Emerging Markets Rout: Blip, Correction, or Party Like It’s 1997?

By Lambert Strether of Corrente.

Yves is traveling, so I’m manfully stepping up to the plate on a financial topic: A survey of opinion on Friday’s Emerging Markets rout. I have to say, though, that the timing is awfully weird. All the Davos Men are angsting about another 1914, and lo and behold! A crisis appears! Or possibly — we might call this the Fat Tongue Theory — some bankster phoned the home office after a night on the tiles and slurred out “Sell Shell (ADR)!” and the underqualified serf on the other end of the line heard that as “Sell! Sell!” and here we go. I mean, it had to happen some time. (Read The Sleepwalkers: How Europe Went to War in 1914 if don’t find either of these accounts plausible).

So, herewith the survey. (It may be the time differential — it’s Sunday evening for me — but I’m not seeing any above the fold coverage of this story in WaPo, the Times, or the WSJ. So perhaps it is not, at least, 1997. Either that or they all think it is, but don’t want to precipitate events by saying so. Who knows?) Anyhow, this seems like the the best analytical framework to me. I’ll quote, and then comment. From the FT, naturally:

Similarities with 1997 emerging markets crash only go so far FT

Mr Shearing divides emerging markets into five groups, based on perceptions of their weaknesses in a world conditioned by the tapering of monetary stimulus.

The most vulnerable category, that defined by “serial economic mismanagement”, includes Argentina, Ukraine and Venezuela. The problems of these countries are largely self-inflicted.

The second group includes those countries that Mr Shearing says have “lived beyond their means” and have economies characterised by credit booms and large current account deficits. Turkey, South Africa, Indonesia, Thailand, Chile and Peru form this group – one that is particularly susceptible to US tapering.

The third group, that wrestling with the legacy of booms, are eastern European countries such as Hungary and Romania that are vulnerable not so much to US tapering but the unwinding of monetary stimulus by the European Central Bank.

The next group are the bric countries – Brazil, India, Russia and China – all of which face domestic economic policy challenges. The final group includes those emerging markets – such as South Korea, Philippines and Mexico – that stand to benefit from a resurgence in export demand.

On the FT: The concept that all “emerging markets” are not alike should be obvious, but apparently is not. Shearing’s narrative buckets (others have picked up this story) certainly aren’t the only ones possible, but at least he doesn’t see EMs (surely a problematic, teleological category in any case) as a homogenous mass.

Global markets hit by fears of growth slowdown AP


The scaling back of the Fed’s easy-money policies [“tapering”] has hit some emerging markets hard. When the Fed was pushing U.S. rates lower, emerging markets had seen an inflow of capital from investors seeking higher returns than they could get in the United States. Now investment is flowing back to America, hammering currencies in emerging markets. …

“Talk that the U.S. Federal Reserve will announce another reduction in its monthly bond purchases next week … (is also) contributing to a loss of confidence in some emerging markets,” [Jane Foley, a currency strategist at Rabobank] said.


In some countries, concerns over the local political or financial situation have worsened the market volatility dramatically. That was most obvious in Argentina, where the peso this week suffered its sharpest fall since the country’s 2002 economic collapse. …

Turkey’s national currency, the lira, hit multiple record lows in recent weeks as investors worried about the fallout of a corruption scandal that threatens to destabilize the government. …

Beyond political problems, the countries that have seen their currencies fall most are those that rely heavily on exports of raw materials used in manufacturing. The Russian ruble was trading at 34.58 per dollar, from below 34 on Thursday. The South African rand weakened to 11.13 per dollar, from 10.98 the day before.


But China’s economy is decelerating. It grew 7.7 percent in October-December 2013 from a year earlier, down from the previous quarter’s 7.8 percent growth. Factory output, exports and investment all weakened. On Thursday, the preliminary version of HSBC’s purchasing managers’ index of Chinese manufacturing fell to 49.6, the lowest reading since July’s 47.7. Anything below 50 signals a contraction.

China’s growth is still far stronger than the United States, Japan or Europe, but is down from the double-digit rates of the previous decade.


