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Topic: We're Fucked - The Coming Economic Crisis (Read 162021 times) |
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Fritz
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Re:We're Fucked - The Coming Economic Crisis
« Reply #90 on: 2009-01-25 21:28:48 » |
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[fritz]So is this what we have in store for us ? (got here from Lord Stirling's site)
Source: The Independent UK
Author: Jane Merrick, Brian Brady and Cole Moreton
Date: 2009-01-25
Britain is facing return of three-day week
Shorter hours would be preferable to mass unemployment, say government sources,
Bentley Motors in Crewe has already been forced to reduce production to three days a week.
The prospect of the three-day week returned to haunt Britain yesterday as it emerged that ministers are considering paying firms to cut hours in order to survive the recession.
Tens of thousands of businesses are already planning to scale back working hours this year in an effort to stay afloat. But as the country comes to terms with the reality of a recession, it emerged that the Government is looking at compensating employees, through their firms – thereby drawing comparisons with the shutdowns of the 1970s.
While the move would safeguard jobs, it would mean that the financial crisis is on a much larger scale, further undermining confidence in the economy with the suggestion of Britain grinding to a halt.
Major firms such as JCB have already downed tools for one day a week and are considering moving to a three-day week, with state help, if the recession gets worse. The firm's chief executive, Matthew Taylor, said that he is pressing Lord Mandelson, the Secretary of State for Business, to introduce compensation for workers if their hours are reduced. Some of the jobs earmarked for redundancy, he said, could be saved if the move is introduced by April.
Ministerial sources insisted last night that a scheme to help compensate workers was "not imminent" but said it was an option being discussed. It would match measures introduced by the German government.
The Thatcher government brought in a short-time working directive in the 1980s to cover earnings lost through shorter hours. Such a move would cost the Government millions of pounds, but would be cheaper than the huge rise in unemployment benefit claims as a result of job losses.
Yet the move would stir bad memories of the three-day week of the early 1970s, when the Heath government imposed a cut in hours to save electricity as a result of industrial action.
Advice on how to ride the downturn published on the Department for Business website tells firms that cutting hours is one way to reduce overheads and ride the economic storm. The guide, Real Help for Businesses Now, suggests firms could cut staff costs by reducing hours, rather than by making redundancies. "Cutting overheads such as property costs ... will take much longer to have an effect on the balance sheet," it said. "You can also cut staff costs by restricting overtime or cutting staff hours. You could also consider reducing your number of employees – though redundancy payments will increase costs in the short term. However, the consequences of redundancies can be devastating, particularly for small businesses, and morale could suffer."
Experts fear that the recession could be the worst for 60 years. Figures released on Friday showed that the economy is contracting faster than at any time since 1980. Kenneth Clarke, the new shadow Secretary of State for Business, last night accused Gordon Brown and Alistair Darling of "panicking" over the recession. Ministers were treating voters "like fools" by claiming they could see the "green shoots" of recovery, Mr Clarke wrote in the News of the World.
Figures from the British Chambers of Commerce, which represent 100,000 firms, show that 39 per cent of businesses are planning to cut hours.
Many firms in the car industry have introduced or are considering a three-day week, such as Bentley Motors in Crewe and Nissan in Sunderland. But the practice is spreading to the rest of the manufacturing sector, and business leaders fear it is only a matter of time before other industries resort to the measure.
Mr Taylor, of JCB, said: "We would rather go to a shorter working week than lay people off."
Three-day weeks have been backed by the unions, whose members are happier to take pay cuts than lose their entire salary and pension benefits.
Government sources said there were issues about whether to restrict compensation to the car industry or apply it to all firms.
The CBI refused to comment last night, but a source said some firms would be able to reduce output to three days more easily than others.
When the three-day week crippled Britain
The three-day week carries a particular resonance for anyone who remembers the 1970s, as it recalls a time when firms were forced into short-time working, redundancies, and lay-offs.
As now, the crisis erupted amid an economic emergency. But the cause of a problem that crippled the nation's infrastructure was not a financial calamity but a breakdown in industrial relations.
Britain's miners walked out on 9 January 1972 – their first strike in 50 years – over the failure to meet their demand for £9 on top of an average weekly wage of £25. The impact of closing all 289 pits in England and Wales – and pickets at power stations – was dramatic.
A month later, the Prime Minister, Edward Heath, declared a state of emergency and, with dwindling electricity supplies forcing factories to close, he imposed a three-day week. A week into the state of emergency, it was announced that electricity would be switched off on a rota basis between 7am and midnight every day.
By the middle of February, it was estimated 1.2 million people had been laid off. Imperial Chemical Industries (ICI) gave a week's notice to its 60,000 weekly paid staff as a precautionary measure.
Although the crisis ended with a pay deal on 19 February, the miners repeated their industrial action less than two years later, provoking another three-day week and, ultimately, the removal of the Heath government in February 1974.
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Re:We're Fucked - The Coming Economic Crisis
« Reply #91 on: 2009-01-25 21:41:14 » |
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[Fritz]A sobering read, but can they pull it off
The future of finance
Inside the banks
Source: The Economist
Author: The Economist print edition
Date: Jan 22nd 2009
Blank cheques, bankruptcy, nationalisation: the options are dire, but governments must choose between them
Illustration by Derek Bacon
“STARTING today,” President Barack Obama declared in his inaugural address from the Capitol, “we must pick ourselves up, dust ourselves off, and begin again the work of remaking America.” In fact his first, urgent task is to remake finance. As Mr Obama spoke in Washington, DC, the markets in New York were sinking under the weight of failing banks despite the promise of a plan from his economic team. A day earlier Britain had put forward its second attempt to get its banks to lend. Others, such as Germany and Italy, may before long need to step in; France, Ireland and Denmark already have.
The crisis has shown up flaws in financial markets and the global economy. Huge flows of capital into debtor nations like America and Britain pumped up asset markets (see article). These fed the instabilities of financial markets—which, as our special report explains in this issue, were themselves plagued by poor regulation, dangerous incentives and the reckless use of mathematical models. Fixing this will take a lot of work over the next 18 months or so, when legislation should be ready, but already a picture of a new finance is becoming clearer: smaller, better regulated, more conservative.
Click here
That vision is worth keeping an eye on, but the immediate priority is the imperilled banking system. Just now, with finance in ruins, the nexus of markets and non-banks that make up the “shadow banking system” has failed. Decent businesses are being starved of credit and driven into bankruptcy. For their sake, and for the people who work for them, it is time to admit that the first round of bank rescues was not enough. With talk of huge public subsidies—nationalisation even—the question is what to do next?
A sinking feeling
Nothing at all is one answer. Because last year’s efforts cost hundreds of billions of dollars, some may conclude that saving the banks is wasteful and pointless. In fact the first rescue succeeded in one important respect. The excessive lending of the boom has to be brought under control. That inevitably brutal change can take place in two ways. It could be relatively orderly as borrowers scale back and lenders strengthen their balance sheets. Or it could cause a mass-panic that would wreck banks and businesses as it did in the 1930s. Just such a panic was in the air in October. Today’s recession is grave but in sparing the banks, however undeserving, governments spared their citizens from something worse—at least so far.
If a rescue makes sense, what sort? Last autumn the rescue of Britain’s banks—perhaps the sorriest in any large economy—became a template for others. Britain is in the lead once more, but this time round its effort is likely to be remembered for all the wrong reasons. The main part of the government’s new plans is to insure the banks against their worst losses on their worst assets. Nobody (not even the government) knows how much that will cost; just that Gordon Brown has once again thrown all his ideas at the problem, including the kitchen sink.
The prime minister should do his bit for the building trade and order a bigger sink. The markets were unimpressed by the scale of his effort. Shares in London fell, notably in the very banks the plan was designed to help. Sterling tumbled on fears for Britain’s economy and the government’s finances.
Saviour of the universe
For any government setting out a rescue, this reception holds two lessons, concerning the scale and the shape of a rescue. First, its scale must surprise everyone. Because economies everywhere are suffering from excessive fear as well as over-borrowing, part of the aim is to convince investors that the downward spiral in confidence has been broken. Britain’s plans were caught in a contradiction: seeking both to save the banks, which need a staggering sum, and also to mollify voters, who (understandably) resent handing over a single penny.
Scale is important in this crisis. As the recession rips through the economy, banks are bound to face further losses. Shareholders worry that these losses will continue to eat away at the banks’ reserves. Back in October governments’ promises to save the banks stabilised markets. But in this topsy-turvy crisis these promises are now pressing down on banks’ share prices. If a bank looks about to suffer large losses, investors fear nationalisation is imminent—and head for the exit.
And that leads to the second broad lesson from Britain: the design of a rescue matters and history shows that it is hard to get right (see article). One possibility is government guarantees and insurance. Another is to take the hit up front, by putting the toxic assets into a “bad bank” that acts as a cordon sanitaire. And a third, which has been gaining traction of late, is outright nationalisation.
Each of the three has its strengths. Guarantees can quickly swing into action and the assets remain with managers who know most about them. Bad banks create a clean break that enables the good bank left behind to get on with the real job of raising capital and lending it out. Even nationalisation has something to say for it. Gone are the difficulties of valuing assets and of the bank’s shareholders plotting to grab taxpayers’ money—because the government is on both sides of the deal. Expect to hear that argument a lot more over the coming months, not just in Europe but also in America.
As a capitalist newspaper, we reject a deliberate policy of wholesale nationalisation. To be sure, state ownership may make some sense as a tactic for specific financial institutions. We argued for it with both Fannie Mae and Freddie Mac in the United States and with Northern Rock in Britain long before politicians in either country succumbed to the inevitable. Like it or not, it may be the least bad option in many cases ahead. But the difficulties are legion. Unless nationalisation takes place at market prices, it undermines property rights and raises the long-term cost of capital. And even if expropriation is avoided, there are difficulties. Although nationalised banks could increase the supply of credit by restoring confidence, their record at allocating it is even worse than private banks’. If the idea is state-directed lending, the banks will waste a fortune and kill enterprise. If the plan is to offer the banks a brief shelter in a storm, it looks fanciful. Large bank privatisations are unlikely for several years.
