Nouriel’s failure. He didn’t forecast King George I of Naples

de(e)pre(ce)ssion chronicles of the #GreatOECDepression

ENGLISH ABSTRACT. We had guessed in the early Summer that only Giorgio Napolitano, the Italian Republic President, that we have (even unconfessable) REASONS to call King George 1st, might bring Italian sovereign debt out of failure – where populisms were going. Now, it might be happening. Last train for Yuma.

BruttoPaese al Panettone? Forse si, forse no dice Nouriel. Che c’azzecchi? No: per un giorno Nouriel perse la coppa di DrDoom.

INCORONAZIONE DI RE GIORGIO I: 

ultimo treno perché l’Itaglia arrivi al suo 151°

Vi piaccia o no, è storia, e noi l’avevamo previsto quest’estate, a fine luglio. 

 

Quando invece l’Itaglia sembrava entrata nel gorgo infinito di una INEVITABILE paralisi politica, nelle bionde e more della fine dell’Era del poppe-populismo della monopolista Fininvest (con contrappunti barocco-duopolisti di Prodi e la mostruosa Rai); inoltre del nichilismo di una sinistra ormai talmente populistizzata nei suoi neuroni ed a selezione inversa del suo personale, da essere incapace di profferire una QUALSIASI alternativa praticabile, anche presa a caso, persino una palesemente errata o di corto respiro (come una Patrimoniale)  … e così via sino al balzo di ben 56 punti dello spread a 10 anni, ieri mercoledì 9 novembre (ma perché Barisoni ripeteva il mantra di un balzo di 100 punti? Gli s’era rotto il pallottoliere? Quando dalle 2pm Draghi era riuscito a ripredere il CTRL, e così oggi). 

RE GIORGIO I Savoia: da ieri sera ufficialmente re d’Itaglia.

Ha riscritto la Costituzione de facto in profondità, sin nella natura repubblicana del decrepito Stato, che rinasce Monarchia Fenice. Come nella teoria politica classica (da Machiavelli a Schmitt) e nella prassi, re Giorgio ha riconquistato la corona ai Savoia nella guerra e nel sangue.

Ha fermato la mano assassina dell’Idiota di Arcore, poche ore prima che uccidesse Itaglia. 

Nelle mani di re Giorgio, le punte dello spread diventano punte di spada per mozzare la testa agli avversari e tentare l’ultima via d’uscita. In chiusura della zona Cesarini. Questo Giorgio qui, si allea ai Draghi per sbalzar di sella Cavalieri assassini di donzelle prigioniere nelle Torri dei castelli in aria populisti (di varia ideologia) di Berlusconi Bersani Bossi Casini Di Pietro, il tragicomico storyteller Vendola ed il fellone Voltremont (ultimamente comunitarista no-global pur non avendo mai letto un libro dei fondatori del Comunitarismo).

La figura del Mona Integrale di oggi, va al comunque e sempre sopravvalutato allievo Bocconiano Roubini; che arriva a cose fatte, dicendo: le porte del Paradiso son chiuse (profezia sul PASSATO, cosa da bibbie maghi preti e Mr de Lapalisse). MONASSA, eran chiuse da anni e – ameno per l’Itaglia che però E’ IL test di Europa – si sono riaperte giusto ieri sera, mercoledì! Domani, quando ti svegli dovrai profetizzare à rebours l’esatto contrario, se le cose appena apena si mettono bene. Ed è improbabile vadano in peggio, a meno che non dovesse fallire pure Monti e con lui il Re.

In base alla teoria dei giochi, d’ora in poi dubiteremo di TUTTI i tuoi giudizi-paese a casaccio.

Nouriel Roubini: Why Italy’s days in the eurozone may be numbered

With interest rates on its sovereign debt surging well above seven per cent, there is a rising risk that Italy may soon lose market access. Given that it is too-big-to-fail but also too-big-to-save, this could lead to a forced restructuring of its public debt of €1,900bn.

That would partially address its “stock” problem of large and unsustainable debt but it would not resolve its “flow” problem, a large current account deficit, lack of external competitiveness and a worsening plunge in gross domestic product and economic activity.

http://link.ft.com/r/6NPSBB/5VWUZO/30E8J/5VAVSJ/B5I0BQ/D5/h?a1=2011&a2=11&a3=10

 

Nouriel  qui non dice stupidaggini, ma per 1 giorno perde la Coppa di Profeta di Sventura, Dr Doom. Dato il legame ormai ombelicale €-Italia, non può venirmi a ripetere le solite litanie proprio il GIORNO DOPO della mossa rivoluzionaria del ritorno dei Savoia in Italia. Allora vuol dire che non capisce proprio una minchia. E’ out: ha avuto il suo Minsky Moment di gloria nella primavera 2008, ora ha bisogno di una badante.

Ieri sera con la nomina REGALE di Monti sen. a vita, Napolitano (unico nelle istituzioni del BruttoPaese ad esser svelto, l’età non conta, persino più del bravo Renzi) macina spread per produrre farina di accelerazione  politica. SB (Berlusconi) ha dovuto starci alla mano di poker, sennò gli si sfaldava il PdL e restava coi soli ex-Fascistoni, quelli che … “mai al governo col PD”. PRESSING CONFALONIERI x il crollo ieri di M_set (investitori temerebbero vendetta politica? Mah! Chiedete a Nouriel per le divinazioni). 

Commenta Dago:

@_DAGOSPIA_ Dagospia

LA NEMESI DEL CONFLITTO D’’INTERESSI – MEDIASET CROLLA E IL BISCIONE INTIMA L’’ALT A SILVIO: GOVERNO TECNICO: … bit.ly/vkLxcx

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Published in: on November 10, 2011 at 4:23 pm  Leave a Comment  
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Who’s afraid of Timothy Woolf

FACTS

WALL STREET: Sen.Dodd talks of Bank Nationalisation while markets are open: BoA and Citi (>50%  State owned) precipitate. Pension funds relocate from Banks to high tech, in search of dividends.

ITALY

TODAY, AS YOU KNOW:  – 5,8% MIB MILANO, worst in Europe.

STUCTURALLY WEAK, in perspective,  the 2 leading Italian banks (of course in a frame of subCrime and structural crash of the entire Globalisation architecture; but  NOT SO “innocent” Angels. Even “Last Angel” JP Morgan … see below).

INTREPPRETATIVE FRAMEWORK: TODAY’s PIAZZA AFFARI SOCIAL  PSYCHOLOGY

RE-RATING OR LEAP-FROGGING?

1) in all today’s markets, and very neatly in Milan, the so called RE-RATING PRINCIPLE HAS BEEN APPLIED. Although in a rather strange way in Milan, namely in the key last hour,  half-hour and  final (SELECTIVE) sales rush of the market — revealing a bit of wh’appens in the exchanges secret trades and UNOBSERVABLES (single transactions). UniCredit was leading the fall, OK? But, in the last  1/2 hour Intesa SP was loosing  all of a sudden another 6% point, Banco Popolare 4, UniCredit UNBIELIEVABLY stopped falling. On such  a proportion, this is  no RE-RATING at all (as il Sole 24  ore financial correspondent was saying at radio 24, on the contrary: but it is not so easy to give the whole picture in real time: at that moment, I also thought the same way). I’d  better call this: LEAP-FROGGING in a downward pent. NO OTHER ANSWER: someone, either 1 operator at a VLS, very large scale, or more likely 2-3-4 of them at average-to-large scales, were buying at closure prices (€ 0.89). We’ll comment this in a while: so interesting. I didn’t buy, although it’s MY bank.

COOL DON’T PANIC

2) Let us say: in the unprecedented last hour of Piazza Affari (A CONCENTRATED SHRINKING OF ALL  THE BLACK OCTOBER 2008, and just in Milan), some operators were in panic, some were applying RE-RATING (a sort of arbitrage, and hierarchy among leading firms in an industry). Just a few, perhaps a handful were manoeuvring against the main current, as only the most clever and resourceful fishes do – AND THIS HAS STOPPED the UniCredt decline in THAT key hour.

MIRACOLO A MILANO (de Sica).

Who bought UniCredit after 4.oo pm GMT (5 in Italy)? I won’t tell you,  except under torture.

INTERPRETATIONS

TOXIC PRODUCTS IN ITALY  DON’T SPEAK YANKEE OR OXBRIDGE: SPRECHEN ZE DEUTCH?

The Italian Duopoly  (1 bank in many respects),

at repair from any market contendibility (i.e. roughly translating our friend and fine wine connaisseur Baumol’s dis-equations: POTENTIAL competition, since Aristotle was never allowed to make it REAL), control the whole Classic Media, and penetrated deep into the Social Media blogo- and  ludo-spheres. Truth (they’ll never tell you) is

they are by far over-rated, still:

– I don’t analyse here Banco Popolare, except to say: I have a sincere esteem  of his CEO, Mr Fratta Pasini; in Verona there is an important sense of civicness, “coming out” with decision  in the last few weeks and even  more strong in today’s hectic day. For a disastrous process of hyper-concentration and that Surrealistic Theater called “globalisation” by its PRs, we have lost 1/2 banks; better than Naples that lost its only one (worst: the only left large job supplier in the city centre, an infinite  gift to Gomorra from politicians). The population of Verona is with the heart, sincerely on the side of “our” bank (no populism but local culture, the labour and work of a cooperative bank); in a very large majority of the spieaking public opinion, we believe 1) we have the right man, 2) managerial animal spirits are one of the rarest “commodities”; 3) and, to close such an improper sillogism,  we want him to stay there: exactly because a 2nd concentration would be lethal for the quality of  the civic tissue of the city, and CORRECTLY interpreted as a 2nd, historically even more intolerable EXPROPRIATION (David Harvey). Attention, because Verona  insurged with no hope against Napoleon: there are hidden anarchist resources in these quiet communities!! We will pay due scholarly attention to  Pop another time: this Social War will be so long; in the next few days it’ll be Fort Apache every day. Verona as a city,  i.e. a collective “in the good sense” (the one song by Simone Weil in the poem Venise  sauvée, for our sorella maggiore), firmly doesn’t want any Waterloo for Pop. By reasons of ethic-epistheme coherence, this doesn’t imply anyhow Pop is any “Angel” at all, even less that “our” Mr Fratta Pasini Angelically avoided all the traps on his path. On the contrary: i) if you compare him with Mr Profumo below, we love even more Mr Fratta Pasini for his humanity and finiteness: ii) as prof. Roubini’s intransigence taught us, a real picture of the situation is strictly necessary, in order to geo-position correctly  the Pop “barricades” against the Tsunami;  iii) not only some populist “stracciarsi le vesti“, or invoking  (again? nooo!) the closing of all financial markets everywhere, don’t deserve a reply here. Worst: for their stupidity,  they’re Trojan horses, weakening the city’s barricades or trincee, as I am arguing in the local press, with all the  passion and love for “Verona sauvée” which circulate in my blood (genius loci).

