As with every piece of potentially bad news in the here and now, the IMF provides some bone for bulls to gnaw on by offering hope that 2014 will be considerably better. What at first glance is a broad-based slashing of global growth outlooks for 2013 ends up being yet another hockey-stick expectation dangled out in front of the world's investors. With Europe now downgraded to a recession in 2013 (GDP -0.2%), we should not fear though as Olivier Blanchard adds that "If crisis risks do not materialize and financial conditions continue to improve, global growth could be stronger than projected," and sure enough 2014 is expected to herald a new era of growthiness (GDP +1.0%) for the troubled region. He does offer one note of reality that is critical - "Financial market optimism should not lead to policy complacency" - alas we fear that time has long gone. World Trade Volume expectations have been ratcheted lower with Brazil and Newly Industrialized Asia seeing the biggest downgrades to growth.
Currency wars have captured the imagination of many. However, the modern history of the foreign exchange market demonstrates that is has always been an arena in which nation-states compete. Typically central banks want the currency's exchange rate to affirm not contradict monetary policy. The synchronized crisis and easier monetary policy makes it appear that nearly ever one wants a weak currency. Yet most officials are on low rungs of the intervention escalation ladder. Moreover, there is no sign of it spilling over to a trade war. Has any one else noticed that Japan's largest trading partner and regional rival China has been quiet, not joining the the chorus of criticism?
Japan's Chain Of Events: Stagnation -> Monetization -> Devaluation -> Stabilization -> Retaliation -> HyperinflationSubmitted by Tyler Durden on 01/21/2013 17:31 -0400
As the world's equity markets prepare to rally on the back of yet more central bank printing as Japan's Shinzo Abe takes the helm with a 2% inflation target and a central bank entirely in his pocket, The Telegraph's Ambrose Evans-Pritchard suggests a rather concerning analog for the last time a Japanese prime-minister attempted to salvage his deflation/depression strewn nation. The 1930s 'brilliant rescue' by Korekiyo Takahashi, who removed Japan from the Gold Standard, ran huge 'Keynesian' budget deficits intentionally, and compelled the Bank of Japan to monetize his debt until the economy was back on its feet managed to devalue the JPY by 60% (40% on a trade-weighted basis). Initially this led to exports rising dramatically and brief optical stability, but the repercussion is the unintended consequence (retaliation) that the world missed then and is missing now. Though the economy appeared to stabilize, the responses of other major exporting nations, implicitly losing in the game of world trade, caused Japan's policies to backfire, slowed growth and left a nation needing to chase its currency still lower - eventually leading to hyperinflation in Japan (and Takahashi's assassination). With no Martians to export to, why should we expect any difference this time? and how much easier (and quicker) are trade flows altered in the current world?
Why must the debt grow every year? To keep the debt-servitude paradigm going. To increase economic activity in a country operating in this type of system, you need to increase the level of credit and thus debt grows in tandem. This is self serving: if debt is the “fuel” to increase economic activity, interest payments will become larger and larger, until eventually it reaches a point where debt can no longer be increased. This point is known as the Minsky moment–when there is no net benefit to extra debt. So there we have it, in our “creditopia” world, if debt does not expand, the economy cannot grow and jobs cannot be created. In order to increase debt, foreigners have to continually finance the ever growing debt by purchasing government bonds and selling consumer products to the US. In turn, the US must increase the level of consumption, decrease savings, and eliminate the threat of any nation posing a risk to the US dollar hegemony. Is this a symbiotic or a parasitic relationship? Is is certainly a relationship that cannot grow forever. It poses an economic risk for ALL nations due to the interconnectedness of the global economy.
To some, such as those few whose daily net worth is still a function of the policy vehicle formerly known as the 'market', it is a merry Christmas (at least until such time as the recoupling between central planning and reality once again inevitably occurs). To others, such as the 50 million (by now) Americans on food stamps, and billions of others around the world living in conditions of poverty, it is not so merry. But no matter one's current state of one's mind, there is always hope that the future will bring better days: after all that is what reflective holidays such as today are all about. We too hope that there is hope, if at the same time realizing that ever more of the promise of the future is packaged away in chunks of debt and securitized in order to fund an unsustainable present. We open up this open thread to readers to share their hopes and concerns about the present and the future.
What a year 2012 has been! The mainstream media continues to tell us what a “great job” the Obama administration and the Federal Reserve are doing of managing the economy, but meanwhile things just continue to get even worse for the poor and the middle class. Right now we are living in a bubble of debt-fueled false prosperity that allows us to continue to consume far more wealth than we produce, but when that bubble bursts we are going to experience the most painful economic “adjustment” that America has ever gone through. We need to be able to explain to our fellow Americans what is coming, why it is coming and what needs to be done. Hopefully the crazy economic numbers that we have included in this article will be shocking enough to wake some people up.
