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The Cusp Of History

by afew Wed Feb 4th, 2009 at 08:23:17 AM EST

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

Decisions taken in the next few months will shape the world for a generation. If we get through this crisis without collapse, we will have the time and the chance to construct a better and more stable global order. If we do not, that opportunity may not recur for decades.

We are living on the cusp of history. The priority is to reverse the downward spiral of despair through overwhelming and concerted action. That will only occur if the US now gives the leadership we need.

In his weekly FT column, Martin Wolf paints an almost entirely gloomy - the word is hardly adequate - picture of the state of the global economy.

the IMF’s Global Financial Stability Report notes: “Worsening credit conditions ... have raised our estimate of the potential deterioration in US-originated credit assets ... from $1.4 trillion in the October 2008 GFSR to $2.2 trillion.”

Interesting. Toxic sludge gets more toxic as its poison spreads through the system.

Losses are also spreading to many other asset classes and economies as the slump worsens.

Private credit growth is falling across most economies. Trade finance has been particularly affected, with dire results. The flow of private funds to emerging economies is collapsing: according to the Washington-based Institute for International Finance, net private flows are projected to be just $165bn in 2009, down from $466bn in 2008. Central and eastern Europe is particularly vulnerable.

Anyway, see this:

Faced with this, who's doing the right thing? According to Martin Wolf, no one. While the US is far from adopting policies of the necessary scope and vigour,

...the European Central Bank is allowing the eurozone to collapse into deep recession; Japan is in meltdown; China has at least announced a big stimulus package, but it lacks a credible plan for needed structural reforms; and most other emerging countries can only try to stay afloat in these storm-tossed seas.

What should be done? Well, America to the rescue. Because:

...it remains the hyperpower; the economic system is one it promoted; and the crisis had much to do with mistakes its policymakers and private institutions made, even if aided and abetted by mistakes elsewhere.

Whoa there! Is there a change here in Martin Wolf's previously-held view that the crisis was the mechanical result of global macro-economic imbalance, aka the savings glut? Here we have a hyperpower promoting an economic system (with the clout "hyperpower" supposes?), and we have failure of its leaders both public and private. And it would seem that these are considerations that take precedence over "mistakes elsewhere". Encore un effort, Martin, we'll get to the Anglo Disease yet!


Wolf sets out six guidelines for Obama:

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

First, focus all attention on reversing the collapse in demand now, rather than on the global architecture.

Second, employ overwhelming force. The time for “shock and awe” in economic policymaking is now.

Third, make future normalisation of fiscal and monetary policies credible.

Fourth, act in concert. Even the US cannot solve its problems alone.

Fifth, avoid protectionism.

Sixth, strengthen the ability of global institutions to help the weaker.

Let's simplify: acting in concert and avoiding protectionism would seem to necessarily hang together. And number two appears to be a recommendation on the manner of applying number one. So we should act in concert with force to reverse the collapse in demand. Obama's not doing it, says Wolf.

Instead of an overwhelming fiscal stimulus, what is emerging is too small, too wasteful and too ill-focused. Instead of decisive action to recapitalise banks, which must mean temporary public control of insolvent banks, the US may be returning to the immoral and ineffective policy of bailing out those who now hold the “toxic assets”. Instead of acting as a global leader, there is resort to protectionism and a “blame game”.

So - reading positive from negative - what's needed is an overwhelming fiscal stimulus, nationalisation of insolvent banks, and global cooperation. That doesn't sound wrong to me, if we can get it.

Just a couple of points puzzle me, all the same. We are in a globalised economy where there is a long-standing imbalance, according to Martin Wolf, between "saver and spenders". Meaning, where goods are supplied by emerging countries to developed economies that consume above their means thanks to credit based on the savings that the emerging countries set aside out of the price of the goods they supply. Which cannot go on for ever, and, finally, the chickens come home to roost. Well, so now what? America is, says Wolf:

a country that must export its way out of its slump

which seems logical after so long an imbalance. Meanwhile

the European Central Bank is allowing the eurozone to collapse into deep recession

I take this to mean the ECB should be letting the euro slide in order to facilitate exports (presumably, Britain is doing that with sterling..?). So the two powerhouse economic blocs should be seeking their salvation in exports - while pushing domestic demand by massive fiscal stimulus. Which is all the same more than likely to increase imports... While it's uncertain who in the world will be able to buy our exports.

Catastrophe is the key word in this column. Little by little, perhaps we shall get round to understanding why we are here.

