Latvia's prime minister says that he has saved the country from bankruptcy.Valdis Dombrovskis told public radio that the decision late on Thursday to cut 500m lats ($1bn; £607m) from the budget was "very difficult". But the cuts were needed for the country to receive the next installment of its European Union bail-out loans. The country agreed a 7.5bn euro ($10.5bn; £6.4bn) loan package in December, but must cut the budget deficit to receive the loans.
Latvia's prime minister says that he has saved the country from bankruptcy.
Valdis Dombrovskis told public radio that the decision late on Thursday to cut 500m lats ($1bn; £607m) from the budget was "very difficult".
But the cuts were needed for the country to receive the next installment of its European Union bail-out loans.
The country agreed a 7.5bn euro ($10.5bn; £6.4bn) loan package in December, but must cut the budget deficit to receive the loans.
China's factory output growth rebounded in May alongside stronger expansion in credit and consumer spending, bolstering evidence that the world's third-largest economy is on the path to recovery. Elizabeth Dalziel / APThe figures, which round out a batch of monthly data that has mostly surprised on the upside, suggest that the government's huge stimulus spending and tax breaks to encourage purchases of everything from cars to home appliances are helping to offset continued weakness in exports. The acceleration in industrial production growth, to 8.9 percent compared with 7.3 percent in April, beat economists' forecasts of a 7.5 percent rise but was in line with a figure reported by two Chinese newspapers earlier this week.Retail sales grew by 15.2 percent in the year to May, also beating forecasts and up from 14.8 percent expansion in April. Together with the rebound in new domestic-currency lending in May, to 664.5 billion yuan ($97.3 billion) compared with 592 billion yuan in April, the data paint a picture of an economy pulling up from a bottom.
China's factory output growth rebounded in May alongside stronger expansion in credit and consumer spending, bolstering evidence that the world's third-largest economy is on the path to recovery.
The figures, which round out a batch of monthly data that has mostly surprised on the upside, suggest that the government's huge stimulus spending and tax breaks to encourage purchases of everything from cars to home appliances are helping to offset continued weakness in exports.
The acceleration in industrial production growth, to 8.9 percent compared with 7.3 percent in April, beat economists' forecasts of a 7.5 percent rise but was in line with a figure reported by two Chinese newspapers earlier this week.
Retail sales grew by 15.2 percent in the year to May, also beating forecasts and up from 14.8 percent expansion in April.
Together with the rebound in new domestic-currency lending in May, to 664.5 billion yuan ($97.3 billion) compared with 592 billion yuan in April, the data paint a picture of an economy pulling up from a bottom.
new domestic-currency lending
Turnkey: "quantitative easing" in commercial and consumer spending, where before CCP exercised extraordinary, decades-long control of savings and transnat capital markets entry.
There's more to this. Somewhere, not Setser. Diversity is the key to economic and political evolution.
PARIS -- There was more evidence Thursday that the United States economy might be stabilizing, if not rebounding, even as economic reports in Europe remained gloomy.The American news -- showing slight growth in retail sales and a dip in first-time jobless claims, as well as rising stocks -- was not enough to end the disagreement between bulls and bears over how soon the economy would improve. But the apparent divergence of fortunes between America and Europe highlighted the different approaches to solving the financial crisis, and why some economists say the more aggressive American strategy may be working better, at least for now.It is a debate that is likely to be one of the issues dominating discussions when finance ministers from the eight largest economies meet in Italy this weekend.Some private economists are even predicting that the American economy will resume growth in the fourth quarter, while Europe's economy is expected to remain in recession well into 2010, after contracting an estimated 4.2 percent this year compared with an expected 2.8 percent decline in the United States.
The American news -- showing slight growth in retail sales and a dip in first-time jobless claims, as well as rising stocks -- was not enough to end the disagreement between bulls and bears over how soon the economy would improve.
But the apparent divergence of fortunes between America and Europe highlighted the different approaches to solving the financial crisis, and why some economists say the more aggressive American strategy may be working better, at least for now.
It is a debate that is likely to be one of the issues dominating discussions when finance ministers from the eight largest economies meet in Italy this weekend.
Some private economists are even predicting that the American economy will resume growth in the fourth quarter, while Europe's economy is expected to remain in recession well into 2010, after contracting an estimated 4.2 percent this year compared with an expected 2.8 percent decline in the United States.
