A grim Q4 in the G-7
Today, obviously, was not a good day for anyone who had funds invested in global equities.
The financial sector continues to pile up stunning losses. US — and no doubt global — manufacturing continues to contract. Trade continues to shrink — though the details of Korea’s February trade data offer a bit of hope that the fall in trade is slowing.
The countries that didn’t have credit-fueled housing booms are suffering along side the countries that did, in no small part because the world’s surplus countries relied on the world’s deficit countries for demand. Paul Swartz of the Council on Foreign Relations Center for Geoeconomic Studies plotted the fall in output in q4 2008 among the G-7 countries. The fall (presented as an annualized quarterly fall) was as large in Germany and Japan as in the US and the UK.
The data on industrial production — presented as a year-over-year fall — tells a similar story.
The G-7 countries are all contracting. And, alas, a host of emerging economies are contracting even more. It shouldn’t be a surprise that Merrill has joined BNP Paribas in forecasting that global growth will dip below zero in 2009. The big issue globally is how to shift out of the current dynamic, one where weakness in demand in one country generates further weakness in all of its trading partners — and one where financial losses in one part of the globe trigger reductions in lending throughout the world, and thus add to the global credit crunch.
It is amazing how quickly a world marked by seemingly infinite amounts of liquidity were available and anyone who wanted credit seemed able to get it turned into a world where few financial assets (other than government bonds) are liquid and few (other than the G-7 governments) can get credit. Some strong self-reinforcing dynamics must have been at work on both the way up and the way down. Adrian and Hyun are on to something important.
It is interesting that this time, mature economies seem to behave like emerging markets used to: running out of economic buffers very easily, uncertain long term outlook, and – most importantly – inadequate set of policy tools.
And then we still not have the full whiplash effect from real emerging markets.
from Adrian and Hyun”
“We document evidence that marked to market leverage is strongly procyclical. Such behaviour has aggregate consequences. Changes in aggregate balance sheets for intermediaries forecast changes in risk appetite in financial markets, as measured by the innovations in the VIX index. Aggregate liquidity can be seen as the rate of change of the aggregate balance sheet of the financial intermediaries.”
So…they’re saying that our financial system and economy is like trying to roller blade on a bed of marbles?
Cool, dude!
It’s not amazing at all that an exponential credit expansion would be followed by an exponential credit contraction. It’s the historical norm. The amazing part is how many sophisticated people didn’t expect it in advance and are still amazed that the inevitable is happening.
I guess it was more fun to listen to Friedman, Greenspan and Paulson than to Kindleberger, Minsky, and Galbraith.
So chasing an asset with leverage is self-perpetuating, and deleveraging back out is self-perpetuating?!?!?!?
I’m shocked…shocked, I tell you…to hear that leveraged gambling is going on in this establishment.
[Your winnings, sir!]
[How do you like your foie gras served, Brad?]
More economists need training as engineers, with a specialization in feedback loops.
It’s like economists just discovered fire…but only by burning themselves….
KnotRP, just what I was thinking. Wouldn’t want to build a bridge using thoeries as dodgy as those used by economists!
In fact, maybe the field of economics is better seen as a discipline allied with history or archeology? They seem to be able to look back in time and say what happened and why, but their theories just don’t have value as predictive tools.
As a Canadian I can proudly say that our economy sucks less!
The first synchronized collapse in the OECD since 1974-75; the worst since the 1930s.
This isn’t a recession, folks!
.
Roller blading on a bed of marbles . . . while trying to herd cats . . . in a wheat field . . . with a flame-thrower . . . at night . . .
DOR,
What do you read of the situation in Asia.
China and India respectively. Both of them have show 6%+ Growth YoY. Do you think they will slip into recession too ? (two consective -ve GDP ?)
[...] Zahlen für das ganze Jahr sehen noch düsterer aus und machen das weltweite Ausmass [...]
DOR,
Please, no herding cats with flame-throwers. Those things sting!
Amazing to whom, Brad? I picked this back in September. Why is anyone surprised? The crash was stacked up, ready to go, en route, and heading for trigger point back then.
China will crash hard, the real economy numbers are interesting, but the triangular debt numbers are more so. There’s enough padding in the reserves to avoid catastrophe, but it’s going to require a huge internal effort to keep the lines open. I’m not optimistic about the phasing, however, and I think there will be internal shocks as this process plays out. It just beggars belief that a banking process run as a bureaucracy can run as fast as a market, and therefore there will be delays, distortions, and damages.
