Thursday, January 10, 2008
Stuffed
Michael Panzner hands on a piece from Naked Capitalism: expert, inside opinion is that the banks are so gorged with bad debt that America will mimic the "melancholy, long withdrawing roar" of Japan's ebb tide.
Wednesday, January 09, 2008
Something's gotta give
Interest on official debt in the USA runs at $430 billion for 2007, and rising steeply, according to the Treasury's own figures (htp Michael Panzner, quoting Mish's Global Economic Trend Analysis); total government debt is now c. $9.2 trillion.
It's more serious than that, of course: James Turk quotes the Comptroller General, David M Walker's estimate that total liabilities, including commitments to future social security benefits, are around $53 trillion. The government's annual revenues are only around 5% of this figure, so the credit card looks like it's pretty much fully-loaded.
However it happens, it seems something must give way under the strain. Frank Barbera reckons the Dow has plenty further to fall (and possible interim correction or not, he thinks gold looks good). Prieur du Plessis concurs, quoting Nouriel Roubini's comment that "... a lousy stock market in 2007 will look good compared to an awful stock market in 2008."
Bob Bronson thinks the downturn will be long as well as hard. He in turn quotes the chairman of the National Bureau of Economic Research: this one “could be deeper and longer than the recessions of the past.”
Boris Sobolev also looks to gold, but prefers the smaller companies because of all the money that's piled into the majors.
In case we in the UK should be tempted by schadenfreude, Ashraf Laidi predicts that sterling will accompany the US dollar's fall against other currencies. From what I read in connection with the USA, a weakening currency may provide a temporary boost to exports, but also inflate the cost of imports; so I don't suppose that our following the dollar will do us much long-term good, either.
Of course, it's possible to dismiss all this as group-think wall-of-worry stuff, but maybe that would be double-bluffing ourselves. Sometimes, things are exactly what they seem. Banks have consistently turned a profit for centuries, on the inexorability of debt.
It's more serious than that, of course: James Turk quotes the Comptroller General, David M Walker's estimate that total liabilities, including commitments to future social security benefits, are around $53 trillion. The government's annual revenues are only around 5% of this figure, so the credit card looks like it's pretty much fully-loaded.
However it happens, it seems something must give way under the strain. Frank Barbera reckons the Dow has plenty further to fall (and possible interim correction or not, he thinks gold looks good). Prieur du Plessis concurs, quoting Nouriel Roubini's comment that "... a lousy stock market in 2007 will look good compared to an awful stock market in 2008."
Bob Bronson thinks the downturn will be long as well as hard. He in turn quotes the chairman of the National Bureau of Economic Research: this one “could be deeper and longer than the recessions of the past.”
Boris Sobolev also looks to gold, but prefers the smaller companies because of all the money that's piled into the majors.
In case we in the UK should be tempted by schadenfreude, Ashraf Laidi predicts that sterling will accompany the US dollar's fall against other currencies. From what I read in connection with the USA, a weakening currency may provide a temporary boost to exports, but also inflate the cost of imports; so I don't suppose that our following the dollar will do us much long-term good, either.
Of course, it's possible to dismiss all this as group-think wall-of-worry stuff, but maybe that would be double-bluffing ourselves. Sometimes, things are exactly what they seem. Banks have consistently turned a profit for centuries, on the inexorability of debt.
Oil splat
"Oil crunch" doesn't sound right, although it might be appropriate to shale oil: Jeffrey Brown outlines what looks like a compelling thesis on growing domestic energy consumption by major oil exporters. He thinks that the top five producers will be using all their own supplies by around 2030, and concludes that the USA must rapidly reshape its transportation system:
In simplest terms, we are concerned that the very lifeblood of the world industrial economy—net oil export capacity—is draining away in front of our very eyes, and we believe that it is imperative that major oil importing countries like the United States launch an emergency Electrification of Transportation program--electric light rail and streetcars--combined with a crash wind power program.
That is just the tip of the iceberg, surely: residential and office heating/lighting, mechanised farming, supermarket shopping, centralised medical facilities - so much will have to be reviewed and planned.
In simplest terms, we are concerned that the very lifeblood of the world industrial economy—net oil export capacity—is draining away in front of our very eyes, and we believe that it is imperative that major oil importing countries like the United States launch an emergency Electrification of Transportation program--electric light rail and streetcars--combined with a crash wind power program.
That is just the tip of the iceberg, surely: residential and office heating/lighting, mechanised farming, supermarket shopping, centralised medical facilities - so much will have to be reviewed and planned.
Tuesday, January 08, 2008
Twang money, encore
The Contrarian Investor is also struck by the elasticity of fiat money, and how this vitiates attempts to make fair comparisons and store wealth. Gold for the long term, he thinks.
In the short term, we have this contest between credit contraction and currency expansion. I'm getting the feeling it'll be the first followed by the second, which is what Michael Panzner predicts in "Financial Armageddon".
In the short term, we have this contest between credit contraction and currency expansion. I'm getting the feeling it'll be the first followed by the second, which is what Michael Panzner predicts in "Financial Armageddon".
