Zero Interest rates will create asset bubble for sure---By Shan Saeed
I am 100% convinced that Fed will provide asset bubble as gift to the American public and global economy in general. Nobel Prize-winning economist Joseph Stiglitz said the Federal Reserve’s policy of cutting interest rates to a record low has caused problems worldwide, including currency misalignments and the risk of asset price bubbles.
“Fed policy was supposed to reignite the American economy, but it’s not doing that,” Stiglitz, a professor at Columbia University in New York since 2001, said in a Bloomberg Television interview today. “The flood of liquidity is going abroad and causing problems all over the world.”
Japan sold the yen last month for the first time in six years to spur exports and economic growth, joining countries across Asia and Latin America that have sought to temper gains in their currencies against the dollar. Tensions over exchange rate policies prompted Brazil’s Finance Minister Guido Mantega to warn Sept. 27 of a “currency war.”
The dollar fell to a 15-year low against the yen today after a private report showed U.S. companies unexpectedly cut jobs last month, fueling speculation the Fed will buy assets to spur a slowing economy. Euro appreciated 14% against US Dollar...
The dollar declined 0.4 percent to 82.90 yen from 83.22 yesterday. It touched 82.77, the weakest level since May 1995 and less than the low of 82.88 on Sept. 15, when Japan sold yen to weaken its value.
“The worry is that the flood of liquidity is going to cause what is sometimes being referred to as an emerging-market bubble,” Stiglitz said. “Money is going in, and the worry is it will cause a real estate bubble in one developing country or another.”
Slight Stimulus
An expansion of the Fed’s balance sheet, now under consideration by central bank policy makers, would provide only slight stimulus to the U.S. economy, Stiglitz said.
Such a move “might help a little bit in the U.S., causing a lot of problems around the world and not actually addressing the fundamental problems here at home,” he said.
The Fed cut its benchmark interest rate almost to zero at the height of the financial crisis in December 2008 and turned to asset purchases to bring down long-term borrowing costs.
The central bank eventually bought $1.7 trillion of mortgage-backed securities, agency debt and Treasuries. The purchases ended in March, and the Fed began to lay plans to exit from its unprecedented intervention.
In August, the central bank announced it would keep its securities holdings unchanged at $2.05 trillion by reinvesting proceeds from mortgage debt into Treasuries, putting the exit on hold.
Fed Chairman Ben S. Bernanke said Oct. 4 that restarting large-scale asset purchases would probably spur growth, after saying last week that the central bank has a duty to aid the economy as U.S. unemployment holds near 10 percent.
“What really is needed is effective stimulus that is needed at this point...Bush tax cut plan needs to be rolled over otherwise the economy will plunge into red further...There is lack of confidence in American people..
Wednesday, October 6, 2010
USA current market looks like a ponzi scheme---By Shan Saeed
US economic recovery is questionable and growth is fragile------By Shan Saeed
The current market is a Ponzi scheme. To some extent, I view current market conditions as something of a 'Ponzi game' in that valuations appear neither sustainable nor likely to produce acceptably high long-term returns, and speculators increasingly rely on finding a greater fool.
“Undoubtedly, we have periodically missed returns due to our aversion to risks that rely on the ability to find a ‘greater fool’ in order to get out safely. It is important to recognize that speculative risks aren't a source of durable long-term returns.
"As the mathematician John Allen Paulos has observed, "people generally worry only about what happens one or two steps ahead and anticipate being able to get out before a collapse... In countless situations people prepare exclusively for near-term outcomes and don't look very far ahead. They myopically discount the future at an absurdly steep rate."
If you strategically analyze the situation in USA right now, the U.S. financial system appears to be a nicely painted dam, behind which a massive pool of delinquent debt is obscured.” Credit card crisis is the next big financial drag on the economy....
“A significant correction in valuations and resolution of the growing backlog of delinquent debt may finally restore strong ‘investment merit’ to the U.S. stock market, but only after a greater amount of pain and adjustment than most investors seem to anticipate.”
Large corporations continue to borrow huge sums of money, but most appear to be sitting on their cash instead of spending it, which may benefit shareholders in the long run.
“They are still holding on to more cash in the same way that Noah built the ark,” “It is very telling.” Household debt to GDP Ratio is 122%...It requires $5-6 trillion to bring it back to 100% of GDP......Deleveraging is continuing in the US economy right now which will further drag the economy making it into subpar growth for the next 2-3 years...
The current market is a Ponzi scheme. To some extent, I view current market conditions as something of a 'Ponzi game' in that valuations appear neither sustainable nor likely to produce acceptably high long-term returns, and speculators increasingly rely on finding a greater fool.
“Undoubtedly, we have periodically missed returns due to our aversion to risks that rely on the ability to find a ‘greater fool’ in order to get out safely. It is important to recognize that speculative risks aren't a source of durable long-term returns.
"As the mathematician John Allen Paulos has observed, "people generally worry only about what happens one or two steps ahead and anticipate being able to get out before a collapse... In countless situations people prepare exclusively for near-term outcomes and don't look very far ahead. They myopically discount the future at an absurdly steep rate."
