As home prices across China have fallen 10.2 percent in the first five months of this year, property developers are showing signs of panic. Now they seem to be drawing their inspiration from Angelo Mozilo. Like the former head of Countrywide Financial Corp., they're doing their worst to evade regulations meant to tamp down on property speculation, and have even started offering no-money-down loans to China's 1.3 billion property-obsessed citizens. When you consider how badly such schemes ended for Countrywide, and ultimately the U.S. economy, you begin to understand why this is such a chilling development.
History, I think, is on the side of the China bears, human nature being constant.
We will see.
May the gods preserve and defend me from self-righteous altruists; I can defend myself from my enemies and my friends.
I wonder what they mean by "US treasury bills" and "Other US treasuries"
I suspect the former are Social Security trust fund bonds and the latter are other fed debt. But I am not at all sure.
As I seem to recall Benacke at some point stated that the FED could back up about 4 trillion in Debt
"I fancied myself as some kind of god....It is a sort of disease when you consider yourself some kind of god, the creator of everything, but I feel comfortable about it now since I began to live it out.” -- George Soros
The financial crisis might be global, but the solutions taken by various countries/unions have differed.
In the US, the Fed made the private problem a public problem by removing a slew of bad assets from the banks' BSs (via MBS QE), and helped to recapitalize the banks by paying interest on excess reserves, and juicing margins with ZIRP.
In the EU, the "solution" to the private debt problem was to tie the private and public sector to the same parachute, in the hope everyone could somehow land safely. The banks had bad assets and the sovereigns were getting hammered by the inability to raise funds. The ECB stepped in by telling banks they would loan against "risk free" assets, which by their convoluted definition happens to be EU sovereign paper. The result was that demand for sovereign paper skyrocketed, which helped EU member states to fund their deficits (Spain 10-year fell from 8% to below UST 10-year, despite a worsening deficit and 25% UE), which juiced the banks' BSs by plumping up RE (with the gains on the sovereign paper), which reduced ratios, and because the ECB would loan against this "quality" sovereign paper, EU banks could continue to fund what essentially remains a BS of non-performing loans (especially to emerging markets).
Perhaps the ECB had no choice but to engage in this shell game, owing to the massive size of the EU banking system, the average leverage, and the systemic risk inherent in such massive institutions relative to their respective national economies. To compare the EU and the US, the US has somewhere on the order of $13 trillion (in a $16 trillion economy) in banking assets and an average leverage ratio of about 10:1. The EU banking system has assets of $50 trillion (in a similar to US-sized economy) and an average leverage ratio twice that of the US (add in non-EU Swiss banking behemoths and it is even worse).
The largest banks (e.g., JPM, C) in the US hold total assets that represent around 15% of US GDP. Even at that low level many are considered systemic risks and thus TBTF. The largest EU and European banks hold assets that are integer multiples of their respective national economies. They are TBerTF.
Had the ECB taken the same approach of the Fed (rounds of QE), it would have had to inflate its BS to upwards of $20 trillion, maybe more. $4 trillion might be absurd, but the public can still pretend the Emperor is wearing bespoke duds. $20 trillion is a high definition sex tape with Jean-Claude Juncker shtupping Janet Yellen: the masses would flee in horror. That left the ECB with the shell game as the only viable solution.
Which approach fails first? Just given the relative size of the problems, one might conclude that the EU gambit blows up before the US-Fed one. If so, as the EU fails, capital will seek safety, which will probably be in the US markets. Granted, such "safety" is equivalent to 1960's schoolkids being told to hide under their desks in the event of a nuclear attack, but the flight will still take place.
If this is correct, that suggests both a dollar rally and continued new highs in equities (eventually ongoing concerns, owners of productive assets such as factories, etc., will become more attractive than sovereign promises).
Yes, it all blows up eventually, but there will be money to be made in the last rally. Nobody is going to get paid in the final crash, so picking the ultimate top is merely a parlour game.
May the gods preserve and defend me from self-righteous altruists; I can defend myself from my enemies and my friends.
How is it possible to be right about everything? Teabaggers I mean. We are right about everything. Someone said recently the rank and file conservative has to deal with so much ignorance and stupidity from everyone else. Whoever said that was right.
Bubbles created by central banks are now condemned by central banks. The failure of collectivism, and central planning. Many will die, just more names to the leftist murder rolls.
An organization representing the world’s main central banks warned Sunday that dangerous new asset bubbles were forming even before the global economy had finished recovering from the last round of financial excess.
Investors, desperate to earn returns even as official interest rates are at or near record lows, have been driving up the prices of stocks and other assets with little regard for risk, the Bank for International Settlements in Basel, Switzerland, said in its annual report published Sunday.