But what of the other two options—bad banks and insurance? Britain chose insurance alone and, at the moment, it looks as if it has made a mistake. The suspicion is that the government preferred insurance for political reasons because it is a promise-now, pay-later scheme. It would have done better to reach for that kitchen sink and do both—buy the worst assets at their market value and put them in a bad bank, as well as insure the healthy assets that remain against catastrophe. With a clean start, the remaining good banks would be able to raise capital. The idea would be to examine each bank on its merits, cleaning it out, partially insuring its remaining risks, and recapitalising it with government equity where necessary. At some banks that might leave the government as the biggest shareholder, as the British government is at the Royal Bank of Scotland, or the sole owner, as at Northern Rock. In such cases nationalisation is not an end in itself, but a consequence of the policy that most rapidly returns the banking system to health. It is a heavy cost, but there is no alternative. If taxpayers own a bank, pretending that they don’t only exacerbates the harm.
This crisis is so huge that seeing beyond it is hard. Yet even now policymakers need to plan for the future of finance—partly to convince voters that today’s rescue is preparing for a better system; partly because finance’s shortcomings and the taxpayers’ guarantees make an overhaul of regulation necessary; and partly because sensible reforms are hard to devise.
Having seen finance wreak havoc, the temptation will be to bind it in a regulatory straitjacket. Some tighter regulation is in order, especially if it is aimed at making the system more transparent. But this crisis was born of economic excess as well as financial folly; given the torrent of capital flowing into America, Britain, Spain and so on, almost any financial system would have gone wrong. Financial re-regulation is not the only reform—it may not even be the most important. Yet finance makes the rest of the economy work. Mr Obama’s prize for remaking finance will be measured in prosperity and jobs. The work should begin now.
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Re:We're Fucked - The Coming Economic Crisis
« Reply #92 on: 2009-01-25 22:43:47 » |
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[Fritz]What struck me the most was the sobering last couple of paragraphs that would suggest China has a lot yet to reveal which quite likely will be bad news
Banking in China
Needed: a strategy
Source: The Economist
Author: The Economist print edition
Date: Dec 30th 2008 | HONG KONG
With Western finance in disrepute and local markets moribund, international banks are groping for a role in China
Illustration by S. Kambayashi
IN THEIR darkest moments, global banks can find some solace in the thought that, regardless of how much they are to blame for the world’s financial woes, they remain essential to recovery in America and Europe. Their prospects in China, where an abrupt change in circumstances and mood has taken place during the past year, are much less sure. As in New York and London, lucrative underwriting assignments have disappeared. But in China the crisis is also serving as a superb pretext for hardening regulatory and competitive impediments to all but the state-controlled local financial institutions.
The immediate obstacle, say foreign bankers in China, is a reduction in the credit their operations can receive from Chinese banks (which are all, to a significant extent, controlled by the state). The scarcity of domestic funds is crippling because other rules hold foreign institutions back from injecting capital into their Chinese operations. The role they can play in the public capital markets also remains limited. Despite years of lobbying and some partial approvals, no international bank has gained even the basic right to underwrite and distribute securities on its own.
Making money for a non-Chinese financial institution in this environment means working around the edges. Activities based on economies of scale and tied to cross-border business can still pay their way. Foreign-exchange trading remains lucrative for a handful of global banks, for example. Even in a slump, there is money to be made processing transactions.
Two years ago it was plausible for the big investment banks to believe that this sort of activity would merely augment far richer opportunities that would come from China’s growth and the shift of its financing from the state banks to public markets. In 2006 and 2007 vast profits were made from taking Chinese companies public in Hong Kong—then believed to be a prelude to doing the same in Shanghai and Shenzhen—and from related businesses in brokerage and wealth management, says Matthew Austen of Oliver Wyman, a consultancy (see chart). Among the flurry of deals were the listings of three of the world’s largest financial institutions and one of its biggest industrial firms.
Extending that kind of success would have been a stretch in any event—the biggest deals were the first to be done—but the collapse in demand has gone far beyond the loss of particularly attractive candidates. Investment banks and accounting firms have spent the past year working frantically to prepare hundreds of Chinese companies for listings, only to find that the appetite for investment has crashed along with the price of China-related shares. There has not been a single offering in Shenzhen or Shanghai since September, and just one a month in Hong Kong. A senior executive at a global bank with a usually successful China business says no money has been made since June.
In the absence of demand in the public markets, private-equity players theoretically have the market to themselves, but most are locked into “pre-IPO strategic stakes” that in 2007 could be profitably flipped during a listing but now are frozen. Funds that do have surplus cash are holding it in expectation of redemptions from spooked clients, or redeploying it in America where a correct bet on a restructuring opportunity can make a career.
It is not all bad news. Some clever, cash-rich companies are taking advantage of an opportunity to buy shares in themselves, or in other companies. Sir Run Run Shaw, a 101-year-old media mogul, had hoped to sell his Hong Kong broadcasting company in the summer to a (briefly) rich Chinese property developer. On December 22nd, in the aftermath of the deal’s collapse, Sir Run Run bid to take private the 25% of the broadcaster’s parent that he does not already own. Numerous other deals of this sort are in the works, say local lawyers.
There are also renewed signs of interest in strategic deals. In July Carlyle, a private-equity firm, lost a three-year battle to acquire Xugong Group, a tractor company, in a move that was widely believed to reflect China’s growing resistance to outside involvement in its economy. But according to some bankers, the financial crisis has led regulators privately to suggest that such offers might now be viewed more positively. A critical test will be Coca-Cola’s $2.4 billion offer for Huiyan, the country’s largest juice company. If the deal is approved—no sure thing—it could herald others, which would naturally play to the strength of global banks.
China’s bankers and their regulators may also be facing disasters of their own, as the limitations inherent in a state-driven system become clearer. It is striking that the widespread closure of factories in southern China, the country’s principal manufacturing region, has led to no significant reports of credit deterioration. The only sign of apparent financial distress has been a largely unexplained capital infusion of $2.5 billion by the Bank of China into its Hong Kong-listed affiliate. The suspicion is that some, and maybe quite a lot, of the relative strength of the Chinese system reflects opacity rather than a more effective approach to allocating credit.
If so, then China may be due for its own round of financial restructuring and recapitalisation. It would once have been easy to argue that a market-driven system served up by big Western banks could do a better job of this than the government. When virtually every such institution has been given state support to stay in business, that case is much harder to make.
======================================================
Source: Globe and Mail
Author: MARK MACKINNON
DAte: January 30, 2009 at 8:45 PM EST
MACAU, CHINA — The man in the white turtleneck slides a pile of five chips forward on the burgundy baccarat table and leans in intently as the dealer snaps out a fresh round of cards. It's not the player's night, however. He bets again and loses, and the chips, each of them worth 10,000 Hong Kong dollars, are briskly swept away by the dealer. Disgusted, the silent gambler stands and strides out of the casino's VIP room, leaving his drink unfinished on the table.
“That man lost 800,000 [about $135,000] tonight,” the VIP room's pit boss confides, his soft voice betraying neither glee nor sympathy.
There's little to celebrate: Although 800,000 Hong Kong dollars is a nice haul for the private casino, the overall picture is increasingly ominous for those who make a living off the gambling industry in this former Portuguese colony, which for the past decade has been the booming Sin City of East Asia, the only place in China where gambling is legal.
The unfortunate gambler was the only player at his table tonight, and there is no one in line to take his place. Nearby tables and private rooms in what would ordinarily be one of the highest-rolling casinos on the planet – it takes a deposit of one million Hong Kong dollars to get a seat at the card tables here – are either empty or surrounded by only a few players winning and losing small fortunes in the first hours of a Thursday morning.
An evening view of Wynn Macau Casino, Casino Lisboa and Grand Lisboa Casino in Macau, the world's largest gaming hub.
An evening view of Wynn Macau Casino, Casino Lisboa and Grand Lisboa Casino in Macau, the world's largest gaming hub. (Victor Fraile/Reuters)
“I walked around the casinos last night until 5 a.m. It was so quiet – there was almost nobody there,” José Coutinho, a member of Macau's legislature, said in an interview this week.
Mr. Coutinho said that while Macau was initially protected from the global economic meltdown because it has no stock market and only a small financial sector, it was hit hard as soon as the crisis struck mainland China. “Anything that affects mainland China indirectly affects Macau. The existence of the gaming industry is almost totally dependent on the gamblers that come from [the rest of China]. If mainland China gets a flu, Macau needs surgery.”
Almost nothing is known about the gamblers who come to the fabled VIP rooms of Macau, not even their names. The pit boss claims to know only two things for sure: Most of the players come from north and central China (the vast majority speak Mandarin, rather than the Cantonese that is predominant in Macau) and there are fewer of them than at any other time in the 17 years he has been in the casino business.
While the bets are placed in Hong Kong dollars, the VIP rooms are named after the cities and provinces of China where the gamblers come from. There's a Guangzhou room, named after the once-booming industrial province that lies directly to the west of tiny Macau, and a Tianjin room, named for the port district east of Beijing. Rooms like these are where Asian notables such as the son of North Korean leader Kim Jong-il are known to spend their time and money, but the Shanghai room sits empty as Wednesday night turns to Thursday morning, and anguished shouts can be heard from an unlucky player in the Hunan room.
“Two years ago, turnover on a table was nine million [Hong Kong dollars] a day. Now, 500,000 is a good day,” the pit boss says, speaking on the condition that neither he nor the casino he works at be named. “People say that business is now very difficult. A lot of factories in mainland China have collapsed. Some of the people who used to come here even went bankrupt, so they don't have any spare money to come to Macau and gamble.”