If you strategically analyze the situation in USA right now, the U.S. financial system appears to be a nicely painted dam, behind which a massive pool of delinquent debt is obscured.” Credit card crisis is the next big financial drag on the economy....
“A significant correction in valuations and resolution of the growing backlog of delinquent debt may finally restore strong ‘investment merit’ to the U.S. stock market, but only after a greater amount of pain and adjustment than most investors seem to anticipate.”
Large corporations continue to borrow huge sums of money, but most appear to be sitting on their cash instead of spending it, which may benefit shareholders in the long run.
“They are still holding on to more cash in the same way that Noah built the ark,” “It is very telling.” Household debt to GDP Ratio is 122%...It requires $5-6 trillion to bring it back to 100% of GDP......Deleveraging is continuing in the US economy right now which will further drag the economy making it into subpar growth for the next 2-3 years...
Tuesday, October 5, 2010
UK Banks will need new bailout in 2011---Shared by Shan Saeed
UK Banks May Need New Bailout in 2011
British banks may need another state bailout next year and their borrowing requirements could hit 25 billion pounds ($39.5 billion) a month, a think tank said, although the UK finance minister dismissed any such scenario.
The independent New Economics Foundation (NEF) think tank said it had examined Bank of England data and concluded that many U.K. banks appeared to face a funding cliff, as it published a report on Britain's banks entitled "Where Did Our Money Go?"
Royal Bank of Scotland and Lloyds had to be part-nationalized as they ran up huge losses during the credit crisis, and others, such as Barclays and HSBC, have benefited from cheap credit provided by the central bank.
U.K. banks have a January 2012 deadline to repay 185 billion pounds they borrowed from the Bank of England against 287 billion pounds of illiquid assets, mostly residential mortgage backed securities, under the BoE's Special Liquidity Scheme.
They also face further pressure from new Basel III banking industry rules, due to be phased in by January 2019, which will require banks to hold more capital, and on Monday Switzerland laid out tough new requirements for Credit Suisse and UBS.
Asked about the NEF report on Monday, British finance minister George Osborne said he was not expecting any British bank to need any further government support.
"I am certainly not expecting and I have no indication at all that any British bank needs any further support," Osborne told Sky News.
"Those decisions were taken and the banking system in Britain is much more stable than for example the banking system in Ireland," he added, referring to Ireland's possible 50 billion euro bill to shore up the Irish banks.
IRISH EXPOSURE
Royal Bank of Scotland shares were down 0.2 percent by 0915 GMT. Lloyds fell 0.1 percent, while Barclays and HSBC were flat.
In July, RBS said it had a 4.3 billion pound exposure to Ireland, the biggest out of Britain's banks. Lloyds said in August it was closing its Irish banking operation but Lloyds still has outstanding Irish loans to deal with.
Jane Coffey, head of UK equities at Royal London Asset Management, said there were liquidity issues concerning the UK banks but added she did not think the situation to be as dramatic as portrayed by the NEF.
"It's liquidity they lack rather than capital but I am not unduly concerned about the UK banks," said Coffey.
In response to the NEF report, the British Bankers Association (BBA) said the country's banks were well placed to deal with any financial problems that may arise in the future.
"U.K. banks have already put in the work to rebuild their businesses and exceed the international standards for capital and liquidity," the BBA said.
"Not all banks in the U.K. received support from the government. Those that did are paying commercial rates for it - it wasn't a hand-out, a grant or a gift. And the government still holds that investment that will eventually be sold off profitably," added the BBA.
The main requirement of the new Basel rules is for banks to have a minimum Tier 1 capital ratio of 7 percent. Many banks' Tier 1 ratios are already above this but the Basel III regime is much stricter on what can be counted as Tier 1 capital.
The heads of top British and French banks said last month said they could meet tighter capital rules without a rights issue by using cash generated by their own profits.
However, credit rating agency Standard & Poor's said in August that several U.K. banks were overly reliant on wholesale funding that is government guaranteed or central bank funded.
The NEF think tank also backed separating companies' retail banking and investment banking operations — an option which the U.K.'s Independent Commission on Banking (ICB) is currently examining and one that the banks aim to oppose.
Bail out is not the solution...Lets restructure the bank for the betterment of the economy and to send positive signal in the market to the investors..Bailout is the taxpayers money...Bailing out is just like giving money to an addicted person to get more groovy / addiction...Either the person straightens up or dies.....Let the system clean itself from junky people who believe in fantasies......
British banks may need another state bailout next year and their borrowing requirements could hit 25 billion pounds ($39.5 billion) a month, a think tank said, although the UK finance minister dismissed any such scenario.
The independent New Economics Foundation (NEF) think tank said it had examined Bank of England data and concluded that many U.K. banks appeared to face a funding cliff, as it published a report on Britain's banks entitled "Where Did Our Money Go?"
Royal Bank of Scotland and Lloyds had to be part-nationalized as they ran up huge losses during the credit crisis, and others, such as Barclays and HSBC, have benefited from cheap credit provided by the central bank.
