, those prices are de-flated in the present economy. The goal is to increase the value of real assets to as close as possible to what they were before the economic crisis began. That is what gives homeowners equity in their homes, increases the value of the mortgages banks hold on their books, etc. As far as the dollar's 'downslide' goes, it is relative to the currencies of other nations. How many other nations have currency that has gained in value against the dollar since this whole mess began? The dollar has gained too much value relative to other currencies, including your real. Remember a few months ago when you were all giddy over the rising value of the real and I told you that too strong a currency would make your manufactured products too expensive to export, your iron ore and copper too expensive, your soy beans and beef too expensive to compete with producers in other nations? Imported products are cheaper to buy, but what worker has the money to buy those products when his job has disappeared because his employer cannot export the goods he produces?

"Look Mom, The king has no clothes!"
Hehe, what do you think Brazil is doing right now? You know that 'sovereign wealth fund' that Lula has proposed? It is to do the same thing that the Fed is doing in the US. Brazil has no budget surplus to fund the 'wealth fund', it is funded by an increase in the budget deficit. Brazil has had a large trade surplus, but has had no budget surpluses for years. Here is a cut & paste to illustrate what I am writing about:

The wealth fund might buy bonds issued by the state development bank known as BNDES, which in turn could fund local companies, Freitas said in an interview.

“If the economy and tax collection slow down sharply, the government may pump more money into the economy using the sovereign fund,” said Freitas, who now serves as chief economist of the National Federation of Commerce in Rio de Janeiro.
http://www.bloomberg.com/apps/news?pid=20601086&sid=aKLppj5AbcfI&refer=latin_america
"Look mom, King Lula has no clothes". :D

kmguru
12-01-08, 10:03 PM
Creating money electronically means no one has a clue if the fed actually spending $700 Billion or $1400 Billion in a given time as long as they do not publicize some parts....is that coreect?

2inquisitive
12-01-08, 11:50 PM
Creating money electronically means no one has a clue if the fed actually spending $700 Billion or $1400 Billion in a given time as long as they do not publicize some parts....is that coreect?
Well, most of us would not have a clue how much they were actually loaning , but probably someone in the Fed would. If the Fed was running the printing presses, most of would not have a clue how much they were actually printing either.

kmguru, when the economist say the world economy (or the US) has lost trillions of dollars, no physical money has actually disappeared. It is the electronic money, which is still many times greater than the physical money supply. When your house 'lost' $100,000 in value, no physical money disappeared, but the bank that holds your mortgage had to write down the value of your mortgage on their books. That is what causes a liquidity crisis for the bank, they no longer have enough electronic money to balance their books. When investors with over the FDIC limit deposited in the bank learn the bank may be facing bankruptcy, they draw their money out creating an ever increasing crisis for the bank. It is the same with other businesses and individuals, when your assets fall in value, it will become very difficult and even impossible to borrow additional funds needed to avoid bankruptcy. One solution is to re-inflate those deflated assets. The Fed will add electronic money to the economy until it becomes more profitable for investors to buy those assets, from homes to stocks, rather than to hold onto a dollar that is increasing in value just by holding it. When 'real assets' drop in value as they are doing now, the dollar that would potentially buy those assets increases in value while waiting for the stock market, or home values, to bottom out. Investors do not want to buy assets that are falling in value, so the government must attempt to creat inflation to make real assets that are increasing in value, which means the dollar must lose purchasing power.

Billy T
12-02-08, 06:05 AM
All recently active here, including me, certainly understand that most money in circulation (and >95% of all that is saved) is not physical green paper, but when more money is created by the FED, it is commonly called "printing press money." I will continue to refer to this new fiat money as "printing press money" but if one wishes, read these three words as: "thin air money" (but that is also not literally accurate). Perhaps the most correct terminology would be: "New Fiat Money," NFM.

Basically the point I have been making for some years is that with deficits rapidly growing and real productivity / GDP falling (factories closing, financial services moving to non-US centers, and the associated decline in tax revenues and "safety net" & Social Security expenses increasing) there is no longer any way out. I.e. Depression is inevitable with the real value of the dollar collapsing very significantly. (As Bernanke, an expert on the 1029 depression, likes to say*: He wants to make his own mistakes, not repeat those of that era. - Thus, there will not be any effort to balance the federal books this time but a Kensian pump-priming effort that will drown the dollar in inflation. Someone will coin a new word for simultaneous Deflation + Inflation, perhaps "DeInflation"? )

This can be (and currently is being) delayed by the global confidence in the dollar. The current economic problems are to some extent global. China's GDP growth may fall to 6% and Brazil's to only 3% etc. Eventually, the currencies of countries with significantly positive GDP growth rates will be recognized as much safer store of value currencies than the dollar. One should also note that these countries with growing GDP are becoming more and more every year producers for their internal markets - less dependent upon exports to keep their factories "humming." For example, internal demand in Brazil is forcing a 13.75% basic interest rate to curb demand / control inflation. US will probably soon have 0.5% basic interest rate in effort to stimulated internal demand, even as trillions of NFM are being created by the FED buying Treasury paper. (I doubt that that "paper" is real physical paper also. - Almost everything is just "records" not even in real "books" anymore.)

The first hints of this recognition of the coming reality (dollar collapse in value)** are shown by the rapid number of countries creating "sovern funds" to buy real assets instead of US treasury bonds. They are only paper promises and will never default, but the purchasing power of the dollars paid on maturity will be less than that of the dollars originally used to buy them. (This not necessarily true of the short term notes, but for the 10 and 30 bonds certainly is true already.)

Admittedly it is hard to measure purchasing power, but it is done. I think ounces of gold a $1000 can buy is not a good measure, but perhaps barrels of oil that $1000 will buy is a reasonably simple measure. By this measure, currently the real value of the dollar has increased during the last 6 or so months, but I am speaking of the "decade long trends" not the short term fluxuations when I say the value of the dollar is in decline.
------------------
*Hear /see him say this and all of his 45 minute talk of yesterday (with responses to questions at end) at:
http://www.bloomberg.com/avp/avp.htm?N=av&T=Bernanke%20Says%20Fed%20May%20Buy%20Treasuries%2 0to%20Aid%20Economy&clipSRC=mms://media2.bloomberg.com/cache/vyX9HBxowy6Y.asf
Most of it is justification of what the FED has done - sort of reminded me of Greenspan's similar efforts in his book The Age of Turbulance. - I.e. "Things are not working out as we had hoped, but it would have been worse if I did not do what I did."

**To further clarify: by "collapse" I mean the rapid loss of faith in the dollar as wise, or even useful, short-term "store of value." (I.e. not even a place to safely "park money" for a few weeks. - Currently short-term Treasury paper is so popular for this that the interest paid is essentially zero or occasionally, as now, even negative.) Sort of the reaction that sweeps thru the financial community as when the little boy said: "Look mom, the king has no clothes!"

kmguru
12-02-08, 07:49 AM
Why no one sees that a large % of jobs moves overseas from USA which caused a high load of debt which caused a falling demand of overseas products and pressure on foreclosures. The same falling demand also affected overseas productions which caused the China growth to stall. So, the solution is to jump start the jobs market in USA which is not happening in spite of 2 Trillion injection of Fed money...???

Billy T
12-02-08, 11:29 AM
... caused the China growth to stall. So, the solution is to jump start the jobs market in USA which is not happening in spite of 2 Trillion injection of Fed money...???China's growth has not "stalled" - it has slowed, but is still about 3 times greater than the US average of the last few decades!

Also, as I have repeatedly noted, one should not expect pumping even 4 trillion into the hands of banks and rich Americans to create jobs in the USA. - Investors ALWAYS seek to invest where they think the return on investment will be greater - that certainly is NOT the USA now.

For example, much of Citi's earlier 25 Billion was lent to the mega- constructors in Mid-East (especially the luxury home villages on artificial islands with typical home prices of several million dollars). – Yes, lots of jobs in Dubai were created by reduction of the tax burden on the rich and funds transferred to banks for preferred stocks, etc. Just yesterday after Citi got it hands on 20 billion more, Citi bought a Spanish High-Way firm for 10Billion and assumed > 6billion of its debt.

I.e. instead of your "in spite of,” more accurate would be "because of" or "as a result of" GWB/ Paulson TARP and FED’s actions. Paulson is finally beginning to do essentially what I recommended* but now has only 20 billion of the first half's 350billion left. His stupid plans have squandered 330 billion dollars to create consolidation (less competition) in the banking industry and to build luxury homes in Dubai and modernize factories in China. etc. - Exactly what one would expect investors to do - i.e. invest where the expected RoE is greatest.

-------------------
*Read my "bail out plan" at(offered well before Congress funded the Paulson plan with up to 700 Billion):
http://www.sciforums.com/showpost.php?p=2025940&postcount=1

Also see my "red dollar" suggestion at:

http://www.sciforums.com/showpost.php?p=2095292&postcount=11

as an essentailly zero cost way to stop hard drugs from being imported and as means to create jhobs in the USA.

Billy T
12-03-08, 08:17 PM
"... In some countries—notably the United States—a vicious deflationary spiral of banks withdrawing credit and demand contracting is no longer unimaginable.

Seeing the threat to the world economy’s vital functions, the policymakers have been working overtime. Interest rates have been cut dramatically. American rates are already down to 1%; Britain’s are at a 50-year low; and this week China’s central bank lopped 108 basis points off its main policy rate. Hundreds of billions have been pumped into banks and financial markets. Many financial institutions have been bailed out: the rescue of the once mighty Citigroup (see article) is merely the latest unthinkable to happen.

Despite all this, the patient has not responded. This is partly because some traditional remedies, such as looser monetary policy, are weakened in a credit crunch. It is also because the doctors have been ham-fisted: look at Hank Paulson’s changes of mind about whether to use America’s $700 billion rescue fund to recapitalise banks or to buy toxic assets. In addition, though, a lot of policy has been far too timid. Halting the world economy’s decline will demand something rather bolder than anything seen so far in this crisis. ..."

Or, IMHO, recovery is IMPOSSIBLE NOW.

Quote above is from current issue of The Economist see full artricle at:
http://www.economist.com/opinion/displaystory.cfm?story_id=12689710

Then thank GWB and Trickle-Down Republicans economics for the world's worst ever depression (while you can still afford postage for the letter).

kmguru
12-04-08, 09:43 PM
See Taleb at CharlieRose...scary

http://www.charlierose.com/view/interview/9713

2inquisitive
12-05-08, 02:02 AM
Billy T,

All recently active here, including me, certainly understand that most money in circulation (and >95% of all that is saved) is not physical green paper, but when more money is created by the FED, it is commonly called "printing press money."
You still don't understand what I said, Billy. To date, NO MORE MONEY IS BEING CREATED BY THE FED. What the Fed has done so far is to exchange electronic funds for already existing securities the banks have been holding, but had no market to sell to. Those securities are removed from the available money supply and replaced with electronic cash that the banks can use to make purchases, make more loans, or pay their own bills. This adds cash to circulation, but does not increase the overall monetary supply or decrease existing dollar value. "Printing Press Money" is when cash, either electronic or paper bills, is pumped into circulation without removing existing securities from the market. "Printing press money" will eventually devalue the dollar if too much is placed into circulation.

The article you linked to about the Fed buying 'open market treasuries' is a common practice that has been done for over 70 years to control interest rates. The Fed can either buy or sell treasuries on the open market to increase or decrease the interest rates. By doing this, the Fed can either increase liquidity or 'mop up' excess liquidity. The Fed can buy any kind of security on the open market to increase liquidity (place more 'cash' in circulation) or sell those same securities on the open market to 'mop up' excess liquidity (that 'cash' out of circulation).

As for your concerns about government debt, the government could pay off that debt anytime they want to, but the method would be hugely unpopular with the 'savers' and any domestic or foreign investor holding dollar securities. The Treasury would simply need to issue treasury notes equaling the government debt and the Fed could buy them directly. Since these securities are 'new' and not already existing securities, that would be 'running the printing presses' and devalue the dollar. It is the same as 're-valueing' the dollar, which means those dollars you are holding would immediately be worth less, but not 'worthless'. No point in having a 'run on the bank' because your dollar will de-value the same amount whether in the bank or in your hand. It would be tremendously unpopular with lenders, but popular with those deeply in debt as the debts would be easier to repay once wages adjusted to the new inflated dollar. No, I certainly do not expect this scenario to happen, but it would be preferable to your complete collapse of society, which will never happen because this option exists.

Or, IMHO, recovery is IMPOSSIBLE NOW.
Why Billy, your opinion has never been humble and recover is certainly not impossible, but will be painful to many.

