Global Systemic Problems? Anyone See How This Ends Well?

Annie

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Nov 22, 2003
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About author, more here, you'll still have to hit the biography link if you want more info:
Megan McArdle is a senior editor for The Atlantic who writes about business and economics. She has worked at three start-ups, a consulting firm, an investment bank, a disaster recovery firm at Ground Zero, and the Economist. Megan holds a bachelor's degree in English literature from the University of Pennsylvania, and an MBA from the University of Chicago.

Now to the article:

Slouching Toward Default, on Both Sides of the Atlantic - Megan McArdle - Business - The Atlantic

Slouching Toward Default, on Both Sides of the Atlantic
By Megan McArdle
You'll have to pardon me. I did mean to live blog this generation's Watergate hearings the second Dreyfuss trial Rupert Murdoch's fumbling appearance before British politicians, but I got distracted by less pressing events, such as the seeming stalemate over the US debt ceiling, and the ever widening gap between the bond spreads of Europe's center, and Europe's periphery. I do eventually hope to get back to the real story of the day, but I hope you'll permit me this small digression.

William D. Cohan, whose House of Cards is required reading about the crisis, sums up the disquiet in global markets:

Here are the facts: The yield on Greek sovereign debt is now at record highs for the euro era. Last week's state-managed bond auction in Italy almost failed. And, while few seem to have noticed, the overnight repurchase market -- for short-term, secured, corporate debt obligations -- nearly seized up amid what Combs described as "an almost panicky scramble" for less- risky paper.

Indeed, investors' manic desire for safety last week reached levels not seen since the most acute days of the financial crisis in September and October 2008. Ironically, though, given the pathetic display in Washington and the country's ongoing fiscal troubles, people turned in droves to the perceived security of the U.S. Treasury market, even though it has never looked shakier.

. . . At the same time, it's an open secret on Wall Street that the Federal Reserve Bank of New York has become increasingly concerned about the state of U.S. money-market funds. With as little fanfare as possible -- understandably, so as not to cause a panic -- the New York Fed has been urging domestic money- market funds to reduce their exposure to European banks, where the funds have turned to increase yields not available in the U.S. because of rock-bottom interest rates.

The Fed is said to be terribly worried that -- because of provisions in the Dodd-Frank law -- it will no longer be able to rescue a money-market fund if it "breaks the buck," as the Fed did famously the day after Lehman Brothers Holdings Inc. filed for bankruptcy.

Neil Hume channels Harvender Sian:

Spain has entered the danger zone for yield levels. The chart below shows the yield moves in the constant maturity 10y paper for the GIIPS countries. These markets traded a range between 6 per cent and 7 per cent but ultimately this proved to be a pause before the move to higher yields then accelerated. There is no consistent yield trigger level inside this range but market talk of point-of-no-return around the 6 ½% is not without foundation either.Slouching Toward Default, on Both Sides of the Atlantic
It just gets worse...
 
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The solution to the economic problem is really quite simple and proven through repeated application, notably in places like Argentina.

Repudiate the debt AND the currency.

Just tell the creditor's they're screwed, as were those who held stock in Government Motors and several other enterprises that were effectively nationalized without compensation.

This simply requires creation of a "new" currency. Say, The Obama. People would have a finite time in which to exchange their "Dollars" for "Obamas". Of course the exchange would be something like $1,000 buys One Obama (needs a snappy new symbol like a chocolate brown zero with a vertical slash). Any individual could exchange up to $100,000 with any holding beyond that worthless. The conversion could not be automatic; banks couldn't do it for depositors. Each individual would have to draw a check for the amount to be converted and take it to a government office for new currency. There would, of course, be a 10% transaction fee.

Maybe I should not have written this out; there may be Democrat Senators reading though it likely exceeds their authorization or, perhaps, capability.
 
About author, more here... It just gets worse...
LOL! That's what people like to say and things always get better. Look, a doom'n'gloom career is not only unhealthy, it's delusional.

