Who needs sanctions when intellectual capture produces such swimming results? The US-led restructuring of the Russian economy after the USSR fell is a gift that keeps on giving.
Hoisted from comments:
Read more...Yves here. Since the financial media is covering the continuing meltdown of the ruble intensely, we thought it would be helpful to add some information that seems to be missing from most reporting. This post by Jacques Sapir from the 14th (hat tip Michael Hudson) provides important detail on the importance of oil to the Russian economy (far less than typically depicted, although it is the biggest source of foreign exchange), the impact of the fall of the ruble and oil prices on the domestic budgets, and the odds of a Russian default. Note that Sapir is sanguine on the default front and does not see a rerun of 1998 in the offing, by virtue of of Russia having large foreign currency reserves. Note that Menzie Chinn of Econbrowser differs, and uses a chart from the Economist to make his point:
Read more...Yves here. While the odds of commodities-triggered 2008 style meltdown is still not the most likely outcome, recall that that pessimists like yours truly assessed the likelihood of Seriously Bad Things Happening as of early 2008 at 20-30%, which I then saw as dangerously high. In other words, tail risks are bigger than they appear.
Some of the things that favor worse outcomes than one might otherwise anticipate is investor irrationality, or what one might politely call herd behavior. For instance, a major news story today was how investors are dumping emerging markets assets willy nilly, when many are not exposed to much if any blowback from lower commodity prices and quite a few are seen as net beneficiaries. The offset is that central banks have been conditioned to break glass and overreact when banks start looking wobbly. But the Fed may be slow to get the memo, since it sees recent data (the last jobs reports and retail sales data) as strong, and is also predisposed to see its medicine as working even though it is really working only for those at the top of the food chain.
Note that this report is from Monday in Australia, and look how much oil prices have dropped since then. WTI is now at $54.28 per Bloomberg.
Read more...The Koch Brothers are the closest thing the United States has to Russia’s oligarchs.
Read more...In this video, Peter Temin, a highly respected expert on the Great Depression*, discusses some of the revealing parallels between that era and our current financial and economic plight with Marshall Auerback. Don’t be deceived by the leisurely pacing of this conversation and Temin’s soft-spoken manner. Temin in his measured way sets the stage for discussing how the trajectory we are on, which is undoing more and more social safety nets and job security, which are fundamental to trust, does not merely lead to lower productivity and hence hurts everyone, including the wealthy, but also puts us on a trajectory towards a dystopian future.
Read more...While the wealthy don’t get much sympathy on this website, the restructuring of the economy to save the banks at the expense of pretty much everyone else has hurt some former members of the top 1% and even the 0.1%. And it’s also worth mentioning that some of the former members of the top echelon occupied it when the distance between the rich and everyone else was much narrower than it is now.
The fact that economic distress has moved pretty high up the food chain is a sign that this recovery isn’t all that it is cracked up to be.
Read more...Yves here. Some ahead-of-the-curve analysts have warned of the magnitude of energy debt, mainly junk bonds issued to fund shale gas projects, that are now at risk thanks to plunging oil prices whacking the entire energy complex.
We’ve heard over the last few weeks sunny proclamations of how many shale players have lower cost structure than commonly thought and could ride out weak prices. The supposedly super bearish Bank of America report published earlier in the week called for oil prices to drop to a scary-sounding $50 a barrel. But the document sees that aa a short-term phenomenon. As supply and demand equilibrates (shorthand for “of course some people will drive more, and a lot of wells will get shut down”), it anticipates that oil prices will rebound to $80 to $90 a barrel in the second half of 2015.
The problem with conventional wisdom, even pessimistic-looking conventional wisdom, is that the noose of a lot of borrowings is likely to change the decision-making process of those producers.
Read more...Yves here. Michael Hudson looks at the way what he calls “the New Cold War” is creating alliances among countries that the US has as designated enemies, when the classic foreign policy playbook is to do everything you can to keep your opponents isolated.
One thing that is striking about the US decision to escalate against Russia is that it’s not at all clear what the trigger was. And that raises the possibility that these hostilities were instigated out peeve, or what one might more politely call imperial reflex, reflecting the belief that Russia needed to be punished for its various sins, such as supporting Iran, outmaneuvering the US in Syria, and harboring Snowden. And the assumption appears to have been that Russia could be taken down a notch or two on the geopolitical stage at no cost to the US. Hudson explains that the reverse is proving to be the case.
