Links 1/4/08 « naked capitalism

Sunday, January 4, 2009

Links 1/4/08

SAR #9003/Weekender CK Michaelson

‘This is economic war!’ Jarislowsky warns Financial Post

Consumer cash crisis turns the screw on the high street Independent

Chinese Manufacturing Contracts as Exports Decline Bloomberg

Low Interest Rates Generating Low Buyer Interest Diana Olick. An important factoid that was easy to miss over the holidays.

Fifth of small firms to go bust Times Online

Chicago Fed Says Take Interest Rates “Below Zero” and Monetize Debt (to Devalue Dollar) Jesse’s Café Américain

Should Congress Put a Cap on Executive Pay? Robert Frank, New York Times

Economists Who Blew It Agree: Prosperity Just Around Corner Clusterstock

State Workers Fight Over Cutbacks as States Want More From Obama Michael Shedlock

Antidote du jour:

19 Comments:

russell1200 says:

January 4, 2009 at 6:34 am

I am surprised that the British small business failure rate is so low in normal times.

U.S. numbers sited are usually much much higher.

An example (for start ups) is here:

http://www.smallbiztrends.com/2008/04/startup-failure-rates.html/

Possibly it is the downside for it being so easy to start a business in the United States?

dearieme says:

January 4, 2009 at 7:10 am

“Possibly it is the downside for it being so easy to start a business in the United States?” How so? It’s very easy in Britain. I understand that you (in the US) often have licensing requirements: we don’t.

Richard Kline says:

January 4, 2009 at 7:27 am

‘Monetize the debt’ is going to be the buzz phrase of 2009, that’s for sure. If, as comes up in the commentary at Jesse’s Cafe, this is done in part by the Fed buying ASBs from the banks, that is indescribibly corrupt—and exactly what the banks have been banking on for a year and more. An ‘Emergency’ will be declared, cosmetic increases to unemployment coverage terms will be passed, and meantime corporate crony welfare will head into the trillion dollar range. Think about that, all the crap we’ve had to swallow for twenty years and more about jerking welfare out from under single mothers with children while _now_ in a pinch the bankers are going to maker off with vastly higher ‘wealth transfer support.’ But then, we haven’t lived in a democracy since the beginning of October, so it’s hard to simulate surprise, here.

But regardless, monetizing the debt _unilaterally_ in the US and the UK is an extremely dangerous policy, the outcome of which is certain to have large unintended consequences. This is the direct equivalent of Smoot-Hawley punitive tariffs in the 1930s, a policy which had some sensible justification, but one which applied to an interconnected and interdependent transnational economy had catastrophic consequences. So commodities are presently priced in dollars and traded in London and N’yawk? If we monetize, that can be expected to change. And many other things.

Governments are going to want to monetize because it is something that a) they can do which b) improves something which is immediately painful. While c) killing the bases of international capital and commodity flow if done outside of a global framework. And the US and the UK are _NOT_ going to negotiate a global framework because any such Bretton Woods III would be far less favorable. To lift and re-focus the quote from another linked article, “This IS economic war!” On our counterparties. If we do it, we will find out that there are consequences. And, btw, we are going to do it, so grab the kids and hang onto your hats ’cause freefall is a reeaaalllll trip when the bottom falls out.

Anonymous says:

January 4, 2009 at 7:31 am

Well, Stuff My Shirt! TImes Blows It

To quote from the Story:

“Fifth of small firms to go bust
Andrew Stone

ALMOST one in 20 of the UK’s small firms could fail this year as the recession starts to bite in earnest.”

Thankfully, I had Sister Knucklebuster for Arithmetic and, according to her, a “fifth” would be 20% and “one in 20″ would be 5%.

TIMES arithmetic indicates differently.

TIMES BIZINESS department must be a training ground for Bank Of England or some other government sinecure.

Is TIMES hiring highly paid proof readers and fact checkers?

Richard Kline says:

January 4, 2009 at 8:08 am

There’s a long op-ed at the New York Times by Michael Lewis and David Einhorn on the present financial crisis and solution parameters. Nothing in it which hasn’t been here at NC for 9-12 months, but a concise and fluent presentation for anyone who isn’t current or wants a recap.

Madison says:

January 4, 2009 at 8:32 am

To ampliphy Anonymous@7:31 – this HAS GOT to be one of the most ridiculous panic-inducing headlines in a long, long chain of such headlines spewed by the media since the start of the “crisis”.

Putting aside the basic illiteracy (or is it innumeracy?) of failing to distinguish between “5%” and “one fifth” (could you believe that???), let’s look at EXACTLY what is being said and by whom:

“[the 5% figure comes from] a forecast from the Forum of Private Businesses… this was a worst-case prediction but a realistic one if banks do not increase lending to small firms in the next few months.”

So what we have here is a “worst case” so-called “prediction” from a group looking for, essentially, free money and trying to scare the hell out of everyone if they don’t get their wish.

And yet, by the time it turns into a headline in the Sunday Times (no less)it’s “Fifth of all Firms to Go Bust” and CR links, verbatim, to that headline without even the benefit of one of her caustic remarks…

Anonymous says:

January 4, 2009 at 10:01 am

a companion to the ‘This is economic war!’ Jarislowsky warns”

by another Canadian and one of the country’s top asset managers – Eric Sprott

Surviving the Depression

“Far be it from us to mince words. Make no mistake – we are in a Depression.
That’s right, it’s the dreaded ‘D’ word. And we are knee deep in it right now. This is
not a run-of-the-mill recession. Does anyone still believe we’re in for just a few
quarters of, at worst, low single-digit economic contraction, after which things will
return to normal? We find it shocking that most economists still do. This is far
worse than a recession. It’s a Depression. To call it anything else is to ignore the
obvious.
The official GDP data by the US Department of Commerce is, of course, woefully
unreliable, being continually revised years after the initial release.”