Managing financial instability in capitalistic economies Reykjavik, Iceland September 3rd- 5th, 2009
Background The financial and credit sectors have a great importance in our modern service-oriented economies. as the present credit crunch and financial market crash and the subsequent severe economic recession have pointed out. According to present mainstream approaches to economics, the financial and liability structure of the economy may influence aggregate economic activity and amplify business cycles. However, capitalistic economies are viewed as essentially stable and tending towards steady growth; and the investment-finance linkage is considered as an amplifying mechanism of shocks exogenous to the economy. A complementary strand of research emphasizes the role of the investment-finance link not just as a propagator of exogenous shocks but as the main source of financial instability and business cycles, i.e., during good times economic agents take excessive risks and lend and borrow too much, generating endogenous ruinous boom-and-bust cycles. Besides, recent developments in statistical equilibrium approaches to economics, alongside with the emergence of behavioural and agent-based models, have indicated the way to overcome the limitation of traditional equilibrium-based analytical models characterized by fully rational representative agents. Aims and scope The purpose of the workshop is twofold: to discuss new modelling paradigms in financial economics and to design new public intervention policies aimed to recover a capitalist economy from a deep recession caused by a credit crunch or a collapse in assets values. The Icelandic economy will be discussed as a case study. Topics include, but are not limited to, the following: * Agent-based computational economics * Behavioural finance and economics * Economics of heterogeneous and interacting agents * Financial Keynesianism and financial fragility * Financial engineering * Econophysics * Endogenous and systemic risk management * Financial econometrics * Statistical equilibrium in economics A final round table is foreseen in discuss new possible foundations to the science of economics. A related document, called Reykjavik manifesto, will be released. Call for Papers: Researchers are invited to submit a paper to the First International Workshop on Managing Financial Instability in Capitalistic Economies (MAFIN 09), to be held in Reykjavik (Iceland), September 3rd - 5th, 2009.
The financial and credit sectors have a great importance in our modern service-oriented economies. as the present credit crunch and financial market crash and the subsequent severe economic recession have pointed out. According to present mainstream approaches to economics, the financial and liability structure of the economy may influence aggregate economic activity and amplify business cycles. However, capitalistic economies are viewed as essentially stable and tending towards steady growth; and the investment-finance linkage is considered as an amplifying mechanism of shocks exogenous to the economy. A complementary strand of research emphasizes the role of the investment-finance link not just as a propagator of exogenous shocks but as the main source of financial instability and business cycles, i.e., during good times economic agents take excessive risks and lend and borrow too much, generating endogenous ruinous boom-and-bust cycles. Besides, recent developments in statistical equilibrium approaches to economics, alongside with the emergence of behavioural and agent-based models, have indicated the way to overcome the limitation of traditional equilibrium-based analytical models characterized by fully rational representative agents.
Aims and scope
The purpose of the workshop is twofold: to discuss new modelling paradigms in financial economics and to design new public intervention policies aimed to recover a capitalist economy from a deep recession caused by a credit crunch or a collapse in assets values. The Icelandic economy will be discussed as a case study.
Topics include, but are not limited to, the following:
* Agent-based computational economics * Behavioural finance and economics * Economics of heterogeneous and interacting agents * Financial Keynesianism and financial fragility * Financial engineering * Econophysics * Endogenous and systemic risk management * Financial econometrics * Statistical equilibrium in economics
A final round table is foreseen in discuss new possible foundations to the science of economics. A related document, called Reykjavik manifesto, will be released. Call for Papers:
Researchers are invited to submit a paper to the First International Workshop on Managing Financial Instability in Capitalistic Economies (MAFIN 09), to be held in Reykjavik (Iceland), September 3rd - 5th, 2009.
Q1 2009 Flow of Funds results show the housing sector ran a financial surplus or net saving position of $341b in the past quarter, while paying down $155b in household debt. Monthly consumer installment credit points to the same household sector deleveraging with credit cards and non-revolving loans. We believe professional investors may be underestimating the importance of household sector deleveraging this time around. We have never seen households retire debt like this, now in three of the past four quarters, over more than a half century of results reported in the Flow of Funds accounts. Household debt can only be reduced by three actions. Households can default on debt, and the debt is written off. Households can sell assets to another sector, and use the proceeds to pay off debt. Or households can save money by spending less than their income flows, and use the saving to retire debt. The rise in household net saving suggests the third method is playing a key role in household debt deleveraging, and this has import implications for the profile of any prospective consumer spending recovery, even one backed by massive fiscal stimulus. We suspect working from the usual business cycle playbook will not be especially rewarding in such an environment. Furthermore, if banks are sitting on excess reserves, are perceived to now have sufficient capital, and are reporting an increased willingness to lend (which makes sense given the slope of the yield curve and the associated net interest margins), while consumers are intent on net paying down debt, then banks may need to consider a new business model. Loan volumes to households are going nowhere. Alternatively, they can ride the yield curve like they did in 1991-3, but here they will need to buy and hold longer dated Treasuries if they wish to avoid capital losses as Treasury bond yields back up. Nevertheless, ETF's on consumer discretionary stocks are up over 50% since the March 6th lows, and the ETF on banks are up over 100%. What do equity investors know that we may be missing? Our beef with the equity market boils down to this: the widespread perception is that the old global growth model, dependent in no small part on the willingness of US consumers (and other consumers in the developed world) to deepen their deficit spending, can and will be revived. We would merely suggest with the level of household net worth to disposable income back to a level last seen in 1995 (before household deficit spending began), and with households extinguishing debt for the first time in over half a century, this assumption deserves to be questioned. Humpty Dumpty may not be able to be put together again.