A slowdown in the VIP rooms – which account for two-thirds of all casino revenues in the city – translates into a crisis in Macau, which draws upward of 70 per cent of its taxes from the gambling industry. After a decade of astonishing growth following Macau's unification with China in 1999, some analysts are predicting that its economy could shrink by as much as 15 per cent over the next 12 months.
How accurate those direst predictions prove to be will depend on how China's economy fares amid the spreading global meltdown. Speaking to the World Economic Forum in Davos this week, Chinese Premier Wen Jiabao tried to sound an optimistic note, insisting that the country can still achieve its stated goal of 8-per-cent growth this year, even though it grew only 6.8 per cent – the lowest rate in seven years – over the last three months of 2008.
‘We are facing severe challenges'
Mr. Wen admitted, however, that the global crisis has already had “a rather big impact” on China as worldwide demand for Chinese-made products has slumped. “We are facing severe challenges, including notably shrinking external demand, overcapacity in some sectors, difficult business conditions for enterprises, rising unemployment in urban areas and great downward pressure on economic growth,” he said.
Liu Wenhua, a middle-aged office administrator who spent part of the Chinese New Year holiday this week cursing her luck at the giant StarWorld casino in Macau, says there is little question that the economic slowdown in her home province of Guangdong – the location of many of the factories that have been hit hardest as demand in North America and Europe dwindled – is leaving fewer people with the means to travel and gamble.
Ms. Liu says she and her husband make several trips a year to Macau and have never seen the casinos as empty as they were this week. Arrivals from mainland China plummeted by more than 25 per cent from September to October of last year and never recovered.
“There are much fewer people here than usual, and it's all because of the financial crisis,” Ms. Liu says as her “Hot Shot” slot machine swallows another coin. At the next machine over, her husband's prolonged losing streak continues as well. “The hotels are empty because the factories are closing. When it comes to money, we have to be more careful.”
Outside on the streets, casino construction that this time last year was proceeding at a breakneck pace has slammed to a near-complete stop. Walk down the Cotai Strip, a four-lane road that was hyped to become this city's answer to the “neon alley” at the heart of Las Vegas, and you can almost see the exact moment late last fall when the hurricane that is the global economic crisis struck China and Macau.
Instead of a long row of glittering luxury hotels and casinos – or the sound of frantic construction as workers hurry to finish them before opening day – the Cotai Strip is a darkened avenue of plans gone bust, an outdoor museum to what might have been, had North America's credit crunch not boomeranged around the world, hitting the spending power of 1.3 billion Chinese.
The world's largest casino, the Venetian Macau, still buzzes with activity. But all around it stand unfinished buildings covered in green scaffolding and topped by motionless construction cranes.
To the south of the sprawling Venetian is a pit that was supposed to grow into Macau Studio City, a high-end gambling resort that was to include a film studio, a one-million-square-foot shopping mall and a Playboy mansion. To the west was to be the Galaxy Mega Resort, a 13-storey gambling palace that was eventually to boast about 1,500 gambling tables and 3,000 slot machines. Building at both sites halted late last year.
Farther south on the strip is the vast chunk of land owned by the ailing Las Vegas Sands Corp., whose chief executive officer is American billionaire Sheldon Adelson. About 11,000 workers were laid off in November when the company halted the construction of more than a dozen casino and shopping projects that were supposed to bring posh restaurants and luxury hotels such as Hilton, Sheraton and Intercontinental to Macau.
Mr. Adelson probably had little choice. He reportedly lost $24-billion (U.S.) in 2008 as the gambling industry worldwide turned sour, the biggest personal loss of any American whose fortunes were tracked by Forbes magazine. The share price of Las Vegas Sands fell to $6 from nearly $122 over the course of a year.
At first, Mr. Adelson and others seemed to believe that Macau and Asia might be a refuge from the downturn in North America. As U.S. consumer confidence plummeted and revenues at his Las Vegas casinos began to suffer, he poured more money into the territory that in 2006 surpassed its Nevada rival in terms of gambling revenues. It proved to be just another bad bet.
Inside the Venetian, an 800-table casino wrapped inside a high-end shopping mall wrapped inside a luxury hotel, you can see how big Macau's ambitions were, and how far the fall has been. The resort, which is also owned by Las Vegas Sands, is a miniature replica of Venice, complete with street lamps, canals and singing gondoliers.
But more than a few of the high-end clothing stores that line the Venetian's “Grand Canal” have “last days” sale signs hanging in the windows. The casino laid off 500 employees last month and notified others that hours and pay would be slashed. In December, half of the gondoliers – many of whom had been lured to Macau from North America and Europe – were given two days' notice and a plane ticket home.
Compounding Macau's ills is a policy introduced last year by the Beijing government – in the wake of embarrassing stories about bureaucrats squandering public money at the baccarat tables – that restricted most mainlanders to one visit to Macau every three months.
As in the rest of China, those most affected by Macau's downturn have been migrant workers. As of last year, there were an estimated 100,000 such labourers, most of them mainlanders working in the construction industry. As the work dried up, many went home early to their villages before this week's Spring Festival holiday. It is uncertain how many will have work to return to on Monday when the holiday ends.
Corrupt officials alleged to have made fortunes
For some, Macau's sudden fall has been a long time in the making. Mr. Coutinho, the legislature member, harshly criticizes the territory's government, appointed by Beijing, for letting the gambling industry overheat, alleging that corrupt local officials made small fortunes from approving casino and hotel projects that it now seems clear the tiny territory cannot sustain.
Many here are critical of the territory's chief executive, Edmund Ho, for devoting all the city's resources to expanding the casino industry while investing little in other sectors of the economy, contributing to a big gap between rich and poor among Macau's 450,000 residents.
Mr. Ho, a graduate of Toronto's York University, has held the top job in Macau since it rejoined China a decade ago under a one-country, two-systems arrangement similar to that granted Hong Kong when it rejoined China in 1997. He is due to step down this year, and many locals are hoping that a change in the top office will also bring about a reordering of the territory's priorities.
“Most Macau residents would agree that the opening up of the casino industry [by granting additional gaming licences] was the right decision because it attracted huge amounts of money and increased the standard of living to much higher than what it was 10 years ago,” says Ricardo Siu, a professor of economics at the University of Macau.
Ten years of Macau's being a gambling centre have left the local government with huge surpluses that could be invested in badly needed infrastructure, job training and social services, he says.
“Some people are sad that the financial crisis has arrived. To me, I would say that this is a good time for the government and industry to sit back and think about what Macau should do now, how we should go forward. So the slowdown could be a good thing.”
Mark MacKinnon is The Globe and Mail's correspondent in Beijing.
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Where there is the necessary technical skill to move mountains, there is no need for the faith that moves mountains -anon-
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Re:We're Fucked - The Coming Economic Crisis
« Reply #93 on: 2009-03-17 22:42:13 » |
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China’s Shot Across the Bow
Source: FFF.org
Authors: Jacob G. Hornberger
Dated: 2009-03-16
The U.S. government is sending heavily armed destroyers to the South China Sea after a standoff between five Chinese boats and a U.S. spy ship operating in the area. Before the destroyers have even arrived, however, the Chinese communist government has sent a shot across their bow, in the form of a not-so-subtle reminder that China is now one of the U.S. government’s principal creditors.
As Chinese Premier Wen Jiabao put it, they’re “a little bit worried” about the safety of China’s investments in U.S. securities. “We lent such huge funds to the United States, and of course we’re concerned about the security of our assets.”
Translation: Don’t jack with us if you know what’s good for you because all we have to do is dump all these securities we’re holding onto the market, which will make your current financial crisis look like child’s play.
To finance its military adventures in Afghanistan and Iraq, the last thing the Bush administration wanted to do was to raise taxes on the American people. Higher taxes tend to get taxpayers upset. So, what Bush and his people instead did is what the Obama administration is doing today: simply borrow the money. The idea was that since the debt could be passed to people’s children and grandchildren, people didn’t need to be too concerned about it.
Given that Americans lacked the savings to loan all the necessary money, Bush and his people needed other lenders, which is where the Chinese communists, who have plenty of money to lend, came into the picture. China obviously recognized the financial value of investing in U.S. Treasuries while, at the same time, becoming one of the U.S. government’s principal creditors.
Reflecting the critical role that the Chinese communists now play in America’s financial future, Secretary of State Hillary Clinton recently visited China where she played nice with the communists, remaining silent on China’s brutal treatment of protestors and dissidents and politely requesting them to please continue lending money to the U.S. government.
Forty years ago, U.S. officials sent almost 60,000 men to their deaths in a senseless war in Southeast Asia. The deaths were necessary, they told us, to protect the nation from the communists, including the Chinese communists, who were assisting the North Vietnamese. Who would have ever dreamed that forty years later U.S. officials would have placed the financial well-being of our nation in the hands of the Chinese communists? Along with the wars of aggression, foreign occupations, torture and sex abuse, and dictatorial powers over the American people, it’s just another example of the road to economic ruin and moral debauchery that the pro-empire, pro-intervention crowd has plunged our nation.
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With or without religion, you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion. - Steven Weinberg, 1999
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Blunderov
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"We think in generalities, we live in details"
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Re:We're Fucked - The Coming Economic Crisis
« Reply #94 on: 2009-03-25 16:36:29 » |
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[Blunderov] Well, as we all knew, one can only print a certain amount of currency before the punters start sidling towards the exits. That China should consider it acceptable to risk a run on the Dollar now speaks volumes for her expectations of the medium to long term prospects of that currency. As we have seen, in business, a great deal depends on "confidence".
Fire in the hole.
http://www.huffingtonpost.com/michael-j-panzner/anti-dollar-contagion-gai_b_178765.html
Anti-Dollar Contagion Gains Pace
Yesterday, China's central bank posted an essay on its website calling for the creation of a new international reserve currency. Given that the Asian power now holds most of its $2 trillion of foreign currency assets in U.S. dollars, the news caused quite a stir on Wall Street and in Washington.
