THE PATH TO DEFLATION: JAPAN VS THE USA
by ilene - November 22nd, 2010 11:56 pm
The Pragmatic Capitalist looks at THE PATH TO DEFLATION: JAPAN VS THE USA
Here’s a longer perspective of the chart I’ve often referenced in the past showing how similar our current inflation trend is to Japan’s in the 90′s. As the housing double dip takes hold in the coming months, it’s likely that inflation will remain very low and concerns about deflation will reemerge (via the NY Times):
“The latest figures, released this week, showed that overall inflation in consumer prices was 1.2 percent in the 12 months through October, while the core
inflation rate — excluding food and energy — rose just 0.6 percent. The previous low for that index, of 0.7 percent, came in the 12 months through February 1961, when the economy was in recession.
As the accompanying chart indicates, the core inflation figures are charting a path roughly similar to one shown in
Japan 15 years earlier. That has been true despite a much stronger reaction by the American central bank, which was determined not to make the same mistakes the Japanese made.Deflation is feared for several reasons. If consumers come to expect it, as happened in Japan, there is a strong incentive to delay purchases while waiting for a lower price. That can restrain economic activity and increase unemployment. In addition, deflation places downward pressure on asset prices, worsening the situation of those who are indebted.”
Source: NY Times
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German Economy Minister Accuses US of Currency Manipulation
by ilene - October 25th, 2010 1:57 am
German Economy Minister Accuses US of Currency Manipulation
Courtesy of Mish
At long last a major player is finally pointing a the currency manipulation finger where it needs to be placed, the US.
Please consider Germany Says Fed Is Headed ‘Wrong Way’ With Monetary Easing
The Federal Reserve’s push toward easier monetary policy is the “wrong way” to stimulate growth and may amount to a manipulation of the dollar, German Economy Minister Rainer Bruederle said.
Fed Chairman Ben S. Bernanke yesterday gave Group of 20 finance ministers and central bankers meeting in Gyeongju, South Korea an overview of the U.S. central bank’s efforts to jumpstart the world’s largest economy. His strategy, which investors expect will soon include greater asset purchases, drew criticism at the talks, said Bruederle.
“It’s the wrong way to try to prevent or solve problems by adding more liquidity,” Bruederle told reporters yesterday, saying that emerging-market officials were among the critics. Bruederle, a member of the Free Democratic Party, the junior partner in Chancellor Angela Merkel’s government, stepped in for hospitalized Finance Minister Wolfgang Schaeuble at the meeting.
“Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate,” Bruederle said. The minister has taken a pro-market stance in his first year in office, criticizing state intervention in cases such as providing aid for General Motors Co.’s German Opel unit.
The Big Point
I have been saying for years that the US was every bit the currency manipulator we accuse China of being. My stance is that interest rate policy decisions in and of themselves are manipulative.
Moreover, we have since gone one step further with futile unwarranted rounds of quantitative easing baked into the cake.
Thankfully, the German economic minister is willing to say what anyone with an ounce of common sense has known for a long time: “Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate.”
Correction:
Rainer Bruederle is "Bundesminister für Wirtschaft und Technologie", "Federal Minister for Economy and Technology", not Finance Minister. He was filling in for hospitalized Finance Minister Wolfgang Schaeuble at the meeting.
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Want a Manufacturing Renaissance? Here’s How
by ilene - October 7th, 2010 4:38 am
Want a Manufacturing Renaissance? Here’s How
Courtesy of Charles Hugh Smith, Of Two Minds
The keys to launching a renaissance in manufacturing and industry in the U.S. are not just financial.
Given the widespread angst over the dwindling role of manufacture and industry in the U.S. economy, you’d think commentators and pundits might actually know something about manufacturing. Remarkably, they don’t.
I see precious little evidence that anyone on either side of the issue--those bemoaning the loss of industry, and those who brush aside the whithering as a positive consequence of globalization, wage arbitrage and free capital flows--has ever worked in a factory or even toured factories in various countries to see for themselves.
The standard-issue pundit/academic may well have glanced through the viewing window at some high-tech factory with robots and workers in clean jumpsuits, and this one slice of manufacturing colored their scanty experience: this must represent all factories nowadays.
Only it isn’t so.
Others (again, with no direct experience with manufacturing) are quick to point out the huge wage differential between Chinese workers (who have received substantial raises in previous years) and U.S. workers and pronounce the eventual death of all U.S.-based manufacturing just on the basis of wage arbitrage.
