Gloom, Doom, or Boom? Finance and Economics

[Typhoon]

FT | Worries grow as China land sales slump

Land sales slowed sharply in China last year, according to a series of industry reports that highlight the deepening woes of debt-laden local governments that depend on land auctions as a crucial revenue source.

While the falling sales are still far from reaching crisis point, analysts say, authorities are increasingly under pressure to choose between costly help for the worst-hit cities and an unpalatable relaxation of policies aimed at preventing a dangerous property bubble.

The slowdown comes at an uncomfortable time for China’s local governments, hitting them just as the mountain of debt that they racked up over the past few years starts to come due.
“If this continues, it will be a major blow to the financial situation of the local governments,” said Ran Tao, an economic professor at Renmin University in Beijing. “They have become increasingly reliant on land sales for financing, especially for their investment in infrastructure and industrial parks.”

Local governments owed Rmb10,700bn at the end of 2010, and 53 per cent of that must be paid back before the end of next year, according to the national audit office.
Analysts have said that the debt load is manageable – it amounts to just about a quarter of gross domestic product. But the shortfall in land revenues will make life more difficult for local governments.

[Mr. Perfect]

I've got a friend flipping houses in FL already. He may actually make some money at it.

Unreal.

[AzariLoveIran]

.

I've got a friend flipping houses in FL already. He may actually make some money at it.

Unreal.

.

Bernanke, like his compatriot Greenspan, ruining America

crooks that gambled your lunch must be held accountable .. dept must be written off, as Ron saying

but, NO .. (Rumny is the frontrunner )

mindset is, hand over truckload of cash to Goldman and other tribal buddies , not even metered, will trickle down to Joe

basically wanting to printing instead of creating wealth

this a classic method of tribe since 1000s of yrs .. ruined many nations

Europeans got it, you did not

.

[ansuchin]

Hopefully, this belongs on this thread.

The Adam Smith Lecture presented at the European Economic Association annual Congress in 2010 by Columbia’s Joseph Stiglitz finally published this past June.

An intelligent, thought provoking critique of standard macroeconomic models in light of the challenging events of recent years. We need more economic scholars who can think outside the standard models and assumptions and be straight up in light of contemporary events, and not the standard, endless conventional, ideological inspired piffle that I honestly refuse to be arsed about anymore.

Dr. Stiglitz received the Nobel Prize in Economics in 2001 for his contributions to information asymmetry along with University of California’s George A. Akerlof and formerly Harvard's but now NYU’s Stern School’s A. Michael Spence.

Rethinking Macroeconomics: What Failed, and How to Repair It

Abstract:

The standard macroeconomic models have failed, by all the most important tests of scientific theory. They did not predict that the financial crisis would happen; and when it did, they understated its effects. Monetary authorities allowed bubbles to grow and focused on keeping inflation low, partly because the standard models suggested that low inflation was necessary and almost sufficient for efficiency and growth. After the crisis broke, policymakers relying on the models floundered. Notwithstanding the diversity of macroeconomics, the sum of these failures points to the need for a fundamental reexamination of the models—and a reassertion of the lessons of modern general equilibrium theory that were seemingly forgotten in the years leading up to the crisis. This paper first describes the failures of the standard models in broad terms, and then develops the economics of deep downturns, and shows that such downturns are endogenous. Further, the paper argues that there have been systemic changes to the structure of the economy that made the economy more vulnerable to crisis, contrary to what the standard models argued. Finally, the paper contrasts the policy implications of our framework with those of the standard models.

[Mr. Perfect]

Mr. Stiglitz if flat wrong. His models may have failed, but not others.

This model did not fail.

http://www.youtube.com/watch?v=mnuoHx9BINc

[ansuchin]

[Mr. Perfect]

An, macroeconomic theory that suggests loose monetary policy will create dangerous asset bubbles is eye rolling in what way exactly?

[ansuchin]

An, macroeconomic theory that suggests loose monetary policy will create dangerous asset bubbles is eye rolling in what way exactly?

I apologise, Mr. Perfect, that was quite thoughtless of me. I know you are passionate about Representative Paul's positions and candidacy, and, as an American, that is your right, and as a foreigner, that is certainly none of my business.

I probably should not have posted Dr. Stiglitz's lecture since it will likely incite American political passions on a forum such as this and such passions are not my place to question, challenge, or to roll my eyes at.

