BNZ warns of recessions
March 15th, 2008 at 2:47 pm by David FarrarThe BNZ has made a gutsy call and says:
The BNZ says there is a greater than even chance that a recession will happen in the second half of the year.
“We have become victims of an almost perfect storm,” Mr Toplis said.
It has resulted in New Zealand businesses and consumers being pummelled by a combination of a global credit crisis, falling house prices, record fuel costs, a strong Kiwi dollar, high interest rates and the effects of the drought.
He warns that indicators such as the rapidly slowing housing market are just precursors and the credit crisis is only beginning to be felt by the wider economy.
Households are struggling under the weight of higher mortgage repayments and businesses are faced with rising debt-servicing costs as banks pay more to borrow overseas.
Household disposable income will be eroded by rising costs for food, electricity and rates, Mr Toplis says.
Transport companies and supermarkets say record fuel costs will have to be passed on to consumers.
“The economy is now very poorly and may well stay that way for some time to come,” Mr Toplis says.
Some of the factors are local, but the global economy isn’t looking too flash either.
Tags: BNZ, Economy, recession
March 15th, 2008 at 3:07 pm
We are paying the price of Cullenomics for this.
liarbour’s growth record has been shameful and under Cullen we slip ever behind other countries.
Greece has just overtaken us.
Anyway, to change the subject, I am at the Act conference today.
Vote:No Minister is blogging the event, so pop over there for a look, including Sir Roger Douglas saying he’s going for an electorate seat!.
Furthermore, we are staging a bloggers drinks in Auckland tomorrow/ Sunday afternoon at 3pm.
At the Forde political Bar in Anzac Avenue in the central city.
All bloggers and regular commentators welcome.
lefties invited too.
but expect a strong ACT contingent for company .
March 15th, 2008 at 3:14 pm
Typical…Labour gets an easy ride, and the country turns back to National when the going gets tough and hard decisions need to be made.
Vote:March 15th, 2008 at 3:34 pm
Funny, when things were good, it was ‘prudent financial management’ now it’s going bad it’s ‘global economics’.
Vote:March 15th, 2008 at 3:52 pm
And don’t forget agricultrue is also suffering under a high dollar, a hot sun and fuck all rain. While it’s true that dairy is looking very good with a plus record 7$ payout this season much of this will be lost to rising prices, fuel oil, fert, higher interest rates etc. Also milk production is down with many farmers spending their extra cash on buying stockfeed just to keep animals alive. A prediction; Down the road some 4 to 5 months the grin on Sullens face will have turned to a look of horror, his tax take will be down the shithouse with GST payments being turned into GST returns. I think hard times are comming.
Vote:March 15th, 2008 at 4:23 pm
Oh, isn’t this just PERFECT for the Socialists and their scorched earth policy……the new National government will inherit all the wrong things……and get blamed by the Socialists for it…….
Vote:March 15th, 2008 at 4:28 pm
And it’s a hard,
Vote:and it’s a hard,
it’s a hard,
and it’s a hard,
and it’s a, hard rains,
a gonna fall.
March 15th, 2008 at 5:40 pm
Not looking too flash? I’d say if Wall Street banks are insolvent pretty flash is an understatement!
Fed Invokes Little-Used Authority to Aid Bear Stearns (Update4)
By Scott Lanman
March 14 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke invoked a law last used four decades ago to keep Bear Stearns Cos. from collapsing after the securities firm sought emergency funding from the central bank.
The loan to Bear Stearns required a vote today by the Fed’s Board of Governors because the company isn’t a bank, Fed staff officials said. The central bank is taking on the credit risk from Bear Stearns collateral, lending the funds through JPMorgan Chase & Co. because it’s operationally simpler to accomplish than a direct loan, the staff said on condition of anonymity.
Bernanke took advantage of little-used parts of Fed law, added in the 1930s and last utilized in the 1960s, that allow it to lend to corporations and private partnerships with a special board vote. The Fed chief probably sought to stave off a deeper blow to the financial system from a Bear Stearns collapse, former Fed researcher Keith Hembre said.