We saw this back in 98, but this is much bigger.
C
BTW, this case is getting a shredding over at CR. Deservedly so.
C
Brad,
I have a question (anyone else as well can answer). The economies with large savings have contracted as fast or faster than those such as the US, Spain or Uk which didn’t. But on the other hand they still have their large savings. Does this not matter at all? To give perhaps a poor analogy, in a recession I might find out that my job as a civil servant was no safer than my neighbours job as a day trader. But if I have no mortgage and he has a $1m one, surely I’m still better off? Is this true of Japan, germany etc?
Indian Investor : India stands out as an exception.
I dont see it standing out as a big exception. India has been just another cog in the wheel of export oriented growth. The deficits are big as well.
Services sector has a lag w.r.to manufacturing sector. Its just a matter of time before IT companies start cutting.
BTW, how are you positioning your NIFTY Calls ? (from last month). Rolling Over ?
[...] Read the rest of this entry » [...]
Capitalism was relying increasingly on credit and leverage to fuel growth, right up until this crisis. Productivity gains from outsourcing and new technology were decreasing, wage stagnation in the developed world was entrenched.
Credit was the golden goose, but it relied on trust between all parties. That trust is gone, because people have seen that the emperors who lead us have no clothes.
Counterpointer: China will crash hard, the real economy numbers are interesting, but the triangular debt numbers are more so.
What triangular debt numbers? Triangular debt was mainly a problem of the 1990’s. The SOE’s and state banks were fixed and that’s not where the problems are coming from now.
Counterpointer: It just beggars belief that a banking process run as a bureaucracy can run as fast as a market, and therefore there will be delays, distortions, and damages.
Banks anywhere are big massive bureaucracies. Banking processes are inherently extremely bureaucratic, largely because when deal with huge sums of money that isn’t there’s, you want lots of people watching each other or else “funny things” do happen. There are efficient well-run bureaucracies, and inefficient badly run bureaucracies.
Bureaucracies tend to be slow, but sometimes slow is good. One of the reasons I think we got into this mess is that people got into thinking “market good, bureaucracy bad” which isn’t always the case, and even thinking of markets and bureaucracies as opposites will cause problems, since I don’t think that you can have a functioning market without bits of bureaucracy here and there.
purple: Capitalism was relying increasingly on credit and leverage to fuel growth, right up until this crisis. Productivity gains from outsourcing and new technology were decreasing, wage stagnation in the developed world was entrenched.
This wasn’t the case. Productivity gains over the last ten years have been enormous, and all of the numbers indicate the productivity has been increasing during the down turn. There was (and is) real economic growth. It was badly distributed, but it was and is there.
This points out the tension between productivity and employment. If you have more productivity, you need fewer workers, and it’s none trivial to move from productivity gains to increased standards of living.
Matthew, yes, countries that ran surpluses built up a stock of assets, and assuming they didn’t invest their savings in equities (or subprime CDOs) they still have that stock. however, the value of such a stock is that it allows you to finance future deficits (or generates future income streams), and right now that isn’t of great value. it also allows larger stimulus programs with less risk, but the ability to do a large stimulus doesn’t necessarily translate into a willingness to do so.
re: negative feedback loops. economists who worked on emerging economies were quite conscious of the risk of negative feedback loops. a fall off in external financing that pushes down the currency and pushed up the real value of fx denominated debt is an obvious one; plus it sure seemed that some market moves were driven by leveraged unwinds not fundamentals (this was debated endless tho), and there seemed a risk that absent intervention (meaning imf loans to supply countries with more reserves), a sell off triggered by events elsewhere could induce a dynamic that would lead to further withdrawals, a weaker currency and default.
However, there was also a sense that EMs were different, and that they lacked the resiliency of the G-7. Read Krugman’s Depression economics, he notes this too. The G-7 was thought to be a world of the great moderation, were good central banking eliminated the tails of the distribution (especially the negative tails) for macro and financial risk. Guess not.
bsetser: Matthew, yes, countries that ran surpluses built up a stock of assets, and assuming they didn’t invest their savings in equities (or subprime CDOs) they still have that stock. however, the value of such a stock is that it allows you to finance future deficits (or generates future income streams), and right now that isn’t of great value.
