« CBO: largest growth shortfall since the Great Depression | Main | I’m back »

Wednesday, January 28, 2009

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341caf5253ef010536fe8bbc970c

Listed below are links to weblogs that reference IMF: "Risks to financial stability have intensified":

Comments

Razib Ahmed

I agree with IMF’s analysis here. In the last 2-3 days, the export data of some Asian countries came and there has been significant decrease in exports earnings of China, South Korea and India. Until now, economic recession was mostly limited to Europe and America. Now, it is spreading to Asia. I will not be surprised to see media headlines about a deepening economic crisis in Asia in the next few weeks.

Arthur Eckart

Plunder: to rob of goods or valuables by open force, as in war; despoil, or fleece; to take wrongfully, as by pillage, robbery, or fraud; loot.

BEIJING (Reuters) - The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said.

"The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University.

Shi, who has before been strident in his criticism of the U.S., said other countries had lost vast amounts of wealth because of the financial crisis, while Washington's sole concern had been protecting its own interests.

Shi suggested that all trade between Europe and Asia should be settled in euros, pounds, yen and yuan, though he did not explain how the Chinese currency could play such a role since it is not convertible on the capital account.

My comment:

The U.S. is the only economy that can expand with huge negative net exports. Even the E.U., which is a group of countries, would fall into recession attempting to be the main engine of global growth, trying to pull Asian economies, e.g. Japan, China, the "Asian Tigers," etc. In Europe, there are no Microsofts, Ciscos, Intels, Apples, Googles, Genentechs, etc., while their emerging industries generally continue to lag the U.S. badly, and their older industries are much less efficient. So, it'll continue to be a U.S.-centric world, until a country or group of countries can compete with the U.S.

Also, export-led economies will need to exchange their goods for more U.S. goods (consumer and capital goods) rather than exchange their goods for U.S. assets (e.g. Treasury bonds). That means export-led economies will need to produce less and consume more, while the U.S. produces more and consumes less.

The U.S. dollar remains the ultimate hard currency, and the only universally accepted currency (when Saddam was captured, he wasn't carrying Euros, Iraqi Dinars, Yen, Swiss Francs, or gold. He had U.S. dollars).

The root cause of the financial crisis is global imbalances. For example, China sold its goods too cheaply, which induced U.S. demand. China then lent its dollars too cheaply, which also induced U.S. demand. So, there was a virtuous U.S. cycle, of consumption and investment. The U.S. captured increasingly larger gains of trade, while China captured increasingly smaller gains of trade (e.g. through diminished U.S. marginal utility, and China earning greater negative returns, through low interest rates, inflation, e.g. not exchanging its goods for enough U.S. goods, currency exchange rates, etc.). The cycle became a boom that was unsustainable. Here's what an Oxford economist stated:

Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.

Any economist will say that Americans have been living better than they should—which is by definition the case when a nation’s total consumption is greater than its total production, as America’s now is. Economists will also point out that, despite the glitter of China’s big cities and the rise of its billionaire class, China’s people have been living far worse than they could. That’s what it means when a nation consumes only half of what it produces, as China does.

Neither government likes to draw attention to this arrangement, because it has been so convenient on both sides. For China, it has helped the regime guide development in the way it would like—and keep the domestic economy’s growth rate from crossing the thin line that separates “unbelievably fast” from “uncontrollably inflationary.” For America, it has meant cheaper iPods, lower interest rates, reduced mortgage payments, a lighter tax burden. The average cash income for workers in a big factory is about $160 per month. On the farm, it’s a small fraction of that. Most people in China feel they are moving up, but from a very low starting point.

This is the bargain China has made—rather, the one its leaders have imposed on its people. They’ll keep creating new factory jobs, and thus reduce China’s own social tensions and create opportunities for its rural poor. The Chinese will live better year by year, though not as well as they could. And they’ll be protected from the risk of potentially catastrophic hyperinflation, which might undo what the nation’s decades of growth have built. In exchange, the government will hold much of the nation’s wealth in paper assets in the United States, thereby preventing a run on the dollar, shoring up relations between China and America, and sluicing enough cash back into Americans’ hands to let the spending go on.

Chart of U.S. Real Disposible Income over the past four years:

http://2.bp.blogspot.com/_otfwl2zc6Qc/SYcBvfeDlkI/AAAAAAAAJJg/VIfwx5qxiqg/s1600-h/dpi.bmp

From Article:

Buried in today's BEA report on Personal Income is some good news in "Table 10." Real Disposable Personal Income and Real Personal Consumption Expenditures: Percent Change From Month One Year Ago," see chart above. Real disposable personal income increased in each month of the last quarter, ending in December 2008 with 1.3% growth compared to December 2007. Maybe 1.3% growth in real disposable personal income is not great, but at least it's positive and at least the trend is going in the right direction: up.

