Article by Constantin Gurdgiev, lecturer in finance at Trinity College
So, the Greece Deal is done – at least mostly done – following riots and Parliamentary approval. What now?
Well, nothing.
First, Germany, the Netherlands and Finland - the only three still fully solvent economies of the euro area - will huff and puff through the next week or so, in the end approving the new deal. The final tally for this latest bailout, to be set by the euro group, will come in at €130-billion. Or, or it might come in at €145-billion to account for deterioration in the Greek economy from last July through December, 2011. It might even include few billion more to cover losses on continued recession, plus riots, since the New Year. Very close to the March deadline, Greece will receive the vital €14.5-billion in funds needed to repay its bondholders, thus averting or delaying the immediate threat of default.
The only big uncertain is the Finnish insistence on collateral for lending to Greece – the insistence on which can still ignite a race to seniority amongst other net lending countries contributing to the Bailout-2. But in the end, the Finns will be forced to accept a compromise.
Following the finalization of the deal, the Troika (the IMF will find it very difficult to resist the temptation to partake take EU money to finance lending to Greece as the new funds will only expand the IMF’s mandate) will promise to keep a hawkish eye on the dovish Greece. The bond yields across Europe will come down a bit more. ECB’s injection of some €600-billion worth of new money into the banks will help even further. Few European banks are in any position to lend into the real economy, so the LTRO-2 will go, once again, to prop up sovereign bonds prices.
The EU elites and national governments will proclaim that the rescue package was a sign of Europe’s ability to deal with the crisis, the evidence of viability of the euro and will move on to draft more daft high-sounding ineffective programs for the social-knowledge economy, driven by wind-powered nanotechnologies.
By mid-April, however, tired of ECB-sponsored margin arbitrage scheme, investors worldwide will take a look once again at the peripheral states’ fundamentals. By then, Q4 2011 – Q1 2012 recessions will be fully apparent. Rising unemployment and collapsing domestic economies will push deficits off targets and debt dynamics will show a renewed upward momentum, while political pressures on governments in Italy, Spain, Portugal and the perpetually ungoverned Belgium will become more pronounced. Spotting new shorting opportunities, the markets will be back at pressuring peripheral yields up.
Greece will remain the core driver of uncertainty and risks both in the short term and over the long run. Having satiated itself with the rescue funds for the moment, the Greek government will do what it does best – shirk from any substantive change. In April, a set of new reforms measures will be deployed, starting with tightening of some high profile (aka blatant) tax non-compliance. Woefully inadequate, these measures will be followed by deeper cuts percolating into the pay packets and employment numbers of public servants. Mild as these effects likely to be at the start, they will trigger new riots. A new block of disillusioned and recently expelled lawmakers will take a populist stand against the government.
Across the periphery, the extreme and populist leftist parties will gain prominence not because they represent a viable alternative to the status quo, but because after three years of continued crisis, no single mainstream party will be left unscarred by complicity with the EU/ECB/IMF policies.
By mid-May or early June, Greeks will post new data showing catastrophic contraction in growth, continued rises in unemployment and poor targets performance on the fiscal side. The crisis will be back. Greece will be hurtling toward elections.
The reality of the Greek situation is very simple, and extremely grave. The country will not deliver on the vast majority of its promises. Frankly speaking, it never did deliver anything real or sustainable in terms of growth and competitiveness in the past and it is not about to start doing this in the near future. The only uncertain part of this equation is just how long will it take the markets to realize that the Greek economic recovery arithmetic is simply bogus, computed not to reflect the reality of rising debt, falling tax revenues, collapsing economy and destabilized society, but to fit the Brussels-Frankfurt objective of pretending that debt to GDP ratio of 120 per cent is sustainable, lest admitting otherwise would trigger a run on Italy. My guess, about two-three months will do. Possibly six. Thereafter, the full-blown crisis will be back.
Thursday, February 16, 2012
Friday, September 2, 2011
The transformation of capitalism
Capitalism is like an computer operating system for mankind that evolves as the society changes.
Capitalism 1.0 was the start, beginning with Adam Smith and the Declaration of Independence. Smith's famous 'invincible hand' meant economics and democratic politics are utterly separate and politicians didn't meddle much, because that wasn't their role.
