LyrArc Article Gist
This mortgage crisis could last a long time. House prices now down 10% could fall 30%. Losses on these mortgages could total $400 billion or 3% of total economic output. Similar to the losses in the savings and loan crisis of the eighties. The complexity of the crisis cuts two ways in one respect it prolongs the crisis because it makes it very hard to figure out what is inside which kind of package of securtieis and who holds them. Mortgages are dispersed among banks and 11,000 investment pools each with hundreds or thousands of investors. And many of these pools have been further repackaged into specialized funds known as structured investment vehicles and collaterized debt obligations that were created for these mortgages. It requires huge computing power and lots of people to figure out what is inside each package of securties. And the other effect is that because of this opaqueness or lack of transparency no one in the banking system knows who has large exposure and may run into difficulties like a Northern Rock bank in Britain or a Citigroup or UBS so that banks are not keen on lending to each other and raises the bank lending rate to each other. Banks also want to increase their reserve as a cushion against hidden losses and so are afraid to lend and lend at higher rates and after asking for stringent terms from lenders. This will create a prolonged period of credit tightnesss which would affect business expansion in a serious way. On the other hand as said earlier it cuts 2 ways and the positive side to this is that the losses tend to be overestimated in a crisis with lack of transparency or high degree of opaquenesss as Seidman who was a key person in settling the Savings and Loan Crisis told the National Press Club this month. Another negative efect in terms of credit availability for business is that there is less demand for securities in this kind of environment and business cannot get that much money from the capital markets. Cerberus found this out quickly when it found few buyers for the securities it hoped to sell to fund a portion of its buyout of Chrysler. One thing that will help the US as this crisis plays out is the better picture for exports with a falling dollar.The larger companies with international operations will have more business overseas and will export more to other countries especially to the high growth countries like China, India, Russia and Brazil as well as other countries in South America, Asia and Europe. Infrastructure spending will be huge in these countries and companies like General Electric, Caterpillar and others will benefit and companies like GM will expand more overseas. This should help the dollar and the current account deficit in a few years. It would also cushion the blow from this crisis. Overall this crisis could play out for longer than 3 years if consumer spending deteriorates significantly in 2008-2009. ...

LyrArc Article Gist
Everything is moving in the wrong direction in terms of sustaining growth according to Nicholas Lardy of the Peterson Institute of International Economics. China's exports dependent economy will see a serious downturn as export markets in the USA and Europe dry up in 2009 as the deep recession takes shape. This could lead to growth rates going down to 6-7%.Other areas that propelled Chinese growth areinfrastructure investment and housing construction. Worried about rising housing prices the government last year out in place measures to dampen housing purchases, with tighter restrictions on second mortgages by banks and tighter lending for first mortgages. With house prices flat or falling now in Chinese cities many buyers are holding off for a better price in the future. Slower growth in housing will mean less demand for migrant labor and less demand for imports of cement and steel from other countries. China's lower imports of machinery, machine tools and heavy equipment for industry and infrastructure building will affect especially the German and Japanese economies. Germany has become the world's largest exporting nation in part by selling industrial equipment to China, its second most important market for machinery. In the first 7 months of 2008 these exports were still expanding at 20%. But these exports are likley now expanding at a rate of 10% and may slip to single digit growth in 2009, according to Olaf Wortmann, an economist with the VDMA engineering association. A good example of what is happening is the German manufacturers of textile machinery which derive 95% of their sales from overseas and mostly from China. These orders were down 42% in the first 7 months of 2008. With declining consumer demand in the US demand from China's exporting factories is declining. These figures and the accelerating slowdown in the US consumer markets suggest there will be a serious downturn in Chinese exports of textiles and other goods. The impact on German growth rates which are going below 2% in 2008 is to lead to 0% or declining growth in 2009. A similiar situation is ocurring for imports of heavy equipment from Japan. Orders of Japanese machine tools by China declined by 25% in September according to the Japan Machine Tool Builder's Association and Komatsu's shares have declined by 70% since their June peak. Part of the Chinese impact on global growth is mitigated by the fact that at market exchange rates China's economy is still only 6% of the world economy at market exchange rates and 10% at purchasing power parity. Chinese domestic consumer demand is $1.2 trillion for 2007 compared to the USA's $9.7 trillion, which also suggests how heavily China was dependent on the American consumer and how the missing American consumer will be hard to replace and the growth rates of 10-12% may be a thing of the past, with 6-7% being more realistic. ...

