The IMF’s Il Houng Lee, Murtaza Syed, and Liu Xueyan have published a very interesting and widely noticed study called “Is China Over-Investing and Does it Matter?” In it they argue that there is strong evidence that China is overinvesting significantly. China’s investment rate is so high, that even ignoring the tremendous evidence of misallocated investment, unless we can confidently propose that Beijing has uncovered a secret formula that allows it to identify high quality investment in a way that no other country in history has been able, there is likely to be a systematic tendency to wasted investment. The extent of Chinese overinvestment – even if we assume that it has not already caused significant fragility in the banking system and enormous hidden losses yet to be amortized – requires a very sharp contraction just to get back to a “normal” which, in the past, was anyway associated with difficult economic adjustments. It is hard to imagine how such a sharp contraction in investment will itself not lead to a sharp drop in GDP growth.
It’s Not a Tax or Spending Problem … It’s a Devolution Into Lawlessness
The Lie that Prosecuting Bank Fraud Will Destabilize the Economy Is What Is REALLY Destroying the EconomySubmitted by George Washington on 12/23/2012 00:38 -0400
Failing to Prosecute White Collar Crime Guarantees a Weak and Unstable Economy … and Future Financial Crashes
The BRICS (Brazil, Russia, India, China and South Africa) bloc has begun planning its own development bank and a new bailout fund which would be created by pooling together an estimated $240 billion in foreign exchange reserves, according to diplomatic sources. To get a sense of how significant the proposed fund would be, the fund would be larger than the combined Gross Domestic Product (GDP) of about 150 countries, according to Russia and India Report. Many believe the BRICS countries are interested in creating these institutions because they are increasingly dissatisfied by Western dominated institutions like the World Bank and the International Monetary Fund (IMF).
Five years ago, every American would have considered a trillion-dollar budget deficit a national tragedy. If you believe the CNBC parrot show, NOT having a trillion-dollar deficit is now a sure sign of the Apocalypse. I speak of course of the cleverly dubbed “Fiscal Cliff,” which panicked CNBC apologists are required to mention no less than 5,000 times a day. Creating the illusion of economic growth is easy if you can print money. It’s a prank you can play on an entire country. Cut the value of the currency in half and the economy’s size will appear to double. If it doesn’t, you’re in recession (whether you know it or not). Cavemen probably understood this concept better than America’s best economic minds.
Americans Have Less Access to Justice than Botswanans … And Are More Abused By Police than KazakhstanisSubmitted by George Washington on 11/28/2012 15:57 -0400
U.S. Scores Towards the Bottom of All North American and Western European Nations
Who owes what to whom?
Of all the hollow and uninspired elections that this country has suffered through over the past several decades, one might think that at some point long ago the American public would have finally struck a plateau of disenfranchisement; that we could sink no further into despondency, that there is a saturation limit to the corruption of our voting process. Unfortunately, there has been no such luck. We have to say that in all honesty we have never seen more people gut jumbled and disgusted with our electoral system than we have in 2012. In 2012, it will not be about voting. It will not be about “winning”. It will not even be about getting to the next election. It will be about survival. We're sorry to say that the idea that one man will do less damage than the other is a naïve sentiment. Democrat? Republican? Obama? Romney? The crimes and calamities wrought will be exactly the same. Take a look into our crystal ball and see the future. Here is how the winner will destroy America.
Tim Geithner's public "servant" tenure has not been without its blemishes: from his deplorable run as the (figure)head of the New York Fed (from 2003 until 2009), when the entire financial system literally imploded under his watch, to his epic failing up as Hank Paulson's replacement as treasury Secretary of the United States, despite his legendary inability to navigate the Minotaurian labyrinth that is the TurboTax income tax flowchart, the Dartmouth alum has had his share of run ins with adversity (and adversity won). Of course, Geithner's tenure in charge of the Treasury in the past 4 years has been somewhat mollified by the fact that here too here was merely a figurehead, and the true entity that runs the US printing presses is none other than the JPM and Goldman Sachs co-chaired Treasury Borrowing Advisory Committee (for more on the TBAC read here and especially here as pertains to the former LTCM trader and current head of JPM's CIO group), meaning that the US Treasury, just like the Fed, are merely branches of the one true power in US governance: Wall Street. Geithnerian figureheadedness aside, the one undeniable fact is that Tim Geithner's days as head of the Treasury are now numbered: he has made it quite clear that he will not accompany Obama (should the incumbent be reelected) into his second term. So what is a career "public servant" to do once the public no longer has any interest in retaining his services? Bloomberg's Deborah Solomon has some suggestions...