Chart of U.S. Personal Saving Rate (over past four years):

http://4.bp.blogspot.com/_otfwl2zc6Qc/SYcDmIWqmwI/AAAAAAAAJJo/CKagXnna5Ww/s1600-h/saving.bmp

From Article:

The personal saving rate has increased in each of the last four months and reached 3.6% in December (see chart above), as consumers were able to save $378.6 billion in December (on an annual basis), an amount approximately equal to the annual savings for consumers from falling gas prices.

It's likely (unless Obama messes it up) a huge rally will begin at some point in 2009, given the increases in household income and saving (see charts above), along with the $9 trillion in cash on the sidelines:

Cash at 18-Year High Makes Stocks a Buy

Dec. 29, 2008 (Bloomberg) -- There’s more cash available to buy shares than at any time in almost two decades, a sign to some of the most successful investors that equities will rebound after the worst year for U.S. stocks since the Great Depression.

The $8.85 trillion held in cash, bank deposits and money- market funds is equal to 74 percent of the market value of U.S. companies, the highest ratio since 1990, according to Federal Reserve data compiled by Leuthold Group and Bloomberg.

“There is a store of cash out there that is able to take the market higher,” said Eric Bjorgen, who helps oversee $3.4 billion at Leuthold in Minneapolis. “The same dollar you had last year buys you twice as much S&P 500 as it did a year ago.”

Leuthold Group, whose Grizzly Short Fund returned 83 percent in 2008 thanks to bets against equities, said in its December bulletin to investors that stocks offer “one of the great buying opportunities of your lifetime.”

The ratio of cash on hand to U.S. market capitalization jumped 86 percent in the first 11 months of the year, the biggest increase since the Fed began keeping records in 1959.

Cash holdings peaked one month before equities began to recover during the two longest recessions since World War II. In July 1982, money of zero maturity as a percentage of the U.S. stock market’s value rose to 95 percent before a 20-month bear market ended and the S&P 500 began a six-month, 36 percent advance, data compiled by Bloomberg show.

Cash on hand reached $604.5 billion in September 1974, representing a record 1.21 times U.S. stock capitalization. That preceded a 31 percent gain in equities between October 1974 and March 1975, Bloomberg data show.

“If history tends to repeat itself, we’re in the exact same scenario,” said Neil Hennessy, who oversees $650 million as president of Hennessy Advisors in Novato, California. “Once the money starts to come back into the market, buying is going to beget more buying. People don’t want to be left behind.”

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4JGucN3jZxM

The NBER stated the recession began in December 2007. However, that was a close call, since the U.S. was on a path to a soft-landing, until September 2008. I believe, the recession began in September 2008 and will end in the middle of 2009.

Beal

Good article, thanks

Jae

Hi,
I'm in the process of starting a social experiment via the web, and am in need of someone that can write really well. The details of the project is laid out on my website at www.accreation.org. I've tried finding someone to help me edit the content through friends, but as of yet have not had any success. Please visit the site, and contact me if you or someone you know might be interested in participating in the project. Thank you.

Regards,
Jae Kim

Michael

Very good article.

In my opinion, it is all a matter of market timing. It does not matter if it is gold, oil, or Microsoft, if you have access to good market timing signals, they will help you get in and out at a profit.

No guarantees in this business, but if they are right most of the time, you can still make $s.

There are may web sites providing them out there (search Google). Just find one that works and use it! Check out http://invetrics.com as an example.

Its Dow Jones timing signals are up 43% as of 6/23/09 while the Dow is up just 29% off its March lows.

Following a market timing system works!

janetbrown

This is just one more reminder that the only real way to keep our economy strong is not by raising taxes, but by keeping taxes low, fair and simple. I've been looking for a way to take action and contact our legislators and sign petitions and found some good policy the U.S. Chamber of Commerce backs (here). I don't have a lot of money or time, but I figure this will help other people do good.


Anne Stephanie Cruz

Hi!

Just sending you a short note to say I really enjoy reading your blog.

I’m Steph Cruz and I work for a background screening service provider called Crimcheck.com. I was wondering if you would allow me to write a guest post for you. The article can be about HR, background checks, employment screening - or really any topic that you might find relevant.

Please let me know how this idea sounds to you. Thanks in advance!