“The Fed really doesn’t have any obligation to help a non- bank aside from its role or responsibility to keep the financial markets functioning,” said Hembre, who helps oversee $107 billion as chief economist at FAF Advisors Inc. in Minneapolis. “They made a judgment, probably an accurate one, that they’re not going to function very well if you’ve got a full-blown crisis with a major Wall Street firm.”
Unanimous Vote
The Fed said in a statement that it will “continue to provide liquidity as necessary to promote the orderly functioning of the financial system,” repeating reassurances the central bank has made often since credit strains arrived in August. The statement said the Fed Board unanimously approved the arrangement with JPMorgan and Bear Stearns.
The Fed Board, which met today at 9:15 a.m. Washington time, typically delegates such discount-window lending authority to its regional reserve banks when it comes to loans to banks.
“There’s a clear realization among people both in the official sector and the financial markets that some of the institutions we have built over the last 100 years are not well adapted to the modern 21st century financial system,” said former New York Fed research director Stephen Cecchetti. “A lot of what we’ve been seeing have been creative innovations to deal with problems that the institutions were not built to handle.”
The senior staffers declined to describe how large the loan to Bear Stearns is, and whether a private-sector bailout was attempted first before the Fed extended credit through JPMorgan. The staff officials said the Fed used its authorization under the law several times in the 1960s though didn’t immediately have further details.
Paulson’s Support
Such votes require approval from five Fed governors. The seven-member Fed board currently has two vacancies, and one governor, Randall Kroszner, is serving past the Jan. 31 expiration of his term.
Treasury Secretary Henry Paulson, in a separate statement, said “there are challenges in our financial markets, and we continue to address them.” Treasury is “working closely” with the Fed and the Securities and Exchange Commission.
“I appreciate the leadership of the Federal Reserve in enhancing the stability and orderliness of our markets,” Paulson said. “Our financial system is flexible and resilient and I am confident that the efforts of regulators and market participants will minimize disruption to the system.”
Robert Rubin, the former Treasury secretary who is now chairman of Citigroup Inc.’s executive committee, said at a conference today that the “risks have reached a point that the right thing is to act and act in a very serious way.”
47% Plunge
Bear Stearns shares plummeted a record 47 percent on news of the bailout. The announcement, coupled with a report showing U.S. consumer prices were unchanged in February, led traders to place 56 percent odds that Fed policy makers will lower their benchmark interest rate by a full percentage point at their March 18 meeting, to 2 percent.
Yesterday, the odds of such a move were 0 percent.
A reduction of that size would be unprecedented since the overnight lending rate became the Fed’s main policy tool around 1990, trumping the Jan. 22 emergency cut of 0.75 percentage point.
It’s the first time since the financial turmoil intensified in August that Bernanke, 54, has publicly announced Fed assistance to a specific company instead of measures open to broader sets of banks or other financial institutions.
Most recently, the Fed on March 11 announced plans to lend $200 billion in Treasuries to primary dealers in exchange for debt that includes mortgage-backed securities. Last week, the Fed increased funds available through its so-called Term Auction Facility, set up in December to lend funds to banks in exchange for a wide variety of collateral, including mortgage debt.
`All the Problems’
“What they’re doing now is going to help, but I don’t know that it will solve all the problems out there,” said Thomas Garcia, managing director of Thornburg Investment Management in Santa Fe, New Mexico, which oversees $50 billion.
Bear Stearns’s liquidity problem “definitely gives some doubt as to whether other firms are releasing all available information, and whether this credit crunch is really over,” Garcia said.
Bear Stearns isn’t alone among financial institutions stung by the credit squeeze to be bailed out. The U.K. government was forced to nationalize Northern Rock Plc last month after the first run on a British bank in more than a century and take on 100 billion pounds ($203 billion) in liabilities. Two German banks have also received emergency aid.
While U.S. authorities have been faster than their U.K. counterparts in announcing the rescue package for Bear Stearns, former Bank of England policy maker Willem Buiter says that doesn’t make their course of action was the correct one.
“This creates the same moral hazard issues that we saw with Northern Rock,” said Buiter, now a professor at the London School of Economics. “This bank is being given access to public money, and we don’t know what the terms are.”
Vote:March 15th, 2008 at 5:47 pm
Well all I can say is that if you didn’t see this coming two years then duh.
