Dear patient readers,
More jet lagged than I thought I’d be, plus a lot of odd and ends to attend to today. Apologies for the brevity.
Megafauna demise blamed on humans BBC
Mortgage Bankers Assocation expects mortgage activity to slow Business Week (hat tip Bubble Meter)
On the coming neo-feudalism Bemign Brodwicz
Angelo’s Ashes Connie Bruck, New Yorker (registration required)
No repose on repos Financial Times
The Global Saving Glut: Rest in Peace? Mirage? Bete noir? Menzie Chinn, Econbrowser
Despite Law, Job Conditions Worsen in China New York Times (hat tip reader Don)
Worries over systemic risk in CMBS sector Aline van Duyn, Financial Times
Antidote du jour:
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Bemign Brodwicz re: link, better lay off my secret stash of strong stuff, it leaves you with a mother of all depresive hangovers.
Manzie Chin: " . . . [M]y view is that the "saving glut" was more of a typical Kindleberger type of mania, combined with the Akerlof-Roemer (not Romer) type of "looting" behavior." Exactly, and I concur. The notion of a savings glut has always seemed to me a particularly tortuous misreading of financial flows in the global economy. Chin's counter-thesis is far more plausible, and one could go on extensively with other issues as well.
As just one further issue with this false interpretation, the notion of rationality is embedded, that investors in area A have money to put to work and so being rational capitalizers they look for the 'best opportunity' to put their money to work. It is at least dubious that that chain of inferences applies at all to international capital flows of the last ten years. Another way of putting this, to me more relevant, is that return creates demand and thereby induces liquidity. It's like a candle and its wick. If return of any kind on any kind of financial product in a particular place appears a) so profitable and/or b) so risk-free, it will induce those with capital-potentials in other areas which would not necessarily be put to work to find a way draw some of their value out or borrow against it to get into the game. It is the return-opportunity which induces money movement, not the supply push. (I'm not arguing that capital supply push doesn't occur, certainly it does; just that the driver for capital flows is from the return-source not _to_ the return source.) The Big Boys in finance understand this powerfully, that by creating return, or even the illusion of return, they can put enormous sums in motion which they are disproportionately able to exploit because of their focal nodal position. And so on . . . .
The idea of a 'savings glut' and its dissemination, artificial or organic, is something which will be extensively studied after the fact. By the time the monographs come out in seven-fifteen years or so, very few of present attendance will recall what it was all about. That's unfortunate. The notion of a savings glut was a typical 'mania McGuffin,' an idea woven from moonbeams–which be it said one can in fact see if not feel–hung on skyhooks, and used to justify otherwise patently implausible readings of the evidence. People fill find reasons to fool themselves if there is sufficient incentive, and in this crisis at the level of 'macroeconomic analyasis' [a minsnomer, I know] this was "the reason."
Every time Menzie Chin writes, I read it, 'cause he's on top of the facts.
'US To Trade Gold Reserves For Cash Through Cash4Gold.com'
http://www.theonion.com/content/video/us_to_trade_gold_reserves_for
The Animal Spirits (Brodwicz) piece is a bit, shall we say, excited, and not the usual type of fare that Yves links to.
Still, underneath the apocalyptic ravings, there are some valid points, as well as in the subsequent posting on the same site. There are serious implications for the future of the American social structure; I'm just not sure what they are. The one mistake Brodwicz makes, and one many others have made, is in assuming that "the rich" are riding off from the scene of the crime with bags stuffed full of cash. The reality is that much of the destruction of wealth has hit the wealthiest the hardest, with the Madoff victims being the most prominent examples. Inequality of wealth may have increased over the last decade, but I would be interested to see if that continues; I suspect not. Whenever there is destruction of wealth, it is those who have it who stand to lose; those who do not have wealth cannot lose what they do not have.
There are extremely serious problems, but the most serious, in my view, is that the U.S. is no longer competitive at the global level, and has no prospects for becoming such. That means one of two directions: heavy protectionism to protect an inefficient economy, or dramatically reducing both the size of government and the standard of living, to return taxes and cost of labor to competitive levels. That nobody seems to want to consider that difficult decision is extremely troubling.
"That means one of two directions: heavy protectionism to protect an inefficient economy, or dramatically reducing both the size of government and the standard of living, to return taxes and cost of labor to competitive levels"
The problem is lowering the standard of living and the cost of labor to match India and China
is for some strange reason not terribly appealing to a lot of people. I know that's hard to imagine.