– in 1 year Intesa SP  fell from € only to € , while its future is bleakening at the speed of light, and they apparently don’t know well where to start from. Today, it was UniCredit leading the re-rating game, but the East European dependence (making UniCredit a lame duck) is NOT the major issue (by the way, this is an answer to Sebastiano Barison, radio 24, wandering: “Why all this crash, if the majority of their sales is in Italy”. Correct answer: “The majority of the duopolists problems ARE in Italy, actually”). In sum:

You better wait some massive devaluation and recapitalisation, before any BUY.

– On the other side of the SAME COIN, a UniCredit awfully managed by SuperEgo Alessandro Profumowe’ll never forget  the sense of self-sufficiency  stemming from his icy eyes, and his open despise of reality, top clients, whatsoever, worlds. A living Murphy law:  if there was a possible strategic mistake, he went straight into it, without arrière pensées; he’s an Aristotelian top executive: if something is possible, he’ll make it happen. But he’s weak in 9 other items of an interview: human relations; knowledge decision support; macroeconomic environments intuition; medium-long run view; reduction of useless extracosts and hierarchies; scenarios interpretation; selectivity; team work; vision. I would rate him: 1/10.

UniCredit  is surprisingly down only at €o.89 (from € ). Profumo’s another case in such a long gallery, we thought  up forever, exp. after the micro-economic roots here of the “Japanese desease”: pursuing  max growth while blatantly ignoring corporate finance sustainability constraints, and fucking stakeholders’ interests. There is even such a well known, VERY OLD BUT STILL TAUGHT textbook lecture on the “Profumos”: the Marris model. Every graduate student from a decent school, who was taught Industrial Organisation (and not just Games, the real thing as well; Maths and History, as Baumol says) knows  perfectly the problem and  might remember its multiple solutions (a 2 equations nonlinear system, under a linear sustainability constraint).

Add the macro- and geo-economic frame: any dilettante (IFF consulted) would have just stopped “a gamba tesa” Mr Profumo 10 years ago, since at that time most of the Western Economies’ Actives had been by far over-rated for a decade, and you could not reasonably take so many risks together in just one firm; plus the country-specific and the E. European regional ones. The average expected success  Prob. was very close to 0 on an array of scenarios. And the hyperconcentration of the governance, the very bad  use if the fusion (CredIt, CdR) just for Imperially spreading incompetent Roman Bureaucrats  in the Conquered Province (incl. my beautiful Verona) is no excuse: it is part of the problem itself; if the owners accepted it as a solution of their principal\agent bargaining with Mr Profumo, and did not  monitor how the cintarct was executed, they just got what they were looking for. A crazy mono-strategy  (Rome against the Unni at the border of Russian steppe) whose potential failure, unbearable risk and wrong timing was very easily detectable, at just one external independent check, since many years ago.

In sum:

No reason to buy unless strategically, as in the Qaddafi case. In fact, Qaddafi and another M.East SWF are subscribing UniCredit convertible bonds at €3 (versus today’s 0.89 mkt value)

Mr Draghi, much cooler and a plomb than Min. Tremonti is (1st class clever, but badly affected by emotions-driven Prime Minister), is just saying, and he’s correct: devaluate all your toxic rubbish (see below how much “toxic” is a daily changing, metamorphic notion), then recapitalize ASAP.  Please don’t fool yourself (as  yo do fool ourselves: see we’re fed up with Marxism plea) with your “stabiity”: the sooner, the better. Sure, implementing such a strategy meets hard times.

This is why the major National (from December, no more global: see Brad Stetller on the US capital flows) Capitalisms recur to the 4th-5th best, or last solution of Nationalisations. But Italy has its own path-dependence: after Enrico Mattei, Craxi and De Michelis. The beloved Beniamino Andretta (as you already know in Italy, the political “father”  and  mentor of Mr Prodi) fought very hard in the 1980s coalition governments in order to save the public debt from the catastrophe (I remember Gianni De Michelis’ versions of such a War on Budget). Beniamino had all the knowledge and will to fight and  he did it, he gave hard times to the opposite political line (as from my personal, oral evidence), but no real power.

This is history by now, it is written in many books: Craxi could hamper Mr de Mita’s  impressive and farsighted “Revolution” of the DC, aming to move it from a European to an American political science and tradition paradigm of great coalition Party. He was repaid by the traditional DC caucuses (he had saved from Nichilism: the usual grey men like Andreotti, Forlani etc.) with an infinite State budget ceiling (the one Super Ego Profumo was convinced to have, but he never had, as any psychiatrist or cognitive psy woud have told him  before the end of the  1st meeting). The change occasion was postponed to “Mani Pulite” that generated Berlusconi’s business diversification (a much more cautious application of the Marris Model’s normative implications on such strategies; a friend of mine, a top executive of the privatised Dutch Post, told me at the epoch of the “diversification” that he could no more consider Fininvest in the set of potential allies, since the political risk was unmeasurable; in Eindhoven they teach Economics comme il faut).

In sum: Italy will not have, for some and perhaps many generations, the means to nationalize anything,  AND VERY LITTLE ROOM for any other counter-cyclical, industrial or social  policy. The chance stands for “MANY” above since:

a) the Late-comer First Industrialisation happended in Italy, under the  hyper-corrupted Giolitti Period (Early 20th C.), with a German financial system (the Mixed Banks going  bankrupt and natonalised in the early 1930s; CredIt was privatised  not so much before concentrating into UniCredit) and under a German I-O umbrella: these “filière” systemic links always grew upon time (in parallel with not so different political regimes, mutatis mutandis). Germany, our Elder Brother with some paternal rights, was not paying attention to the younger brother in the 1980s, but from now on will never allow for easing his\our public financial constraint. Unless  we  move to Africa.

b) The Italian political system did finally diverge from the 65-years  Nippon stagnation path. But not so much, e.g. in intergenerational policy terms. Unless the PD (dead today, but  this is good news for  potential change) challenges PDL’s  monopoly-and-monopsony, where will change come from? The State debt will keep forever around 100% of a very slow growth, often zero-growth GNP. In a sort of coupled hysteresis.

NOW: A PROVISIONAL, REAL TIME COMMENT TO THE POSSIBLE BEGINNING OF A BANK STOCK  CRASH TODAY, Feb.20. Not just banks: there are a few REASONS WHY WALL STREET’S DJIA MIGHT FALL FROM 7200 TO ABOUT 6000, IN LESS THAN ONE MONTH.

THIS TIME (2008 IS OVER), THERE IS NO SHORTSELLING, JUST LONGSELLING:

1. PENSION FUNDS MOVE WHERE DIVIDENDS ARE HIGHER: WHAT ELSE?THIS EXPLAIN THE DIVERGENCE TIDAY BETWEEN DJIA AND NASDAQ. In the sublime as always, but today really ON THE NEWS Sebastiano Barison’s broadcast (to which I owe 2/3 of this post’s concepts, under my rewriting and idiosyncrasies of course), we coukd listen to a top US exoerte, Mary NN, saying; No way for dividends from US banks. She said “I’d really like JP Morgan [!] to pay them, but they are in the same situation”. Some room only , exceot the zero-option, for a further reduction of already low dividends (Nietzsche and Severino are right; God is dead, and with Him all the Angels = there is no ethernal structure left on this earth. JP Morgan was the last one, still an Angel under the Fed’s protective Holy Spirit,  in mid-March last year …).

2. RE-RATING (DAILY RIGIDITY OF THE SHARE RATIOS ACROSS LEADERS OF THE SAME INDUSTRY);

3. CUMULATIVE FEEDBACKS: NOW, EXPECTED AND ANTICIPATED FROM MEAN TO WALL STREETS;

4. INCREASING UNCERTAINTY UPON KEY PARAMETERS; namely, referring to the various Timothies, if they have an idea (perhaps not): which governance and business models  in the State-owned majority of the much  less global Credit Industry? Sociology taught us: it’ll be a big fight. Yes, but: A) a fight for Governance Rules under which Meta-Rules of the game? B) How  can we repeat  the Lithany  that the late Schumoeter was so wrong, totally wrong? C) The anti – “Capitalism, Socialsm and Denicracy” VUKGTA, cane from vested inteersts: the Workers’ Movement bureaucracies had to dissen’minate the ideiigy of Biig Socialism as a volunatry conquest etc, etc, Bukkshut.