Yet the real story for those who've been paying attention during the past few months is not that the Chinese are suddenly getting worried about their dollar holdings. Rather, it is that so many other nations are also having doubts about the U.S. currency -- and are expressing their concerns publicly.
Last week, for example, Russia issued a statement urging the International Monetary Fund to consider creating a "supranational reserve currency to be issued by international institutions as part of a reform of the global financial system," according to The Moscow Times.
Reuters also reported remarks by Chalongphob Sussangkarn, a former Thai finance minister and now president of the Thailand Development Research Institute, where he raised concerns about a possible large sell-off in the dollar.
"The U.S. deficit is so huge," Sussangkarn said. "This is why all countries, particularly East Asia, are concerned because we hold a lot of these assets. What happens if the U.S. dollar falls 40 percent? Many central bankers will be losing huge amounts of money."
But that's not the end of it. During a speech two weeks ago at a one-day summit of the Economic Cooperation Organization, which includes Iran, Turkey, and other nations nearby, Iranian President Mahmoud Ahmadinejad said that the "capitalist system was close to collapse," according to Reuters, and he suggested that a single currency -- other than the dollar -- should be used in cross-border trade between members.
A day earlier, The Japan Times detailed a report by the Institute for International Policy Studies, a semigovernmental think tank, which asserted that "in order for the entire Asian region to keep growing, [Japan] must create the third-polar regime in Asia by introducing the Asian common currency, which stands on par with the U.S. dollar and the euro."
And finally, while the Gulf Cooperation Council today announced that it was postponing a 2010 deadline for the launch of a common currency for the region, which includes Arab states whose domestic units of account have long been linked to the dollar, the group indicated that it remained committed to a strategy that would eventually loosen those ties.
As was the case with the now hobbled U.S. banking system, the dollar's fortunes have long depended on the confidence of others.
If that weren't true, nations such as China, Japan, and Russia, which own $740 billion, $635 billion, and $120 billion, respectively, of U.S. Treasuries, would have few economic incentives to be so heavily invested in a market where returns are low and the currency has steadily depreciated over the course of many decades.
Others' faith in our future also helps explain why nearly two-thirds of all dollars that are currently in circulation are in the hands of foreigners -- that is, "unnatural" holders who usually don't spend their money here.
Under the circumstances, what now seems to be a contagious quest for alternatives to the dollar -- a budding run on the bank, if you will -- by policymakers in China, as well as in many other countries around the world, should not be taken lightly.
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Fritz
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Re:We're Fucked - The Coming Economic Crisis
« Reply #95 on: 2009-03-30 20:26:09 » |
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This was passed my way on the heels of today's apparently not so successful GM dealings with Washington. I find it extremely interesting, in hind sight especially.
Cheers
Fritz
Source: New Yorker
Author: Malcolm Gladwell
Date: August 28, 2006
The Risk Pool
What’s behind Ireland’s economic miracle—and G.M.’s financial crisis?
The years just after the Second World War were a time of great industrial upheaval in the United States. Strikes were commonplace. Workers moved from one company to another. Runaway inflation was eroding the value of wages. In the uncertain nineteen-forties, in the wake of the Depression and the war, workers wanted security, and in 1949 the head of the Toledo, Ohio, local of the United Auto Workers, Richard Gosser, came up with a proposal. The workers of Toledo needed pensions. But, he said, the pension plan should be regional, spread across the many small auto-parts makers, electrical-appliance manufacturers, and plastics shops in the Toledo area. That way, if workers switched jobs they could take their pension credits with them, and if a company went bankrupt its workers’ retirement would be safe. Every company in the area, Gosser proposed, should pay ten cents an hour, per worker, into a centralized fund.
The business owners of Toledo reacted immediately. “They were terrified,” says Jennifer Klein, a labor historian at Yale University, who has written about the Toledo case. “They organized a trade association to stop the plan. In the business press, they actually said, ‘This idea might be efficient and rational. But it’s too dangerous.’ Some of the larger employers stepped forward and said, ‘We’ll offer you a company pension. Forget about that whole other idea.’ They took on the costs of setting up an individual company pension, at great expense, in order to head off what they saw as too much organized power for workers in the region.”
A year later, the same issue came up in Detroit. The president of General Motors at the time was Charles E. Wilson, known as Engine Charlie. Wilson was one of the highest-paid corporate executives in America, earning $586,100 (and paying, incidentally, $430,350 in taxes). He was in contract talks with Walter Reuther, the national president of the U.A.W. The two men had already agreed on a cost-of-living allowance. Now Wilson went one step further, and, for the first time, offered every G.M. employee health-care benefits and a pension.
Reuther had his doubts. He lived in a northwest Detroit bungalow, and drove a 1940 Chevrolet. His salary was ten thousand dollars a year. He was the son of a Debsian Socialist, worked for the Socialist Party during his college days, and went to the Soviet Union in the nineteen-thirties to teach peasants how to be auto machinists. His inclination was to fight for changes that benefitted every worker, not just those lucky enough to be employed by General Motors. In the nineteen-thirties, unions had launched a number of health-care plans, many of which cut across individual company and industry lines. In the nineteen-forties, they argued for expanding Social Security. In 1945, when President Truman first proposed national health insurance, they cheered. In 1947, when Ford offered its workers a pension, the union voted it down. The labor movement believed that the safest and most efficient way to provide insurance against ill health or old age was to spread the costs and risks of benefits over the biggest and most diverse group possible. Walter Reuther, as Nelson Lichtenstein argues in his definitive biography, believed that risk ought to be broadly collectivized. Charlie Wilson, on the other hand, felt the way the business leaders of Toledo did: that collectivization was a threat to the free market and to the autonomy of business owners. In his view, companies themselves ought to assume the risks of providing insurance.
America’s private pension system is now in crisis. Over the past few years, American taxpayers have been put at risk of assuming tens of billions of dollars of pension liabilities from once profitable companies. Hundreds of thousands of retired steelworkers and airline employees have seen health-care benefits that were promised to them by their employers vanish. General Motors, the country’s largest automaker, is between forty and fifty billion dollars behind in the money it needs to fulfill its health-care and pension promises. This crisis is sometimes portrayed as the result of corporate America’s excessive generosity in making promises to its workers. But when it comes to retirement, health, disability, and unemployment benefits there is nothing exceptional about the United States: it is average among industrialized countries—more generous than Australia, Canada, Ireland, and Italy, just behind Finland and the United Kingdom, and on a par with the Netherlands and Denmark. The difference is that in most countries the government, or large groups of companies, provides pensions and health insurance. The United States, by contrast, has over the past fifty years followed the lead of Charlie Wilson and the bosses of Toledo and made individual companies responsible for the care of their retirees. It is this fact, as much as any other, that explains the current crisis. In 1950, Charlie Wilson was wrong, and Walter Reuther was right.
The key to understanding the pension business is something called the “dependency ratio,” and dependency ratios are best understood in the context of countries. In the past two decades, for instance, Ireland has gone from being one of the most economically backward countries in Western Europe to being one of the strongest: its growth rate has been roughly double that of the rest of Europe. There is no shortage of conventional explanations. Ireland joined the European Union. It opened up its markets. It invested well in education and economic infrastructure. It’s a politically stable country with a sophisticated, mobile workforce.
But, as the Harvard economists David Bloom and David Canning suggest in their study of the “Celtic Tiger,” of greater importance may have been a singular demographic fact. In 1979, restrictions on contraception that had been in place since Ireland’s founding were lifted, and the birth rate began to fall. In 1970, the average Irishwoman had 3.9 children. By the mid-nineteen-nineties, that number was less than two. As a result, when the Irish children born in the nineteen-sixties hit the workforce, there weren’t a lot of children in the generation just behind them. Ireland was suddenly free of the enormous social cost of supporting and educating and caring for a large dependent population. It was like a family of four in which, all of a sudden, the elder child is old enough to take care of her little brother and the mother can rejoin the workforce. Overnight, that family doubles its number of breadwinners and becomes much better off.
This relation between the number of people who aren’t of working age and the number of people who are is captured in the dependency ratio. In Ireland during the sixties, when contraception was illegal, there were ten people who were too old or too young to work for every fourteen people in a position to earn a paycheck. That meant that the country was spending a large percentage of its resources on caring for the young and the old. Last year, Ireland’s dependency ratio hit an all-time low: for every ten dependents, it had twenty-two people of working age. That change coincides precisely with the country’s extraordinary economic surge.
Demographers estimate that declines in dependency ratios are responsible for about a third of the East Asian economic miracle of the postwar era; this is a part of the world that, in the course of twenty-five years, saw its dependency ratio decline thirty-five per cent. Dependency ratios may also help answer the much-debated question of whether India or China has a brighter economic future. Right now, China is in the midst of what Joseph Chamie, the former director of the United Nations’ population division, calls the “sweet spot.” In the nineteen-sixties, China brought down its birth rate dramatically; those children are now grown up and in the workforce, and there is no similarly sized class of dependents behind them. India, on the other hand, reduced its birth rate much more slowly and has yet to hit the sweet spot. Its best years are ahead.
The logic of dependency ratios, of course, works equally powerfully in reverse. If your economy benefits by having a big bulge of working-age people, then your economy will have a harder time of it when that bulge generation retires, and there are relatively few workers to take their place. For China, the next few decades will be more difficult. “China will peak with a 1-to-2.6 dependency ratio between 2010 and 2015,” Bloom says. “But then it’s back to a little over 1-to-1.5 by 2050. That’s a pretty dramatic change. Thirty per cent of the Chinese population will be over sixty by 2050. That’s four hundred and thirty-two million people.” Demographers sometimes say that China is in a race to get rich before it gets old.