Capitalism 2.0 took over during the Great Depression with the New Deal and the widespread abandonment of gold. The John Maynard Keynes-cum-FDR stage now got the politicians involved because they believed only the state, its elected leaders and their academic advisers, could provide the conditions for business recovery.
1979 till 2008 was the period of Capitalism 3.0 when Mrs Thatcher and Ronald Reagan came to lead, after a period of economic stagnation. Politicians now skipped to the sidelines, and the much of the public sector was privatised and leaving monetarism and market forces to do the job. After the oil crisis in 1979, global GDP growth took off as oil prices drop, helping both inflation & interest rates to come off from double digit levels. The world economy “never had it so good” when it comes to growth rates
Capitalism 4.0 began with “The econonomic consequences of Mr Paulson in 2008”. Here, Mr Kaletsky attacks Hank Paulson for almost destroying the global financial system. He claims that by nationalizing Fannie Mae and Freddie Mac and letting private shareholders evaporate Paulson effectively made it impossible for investors to buy shares in financial institutions. Hank Paulson for almost destroying the global financial system. He claims that by nationalizing Fannie Mae and Freddie Mac and letting private shareholders evaporate Paulson effectively made it impossible for investors to buy shares in financial institutions. Speculators selling short financial firm stocks then took over and brought the system to the point where Lehman collapsed and a bank-run of institutional investors set in, demanding their money back from other financial intermediators. Since Paulson did not want to use government powers (money) to bail out these institutions, the credit markets froze. Free market fundamentalism almost brought down the global economy, and that only when the British showed to the US what must be done with the TARP money the US was able to return markets to more tranquil waters.
Now in version 4.0, we must all be more pragmatic, more watchful, more engaged, less didactic, less blinkered, less wedded to theories that can't always work. Along this path, there is no set of laws, no neat package of theories, that can do the job for us. Success in key stage 4.0 demands brains constantly engaged, logic relentlessly applied. Financial markets are likely to be a lot more volatile and growth could come in spurts.
Capitalism 1.0 was the start, beginning with Adam Smith and the Declaration of Independence. Smith's famous 'invincible hand' meant economics and democratic politics are utterly separate and politicians didn't meddle much, because that wasn't their role.
Capitalism 2.0 took over during the Great Depression with the New Deal and the widespread abandonment of gold. The John Maynard Keynes-cum-FDR stage now got the politicians involved because they believed only the state, its elected leaders and their academic advisers, could provide the conditions for business recovery.
1979 till 2008 was the period of Capitalism 3.0 when Mrs Thatcher and Ronald Reagan came to lead, after a period of economic stagnation. Politicians now skipped to the sidelines, and the much of the public sector was privatised and leaving monetarism and market forces to do the job. After the oil crisis in 1979, global GDP growth took off as oil prices drop, helping both inflation & interest rates to come off from double digit levels. The world economy “never had it so good” when it comes to growth rates
Capitalism 4.0 began with “The econonomic consequences of Mr Paulson in 2008”. Here, Mr Kaletsky attacks Hank Paulson for almost destroying the global financial system. He claims that by nationalizing Fannie Mae and Freddie Mac and letting private shareholders evaporate Paulson effectively made it impossible for investors to buy shares in financial institutions. Hank Paulson for almost destroying the global financial system. He claims that by nationalizing Fannie Mae and Freddie Mac and letting private shareholders evaporate Paulson effectively made it impossible for investors to buy shares in financial institutions. Speculators selling short financial firm stocks then took over and brought the system to the point where Lehman collapsed and a bank-run of institutional investors set in, demanding their money back from other financial intermediators. Since Paulson did not want to use government powers (money) to bail out these institutions, the credit markets froze. Free market fundamentalism almost brought down the global economy, and that only when the British showed to the US what must be done with the TARP money the US was able to return markets to more tranquil waters.
Now in version 4.0, we must all be more pragmatic, more watchful, more engaged, less didactic, less blinkered, less wedded to theories that can't always work. Along this path, there is no set of laws, no neat package of theories, that can do the job for us. Success in key stage 4.0 demands brains constantly engaged, logic relentlessly applied. Financial markets are likely to be a lot more volatile and growth could come in spurts.