About two-thirds of the 123 S&P 500 companies that have reported fourth-quarter earnings so far have beaten analysts’ estimates, according to S&P Capital IQ, in line with the historical average. But the forecasts for income growth have been falling and could decline further. …

Some companies are becoming more pessimistic, too. For the January-March quarter, seven out of every 10 that have talked about their prospects have cut projections, more than average, according to FactSet. The stocks have tanked as a result. Since United Continental lowered revenue estimates on Thursday, for instance, its stock has fallen 6 percent

On the AP: Four potential narrative buckets that sound rigorous, but I’ve underlined the emotion words that, parsed out, seem to be driving the rout; we read about complex structures of cause and effect that, in the end, seem to be driven by a breeze outside themselves. Animal spirits? Of course (and I seem to be making this qualification rather a lot these days) these narratives all assume good faith; for example, they assume the markets aren’t manipulated.

Emerging Market Currencies Warren Mosler, The Center of the Universe

[T]he proactive yen move from under 80 to over 100 vs the dollar- a 30% or so pay cut for domestic workers in terms of prices of imports- was an internationally deflationary impulse.

It’s called ‘currency wars’ with the exporters pushing hard on their govts to do whatever it takes to keep them ‘competitive’. And all, at least to me, shamelessly thinly disguised as anything but. And, in fact, it’s not ‘wrong’ to call it ‘dollar appreciation’ rather than EM currency depreciation given the deflationary bias of US (and EU) fiscal and monetary (rate cuts/QE reduce interest income for the economy) policy.

On Mosler: Classic Mosler. Focused, insightful, against the grain, backed by data.

IMF warns Fed could worsen markets rout Ambrose Evans-Pritchard, Daily Telegraph (dateline “in Davos”).

Roughly $4 trillion of foreign funds have poured into emerging markets since the financial crisis in 2008-2009, much of it “hot money” going into bonds, equities and liquid instruments that can be sold quickly [Party like it’s 1997?!]

Officials are concerned that this footloose capital could leave fast in a crisis, setting off a cascade effect.

Tidjane Thiam, Prudential chief executive, said his $800bn funding empire would stay the course in Asia and the developing world. “What we are seeing is an adjustment process that is necessary. Some of those currencies need to fall. Imports will go down, exports will go up and things will come back in balance. So that’s fine,” he said.

However, global fund managers are split over the gravity of the threat. “We think there is going to be a big crisis, with Turkey and Venezuela in the front line,” said one European insurance fund.

Venezuela imposed fresh currency controls last week and devalued controlled transactions. Meanwhile, investors in Turkey are paying attention to a warning from Recep Tayyip Erdogan, the prime minister, that the country was facing “war” within its borders as political stability fractures.

Stronger countries have largely avoided the latest rout. Mrs Lagarde said investors were watching closely to see which countries would deliver on reform and which were dragging their feet. “Markets are very cunning,” she added.

On Ambrose Evans-Pritchard: Checking the byline, I just hope Evans-Pritchard wasn’t the one phoning the home office. Great quotes, though.

Why emerging markets worry Wall Street Adam Shell, USA Today

Here are some reasons why what happens in emerging markets matters to Wall Street.

*Hot money can turn cold. … [N]w that the Fed has started to dial back its stimulus, many investors are yanking their cash out of emerging markets and bringing the cash back to more stable markets and economies, such as the U.S., hurting the developing nations in the process, explains Russ Koesterich, chief investment strategist at BlackRock.

*Currency crisis could create economic crisis. …. “The currency story is fascinating and can be a slippery slope – be cautious,” says [Matthias Kuhlmey, managing director of HighTower’s Global Investment Solutions], adding that the Asian crisis in the summer of 1997 that started with a sharp drop in the value of Thailand’s baht, turned into a broader economic crisis that engulfed Indonesian, South Korea and a handful of other countries. It also rocked financial markets.

The good news this time around is emerging markets have learned from past crises and now have bigger reserves of foreign currencies and lower account deficits, which enables them to better withstand the short-term pain caused by capital flight and a weaker currency.