LyrArc Article Gist
The Indian economy is expected to grow by 8.5% this year compared to 6.5% in 2009. But a major problem looms in the high inflation facing India. The poor monsoon in 2009 led to higher prices for foodgrains, lentils, and sugar. And the government's cut in the fuel subsidies will lead to more efficient use of energy, but will lead to one additional percentage point in wholesale price inflation according to the Reserve Bank of India, India's central bank. The whoesale price index in India went up by 10.5% in June from the prior year, and this after a 10.1% increase in May. Bloomberg's tracking of consumer prices in the Asia-Pacific region shows India at the top of 17 countries in inflation, and consumer prices paid by industrial and farm workers in India are shown to be increasing at 14% annually. The government is coming under criticism for not releasing more grains from its stocks to soften the impact of last year's monsoon. The Manmohan Singh government finds inflation at above 10% unacceptable and is looking for further action from the central bank. Reserve Bank of India governor Subbarao has raised rates 3 times since March 2010 to 5.5%, and a further increase is expected at its next meeting on July 27. A better harvest in September, from a better monsoon season, could help lower food prices. If this does not happen, more tightening by the central bank could hurt economic growth, putting the government in a quandary....

LyrArc Article Gist
In December 2009, the Obama administration assumed an economic recovery was underway. But administration economist Christina Romer was proven wrong in her assessment of the situation. Many of the new jobs added at the time were from temporary surge due to census hiring. The administration lost its focus on unemployment and failed to grasp the economic situation.

LyrArc Article Gist
Xi Jinping, president of China says at the Davos Forum that world leaders should "join hands and rise to the challenge" from protectionism coming from the new U.S. administration. He called on world leaders to support the Paris climate accords- "to stick to it instead of walking away from it."

LyrArc Article Gist
The household debt to income ratio is 1.62 in Britain compared to 1.42 in the USA and 1.09 in Germany. Britain has a record 1.4 trillion pounds of debtor about $2.8 trillion more than the country's gross domestic product. Ther is a culture of debt financed spending in Britain which older generations are not familiar with. Even the USA which has seen a debt financed spending spree is behind Britain where the spending culture is really prevalent with borrowing at its height to support consumption. Personal debt in the USA including mortgage debt is $13.8 trillion slightly less than the $14 trillion GDP. A decade long housing boom and strong economic growth has created consumer confidence and a virtuous cycle of investment in infrastructure, higher consumption, low unemployment and better incomes and growth. Now this virtuous cycle may be coming to a close. Interestingly Germans were much more reluctant to be the free spenders than the British. The average Briton has 2.8 credit or debit cards more than the other countries in Europe. And the home equity and borrowing on home equity with rising home prices, easy credit card debt, and low interest rates all have created a false sense of security which may not last long with rising rates and declining home values, and tighter credit conditions....

LyrArc Article Gist
David Malpass is the choice of the Trump administration to head the World Bank. He has worked with Latin American countries at the State Department, was the Treasury official responsible for the World Bank in the Reagan administration, and worked on Argentine currency, China trade matters in the Trump administration.

Malpass negotiated a $13 billion replenishment for the World Bank in 2017, with U.S. share of $1.2 billion. This capped the bank's lending at $25 billion.

Last year the World Bank provided China with $60.5 billion in loans for 400 projects, which this WSJ editorial says is loans China does not need with its $3.07 trillion in foreign reserves. This editorial is critical of the current World Bank head Dr. Kim for taking a job with a World Bank partner the private equity fund GIP.

The World Bank has played a significant role in development for South Asia and China in the early years after World War II.