What is happening at the euro zone?
Why the current account mattered in the case of first private sector, then sovereign debt crisis. The answer goes something like this. A country that has its own currency is not really in risk of sovereign default. It can “print” its currency to pay off debt, which will worsen the exchange rate but solve the debt problem. Creditors get their money back, but bear the whole exchange rate risk. Also, the public sector can bail out the private sector to full extent if a real estate boom has caused hundreds of billions of loans to turn sour/toxic. Now, the euro zone is a different beast.
In the euro zone, countries cannot “print” their own money. Their debt is nominated in euros, which is equivalent to a foreign currency. In order to bail-out the financial sector sovereign debt has to be emitted in foreign currency and cannot be absorbed by domestic central bank operations. Of course, the ECB can act as a lender of last resort and give liquid funds for financial assets that are “distressed” – there is no buyer at all, or not enough buyers, or the price is too low, or all of these. In order to help the economy repay euro-denominated (foreign) debts, a positive current account would be important to secure an inflows of euros above what is needed to pay the import bill. That is why, in short, the current account matters in the euro zone’s indebted nations.
If the ECB would guarantee to provide (unlimited) funding for all euro zone governments, the financial troubles would go away.
In the euro zone, countries cannot “print” their own money. Their debt is nominated in euros, which is equivalent to a foreign currency. In order to bail-out the financial sector sovereign debt has to be emitted in foreign currency and cannot be absorbed by domestic central bank operations. Of course, the ECB can act as a lender of last resort and give liquid funds for financial assets that are “distressed” – there is no buyer at all, or not enough buyers, or the price is too low, or all of these. In order to help the economy repay euro-denominated (foreign) debts, a positive current account would be important to secure an inflows of euros above what is needed to pay the import bill. That is why, in short, the current account matters in the euro zone’s indebted nations.
If the ECB would guarantee to provide (unlimited) funding for all euro zone governments, the financial troubles would go away.
Tuesday, August 30, 2011
Gross National Happiness
by Jeffrey Sachs, a 'reformed' or 'transformed' economist
We live in a time of high anxiety. Despite the world’s unprecedented total wealth, there is vast insecurity, unrest, and dissatisfaction. In the United States, a large majority of Americans believe that the country is “on the wrong track.” Pessimism has soared. The same is true in many other places.
Against this backdrop, the time has come to reconsider the basic sources of happiness in our economic life. The relentless pursuit of higher income is leading to unprecedented inequality and anxiety, rather than to greater happiness and life satisfaction. Economic progress is important and can greatly improve the quality of life, but only if it is pursued in line with other goals.
In this respect, the Kingdom of Bhutan made a remarkable choice: Bhutan should pursue “gross national happiness” rather than gross national product. Since then, the country has been experimenting with an alternative, holistic approach to development that emphasizes not only economic growth, but also culture, mental health, compassion, and community.
The question we examined is how to achieve happiness in a world that is characterized by rapid urbanization, mass media, global capitalism, and environmental degradation. How can our economic life be re-ordered to recreate a sense of community, trust, and environmental sustainability?
Here are some of the initial conclusions. First, we should not denigrate the value of economic progress. When people are hungry, deprived of basic needs such as clean water, health care, and education, and without meaningful employment, they suffer. Economic development that alleviates poverty is a vital step in boosting happiness.
Second, relentless pursuit of GNP to the exclusion of other goals is also no path to happiness. In the US, GNP has risen sharply in the past 40 years, but happiness has not. Instead, single-minded pursuit of GNP has led to great inequalities of wealth and power, fueled the growth of a vast underclass and caused serious environmental degradation.
Third, happiness is achieved through a balanced approach to life by both individuals and societies. As individuals, we are unhappy if we are denied our basic material needs, but we are also unhappy if the pursuit of higher incomes replaces our focus on family, friends, community, compassion, and maintaining internal balance. As a society, it is one thing to organize economic policies to keep living standards on the rise, but quite another to subordinate all of society’s values to the pursuit of profit.
