December 16, 2012

The Downturn They Never Had

Readers suggested a topic on the state of the global housing bubble. “The way central banks all over the world are manipulating the markets, would it ever get real again. I spoke to someone and he said it is real because people are making real money. But my point is it is not organic and all rigged with printed money all borrowed money. Is it sustainable? The RE markets all over like Aussie, Canada, Singapore, HK, India etc. are taking forever to burst. So much intervention from Govts. and central banks. Would these countries be able to face austerity when shit hits the fan. And it will eventually. Why can’t they get it and prepare accordingly.”

A reply, “Well…. here’s the thing….. They own the media. They create their own reality however false it might be and pump it out to the public and they’re too stupid to know any better. Truth is obscured. Truth be damned.”

One asked, “To what extent is the weak economy we are in the result of the aftermath of the housing bubble? And to what extent is it merely the economy we would have had all along, absent soaring indebtedness? I’d say the latter, except that there would be more housing development going on without the excesses and overhand of the bubble years, and thus somewhat more normal unemployment.”

“You’d still have falling wages, a falling standards of living, and people moving into retirement or being pushed sans pensions. Those are 30-year trends.”

One had this, “Topic: the mythical Fed exit. There has been much discussion over the past 5yrs, by Fed Governors themselves, reassuring the markets that when it comes time to ‘exit,’ that they have the tools available to do so. Why would they ever exit, except perhaps to combat runaway inflation?”

“Historically, they have not exited in the past. Before the current crisis became common knowledge, the Fed had holdings on their balance sheet of just under $1T (IIRC–don’t have the data in front of me right now). Presumably that was the accumulation from all of their open-market activities previous to that. And no one complained much about it.”

“Why should we believe that they would ever return to historical numbers, given the above? Will the Fed balance sheet from here on out just be maintained at $4T? $6T? $10T? Did Volcker reduce the size of the Fed’s balance sheet when he was combating the last round of serious inflation in the late 70s?”

“What factors other than runaway inflation could cause the Fed to even want to reduce the balance sheet, much less follow through on doing so?”

A reply, “There is NO ‘exit strategy.’ There doesn’t need to be. Take a look at Japan. Over 20 years of Zero interest-rate policy, producing a period of the ‘Yen carry trade’ with printed paper. Their society hasn’t collapsed. They just have a general devaluation of Real Estate and markets, but they keep printing money and ‘investing’ in the infrastructure, as they call it. We will do the same.”

“After chastising the Japanese for their money-printing schemes more than a decade ago, the same people (Bernanke & co.) have done exactly the same thing: Used the Central Bank as a ‘wealth creation’ fraud, that prints up paper and allows people who control its distribution to ‘cream off’ the remnants of societal wealth, leaving the majority of the population all the poorer. Banksters, world-wide, have been living better than emperors with simple Paper Printing. And the American voters? Completely ignorant.”

From CNBC. “Entities such as the Federal Reserve and the European Central Bank in 2012 took control of global economies like never before. Based on current market and economic behavior it’s likely to be years before anything changes. After all, how can central banks take their foot off the stimulus pedal when there’s so much at stake?”

“In all, 13 other central banks in the world have followed the Fed’s lead and set interest rates at or near zero in an effort to keep the liquidity spigots open and prop up their ailing economies. Those 14 economies represent a staggering $65 trillion in combined equity and bond market capitalizations, according to Bank of America Merrill Lynch.”

“As for the bond-buying programs — aka quantitative easing — that dovetail with the low interest rates, the U.S. central bank alone shortly will eclipse $3 trillion on its balance sheet and is expected to end 2013 north of $4 trillion in electronically created money. ‘When you add up all the central banks in the world, it’s going to be over $9 trillion,’ said Marc Doss, regional chief investment officer for Wells Fargo Private Bank. ‘That’s like creating the second-largest economy in the world out of thin air.’”

From “The economy is going through its slowest recovery from a downturn in 80 years, and the biggest risk is a slowdown in Australia, according to economic forecasting group NZIER. In its latest Quarterly Predictions, NZIER says the trudge out of the gloom would take another two to three years. In a slow and patchy recovery, the New Zealand economy is expected to grow 2.1 per cent in 2013 and only slightly better at 2.6 per cent in the following year.”

“Many of New Zealand’s exports go to ‘non-mining’ Australian states. So the slowdown in exports was less about the knock-on impact of the Chinese demand for minerals, but more about a slower domestic economy in Australia. ‘It’s clear the eastern states are slowing, the housing market is cooling and domestic demand is coming back. That’s a pretty big risk for New Zealand traders,’ NZIER principal economist Shamubeel Eaqub said.”

“The eastern states of Australia had been in recession for about nine months, as the boost from extra government spending wore off. ‘It is the downturn they never had; during the global financial crisis, he said.”

“Meanwhile, New Zealand’s recovery from recession was unusual, in that it was the slowest in 80 years, with some indicators similar to the Great Depression of the 1930s, NZIER said. The economy now was almost 10 per cent smaller than in previous recoveries, four years after they began. The level of jobs was about 5 per cent lower than expected under a normal recovery. In more usual times there might be about 110,000 more jobs than there are at present. ‘That’s a sizeable chunk of jobs,’ Eaqub said.”

“The present recovery was different from others because it was such a big ‘debt bust,’ with the last one of this size during the Great Depression, he said. Rather than the economy snapping back to a normal recovery, it would take a long time to pay down debt. Households were gradually repaying debt, which reduced the risks for the economy, but there were signs of the housing market overheating, especially in Auckland.”

“‘If the housing market falls, perhaps because of deteriorating global growth, it could tailspin New Zealand back into recession,’ NZIER said.”

Bits Bucket for December 16, 2012

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