Friday, May 21, 2010

Financial Crisis Round Up

No, folks, it never went away. All the talk of recovery and so forth? Temporary uptick in some economic indicators, while others continued to go south and the bailouts compounded our problems. A glimpse of where we're going:
Earlier this week, the Bank of England Governor, Mervyn King, irked US authorities by pointing out that even the world’s economic superpower has a major fiscal problem -“even the United States, the world’s largest economy, has a very large fiscal deficit” were his words. They were rather vague, but by happy coincidence the International Monetary Fund has chosen to flesh out the issue today... The idea behind the document is to set out how much different countries around the world need to cut their deficits by in the next few years, and the bottom line is it’s going to be big and hard (ie 8.7pc of GDP in deficit cuts around the world, which works out at, gulp, about $4 trillion). But the really interesting stuff is the detail, and what leaps out again and again is how much of a hill the US has to climb. Exhibit a is the fact that under the Obama administration’s current fiscal plans, the national debt in the US (on a gross basis) will climb to above 100pc of GDP by 2015 – a far steeper increase than almost any other country. Compare it with the UK, which is often pinpointed as a Greece in the making. As you can see, gross debt increases sharply, but not by anything like the same degree. Another issue is that, according to the IMF, the cost of extra healthcare and pensions will increase by a further 5.8pc over the next 20 years. This is the biggest increase of any other country in the G20 apart from Russia, and comes despite America having far more favourable demographics. It is significantly more than the UK’s 4.2pc. But level of debt isn’t the only problem. Then there’s the fact that the US has a far shorter maturity of government debt than most other countries, meaning that even if it weren’t borrowing any extra cash it would have to issue a large chunk of new stuff each year as things are. The killer table to show you that is this one, which shows a country’s “gross financing needs” – in other words how much debt it has to issue in the coming years to keep itself functioning...
The original has graphs and other links--well worth a visit. On that sharp drop in the stock exchange--insanity continues to reign:
Debates continue about what triggered the sell-off, but regulators suspect, in part, new trading venues that match sellers and buyers at warp speed, and without the human intervention that the Big Board values. The NYSE and Nasdaq — its longtime, all-electronic rival — are increasingly threatened by these upstart exchanges... a growing portion of the transactions handled by the Big Board are processed entirely by electronic means. As a result, the NYSE trading floor has been emptying out. About 1,500 people work on the floor today, down from 3,000 a decade ago. The brokers on the floor are left entering trades into their electronic handsets and monitoring the progress while they occasionally wander around the trading floor... The NYSE's ability to turn to humans in last week's crisis led some on the floor this week to praise the old way. "You know, it's nice to talk about full automation," said Art Cashin, head of floor operations for UBS Securities, "but the last time I looked, every plane you get into has a human in the front." Indeed, share prices didn't fall as low on the Big Board as they did on Nasdaq and other exchanges, where the stocks of some established companies briefly traded at the improbable price of a penny a share. On the other hand, some experts say the NYSE's intentional slowdown during the crash may have exacerbated the collapse and restrained the rebound. "I'm not sure if the humans were any better equipped to deal with this," said Menachem Brenner, a finance professor at New York University and a former NYSE trader... Such electronic efforts could pay off for the Big Board — and many on the floor still believe that there will always be a place for some live humans. But Brenner, the trader turned finance professor, said he couldn't imagine the live floor lasting much longer. "It's almost like fighting the Industrial Revolution," he said. "This is progress. You cannot stop it."
Yeah, cause the dogmatic belief in modern progress has never been subject to, you know, question. Cause change is inevitable. Cause change happens, and change is good. Cause even if we're changing right off the cliff, if you'd rather not go over with the world, you're a reactionary who can't understand how great it is to hang in mid-air for the few seconds before you smash all over the floor of the Pit below. In other words, get in the basket and let's all go to hell! Hyperbole aside--if the electronic exchanges mean trades occur faster than we can do troubleshooting or ensure the system is working, then that means the system is truly out of any semblance of control and primed to do tremendous amounts of damage. It's time to step back and admit that faster does not automatically equal better. And then of course, there's China:
Investor Marc Faber said China’s economy will slow and possibly “crash” within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst. The Shanghai Composite Index has failed to regain its 2009 high while industrial commodities and shares of Australian resource exporters are acting “heavy,” Faber said. The opening of the World Expo in Shanghai last week is “not a particularly good omen,” he said, citing a property bust and depression that followed the 1873 World Exhibition in Vienna. “The market is telling you that something is not quite right,” Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong today. “The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.” ...