Yet politics in the US has increasingly allowed corporate profits to dominate all other aspirations: fairness, justice, trust, physical and mental health, and environmental sustainability. Corporate campaign contributions increasingly undermine the democratic process, with the blessing of the US Supreme Court.
Fourth, global capitalism presents many direct threats to happiness. It is destroying the natural environment through climate change and other kinds of pollution, while a relentless stream of oil-industry propaganda keeps many people ignorant of this. It is weakening social trust and mental stability, with the prevalence of clinical depression apparently on the rise. The mass media have become outlets for corporate “messaging,” much of it overtly anti-scientific, and Americans suffer from an increasing range of consumer addictions.
Consider how the fast-food industry uses oils, fats, sugar, and other addictive ingredients to create unhealthy dependency on foods that contribute to obesity. One-third of all Americans are now obese. Mass advertising is contributing to many other consumer addictions that imply large public-health costs, including excessive TV watching, gambling, drug use, cigarette smoking, and alcoholism.
Fifth, to promote happiness, we must identify the many factors other than GNP that can raise or lower society’s well-being. Most countries invest to measure GNP, but spend little to identify the sources of poor health (like fast foods and excessive TV watching), declining social trust, and environmental degradation. Once we understand these factors, we can act.
The mad pursuit of corporate profits is threatening us all. To be sure, we should support economic growth and development, but only in a broader context: one that promotes environmental sustainability and the values of compassion and honesty that are required for social trust.
We live in a time of high anxiety. Despite the world’s unprecedented total wealth, there is vast insecurity, unrest, and dissatisfaction. In the United States, a large majority of Americans believe that the country is “on the wrong track.” Pessimism has soared. The same is true in many other places.
Against this backdrop, the time has come to reconsider the basic sources of happiness in our economic life. The relentless pursuit of higher income is leading to unprecedented inequality and anxiety, rather than to greater happiness and life satisfaction. Economic progress is important and can greatly improve the quality of life, but only if it is pursued in line with other goals.
In this respect, the Kingdom of Bhutan made a remarkable choice: Bhutan should pursue “gross national happiness” rather than gross national product. Since then, the country has been experimenting with an alternative, holistic approach to development that emphasizes not only economic growth, but also culture, mental health, compassion, and community.
The question we examined is how to achieve happiness in a world that is characterized by rapid urbanization, mass media, global capitalism, and environmental degradation. How can our economic life be re-ordered to recreate a sense of community, trust, and environmental sustainability?
Here are some of the initial conclusions. First, we should not denigrate the value of economic progress. When people are hungry, deprived of basic needs such as clean water, health care, and education, and without meaningful employment, they suffer. Economic development that alleviates poverty is a vital step in boosting happiness.
Second, relentless pursuit of GNP to the exclusion of other goals is also no path to happiness. In the US, GNP has risen sharply in the past 40 years, but happiness has not. Instead, single-minded pursuit of GNP has led to great inequalities of wealth and power, fueled the growth of a vast underclass and caused serious environmental degradation.
Third, happiness is achieved through a balanced approach to life by both individuals and societies. As individuals, we are unhappy if we are denied our basic material needs, but we are also unhappy if the pursuit of higher incomes replaces our focus on family, friends, community, compassion, and maintaining internal balance. As a society, it is one thing to organize economic policies to keep living standards on the rise, but quite another to subordinate all of society’s values to the pursuit of profit.
Yet politics in the US has increasingly allowed corporate profits to dominate all other aspirations: fairness, justice, trust, physical and mental health, and environmental sustainability. Corporate campaign contributions increasingly undermine the democratic process, with the blessing of the US Supreme Court.
Fourth, global capitalism presents many direct threats to happiness. It is destroying the natural environment through climate change and other kinds of pollution, while a relentless stream of oil-industry propaganda keeps many people ignorant of this. It is weakening social trust and mental stability, with the prevalence of clinical depression apparently on the rise. The mass media have become outlets for corporate “messaging,” much of it overtly anti-scientific, and Americans suffer from an increasing range of consumer addictions.