Jim Rogers says in this video : Abolish the Fed. Good news for us he says: ag is going to good business over next five years.
As I said when they made the first emergency rate cut, the Fed should have raised interest rates. They dropped them to increase market liquidity but the problem is not liquidity, it’s inter-bank lending confidence. When the Fed stopped publishing M3 data three years ago, the printing presses cranked into overtime, fuelling the real-estate bubble which was already huge because Greenspan transferred the dot-bomb debt into real estate and the equity market by dropping interest rates to near zero. D’oh. (I understand they’ve recently agreed to re-publish M3.) By dropping the interest rates they simply fuel the already intense international desire to move to move to the Euro as the Reserve Currency. Fucking D’oh.
Vote:March 15th, 2008 at 5:49 pm
Philu over here:
Philu over here:
Reid:
There were some warning signs (hint: housing bubble) – but what’s different about these financial turbulations is, in view, the level of undisclosed derivative trades/margin calls. That goes quite some way to explaining the volatile see-sawing in recent weeks.
I also recommend you read this – it explains how, in Australia, the Rudd Government is making the wrong policy calls – and I suspect the same goes for NZ.
Vote:March 15th, 2008 at 6:02 pm
In between the pending recession, and Labour’s election year coffers-emptying exercise, it’s starting to shape up as 1990 all over again – deja vu and all that. Fran O’sullivan had an excellent piece this morning that I’ve blogged on:
http://keepingstock.blogspot.com/2008/03/1990-revisited.html
Vote:March 15th, 2008 at 6:12 pm
Buffet warned in 2002 about derivatives being weapons of mass financial destruction. Some of us listened to him at the time and I imagine you were one of those PoC.
Vote:March 15th, 2008 at 6:24 pm
I’ve been calling financial crisis for ages. too many people lending too much money too easily.
Vote:bad news is – it probably STILL isn’t all out in the open – more pain to come yet… a lot more.
March 15th, 2008 at 6:54 pm
See y’all at Forde’s tomorrow.
Vote:March 15th, 2008 at 7:09 pm
The underlying causes are still widely misunderstood. What a shame.
Vote:March 15th, 2008 at 7:22 pm
I think New Zealand is probably already in recession, but we’ll only find out over the next six months. The housing market slowdown, corporate failures and the decline in real (as opposed to nominal) retail sales and tightening credit all suggest a crash in both productive investment and demand. [I forgot to add - the decline in tax receipts, which is the gold standard for an indicator of current economic activity.]
Two things spring to mind for me: first that we have a classic “ant and the grasshopper” fable being played out, with the Government having played the economic grasshopper during 8 years of summer. The second is that, amazingly, the Reserve Bank hasn’t yet woken up. In the face of a likely recession, they are still tightening monetary policy. They might think they are moving to a neutral bias, but with the international cost of capital increasing, they could only maintain a neutral position by cutting interest rates to compensate for increases in funding costs flowing from the global credit crunch. Holding interest rates steady is, in effect, a tightening of monetary policy in the current situation
I think the bank is probably too conservative to model actual interest rates rather than their benchmark rate. That is a shame, as it means monetary policy becomes less effective, and the recession will be much much worse than it need be.
Vote:March 15th, 2008 at 7:26 pm
A recession is always called by banks when they face bad debts from their own lending practices – lending loans to people with too little equity because of a bull property market was just plain stupid, when the interest rates rise people cannot afford them and the banks face months with no repayments and then a property sale which does not cover the mortgage. Have banks learnt nothing from lending to investment companies during the bull sharemaket of the 80′s (or have those people been replaced by a new generation of bankers)?
Vote:March 15th, 2008 at 7:38 pm
I agree SPC and don’t forget the Adjustable Rate Mortgage (ARM a.k.a. sub-prime) trend was obvious to US Regulators by 04 (it started in 03), and they did nothing. Indeed by blessing and participating in the Basle II regime, they encouraged it.
Good move, wasn’t it.
Vote:March 15th, 2008 at 7:41 pm
Reid:
Investment 101: don’t invest if you don’t understand what you’re investing in. Derivatives are complex financial instruments. I don’t pretend to understand them, and rather suspect only those holding a financial PhD can make that claim.