Sandi Rubinspan says:

January 4, 2009 at 10:05 am

“Britain’s banks are defying the government by starving businesses and households of loans and warning that credit will become even scarcer in the first three months of this year” Previous link

Who wants to lend when the likelihood of not being paid back is skyrocketing ? Banks want to hold on to the money and hunker down in the fox hole. IMO, that is the biggest problem with the current approach: You can lead a horse to water but you can’t make him drink. Especially when mouth watering deals on some valuable assets may be just around the corner for those with free tapayer cash. Now if they can just get the taxpayer to blow the rest of their cash buying the toxic shit still hidden on the so-called balance sheets, the Rothch… err.. BofE will be in really good shape.

Will Britain Nationalize their putrified system before the US ?

Anonymous says:

January 4, 2009 at 10:36 am

High state employee salaries? Can anyone beat this?

Central New York's Troop D, which covers seven counties, 99 of 265 troopers – 37.4 percent – made more than $100,000 in 2007, the records show. And the pay is getting better.
[...plus retirement pay]

http://www.syracuse.com/poststandard/stories/index.ssf?/base/news-16/1231063061169560.xml&coll=1&thispage=5

Anonymous says:

January 4, 2009 at 11:57 am

Thank you, Anonymous @ 10:01 AM, for posting that link. FINALLY. I’m sick and tired of the phrase “Deep Recession” – let’s call a spade a spade. My (totally unsubstantiated) theory of the Deep Recession phrase is that it sounds so similar to “Depression,” when economists start saying “Depression” en masse, the cognitive shock will be less. Or at least, that’s what the spin doctors hope.

And for those who say the economic data doesn’t point to a Depression yet – well, us unwashed masses in the bottom quintile knew there was a recession way before the eggheads would admit to it. And we know that we are in a Depression now.

russell1200 says:

January 4, 2009 at 12:47 pm

dearieme:

In most locals and most fields business licenses are a courtesy license and more a method of taxation then anything else.

In a number of consulting type businesses it is not particularly hard to work without any particular license at all.

If it is just as easy to start a business in England as it is here in the USA, then I do not know why your business turnover numbers would be so much lower then ours.

Anonymous says:

January 4, 2009 at 1:45 pm

@ Anonymous 11:57 AM
link to shadowstats which is a site that restates government stats that have been altered (made to look better) due to changes in methodology. e.g. how inflation is calcualted now vs. 20 years ago — lots of good free stuff on that site

Anonymous says:

January 4, 2009 at 2:43 pm

Defining a Depression (The Economist

Glen says:

January 4, 2009 at 4:02 pm

“Economists Who Blew IT Agree: Prosperity Just Around The Corner” I’ll drink to that! MSM (proudly supported by you local investment bank economists) in Australia is full of this blather at the moment – second half 09 and while a little soft will be looking good. Seems a far cry from what I’ve been reading in blog land.

john bougearel says:

January 4, 2009 at 7:41 pm

@ RK,

“Monetizing the debt” seems more akin to the Weimar Republic than 1930s trade tariff’s?

“This is economic war” ~ remember what Treasury Secretary John Connaly’s said to the ROW in 1971 about the dollar: it is “our currency, but your problem.”

Anonymous says:

January 4, 2009 at 8:28 pm

Why are people so scared that ‘monetizing the debt’ will lead to very high inflation?

Is it because they think that will lead to very big increases in the money supply?

But why should anyone think that increasing the supply of money causes inflation? Some people called monetarists said so and they proved to be wrong, as the 1980s saw an increasing divergence between rates of monetary expansion and rates of inflation.

In any case, increasing the supply of money is quite compatible with falling demand for existing output. The increased cash balances can be used to fund payment of old debts that were taken to buy old outputs—the car or vacation you bought last year—and/or to fund the repayment of maturing government securities. That is, increasing the supply of money need not be inflationary if the demand for money or quasi-money such as Treasury bonds increases by just as much.

Furthermore, if the relevant debt that is being monetized is owed to foreigners and the supply of money in their own countries is increasing just as much, there is no reason to think that handing them new money to retire the debt will result in them bidding up prices for real output in either our country or theirs, since even when the real rate of interest was higher, they had had chosen to purchase government bond rather than purchase real outputs.

Andrew Bissell says:

January 4, 2009 at 9:22 pm

“But why should anyone think that increasing the supply of money causes inflation? Some people called monetarists said so and they proved to be wrong, as the 1980s saw an increasing divergence between rates of monetary expansion and rates of inflation.”

There was still inflation, but it was going into the prices of assets like stocks and real estate, rather than commodities, consumer goods, and wages.

Anonymous says:

January 4, 2009 at 11:05 pm

But why should anyone think that increasing the supply of money causes inflation? Some people called monetarists said so and they proved to be wrong, as the 1980s saw an increasing divergence between rates of monetary expansion and rates of inflation.”

There was still inflation, but it was going into the prices of assets like stocks and real estate, rather than commodities, consumer goods, and wages.

Is asset price inflation a problem, both in general, and/or in the current context?

And if so, why?

I actually think this is an extremely interesting question, both theoretically and empirically. If the former, then there is something fundamentally wrong with free market asset pricing. If the latter, then what is the best empirical solution policy?

Anonymous says:

January 5, 2009 at 8:45 am

Quick question in regards to monetization of debt, It seams funny that the fed took the note off the M3 index in 2006. What volume/mass we don’t need no stinking volume numbers.

Skippy

Subscribe to: Post Comments