Grab your pension now, inflation-proof it?
Tony Allison looks at the threats to your prosperity in retirement. A bird in the hand?
Monday, January 07, 2008
Killer greens
Stuart Staniford takes a point I've read recently in Vernon Coleman's "Oil Apocalypse", about biofuels threatening food supplies for the world's poor, and extrapolates frighteningly:
... both oil and cereals are global commodity markets. If it's profitable to make food into fuel in the US, even without a subsidy, then it's profitable elsewhere also - possibly more so given lower labor costs. So the basic growth dynamics are the same. The infection just hasn't got as strong a grip on the whole globe yet, but it's growing at similar rates.
... I expect oil prices to increase in the medium term, though certainly they could go down in the short-term if the credit crunch affects the global economy enough.
... When we have a bidding war between the gas tanks of the roughly one billion middle class people on the planet, and the dinner tables of the poor, where does that reach equilibrium?
... We noted earlier that according to the UN about 800 million people are unable to meet minimal dietary energy requirements. That is 12% of the world population. [...] we can estimate that a doubling in food prices over 2000 levels might bring 30% or so of the global population below the level of minimal dietary energy requirements, and a quadrupling of food prices over 2000 levels might bring 60% or so of the global population into that situation.
... both oil and cereals are global commodity markets. If it's profitable to make food into fuel in the US, even without a subsidy, then it's profitable elsewhere also - possibly more so given lower labor costs. So the basic growth dynamics are the same. The infection just hasn't got as strong a grip on the whole globe yet, but it's growing at similar rates.
... I expect oil prices to increase in the medium term, though certainly they could go down in the short-term if the credit crunch affects the global economy enough.
... When we have a bidding war between the gas tanks of the roughly one billion middle class people on the planet, and the dinner tables of the poor, where does that reach equilibrium?
... We noted earlier that according to the UN about 800 million people are unable to meet minimal dietary energy requirements. That is 12% of the world population. [...] we can estimate that a doubling in food prices over 2000 levels might bring 30% or so of the global population below the level of minimal dietary energy requirements, and a quadrupling of food prices over 2000 levels might bring 60% or so of the global population into that situation.
Zero sum for the lower echelons
Martin Hutchinson (07 January) makes my case, with particular reference to Tata and Jaguar-cum-Land Rover :
... it seems likely that the most skilled Westerners will continue to give their countries a comparative advantage against emerging markets. However, there is no guarantee that these research-intensive sectors are likely to support the entire Western population, far from it. They are highly cyclical, benefiting hugely from an active stock market and venture capital market. Further there is no evidence that innovation itself, as distinct from the fruits of recent past innovations, is significantly expanding as a percentage of output -- indeed, research expenditure has if anything declined.
... Since the majority of location-dependent jobs in Western countries are low-skill it therefore follows that if governments wish to protect local living standards, they need to discourage low-skill immigration. Except in Japan, they have not been doing so; both in the EU and the United States low-skill immigration, frequently illegal immigration, has got completely out of control and is immiserating the working classes.
... the economic histories of a high proportion of the Western population under 30, except the very highly skilled, will involve repeated bouts of unemployment, with job changes involving not a move to higher living standards but an angry acceptance of lower ones. By 2030, it is possible that the median real income in the United States and Western Europe may be no more than 50-60% of its level today.
This will expose the democratic divide between those who vote and influence the system in their favour, and the rest. The class division could sharpen as "I'm all right Jack" is replaced by "One can't complain, Piers".
Sackerson awards a Prose Prize for Hutchinson's use of the term "immiserating".
P.S.
... and presumably this will have an obvious effect on residential property prices. Who's for selling up and buying a caravan?
... it seems likely that the most skilled Westerners will continue to give their countries a comparative advantage against emerging markets. However, there is no guarantee that these research-intensive sectors are likely to support the entire Western population, far from it. They are highly cyclical, benefiting hugely from an active stock market and venture capital market. Further there is no evidence that innovation itself, as distinct from the fruits of recent past innovations, is significantly expanding as a percentage of output -- indeed, research expenditure has if anything declined.
... Since the majority of location-dependent jobs in Western countries are low-skill it therefore follows that if governments wish to protect local living standards, they need to discourage low-skill immigration. Except in Japan, they have not been doing so; both in the EU and the United States low-skill immigration, frequently illegal immigration, has got completely out of control and is immiserating the working classes.
... the economic histories of a high proportion of the Western population under 30, except the very highly skilled, will involve repeated bouts of unemployment, with job changes involving not a move to higher living standards but an angry acceptance of lower ones. By 2030, it is possible that the median real income in the United States and Western Europe may be no more than 50-60% of its level today.
This will expose the democratic divide between those who vote and influence the system in their favour, and the rest. The class division could sharpen as "I'm all right Jack" is replaced by "One can't complain, Piers".
Sackerson awards a Prose Prize for Hutchinson's use of the term "immiserating".
P.S.
... and presumably this will have an obvious effect on residential property prices. Who's for selling up and buying a caravan?
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