This Bloomberg story is consistent with our current thesis: that despite the buoyancy of the stock market, conventional wisdom has it that a “recovery” is on and that the economy is on firmer footing than it really is.
Read more...By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil
During the Great Depression and the war years monetary policy in Britain had proved largely ineffective. In the meantime it was shown that government spending could cure economic depressions and return the economy to full or even super-full employment. After the war most political parties in Britain were thus interested in using fiscal policy to generate full employment rather than rely on the vagaries of monetary policy. (This, it should be said, is the polar opposite of our rather more desperate situation today).
Wily conservatives, however, recognised that such policies would mean the expansion of government – which they didn’t like at all. So they tried to resurrect monetary policy as the government’s tool of choice.
Read more...By Yanis Varoufakis, Professor of Economics at the University of Athens. Cross posted from his blog
Under normal conditions, the interest rates that you and I must pay on a home loan, a car loan, our credit card, a business loan are pegged onto two crucial rates. One is the rate that banks charge one another in order to borrow from each other. The other is the Central Bank’s overnight rate. Alas, neither of these interest rates matter during this Crisis. While such ‘official’ rates are tending to zero (as Central Banks try to squeeze the costs of borrowing to nothing), the interest rates people and firms pay are much, much higher and track indices of fear and subjective estimates of the Eurozone’s disintegration.
Read more...I’ve refrained from commenting much on the state of the economy over the last couple of years because it seems to have been largely irrelevant to the direction of many widely followed markets. While bonds, particularly the highest quality bonds, have continued to rally over time, par for what you’d expect in an economy facing deflationary pressures, on a day to day basis, bipolar risk on/off reactions have held sway. And even though there is no reason to expect anything better that a weak recovery in the wake of a balance sheet recession afflicting the world’s advanced economies, a peculiar tendency to look to ordinary recessions for comparisons plus undue faith in the confidence fairy has led many commentators to draw trend lines through improving data series and declare it to be a recovery. However, we seem to be at or may even have passed an inflection point, and policy makers seem remarkably unprepared to take action.
Read more...Yves here. The post below does not quite nail the rather large topic it opens up, that of how financial markets differ from markets for goods and what the implications are for regulation (George Cooper’s The Origin of Financial Crises is very crisp on these topics) but I thought it would provide for conversational grist for NC readers.
Read more...We’ve been mystified with the housing bull argument that things really are getting better. While real estate is always and ever local, and some markets may indeed be on the upswing, there are ample reasons to doubt the idea that an overall housing recovery is in. For instance, the recent FHFA inspector general report stated:
Read more...By Marshall Auerback, a hedge fund manager and portfolio strategist. Cross posted from New Economic Perspectives.
Just when you think that things can get no worse in Spain, they do. Take a look at this chart, courtesy of Credit Suisse via FT’s Alphaville
Read more...By Ed Harrison, the founder of Credit Writedowns. Cross posted from Alternet.
The awful experience of the Great Depression made clear to many economists and laymen alike that credit is at the heart of a functioning capitalist system. Without access to credit, many businesses die and many individuals and households run out of money and go bankrupt.
Yet in popular media accounts from the Great Depression, the focus is almost always on the stock market and the Great Crash of 1929. You hardly ever hear that it was the contraction of credit and the seizing up of credit markets that made the Great Depression so traumatic.
Read more...By Paul Davidson,the author of “The Keynes Solution: The Path to Global Economic Prosperity” and the editor of the Journal of Post Keynesian Economics. Cross posted from Alternet
Recently I went to a well-known restaurant in Evanston, Illinois. This restaurant has a reputation for providing excellent food and service. But the night I was there, it was less than half full. I asked the manager if he would he hire more waiters and chefs if his taxes were reduced and/or government removed the existing regulations controlling the way his restaurant could operate. His answer was that even if his taxes were reduced and regulations eliminated, he would only hire more staff if more customers came in for dinner. On the other hand, if there were twice as many customers for dinners than there were on this night (and there were many more customers before the recession began in 2007) he would gladly double the number of workers he employed even if his taxes were not reduced or regulations changed.
That’'s how things work in the Real World.
Read more...By Michael Olenick, creator of NASTIACO, a crowd sourced foreclosure document review system (still in alpha). You can follow him on Twitter at @michael_olenick or read his blog, Seeing Through Data
As it turns out, information is not perfect, volatility does not define risk, markets are not efficient, the individual is adaptable.
– Dr. Michael Burry, UCLA Economics Commencement Speech, June 20, 2012
There was rending of garments and wearing of sackcloth last week when the jobs report came in at only 80,000 new jobs created in June, the third disappointing report in a row. Pundits looked to find cheer despite the disappointing outcome. For instance, the number of hours worked rose, and 25,000 temps were added, which the optimists used to contend that employers saw more demand, but weren’t quite confident enough to make permanent hires. Citigroup’s Tobias Levkovich argued that more firms are planning to add jobs. The gloomsters pointed out that global manufacturing output is weakening, and new orders in particular are signaling contraction. And John Hussman noted (hat tip Scott):
Read more...Nouriel Roubini, the dour seer who was early (too early in the minds of some) to warn of possible financial crisis prior to the Great Upheaval, has been more cautious in his calls since having ascended to official pundit status. Nevertheless, he’s been warning of a possible crisis in 2013 for some time and is not backing off from that call as the date approaches.
Read more...Although various commentators (including our Marshall Auerback) have raised warning flags about the long-term viability of China’s growth model, the middle kingdom’s performance during the crisis seemed to prove skeptics wrong. Never mind that creditors like China tend to suffer most in the aftermath of major financial crises, or that no country has ever sustained such a high combination of exports plus investment (over 50% of GDP) for very long. And the ongoing reports of all those vacant cities seemed to be irrelevant.
The critics have been looking less off base of late.
Read more...By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.
As I‘ve been saying over the last few days, last week’s EU summit provided Europe with some political success but actual deliverables are some time off. According to the Finnish PM at least a year. There is already rumbling from a number of countries, including Germany, about what exactly was and wasn’t decided last Friday morning and my suspicious are, as we’ve seen many times before, that final outcomes will be some 17, or 27, headed beast built on layers of political compromise.
Read more...By Zarathustra, who is the founder of Hong Kong blog Also sprach Analyst. He was educated at the London School of Economics and the Chinese University of Hong Kong and was once a Hong Kong-based equity research analyst focusing on Hong Kong real estate (which he did not really like), with a secondary coverage on China real estate sector (which he actually hated). Cross posted from MacroBusiness
hile the mistrust of the political class of China continues in Hong Kong (and will certainly continue for much longer), the doubts on the strength of the Chinese economy and the doubts on the ability of the political class
to manage the economy have more or less evaporated after 15 years of Chinese rule.
No one would ever dispute the achievement of the Chinese economy….the extraordinary bull market and the seemingly unstoppable economic growth has created a China cult, a cult among the investing community that China is the best place to invest.
Read more...