LyrArc Article Gist
Mexico's growth rate has averaged annual growth of below 2% for 2013-2015 under the Pena adminstration. Predictions were for growth of 5-6%. The investment in the oil industry is low with decline in demand for oil. The peso has dropped in value to 16 to the U.S. dollar in August 2015 compared to 13 in 2014. The popularity rating of the Pena administration dropped to 34% in August 2015.

LyrArc Article Gist
The Liberal Party led by Justin Trudeau wins an absolute majority in Canada's parliament with 184 seats, defeating the Conservatives. The NDP gets 20% of the vote but only 44 seats.

LyrArc Article Gist
World Bank chief Zoellick sees advantages for China to remake its industrial structure and its society especially boosting local wages and increasing the purchasing power of ordinary Chinese through a strengthening of the yuan.

LyrArc Article Gist
Fears about a property price bubble in China bursting with the central bank not able to control the economy. Increasing fears that China may not be able to control the bubble. Other countries where bubble effects are taking place: Canada where housing prices are accelerating, Brazil with expected GDP growth of 5.8% and "hot money" pouring in, India where inflation has reached 15% and $92 billion of foreign investment in Indian stocks and bonds, Australia with its hot mining sector with trade connections to China, South Korea with growth approaching 5% and high rates of household debt. GDP and property prices increased by 11% in China in the 1st quarter of 2010. Many of these economies have connections with China, including Brazil and Australia with commodities sectors dependent on China.

LyrArc Article Gist
The inability to convince farmers to trade land for a fair settlement in money, new homes, schools and other benefits and to make this a win-win proposiion between farmers and companies is holding up abut $98 billion in investments in steel plants and other plants. A bill in Parliament would require companies to negotiate directly with farmers and reach a settlement that is good for farmers to resolve what is increasingly a serious problem. It is holding up an industrial revolution and the creation of manufacturing industry in India to provide the kinds of jobs that are needed badly.

LyrArc Article Gist
The Labor department reported that unemployment surged to 10.2 % in October 2009. 190,000 jobs were lost in October 2009. Ther breakdown lokks like this. Construction lost 62,000 jobs, manufacturing lost 61,000 jobs forming the bulk of the job losses. Its interesting to note that only 16,000 jobs were gained in the federal government and 16,000 jobs were lost at the local government level making the net gain zero at the government level. And what was gained in the health care sector 28,700 jobs and in educational services 10,700 jobs for a total of 39,400 jobs was completely offset by 39,800 jobs lost in retail sector. The useful point here is that local governments are hurting and retail sector is hurting and little is going to change this as long as job losses continue and the gains at the government level and healthcare and educational services are simply offset by losses inretail and local government. This situation will likely ocntinue into 2010. The losses in manufacturing are likely to continue. A sample of companies like Eaton, Boeing and John Deere shows that 2010 will not generate many jobs. Eaton has decided to have its 55,000 employees take aweek of each quarter, so there is one twelfth work capacity unused which is where Eaton will turn to before hiring. At Boeing there are layoffs of 10,000 planned but its also hiring 3800 workers for anew factory in South Carolina, and at John Deere 452 workers will be recalled in November but in December there is aplanned shutdown. A September Survey by Business Roundtable found that 13% of firms planned to increase employment in the next 6 months, but 40% planned to cut payrolls. So manufacturing looks to go on like this in 2010 with slowing but continued job losses. The numbers show that in October the median number of weeks it takes to find ajob up to 18.7 weeks which is the highest number since the sixties. What gets ignored by the small print you find it in the Wall Street Journal is the broader unemployment rate which is 17.5% when you include those who have stopped looking, those who work part time but need full time work and the marginally unemployed. The rates jump for younger workers here and in Europe also. ...

LyrArc Article Gist
The House passes the $819 billion tax and spending bill. Every Republican in the House voted against the bill in the 244-188 vote. Most of the money to be spent of about $526 billion will be spent in 2009 and 2010, though some spending on student loan programs, clean water projects and housing assistance will carry over into future years. To help workers with the downturn $27 billion will go to continue unemployment insurance benefits till December 31, 2009. $9 billion will go to increase the current benefit from $300 to $325 per week. This is money that will be spent as workers lose jobs. The bill also lets former employees to get COBRA coverage, It funds 65% of individual's premiums for upto 12 months. And workers over 55 or with more than 10 years service will get to keep their COBRA coverage until they get a new job or get Medicare. A big departure is allowing those who are unemployed enroll in Medicaid, and Medicaid will temporarily expand to include millions of unemployed workers. See the link to Education spending for the $125 billion going into Education spending that will save the jobs of hundreds of thousands of teachers and create jobs for construction as schools are repaired and renovated....