Consider how the fast-food industry uses oils, fats, sugar, and other addictive ingredients to create unhealthy dependency on foods that contribute to obesity. One-third of all Americans are now obese. Mass advertising is contributing to many other consumer addictions that imply large public-health costs, including excessive TV watching, gambling, drug use, cigarette smoking, and alcoholism.
Fifth, to promote happiness, we must identify the many factors other than GNP that can raise or lower society’s well-being. Most countries invest to measure GNP, but spend little to identify the sources of poor health (like fast foods and excessive TV watching), declining social trust, and environmental degradation. Once we understand these factors, we can act.
The mad pursuit of corporate profits is threatening us all. To be sure, we should support economic growth and development, but only in a broader context: one that promotes environmental sustainability and the values of compassion and honesty that are required for social trust.
Building a new sustainable capitalism model before it is too late
by John Perkins
From the book "Hoodwinked",
'Only about 3% of people are sociopaths of which about 1% has a college education and a tinier fraction understands how business works. Thus, there is a shortage of such talents who can run modern monopolistic, destructive companies that shareholders have to pay them millions in salaries. And being sociopaths, they gladly take the money without any thoughts of its social consequences.'
Examples he quotes include Jack Welch, the Fortune 500 magazine celebrity who happened to get to the top of General Electric in mid-70s because he negotiated a mere $3m in liability for GE who polluted the Hudson River with toxic PCB where it cost the government $460m to clean up. Also known as Neutron Jack for the way he ruthlessly reduce his staff from 410,000 to 299,000, while his own income and bonus soared.
Is this current form of capitalism sustainable [where the top management get paid millions while the workers get laid]? Let's study a bit of history before we answer this question.
The roots of capitalism started when the British & Dutch trading companies were granted monopolistic powers to go global to buy cheap goods to sell to Europe at high profits. This form of capitalism is called mercantilism. Then Adam Smith during the Industrial Revolution expounded the benefits of a free market as the most efficient method of maximising benefits. However, in reality, exploitation of workers with long hours, low pay & sometimes dangerous work were the norm. Such abuses prompted Ka rl Ma rx to advocate a classless socioeconomic structure based on common state ownership of property and production. The struggle between Ma rx ideas as practised by Sovi et Unnion and capitalism as practised by USA followed and ended with Reagan trumping with the Union colapse. Today's form of capitalism came from Milton Friedman who favored deregulations and privatisation of government assets as he believed that the private sector serve the public interests better than government. Reagan and Magaret Thatcher in UK and some Asian countries practise Friedman ideas to the letter and there were large transfer of public to private ownership, dissolution of laws that protect consumers and investors. Looking back at the 1990s to the great recession of 2008, this era was characterised by greed, obsession with materialism, excessive debts, large conglomerates, and the type of corruptions as symbolised by Enron and Wall Street banks and rating agencies and the housing bubbles and collaterlised debt obligation (CDO), which Warren Buffet called weapons of mass destruction. In this form of capitalism, just 5% of the global people consume 25% of the globe resources, and half the people are still starving......billionaires run corporations whose sales are larger than the GDP of most countries.
This mutated form of capitalism is clearly not sustainable. For example, big American agribusiness use lots of fertilisers in Nicaragua, maximising profits for themselves at the expense of the country's environment. The soil becomes infertile and water polluted. This form of farming were not allowed in USA. After decades of abuse by American businesses through the help of their allies like the CIA and powerful locals, South Americans have awoken with a new form of wisdom. They have elected governments who now recognise the value of their resources and now seek responsible ways to save them for future generations. These leaders encourage companies to change their profit maximising goals and change to something that is more sustainable for future generations and the environment. Some NGOs have sprung up to encourage companies to mend their destructive ways. For example, Rainforest Action Network has convinced companies like Bank of America, Home Depot, Staples to change their policies to save from over-cutting trees.
Hopefully, a sustainable form of capitalism can eventually evolve and this will require enlighten citizens to lobby local businesses and politicians to wake up before it is too late. More work needs to be done. Already, human being have put record amounts of CO2 into the atmosphere and global warming is now widely accepted and the trend is that we humans might be the ones to go extinct due to our own actions.