Display:
On Central and Eastern Europe, Roubini's RGE Monitor says this (from e-mail newsletter, so no link):

Eastern Europe tops the list of emerging market regions susceptible to a full-blown financial crisis. Unlike emerging markets elsewhere, Eastern European economies are heavily dependent on external financing and current account deficits have been the norm. So, the sharp drop-off in capital inflows - expected in 2009 - will not only be a major blow to growth, but it could also potentially trigger a regional financial crisis. The Baltics, Bulgaria, Romania and Hungary stand out as particularly vulnerable but a crisis in one country could trigger a regional domino effect.

It should be said that Roubini has been doom-and-alarm-filled on this subject before, so caveat lector.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Feb 4th, 2009 at 08:28:46 AM EST
On Roubini and the CEE menace, see this sub-thread in the currency crash diary.

While I was sceptical of Roubini's view on the scale of the problem, the issue is not untimely --here is the Euro/Hungarian Forint exchange rate from the October crisis to now:

(A less hectic but persistent devaluation since early January.)

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Wed Feb 4th, 2009 at 12:36:18 PM EST
[ Parent ]
Today, it is assumed that the Hungarian National Bank intervened, pushing the rate back below 1:300 to 1:295. According to Portfolio.hu and a Commerzbank forex trader they quote, 'certain players in London' who bet for a further decline are now in "licking their wounds" mode... no names named. ET is bound to not name certain names, either...

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed Feb 4th, 2009 at 12:43:26 PM EST
[ Parent ]
Certain players in London who hoped to win bets against the forint are in fact anonymous.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Feb 4th, 2009 at 03:30:41 PM EST
[ Parent ]
Is the lack of the "popularity" of the term "Anglo Disease" possibly one of simple marketing?  Perhaps the Anglos don't like a term associated with Disease.  Is it too late to adopt a different term?  Before the torches and pitchforks are in the streets, here in America anyway.

 

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Wed Feb 4th, 2009 at 08:41:11 AM EST
you're onto something here, mr T. people are rebuffed by a name that smacks of nationalism, genetics, or finger-pointing.

but it's the best and truest so far, it's very difficult to name.

a simple 'sociopathy' doesn't have the same heft.

'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 Wed Feb 4th, 2009 at 09:15:14 AM EST
[ Parent ]
Mohawks.  "I pity the foo!"

Catch this.  CSPAN this morning.  Washington Journal. People calling in concerning the appointment of US Senates by Governors if a Senator quits, dies etc.  One guy, probably a wealthy Repub., wants to go back to the old system when the state govts select the replacement; DON"T HAVE A SPECIAL ELECTION.  And I quote:

"If the people choose in an election, that smacks of mob rule in the form of democracy".

I can't believe he said that!

I've got to prepare for the future.  Is there a store called "Bullhorns R US"?  I'll need one to urge on my rabid loyal followers, the ones with the torches and pitchforks.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Wed Feb 4th, 2009 at 09:29:33 AM EST
[ Parent ]
WWII slang was always to the point...

And 'modern' management (and marketing) is still rooted in the two dimensional top-down logistics solutions of the period. The rank and file have always known it is impossible to impose order (freeze) on chaos (steam). The best you can hope for is half-way between, i.e. liquid situations that can be partly contained.

FUBAR Capitalism

You can't be me, I'm taken

by Sven Triloqvist on Wed Feb 4th, 2009 at 09:34:23 AM EST
[ Parent ]
Perhaps the Anglos don't like a term associated with Disease.

I have felt that this is a problem myself.  Not that I disagree with the diagnosis.  Far from it.  I have, after all, called the my country "a nation of dumb f---s!"  And I'm one of them, willingly or not. That is more pejorative and insulting than saying that we are carriers of "The Anglo Disease," even with all of the old STD connotations.  But the goal is to change the "climate of opinion" regarding the relationship between the polity and those who hold positions of power in the economy.

The truth of the matter is that most of the current "conventional wisdom" regarding the economy attained that status as a result of "think tanks" such as Hoover Institution at Stanford University and the  Georgetown Center for Strategic and International Studies, The Heritage Foundation, etc., etc. which were endowed with private wealth by such worthies as Richard Mellon Sciaffe, who inherited the bulk of his fortune from his mother, and other such worthies of self-made or inherited wealth.  These institutes have promulgated a view of society and the economy that, not surprisingly, is highly self-serving for existing wealth but which has approximately the explanatory and predictive power of one of Kipling's "just so" stories, such as How the Tiger Got His Stripes."  The popular version turns Adam Smith's philosophy into a "Cult of the Invisible Hand" while ignoring everything Smith said about the need for government to insure the proper functioning of markets.  Through endless repetition from Ronald Reagan, both Bushes and a host of commentators in print and on TV this has been turned into the popular understanding, such as it is, of the economy in the USA.