The current economic problems are to some extent global. China's GDP growth may fall to 6% and Brazil's to only 3% etc.
The economic problems are very much globally connected, despite Lula's comment "What crisis? That is Bush's crisis" only about three or four months ago. The latest forecast I have seen by an economist that specilizes in asian predictions was for a less than 4%, and possibly even negative, growth for China in 2009. I don't think the yearly growth for China will be that low personally, as I expect the economy will slowly begin to improve around mid-year next year, but will take much longer to return to anything like 'normal' growth, whatever that non-bubble global growth is. And, yes, Brazil will be severely impacted by the global distress. That 13.75% rate Brazil charges to control inflation will be cut, and when it is, you will see even more foreign money leave your economy as the high rate was necessary for the risk taken by those investors. Coffee growers, for example, can only get loans for half what they need to buy fertilizer for their crops now. Brazil's banks do not have enough money to lend as it is. As investors pull money out of Brazil's financial markets, the situation will worsen into a greater credit crunch, much like in the US. JMHO. :D

Billy T
12-05-08, 11:25 AM
Billy T, You still don't understand what I said, Billy. To date, NO MORE MONEY IS BEING CREATED BY THE FED. What the Fed has done so far is to exchange electronic funds for already existing securities the banks have been holding, but had no market to sell to. Those securities are removed from the available money supply and replaced with electronic cash that the banks can use to make purchases, make more loans, or pay their own bills. This adds cash to circulation, but does not increase the overall monetary supply or decrease existing dollar value. "Printing Press Money" is when cash, either electronic or paper bills, is pumped into circulation without removing existing securities from the market. "Printing press money" will eventually devalue the dollar if too much is placed into circulation.

The article you linked to about the Fed buying 'open market treasuries' is a common practice that has been done for over 70 years to control interest rates. The Fed can either buy or sell treasuries on the open market to increase or decrease the interest rates. By doing this, the Fed can either increase liquidity or 'mop up' excess liquidity. The Fed can buy any kind of security on the open market to increase liquidity (place more 'cash' in circulation) or sell those same securities on the open market to 'mop up' excess liquidity (that 'cash' out of circulation).I agree that when the FED buys a liquid asset with real market value of X dollars for X dollars, that no new money (no printing press money) is created.

That unfortunately is not what is occurring when the FED buys ILLIQUID assets. In this case some arbitrary value is assigned to the asset. For example, the FED will now give loans, secured by tranches, (otherwise known as "toxic trash" as there is no market for it and thus it has no known value, but that GAAP rules say is a zero value "asset" when without any market.) and has recently increased range of "assets" it will accept to even include "commercial paper" rated above junk, much of which will turn out to be worthless as the issuing companies close their doors.

To make an extreme example: I have a bird, very intelligent and talented. It would take more than $1000 for me to sell it. If the FED were to accept it as one of the new set of asset classes that can be taken to the "discount window" (which once actually existed as a real window) and give me $2000 "loan" secured by my bird, I would default on that loan and let them keep the bird. Surely even you will admit that in this case, nearly $2000 dollars on new printing press money has been created by the FED, would you not?

Point is that just because the FED takes ownership of an illiquid asset, (zero market value at present) which is carried on the books of a bank at one million dollar and the FED gives the bank one million dollars does NOT mean (as you state) that no new printing press money has been created. In fact, I claim every time the FED creates Y electronic dollar credits in exchange for "assets" with no real market value two things:
(1) It has created Y printing press dollars.
(2) It is increasing liquidity within the financial system (even states that is what it has been forced to do as with interest rate now at 1% it has been forced to use other tools at its disposal. - see Bernanche's Dec 1 Austin speech. - I gave video link to all of it in recent post*)

I also want to note that it is not only the FED which has "printing presses" (power to create money from thin air) but the FDIC does also.
For example, I bank xyz has 200, million in deposits and invested 190million of it badly so that now marked to market, this invest ment is worth only 90 million, clearly it can not pay back the 200 million to its depositors. So the government steps in to close bank xyz and the FDIC produces the 100 billion of new dollars that the bank lost. In 2008 thus far, 23 banks including two very big ones have been closed. For the latest to close and related infro, see:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZaygdnrdX5U&refer=home


As for your concerns about government debt, the government could pay off that debt anytime they want to, but the method would be hugely unpopular with the 'savers' and any domestic or foreign investor holding dollar securities. The Treasury would simply need to issue treasury notes equaling the government debt and the Fed could buy them directly. Since these securities are 'new' and not already existing securities, that would be 'running the printing presses' and devalue the dollar. It is the same as 're-valueing' the dollar, which means those dollars you are holding would immediately be worth less, but not 'worthless'. No point in having a 'run on the bank' because your dollar will de-value the same amount whether in the bank or in your hand. It would be tremendously unpopular with lenders, but popular with those deeply in debt as the debts would be easier to repay once wages adjusted to the new inflated dollar. No, I certainly do not expect this scenario to happen, but it would be preferable to your complete collapse of society, which will never happen because this option exists.I completely agree (assuming that "this scenario" refers to the Treasury selling bonds equal in value to the US debt). However, I do still strongly expect the dollar to collapse, with self accelerating rate of value dropping, when some significant holders of treasury bonds maturing will not roll them. These bonds do not all mature on the same day and not all holders will refuse to "roll" theirs at the same time.

For example, Japan, which recently became the No.2 holder as China became the largest holder, will still be rolling their bonds when China has stopped (because they depend on the US seventh fleet standing between them and China).

The rapidly accelerating slide down of the US economy is clearly feeding on its self now. (Last month's whole sale sales were lowest in 39 years and last month's job losses the greatest in 34 years, not to mention the dying of Ford, GM and Chrysler, which at best Congress may delay for less than a year with a 34 billion bail-out, so I increasingly think this ends in the world's greatest ever depression.)

This increasing inability of Joe American to buy Asian made goods means that China and others will be getting a smaller influx of dollars to buy new bonds, even if they wanted, which of course they don't. (Why previous buyers have created "sovern funds" to invest in real assets instead.) This, combined with the increasing need to apply Keynesian ideas to trying to turn this vicious economic downward spiral around, (I bet at least one trillion more red ink by 30Jan09 as Obama "hits the ground running") will make it necessary for the Treasury to print ever more bonds and with ever fewer buyer, sell most of them the FED, the "buyer of last resort."


Why Billy, ... recover is certainly not impossible, but will be painful to many. Sure hope you are right, but the slide down I predicted a few years ago, seems to be happening faster than I thought and rapidly accelerating now. I will omit with ... your predictions below but comment on, what is at the end of your post.


... That 13.75% rate Brazil charges to control inflation will be cut, and when it is, you will see even more foreign money leave your economy as the high rate was necessary for the risk taken by those investors. Coffee growers, for example, can only get loans for half what they need to buy fertilizer for their crops now. Brazil's banks do not have enough money to lend as it is. As investors pull money out of Brazil's financial markets, the situation will worsen into a greater credit crunch, much like in the US. JMHO. :DToday's newspaper has projections for several countries GDP growth, in percent, made by Swiss bank UBS's ''wealth management" for 2008,09 &10 as follows:

USA.......1.2, -1.3, 2.5
€ zone...1.0, -0.8, 0.8
Japan....0.3, -0.3, 1.0
World ...3.6,, 2.0,, 3.7
Russia...6.5,, 3.0,, 5.0
Brazil ...5.2,, 2.8,, 4.4
India....6.9,, 6.8,, 7.5
China...9.5,, 7.8,, 9.0

These are much different from you guesses. I think the 2010 projections are much too optimistic. If I were making projections for 2010, I would repeat the 2009 projection, but reduce each by 1.0

For example, I expected USA 2010 GDP growth to be about -2.3 and Brazil's to be about +1.8 and China's to be about 6.8%

I remind you that the Brazilian government has no foreign debt. -It is a creditor nation, with approximately 200 billion dollars in reserves. (Was about 220 billion but during the last month has dumped 18 billion dollars in failing effort to keep the Real from getting weaker against the dollar.

Currently the dollar is growing stronger, for several SHORT-TERM reasons IMHO:

(1) Mainly because globally credit is very tight and both industry and governments have obligations they contracted to pay with dollars. So, since the banks will not lend these needed dollars they are taking them from investment to honor these dollar obligation.

(2)Some of these obligations are hedges gone wrong. For example, Brazilian exporters, with local expenses but dollar incomes, hedged against the falling local value of the dollar in Real, which had be the pattern of several years. The world's largest exporter of iron ore, (Vale) was doubly hit when the dollar grew stronger and exports of iron ore fell about 10%. The largest exporter and cheapest producer of short fiber pulp, Aracruz, "over hedged" and now must pay about 2billion dollars, which it expected to buy with about 3 billion reais, but now it will take about 5 billion Real. Their stock has greatly fallen and the financial offer resigned. Point is that not only businesses needed funds for operations and investments etc, my (1) above, but also many "gone wrong hedges" are also making demand for dollars.

(3) Ordinary investors (including their 401k etc. retirement investments) in EU and USA are getting increasing scared and defensive. I.e. taking funds out of ETFs, mutual funds etc. and buying what traditionally has been safe (and certainly is default proof) namely US bonds and some ECB bonds etc.
They tend to sell their best gaining funds, not take loses, so the mutual funds, ETFs that had large exposure to the BRICs are being disproportionally experiencing redemption demands. Investment there about tripled, in dollar terms, in three year (from 2003 to 2006 or 2001 to 2004 etc.) but now these ETFs and mutual funds are selling and as they get local currency, they need to convert it to dollars, mainly but some to Euros also. This also is making the dollar temporarily strong.

Note:
(1) That ECB and FED will end the liquidity crisis (but many need to make a few trillion more of printing press dollars to do it, still)
(2) That the "hedges gone wrong" will hurt company's 2008 and possibly 2009 EPS, but then it is over.**
(3) That the faint of heart who are scared will (or already have) taken their lumps (many who were invested in ETFs and mutual funds investing mainly in the BRICs before 2004 are still cashing in with a profit, but perhaps only 1004 instead of 300 to 400% they could have had if they had gotten out in mid 2007.

When all three of these SHORT-TERM factors making the dollar strong are finished, the dollar will resume its slide down. Not only "resume" but accelerate in what can be called a "run on the dollar" for the reason given above (trillions of "printing press dollars" issued by FED as Obama continues GWB/Paulson/Bernache's Keynesian efforts)

If it will make you happy not to call this new liquidity, "printing press dollars" I will let you have my 5 trillion dollar cat to give to the FED in exchange for 5 of the trillions the FED, BoE and ECB (hell even BOJ) will be creating in 2009. ;)

--------------

*I could not find video link for Bernanch’s 45 minute speech of 1 Dec. but below is closely related infro FROM: http://www.bloomberg.com/apps/news?pid=20601039&sid=aohbHGXFYtKU&refer=home
Fed balance sheet is ballooning to $3 trillion, if not more. It's a risky approach because all the cash piling up in the banking system might spark rising inflation down the road. The alternative -- just relying on traditional interest-rate cuts -- might leave markets and the economy mired in the mud for years. … A second risk -- that the Fed ends up losing billions on some of the assets accepted as collateral for loans -- is of small importance compared with what's at stake. {billy T insert: I.e. the FED made printing press dollars in this case.}
All the Fed's work hasn't prevented a deepening of the recession. Bernanke made it plain in a Dec. 1 speech that the Fed will expand efforts to deal with the crisis while waiting for the big dose of fiscal stimulus promised early next year by President-elect Barack Obama and congressional leaders.
So far this year, the Fed has aggressively reduced its overnight lending rate target to only 1 percent, and it probably will trim it by another 50 basis points at a Dec. 15-16. … It has also pumped unprecedented amounts of liquidity into the banking system using loans and new auction techniques. And recently the central bank began providing credit directly to businesses and financial institutions by buying commercial paper and other assets. {Billy T insert: I do not think they are accepting old shoes, yet. Perhaps if contaminated with Co60 they would qualify as toxic trash?}
As a result, the Fed's balance sheet has ballooned to $2.1 trillion from less than $900 billion a year ago. On Nov. 25, it said it would buy another $800 billion worth of asset-backed securities, expanding the balance sheet to almost $3 trillion. … Mortgage rates were affected because of the $800 billion, the Fed planned to use $100 billion to buy debt from Fannie Mae, Freddie Mac and the Federal Home Loan Bank System. Another $500 billion would be used to purchase mortgage-backed securities from Fannie, Freddie and Ginnie Mae. {Billy T insert: printing press dollars as that is Toxic Trash, much will go to default.} The remaining $200 billion would finance a new facility to buy assets backed by student loans, car loans and other consumer loans. {Billy T insert: printing press dollars in at least half. Why not sign GM, Ford etc. over to the FED for 34 billion more trash on the FED’s books? } … More broadly, all the interest-rate cuts and additions of liquidity haven't spurred a significant resumption of lending by financial institutions or new commitments by risk-adverse investors. … The Fed announced yesterday which bonds it plans to buy, beginning today, as part of the $100 billion in debt it will acquire. Those purchases, and the mortgage-backed securities it will also buy, likely will further increase the amount of excess reserves. … In his Dec. 1 speech, Bernanke said the Fed could also influence financial conditions by purchasing ``longer-term Treasury or agency securities on the open market in substantial quantities.'' {Billy T insert: As I said: “BUYER OF LAST RESORT” making more printing press dollars, when Treasury paper cannot be sold. Why only buy from the treasury to pump out liquidity? The Social Security Administration has a filing cabinet in West Virginia filled with US IOUs – Sell that paper to the FED for printing press dollars also.}
-----
**After posting I stumbled upon:
"... James Barrow, lead manager for $31 billion Vanguard Windsor II, and learns that the venerated value manager believes that hedge fund liquidations should cease by the end of the year, ..." at: http://www.forbes.com/2008/12/04/industry-insights-mutual-fund-panelDec5.html?partner=daily_newsletter

Billy T
12-06-08, 08:44 AM
There is a coming problem I have been aware of for a couple of years, but never posted anything about it (nor have I seen any recognition of it in any of the many financial sources I read). To describe it, I must first briefly explain “sterilization” or how the government removes / soaks up / excessive money form an economy IN NORMAL TIMES:
At times commerce etc. needs more money in circulation. Perhaps because the velocity of money (rate at which it changes for one owner to another) is slowing. (Certainly that is the case now with lower consumer spending and deflation of many items – Buy one car and get the second for a dollar, or buy a barrel of oil for $45, etc.) If there is strong inflation the velocity of money can be very high. For example, in Brazil of 10 years ago, a kind employer paid his workers when they came to work and gave them an hour or two off to spend it all in the food stores etc. before the merchants could mark up the prices. (Typically 1% more costly than the day before) The velocity of money can be more important than the actual amount of money in circulation but normally there is more buying between Thanksgiving and Christmas so an increase in the amount during that part of the year, is typical.