Everyone says we're in an economic collapse. Everyone's wrong. Measured US economic activity is at an all time high even while feelings are seem to be at an all time low. Everyone says the job market's the worst since the great depression. Everyone's wrong. Measured unemployment percentages are lower than those of Ronald Reagan, the rate peaked higher with Reagan, and the Reagan days ushered in and era of peace and prosperity to unimaginable heights.

Lighten up and get real.
 
Economies never end...they evolve.

What our economy is evolving into is one where modern industrial nations will more resemble thrid world nations where there is a thin candy shell of stupendously wealthy people surrounding a center of mostly impoverished workers.

Realistically speaking now only about 25% of Americans are really middle class as we used to think of the term middle class.

What is the middle class?

People who don't have to work too hard to have a decent quality of life, one where they can save for a rainy day, put aside money to educate their kids and still retire in relative comfort.

Given that half the families in the USA have incomes below $50 k year and given that $50k a year no longer really supports a middle class family (I think it takes about 100K now to have that life) I'd estimate our real middle class is no more than about 25% of the overall population and that percentage falling every day.
 
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There are a lot of people who share the opinion of economic woes in the near future, to varying degrees. But governance world-wide does not appear to be up to the challenge for the most part, certainly not here in the US IMHO. I think we're headed for a lengthy period of what we've seen coming out of the recent recession, low growth with a few recessions thrown in. Maybe a serious depression at some point.

From what I've read many large US banks have paper from German, French, and Spanish banks, who in turn have paper from Greece, Portugal, and the other countries in financial trouble. Even Spain has problems, So if the Euro fails there will be an impact over here. It'll be a lot like 2008 all over again, banks lend to banks but who knows what the other bank's balance sheet looks like. Lending dries up further and we're back to a credit problem.

It could end well eventually if voters change the political climate in DC and enforce more accountability and transparency. Could happen, but probably not until the shit hits the fan. We ain't so good at precluding disasters, for whatever reason. Wish I could be more optimisitc, but I don't think it looks good right now.
 
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The USA is still the largest economy in the world and, if it stabilizes its own economy--something our current Administration seems to be disinterested in--it, together with China, will stabilize all world makets. Continuing destabilization of the U.S. economy will keep other economies from getting back on track.

We need to replace a President and elect fiscal conservatives of whatever party to Congress. In my opinion, that is our only hope to correct the situation that exists.
 
Some say that China is not so stable either, they have a real estate bubble and the current regime could be replaced next year by a more fundamentalist group that assumes more control over their economy. Which is never good even under the best circumstances, so it's not like they don't have problems of their own.

Then there's the ME, currently aflame with protests. Saudi Arabia supplies an awful lot of of the world's oil, and ours too. That country is rules by 3 brothers, all of whom are in their mid to upper 80s and none in particularly good health. And they have a lot of politcal and religious unrest there, mainl from fundamentalists who could be linked to terrorist plots around the world, what would happen if there's a lot of turmoil there or even a revolution and overthrow of the gov't?

So,it ain't just Europe and Japan, things could turn to crap in a real quick hurry.
 
Some say that China is not so stable either, they have a real estate bubble and the current regime could be replaced next year by a more fundamentalist group that assumes more control over their economy. Which is never good even under the best circumstances, so it's not like they don't have problems of their own.

Then there's the ME, currently aflame with protests. Saudi Arabia supplies an awful lot of of the world's oil, and ours too. That country is rules by 3 brothers, all of whom are in their mid to upper 80s and none in particularly good health. And they have a lot of politcal and religious unrest there, mainl from fundamentalists who could be linked to terrorist plots around the world, what would happen if there's a lot of turmoil there or even a revolution and overthrow of the gov't?

So,it ain't just Europe and Japan, things could turn to crap in a real quick hurry.

That's why I have been hitting so hard on squashing ambitions of professional politicians and returning true public servants to government. A Marxist idealist in the White House isn't going to have the vision of how wealth is created or what makes a strong, robust economy. When the USA is solid, strong, well armed, and committed to looking after and protecting its own interests, everybody else generally does better too or at least is more cautious about getting out of line.