Sincerely Yours,

Anne Stephanie Cruz
www.crimcheck.com

Steph@crimcheckadvantage.com

GuruMCX

Get real time live market MCX Tips in Indian Free Commodity Markets Tips for free and NSE Share Tips & Nifty Tips are also provided through SMS

mental health issues

I usually don’t leave comments!!! Trust me! But I liked your blog…especially this post! Would you mind terribly if I put up a backlink from my site to your site? Please come visit my site mental health support when you got time. Thanks.

atypical hemolytic uremic syndrome

Wow! Thank you! I always wanted to write in my site something like that. Can I take part of your post to my blog?
Please come visit my site hemolytic uremic syndrome when you got time.
Thanks

Seattle Business Directory

Hey congrats on the new posting come out
btw i love your blog although i have just stumbled upon it =)
Love the new pictures you got there! Please come visit my site Seattle Business Directory when you got time.

neon tabela

IMF, sadece kendini düşünen bir kuruluş ..

florist

now that we are in this recession for a while, we will see asian countries recovering alot faster due to its link to china's import

Local Business Directory Of Honolulu U.S.A.

I am not really sure if best practices have emerged around things like that, but I am sure that your great job is clearly identifed. I was wondering if you offer any subscription to your RSS feeds as I would be very interested and can’t find any link to subscribe here. Please come visit my site Local Business Directory Of Honolulu U.S.A. when you got time.

Local Business Directory Of Honolulu U.S.A.

This is just another reason why I like your website. I like your style of writing you tell your stories without out sending us to 5 other sites to complete the story. Please come visit my site Minneapolis Business Directory when you got time.

Resource Guide Chula Vista California CA

read your other new posts. Please come visit my site Resource Guide Chula Vista California CA when you got time.

Modesto Business Directory

I really liked your blog! Please come visit my site Modesto Business Directory when you got time.

Shortcuts to Millions

With the global crisis and financial losses , the credit loans have turned the default ratio incredibly doubled , this leads to mismanagement and uneven gap analysis .

microgaming

Hi there, just dropping by to tell you I like your blog pretty much and I will be here more days to read your posts. I agree with most points in your article and obviously raising taxes is not the best way to keep a strong economy. This article is very interesting, really.

Jacksonville Business Services And Classifieds

I really liked your post on home financing! if you have more information elsewhere let me know. Please come visit my site Jacksonville Business Services And Classifieds when you got time.

San Antonio Business Directory Forum Blog Classifieds

I was thinking of looking up some of them newspaper websites, but am glad I came here instead. Although glad is not quite the right word… let me just say I needed this after the incessant chatter in the media, and am grateful to you for articulating something many of us are feeling - even from distant shores. Please come visit my site San Antonio Business Directory Forum Blog Classifieds when you got time.

Debt Rescue Relief

Financial stability have risen the gaps as credit crunch being the indicator of economic crisis and uneven financial conditions .

araç kiralama

Great job, keep it up. thanks

rent a car

Thnx for the interesting post.I found it very useful for myself. Keep writing

acı cehre

Very interesting article with unique writing style. Please do more this kind of post.

laptop

Very interesting. I am personally wrestlying with the constructs of the Universe that we see indirectly, but have no explaination, such as Wimps. Big Bang as perhaps a collision of universes.

bilal

http://freedloadsiteall.blogspot.com/

Free download Lots of new games,new movies,softwares,and much more Plz visit this site
ITs All About U

Account Deleted

Thanks for the informations they are too helpful for this subject...Definitely these eco friendly cleaning products can wash away the creatures stench!!
laptop
saç ekimi

Account Deleted

I'm really very useful to follow a long-time see this as a blog here Thank you for your valuable information and I'd love to take one of those for a spin. We need a lambo rental service in Pittsburgh. Any takers.
hosting
web hosting
web tasarımı
Very interesting. I am personally wrestlying with the constructs of the Universe that we see indirectly, but have no explaination, such as Wimps

Account Deleted

Thanks for this fabulous information. This really helps, i've been looking for this kind of info hub on this issue for a long time now and for sure this one is great.
===================================
financial directory

Ibuy Logos

Say No to Slave Labour - No Sweatshops!

Join the Anti Nike Campaign Today

http://www.ibuylogos.com/store/2009/10/anti-nike-campaign/

Business Trade Guide of Mesa Arizona AZ

Awesome! I have read a lot on this topic, but you definitely give it a good vibe. This is a great post. Will be back to read more! Please come visit my site Business Trade Guide of Mesa Arizona AZ when you got time.

Financial Directory

hi,. I hold with most points in your article and patently nurture taxes is not the incomparable way to rest a reinforced action
shawn matthews
Financial Directory

matbaa

Good article, thanks

seo

thank admin very good ..:)

The comments to this entry are closed.

Information




  • TEST


  • Subscribe in NewsGator Online

Economist Weblogs

Disclaimer


  • This is a personal web site, produced in my own time and solely reflecting my personal opinions. Statements on this site do not represent the views or policies of my employer, past or present, or any other organisation with which I may be affiliated. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.