The FED buys assets to increase the money supply. Usually, these assets are Treasury bonds, but currently even commercial paper can become an asset on the FED’s books as money is very illiquid (horded) or has very low velocity now. The FED and Congress etc. are desperate to make money available again for loans etc. so several Trillion new dollars have been pumped out (secured by increasingly lower quality paper) People (and institutions) are hording money instead of spending and investing it, but they do not keep it under the mattress anymore. Either directly or indirectly, most of it is being invested in Treasury bonds. – this surge of money seeking a “safe parking place” has driven interest rates down to historic low (Even made them briefly negative at times on the 2 year or shorter notes) The FED with interest rate at 1% announced a few days ago that although it can cut the rate still lower, it will be buying more Treasury paper to try to end the hording, make money more liquid, raise the velocity of money, make banks lend etc. (If a bank can only get 0.5% annualized return on Treasury paper, then 5% from a business man wanting a loan is 10 times better).

Point is: Eventually money will be liquid again as the quantity that the printing presses can make is unlimited. Once the velocity of money starts to increase and the population begins to understand that trillions of dollars are beginning to be “un-horded” all will recognize the danger of inflation; this will further increase the velocity of money. This means that to prevent Brazilian style inflation, huge amounts of money must be quickly pulled out of the economy.

Perhaps an analogy will help all to understand:
Imagine you live on small clean river but up stream someone builds a dam so your water supply goes dry (you cannot get a loan - this is the current financial state). Now as the water level rises behind the dam, which was poorly designed) there comes a day when the dam breaks and huge release of water washes away your house, unless somehow a “giant sponge” can quickly soak up the excess. I.e. there will come a day when the FED and or Treasury must try to be that “giant sponge” to “sterilize” the flood of liquidity.

The normal way such sterilization is achieved is for them to sell bonds. For example, a few years ago, Brazil was buying dollars, trying to make demand for them so that the dollar would stop dropping in value so rapidly (Dollar lost more than half its value in a few years and the excessively strong Real was causing “de-industrialization” – factories that exported shoes could not sell them for enough dollars to pay their workers, so they closed. Etc.) To buy dollars, the government printed Real, but this greatly increased the Real in the public hands. So to sterilize this excess and prevent inflation, the Government issued and sold bonds in Brazil at very much higher interest rate than it could earn by investing the dollars it was buying. The net effect of this effort to keep the Real form getting too strong was increase in government debt owed to Brazilians (or at least to be paid in Real) and the total elimination (with the dollars it bought) of all foreign dollar debt of the government. (Plus some 200 billion dollars left over to be a 4 fold increase in Brazil’s “hard currency" reserves.)

Now here is the problem the FED and Treasury will face after liquidity is restored (after the dam breaks):
Already the previous buyers of Treasury bonds are becoming reluctant to buy them. Setting up “sovern funds” to buy real assets instead of Treasury promises. Furthermore, the flux of dollars coming to the prior buyers, especially the oil exporters with the current low price of oil, and China with the reduced buying of Joe American, etc. will mean that there are fewer buyers of Treasury paper, PRECISELY when the Treasury and FED must greatly increase the sale of this paper to sterilized the trillions that were pumped out to end the hording, increase the velocity of money, make liquidity within the financial system. I.e. in terms of the analogy, the FED and Treasury lack any significant sponge power, to soak up the trillions of liquidly they intentionally pumped out.

SUMMARY: The problem no one is talking about is that when liquidity is restored, the FED and Treasury will not be able to sell trillions of face value bonds to soak up (sterilize) the trillion they pumped out to restore liquidity. US and most of the developed world will experience simultaneously depression and rapid inflation – something that rarely happens, except when a nation has been destroyed.

Few realize it now, but the US has been destroyed. (By GWB’s needless wars, dropping wages of Joe American, lack of regulations that allowed the destructive housing bubble, and foolish Republican “Trickle Down” economics that build the modern factories in China which killed Joes higher paying factory jobs.)
Like any destroyed nation, the US is headed into a period like Germany had after losing the WWII & I, but worse as we cannot expect China to help out with any “Marshall Plan.”

2inquisitive
12-07-08, 12:47 AM
Billy T,

I agree that when the FED buys a liquid asset with real market value of X dollars for X dollars, that no new money (no printing press money) is created.

That unfortunately is not what is occurring when the FED buys ILLIQUID assets. In this case some arbitrary value is assigned to the asset. For example, the FED will now give loans, secured by tranches, (otherwise known as "toxic trash" as there is no market for it and thus it has no known value, but that GAAP rules say is a zero value "asset" when without any market.)
Illiquid assets are assets in which the asking price is above the offering price. Since a definite value cannot be agreed on, the rules state that the asset must be assigned a 'zero' market value. That does not mean the assets are worthless. For loans of greater than 28 days on an asset, the Fed will loan up to a maximum of 75% of face value. Trillions of electronic dollars have evaporated from the world economy. This "printing press money" only replaces a small percentage of that money, but the Fed does stand to lose a few billion if those loans go bad. There will still be much less money in circulation than before the crisis. This will tend to inflate the current value of the dollar, but will not inflate the dollar to pre-crash levels on a dollar for dollar basis. The increased liquidity could spark inflation if banks started multiplying these dollars through leverage. I think the banks have learned their lesson on "easy money" though, and will continue to demand excellent credit ratings and money down on loans given for quite a while to come. The banks have money to loan now, but are gunshy because of previous losses and a poor economy. They don't want to face additional losses from new loans in a bad economy, thus the credit crunch.

and has recently increased range of "assets" it will accept to even include "commercial paper" rated above junk,
Accepting "commercial paper" is nothing new and the paper has to carry a rating of AAA-, quite a bit above "junk".

much of which will turn out to be worthless as the issuing companies close their doors.
If a company closes its doors, the sale of the company's assets will repay that commercial paper before you recieve a penny for that stock you hold.

Sure hope you are right, but the slide down I predicted a few years ago, seems to be happening faster than I thought and rapidly accelerating now.
I agree the economy is in terrible shape and will continue to get worse for quite a while to come. But the cause of this crisis had nothing to do with what you were predicting as the cause. You speculated the cause would be "GWB's war debt", a dollar rapidly losing value against other currencies, Wall Street stock market value well above 15,000, oil prices above $200 per barrel making it too expensive for "suburbanites" to commute to work, etc. Your "prediction" was the same as many doom & gloomers for many years (and still currently) such as the popular book "The Coming Collapse Of The Dollar And How To Profit From It" published in 2004. The same phrases such as "fiat money" is common with all. "Fiat money" literally means paper money or coins which have no intrinsic value, used as a currency by all modern nations, not just the US. Fiat money is used because central banks have much greater leeway in controlling value and the amount in circulation. Gold coins or a currency based on gold value would fluctuate with the price of gold and be unstable.

Today's newspaper has projections for several countries GDP growth, in percent, made by Swiss bank UBS's ''wealth management" for 2008,09 &10 as follows:
You, and your Brazilian media, always quote sources that are "BRIC" bulls and developed nation bears. The Euro zone is heaviley invested in the emerging economies and hope for the best. UBS wasn't very accurate in their predictions for the past year, were they? :D

These are much different from you guesses.
As I stated in my post, those weren't "my guesses", but were from a published forecast. I didn't bookmark the article when I first read it, thus didn't post a link at the time. Since you question my integrity, I searched until I found the source. A cut & paste plus Bloomberg link:

“China is now at the heart of the global slowdown,” said Jim Walker, chief economist at Asianomics Ltd., an economic advisory firm in Hong Kong. “It means that global growth is probably going to be dragged down close to zero next year.”

Walker, voted best regional economist in an Asiamoney magazine brokers' poll for 11 years through 2004 when he worked for CLSA Asia Pacific Markets, estimates China will grow zero to 4 percent next year, with a 30 percent chance of a contraction.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ay7HZbCLGLEA

And BTW, both China's and India's manufacturing has already contracted in November:

Chinese Manufacturing Source: Markit Economics


China's and India's manufacturing sectors contracted in November, according to Purchasing Managers’ Index (PMI) data, published today.




China

November’s survey data indicated that operating conditions within the Chinese manufacturing sector worsened for a fourth successive month. The headlineCLSA China Manufacturing PMI was at 40.9, down from 45.2 in the previous month, to record a new survey low.

Production at firms operating in the Chinese manufacturing economy contracted at the sharpest rate in the survey history during November.
http://www.finfacts.ie/irishfinancenews/article_1015408.shtml

Billy T
12-07-08, 07:00 AM
Billy T, Illiquid assets are assets in which the asking price is above the offering price. Since a definite value cannot be agreed on, the rules state that the asset must be assigned a 'zero' market value. That does not mean the assets are worthless. For loans of greater than 28 days on an asset, the Fed will loan up to a maximum of 75% of face value. Trillions of electronic dollars have evaporated from the world economy. This "printing press money" only replaces a small percentage of that money, but the Fed does stand to lose a few billion if those loans go bad. There will still be much less money in circulation than before the crisis. This will tend to inflate the current value of the dollar, but will not inflate the dollar to pre-crash levels on a dollar for dollar basis. The increased liquidity could spark inflation if banks started multiplying these dollars through leverage. I think the banks have learned their lesson on "easy money" though, and will continue to demand excellent credit ratings and money down on loans given for quite a while to come. The banks have money to loan now, but are gunshy because of previous losses and a poor economy. They don't want to face additional losses from new loans in a bad economy, thus the credit crunch.I tend to agree with all of this, but do not think the money supply swings daily with the total capitalization of all stocks, etc. Perhaps the broadest measure of it does (M1 or M3, I forget which). Those assets (and market value of all real estate, cars and trucks, etc. are assets, but not what I am referring to as "money supply." I guess what I am calling "money supply" is purchasing power Americans have which does not require they find a buyer of one of their assets. I.e. money in their pockets and bank account plus any already granted lines of credit, which would include the sum still available on their credit cards, prior to maxing them all out.

Thus with this as my concept of money supply, I cannot agree that: "Trillions of electronic dollars have evaporated from the world economy." - Those dollars never even existed; certainly not as a real part of the money supply, in my POV. they were just assets without any known value, until sold.

Certainly, your home, car, etc stocks, owned business, etc are all assets with fluctuating values, but until these "Paper Values" are realized on some particular day at some particular value, I do not consider them to be part of the "money supply." For example, I have many stocks showing paper losses, and on 2Dec realized or converted a little more than $100,000 of these paper loses into real loses, for tax reasons. (I had shares in PetroBras, actually the ADR, PBR.a, which I sold as everyone was going crazy over the huge increases in oil reserves associated with the "pre-salt" high quality oil. I also sold ADRs of the Indian bank ICICI, IBN, on 11 Jan 08 at $74/ADR, huge profit as I bought them all at less than $15/ADR some years ago. It was just luck that I sold them very near their all time high. I wanted funds to buy Citi, which had dropped more than half its value of less than a year earlier and then was paying a great dividend. That was soon cut and I got out of C and back into IBN, at slight loss on C and at about $36/ADR to rebuy my IBN. I still have two open sell orders as need convert about $60,000 of current paper loses into real loses before 31Dec. If they do not sell I will pay more in taxes this year, but if Obama does kill some of the GWB tax break we rich have, that may turn out to have been fortunate, so my asking price is firm.)