Faber joins hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff in warning of a crash in China.

China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s gross domestic product relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade.

Much sooner than China, Greece seems set to blow:
If you were going to cut one “advanced” social democracy loose and watch it plunge into the abyss pour encourager les autres, it would be hard to devise a better candidate than Greece.

And yet and yet . . . riot-wracked Athens isn’t that much of an outlier. Greece’s 2010 budget deficit is 12.2 per cent of GDP; Ireland’s is 14.7. Greece’s debt is 125 per cent of GDP; Italy’s is 117 per cent. Greece’s 65-plus population will increase from 18 per cent in 2005 to 25 per cent in 2030; Spain’s will increase from 17 per cent to 25 per cent. As lazy, feckless, squalid, corrupt and violent as Greece undoubtedly is, it’s not that untypical. It’s where the rest of Europe’s headed, and Japan and North America shortly thereafter. About half the global economy is living beyond not only its means but its diminished number of children’s means.

Instead of addressing that basic fact, countries with government debt of 125 per cent of GDP are being “rescued” by countries with government debt of 80 per cent of GDP. Good luck with that. Alas, the world has deemed Greece “too big to fail,” even though in (what’s the word?) reality it’s too big not to fail. And the rest of us are too big not to follow in its path.

“Another reform high on the list is removing the state from the marketplace in crucial sectors like health care, transportation and energy and allowing private investment,” reported the New York Times. “Economists say that the liberalization of trucking routes—where a trucking licence can cost up to $90,000—and the health care industry would help bring down prices in these areas, which are among the highest in Europe.”

Removing the state from health care brings down prices? Who knew? This New York Times is presumably entirely unrelated to the New York Times that’s spent the last year arguing for the governmentalization of U.S. health care as a means of controlling costs.

The EU is now throwing an extra trillion dollars at countries which by any objective measure are insolvent, and are unlikely ever again to be anything but—at least this side of bloody revolution. How do you grow your economy in a remorselessly shrinking market? That’s to say, Greece is a land of ever fewer customers and fewer workers but ever more retirees and more government. How do you increase GDP? By export? Where? You’re entirely uncompetitive; you can’t make anything at a price any foreigner would be prepared to pay for it. More to the point, foreigners already own your debt, and just servicing that in the years ahead will gobble up around 10 per cent of GDP—which you’ll have to try and make up domestically. How? You’ve got some of the lowest productivity rates in Europe, and a “workforce” that would rather rouse itself to murder bank tellers.

Greece, wrote Theodore Dalrymple, is “a cradle not only of democracy but of democratic corruption”—of electorates who give their votes to leaders who bribe them with baubles purchased by borrowing against a future that can never pay it off. The future is now here, and the riots will spread.

Inevitably, the spreading crisis is reaching the markets (better late than never that reality is reflected rather than sheer optimism):
A weeklong rout in stocks deepened, with U.S. benchmark indexes losing the most in more than a year, as reports cast doubts about the strength of the economic recovery and European leaders struggled to contain the region’s debt crisis. Commodities plunged and Treasuries soared... Tomorrow’s expiration of U.S. stock options and progress on a financial-reform bill may have added to volatility after U.S. jobless claims unexpectedly increased to 471,000 last week and the Conference Board’s index of leading economic indicators posted a surprise drop of 0.1 percent. The slide came a day before the German parliament votes on the country’s share of a $1 trillion bailout to halt a worsening sovereign debt crisis. “Put your helmets on if you are long risk here,” Nicolas Lenoir, chief market strategist at ICAP Futures LLC in Jersey City, New Jersey, said in a note to clients before markets opened today. “A lot of stops have been triggered when the S&P future crossed 1,100 and anybody still long will probably have to bail out and head for cover.” ...Today’s plunge in stocks came as the Securities and Exchange Commission continues its autopsy of the chain reaction of selling that briefly erased $1 trillion in stock value on May 6. Kentucky Republican Senator Jim Bunning and Virginia Democrat Mark Warner today said at a committee hearing that they were concerned the so-called flash crash could be repeated... “It’s a question of confidence,” said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $55 billion. The almost 1,000-point decline in the Dow average on May 6 “not only rattled the confidence of investors, but every day policymakers are digging in and not giving us answers as to what’s causing this problem.” ...Today’s rout came as initial jobless claims rose by 25,000 to 471,000 in the week ended May 15, exceeding the median forecast of economists surveyed by Bloomberg News and the highest level in a month, Labor Department figures showed. Losses accelerated in the regular session after the Conference Board’s index of leading economic indicators unexpectedly slumped 0.1 percent... “We are clearly in corrective territory,” Robert Doll, who helps oversee $3.36 trillion as vice chairman and chief equity strategist at New York-based BlackRock Inc., said in a Bloomberg Television interview. “Europe has to stabilize, we need further evidence of cyclical improvement here in the U.S. and a little less volatility. When we get those things, we believe the cyclical bull market will resume.” ...The global slide in equities may worsen and inflows to Treasuries will increase amid concern that Europe’s debt crisis will derail global growth, said Mohamed A. El-Erian, chief executive officer of Pacific Investment Management Co. “This is not a typical retracement,” El-Erian, 51, whose firm runs the world’s biggest bond fund, wrote in an e-mail. “We are in uncharted waters on account of several issues, including what is going on in Europe and other important structural regime changes. In economic terms, European developments are unambiguously bad for global growth.”
In response to all of this, politicians are facing a grim reality:

Following decades of welfare-state comfort and years of Keynesian stimulus spending, a panicky Europe is seeing the arrival of austerity politics. Resentful debtors such as Greece, Spain and Portugal are being forced into tax increases and spending cuts that are painful, unpopular -- and just beginning. Their resentful citizens throw tantrums and sometimes rocks at police. Resentful creditors such as Germany provide bailouts while wondering why they ever shackled themselves (and the value of their currency) to such irresponsible governments.

Those not resentful are scared. Britain -- with a deficit that is higher as a percentage of its economy than Greece's -- has formed a coalition government united by little except a commitment to budget responsibility. The constitutional innovation of keeping the current Parliament for the next five years is designed to assure creditors and markets that David Cameron's government will be stable enough to make difficult fiscal choices.

Every looming budget crisis is eventually a political test -- a test of political foresight and discipline, or a test of crisis management. And America is not exempt.

In 2009, the federal government spent $1.67 for every $1 it collected in taxes. The Obama administration's budget proposals would dramatically increase publicly held debt as a percentage of the economy over the next decade, eventually slowing economic growth, fueling inflation and making America more dependent on the kindness of creditors.

How has our political system responded? Congress recently found $60 billion in savings in the federal student-loan program -- and promptly spent most of it on other education projects. President Obama's health-care reform cut more than $350 billion from Medicare spending -- and soaked up all of it and more into new health entitlements.

This can go on for only so long before a challenge more similar to Britain's becomes a fate more similar to Greece's. America is about to enter its own period of austerity, which is likely to be the dominant political reality for the next decade. The new game will have few winners and many losers.

Hang on, folks. The ride is just beginning.

Monday, May 17, 2010

Pope Benedict Round Up

There's been a bunch of news recently, so I thought I'd pull it together. First, a bunch of Italians decide to show he's not alone:

Benedict said he was comforted by such a "beautiful and spontaneous show of faith and solidarity" and again denounced what he called the "sin" that has infected the church and needs to be purified.

Citing estimates from Vatican police, the Vatican press office said 150,000 people had turned out for the demonstration organized by an association of 68 Italian lay groups.

Despite a drizzling rain, the balloon- and banner-toting faithful from around Italy overflowed from the piazza; banners hung up on Bernini's colonnade encircling the piazza read "Together with the pope," and "Don't be afraid, Jesus won out over evil."

An interesting piece by John Allen suggesting a defense of Benedict might demand a criticism of JPII. Further moves made in the US to try to bring the Vatican into the courts for US abuse:

Jeffrey Lena, an attorney representing the Vatican in a Kentucky court, argues that the lawsuit is based on the inaccurate notion that bishops are, in effect, employees of the Vatican. He warns that a secular court should not become involved in the doctrinal questions that underlie the description of a bishop's authority.

In attempting to bring suit against the Holy See, plaintiffs' lawyer William McMurry has argued that the 1962 Vatican document Crimen Sollicitationis is a "smoking gun" that proves a worldwide conspiracy of silence on sexual abuse. But Lena counters that while the 1962 document governed canonical proceedings in cases involving clerical misconduct, 'the canon law did not bar reporting of these crimes to the civil authorities." Moreover, he contends, there is no evidence that officials in the Louisville archdiocese were even aware of that document at the time the plaintiffs reported being abused.