5. EUROPE REGIONAL FACTOR – As Prof. Nouriel Roubini is saying, there is an emerging Regional Factor – the comparative delay in  making effective the anti-Meltdown injections. An antidote for Italy is today’s Bruxelles approval of the “Tremonti Bonds”.

6. NATIONAL NO-DECOUPLING or no-Nation decoupling (particularly in Credit: Brazilian Mean Streets have exhibited heroic decoupling forces in 2008, as  in a Myth, an Amazonica-Nordestina conta of strange, UNIQUE animals). ITALIAN BANKS DIDN’T “TALK ENGLISH” YES. BUT THEY DEUTSCH SPRACHE, and therefore they are full of original (doc) Toxic products (not just the unsellable Italease, a dead walking emanation of Banco Popolare). The counter-information industry (= all the Italian media, except only the one directly owned by the ensemble of all the non-credit Capital: il Sole 24 ore, the Confindustria newspaper – just with forgivable and BONA FIDE mistakes) told us for 18 months that the Italian credit  industry was living in  another planet. We could stand the Tsunamy by .. lending each other within borders, as Barison was mocking today, during the mini-Tsunami. It was  just to suck you your left savings.

7. THE TOXIC DERIVATIVES – Wh’happens here is that there are by now A FEW  GENERATIONS OF TOXIC artificial Beings, like in any Pandemia. After the “doc” subCrime 1st G, they are self-reproducing  in Labs (the Banks’ canteens, in the ususal metaphor about the canteen as a compensation room in between Surface Finance and –  legalised by Clintonians – underground Shadow Finance).

FOR OUR BACKGROUND, FRAME SCENARIOS: GO TO OUR RED!0 bulletin. AS for all the DIJA, to put it simply:

A) market operators are adjusting downward their expectations about the Autumn real economy effects of  the fastly built 4-plans (much more than $3 tr., perhaps 4 tr.?) architecture (Detroit, Paulsson no.3, stimulus and subCrime): Obama was effective, and  paid a minor price (namely a 40 mn cut in education) for getting the 3  GOP senators to vote the stimulus. But financial accelerators and all the rest of the REAL-MONETARY-REAL- etc. TRANMISSIIN SYSTEMS (not nec.  classic ones, with genuine, inherent unpredictability) are at work since midAugust 2007.

Hard to stop a snowball when it is an avalanche.

Then there is the issue whether  all this architecture is adequate. And: what is its paradigm – pay attention to Obama, he pays service t American Idls, but with his friend Cass :

Finally, THE issue – why FDR is far from a model:  either in his times (Amity Shlaes) or in our so different times (my deep convinction, on left libertarian philosophical grounds), or in both of them (my chance to ally with Shlaes); or none (an optimistic, backward-looking and Classic US Liberal thesis). NOTABENE  for sensitive souls – “backward-looking” is NO insult, since we know by now that Progress doesn’t “exist”, it’s just a Narration as another one (someone has to dare to tell it to the US Progressives, before they become the Last Mohicans). This is a straight Popperian issue  about whether, how fast and  how far contemporary cultures are a’changing, within the same regional Civilisation. The most respectable scholars told us they changed a lot, and that if there was a Promise Modernity maintained, it was the  effective mega-trend of Individualism. So, how can you come back with “Fordist” solutions or frames, NOW? I refer here also to Carlota Perez 2002, another way to say:  look forward.

B) experts have, on average: let us say, a bit equivocally, a “median expert” (of the few surviving ones, dynosaurs after the punctuated SubCrime equilibrium) has, for professional habit, talent and  intelligence,   much more deep-and-radical doubts than a median GOP Senator or a Wal Street guy. “We” believe (particularly Michele and I) that all such an Ambaradan might  do some  sound social justice if well managed, and eventually alleviate the short term, but (there is here a Gravity Law I’ll explain another day), ONLY TO MAKE THE MT EVEN WORST than “neutrally”. It has to do with 20 years of OverRated Actives in Western Capitalisms, ONLY sustained,  in increasing disequilibrium paths, by (not artificial, as Paul Krugman once dared to say: he was ALMOST right) Planned Hyper-Growth in East Asia Socialist countries (Jap, Kor, 4 Tigers, Chindia). This is rooted in completely, unprecedently  unsustainabe, by all means and criteria, SOURCE-OF-ALL DISEQUILIBRIA in the 2 PRIMARY MARKETS: LABOUR FORCE, AND  SERVICES drawn from irreproducible NATURAL objects (the Kalecki, and the Georgescu-Roegen contradictions). The gone-crazy Minsky cycle is a MASSIVE SIGNALLING about those 2 contradictions,  that for decades no one wanted, no one was keen to listen to, in a Surrealisitic pièce. But this time … surprise! Godot has arrived. When no one was still waiting.

Here comes the ETHICAL AND POLITICAL RESPONSIBILITY OF TODAY’S INTELLECTUAL: just too heavy! Unbearable! Let us not leave the whole of it to Nouriel Roubini as a Dom Quixote. Or the one Hero that had to sustain the Globe on his shoulders. Prof. Atlas Roubini, a good fella of Bocconi.

doctor doom’s 2009

Nouriel Roubini has now a weekly column on Forbes, where some synthesis is made of the much richer rge material (unique, very deep and informative news “clusters”; regular blogs or interventions by some of the best macroeconomists). This is an invitation to read regularly, as an amateur, both “Doctor Doom” Forbes column, and the free sections of rge-monitor.com (while a professional economist is obliged to subscribe to rge):

Doctor Doom

A Global Breakdown Of The Recession In 2009

Nouriel Roubini, 01.15.09, 12:01 AM EST

Forecasting pain, from the U.S. to Australia.

pic

With the industrial world already in outright recession and the emerging world navigating toward a hard landing (growth well below potential), I expect global growth to be flat (around -0.5%) in 2009.

This will be the worst global recession in decades as the fallout of the most severe financial crisis since the Great Depression took a toll first on the U.S. and then–via a variety of channels–on the rest of the global economy.

Here is a global breakdown of my forecast.

The United States economy is only halfway through a recession that started in December 2007 and will be the longest and most severe in the post-war period. U.S. gross domestic product will continue to contract throughout all of 2009 for a cumulative output loss of 5%.

One last look at 2008 will reveal a very weak fourth quarter with GDP growth contracting about -6% in the wake of a sharp fall in personal consumption and private domestic investment.

I see the real GDP growth contraction playing out through the year as follows: first quarter 2009: -5%; second quarter 2009: -4%; third quarter 2009: -2.5%; fourth quarter 2009: -1%–adding up to a yearly real GDP growth of -3.4% for the U.S. in 2009.

This forecast is much worse than the current consensus forecast seeing a growth recovery in the second half of 2009; I also predict significantly weak growth recovery–well below potential–in 2010. (…)

The latest cyclical upswing in the Eurozone was largely driven by a temporary but powerful boost to domestic investment from disappearing risk premia in the aftermath of the adoption of the single currency and by external demand from a buoyant world economy.

Both demand sources fizzled out by the second half of 2008, leaving the Eurozone as a whole and its largest members exposed to diverging deleveraging patterns in the face of suboptimal EMU-wide automatic fiscal stabilizer mechanisms.

The latest record-low readings of leading and sentiment indicators point to a severe recession ahead in 2009 that shapes up to be worse than the 1992-93 crisis. For the Eurozone, I expect a below-consensus contraction in real GDP of around -2.5% (…)

We believe China will experience a hard landing in 2009, with growth unlikely to exceed 5%, a sharp slowdown from the 10% average of the last five years. The reversal of capital flows and high credit cost will pull down India‘s growth significantly, to around 5% in 2009 from an estimated 6% in 2008.

END  OF NOURIEL’S QUOTATION

This graph, now in the front page of the Greenberg geo-eco think thank of the CFR (where we always read two of our favourite blogs: Follow the money by the International Economics “Sherlock Holmes” Brad Setser (*); and the delightful political incorrectness of  Amity Shlaes’ Forgotten man: healthy antidotes to FDR or BO’s santifications), is quite informative.

RAQ (Rarely Asked Q.) Did u know, before having looked at it, that the 2nd NewEconomy bubbbbbble (2003-07)  was much more  pervasive cross-country, than the so much advertised 1st one (1994-2001)?

2growths_oneline_cfr

(*) We are much more than friends, in brotherhood from decades with Otaviano Canuto, himself an rge blogger, Catou and all their beautiful family. Nonetheless, our esteem of Otaviano as an economist made a big jump upward a few weeks ago, when we discovered, in an exchange of comments on a recent post, he had … something to teach to Brad. Before, we believed anything alike impossible, i.e. beyond human limits.

Why we might already B in a decade of depression

RED. no. 0, Dec. 18, 2008 (ITALIAN, English abstract)

We started ths blog last February, basically for civic-political reasons: we HAD to do something, while a catastrophic  social crisis was enrolling; and economists, media, power were just lying to everybody. Are we living a Pinocchio society? Just one vox clamans in the desert, one truth teller: the best Bocconi graduate, Prof. Nouriel Roubini of New York University’s Stern School of Business, founder of RGE monitor – the MUST  in web2.0 macroeconomics.

Now we are on the verge of answering the blog name dilemma, the MOTHER OF ALL FAQs, since from the August 2007 subcrime bubble burst: will it B

just deep recession, or depression?

The major States and their CBs have a few months left to answer such a question, but we know already why  and what: they  will not choose to start IMMEDIATELY a historical, massive RED. = REDistribution of capacitations (Amartya Sen) and resources, because the political equilibria between the Rentiers élites in power, and the oppressed masses do not allow them to go for it.

Therefore RED. will happen in any case (there is no choice), but only with strong social movements, and possibly  many wars around the globe (although we highly esteem the couple Barack-Hillary in this regard, and expect a lot from both).

