Another breathless fortnight, another looming crisis averted. It seems best to say averted, rather than solved. The massive Greek public debt is still there and will continue to grow. The new agreement promises to slow its growth by raising taxes, laying off government workers, reducing state salaries, and cutting pension benefits, among other actions. More loans from EU creditor countries and the IMF, a stand-in for the rest of Greeks international creditors, now guarantee the accumulated Greek government debt, much of which is held by European banks and the European Central Bank. The EU-IMF mission of mercy is thus an object lesson in collective self-interest, for the loans enable Greece to pay back the European banks, especially in Germany and France, that stood to lose billions without the new loans. European and world capital invested in Greece is saved, and its security enhanced. Rather than the debts endangering the finances of European and other world banks, the loans now return to the asset side of their ledgers, if not once more as silk purses, surely no longer as sow’s ears....
As yet another act in the world economic drama concludes, and another troop of actors prepares to take the stage, the basic point of the play is being lost.... we are overlooking the fact that we are living through the most massive redistribution of wealth rich societies such as ours have seen since the Gilded Age at the end of the 19th Century. The massive debts of private capital are being socialized. States are taking on society’s debts at a rate not seen since the Second World War. They are creating public debt to pay off or at least absorb the debts arising from asset crashes, bank and brokerage failures and near-failures, and massive unemployment triggered by recession. Banks and other financial institutions could not carry their own debt, so now the government is carrying it for them, either directly or by providing them with new credit at no cost with which they can become profitable again. The banks and other brokerage institutions have effectively cleaned up their balance sheets with newly created public debt, while the U.S. and European central banks have laundered their bad debts.
...It is unlikely that the United States will find itself in a debt-driven crisis of the magnitude proportionately that afflicts Greece now, but the transformation of US finance capital’s private debts into US public debt has created a crushing burden for American citizens for generations to come. And the wealthy, once more, will likely come out of the crisis unscathed, unlike the rest of us.
As if the U.S. won't have its own problems!
Consumption is, as Jake puts it, Not Sustainable! check out his charts of Consumption vs Income.
GDP Deflator at 5-decade low while income inequality at record highs, and A double-dip ahead? A view from the Consumer Metrics Institute. both via Jesse.
The methodologies used by the BEA when measuring factory production are ill suited to capturing an economy in such rapid transition. In the 4th quarter of 2009 the production side of the economy was topping (reflecting the topping of our measurements on the demand side in August 2009). The first quarter's production environment was at a much more dynamic spot in this particular economic cycle, and the subsequent monthly revisions by the BEA may be significant.
From our perspective the GDP is only confirming where our numbers were in November -- which is, relatively speaking, ancient history. Since then we have seen our "demand" side numbers slip into contraction
.... if there is a "second dip" it may very well be unlike anything we have seen recently. Instead of a "call-911" type of event in 2008 or the "hiccup" witnessed in 2006, we may be seeing a "walking pneumonia" type of contraction that has legs
Fannie and Freddie are wards of the state, and they backed 96.5% of all home loans last quarter: U.S. Role in Mortgage Market Grows Even Larger WSJ. Well, at least delinquencies fell modestly in March from February.
Bank Failures. Barry Ritholtz. check out first graph.
Also at Barry's The Big Picture, Bob Bronson has some charts on the difference between GDP and the core business cycle, putting into question the notion of a V-shaped recovery.
And, Repaying Taxpayers With Their Own Cash, Gretchen Morgenson, NYT.
As we inch closer to a clearer understanding of the products and practices that unleashed the credit crisis of 2008, it’s becoming apparent that those seeking the whole truth are still outnumbered by those aiming to obscure it.
Who’s Got Those Pitchforks?, James Kwak, Baseline Scenario
people who (at least according to them) followed the rules, worked hard, paid their taxes, made a fair amount of money, etc. — and just saw the economy almost collapse because of what they see as the shenanigans of a tiny, tiny elite that plays by a different set of rules.