For those interested and willing to read and to consider Stiglitz's critique of the standard models, some may nevertheless find his lecture thought provoking.

[Typhoon]

Your original post absolutely belongs on this thread

An, macroeconomic theory that suggests loose monetary policy will create dangerous asset bubbles is eye rolling in what way exactly?

I apologise, Mr. Perfect, that was quite thoughtless of me. I know you are passionate about Representative Paul's positions and candidacy, and, as an American, that is your right, and as a foreigner, that is certainly none of my business.

I probably should not have posted Dr. Stiglitz's lecture since it will likely incite American political passions on a forum such as this and such passions are not my place to question, challenge, or to roll my eyes at.

For those interested and willing to read and to consider Stiglitz's critique of the standard models, some may nevertheless find his lecture thought provoking.

Please continue to post such interesting items as Dr. Stiglitz's lecture.

If everything is so great, why has the US Fed Fund rate, prime interest rate, and gvot bond yields at, or near, historical lows. Now for historically long periods of time.

[Nonc Hilaire]

Steiglitz is one of the few American economists who gets it right.

[Typhoon]

Mr. Stiglitz if flat wrong. His models may have failed, but not others.

This model did not fail.

http://www.youtube.com/watch?v=mnuoHx9BINc

However, according to the Austrian school, should we not now be experiencing hyperinflation.

R29nwDM7gXs

[Mr. Perfect]

Yes and no. Inflation would need some sort of demand for the enormous creation of credit, and there is little demand outside of government borrowing. Which even I did not predict. But predictions and models are not always the same thing. Not everything can be predicted due to complexity and the mischievous nature of politics and it's effect on the economy.

Some argue that there is rather strong inflation in consumer goods that is not accurately detected in our statistical methods.

If people want to attack/question our statistical methodology I am right there with them. I simply disagree that there was a metafailure of economics, I think there simply is no case for that. I am simply disagreeing and am not trying to offend anybody.

If you borrow more than you make then eventually you will go bankrupt. This may not be in Mr. Stiglitz's textbook, but I learned it as a child.

I'm afraid some people may have misunderstood me, I was not trying to make a case for Ron Paul, he was simply the most convenient spokesperson for what I was trying to say. That is, what has happened so far had a very predictable outcome, and some people did predict it using their models.

Gettin' a little sensitive out there folks. Just keepin' it real.

[AzariLoveIran]

.

. . should we not now be experiencing hyperinflation.

.

There is soooo much wealth being wiped out (worldwide, and will become worst, China just started to hiccup), that , despite market being flooded with cash, there will be no inflation .. it is a controlled downhill (called restructure) instead of outright crash.

people are on their knees

only way you can make money in America is if you short America .. soon same for Europe

.

[Zack Morris]

If people want to attack/question our statistical methodology I am right there with them. I simply disagree that there was a metafailure of economics, I think there simply is no case for that. I am simply disagreeing and am not trying to offend anybody.

There have been some important changes since WWII, though, namely the creation of new labor markets all over the world and productivity enhancements (due to information technology) that have progressed faster than most peoples' ability to to create wealth, add value, or learn new skills. Is that a meta-failure of economics? Probably not. Is it a massive structural change, maybe even a paradigm shift in the making? Probably. I don't think the industrial revolution changed the basic concepts of microeconomics but it certainly changed society in very profound ways and destroyed old institutions, policies, and mental models. I think we're still seeing this process play out. Since at least the 1960's, it has been entering a new phase, and has been accelerating since the 1980's.

If you borrow more than you make then eventually you will go bankrupt. This may not be in Mr. Stiglitz's textbook, but I learned it as a child.

The specifics are different if the money you take in is also the money you create by adjusting numbers in a computer account.

[Simple Minded]

Hopefully, this belongs on this thread.

The Adam Smith Lecture presented at the European Economic Association annual Congress in 2010 by Columbia’s Joseph Stiglitz finally published this past June.

An intelligent, thought provoking critique of standard macroeconomic models in light of the challenging events of recent years. We need more economic scholars who can think outside the standard models and assumptions and be straight up in light of contemporary events, and not the standard, endless conventional, ideological inspired piffle that I honestly refuse to be arsed about anymore.