RED. at a too much slow pace, in the

DECADE OF DEPRESSION 2009-2020.

The same happened with Roosevelt, History repeats. The last Krugman book is about that. As the Cambridge Keynesian school (Kaldor, Pasinetti, Robinson) explains, capitalism has only one way in order to try hard to be sustainable, although not getting it: the State keeps redistributing more and more to the ones who consume, as a counterbalance to monopoly markets and class oppression doing the other way. Now, the Reaganite New Gilded Age has done exactly  the opposite:

a) the State has massively occupied the scene, it has never  retired from the economy. The Reaganite State, evaporated forever  in March 2008 with the Bear Stern bailout, has been  invasive in the economy and society as never before  in Modern History (on this we dissent from the analysis of Loretta Napoleoni, but also of everbody else taking for granted free-marketeer bulshit: what the Pinocchios say).

b) It just started working 100% at the immediate service of  Rentiers, with no foresightedness about  the Future: enjoy the bubble and the Present, fuck off tomorrow and  the next generation (Reaganite Edonism values).

c) pushing of course, one after another all the world economies in a dramatic capital over-accumulation corner from a longrun lack of effective demand, due to counter-distribution. Europe had already cornered itself in an artificially crafted 1970s Depression from restrivtive monetary policies and never recovered, since it carried on with the same catastrophic policies, on and on. As you know already  from our subcrime analysis pdf or other sources, in the US not so much the 1%, but the 1/1000 of population has reaped the benefits of 2 decades of counter-distribution.

RED. no. 0, Dec. 18, 2008 (ITALIAN, English abstract)

On these key issues, here’s the resume’ of this 9p. document, 1st in the  RED. series.

2009: THE DEATH OF GLOBAL FINANCE, AND THE BIRTH OF RED.
2009-11: the catastrophic, cumulative global stag-deflation
2008-20?: 3rd Great Depression, like in the 1880s & 1930s
ABSTRACT
In this draft document:
– we resume some basic conclusion, from our blog analysis on the stag-deflation consequences of 2 decades of over-accumulation Hystheresis, from income counter-distribution
– we briefly motivate not only the basic reasons for RED. policies. More: it’s a one way only, objective forces and the Nash of subjective conflicts bring  there. But such a political process is now very slow, therefore we are already in a depression decade.
In the appendix, a comment to global shares markets trends.

uno sciopero contro lo sciopero della Ragione

oggi si sciopera e si va in piazza con CGIL e CUB:

per salvare l’Italia, per i nostri figli e nipoti

1229083417996_00deb6f0

EPIFANI: “IL CONTRIBUTO AGGUNTIVO DEL GOVERNO E’ STATO PARI A ZERO”

1 SETTTIMANA PRIMA DELLO SCIOPERO, CALPESTATI I DIRITTI COSTITUZIONALI ALLA ALENIA DI NOLA –  l’azienda fascista  non fa entrare il sindacalista che doveva parlare all’assemblea; una inammissibile violazione dei diritti universali.

An English speaking post in socialistbiopedia, on today’s strike:

Italy in general strike against M Tremonti’s kafkian procyclical plan

Nostra esclusiva (certo non la troverete su nessun altro media o social media): i vigili colgono sul fatto alcuni dipendenti Fininvest che gettavano secchiate d’acqua in Tevere a Ponte Milvio, per togliere la prima pagina alla CGIL. Allo stesso scopo, uno di loro si imprigiona ai lucchetti di Mocci, pronto anche ad immolarsi per il suo datore di lavoro, all’arrivo dell’onda delle 3 am di sabato. Il Papa esprime viva preoccupazione per il generalizzarsi del fondamentalismo suicida persino a 2 passi dalla Santa Sede.

ahogigggiellecubbbe

BREAKING NEWS

COMUNICATO CGIL

Sciopero generale

Cgil, un milione e mezzo in piazza

Duecentomila solo a Bologna. Panini: “Risultato di grande rilievo”

Un milione e mezzo di persone. In tanti sono scesi in piazza oggi (12 dicembre) per lo sciopero generale della Cgil. Una giornata di mobilitazione per chiedere ‘Più lavoro, più salario, più pensioni, più diritti’ e per contrastare le scelte inadeguate messe in campo dal governo per affrontare la crisi economica. Il risultato, comunica l’ufficio stampa di Corso Italia, è stato raggiunto sommando il dato di partecipazione di tutte le 108 piazze del paese in cui si sono svolte le manifestazioni.

L’epicentro della protesta è stato Bologna dove, all’imponente manifestazione regionale, ad ascoltare il comizio del segretario generale della Cgil, Guglielmo Epifani, in Piazza Maggiore erano in 200 mila, mentre a Milano con la segretaria confederale Morena Piccinini erano in 80 mila. A Venezia, la segretaria confederale della Cgil, Susanna Camusso, ha parlato davanti a 50 mila persone

foto Eikon. La Repubblica, ed. Bologna

6gelmini-bruneta-mascareta

Ci informa Fiorenzo Fasoli. A MESTRE (manif. regionale) sotto una pioggia impietosa, ininterrotta  (governo ladro per davvero) FORSE 50.ooo. I 2 cortei sono cosi nutriti che non riescono   procedere ed alla fine devono sciogliersi per andare al raduno. Piazza Ferretto  piena piena, chi ne conosce la capienza può valutare. Sfila, per lealtà organizzativa,  solo la base CGIL e CUB, ma in alcuni settori scioperano molti altri. La Camusso (possibile erede di Epifani alla guida nazionale) nel suo discorso attacca duramente il governo MA NON Confindustria (ciò potrebbe confermare l’ipotesi che sviluppiamo in questo post). Ovviamente, pieno spirito unitario tra sindacati (frattura sanabile?).

1) IL PAKI HA FINALMENTE, dopo l’ultimo viaggio di Gondoleeza ed  il blitz -arresto del Chief Commander  militare,  ARRESTATO la notte del 10 dicembre anche SAEED, IL  FONDATORE E PADRE-PADRONE  della banda LeT, la creatura anti-indiana dell’ISI (s. segreti paki) che ha pianificato e compiuto l’assalto a Mumbai (noi  l’abbiamo detto  ad assalto ancora in corso, CON NOMI, COGNOMI E SAPEVAMO PURE GLI INDIRIZZI, ma a molti fa comodo tergiversare).

ft (click Saeed’s picture for the link) concludes:

Some diplomats judge Pakistan to have badly mishandled its response. Islamabad first denied that Pakistanis were involved in the Mumbai attacks and then tried to avoid responsibility by blaming non-state actors. One diplomat said tensions would escalate rapidly if Pakistan only made “revolving door arrests”, whereby terror suspects were briefly and lightly held.

COMMENTO. E’  un timido passo avanti che al momento riduce la Prob di un conflitto nucleare India-Paki (come scommettitori su intrade.com proponiamo questo future), anche se la situazione paki-afghana resta del tutto fuori controllo: come spiega  il corrispondente atimes.com Saleem  Shahzad (un tipo leggendario alla Sheherazad, che va per le montagne ad intervistare e … FOTOGRAFARE capi talebani), e’ nata per fusione calda una  nuova generazione di New Talebans. In breve: da quando tutti i guerriglieri infiltrati dall’ISI  nel Kashmir indiano hanno ricevuto uno stop, tornate a casa (per le pressioni US sul gen. Musharraf),  questi si sono ricongunti ai Qaedisti nel NW “tribale”, cosi l’ISI ha ceduto ad al Qaeda l’egemonia dei movimenti a suo tempo da lei creati, sia gli Old Talebans che i Jihadisti infiltrati in Kashmir. Questi  s’irradiano nelle vicinanze e nel mondo, e non c’e’  niente da scherzare.

L’INDIA E’ VICINA.

Le distinzioni degli analisti tra Jihadisti e Qaedisti (lette, sentite 100 volte dopo Mumbai 11\26) da alcuni anni non valgono più in  Paki-Afghan-istan: visto che si spacciano per analisti, si leggano l’ultima pagina di ottobre di Le Monde diplomatique – by  Syed Saleem Shahzad.


DETROIT E ANCORA PIU’ VICINO: il modello per il vehicles bail, che Europa e Giappone dovevano imitare sino a ieri,  e’ morto nela cuna (culla). Ora George W Bush ossia Paulsson valuta se stornare  fondi dai $0.7 tr della finanza – cui si era sempre opposto.

2) THE US SENATE HAS JUST REJECTED THE DETROIT BAIL.

-5.5% Tokyo close (drowned by car titles).

The final bargaining between Senate GOP and TUS was about wage reductions, and failed.

Now, GM AND CHRYSLER WILL GO BANKRUPT  in 2 weeks time. Unluckily for everybody, namely workers and their families, the only feasible  road – AN ASSISTED,  CONTRACTED AND PREPARED CH.11, i.e. BANKRUPTCY – has  not been undertaken.We supported the latter  since from the very start, see

https://enzofabioarcangeli.wordpress.com/2008/11/17/

Namely because we knew  very well the strong opposition of the US public opinion against the bail: the social media and the comments to posts gave no doubt. If the priority is redistribution, why concentrate Mean Street bails on Detroit? Of course, making the tiny unionised US working class precarious is no solution, except for social hawks – and the wage issues centrality tells what is at stake: using the GIRA (Global Industrial Reserve Army) and the subcrime recession in order to enslave the Western workers.

THIS IS AN IMPORTANT TURNING MOMENT FOR  GLOBAL STAGDEFLATION POLICIES (and without adequate policies it will be catastrophic): Obama’s New Deal is challenged before it sees the light. The risk is that the Tsunami takes off, and Obama will B cornered to work just for the MT and LT: sustain the mass psychology during a long depression, and continue galvanising young energies for  the America Renaissance … in the 2010s. A Europe without Germany has  no chance  to take the lead in Roubini’s innovative  -radical, and Left Keynesian strong redistributive policies: the only ones that matter when a stagdeflation storm is on.

