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Rosenberg: "I Think The Dramatic Fiscal Tightening We Are Seeing In Ireland And Others Is Insane"
Rosie enters the "future of the euro" speculation race, and sees a "devastating deflationary shock" when Europe finally accepts the inevitable: "U.S. companies would likely confront a huge appreciation in the dollar, which would cut into their foreign-derived earnings base. Commodity prices would undoubtedly correct and safe-haven flows would certainly redress the loonie’s overvaluation gap. Treasuries would rally big-time." Stocks, of course, would plummet, and "Gold would remain bid — yesterday’s rally in the face of the USD rally is a case in point." On the other hand, the fact that we are starting to see traces of Krugman in Rosie's thinking is very. very worrisome.
SCENARIO BUILDING — KEY RISKS AHEAD
Yesterday’s very weak U.S. new home sales data underscore the mixed nature of the other data releases. That said, Q4 real GDP in the U.S. is now likely to come in a tad better than I expected. While the U.S. consumer seems to have some legs as year-end approaches, my worry list for 2011 has not changed. Next year, even assuming the Bush tax cuts are extended, fiscal policy at the federal level will withdraw five-tenths of a percentage point from real GDP, at the least. Furthermore, closing the massive budget gaps at the state and local level will withdraw a further 1.5 percentage points from GDP. Again, this is a conservative estimate but a total of two-percentage points of fiscal drainage with questionable offsets from the other sectors of the economy.
Then, of course, in Europe, there is fiscal tightening and rising risk premia associated with potential sovereign defaults. Those developments will have a negative impact on exports too. Also, the response to exchange rate manipulation in Asia could well draw higher tariffs, and the resulting trade war would impact asset prices and the economic outlook that much further.
I think the dramatic fiscal tightening we are seeing in Ireland and others is insane and I wonder how a new government in early 2011 is going to react. Spanish bond spreads are behaving like Ireland did precisely six-months ago when Greece was getting bailed out (it’s not really a bailout — the stringent strings attached are like a hangman’s rope).
Everybody seems to believe the euro is sacrosanct but this was also the view around the Argentina currency board nearly a decade ago, the country ultimately devalued in order to reflate its economy and pay off its debts in debased currency. After the 10-year currency convertibility plan was abandoned in early 2002, the Argentinean peso depreciated 80%, which in turn paved the way for massive trade surpluses, and from 2003 to 2007, real GDP expanded at a 9% annual rate, and real wages rose by nearly 5% per year. Growth ensued. Memories faded.
Sweden, in the early 90s, is another example, and the reason Iceland no longer makes the news is because the krona has been devalued 60%.
The end-game as I see it is that some of these peripheral EMU countries leave the union, go back to their own currency so they can reclaim control over their monetary policy and pay their debts in devalued punts, drachmas and pesetas. These peripheral EMU countries need to reflate but are being forced to do the exact opposite by being linked to a currency union. Other countries, such as Germany and the UK, that have big banks that own a ton of these peripheral European bonds will simply see their governments issue debt to cover the losses, either in part or whole (Merkel will see to it that in Germany’s case, it will be the former) in their financial sector. We’ll look back at this like we did Argentina and Russia ... with faded memories.
But if it plays out like this, it would be a devastating deflationary shock for the global economy, for at least a few months. And, U.S. companies would likely confront a huge appreciation in the dollar, which would cut into their foreign-derived earnings base. Commodity prices would undoubtedly correct and safe-haven flows would certainly redress the loonie’s overvaluation gap. Treasuries would rally big-time.
I'd welcome any responses/views to this thesis. Call it scenario building, but our pro-CAD and pro-commodity views are at stake. Gold would remain bid — yesterday’s rally in the face of the USD rally is a case in point.
And a broader catch up on key economic themes:
WHILE YOU WERE SLEEPING
Another mixed start to the day with most European bourses flashing red while Asia is mostly in the green column. Bond yields are backing up, especially in the European periphery. While there is talk now of boosting the European rescue fund, size doesn’t matter — these are loans, not gifts, and do not solve the problem of excessive debt burdens, exacerbated by fiscally-induced deflationary pressures.
