Category Archives: Economic fundamentals

Summer Rerun: Bankruptcy Cramdown Defeated: Banksters Again Prevail Over Real Economy

This post first appeared on April 30, 2009

In another disheartening development on the banking front, the Senate defeated legislation giving judges the authority to modify residential mortgages in bankruptcy.

Note that the popular description is often misconstrued in short form descriptions. Judges would not have had open-ended authority to make changes. The construct is that mortgages are collateralized loans. The mortgage balance is written down in bankruptcy to the value of the collateral, and the excess is added to the unsecured creditor claims.

Philip Pilkington: The Irish Establishment – Mad as Goats?

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

Learn to say the same thing
What defeats people is a double confession
One time they will confess one thing
And the next they will confess something else
Talk to them, they will say:
Learn to say the same thing
Let us hold fast to saying the same thing”
– Cat Power, ‘Say’

In Ireland we used to measure our economic performance based on GDP (GNP actually, but we won’t go into that). Pretty standard fare for any advanced economy, really. Not so anymore. These days we measure our economic performance based on the government’s ability to extract tax revenue out of the general populace to pay for extortionate loans to our EU masters.

How is Your (Holiday) Economy Doing?

I’m a bit surprised that anyone can be surprised by the lousy jobs numbers for August. Consumers are worried and too many economists have been trying to draw trend lines through noise in retail spending data and call it proof that a recovery in under way. Broad measures of unemployment are stuck in the upper teens, big companies are continuing to shed jobs, small businesses on the whole are pessimistic, state budgets are under pressure and federal deficit spending is set to be reined in. With housing in most markets not having bottomed, the overwhelming majority of consumers having taking a wealth hit, businesses not investing and government not taking up the slack, where exactly is growth supposed to come from? The tooth fairy?

Chinese manufacturing takes a hit from abroad

The just released official manufacturing purchasing mangers index (PMI) for China shows a small rebound in August. The headline PMI rose from 50.7 in July to 50.9 in August, just slightly below market expectation of 51.1.

Philip Pilkington: Dynamism and Instability – The Search for Profits and Disequilibrium

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

The completeness of the Ricardian victory is something of a curiosity and a mystery. It must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected. That it reached conclusions quite different from what the ordinary uninstructed person would expect, added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and consistent logical superstructure, gave it beauty. That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted to it the support of the dominant social force behind authority.
– John Maynard Keynes

In our previous piece on profits we showed how profits ultimately come from investment. There we saw that whether this investment was from the government sector or from the private sector mattered little (once again we leave out the external sector for the sake of simplicity). Either way it was the key factor determining profits.

We also saw that this entire system was rather fragile and prone to breakdown.

ECRI: “It’s Too Late” for Obama on Jobs

Cross-posted from Credit Writedowns Economic Cycle Research Institute co-founder Lakshman Achuthan was on Tech Ticker yesterday discussing the outlook for the economy. Business Insider does a good write-up of his commentary, highlighting the fact that the ECRI has yet to signal a double dip. However, I wanted to add a few comments as well. ECRI’s […]

Auerback/Parenteau: Jackson Hole will be a Black Hole for Those Hoping for QE3

By Marshall Auerback, a portfolio strategist, hedge fund manager, and Roosevelt Institute Fellow, and Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge, editor of The Richebacher Letter, and a research associate of The Levy Economics Institute. Cross posted from New Economic Perspectives

Those leading the charge for “fiscal consolidation” now seem positively shocked by the violent gyrations in the stock market, as expectations rapidly seem to be shifting toward an “L” shaped recovery or worse – a possible global recession. To those of us on this blog who have consistently downplayed the prospects of global recovery in the midst of widespread private sector AND public sector retrenchment, none of this sadly comes as a surprise. We are, as Bill Mitchell noted recently, experiencing a “self-inflicted catastrophe”, largely because of dangerously destructive myths in regard to the efficacy (or lack of it) in regard to fiscal policy. But in spite of the shrill rhetoric of the fiscal austerian brigades, the markets are beginning to intuit that a nation cannot have a fiscal contraction expansion when all other spending is flat or going backwards and yet that remains the general trajectory of policy.

