The hippies were right

The hippies were right. http://www.youtube.com/watch?v=iKEZoY-TMG4

Are you scared yet? . . .Why not?

Downsized: Global financial assets (stocks, bonds, used bikes...) lost at least $50 trillion in 2008, an amount equal to an entire year's global output in goods and services.

Thought Experiment: The current economic crisis seems intractable, with no easy solution in view. Think how much harder solving the economic crisis will be after the global food system collapses; for food is but petroleum converted to carbohydrates, protein and fat through the catalytic application of credit.

What's Dead (Short Answer: All Of It)

What's Dead (Short Answer: All Of It)

• All pension funds, private and public, are done. If you are receiving one, you won't be. If you think you will in the future, you won't be. PBGC will fail as well. Pension funds will be forced to start eating their "seed corn" within the next 12 months and once that begins there is no way to recover.
• All annuities will be defaulted to the state insurance protection (if any) on them. The state insurance funds will be bankrupted and unable to be replenished. Essentially, all annuities are toast. Expect zero, be ecstatic if you do better. All insurance companies with material exposure to these obligations will go bankrupt, without exception. Some of these firms are dangerously close to this happening right here and now; the rest will die within the next 6-12 months. If you have other insured interests with these firms, be prepared to pay a LOT more with a new company that can't earn anything off investments, and if you have a claim in process at the time it happens, it won't get paid. The probability of you getting "boned" on any transaction with an insurance company is extremely high - I rate this risk in excess of 90%.
• The FDIC will be unable to cover bank failure obligations. They will attempt to do more of what they're doing now (raising insurance rates and doing special assessments) but will fail; the current path has no chance of success. Congress will backstop them (because they must lest shotguns come out) with disastrous results. In short, FDIC backstops will take precedence even over Social Security and Medicare.
• Government debt costs will ramp. This warning has already been issued and is being ignored by President Obama. When (not if) it happens debt-based Federal Funding will disappear. This leads to....
• Tax receipts are cratering and will continue to. I expect total tax receipts to fall to under $1 trillion within the next 12 months. Combined with the impossibility of continued debt issue (rollover will only remain possible at the short duration Treasury has committed to over the last ten years if they cease new issue) a 66% cut in the Federal Budget will become necessary. This will require a complete repudiation of Social Security, Medicare and Medicaid, a 50% cut in the military budget and a 50% across-the-board cut in all other federal programs. That will likely get close.
• Tax-deferred accounts will be seized to fund rollovers of Treasury debt at essentially zero coupon (interest). If you have a 401k, or what's left of it, or an IRA, consider it locked up in Treasuries; it's not yours any more. Count on this happening - it is essentially a certainty.
• Any firm with debt outstanding is currently presumed dead as the street presumption is that they have lied in some way. Expect at least 20% of the S&P 500 to fail within 12 months as a consequence of the complete and total lockup of all credit markets which The Fed will be unable to unlock or backstop. This will in turn lead to....
• The unemployed will have 5-10 million in direct layoffs added within the next 12 months. Collateral damage (suppliers, customers, etc) will add at least another 5-10 million workers to that, perhaps double that many. U-3 (official unemployment rate) will go beyond 15%, U-6 (broad form) will reach 30%.
• Civil unrest will break out before the end of the year. The Military and Guard will be called up to try to stop it. They won't be able to. Big cities are at risk of becoming a free-fire death zone. If you live in one, figure out how you can get out and live somewhere else if you detect signs that yours is starting to go "feral"; witness New Orleans after Katrina for how fast, and how bad, it can get.

Downturn, Recession, or Collapse?