From the book "Hoodwinked",
'Only about 3% of people are sociopaths of which about 1% has a college education and a tinier fraction understands how business works. Thus, there is a shortage of such talents who can run modern monopolistic, destructive companies that shareholders have to pay them millions in salaries. And being sociopaths, they gladly take the money without any thoughts of its social consequences.'
Examples he quotes include Jack Welch, the Fortune 500 magazine celebrity who happened to get to the top of General Electric in mid-70s because he negotiated a mere $3m in liability for GE who polluted the Hudson River with toxic PCB where it cost the government $460m to clean up. Also known as Neutron Jack for the way he ruthlessly reduce his staff from 410,000 to 299,000, while his own income and bonus soared.
Is this current form of capitalism sustainable [where the top management get paid millions while the workers get laid]? Let's study a bit of history before we answer this question.
The roots of capitalism started when the British & Dutch trading companies were granted monopolistic powers to go global to buy cheap goods to sell to Europe at high profits. This form of capitalism is called mercantilism. Then Adam Smith during the Industrial Revolution expounded the benefits of a free market as the most efficient method of maximising benefits. However, in reality, exploitation of workers with long hours, low pay & sometimes dangerous work were the norm. Such abuses prompted Ka rl Ma rx to advocate a classless socioeconomic structure based on common state ownership of property and production. The struggle between Ma rx ideas as practised by Sovi et Unnion and capitalism as practised by USA followed and ended with Reagan trumping with the Union colapse. Today's form of capitalism came from Milton Friedman who favored deregulations and privatisation of government assets as he believed that the private sector serve the public interests better than government. Reagan and Magaret Thatcher in UK and some Asian countries practise Friedman ideas to the letter and there were large transfer of public to private ownership, dissolution of laws that protect consumers and investors. Looking back at the 1990s to the great recession of 2008, this era was characterised by greed, obsession with materialism, excessive debts, large conglomerates, and the type of corruptions as symbolised by Enron and Wall Street banks and rating agencies and the housing bubbles and collaterlised debt obligation (CDO), which Warren Buffet called weapons of mass destruction. In this form of capitalism, just 5% of the global people consume 25% of the globe resources, and half the people are still starving......billionaires run corporations whose sales are larger than the GDP of most countries.
This mutated form of capitalism is clearly not sustainable. For example, big American agribusiness use lots of fertilisers in Nicaragua, maximising profits for themselves at the expense of the country's environment. The soil becomes infertile and water polluted. This form of farming were not allowed in USA. After decades of abuse by American businesses through the help of their allies like the CIA and powerful locals, South Americans have awoken with a new form of wisdom. They have elected governments who now recognise the value of their resources and now seek responsible ways to save them for future generations. These leaders encourage companies to change their profit maximising goals and change to something that is more sustainable for future generations and the environment. Some NGOs have sprung up to encourage companies to mend their destructive ways. For example, Rainforest Action Network has convinced companies like Bank of America, Home Depot, Staples to change their policies to save from over-cutting trees.
Hopefully, a sustainable form of capitalism can eventually evolve and this will require enlighten citizens to lobby local businesses and politicians to wake up before it is too late. More work needs to be done. Already, human being have put record amounts of CO2 into the atmosphere and global warming is now widely accepted and the trend is that we humans might be the ones to go extinct due to our own actions.
Tuesday, August 16, 2011
The Return of Political Economy
Same crisis, three years older, just more political The 2008/09 financial crisis unleashed three fundamental shocks that still reverberate, and are likely to continue to do so for a while. First, it wrecked the financial stability and order that had previously prevailed, leaving us with a mountain of private and public debt to be reduced and restructured, aka the Great De-leveraging. Second, it blew up the economic model based on housing, credit expansion and financial services, not least depriving our governments of substantial tax revenues, and leaving us looking for new output and employment growth drivers.
These financial and economic shocks have produced widespread insecurity, and revealed critical weaknesses in our capacity to re-create sustainable growth. It looked a bit simpler in late 2009 and 2010, when the full range of stimulus measures and QE were in full flight, but as these have been withdrawn or terminated, the language of 'recovery, mid cycle, and double dip' seems rather inappropriate and misleading. The levels of economic and employment activity look worryingly depressed, and remind us that the Great De-leveraging is something totally different from anything we have
experienced in the West in the last 60 years from an analytical and a policy standpoint. We demand answers and solutions from politicians, who either
haven’t grasped the implications of the change in the economic environment, or are wrestling with appropriate responses.