U.K. banks have a January 2012 deadline to repay 185 billion pounds they borrowed from the Bank of England against 287 billion pounds of illiquid assets, mostly residential mortgage backed securities, under the BoE's Special Liquidity Scheme.
They also face further pressure from new Basel III banking industry rules, due to be phased in by January 2019, which will require banks to hold more capital, and on Monday Switzerland laid out tough new requirements for Credit Suisse and UBS.
Asked about the NEF report on Monday, British finance minister George Osborne said he was not expecting any British bank to need any further government support.
"I am certainly not expecting and I have no indication at all that any British bank needs any further support," Osborne told Sky News.
"Those decisions were taken and the banking system in Britain is much more stable than for example the banking system in Ireland," he added, referring to Ireland's possible 50 billion euro bill to shore up the Irish banks.
IRISH EXPOSURE
Royal Bank of Scotland shares were down 0.2 percent by 0915 GMT. Lloyds fell 0.1 percent, while Barclays and HSBC were flat.
In July, RBS said it had a 4.3 billion pound exposure to Ireland, the biggest out of Britain's banks. Lloyds said in August it was closing its Irish banking operation but Lloyds still has outstanding Irish loans to deal with.
Jane Coffey, head of UK equities at Royal London Asset Management, said there were liquidity issues concerning the UK banks but added she did not think the situation to be as dramatic as portrayed by the NEF.
"It's liquidity they lack rather than capital but I am not unduly concerned about the UK banks," said Coffey.
In response to the NEF report, the British Bankers Association (BBA) said the country's banks were well placed to deal with any financial problems that may arise in the future.
"U.K. banks have already put in the work to rebuild their businesses and exceed the international standards for capital and liquidity," the BBA said.
"Not all banks in the U.K. received support from the government. Those that did are paying commercial rates for it - it wasn't a hand-out, a grant or a gift. And the government still holds that investment that will eventually be sold off profitably," added the BBA.
The main requirement of the new Basel rules is for banks to have a minimum Tier 1 capital ratio of 7 percent. Many banks' Tier 1 ratios are already above this but the Basel III regime is much stricter on what can be counted as Tier 1 capital.
The heads of top British and French banks said last month said they could meet tighter capital rules without a rights issue by using cash generated by their own profits.
However, credit rating agency Standard & Poor's said in August that several U.K. banks were overly reliant on wholesale funding that is government guaranteed or central bank funded.
The NEF think tank also backed separating companies' retail banking and investment banking operations — an option which the U.K.'s Independent Commission on Banking (ICB) is currently examining and one that the banks aim to oppose.
Bail out is not the solution...Lets restructure the bank for the betterment of the economy and to send positive signal in the market to the investors..Bailout is the taxpayers money...Bailing out is just like giving money to an addicted person to get more groovy / addiction...Either the person straightens up or dies.....Let the system clean itself from junky people who believe in fantasies......
Recession is not over yet......Great economist agreed----Shared By Shan Saeed
Roubini, Shiller, Others Agree With Buffett: Recession Isn't Over
Shared by Shan Saeed
The National Bureau of Economic Research, the official USA arbiter of recession dates, marked June 2009 as the end of the Great Recession.
With economic growth sliding to 1.6 percent in the second quarter and the jobless rate remaining at 9.6 percent, many say the recession continues.
Warren Buffett
Perhaps the most respected of those who say the recession hasn’t ended is Warren Buffett. "On any common sense definition, the average American is below where he was before in terms of real income, GDP,” the investment legend told CNBC.
“We're still in a recession. And we're not going to be out of it for a while, but we will get out of it. We've used up a lot of bullets. And we talk about stimulus. But the truth is we're running a federal deficit that's 9 percent of GDP. That is as stimulative as all get out.”
Nouriel Roubini
Star economist Nouriel Roubini also says we haven’t exited hard times. "The big risk is that there will be a downturn in markets that could impact the bond, the equity and the credit markets,” he told CNBC.
“There is no private sector job growth. Consumption is weak, exports are weak and housing is weak. If there is no final sales and no final demand, companies will not invest. We have to expect the new normal. We do not need a double dip for it to feel like recession."
Robert Shiller
Yale economist Robert Shiller is another bear. He sees a sizable chance of a double-dip recession, as the economy struggles to emerge from the credit crisis and the housing industry continues to sag.
We may have seven years of “bad times” ahead of us, he wrote in a commentary for the Project Syndicate web site.
“If you allow a financial market to spin wildly until it breaks down, it really does seem that you run the risk of years of economic malaise. That is the historical pattern.”
Jobs are the big issue, Shiller tells CNBC. “We haven’t been focused enough on the unemployment rate.”
David Rosenberg
Some experts say “Great Recession” is the wrong term in the first place. They argue that we’re now in a depression. Gluskin Sheff chief economist David Rosenberg is one of them.
“(We’re in) a depression, and not just some garden-variety recession," he wrote in a commentary obtained by CNBC.
The stock market’s recent rally may argue against a downturn. But Rosenberg sees it differently.