Economists have long paid attention to population growth, making the argument that the number of people in a country is either a good thing (spurring innovation) or a bad thing (depleting scarce resources). But an analysis of dependency ratios tells us that what’s critical is not just the growth of a population but its structure. “The introduction of demographics has reduced the need for the argument that there was something exceptional about East Asia or idiosyncratic to Africa,” Bloom and Canning write, in their study of the Irish economic miracle. “Once age-structure dynamics are introduced into an economic growth model, these regions are much closer to obeying common principles of economic growth.”
This is an important point. People have talked endlessly of Africa’s political and social and economic shortcomings and simultaneously of some magical cultural ingredient possessed by South Korea and Japan and Taiwan that has brought them success. But the truth is that sub-Saharan Africa has been mired in a debilitating 1-to-1 ratio for decades, and that proportion of dependency would frustrate and complicate economic development anywhere. Asia, meanwhile, has seen its demographic load lighten overwhelmingly in the past thirty years. Getting to a 1-to-2.5 ratio doesn’t make economic success inevitable. But, given a reasonably functional economic and political infrastructure, it certainly makes it a lot easier.
This demographic logic also applies to companies, since any employer that offers pensions and benefits to its employees has to deal with the consequences of its nonworker-to-worker ratio, just as a country does. An employer that promised, back in the nineteen-fifties, to pay for its employees’ health care when they were retired didn’t set aside the money for that while they were working. It just paid the bills as they came in: money generated by current workers was used to pay for the costs of taking care of past workers. Pensions worked roughly the same way. On the day a company set up a pension plan, it was immediately on the hook for all the years of service accumulated by employees up to that point: the worker who was sixty-four when the pension was started got a pension when he retired at sixty-five, even though he had been in the system only a year. That debt is called a “past service” obligation, and in some cases in the nineteen-forties and fifties the past-service obligations facing employers were huge. At Ford, the amount reportedly came to two hundred million dollars, or just under three thousand dollars per employee. At Bethlehem Steel, it came to four thousand dollars per worker.
Companies were required to put aside a little extra money every year to make up for that debt, with the hope of someday—twenty or thirty years down the line—becoming fully funded. In practice, though, that was difficult. Suppose that a company agrees to give its workers a pension of fifty dollars a month for every year of service. Several years later, after a round of contract negotiations, that multiple is raised to sixty dollars a month. That increase applies retroactively: now that company has a brand-new past-service obligation equal to another ten dollars for every month served by its wage employees. Or suppose the stock market goes into decline or interest rates fall, and the company discovers that its pension plan has less money than it had expected. Now it’s behind again: it has to go back to using the money generated by current workers in order to take care of the costs of past workers. “You start off in the hole,” Steven Sass, a pension expert at Boston College, says. “And the problem in these plans is that it’s very difficult to dig your way out.”
Charlie Wilson’s promise to his workers, then, contained an audacious assumption about G.M.’s dependency ratio: that the company would always have enough active workers to cover the costs of its retired workers—that it would always be like Ireland, and never like sub-Saharan Africa. Wilson’s promise, in other words, was actually a gamble. Is it any wonder that the prospect of private pensions made people like Walter Reuther so nervous?
The most influential management theorist of the twentieth century was Peter Drucker, who, in 1950, wrote an extraordinarily prescient article for Harper’s entitled “The Mirage of Pensions.” It ought to be reprinted for every steelworker, airline mechanic, and autoworker who is worried about his retirement. Drucker simply couldn’t see how the pension plans on the table at companies like G.M. could ever work. “For such a plan to give real security, the financial strength of the company and its economic success must be reasonably secure for the next forty years,” Drucker wrote. “But is there any one company or any one industry whose future can be predicted with certainty for even ten years ahead?” He concluded, “The recent pension plans thus offer no more security against the big bad wolf of old age than the little piggy’s house of straw.”
In the mid-nineteen-fifties, the largest steel mill in the world was at Sparrows Point, just east of Baltimore, on the Chesapeake Bay. It was owned by Bethlehem Steel, one of the nation’s grandest industrial enterprises. The steel for the Golden Gate Bridge came from Sparrows Point, as did the cables for the George Washington Bridge, and the materials for countless guns and planes and ships that helped win both world wars. Sparrows Point, a so-called integrated mill, used a method of making steel that dated back to the nineteenth century. Coke and iron, the raw materials, were combined in a blast furnace to make liquid pig iron. The pig iron was poured into a vast oven, known as an open-hearth furnace, to make molten steel. The steel was poured into pots to make ingots. The ingots were cooled, reheated, and fed into a half-mile-long rolling mill and turned into semi-finished shapes, which eventually became girders for the construction industry or wafer-thin sheets for beer cans or galvanized panels for the automobile industry. Open-hearth steelmaking was expensive and time-consuming. It required great amounts of energy, water, and space. Sparrows Point stretched four miles from one end to the other. Most important, it required lots and lots of people. Sparrows Point, at its height, employed tens of thousands of them. As Mark Reutter demonstrates in “Making Steel,” his comprehensive history of Sparrows Point, it was not just a steel mill. It was a city.
In 1956, Eugene Grace, the head of Bethlehem Steel, was the country’s best- paid executive. Eleven of the country’s eighteen top-earning executives that year, in fact, worked for Bethlehem Steel. In 1955, when the American Iron and Steel Institute had its annual meeting, at the Waldorf-Astoria, in New York, the No. 2 at Bethlehem Steel, Arthur Homer, made a bold forecast: domestic demand for steel, he said, would increase by fifty per cent over the next fifteen years. “As someone has said, the American people are wanters,” he told the audience of twelve hundred industry executives. “Their wants are going to require a great deal of steel.”
But Big Steel didn’t get bigger. It got smaller. Imports began to take a larger and larger share of the American steel market. The growing use of aluminum, concrete, and plastic cut deeply into the demand for steel. And the steelmaking process changed. Instead of laboriously making steel from scratch, with coke and iron ore, factories increasingly just melted down scrap metal. The open-hearth furnace was replaced with the basic oxygen furnace, which could make the same amount of steel in about a tenth of the time. Steelmakers switched to continuous casting, which meant that you skipped the ingot phase altogether and poured your steel products directly out of the furnace. As a result, steelmakers like Bethlehem were no longer hiring young workers to replace the people who retired. They were laying people off by the thousands. But every time they laid off another employee they turned a money-making steelworker into a money-losing retiree—and their dependency ratio got a little worse. According to Reutter, Bethlehem had a hundred and sixty-four thousand workers in 1957. By the mid-to-late-nineteen-eighties, it was down to thirty-five thousand workers, and employment at Sparrows Point had fallen to seventy-nine hundred. In 2001, Bethlehem, just shy of its hundredth birthday, declared bankruptcy. It had twelve thousand active employees and ninety thousand retirees and their spouses drawing benefits. It had reached what might be a record-setting dependency ratio of 7.5 pensioners for every worker.
What happened to Bethlehem, of course, is what happened throughout American industry in the postwar period. Technology led to great advances in productivity, so that when the bulge of workers hired in the middle of the century retired and began drawing pensions, there was no one replacing them in the workforce. General Motors today makes more cars and trucks than it did in the early nineteen-sixties, but it does so with about a third of the employees. In 1962, G.M. had four hundred and sixty-four thousand U.S. employees and was paying benefits to forty thousand retirees and their spouses, for a dependency ratio of one pensioner to 11.6 employees. Last year, it had a hundred and forty-one thousand workers and paid benefits to four hundred and fifty-three thousand retirees, for a dependency ratio of 3.2 to 1.
Looking at General Motors and the old-line steel companies in demographic terms substantially changes the way we understand their problems. It is a commonplace assumption, for instance, that they were undone by overly generous union contracts. But, when dependency ratios start getting up into the 3-to-1 to 7-to-1 range, the issue is not so much what you are paying each dependent as how many dependents you are paying. “There is this notion that there is a Cadillac being provided to all these retirees,” Ron Bloom, a senior official at the United Steelworkers, says. “It’s not true. The truth is seventy-five-year-old widows living on less than three hundred dollars to four hundred dollars a month. It’s just that there’s a lot of them.”
A second common assumption is that fading industrial giants like G.M. and Bethlehem are victims of their own managerial incompetence. In various ways, they undoubtedly are. But, with respect to the staggering burden of benefit obligations, what got them in trouble isn’t what they did wrong; it is what they did right. They got in trouble in the nineteen-nineties because they were around in the nineteen-fifties—and survived to pay for the retirement of the workers they hired forty years ago. They got in trouble because they innovated, and became more efficient in their use of labor.
“We are making as much steel as we made thirty years ago with twenty-five per cent of the workforce,” Michael Locker, a steel-industry consultant, says. “And it is a much higher quality of steel, too. There is simply no comparison. That change recasts the industry and it recasts the workforce. You get this enormous bulge. It’s abnormal. It’s not predicted, and it’s not funded. Is that the fault of the steelworkers? Is that the fault of the companies?”
Here, surely, is the absurdity of a system in which individual employers are responsible for providing their own employee benefits. It penalizes companies for doing what they ought to do. General Motors, by American standards, has an old workforce: its average worker is much older than, say, the average worker at Google. That has an immediate effect: health-care costs are a linear function of age. The average cost of health insurance for an employee between the ages of thirty-five and thirty-nine is $3,759 a year, and for someone between the ages of sixty and sixty-four it is $7,622. This goes a long way toward explaining why G.M. has an estimated sixty-two billion dollars in health-care liabilities. The current arrangement discourages employers from hiring or retaining older workers. But don’t we want companies to retain older workers—to hire on the basis of ability and not age? In fact, a system in which companies shoulder their own benefits is ultimately a system that penalizes companies for offering any benefits at all. Many employers have simply decided to let their workers fend for themselves. Given what has so publicly and disastrously happened to companies like General Motors, can you blame them?
