Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Anglo Disease - early signs of hangover generate denial

by Jerome a Paris Thu Nov 22nd, 2007 at 08:49:21 AM EST

Now that things are turning sour, worries are being increasingly expressed about the great unwinding, and one sees increasingly frantic attempts to rewrite the economic history of the past few years. While the column by Martin Wolf linked to above mostly notes that the US should expect a long period of lower than average growth (which, he states, may be worse than a sharp but short recession), and that overall growth will depend on the ability of other countries to boost their internal demand, other commentators are a lot more partisan in their outlook, such as Wolf's collegue John Plender, who indulges in Anglo chest thumping on a grand scale. His article, The pitfalls of financial globalisation grow clearer, was flagged and partly deconstructed by Migeru in yesterday's Open Thread, but it is worth looking at it a bit closer.


Conventional wisdom has it that globalisation and the spread of deregulation have been an economic boon for the English-speaking countries. Having run down their manufacturing as a percentage of gross domestic product in the 1980s and 1990s, the US and the UK have been less vulnerable to Chinese competition in this cycle than the big economies of continental Europe. And with disproportionately large financial sectors, these two countries have also enjoyed a financial windfall from the rise of China and other emerging markets.

A first note: globalisation and deregulation are presented as exogenous factors that we all have to live with, and not as an ideological model that has been imposed on all by its initiators ... who happen to be the ruling elites of the US and the UK. Reagan anyone? Thatcher? Deregulation? Privatisation? The Big Bang?

All these policies were designed exclusively with the goals of investors in mind - ie a singleminded focus on return on capital and ever-increasing (and preferably untaxed) profits. They caused the growth of the financial sector everywhere, the dominance of economists and financial analysts in public discourse, the relentless focus on efficiency, "rightsizing", flexibility and profitability, and the corresponding squeeze of manufacturing and other similarly old-fashioned activities.

This is not something that came out of nowhere and that London and New York, in a stroke of good luck, just happened to capture. It was made to happen. Trying to ignore or deny that underlying purpose shows incompetence or wilful dissimulation on a grand scale.

New York and London have played a central and lucrative role in recycling the glut of savings in Asia and in the petro-economies. Much financial innovation in wholesale markets was spurred by this phenomenon.

Ah, again, the savings glut theory (much publicized by Ben Bernanke before he took over the Fed) - which claims that the US is consuming more than it produces because emerging countries are not consuming enough, ie that it is providing a valuable service to the global economy. The reality, of course, is the exact opposite: the US is consuming more than it produces because it can get away with it, by borrowing increasing amounts of money from other countries, and making them manufacture (or dig up) stuff in exchange for IOUs denominated in the US's own currency. And the widespread use of debt has been encouraged, let's never forget it, to hide to Americans (other than a very small minority) the reality of their stagnating incomes by allowing them to continue on buying stuff.

Oh sure, the countries exporting to the US are happy to piggyback on that trend, and have benefitted to some extent from the transfer of manufacturing activity and the buid up of their own economy (as long as the cost to the environment is ignored, anyway), and they are doing all they can to not rock the boat. But they certainly did not originate it.

At the same time equity markets have thrived as profits have risen to a record share of gross domestic product. Among other things this reflects the greater exposure of corporations to global market discipline and the benign disinflationary impact of millions of Asians coming into the global workforce.
"benign disinflationary impact" = lower wages for Western workers, fewer perks and less protection for their jobs. This is not a bug, it's a feature, and the very words used show that the goal is to hide what it means, and present the result (money going to profits rather than to workers) as a positive thing. Hey, profits are up and the stock markets are doing great - thus, says the subtext, the economy is doing just fine.

Again: "global market discipline" = the financial world imposing on other sectors the requirement for the kind of returns it manages to generate for itself by squeezing money today out of future activity. Manufacturing can only generate this by squeezing workers and other costs - which means polluting China rather than paying to follow our more stringent rules in the West.

Meanwhile, retail financial markets have hummed as cheap credit powered housing booms in the Anglo (and other) economies.

Again, this is an integral, vital part of the Anglo economic model: with wages squeezed, the only way to avoid those pesky voters to complain too loudly was to buy them off by offering them the possibility to continue on buying, via very real debt, underpinned to a large extent by (partly virtual) real estate appreciation. It was highly profitable for the financial world too: more business, and a general increase in the value of assets. When your livelihood depends on fees proportional to the value of things traded, it's all good.

