Obama vs the banks comment


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Looks like a lapse into behavior not becoming a President- name calling, cheap shots, demonizing, and failure to recognize the behavior in question is a consequence of incentives built into the current institutional structure.

The legislation in question completely misses the point.

More and more voters are beginning to believe this is deliberate.

>   
>   (email exchange)
>   
>   Of course, your reform is vastly superior to anything that is out there.
>   
>   But this criticism of the banks is sheer hypocrisy on the part of Obama.
>   It’s kabuki.
>   
>   It might even be deliberate: see Matt Taibbi’s evisceration of the Obama
>   financial reforms. He’s usually on top of the prevailing zeitgeits.
>   
>   This legislation will be totally ineffective. Interesting today that the
>   bank stocks went UP on passage of the bill.
>   

yes.

Policy just keeps getting worse.

I’ve about lost hope that he can ever get it right, unless accidentally.

The longer term risk is fiscal tightening. So far it’s not actually happening.

A driving force behind tax rate hikes is the misread that the Clinton tax rate hikes ‘worked’ to both spur the economy and drive the budget into surplus.

I suppose a repeat of the massive expansion of consumer debt that reached maybe 7% of gdp by 1999 could
somehow materialize isn’t impossible, but sure seems highly unlikely in the current environment.

Apart from the fact that it’s also not my first choice for supporting output and employment.


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Deficit terrorism has not let up


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No telling which way the Obama administration will go.

Probably the middle path which will mean muddling through with high, repressive output gaps

that do the most damage to their own constituency.

It’s not a bad environment for stocks, the near term risk remaing a strong dollar that reduces translations of foreign earnings and

softens exports, while reduced personal income (including a large drop in net interest income) keeps consumption relatively low.

7 deadly innocent frauds updated draft:

Link

Gov’t Spending Is Like Tiger’s Dating

By Jim Rogers

Dec. 11 (CNBC) — The U.S. government’s plan to increase spending as a way to kick-start the economy will leave the country with no way to help its way out of the next crisis, Jim Rogers, chairman of Jim Rogers Holdings, told CNBC Thursday.

The Treasury Department “has been putting out all of this stimulus and now they’re talking about extending the (Troubled Asset Relief Program),” Rogers said.

On Thursday Treasury Secretary Timothy Geithner announced TARP would be extended into next year in part to free up public money for job creation, but also as insurance against another crisis.

Geithner “is a very smart person,” but “he’s been wrong about everything for the last 15 years,” Rogers said.

“Why are we listening to any of those guys down there? They’re making our situation worse,” he said. “They said in writing yesterday the solution to our problem is to spend more money … that’s what got us into this problem: too much debt.”

“That’s like saying to Tiger Woods, ‘you get another girlfriend and it will solve your problems’ or ‘five more girlfriends and you will solve your problems,'” he said.

“We’re all going to pay the price for this in, one, two, three years,” Rogers added. “The next time that we have problems in the economy, which will not be too long, we don’t have any bullets left. We’ve shot everything we had to solve our problems.”

“What are they going to do, quadruple the debt again? Print more money? We don’t have any trees left. We’re running out of trees.”

Long the Dollar, but Likely to Lose Money

Looking to his investment positions, Rogers said he is betting on the dollar more than he has been in two to three months, but that his short-term trades rarely work out.

“I am sure I’m going to lose money because whenever I try to short-term trade I almost always nearly lose money, so I am sure I deserve to lose money for trying it again,” he said.

The reason he thinks there might be rally in the greenback is that everybody — including himself — is pessimistic on the currency, Rogers said.

Rogers also predicted a currency crisis or semi-crisis.

“You already see Vietnam devalued. Last week Brazil put on the special taxes for currencies,” he said. “You’re seeing what’s happening in Dubai. Greece is in trouble. Ukraine, Argentina; there are plenty of people who we could put on the list. Spain. Ireland.”


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Sweden


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Notice the order of importance with the reasons given for the recovery.

Unemployment still over 8%.

Fiscal seems well targeted (with the possible exception of employment?).

Swedish Unemployment Falls as Economic Recovery Continues

By Johan Carlstrom

Dec. 10 (Bloomberg) — Swedish unemployment fell in November after the economy grew for two consecutive quarters, boosted by record-low borrowing costs, recovering demand for its exports and a government stimulus.


The non-seasonally adjusted rate, as measured by the number of people claiming benefits, fell to 5.3 percent from 5.4 percent the previous month, the Stockholm-based Public Employment Service said in a statement on its Web Site today. The median estimate of seven economists surveyed by Bloomberg was for the rate to stay at 5.4 percent.


The economy will probably grow a “few notches” faster than the government forecast in November, Finance Minister Anders Borg said last week. The government on Nov. 9 raised an earlier forecast and expects 2 percent growth next year and 3.4 percent in 2011 after a 4.9 percent contraction this year.