Point of all this is to illustrate that ONLY WHEN YOU SELL, does the asset sold become part of the money supply, at least as I use that term. I do not consider any of the stocks I own to be part of the money supply; they are just "assets" of unknown value, until sold.

Accepting "commercial paper" is nothing new and the paper has to carry a rating of AAA-, quite a bit above "junk".You are probably correct here, but I do distinctly remember that only a few months ago, at most, the FED announced that it would be accepting commercial paper, certain secured debt, etc. at the discount window.


If a company closes its doors, the sale of the company's assets will repay that commercial paper before you receive a penny for that stock you hold. True the bonds have higher claim on any funds available than stocks. (I think worker's unpaid salaries have a higher claim, and then the suppliers of goods already delivered, but would bet, the highest of all claims is the lawyer fees, associated with the bankruptcy and liquidation.)


I agree the economy is in terrible shape and will continue to get worse for quite a while to come. But the cause of this crisis had nothing to do with what you were predicting as the cause. You speculated the cause would be "GWB's war debt", a dollar rapidly losing value against other currencies, Wall Street stock market value well above 15,000, oil prices above $200 per barrel making it too expensive for "suburbanites" to commute to work, etc. ... "Fiat money" literally means paper money or coins which have no intrinsic value, used as a currency by all modern nations, not just the US. ...Of course, I know modern nations use fiat money. (The last tie of US money to real assets ended in the summer of 1964, as I recall. I bought a $1000 and a $100 bag of silver dollars on the last day possible with "silver certificate" paper dollars. Quite an amazing scene it was: several thousand people in long line, several abreast around the Treasury building in DC all night long, waiting for the door to open, Each had several thousand dollars in cash in the their pockets! My father was one, but I arrived at sunrise, and calculated that he was too far back to be processed, and correctly guessed their self-organized line (numbers on paper slips etc.) would collapse so when it did, I was near the front of the mob which surged towards the door as it open and I did get in.)

While I still think depression in US and EU is now unavoidable, I admit that I predicted the wrong path to it. As many nations were setting up "sovern funds" and US debts were growing ever larger under GWB, I expected many would realize that Treasury bonds would only be honored with "printing press dollars." Thus I expected interest rates to rise so Treasury could sell their bonds and the dollar to fall ever more rapidly into a final collapse phase as all tried to get out of dollar assets.

My fundamental error I think was to forget that the FED could (and would) buy the bonds that others would not, even with low interest rates. Instead of what I expected, loan credit died with the subprime mortgage and associated derivatives mess. - No one, banks included, knew what the paper they were holding was worth, so to be safe, whatever they had in liquid assets (part of what I call money supply) they held tighter than Uncle Scrooge would. This lack of loans even for solid business to restock, meet payrolls etc, cause many to sell assets, especially their investments still with big profits in the BRICs. This forced selling pressure made the total capitalization of all stock markets drop the "trillions" you cited.

IN SUMMARY: Yes, I predicted the wrong path to depression, but still think that is where the US and EU are headed. The negative "wealth effect” of all those "lost" trillions will play a more significant role than I thought. The tight credit also will as jobs are now being lost much more rapidly than I expected. (1.2 million in the last three months!) I want to be optimistic, and recognize that Obama is very smart, has chosen a very experienced and wise economic team, inspires many, especially the young, so perhaps he can lead the US into only a very long and sever recession instead of worst ever depression. I think however, another trillion or so of printing press money, is more likely to make my original path to depression happen. I.e. so much liquidity pumped out will make all but the FED shun buying Treasury paper, and the dollar's purchasing power will collapse.

In an effort to help avoid this, I conceived of my "red dollar" plan, which uses Gresham's Law to avoid rapid inflation as Obama becomes the most devout follower of Keynes that has ever existed. Although I started a thread on the red dollar plan, the best description is not in it, but at:
http://www.sciforums.com/showpost.php?p=2095292&postcount=11


As I stated in my post, those weren't "my guesses", but were from a published forecast. I didn't bookmark the article when I first read it, thus didn't post a link at the time. Since you question my integrity, I searched until I found the source. ...I never intended to question your integrity and apologize as I can see why it could seem that I did. I also apologize for causing you the effort to re-locate your source. I simply failed to notice (or re-call when posting) that you had stated you were quoting an unreferenced source, so I falsely assumed the GDP values were your guesses.

I hold you in the highest esteem. - I think I have previously acknowledged that your factual knowledge in economics is greater than mine. We differ mainly on what those facts imply is likely to happen in the future. I often learn from you.

kmguru
12-09-08, 11:46 PM
Unemployment rise...

http://www.forbes.com/home/2008/11/18/november-layoffs-fires-lead-cx_kk_1118november08layoffs.html

http://www.forbes.com/home/2008/12/04/december-layoffs-fires-lead-cx_kk_1204december08layoffs.html

Billy T
12-10-08, 12:26 PM
"... Household spending will drop 1 percent in 2009, the biggest decline since after the attack on Pearl Harbor, according to the median estimate of 51 economists surveyed Dec. 4 through Dec. 9. By the middle of next year, the economy will have shrunk for a record four consecutive quarters, the survey showed. ..."

"... A report from the Commerce Department today showed wholesale inventories fell 1.1 percent in October, the most in seven years, as a record 4.1 percent drop in sales caused companies to scale back. ..."

"... Consumer purchases, the biggest part of the economy, may drop at a 4 percent rate this quarter, the survey showed. Following the 3.7 percent slump from July through September, it would be the first time on record that spending declined in excess of 3 percent in consecutive quarters. ..."

"... The drop in sales will prompt employers to keep cutting staff, sending the unemployment rate to 8.2 percent by the end of next year, a 25-year high, the survey showed. ..."

"... Investors concerned about the worst financial crisis in at least 70 years have rushed to the safety of U.S. government debt, causing three-month Treasury bills to trade yesterday at negative rates for the first time. ..."

"... “The big problem is that there’s no bottom in sight for consumers and for businesses,” said John Lonski, chief economist at Moody’s Capital Markets Group in New York. “The negative sentiment makes it difficult to stabilize the situation. It’s very worrisome.” Businesses are pulling back as Americans retrench. Dow Chemical Co., the largest U.S. chemical maker, this week said it will cut 5,000 jobs, permanently shut 20 facilities, temporarily idle 180 plants and reduce the company’s contractor workforce by about 6,000. ... "

FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=aT3tIUszCRuY&refer=home

Billy T comment:
Rio Tinto killing 14,000 jobs today, etc. etc. all over the developed world. {US job losses now at 1/2 million per month rate or 6 million/ year. -Twice what closing the big three autos will also add. Obama needs to be a miracle worker to make any bottom, short of world's worst ever depression, IMHO.}

Even China had 2% drop in exports in November but internal consumption and infrastructure development more than off sets that - I.e. China's GDP growth still north of 8%. Brazil's 6.8% growth in 3Q08 is expected to slow to about 4% in the final quarter of 2008. US is negative and dropping fast despite trillions of stimulus. If not deep depression, where will it end? (But not for the suppliers of energy, raw materials & food stocks to Asia, especially China, of course.)

Billy T
12-10-08, 03:46 PM
First time Treasury even informally admits it may have trouble selling bonds to finance the growing debt - What I have predicted for years:

"... Dec. 10 --The U.S. Treasury said it may need to introduce new financing methods to sell a record amount of government debt.

“Given the broad range of deficit estimates, Treasury needs to be prepared to meet additional financing needs if necessary,” Treasury Assistant Secretary Karthik Ramanathan said in a speech today in New York. “This challenge may require novel approaches to debt management.”

Ramanathan, the Treasury’s head of debt management, cited private analysts’ estimates of borrowing needs that may reach $1.5 trillion to $2 trillion in the financial year that ends in September 2009. ..."

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=an9ximBDa0Qc&refer=home

Billy T comment:
"novel approaches to debt management”
So is that the preferred way to refer to "printing press money" :shrug:

Or it it only what Ben Bernnache said a few days ago: I.e. the FED will begin (for first time ever) o buy the longer term bonds in the open market, to drive up their price and lower their interest rates.

2inquisitive
12-10-08, 05:01 PM
Billy T comment:
Rio Tinto killing 14,000 jobs today, etc. etc. all over the developed world. {US job losses now at 1/2 million per month rate or 6 million/ year.
The US had a huge job loss of 533,000 in the month of November. Much of that loss was the result of bank mergers and downsizing throughout the financial and investment sectors. There are no forecasts that I have seen that predict 6 million for the coming year. Do you have any sources?

Obama needs to be a miracle worker to make any bottom, short of world's worst ever depression, IMHO.}
I don't follow what you are stating here, Billy. Are you suggesting the US will lose 6-9 million jobs next year regardless of what Obama does? Or, are you suggesting that if the US doesn't lose 6-9 million jobs next year, Obama will have worked a miracle? I support Obama personally, but it seems you are setting up a strawman (9 million job loss) after which you will later claim "Obama worked a miracle" if it doesn't happen, or "it's not Obama's fault" if large job losses do happen. That is politics, not economics.

Even China had 2% drop in exports in November but internal consumption and infrastructure development more than off sets that
No it doesn't, not in November. China had a 2.2% drop in exports in November compared with November last year. China's exports in October increased 19.2% from a year earlier. China's imports (consumption) increased 15.6% in October. Those numbers dropped off a cliff in November. Exports dropped 21.4% (2.2% plus 19.2%) from October to November. Imports plunged 17.9% in November, meaning internal consumption was way down, not increasing to offset the loss of exports. The recession is just now hitting the emerging market's bubble. That bubble will burst just like the housing bubble burst in the US. Just like in the housing bubble in the US (and elsewhere), the participants in the emerging market bubble didn't recognize the fact that the bubble couldn't continue to grow at those past rates without eventually bursting. Here are a few cut and pastes:

“The figures are horrifying,” said Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai. “Plunging imports show that on top of faltering global demand, domestic demand is also shrinking as the economy cools.”
....
The government will target {2inq insert: doesn't that mean 'attempt'}a minimum 8 percent increase in gross domestic product next year and the of creation of 10 million jobs{yes, Obama is going to create several million jobs in the US also}, the state-run China Daily newspaper reported Dec. 9. Policy makers may also roll out measures to support the stock market after the CSI 300 Index fell 61 percent this year{whoops, much worse than the US}, Merrill Lynch & Co. said.
Exporters of toys, clothes and furniture are cutting production or closing down, triggering a surge in labor disputes and increasing the risk of social unrest in the world’s most populous nation.

About half of China’s toymakers have shut down this year{half? Isn't that 50%?}, with 7,000 workers losing their jobs when Smart Union Group (Holdings) Ltd. closed in Guangdong province in October.

Toy Factory Riot

Sacked workers rioted at another toy factory last month and Zhang Ping, the nation’s top planner, warned of the risk of “massive unemployment” and “social instability.”
http://www.bloomberg.com/apps/news?pid=20601089&sid=ao5xLQy21pYk&refer=china

Although you haven't mentioned it, I'm sure you have read were China is attempting to lower the price of the iron ore and copper it imports by 82%. That doesn't seem good for Brazil's commodity export economy, as all commodities are falling in price. See Billy, it is easy for anyone to accent the negatives in any economy. Oh, and BTW, you didn't need to apologize for your earlier comments. This is just an internet forum, nothing was taken personally. I should have backed up my comments to begin with, but was lazy. :o

Billy T
12-10-08, 06:01 PM
To 2inquaitive:

No I have no sources that also project 6 million jobs will be lost in 2009. I only note the 530,000 lost last month and the almost daily announcment of more being layed off and store closings. You could be correct that last month was atypical, and not a step up to new rate, Lets wait to see if the big three autos 15 million bandaid gets thru the Senate to judge that.

I was not really trying to tie an "Obama miracle"to any job loss levels. Just repeating my old song that depression is coming, unless Obama can work a miracle. Just as I blame GWB's tax policy and wars and Republican "trickle down" economics for the coming depression, if it is avoided I will praise Obama for "doing the impossible." (You certainly do not expect me to say: Well it was not as surely comming as I predicted years ago, do you? :D )

Again you are more accurate than me on China. What I was trying to note was that although China's exports are down (US and EU buying less) they are trying to convert to mainly an internal consummer market and have put 550+ billion on the line to do that. It will take some months to make up for the loss of exports, but I am confident, China will continue to grow as US and EU sinks deeper and deeper in negative growth. Unlike the US, China (and Brazil) have larger reserves (compared to their economy's needs) with which to stimulate. (Brazil could also cut it 13.75% basic interest rate some.) Just today, for the first time, the US treasury informally acknowledged that financing the growing debt will require new measures.
See: http://www.bloomberg.com/apps/news?pid=20601087&sid=avK7zCQ1PjCs&refer=home

Also Ben Bernnache said FED would be (for the first time ever) buying longer term Treasury bonds IN THE OPEN MARKET (to drive interest rates down, so he said, but I think more truthful is as the buyer of last resort.) The short term notes (3 months or less) are now with negative interest for a very steep yield curve - clear indication that many others, like me, fear a flood of printing press dollars, as Obama tries to avoid depression.