I disagree very strongly that having assets aren’t of great value. If your assets are impaired then you have a non-functional banking and financial system, and if the banking system is non-functional then this limits the effectiveness of any stimulus that you put in. The metaphor that I think describes this situation is that you are in very bad shape when your fire trucks are on fire.
If you look at things like the $60 billion or so that has been put into AIG or the several hundred billion and is spend or will be spent on bank recapitalizations, then all of that us just filling up holes in balance sheets and it is literally money that is going down a black hole that isn’t being used for anything economically useful. You are just trying to keep the fire trucks from burning down and those funds aren’t available to put out the bigger fire.
I do tend to be an optimist however, and the one thing that the G-7 has going for it is that they have huge economies, and they can (and eventually will) dump whatever resources are necessary to fix the problem, but it’s going to be a huge price tag.
Just to explain why I’m an optimist.
The Federal government can borrow about $10 trillion more to fix the problem. So far the amount of money spent for the cleanup is in the $1 trillion. (More has been authorized, but it hasn’t been spent.)
My best guess is that when this is all done and we add up the bill, we’ll see something in the $4-5 trillion range just for the US, and probably about $2-3 trillion for the EU part of the problem.
By contrast, the amount of funding available for China to fix its banks was in the 0.5 trillion range, and your typically emerging market country can afford only 0.05 to 0.1 trillion fixes.
As far as bank nationalizations. I’m pretty sure at this point that there will be widespread effective nationalizations in the United States. Whether they call them that is a legal/political issue, but you will have a situation in which the government effectively controls the banks in exchange for recapitalization.
Right now I think the policy debate would be on the precise mechanics of what needs to be done, but the more important issue of what happens post-nationalization. The important thing about nationalization is that once you have a change in ownership, then you can go and confess your past sins, and I think you’ll have some eye-popping numbers about how expensive those past sins were.
re; Adrian and Hyun paper cited …..
OK people time to wake up and smell the coffee.
I’m sure these are bright and nice people but they demonstrate perfectly
the risks perpetrated in academia that flow to the real world ( and Wall St. ) …
as aptly put by no less than Warren Buffett in his latest Annual Shareholder letter did :
“Beware of geeks bearing formulas. “
Come on people; that Adrian & Hyun use the terms VAR & VIX without
having the slightest understanding of what these time series REALLY
represent. They view a problem in terms of historic data without
discussing the forces that lead people in banks to behave the way they behave.
An analogous paper discussing the common cold would spend all its time
discussing nose-blowing techniques to address symptoms.
As long as people in this World equate statistical/mathematical literacy with
insight and knowledge ….
we’ll have ( excuse me quants ) WICKED HIGH VAR.
GaveKal’s book, “Simple Economic Concepts for Complicated Financial Markets”
makes the point that bankers act in a pro-cyclical manner in a much more relevant way.
In this book’s view, VAR & VIX ain’t got squat to do with it !
Latronic, dudes & dudettes .
“The Federal government can borrow about $10 trillion more to fix the problem. ”
Yes, and pigs can fly.
Markets will go up pretty soon
Brad: And, alas, a host of emerging economies are contracting even more.
@:I think you meant ‘decelerating’ here. China isn’t even in a recession, technically speaking, though Roubini has argued it ‘feels’ like that, and he’s probably right on that count. If you count the BRIC countries amongst emerging economies, all of them are growing, albeit at a lesser pace.
Brad, I don’t think it’s appropriate to censor views at your blog. No harm in listening to people like Indian Investor who have a bullish view, even if that turns out to be wrong
I second anonymous suggestion above.
Twofish:”The Federal government can borrow about $10 trillion more to fix the problem. So far the amount of money spent for the cleanup is in the $1 trillion. (More has been authorized, but it hasn’t been spent.)
My best guess is that when this is all done and we add up the bill, we’ll see something in the $4-5 trillion range just for the US, and probably about $2-3 trillion for the EU part of the problem.
By contrast, the amount of funding available for China to fix its banks was in the 0.5 trillion range, and your typically emerging market country can afford only 0.05 to 0.1 trillion fixes.”
Can you enlighten me how you come up with these numbers? Are they in percentage of GDP or in total saving? I guess I’m confused these days by people throwing numbers in trillions with such ease.
