On Malinvestment And A Weak Economy Getting Weaker

Tyler Durden's picture

The only reason the real wage and salary growth has improved at all this year (a real growth rate of 1.1%) is because inflation has been declining since January as TrimTabs' Madeline Schnapp notes specifically "the price of gasoline has dropped sixty cents a gallon since April giving consumers about $60 billion in extra cash to save or spend". While good news, it is hardly sustainable and acts as a much weaker boost to the economy where balance sheets are still crammed with trillions of dollars of mal-investments left from the real estate bubble that have not been marked-to-market. These non-performing assets are like a ball-and-chain around the neck of the economy and the quicker they are liquidated the quicker the economy can get back on its feet. Schnapp sees lower job growth than consensus for June and while her pre-July-4th ebullience is clear, her less-than-sanguine view on the economy and the "purging of mal-investments - destroying wealth and contracting credit" means wage-and-salary growth will be anemic at best.


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t_kAyk's picture



"Two leading credit rating agencies took steps Thursday toward downgrading Barclays in the wake of a trading scandal that's seen three senior Barclays executives, including CEO Bob Diamond, hand in their resignations.

Although both Moody's and Standard & Poor's maintained their ratings on the bank, they lowered their outlooks to "negative" from "stable." That means that a downgrade of the actual rating is now more likely."


My head hurts... 

DoChenRollingBearing's picture

Malinvestments are apparently a BIG problem in China too, as per last week's Barron's.

Aziz's picture

It's a big problem wherever there is central planning. 

tarsubil's picture

My guess is malinvestment is a given. Central planning seems to do a good job of keeping it around after it has clearly failed.

narnia's picture

it's a big problem wherever there's government spending, irrespective of how central that government.

Dr. Engali's picture

As usual Barron's is a little slow on the take. Maybe Tyler should offer them a subscription to the Hedge.

francis_sawyer's picture

 "There will be growth in the spring"

~Chance the Gardener


ChrisDG74's picture

They may have fallen 60 cents since April, but they have gone right back up around here. Up 60 cents since Monday.

CrashisOptimistic's picture

Quite a few of these Schnappe types are out of date.

The entire world, not just the US, as a consequence of the ongoing Apocalypse, has collapsed its oil consumption.

These $60 billion benefit numbers are old normal based.

RobotTrader's picture

Wow is that lady "disheveled" or what?  All those Trim Tabs people look like they just emerged from the detox center.


SPY priced in Euros is making 4-year highs today.


francis_sawyer's picture

When they start pricing it in Pokemon cards it oughta blow past 200...

Snakeeyes's picture

Correct, But who is going to pay for it?

Employment is NOT improving: http://confoundedinterest.wordpress.com/2012/07/05/jobless-claims-fall-to-december-2011-levels-14k-fewer-claims-when-there-are-12-72-million-unemployed/

Mortgage applications are falling despite 14 Administration modification programs and The Fed's Twist: 


Nothing is working and faster writedowns will be avoided at all costs.

ZippyBananaPants's picture

How about the hottness that was just on Bloomberg?  10+

Shizzmoney's picture

Notice that Krugman doesn't talk wages in his "NeoClassical" Keynesian solutions via his NYT Op-Eds.

He's not paid too, and really, his "debt, debt, debt" meme is really destructive to not only to our solutions, but also to Keynes.  Keynes, like Minsky, has gotten a bad rap thanks to this clown.  He NEVER would have advised this type of overprinting w/o the math being able to withstand it. 

List to Martensen and Steve Keen discuss this (around 20 minutes in).


Winston Smith 2009's picture

"the quicker they are liquidated the quicker the economy can get back on its feet"

But everything being done is being done in an effort to prevent exactly that from happening!

riley martini's picture

 It wasn't malinvestment . It was $trillions spent on a massive fraud and to cover up the massive fraud . Mortgage fraud, securities fraud , ratings fraud plus billions in bribes and bonuses for banksters, politicians, relatives and bundelers.

TrulyStupid's picture

The biggest malinvestment is of course the foreign war and state dept spending, at the same time cutting taxes on the corporations who profit from them. These spendings caused huge misallocation of resources, wealth destruction and commitment to ongoing malinvestment. The overhang is the unpayable debt.

Funny how most mainstream commentators point the finger elsewhere.. could they be profiting from the pillaging of the country?

Bicycle Repairman's picture

The non-performing assets are owned by important people.  There will be no liquidation.

JR's picture

“the price of gasoline has dropped sixty cents a gallon since April giving consumers about $60 billion in extra cash to save or spend" -- Madeline Schnapp

It’s an inflation war of Fed smoke and mirrors – two inflation steps forward, one inflation step back… where the Fed and the bankers always win the pot.

Never mind that the average national gas price in November 2010 for regular was $2.89; in November of 2009 was $2.67; $2.07 in November of 2008; $1.51 in 2000. You’re saving money, extra cash to save or spend!!!

Never mind that the average home selling price according to a Standard & Poor’s U.S. Census Bureau chart, The Fate of an Average Home’s Selling Price, was $150,000 in 2000, soaring to $311,089 if you bought in June 2006, dropping back to $204,187 in January of 2012. You’re saving money!!! It’s deflation; just look at how much equity you’ve lost; but, hey, you can buy a new one; it’ll only cost you $54,000 more than it did in 2000. You’re saving money, extra cash to save or spend!!!

In short, killer inflation has raged since the creation of the Federal Reserve System. The value of a dollar issued in 1800 went below its original purchasing power only once, to $.93;  its purchasing power had actually risen to $2.04 in 1913 when the Federal Reserve took control of the U.S. monetary system.  By 2005, the dollar’s purchasing power had plunged to $0.08. But, hey, you’re saving money, extra cash to save or spend!!! (See The Rise and Fall of the Dollar: 1800 to 2009, Ludwig von Misses Institute)

I know you can substitute hamburger for steak to maintain your “standard” of living, cereal instead of bacon for breakfast, walking for driving, and a parked car in a church lot for housing. But, hey, look how much extra cash in lower gasoline prices, housing prices, and food prices you won’t be able to save or spend!!! The Fed's cooperative media will let you know how much.



Source: Standard & Poor's, U.S. Census Bureau

ZeroAvatar's picture

"In other news today, scientists announced the discovery of a new particle, the MALINVESTMENT Particle.  The particle was discovered alongside the God Particle.  It seems while the God particle is doing 'God's work', the Malinvestment particle was actually occurring alongside it as a result of the crack-up-boom".