Unemployment will peak at 10.7 percent next year, about a year earlier than previously forecast, the government said in November. Industrial production missed analysts’ estimates in October as it fell for a third consecutive month.


Sweden emerged from its first recession since 1992 in the second quarter on resurgent trade demand and record-low borrowing costs. The government has cut taxes and raised
spending on schools, hospitals and roads to boost the economy after the worst economic decline since World War II. The central bank cut its benchmark interest rate to 0.25 percent in July.


Sweden’s unemployment rate, as measured by a survey conducted for Statistics Sweden, fell to 8.1 percent in October from 8.3 percent the previous month.


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China News


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Sounds like the risk is that China starts judging it’s lending on finance rather than further public purpose.

Interesting how both are discussed.

HIGHLIGHTS

China’s central bank says to manage credit pace after lending spree

Survey indicates better job prospect

Banking authority reitertates credit quality, pace control

China’s currency regulator to promote trade balance

China’s central bank says to manage credit pace after lending spree
(Xinhua)
Updated: 2009-12-09 13:14

China’s central bank said on Tuesday that more efforts would be made to keep credit expansion in reasonable pace after record lending to echo government’s call to rebalance economic growth pattern.

More credit support should go to promote employment and industries of strategic importance, said Zhou Xiaochuan, governor of the People’s Bank of China.

The central bank would continue to implement the moderately easy monetary policy in 2010 to ensure stable and relatively fast economic development, Zhou said.

The move was in response to the directives of the annual Central Economic Work Conference, which was concluded Monday agreeing to advance economic structure adjustment to lift the quality and efficiency of economic growth.

The central bank would exert more strength to beef up rural development and stimulate domestic demand, as well as enhance balance of payment, and hold down potential financial risks, Zhou said.

Chinese banks lent a record 8.92 trillion yuan ($1.31 trillion) in the first ten months, far exceeding the government’s target of 5 trillion yuan for this entire year, prompting fears of bad loans and unprofitable investment.

Survey indicates better job prospect
By Wang Xiaotian and Ding Qingfen (China Daily)
Updated: 2009-12-09 07:52

Wu Liwei, a postgraduate major in journalism from Renmin University of China, has been trying to find a job for some time. And though the 24-year-old is yet to get a satisfactory offer, Wu said yesterday that she still felt lucky and hopeful.

“Next year looks better than even this year,” Wu said. “A friend who majored in the same subject last year said many big companies had stopped recruiting then.”

But this year, staff from a lot more companies, including big names, visited her university for campus recruitment. “I have attended about 10 such recruitment fairs, and many of my classmates have got offers. I am waiting for the right one,” she said.

Most university graduates like Wu feel the same. And it’s true that China’s recruitment prospects are better now than last year or early this year.

Buoyed up by the ongoing economic recovery and domestic consumption, the willingness of potential employers to hire people in 2010 will be stronger than this year, with companies in second-tier cities showing greater interest, a Manpower survey released yesterday said.

According to the survey, conducted by the world’s leading employment service provider, 19 percent of the potential employers said they would hire people in the first quarter of next year – 2 percentage points higher than in the fourth quarter of 2008, and also the highest since late last year.

Those who aim to cease recruitment in the next quarter add up to only 5 percent of the total, 1 percentage point lower than in the previous quarter and the lowest in a year.

Manpower has done such quarterly recruitment studies in China for five years. This time, it interviewed 4,317 enterprises from home and abroad for the survey.

“Actually, the recovery helped improve China’s labor market from the second quarter of this year,” said Danny Yuan, managing director for Manpower China. “Now, employers are more confident of hiring people next year,”

Xu Zhixue, senior consultant with Beijing-based Zuoyou Consulting Group, a leading local human resource service provider, corroborated Yuan.

Zuoyou’s clients are usually big State-owned enterprises (SOEs) in telecom, aerospace and mining sectors, such as Beijing Mobile. “They (SOEs) were worried over the economic trend and most of them had scaled back their recruitment,” Xu said.

“But since the last quarter, they have recovered their confidence. Now, we are much busier than before,” he said.

China’s economy began showing strong signals of recovery in the third quarter of this year, with GDP growth reaching 8.9 percent. Decline in exports began easing off, too, and the sector is expected to have taken to the growth trajectory in late 2009.

According to Manpower, employers in the finance, insurance and real estate sectors could be the biggest recruiters next year, with the mining and construction industries registering the fastest growth in the past quarter.

The survey also shows employers in cities like Chongqing, Xi’an, Qingdao, Wuhan, and Suzhou expect to see a stronger hiring environment than their counterparts in major cities. top

Banking authority reitertates credit quality, pace control
(Xinhua)
Updated: 2009-12-09 13:25

China’s banking authorities vowed to step up efforts to improve credit quality, and keep credit expansion in reasonable pace after record lending, to echo government’s call to rebalance economic growth pattern.