Satyajit Das on the Botox Economy

As much as I like Satyajit Das’ books (his new offering, Extreme Money, is just out and was reviewed favorably in the Financial Times), I wish he’d get on TV more often. His being in Sydney puts him at a bit of a disadvantage.

This clip is amusing.

Chinese Banks: “These Things Aren’t Banks”

This is a terrific discussion of Chinese banking by two experts who do not mince words, Carl Walter of JP Morgan and Victor Shih of Northwestern University. Both have a great sense of history and go to some length to portray how economic and monetary arrangements for these “banks” differ from what most of us would assume. The discussion includes periodic crises and the creative means used to rescue banks, the unusually high level of financial assets for an emerging economy, the sustainability of growth, and the role of banks in the political system.

Guest Post: Innovate or Die

By Sell on News, a macro equities analyst. Cross posted from MacroBusiness

I have been reliably informed by Houses & Holes that we are “all going to die”, and rather sooner than we all imagined. Something to do with the economic meltdown in Europe and America, I believe. While I have no reason to doubt such potent insight — after all, death is the best one way bet available — I think it could do with a little refining. What is dying is the industrial era in the developed world, a trend that is obscured by the fact that the developing world is industrialising at an accelerating pace.

Marshall Auerback: Are We Approaching the Endgame for the Euro?

By Marshall Auerback, a hedge fund manager, portfolio strategist, and Roosevelt Institute fellow. A version of this post appeared at New Economic Perspectives.

Forget about the S&P downgrade, which has had ZERO impact on the global equity markets. The downgrade was supposed to mean that it would be more likely that the US government would not be able to pay its debt than previously assumed. IF the markets took this warning seriously, then they would have attached a higher risk premium to US government bonds. Of course, the opposite occurred. US bonds soared in price. In other words, investors, both here and abroad, voted with money as loudly as possible that they view the US government debt as a very safe haven in a time of financial turmoil

So if it wasn’t the S&P downgrade which caused this downward cascade in the global equity markets, then what was it? By far, the most important factor currently driving the market’s bear trends is Europe or, more specifically, the future of the euro and the European Monetary Union. Systemic risk has migrated across the Atlantic to the euro zone.

Satyajit Das: The Real Debt Crisis is in Europe- Part 2 – “Europe’s Long, Long Goodbye”

By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk (published in August/ September 2011)

In the Long Term We’re All Dead

The European Union’s attempts to resolve the continent’s sovereign debt problems do not deal with issues of growth, intra-European financial imbalances and competitiveness. The only “initiative” was the vague plan for a massive public investment program, although no details of how it is to be financed were provided.

The call for greater public investment was accompanied by a familiar but contradictory insistence that all Euro-zone states adhere to agreed fiscal targets. Euro-zone countries except Greece, Ireland and Portugal must bring their budget deficit down to less than 3% of GDP by 2013. The need for many European countries to improve public finances is clear. But how greater belt-tightening and austerity would restore growth is not.

Rob Johnson and Tom Ferguson on the Real Meaning of the S&P Downgrade and the Market Reaction

I feel as if I am too often making excuses for coming across good material on the late side, but between being distracted by the market gyrations of last week and figuring out how to write to Salon readers, I’m even more behind the eight ball than usual. But our initial reader comments confirm our instincts that this material is very relevant.

Readers have responded well in the past to Tom Ferguson’s cut-to-the-chase, curmudgeonly style, but I also wanted to call your attention to Rob Johnson’s observations. Rob, by contrast, is a very measured speaker, so on his scale of discourse, his remarks about Obama are remarkably blunt.

“Freedom Versus Markets”

Yves here. Blogger Sell on News echoes an argument made in ECONNED, namely, that “free markets” are a contradictory and incoherent construct, albeit from a different perspective. He also advocates another view near and dear to our heart, namely getting rid of economists (actually, that is overkill and will never happen. Keynes had it right: “If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.”)

By Sell on News, a macro equities analyst . Cross posted from MacroBusiness

Probably the most wicked intellectual subterfuge of the last three decades — and goodness knows there have been many — has been the pretence that democracy and markets are two sides of the same coin.