I am not sure, but think the 82% price reduction (hope of China, not a "done deal") is on iron ore only, but that is not to say copper price will not be dropping too. (I preversely hope it does some as I have a GTC buy order in on PCU but probably have bid too low.) Yes Rio Tinto is killing 14,000 jobs and delaying openning a new ore body mine (in SE asia, as I recall). Vale is also contracting, but not as much yet. The dry bulk index is climbing now however so someone is expecting to be shipping something in greater bulk.

2inquisitive
12-10-08, 09:20 PM
Billy T,

Just as I blame GWB's tax policy and wars and Republican "trickle down" economics for the coming depression,
GWB's reduction of taxes on the wealthy and businesses, and war expenses, grow the government debt. Government debt did not create the current crisis. Excessive consumer and corporate debt, plus rampant speculation enabled by lax regulation, is the cause. The Glass-Stegall overnturn (mostly responsible for excessive bank leveraging) and the CFM Act of 2000 (making outright gambling by means of credit default swaps possible) were signed into law by Clinton before Bush came into office. I do not like Bush, have never voted for him, and I do hold him (and especially Cheney) responsible for an irresponsible and ill-concieved war in Iraq, adding immense sums to government debt. Alan Greenspan and an ignorant congress hold the most blame for the credit bubble and Wall Street speculation, the causes for the current crisis.

What I was trying to note was that although China's exports are down (US and EU buying less) they are trying to convert to mainly an internal consummer market and have put 550+ billion on the line to do that.
I knew China had commited 550 billion to fight contraction. How does China use that money to 'convert to mainly an internal consummer market'? Are they planning on giving the money directly to the citizens to spend (via a 'stimilus package') to increase consumption? Or, are they planning to increase the money supply (easy money) to chinese citizens and businesses, increasing private sector debt? Obama is putting over $700 billion 'on the line' to create jobs for US citizens, mostly through infrastructure projects.

I am confident, China will continue to grow as US and EU sinks deeper and deeper in negative growth.
Why are you confident China's plan will succeed, while Obama's plan is doomed to fail? You seem to have very little confidence in Obama.

Unlike the US, China (and Brazil) have larger reserves (compared to their economy's needs) with which to stimulate. (Brazil could also cut it 13.75% basic interest rate some.)
China and Brazil keep large cash (mostly dollar) reserves mostly to manipulate the value of their currencies against the dollar. The US does not try to manipulate the value of the dollar by buying and selling the dollar with foreign currency. I know China has vast foreign reserves. Brazil is not in as good a shape as you often state. Back in Jan. 2008, Brazil's foreign reserves exceeded their foreign debt for the first time, making them a 'creditor' nation. That does not mean Brazil has no foreign debt, just that their foreign reserves were slightly greater than their foreign debt. Brazil's foreign debt is stated to be only 10% of their total debt, which is around 1.3 trillion real. Yes, Brazil has room to cut their basic interest rate to stimulate consumer debt and spending. That could be counter-productive though, as it will decrease foreign investment in Brazil's economy. The combination of increasing consumer debt and decreasing foreign money injected into the economy could very well cause problems down the road. Brazilian banks are limited by cash on hand as it is, so they do not want to decrease foreign money any further.

kmguru
12-11-08, 02:58 PM
I think Obama's plan will fail simply because the underlying systemic issues will not be addressed. That is export growth and reduction in imports with at least $500 Billion in surplus. Government jobs will keep US in Intensive Care Unit only.

2inquisitive
12-11-08, 04:30 PM
I think Obama's plan will fail simply because the underlying systemic issues will not be addressed. That is export growth and reduction in imports with at least $500 Billion in surplus. Government jobs will keep US in Intensive Care Unit only.
I think Obama's plan does address those systemic issues. All the money injected into the system to pay for the government make-work programs will weaken the dollar, as they are true printing press dollars, not loans that can hopefully be repaid. A weaker dollar decreases imports, making imports more expensive. A weaker dollar makes US manufactured goods more competitive on the world market, increasing exports and jobs. This transformation will take time to happen and the US will face many months of hard times. As the US, and other developed nations, consume less, hard times are also in store for the nations whose economies currently depend on exports. There has to be a balance between exports and imports for a world economy to work.

kmguru
12-11-08, 05:58 PM
A weaker dollar makes US manufactured goods more competitive on the world market, increasing exports and jobs.

Are you teeling me that we can build a DVD player for $10 to sell it at $35? There is no way we can compete with China price no matter where the Dollar goes...unless US Citizens learn to eat rice only and ride bicycles to work. :D

Besides, America does no longer have the infrastructure to produce anything that you see in Wal-Mart, Target, Home Depot, Lowes, etc...

2inquisitive
12-11-08, 06:45 PM
No, kmguru, there are other products to export besides DVD players and that chinese DVD player will not be $35 when the dollar losses value compared to the yuan. :D The largest exporter in the world today is Germany even with the current exchange rates. China overtook the US as the world's second largest exporter only this year. The US's trade imbalance is so large because we import so much junk. That will change as imports get more expensive.

kmguru
12-11-08, 08:02 PM
The US's trade imbalance is so large because we import so much junk. That will change as imports get more expensive.

When that is going to happen? I went as far back as 1992...we were running deficit then...

As you say...if import gets more expensive,.... and there is no comparable product available in USA, how would you know?


The largest exporter in the world today is Germany even with the current exchange rates.

Exported to USA?

We imported from Germany (000s $)

2004 -77,235,716
2005 - 84,812,507
2006 - 89,072,841
2007 - 94,364,472

We imported from China ($ 000s)

2004 - 196,698,977
2005 - 243,462,327
2006 - 287,772,786
2007 - 321,507,785

On total export trade to the World, Germany is number one at 1354 Billion (2007) and China at 1220 Billion (2007). That is why, bad economy has not hit Germany much.

But we buy over $200 Billion more from China than Germany and China export growth rate to USA grew over 12% (2006 to 2007) and first three quarters in 2008, we imported over $250 Billion setting to surpass last years record.

2inquisitive
12-12-08, 03:01 AM
kmguru,

When that is going to happen? I went as far back as 1992...we were running deficit then...
When is what going to happen? As I stated, the trade imbalance will decrease as imports get more expensive due to a weaker dollar. I said nothing about the US running a trade surplus.

As you say...if import gets more expensive,.... and there is no comparable product available in USA, how would you know?
I would know when that $35 dollar DVD player cost $231. One dollar today will buy about 6.6 yuan. The chinese have artifically manipulated the value of the yuan to keep it low, mostly by buying US treasury notes, over a trillion dollars worth at last count. Do you believe they will continue to do that when the value of the dollar is weakened as 'printing press dollars' begin to flood the market? China can flood the world with exports because the exchange rate of the yuan is so low compared with other currencies. A decrease in the international value of the dollar is necessary to decrease US imports and increase US exports.

Exported to USA?
No, I stated Germany was the world's largest exporter.


On total export trade to the World, Germany is number one at 1354 Billion (2007) and China at 1220 Billion (2007). That is why, bad economy has not hit Germany much.
The US was third. By your logic, the US economy should be better than those nations who had fewer exports than the US. Cheap IMPORTS into the US are costing jobs in US manufacturing, as US manufacturers cannot compete due to the current currency exchange rates. The only solution is not to pay US workers fewer dollars, but to adjust international exchange rates especially with respect to the yuan. A weaker international dollar will increase the cost of imports, including oil, but will have a much smaller effect on US-produced goods, though they will go up too because of the increased cost of imported oil. Increased production of hybrid-electric vehicles and the use of US-produced natural gas to power our trucks and some cars will decrease the need for imported oil. Yes, it is a long-term approach. There are no instant fixes for the current recession. Recovery will be painful for everyone and the recession will take a long time to overcome. That said, the cause of the financial crisis was not job loss. The financial crisis caused the recession and resulting additional job loss. Inflation (loss of dollar value) is necessary to stop the deflationary spiral. Economic growth can only happen in a controlled inflationary economy, never in a deflationary economy. The key is controlled inflation. That is the reason recovery must be slow, too much money injected too quickly and inflation could get out of control. The injected money must go to provide jobs, not given out freely with no lasting economic benefits.

kmguru
12-12-08, 09:45 AM
That said, the cause of the financial crisis was not job loss.

Is that the Chicken and Egg answer?

So, are you saying even if we lost ~5 million jobs or otherwise lost personal income or wage stagnation for a long period - that would not cause financial crisis?


I would know when that $35 dollar DVD player cost $231.

I forgot to add that a person making $35,000 per year has to make $231,000...what are those chances....:D

2inquisitive
12-12-08, 08:50 PM
kmguru,

Is that the Chicken and Egg answer?
No, it is a truthful answer. The financial crisis started around 18 months ago, the severe job loss has happened comparatively recently.

So, are you saying even if we lost ~5 million jobs or otherwise lost personal income or wage stagnation for a long period - that would not cause financial crisis?
I said nothing like that. So, you are saying if McDonald's employees made $100 per hour, the economy would be fine and and jobs would be plentiful?

I forgot to add that a person making $35,000 per year has to make $231,000...what are those chances....
I paid about $231 for the DVD player I have now. I did not make $231,000 per year on my retirement income when I bought it, nor did I need to. Do you really have no clue about international exchange rate's effect on trade, or are you just trying to appear ignorant to antagonize me?

kmguru
12-12-08, 10:54 PM
Do you really have no clue about international exchange rate's effect on trade, or are you just trying to appear ignorant to antagonize me?

Just testing....

I still do consulting for a number of manufacturers who outsource 80% of their activities overseas.

Billy T
12-15-08, 12:05 PM
Billy T,

GWB's reduction of taxes on the wealthy and businesses, and war expenses, grow the government debt. Government debt did not create the current crisis. Excessive consumer and corporate debt, plus rampant speculation enabled by lax regulation, is the cause. ...I agree that government debt did not create the current crisis; but think it will eventually lead to collapse of the dollar. (Currently Treasury can still easily sell shorter term bills, even occasionally people and institutions pay to buy them! There is sort of a “Treasury Note bubble” just now, but it will burst.) Permitting naked shorts, killing the "up-tick" rule and very lax regulation (50Billion Madoff's Ponzi scheme, just the latest example, but allowing 35+ fold leverage in dirivaties was more important.) also played important roles in the current crisis.

What was the main cause was the defect in Republican "trickle down" ideas continued by Paulson's unrestricted transfer of $335 billion to the financial system, which essentially of no help in freeing up credit in the USA; nor should one expect it to. - When you put more money in the hands of those who are already rich, they tend to invest it, not stimulate the US economy by buying things, like cars etc. Instead they invest it where the returns are the greatest, like China, Dubai developments etc. This means not only is Joe American saddled with more debt but his factory is closing as those funds built more modern ones outside of the USA. The steady decrease in Joe American's salary's real purchasing power during GWB's administration was an essential part of why many Joes cannot pay their mortgages. They expected the housing bubble to continue to inflate and pay it off with profit when they were forced to sell, but it did not turn out that way - as I foretold in post back in 2005.


How does China use that money to 'convert to mainly an internal consummer market'? Are they planning on giving the money directly to the citizens to spend (via a 'stimilus package') to increase consumption? Or, are they planning to increase the money supply (easy money) to Chinese citizens and businesses, increasing private sector debt? Obama is putting over $700 billion 'on the line' to create jobs for US citizens, mostly through infrastructure projects.

Why are you confident China's plan will succeed, while Obama's plan is doomed to fail? You seem to have very little confidence in Obama.China is huge creditor nation and its citizens huge savers, with essentially zero credit card debt. Also unlike GWB, who has given US two recessions, large war debts, etc. China has more than three decades of very wise economic management (average of about 9% annual GDP growth).

It is not that I doubt Obama's exceptional ability, intelligence and inspiring leadership. It is just that GWB is handing him a very deep hole to try to get out of while China is sitting on a mountain top of prosperity, even if slightly slowing to only 8% GDP growth.

Following from: http://www.moneymorning.com/2008/12/15/latin-america-outlook/
will give some more about China and Brazil's much more favorable economic positions and answers your question as to how China will spend the $586e9 stimulus money (None will be given as GWB did to the people as the frugal Chinese would just save it.):
"... Many investors think that the U.S. economic crash will lead to a dramatic drop in U.S. orders of emerging-market products, which will cause those economies to drop off. ... But that’s a mistaken assumption. And here’s why.