It isn’t that simple. And what exactly is that wage differential? Few note that the dorms and food services provided to workers at large-scale factories in China are subsidized and thus constitute an additional "wage."
Today we look at issues which rarely if ever see the light of day in the mainstream media.
I happened to see two video clips filmed inside Japanese and German factories on TV recently, on the Japanese English-language channel NHK and on the German English-language channel DW.
As we all know, Japan and Germany are the world’s powerhouse exporters of advanced machine tools and other high-technology equipment and goods.
In the Japanese plastics factory in Nagano Prefecture, neatly uniformed workers were shown cleaning plastic parts by hand.
In the German packaging factory, neatly uniformed workers were shown guiding cardboard boxes onto a conveyor by hand.
To the observer who knows something about either nation, both personally and as a mercantilist culture/economy, there is a wealth of information in these two short videos.
1. A staggering amount of "manufacturing" in advanced mercantilist economies still involves human labor.
2. Factory work is respected and not denigrated culturally.
factory work in the U.S. is widely viewed…
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Preserve and Protect: The Jaws Of Death
by ilene - September 19th, 2010 2:25 pm
Courtesy of Gordon T. Long of Tipping Points
Preserve and Protect: The Jaws Of Death
The United States is facing both a structural and demand problem – it is not the cyclical recessionary business cycle or the fallout of a credit supply crisis which the Washington spin would have you believe.
It is my opinion that the Washington political machine is being forced to take this position, because it simply does not know what to do about the real dilemma associated with the implications of the massive structural debt and deficits facing the US. This is a politically dangerous predicament because the reality is we are on the cusp of an imminent and significant collapse in the standard of living for most Americans.
The politicos’ proven tool of stimulus spending, which has been the silver bullet solution for decades to everything that has even hinted of being a problem, is clearly no longer working. Monetary and Fiscal policy are presently no match for the collapse of the Shadow Banking System. A $2.1 Trillion YTD drop in Shadow Banking Liabilities has become an insurmountable problem for the Federal Reserve without a further and dramatic increase in Quantitative Easing. The fallout from this action will be an intractable problem which we will face for the next five to eight years, resulting in the ‘Jaws of Death’ for the American public.
The ‘Jaws of Death’ is the crushing squeeze of a shrinking gap between incomes and a rising burden of the real cost of debt burdens. Many may say there is nothing new in this, but I would respectfully disagree. There is a widespread misperception of what is actually evolving that stops voters from forcing politicians to address America’s substantial underlying dilemma. It also stops investors from positioning themselves correctly.
Any solutions of real substance are presently considered political suicide. It is wiser to wait for a crisis event to unfold. As White House Chief of Staff and a primary Obama political strategist, Rahm Emanuel has said on numerous occasions: “You never want a serious crisis to go to waste”. It doesn’t take much intelligence to understand this also implies looking for a crisis as a political shield, for example from an almost insurmountable political problem such as a generational reduction in the US standard of living.
Before I delve into misperceptions of…
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Squeezing the lemon – risk appetite being sucked higher
by ilene - September 12th, 2010 7:27 pm
Squeezing the lemon – risk appetite being sucked higher
Courtesy of Rohan at Data Diary
Risk appetite has been ticking higher this past week. The price action in isolation looks pretty positive. The question that is troubling the synapses is whether equity markets are poised to thrust higher once more – egged on by the monetary cattleprod of the US and a seeming stabilisation in China’s growth dynamics.
Certainly the penultimate rejection of the S&P500 off 1040 set the scene for a short squeeze of material proportions. Given the ramp up in volumes that accompanied the selloff from the April highs, it’d be reasonable to expect that there’d be a block of nervous ‘shorts’ at levels not too far from here. It’ll be interesting to see what the tea-leaves say about who sold/bought in the Flow of Funds data next week, but the 1130 level is looking like a pretty tasty target.
For the moment, it’s probably wise to respect the
Still my read of the bigger picture has this run-up as a position driven head fake. Momentum has turned lower since the April high that marked the exhaustion point for global stimulus mark I. It’s looking increasingly unlikely that successive rounds of government intervention will be as wildly successful as the first. While the leading indicators are tracking lower, so will the market.
The other factor tugging at the market’s tail is that the logic for risk spreads to widen remains compelling. The Fed may be the fat kid sitting on the longer end of the Treasuries market, but ultimately the other end of the risk plank can’t join in as the economic malaise works its way through earnings forecasts and default probabilities. This rally should meet its maker over the next couple of weeks – just a matter of whether it can convince him that all those calories can’t be good for you.