Dr. Stiglitz received the Nobel Prize in Economics in 2001 for his contributions to information asymmetry along with University of California’s George A. Akerlof and formerly Harvard's but now NYU’s Stern School’s A. Michael Spence.

Rethinking Macroeconomics: What Failed, and How to Repair It

Abstract:

Ansuchin,

good post! Thanks. Please keep posting, and while the rolling eyes post was definitely far below your normal level of high quality contributions (good to see you are human like the rest of us , I kinda like you when you are bad... ), offense is usually not an intention of the transmitter, but always an interpretation of the receiver. Most receivers don't like to hear that.

Besides, Mr. Perfect is a big boy, I think one needs to try very, very hard to offend him. I doubt you succeeded. Different opinions are valued by more than the few who desire concenus.

That said, when one says macroeconomic theory has failed, I often think, when has it succeeded? Trends always change sooner or later, and the change of the most recent trend which last several decades has been well foreseen by many, just not those in the popularly accepted modes of thought in government/academia since the 1980s. In my Simple Minded opinion, economic theories are much more akin to psychology or religion/personal beliefs (may pick the one that makes them feel good at the moment) than physics, not hardly a science.

Since human lifespans are so short, any trend that last more than 20 years, is accepted by most people as permanent, or the new reality, or "this time things are different!" Famous last words!

If one is under 45 years old, a 30 year trend has been in effect their entire adult lifespan. Why would they not think it is the new reality or that "this time things are different!"

Current events are nothing more than the change in a long term trend, human nature has not changed. The next few years are not gonna be comfortable......such is life.

[YMix]

I apologise, Mr. Perfect, that was quite thoughtless of me. I know you are passionate about Representative Paul's positions and candidacy, and, as an American, that is your right, and as a foreigner, that is certainly none of my business.

I probably should not have posted Dr. Stiglitz's lecture since it will likely incite American political passions on a forum such as this and such passions are not my place to question, challenge, or to roll my eyes at.

For those interested and willing to read and to consider Stiglitz's critique of the standard models, some may nevertheless find his lecture thought provoking.

Take it easy, An. Mr. Perfect is a Reverse Marxist. He blames politics for everything.

[Parodite]

As for why no (hyper)inflation yet, if the Austrians are correct. Just a speculative thought:

This huge debt world wide and the way those trillions of printed money are kept afloat artificially (without doing much for real economic recovery) will initially cause sharp deflation. Very low economic activity. Poverty, social unrest etc.

People will then be running to gold as the safe haven. But such a mass movement is indicative of a very dangerous bubble emerging; a gold bubble. That gold bubble cannot be sustained and will eventually collapse, which will launch hyperinflation. Then the dollar and euro are toast. A new currency then is required, but first couple of nasty wars will clear the field for a new beginning.

[Zack Morris]

But how big is the gold bubble? Has enough money moved to gold in the last 3 years to really matter? And why would the popping of that bubble require hyper-inflationary levels of public spending?

[Parodite]

But how big is the gold bubble? Has enough money moved to gold in the last 3 years to really matter? And why would the popping of that bubble require hyper-inflationary levels of public spending?

In the 1933 recession-depression there was a spike of deflation (as a result of too much debt poisening the system) and then a rush to gold. Gold then drained the body from the last drips of vital blood circulating the system, initially causing hyper-deflation. The gold bubble then has to pop, but it cannot pop in any economy-friendly way anymore and will submerge the deflated poverty-zone with trillions of worthless dollars anyways.

I'm not sure just it kinda makes sense to me; 1) a credit/debt crisis, 2) followed by hyperdeflation...will always result eventually in 3) hyperinflation: 4) and probably the death of a currency.

Gold is still in a relatively quiet bubble because there is no serious deflation. Deflation is a risk though when the TARP presses stopped printing and interest rates go up. More likely the FED will keep the interest rates low much longer though. How does that look long term?

I was wondering if 0% interest permanently is not the solution. People just share in profits made in the real economy. Interest is a strange thing when you think about it. Just a statistical abtraction and as such vulnerable to speculative bubbles.

[AzariLoveIran]

image-300811-galleryV9-yhuw.jpg (68.31 KiB) Viewed 4431 times

image-300815-galleryV9-ialh.jpg (63 KiB) Viewed 4431 times

[Typhoon]

There goes the Twinkie defence . . .