But as the suddenly crisis-prone financial sectors of the US and UK now confront a second round of tightening in the inter-bank market, it is worth asking whether this financial bias could be too much of a good thing.

There is a risk of exaggerating the economic impact of the debacle in asset-backed paper markets in relation to large and diverse financial sectors.

Yeah, because it's not the whole model based on a gigantic one time squeeze of the middle classes that is flawed, it's just a few excesses here and there that can be corrected. Right. Dream on, John.

Yet systemic trouble in finance can have wider indirect consequences. With housing markets going into reverse in both countries, there is every likelihood that households will rebuild very low savings ratios. The consequences for demand could be nasty. With a much less diversified economy than the US and much greater debt as a percentage of household wealth, the UK looks the more vulnerable. Sterling has a looming problem.

Nothing to squeeze left. It was a feature, John, not a bug.

In the longer run there is a risk that financial activity will be damped by rising inflation. While Chinese demand continues to put pressure on energy and raw material prices, it is no longer exerting such downward pressure on the price of global labour.

Nothing to squeeze left. Even that wonderfully extensible resource, Chinese labor, is coming to the end of its practical use. And that tells us more than anything what "inflation" means: anything that may cut into profits, and what "growth" means: increasing profits. Anything that lets things seep away from profits - to pay for regulation, to pay for wages, to pay for resources, is inflation - and evil. Inflation is the enemy of the Anglo model - it's value not being captured and being wasted instead for useless purposes.

A more fundamental point is that China and other emerging market countries are unilaterally rolling back the high tide of liberalisation. Thanks to their rise, more of the world economy operates under mercantilist pegged exchange rate regimes.

This is such a disingenuous comment... the peg is precisely what allowed "inflation" to be avoided in the West, by keeping Chinese costs artificially low. In other circumstances, the investment boom in China, and its massive trade surplus should have caused its currency to appreciate, and its costs to increase. By preventing this, the Chinese authorities were fully complicit in the big squeeze and helped to make it last as long as it did.

The mercantilist exchange rate setting was, again, a feature, not a bug.

By investing their official reserves in developed world government debt, they reduce the cost of public sector borrowing, making a return of big government easier.

John, John, John. Did you not notice that it was the other way round? It's the combination of massive new spending by the Republican US government (spending focused on the militaro-industrial complex, and pork, ie going to friends, not to plebeians), tax cuts (again, going to the rich) and lower Fed rates that created the bubble that caused the imbalances that in turn made foreigners such huge creditors of the US, got them to buy up US securities and bring long term interest rates down. It was called a virtuous circle while it lasted, but it was really wealth capture on a grand scale, transferring future tax payments by Americans to today's wealthy. Whatever happens to today's wealth (more junk, bigger, farther off McMansions, more fuel-wasting FUVs), the future debt will remain - unless, of course, in Bush's final shafting of the world community, the dollar is left to crash, devaluing the claims on the US economy.

Either way, "big government" - the corrupt, wasteful, cronyism-prone, and ineffective kind favored by conservatives was at the heart of the loot - again, a feature, not a bug.

As co-conspirators with the US Federal Reserve in creating the credit bubble, the same countries have contributed to a boom and bust cycle in housing and finance which will lead to a political backlash, soon to be followed by cumbersome regulation.

Yeah, blame other countries (which, for the most part, were only trying to imitate the model endlessly peddled by US authorities and their trophy pundits). Fine. They are indeed complicit - a bit - for buying your scam.

And of course, when your scheme fails, as it is doing now (again, "bust" is a feature of "boom and bust"), go concern trolling about "cumbersome" regulation. When the adults have to come and clean up the mess, it is not called "cumbersome", it is called "saving your sorry irresponsible ass." But make no mistake, we can expect the whiny calls from never discreditable hacks and supporting pundits for more liberalisation as the previous attempt was "insufficient" and "not given time to prove itself".

Meanwhile, sovereign wealth funds are indirectly reversing the privatisation trend that began in the 1980s through a re-expansion of state ownership, but on a cross-border basis. That in turn will spawn an illiberal political reaction that will inhibit global capital flows.