Our modest opinion is that the Dream Team has made a big mistake: the supposedly radical Robert Reich (in the economic adviser team) had also suggested a reguated Ch.11 one month ago: why not pursue it? Now the time is running short …

3) corsera

DOMANI LA MANIFESTAZIONE NAZIONALE

La Cgil sospende lo sciopero dei treni
Mezzi in funzione a Roma e Venezia

17:25 CRONACHE Lo sciopero generale indetto dalla Cgil subisce alcune deroghe a causa della pesante situazione legata al maltempo. Treni regolari in tutta Italia, settore aereo già esentato

4) l’unità e vari altri giornali – pdf da lavoce.info. TITO BOERI spiega. L’ufficio Bilancio della Camera ha rifatto i conti AL DECRETO  ANTICRISI di 3monti ed e’ risultato UN PIANO PROCRISI, PROCICLICO: infatti alza le tasse più del Delta spesa, con un avanzo netto di  € 390 milioni.

Ora, con le nozioni di macro che s’insegnano alle elementari (se le maestre sono laureate in Scienze della Formazione), si capisce che 3monti sta facendo deragliare IL TRENO DEL PAESE. Prima della fine del 2009 potremmo trovarci con: deflazione, disoccupazione e persino (nel caso peggiore, anni ’30) recessione a 2 cifre;  quasi nessun ammmortizzatore sociale. Partiranno i barconi in senso contrario, VERSO LA LIBIA.

Ecco perche’ non possiamo non dirci sciperanti con CGIL e CUB (sindacati unitari di base), per dirla con B. Croce

ENZITORIALE no.2 – cliccare per il volantino .pdf

enzito2_1_1

UN APPELLO ALLA RESPONSABILITA’ DI TUTTI.

L’ITALIA HA BISOGNO ORA (GENNAIO SAREBBE MOLTO TARDI)

a) DI UNA POLITCA DI STIMOLO FISCALE AI CONSUMI: 5 MILIARDI SONO NULLA, PER AVER EFFETTI PROPORZIONALI ALLA CRISI OCCORRE SALIRE OLTRE 100. CHE LO STIMOLO FISCALE AI CONSUMI SIA OGGI L’UNICO ACCELERATORE DA PREMERE, LO SANNO GLI ASINI MA TREMONTI NO. VEDERE FRANCESCO GIAVAZZI NEI SUOI ULTIMI 2 EDITORIALI CORSERA

b) DI UNA IMMEDIATA COPERTURA CIG TOTALE A TUTTI I PRECARI, NESSUNO ESCLUSO, PRIMO PASSO VERSO UN SALARIO SOCIALE MINIMO: PER NOI E’ GUSTIZIA SOCIALE MINIMA ED UNITA’ DI CLASSE; MA GIAVAZZI CI RICORDA CHE QUESTI SAREBBERO SOLDI SPESI TUTTI; NO RISPARMI, EFFETTO MACRO GARANTITO

c) LA MARCEGAGLIA HA CAPITO LA GRAVITA’ DELLA SITUAZIONE, coi bollettini di guerra dalle aziende e la prospettiva dietro l’angolo  – se non si invertono i meccanismi moltiplicativi\accelerativi – di una deflazione galoppante ed una recessione (STAG-DEFLAZIONE) entrambe a 2 cifre nel 2009:

d) UNA INDUSTRIA ITALIANA ABBANDONATA DA TREMONTI, SOSTENUTA SOLO DA BERLINO E BRUXELLES SAREBBE COME LA JUVE PASSATA D’UFFICIO IN SERIE B. PER QUESTO  da  settimane Confindustria  HA  APERTO UNA LINEA DI DIALOGO CON LA CGIL, con appelli precisi a “tornare al tavolo” per dar manforte contro  il deflazionista irresponsabile Tremonti.

Rispondiamo con Verdi: RITORNA VINCITOR!

Uno sciopero forte, con manifestazioni massicce sono l’ultima partita, quella decisiva per tenere  l’Italia in serie A, in cui ci si gioca tutto.

Se domani riprende la melina, sarà serie B per 10 anni.

Sempre sperando che dal  vento di  Obama, con il lavoro di tutti si  riesca a rallentare SUBITO, poi infine ad arrestare e  rovescare la valanga-Tsunami STAG – DEFLAZIONE (rge-monitor), sennò  QUI RITORNA LA FAME. E, COME PREDISSE ROUBINI A DAVOS, un’Italia vaso di coccio potrebbe anche. alla fine,  scivolare fuori dall’€. Come retrocedere ai campetti di parrocchia.

Per finire, osserviamo non sia ancora finito del tutto (spera di tornare?) IL SOLITO FASCISMO ai cancelli delle fabbriche, che ha continuato per decenni e decenni, ININTERROTTAMENTE ad essere imposto col ricatto, mentre là fuori la società evolveva (IL CLASSICO IN TEMA SONO I DIARI DALLA FABBRICA DI SIMONE WEIL, ma basta parlare all’osteria con un operaio non più giovane, per apprendere la BIOPOLITICA DI FABBRICA), e sequestra i diritti di cittadinanza quando uno timbra il cartellino. VERGOGNA!  ALLA GOGNA I VERTICI DELL’ALENIA  DI NOLA.

Napoli, 5 dicembre

“E’ inaccettabile e provocatorio l’atteggiamento dei vertici dell’Alenia di Nola che hanno impedito al Segretario generale della Fiom Cgil di Napoli di effettuare l’assemblea promossa dalla Cgil in preparazione dello sciopero generale del 12 dicembre”.
E’ quanto sottolinea, in una nota, il Segretario generale della Cdlm di Napoli Giuseppe Errico.
“L’assemblea – precisa Errico – doveva essere supportata da una serie di slides per illustrare meglio i motivi  della mobilitazione. Il loro contenuto era stato preventivamente  comunicato all’azienda. Nonostante cio’ e’  stato impedito al Segretario della Fiom di entrare in fabbrica e svolgere l’assemblea. Il confronto con i lavoratori – conclude Errico – si e’ comunque svolto all’esterno della fabbrica”

NASTRO ROSSO SUL WEB,

nelle blogosfere italiane.

Festeggiamo la nascita oggi di un nuovo sito degli economisti italiani di sinistra, già da noi linkato nel blogroll della colonna di destra: www.economiaepolitica.it e’ un progetto politico-culturale ambizioso, coordinato da Realfonzo e tenuto a battesimo sia da Ferrero che Bersani (2  ministri  del pasato governo), con alcune  ipotesi di fondo interessanti – no.1 cambiare target sul DEBITO PUBBLICO (noi non siamo proprio d’accordo ma occorre discutere, e persino un keynesiano di centro come Paul Samuelson dice, su il sole 24 ore del 5 novembre, che con la crisi epica che ci casca addosso, si gettano a mare le ortodossie e regole del cacchio, si bada a portar fuori la gente dal Titanic). Utile la presentazione che ne fa “il riformista”, chiarendone lo scenario di THINK TANK per ricucire varie anime sparse della sinistra, per capire gli errori e ripartire:

nasce economiaepolitica.it

a Francoforte sono dei Bari

Bari a Francoforte. Il cavallo germanico e’ stanco e  s’abbevera meno.

6 pm GMT UPDATE: we knew nothing, zis morning,  about today’s European stock exchanges, where someone must agree with the Roubini’s tiny sect.

Whatever they think, they voted today  “pollice verso” to ECB dull uncertainty, going opposite to a last minute rally at  Wall Street, with:  FTSE Eurofirst 300 -3.96%,  CAC 40 Paris -5.4%.


If the German horse drinks less,

at ECB they must cheat.

Two bad news from Germany, for the European deep recession.

Today: -6% manuf. industries orders in Germany.

Yesterday: at ECB they have lost their LAST CHANCE to serve the people they should serve.

ECB cuts rates by 0.75, NOT daring to choose between 0.5 and 1.0.

Please note that, as soon as some world region will succeed to do something in order not to stop (physically impossible), but  to smooth some effects of the “december 2007 – sometimes in 2o10-11” recession, Europe will just crackdown as a whole, in the absence of any policy. And there is no reason to preview that any policy will be undertaken in Europe, before it’s too late: IT IS TOO LATE ALREADY.

All the best macro-economists (except our modest, little Roubini sect, the Truth-Tellers) realised we were in a crisis, although still not grasping it as a complex-deep and  unique one, only in … September 20o8, i.e. 13  months after its dramatic, nuclear-bomb  implosion.

The forecast of a German bank of GDP – 4% is  clearly over-optimistic,  in an average scenario without any European economic policy; eventually, later on just  some social policy, when people’s revolts will diffuse and become violent. The Italian CGIL Trade Union is  unluckily the only one, of the 3 BIG TUs,  to play a democratic, moderate and responsible game; with foresightedness, in order to prevent the crisis to go socially very very bad, catastrophic and  VIOLENT; an ideal ground for Red and Islamic Brigades: we’ll talk this soon, in a next post, à propos of the FRIDAY 12 DEC. GENERAL STRIKE IN ITALY ON BEHALF OF AN ECONOMIC POLICY. Talking Brigades: DO YOU KNOW THAT THERE ARE AT LEAST SOME HUNDREDS  hidden-sleeping Al Qaeda associates in Germany, UK and elsewhere, with a European passport, and all of them received a full military training in the tribal provinces of Pakistan? We know it, from published sources: October issue,  Le Monde Diplomatiqe.