*A crisis in confidence could surface. “A declining currency is the clearest sign of investors bolting for the door; it’s a vote of no confidence that usually sparks sell offs in other assets, both credit and equity,” says [Joe Quinlan, chief market strategist at U.S. Trust.]. “And because investors still view emerging market assets as homogeneous, a swooning currency or asset class in one emerging market usually prompts sell offs in other emerging markets, raising the odds of contagion.”

On USA Today, in front of every hotel room door in America: “Can,” “could,” “could.” Or not! Builds suspense, I suppose.

Stand Clear of Falling Knives Barron’s Online

Pick a horror flick, any horror flick, and it’s likely to be an apt metaphor for emerging markets right now. But our favorite might actually be a comedy, Spaceballs, in which John Hurt, reprising his role in Alien, shouts, “Oh no, not again,” as a tiny extraterrestrial pops out of his belly.

Last week began with few signs of trouble. In fact, it appeared as if emerging markets might actually be strengthening—the EEM was up 1.1% on the week through Wednesday. On Thursday, however, an indicator of Chinese manufacturing strength showed activity contracting, Argentina stopped trying to prop up its peso, and Turkey tried but failed to support its lira—and the rout was on. Noticeably missing was the fear of rising rates that hit emerging markets last year. The response to the emerging-markets selloff has been to buy bonds issued by the U.S., Germany, and Japan. As a result, the U.S. 10-year yield has dropped to 2.74% from 3.05% at the beginning of the year.

That’s a sign that what’s happening in emerging markets has more to do with local conditions than what’s going on overseas. Brazil, for one, reported Friday that its current account deficit widened to $8.7 billion, bringing its 2013 deficit to a record $81.4 billion. Turkey’s own current account deficit is dwarfed only by a corruption scandal that has already made investors wary of investing. And the fear is that the problems of a few emerging markets will tar the entire asset class, despite differences in their economies and financial situations. “This is a domestically created problem,” says Michael Shaoul, CEO of Marketfield Asset Management. “And we haven’t seen anything like this since 1998.”/p>

On Barron’s: Love the lead! Shorter: First time as tragedy, second time as farce? Reinforces buckets introduced by Shearing. Could it be that investors have to know about more than asset classes? Quelle horreur!

Contagion Spreads in Emerging Markets as Crises Grow Bloomberg

The worst selloff in emerging-market currencies in five years is beginning to reveal the extent of the fallout from the Federal Reserve’s tapering of monetary stimulus, compounded by political and financial instability.

Investors are losing confidence in some of the biggest developing nations, extending the currency-market rout triggered last year when the Fed first signaled it would scale back stimulus. While Brazil, Russia, India, China and South Africa were the engines of global growth following the financial crisis in 2008, emerging markets now pose a threat to world financial stability.

On Bloomberg: “Engines of global growth.” Does that phrase actually mean anything?

Does Unilever’s Beat Signal an Emerging-Markets Turnaround? Daily Finance

[Unilever’s] latest report is not nearly as bad as was feared.

The metric most closely watched by analysts in Unilever’s reports is generally underlying sales growth, as it tries to eliminate the effect of currency fluctuations. These came in above analyst expectations, with overall underlying sales growth up a healthy 4.3% and in emerging markets specifically up 8.7% for the full year.

Encouragingly, most of the sales increase came from higher volume, meaning the company is actually selling more products. The company saw especially strong demand for its personal-hygiene segment, with things such as hair care products seeing strong demand in Brazil especially. In order to sustain this growth, the company will be investing a larger amount of money than usual in developing its emerging markets footprint. Investors were clearly relieved by the report, sending the stock up around 3.5% in U.S. trade.

On Daily Finance: Included as a reality check from the real economy. People in Brazil are still buying [worse than useless, horrible, Westernizing] personal hygiene products. And KFC — the spices, donchya know, is huge in Thailand, where obesity is now visible. So, keep calm and carry on, for some definition of “carry on,” especially since Unilever’s reports were expected to be worse than they actually are.