"Such is human nature, and nobody can be blamed for trying to be optimistic. However, in the money management business, we have a fiduciary responsibility to be as realistic as possible about the outlook for the economy and the market at all times," he wrote.
Robert Prechter
Market guru Robert Prechter, president of Elliott Wave, agrees with Rosenberg. “Economists have something very wrong,” he told CNBC.
“They are talking about a Great Recession and that it’s over. I think they’re wrong on both counts. What we have is a partial recovery in an ongoing depression.”
Shan Saeed
I think we are in a modern times Depression which will last till 2014...........
Shared by Shan Saeed
The National Bureau of Economic Research, the official USA arbiter of recession dates, marked June 2009 as the end of the Great Recession.
With economic growth sliding to 1.6 percent in the second quarter and the jobless rate remaining at 9.6 percent, many say the recession continues.
Warren Buffett
Perhaps the most respected of those who say the recession hasn’t ended is Warren Buffett. "On any common sense definition, the average American is below where he was before in terms of real income, GDP,” the investment legend told CNBC.
“We're still in a recession. And we're not going to be out of it for a while, but we will get out of it. We've used up a lot of bullets. And we talk about stimulus. But the truth is we're running a federal deficit that's 9 percent of GDP. That is as stimulative as all get out.”
Nouriel Roubini
Star economist Nouriel Roubini also says we haven’t exited hard times. "The big risk is that there will be a downturn in markets that could impact the bond, the equity and the credit markets,” he told CNBC.
“There is no private sector job growth. Consumption is weak, exports are weak and housing is weak. If there is no final sales and no final demand, companies will not invest. We have to expect the new normal. We do not need a double dip for it to feel like recession."
Robert Shiller
Yale economist Robert Shiller is another bear. He sees a sizable chance of a double-dip recession, as the economy struggles to emerge from the credit crisis and the housing industry continues to sag.
We may have seven years of “bad times” ahead of us, he wrote in a commentary for the Project Syndicate web site.
“If you allow a financial market to spin wildly until it breaks down, it really does seem that you run the risk of years of economic malaise. That is the historical pattern.”
Jobs are the big issue, Shiller tells CNBC. “We haven’t been focused enough on the unemployment rate.”
David Rosenberg
Some experts say “Great Recession” is the wrong term in the first place. They argue that we’re now in a depression. Gluskin Sheff chief economist David Rosenberg is one of them.
“(We’re in) a depression, and not just some garden-variety recession," he wrote in a commentary obtained by CNBC.
The stock market’s recent rally may argue against a downturn. But Rosenberg sees it differently.
"Such is human nature, and nobody can be blamed for trying to be optimistic. However, in the money management business, we have a fiduciary responsibility to be as realistic as possible about the outlook for the economy and the market at all times," he wrote.
Robert Prechter
Market guru Robert Prechter, president of Elliott Wave, agrees with Rosenberg. “Economists have something very wrong,” he told CNBC.
“They are talking about a Great Recession and that it’s over. I think they’re wrong on both counts. What we have is a partial recovery in an ongoing depression.”
Shan Saeed
I think we are in a modern times Depression which will last till 2014...........
Copper prices will touch $11,000 in 12 months
Soaring Demand Will Push Copper to $11,000------By Shan Saeed
Copper, Zinc, Palladium and Platinum are also deliberated in this research piece.....
I am a firm believer that demand-supply dynamics works in every commodity and in every market. Speculation just contributed to 17-20%5 of the total value of any commodity. Copper will trade at $11,000 a metric ton in a years time. The prices are raised because of swelling demand.
The forecast implies a 35 percent gain from the metal’s current price. I predicted that copper would trade at $8,050 a ton in 12 months. I strongly advised investors to buy the December 2011 contract as increasing demand leads to shortages of the metal.
Copper for three-month delivery traded on the London Metal Exchange jumped 23 percent in the third quarter, the most in a year, helped by falling stockpiles and a weaker dollar. LME inventories shrank by 17 percent in the period, and the U.S. Dollar Index, a six-currency gauge of the greenback’s strength, slid 8.5 percent, the most since 2002. Please check records..I talk with facts and figures....
“Supply-demand deficits look set to grow on emerging- market strength and improving demand from developed economies, which we expect to significantly outpace supply growth, drawing down inventories and creating market shortages. according to London-based Jeffrey Currie said in the report. “We don’t believe that the market is fully pricing these shortages and the potential for demand rationing that lies ahead in 2011.”
Zinc Prices
Three-month copper traded at $8,156 a ton at 1:38 p.m. on the LME. The December 2011 contract was at $8,025. Its three-month forecast for the metal to $8,500 and increased its six-month estimate to $8,800.
Copper will average $9,300 a ton next year compared with about $7,215 so far in 2010. Electrical equipment and construction are the main sources of demand.
The 12-month forecast for zinc to $3,000 a ton. The metal, used to rust-proof steel, will likely stay in surplus for now because of supply growth, though the market will be more balanced in the year ahead and “possibly swinging to times of deficit” next year.