Was the shooting of 20 students in Newtown, Connecticut the Neo-Liberal version of 9/11? The question merits considerable thought, but let me explain further what I mean. In the aftermath of the 9/11 World Trade Center attacks, a sense of shock and awe sunk into the minds of the American populace like nothing seen in decades. This overwhelming fear, this logic crippling terror, infected the public to more destructive ends than any deadly virus in existence. Conservatives were especially vulnerable to the infectious symptoms of the event, abandoning all reason and even their small government values to support the fascist inklings of the Bush Administration. More than a decade later, the Neo-Liberal (fake liberal) Obama Administration and its minions continue the Bush legacy by exploiting our latest tragedy at Sandy Hook Elementary as a means to an end; a political opportunity to assert federal authority as more valuable than constitutional freedom. If you can’t convince people through rational debate that your position is the correct one, and, if you have to threaten them, lie to them, or brainwash them before they will adopt your ideas, then there is something wrong with your ideas.
- IMF Demands Partial Default for Cyprus (Spiegel)
- Boehner's 'Plan B' Gets Pushback (WSJ)
- Beijing criticises US ‘political checks’ (FT)
- White House Said to Tell Business Groups Talks Stall (BBG)
- NYSE tries to get hitched again: IntercontinentalExchange in talks to buy NYSE (Reuters) -> N-Ice coming?
- Greece faces ‘make or break’ year (FT)
- Fed rejects idea of consensus forecasts, "maybe forever": Fisher (Reuters)
- Rajoy Drives Spanish Revolution With Low-Cost Manufacture (BBG)
- Italian Senate Set for Budget Vote Before Monti Resigns (BBG)
- BOJ Loosens With Pledge to Review Inflation Objectives (BBG)
- Bowing To Abe, BOJ To Review Price Goal (WSJ)
Why Did We Lose Our Rights if the Government Isn’t Even Keeping Us Safe?
Tim Geithner's time is almost done, but the former NY Fed head is only one of very many whose position is expected to be replaced in Obama's second term (just so there is a non-continuous chain of command if and when the time comes for the people to demand an explanation for the state of the US economy from the talented Mr. Geithner). Who else is out and who is expected to be in? The following list attempts to cover all upcoming rotations at the top of the US cabinet. What is not attempted is a prediction of where in the private sector people such as Geithner will end up: that is considered largely self-explanatory.
UPDATE: PMI Score: Up 19 - 9 Down; 15 nations contracting now vs. 19 Contracting last month
Good is 'good' it seems once again - though we do remember just a few short weeks ago when the world and his pet rabbit were hanging on every word from the Chinese leaders and their next epic embarkation on the stimulus highway. Not necessary now though; as HSBC's China Manufacturing PMI confirms Friday's NBS version that China is 'expanding' once again (though marginally). The highest print for the HSBC number in 14 months - makes perfect sense given the way the world is behaving with world trade collapsing and the mercantilist nation's key customer (that would be the USA) seeing spending slowing. Nevertheless, it's enough to run to late Friday highs in S&P 500 futures and flush out those nascent stops. We just hope this 'expansionary' print is not a false hope as it was in October 2011... An evening full of PMIs has begun (see below)...
- Rough start for fiscal cliff talks (Politico)
- Europe Fails to Seal Greek Debt-Cut Deal in IMF Clash (Bloomberg)
- Japan’s Exports Reach Three-Year Low as Recession Looms (BBG)
- Beggars can be angry: Greek leaders round on aid delay (FT)
- More financial blogs launching soon: Financial Times Deutschland closing (Spiegel)
- China's backroom powerbrokers block reform candidates (Reuters)
- BOE Voted 8-1 to Halt Bond Purchases as QE Impact Questioned (Bloomberg). In the US the vote is 1-11
- UK heads for EU budget showdown (FT)
- Eurodollars - another epic scam: How gaming Libor became business as usual (Reuters)
- Clinton Shuttles in Mideast in Bid for Gaza Cease-Fire (Bloomberg)
- Fed Still Trying to Push Down Rates (Hilsenrath)
Presented with little comment, but while there are numerous reasons for elevated oil prices (from short-term supply disruptions, middle-east tensions, and emerging-market demand) it appears something broke in Q1 2009 between a proxy for world trade (or indeed for ship-building mal-investment in hope-driven excesses continuing) and the cost of fulfilling that demand. After 25 years of credit-driven Keynesian (monetary-to-fiscal-policy reach-around) planning, it would appear it is different this time as the potential for infinite supply of fiat currency clashes with the 'finite' supply of hard assets (crude oil in this case)... Much as we question who gained from Draghi's first year of action in Europe, we suggest this chart clarifies who did not benefit from Bernanke's experimentation...
- Obama-Romney: Breaking the Tie (BBG)
- Fiscal cliff looms over campaign climax (FT)
- Tough Calls on Deficit Await the Winner (WSJ)
- Election Likely to Leave Housing Unmoved (WSJ)
- Regulator Investigating Rochdale Trading (WSJ)
- Greeks Plan Strikes On Eve of Votes (WSJ)
- China Communists consider internal democratic reform (Reuters)
- Wen urges Asia-Europe co-op to promote world economy (China Daily)
- Italy Said to Reject Bad Bank That May Boost Ties to Sovereign (BBG)
- IMF warning adds to French economy fears (FT)
- Europe, Central Bank Spar Over Athens Aid (WSJ)
- Unlimited Lending May Help Weaken the Yen, BOJ Official Says (BBG)
- PBOC Official Says U.S. Election Won’t Impact Yuan Level (BBG) - Just the USD level to which it is pegged