Recovery from the financial crisis that began in 2007 could take several more years, Jaime Caruana, the general manager of the B.I.S., said at the organization’s annual meeting in Basel on Sunday. The recovery could be especially slow in Europe, he said, because debt levels remain high. “During the boom, resources were misallocated on a huge scale,” Mr. Caruana said, according to a text of his speech, “and it will take time to move them to new and more productive uses.”
[...]Dear 1%ers, many of our fellow citizens are starting to believe that capitalism itself is the problem. I disagree, and I’m sure you do too. Capitalism, when well managed, is the greatest social technology ever invented to create prosperity in human societies. But capitalism left unchecked tends toward concentration and collapse. It can be managed either to benefit the few in the near term or the many in the long term. The work of democracies is to bend it to the latter. That is why investments in the middle class work. And tax breaks for rich people like us don’t. Balancing the power of workers and billionaires by raising the minimum wage isn’t bad for capitalism. It’s an indispensable tool smart capitalists use to make capitalism stable and sustainable. And no one has a bigger stake in that than zillionaires like us.
The oldest and most important conflict in human societies is the battle over the concentration of wealth and power. The folks like us at the top have always told those at the bottom that our respective positions are righteous and good for all. Historically, we called that divine right. Today we have trickle-down economics.
“There are a lot of killers. We’ve got a lot of killers. What, do you think our country’s so innocent? Take a look at what we’ve done, too.” - Donald J. Trump, President of the USA The Kushner sh*t is greasy - Stevie B.
And it all went downhill from there (he is neither proud nor unapologetic).
No capitalism to be found in any of it. Keynesian bubbles aren't capitalism.
Some inequality is intrinsic to any high-functioning capitalist economy. The problem is that inequality is at historically high levels and getting worse every day.
We don't have a high functioning capitalist economy. We have a left wing bubble economy which produced the record inequality. You don't print money 80 billion a month for years and give it to the rich and call it capitalism.
This guy is a moron, which he sort of said about himself anyway. The only thing he got right in the article.
[...]Dear 1%ers, many of our fellow citizens are starting to believe that capitalism itself is the problem. I disagree, and I’m sure you do too. Capitalism, when well managed, is the greatest social technology ever invented to create prosperity in human societies. But capitalism left unchecked tends toward concentration and collapse. It can be managed either to benefit the few in the near term or the many in the long term. The work of democracies is to bend it to the latter. That is why investments in the middle class work. And tax breaks for rich people like us don’t. Balancing the power of workers and billionaires by raising the minimum wage isn’t bad for capitalism. It’s an indispensable tool smart capitalists use to make capitalism stable and sustainable. And no one has a bigger stake in that than zillionaires like us.
The oldest and most important conflict in human societies is the battle over the concentration of wealth and power. The folks like us at the top have always told those at the bottom that our respective positions are righteous and good for all. Historically, we called that divine right. Today we have trickle-down economics.
I'm against minimum wage, but in strong favor of a negative income tax that replaces all basic social services as proposed by Milton Friedman. As for the <1% rich etc, the concentration of wealth and power in the hands of a few can be mitigated to a degree by maximizing free competition i.e. avoiding central interference and bubble economics (I agree with Mr P. on that part), but at the same time the financial markets need a regulatory upgrade obviously. Pruning away cancerous outgrowths of complexity is also a good thing to do.
The world economy is just as vulnerable to a financial crisis as it was in 2007, with the added danger that debt ratios are now far higher and emerging markets have been drawn into the fire as well, the Bank for International Settlements has warned.
Jaime Caruana, head of the Swiss-based financial watchdog, said investors were ignoring the risk of monetary tightening in their voracious hunt for yield.
“Markets seem to be considering only a very narrow spectrum of potential outcomes. They have become convinced that monetary conditions will remain easy for a very long time, and may be taking more assurance than central banks wish to give,” he told The Telegraph.
Mr Caruana said the international system is in many ways more fragile than it was in the build-up to the Lehman crisis. Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since then.
Credit spreads have fallen to to wafer-thin levels. Companies are borrowing heavily to buy back their own shares. The BIS said 40pc of syndicated loans are to sub-investment grade borrowers, a higher ratio than in 2007, with ever fewer protection covenants for creditors.
The disturbing twist in this cycle is that China, Brazil, Turkey and other emerging economies have succumbed to private credit booms of their own, partly as a spill-over from quantitative easing in the West.
Their debt ratios have risen 20 percentage points as well, to 175pc. Average borrowing rates for five-years is 1pc in real terms. This is extemely low, and could reverse suddenly. “We are watching this closely. If we were concerned by excessive leverage in 2007, we cannot be more relaxed today,” he said.
“It may be the case that the debt is better distributed because some highly-indebted countries have deleveraged, like the private sector in the US or Spain, and banks are better capitalized. But there is also now more sensitivity to interest rate movements."