Ultimately, I believe there are certain differences between the current financial market environment and those prevailing in 1987 and the 1990s (gulf war, then the East Asian crisis). I’m still in the sharemarket – just not exposed to banks/financial shares.
Vote:March 15th, 2008 at 7:48 pm
Personally I’ve been in gold, platinum and coltan for some time PoC.
Good, I’ve been trying to find this link for a few hours, derivative exposure = $516 trillion
To put it another way, if you put one million dollars aside every day since the birth of JC, you still would not have even one trillion dollars.
OTOH, see this.
Vote:March 15th, 2008 at 7:52 pm
“Investment 101: don’t invest if you don’t understand what you’re investing in. Derivatives are complex financial instruments. I don’t pretend to understand them, and rather suspect only those holding a financial PhD can make that claim.”
Even those that DO understand them have been taken by surprise by what has been happening. Very few people envisaged the credit markets being in this situation. Even those that did would be surprised by the magnitude.
Vote:March 15th, 2008 at 8:04 pm
You’re right Kimble, most people have been taken by surprise. That doesn’t mean the writing was not on the wall for those with eyes.
Vote:March 15th, 2008 at 8:06 pm
Reid:
Would you mind fixing your first link – cheers.
Vote:March 15th, 2008 at 8:16 pm
I seem to have a habit of doing this, sorry. PoC is referring to derivative exposure = $561 trillion.
Vote:March 15th, 2008 at 8:23 pm
I really hate that sort of stat. It is like comparing the turnover of the future exchange to an ordinary share market. Currency arbitrage alone would account for a huge amount of exposure. A $100m contract one way, then another $100m the other way cancel each other out, but the contracts dont disappear so the ‘exposure’ is still $200m.
Vote:March 15th, 2008 at 8:26 pm
“You’re right Kimble, most people have been taken by surprise. That doesn’t mean the writing was not on the wall for those with eyes.”
So most people that understand derivatives would have been taken by surprise by something that is obvious to anyone who bothered to look?
Vote:March 15th, 2008 at 8:29 pm
I think the point is Kimble, that they’re as sensitive as nitro-glycerine. You only have to jiggle it a little bit and there’s a massive explosion. Unfortunately, unlike nitro-glycerine, derivatives are not at all similar to a well-understood objective chemical formula.
And if Buffet doesn’t really truly fully actually indubitably understand them, then I doubt there are many who do. And is that not a bit of a worry?
Don’t conflate trading derivatives with understanding them.
Vote:March 15th, 2008 at 9:04 pm
The mainstream media was onto the emerging problems about a year ago, but it was as reid said, being discussed two years ago. The general consensus was that the US dollar would fall (gold, the Euro etc) and that the financial sector had an unknown level of bad debts being built up … (on some sites it was anti-Americans taking some glee pointing out some truths and on others it was financial sector insiders saying much the same thing in a different way).
Vote:March 15th, 2008 at 9:15 pm
Reid:
Indeed. See what Dow Jones’ David Cottle had to say here about oil-referenced derivatives:
And, Reid, I’d go further than you: separate informed financial commentary from lazy journalism.
A case in point: take the US Federal Reserve’s stimulus measure earlier this week. The Dow Jones surged, and lazy financial journalists concluded this meant the market approved. But the Dow Jones reversed its gains the following day, and the same lazy financial journalists decided the market was unimpressed. A common quote I read was “addressed the symptom, not the cause”. One could have instead turned to a more informed commentary – Robert Gottliebsen on “a classic short-covering rally”:
One has to acknowledge the signs of economic downturn. But I’m optimistic about the business fundamentals of certain businesses/industries – particularly those that are low-geared, well-hedged and have fairly predictable future revenue streams. In my view, those companies are still out there – but you wouldn’t know it with all the Nostradamus-like nonsense being peddled by those who (in many cases) should know better.
Vote:March 15th, 2008 at 9:17 pm
I think in this situation SPC, we have geopolitics influencing the economic scene in a way never-before-seen. (well, in our short historical memory maybe
)
Asia-Russia-ME-South-American and Canadian economies are in a fine state (I include NZ in “Asia”) due to their commodities.
European and the US economies are dependent on consumer spending.