Bwahahahaha. So the game should only be played by our kind of people, from New York and London, but not from elsewhere. Dirty foreigners can obviously not be trusted with so much money and should be prevented form doing things that might actually give them a say in how companies are run. Imagine that - people with money not focused only on short term profits! What a horrible crime.

Sadly, John, it is, again, a feature of the big loot, given how much of the wealth grab depends on borrowing money from, well, dirty foreigners, and handing them over financial assets - future claims on our economies. Did you really expect them not to want to be paid, or not to want to set terms when you comes asking for more?

Yes, the grand wealth capture plan was a one-time thing, and now the bill is due - both in the form of "inflation", and in the form of claims on our real wealth. Of course, the goal was always to let the plebes bear that burden, but your loot has been so effective that the plebes cannot really be squeezed anymore - and that leaves you to talk to Messrs Putin, Abdullah, Hu et al...

Almost makes me sorry...

On the face of it, continental Europe ought now to be better placed to cope. Yet this is no time for schadenfreude. Two German banks that dabbled in subprime structured products have had to be rescued. The dabbling arose from an urgent need to raise returns in an over-politicised, over-regulated, but under-profitable German banking system.

You bet it's time for schadenfreude. And it's going to be for quite a while. Sure, you've managed to corrupt a big chunk of our elites and our financial systems, given how you've taken them over or coopted them, but the loot has not been as extensive, nor as successful, and given how you try to keep all the financial fun concentrated in the City and Wall Street, the rest of Europe still had to focus on other, actually wealth creating activities. And these will remain even as the financial world crashes down.

With globalisation, no economic model provides protection from the excesses of someone else's model.

Excesses? what excesses? Are you admitting to anything, finally? Or are you just trying to get us to bail you out, once more? You've just picked our pockets ! Twice, given that you've also picked our future pockets already!

As conditions in the US mortgage market worsen next year, the waning ability of the US consumer to absorb the rest of the world's goods will hurt everybody, including continental Europeans.

Again, for the past 2 years at least, the real economic locomotive of the world has been Europe - because wages are still growing over here, and there was no need to create funny money to spend.

Oh sure, European stock markets will crash along with Wall Street. But housing prices are unlikely to crash in places like Germany where they have stagnated for the past decade, or in France where banks are kept lending standards mostly in check, or even in Spain where the very real housing boom was underpinned by the very real catching up of Spain's economy to the rest of Europe.

There is no question that smart, global finance has been a good thing.

Yeah, don't ask questions, it might be painful to hear the answers.

Without the recycling of capital, excess savings in Asia would have been profoundly deflationary. Yet from today's global vantage point, we have undoubtedly all had too much of this good thing. Whether it is ever possible to have just the right amount is another question.

Without the Anglo bubble, there would have been no need for the capture of Asian savings, and no hangover today.

Go into detox, John. Please.

:: ::

Previous "Anglo Disease" content:

Display:
The financial meltdown continues apace:

ABX indices, the only approximate price for asset-backed securities, are reaching new record lows, with the AAA-rated index now down to 67 (ie worth barely two thirds of its initial value - and that for the safest of all safe securities...)



In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Nov 22nd, 2007 at 08:58:15 AM EST

The gap between imports and exports shows how much of the USA's apparent prosperity has been borrowed. and considering how so little of that has been going to 99% of the population, it's a good indication of the size of the loot captured by the other 1%.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Nov 22nd, 2007 at 09:14:53 AM EST
Hmmm.....

Althought the push is to identify the economic situation in which the US finds itself as the responsibility of the Bush administration alone, when you look at these graphs its obvious that the underlying problem began much earlier during the Clinton adminstration.

And if that's the case, it seems that the two great "victories" of the Clinton administration: 1)The expansion of trade without the adoption of trade rules similiar to what the EU has in the  acquis communitaire, and 2) the destruction of the social safety net, i.e. welfare to work, deregulation,etc appear to have laid the foundations of utter economic disaster 10-15 years on.

It almost seems to suggest that the Clinton "miracle" consisted almost entirely of borrowing from the past savings and getting loans from foreign powers.  Needless to say I'm not impressed with what Clinton did, but the bigger problem is that the current thinking in the US is that happy days will be here again if we ditch Bush.  The problem with that being, that it does nothing to confront the underlying unsustainability of the current economic model.  And the same people who pushed bad neo-lib policy during the Clinton administration are now advising the two front runners in the Democratic primary.