US obviously can throw a lot of money to fix its banking problem due to its reserve currency status, but it’s not unlimited. At some point, you’ll be just printing monies.
How do you come up with China’s number of 0.5 trn? China has total domestic savings of RMB 50+ trn, or about USD 8 trn. Government’s debt is less tn 20% of GDP. 0.5 trn seems to me to be a pretty low number.
I’m just curious what methodology you use.
greg: Can you enlighten me how you come up with these numbers?
For the US, I assume that the credit limit is total 100% of total GDP. For China, I’m very roughly guessing the amount of additional domestic savings available.
greg: US obviously can throw a lot of money to fix its banking problem due to its reserve currency status, but it’s not unlimited. At some point, you’ll be just printing monies.
And we can get a guess as to how much money that is.
greg: How do you come up with China’s number of 0.5 trn? China has total domestic savings of RMB 50+ trn, or about USD 8 trn. Government’s debt is less tn 20% of GDP. 0.5 trn seems to me to be a pretty low number
I was referring to the 1990’s bank restructuring when the amount of domestic savings was in the $2-3 trillion range. The amount of funds available now in the form of domestic savings is quite a bit larger than it was in 1995.
Also the low debt of the Chinese government is a bit deceptive because the government has some huge off-book liabilities, mostly health and welfare commitments and implied guarantees.
xyz: “The Federal government can borrow about $10 trillion more to fix the problem. ” Yes, and pigs can fly.
Right now US GDP is about $15T. Public debt is about $5T. That leaves about $10T for borrowing before you start running into payment problems.
If you think that calculation is off, feel free to explain why.
Regarding Matthew’s query as to who’s “better off”, and Brad’s response:
I think it is misleading to look at GDP growth only, as people are bound to focus more on their standard-of-living, and GDP growth rates are deviating strongly from consumption growth rates in the current situation:
Germany’s GDP is apparently contracting faster than America’s GDP, but the contraction is due to a decrease in current account surplus and investment, whereas consumption is essentially flat.
America’s GDP, on the other hand, is benefiting from a decrease in the current account deficit, whereas consumption is falling (don’t have the data, but anecdotal evidence would in any case suggest that consumption is falling).
That also explains why the mood among Americans tends to the apocalyptic, whereas most Germans are only apprehensive (and Germans are anyway always apprehensive and pessimistic, it’s in their nature): Americans feel like things are going rapidly downhill, because they have to reduce spending to get rid of the leverage. Germans don’t have to reduce much, because they never had the leverage in the first place.
So when seen from this angle, Germans are probably less affected by the crisis than Americans, even though German GDP appears to be contracting faster.
(In a way, that’s a variation of Twofish’s theme: If you have assets, you can keep consuming. If you have debt, you have to cut back. So having accumulated assets is a good thing after all.)
Regarding Korea’s February trade data:
I wouldn’t read too much into it. Last year, Lunar New Year was in February, this year it was in January. That’s bound to make January data look bad, and February data look better in all of East Asia.
Indian –> could you pls enable anonymous commenting on your blog pls ?
a. No anonymous commenting
b. WORD VERIFICATION takes ages to load
Pls let it free..we could have great chats there
I dont like removing comments. Its totally “un american”
@Off the boil: .. Enabled comments now, sorry didn’t notice this before; I’m into blogging only for a few months now.
“If you think that calculation is off, feel free to explain why.”
You don’t include state and local government debt.
You don’t include hidden liabilities (Bloomberg had a story only today estimating that state governments have unstated pension liabilities at 1 trillion usd).
You don’t take into account private debt.
You don’t take into account that US GDP is about to take a large fall.
And you don’t account for the possibility that markets, for no other reason that they woke up on the wrong side of the bed, may just decide they don’t want to lend any more money in the midst of a worldwide credit crunch.
If I could, I would vote to change the U.S. situation (deficits in both trade and government) with either Japan or Germany. Their losses are temporary. Adam Smith noted long ago that the amount of currency possesed by any country is secondary to the ability of that country to produce valuable goods and services. Japan and Germany have demonstrated how to survive in a world with some markets controlled by China. The U.S. must also do that.
In my opinion, Brad has the moral right to kick anyone off this website that he wants to. The is not like a public meeting place constructed by the whole society.
Second, his reason was listed as personal insults – both directed at himself but also at the person substituting for him. The latter was important, apparently.