In Brazil, for instance, exports account for a mere 13% of gross domestic product (GDP). In China, exports are just 10% of GDP. So some contraction in U.S. and European orders can easily be counterbalanced by fiscal and monetary stimulus in these countries.
... And most emerging markets economies have plenty of fiscal and monetary maneuvering room. Leading the pack is China, which accounted for some 27% of global growth last year, and which has continued to use both fiscal and monetary tools to keep itself on a solid growth path.

It recently slashed interest rates again, down to 6.66% (a lucky number in the Chinese culture, meaning “things (are) going smoothly”). With record foreign reserves of $1.9 trillion, China also approved a “fast and heavy-handed” $586 billion stimulus, mainly in housing and infrastructure, to be implemented through 2010. And the Chinese yuan will drop almost 7% vis-a-vis the U.S. dollar to cushion losses in trade. It has also lowered taxes on investments in capital goods. And in a key move that’s been almost totally overlooked by the media, China has made huge market-oriented reforms in agriculture.

China has just allowed its 780 million farmers to rent, transfer or utilize as collateral their rights to their lands and eliminated all taxes on agricultural production and to farmers. This will allow for a massive increase in the scale of production by consolidating companies. In this way, China will keep its 120 million hectares dedicated to agriculture exclusively, with no possibility of urbanization, while at the same time allowing the millions of small farmers to sell out, and get capital to move to the cities. This will not only increase the productivity of Chinese farming dramatically by allowing for economies of scale to work and attracting billions in investments, it also will create a huge incentive for these millions of farmers to move to the cities, boosting housing and infrastructure demand.

Brazil’s plans are very similar to those of China. There’s a:

•Strong fiscal stimulus, allowing a drop in the value of the real currency (a decline that’s already been substantial) in order to cushion exports.
•An easing of capital requirements to Brazil’s strong banking system, which will incentivize housing and car loans.
•Export financing.
•And huge local infrastructure projects.

There is another little-understood phenomenon that cushions the blows for emerging economies: Intra-emerging market trade has become increasingly important. By now everybody understands that iron ore from Brazil and coal and oil from other emerging markets is flowing into China in order to fuel China’s massive infrastructure buildup and growing consumer demand.

Increasingly, a growing proportion of the infrastructure needs of industrial goods being bought by emerging economies are goods produced by other emerging economies. Trade between Latin America and China has increased by 13 times since 1995, from $8.4 billion to $100 billion. And China, now the second-most-important commercial partner to the region after the United States*, has finally been accepted as a member of the Inter-American Development Bank, committing itself to contribute $350 million to the bank. As an example of this growth in industrial trade, Argentina just bought 279 subway cars from China’s CITIC Group.
---------------
*China may soon be more important than US as trade with US is rapidly decreasing and that with China rapidly increasing. USA supplies 14.4% of Brazil's total imports and China 11.3% during first half of 2008. (I do not have the their relative exports data. As commodities are cheaper, in October China had one month record trade surplus of 40 Billion dollars, even though exports fell 2.2%, Nov08 vs Nov07. (US & EU buying less as tightening belts.) China's trade surplus in first 10 months of 2008 was 255.9 billion dollars.

Without solitation, China has offered 10 billion for part of the action on Brazil's "pre-salt oil." China's Baosteel is building big sheet steel plant in Brazil.
Not yet firm, but China's Lenovo is trying to buy Brazil's computer company, Positivo, but Dell is also expressing interest. (Strong dollar, weak Real effect.)
China, Iran, Russia, and most countries of S. A. have big meeting tomorrow in Sao Paulo, but for first time, US was not invited as becoming less important to S. A. - Read details at: http://www.bloomberg.com/apps/news?pid=20601087&sid=a0a8IQrfwSFU&refer=home

kmguru
12-15-08, 02:58 PM
Time to read "The War for Wealth" by Gabor Steingart.....

kmguru
12-16-08, 08:58 PM
Dec. 17 (Bloomberg) -- The Australian and New Zealand dollars surged to the highest in more than a month after the Federal Reserve reduced its target interest rate to as low as zero, prompting investors to buy higher-yielding assets.

The currencies rose the most in almost seven weeks against the dollar as the Federal Open Markets Committee said it “will employ all available tools to promote the resumption of sustainable economic growth.” The Standard & Poor’s 500 Index rallied 2.2 percent after the Fed’s announcement.

http://www.bloomberg.com/apps/news?pid=20601080&sid=a_bTYp3bmjAU&refer=asia

---------------------------------------------------------

I wonder if it is good or bad for Australia...

Billy T
12-17-08, 05:06 PM
Billy T,...Yes, Brazil has room to cut their basic interest rate to stimulate consumer debt and spending. That could be counter-productive though, as it will decrease foreign investment in Brazil's economy. The combination of increasing consumer debt and decreasing foreign money injected into the economy could very well cause problems down the road. ...While it is true that Brazil has that option, "stimulation" is not the problem. Brazil is needing to control / limit the rapidly growing internal demand (more details below).

A real problem associated with this is that a lot of "hot, carry-trade" money was attracted to Brazil by the world's highest real interest rates (still = or >8%). That money can leave just as quick and as these "investors" are now having credit problems (cannot borrow dollars) much of it has left in the last few months. This pulling of Brazilian Real invested funds out of Brazil has caused a dramatic recovery of the dollar's value vs. the Real in a few months. Hot money is not desirable money and fortunately not the main reason why FDI into Brazil is often relatively large (as compared to the GDP, etc.)

Brazil is blessed by nature and many want to make long term constructive investments here.
Here are two, very recent, related, examples:

(1) "... Brazil has made several major offshore oil finds in the past year, and believes up to 80 billion barrels could be recovered. That would make Brazil an oil powerhouse and turn it into a major oil exporting nation. ..."

From: http://www.thestreet.com/story/10449419/1/petrobras-find-may-hold-2b-barrels.html

(2) " ... Mines and Energy Minister Edison Lobao said Chinese officials contacted his ministry to propose a loan,* and Petrobras then negotiated directly with the Chinese. ... Lobao also told the Folha de S. Paulo newspaper that the United Arab Emirates has offered to finance field development, but he did not specify a price tag.
Petrobras, ... has historically searched for "varied sources of financing" and that recent deals will be included in its new investment plan, expected in the coming weeks.

Lobao told the privately run Agencia Estado news agency other countries also wanted to participate: "It's not just China. It's a range of opportunities that Petrobras has." Lobao said the ministry has talked with a Japanese consortium, Canadian banks and various foreign oil service companies that want to invest in or work on offshore finds. He offered no other details.

Brazil also is ready to tap its foreign reserves to offer a credit line for exploration by Petroleo Brasileiro SA if needed, he added. ..."

From: http://www.thestreet.com/story/10452038/1/china-seeks-to-invest-10-billion-in-brazil-oil.html
(but with Billy T transpose of some paragraphs)

Both these are oil related and even prior to the discovery of the "pre-salt" oil, on an energy basis, Brazil was a net oil-energy exporter; but a net buyer of oil as the exported oil has significantly less value per barrel than the newly discovered light, pre-salt oil, so the current low price of light oil is helping Brazil's trade balance, I think.

While becoming one of the world's major oil exporters (a few years from now at least) is nice, oil is not the long term basis of Brazil growing world economic status. That is its fertile soil, abundant fresh water, long growing season, high level of industrialized agricultural permitted by US mid-west like relatively flat expanses and the rich endowment of many minerals (world's largest exporter of many)

A major contributor to the long term growth is also the increasingly wise government. Corrupt politicians and judges are now going to jail. HFC's "Bolsa Famila," greatly expanded by Lula, has lifted millions out of poverty and transformed them into huge domestic market consumers. That is why Brazil needs to keep such high interest rates (13.75% nominal, 8% real), not the reasons you suggest.

Everyone here, at least, understand that the side effect of keeping inflation within it target range despite this rapidly growing domestic demand** with these high rates attracts the undesirable "hot money" to Brazil. Hot money hurts the economy by making financial planning less certain and the currency less stable. There has been, on several occasions, serious consideration of controlling its entry into Brazil, by large taxes, etc. on short term investments, but thus far, the "keep markets free" side of the argument has prevailed.
---------------
*Unlike Uncle Sam, who now is turning to the FED’s printing presses for essential financing, nations and rich individuals are begging Brazil to be part of its long term growth, all can foresee.

**Like China, Brazil is a huge exporter, but exports are a decreasing part of GDP. The domestic markets are the rapidly growing sector. Neither China nor Brazil will have much need of customers in the USA in a few years, which is a good thing as they will not be buying much when in deep depression.

--------------------

As it happened to be in today's paper, here are some of the Real interest rates:

Brazil ........ 8% (Nice for me as I can easily live on a fraction of the bank interest from funds I moved to Brazil years ago when I foresaw the dollar’s coming collapse.)
Mexico ..... 2.3%
China.........1.5%
Germany ....1.1%
Russia ..... -0.7%
Japan ....... -1.4%
G. Britian .. -2.4%
U.S.A. …... -3.3% (This is probably wrong now with the FED's action) I bet the real rate in USA is more negative than India's now.)
India …......-4.0%

Fact that dollars are leaving Brazil, despite a possible US/ Brazil carry trade gain of 11.3% real (or more that 12% now) shows either one of two things:

(1) Everyone with fluid funds thinks Brazil is on the verge of collapse.
or
(2) Credit is essentially not available in the USA for essential business needs, (or to repay dollars used in carry trade as loans come due) so assets with great gains (in Brazil) are being sold to buy the needed dollars.

I am certain the true reason is (2). Do you agree? Or perhaps you want to suggest a (3)?

Billy T
12-17-08, 05:32 PM
Dec. 17 (Bloomberg) -- The Australian and New Zealand dollars surged to the highest in more than a month after the Federal Reserve reduced its target interest rate to as low as zero, prompting investors to buy higher-yielding assets. ...Yes and in Euro zone too. I think that the recent strength of the dollar is over. It will slide down rapidly now to get back on the relatively steady down slope it had more than 6 months ago.

The FED's surprising 0.75+% cut is only the start of the slide down. The FED's plan to print dollars and buy Treasury debt in the open market will have a much bigger effect as all realize the US is able to finance itself only by the printing presses.

The FED is skating on very thin ice. It is just a question of when double digit inflation starts.

Michael
12-17-08, 07:25 PM
2inquisitive,

Newsweek had an article that says there really isn:t much corporate debt, a lot of companies have money in reserve, if we don`t count financial institutions.

That said, the article also said it may not be enough to weather the comming storm.

M

Billy T
12-25-08, 01:09 PM
Paul Krugman's NYT article of 1Dec08, in part, and compressed:

"... Tight fiscal policy when the economy is depressed is exactly what happened in two important episodes in history:

In 1937, Franklin Roosevelt mistakenly heeded the advice of his own era’s deficit worriers. He sharply reduced government spending, … and also raised taxes. The result was a severe recession, and a steep fall in private investment.

In 1996-97 the Japanese government tried to balance its budget, cutting spending and raising taxes. Again the recession that followed led to a steep fall in private investment. ...

What made fiscal austerity such a bad idea both in Roosevelt’s America and in 1990s Japan were the governments pulled back in the face of a liquidity problem. Monetary authority had cut interest rates as far as it could, yet the economy was still operating far below capacity.

And we’re in the same situation today, which is why deficit worries are misplaced. Fiscal expansion will be even better for America’s future if a large part of the expansion takes the form of public investment — of building roads, repairing bridges and developing new technologies, all of which make the nation richer in the long run. {Billy T comment: Hey- that sounds like Obama's plan.} ...

Right now we have a fundamental shortfall in private spending: consumers are rediscovering the virtues of saving at the same moment that businesses, burned by past excesses and hamstrung by the troubles of the financial system, are cutting back on investment. That gap will eventually close, but until it does, government spending must take up the slack. Otherwise, private investment, and the economy as a whole, will plunge even more.

People who think that fiscal expansion today is bad for future generations have got it exactly wrong." ...

Read full article at: http://www.nytimes.com/2008/12/01/opinion/01krugman.html?partner=rssnyt&emc=rss

Billy T comments:
I agree fiscal expansion is badly needed now, but it can be: (1) poorly done; (2) better done, or (3) very well done with "red dollar" innovation.

(1) The FED is setting forth on the "poorly done" approach:
FED will buy corporate and Treasury paper, especially longer term bonds in the open market. This will force their price up (and lower their interest rate, which is the stated* objective); thus, encouraging private investment with longer pay-back periods.) Also corporations getting dollars from government are not making loan demand in the open market. (Less demand does make lower interest rates.)