* * *

It seem to me that if the austerians running the world insist that “EMs,” as a class, impose structural reforms, they’re going to be created a good deal more political risk. Perhaps that’s the goal. Speculators like churn, after all.

Print Friendly, PDF & Email
This entry was posted in Guest Post on by .

About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Banger

    As I understand it a “correction” in EM investment was bound to happen at some point and the Fed’s actions may have been the tipping point. But there is no structural reason that I see to think there is a crash in the offing.

    The new model of economic growth set up by the current dancing arrangement of oligarchs is, more or less, steady-state and great fluctuation of value in any area will be discouraged by the central authorities. I believe that there is a central authority in financial areas that carefully monitors global markets, i.e., the global plunge protection team which is an emergent network of sovereign funds, international organizations (IMF, WB, EU, development banks and so on) and private investment banks and other powerful investors. I believe the deal (and I believe this was agreed internationally) was that Wall Street, City of London et. al. would self-police themselves to limit excesses and work with the international system to put a lid on volatility (I’m sure they have sophisticate metrics to look at this) and in exchange governments would make these operators largely immune from prosecution for the crimes leading up to the 2008 financial crisis and regulators would not vigorously enforce the rules. I think that is why we’ve seen, despite some political pressure, barely a scent of action against the TBF Banks.

    The oligarchical structure that runs the financial world is, I believe, currently in a robust and flexible state. I think growth which lifts all boats is unlikely anytime soon but so is a major crash in my view. The political question, of course, is who elected these people to run the world? Because this ad hoc group of oligarchs does not stop at managing currencies but is becoming an imperial system. Do we want that? I think most people probably do but don’t want to be told.

    1. Ulysses

      I think you’re right that most people don’t want to be told. They aren’t happy with the way this ad hoc group of oligarchs are constructing their empire, but it’s too exhausting to understand the details. Thus they are far more comfortable trying to escape reality than doing the hard work of changing it for the better.

      Yet at least 80% of the population are suffering enormous insecurity. I don’t think the oligarchs, and their lackeys, are providing them strong enough doses of soma to keep them resigned to their harsh fates forever!

      1. diptherio

        That’d make a great Situationist protest slogan: “More Soma Now!” or perhaps “We Demand Opium for the Masses!” I mean, if their gonna rape us, they should at least have the common decency to sedate us first…”Where’s My Roofie?”

    2. James Levy

      Banger, you may be right but, as we are constantly reminded by looking at the calendar, the fellows in 1914 had been managing brinksmanship for quite some time yet their skills (or will, or energy, or insight) let them down for six critical weeks and bingo, the whole system went down in flames. I doubt the people in charge today will have six weeks if things start to go off the rails. And they are not an impressive bunch (Obama? Merkel? Hollande? Cameron? Putin? yikes!). So although the current oligarchy may be able to manage global stasis, equilibrium doesn’t reign for very long in any epoch. Only time will tell.

      1. Banger

        1914 was more than just a century ago, it was an era or more ago. Today, we have a world system aided by a half-century of growth in systems-theory and cybernetics. It is not just a bunch of people doing the work, rather, it is people aided by highly sophisticated AI applications that are growing in sophistication and power that will continue to grow at an increasing rate. That doesn’t mean that this regime will succeed because I believe there is a deep flaw in the reasoning behind these applications and the criteria used to determine “good” outcomes. But that is another discussion.

        1. NotSoSure

          Totally agree with Banger. The oligarchs have not lost control yet. The trigger I believe as usual will be some revolution/chaos in some country that breaks apart the chain. Once that happens it’s every oligarch for him/herself.

          1. Ulysses

            The window of opportunity for the successful breaking of our chains narrows with each passing day:
            “We, like those in all emergent totalitarian states, have been mentally damaged by a carefully orchestrated historical amnesia, a state-induced stupidity. We increasingly do not remember what it means to be free. And because we do not remember, we do not react with appropriate ferocity when it is revealed that our freedom has been taken from us. The structures of the corporate state must be torn down. Its security apparatus must be destroyed. And those who defend corporate totalitarianism, including the leaders of the two major political parties, fatuous academics, pundits and a bankrupt press, must be driven from the temples of power. Mass street protests and prolonged civil disobedience are our only hope. A failure to rise up—which is what the corporate state is counting upon—will see us enslaved.”