Personally I think we are witnessing the beginning of a structural shift in the centre of gravity of the global power structure, towards the east. I believe that Russia-Asia will begin to replace US-Europe.
The ramifications and implications of that are fascinating.
Vote:March 15th, 2008 at 9:23 pm
One of the many things that interest me POC, is that the known reserves and strategic difficulties surrounding supply of oil haven’t materially changed since the price began to rise.
So why has it risen so far and so fast?
And I agree with you POC, we are structurally sound in NZ, if only the Liabore govt stopped it’s self-interested inflationary spending (some hope). Don’t vote Liabore.
Vote:March 15th, 2008 at 9:29 pm
It would seem nationals tax cut might just become something I support. It could move from being a stupid inflationary strategy designed to keep government surpluses down to a smart strategy to take some of the sting off a recession.
But I’m still a bit concerned by the stupid coverage in the media that seems to suggest that if we go into a recession and the government is poor that it can’t offer tax cuts – soon they will be telling us they need to raise taxes directly proportional to the rate at which our economy is shrinking.
Vote:March 15th, 2008 at 9:32 pm
BTW I wonder if I can maintain the ‘low ground’ so to speak by breaking out the term “depression”.
Vote:March 15th, 2008 at 9:49 pm
reid
It is not a shift of “primacy” from US-Europe to Russia-Asia, but more an economic “rebalancing”. This will limit the political ability of the West to exert much more power than a country club membership veto or a charity fund raising drive.
US “government” mismanagement (wasting the last of their super power strength, both capacity and will) probably discredits “PNAC” type adventurism with even the rabid right now.
GNZ
There is nothing wrong with interest rates attracting money (in a global credit squeeze) and tax cuts maintaining the local consumption economy in these times – but it is just that this has been the long term problem of our economy and it keeps harming our productive business sector (high borrowings rather than savings-high trade deficit, high business borrowing costs, high dollar reducing export returns).
The question is whether we would lose overseas investor confidence in our economic management, if the size of the tax cut was seen as undermining our longer term fiscal position (anyone with a good credit rating gets access to what money is available, but if we lose this confidence it might make it hard for the RB to reduce the OCR later and for us to continue to get foreign investment money …).
Vote:March 15th, 2008 at 9:49 pm
Point of order DPF: if you tell someone: “Don’t vote Liarbore” as opposed to “Don’t vote Labour” are you contravening the EFA?
Vote:March 15th, 2008 at 9:52 pm
SPC:
But since politics=power SPC, I don’t understand your point. In that, geopolitics = biggest boys = military + economic + population.
If you don’t have all three, then forget it.
Vote:March 15th, 2008 at 9:54 pm
What about Don’t vote Liarbour, are we in the breech of the EFB communist double barrel bullshit grey area law gun? Any lawyer care to comment? What demented dickheads these socialist scum are !
Vote:March 15th, 2008 at 10:04 pm
reid
There is no power in a position to assert political primacy, not EU-USA and not anyone else over them, or in their place over the rest of us.
PS – still editing my post before I saw your reply.
Vote:March 15th, 2008 at 10:09 pm
SPC:
You mean apart from economics, the military and world events?
Or do you have some other idea whereby to retain inertia?
P.S. Awaiting your reply there SPC – isn’t the edit functon just wonderful?
Vote:March 15th, 2008 at 10:37 pm
All that is happening is a rebalancing due to some groups spending more than they earn. The inflationary period that we are going through is part of this mixed in with globalisation. The true value of America and it’s people is just becoming apparent the rest of us will follow. Go globalisation
Vote:March 15th, 2008 at 10:41 pm
Would just like to add a further factor to my 9:52 post: technology.
I have a feeling that could be decisive in the coming re-positioning and although geopolitically the heavily-promoted perception is that the US is the leader in technology, don’t be surprised at surprises in that arena coming from most unexpected sources.
In our domestic economy and military of course, we should take maximum advantage of our No. 8 wire heritage. Why do you think God gave it to us in the first place?
It’s a national disgrace that politicians have chosen to make it a political football and neglected that unique God-given ability implanted in our DNA.