Are these aid packages working? The short answer is no. The yield on a 10-year Greek bond has ratcheted all the way up to 11.93% — it was 8.96 % just prior to the IMF-EU rescue plan unveiled in early May. At these levels, how could Greece ever fund itself? Meanwhile, Irish 10-year bond yields are at their highest level since the EMU was created in 1999 (9.1%) and contagion risks are underscored by the fact that even Spanish bond yields have now risen in each of the past eight sessions. The U.S. dollar continues to firm up in this environment, ditto for the yen and gold, as investors take cover in the “safe havens”.
It was light on the foreign data docket but we did see some oomph in the U.K. retail sales data for November.
If anyone is keeping a scorecard on QE2, it’s not looking too good at the moment. No stimulus from the U.S. dollar, which is strengthening (thank you, Ireland). The equity market is consolidating, and Treasury yields have backed up sharply with the 10-year note seemingly poised to re-test the 3% threshold — when the specific objective was to reduce market interest rates. It may be time to go back to the drawing board. Indeed, have a look at this article in today’s NYT business section (Fed Considered Setting Target for Interest Rates on Some Bonds).
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First
did you post on fintag?.. where is moron?
Et tu Rosie?
Jeezuz.
Nobody knows what's going to happen, but the above scenario makes as much sense as any of the others. One thing that's for sure, this flight is about to get awfully bumpy. Anyone who has a broad, unhedged long or short position should be prepared to be very wrong -- or head through one hell of a nail-biter hoping for their thesis to be proven right....
. Chaos dead ahead....
Is this not really the continuation of the old inflation vs. deflation debate?
It has simply morphed, but is still primarily the same old argument.
Sure, we mostly talk about America, but Europe is really in the same predicament.
http://www.rightcondition.com/2010/11/deflation-vs-hyperinflation-after-qe2.html
Exactly, nobody knows. The world is such a huge nonlinear system that defies any predictions. Qe2 in isolation may deflate the dollar, but in the real world we see the dollar increase because of the mess in Europe. There are so many positive and negative feedback loops going on at the same time that are not taken into account when making predictions to make all predictions worthless.
Yeah, but people, especially politicians, are pretty fuckin' predictable.
They will inflate. People will rebel. Systems will contract & reform. Life will improve.
100 years later, we'll likely be back here again, but for obvious reasons I don't give a shit that far out.
weren't you going to take the day of Tyler?
It's all you can eat Turkey Day for you Americans no?
Some of us prefer to think of it as Turkey Holocaust Day.
Yepper, Only the last few years we have became the stuffing.
Yeah, the stuffing that get's shoved up the cloaca... :)
hey Tyler - not watching the parade? hard at work ehhh...
thanks for giving us the front row seat to watch the show...happy thanksgiving!
In a contractionary climate, this should be expected. As there is no aggregate growth, literally everybody is a deadbeat. The economies cannot support the coupon, and recognizing that, everyone wants a coupon that covers this.
So, if you were lending to someone you KNEW wouldn't pay back, what is the interest rate? It's obviously a lot more than they can afford in the first place. This is why payday lenders are charging 35%. They hope you can survive until they cover their initial outlay.
Fuck bumping the interest rate, let's talk collateral (like say Aer Lingas). When the payday lender gives you the stink-eye, you can always go to the pawn shop.
37%...from the news articles I've read they are actually in the range of 250% to 500%. At least in Canada. Maybe there are limits to the loan sharking business in the US?
Nah...you're probably thinking of car title loans in that 100's % range.
OOOPS...we talking APR of up-front fee?? And NO there are absolutely no usury laws (that I'm aware of)
The maximum interest rate you can be charged in canada legally is 60%.
I think there are some problems with this thesis. First, to all us Americans, happy turkey day- unless your a turkey.
The problem I have is this: with all the rounds of competitive debasement, who knows what the value of any fiat currency is? This is clearly present here. The dollar is the most debased currency on the globe- it will have greater value? Further, oil is priced in dollars. Every nation on earth is going to pay huge increases in oil prices, but we are going to benefit?
Analysts are no longer determining real value, but are trying to figure factors of debasement. Factors which do not exist. We are witnessing a period where price discovery has become crippled. Suggestions of price controls are popping up- these never work.
Then suggestions that devaluations have created strong economies in Sweden and Argentina? Actions that took place as single events in a world full of performing economies- we are going to apply this to the present? Where single devaluations in Asia threaten to set off devaluation wars amongst exporters?
