Symmetry; asymmetry

"China’s January surplus ($39.1b) is roughly the same size as the United States’ December deficit ($39.9b). It is reasonable to think it will roughly match the United States January deficit as well.

The extreme symmetry captures something real. Deficits and surpluses are shrinking globally now that the price of oil is at levels that roughly cover the oil exporters imports. Right now China’s (growing) surplus is clearly the main counterpart to the United States’ (shrinking) deficit" - Brad Setser

"I believe there is a greater than 25pc chance of a departure from the Eurozone given the social and economic behaviours of some countries within it" - John Moulton on the UK and the Euro.

Crime and punishment

Congressman Michael E. Capuano does his job today, flaying the banks (htp: Jesse). I tried to email congratulations to him, but I haven't got a Massachusetts zip code.

And Karl Denninger also:

If the law enforcement agencies in this nation do not start prosecuting the fraudsters in our banking and investment industry that caused this economic collapse (and "token prosecutions" like Madoff will not cut it), and our lawmakers (and President) do not stand up darn soon and call for this prosecutorial action in public there is a very real risk that a repeat of those sordid affairs will soon arrive...
This much is clear to me - high-dollar white-collar crimes, certainly those with an impact greater in aggregate than we currently value a single human life (which various estimates put somewhere between $5 and $50 million each) are deserving of punishment equivalent to murder, meaning either (depending on state law) life imprisonment without possibility of parole or a sentence of death.
We need to put this change into the law as a deterrent against such acts in the future.

They're coming round to my point of view, as expressed e.g. here.

Remember

It was the strength forged in fighting his personal Black Dog, that Churchill lent to us when we most needed it. And the poem he quotes in this broadcast has that mingling of suffering, determination and joyous tears. I give Clough's text in full after the link.

Churchill's War Time Speeches.

A Difficult Time.

'Westward, Look, the Land is Bright'

BBC London

27th April 1941


Say not the Struggle Naught availeth

SAY not the struggle naught availeth,
The labour and the wounds are vain,
The enemy faints not, nor faileth,
And as things have been they remain.

If hopes were dupes, fears may be liars;
It may be, in yon smoke conceal'd,
Your comrades chase e'en now the fliers,
And, but for you, possess the field.

For while the tired waves, vainly breaking,
Seem here no painful inch to gain,
Far back, through creeks and inlets making,
Comes silent, flooding in, the main.

And not by eastern windows only,
When daylight comes, comes in the light;
In front the sun climbs slow, how slowly!
But westward, look, the land is bright!

Arthur Hugh Clough

Deflation, inflation, distress

The Contrarian Investor gives a lucid explanation of the potential consequences of deflation.

In Australia (as in the UK, as I think I showed here), the nation owes more money than it has in savings, so it depends on foreign investment.

If interest rates fall, foreign capital will go away to where it can earn more. This reduces the demand for our currency and makes it cheaper. So goods we sell to foreigners get cheaper, and things they sell us get more expensive. They buy more from us, we buy less from them (or they have to cut their prices so we can afford their stuff). More money comes into our economy; all well again.

Except...

• What if , thanks to decades of spending lots without earning much (and borrowing the difference), we no longer make things foreigners want?

Then we become "distressed gentlemen". As the money runs low, we run up accounts at the tailor and the wine merchant, and write IOUs which we hope will not be presented to us soon. Maybe we begin to cut a few luxuries, but old habits die hard, not to mention ingrained addictions.

• What if they sell us things we can't do without, and won't cut their prices?

The money runs out. Unless we are Royalty, and too dangerous to dun, eventually the bailiffs must arrive. In the modern world, the sovereign wealth funds, perhaps.

What can they take? In Australia, there are mineral deposits the Chinese will want, thinks the Contrarian Investor. Here in the UK, maybe some remaining profitable businesses and valuable technical expertise, maybe patents and secret technologies. And it's not only the Chinese that have been lending us their surpluses. We have other creditors.

Then, as the laden carts depart and the keys of the mansion are handed to the new owners, the decayed gentry become vagrants and vagabonds.

Unless we are too dangerous to dun. Perhaps America is; can we be so? And what if our creditors are not certain of our might? Uncertainty can trigger inappropriate actions. There is a Chinese saying, I believe: fear a weak enemy. Catastrophe can be avoided, but unless our leaders are tough with us now, we will learn a harder way later.

But if the master has become poor, what of his servants?

What if, like me, you're not one whose power and social status protects him from the worst effects? Do you believe that democratic societies can do the right thing? If not, this is a time for individuals to make their own quiet plans and preparations.

Historic inflation in the USA and UK compared

Just for interest...

The, er, credit, er, crunch

UK M4 official data here

No wonder most of us have difficulty understanding the financial equivalent of the matter-antimatter drive powering the USS Enterprise. You'd think lending would have decreased, wouldn't you? Smoke and mirrors...

September 15, 2008: the secret bank run and corralito

According to Paul Kedrosky (htp: Tim Iacono), Hank Paulson and Ben Bernanke scared the wits out of Congress with references to a potential $5.5 trillion electronic cash withdrawal from the US banking system, which would have led immediately to economic and political Armageddon. Electronic money accounts were closed down to stop the flight and collapse.

I said a month later that Paulson looked like a bully. But when Congress threw out the first bailout plan, he had also looked scared-angry, turning his head this way and that, like a bull throwing off dogs.

Perhaps the scare story was true. Perhaps not. Shame it took the ex-head of Goldman to drive the Bill through. I assume that rescuing the banks also rescued much of his personal $500 million wealth.

It's time for us to leave off discussing the affairs of the Gods, and return to our own interests. We ordinary mortals don't have the luxury of that kind of money transaction facility. If the system had gone down, presumably it would have taken our little all with it. And is anyone so brave as to say that it's been fixed?

Be prepared; don't be panicked (as it seems Congress was), but take what sensible precautions you can.