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Dick Cheney’s Oily Dream
by ilene - September 5th, 2010 11:40 pm
Dick Cheney’s Oily Dream
Courtesy of Washington’s Blog
Former British Prime Minister Tony Blair is currently saying that Dick Cheney’s vision of policy towards the Middle East after 9/11 was to re-draw the map:
Vice-President Dick Cheney’s vision of completely redrawing the map of the Middle East following the 9/11 attacks is "not stupid," and is "possible over time," former British Prime Minister Tony Blair says.
In his new book, A Journey, the former Labour Party leader wrote that Cheney wanted a wholesale reorganization of the political map of the Middle East after 9/11. The vice president "would have worked through the whole lot, Iraq, Syria, Iran, dealing with all their surrogates in the course of it — Hezbollah, Hamas, etc," Blair wrote.
What does this mean?
Well, as I have repeatedly pointed out, the "war on terror" in the Middle East has nothing to do with combating terror, and everything to do with remaking that region’s geopolitical situation to America’s advantage.
For example, as I noted in January::
Starting right after 9/11 — at the latest — the goal has always been to create "regime change" and instability in Iraq, Iran, Syria, Libya, Sudan, Somalia and Lebanon; the goal was never really to destroy Al Qaeda. As American reporter Gareth Porter writes in Asia Times:
Three weeks after the September 11, 2001, terror attacks, former US defense secretary Donald Rumsfeld established an official military objective of not only removing the Saddam Hussein regime by force but overturning the regime in Iran, as well as in Syria and four other countries in the Middle East, according to a document quoted extensively in then-under secretary of defense for policy Douglas Feith’s recently published account of the Iraq war decisions. Feith’s account further indicates that this aggressive aim of remaking the map of the Middle East by military force and the threat of force was supported explicitly by the country’s top military leaders.
Feith’s book, War and Decision, released last month, provides excerpts of the paper Rumsfeld sent to President George W Bush on September 30, 2001, calling for the administration to focus not on taking down Osama bin Laden’s al-Qaeda network but on the aim of establishing "new regimes" in a series of states…
***
General Wesley Clark, who commanded the North Atlantic
…
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10 Reasons Why Conservatives Should Be Against Unfair Trade With China And 10 Reasons Why Liberals Should Be Against Unfair Trade With China
by ilene - September 4th, 2010 1:39 pm
Michael Snyder makes arguments appealing to both right and left against our free trade relationship with China. Some of these arguments are better than others, but as a whole, he makes good points on each side. - Ilene
10 Reasons Why Conservatives Should Be Against Unfair Trade With China And 10 Reasons Why Liberals Should Be Against Unfair Trade With China
Courtesy of Michael Snyder
There are very few things that the top politicians in both political parties agree on these days, but one of the things that that they do agree on is that free trade with China is a good thing. George W. Bush, Dick Cheney, John McCain, Barack Obama, Nancy Pelosi and Harry Reid have all fully supported our trade relationship with China. In this day and age, virtually anyone who even dares to question how fair our "free trade" is with China is immediately labeled as a "protectionist" and is dismissed as a loon. But when you sit down and really analyze it, there are a whole lot of very good reasons why both conservatives and liberals should be fundamentally against our unfair trade relationship with China. But you won’t hear these reasons being talked about on CNN, MSNBC or Fox News. You won’t hear many members of Congress get up and give speeches about how trade with China is bleeding our economy dry. Both major political parties have completely and totally bought into "the benefits" of globalism and free trade and there isn’t even much of a national debate about our trade policies anymore.
But there should be a national debate. Unfortunately, most conservatives are just going to accept whatever their leaders tell them to believe. Conservatives have been convinced that to be against unfair trade is to be "anti-business" and no conservative ever wants to be anti-business.
Similarly, most liberals blindly follow whatever Obama, Pelosi and Reid tell them to believe. Millions of hard working Democrat voters have lost their jobs due to our nightmarish trade relationship with China, but they are still convinced that Obama is their savior and that they must not ever say anything that he does is wrong.…
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Rosenberg On The Visible Hand Of Central Planning
by ilene - September 1st, 2010 12:04 pm
Rosenberg On The Visible Hand Of Central Planning
Courtesy of Tyler Durden
So you thought communist states go down without a fight? Wrong: here is Rosenberg who explains why both China and the US are now actively involved in the business of propping up anything and everything. And totally off topic, Rosie confirms that the liquidity trends in the mutual fund industry continue to deteriorate: "As for liquidity ratios, equity funds portfolio manages have theirs at an all-time low of 3.4%, down from 3.8% in June. Tack on the fact that there are really not very many shorts to be covered – since the market peaked in April, short interest is 4.3% of the S&P 500 market cap (in August 2008 it was 6%) and there’s not a whole lot of underlying fund-flow support for the stock market here." In other words, throw in a few more market down days, a few more weeks of redemptions (and at 16 weeks in a row, there is no reason why this should change), and the liquidation theme will promptly be added to the new normal.