The real problem, IMHO, is not being addressed or considered: banker and bond haircuts. We have a problem with asset evaluations that are impossible to make because of debased currency. This allows people from each regional economic block to cry overbought/oversold- depending on the location of the crisis. To think any currency is strong is ridiculous.
This analysis is attempting to create a plan to protect investors based on fiat currency, it's value and which one will come out on top. This is a faulty assumption- thus the analysis is worthless. All currency is worthless- just some more than others. Look at the lists: every major economy is toast. The only values that exist are in technology centers and resources, i.e. Canada, Australia, parts of Africa and Brazil. The technology centers are compromised by their overhang of debt, i.e. China, Japan, USA and Germany.
Just an interesting side note- the Pound Sterling continues to show strength- with a terrible debt to GDP, no resources, no exports, but ruled by the Bank of England and the rothchilds.
We are asking the wrong questions and accepting the wrong answers.
"The real problem, IMHO, is not being addressed or considered: banker and bond haircuts. We have a problem with asset evaluations that are impossible to make because of debased currency. This allows people from each regional economic block to cry overbought/oversold- depending on the location of the crisis. To think any (fiat) currency is strong is ridiculous. "
effing lovely, that.
Best Regards
This is the dumbest "deflationist" piece I have seen in a while.
Less Rosie please...
Can you outline your counter-argument to it?
i do, in a few posts below
When I'm late on my Citibank card, they jack the interest up to 29%. The Ben Bernanke goes the other way, to 0%, not for me but for Citibank. The EU is somewhere on the low side of the mean, but not willing to "lend" free money (key word expecting to be paid back). If Ireland is lent "X" money it will cost them "2X" to pay it back, which will lead to another round of "loans". If one was to look 10 years ahead actuarily one would see massive rampup of loan sizes (er, inflation) vs. US ZIRP.
Its a moot point because in reality, as TD says, its insane to call for austerity when faced with such large bills: where will the money come from to pay not only the principal, but the interest?
Also: As the USD rips, the $1Trill+ offshore stash of corporate cash gets whacked, double whammy. (What, they are hedged? Oh, they'll lose even more money that way).
"Treasuries would rally big-time." Stocks, of course, would plummet,"
So Rosie thinks the stock market is going to tank. Imagine that, Rosie of all people.
I believe I'll look at his track record concerning market predictions and give value to his opinion in this matter accordingly. What ever happened to his "double-dip" prediction anyway? Shouldn't ZH be recalling his predictions in that area and offering some small degree of ridicule?
Yes. Clearly the US and Global recovery is "strong." Rosie is so full of BS isn't he? Provided of course you are comfortable ignoring The Bernank with his hundreds of billions, an absolutely dismal housing market, insolvent banks, real unemployment near 20%, record food stamp usage, the rolling debt crises in Europe, and increasing inflationary pressures in the emerging markets ...to name a few. You and Harry sure have a nack for missing the forest for the trees. One doesn't have to be a delusional bulltard to jump in on the long side during an big rally, you know? As for Rosie's "market predictions" (and remember he's a economist, not a daytrader,) I fail to see how they deserve ridicule:
"So yes, profits have come in just fine despite one of the weakest recoveries on record, but to some extent, much of this has already been priced in. During the summer, there was far too much attention paid to how much the stock market had come off the April highs, and recently, far too much a focus on how far the stock market has bounced off the July-August lows. The bottom line is that for the past year, the S&P 500 has crossed above the 1,200 mark five times and has moved below the 1,100 threshold no fewer than thirteen times. This is a sideways moving market now for over year — a low of 1,022 and a high of 1,225. Sell at the highs, buy at the lows, until there is a decisive break either way. No doubt the equity market never did cheapen up enough for our liking — that day will come — but the total return to date has been a bit better than 7% compared to 11% for the long bond, 12% for the 10-year T-note and 10% for the corporate bond market. Gold is up more than 20% and silver by over 60%. The bond-bullion barbell that we have been espousing for years actually worked again in 2010."
Party pooper. ;)
You don't get it...
Sure the economy is still the shits and it is not getting any better. The problem with Rosie is that he has been predicting a deflationist double dip, with government sponsored GDP numbers going down, everything priced in dollars going down.