The economy will be in shambles throughout 2009 -- and, for that matter, probably well beyond. Source = Warren Buffett, Republican billionaire investor

The turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union. Source = George Soros, Democrat billionaire investor

The global economy may be deteriorating even more precipitously than it did during the Great Depression. Source = Paul Volker, former Federal Reserve Chair under Democrat President Carter and under Republican President Reagan, and current economic advisor to President Obama

The late Rudi Dornbsuch of MIT knew a huge amount about financial crisis, and could distill a lifetime of study and involvement in collapses succinctly: “it always takes longer than you think; but when it happens, it always happens faster than you can imagine.” Source

BREAKING NEWS: Factory output is collapsing at the fastest pace everywhere. The figures for the most recent month available are, year-on-year: Taiwan (-43pc), Ukraine (-34pc), Japan (-30pc), Singapore (-29pc), Hungary (-23pc), Sweden (-20pc), Korea (-19pc), Turkey (-18pc), Russia (-16pc), Spain (-15pc), Poland (-15pc), Brazil (-15pc), Italy (-14pc), Germany (-12pc), France (-11pc), US (-10pc) and Britain (-9pc). Norway sails blissfully on (+4pc). What do they drink up there?

This terrifying fall has been concentrated in the last five months. The job slaughter has barely begun. Social mayhem comes with a 12-month lag. By comparison, industrial output in core-Europe fell 2.8pc in 1930, 5.1pc in 1931 and 3.9pc in 1932, according to RBS.

Stephen Lewis, from Monument Securities, says we have been lulled into a false sense of security by the lack of "soup kitchens". The visual cues from Steinbeck's America are missing. "The temptation for investors is to see this as just another recession, over by the end of the year. But this is not a normal cycle. It is a cataclysmic structural breakdown," he said. Source

China: The Great Fall

Judging by the latest Merrill Lynch survey of fund managers, investors have a touching faith that China is going to rescue us all and re-ignite the commodity boom. How can this be? Taiwan's exports to China fell 55pc in January, Japan's fell 45pc. These exports are links in the supply chain for China's industry. Manufacturing output in the Shanghai region fell 12pc in January. Source

China nears deflation trap as rail freight collapses
Railway freight in China’s Shanghai region plunged 31pc in January and industrial production fell 12pc, dashing hopes that Beijing’s stimulus policies will soon begin to fuel recovery.

Asian economies in trouble

Dire growth data fuel Asian fears

Weak growth data from India and Malaysia on Friday provided fresh evidence of the deepening impact of the global recession on developing Asia.

Japan’s manufacturing output suffered a record 10 per cent month-on-month drop in January. New job offers in Japan also plummeted 18 per cent to complete an abysmal set of recent figures from the world’s second-largest economy, including a record 45.7 per cent fall in exports in January.

The collapse in Asian exports over the fourth quarter was “nothing short of breath-taking”, said Frederic Neumann, Asia chief economist at HSBC. “Economic models and experience suggest that financial turmoil tends to transmit far more gradually into the real economy than has occurred this time around. In fact, the severity and rapidity of the fall in output exceeds anything we have ever seen before.”

The bailouts: EXPLAINED!

Here's the Plan: The administration [i.e., Timmy the Tax Cheat and Zimbabwe Ben] intends to give unlimited amounts of taxpayer dollars to the 19 largest banks. Treasury folks will go door to door asking the banks how much stress they feel, the banks will lie, and then the Feds will back up the truck and shovel dollars into the banks until they feel better. Or something like that.

At some point, a boondoggle event horizon is reached, like the light event horizon that exists at the surface of a black hole. Beyond that horizon, the only possible course of action is to create more boondoggles. Source: Orlov

"when you see that money is flowing to those who deal, not in goods, but in favors--when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you--when you see corruption being rewarded and honesty becoming a self-sacrifice--you may know that your society is doomed" - an excerpt from Atlas Shrugged, by Ayn Rand

What is needed, of course, is a concerted effort to build a new, vastly different economy, not squander remaining resources on attempts to resuscitate the current, moribund one. But politicians are never willing to dismantle the system that got them into power, and, like Gorbachev before him, Obama will do all he can to restart the current economy instead of letting it shut down and concentrating on planting the seeds of a new one. Source: Orlov

Japan's economy in trouble

Trade deficit hits record as Japan's exports fall 45%
By Chris Oliver, MarketWatch

HONG KONG (MarketWatch) -- Japanese exports contracted 45.7% in January, surpassing the previous record decline, set in December, and stoking a record trade deficit, as the deepening global recession crimps overseas demand for Japanese goods. The deficit swelled to 952.6 billion yen ($9.92 billion), up from 320.7 billion yen in December, the Ministry of Finance said Wednesday. The trade gap was the largest in a data stream dating back to 1979.