Read more...Yves here. Yanis Varoufakis’ discussion today focuses on hot-button issues in the Eurozone, which isn’t getting the attention it warrants in the US press right now, given the competition from so many stories closer to home, such as the oil price collapse to sustained protests over police brutality to the CIA torture report.
Admittedly, while a crisis looks inevitable, with Germany committed to incompatible goals (continuing to be export-driven but not lending to its trade partners), the Troika has made kicking the can down the road into such an art form so as to have dulled the interest of most Eurozone watchers. But there’s been a bit of a wake-up call with the possibility that Greek prime minister Antonis Samaras’ gambit of calling for a presidential snap election (which is a vote within the legislature) will fail, leading to general elections. A general election is widely expected to produce a victory for the leftist party Syriza, which is opposed to more bailouts, and one is scheduled to be wrapped up within the next couple of months. Syriza wants the debts restructured and also wants to be allowed to deficit spend, which in an economy so slack, would reduce debt to GDP ratio over time (the austerians keep ignoring the results of their failed experiments: when you cut government spending, the economy shrinks disproportionately. As a result, this misguided method for putting finances on a sounder footing makes matters worse as government debt to GDP ratios rise as a direct result of spending cuts).
As much as the Syriza leader, Alexis Tsipras, has spoken against bailouts, even if he comes into power, it’s not clear that he has the resolve to bluff the Troika successfully. International lenders will rely on the notion that Tsipras can’t afford to threaten a default, since that could trigger bank runs and potentially rescues via depositor bail-ins and are likely to push back hard. But the spike up in Greek government bond yields and the near 12% plunge in the Greek stock market yesterday says investors are plenty worried about the possibility of brinksmanship, and the tail risk that Greece might actually default and print drachmas to fund its government budget, which would be grounds for kicking it out of the Eurozone.
Read more...Yves here. Varoufakis describes a classic case of the old investing adage, “Little pigs get fed, big pigs get slaughtered.” In this case, the big pigs decided to ride what was clearly only a momentum trade on Greek sovereign debt, since anyone with an operating brain cell could tell that Greece was not getting better any time soon, and limited German tolerance for bailouts meant that some sort of restructuring was inevitable. The concern that the Greek bubble will be pricked sooner than expected looks to have wrong-footed some big name investors.
Read more...A new study by a team at the University of Texas, published in Nature News, throws cold water on bullish US natural gas production forecasts by the US agency, the Energy Information Administration. Its analysis suggests that the fracking boom will be a relatively short-lived phenomenon, which raises doubts about the attractiveness of investing in shale plays and in liquified natural gas transport facilities, particularly for export.
Read more...Yves here. This post provides a high level summary and assessment of the ECB’s post-crisis conduct. Among other things, it demonstrates that the ECB makes the Fed look good. Some readers will take issue with the fact that Mody treats QE as a reasonable policy, when the experimental policy has goosed asset markets without doing much for the real economy. It has hurt savers by flattening the yield curve and reducing yields on longer-term investments and many economists believe it has exacerbated income inequality, which is increasingly seen as a drag on growth. However, the hair shirt of the Masstricht treaty rules out fiscal stimulus, and most economists accept the view that monetary stimulus is better than standing pat.
Read more...As the old adage goes, things have an annoying habit of occurring in threes. It’s particularly true in the case of crises, which tend to fuel each other in a potentially lethal feedback loop. And Mexico is already experiencing blowback from two separate but strongly interlinked crises.
Read more...Yves here. Naked Capitalism contributor Andrew Dittmer, perhaps best known for his series on libertarianism (see Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, and his responses to reader comments) has returned from his overlong hiatus to interview the authors of the highly respected new book, Private Equity at Work.
Eileen Appelbaum and Rosemary Batt have produced a comprehensive, meticulously researched, scrupulously fairminded, and therefore even more devastating assessment of how the private equity industry operates, including its deal and tax structuring methods, its impact on employment, and whether its returns are all they are purported to be. Their work was reviewed in the New York Review of Books; we also discussed it in this post.
Earlier this year, Andrew spoke with Appelbaum and Batt, and the first part of their discussion covers the problematic relationship between private equity funds (general partners) and their investors (limited partners) and how private equity affects other businesses.
Read more...Dean Baker, everyone’s favorite progressive economist (mine, too), has an interesting take on our unemployment problem.
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