And people are more interested in talking about the novelty of having a woman or a black man as president than looking past the bullshit about that being change to realized that the race or gender of a nation's leader has zero effect on working people's lives unless there's a fundamental shift in economic thinking in the country.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Thu Nov 22nd, 2007 at 10:21:56 AM EST
[ Parent ]
What happened to US exports in 1997?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2007 at 10:41:44 AM EST
[ Parent ]
There have been a couple of things that have really crippled US exports.  Foremost among them has been that US companies (headquartered in Bermuda of course) started to source product from Chinese factories in the 1990's.  During the late 1990s this started to shift out of textiles and basic goods into things that had been value added goods.  I'm talking about aftermarket auto parts (auto parts not made for use in the auto industry but for repair by mechanics), consumer electronics, etc.  

Previously, much of this had been sourced from Mexico and Latin America. And Latin America has traditionally been one of the best markets for American export.  The Mexican economy has been under attack from cheap Chinese imports both internally and in it's exports to the US.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Thu Nov 22nd, 2007 at 10:50:49 AM EST
[ Parent ]
is when Greenspan did nothing about "irrational exuberance" - ie the start of the dotcome bubble.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Nov 22nd, 2007 at 11:07:02 AM EST
[ Parent ]
How does the dot-com bubble explain a drop in exports?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2007 at 11:07:52 AM EST
[ Parent ]
Re exports, I suppose it's the Asian crisis. The economies over ther took a dive, and their imports must have dropped.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Nov 22nd, 2007 at 11:23:27 AM EST
[ Parent ]
But exports never really recovered (as a fraction of GDP, that is).

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2007 at 11:50:56 AM EST
[ Parent ]
Or their (the Asian) economies regrew on the back of the transfer of manufacturing jobs.

Money is a sign of Poverty - Culture Saying
by RogueTrooper on Thu Nov 22nd, 2007 at 01:06:30 PM EST
[ Parent ]
'97 to 2000 were boom years in the US. Don't know if it's that odd that imports would rise quicker than exports. Quickly rising GDP means that exports were still rising quickly, imports just more quickly. You might ascribe it to a lot of foreign investment in the US in this period and a strong dollar. What happened in 2000 is far more drastic.
by nanne (zwaerdenmaecker@gmail.com) on Thu Nov 22nd, 2007 at 09:38:16 PM EST
[ Parent ]
I'd agree that some trends predate Bush, but there are some differences:

  • rather more competent government, including the complete elimination of the budget deficit. No insane tax cuts focused on the rich (in fact, Clinton increased taxes), no out of control pork and MIC spending, no draining wars;

  • monetary policy, while too loose, was not as scandalous as during the Bush years - especially given he respective fiscal positions;

  • the Clinton administration had a real 'strong dollar' policy, and it showed;

  • the dotcom bubble was, in some ways, inevitable, as it was a burst of investment in a brand new technology. A lot of the money was wasted, but it also brought about a whole new industry, new technologies and more. There will be no Google from the Bush/Greenspan born out of the housing bubble.

It was tamed neoliberalism, and it was decent center-right economic policy.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Nov 22nd, 2007 at 11:16:49 AM EST
[ Parent ]
I think MiM's point was that it set precedents which the Bush crazies could easily exploit to push their extremist neo-lib agenda.

Without an agreement that off-shoring is acceptable and we're all going to one big happy service economy from now on - q.v. the dot-com economy as the prototype both for Enron and for the housing bubble - Bush would have had to start by dismantling a centrist narrative, and not just by (e.g.) taking offshoring for granted.

The fact that the middle classes did well under Clinton shouldn't excuse the fact that he was still a centre-rightist, whose main interest was always 'the economy' (i.e. Wall St) and not so much other participants.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Nov 22nd, 2007 at 12:54:09 PM EST
[ Parent ]
Both major US political parties are "crazy."  The difference is the extent to which they have traveled down the path.  

When two people claim there are evil Martians living in the basement, and you have a XOR decision point, the difference between one saying to placate the Martians the house must be destroyed and the other saying to placate the Martians only the kitchen and bathroom(s) need to be destroyed is important.  With the latter at least the walls and roof are still there.