Innovation and change is in our blood much more so than in other nations and we should be creating industries out of that and would be if the fluff of the “Knowledge Wave” had been translated into the same economic reality of that achieved by the 4th Labour govt (Doublas etc) when they translated their Economic Summit into something meaningful.
Guess it depends whether you’re full of substance of full of something else.
Vote:March 15th, 2008 at 11:13 pm
The BNZ is a failed bank and no one with any credibility takes their projections seriously.
The taxpayers of New Zealand still remember the $600,000,000 bailout they were given last time they messed up.
Vote:March 16th, 2008 at 12:47 am
reid
There is no economic power or military power to assert political primacy held by anyone, not the EU-USA or anyone else.
And that is not inertia, that is the basis for multi-lateralism. After 1945 the premise was that the West would build a rules based international order …. perhaps now there is no choice, this might happen.
Another factor is the loss of diplomatic credibility of the EU over their WTO position and of course the USA over the same and also the Bush Presidency issues (some things were part of the Cold War period, but the poor judgment and downright lawlessness in the name of security).
China is dependent on foreign markets to sustain the growth required to become a developed nation, Russia on continuing high energy prices for a necessary long term economic recovery just to restore itself after a long downturn. Each needs other partners so as to not become dependent on each other (a too close relationship which would soon become paranoia for both parties, given the history of Russia with Asia and China with Europeans).
This has all the makings of a multi-polar world in which the stated desire for multi-lateralism may actually occur. Inertia of course can be a problem, but inertia happens when some try to lead and no one wants to follow (the USA losing credibility by posing as some super power celebrity when more like some aging former star of Hollywood), or when the various parties choose inertia (using each other as an excuse as the EU and USA do in WTO talks) rather than face up to problems …
Vote:March 16th, 2008 at 7:57 am
I think Reid identified the real problem in one of his early posts – i.e. the monetary system. All in all a recession will be quite welcome – just as wages and salaries are last to rise when monetary inflation is pushing all the asset values up to ridiculous nominal values they are also last to drop when asset values start crashing. Jobs of course disappear which is terribly hard for those who end up unemployed but for the rest a recession, even with inflation of a number of consumer staples, is going to make non-home owners feel a lot wealthier – and why shouldn’t we – the last 6 or 7 years has been all about homeowners getting to feel richer – if they have placed rather too much confidence in that chimerical wealth then that is their problem. People who have taken on extraordinary levels of debt for housing or sometimes other investment have not suffered at all. That of course is not a situation that can lead to long term prosperity because it teaches that the path to success is borrowing not saving. We can of course expect governments around the world to try and keep nominal values up by any means necessary – expect to see a lot more of liquidity being added to markets (just like the FED and BOE are doing) before anyone wakes up and realises that it is just delaying the inevitable.
Everyone knew that the housing and credit bubble was bad for the economy, and in NZ we even saw its effects in the US economy, but still no one in power did anything about it – why? Because of the culture of contentment. The middle classes got to feel wealthier and no one dared to disabuse them of that belief – although it is patently obvious that in a very real sense if you own the same house today as you did yesterday you are no better of today than yesterday, regardless of what anyone wants to pay for that house, unless you are prepared to sell (and not buy again in the same market).
Vote:March 16th, 2008 at 8:19 am
What I find interesting is why has the BNZ rolled out Toplis for this statement – what happened to the ever optimistic Tony Alexander that kept telling us what a fine job Labour and the economy were doing? Or has the BNZ woken up that their chief economist wasn’t quite so onto it?
Vote:March 16th, 2008 at 8:32 am
“.“You’re right Kimble, most people have been taken by surprise. That doesn’t mean the writing was not on the wall for those with eyes.”
So most people that understand derivatives would have been taken by surprise by something that is obvious to anyone who bothered to look?..”
have you ever been able t see past the end of your nose..?..kimble..?
phil(whoar.co.nz)
Vote:March 16th, 2008 at 8:37 am
At least Kimble’s nose doesn’t constantly drip smelly yellow bong water phoooooooooooool.
Vote:March 16th, 2008 at 8:44 am
Milo
In my view your post at 7:22 is bang on. The similarities between Labour and the failed Enron company become more obvious every day. With Enron, they built a company which on paper (using mark to market accounting) looked extremely healthy. They courted the news journos for positive stories to boost their shareprice while they wasted money hand over fist but were so blinded by paper profits they couldn’t see they were sinking their own lifeboat. Eventually a couple of external shocks came (world trade centre with subsequent share price drop) and the massive cracks in their strategy simply became too big to paper over anymore.