Or consider the continuous round of discounts and rebates that General Motors—a company that lost $8.6 billion last year—has been offering to customers. If you bought a Chevy Tahoe this summer, G.M. would give you zero-per-cent financing, or six thousand dollars cash back. Surely, if you are losing money on every car you sell, as G.M. is, cutting car prices still further in order to boost sales doesn’t make any sense. It’s like the old Borsht-belt joke about the haberdasher who lost money on every hat he made but figured he’d make up the difference on volume. The economically rational thing for G.M. to do would be to restructure, and sell fewer cars at a higher profit margin—and that’s what G.M. tried to do this summer, announcing plans to shutter plants and buy out the contracts of thirty-five thousand workers. But buyouts, which turn active workers into pensioners, only worsen the company’s dependency ratio. Last year, G.M. covered the costs of its four hundred and fifty-three thousand retirees and their dependents with the revenue from 4.5 million cars and trucks. How is G.M. better off covering the costs of four hundred and eighty-eighty thousand dependents with the revenue from, say, 4.2 million cars and trucks? This is the impossible predicament facing the company’s C.E.O., Rick Wagoner. Demographic logic requires him to sell more cars and hire more workers; financial logic requires him to sell fewer cars and hire fewer workers.
Under the circumstances, one of the great mysteries of contemporary American politics is why Wagoner isn’t the nation’s leading proponent of universal health care and expanded social welfare. That’s the only way out of G.M.’s dilemma. But, from Wagoner’s reticence on the issue, you’d think that it was still 1950, or that Wagoner believes he’s the Prime Minister of Ireland. “One thing I’ve learned is that corporate America has got much more class solidarity than we do—meaning union people,” the U.S.W.’s Ron Bloom says. “They really are afraid of getting thrown out of their country clubs, even though their objective ought to be maximizing value for their shareholders.”
David Bloom, the Harvard economist, once did a calculation in which he combined the dependency ratios of Africa and Western Europe. He found that they fit together almost perfectly; that is, Africa has plenty of young people and not a lot of older people and Western Europe has plenty of old people and not a lot of young people, and if you combine the two you have an even distribution of old and young. “It makes you think that if there is more international migration, that could smooth things out,” Bloom said.
Of course, you can’t take the populations of different countries and different cultures and simply merge them, no matter how much demographic sense that might make. But you can do that with companies within an economy. If the retiree obligations of Bethlehem Steel had been pooled with those of the much younger industries that supplanted steel—aluminum, say, or plastic—Bethlehem Steel might have made it. If you combined the obligations of G.M., with its four hundred and fifty-three thousand retirees, and the American manufacturing operations of Toyota, with a mere two hundred and fifty-eight retirees, Toyota could help G.M. shoulder its burden, and thirty or forty years from now—when those G.M. retirees are dead and Toyota’s now youthful workforce has turned gray—G.M. could return the favor. For that matter, if you pooled the obligations of every employer in the country, no company would go bankrupt just because it happened to employ older people, or it happened to have been around for a while, or it happened to have made the transformation from open-hearth furnaces and ingot-making to basic oxygen furnaces and continuous casting. This is what Walter Reuther and the other union heads understood more than fifty years ago: that in the free-market system it makes little sense for the burdens of insurance to be borne by one company. If the risks of providing for health care and old-age pensions are shared by all of us, then companies can succeed or fail based on what they do and not on the number of their retirees.
When Bethlehem Steel filed for bankruptcy, it owed about four billion dollars to its pension plan, and had another three billion dollars in unmet health-care obligations. Two years later, in 2003, the pension fund was terminated and handed over to the federal government’s Pension Benefit Guaranty Corporation. The assets of the company—Sparrows Point and a handful of other steel mills in the Midwest—were sold to the New York-based investor Wilbur Ross.
Ross acted quickly. He set up a small trust fund to help defray Bethlehem’s unmet retiree health-care costs, cut a deal with the union to streamline work rules, put in place a new 401(k) savings plan—and then started over. The new Bethlehem Steel had a dependency ratio of 0 to 1. Within about six months, it was profitable. The main problem with the American steel business wasn’t the steel business, Ross showed. It was all the things that had nothing to do with the steel business.
Not long ago, Ross sat in his sparse midtown office and explained what he had learned from his rescue of Bethlehem. Ross is in his sixties, a Yale- and Harvard-educated patrician with small rectangular glasses and impeccable manners. Outside his office, by the elevator, was a large sculpture of a bull, papered over from head to hoof with stock tables.
“When we showed up to the Bethlehem board to approve the deal, they had an army of people there,” Ross said. “The whole board was there, the whole senior management was there, people from Credit Suisse and Greenhill were there. They must have had about fifty or sixty people there for a deal that was already done. So my partner and I—just the two of us—show up, and they say, ‘Well, we should wait for the rest of your team.’ And we said, ‘There is no rest of the team, there is just the two of us.’ It said the whole thing right there.”
Ross isn’t a fan of old-style pensions, because they make it impossible to run a company efficiently. “When a company gets in trouble and restructures,” he said, those underfunded pension funds “will eat it alive.” And how much sense does employer-provided health insurance make? Bethlehem made promises to its employees, years ago, to give them medical insurance in exchange for their labor, and when the company ran into trouble those promises simply evaporated. “Every country against which we compete has universal health care,” he said. “That means we probably face a fifteen-per-cent cost disadvantage versus foreigners for no other reason than historical accident. . . . The randomness of our system is just not going to work.”
This is what Walter Reuther believed. He went along with Wilson’s scheme in 1950 because he thought that agreeing with Wilson was the surest way of getting Wilson and the other captains of industry to agree with him. “Reuther and his brain trust had a theory of capitalism,” Nelson Lichtenstein, the Reuther biographer, says. “It was: If we force G.M. to pay extra, we can create an incentive for G.M. to join our side.” Reuther believed, in other words, that when American corporations reached the point where they couldn’t make their business more efficient without making it less profitable, when their dependency ratios soared to unimaginable heights, when they got tens of billions behind in their health-care obligations, when the cost of carrying thou-sands of retirees forced them to stare bankruptcy in the face, they would come around to the idea that the markets work best when the burdens of benefits are broadly shared. It has taken half a century, but the world may finally be catching up with Walter Reuther.
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Where there is the necessary technical skill to move mountains, there is no need for the faith that moves mountains -anon-
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Hermit
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Re:We're Fucked - The Coming Economic Crisis
« Reply #96 on: 2009-03-31 14:33:52 » |
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While this article is too little too late, it is well written and lucid, bar a few quibbles, some niggles, a serious issue and an item worth highlighting.
Quibbles and Niggles
Excluding the assertions about, "dependency ratios," the statements here about pension and health schemes are, to a quite large extent, accurate. From an actuarial perspective, any system which applies to a single company or even only those employed in one area, is an expensive failure waiting to happen. This has been known by the Faculty and Institute of Actuaries since at least the 1920s. The more broadly risks and income are spread, the more sound the scheme, with national schemes being the most stable and cheapest systems to implement.
The article is, to an extent, spoilt by its focus on the dependency ratio. Contrary to "popular wisdom" (as much an oxymoron as "military intelligence", or "compassionate conservatism") in countries with guaranteed benefits, unemployment tends to be much lower than countries without it, as companies can hire and relinquish staff as required without major social consequences. This points to the underlying reality that what matters is not the dependency ratio but per capita income. This is affected by multiple issues. From an economic perspective the dependency ratio is far less significant than natural resources, balance of trade, market size, worker productivity, unproductive expenditures, population health and crime rates.
From this, it follows that Europe doesn't need to increase its population, let alone importing more culturally alien and educationally challenged people from Africa. Europe's soaring productivity has enabled it to provide better benefits to more people who work less than most places outside of tiny enclaves with smaller populations and vast wealth (think e.g. Bahrain). Indeed, as resources collapse, those countries with smaller populations to support will be at a significant advantage.
Speaking of Africa, I don't know where the authors came up with the Sub-Saharan Africa 1:1 dependency ratio. Since the 1980s, South Africa, which is indubitably the most developed Sub-Saharan country, has had ratios of 1 worker per 7 capita to much, much worse.
Peter Drucker was IIRC following on the heels of CE Northcutt-Parkinson (he of Parkinson's Law fame (and a wonderful author)) when he stated that company owned and managed pension schemes were fundamentally flawed, but did not take it to Parkinson's logical conclusion that despite the problems of bureaucracy, that pension funds had to be broadly invested if not nationalized, although it does seem to me that despite his insights into humanity and bureaucracies, Parkinson did not envisage governments becoming as short-sighted and vulnerable as they have been since the insanities perpetrated by the Chicago school aided and abetted by Thatcher and Reagan. Then again, both Drucker and Parkinson would have recognized the current use of inflation to transfer wealth from the population at large, and from pensioners in particular, to government, as a super-tax far more rapacious and regressive than any other taxation employed by a modern government.
US health care is expensive because the US is a closed club for the medical industry. They have a thoroughly protected, insanely expensive, system providing sub-standard care for the lucky percentage of its population to have medical insurance and the uberwealthy, and abysmal care for anyone else.
Quotable Highlight
The item I think most worth highlighting is "But when it comes to retirement, health, disability, and unemployment benefits there is nothing exceptional about the United States: it is average among industrialized countries—more generous than Australia, Canada, Ireland, and Italy, just behind Finland and the United Kingdom, and on a par with the Netherlands and Denmark. The difference is that in most countries the government, or large groups of companies, provides [ Hermit : Subject verb disagreement!] ] pensions and health insurance." It seems to me that the vast majority of Americans do not know this and reject it almost as an article of faith. Just as, by and large, they seem to reject the fact that with 5% of the world's population, they have 25% of its prisoners. And that doesn't include "the vanished" held in prison camps around the world, only those incarcerated in the USA. The cost of this "luxury" is one which they can no longer afford, even if it results in a significant reduction in the in any case fictional unemployment rate.