The interaction between political and economic decision-making would come to play
an increasingly significant role in the determination of economic, and market outcomes. Looking at the time at the complicated legacy of de-leveraging
in developed markets, the embryo of the sovereign debt crisis, especially in Europe, and growing social and economic contradictions in China, it was possible to imagine, if not predict precisely, pretty much what we see playing out today.
Input: Convulsions of the Political Economy In his latest piece “Convulsions of the Political Economy” (Economic Insights, 16 August 2011), Senior Economic Advisor George Magnus re-visits the “Political Economy” theme and considers the existential crisis in the Eurozone, ‘deficit attention disorder’ in the US and other advanced economies, and China’s current political economy, for which the recent high-speed rail accident serves as an interesting metaphor.
Output: Implications for Asset Markets As we have highlighted over the past year, most prominently in our “Outlook 2011” work (29 November 2010), the timing of such shocks is difficult to predict, but the implications lead to episodic volatility and occasional market setbacks. From an asset allocation perspective, political risk is very hard to price across capital markets accurately, but at the very least we believe should be reflected in higher risk-premiums and lower risk-asset valuations.
These financial and economic shocks have produced widespread insecurity, and revealed critical weaknesses in our capacity to re-create sustainable growth. It looked a bit simpler in late 2009 and 2010, when the full range of stimulus measures and QE were in full flight, but as these have been withdrawn or terminated, the language of 'recovery, mid cycle, and double dip' seems rather inappropriate and misleading. The levels of economic and employment activity look worryingly depressed, and remind us that the Great De-leveraging is something totally different from anything we have
experienced in the West in the last 60 years from an analytical and a policy standpoint. We demand answers and solutions from politicians, who either
haven’t grasped the implications of the change in the economic environment, or are wrestling with appropriate responses.
The interaction between political and economic decision-making would come to play
an increasingly significant role in the determination of economic, and market outcomes. Looking at the time at the complicated legacy of de-leveraging
in developed markets, the embryo of the sovereign debt crisis, especially in Europe, and growing social and economic contradictions in China, it was possible to imagine, if not predict precisely, pretty much what we see playing out today.
Input: Convulsions of the Political Economy In his latest piece “Convulsions of the Political Economy” (Economic Insights, 16 August 2011), Senior Economic Advisor George Magnus re-visits the “Political Economy” theme and considers the existential crisis in the Eurozone, ‘deficit attention disorder’ in the US and other advanced economies, and China’s current political economy, for which the recent high-speed rail accident serves as an interesting metaphor.
Output: Implications for Asset Markets As we have highlighted over the past year, most prominently in our “Outlook 2011” work (29 November 2010), the timing of such shocks is difficult to predict, but the implications lead to episodic volatility and occasional market setbacks. From an asset allocation perspective, political risk is very hard to price across capital markets accurately, but at the very least we believe should be reflected in higher risk-premiums and lower risk-asset valuations.
Another forecast
by Merriman
On top of that, we still have the downside of the Jupiter transit through the signs ahead of us for the next three years. As noted before, Jupiter in Aries was the basis for the “Asset Inflation Express” we went through from mid-2010 through early June 2011. Historically this coincides with a top in U.S. stocks when Jupiter is between 23° Aries and 7° of Taurus, a condition that was present May 2-July 22. If you look at a chart of the Dow Jones Industrial Average, you will see the market topped out May 2 at 12,876, with a triple top on July7 and 21 at 12,754 and 12,751 respectively. The top was not in the middle, but in the beginning and end of that sector. Then it dropped 1600+ points from July 21 into this week. The “Asset Inflation Express” had derailed as Jupiter moved into Taurus in the first week of June. But then after posting a double bottom June 15 and 23, it appeared to have righted itself into July 21. But not so. It really derailed again these past two weeks.