All the concerns you listed are valid. But we can't fix anybody else. We can only fix ourselves. And just like in human relationships, everybody benefits when we work on our own problem and stop trying to fix everybody else. The USA needs a President and Congress more interested in restoring fiscal and economic integrity to the USA again than they are in dealing with controversial social issues and appeasing the wackos among us.
 
Granny says dem politicians is alla time panderin' to big business...
:eusa_eh:
Markets fiddle while economy burns?
July 21, 2011: The recent market rally has pushed stocks into positive territory for July. That follows two straight months of losses.
It may be a stretch to suggest that investors are doing their best imitation of Roman emperor Nero. You know. The dude who fiddled while the city burned? But stocks are enjoying a nice rally Thursday. The S&P 500 is actually now in the black for the month following declines in May and June. nd the yield on the 10-Year Treasury has slowly edged back up toward 3%, a potential sign that investors feel the economy isn't completely doomed.

Isn't it a bit odd that investors are this giddy at a time when much of the developed world is busy trying to fight what looks like a debt forest fire with the equivalent of a garden hose? Even if Greece avoids a full-blown default, there are still worries about the debt loads in Ireland and Portugal, rampant unemployment and a banking crisis in Spain and budget strains in Italy.

It is also not yet clear that Democrats and Republicans are any closer to a real deficit solution. And August 2 is just a week and a half away. Still, several market strategists said that despite some of the gloomy headlines, there was only a small chance that politicians and regulators would allow for a wave of defaults in Europe and fail to raise the debt ceiling in the United States.

So if, as now widely expected, the EU's latest plan to save Greece prevents a euro implosion AND the nitwits in D.C. finally come to some sort of deficit deal, that's a huge reason for the markets to breathe a sigh of relief. "The biggest risk to the global economy is some sort of policy mistake -- a disorderly default in Europe or partisanship in the U.S. leading to no debt ceiling agreement," said Bob Baur, chief global economist with Principal Global Investors in Des Moines. "That seems to be off the table."

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Stocks jump on debt talk
July 21, 2011: U.S. stocks surged on Thursday, following news that European leaders reached an agreement to contain Greece's debt crisis.
Gains were further fueled by reports that the White House and House Republicans may have reached an agreement regarding the country's deficit problems and the debt ceiling. Both the White House and House Speaker John Boehner 's offices denied the reports. The Dow Jones industrial average ended 153 points higher, or up 1.2%, at 12,724; the S&P 500 added 18 points, or 1.4%, to 1,344 and the Nasdaq composite rose 20 points, or 0.7%, to 2,834.

Market gains were broad, with 29 out of the 30 members of the Dow higher. The blue chips were led by shares of Walt Disney, Bank of America and Cisco. The only Dow member lower was Intel, which was down less than 1%. The chipmaker reported its earnings after Wednesday's closing bell. Stocks started rising early Thursday on news that European Union officials agreed to provide additional aid for Greece and overhaul the EU bailout fund.

Before the summit's official start, two crucial players -- German Chancellor Angela Merkel and French President Nicolas Sarkozy -- reached a consensus on a deal that would provide more aid to Greece. European markets rose on the initial reports. Britain's FTSE 100 added 0.9%, the DAX in Germany gained 1.1% and France's CAC 40 advanced nearly 2%. "Both the European sovereign debt crisis and the U.S. debt ceiling problems appear to have become non-issues -- at least in the short term -- which will allow investors to focus more on earnings," said Quincy Krosby, market strategist with Prudential Financial.

U.S. stocks ended little changed Wednesday, as investors moved to the sidelines to survey the latest twists in the debt ceiling drama. President Obama indicated earlier this week that he would support a plan to raise the debt ceiling that had been floated by a bipartisan group of senators. But investors are still concerned that the Gang of Six's plan may not have enough time or support to make it through Congressional negotiations by Aug. 2.

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