Household debt can only be reduced by three actions. Households can default on debt, and the debt is written off. Households can sell assets to another sector, and use the proceeds to pay off debt. Or households can save money by spending less than their income flows, and use the saving to retire debt. The rise in household net saving suggests the third method is playing a key role in household debt deleveraging, and this has import implications for the profile of any prospective consumer spending recovery, even one backed by massive fiscal stimulus. We suspect working from the usual business cycle playbook will not be especially rewarding in such an environment.
Furthermore, if banks are sitting on excess reserves, are perceived to now have sufficient capital, and are reporting an increased willingness to lend (which makes sense given the slope of the yield curve and the associated net interest margins), while consumers are intent on net paying down debt, then banks may need to consider a new business model. Loan volumes to households are going nowhere. Alternatively, they can ride the yield curve like they did in 1991-3, but here they will need to buy and hold longer dated Treasuries if they wish to avoid capital losses as Treasury bond yields back up.
Nevertheless, ETF's on consumer discretionary stocks are up over 50% since the March 6th lows, and the ETF on banks are up over 100%. What do equity investors know that we may be missing?
Our beef with the equity market boils down to this: the widespread perception is that the old global growth model, dependent in no small part on the willingness of US consumers (and other consumers in the developed world) to deepen their deficit spending, can and will be revived. We would merely suggest with the level of household net worth to disposable income back to a level last seen in 1995 (before household deficit spending began), and with households extinguishing debt for the first time in over half a century, this assumption deserves to be questioned. Humpty Dumpty may not be able to be put together again.
According to just-released Federal Reserve data, U.S. household wealth fell by $1.3 trillion in the first quarter, blessedly less than the previous three months' $4.9 trillion loss, the biggest quarterly decline since such records started being kept all the way back in 1952. But it was the seventh straight quarter of declines, also a record for the series. -Skip- And unlike pervious bear markets, such as after the tech-stock bust or the 1987 crash, Treasury securities didn't rally but lost value. Also in contrast to the bear markets of 1970s and early 1980s, when money markets provided reliable double-digit yields, cash either yielded nothing for safe T-bills or even lost value as money funds "broke the buck." -Skip- As of the end of the second quarter, the wealth bubble that began to inflate in early 1990s had been deflated. The ratio of household net worth to personal disposable fell to 4.67 times, the lowest since the third quarter of 1992, near the end of the first George Bush's term. -Skip- In the past, the hits to wealth were concentrated in equities, which were held mainly by the well-to-do. And they were cushioned by their real estate, private business holdings, fixed-income securities and ample cash. In the bubble, however, even the rich got into hock with multiple homes that they now can't afford to carry and can't unload. There are only so many potential buyers for multi-million-dollar manses in gated communities.
-Skip-
And unlike pervious bear markets, such as after the tech-stock bust or the 1987 crash, Treasury securities didn't rally but lost value. Also in contrast to the bear markets of 1970s and early 1980s, when money markets provided reliable double-digit yields, cash either yielded nothing for safe T-bills or even lost value as money funds "broke the buck."
As of the end of the second quarter, the wealth bubble that began to inflate in early 1990s had been deflated. The ratio of household net worth to personal disposable fell to 4.67 times, the lowest since the third quarter of 1992, near the end of the first George Bush's term.
In the past, the hits to wealth were concentrated in equities, which were held mainly by the well-to-do. And they were cushioned by their real estate, private business holdings, fixed-income securities and ample cash. In the bubble, however, even the rich got into hock with multiple homes that they now can't afford to carry and can't unload. There are only so many potential buyers for multi-million-dollar manses in gated communities.