From the Frankfurt BABEL TOWER (read: ECB), board member Mr Bini Smaghi (interviewed zis morning at Italian RAI-RADIO 3) replies to the  -4% provocation, by saying that “such bank economists have vested interests” (conflitto di interessi) in making such forecasts. He, they forecast a GDP upturn in the 2009 2nd semester, but they don’t believe such bullshit, since they are not crazy. They just lie.

Let us fix a 1st Babel Tower dimension: LA MALAFEDE;  at the ECB they are liars  using all their hyperpower and Authority, to  diffuse informational heavy drugs, downers (tranquillanti) to people. MENTONO SAPENDO DI MENTINE.

TODAY: According to Mario Platero (il sole 24 ore correspondent), the worst guesses were 380,000 jobs lost in November: they came out almost 50% more than that. IT IS SURE THAT THE U.S. ARE  LOSING MORE THAN 2 MILLION JOBS across 2008, since thet’re up to 1.7 mn by now.

ft

US job losses steepest since 1974

The US economy lost a stunning 533,000 jobs in November – the largest monthly drop in more than three decades – as the unemployment rate jumped to 6.7 per cent
today, Dec.5; – 14:23

German manufacturing orders collapse

October orders fall 6.1%
today, Dec.5; – 12:19

YESTERDAY: At ECB,  besides being professional and trained liars: either they know little about economics, or they live in another planet (ignoring what happens here), or they have unconfessable aims (like fucking the working class and the Trade Unions, together with large sections of the creative and productive bourgeoisie, etc.). We firmly believe THE 4 OF THEM HOLD, in a satanic mix.

As usual, ECB did’nt dare to cut 1% full (just 0.75), even though  its 2%  inflation target is already, fully and even too much satisfied – since (a short lecture  for  ECB dunces and liars):

081204oil-price

a) Summer 2008 breakthrough shift in ALL PRIMARY MARKETS: from inflation to deflation;

b) such a radical change is NOW quickly diffusing  downwards on intermediate and final goods markets;

c) present state-of-the-art: less year-base inflation, quickly converging to the 2% target and overshooting;

d) ST perspective: a DRAMATIC DEFLATION much more than likely:  pretty difficult to avoid, exp. without creativity, innovation and Zeitgeist in economic, social policies and Politics tout court. A horrible  STAG – DEFLATION – Roubini, 2 dec. FT.

wsj

[Crisis Management chart]

ECB, Bank of England Cut Rates

Central banks world-wide delivered sweeping cuts,

with the ECB lowering rates by 0.75 percentage point to 2.5%

and the BOE slashing its key rate by one point to 2%. (Trichet remarks)

No rally: full recession, fears of deflation and the spectre of Marx

happiness: http://www.freewebs.com/socialistcommonwealth/bralds_marx-s%20(2).jpg sadness: Tokyo stock exchange on another Black Friday, Oct. 24 2008 (AP)

ITALIAN SECTION

31 ottobre. BREAKING NEWS: – rottura tra CAI e piloti, l’Alitalia ad un passo dal fallimento. IN TAL CASO NON  SUBENTREREBBE NEMMENO UNA COMPAGNIA EUROPEA, ma si venderebbe a pezzi. Colannino a colloquio dal Premier (ore  7pm) – Draghi: non deve essere l’EURIBOR  il tasso di riferimento per i mutui casa

DOPO IL MASSIMO. Speriamo che me la cavo.

La riuscita manifestazione PD dei 750.000 del 25 ottobre, e successivamente lo sciopero generale della scuola,  alzano – ceteris paribus, benche’ non di molto – le chances che rinasca un’opposizione in Italia, quindi la lotta di classe possa ridurre il peso della crisi sugli oppressi, i  pensionati ed il popolo bue. La c.d. “sinistra di governo” taccia per sempre, dopo che mentre stava per crollare il capitalismo finanziario, ha cercato invano di far carte false e convincere  i lavoratori di mettere le loro liquidazioni e pensioni nei FONDI BIDONE. Anche questi Prodi ministri e sindacalisti hanno la faccia come il culo. Per fortuna c’erano i sindacati di base a fare contro-informazione.

ALAN: LA FACCIA COME IL CULO

Per la prima volta sotto il fuoco di fila del Parlamento, alla Commissione Oversight and Government Reform, Alan Greenspan (resp. No. 1 al mondo del crollo del capitale finanziario) fa finta di fare auto-critica ieri: fu “a flaw” non regolare i derivati. MA IL BANCHIERE CRIMINALE DICE PURE IL CONTRARIO:

Greenspan, responding to questions, said only “onerous” regulation would have prevented the financial crisis. Stifling rules would have suppressed growth and hurt Americans’ standards of living, he said. (source: Bloomberg)

IL BANCHIERE BASTARDO, LA FACCIA COME IL CULO, ha sostenuto ancora una ricetta auto-regolativa delle sue, che hanno governato a colpi di bubbles, e stanno portando il mondo alla fame. Quando una finanziaria emette securities, se ne deve tenere per se una certa quota, così e’ incentivata a dare il giusto prezzo al rischio.

I PIFFERAI DI BREMA

Invece il nostro vituperato Cavaliere, in una delle sue 10.000 smentite aveva azzardato che si potevano chiudere i mercati: ebbene, lo dice pure – a Bloomberg – Roubini che se ne intende. Il Cavaliere, ormai lo sappiamo, vale sempre PRIMA della smentita. Il problema e’ che con lui, il geniale Brunetta  e Hood Robin Tremonti al governo vale la

LEGGE DI MURPHY

“Se qualcosa può andar storto, la catastrofe e’ assicurata”. Mentre l’ ultimo governo Prodi tergiversava, questi ci potrebbero portare dritti dritti …

CROZZA-DOLLARO

A share trader behind a false one dollar bill (much similar to the one alive, you see at Crozza Italia TV show) at the German stock exchange in Frankfurt, October 24, 2008.   REUTERS/Kai Pfaffenbach

CHRONICLES FROM A RED PLANET: MARX

Oct. 27 Reuters   Korean Confederation of Trade Union Vice-President Ju Bong-hee takes part in a protest against the ongoing meeting of the Global Forum on Migration and Development (FGMD) as he is blocked by anti-riot police in Manila, Philippines, October 27, 2008. The number of undocumented migrant workers across the world is expected to rise in the face of the global financial crisis, trade unions and business leaders warned on Monday, urging governments to respect labor rights.   MIGRANT ARE NOT COMMODITIES: REUTERS/Romeo Ranoco Oct. 24 Alphaville http://ftalphaville.ft.com/blog/2008/10/24/17413/black-hole-friday/

Recommended reading: Roubini’s latest take: We’ve reached a situation of sheer panic… There will be massive dumping of assets [and] hundreds of hedge funds are going to go bust. Systemic risk has become bigger and bigger… We’re seeing the beginning of a run on a big chunk of the hedge funds… don’t be surprised if policy makers need to close down markets for a week or two in coming days.

Here is our comment  to Fabius Maximus, http://fabiusmaximus.wordpress.com/, posted on rge http://www.rgemonitor.com/globalmacro-monitor/254129#125448

New recommendations to solve our financial crisis (and I admit that I was wrong) Fabius Maximus | Oct 23, 2008 Summary:  Please vote, and do so carefully!  This could be one of the most important elections in American history, as continued economic crisis might require a massive (and hopefully temporary) expansion of government power — unlike anything we have seen except during wars. On September 25 I sketched out A solution to our financial crisis, in three parts. (1)  Stabilize the financial system – Being attempted, probably now it’s too late. (2a)  Stabilize the economy with monetary stimulus– Rates are coming down and money printed, but probably with relatively little effect. (2b)  Stabilize the economy with fiscal stimulus — Just now being considered; will work but slow to implement and slow to have effect. (3)  Arrange long-term financing for steps #1 and #2 with our foreign creditors – Unacceptable to our leaders at this time. Parts 1 and 2 are being implemented, much as described.  Part 3 was described as necessary at some point in the future.  I said that these probably would not work over the medium to long term, but would mitigate the downturn (slow or even reduce the economic decline, and alleviate the resulting suffering). I was wrong.  The rate of decline — destabilization of the global financial system – has become so great that these measures will prove insufficient.  In my opinion (these are, of course, guesses).  Since I doubt our leaders have a Plan B, here is a suggestion. Extreme mobilization by the government of our economic resources, as we have done during wars.

Hei Fab I always read your blog and I quote it, suggest it from mines. Thanks for the self-critique, actually more convincing than Greenspan’s… I agree on a war-like mobilization for the immediate short term, a sort of OBAMA NEW DEAL or even more than that. The war metaphor is important in the US, where only military Keynesianism is allowed by the “public opinion” and pop culture. And beyond? I can’t see how this severe recession and credit meltdown might not go into sharp deflation and then depression, until wealth redistribution is taken seriously and DRASTICALLY into account. Yours Fabius Minimus Reply to this comment By enzo fabio arcangeli on 2008-10-24 03:25:21    Oct. 21.

THE FRENCH STATE entropy: from champions nationaux to no selection, saving everybody.

Sarkozy applies financial socialism and semi-nationalise 6 banks. Meltdown financial capitalism rediscovers “Partecipazioni Statali”, i.e. what Mussolini  already did in the 1930s. ft – France injects €10.5bn into top six banks

The French government’s injection in the form of subordinated loans will shore up balance sheets and maintain credit provision for consumers and businesses – 11:28 Crédit Agricole would receive €3bn, BNP Paribas €2.55bn, Société Générale €1.7bn, Crédit Mutuel €1.2bn, Caisse d’Epargne €1.1bn and Banque Populaire €0.95bn.