Labour is so similar. HC has effectively courted the media who until recently, could see no wrong. People have been blinded by the paper profits(eg the housing bubble), when because of Labour, productivity, the real economy engine has plummeted. Labour has wasted massive amounts of public money, spending an extra 16Bil a year on the state service for no result, but have effectively papered over their incompetence with phoney statistics and blinded media. Now a shock has come, and the cracks in the economy are just too big to paper over.
Vote:March 16th, 2008 at 9:15 am
SPC,
One of the things I’m afraid of is the reaction of the US leadership to the already palpable fact that it’s not the world’s sole Superpower.
Economically, China currently depends on the US, but not to the extent that Japan did when it was building its economy. China is now at the point that Japan was in the late 1970′s, when it’s building products that sometimes suck, but fulfill the purpose of developing the production lines that will be used in the future to produce goods that outshine Japan’s in value and performance. Unlike Japan, it won’t take forty years to get to there, it will, using 21st century techniques, technology and thinking, take five to ten.
Meanwhile the manufacturing base in the US has been significantly weakened due to offshoring, apart from essential defense industries. Due to chains like Wal-Mart, the retail sector is experiencing the same dynamic. The US is a hollow shell of what it was after the end of WWII.
Geopolitically the poisonous policies of Bush 43 and his neocon Israel-first buddies have turned the US from a friend into a pariah in many quarters of the world. In just eight short years Bush has led an administration that has placed the US into a position where, when it needs international friends, it won’t find many.
China will explore other sectors of the world and the BRIC treaty is an example of that as are also for example the diplomatic in-roads its been making in the Pacific Islands. It will find markets to replace the US when its consumers stop spending as they’re already doing. Unfortunately the tea leaves I read indicate that a more likely scenario is a conflict developing between China and Russia on one side and the US on the other and in that case all bets are off.
Vote:March 16th, 2008 at 10:12 am
China is much smarter and more in control of it’s destiny than Japan ever was. they will roar past the US. I think if a conflict occurs between China/Russia and the USA the USA will be driven by emotion and China by logic. So it will only occur when China is ready and knows it can win with acceptable loses (whether that is an economic/political conflict or military one).
I also reject the idea of multilateralism being the future. there is always a hegemon or a war. Besides China and India will not be the types to surrender hegemony in order to ‘look nice’ now matter how much one wags their fingers.
Vote:March 16th, 2008 at 10:28 am
This is a fasinating post
Bogus and Reid’s last posts are on the money.
The Labour government has been living in a fool’s paradise, spending at will to create the illusion of productivity.
A government spending to create wealth.
But in hindsight are they just a sad reflection of western society.
The stories in the Herald today about the Blue Chip model of human behaviour makes scary reading.
People borrowing to create wealth.
Where will it end
Vote:Probably with gold/ oil/food doubling in price as mankind flocks back to commodities.
And then Reid’s prediction of conflict may prove to be too true.
March 16th, 2008 at 10:34 am
Bogusnews and reid, Good comments thank you. First I read about Enron and “papering over cracks” and with that in my mind I moved to reid and a reasonable scan of the dynamics of relative power and economic performance.
Abruptly I was stopped by this “In just eight short years Bush has led an administration that has placed the US into a position where, when it needs international friends, it won’t find many.”
Heh, I couldn’t get my mind to read anything other than [In just eight short years Helen has led an administration that has placed the Labour Party into a position where, when it needs friends, it won’t find many.]
I feel that “the Beltway has become a Barrier”, initially it was a concept that keep the unwashed out of the trough, but now..??
Vote:March 16th, 2008 at 10:39 am
damn..!..i missed on the ‘when will dpf do his second economic-meltdown story? ..sweepstake…
but i must say..i do feel a sense of relief at the lifting of the responsibility of my mr ‘harbinger of doom’ role..
now that everyone is (finally!) paying attention to that one..
i can move on to seeking out news of ‘solutions’..
here is the first of those..
http://whoar.co.nz/2008/recession-timehow-bad-will-it-getand-what-to-do/
phil(whoar.co.nz)
Vote:March 16th, 2008 at 2:17 pm
philu, the shit will hit the fan when oil producing countries want payments in euro’s instead of dollars. I doubt the US will take this lying down.