The Fatal Flaw
In places where pension funds, whether public or private, invested to generate a return for the future, the pension funds rapidly ended up owning the companies and infrastructure they invested in. Which ultimately left the pensioners owning everything, but with indirect control. In the US, those companies with pension funds have, by and large, leveraged the value of the funds to the benefit of the company, and as the companies fail, so the value of the pension funds are vanishing too.
The reason I think the article is "too little, too late" is that it doesn't actually propose any viable solutions to the multitude of problems it identifies. The fundamental flaw is perhaps the unsupportable idea that having not structured itself on a mutually supportive basis when the US was thriving, replete with natural resources and producing goods the rest of the world sought, having not stabilized its population at a sustainable 200 million, and having not established a sovereign wealth fund (National Investment/Pension Fund) while it could, that the US can reorganize itself on the down slope of the cheap energy bonanza that fossil fuel provided us, and repair the damage done by more than a century of wasteful excess. It is extremely unlikely that this will happen at this late stage with all effective power concentrated in the hands of an incredibly small and obscenely powerful group who not only have firm control of all of the machinery of state but also of the major channels of communication and who perceive themselves as threatened by any change in the status quo.
Indeed, the end of cheap fuel is a major factor in why this economic crises is fundamentally different from the previous ones, and why we are so thoroughly fucked.
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Re:We're Fucked - The Coming Economic Crisis
« Reply #97 on: 2009-03-31 14:57:39 » |
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From an industry insider, European bankers are seriously concerned about the number of suicides occurring and blaming it on banks, as well as by the number of clients threatening suicide as their loans are not rolled over.
Banks in the US have reached the point where they are declining to foreclose, as this creates a large number of expenses for them, and as the buildings will not sell any time soon and will probably be looted while in foreclosure, their ultimate recovery is becoming so low that the costs frequently exceed the value in foreclosure.
Strange that the US media has not yet connected the upswing in group and particularly family murders to the ongoing economic disaster. I think it can be safely concluded that this is as deliberate as the suppression of the facts that Iraq had nothing to do with 9/11, that the USA's support for Israel's ethnic cleansing programs and support for tyrannical governments in the Middle East were major causes, that the "war on terror" is largely responsible for the increasing danger of terrorism, but that failing infrastructure poses a much larger threat, that the dollar is effectively worthless and other such interesting omissions by the purveyors of public entertainment masquerading as news.
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With or without religion, you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion. - Steven Weinberg, 1999
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Walter Watts
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Re:We're Fucked - The Coming Economic Crisis
« Reply #98 on: 2009-03-31 20:19:04 » |
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Quote from: Hermit on 2009-03-31 14:33:52
<snip>
The Fatal Flaw
In places where pension funds, whether public or private, invested to generate a return for the future, the pension funds rapidly ended up owning the companies and infrastructure they invested in. Which ultimately left the pensioners owning everything, but with indirect control. In the US, those companies with pension funds have, by and large, leveraged the value of the funds to the benefit of the company, and as the companies fail, so the value of the pension funds are vanishing too.
The reason I think the article is "too little, too late" is that it doesn't actually propose any viable solutions to the multitude of problems it identifies. The fundamental flaw is perhaps the unsupportable idea that having not structured itself on a mutually supportive basis when the US was thriving, replete with natural resources and producing goods the rest of the world sought, having not stabilized its population at a sustainable 200 million, and having not established a sovereign wealth fund (National Investment/Pension Fund) while it could, that the US can reorganize itself on the down slope of the cheap energy bonanza that fossil fuel provided us, and repair the damage done by more than a century of wasteful excess. It is extremely unlikely that this will happen at this late stage with all effective power concentrated in the hands of an incredibly small and obscenely powerful group who not only have firm control of all of the machinery of state but also of the major channels of communication and who perceive themselves as threatened by any change in the status quo.
Indeed, the end of cheap fuel is a major factor in why this economic crises is fundamentally different from the previous ones, and why we are so thoroughly fucked.
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Well stated Hermit.
Walter
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Fritz
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Re:We're Fucked - The Coming Economic Crisis
« Reply #99 on: 2009-03-31 21:15:43 » |
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Quote:| [New Yorker Article] But when it comes to retirement, health, disability, and unemployment benefits there is nothing exceptional about the United States: it is average among industrialized countries—more generous than Australia, Canada, Ireland, and Italy, just behind Finland and the United Kingdom, and on a par with the Netherlands and Denmark. The difference is that in most countries the government, or large groups of companies, provides pensions and health insurance. |
Quote:| [Hermit] It seems to me that the vast majority of Americans do not know this and reject it almost as an article of faith. Just as, by and large, they seem to reject the fact that with 5% of the world's population, they have 25% of its prisoners. And that doesn't include "the vanished" held in prison camps around the world, only those incarcerated in the USA. The cost of this "luxury" is one which they can no longer afford, even if it results in a significant reduction in the in any case fictional unemployment rate. |
[Fritz]Firstly Fabulous reply Hermit thx, ... but I'm missing something here; I thought the US has a rather poor Pension and Retirement and Health care for Joe the Plumber since you have to be self insured and Canada was way better. What have I not grasped ?
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Re:We're Fucked - The Coming Economic Crisis
« Reply #100 on: 2009-03-31 22:10:42 » |
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I thought this worth quoting only because, when the Gray Lady starts comparing the US unfavourably with the rest of the world, it is time to sit up and pay attention.
Social Security provides very limited "benefits" to US citizens who retire after paying into social security for over 10 years - and temporary benefits to people losing jobs which paid into Social Security. This excludes a very large number of people (think lawyers, estate agents, contract workers of every description, etc.). Pensioners and the absolutely impoverished are eligible for limited medical benefits. I have not personally tried to analyse these benefits in order to compare them to the systems of other countries. I do know that study after study reflects that the USA has limited to no safety nets and that the benefits available in the US totally suck in comparison to most of Europe. If anyone finds a good set of comparisons, I would be interested in seeing them.
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Re:We're Fucked - The Coming Economic Crisis
« Reply #101 on: 2009-04-07 14:58:53 » |
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Soros says U.S. faces "lasting slowdown"
[ Hermit : Nice that we managed to identify this as coming, and pinpointed stagflation as the likely outcome, as well as identifying the Bush wars, trade deficit and money supply expansion as the triggers in 2006 and earlier. Refer Church of Virus BBS, Mailing List, Virus 2006, Alarm - Cover Your Ass!, Hermit, 2006-02-27 ]
Source: Reuters
Authors: Jennifer Ablan, Daniel Burns, Martin Howell (Reporting), Jack Reerink (Reporting), Daniel Bases (Reporting), William Schomberg (Reporting), Steven C. Johnson (Reporting),Jonathan Oatis (Editing), Diane Craft (Editing)
Dated: 2009-04-06
The U.S. economy is in for a "lasting slowdown" and could face a Japanese-style period of relatively low growth with the added problem of high inflation, billionaire investor George Soros said on Monday.
Soros told Reuters Financial Television that rescuing U.S. banks could turn them into "zombies" that suck the lifeblood of the economy, prolonging the economic slowdown.
"I don't expect the U.S. economy to recover in the third or fourth quarter so I think we are in for a pretty lasting slowdown," Soros said, adding that in 2010 there might be "something" in terms of U.S. growth.
Most economists expect the U.S. economy to stop contracting in the third quarter and resume growing in the fourth quarter, according to a latest monthly poll of forecasts by Reuters.
The recovery will look like "an inverted square root sign," Soros said: "You hit bottom and you automatically rebound some, but then you don't come out of it in a V-shape recovery or anything like that. You settle down -- step down."
In the fourth quarter, the U.S. economy contracted at a 6.3 percent annualized rate, and economists think the first quarter's slide will be at least as severe, if not worse.
Healing the banking system, which is "basically insolvent," and housing markets is crucial to recovery, Soros said.
The public-private investment funds -- unveiled by the Treasury last month to get bad debts off bank balance sheets -- are going to work but won't be enough to recapitalize the banks so they are able to or willing to provide credit, he said.
Even a steep yield curve won't generate enough profits to keep the banks out of their vulnerable situation.
"What we have created now is a situation where the banks who will be able to earn their way out of a hole, but by doing that, they are going to weigh on the economy.
"Instead of stimulating the economy, they will draw the lifeblood, so to speak, of profits away from the real economy in order to keep themselves alive."
Soros, whose latest book, "The Crash of 2008 and What it Means," has made prescient calls during the credit crisis.
A year ago, he told Reuters that global losses were likely to top $1 trillion. U.S. and European banks have recorded more than $700 billion in losses and write-downs, as of February 5, 2009, according to Reuters data.
DOLLAR IS VULNERABLE
Soros said the "stress tests" of banks being conducted by Treasury, to determine their financial resilience, could be a precursor to a more successful recapitalization of the banks.
He also said the U.S. dollar is under selling pressure and one day could be replaced as a world reserve currency, possibly by the International Monetary Fund's Special Drawing Rights, a currency basket comprising dollars, euros, yen and sterling.
"I think the dollar is now under question and I think the system will need to be reformed, so that the United States will be subject to the same discipline as is imposed on other countries," said Soros, whose famous bet against the British pound earned his Quantum Fund $1 billion in 1992.
"Being the main issuer of international currency, we have been exempt and we have abused that because we have effectively consumed 6.5 percent more than we have produced. That is now coming to an end."
Soros said there was a risk of a "tipping point" for the dollar which would see it slump, triggering higher interest rates and choking growth.
"This leads you to what used to be stagflation -- stop, go. And I think that is what's probably in store, rather than... hyperinflation."
China recently proposed greater use of SDRs, possibly as an eventual global reserve currency.
"In the long run, having an international accounting unit rather than the dollar may, in fact, be to our advantage so we can't splurge -- you know, it felt very good for 25 years but now we are paying a very heavy price," Soros said.