LyrArc Article Gist
France's central bank chief Christian Noyer, says public spending to create jobs has the drawback of creating yesterday's jobs, but lasting job creation has to look at today and the future for effective job creation. Once government spending crosses a certain level, about 55% of GDP, a level France has crossed, further spending becomes counterproductive, reducing public confidence in the economy, as higher future taxes are anticipated canceling any benefits.

LyrArc Article Gist
One in six dollars generated by the U.S. economy goes to pay for health care, almost twice the average for rich countries. It hurts America in many ways; by being a burden on the taxpayer when it comes to Medicare and Medicaid paying for the poor and the elderly, on companies being one reason GM went bankrupt, it eats up federal and state budgets, rising costs make any form of future coverage for all unsustainable, and it robs other priorities such as infrastructure building and other national scale investments. The Economist says that if it had to design a system from scratch, it would go for a system based mostly around publicly funded health care. For the uninsured the solution of an employer mandate is now well accepted, so this is not an issue. What is an issue is how to make the new system affordable? Here the Economist says that whether in stages or in one move, the tax deductability of employer paid health insurance, which is costing the U.S. government $250 billion ayear, has to go. It is necessary to remove this deduction, and its something all interests involved will have to swallow, as other savings are smaller and will not be adequate. The deductability of insurance makes the true cost of insurance transparent, so it supports gold plated insurance. This does not make cost control the pressing priority it needs to be. So the deducatability of employer paid health insurance hurts both ways. The other necessary action is in the area of moving out of the current culture where most doctors work on a fee-for-service basis, where the more tests they prescribe or procedures they perform the greater their incomes. This acts as a perverse incentive, and has aruinous effect in mushrooming health care costs in America. Cutting back on unnecessary tests and procedures, and prescriptions , would save 10% to 30% of health costs says the Economist. And it says this has been proven with the Mayo Clinic in Minnesota and Kaiser Permanente in California showing that cutting back doesn't hurt care and outcomes., so much so that cutting back would occur along with improved outcomes. But Americans with employer paid insurance just take things for granted as its not much out of pocket expense for them. THis creates the lack of a force for controlling costs even as employers are shouldering abigger and bigger burden, and the employee who thinks he is doing fine actually is seeing more of his salary dollars going to pay for his health insurance. In a way the consumers of health care are stuck with the perception that they are not somehow paying for these mushrooming costs and too manytests, procedures and prescriptions. This perception leads them a false sense of comfort with the system they are in, and a fear of something new fanned by the medical lobbies, that any change will impact users negatively. This makes the whole discussion on health care or the process of finding solutions to become an exericize in which terms like "rationing" and "choice" play a distorting role. ...