Well, the Tea-Party folk have stayed relatively civil so far, but if change doesn't come soon (yes, real change, Mr. Obama), then James Howard Kunstler, for one, in his column Worse than 1789? thinks pitchforks may come in handy:
It seems to me lately that the crack-up we've entered is liable to play out more gruesomely for our privileged elites than the orgy of bloodletting that attended the French Revolution. That historical moment was a sharp transition between old, settled social relations and the new political realities of imminent industrialization and a rising middle class. The elites in charge of things to that moment, an ossified aristocracy, responded to rising discontent with utter feckless stupidity. To make matters worse, a great many of them were hunkered down in the fantasy-land Royal Palace of Versailles, enjoying what was for practical purposes a non-stop mega house party. They must have thought they were safe twelve miles outside Paris.
The French Revolution actually got off to a better start than it is remembered for. A progressive opposition put together a new legislature, the National Assembly. They undertook the writing of a constitution. But it all fell apart rather quickly since the dim-witted King and his cohorts didn't really get into that old changing times spirit and their lack of cooperation -- not to mention their decadence -- provoked the more violent factions of the common people to form that kraken of politics, the mob. What a goddamned mess it turned into -- a revolving cast of mob masters, each worse than the last, whipping up the crowds to ever more horrible enormities of human vivisection -- a political process that had gone hopelessly out of control. Despite the agile precedent of their friend, the new USA, quickly resolving its own rebellion into a functioning government of law, France opted for a bloody clusterfuck -- which went on for eight more years.
The France of 1789 and the USA of today have a few important elements in common: a striking inability to sort out any national problems, an arrogant, depraved ruling elite resistant to reform, and an intellectual underclass motivated by blind fury....
As JFK once said, "Those who make peaceful revolution impossible make violent revolution inevitable."
Meanwhile, in the U.K.:
Mervyn King warned that election victor will be out of power for a generation, claims economist. Guardian.
Mervyn King is warning that the victor in next week's election will be forced into austerity measures that will keep the party out of power for a generation, according to the US economist David Hale. Dragging the Bank of England governor unwittingly into Britain's political battle, David Hale said he had been told by King at a private lunch about the likely fiscal pain ahead.And, to compensate, therefore, Bank rate 'will stay low for four years' Times Online.
Nonetheless, former BoE MPC member David Blanchflower thinks U.K. Budget Cuts May Lead to Depression, Bloomberg.
And, for the stock markets:
Equity rally not driven by the usual investors, Leigh Skene of Lombard Street Research, via FT.
The outperformance of risk assets over the past year suggests investors appear to believe that all credit problems have been solved – but nothing could be further from the truth, says Leigh Skene at Lombard Street Research.
“Rising stock markets and narrowing credit spreads depend on buyers being more anxious to buy than the sellers are to sell,” he says. “So who are the enthusiastic buyers of risk assets?”
Surprisingly, says Mr Skene, surveys show that the usual investors in major rallies – pension funds, hedge funds and retail investors – have not been net buyers of equities. And he says the most likely explanation for this anomaly in the biggest stock market rally since the 1930s is that major investment banks are the anxious buyers.
“Their buying would appear to be for one of two reasons. Firstly because they think the authorities will prevail in their (so far unsuccessful) efforts to inflate their way out of debt liquidation; or secondly because they are too big to fail and so can afford to take a huge gamble that enough buying will convince others to rush in and buy their inventory of risk assets at even higher prices.
“Huge economic slack in most developed nations and falling money supplies in the two biggest currency areas indicate that government efforts to inflate will continue to be unsuccessful – so reason number one is bearish for risk assets; number two is catastrophic.”
Henry David Thoreau gets the last word:
"Most of the luxuries, and many of the so-called comforts of life, are not only indispensable, but positive hindrances to the elevation of mankind. With respect to luxuries and comforts, the wisest have ever lived a more simple and meager life than the poor. The ancient philosophers, Chinese, Hindoo, Persian, and Greek, were a class than which none has been poorer in outward riches, none so rich inward."
but for more words of wisdom, check out this compilation at The Financial Philosopher.
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