The "Anglo Disease" is what has happened when US and British economic elites vigorously exploited the vulnerabilities that such a popular view created within US and British societies and economies by first gaining control of the governments, discrediting and neutering regulatory authorities and then using their newly won "flexibility" to inflate the financial sector and financial assets to outlandish proportions with respect to the entire economy as a means of providing short term prosperity and of soaking wealth from the middle and working class and delivering that wealth to  representatives of that elite through out-sized bonuses and profits from bogus financial schemes.

Unfortunately, or fortunately, depending on your point of view, "the long run" wasn't as long as they had hoped and we are not "all dead."  Instead we are stuck with massive amounts of counterfeit financial "assets," and the first depression of the 21s Century.

Many of those involved believed their own propaganda and are now stuck with assets that were purchased at absurd prices, said assets having meanwhile been used to create other financial instruments which now are liabilities.  They are at present succeeding in getting governments to use taxpayer monies and the "full faith and credit" of those governments to insulate themselves from the consequences of their own folly, while the taxpayers have no such insulation.  The surprising and hopeful development is that so many of those taxpayers are waking up and realizing that they have been had.  The challenge is to show them how they have been had.

Asking them to acknowledge that they are afflicted by the "Anglo Disease" is like telling them that, to get well, they have to smear feces on their faces!  We should be able to devise a label that is easier to sell if we want our patent medicine to fly off the shelves, even if ours has the virtue of actually working.


"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Feb 4th, 2009 at 01:45:35 PM EST
[ Parent ]
ARGeezer:
We should be able to devise a label that is easier to sell if we want our patent medicine to fly off the shelves, even if ours has the virtue of actually working.

This may be a marketing problem in the Anglo world, I fully agree.

But for the non-Anglo world -- that would be, oh, 95% of the world population, this label is smack on target and doesn't require to be changed one bit.

Corollary question: is it more important to promote the Anglo disease concept to the non-Anglo world (the rest of us) rather that to the UK/US/OZ?

by Bernard (bernard) on Wed Feb 4th, 2009 at 03:31:00 PM EST
[ Parent ]
See my response to afew below.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Feb 4th, 2009 at 06:24:57 PM EST
[ Parent ]
Good comment, ARG.

There is, no doubt, a certain desire to rub some faces in their own shit in the expression "Anglo Disease". (Though it's only fair to point out that it's based on the expression "Dutch Disease", coined by The Economist and not apparently seen as a slur on the Netherlands by the Anglos of that august publication). And I must say that the Americans and British have been handing out the insults to others (continental Europe and France in particular) for a while now without anyone weeping over it. Perhaps the Anglos can't take a taste of their own nasty medicine?

But, by and large, I think it would be worthwhile to look for another name that would not set off defensive reactions. But nothing anodyne either!

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Feb 4th, 2009 at 03:45:40 PM EST
[ Parent ]
Good comment, ARG.
Also give some credit to Twank, who posed the question.

On your other point I thoroughly agree that US financial elites should not just have their nose rubbed in it, but that this should be performed by some of the "lifers" with whom they should be sharing prison.   Even that may come in time.

But my primary concern is not for the elites, but for the average person, especially the independents and "Reagan Democrats," who bought into the whole "just so" economic fairy tale pedaled by those elites and their political representatives.  If this whole Neo-Whatever, CW, noxious approach to government and the economy can be made thoroughly repugnant as the chief instrument of their current misery we might inoculate the Anglo world against such folly for at least a couple of generations.  This would be a good thing for the rest of the world, given the influence of said Anglo world in global affairs.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Feb 4th, 2009 at 06:24:21 PM EST
[ Parent ]
FT.com / Europe - Fitch cuts Russia's credit rating
Russia's credit rating was downgraded on Wednesday after Fitch, the ratings agency, took fright over its haemorrhaging currency reserves and sharp drop in oil prices.

The long-term credit rating was lowered a notch to triple-B, two rungs above "junk" grade, following a similar move from Standard & Poor's in December. It would prove very costly for Russia should it lose its investment grade rating. Russia is the only G8 nation to have suffered a downgrade since the start of the financial crisis.



"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Wed Feb 4th, 2009 at 09:13:19 AM EST
And why does that only effect Russia? surely mountainous debt, and collapsing financial industries should do simmilar to the US and the UK?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Feb 4th, 2009 at 09:15:29 AM EST
[ Parent ]
Because Russia is a bad place filled with gangsters, unlike the US and UK.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Feb 4th, 2009 at 09:26:38 AM EST
[ Parent ]
Have you guys thought of doing stand-up; take this show on the road.