LyrArc Article Gist
Joe Parkinson of the WSJ gives a in-depth account of the emergence of Recep Tayyip Erdogan in Turkey's politics, with contributions by Emre Peker, Ayla Albayrak, Yeliz Candemir. Erdogan grew up in a poor neighborhood of Istanbul, and became the head of a local youth branch of the Islamist National Salvation Party in 1976 after an adolescent period steeped in mosque culture and Islamic ideas. In 1994 he is elected Mayor of Istanbul amid voter discontent with corruption and problems with infrastructure and public services. He served for four years making improvements. After reciting a poem publicly that said "the mosques are our barracks, domes our helmets, minarets our bayonets and faithful our soldiers," he is jailed for 4 months by a military backed secular government in 1999. During this period Erdogan, described by friends from his youth as having a unique ability to adapt to difficult situations, makes a transformation. He moves to the centre, coming out in favor of stronger ties to the EU, and works hard to attract support from the secular and nationalist voters to add to his conservative religious base. In 2003 he is elected prime minister as head of the Justice and Development Party. This begins a period of ten years in which Turkey sees remarkable period of economic growth during which Turkey's GNP nearly quadruples from a little over $200 billion in 2002 to $794.5 billion in 2012, according to the IMF. It may be partly coincidence and partly good management of the economy under Erdogan. Turkey's previous banking and currency crises before 2003 created a better understanding and discipline for managing the economy. Emerging markets such as Brazil, India, China, Russia, Indonesia, and other parts of Asia and Latin America were able to achieve high rates of growth during this 10 year period. Competitiveness in Brazil and Turkey has not improved significantly in this period according to experts, and large capital inflows into Turkey partly supported the credit boom in Turkey. And just as growth is slowing significantly in all emerging markets, Turkey under Erdogan faces a new test. Especially now that Erdogan is seen as autocratic in his effort to suppress protests to build an Ottoman era army barracks in Taksim Square, Istanbul. The fears of secularists in Turkey are that this is the Erdogan of the period in 1999, after serving as Mayor of Istanbul. Just as Turks turned away from the overreaching actions of the military, the public sentiment may be shifting beyond the overreaching actions of the religious parties in Turkish politics. The protests in Brazil against the Rouseff administration after the popularity of the Lula administration, show that slowing economic growth and missteps by the elected government can alienate younger voters. The parties still retain a majority but face an uncertain future in which lower economic growth and missteps lead to a search for alternatives. At the same time Turkey's efforts for accession to the EU are beng put on hold as Germany opposes the actions to suppress protests of the Justice Party in Turkey. ...

LyrArc Article Gist
Bernanke's plan to address the deep downturn is very aggressive and he is pulling out all the stops. This includes the purchase of mortgage backed securities, Fannie Mae and Freddie Mac corporate debt and other assets, Since it stated its intention in late November to buy such securities, the 30 year mortgage rates have fallen to 5.2% from 6%, and refinance applications have tripled. Now the purchases will be greatly expanded. See the related link to this in Hubbard and Mayer article based on their research paper, in the WSJ, that shows that at a mortgage rate of 4.5% the housing market prices could stabilize. Next step the Fed will, starting early 2009, pump money into markets for student, auto, credit card ansd small business loans in hoping to bring life to those markets. How much money is involved? Quite a bit. All told the Fed's assets could add up to $5 trillion says Ed Yardeni of Yardeni Research, up from $2.2 trillion now. Its these sweeping moves and decisions that have overshadowed the December 16 announcement cutting the target federal funds rate to a range from zero to 0.25%, the lowest in its history. Whats the thinking behind this? Coy of BW points to Bernanke's research on the depression years and the lost decade years in Japan. In 1999, in a book he contributed to, Bernanke referred to Japan's monetary policy and passive approach as a self induced paralysis, including all the zombie loans that were allowed to continue on company books and no effort to clear up the bad assets quickly. He always thought highly of the aggressive approach taken by Franklin Delano Roosevelt, and felt that more tools available and a better understanding of the market system since FDR's day enabled a lot more actions to be taken to reverse the kind of steep global downturn that might occur. Yardeni's view is that even though this huge asset buildup could lead to inflation down the road, the economy in the medium term faces a deflationary environment, and the only way to cope with this series of bubbles bursting is to create another bubble, rather than risk anything going seriously wrong. Basically Bernanke is making an assessment of the current situation, and he sees bad credit situation getting worse, bad unemployment situation getting worse, consumer spending falling off and getting worse, continued home foreclosures and falling prices, the transition between administrations and lack of policy direction for a few critical months complicating things, and he sees the economies of all trading partners in Asia and Europe weakening in great speed, and sees very tough years for 2009 and 2010 no matter what the administration and the Fed do. Not enough aggressive actions to forestall the worst is as bad as inaction in Bernanke's view. And with all the aggressive moves, including the $1 trillion stimulus and infrastructure spending to create 2.5 million jobs that Obama administration plans, the US and global picture for the next 24 months will still be a long uphill climb. So the risks for Bernanke are all in the region of not doing enough and not doing it vigorously and speedily to get the best results. ...