The BIS warned it is annual report two weeks ago that equity markets had become "euphoric". Volatility has dropped to an historic low. European equities have risen 15pc in a year despite near zero growth and a 3pc fall in expected earnings. The cyclically-adjusted price earnings ratio of the S&P 500 index in the US reached 25 in May, six points above its half-century average. The Tobin's Q measure is far more stretched than in 2007.
There is more. Don't you love how they blame businesses for responding to centralized policy. Fricking leftists will be the death of us all. Or a lot of us anyway.
I wonder what impact rampant identity theft has on these numbers. I rarely buy much online, and only from reputable places. I take precautions and don't fall easily for tricks. I always thought identity theft was an abstract problem. Then earlier this year I started getting calls from a debt collection agency. It turns out that I owed $380 for an unpaid GE Capital Paypal rewards card bill. I didn't pay up and GE Capital sold the debt to Midland Credit Management. The only problem was that I never had a GE Capital card. GE Capital had never bothered to try and contact me. I found out that the address they had on file for me was Michigan -- a state I have never even set foot in! I pulled my credit report and sure enough, there was the uncollected debt, affecting my credit. It took GE Capital two months to conduct an investigation and withdraw the claim.
Welcome to Amerika, where your credit is controlled by 3 private companies and whatever lazy durian wants to file a claim they never bothered to investigate. Since it's all privately managed and Amerika has some of the weakest personal privacy laws in the world, there's little the average consumer can do to contest bullshit claims.
I wonder what impact rampant identity theft has on these numbers. I rarely buy much online, and only from reputable places. I take precautions and don't fall easily for tricks. I always thought identity theft was an abstract problem. Then earlier this year I started getting calls from a debt collection agency. It turns out that I owed $380 for an unpaid GE Capital Paypal rewards card bill. I didn't pay up and GE Capital sold the debt to Midland Credit Management. The only problem was that I never had a GE Capital card. GE Capital had never bothered to try and contact me. I found out that the address they had on file for me was Michigan -- a state I have never even set foot in! I pulled my credit report and sure enough, there was the uncollected debt, affecting my credit. It took GE Capital two months to conduct an investigation and withdraw the claim.
Welcome to Amerika, where your credit is controlled by 3 private companies and whatever lazy durian wants to file a claim they never bothered to investigate. Since it's all privately managed and Amerika has some of the weakest personal privacy laws in the world, there's little the average consumer can do to contest bullshit claims.
A third of Americans experiencing id theft strikes me as high.
May the gods preserve and defend me from self-righteous altruists; I can defend myself from my enemies and my friends.
Japan is Telling Us a Story
chindit13 - Tue, Aug 5, 2014 - 09:38 AM
You are correct in that Japanese funds are picking up external assets, including eurobonds, but there's more to that story...
Slowly but surely Japanese funds are coming to believe in the darker aspects of Abenomics. They have been convinced that printing will not stop until an inflation rate of at least 2% is achieved. That makes .69% JGBs a guaranteed loser, which is prompting them to look outside.
The BoJ has become the sole buyer of JGBs, and is the other side of the trade as funds liquidate. The BoJ is also the sole entity buying up the 10% of GDP new JGB issuance this year.
JGBs actually used to have volume. The average Blockbuster Video has more foot traffic today than one can see in the JGB market, save for the machinations of the BoJ.
Funds in Japan now accept that the end result of orchestrated non-deflation is either a rise in rates (which would decimate fund bondholdings) or a runaway yen. Both equate to loss---one real and one opportunity---so looking outside, even if that means buying forced-bid euro sovereign debt false promises, is the more attractive alternative to domestic delusions.
One more thing that seems to be happening...Japanese might be losing faith in the power of infinite fiat (IF), and that is at least temporarily reflected in the sluggish Nikkei and TOPIX. In contrast, Chinese still firmly believe in IF, and as the relatively conservative PBoC continues to lose out to the demands of the CP leadership, and thus print and print and print, Chinese are applauding by coming back to the equity market. The SSE is one to watch. It could be another false dawn, but it could also be the beginning of a new orgy of free money wealth chasing.
May the gods preserve and defend me from self-righteous altruists; I can defend myself from my enemies and my friends.
Erm, how come it's ok to browbeat pjmedia/breitbart/foxnews but not a no name Mother Jones opinion writer who demonstrates no knowledge whatsoever of the subject matter.
BTW I have been reading Mother Jones since 1995, they are to the left of Michael Moore, how am I supposed to ignore that when reading their products.
Mr.P., you don't need to be a leftwing or rightwing whatever.. to understand that when highspeed algorithms do 50% of all trade on Wallstreet on autopilot, a new systemic risk is introduced (among other issues) that needs attention. What NSA and other hackers can do on the internet, criminals can do in the HFT network to either manipulate trade outcomes for cash, destroy competitors or crash the system alltogether. Or as with the flashcrash, things go berserk for reasons nobody understands.