During the Bush administration the crazies have spent much time and energy tearing down the house.  During the Clinton administration only the kitchen and bathroom(s) were 'reformed.'  People, naturally, look back at the period when the walls and roof were still there and say, "Gosh it was nice when we still had walls and a roof and wouldn't it be great to get them back?"

Expanding the analysis --- ;-)

Since both parties depend on wide acceptance of the proposition there are evil Martians living in the basement for their existence neither looks kindly on those pointing-out there is, in fact, no evil Martians living in the basement but there are problems with the oil heater in the basement, the water pipes are clogging, and summer is coming on and the air conditioner is broke.  Naturally the parties, when getting this looks at the one making the argument and either flatly denies there are problems with the oil heater in the basement, the water pipes are clogging, and summer is coming on and the air conditioner is broke or, the slightly less crazed, says "Yes, there are problems with the oil heater in the basement, the water pipes are clogging, and summer is coming on and the air conditioner is broke BUT there are evil Martians  LIVING in the BASEMENT!"  

shrug

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Thu Nov 22nd, 2007 at 02:33:46 PM EST
[ Parent ]
You had your vitamins this morning! What a blogger-bully!

This is a classic, Jérôme, one of your best. Congratulations.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 22nd, 2007 at 09:36:01 AM EST
That article begged for it - especially given how it claims the 'Anglo' title itself.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Nov 22nd, 2007 at 10:14:02 AM EST
[ Parent ]
... yeah oh bully..:)

YEEEHHHAA

And when I read it I thought it was less than average crap.. ebcasue he accepted some failures in the anglo model...sigghhhh

But again.. 1.5$ is at 1 euro .. roughly.. and it will fall much more (my bet was 1.6-1.8 some months ago).. but US securities are still bought...

So I think somewhere, somehow tere is a hole in Jerome argument.soemhow people are willign to lose money on  the shrot term??? but I just

know nothing.. and I am from economics-is-not-science land.

A pelasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Thu Nov 22nd, 2007 at 11:39:40 AM EST
[ Parent ]
I'm just surprised about Spain. My take on Spain was that it was very, very dangerously poised (I read that the average house loan was 50% of earnings -I'll have to dig that, I think it was on Wikipedia at any rate). But I may be wrong. Still, there economy seems way too dependent on houses.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Thu Nov 22nd, 2007 at 10:10:42 AM EST
The housing market bubble is real, but it's not clear to me (yet) that it is as unsustainable as in other places. A big chunk of it is justified by economic catching up, and social changes (smaller households) and massive immigration - ie very real activity.

And the Spanish companies most involved in it have tried to convert their virtual wealth into more tangible holdings by diversifying into foreign assets, both in Latin America and in the rest of Europe, so they are in effect cashing in on their market to spread their risk and the reach. We'll see if it's enough.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Nov 22nd, 2007 at 10:17:19 AM EST
[ Parent ]
There's been a significant rise in Spanish investment in the US following the shift in Latin American government in recent years.

Just to name a few, Gamesa Eolica, S.A. just built a factory to manufacture wind turbine parts in Pennsylvania, and in my hometown a Spanish transmission manufacturer from Navarra has plans to build an American plant.  

I think that there's a huge degree of ignorance about the level of Spanish investment abroad in the American economic development community, which has been almost exclusively focused on Asian investment.  I've acutally thought of writing to the newly elected mayor in my home town to point out that there's been little effort to attract Spanish investment and that the industrial mix in Spain is very similiar to the industries in the city.  With talk that SEAT may be planning a US expansion, I think that whoever snags that assembly plant would get thousands more jobs in feeder industries.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Thu Nov 22nd, 2007 at 11:01:38 AM EST
[ Parent ]
Iberdrola has also been buying US energy generation companies. And they intend to bundle them with their Scottish Power holding and spin it off as a separate renewable energy company.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2007 at 11:05:18 AM EST
[ Parent ]
Looking at it from this side of the Atlantic, it seems like now's the time for cities trying to develop industry to seek out Spanish investment.  The problem is that everyone focuses in on Japanese investment, because that's the holy grail.  

The idea that maybe it's better to run away from the crowd and look for investment from other sources, than get involved in bidding wars offering ever increasing tax abatements and incentives is beyond the economic development community.

That's interesting to here about Iberdrola. Spain's been blessed with hydro power, and they've built a great deal around wind energy.