Effectively printing press money floods the money supply, creates fear of inflation, so unlike now with deflation, people are anxious to spend. I.e. not only does the amount of money in circulation increase but the "velocity of money" does also. This can easily get out of control and is very hard to "sterilize" to avoid run-away-inflation; especially if China and oil exporters cease to buy the Treasury paper that must be sold to soak up some of the excess money supply.

(2) Obama's (and China's) plan is the plan Krugman argues for. I.e. instead of only getting Treasury paper (that can become nearly worthless in run-away- inflation) the flood of money America gets new bridges, roads, green energy systems, health care, etc. - Real assets that make for a more completive, stronger USA (or China).

(3) Same as (2) except paid for by new "red dollars" that are valid only in the USA. Gleason's Law will take the old "green dollars" out of circulation, so US gets the new jobs, people get salaries so they can return to the US stores as shoppers with, etc. but green dollar velocity drops to essentially zero so there is much less increase in the money supply than either (1) OR (2).

Note also that the red dollar plan makes importation of hard drugs, without leaving a trail for the police, essentially impossible. (I have long advocated that US stopping the export of money that pays for drugs is much easier and more effective that trying to interdict the importation of these drugs.) Is there ANY honest need for a suitcase filled with hundred dollar bills? For whom is the US printing them, if not for criminals, including tax evaders and bribers?

See more details and advantages of the Red Dollar plan in my letter to Obama dated 18 Nov08 at:

http://www.sciforums.com/showpost.php?p=2095292&postcount=11

------------------
*IMHO, an unstated, obvious objective is for the FED, as ‘buyer of last resort,” to buy the Treasury paper that China and oil exporters will not even completely roll now that they have “sovern funds” for buying REAL ASSETS, instead of PAPER ASSETS. US’s huge and rapidly growing debt is a great problem when no one wants to buy Treasury paper at less than double digit interest rates. High interest rates surely lead to depression from the current recession. FED is putting a “pretty face” on a necessity.

kmguru
12-30-08, 09:39 PM
Local currencies fit the Bill

http://www.economyincrisis.org/articles/show/2259

Is not BillyT proposed a separate currency system?

Billy T
01-13-09, 06:48 AM
... Is not BillyT proposed a separate currency system?Yes I am. See "red dollar" plan at:

http://www.sciforums.com/showpost.php?p=2095292&postcount=11

Note also there is a thread on the red dollar plan, in which I respond to some concerns and misunderstandings about it.
-------------

Perhaps we need new thread "Global Economy 2009" now. Here is just released text I would put there and comment on:

"... The world’s largest economy will contract 1.5 percent this year, a half percentage point more than projected last month, according to the median of 59 forecasts in the survey taken from Jan. 5 to Jan. 12. The slump will push inflation below what some Fed officials consider price stability, the survey showed.

“It’s very hard to get anything into place to change the course of the economy in the first half of this year,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. “We’re in the middle of something very deep here.”

How quickly the U.S. will pull out of the slide may depend on the $775 billion stimulus package that President-elect Barack Obama is pushing lawmakers to enact next month. The projections indicate he’ll be seeking to halt what may be the longest recession since World War II. ..."

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=aTv0Xmo40wr8&refer=home

My "red dollar" plan can help - permit the flood of a trillion or more printing press dollars, and yet significatly limit the inflation effect (by Gresham's law, not government trying to soak up dollars with even more issue of bonds by The Treasury)

Even with my plan and a lot of luck, and great leadership in the white house, back-up by some people who helped balanace the budget under Clinton, I still tend to think that the worse depression ever in US and EU is unavoidable now. (GWB's dug the economic hole too deep.)

By "depression" I mean great contraction in GDP as many no longer have jobs but with rapid inflation erroding at least 20% of the dollar's purchasing power for several years, as China et al (oil exporters mainly) cease to roll Treasury paper and instead demand green dollars for their maturing bonds.

S.A.M.
03-24-09, 06:25 AM
The Chinese have put forward a plan to use the SDR as a reserve currency. If this pulls through, it has the added effect of getting the IMF out from under the US veto and hence will affect all the structural adjustment policies they monitor.

A massive overhaul of the global economic system.

http://www.pbc.gov.cn/english//detail.asp?col=6500&ID=178

Billy T
03-24-09, 08:08 AM
From the taxpayer’s POV, capitalism may destroy Geithner’s Plan by “success".”
Here is how (and exposes the flaw of having anyone, especially the bidders, set a price on the toxic assets – my plan* avoids this flaw as no price is ever set.):

Let Ac & Ab be two toxic trash packages, each worth $100 face offered for sale under Geithner’s Plan. (Add more zeros everywhere if you like) First might be owned by Citi and second by Bank of America, (hence the subscripts c & b) which will be called C & B to keep discussion more general.

It will not be done as obviously as I now describe for ease of understanding, but here is what can happen (in a numerical example):

C bids $140 for Ab and (JUST BY CHANCE, OF COURSE, ;) ) B bids $140 for Ac. And both C & B accept these “over face value” bids.

Now by Geithner’s Plan, the US government will provide $120 in loans (or loan guaranteed – same thing from Taxpayer’s POV when the default occurs). Also Government as investor puts up $10 to match the private buyer’s $10. (120+10+10 = 140)

Let just look at how C makes out as B gets the same assured profit:

C collects $140 in sale of its Ac and pays only $10 to buy half interest in Ab. This is an immediate upfront cash influx of $130 for the asset that was definitely worth much less than $100. Just to close out the deal, lets assume that years later when Ab is sold, it brings a sales price of $90, even though the economy has recovered – This is a loss of $50 for the public private investment fund, PPIF, but C only absorbes $25 of the loss.

Thus for many years, C has the use of $130 from it $100 face value asset sold and when the deal is finished a net profit of $5 more than even if every mortgage in the package was paid in full! – I.e. a better deal for C than a zero default rate on all mortgages would be. Especially when one recognizes the “time value of money. (Getting dollar now is more valuable than getting it years later.)

Now let’s look at total deal from Tax payer’s POV:
Government put in total of $130 and gets back, years later, half of the $90 sales price for net loss of $40.

If you believe Geitner’s claim that government and private investors will share equally any profits and losses,
then I have a bridge in Brooklyn I will sell you cheap.

-------------------
* see my plan in recent summary at:
http://www.sciforums.com/showpost.php?p=2197527&postcount=66

Billy T
03-27-09, 11:09 AM
What did I predict in post 206? Well here it begins:

" Banks Are Buying Toxic Assets: Bank of America (BAC) and Citigroup (C) have been actively buying toxic mortgage assets, according to the New York Post. And they are placing higher bids than other would-be buyers.... Much of the distressed debt has not been selling because nobody knows how to value it. Furthermore, the major banks are fearful that if they sell the toxic assets in the open market, they will be forced to take additional, large write-offs. Such write-offs would adversely effect the various ratios used to measure their financial health.

Why are BAC and C doing this? A spokesman for BAC told the newspaper that they are trying to "increase liquidity in the mortgage market allowing people to buy a home".... There have been reports of private investors who are willing to buy the toxic assets, but have been rebuffed by the banks. The reason is that the banks don't like the price. "

From: http://www.zacks.com/stock/news/18588/

2inquisitive
03-27-09, 07:13 PM
Billy T,

What did I predict in post 206? Well here it begins:
The 'scenario' you posted in 206 was complete malarky. Banks would stamped to sell their MBSs' at face value. No fool would ever pay 40% over face value for a security that has lost value. If you would Billy, let me sell you my truck that had a sticker price $40,000 for $60,000. :D

What BOA and Citigroup are attempting to do is establish a price for the MBSs' that they think is reasonable, not face value or above, but more than some of the vultures on Wall Street (Hedge Funds) would like to steal them for. Like my truck that is no longer worth sticker price, let alone over sticker, I still would not accept a low-ball offer for it from a salesman bleating about a down market. The truck is low-mileage and I will simply keep driving it until the used car market improves, probably much longer. That is the real reason new vehicle sales are down, most Americans already have nice vehicles and refuse to trade them in at give-away prices. The banks will hold on to the Mortgage Backed Securities until a decent price is established for them on the market, not face value but not 30% of face value either. It really is simple as shit.

Billy T
03-27-09, 08:08 PM
Billy T,

The 'scenario' you posted in 206 was complete malarky. Banks would stamped to sell their MBSs' at face value. No fool would ever pay 40% over face value for a security that has lost value. If you would Billy, let me sell you my truck that had a sticker price $40,000 for $60,000. :D I will be glad to buy your old broken down truck for $60,000 if I get a government loan I can later default on of $50K plus you putting up 5K and me also 5K in our 50/50 partneship to buy it AND IF you make the same sort of deal to buy my $60,000 cat.

We each get $50,000 from the government and we trade $5,000 checks twice. (Once on the truck and once on the cat sale.)* Net effect is we screw the US tax payers out of $100,000. - Where should we meet to finalize this deal? It is very much like the one I described in my post. - You must not have read it carefully as you are usually quick to understand.

*Hell because I like you, I will even throw in for free a half used up tube of mange cream. :D

Billy T
04-23-09, 06:14 PM
Today’s Email report from investment adviser Robert Hsu:

"...I've been traveling around China for the past week, visiting the great cities of Beijing and Shanghai. And today, I'm writing to you from Shenzhen.

My tour group consists of some China Strategy subscribers, and we've been doing a little boots-on-the-ground research over the past week. And what we've discovered has been truly eye opening for many of them. That's because people just don't realize that the economic recovery is already happening in China—unless they see it firsthand. ...

Over the past week, we observed the current state of the Chinese economy, and let me tell you, there's no doom and gloom here. ... Good restaurants are filled to the brim with patrons. Traffic on main roads is still congested. And shopping malls are crowded with shoppers.

In addition, we're seeing new roads, buildings and stores popping up all over the place. So, there's no denying that Chinese consumers are spending, and business owners are profiting. ..."

Billy T notes Hsu has a pro invest in China bias, so he will tend to see thing there thru rose glasses, but many less biased observers do agree. He takes groups of heavy hitter investors to China several times annually and does have connections with both industry and government leaders, it seems. They in turn are pleased with his promoting investment in China.

BTW 2inqusitive, exactly what I said would happen - is happening. The highest bids for toxic assets have come from other banks holding toxic assets. One senator has introduced a bill which would prevent banks from both selling and buying toxic assets. Thus what I predicted in post 207 is NOT "complete malarky" but your rebutal of it in post 208 is "complete malarky" ;)

PS please lets soon complete my purchase of your old broken truck for $60,000 as my $60,000 cat your are to buy under the post 209 deal (also with US government loans and help) is getting sicker. :(

Billy T
04-26-09, 08:38 AM
See: http://www.sciforums.com/showpost.php?p=2236674&postcount=71 That is the "You know times are tough when _____________ " thread.

It is supposed to be a source of humor etc. thread, but I just posted there the FACT that the IMF is asking to BORROW money FROM Brazil!

See my comments at above link and /or read Bloomberg's article at: From: http://www.bloomberg.com/apps/news?pid=20601087&sid=ai8Eko7vcXBk&refer=home

kmguru
04-26-09, 12:17 PM
I am sure there will be strings attached....

2inquisitive
04-27-09, 03:33 AM
Billy T,

Today’s Email report from investment adviser Robert Hsu:
"Investment advisers" are akin to used car salesmen, just not as honest. :)


BTW 2inqusitive, exactly what I said would happen - is happening. The highest bids for toxic assets have come from other banks holding toxic assets. One senator has introduced a bill which would prevent banks from both selling and buying toxic assets. Thus what I predicted in post 207 is NOT "complete malarky" but your rebutal of it in post 208 is "complete malarky"
No, Billy T, you said banks would buy MBSs at over face value. Do you understand what face value (par value) is? That is the value of the security at maturity, not the market value which is always less than face value at any date before maturity. The banks are buying the MBSs at an increase over market value in an attempt to raise the market value, as I stated in another post. I am correct, your posts are malarky.

It is supposed to be a source of humor etc. thread, but I just posted there the FACT that the IMF is asking to BORROW money FROM Brazil!
So? The US, even with its budget problems and recession, has already loaned the IMF many billions and the Obama adm has pledged an additional $100 billion. The IMF has asked countries with international reserves to loan money to them from the reserves for redistribution to developing and third-world countries in dire straights. Brazil refused. The IMF suggested selling bonds to Brazil as an investment. Again Brazil refused, saying it was premature. Brazilians are greedy, only interested in themselves, not anyone else. Remember the mantra "the oil is ours"? Brazilians seem to think that way about money too, "the money is ours", screw any other country that needs a loan. It just shows that 'developing' countries will suckle IMF's tit when in need, but will do nothing to repay the favor in better times. I say desolve the IMF, it is just a burden on advanced countries.