THE VISIBLE HAND
The two largest economies in the world are being sustained by the long arm of the law. At least in China it’s to be expected that a communist country would be fuelled by command central, but in this miracle story, below the surface it is becoming abundantly clear that Beijing is becoming increasingly involved. The front page article of the Monday NYT uncovered how the economy is delivering its red-hot growth rates: “New data from the World Bank show that the proportion of industrial production by companies controlled by the Chinese state edged up last year … investment by state-controlled companies skyrocketed, driven by hundreds of billions of government spending and state bank lending.” No wonder the Chinese economy and stock market have diverged.
Is it really much different in the U.S.A. today with every 1 in 6 Americans now receiving some form of government assistance? More than 50 million Americans, from food stamps, to Medicaid, to extended jobless benefits, are on one or more taxpayer-supported programs. This likely explains why this depression does not have that 1930s feel of despair to it. But a depression it is.
In a depression, radical
…
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The U.S. Can’t Fix the Economy But We Can Still Threaten People (So There)
by ilene - July 28th, 2010 7:26 pm
The U.S. Can’t Fix the Economy But We Can Still Threaten People (So There)
Courtesy of Jr. Deputy Accountant
WikiLeaks founder Julian Assange will probably not be coming to the U.S. any time soon.
"Today the Whitehouse put out a private briefing to reporters about Wikileaks and me and it quoted a section from an interview with me in Die Spiegel saying that I enjoy crushing ——--.
"Somehow the Whitehouse finds that offensive.
"In terms of returning to the United States I don’t know. Our sources advise from inside the US government that there were thoughts of whether I could be charged as a co-conspirator to espionage, which is serious.
"That doesn’t seem to be the thinking within the United States any more however there is the other possibility of being detained as a material witness and being kept either in confinement or not being allowed to leave the country until the Manning case is concluded."
You can implode our banking system all you want but don’t you dare mess with our 9 year long wars.
In completely related news, the House just happened to give up $33 billion to both ongoing engagements in Iraq and Afghanistan.
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The G20’s China Bet
by ilene - July 3rd, 2010 3:35 pm
The G20’s China Bet
Courtesy of Simon Johnson at Baseline Scenario
The G20 communiqué, released after the Toronto summit on Sunday, made it quite clear that most industrialized countries now have budget deficit reduction fever (see this version, with line-by-line comments by me, Marc Chandler and Arvind Subramanian). The US resisted the pressure to cut government spending and/or raise taxes in a precipitate manner, but the sense of the meeting was clear – cut now to some extent and cut more tomorrow.
This makes some sense if you think that the global economy is in robust health and likely to grow at a rapid clip – say close to 5 percent per annum – for the foreseeable future. With high global growth, it will matter less that governments are cutting back and unemployment will come down regardless. Taking this into account, the IMF is actually predicting (as cited prominently by the G20) that budget “consolidation” actually raise growth over a five-year horizon.
There is no question that some weaker European countries, such as Greece, Portugal, and Ireland, had budget deficits that were out of control. Particularly if they are to pay back all their foreign borrowing – a controversial idea that remains the conventional wisdom – these countries need some austerity. But what about those larger countries, which remain creditworthy, such as Germany, France, the UK, and the US? If these economies all decide to reduce their budget deficits, what will drive global growth?The answer in Toronto was obvious: China. China is only about 6 percent of the world economy, measured using prevailing exchange rates, but it has a disproportionate influence on other emerging markets due to its seemingly insatiable demand for commodities. It also has a relatively healthy fiscal balance – and its fiscal stimulus, working mostly through infrastructure investment, did a great job in terms of buffering the real economy in the face of declining world trade in 2008-09.
Now, however, the Chinese government is trying to slow the economy down – there is fear of “overheating”, which could mean inflation or rising real wages (depending on who you talk to). Chinese economic statistics are notoriously unreliable, so reading the tea leaves is harder than for some other economies, but most of the leading indicators suggest that some sort of slowdown is now underway.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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