I've always though that it would be a good idea to build up wind energy through the creation of cooperative companies based around farmer's organization (National Farmer's Union, Farm Bureau, etc.) to site turbines, and share the profits. Not to mention that plug in tractors seem like a damn good idea.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Thu Nov 22nd, 2007 at 12:02:25 PM EST
[ Parent ]
Not to mention that plug in tractors seem like a damn good idea.

haha, bingo!

doubledamnplusgood-

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Nov 22nd, 2007 at 03:08:06 PM EST
[ Parent ]
There are emergency plans to redirect gasoline from the automotive market to secure supplies for farmers in the event of an interruption of gasoline supplies.

Agriculture is so mechanized at this point, that a serious cut in gasoline supplies could make it impossible for farmers to plant and bring in their crops. We're talking about a situation in which their could be an absolute shortage of food where even with rationing there isn't enough to both maintain exports and feed the US population.  

Electric tractors seem like a no brainer.  You have no distribution network issues, because you don't have to worry about finding a station to plug in at. And while you're at it you can switch over rural households to electric heat so you can preserve natural gas production for use in making fertilizer.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Thu Nov 22nd, 2007 at 03:37:19 PM EST
[ Parent ]
Agriculture is so mechanized at this point, that a serious cut in gasoline supplies could make it impossible for farmers to plant and bring in their crops

Change that "could" to "absolutely would".

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 22nd, 2007 at 05:32:35 PM EST
[ Parent ]
Oh this I know this I know.. becae I trust P. Solbes actually.

A freeze in the house market for adecade will be desirable/necessary.. prices increased too mcuh .way too much  and there was a bubble in the extreme growth of prices...with people investing in houses..

A certains ectr of thepopualtion have house that do not sell or rent or anything.. they have it as an ivnestment...(frm 3 to 10 flats typically)

So nobdy wants to touch it. upper middle class in Sain is based on these houses and they are powerful.

But balanced can be achieved if prices grow below inflation for 5-10 years... right now it is just too much for the middle class..

The amount of debt in mortgages is huge huge huge...

Plus investemnt in houses made other investments in spain (R+D) almost nill...

So hopefully we got it on time and we cool it on time....and ina nyc ase we cold happily sustain a 5% decrease in direct consuemr prices for a couple of years... probably it would be better... but the power to be does not want...

A pleasre

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Thu Nov 22nd, 2007 at 11:46:25 AM EST
[ Parent ]
I am beginning to lose my trust in Solbes because even though he knows the economic model is economically (let alone ecologically) unsustainable and he made some noises about using the strong GDP growth to shift to a more sustainable model, he's done nothing. Spain has had the same economic policy for 14 years and counting, as Solbes was minister in 1993-6 and Rato just continued the same economic and fiscal policy in 1996-2000.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2007 at 11:58:47 AM EST
[ Parent ]
I still trust him.. because he makes noises.. he can not changed the policy on housing.. it does not belong to him... he just makes enough saying that it is better to move away from housing... pushing slowly... all what econmic ministers an do there.

I like his fiscal policy... if I forget about the sustainability issue....

yes the fiscal policy sould have a deep cahnge towards taxing fuel, waste and so on and get rid of the taxes for workers... stil he has been the only one I know which increased taxes on cars wth more than averge fuel standartds and educe it fore fficeint cars.. so basically he implemented one of the points in energize america single handidly...

within the parameters we normally move he is OK....let's hope one day society/ecnomic sectors is open to move towards a change in fiscality...maybe when oil is at 500 $?

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Thu Nov 22nd, 2007 at 01:25:09 PM EST
[ Parent ]
Spain is beginning to have serious household credit problems. People using plastic to pay for mortgages, debt counseling for middle-class professionals, defaults, people using bankruptcy protection to pre-empt a repossession...

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2007 at 10:40:21 AM EST
[ Parent ]
http://www.dailykos.com/story/2007/11/22/10225/456
Thanks for your support over there.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Nov 22nd, 2007 at 10:17:57 AM EST
This is perhaps not entirely on topic, but it's certainly a variation on the theme of predatory financial craziness:

China Inc. Is Out on a Limb

China's stocks are sky-high. And Chinese companies are huge investors. That means a serious market backslide will send balance sheets into free fall

By now every investor on the planet is trying to handicap what happens when China's scorching-hot stock markets finally start to cool off. The conventional wisdom is that China's greenhorn individual investors will take the hit, while corporate China--the companies that make shirts, build ships, and run utilities--won't feel much at all. The real economy these companies operate in is far too strong to be affected by stock wobbles, goes the argument. The price of corporate shares may fall, but underlying earnings will power on.  