What he fails to realize(because he is a deflationist) is that the economy is actually worse and priced in gold, we never got out of the first recession. We are experiencing incipient hyperinflation that appears to look like a recovery. Appears to look like a recovery in the eyes of a ddeflationist of course. So when Rosie see's that things should get worse, he always predicts that government sponsored GDP will go down and a whole host of other things in nomional terms will go down.
I think I get it. We both certainly agree that "the economy is still the shits and it is not getting any better." I guess my take is that there are forces pulling in both directions. You have the natural tendency for markets, business, and households to want to deleverage and save vs. the desire of central bankers and governments to reflate. No one knows the future with absolute certainty, so the best you can do is to be nimble and well-hedged while seeking a decent return. Wouldn't hyperinflation end in deflationary collapse anyway? Shit is shit, does it really matter whether it sinks or floats?
Still think Rosie's a better read than most.
Deleveraging does not equal a dollar rally.
Think about hardcore deleveraging. Would you consider JPM going insolvent again deleveraging ? How does that bode well for the dollar ? JPM going broke is the equivalent of Gazprom going broke in Russia. Does that bode well for the Ruble because there is "deleveraging" in the economy ?
If and when there is a bank run on the treasury market, the quantity of money does not matter. The money supply could be contracting while the dollar gets sold off.
"The money supply could be contracting while the dollar gets sold off."
Yes, there are scenarios where I could see this happening as well. However, the knee-jerk response so far has been for the dollar and treasuries to rally during times of crisis (I'm sure you've seen the inverted wealth pyramid with derivatives on top and cash then gold at the bottom.) Of course, this is relative, as anyone who has seen a long term inflation adjusted chart of the USD will attest. Believe me, I am no fan of fiat currencies, central banking, or fractional reserve lending. For now, it looks to me like we are heading down the road to inflation/dollar devaluation/possible hyperinflation, as always there will be bounces along the way. It remains to be seen whether all the opposition to QE2 is just so much political theater. I'm just trying to pay attention and stay flexible. I like PM's but personally feel like there are non-trivial risks to going "all-in" on them. I definitely prefer "things" to "paper."
Deleveraging does not equal a dollar rally
If deleveraging were only happening in the US, you might be right, but it is becoming a global phenomena forcing investors to pick a least worse house in a crappy neighborhood. (The house has been changing rapidly because of the currency war) Also, there is no Gold standard to push foreign/domestic depositors to "sell dollars" as happened the last time we had a massive deleveraging (The Great Crash). Last, if JPM (TBTF Banks) went insolvent, we could end theinsane ZIRP policy, (the point of it now a smoldering ruin) and start moving rates higher, thus strengthening the dollar. Gazprom going broke destroys Russia due to commodity derived revenue feeding the sovereign... the model of the EM accent to power. Our banks keep trying to shoe horn themselves into a position of providing "commodity-derived" revenue but continue to fail.
The dollar is the worst house in the neighborhood. The only reason for its reputation is that it was backed by gold.
Exaggerate much?
So what are you saying? No new loans and everyone getting out of the dollar = inflation? Even hyper-inflation?
No Mas, when you start to measure Rosie's performance please don't cherry pick a nice reference point like March 9th, 2009. Try going back to Early 2008 when he was talking about housing, an upcoming recession and yes.. gold.
Sure, he's been defensive with regards to the market - but the market isn't trading on fundamentals.. its trading on the multi-trillion dollar adrenaline rush that's being pumped in every couple of days via POMO. It would be an interesting exercise to see how your cherished bull market would behave if we took it off life support. My guess is Rosie would be looking a lot more.. well.. Rosie.
Don't confuse stimulus for organic growth. Stimulus and bailouts are unsustainable..
I for one am not too keen to be bullish on stocks in a Terry Schaivo economy.
Insipient hyperinflation is not what we are calling a cherished bull market. With the amount of money being printed around the world, who is to say the DOW is all that overvalued ?
When life support is taken off the bond market(Rosies cherished bull market), how would the dollar behave ?