WE REPRODUCE HERE THE ABSTRACT OF OUR STATIC PAGE  “AAA UPDATES …”, that we strongly  recommend to our readers and students, since it develops in real time a collection and comment of economic analyses and policies. This ABSTRACT answers the historical FAQ no.1, after the Wall Street collapse.

SUMMARY

THE DEFINITIVE CRISIS OF FINANCIAL CAPITALISM? MAYBE; BUT NOT  NECESSARILY, and the game is not over yet. Its Greenspan – Reaganite standard version is certainly dead forever –  in the earthquake moved by the shadow finance meltdown. But – doing  their business as usual of collaborationists with Rentier Capital –  social-democrats “doc” à la Gordon Brown (followed willy nilly by such neophites as Bush, Merkel and Sarkò) are desperately looking for a “financial socialist” escape from this cul-de-sac, meltdown and ruins of a Glorious Years past.  Most likely, they won’t succeed: a. first of all since their analysis is wrong (it’s not based  on Keynes, Kalecki and Minsky), b. therefore their cures are just palliatives; c. they just use State muscles, not the brain (see a Lex editorial on this, on Oct. 13: Brownian Motion in Europe). We can take these two Marx-Keynesian axioms for granted. For sure: 1) By Bernd Debusmann

WASHINGTON (Reuters) – Capitalism as we used to know it is on its deathbed. And those who predicted that the old brand, the unfettered, American-promoted system, was a danger to the world, are being vindicated. They include Karl Marx … (our red-bold and underlining).

2) Giorgio Ruffolo, following but also updating Marx: “Il capitalismo ha i secoli contati (its end is a matter of centuries)”. Now Financial Capitalism might be dead. But capitalism as such will not disappear soon, not before an evolutionarily fitter “mode of production and distribution” emerges – within the same social evolution and organisation, carrying the irreversible decline of Late Capitalisms (Ernst Mandel). 3) Carlota Perez (in sintonia with Wallerstein, in a LW perspective on deflation – see also Aglietta and Berrebi): behind the financial eltdown catastrophe, there are institutional and political nodes delayed for decades. An ICT-led long wave almost aborted as a result: https://enzofabioarcangeli.files.wordpress.com/2008/06/subcrimebiosocialscience1.pdf 4) Wallerstein, the marxist historian, concludes his Oct. 15 post on  badmatthew: http://badmatthew.blogspot.com/2008/10/wallerstein-on-return-of-depression.html by saying that – 4A)  capitalism IS DEAD – a dissenting view – as a matter of decades, NOT centuries (versus Ruffolo), – 4B) and joining post-Schumpeterian Carlota’s and neo-marxist Aglietta’s regulation arguments: What happens when we reach such a point is that the system bifurcates (in the language of complexity studies). The immediate consequence is high chaotic turbulence, which our world-system is experiencing at the moment and will continue to experience for perhaps another 20-50 years. (…)  We can assert with confidence that the present system cannot survive. What we cannot predict is which new order will be chosen to replace it, because it will be the result of an infinity of individual pressures. But sooner or later, a new system will be installed. This will not be a capitalist system but it may be far worse (even more polarizing and hierarchical) or much better (relatively democratic and relatively egalitarian) than such a system. The choice of a new system is the major worldwide political struggle of our times. As for our immediate short-run ad interim prospects, it is clear what is happening everywhere. We have been moving into a protectionist world (forget about so-called globalization). We have been moving into a much larger direct role of government in production. Even the United States and Great Britain are partially nationalizing the banks and the dying big industries. We are moving into populist government-led redistribution, which can take left-of-center social-democratic forms or far right authoritarian forms.”

ft Man in the News: John Maynard Keynes Keynes’ ideas for saving capitalism from itself look increasingly relevant, and his words are a fair assessment of the dangers we face once again – Oct-17 The cautious, prudent wsj on  Oct.18, Bernanke and the Famous Helicopter:

with even the talk of deflation on the horizon, as unlikely as the prospect may be, get ready for more caricatures of Ben Bernanke sitting in a helicopter and dropping cash from the sky.

BEHIND THE CORNER – the possibility, risk of a  SHORT-TERM ACCELERATION, CONSOLIDATION OF THE LONG-TERM DEFLATIONARY GLOBAL REGIME (analysed by Aglietta and Berrebi in their book), that is already governing the global markets (commodities, finance, money, and final products) from 15 years on.  That is, a sharp fall of prices and (consumer, investment, intermediate) demand delays, in a deadly downward spiral. The Fed is worrying about it; although they believe this risk is still low: A NEW RATE REBATE WILL FOLLOW SOON, and this signals they are worrying a lot, and planning “liquidity trap” policies (at zero real interest rates).

THE SPECTRE OF MARX

(Derrida was right)

Marx reappears after so long on top of Reuters news, with a nice picture (I told you so),  in an Oct. 15 column by  Bernd Debusmann:

Karl Marx and the world financial crisis

Those measures included buying stakes in major banks – in effect partial nationalization – and would make Marx smile if he could rise from his grave. In the Communist Manifesto he and his collaborator Friedrich Engels published in 1848, Marx listed government control of capital as one of the ten essential steps on the road to communism. Step five: “Centralization of credit in the hands of the state …” … the control center of the financial market has already begun shifting from New York to Washington. (…) Amid the gloom and anxiety of the worst financial crisis since the Great Depression, which started in the United States in 1929 and then spread to the rest of the world, there are hopes that Capitalism 2.0 (if it ever comes about) will result in a more equal society. “There is a tremendous opportunity now to narrow the income gap,” says Sam Pizzigati of the Institute for Policy Studies, a Washington think tank.

The ft certifies what markets have announced again and again, with NO rally – after the October 6-10 BLACK WEEK, and the policy answer:

a sudden and massive nationalisation of the entire Atlantic  (US-EU) credit industry.

An interesting debate was occurring in Italy between Alesina and Draghi: Why didn’t you nationalise before? According to Draghi, in August the current scenario was unthinkable.

Shall we suggest the Bank of Italy to read Roudini and de(e)pre(ce)ssion?

ft – Editorial

Saving the banks was just a first step

Published: October 17 2008 20:40 | Last updated: October 17 2008 20:40

The tide, finally, seems to have turned on the banking crisis. More financial institutions will run into trouble, but governments have moved ahead of the crisis and can – at long last – deal with it systematically. If banks now support the real economy by providing credit, more drastic steps – like full-blown nationalisation – ought not be necessary. Despite arguably the worst financial problems in a century, parallels to the Great Depression now seem hyperbolical. That is a serious step forward. We are, however, still heading into a vicious real economy slowdown. Forecasters seem to have been competing in a reverse auction to cut their expectations for growth in the next two years. A prolonged period of stagnation and recession now seems likely for the US, UK and eurozone, likely to be the worst slowdown since the early 1980s. Pain will not be confined to or concentrated in any one sector – patterns of unemployment are impossible to predict. But some industries are particularly vulnerable; makers of hefty durable goods are the first to suffer. Sales of cars, furniture and home appliances are already in free-fall. (…) Governments have, suddenly, risen to the challenges facing them, turning horrifying problems of bank confidence into manageable fiscal woes. They may even need to do the same with problems of growth by expanding public spending.

Better later than never. What is missing in the authoritative London paper, is the implicit class conflict: Hood Robin or Robin Hood? Which fiscal policy? Ask Joe the plumber… The wsj is certifying today (Oct. 18) that the LR deflation (that they ignore) is possibly giving pace to an acute, SR one, the Fed is seriously thinking and even acting about:

Threat of Deflation Looms

Policy makers navigating the U.S. through the global credit crisis may have a new concern on the horizon for 2009: deflation. The risk of deflation remains slim. But the financial shock and a faltering economy can set the stage for a deflationary environment.

Bernanke and the Famous Helicopter

Today’s financial shock and deep economic turmoil are common preconditions for deflation. As reported in Saturday’s Wall Street Journal, however, Federal Reserve officials see a broad-based decline in prices as possible though highly unlikely.

The central bank faced the prospect of deflation five years ago, as core inflation (excluding food and energy) and the federal funds rate sat around 1%. … options to stimulate economic growth even if the federal funds rate were to drop to zero. Among them: using communications to shape public expectations about the course of interest rates; increasing the size of the central bank’s balance sheet; and changing the composition of the balance sheet to target particular areas. (The Fed is already doing some of that targeting with a balance sheet that has expanded enormously in recent weeks.)

Fed speeches and papers on deflation: Deflation: Making Sure “It” Doesn’t Happen Here (Bernanke) Conducting Monetary Policy at Very Low Short-Term Interest Rates (Bernanke and Vincent Reinhart) Monetary Policy Alternatives at the Zero Bound (Bernanke, Reinhart and Brian Sack)

Brownian motion: a cure for subcrime cancer?

While the G7 in Washington was inconclusive, Europe advanced more yesterday by generalising G. Brown’s approach: each country will use its own resources, but the plan is coordinated –  aiming to interbank lending and temporary quasi-nationalisations (taxpayer- based recapitalisation of banks). Today’s rally (now 6% in Europe, at 4 pm GMT) is meaning nothing: we were observing a decreasing length of rally periods after injections of money and policies. The political good news is the return to a Berlin-Paris axis, which traditionally marks political waves of Europe building.

LEX

 G. Brown is a Robin Hood PRO TEMPORE: after the crisis, he’ll give banks back to rentiers, and Nottingham will be exploited as  it was before.

Brownian Motion in Europe

Published: October 13 2008 09:48 | Last updated: October 13 2008 16:24

Perhaps Gordon Brown should travel more often. The lugubrious British premier, out of sorts at home and seriously adrift in the polls, has been styled as a swashbuckling conductor in the Spanish press, and a “magician” in France. Europe has apparently bought into Mr Brown’s conviction that this is a severe, but transient crisis of confidence that can be overcome by piling on more and more government debt.