Billy T
04-27-09, 10:23 AM
... No, Billy T, you said banks would buy MBSs at over face value. Do you understand what face value (par value) is? ...Of course I know what face value is and that it can even change in issues like TIPs. Did you know that? (If you want to play the "I know more than you" game.) BTW, I think that in some cases the par value can differ from the face value. I think the par value is always the stated value at issue of the security, but in the case of TIPs with the face value (or principle, more correctly) increasing with inflation, I think the par value on the government's books remains unchanged. - Not sure of this, but it would seem very inpractical, if not impossible, to change the par value every month. If that is correct, then par vlaue and face value are not always the same.

No I did not say that. In fact I said the opposite in post 206. See the part of it below I have now made bold.


From the taxpayer’s POV, capitalism may destroy Geithner’s Plan by “success".”
Here is how (and exposes the flaw of having anyone, especially the bidders, set a price on the toxic assets – my plan* avoids this flaw as no price is ever set.):

Let Ac & Ab be two toxic trash packages, each worth $100 face offered for sale under Geithner’s Plan. (Add more zeros everywhere if you like) First might be owned by Citi and second by Bank of America, (hence the subscripts c & b) which will be called C & B to keep discussion more general.

It will not be done as obviously as I now describe for ease of understanding, but here is what can happen (in a numerical example):

C bids $140 for Ab and (JUST BY CHANCE, OF COURSE, ;) ) B bids $140 for Ac. And both C & B accept these “over face value” bids.

Now by Geithner’s Plan, the US government will provide $120 in loans (or loan guaranteed – same thing from Taxpayer’s POV when the default occurs). Also Government as investor puts up $10 to match the private buyer’s $10. (120+10+10 = 140)...

One of the reason Banks will not bid more than face value is that the Democrats are now in control of the government. The GWB attitude of "Let bankers take care of banking / no need to regulate them etc." is over (but the damage lingers on). Banks are ever now rushing to give back TARP funds to reduce the governments growing control and regulations of them. GWB would more likely fly to the moon than subject banks to the recently completed "stress test" or cap the CEO's bonuses etc.

SUMMARY: I never said that. Again you are putting words in my mouth. I said it was only a numerical illustration example. That it would not happen that way! - Exactly the opposite of the words you stuff in my mouth.

PS the reason I chose the numbers I did to ILLUSTRATE the concept was that 140 is divisible by 7. The latest toxic asset plan has the government putting up as loan and it 50% purchase about 6 parts of the price and the buyer only 1 part. Thus, my ILLUSTRATION, clearly called a numerical example, which would not actually be done!!!! has only simple sums of $120, and $10 appear in the analysis.

Billy T
05-01-09, 11:16 AM
Billy T, "Investment advisers" are akin to used car salesmen, just not as honest. :)...I quoted Hsu as he goes to China often (Just return a day ago.) and has good connections (both in industry and Government). He often has news in his Emails weeks before Bloomberg etc have the same thing, but here is his same "China is growing and locking up supplies of raw materials" story from Reuters and the Australian affilate of the WSJ and another investment firm which has also just returned from an inspection tour (and claims their leader is widely recognized "expert" on China):

“… For cash-rich China, however, the financial crisis is shaping up to be a major opportunity, with payoffs that will last for decades. …
China continues its global shopping spree, spending money to lock in supplies of crude oil, mined minerals, and all sorts of other commodities that will become quite scarce when global growth resumes – as it most certainly will. At a time when most nations (and their corporations) are being forced to retrench, and save money, China and its companies have the cash to create these captive suppliers, which will put it in a great competitive position later on. …
Chinese Academy of Social Sciences, China’s economy will advance at an 8.3% pace this year. That’s a prediction, incidentally, that falls smack into the most recent range highlighted by both Standard Chartered Bank PLC and UBS AG (UBS) of 6.8% to 9% in 2009. The latest figures show that approximately 43% of that growth in gross domestic product (GDP) will result from national account expenditures, while consumption will contribute about 36%. …”
{Billy T notes: 43+36 = 79 implying exports are only 21% of China’s GDP growth now*, and dropping as domestic consumption grows faster than exports due to both rising Chinese salaries and falling purchasing power in US & EU.}
Quote from: http://www.moneymorning.com/2009/05/01/china-profits-from-financial-crisis/

“…{China’s} State Reserve Bureau has begun building up government reserves of metal, buying around 300,000 tonnes of aluminum and 30 tonnes of indium and starting negotiations to add to its zinc and copper inventories. …”
From: http://www.reuters.com/article/ousivMolt/idUSTRE5051EO20090106

“…South Australia-based iron ore explorer Centrex Metals sold a 50 per cent interest in two of its Southern and South Central magnetite deposits for $180 million to China's third-largest steelmaker, Wuhan Iron & Steel.
Mount Gibson Iron brokered a rights issue and share placement to Chinese interests, with two major companies taking a stake of up to 40 per cent in the miner and securing discounted off-take agreements.
Gindalbie Metals was given a $162.1 million boost from AnSteel, China's second-largest steelmaker. The move increased AnSteel's stake in the company from 12.6 per cent to 36.28 per cent.
Grange Resources also looked to China and is set to merge with Australian Bulk Minerals, which is majority-owned by a Chinese steelmaker. Ian McCubbin, leader of Deacon's China group in Australia, said 2008 saw some "aggressive" investments from Chinese enterprises in Australian resources.
"It was not only aggressive in terms of volume but also in terms of the mode of investment," Mr McCubbin said. The aggressive moves included Chinalco's raid on Rio Tinto, when it took a 9 per cent stake in the global mining major in February {08}. It has also since been granted Foreign Investment Review Board approval to lift its hold to 11 per cent. {Billy T notes: This is Jan09 text. China has now 19.9+%, the Australian limit is 20%}
Sinosteel firmly pushed its way into the mid-west iron ore region in Western Australia with its hostile $1.4 billion takeover of Midwest. It also gained approval to take its holding in Murchison Metals to 49.9 per cent.
Mr McCubbin said that not withstanding the reduction in commodity demand, China would still have a long-term approach to investing in Australia, though 2009 would see a move towards more quality and strategic plays.
"China has the capital and capability to invest where others don't," he said. …”
From: http://www.theaustralian.news.com.au/business/story/0,28124,24892707-643,00.html
(They are closely tied to the WSJ.)

------------
* Because so much of China's exports are re-export of components that were imports now in higher-value final products, the 21% of GDP is not all Chinese economic activity. I would guess less than 12% is "100% Made in China" exports. Rest is just pass thru from cheaper component suppliers.

China is not now a low cost producer. It make high value goods like cars, cell phones, computers, airplanes (with Brazil's Embrarae help in joint venture), cameras, TVs, Li-ion batteries, weapons, satellites & moon rockets, etc. China is getting out of the low value added business, like toys, shirts and shoes, etc.

Billy T
05-04-09, 11:23 AM
"... Chrysler’s non-TARP lenders, in reference to the Troubled Assets Relief Program, seeks to block the proposed sale to an alliance led by Fiat SpA, as well as a request by the U.S. automaker for approval of a $4.5 billion Treasury loan to finance the reorganization. The group said secured lenders who agreed to the Fiat deal, such as JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc., were conflicted because they had also accepted TARP funds.

The process is “tainted” because it was dominated by the government, the lenders argued in papers filed today in U.S. Bankruptcy Court in Manhattan. The group also said the short period of time given to evaluate the sale was improper and the hearing on bid procedures that began today should be delayed. The judge delayed the hearing until 2:30 p.m. tomorrow, ordering the members of the lender group to reveal their identities.

The sale “improperly attempts to extinguish their property rights without their comment,” attorneys for the objecting lenders wrote in court papers. “The sale motion should be denied because it seeks approval of a sale that cannot be approved under the bankruptcy code,” they argued, adding “the court should not permit a patently illegal sales process to go forward.” * ..."

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=aLI_HoCr38DA&refer=home

-----------------
*Fiat may learn that getting 20% plus 15% more later of Chrysler for zero cash is not such a good deal after all. Daimer paid $200,000 into the UAW's health care fund just for the right to walk away free and clear from the 19.9% of Chrysler it owned. Clearly owning 20% "free ain't cheap" in their POV.

Billy T
05-16-09, 05:35 PM
As it is 2009, now this post is on theme, if off key at times:

See what I mean at:

http://www.newsday.com/media/flash/2009-04/46217527.swf

kmguru
05-30-09, 08:07 PM
http://www.newsweek.com/id/200049

Billy T
05-30-09, 11:04 PM
http://www.newsweek.com/id/200049Interesting read your Newsweek article titled "Boom Times Are Back - Just not here in the United States." Published May 30, 2009 but not much new to me.

Yes, the sovern bonds of Brazil are doing well - last time I looked you had to pay 13% over face value to buy the longer term to maturity ones.* No one but the FED appears to be buying US Treasury bonds now. China stopped at least last November. I noticed this just from the steepening yield curve data more than a couple of months ago and now often see it in print.

------------
*They tend to have higher than current interest rates, but that alone does not justify 13% over face. They are also a long term "call" on the Real. With Brazil a creditor nation, a positve trade balance, lots of FDI, only 37% total** government debt to GDP ratio (vs the US's 70% and growing), net exporter of oil energy, fleet of cars running on alcohol, etc. it is easy to understand why many think the Brazilain Real is a better bet than the dollar now.

** Federal, state, all local levels, plus all borrowing by government owed business. I bet California alone is deeper in debt than all levels of Brazilain government are. The US's ratio of 70% is only federal debt, I think.

Billy T
05-31-09, 10:51 AM
I just want it known that I do not believe that Geithner, who speaks Mandarin and has great experience in China and now is in China is defecting from a sinking ship, :eek: not planning to return to the US, etc. At least I think not. :shrug: :D.

Billy T
06-01-09, 09:33 PM
This (quote below) is just an early shot across the bow*. – China is not yet ready to tell the US to go to hell. They need a year or two more to build their domestic demand first, IMHO.

“… China’s former central bank adviser Yu Yongding will meet Treasury Secretary Timothy Geithner today and tell him the U.S. shouldn’t be complacent about China continuing to buy Treasuries. “I wish to tell the U.S. government: ‘Don’t be complacent and think there isn’t any alternative for China to buy your bills and bonds’,” Yu said in an interview yesterday. “The euro is an alternative. And there are lots of raw materials we can still buy.” …
The U.S. should take China’s interests into consideration “so that your own interest can be protected,” Yu said. “You should not try to inflate away your debt burden.” China could still diversify some of its Treasury holdings into euros or commodities, Yu added. …”

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=aoE7033VGQcI&refer=home
--------------------------
*But the broadside is coming when China is ready, as I predicted some years ago. It will sink the US and EU, to continue in nautical terms. The US lacked a wise hand on the tiller for the last 8 years and the ship of state does not have a weather helm so small storm will turn her round and blow her down wind, out of control. She can not out run this storm with the current heading.

------------------
------------------
It was not enough that US debt loaded China's economic gun. Now GM will sell them the Hummer factory!

"-- General Motors Corp. plans to sell its Hummer brand of sport-utility vehicles to Sichuan Tengzhong Heavy Industrial Machinery Co. Ltd., a Chinese equipment maker, according to five people familiar with the situation. ..."

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=a0Erg3Bcoz74

Billy T
06-08-09, 03:18 PM
Nobel Prize-winning economist Paul Krugman said: “I would not be surprised if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer. Things seem to be getting worse more slowly. There’s some reason to think that we’re stabilizing.”
(The U.S. has been in a recession since December 2007, and the NBER may take months to decide when a trough has been reached.)

Even with a recovery, “almost surely unemployment will keep rising for a long time and there’s a lot of reason to think that the world economy is going to stay depressed for an extended period,” Krugman said.
From: http://www.bloomberg.com/apps/news?pid=20601087&sid=ayAXvw0Mc3CY

Billy T’s take on this: I still expect US and EU to slide into depression prior to 31 Oct 2014, but respect Krugman, so he may be correct that profits will turn up before that, but not US jobs. Most big US corporations, not going bankrupt, get most their income from non-US sales is part of why profit part of GDP and jobs can go in opposite directions, at least for a while. Joe American is still broke and in debt and tighten his belt. I.e. the profits will not come from selling to Joe.

A strong dollar hurts US exports and also makes foreign sale profits yield fewer dollars when converted from local currency. You can be sure for these reason also that the dollar’s current (last week or so only) strength will be short lived; however the main reason for the dollar to slide down in value is that few but the FED and central banks trying to hold their currency under valued are net buyers of US bonds now and both buy with freshly printed money. As a result of this flood of newly printed fiat currencies the nominal price of oil, gold, stocks, land, commodities, etc will all increase, but not their real values, with the probably exception of oil until the depression comes. (In some sense, gold never has much “real value” – it is just them most widely accepted fiat money – I.e. like the paper dollar, gold has a high value only because most think it has.)*

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*For example, tungsten has much higher real value than gold, but sells much cheaper, I think. I could only find one grapical indication of price and it seemed to be a few hundred dollars PER TON, but that seems to be too cheap to me.