China consumer markets are shrinking

China Taxes Reveal Spending Slowdown, Goldman Says

By Chua Kong Ho and Paul Panckhurst

Feb. 26 (Bloomberg) -- China investors should be “defensively positioned” as a decline in the nation’s tax receipts signals a steeper slowdown in spending than retail sales figures show, according to Goldman Sachs Group Inc.

“Tax data show much sharper deceleration in income and consumption in the past few months than suggested by official retail sales or income growth figures,” Goldman Sachs analysts Joshua Lu, Caroline Li and Fiona Lau wrote in a note today.

Value-added tax has “de-linked sharply” from retail sales figures, the analysts wrote. VAT rose 1 percent in the fourth quarter from a year earlier, while retail sales gained 21 percent, according to the note.

China is trying to boost domestic spending to shore up its economy as recessions in the U.S. and Europe smother demand for its exports. The nation’s growth has slowed for six straight quarters, while outbound shipments slumped 17.5 percent in January, the most in almost 13 years, customs bureau data showed this month.

Growth in China’s individual income-tax receipts “slowed down significantly” in the second half and shrank in December and January, the Goldman Sachs analysts wrote. This compares with nominal wage growth of 21 percent in the third quarter, the report said.

“We think the government’s fiscal stimulus package announced so far may help create jobs, but may not necessarily help boost wages which, in our view, is the key driver of consumption growth,” the note said. “As such we are not hopeful that China’s consumption slowdown will bottom out soon.”

Thousands queue at New York job fair

Published: February 24 2009 21:49

Throngs of unemployed New Yorkers braved sub-freezing temperatures on Tuesday in hopes of finding new work amid rising job cuts.

Wrapping around block of the Sheraton New York Hotel for hours, more than 5,000 people - many in business attire - waited in single-file lines for a chance to submit resumes and chat briefly with recruiters. There were 41 companies hiring, according to Women for Hire, who sponsored the job fair and allowed men to attend for the first time, with a total of 1,000 openings to be filled. At the last such event in November just 1,500 people attended.

China equity market set to crash ( even further)

US mutual funds cannot invest in short positions. They must invest in long positions. But where in the world can they place their funds?

Like a flock of birds fund managers seem to have decided in 2008 that a safe place to land (for now) is in China. As long as more and more mutual fund managers keep putting more and more funds into China equities the equity markets defy gravity and don't fall. Lol! It's a repeat of mutual funds flocking into commodity equities in 2007--which crashed in 2008.

Where in China is the good news? China’s exports are falling and, due to rising unemployment, domestic demand will be difficult to stimulate. How long until the mutual funds fly away and the flock follows?

China Stock Gains to End as Profit Drops, Xie Says

(Bloomberg) -- China’s stocks rally, having turned the Shanghai Composite Index into the world’s best performer this year, will falter as profits are “non-existent,” said Andy Xie, former chief Asian economist at Morgan Stanley.

The Shanghai measure has gained 22 percent this year, the most among 90 global stock gauges tracked by Bloomberg. The index is valued at 17.4 times earnings, the most expensive among the so-called BRIC markets of Brazil, Russia, India and China.

The rally will run out of steam as “profits are non- existent and valuations are still expensive,” Xie, who is now an independent economist, said in an interview yesterday.

Investors opened 427,460 new accounts to trade stocks last week, according to data posted on the Web site of China Securities Depository & Clearing Corp. yesterday, almost double the number in the previous week and the most since the five days to March 28.


"This is your captain speaking, everyone remain calm, everything is under control. "

Cheers

Chinese Firms Turn to Pawn Shops as Loans Dry Up

(Source: Reuters, 19 Feb 2009)

With China's economy stumbling along at its slowest growth in seven years and banks wary of lending as defaults rise, small business operators are hocking belongings and company assets for loans from pawn shops.

"Banks are reluctant to lend," said Huang Jing, deputy business manager at Shanghai Oriental, the city's second-biggest pawn shop. "But we have a lower threshold and can provide loans much more quickly and with shorter terms".