While the wisdom of that strategy is questionable, it is clear that there is strength in numbers. If governments all muck in together, using taxpayers’ money to recapitalise banks while providing guarantees on new debt issuance, they sacrifice their balance sheets en masse. Some budget deficits will widen more than others. But if they cock a collective snook at fiscal rules and targets, they’ll discourage capital arbitrage within the Union …

RGE

Roubini Hood is optimist for the 1st time in years

I spent the weekend in Washington attending the IMF annual meetings and giving a series of talks in a variety of public and private fora (IADB talk, C-Span interview, Euro 50 Group meeting, IMF panel, etc.). After last week crash in stock markets and financial markets (and it was indeed a crash as during the week equity prices fell as much as the two day crash of 1929) policy makers finally realized the risk of a systemic financial meltdown, they peered into the systemic collapse abyss a few steps in front of them and finally got religion and started announcing radical policy actions (the G7 statement, the EU leaders agreement to bailout European banks, the British plan to rescue – and partially nationalize – its banks, the European countries plans along the same lines, and the Treasury plan to ditch the initial TARP that was aimed only buying toxic assets in favor of plan to recapitalize – i.e. partially nationalize – US banks and broker dealers. While many details of these plans are fuzzy and there will be some national variants the contour of the approach are similar andclose to the recommendations that I made in this forum

Roubini Hood on Nottingham meltdown

picture: a wikimedia 2001 photo of the Nottingham monument, under GNU Free Doc. license (from Robin Hood wiki).

 

SINTESI

E’  già in corso una  recessione U-shaped che durerà 2 anni (2008-10), e non e’ escludibile una depressione L-shaped per i 2010s, secondo i tempestivi commenti del prof. Roubini alla Black Week. DE(E)PRE(CE)SSION!

La sua analisi e’ implacabile, e mette nel sacco tutti i falsi profeti di auto-cure del capitalismo finanziario moribondo.

Cure drastiche, dure e Roubini-Hoodiane: vedere i punti finali del doc allegato. Un appello ai 2 meeting di Washington:

– o fermate il vecchio mondo con politiche Marx-Keynesiane,

– o sarà depressione e fame. Socialismo o depressione.

Come sanno già i nostri lettori, noi precisiamo che le politiche (benche’ sinora balbuzienti e  post-factum) sono GIA’ in un territorio socialista, ma quello sbagliato: lo statalismo di Lorsignori, come il Goldman Sachs  Socialism. Roubini Hood, col suo keynesismo coerente, fornisce un prezioso stimolo ad una piattaforma di lotta di classe internazionale per un Altro Socialismo.

Sulla sciocchezza delle politiche sin qui pensate, basti ricordare quello che osservano anche i commentatori più moderati:

a) gli US insistono a  non nazionalizzare le banche, quindi usano mezzi incoerenti anche coi loro discutibili fini di “Financial Socialism”;

b) la dis-unione europea si sta coprendo di ridicolo.

SUMMARY

DIAGNOSIS

 

The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity where excessive leveraging and bubbles were not limited to housing in the U.S. but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.”

 

PROGNOSIS

 

another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;

a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made;

a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;

massive and unlimited provision of liquidity to solvent financial institutions;

public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;

a massive direct government fiscal stimulus packages that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government;

a rapid resolution of the banking problems via triage, public recapitalization of financial institutions and reduction of the debt burden of distressed households and borrowers;

an agreement between lender and creditor countries running current account surpluses and borrowing, and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances.”

 

We just received this mail from Prof. Roubini, and reproduce here the entire document – for its clarity, objectivity, relevance, and the emergency in which subcriminal rentiers and their Reaganite State have thrown our own lives; we, the prisoners of the collapse of our capitalist cages, much alike the victims of the Twin Towers.

Thanks, Professor Roubini Hood!


Nouriel Roubini: The world is at severe risk of a global systemic financial meltdown and a severe global depression

 

The U.S. and advanced economies’ financial systems are now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system, i.e. those non-banks (broker dealers, non-bank mortgage lenders, SIV and conduits, hedge funds, money market funds, private equity firms) that, like banks, borrow short and liquid, are highly leveraged and lend and invest long and illiquid, and are thus at risk of a run on their short-term liabilities; and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms.

 

On the real economic side, all the advanced economies representing 55% of global GDP (U.S., Eurozone, UK, other smaller European countries, Canada, Japan, Australia, New Zealand, Japan) entered a recession even before the massive financial shocks that started in the late summer made the liquidity and credit crunch even more virulent and will thus cause an even more severe recession than the one that started in the spring. So we have a severe recession, a severe financial crisis and a severe banking crisis in advanced economies.

 

There was no decoupling among advanced economies and there is no decoupling but rather recoupling of the emerging market economies with the severe crisis of the advanced economies. By the third quarter of this year global economic growth will be in negative territory signaling a global recession. The recoupling of emerging markets was initially limited to stock markets that fell even more than those of advanced economies as foreign investors pulled out of these markets; but then it spread to credit markets and money markets and currency markets bringing to the surface the vulnerabilities of many financial systems and corporate sectors that had experienced credit booms and that had borrowed short and in foreign currencies. Countries with large current account deficits and/or large fiscal deficits and with large short-term foreign currency liabilities and borrowings have been the most fragile. But even the better performing ones – like the BRICs club of Brazil, Russia, India and China – are now at risk of a hard landing. Trade and financial and currency and confidence channels are now leading to a massive slowdown of growth in emerging markets with many of them now at risk not only of a recession but also of a severe financial crisis.

 

The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity where excessive leveraging and bubbles were not limited to housing in the U.S. but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.

 

At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the U.S. and advanced economies contraction would be short and shallow – a V-shaped six month recession – has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the U.S. and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown, the probability that the outcome could become a decade long L-shaped recession – like the one experienced by Japan after the bursting of its real estate and equity bubble – cannot be ruled out.

 

And in a world where there is a glut and excess capacity of goods while aggregate demand is falling, soon enough we will start to worry about deflation, debt deflation, liquidity traps and what monetary policy makers should do to fight deflation when policy rates get dangerously close to zero.

 

At this point the risk of an imminent stock market crash – like the one-day collapse of 20% plus in U.S. stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.

 

This disconnect between more and more aggressive policy actions and easings, and greater and greater strains in the financial market is scary. When Bear Stearns’ creditors were bailed out to the tune of $30 bn in March, the rally in equity, money and credit markets lasted eight weeks; when in July the U.S. Treasury announced legislation to bail out the mortgage giants Fannie and Freddie, the rally lasted four weeks; when the actual $200 billion rescue of these firms was undertaken and their $6 trillion liabilities taken over by the U.S. government, the rally lasted one day, and by the next day the panic had moved to Lehman’s collapse; when AIG was bailed out to the tune of $85 billion, the market did not even rally for a day and instead fell 5%. Next when the $700 billion U.S. rescue package was passed by the U.S. Senate and House, markets fell another 7% in two days as there was no confidence in this flawed plan and the authorities. Next, as authorities in the U.S. and abroad took even more radical policy actions between October 6th and October 9th (payment of interest on reserves, doubling of the liquidity support of banks, extension of credit to the seized corporate sector, guarantees of bank deposits, plans to recapitalize banks, coordinated monetary policy easing, etc.), the stock markets and the credit markets and the money markets fell further and further and at accelerated rates day after day all week, including another 7% fall in U.S. equities today.

 

When in markets that are clearly way oversold, even the most radical policy actions don’t provide rallies or relief to market participants. You know that you are one step away from a market crash and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls, and cascading falls in asset prices well below falling fundamentals, and panic is now underway.

 

At this point severe damage is done and one cannot rule out a systemic collapse and a global depression. It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster. Urgent and immediate necessary actions that need to be done globally (with some variants across countries depending on the severity of the problem and the overall resources available to the sovereigns) include:

 

another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;

a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made;

a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;

massive and unlimited provision of liquidity to solvent financial institutions;

public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;

a massive direct government fiscal stimulus packages that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government;

a rapid resolution of the banking problems via triage, public recapitalization of financial institutions and reduction of the debt burden of distressed households and borrowers;

an agreement between lender and creditor countries running current account surpluses and borrowing, and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances.

 

At this point anything short of these radical and coordinated actions may lead to a market crash, a global systemic financial meltdown and to a global depression. The time to act is now as all the policy officials of the world are meeting this weekend in Washington at the IMF and World Bank annual meetings.

Shadow finance is actually MELTING DOWN, as Roubini predicted. “Financial socialism” doesn’t stop the slump

SHADOW FINANCE IS MELTING DOWN, TOGETHER WITH PAULSON-BERNANKE-GEITNER FINANCIAL SOCIALISM

We receive today this regular e-mail by Prof. Nouriel Roubini’s blog system (rge-monitor):

By requesting a status change from independent broker dealer to bank holding company, Morgan Stanley and Goldman Sachs have officially spelled the end of Wall Street as we know it.  Within six months, all five investment banks – Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley, and Goldman Sachs – have disappeared or are looking to merge with a commercial bank with a stable deposit base and permanent access to the Federal Reserve’s lender of last resort facilities.  The unraveling of the $10 trillion shadow banking system that started with the non-bank mortgage lenders, SIVs and conduits – now with the seizing of major independent broker dealers and money market funds – is in full swing and gathering steam.

THANKS, SUBCRIME CRIMINALS! Your extra – exagerations, extorsions, exxoneries etc. had such  a beautiful BY-product: FUCKING SHADOW FINANCE IS DEAD. FOREVER? We hope, and we’ll work hard for that.

OBAMA NEW DEAL: NOW !