That line of argument, though, is looking suspect for the simple reason that companies big and small are now playing the markets with abandon, using corporate funds to invest in each other's initial public offerings and bolster their bottom lines. Although figures are hard to pin down, Morgan Stanley figures a third of reported corporate earnings in China stem from investments outside companies' core businesses--which in almost all cases means plowing money into stocks. "It's quite dangerous for these Chinese companies because these gains have no cash basis," says Ding Yuan, a professor of accounting at China Europe International Business School in Shanghai. "It's really frightening."

Scarier still is what could happen if the stock markets head south. Shanghai is more than 700 points off its all-time high of 6,124, reached on Oct. 16, though as of Nov. 14 it was still up 102% for the year. If and when stock prices start to fall in earnest, companies will have to report these portfolio losses on their income statements, depressing their earnings. That, in turn, could hurt their own stock prices, pushing the market down both further and faster. "It's a replay of what happened in Japan during their bubble," says David Webb, a Hong Kong-based corporate governance expert and non-executive director of Hong Kong Exchanges & Clearing. Japan Inc. gorged on stock and real estate, only to tumble into the red when those markets collapsed.



The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt št gmail dotcom) on Thu Nov 22nd, 2007 at 10:22:47 AM EST
The problem isn't the United States or United Kingdom.

The problem is unregulated capitalism, it consumes all that it touches and turns it into a commodity regardless of whether that makes any human sense or not.  The lesson of King Midas would seem to have been lost on the people who promote this aspect of the market as something positive.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Thu Nov 22nd, 2007 at 10:35:49 AM EST
[ Parent ]
It seems like history repeats itself an awful lot in this area, and that people collectively never learn much from the lessons.

Kevin Phillips, in Wealth and Democracy, has traced variants of this pattern as far back as 14th century Italy. It's like a bad software program in it's 10th iteration, chock full of all sorts of interesting "features."

Billy Ray Valentine caught the essence of the game in Trading Places:

"Oh, see, I made Louis a bet here. See, Louis bet me that we couldn't both get rich and put y'all in the poor house at the same time. He didn't think we could do it. I won."

"When the abyss stares at me, it wets its pants." Brian Hopkins

by EricC on Fri Nov 23rd, 2007 at 10:50:48 AM EST
[ Parent ]
China's stocks are sky-high. And Chinese companies are huge investors. That means a serious market backslide will send balance sheets into free fall.

Let's rewrite that, shall we?

"Commercial paper valuations are sky-high. And investment banks are huge investors. That means a serious credit crunch will send balance sheets into free fall."

We have met the enemy, and he is us — Pogo

by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2007 at 10:36:30 AM EST
[ Parent ]
Got to agree with afew.

One of your best.

Shouldn't have read that before Thanksgiving dinner.

But your analysis sure nailed it.

"When the abyss stares at me, it wets its pants." Brian Hopkins

by EricC on Thu Nov 22nd, 2007 at 12:08:55 PM EST
Yeah, it's most excellent.

Should be turned into a vitriol-dripping LTE.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Nov 22nd, 2007 at 12:27:54 PM EST
[ Parent ]
Seconded.

Rien n'est gratuit en ce bas monde. Tout s'expie, le bien comme le mal, se paie tot ou tard. Le bien c'est beaucoup plus cher, forcement. Celine
by UnEstranAvecVueSurMer (holopherne ahem gmail) on Thu Nov 22nd, 2007 at 12:36:16 PM EST
[ Parent ]
Considering Jérôme has already had an op-ed published in the FT (though not in the UK print edition, apparently) I think he could shoot higher than an LTE.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2007 at 12:56:12 PM EST
[ Parent ]
Why did I not know that...

Rien n'est gratuit en ce bas monde. Tout s'expie, le bien comme le mal, se paie tot ou tard. Le bien c'est beaucoup plus cher, forcement. Celine
by UnEstranAvecVueSurMer (holopherne ahem gmail) on Thu Nov 22nd, 2007 at 01:19:42 PM EST
[ Parent ]
Absolutely! This type of analysis, although here reactive, deserves a much wider audience. What is needed is some proactive media connections for the dissemination of a cogently argued worldview.