From gold bullion to houses and factory equipment, customers are offering all sorts of assets to get loans from pawn shops. An auto dealer pawned his downtown apartment against a 4 million yuan ($585,000) credit line to secure funds for his business. A real estate developer gave his unsold properties as collateral to get an emergency loan while waiting to secure bank funds. And a construction company owner hocked his villa to get a loan to pay workers' salaries.

"This is your captain speaking, everyone remain calm, everything is under control. "

Cheers

Violent unrest rocks China as crisis hits

Bankruptcies, unemployment and social unrest are spreading more widely in China than officially reported, according to independent research that paints an ominous picture for the world economy.

• On January 15 there were pitched battles at a textile factory in the nearby city of Dongguan between striking workers and security guards.
• On January 16, about 100 auxiliary security officers, known in Chinese as Bao An, staged a street protest after they were sacked by a state-owned firm in Shenzhen, a boom town adjoining Hong Kong.
• About 1,000 teachers confronted police on the streets of Yangjiang on January 5, demanding their wages from the local authorities.
• In late December, 2,000 workers at a Singapore-owned firm in Shanghai held a wage protest and thousands of farmers staged 12 days of mass demonstrations over economic problems outside the city.
• In southern China, hundreds of workers blocked a highway to protest against pay cuts imposed by managers. At several factories, there were scenes of chaos as police were called to stop creditors breaking in to seize equipment in lieu of debts.
• In northern China, television journalists were punished after they prepared a story on the occupation of a textile mill by 6,000 workers. Furious local leaders in the city of Linfen said the news item would “destroy social stability” and banned it.
• A legal advocate for migrant workers, Xiao Qingshan, told a tale of violent intimidation by the state in collusion with unscrupulous businessmen. On January 9, Xiao said, 14 security officers from the local labour bureau broke into his office . . . "That evening I was ambushed near the office by five strangers who forced a black bag over my head and then threw me into a shallow polluted canal,” he said.
  

China Fears Tremors as Jobs Vanish From Coast
Although the government has not released updated information about rural unrest, officials have been strategizing about how best to keep large protests and riots from spreading, should the dispossessed grow unruly. This week, more than 3,000 public security directors from across the country are gathering in the capital to learn how to neutralize rallies and strikes before they blossom into so-called mass incidents. At a meeting of the Chinese cabinet last month, Prime Minister Wen Jiabao told government leaders they should prepare for rough times ahead. "The country’s employment situation is extremely grim," he said.

"This is your captain speaking, everyone remain calm, everything is under control. "

Cheers

Asia in trouble

Recent news from Asia:

• Japanese exports fell 35 percent in December from a year earlier. Industrial production plunged a record 9.6 percent, month on month, in December.
  
  
• Chinese exports declined for the third consecutive month in January, falling 17.5 percent from a year earlier, after a 2.8 percent decline in December. Imports plunged even further—43.1 percent, twice as much as December's 21.3 percent year-on-year drop.
  
  
• More than 20 million Chinese migrant workers have lost their jobs so far, with some analysts warning of 50 million more job losses if the economy deteriorates further.
  
  
• India exports fell 24 percent in January. According to official data, one million Indian workers in the export sector have lost their jobs since September. Another half a million workers are expected to lose their jobs by March.
• New Delhi's public debt stands at 75 percent of its GDP, compared to just 18.5 percent in China, leaving less room for large stimulus packages.
  
  
• South Korea's exports, the main driving force of the economy, plunged 32.8 percent in January. Finance minister Yoon Jeung-hyun warned on Tuesday that the fourth largest economy in Asia would shrink by about 2 percent this year. Credit Suisse has projected as much as a 7 percent contraction.
  
  
• Taiwan, the sixth largest Asian economy, saw its exports fall 44.1 percent in January from a year earlier—the biggest fall since records began in 1972. Imports plunged 56.5 percent in the same month. For an economy where exports account for 70 percent of GDP, the impact is devastating.
  

More discussions of Asia's economic problems:

• http://mpettis.com/2009/02/more-terrible-trade-numbers-from-china/
• http://blogs.cfr.org/setser/2009/02/13/a-truely-global-slump/

Think "domestic demand" will be easy to stimulate in China? I doubt it. China has huge unemployment problems. Unemployed people just don't have money to spend. Want more evidence that domestic demand will be difficult to stimulate? Then please read this:
http://globaleconomicanalysis.blogspot.com/2009/02/inside-china-sculptors-view.html

Comments:

1. To the extent that imports are necessary inputs to Asia & China's production process then falling imports may be a leading indicator of even greater declines in production and exports.