Now we wait to see what happens when Jupiter retrogrades back to 0° Taurus later this year. In fact it is back between 0-7° of Taurus from October 7, 2011 through March 7, 2012. Will it make a new high then? A secondary high? I don’t know the answer to that yet, but the study of Financial Astrology allows for the possibility. So far this market plunge is just a “normal” corrective decline for the 15.5-month cycle in U.S. stocks, and we are in the time frame when that cycle low is due (July 2011 through February 2012). But if we start breaking the critical support area of a normal corrective decline into the 15.5-month cycle trough, it will mean the 4-year cycle has topped out, and the bear market suggested by Jupiter’s transit into 2013-2014 is well underway.
How far could the DJIA fall in that case? Well, unlike most 72- and 90-year cycles, this one has not fallen 77-93% off its all-time highs yet. The decline from October 2007 through early March 2009 was only 54%. So, to a cycle’s analyst and a student of the history of Financial Astrology, the economic danger that was felt this week (as Uranus and Pluto came within just one degree of their exact square) is very real. We are on a path of financial self-destruction unless our economic direction changes. That’s the frightening message of Uranus square Pluto, 2012-2015, which will form a grand square to the USA natal Sun-Saturn square (2013-2014). The positive message is that it will change. But will it change before, during, or after 2012-2015? If after, it will change only because there are no choices left.
What we are all going through in 2008-2015 is not just an economic crisis brought on by well-intentioned but disastrous political and economic decisions, but an evolutionary crisis. The evolution of humanity is a never-ending quest to connect with one other, not to be destroyed by one another because we refuse to connect and wish only to control and force others to follow our ideological but disconnected agenda.
On top of that, we still have the downside of the Jupiter transit through the signs ahead of us for the next three years. As noted before, Jupiter in Aries was the basis for the “Asset Inflation Express” we went through from mid-2010 through early June 2011. Historically this coincides with a top in U.S. stocks when Jupiter is between 23° Aries and 7° of Taurus, a condition that was present May 2-July 22. If you look at a chart of the Dow Jones Industrial Average, you will see the market topped out May 2 at 12,876, with a triple top on July7 and 21 at 12,754 and 12,751 respectively. The top was not in the middle, but in the beginning and end of that sector. Then it dropped 1600+ points from July 21 into this week. The “Asset Inflation Express” had derailed as Jupiter moved into Taurus in the first week of June. But then after posting a double bottom June 15 and 23, it appeared to have righted itself into July 21. But not so. It really derailed again these past two weeks.
Now we wait to see what happens when Jupiter retrogrades back to 0° Taurus later this year. In fact it is back between 0-7° of Taurus from October 7, 2011 through March 7, 2012. Will it make a new high then? A secondary high? I don’t know the answer to that yet, but the study of Financial Astrology allows for the possibility. So far this market plunge is just a “normal” corrective decline for the 15.5-month cycle in U.S. stocks, and we are in the time frame when that cycle low is due (July 2011 through February 2012). But if we start breaking the critical support area of a normal corrective decline into the 15.5-month cycle trough, it will mean the 4-year cycle has topped out, and the bear market suggested by Jupiter’s transit into 2013-2014 is well underway.
How far could the DJIA fall in that case? Well, unlike most 72- and 90-year cycles, this one has not fallen 77-93% off its all-time highs yet. The decline from October 2007 through early March 2009 was only 54%. So, to a cycle’s analyst and a student of the history of Financial Astrology, the economic danger that was felt this week (as Uranus and Pluto came within just one degree of their exact square) is very real. We are on a path of financial self-destruction unless our economic direction changes. That’s the frightening message of Uranus square Pluto, 2012-2015, which will form a grand square to the USA natal Sun-Saturn square (2013-2014). The positive message is that it will change. But will it change before, during, or after 2012-2015? If after, it will change only because there are no choices left.
What we are all going through in 2008-2015 is not just an economic crisis brought on by well-intentioned but disastrous political and economic decisions, but an evolutionary crisis. The evolution of humanity is a never-ending quest to connect with one other, not to be destroyed by one another because we refuse to connect and wish only to control and force others to follow our ideological but disconnected agenda.
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