            Chris Hedges is right, we are losing the memory of freedom. My own children were both less than ten years old in September of 2011, and they find my struggles against the corporate/state surveillance regime as an amusing, Quixotic, eccentric quirk. They are incredulous that folks once had the right to bring more than 3 ounces of shampoo onto a plane, or to expect that their communications and geographical location at all times might be private!

            1. psychohistorian

              Given how much of our world is owned and controlled by plutocrats, I am of the belief that ALL of what is transpiring in global finance is kabuki for the 99%.

              Ulysses above says that we are losing our opportunity to break free of our chains. I think that we need to expose more people to a clearer history of capitalism that will pull back the curtain on those who have historically controlled us…..and the chains will be laughed off!

              I have recently read a very powerful book by David McNally called Monsters of the Market: Zombies, Vampires and Global Capitalism that I think clearly shows the centuries of vampire capitalism we have lived under. You can get a taste of the author and book here: http://www.youtube.com/watch?v=WeyKvT2YYSE

              skippy provided a link for a download of the book but I can’t find it and provide it to you after looking back at the comments I thought it was in….HELP skippy…

              Wake up all the the zombies of historic ignorance and the world will change!

              1. psychohistorian

                I guess the other impediment to our progress is FEAR, ANXIETY, TRAUMA and STRESS.

                As a species I believe we use to know instinctively how to process and slough off these happenings in our lives just like animals do…..ever see pictures of a doe shaking after a trauma?

                As a TBI, PTSD and anxiety “victim” and having lived a life of being bullied, I was hanging on to a fraying knot at the end of life’s rope when I innovated a breath exercise that had helped me heal myself from most of that (I can’t quite put the TBI physical damage back in its bottle). I am 1 1/2 year into this creation and am working with medical folks to help figure out how to scale it for folks in the weeds like I was as well as those less damaged/impaired. I am chomping at the bit to make it available to others but suffice to say for now that we all have it within us to heal ourselves from the hell we are forced to live in and move on with our lives.

                And no, I don’t expect or want to get rich from this but the gratification I will get from seeing others heal themselves will make me the “richest” man on the planet.

        2. Garrett Pace

          The global economy lost 10% of its value in seconds back in 2010. AI applications just do what they’re told to and leverage and speed can work against you as well as for you.

      2. Lambert Strether Post author

        It’s not quite so simple. The Sleepwalkers is a little bit of a misnomer as a title. While it is true that there was no organized campaign for war on the order of the neo-cons pushing for war with Iraq (or anything like the WMD kayfabe), it is also true that in the critical period between Sarajevo and August 1914 there were key people in place (mediocrities) who did want war — Poincaré and the French ambassador to Russia, for example, were both Germanophobes, very aware of Russia as a rising power, and concerned to use them against the Germans.* It wasn’t just hawks on the German general staff, or Austrians in jumped-up uniforms. The process of going to war does not appear to be mechanical at all.

        NOTE * There’s a vivid picture of Poincaré and his foreign minister, I believe Messimy, travelling about Europe doing diplomatic stuff, and the FM basically losing it and starting to gibber as he sensed the horror to come, while Poincaré remained sanguine.

    3. j gibbs

      When the s*&t hits the fan I always turn to the Financial Times, not for insight and wisdom so much as for a good laugh.

      When the selling starts it often escalates, particularly when nobody is buying and lenders are nervous. Personally, I avoid the Submerging Markets, but the blue chips are vulnerable too. Look out below!

  2. ArkansasAngie

    I think the potential is there for some Oligarchs to say well … “I want to be paid in something other than QE dollars.”

