Raghuram Rajan is a bloody good economist, that’s who he is. Rajan, who succeeded Kenneth Rogoff at the International Monetary Fund as Chief Economist, is also a prescient voice of reason on any number of different subjects. Recently, Nobel-winning economist Paul Krugman used his New York Times column to highlight his work. I wanted to use this post to also familiarize you with him and his work because his name will be heard much more going forward as one of the few economists to recognize the unsustainability of the global credit bubble.

You probably know that I am gearing up for some serious writedowns in Eastern Europe because I see these countries as having external imbalances which will have to be corrected as the economy softens. In previous posts, I had mentioned that there was considerable exposure to Eastern Europe in Austria, Sweden, Denmark ad Germany in particular. Austria is the worst of the lot. Today, I happened upon an article and a quote which puts the Austrian exposure into context.

The numbers for December are in and they are grim. 2008 was a year to forget in the auto industry. Sales plummeted around the globe as recession took hold. In the United States, every major car company saw sales fall at least 30% compared to 2007.

In truth, the global auto industry has been working in a situation of overcapacity for some time (much as the airline and financial services sectors have). However, the industry was propped up artificially by unsustainable excess demand that was a direct result of low interest rates (think zero percent financing). Now that this excess demand has evaporated, the auto industry is in dire straits. Expect the trend to continue into 2009. The auto industry desperately needs to consolidate if it expects to return to profitability anytime soon.

As the New Year unfolds, it is time for predictions. I have done my part, giving a full account of where I see things headed in 2009 in my post “Top ten predictions for the 2009 global economy” and where I want to see them headed in 2009 in my post “Top ten economic wishes for 2009.” I have also mentioned Byron Wien in passing several times because he has done this sort of thing ever year for the past 24 years, first at Morgan Stanley at now at Pequot Capital. Well, his list for 2009 is now out and I want to show it to you – along with my usual commentary (in parenthesis) of course!

Enjoy.

Given the fact that this site is called Credit Writedowns, you would expect me to take a fairly skeptical view about the growing consensus regarding a rapid recovery in 2009. I do, in large part because I understand that banks face many risks in the coming months due to souring loans and investments which will impair capital through large credit writedowns. The central tenet of this site is that writedowns = reduced capital = reduced credit = reduced growth prospects.

Deutsche Bank has been one of the few banks to have foreseen this problem from the start and they are not signing a V-shaped recovery tune.

The video below is an addendum to my post on Andrew Barry’s Barron’s cover story piece regarding Treasury Bonds and the growing consensus to avoid them. While I agree with the consensus about Treasury bonds being a bubble, I expect the U.S. economy to be weak enough to give Treasuries a shot at another large gain — albeit one which puts them further into bubble territory.

A number of the following posts are fairly controversial and I present them not so much because I agree, but rather because the ideas presented or the news is worthy of your attention. I highly recommend the Willem Buiter piece at the end. I will address it in greater detail at a later date.

The consensus is coming down on the bearish side for U.S. government bonds in 2009. There is ample reason to believe that Treasuries will be an asset class to avoid this year.

Yet, as I argue in a post a few days ago, “rates can go to unusually low levels for much longer than people think,” as Stephen Roach has said. And with the global economy in a serious state of unwind maybe treasuries are not going to tank. Does this mean, one should be loading up on U.S. Government debt? Not if you believe Andrew Barry of Barron’s Magazine.

As an article in my links yesterday suggested, for many in the west, Russia’s behavior of late has lurched toward the unpredictable, volatile and aggressive. After Russia’s moves against Georgia in South Ossetia, wariness in the west has increased, sometimes bordering on hostility.

I have generally taken a more pro-Russian view of events, seeing the reactions by Russia as predictable responses to a Super Power provoked by repeated slights. That is neither here nor there as the latest controversy heats up, this time over natural gas.

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Russia: Energy enigma, gas theories abound – BBC News
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Fire dies under China’s once booming manufacturing industry – Times Online
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