ET is absolutely hilarious!

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Wed Feb 4th, 2009 at 09:39:29 AM EST
[ Parent ]
And the city and wall street exists so the Gangsters have someone to morally look down on? From a previous comment of mine.

ceebs:

Somewhere in my CD collection I have an album called End of the century party by a guy called Gary Clail. In the middle of that album is a track called Two thieves and a liar, so far, so unremarkable, but in the middle of the track is a sample taken from a tv programme from the early eighties. Now that programme I saw when it first came out, and commented that there was no way that it would ever be shown again.

The program consisted of one of the 60's gangsters, Charlie Richardson or Frankie Fraser being let out of prison, he was picked up by a TV crew for World in Action and taken to see the haunts of all the modern day crooks  . The Gangster took the film crew to the City of London, and ran a running comentary of how the people who worked in the financial institutions were the biggest bunch of crooks in the country.



Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Feb 4th, 2009 at 09:50:55 AM EST
[ Parent ]
National credit ratings are political and, moreover, I think the rating agencies rate risk from the point of view of a US-based investor.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Wed Feb 4th, 2009 at 09:37:31 AM EST
[ Parent ]
from the point of view of the people that COUNT, the people that MATTER!  That's what's important! :)

Question: Is there some way to get rid of all of these dirty peasants?  They're getting to be an eyesore and a bother.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Wed Feb 4th, 2009 at 09:42:32 AM EST
[ Parent ]
That was tried after the great depression, too many people who matter had their property damaged by bombs.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Feb 4th, 2009 at 09:52:12 AM EST
[ Parent ]
pissed them off.  Good thing Modern Technology will make sure that the wealthy get by in the coming one.  Gaza was a good testing ground for some of these things.

You are aware that that was the whole purpose behind the recent "Gaza thing", right?  Testing new civilian extermination methods.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Wed Feb 4th, 2009 at 10:35:20 AM EST
[ Parent ]
I'm surprised that there's anything new to learn.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Feb 4th, 2009 at 11:08:20 AM EST
[ Parent ]
If the plan is to get rid of 99.99% of the world population (how's THAT for GREEN?) and still have a world for the ultra-wealthy to frolic in, you want to make sure the "stuff" isn't damaged.

Rubble is so unsightly.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Wed Feb 4th, 2009 at 02:31:15 PM EST
[ Parent ]
Interesting. What would be the value of "wealth" in a world with only 0.01% of its current population? These guys gonna drive beat-up old cars, dig their own gardens, and clean their own shithouses, or what?
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Feb 4th, 2009 at 03:53:31 PM EST
[ Parent ]
Biochemists/MDs/Engineers are NOW giving the wealthy the HOPE of genuine IMMORTALITY.  That's right.  Aging and dying, that old fear of death ... gone forever for the rich.  Or at least, that's how the brochure reads.

But what good is living forever in a shithole with billions of starving dangerous human rabble milling around.

Question: What would be the world population size if ONLY the ultrawealthy and a host of loyal servants comprised the entire population?  A Green's Dream!

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Wed Feb 4th, 2009 at 04:04:40 PM EST
[ Parent ]


Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Wed Feb 4th, 2009 at 05:38:56 PM EST
[ Parent ]
This is an obscure cartoon that mostly appears in minor alternative and hyperaltnertative weeklies in Edmonton and Vancouver (minor cities in the Far West of Canada).

I remember it well from when it first appeared in print, because Da Far West is where I used to live.

How one earth ever did you find this?

by PIGL (stevec@boreal.gmail@com) on Fri Feb 6th, 2009 at 07:16:03 AM EST
[ Parent ]
Someone else posted this particular strip on ET once, and I have posted it a few times since.

However, I happened to be a math graduate student in SoCal in a previous life, and the department was full of graduate students who knew and shared a lot about obscure alternative and hyperalternative cartoons. The wackiest students were my advisor's, and a most of us shared the same office.

Those were the days, oh yes, those were the days.



Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Sat Feb 7th, 2009 at 10:55:36 AM EST
[ Parent ]
Ouch: I remember that song, from the days of first transistor radio. That must be why I imagined it was from the early 70s.

PIGL, wandering off to roll his trousers.

by PIGL (stevec@boreal.gmail@com) on Mon Feb 9th, 2009 at 11:08:52 AM EST
[ Parent ]
As I said earlier: when will someone downrate credit rating agencies?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed Feb 4th, 2009 at 12:20:23 PM EST
[ Parent ]
The people who might do this are the same ones who gain advantage by their existence.  Welcome to Catch -22.


They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Wed Feb 4th, 2009 at 02:34:50 PM EST
[ Parent ]


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