Zinc for three-month delivery was last at $2,288 a ton on the LME, reducing this year’s decline to 11 percent. The metal will average $2,575 in 2011. Watch out my predictions and benefit from my expertise and experience. Already predicted a 12-month price of $2,225.
Palladium and Platinum Prices
Palladium and platinum will continue to surge as well. They are used in the auto catalyst industry to cut emissions. Catalyst in diesel engines tend to take higher loading of platinum, while palladium is more abundant in catalysts for gasoline engines. If we analyze the YTD growth of Platinum is 9.7% to $1600 while palladium has risen 31% YTD to over $567/ounce. Palladium is likely to lure investors more than platinum based on the large growth potential of the chinese car market which is surging at a phenomenal speed, a more limited supply, outlook for the metal and its inherent volatility. Palladium's lustre set to eclipse platinum moving forward
Golden Rule: Investors love owning assets where there is limited supply....
Disclaimer: This is just a research piece and not an investment advice. Please execute your own due diligence before making investment. Do your thorough research.
Copper, Zinc, Palladium and Platinum are also deliberated in this research piece.....
I am a firm believer that demand-supply dynamics works in every commodity and in every market. Speculation just contributed to 17-20%5 of the total value of any commodity. Copper will trade at $11,000 a metric ton in a years time. The prices are raised because of swelling demand.
The forecast implies a 35 percent gain from the metal’s current price. I predicted that copper would trade at $8,050 a ton in 12 months. I strongly advised investors to buy the December 2011 contract as increasing demand leads to shortages of the metal.
Copper for three-month delivery traded on the London Metal Exchange jumped 23 percent in the third quarter, the most in a year, helped by falling stockpiles and a weaker dollar. LME inventories shrank by 17 percent in the period, and the U.S. Dollar Index, a six-currency gauge of the greenback’s strength, slid 8.5 percent, the most since 2002. Please check records..I talk with facts and figures....
“Supply-demand deficits look set to grow on emerging- market strength and improving demand from developed economies, which we expect to significantly outpace supply growth, drawing down inventories and creating market shortages. according to London-based Jeffrey Currie said in the report. “We don’t believe that the market is fully pricing these shortages and the potential for demand rationing that lies ahead in 2011.”
Zinc Prices
Three-month copper traded at $8,156 a ton at 1:38 p.m. on the LME. The December 2011 contract was at $8,025. Its three-month forecast for the metal to $8,500 and increased its six-month estimate to $8,800.
Copper will average $9,300 a ton next year compared with about $7,215 so far in 2010. Electrical equipment and construction are the main sources of demand.
The 12-month forecast for zinc to $3,000 a ton. The metal, used to rust-proof steel, will likely stay in surplus for now because of supply growth, though the market will be more balanced in the year ahead and “possibly swinging to times of deficit” next year.
Zinc for three-month delivery was last at $2,288 a ton on the LME, reducing this year’s decline to 11 percent. The metal will average $2,575 in 2011. Watch out my predictions and benefit from my expertise and experience. Already predicted a 12-month price of $2,225.
Palladium and Platinum Prices
Palladium and platinum will continue to surge as well. They are used in the auto catalyst industry to cut emissions. Catalyst in diesel engines tend to take higher loading of platinum, while palladium is more abundant in catalysts for gasoline engines. If we analyze the YTD growth of Platinum is 9.7% to $1600 while palladium has risen 31% YTD to over $567/ounce. Palladium is likely to lure investors more than platinum based on the large growth potential of the chinese car market which is surging at a phenomenal speed, a more limited supply, outlook for the metal and its inherent volatility. Palladium's lustre set to eclipse platinum moving forward
Golden Rule: Investors love owning assets where there is limited supply....
Disclaimer: This is just a research piece and not an investment advice. Please execute your own due diligence before making investment. Do your thorough research.
IMF warning for advanced economies----Your are in recession...Shared by Shan Saeed
IMF Warns Western Economies Mired in 'Near Depression---SHARED By Shan Saeed
This report can be eye-opener for many investors and policy developers / decision makers and politician in the developed countries....
A new report by the International Monetary Fund paints a brutally grim picture of the global economic outlook, warning that continued European belt-tightening combined with possible deficit-cutting in the United States could lead to a global double-dip recession.
Ambrose Evans-Pritchard, international business editor of the Daily Telegraph newspaper, wrote that the report suggests Western economies are stuck in a "near depression."
In the near term, the report suggested, nations seeking to stabilize their economies by cutting their budgets will only make the global economy worse.
Evans-Pritchard reported the IMF analysis "more or less condemns southern Europe to death by slow suffocation and leaves little doubt that fiscal tightening will trap North Europe, Britain, and American in a slump for a long time."
Nobel Prize-winning economist and former World Bank chief economist Joseph Stiglitz used even more drastic imagery. He said some governments may be caught in a "death spiral."
Stiglitz warned that Spain, which has a ballooning deficit and massive unemployment, may be the next target of the same speculators who pushed Greece to the brink of insolvency earlier this year.