I still believe that an edited book of ET discussions on a wide variety of subjects would be useful. It could be a hyperlinked pdf book or a real book or magazine.

The point is this: the purpose of editing is to customise content for a particular audience. ie to ensure that content is provided in a form suitable for the people who it is intended to affect. There are not so many who are prepared or equipped to read acres of nuanced comment as we do here. (knowing that insights are present, but that they require work on the part of the reader to bring into tactile form).

There is much to be said for getting exposure in the 'niche' fora (like the FT eg) - but the real prize is to make complex issues understandable to a wider audience - and activate them. This is the most difficult part IMO.

You can't be me, I'm taken

by Sven Triloqvist on Thu Nov 22nd, 2007 at 01:20:48 PM EST
[ Parent ]
There has to be a market for a book like that.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Thu Nov 22nd, 2007 at 01:27:48 PM EST
[ Parent ]
The post-Utopian view is fine. But I am trying to think of methods where one is not preaching to the converted.

You can't be me, I'm taken
by Sven Triloqvist on Thu Nov 22nd, 2007 at 02:45:41 PM EST
[ Parent ]
How would you market a book like that to people who should read it?  

Find an Intelectual celebrity and have them pictured reading it on holiday (or one who wants to appear as intelectual)?

(The first sentance is serious, the second not so)

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Thu Nov 22nd, 2007 at 03:05:09 PM EST
[ Parent ]
Or a movie. Gordon Gekko had some influence on people's understanding of greed in the late 80s ;-)

As to how, I don't know. I do believe that there is a slow cumulative effect going on (as always) which will one day lead to a tipping point. The question is: can we do anything to accelerate toward that destinaton?

You can't be me, I'm taken

by Sven Triloqvist on Fri Nov 23rd, 2007 at 02:37:48 AM EST
[ Parent ]
I think there is some value for ET in preaching to a wider audience of "the converted" though. It could help deepen the pool of the community here.
by Metatone (metatone [a|t] gmail (dot) com) on Thu Nov 22nd, 2007 at 03:45:36 PM EST
[ Parent ]
You do it by appealing to the mythos side of the mind.

Set a Episodic series, a la The West Wing or Twin Peaks, in 'ETopia' demonstrating the very real problems, successes, inter-personal foo-foo, external conflicts, & etc and how the community deals with them, or fails to deal with them.  Perhaps intermixing "Reality footage" with the "Fictional footage?"  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Nov 23rd, 2007 at 11:48:25 AM EST
[ Parent ]
Thinking about it some more.

I freely admit I know very little about the actuality of show business but it seems to me the primary 'hump' a mass media show needs to get over is audience identification and emotional involvement with the characters.

So ...

Perhaps Northern Exposure's sense of life, sitz im leben, would be a better paradigm?

And, taking off from something ceeb suggested, as a tie-in create a Second Life virtual reality that viewers could join (for a fee?) so they could interact with the show?

You could set it in New Mexico and star a grumpy applied epistemologist.   :-0

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Nov 23rd, 2007 at 12:04:20 PM EST
[ Parent ]
All this reminds me of recently when, on another blog, I said (in opposition to the desire expressed by Sarkozy in the campaign that France copy the credit systems of the UK and USA -in particular the possibility to back a consumption credit with the estimated increase in the price of your house) that there would probably soon be a massive debt crisis and that continental Europe, France in particular, would be relatively spared thanks to its "old fashion" credit system -because it didn't let household debt spiral out of control, in other words.

I was called a complete fool (by the same person, interestingly) both for believing that there would be a debt crisis and for reckoning that France would be relatively spared. I don't know how France can fail to be spared from something that doesn't happen, but well...

Amusingly, it seems that in a matter of weeks, it has become the standard view that a debt crisis is in the offing and that continental Europe would not suffer as much...

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Nov 22nd, 2007 at 01:37:44 PM EST
Can't get my head around Martin Wolf's column on The Great Unwinding. I'll put it down to it being nearly midnight and I'll try again tomorrow.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2007 at 06:36:52 PM EST


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]

Top Diaries