If you often wonder why ‘free market capitalism’ feels like it is failing despite universal assurances from economists and political pundits that it is working as intended, your intuition is correct. Free market capitalism has become a thing of the past. In truth free market capitalism has been replaced by something that is truly anti-free market and anti-capitalistic. The diversion operates in plain sight. Beginning sometime around 1970 the U.S. and most of the ‘free world’ have diverged from traditional “free market capitalism” to something different. Today the U.S. and much of the world’s economies are operating under what I call Monetary Fascism: a system where financial interests control the State for the advancement of the financial class. This is markedly different from traditional Fascism: a system where State and industry work together for the advancement of the State. Monetary Fascism was created and propagated through the Chicago School of Economics. Milton Friedman’s collective works constitute the foundation of Monetary Fascism. Today the financial and banking class enforces this ideology through the media and government with the same ruthlessness of the Church during the Dark Ages: to question is to be a heretic. When asked in an interview what humanities’ future looked like, Eric Blair, better known as George Orwell, said “Imagine a boot smashing a human face forever.”
Chinese economic data has in general been surprising to the downside in recent weeks - in opposition to the positive (seasonally adjusted awesomeness) of US data. However, for tonight's entertainment we have GDP at 7.4% YoY - perfectly in line with expectations (but the 7th consecutive quarter of slowing growth), Industrial Production beat modestly, Retail Sales beat handsomely (biggest beat in 18 months), and FAI beat...
- *CHINA 3Q GDP RISES 7.4% VS ECONOMISTS' EST. 7.4% :NBSZ CH
- *CHINA SEPT. INDUSTRIAL OUTPUT RISES 9.2% VS 9% ECONOMISTS' EST.
- *CHINA JAN.-SEPT. FIXED-ASSET INVESTMENT UP 20.5% VS EST. 20.2%
- *CHINA SEPT. RETAIL SALES RISE 14.2% FROM YEAR EARLIER
So, no new stimulus coming anytime soon - leaving Bernanke and Draghi all alone (and the latter is stuck waiting for Rajoy to say 'Si'). AUD lurched violently up and down; US equity futures are unmoved; and Treasury yields rose perhaps 1bps.
"The consensus view was that QE3 was going to send the stock market to the moon. Yet the peak level on the S&P 500 was 1,465 on September 14th, the day after the FOMC meeting. The consensus view was that the lagging hedge funds were going to be forced to play some major catch-up and take the stock market to the moon too. Surveys show that the hedge funds have already made this adjustment...Q3 EPS estimates are still coming down and now stand at -3% YoY from -2% at the start of October....this is the first time the Fed embarked on a nonconventional easing initiative with the market overbought and with profits and earning expectations on a discernible downtrend. Not only that, but the fact the pace of U.S. economic activity is still running below a 2% annual rate, which is less than half of what is normal at this stage of the business cycle with the massive amount of government stimulus, is truly remarkable. Keep an eye on the debt ceiling being re-tested — the cap is $16.394 trillion and we are now at $16.119 trillion. This is likely to make the headlines again before year-end — the rating agencies may not be taking off much time for a Christmas break."
- Hilsenrath Humor du jour: Bernanke Advocates Stronger Currencies (WSJ)
- Auditors want two more years for Greece on deficit (Spiegel)
- More bluster: Schaeuble Rules Out Greek Default as Samaras, Troika Bargain (Bloomberg)
- And even more bluster: De Jager Says Greece Needs to Make Fiscal Reforms Immediately (Bloomberg)
- Global Economy Distress 3.0 Looms as Emerging Markets Falter (Bloomberg)
- Central bank governor stresses inflation control (China Daily)
- Greek Yields Reach Post Debt-Swap Low as Bunds Slip on Schaeuble (Bloomberg)
- Roth and Shapely win Nobel prize for economics (Reuters)
- Fed chief rounds on stimulus critics (FT)
- IMF Board Sees Biggest Power Shift Reshuffle in Two Decades (Bloomberg)
- EU Girds for Summit as Nobel’s Glow Fades on Crisis Response (Bloomberg)
- Japan security environment tougher than ever (Reuters)
When push comes to shove, China still has the bigger gun over Japan on many other levels, and the U.S. most likely has to at least sit in the bed it’s made so far.
Risk averse sentiment dominate the session, as market participants looked forward to the latest European finance ministers meeting who are due to discuss Spain’s finances, as well as Greece, which is yet to formalise spending cuts in order to receive the next aid tranche. Reports that China's economic growth is expected to have slowed to 7.5% in Q3 from 7.6% in Q2 weighed on basic materials and industrials stocks. The World Bank cut its 2012 GDP forecast for China to 7.7% from 8.2%; 2013 to 8.1% from 8.6%. Uncertainty surrounding the never-ending sovereign debt crisis in Europe weighed on financials, and in turn translated into lower 3m EURUSD cross currency basis. Peripheral bond yields rose, with Italy underperforming, ahead of the supply later on in the week. Going forward, given the Columbus Day holiday across the pond, trade volumes are expected to be below the average.