"Under the rules of the game, Spain must now cut its spending, which will almost surely increase its unemployment rate still further," Stiglitz wrote. "As its economy slows, the improvement in its fiscal position may be minimal."
Moody’s last week cut Spain's credit rating from AAA to Aa1.
Entitled "Will It Hurt? Macroeconomic Effects of Fiscal Consolidation," the IMF report states that when a nation cuts its budget by 1 percent of GDP, it ordinarily experiences a half percentage point drop in growth.
But if interest rates are already at zero — as is the case now in many nations — and too many nations cut their spending simultaneously, the negative impact of austerity programs on economic growth can be much worse.
The report stated that cutting government spending does help economies to grow in the long run. But first come slower growth and higher unemployment, at least as far as the current "fiscal retrenchment" is concerned.
The United States responded to the economic meltdown by opening its wallet wide and doling out over $1 trillion in TARP and stimulus spending, a significant percentage of which flowed overseas.
European nations, on the other hand, took a much more conservative approach, and rebuffed President Barack Obama's entreaties for them to spend more money in order to juice their economies. Recently, they have begun to embark on serious cost-cutting campaigns.
The latest example came Monday, as British Chancellor of the Exchequer George Osborne's announced that some 3 million wealthy British families will no longer receive the stay-at-home mom benefit. That entitlement paid those with two children up to $2,700 a year.
Portugal, meanwhile, is in dire economic straits. Premier Jose Socrates is increasing the VAT tax, cutting public-sector wages, and freezing pensions. Portugal's trade unions have called for a massive strike next month.
The IMF's concern is that too many nations tightening their belts at the same time will lead to economic stagnation, before the longer-term benefits of smaller public sectors take effect.
Stiglitz, a Columbia business school professor who argues for a return to Keynesian economics, is promoting an updated version of his book "Freefall: America, Free Markets, and the Sinking of the World Economy." He warned in the Telegraph that the Euro might not survive the Continent's current austerity crusade. He said its outlook appears "bleak."
"The worry is that there is a wave of austerity building throughout Europe and even hitting America's shores," Stiglitz wrote. "As so many countries cut back on spending prematurely, global aggregate demand will be lowered and growth will slow — even perhaps leading to a double-dip recession."
In the United States, analysts are nervously awaiting Friday's September unemployment report.
With less than a month before the November midterms, that report will receive heavy scrutiny as an interim report card on the U.S. economy. Most pundits expect Obama to face a much more austerity-minded Congress following the election.
One major wild card: How will voters interpret Democratic leaders' unwillingness to extend the Bush tax cuts? House Minority Leader John Boehner said so many Democrats crossed over to join with Republicans on extending those tax breaks that the House could have passed an extension. But House Democrats refused to bring the measure up for a break before sending the members home for recess.
Also Monday, some members of the president's own economic recovery board appeared to break with him over the Bush tax cuts.
The unusually frank exchange between the president and his advisory board involved Harvard economics professor Martin Feldstein, who was chairman of President Reagan's Council of Economic Advisers, and former SEC chairman William Donaldson.
Without extending the tax cuts, they argued, a climate of economic uncertainty would continue to plague businesses, they said, discouraging them from hiring new workers. But Obama refused to back down.
Obama's response according to Politico: “I don’t know any economists -- including, I think, Martin -- who think we are likely to get a bump in aggregate demand from $700 billion of borrowed money going to people like those of us around the table, who, if I suspect want a flat-screen TV, can afford one right now and are going out and buying one.
Obama also stated: “If we were going to spent $700 billion, it seems, we’d be wiser having that $700 billion going to folks who would spend that right away.”
ABC News' Political Punch blog reported that Feldstein said extending the Bush tax breaks for some Americans, but not for others, would send a bad signal.
Obama's blunt response: "They have to pay slightly higher taxes. That's the signal."
Despite the current 9.6 percent unemployment rate, the president appeared to enjoy his feisty exchange with the economists.
“This was a fun conversation; it went a little off script, which is good,” Obama told the advisory board. “I liked it. I enjoyed it.”
US economy is not in the healthy state and will continoue to remain stagnant with subpar growth in the next 3-4 years.........QE wont solve the problem for the US economy...Government intervention would be catastrophic for the economy....
This report can be eye-opener for many investors and policy developers / decision makers and politician in the developed countries....
A new report by the International Monetary Fund paints a brutally grim picture of the global economic outlook, warning that continued European belt-tightening combined with possible deficit-cutting in the United States could lead to a global double-dip recession.
Ambrose Evans-Pritchard, international business editor of the Daily Telegraph newspaper, wrote that the report suggests Western economies are stuck in a "near depression."
In the near term, the report suggested, nations seeking to stabilize their economies by cutting their budgets will only make the global economy worse.
Evans-Pritchard reported the IMF analysis "more or less condemns southern Europe to death by slow suffocation and leaves little doubt that fiscal tightening will trap North Europe, Britain, and American in a slump for a long time."
Nobel Prize-winning economist and former World Bank chief economist Joseph Stiglitz used even more drastic imagery. He said some governments may be caught in a "death spiral."