I see no reason for any person constructing a blog to accept personal insults. I see no reason for anyone to accept personal insults. Civility is essential.
People making sagely statements about USG finances should get their facts straight. I’ve pointed this out numerous times before, but keep being confronted with this stupid comment that the US public debt is only $5T.
All official accounting by the CBO, GAO,Congress, and people evaluating the credit rating of governments add together “public” debt of marketable treasuries together with “inter-government” debt obligations (Social security trust fund, government pensions. This is just the “paid in portion” that Congress took and spent. NOT unfunded future liabilities.).
Congress voted the debt ceiling up to 11.4T last year to accommodate both halves of TARP. They will have to do it again soon for all the new programs just launched.
Here’s a site that keeps the running tab. It has a national debt clock in the upper right. It is about to turn over to $11T. Then it shows a graph of debt to GDP ratio. It has just passed 80%.
http://zfacts.com/p/318.html
I think they have screen saver debt clocks too for people that have trouble remembering facts.
Interesting comments from Paul Volcker.
http://www.youtube.com/watch?v=EUlMkMpsYjI
xyz: You don’t include state and local government debt.
Which is irrelevant since states and local government have separate credit from the federal government.
xyz: You don’t include hidden liabilities (Bloomberg had a story only today estimating that state governments have unstated pension liabilities at 1 trillion usd).
Which is also not relevant for the bailout since most of the pension liabilities don’t come due for another few decades.
xyz: You don’t take into account private debt.
Which is not relevant for how much the Federal government can borrow.
xyz: You don’t take into account that US GDP is about to take a large fall.
OK. It’s now $9 trillion instead of $10 trillion.
xyz: And you don’t account for the possibility that markets, for no other reason that they woke up on the wrong side of the bed, may just decide they don’t want to lend any more money in the midst of a worldwide credit crunch.
If people were refusing to lend to the Treasury and instead parking their money somewhere else, we wouldn’t have the problem that we are in. The problem that we have right now is that the US Treasury is the *major* institution that anyone is willing to lend to, and that fact is killing the economy.
People are lending money in vast amounts right now, the problem is that they are lending it to the US Treasury.
no one’s views are censored b/c they are bullish. comments are taken down if:
a) they are rude and offensive and directed at the person not the argument
b) the number of comments/ inability to stay on topic detracts from the conversation/ a poster is using the comments section to in effect push their own views independently of the thrust of the conversation.
a certain subcontinental investor was running afoul of both principles, and made a number of personal attacks on me and then on rachel when she filled in for me.
“Which is irrelevant since states and local government have separate credit from the federal government.”
No it’s not irrelevant, but you’re making a common mistake. The credit rating of a country is based on its future tax-raising ability. A country with local governments in debt is a less-good credit risk than one without, because its citizens will be paying higher future taxes to pay the taxes of the local governments and have less to spare to pay any taxes to the national government.
“Which is also not relevant for the bailout since most of the pension liabilities don’t come due for another few decades.”
No wrong. The government uses, among other durations, thirty-year bonds. Clearly the amount of thirty-year bonds that the market thinks the U.S. can pay back will depend on other liabilities that the U.S. has over the next “few decades.”
“[Private debt] is not relevant for how much the Federal government can borrow.” Sure it’s relevant. The future tax-paying ability of a citizenry is less for a society where many citizens are in debt.
“OK. It’s now $9 trillion instead of $10 trillion.” That corresponds to a fall of US GDP from 15 to 14, or less than 8%. Now look again how much U.S. GDP fell in the Great Depression.
“If people were refusing to lend to the Treasury and instead parking their money somewhere else, we wouldn’t have the problem that we are in. The problem that we have right now is that the US Treasury is the *major* institution that anyone is willing to lend to, and that fact is killing the economy.” Says you, but your assertion that this is a “fact” doesn’t make it so. Maybe what’s killing the economy is that its productive capacity has became badly skewed.
“People are lending money in vast amounts right now, the problem is that they are lending it to the US Treasury.” And the important words in what you have written are “right now.” Obviously right now they are. But the markets are what they are, and that could well change in one or so years.
@2fish – “People are lending money in vast amounts right now, the problem is that they are lending it to the US Treasury.”
I think many are ignoring the very real potential for transforming Treasuries into a political issue. What if both domestic savers and SWFs began to perceive their savings were financing the very tools of oppression? This is a volatile issue for both US conservatives and overseas nationalistic groups.
It is the demand side of consumption that is most vulnerable. What if “save more, consume less” were to become a rallying cry and focal point of a mass political movement?
After all, it would only take another 6% contraction (on top of the present 6%), to achieve an offset of 15% from the 3% forecast growth to put a significant dent in BHO’s fantasy budget.
It doesn’t matter if the USG had to make real cutbacks or if the Fed had to destroy the $USD by flooding the market with QE, the end effect of preventing further socialization would be achieved.
That’s enough for at least 100m Americans.
brad : “It is amazing how quickly a world marked by seemingly infinite amounts of liquidity were available and anyone who wanted credit seemed able to get it turned into a world where few financial assets (other than government bonds) are liquid and few (other than the G-7 governments) can get credit.”
show me any hill and i will show you where to find the back of the hill. show me any upslope and i will show you where to find the downslope. show me any skyward spike and i will find its plunging mirror image very close by.
economic growth is exponential in nature. all of the problems and patterns of exponential growth in a limited environment can be found in ecological systems. economic systems are a subset of nature – natural systems.
and when you get exponentially growing systems interacting, you still have an overall exponential system, but more exaggerated than ever.
we need a word “floops” (?) for exponentially accelerating feedback loops. or decelerating floops. i know there is the phrase ‘positive feedback loop’ already – but we need a striking little word for tthe man in the street to take notice.
we also need a junior-school-friendly account of what capitalism is. too many journalists are using ‘capitalism’ to mean ’speculation.’
capitalism only works without enormous crashes if you arrange for multiple minor crashes. just as death, or natural elimination, is required by the pattern of evolution – so some form of bankruptcy is required by the patterns of capitalism.
no one takes me up on this. there is a private sector and a state sector in modern economies. ’small enough to fail’ is a requirement for functioning within the private capitalist sector. ‘too big to fail’ is the sphere of the state sector. monopolies can work in the state sector (two pentagons anyone ?) but make nonsense in the private sector. so do entities that are private sector when making profit – but state supported when making losses. that’s obscene.
if the overall global economy is too big to fail – then global communism (they will think of a different name for it) is it’s natural end state.
the global economy needs to be fragmented and diversified, under a multilateral ‘new world order.’
it is very likely to happen anyway. if the united states’ neo cons and others had their way with full spectrum dominance – they would create something mouthing equality while actually supporting a bastion of privelege – very like the soviet command economy elite. call it a green zone economy if you like.
the unrestrained global mobility of capital – needed for the new world order type agenda – links all assets and investments as borders and barriers are dismantled. this maximises and synchronises global growth. small irish country town credit unions, and enormous far eastern sovereign wealth funds, fish in the same pool of credit.
to fail to see the ecological pattern, and in a decade or two reinflate a global unified bubble of growth, is a potential disaster of lunatic proportions.
no one has yet fingered the villain of the piece. it is not the actual fractional reserve banking – it is changing the rules as to how much you are allowed to leverage. that accelerated the global economy. high speed is theoretically sustainable (?), but acceleration has to end. extreme acceleration has to end violently.
i apologise for my lack of economically literate language. i am trying to paint a picture, that it is the amount of liquidity which made the crunch inevitable.
to try another analogy. schumaker blasts off the starting grid at twice the speed of any previous driver. you do not need to be an automobile technician to guess that, at the first serious bend at the end of the straight (there always is one) he is going to brake harder than ever before . . . .
now the prudent producers (japan, germany,) are in the same trouble as the reckless consumers (united states, ireland,) and we are suprised. can you decouple consumers and producers ? we have the answer for china – stimulate domestic demand. why does it not apply to all of us ?
like communism, if they bring back protectionism, they will have to invent a new name for it.
no one is yet facing up to the massive change that is going to come upon the global economic system. most people have a deep intellectual commitment to the way things have been during the boom.
that cannot last.
xyz: Because its citizens will be paying higher future taxes to pay the taxes of the local governments and have less to spare to pay any taxes to the national government.
Unless the local government defaults, which has happened with the United States municipalities. Credit ratings for US municipalities are altogether separate from the national government.
As far as pension liability. US Treasuries go out to 30 years, but SS liability projections go out to 75.
duke: What if both domestic savers and SWFs began to perceive their savings were financing the very tools of oppression? This is a volatile issue for both US conservatives and overseas nationalistic groups.
Chinese nationalists have enough sense to know that China is not going to be better off if the US collapses, and I think the same is true with Arab nationalists.
US conservatives are in the wilderness. They will come back eventually, but not in the next year.
duke: It is the demand side of consumption that is most vulnerable. What if “save more, consume less” were to become a rallying cry and focal point of a mass political movement?
Great!!!! More money to spend on capital investment. Demand is not the same thing as consumption. You can have high demand with high savings and high investment.
if the difficulty in foreseeing a major change in the global economy, now underway, was the result of drawing all statistics, all conclusions, from the untypical period since, say, 1971 . . . .
try this book ; “agricultural fluctuations in europe – from the thirteenth to twentieth centuries.” by wilhelm abel.
a picture of an unfamiliar mediaeval world, and yet one that reveals the recurring patterns. google for extracts.
Twofish: “For the US, I assume that the credit limit is total 100% of total GDP.”
Do you mean the annual US federal deficit at 100% of GDP? Why stop at 100% – isn’t the credit limit for any entity set by the gullibility of its creditors?
BTW, Michael Farrell, CEO of Annaly Capital Management (which is an auction agent for CDO liquidation) has informed its investors of its current operations:
“There are over $600 billion of CDOs outstanding, about half of them are already in EOD, or Event of Default, and only a third of that amount has been liquidated to date. We expect EODs and liquidation activity to continue to rise.”
This is just one of many CDO auction agents.
dow below 7000, snp below 700, nikkei around 7000, gold ard 900 lookin towards 1000, interest rates globally at record lows, central banks looking to Quantitative Easing as solutions. All these suggest to me that we are facing a global depression. With all the mindboggling numbers, 60 Billion losses, Trillion packages and widespread collapse of asset prices, it takes more than just an optimist to think its going to be better now.
Credit is going to be a dirty word from now, but the governments worldwide are embarking on massive credit printing projects. when will they ever learn?
Thomas is right about the seasonal effect (except, that Korea is far less affected by Lunar New Year than are her many Chinese neighbors).
Korea’s exports in Jan-Feb 2009 were down 25.7% from the same 2008 period, and seriously deteriorating as compared to the -9.1% recorded in Q-4 2008.
Imports didn’t fair so well: -31.1% in the first two months of the year, and down from -8.8% in the fourth quarter of last year.
“Record ugly” is the catch phrase of 2009.
[...] Brad Setser at the Council of Foreign Relations looks at how the world’s leading economies performed in the last quarter of 2008. Short answer: they tanked. Look at the chart on his site. The G-7 countries are all contracting. And, alas, a host of emerging economies are contracting even more. It shouldn’t be a surprise that Merrill has joined BNP Paribas in forecasting that global growth will dip below zero in 2009. The big issue globally is how to shift out of the current dynamic, one where weakness in demand in one country generates further weakness in all of its trading partners — and one where financial losses in one part of the globe trigger reductions in lending throughout the world, and thus add to the global credit crunch. [...]
04Mar09 RTRS-INTERVIEW-Russian c.bank sees macro stability in H1 2009
MOSCOW, March 4 (Reuters) – Russian fresh capital flows and trade data signals that the macroeconomic environment will stabilise throughout the first half of 2009, the central bank’s First Deputy Chairman Alexei Ulyukayev said on Wednesday.
Ulyukayev told Reuters net private capital outflows fell to $4.5 billion in February from $29 billion in January while the trade surplus stood at $16 billion and the current account surplus at $9.4 billion in the two months.
“Preliminary data for the first two months of 2009 lead to a conclusion that the population and businesses have adapted to new exchange rate correlations,” Ulyukayev said in an interview.
“The hypothesis that we will have a sustainable trade surplus of dozens of billions of dollars this year is being confirmed,” he said.
gillies,
Excellent post. I agree with you about the the perils of growth in a limited environment. As in nature, diversity is a virtue by its imposition of homeostatic mechanisms.
There are some tools that governments can implement that would help ameliorate this. For example in real-estate, tax capital gains above a certain growth threshold. Allow for growth at a level (25%) above inflation, after that impose a capital gains taxes (even a progressive one).