U.S. consumer spending has to fall to 60 percent of gross domestic product, compared two-thirds now, he continued.
China will emerge first from recession, probably this year, and will lead global growth in 2010, Soros added.
World policymakers are "actually beginning to catch up" with the crisis and efforts to fix structural problems in the financial system, he said referring to last week's meeting of leaders of G20 countries.
Turning to Europe, the euro has been "a tremendous advantage" to countries that use it, adding there's "no question of a weaker country dropping out," Soros said.
More funds for the IMF will help it stabilize struggling Eastern Europe but the Baltic states still face "serious problems" and Ukraine is not far from default, he warned.
Widespread use of credit default swaps has worsened the risks for Europe, he said, though he added that Germany, the euro zone's biggest economy, is becoming more open to offering help. "Germany, which has been the most reserved about being the deep pocket of the rest of Europe, has recognized that it too has a responsibility toward the new member states."
Germany has been one of the most reluctant major economies to meet U.S. calls for more fiscal stimulus spending to boost the global economy and fight the financial crisis.
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Re:We're Fucked - The Coming Economic Crisis
« Reply #102 on: 2009-06-15 21:05:07 » |
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The Greatest Economic Collapse Is Coming
[ Hermit : Please note that this does not take into account the natural gas crises, the water crises, the collapsing infrastructure crises, the probability of a lethal pandemic in the near future and the end of cheap fuel, all of which are looming in the near future and any of which will make the depression far worse . ]
Source: InfiniteUnknown.com
Authors: Graham Summers
Dated: 2009-06-14
Today’s essay details the ongoing collapse of the US economy with a focus on why this coming fall will prove the “worst is over” crowd wrong yet again. Earlier this week, I detailed three major developments. They were:
* The US’s economic shift from manufacturing to services (mainly financial)
* The massive drop in US incomes
* The beginning of the debt bubble
Today, we’re addressing how the debt bubble encapsulated the US government as well as why Obama’s Stimulus Plan won’t fix anything.
To revisit the above three points, the US began outsourcing jobs in earnest soon after we re-opened trade with China in 1971. As outsourcing spread to higher and higher skilled jobs, this meant fewer jobs in the US market. This resulted in US consumers having to use credit to maintain their standard of living. It also meant more than one parent working to make ends meet.
On a national level, the US government began living beyond its means as well. Adjusted for inflation, gross tax receipts have only risen 40% in the last 39 years. However, over the same time period, total government spending increased 2,600%!!!
To fund this insanity, the US issued debt in the form of Treasuries. Foreign governments (most notably China) which were generally getting richer selling us stuff loaded up. The whole scheme is similar to buying a toy from the store, then having the store lend you money to buy another toy… ad infinitum: hardly a sensible long-term plan for financial solvency.
Now, everyone knows we run deficits. But not everyone knows that the deficits we publish are unbelievably understated. Corporations, in order to qualify for generally accepted accounting principles (GAAP) have to count their pension and healthcare expenses for retirees.
Uncle Sam doesn’t.
John Williams of www.shadowstats.com notes that official US deficit statistics do NOT include net present value of unfunded social security OR Medicare expenses. A lot of folks have made a big deal about the US running a $1 trillion deficit this year. Well, if you included the net value of those unfunded Social Security and Medicare expenses we cleared a $1 trillion deficit in 2007, a $5 TRILLION deficit in 2008 and are on course to clear a $9 TRILLION deficit this year.
To give you an idea of how big a problem these deficits are, consider that the US government could tax its citizens 100% of their earnings and NOT have a balanced budget.
In light of these issues, the government’s $787 billion stimulus package doesn’t exactly breed confidence in an economic turnaround. Incomes have lagged inflation in this country for 30+ years. Creating a bunch of temporary positions related to construction and the like is NOT going to alter this in any significant way.
Moreover, most of the job growth in the last 10 years has come from Bubbles: two out of five jobs created between 2002 and 2007 came from the housing industry. The irony here, of course, is that the Stimulus Plan is merely following this trend, creating jobs from our latest (relatively unreported) Bubble: the bubble in government spending and employment.
Bottomline: the US needs to create sustained job growth involving skilled professionals with high wage earning potential, NOT more guys laying concrete. We need fundamental structural changes to the US economy, NOT temporary positions resulting from one-time government projects.
And with a $9 trillion deficit in the works, $787 billion doesn’t really mean much in terms of increased tax receipts. Also, and this is bit of a personal aside, it’s hard to believe that throwing $787 billion towards creating jobs really shifts our economy away from financial services when we’ve thrown $2 trillion+ towards Wall Street and the banks (via direct loans and lending windows).
The US has a MAJOR debt problem. Including future social security and Medicare expenses we owe $65 TRILLION. Because we live in a world in which the words, “billion” get thrown around with too much ease, I’d like to put that number into perspective.
Let’s say you have a stack of $1,000 bills. $1 million would be a stack eight inches high. $1 billion would be a stack 800 feet high (think the Washington Monument). And $1 trillion would be a stack 142 miles high. Total US debt, if laid on its side, would be a stack of $1,000 stretching more than 1/3 of the way around the earth.
Ok, so where is the US economy REALLY at right now?
Year over year real employment, real industrial orders, real housing starts, and real retail sales are all posting their largest drops since the production shutdown following WWII. Put another way, the last time the US economy fell this hard this fast, we were intentionally shutting down the monster than was the US war machine in WWII.
This is no recession. We are already on our way to a Depression (a GDP contraction of 10%) possibly even another Great Depression. One in nine Americans are currently receiving food stamps. Real unemployment (without birth/death seasonal nonsense and all the other Federal gimmicks) stands at 20%.
So I don’t buy the “green shoots” theory at all. Having things get horrendous at a slightly slower rate is NOT a sign of a recovery. Green shoots can pop up anywhere including the asphalt in the parking lot outside my office. That doesn’t mean the parking lot is about to become a lush meadow.
No, the US is heading for a really, really rough time. The US monetary base has doubled in the last year. We owe $65 trillion in liabilities. The US government could tax every company and every American 100% of their annual incomes AND NOT PAY THIS OFF. The Feds will have to inflate this mess away. And they’ve got a master money printer Ben Bernanke overseeing this situation.
Now, I cannot foretell precisely how this will all play out. Typically when a bubble bursts it takes 10+ years, possibly an entire generation, before the assets that participated in the Bubble return to new highs (sometimes they NEVER do).
Now, we just got off the biggest credit/ debt bubble in the world’s history. I’m talking about 30+ years of spending money we don’t have culminating in a period in which Americans were speculating in the single largest asset they ever purchase (a house) without putting a cent of their own money at risk (0% down NINA loans).
We also saw a bubble in stocks, Treasuries, and most every other asset you can invest in. So the idea that we can recover from this in a couple of years seems over enthusiastic to say the least.
Remember, Japan experienced a similar Bubble (though they had higher savings than we did) and “lost” a decade of economic growth. It’s worth noting that Japan WAS NOT an Empire like the US. Japan did not have with bases in 170 countries, a world reserve currency, and a crippled job market (history rhymes, it does not repeat).
So in terms of the real US economy, I don’t foresee a recovery anytime soon. The stock market may soar thanks to the Fed’s money printing, but a jump in financial speculation is NOT an economic recovery. If the S&P 500 goes to 20,000, but we’re drinking $1,500 beer and wiping ourselves with $100 bills, we haven’t gotten richer (never mind the fact that an S&P 500 of 20,000 DOESN’T create jobs).
So how will we know when a bottom is in and the economy will recover? I’ve postulated a few signs (some humorous, others not so pleasant). Bear in mind, much of this in tongue in cheek. But like all sarcasm, there’s a grain of truth.
We will bottom WHEN:
* CNBC and Bloomberg start firing anchors and cutting their coverage time by hours, not minutes.
* Maria Bartiromo and Jim Cramer start telling investors to short the market with all they’ve got.
* Questions like “do you think we’re heading for a recovery” result in the questioner getting punched in the face or ignored like a loony tune.
* People HATE stocks and stock ownership has plummeted back to one in ten Americans (the pre-401(k) levels).
* Investing is no longer a hobby and people fight tooth and nail to retain their nest egg (honestly what the hell is “play” or “speculative” money?)
* The number of mutual funds has fallen by at least half (why are we paying fees for people who can’t beat the market?).
* People no longer want to get an MBA to become a broker or a financial advisor.
* Our economy is based on “making something,” not “offering advice.”
* Books about Warren Buffett no longer comprise an entire publishing industry (seriously, Amazon lists 5,000+ books on him).
* The Richest 500 people in the world are no longer all billionaires (never happened before in history… how’s that for concentration of wealth?)
* Guys like me are no longer writing about finance or investing but instead take up a respectable profession.
Then… we will have probably hit bottom. In the meantime, I’ve prepared a FREE Special Report detailing three investments that will soar when the Second Round of the Financial Crisis hits. I call it the Financial Crisis Round Two Survival Kit. Swing by www.gainspainscapital.com/roundtwo.html to pick up your free copy today.
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With or without religion, you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion. - Steven Weinberg, 1999
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Fox
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Re:We're Fucked - The Coming Economic Crisis
« Reply #103 on: 2009-06-21 02:37:46 » |
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Wouldn't this thread really now just apply to the US? As far as I am aware Australia has weathered the recession and the European Union has made a joint statement that further monetary injections to the economy are not necessary, and that the economic crisis is in retreat. The economies in China and Japan are improving and the World Bank have increased their expectations for the growth of the Chinese economy from 6.5% to 7.2%. Things still look dire in the US, but world wide things seem to be improving.
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Re:We're Fucked - The Coming Economic Crisis
« Reply #104 on: 2009-06-21 08:08:28 » |
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As the US Dollar remains the world reserve currency, when the US economy sneezes, the rest of the world catches pneumonia.
Kind Regards
Hermit&Co
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With or without religion, you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion. - Steven Weinberg, 1999
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