Chairman of the China Banking Regulatory Commission Liu Mingkang said bank loans should play a bigger role in economic restructuring as he put it the regulator would strictly control lending to industries that were energy-intensive, polluting and had overcapacity.

More credit support should go to promoting employment and industries of strategic importance, Zhou Xiaochuan, governor of the People’s Bank of China told an insider meeting.

The central bank would continue to implement the moderately easy monetary policy in 2010 to ensure stable and relatively fast economic development, Zhou said.

The move was in response to the directives of the annual Central Economic Work Conference, which was concluded Monday agreeing to advance economic structure adjustment to lift the quality and efficiency of economic growth.

The central bank would exert more strength to beef up rural development and stimulate domestic demand, as well as enhance balance of payment, and hold down potential financial risks, Zhou said.

Chinese banks lent a record 8.92 trillion yuan ($1.31 trillion) in the first ten months, far exceeding the government’s target of 5 trillion yuan for this entire year, prompting fears of bad loans and unprofitable investment.


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Chinese economist sounds off on US monetary policy


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Right, this is the nonsense that’s been moving the speculators and portfolio managers, but not the underlying fundamentals.

If an asset inflation does materialize it will be for an entirely different reason.

>   
>   (email exchange)
>   
>   On Wed, Dec 9, 2009 at 2:03 PM, wrote:
>   

Yesterday, U.S. Fed Chief Ben Bernanke declared the U.S. economy is facing “formidable headwinds” and effectively vowed to continue printing paper dollars like there’s no tomorrow.

The reaction from China came quickly, as Andy Xie, recently named by BusinessWeek as one of China’s most influential economists, pulled no punches.

Xie accused the Fed chief of “poisoning” the U.S. economy by keeping interest rates near zero and creating a tidal wave of newly printed paper dollars. He warned that the next global crisis will be driven by asset inflation.


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Greek Facts


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Greece is small, 2.7% of Eurozone GDP and roughly 3.9% of
Eurozone public debt.

* Greece is not an economic basket case. GDP is declining by 1.1%
in 2009, much less than the 4.0% fall in the Eurozone as a whole (EU
Commission estimates).

* Having had less of a recession, Greece will likely lag in the
recovery. For 2010, the EU Commission projects a 0.3% fall in GDP for
Greece and 0.7% growth for the Eurozone. We are much more optimistic
for the Eurozone (2.2% growth in 2010) and Greece (1%).


* Greece has a huge current account deficit. But the shortfall has
already declined from a peak of 15.2% of GDP in the year to 3Q 2008 to
11.9% in the year to 3Q 2009. It looks set to fall much further.


* One third of Greek export revenues come from transport services,
including shipping. Transport has been hit hard by the post-Lehman
collapse in global trade. The recovery in global trade should benefit
the external position of Greece and its corporate tax revenues.


* Greece does not have an unusually severe banking problem. Many
Greek banks have a solid domestic deposit base. Greek banks have
already scaled back their use of ECB liquidity from 7% of the total in
June to 5% in September. Our banking analysts foresee no major
problems for the Greek banks to unwind ECB liquidity further Greek
Banks, 26 November 2009

It is not about the specific banks. It is about the risk of a ‘run’ on the banks, a liquidity crisis, triggered by a fear that the govt. deposit insurance is not credible. See more below.

* Greece has a serious fiscal problem. The EU expects a fiscal
deficit of 12.7% for 2009, roughly in line with Ireland and the UK.

The critical distinctions is the UK obligations are at the ‘federal’ level, where Greece and the other ‘national govts’ in the Eurozone are more like a US state.

The EU projects that Greece will have the highest debt-to-GDP ratio of
all EU members in 2011 at 135.4%.

Far higher than California, for example, which was well under 25% of its GDP.

* The rise in the debt-to-GDP ratio for Greece from 2007 to 2011
will be 39.8ppts. This is bad. But it is below the projected increases
for the UK (44 points) and Ireland (71.1 points), roughly in line with
Spain (37.9) and not much worse than the US (35.7 points according to
IMF estimates).


* As we are more optimistic on growth, we believe that the rise in
the debt ratio will be smaller in Greece and in most other countries
than the EU projects.

None of the EU national govts could survive a liquidity crisis without the ECB itself.

* Greece has a new socialist government facing an immediate
crisis. That might even make the fiscal adjustment less difficult. The
government can blame the pain on its predecessor. It may face less
opposition from trade unions than a conservative government would. Of
course, the new government will have to make the promised adjustment
in its budget soon (vote due on 23 December). More may have to follow
in early 2010.


* Greece is not primarily an issue for the ECB. Central banks are
the lenders of last resort to banks, not to governments. Greece has a
fiscal problem, not primarily a banking problem.