Bloomberg | Twinkie-Maker Hostess Brands Files for Bankruptcy

<sarc> Blameless management, greedy workers. </sarc>

[Azrael]

As for why no (hyper)inflation yet, if the Austrians are correct. Just a speculative thought:

This huge debt world wide and the way those trillions of printed money are kept afloat artificially (without doing much for real economic recovery) will initially cause sharp deflation. Very low economic activity. Poverty, social unrest etc.

People will then be running to gold as the safe haven. But such a mass movement is indicative of a very dangerous bubble emerging; a gold bubble. That gold bubble cannot be sustained and will eventually collapse, which will launch hyperinflation.

How would a collapse of the gold bubble -- the return of the price of gold to a more reasonable level -- launch hyperinflation? How would the gold price going down cause most other prices to go way up? Wouldn't the price of gold going down make the price of jewelry go down, the price of electronics that use gold go down, the price of gold coins go down, etc.?

Then the dollar and euro are toast. A new currency then is required, but first couple of nasty wars will clear the field for a new beginning.

So are you saying that if the price of gold goes down, it will start major wars? Wouldn't it be more likely to prevent wars? If gold is less valuable, is't it less likely for a country neighboring a major gold mining country to invade it in order to take over its gold mines?

[Azrael]

Mr. Stiglitz if flat wrong. His models may have failed, but not others.

How have his models failed?

Please refer to what he actually believes, not what you imagine he believes.

[Azrael]

An, macroeconomic theory that suggests loose monetary policy will create dangerous asset bubbles is eye rolling in what way exactly?

What's eye rolling is that Stiglitz suggested the same thing. You obviously didn't even bother to read An's excerpt of his speech:

>> The standard macroeconomic models have failed, by all the most important tests of scientific theory. They did not predict that the financial crisis would happen; and when it did, they understated its effects. Monetary authorities allowed bubbles to grow and focused on keeping inflation low, partly because the standard models suggested that low inflation was necessary and almost sufficient for efficiency and growth. After the crisis broke, policymakers relying on the models floundered. Notwithstanding the diversity of macroeconomics, the sum of these failures points to the need for a fundamental reexamination of the models—and a reassertion of the lessons of modern general equilibrium theory that were seemingly forgotten in the years leading up to the crisis. This paper first describes the failures of the standard models in broad terms, and then develops the economics of deep downturns, and shows that such downturns are endogenous. Further, the paper argues that there have been systemic changes to the structure of the economy that made the economy more vulnerable to crisis, contrary to what the standard models argued. Finally, the paper contrasts the policy implications of our framework with those of the standard models. <<

Get it? They kept monetary policy loose and didn't worry about the bubbles, because they thought that if inflation were low, they didn't have to worry about bubbles.

They were following orthodox, classical, Milton Friedman-style monetarism, which Stiglitz criticized for the very reason you just gave.

[Typhoon]

S&P carpet bombs Europe with downgrades

(Reuters) - Standard & Poor's downgraded the credit ratings of nine euro- zone countries, stripping France and Austria of their coveted triple-A status but not EU paymaster Germany, in a Black Friday the 13th for the troubled single currency area.

"Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone," the U.S.-based ratings agency said in a statement.

In a potentially more ominous setback, negotiations on a debt swap by private creditors seen as crucial to avert a Greek default that would rock Europe and the world economy broke up without agreement in Athens, although officials said more talks are likely next week.

If Greece cannot persuade banks and insurers to accept voluntary losses on their bond holdings, a second international rescue package for the euro zone's most heavily indebted state will unravel, raising the prospect of bankruptcy in late March, when it has to redeem 14.4 billion euros in maturing debt.

S&P cut the ratings of Italy, Spain, Portugal and Cyprus by two notches and the standings of France, Austria, Malta, Slovakia and Slovenia by one notch each.

The move puts highly indebted Italy on the same BBB+ level as Kazakhstan and pushes Portugal into junk status.

It put 14 euro-zone states on negative outlook for a possible further downgrade, including France, Austria, and still triple-A-rated Finland, the Netherlands and Luxembourg.

Germany was the only country to emerge totally unscathed with its triple-A rating and a stable outlook.

The US is fortunate to have captive rating agencies.