2. Falling imports may also be an indicator of much greater unemployment than is being reported--unemployed people don't buy imports.

3. If unemployment is under-reported or accelerates it becomes doubtful that domestic demand can be stimulated and domestic demand may actually fall.

Implications:

- China's exports seem destined to fall and domestic demand will be difficult to stimulate.
- China's economy appears to be a bubble about to pop.
- If/when the China bubble bursts, China's equity markets will crash.

China Stock Gains to End as Profit Drops, Xie Says

(Bloomberg) -- China’s stocks rally, having turned the Shanghai Composite Index into the world’s best performer this year, will falter as profits are “non-existent,” said Andy Xie, former chief Asian economist at Morgan Stanley.


"This is your captain speaking, everyone remain calm, everything is under control. "

Cheers

The US economy: Crash the plane to steal the cargo

An airline as metaphor for the crash of the US economy: money is fuel in an airplane, financial institutions are fuel lines, and macro-economic statistics are the gauges.

February 8, 2009

We're in the middle of an unfolding economic disaster. Why are we so calm? Lol! Our captain reassures us that it's all under control. He asks everyone to remain calm. Our captain has told us, "we're experiencing a little difficulty up here, but nothing to worry about." Who are we going to believe, our own feelings or the captain? We all know what any good captain has to do about any passengers who persist in upsetting the other passengers--quiet the troublemakers. So we remain calm.

Once upon a time . . .

An airline pilot discovers that the plane's main tanks have run out of fuel. The captain switches over to emergency reserves. He knows the plane won't make it to a safe airport. They'll have to ditch in a field.

The captain doesn't want to panic the passengers, so he says, "we're experiencing a little difficulty up here, but nothing to worry about." He shuts down all but one engine to conserve fuel. He tells his co-pilots that they are not to blame because "no one could have predicted it."

When the reserve tanks are empty the last engine shuts down. The plane keeps flying, but in a steep descent. The passengers realize something is terribly wrong, but what could they do anyway?

The crew prepares for an emergency crash landing. As they get close to the ground the captain wishes he could use the engines for 1 minute--to make a safer, more controlled emergency landing. But alas, too late, he realizes he used up all the reserves, the engines can't be used during the final approach. The emergency landing is much rougher because of it.

No one applauds the landing, many people are injured. Passengers use emergency exits and leave the plane. Outside everyone sees the plane is damaged--beyond the point of ever being flown again. The captain tells everyone to remain calm and that help will arrive soon.

Soon trucks arrive. Men from inside the trucks threaten the people with guns. They unload the plane's cargo and drive away.

Years later, after the crash, investigators prove the fuel lines and gauges were tampered with so the plane would crash and the cargo could be stolen. The thieves were never identified--despite the fact that many similar crashes all occurred worldwide at about the same time.

---------------

Let me ask an outrageous question: Is this economic crash intentional and planned--"in order to steal the cargo"? If so, who are "they" and "how they are doing it"? Answer: it's the same old financial techniques used by IMF/World Bank to take-over and control lesser developed countries in order to steal their assets. It's a tried and proven method for extracting maximum resources from a country. The techniques are now being used against the developed world--corruption so huge that it's beyond belief. Lol! Maybe even economic coup d'état?

Never fear, with large enough bailouts, "It is as if there has been a silent coup d'état - instead of the taxpayers owning the banks, the banks now seem to own the taxpayers. They have been given access to the present and future earnings of the public, which will plug their mind-blowing losses." http://www.spectator.co.uk/coffeehouse/3358846/the-banks-reverse-takeover-of-britain.thtml

If you have no idea what I'm talking about please read this (and hundreds of other posts like it):

• http://www.dunwalke.com/gideon/privatization030402.html
• http://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Man
• http://counterpunch.org/hudson02172009.html

"This is your captain speaking, everyone remain calm, everything is under control. "

Cheers