Stiglitz warned that Spain, which has a ballooning deficit and massive unemployment, may be the next target of the same speculators who pushed Greece to the brink of insolvency earlier this year.
"Under the rules of the game, Spain must now cut its spending, which will almost surely increase its unemployment rate still further," Stiglitz wrote. "As its economy slows, the improvement in its fiscal position may be minimal."
Moody’s last week cut Spain's credit rating from AAA to Aa1.
Entitled "Will It Hurt? Macroeconomic Effects of Fiscal Consolidation," the IMF report states that when a nation cuts its budget by 1 percent of GDP, it ordinarily experiences a half percentage point drop in growth.
But if interest rates are already at zero — as is the case now in many nations — and too many nations cut their spending simultaneously, the negative impact of austerity programs on economic growth can be much worse.
The report stated that cutting government spending does help economies to grow in the long run. But first come slower growth and higher unemployment, at least as far as the current "fiscal retrenchment" is concerned.
The United States responded to the economic meltdown by opening its wallet wide and doling out over $1 trillion in TARP and stimulus spending, a significant percentage of which flowed overseas.
European nations, on the other hand, took a much more conservative approach, and rebuffed President Barack Obama's entreaties for them to spend more money in order to juice their economies. Recently, they have begun to embark on serious cost-cutting campaigns.
The latest example came Monday, as British Chancellor of the Exchequer George Osborne's announced that some 3 million wealthy British families will no longer receive the stay-at-home mom benefit. That entitlement paid those with two children up to $2,700 a year.
Portugal, meanwhile, is in dire economic straits. Premier Jose Socrates is increasing the VAT tax, cutting public-sector wages, and freezing pensions. Portugal's trade unions have called for a massive strike next month.
The IMF's concern is that too many nations tightening their belts at the same time will lead to economic stagnation, before the longer-term benefits of smaller public sectors take effect.
Stiglitz, a Columbia business school professor who argues for a return to Keynesian economics, is promoting an updated version of his book "Freefall: America, Free Markets, and the Sinking of the World Economy." He warned in the Telegraph that the Euro might not survive the Continent's current austerity crusade. He said its outlook appears "bleak."
"The worry is that there is a wave of austerity building throughout Europe and even hitting America's shores," Stiglitz wrote. "As so many countries cut back on spending prematurely, global aggregate demand will be lowered and growth will slow — even perhaps leading to a double-dip recession."
In the United States, analysts are nervously awaiting Friday's September unemployment report.
With less than a month before the November midterms, that report will receive heavy scrutiny as an interim report card on the U.S. economy. Most pundits expect Obama to face a much more austerity-minded Congress following the election.
One major wild card: How will voters interpret Democratic leaders' unwillingness to extend the Bush tax cuts? House Minority Leader John Boehner said so many Democrats crossed over to join with Republicans on extending those tax breaks that the House could have passed an extension. But House Democrats refused to bring the measure up for a break before sending the members home for recess.
Also Monday, some members of the president's own economic recovery board appeared to break with him over the Bush tax cuts.
The unusually frank exchange between the president and his advisory board involved Harvard economics professor Martin Feldstein, who was chairman of President Reagan's Council of Economic Advisers, and former SEC chairman William Donaldson.
Without extending the tax cuts, they argued, a climate of economic uncertainty would continue to plague businesses, they said, discouraging them from hiring new workers. But Obama refused to back down.
Obama's response according to Politico: “I don’t know any economists -- including, I think, Martin -- who think we are likely to get a bump in aggregate demand from $700 billion of borrowed money going to people like those of us around the table, who, if I suspect want a flat-screen TV, can afford one right now and are going out and buying one.
Obama also stated: “If we were going to spent $700 billion, it seems, we’d be wiser having that $700 billion going to folks who would spend that right away.”
ABC News' Political Punch blog reported that Feldstein said extending the Bush tax breaks for some Americans, but not for others, would send a bad signal.
Obama's blunt response: "They have to pay slightly higher taxes. That's the signal."
Despite the current 9.6 percent unemployment rate, the president appeared to enjoy his feisty exchange with the economists.
“This was a fun conversation; it went a little off script, which is good,” Obama told the advisory board. “I liked it. I enjoyed it.”
US economy is not in the healthy state and will continoue to remain stagnant with subpar growth in the next 3-4 years.........QE wont solve the problem for the US economy...Government intervention would be catastrophic for the economy....
Government Intervention will create subpar growth in developed economies......By Shan Saeed
Government may cause the stagnation going forward by Shan Saeed
Quantitative easing or printing money is going global...Whether its USA or Japan or UK...QE wont solve the problem to fix the economy.
THE most underappreciated risk is not that policy makers do "too little, too late", but that they are doing "too much, too often". In my personal view, a global "lost decade" is getting more likely precisely because we're getting ever increasing government intervention—whether fiscal, financial, or regulatory. The economist and entrepreneur Jean-Baptiste Say put it best: "In times of political confusion, and under arbitrary government, many will prefer to keep their capital inactive, concealed, and unproductive, either of profit, or gratification, rather than run the risk of its display. This latter evil is never felt under good government."