If life support is taken off the financials in the US, what industry will there be left to tax and pay the interest on the debt? (the debt,once again, Rosies cherished bull market)
Fair enough - if you remove QE from the mix then absolutely rates will start to back up.. but will they skyrocket? Tough to say. Given I run a laddered bond portfolio I really don't worry too much about where rates 'could go'.. as I've got liquidity just in case - I'm also NOT in the US.. so I've got a bit of a hedge there as well. All I know is that there seems to be a tremendous amount of fluff built into the stock market. It will be very interesting to see how all of this inflation via commodity prices is passed on to the consumer - my bet is companies won't be able to pull it off on ALL products. Yes on gas and food.. but hotel rooms? Restaurants? iPod/iPad/iPhones? I doubt it.
my main point however was that a lot of people shit on Rosie's record.. as they only measure it from the bottom of the market - which is bull in my book.
I agree, there is allot of fluff in the stock markets. Hotels,restaurants ect are way overvalued.
I was more thinking about the Exxons, 3Ms and Duponts of the world. Its hard to say if they are overvalued considering they make real things and do business all over the planet.
I agree, there is allot of fluff in the stock markets. Hotels,restaurants ect are way overvalued.
I was more thinking about the Exxons, 3Ms and Duponts of the world. Its hard to say if they are overvalued considering they make real things and do business all over the planet.
I agree, there is allot of fluff in the stock markets. Hotels,restaurants ect are way overvalued.
I was more thinking about the Exxons, 3Ms and Duponts of the world. Its hard to say if they are overvalued considering they make real things and do business all over the planet.
You can say that again!
It is very easy for Zero hedge to preach Austrian dogma from their New York Ivory towers.
I figure that if New York took a 30% drop in consumption then even Zero Hedge true believers would be pleading for mercy.
The plain fact is that Austrian wanking only pleases oneself's ego in this monetory system.
Everybody else is gaming the system and creaming the surplus while the dumb Irish seem to believe this shit.
Rosie boy, getover here and tell these retards what they are doing wrong
Perhaps if you had more Austrian wankers in Ireland, you wouldn't be believing this stuff? You might have anticipated the housing crisis? You may have asked for banker haircuts? Is Cowen from New York?
I understand your anger, but why the Austrians? There are no Austrian references in this article or the postings. An Irish troll? or just a leprechaun in trolls clothing?
By the way, most of us here are pulling for the Irish or haven't you been paying attention?
Look Seanie boy , the Bond Holders are the ECBs baby and for whatever reason they decided that no senior bond holder dies on this continent and indeed the planet - I have been banging on about this for some time now if you waste your time reading my posts.
Little old Ireland cannot take on the ECB alone especially when our nest is full of cuckoos.
If we print punts our currency may devalue by something like 80% and that will make the imported necessities of life a bit more expensive in dear old Hibernia
However if the ECB does not act as lender of last resort and offloads its shit on the European treasuries and we pay 5%or more I recommend we hit the nuclear button and issue punts.
What has that to do with Austrians? Personally, I like the Hitler solution posted at the top of the home page. Ireland needs to default, period. Dump the ECB and take back your country laddie.
"The plain fact is that Austrian wanking only pleases oneself's ego in this monetory system."
-I would agree that substantial monetary reform is crucial, but doen't appear likely anytime soon. Also, a strategy of austerity while actually adding debt, to me, looks suicidal. Countries must be allowed to default or restructure their debts. Regrettably, since the interests of the banks are now clearly considered to be "super-soveriegn," this also appears unlikely. The thugs will remain in charge and the people, everywhere, will suffer.
Oh goodness gracious, "...wanking to please ones ego"...Austrians recognize that it's not going to be pretty at all. They simply know that "this monetary system" will and must eventually end. The longer it takes to get there, the more we try to fix it, the more merciless the end will be. Whether the end is an orgasm of mad money printing or a spasm of defaulted credit destruction, a smoking ruin is a smoking ruin.
My that felt good, I need a cold shower now.
FYI, not everyone who reads zero hedge lives in New York.
Happy Thanksgiving to all Americans, and a good day to all our other friends around the world.
I see a lot of ads about buying and spending on stuff we do not need but where are the ads for saving and paying down debt. Ha, what a joke. I do not understand why anyone in this country deals with C, BAC, WFC or any other large broken bank. Find a community bank or credit union that is Not insolvent and for gods sake get rid of those credit cards. It is rape from the big banks, time and time again.