True, but the point is deposit insurance, and not liquidity for the banks.
A run on the banks due to fear of credible deposit insurance would mean the ECB would have to fund the entire bank system which would mean extending ‘allowable collateral’ to any and all bank assets including the copy machines and the carpets, as well as any intangibles on the books.

In the highly unlikely case that worst came to worst, that is if the Greek
government could no longer fund itself on the capital market, the
decision what assistance the EU or the Eurogroup would offer to Greece
under which conditions would be up to finance ministers and heads of
governments, not to central bankers. It would be a political issue.

Yes, and how long would it take to make that decision?
If it is longer than a day or so, the govt would be shut down and the banks would have no source of deposit insurance.

* Greece is a member of the inner family of Europe, the Eurozone.
In the market turmoil in February and March, top European officials
(Eurogroup head Juncker, EU Commissioner Almunia and even some finance
ministers such as the German one) stated that a Euro member in trouble
would get an help if need be, in exchange for fiscal conditions.

All unspecified, and widely suspected to be empty rhetoric.

These statements have not been retracted. Of course, the Euro partners of
Greece may not be eager to repeat such statements just yet. They may
not yet want to take the pressure off the Greek government to make
fiscal adjustments.

Nor do they want to write the check and introduce moral hazard.

* Many Eurozone governments face fiscal challenges. Many finance
ministers of the more peripheral members would probably want to avoid
the rise in their own financing costs that would come if a
restructuring of Greek public debt were to blow out spreads across
Europe much further. The German government would be very unlikely to
veto conditional assistance, in our view. In the highly unlikely case
that assistance may be needed, such theoretical help could take the
form of an EU guarantee for newly issued Greek public debt in exchange
for some IMF-style fiscal conditions.

Yes, very possible. But, again, how long would it take to reach that decision if a liquidity crisis did happen?

I am not saying any of this is going to happen.
I am saying the systemic risk is inherent in the institutional structure of the Eurozone.


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Greece – the catalyst on the puke in cash and CDS today was


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Still looks to me like it’s probably one go all go as Greece guarantees its own banks and should deposit insurance be questioned a general run on the entire euro banking system could be triggered. That could result in the close the entire payments system until it’s all reorganized with credible deposit insurance. Much like the US in 1934.

Greece – the catalyst on the puke in cash and CDS today was
was the S&P action yesterday. The ECB this year relaxed their
own rules to accept collateral to BBB- from A-. This
accomodating criteria will last until the end of 2010. If the
ECB were todecide to go back to the status quo ante in January
2011 then GGBs may not be eligible as ECB collateral (assuming
S&P follows the negative watch with a downgrade).

Greece suffering badly in cash markets (helped by low liquidty
due to a religious holiday in Italy and Spain).In 3Y, Greek bonds
are losing some 35 bp to Germany, In 10Y it’s about 28 bp.


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NFP


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Karim writes:

Strong number; details mostly firm:

  • NFP -11k with net revisions +159k
  • UE rate down from 10.196% to 9.992%
  • Diffusion index up from 32.5 to 40.6
  • Hours index up 0.6%
  • U6 unemployment down from 17.5% to 17.2%

Sectors:

  • Construction -56k to -27k
  • Retail -44k to -15k
  • Temp 44k to 52k
  • Leisure/hospitality -36k to -11k

Main weak spots were average hourly earnings at 0.1% and median duration of unemployment up from 18.7 weeks to 20.1 weeks

No question a strong report (should actually still say less bad as any decline in jobs is still bad). If payrolls and claims maintain recent improvement through current period of seasonal adjustment questions (and confirmed by other labor market metrics like ISM employment series, Conf Board surveys,etc), could see Fed drop the ‘2 Es’ earlier than previously thought (perhaps as soon as March meeting).


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Mexican Remittances Fall


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Trickle down economics not working so well:

Mexican Remittances Fell Most on Record in October

Dec. 1 (Bloomberg) — Mexican remittances dropped the most on record in October as the impact of the U.S. economic slump continued to spur job losses and sap savings for nationals living north of the border.

Money sent from workers living outside Mexico fell 36percent to $1.7 billion in October from $2.6 billion in the same month a year earlier, the central bank said on its Web site. The largest previous drop was a decline of 20 percent in May.

Remittances data compared with the prior year will remain negative until at least March as immigrants are having trouble replacing diminishing savings with new income because they’re unemployed, said Manuel Orozco, senior associate and director of remittances at the Inter-American Dialogue in Washington.

“If savings drop over time and they don’t find jobs, then the remittance capacity will drop,” Orozco said in a telephone interview.

Falling remittances won’t have a negative impact on Mexican consumer demand because money transfers have increased 8.5 percent so far in 2009 compared with last year due to depreciation of the peso, Gabriel Casillas, chief economist at JPMorgan Chase & Co. in Mexico City, wrote in a report today.


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