The Vatican brief also argues that the Holy See, as an independent state, is protected by the Foreign Sovereign Immunities Act, which restricts lawsuits against foreign powers in American courts.

There may have been a jihadi plot to try to kill the pope:

Italian authorities expelled two Moroccan students in April, saying that they were threats to national security.

Mohammed Hial and Errahmouni Ahmed, students at the University of Perguia, were deported after an investigation into Islamic radical groups. According to Panorama magazine, the interior ministry argued that the pair were plotting an attempt on the life of Pope Benedict XVI.

The students-- who are now free in Morocco-- have denied the charges, and announced plans to contest their expulsion.

And the Pope continues to wisely draw attention to the key part of this scandal for Catholics--internal reform and purification of the Church:
In his message to the German Church the Pope compared the sex-abuse scandal to the weeds that choke the wheat in the Gospel parable. "Weeds exist also in the bosom of the Church and among those whom the Lord has called to His special service," the Pope said. "But the light of God has not gone out, the good wheat has not been choked by the weeds of evil."
David Warren has an interesting take:

As Pope Benedict said on the plane, "forgiveness" does not cut it as a response to this failure. There must also be justice, which involves punishment.

But again, he is saying something that will astound some people, because the average modern, poorly-informed, nominal Christian may be under the impression that Christianity itself reduces to "forgiveness," and "tolerance," and "not judging people." And this is utter crap.

A quick read through the four Gospels should persuade any half-intelligent reader that Jesus never preached tolerance at all, and that the forgiveness hones to a very sharp edge. Note, in particular, His remarks on Damnation, which are almost too candid for delicate modern ears.

Chances are, that if my reader is a Catholic in, say, Ottawa these days, he is a rather pallid one, mired in the sop of a mild nostalgia. Even church attenders often show little knowledge of basic Church teachings. If it weren't for Christ, we'd all walk away...

Over the last few weeks, he has accepted the resignations of quite an interesting number of bishops, over the latest Church scandals.

But the problem of laxity towards sexual perverts is only the most blazing, immediate issue. The rest of our city is also on fire.

The core problem is not sexual perversion. That is one big symptom of something deeper and broader: the collapse of real faith across the Western world, that was built on it. One might blame "modernity" or "materialism" or "scientism" for this collapse. But a good Catholic will blame the Church. And Pope Benedict is a good Catholic.

To understand this, a non-Catholic must imagine what Church and world look like, from a genuinely Catholic point of view. This will require a brief but vigorous mental exercise. Let's do it now.

To the faithful Catholic, the Church was founded, and is ultimately directed, by Jesus Christ. It is therefore a divine institution, and that strangely uncompromising assertion of the "real presence" in the Mass follows from this: not just a symbol, but The Thing Itself. That is the central task of the Church: to administer the Sacraments, as spiritual food, to those who will partake.

But the same Church has another aspect. It is also a human institution, with human staff. This Church has lasted, continuously, vastly longer than any other specific institution in human history; but it has been populated by fallible humans the whole time.

How fallible? As Hilaire Belloc said, by way of proving the divine origin: "Any purely human institution run by such a group of knaves, fools, and cutthroats wouldn't have lasted a fortnight."

We will know the Catholic Church has got its act together, when it is once again building a civilization, founded in Christian faith, through conspicuously voluntary efforts.

Saturday, May 1, 2010

Prayer to the Lady of All Nations

Needed now more than ever:
Oh, Immaculate Heart! Help us to conquer the menace of evil, which so easily takes root in the hearts of the people of today, and whose immeasurable effects already weigh down upon our modern world and seem to block the paths towards the future! From famine and war, deliver us. From nuclear war, from incalculable self-destruction, from every kind of war, deliver us. From sins against the life of man from its very beginning, deliver us. From hatred and from the demeaning of the dignity of the children of God, deliver us. From every kind of injustice in the life of society, both national and international, deliver us. From readiness to trample on the commandments of God, deliver us. From attempts to stifle in human hearts the very truth of God, deliver us. From sins against the Holy Spirit, deliver us, deliver us. Accept, O Mother of Christ, this cry laden with the sufferings of all individual human beings, laden with the sufferings of whole societies. Let there be revealed, once more, in the history of the world your infinite power of merciful Love. May it put a stop to evil. May it transform consciences. May your Immaculate Heart reveal for all the light of Hope.


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