Vote:March 16th, 2008 at 2:54 pm
that is already starting to happen..
there are also signs the chinese are tiring of mopping up american dollars..
what is also going on behind the scenes are fire sales of american assets..
the next move will be the rest of the world trying to quarantine themselves from the disintergration in america..
(and that may well see a flight to the euro..or the yen..?..or the rupee..?)
and yes..the real danger is a mortally wounded/heavily over-armed america…
and what political mutations might arise from that/there..
phil(whoar.co.nz)
Vote:March 16th, 2008 at 2:56 pm
This has been coming for the last few years. I’ve said it millions of times. If you kept up with how the US has been doing. It’s credit industry was in the shiat a few years ago, it was just a matter of time.
Vote:March 16th, 2008 at 2:56 pm
They tried taking oil in euros a few years back… it fails, it won’t this time.
Vote:March 16th, 2008 at 3:29 pm
Hey, have a look at this WaPo ariticle, written by Spitzer in Feb 08, outlining how the Bush Administration deliberately used an obscure legislative technique to shut down State Attorneys General who were investigating predatory lending practices.
Does anyone still have any doubt that Bush is the worst US President in history?
Vote:March 16th, 2008 at 3:50 pm
adolf does..
but then again..he also thinks the whole ‘meltdown’ thingy isn’t happening either..
so..what can you say..?..eh..?..
btw..how are the climate-change denialists bearing up..?
they have been sooo quiet lately..
phil(whoar.co.nz)
Vote:March 16th, 2008 at 4:18 pm
> They tried taking oil in Euros a few years back… it fails, it won’t this time.
handing themselves a hiding at the hands of currency speculators.
Imagine all those countries with massive reserves of devalued US dollars throwing them back onto the market driving the other currency they hold down further. Lets hope they don’t owe too much money in other currencies like Euro – because that would really hurt.
Meanwhile EU gets the fun game of having to subsidize its agricultural products to astronomical levels to get costly EU products to sell to countries that can make the same product much cheaper. In fact the EU will be luck if they can make anything cheaper than anywhere else in the world – at the same time as a credit crunch and probably a recession.
The EU will then have an issue of managing its diverse economy through the difficult patch where either they mismanage the big economies or they mismanage the little ones – they will probably choose the former.
Then a decade down the line the same countries will have to flee the euro and take another hiding on the exchange. Speculators will love them for it.
Vote:March 16th, 2008 at 10:12 pm
reid
While China can possibly surpass the USA in aggregate GDP over time, that is not the same thing as per capita – and thus China will be focused on continued economic growth for this reason, because its people will want more wealth.
I also am worried about any Russia-China axis against the USA – what has existed is a alliance to contain the Bush Presidency and the PNAC crowd. That is a temporary policy of each.
As I wrote
“Each needs other partners so as to not become dependent on each other (a too close relationship which would soon become paranoia for both parties, given the history of Russia with Asia and China with Europeans).”
I am also not that worried for the US over outsourcing manufacturing either. Economies move from land to factory to 21st century technology …
“Unfortunately the tea leaves I read indicate that a more likely scenario is a conflict developing between China and Russia on one side and the US on the other and in that case all bets are off.”
I once again say I see a multi-polar world where multi-lateralism will occur in either an (pro) active or negative sense (inertia). The old idea of war or hegemony is old style thinking, and is passe in an inter-dependent global economy. What applies for Europe via the EU, also applies for the wider world too.
Global Kyoto and WTO progress would however give one more confidence.
“Geopolitically the poisonous policies of Bush 43 and his neocon Israel-first buddies have turned the US from a friend into a pariah in many quarters of the world.”
There is of course a parallel between prophecy of doom of national peoples and end time religion, in that you may have more in common with some than you might care to admit.
Vote:March 17th, 2008 at 11:59 am
There is another connection between Enron and Labour. Enron invented Carbon Trading – another favourite of Labour.
Vote: