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Savings vs. Profits submitted by David Karsboel, Chief Economist at Saxo Bank.
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looking forward to the details on the "new" equilibrium
my guess is things will be terrible
Nothing like gross earnings declining by about 20%, but consumer consumption being reported to only decrease by 2%. If I had my aluminum foil hat on I would think that someone was trying to lie to me...
But the equity markets are the final verdict right?? I mean they are going up, so that must mean everything is fine now right??? Yea, sure... :)
The "details" are all lies, prompted by Zero Hedge's political agenda. And what an agenda!
They've caved in, just like Roubini. Someone threatened them, and now they will be a gossip/b.s. site, just as Roubini's has become.
The question is, which ticket to you support?
Tyler/Nouriel
Sarah/Ron Paul
I feel like I'm in some Bertolucci film set in Mussolini's Italy.
CIT halted.....
short, sweet, and sensible....
zh is on a roll today....
worthwhile read
http://www.oftwominds.com/blogaug09/KaPoom2CHS.htm
"These Billionaires are the smartest, most unprincipled, double-thinking gamesmen in the world, playing the biggest, most dangerous games in the world, on a field where whole nations are at stake. They didn't get to where they are by being stupid, taking chances, and making mistakes. You can be sure they're not making them now. They have immense control in media, finance, military, government, business, and while every plan has risk and it might still get away from them, it sure won't be for lack of trying. And that goes for the gamesters in China and every other country worldwide who are try every day to do the exact same thing to back to them. It's the big boy's game, and when the elephants fight, the grass gets trampled."
Excellent find!
Finally ZH acknowledges that there is good news for the economy - unfortunately 50% too late for the SPX and 300-400% too late for BAC and many other stocks
Maybe you should read the paper first.
you are supposed to do an exec summary first TD; lots of bankers here, lol!
oh good. So your head remains deeper in the sand
i don't think anyone who is a competent trader
uses this site for trading advice....such would
be a misuse and acknowledgement of malpractice
on the part of the consumer....
what has emerged over the past 6-8 weeks is a
class of
visitor whose time would be better used
getting a ged or learning in silence...
logic counts and there is no logic to the assertion
that being a bear on fundamentals necessitates
not trading the market....
Not convinced that there a short path to general equilibrium.One may even not know how it should look like. Government are more proeminent than ever in the GDP and may grow further.
Attrition of savings private, corporate,government a world GDP growth 2010 to be close to recession 1.6 (1.5 is the threshold)
A bond market far from pricing illiquidity, insolvency corporates or sovereign
Debt/GDP at 100 Pct is Ponzi (IMF)
"Sustainable equilibrium." Ha ha! I knew Zero Hedge would sell out in the end! What did they promise/threaten?
The Obama Administration, Federal Reserve and the Treasury have a big problem that they seem to be completely unaware of. The problem is how to undo all the economic damage that was wrought over the past two years without doing any financial, Wall Street, or consumerism laundry.
It it just me or is this economic "recovery" beginning to smell like gym clothes that you wear over an over again without washing them? Every time you work up a sweat the 'funk' gets just a little stronger. And, although you are accustomed to the odor, other people prefer the cleaner air at the other side of the room. Let's face it, these are some truly funkified clothes!
Our economic captains (aka Tzars) seem to have no idea that good hygiene is important when trying to win friends and influence people. To make things worse, they believe that our neighbours throughout the rest of the world really LIKE our odoriferous company. They haven't noticed the nose pinching, breath holding, or gas mask wearing that is taking place all around them when they enter a room. They are like a person who don't mind the smell of his own fart in an elevator. Unfortunately, it is hard to make friends when you fart in elevators...
So, what's the problem? We need to borrow money from the same people that we are sharing the elevator with. This wouldn't necessarily be a problem if we farted only once and quickly said with an embarrassed expression (and a Dr. Evil finger-in-the-mouth-pose) "excuse me." Our Dear Leaders (yes, like the one in North Korea) are not only farting they are also shitting their pants too...unapologetically.
For years, Wall Street has been creating fraudulent securities and selling them to investors (er, suckers) throughout the world. The Federal Reserve has made a mockery of prudent monetary policy through the introduction of "punchbowl" financing for everyone who failed to successfully complete their rehabilitation stint at the Betty Ford Centre. The Treasury has run up its platinum credit card balance so high that it needs to borrow money in order to continue making the minimum monthly payments. And to top everything off they are telling the rest of the world that Wall Street is ethical, interest rates are where they should be and that crazy prosperity is just around the corner. Does any of this seem to smell a little like driving past 7-day old road kill in a convertible?
So, why aren't the American sheeple nauseated by the smell in the elevator? Apparently, we like the stink. We like the smell of 9.5% unemployment and record Wall Street bonuses. We love the skid marks in our tighty whiteys which point towards high gas prices, high food prices, and meager wages which grew at the slowest pace in 35-years. We don't mind the feces that was left on our foot when we stomped on that flaming paper bag that somebody left on our front porch last September.
We can't wait to pay higher taxes! We love it when our government spends trillion without congressional approval. We feel good about making a contribution to save the environment by giving money to our neighbors so they can replace their old "clunkers" with a shinny new SUVs (uh, mini SUV or Hybrid, of course). We can't imagine what life would be like without the benefits of high-interest credit (a fancy term for DEBT) while the banks who lend it to us get the money for free. We love how 3.5 million jobs have been "created or saved" and we have never slept so well since developing significant negative equity in our homes. U.S.A.!...U.S.A.!....U.S.A.!...
If we don't clean up our act soon then we are going to find ourselves alone on the elevator just before the cables snap. At that point, we may notice a new horrific odor rising from our wallet. What's this new smell? It is the vomit-chicken-shit-soup that we have been carrying around for years..it's the U.S. Dollar.
Wonderfully evocative imagery!
Seems to me the problem is the majority of people with money, who are running and still winning the game, have too few among them who give a shit about the common good. But then, money seems inversely correlated with deep concern for society (but please don't tell 'em I said so.)
Most people with money sold their souls long ago. Even many of the revolutionaries who gather here seem primarily motivated by a drive to make this shit work out somehow for them.
Seems the price of telling the truth and living honorably at work is a little too rich for their blood.
I have nothing against people who like to make money...even LOTS of money. The common good and protection of society is the JOB of our elected officials (who make the rules) and those in the executive branck (who ENFORCE) the rules.
Failure to enforce rules will entice people (rich people and poor alike) to do things that they may not otherwise do. It's akin to watching as an electronics store is being looted by a hundreds of people. Every minute that goes by without any indication that the police are on the way to stop it has the effect of drawing more people to join in the action. Heck, if enough time passes you may even see a local priest hauling off a 52' plasma...for his congregation, of course. I don't bame the looting participants so much as I blame the police for failing to "protect and serve."
Nice read, thanks.
Savings are the difference between what is produced and what is spent. They are the only way to get back to a sustainable economy, despite what the Keynesian jerks want us to believe. Their beloved phony central bank credit creates the illusion of savings and only wasted capital, not real growth.
The positive feedback mechanism at play when the bubble inflates remains a positive feedbcak when latter the bubble deflates.
The mathematical sign of the feedback loop does not change. The feedback loop in bubbles are positive (unstable) at all moments, when bubble inflates and when bubble brust.
A positive feedback loop is a mechanism that reinforces itself (for better and for worse), giving an aceletated unstable growth (explosion) an then an unstable acelerated contraction (implosion). A negative feedbcak loop (like the one that engineers tend to use) give a stable behavior, the magnitude goes not too far from the equilibrium point of the system.
The mathematical sign of the feedback is not related to what the outcome are happy or sad. It is a measure of the stability of the system. Bubbles are unstable when they grow and when they contract.
The phenomenon that does a bubble grow and the phenomenon that does a bubble contract are the same phenomenon, its equations and the signs of the loops are the same.
What about the fact that competitors have been taken out, and companies have operational gearing from a lower cost base?
People buy shares in companies, not shares in GDP.
The essay is a good intuitive synopsis of where we are and where we are heading. The ugly gyrations of the world economy giving up the ghost between now and then will be an interesting moment in world history.
Good luck paying down that bubble-priced mortgage and "now 20% more!" new-improved credit card interest rate on your new "now even closer to zero!" salary as a Wal-Mart-greeter. Assuming you were lucky enough to get that job over the 499 recently-unretired applicants you were competing with, thht is.
Seriously, the issue is getting back not only to living within our individual means, but also back to a truly productive economic model, one in which most Americans actually produce something (whether a good or a service) of genuine value, and can make a decent living doing so. Not one in which selling each other ever-more-price-inflated real estate constitutes "GDP growth", or in which the creation and sale of fraudulent financial products is our leading growth sector.
And as long as the banksters, realtors, billionaire net-exporters-of-real-jobs and their paid lackeys in government are running the show, it just ain't gonna happen.
Just wait until Cap and Trade enters the center ring of this Circus. Two Trillion Dollars of Carbon Credits, created out of thin air like her sister the USD, and traded on the commodity exchanges. Then next on the Circus progam, the 350 lb lady in the thong bikini comes out to sing the grand finale.
Or Mudhoney playing "Flat Out F u c k e d" through 67,000 Marshall stacks.
More appropriate perhaps.
Erroneous paper. The economy is not getting back to a more sustainable level. It is getting worse. And the savings rate is again a misinterpretation of the data. The money put aside for savings is increasing. But, that is actually money being used to pay down debt. So, in fact, it is not tangible savings. In fact, it is taking money out of the economy. ie, As we pay down our debts, it reduces the money supply. This is the very foundation for the structure of quantitative easing and Keynesian spending. Saxo misses this point. I remain amazed at how few people in finance actually understand what they are talking about.
Hold on there, because I failed the reading comprehension test today. I do believe that the paper addresses the savings going to pay down the debt. I went back to the paper looking for those comments and realize I missed the last two sentences of the conclusion, hence the underlying premise of what is previously stated in the paper.
I totally disagree with this economy finding a new equilibrium unless that equilibrium is zero. I too am continually surprised by the fact that very few people address the Marginal Productivity of Debt vs the Keynsian's poor step-child QTM/QE. Payli's MPD, now forever in the negative through exponential growth of government debt, is the winner by default, that being the inevitable default of the USD.
"Therefore, savings have now begun their steady march from all-time lows in the blow-off phase years to their historical average or possibly even higher." WRONG.
The paper's conclusion is that the economy is heading towards a more sustainable equilibrium and that a big pool of savings are needed for sustainable growth. Both are completely false. The spirit and intent of the paper is logically valid. The reality is substantially different. The conclusions of the paper are inaccurate.
And the TRUTH or correct assumption really is????????
Unsustainable exponential growth of debt fed by a mad and failed experiment in the attempt to avoid the inevitable collapse of a ponzi scheme perpetuated by the free-wheeling creation of fiat currency.
Well, I would say that last remark by Chumly pretty much sums it up. We are f*cked.
the private economy is lurching toward
equilibrium....the increase in savings whether
due to debt repayment or to instrinsic capital
accumulation is occurring though still at a rate
too low to forestall difficult times...it is
nonsense to assert that debt repayment is ipso
facto credit contraction.....the argument needs
further development to be valid.....
the government may contribute negatively to the
economy and in fact is doing so as we speak...it
may therefore severely compromise the efforts
of private actors to recapitalize.....
the paper on the whole is on the right track
as far as it goes....
The private economy is not lurching towards equilibrium. Tell me how it is lurching there? And how to you equate savings with debt repayment in your post? If I have $3 in take home pay and I use all of that to repay my debts, where is the increased savings? Show me the actual monetary statistics that supports your statement. Debt repayment is in fact a process of contraction. Period. If I so happen to initiate new debts greater than my repayments, then there is no money contraction. That is Keynesian stimulus. That is why the government has no choice but to watch the system implode OR fill the gap in credit creation left by the gap created by private corporations and individuals. And as the private sector supposedly lurches towards equilibrium as you so think, the government is matching its debt repudiation with new debt. That means the future private sector has gained not one iota because their paid obligations are now replaced with government obligations.
yes the private economy is straining toward a
return "normalcy" - to a reversion to the mean
in terms of savings vs consumption....
the author of the article makes this very point
and he includes debt repayment and capital
accumulation with savings....he laments the quality
of the savings because it is indeed debt
repayment but economists regard non-consumptive
use of monies as savings....so you are not
going to make any headway with folks trained
as economists - this principle is econ
101....
it may all be too little too late...but paying
down debt is not ipso facto a contraction in
credit.....banks can loan the new funds which
is precisely what they do during normal economic
times....
unfortunately we are in a depression and the
money center banks are insolvent....thus
debt repayment may result in credit contraction
but it need not do so....there are other sources
of credit contraction at work including a
significant decline of m2 growth which may in
fact turn negative....
until the insolvent banks are liquidated credit
will continue to contract but not because
people are repaying debts.....
the government is undermining the private
efforts by incurring debt which is wiping out
the capital accumulation created by deleveraging...
this is criminal and should result in a massive
wipeout of congress in the elections but most
likely will not...
ps - credit in some sense must contract because
the consumer and business are tapped out....
the only problem is that viable businesses who
have a legitimate need for capital are dropping
like flies because they can't get the credit
they need.....
lots of different issues swirling here...
Your circular reasoning supports my original post. Econ 101 is not that debt repayment equals savings.
you deserve special recognition and high
praise for calling out mpd....this is an
arcane subject for most pundits and economists..
Savings and debt are the same magnitude with opposite sign.
What is happening, what you describe is called shrinkage of the balance sheets of the financial system (less debt and less savings), deleveraging of the economy, monetary mass implosion or, in one word : deflationary depression.
Ya think? There is a way out for the U.S. But they are too beholden to embrace it.
But remember, it's all in the context of privatizing gains and socializing losses. Yes it's exactly what I've been saying all along: West Coast Hotel v. Parrish did NOT ban Mellon and his "Liquidate liquidate liquidate."
We are about 10% into "liquidate liquidate liquidate."
This disaster is unfolding exactly like the Depression. But "cycles" won't help us here.
It all comes down to
ECONOMIC ACTIVITY IS DECLINING.
There's only one way to have economic activity increase:
BAN HOUSING EVICTIONS.
Once the system is subjected to the rigor of an individually enforceable right to housing, you will see stability in the system. Not until.
This guy starts with a basic quantity theory of money idea:
M growth = Inflation + GDP growth
6% = 3% + 3%
But then he says this amount of money growth is unsustainable? That's the money growth consistent with those long run inflation and growth targets. How can you read further when he, the *chief* economist of the bank, doesn't understand that? If he means that money growth is far in excess of 6%, that's different. In that case, he should learn how to write. Sheeeesh... what bogus reports are posted here!