I know it is hard, but by supporting these squids we just add to the problem. They are insolvent and why would you deal with any insolvent company? You give money to someone who finds ways to f___k you over, time and time again. Makes no sense to me.
Just a thought.
Charts
http://www.zerohedge.com/forum/99er-charts
Happy Thanksgiving.
Just because they call it austerity doesn't mean it is being implemented for the purposes of fiscal or fiduciary responsibility. Seems like just the opposite. Sort of like lending an invading army the tools to dig a tunnel under your wall and then making your peasantry pay for the cost of their own massacre.
Exactly , the Irish austerity does not transfer a surplus towards capital creation - it is simply bailing out bank bondholders who made catastrophic mistakes in the deployment of their capital.
Yup,
At that point in time are the same people (I mean seriously since neither you nor I have a spare billion kicking around) are getting bailed out from the US to Europe at this point in time.
This is right fucked. I have to agree with Spitzer in the thread. Three years ago I would have assumed that the euro and the US would buckle themselves to something and continue as business as usual.
What is happening in reality is all currencies are unhooking themselves from reality and now are being compared to gold and silver and oil. If ireland took all that capital, bought silver and gold then kicked the euro out then backed the punt with silver and gold it would be the only currency in europe with a currency that actually had a value other than paper.
However, as you mentioend all it's being used to do is bailout bond junkies.
this is as doom-y as i've ever seen rosenberg...but still, i think its too soon for us to all get aboard the doom train. the risk trade and metals going parabolic is in our future.
chillness for a chill day
http://www.youtube.com/view_play_list?p=D99EC6935E5AF32A
new playlist on sunday morning :)
With all the talk of "deleveraging", why aren't we thinking about "Quantitative Tightening?"
QE2, 3, infinity is not going to solve our problems - the best thing to do is to acknowledge deflation and learn to live with it.
Japan has learned to live with deflation for 20 years and they aren't falling apart at the seams - why shouldn't we? The major difference is that we have exported our jobs/manufacturing base, whereas the Japanese have a cultural aversion to doing so.
"the best thing to do is to acknowledge deflation and learn to live with it."
You are obviously not a banker. Therefore, your opinion does not matter.
I think you guys continue far too much to obsess over printing. All money is printed. Trillions globally disappeared when mortgages stopped being paid. The printing is replacement, not dilution.
The CPI is down because it's reality. You can't raise the prices of things no one wants, and the "needs" are not as large a % of the typical American budget as the "wants" are. Housing and cars are not increasing. They drag everything else down and yield a tepid CPI -- and this is accurate. Yes, food is up. Yes, oil is up. But your gas budget and your food budget are less than what your ammortized monthy car costs are, and your monthly housing costs are. That's why there's no inflation; because there's no inflation.
So obviously the happy medium is no deflation and no inflation. That's not likely, but the odds of deflation are higher than those of inflation -- simply because it's so hard to increase the price of things no one wants. Have a look at your neighborhood house listings to understand this.
And what if what nobody (outside the US, at least) wants to hold paper with the brand name US Dollars on them?
How do you increase the price for them?
Its not 'a bit of money printing' that bothers people, it is money printing as a policy solution, aka money printing as the solution to any and all problems that bothers people. And rightly so.
Now look at the problems of unfunded liabilities, budget deficits, and a unpayable national debt, and tell me what the proposed solution will be.
For bonus points, what happens when the Dollar loses Reserve Currency Status (World's Favorite Brand of Paper Money)?
http://psychonews.site90.net (under maintenance by host)
http://www.optionsninja.com (for redundancy)
PsychoNews: Exposing the Oligarchy, one Psycho at a time.
LOL! Federal Reserve Notes -- buy one, get one free! Now with more colors! (Taste the rainbow!) Tastes great! Less filling!
What does it matter that the CPI is down? Houses and cars are down but what is the relevance of that when 20% are unemployed. In this case food and oil are the only things that matter and people sure as hell aren't checking the CPI levels anyway, they're looking at grocery and fuel bills. Official statistics are academic they have no place in the world we currently find ourselves in, where fundamentals are placed by the wayside.
Guess what, sectoral balances actually don't counter-balance when the 'investment' in what should have been a private hand-off 'exit' was all wasted on non-returning pure debt, and of course, making sure the bankrupt appeared to still be wealthy.