Learning from Japan, regime uncertainty may well be a much bigger problem than generally appreciated. Japanese created Zombi banks in the 1990 and they never did much for the growth of the economy or credit growth. For example, what are private risk-takers and investors to think of the sharp about-turn that just happened: barely three months ago, policy makers were busy signaling "exit strategies" and the need to end big-government spending, while now we're back at listening to increasingly urgent calls for "QE2" and the need for a stepped-up supplementary fiscal boost. Stop-go policymaking reveals not just deep-rooted inconsistencies and the actual inability of policymakers to forecast better than the market. More worryingly, it serves a self-perpetuating dynamic that hides the ever-growing size of public policy intervention in the free economy. Clearspeak: animal spirits are being "crowded out".
Contrast this to Chinese policy makers. Whichever way you look, the actual focus of the regime there is to create markets and to build public infrastructure that allows private entrepreneurs and risk takers to multiply and invest in future wealth-creating ventures: a fountain of privatisation, deregulation, enforcement of property laws and free-market wage bargaining. How ironic that the world's largest "command economy" actually uses its policymaking powers primarily to empower private risk taking. In contrast, for the big free-market democracies even a relatively minor cyclical slowdown becomes an excuse for more taxpayer funds and more central bank intervention in private asset markets.
To be sure, the verdict on this summer's US slowdown is still out, but isn't it true that much of it was caused by the end of "emergency" policy taken after the Lehman Shock—the end of "cash for clunkers", the rolling-off of special tax relief in home buying etc.? Call it the "new normal" because yes, given the de-leveraging and absence of major technological innovation, the potential growth path of the major industrialised economies may well be as much as half a percentage point or so below what we've seen over the past decade. However, the more fickle policy makers get in trying to fine-tune minor cyclical swings, the bigger the risks that private risk takers will simply "keep their capital inactive, concealed, and unproductive". In my personal view, if you want to minimise the risks of a Japan-style stagnation, start empowering the private sector by withdrawing public support and "financial socialism". Failure to do so may mean that we'll never know what the "new normal" is, or rather, how good it could have been.
Spending cut and tax rationalization are the key to get the USA economy out of recession.........
Quantitative easing or printing money is going global...Whether its USA or Japan or UK...QE wont solve the problem to fix the economy.
THE most underappreciated risk is not that policy makers do "too little, too late", but that they are doing "too much, too often". In my personal view, a global "lost decade" is getting more likely precisely because we're getting ever increasing government intervention—whether fiscal, financial, or regulatory. The economist and entrepreneur Jean-Baptiste Say put it best: "In times of political confusion, and under arbitrary government, many will prefer to keep their capital inactive, concealed, and unproductive, either of profit, or gratification, rather than run the risk of its display. This latter evil is never felt under good government."
Learning from Japan, regime uncertainty may well be a much bigger problem than generally appreciated. Japanese created Zombi banks in the 1990 and they never did much for the growth of the economy or credit growth. For example, what are private risk-takers and investors to think of the sharp about-turn that just happened: barely three months ago, policy makers were busy signaling "exit strategies" and the need to end big-government spending, while now we're back at listening to increasingly urgent calls for "QE2" and the need for a stepped-up supplementary fiscal boost. Stop-go policymaking reveals not just deep-rooted inconsistencies and the actual inability of policymakers to forecast better than the market. More worryingly, it serves a self-perpetuating dynamic that hides the ever-growing size of public policy intervention in the free economy. Clearspeak: animal spirits are being "crowded out".
Contrast this to Chinese policy makers. Whichever way you look, the actual focus of the regime there is to create markets and to build public infrastructure that allows private entrepreneurs and risk takers to multiply and invest in future wealth-creating ventures: a fountain of privatisation, deregulation, enforcement of property laws and free-market wage bargaining. How ironic that the world's largest "command economy" actually uses its policymaking powers primarily to empower private risk taking. In contrast, for the big free-market democracies even a relatively minor cyclical slowdown becomes an excuse for more taxpayer funds and more central bank intervention in private asset markets.
To be sure, the verdict on this summer's US slowdown is still out, but isn't it true that much of it was caused by the end of "emergency" policy taken after the Lehman Shock—the end of "cash for clunkers", the rolling-off of special tax relief in home buying etc.? Call it the "new normal" because yes, given the de-leveraging and absence of major technological innovation, the potential growth path of the major industrialised economies may well be as much as half a percentage point or so below what we've seen over the past decade. However, the more fickle policy makers get in trying to fine-tune minor cyclical swings, the bigger the risks that private risk takers will simply "keep their capital inactive, concealed, and unproductive". In my personal view, if you want to minimise the risks of a Japan-style stagnation, start empowering the private sector by withdrawing public support and "financial socialism". Failure to do so may mean that we'll never know what the "new normal" is, or rather, how good it could have been.
Spending cut and tax rationalization are the key to get the USA economy out of recession.........
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