  3. Abe, NYC

    The mood in Russia has been very pessimistic for a year or so. The slowdown has been pronounced, nobody expects the economy to grow at a good pace, and people are preparing for worse to come. The press is full of negative reports and opinions, few positive ones. (This is a bit unusual by itself, since in Russia crises have tended to come out of the blue). In the meantime, household and mortgage debt has been rising rapidly, which is a very new phenomenon – don’t know if a debt crisis is on the horizon.

    1. NotTimothyGeithner

      I’m pretty certain Pravia was negative the day after Germany surrendered. It’s the Russian way.

  4. impermanence

    I guess it’s time to panic when you can only counterfeit 88% as much as you could before.

    What a joke this economic system is with its cast of thieves and plenty of supporting players willing to do or saying anything for just a miniscule piece of the action. Talk about pathetic.

  5. Robert Dudek

    Isn’t South Korea one of the richest countries in the world with scores of home-grown multinationals? It doesn’t make sense to call it an emerging market.

  6. TimR

    Re lambert doesn’t like Western hair-care products
    I’m already there, having joined the no-poo coalition. We are a group of people who just use home-made mixtures of water and baking soda (or water and vinegar for conditioner) to wash our hair. The science is kind of interesting. “Real” shampoo puts a silicon coating on your hair, but being “unnatural” it degrades gracelessly (requiring re-application.) Baking soda (very alkaline) somehow cleans the hair, but doesn’t interfere with natural scalp oil production. Vinegar (acidic) then smooths/conditions. It also has to do with modern plumbing, which led to hard water, and created the “need” for modern shampoos. Prior to modern plumbing, only soap was needed IIRC. But baking soda/vinegar can somehow handle hard water.

  7. Ken Ward

    It is curious that Shearing, like so many writers, still prefers the category of BRIC countries rather than BRICS (the original Brazil, China, India and Russia plus South Africa). Why use the BRIC category here at all when all that unites them, according to Shearing, is that they face domestic economic policy challenges, like a few countries elsewhere in the world?

  8. PaulArt

    The other hilarious disconnect with these great market watching sages is the way they talk about EMs as some kind of independent turbo charged engine of growth, especially China and India. Look at most of their growth and you see that it’s all geared to selling into the US market. Both these countries are superb in creating income inequality due to their corrupt political and business infrastructure. Neither has a middle class that comes even close to the consumer market we have here. It seems pointless to talk about China slowing and India hobbling and so on. Take the auto market in India, it has been in an epic downfall for the last 10 years. Does this indicate anything if not that growth created by a zero sum game of moving manufacturing and good middle class jobs from USA to elsewhere is doing anything other than shoveling money into the pockets of the 1%? US Corporations are lumbering zombie Elephant Seals headed by selfish CEOs who don’t give a rats ass about R&D as long as they can outsource a few thousand more jobs from US to India or go buy another company with their cash rich portfolios. There is no real competition anymore in the USA.

    1. purple

      China has the second biggest consumer market in the world and will eclipse the U.S. soon, in fact, it already has in numerous areas. Proportionally their middle class is smaller but numerically it is very large.

  9. Dan Kervick

    It’s amazing how all of the conventional wisdom folks in the mainstream economic press told us for years that we needed QE to stimulate borrowing and investment in the US, and now with the recent turbulence they have all jumped on a new and completely opposite bandwagon: that the impact of QE has been capital flight from the developed economies!

    1. Jackrabbit

      I’ve mentioned this on NC previously. Few seemed interested.

      The wealthy (and their advisors) will naturally look to distribute portfolio gains. When stocks in the US grow 30%, a good part of that gain will find its way to other investments – especially in ‘high-growth’ opportunities in Emerging Markets.

      Global, US-based companies will do the same. Raising money at bloated valuations that is used to invest in EM opportunities.

      Thus, it is no surprise that QE has not ‘trickled down’ to Main St. USA. Bernanke shouting about the ‘dual mandate’ is just PR. The Fed was bound to be “successful” at fighting joblessness when the BLS defines ‘unemployment’ such that many will inevitably drop off the roles so that headline ‘unemployment’ is certain to drop.