Now you're left using a printing-press to prop-up $14.1T, in 2008 dollars, of giant credit-bubble, that’s pretending to be 'growth' of GDP, with no private hand-off in sight.
And no 'Japan solution' either, as unemployment will not be tolerated to grow and grow during the >10-years of carefully managed stagnation needed to allow an orderly delevering and a slow REAL-GDP deflation.
US politics simply won't continence protracted zero growth for more than 1-quarter. The big political saving grace of 2010 was US GDP grew (just not in real terms per capita). Can you imagine the political environment if there were none? And no impetus to print-spend-bail to get some?
So it will be either massive printing or nowhere near enough printing. Either way (and I think it's the former) you get something much nastier than Japanese stagflation (with near full employment while they did it), plus a disorderly US delevering on top with a dramatic Real-GDP deflation.
The greater the systemic corruption that’s evident to people, the more likely a disorderly delevering will overtake events and fraudclosure in the US and governement deficit lies in the EU provide for this.
Richard Koo's best case prescription involved >200% debt to GDP growth (which can’t come from someone else’s savings in the US case)... and still rising relentlessly ... so he was scorned in the US ... even though he is basically correct about how to engineer a soft private delevering (but hard public levering).
There's a word for this situation: PORKED
no problem, ben's got our backs !!!!!
I agree with Rosie's thesis here which is why I bought the USD and sold the EUR going into QE2. Contrary to what most people around here believe, QE is not the same as money printing and isn't the cause of EM inflation. This inflation is due to ZIRP, not QE.
The Euro is in serious trouble, much more trouble than the USD. Nations will leave the Euro, it's only a matter of time, which will cause the value of the Euro to collapse. Flight from Euros will, naturally, go to USDs. This will happen long before the world ditches the USD as a reserve currency.
At the end of October, leading up to QE2 I explained the same thing as the basis for me buying the USD/EUR pair...and got junked into oblivion for it. Too many idiots around here now.
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What does it matter that the CPI is down? Houses and cars are down but what is the relevance of that when 20% are unemployed. In this case food and oil are the only things that matter and people sure as hell aren't checking the CPI levels anyway, they're looking at grocery and fuel bills. Official statistics are academic they have no place in the world we currently find ourselves in, where fundamentals are placed by the wayside.
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House prices greatly influence rent, of course. Cars get bought because American society does not live near its workplace.
Besides which, you may not understand the CPI. Whereas there is a great deal of merit in your rejecting Old Normal processes, the folks who compute CPI carefully survey American consumers to find out what they spend money on -- and they survey continually. Meaning, if housing and cars stop being a huge % of consumer spending because of high unemployment, they will detect it. And they will change their weighting.
The procedure is measure the % each item in the basket is of total consumer spending -- and then measure the price rise of each item. That's a very good procedure. They are self-criticizing, too. They take very seriously any properly staffed and funded organization that conducts its own survey and gets a different result. There are few of these. One did a survey of health care expenses and their result differed from the official result by less than 10%. Despite this, the CPI looked carefully at methodologies to be sure they could explain even that small a difference.
Housing and cars have not stopped being a huge % of household spending. Period.
And that's why inflation is reported low. Because it's low.
Here's an idea...
Let's adopt a 100% tax on Wall Street bonuses. That will raise a quick $144 billion.
Worried the government will waste it? Okay, grant immediate and equal tax rebates to the non-Wall Street taxpaying population, so that $144 billion goes to folks who have a better use for it than gasing up a G650 or bidding on another Willem de Kooning.
Now for the Wall Street folks who think this is somehow unfair, let's remember that it is Thanksgiving, and half of that word is "giving". Your turn. Without the "giving" that the taxpayer did to you over the last few years, you would not even have a paycheck, much less a bonus. So figuring the base pay for most BSD's is about $250K, not only will you get that income, but even if the Bush Tax cuts on the rich are not extended, you'll remain under the threshold.
Seems fair. You don't like fair?
When great minds think alike about the same problem, yes! it is time to worry about the problem...not the mirage of a supposed "ideological contamination" that does not exist anywhere else than the imagination of the writer.
Don't forget Rosie is a Canuck...their DNA contains a certain amt of Paul Krugman. The Irish need to fix their own house - as do we.