  10. allcoppedout

    I was disappointed with the book on WW1 Lambert recommended. We lack a sophisticated and widely disseminated notion of imperialism and its connections with finance. We should not credit leadership with anything approaching rationality, whether in the disgusting exploitations approaching 1914, 1939 or now. Our failures are on a massive scale. At the end of 1945 we had a planetary population of between 2 and 3 billion and are now set to treble this thanks to a lunatic notion of “growth”. Most people seem ‘blissfully’ unaware that half-a-dozen of the biggest bombs we admit to would take out all the UK. We still cling to corny dross such as democracy being the best of a fairly dismal set of alternatives when single families own more financial assets than a year’s global GDP (perhaps these creeps are the ‘sleepwalkers’ of Lambert’s recommended book)? The creeps are shaping to turn their financial assets (actually worthless) to ownership of the land beneath our feet and total control of the means of production.
    We once ripped-off by forcing high-profit manufactures on lands terrorised by our gunboats and rough riders. Finance was always part of this and always crooked. Now it is an economic rent that reaches more than 100% of the material and labour costs of anything we do, and often there is no intent to do anything other than steal the loan money, buy assets in firesales after foreclosure and force repayments from people who had no stake in the main venture from the start.

    There was organised resistance to WW1 and we might look to how that failed and how we are failing to resist now – perhaps establishing just who the common enemy were then and now. WW2 started in 1931 between Japan and China, WW1 in 1913 with the British invasion of Iraq with mainly Indian troops. Bavaria once voted about 65% Nazi and the Egyptians used democracy to elect a dictatorship. Finance looks increasingly like British, Dutch, US and Japanese drug growing, refining and smuggling into China as a currency. It creates dependency, withdrawal symptoms and we send the boys round to collect. The 100 Years War (largely about British and other protection rackets across Europe) might provide us with a starting point for today’s analysis. The real problem is the failure in education. Hardly any of us know any real history, what finance is and why we are individually rendered incompetent by bought and paid for politics.

    Lambert may claim not know what a penguin-intercoursed, OTC DIRPs instrument is, but one senses he does know such will be just another way TBTF banks can rip-off customers with insider information and front-running and will be based on either a sack of dead-donkey futures from tomorrow’s 3.30 pm at Haydock, unrefined Rwandan imigongo (cow pat art) or a genocidal African land-grab funded with an Art’s Council grant to ‘Africa’s Singapore’ for street-theatre in the Congo. Finance has been setting people who can’t fight back on each other. We’ve had WW3 in Africa without noticing. Where will they dare next? Or has it already happened in velvet form in our own countries?

    Either side of WW1 there was much debate and even candidates voted in on democratic foreign policy stances and the relation of such with finance. The first thing to recognise is we have gone backwards and leave such consideration to the nodding-donkey silence of politics as about dirty hands reasoning and finance as a neutral science.

  11. Fiver

    Lambert asks at one point:

    “Animal spirits? Of course (and I seem to be making this qualification rather a lot these days) these narratives all assume good faith; for example, they assume the markets aren’t manipulated.”

    I’d suggest the only prudent operating assumption is that markets are always manipulated, but that the relative power of the key players, including the Fed, is diminished not just in the sense of corruption, but in degree, the further into the upside spirits one goes. And who knows, perhaps that distance is in direct correlation to some behavioural economist’s weighted score of “Market’s” confidence that the Fed can bail them out no matter what else happens.

    On emerging markets, I’ve barked a few times here at NC in terms of Fed/Admin policy failure to take into account the enormous distortions QE was inflicting on much of the rest of the global economy, voiced repeatedly by top foreign officials even as it accomplished the unstated and criminally unworthy goal of throwing money at everyone who already had money, on a most to the most basis.

    Now, as I don’t believe Yellen is a hawk, but wants to look like one for at least a couple months, I don’t believe she’ll head straight down, but rather pause here and there, and perhaps even reverse at some point. So I think EM’s will not eat it all inside of 8 months. This could be a credible correction, or just a rumble. It’s going to be a shaky year, I believe.

Comments are closed.