Credit Writedowns » financial history

Big in Japan

Michael Pettis — Mon, 12 Sep 2011 13:30:00 +0000

As I see it, Japan’s problem was that during the 1980s it was so addicted to investment-led growth and artificially cheap financing that it misallocated capital on a massive scale and failed to include the resulting implicit losses in its GDP calculations. If you look at real per capita household income and household consumption growth during the period of Japan’s stagnation, you will find that both of them rose fairly rapidly. This isn’t what typically happens during a US-style financial crisis, when household income suffers

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Falling Oil Prices: A Worrying Trend and Saving Grace

Casey Research — Wed, 31 Aug 2011 23:00:59 +0000

When oil prices start to decline, investors and economists get worried. Oil prices in large part reflect global sentiment towards our economic future - prosperous, growing economies need more oil while slumping, shrinking economies need less, and so the price of crude indicates whether the majority believes we are headed for good times or bad. That explains the worry - those worried investors and economists are using oil prices as an indicator, and falling prices indicate bad times ahead

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Some predictions for the rest of the decade

Michael Pettis — Sun, 28 Aug 2011 22:30:55 +0000

Markets have been crazy this month, but rather than try to wade through all the news, much of which doesn’t seem to have much informational content, I thought I would duck out altogether and instead make a list of things I expect will happen over the next several years

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Who said this: Obama or Hoover?

Edward Harrison — Fri, 19 Aug 2011 16:00:00 +0000

This is a brief follow-up to my post yesterday proclaiming that this is looking more like Hoover every day. Credit Writedowns reader Greg came across the statement below. Who said it, Herbert Hoover or Barack Obama

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US real 10 year yields at record 225bpt discount to JGBs

Edward Harrison — Thu, 18 Aug 2011 13:15:00 +0000

PIMCO, the world’ largest bond fund call this suppression of yields financial repression because it means savers and bond investors get negative real returns. However, John Hempton pointed out that in Japan, where this monetary policy is well-advanced, deflation has set in and real yields are positive despite the zero-rate interest policy (ZIRP)

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The lessons of the crisis of 40 years ago

Guest Author — Wed, 17 Aug 2011 00:00:53 +0000

Andy Lees takes a sceptical view of fiat currency and the excess credit it has created over the past forty years and uses a few charts to demonstrate his points

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Bretton Woods, R.I.P.

Marc Chandler — Mon, 15 Aug 2011 13:00:29 +0000

Richard Nixon unilaterally closed the gold window 40 years ago today. No longer would the U.S. permit other countries to exchange their dollars for gold and by breaking that link, he ended the Bretton Woods international financial regime and ushered floating exchange rates that characterize the modern era

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It’s Over

Frederick Sheehan — Sun, 14 Aug 2011 18:00:45 +0000

The classification of assets according to such dreary concoctions as "mid-cap growth," comparative asset benchmarks is now over

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Policy Conclusions for Russia (Part 2)

Michael Hudson — Fri, 12 Aug 2011 18:30:00 +0000

Can Russia get the best of both worlds by freeing its economy from technologically unnecessary charges and rentier tolls paid to special interests? Such expenditures prevent the economy from developing. That is the basic cause of poverty – and hence of national decline. Now that neoliberal financial lobbyists have turned Progressive Era economic reforms upside down, it is necessary to “reform the reformers” in order for Russia to rebuild its economy in the way that made the U.S. and Western Europe so successful during their economic takeoffs

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Russia’s Economic Interests (Part 1)

Michael Hudson — Fri, 12 Aug 2011 17:30:00 +0000

The neoliberal idea is to dismantle the government’s ability to regulate markets to steer growth and economic advance in the national interest. They claim that this is an alternative to centralized planning. But the reality is that it simply centralizes planning in the hands of bankers – primarily those of Wall Street and the City of London, followed by financial interests in satellite economies and other subordinate partners in this policy

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Hudson: Traditionally war spending has driven deficits

Edward Harrison — Wed, 03 Aug 2011 19:23:24 +0000

Michael Hudson and William Hartung make the argument that military spending was exempted from cuts in the debt ceiling deal because it had strong backers who protected it. They also reveal that the US debt ceiling was put into place to keep Woodrow Wilson from overspending during World War I as military conflicts have traditionally been the real budget busters for governments

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Ben Bernanke and J.P. Morgan on Gold

Frederick Sheehan — Tue, 02 Aug 2011 15:22:33 +0000

On July 13, 2011 Chairman Bernanke explained: "The reason people hold gold is protection against tail risk, really, really, bad outcomes. To the extent that the last few years have made people more worried about the potential of a major crisis, then they hold gold as a protection."

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China: no hard landing, but no solution

Michael Pettis — Mon, 01 Aug 2011 13:55:44 +0000

I have been arguing for a while that as long as the Chinese government retains its capacity to raise debt we are not going to see a sharp slowdown in economic growth – at least until 2013. Any indication that the economy is slowing too quickly will be met with a relaxation of credit controls, and the concomitant rise in investment will spur growth

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Government tax coercion versus fiat money liberty

Edward Harrison — Thu, 28 Jul 2011 21:34:32 +0000

This is a polemic on fiat currency. it is long and detailed. But I believe it is both thorough and logical

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Deficit Deal Could Derail Growth

Comstock Partners — Fri, 22 Jul 2011 10:30:35 +0000

Comstock Partners argues that while the stock market seems ready cheer any agreement that increases the debt ceiling and avoids a default, such cheering may be extremely short-lived as the economy sinks further under the burden of additional near-term cuts in spending. This conclusion is based not on any particular political ideology or economic theory, but on the historical record

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Dilemma over current account vendor financing

Michael Pettis — Tue, 19 Jul 2011 13:00:00 +0000

There seems to be an aggrieved sense on the part of creditor nations that after providing so much helpful funding to undisciplined debtors, the creditors are going to be left with losses. There is, they claim, something terribly unfair about the whole thing. To me this whole argument is pretty surreal. Not only have the creditors totally mixed up the causality of the process, and confused discretionary foreign lending with domestic employment policies, but an erosion in the value of the liabilities owed to them is an almost certain consequence of their own continuing domestic policies

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Is the deficit ceiling debate a Smoot-Hawley moment?

Edward Harrison — Tue, 19 Jul 2011 01:40:55 +0000

If I had to make parallels for today's time in history, I still say this is Hoover’s time, not Roosevelt’s and certainly not Clinton’s

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The Confidence Trick of Fiat Currency

Edward Harrison — Mon, 18 Jul 2011 17:00:48 +0000

In my view, fiat currency is a confidence trick. The key to confidence in a fiat currency is the belief of citizens that the government issuing the currency will manage its finances in a way that promotes general “life, liberty and prosperity”. If confidence erodes, tax evasion will rise, citizens will begin surreptitiously using other media of exchange to transact and inflation and currency depreciation will spiral out of control

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Here’s Why The Economy Feels So Bad

Comstock Partners — Fri, 15 Jul 2011 03:15:26 +0000

As we have said numerous times, economic growth following major credit crises is always slower than average, while recessions occur more often as consumers deleverage the vast amount of debt built up during the boom. In our view it will take years to work our way back to normal. Here's how we compare the current recovery to the last eight expansions that lasted at least two years

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The Looters

Casey Research — Fri, 15 Jul 2011 02:15:56 +0000

If you were reading the newspaper back in May, you might have seen a small reference to a statement from Treasury Secretary Geithner to the effect that he could delay the day of reckoning until August. You probably didn't see any specifics, but some kind of accounting gimmick was involved, you were led to believe. No biggie. Don't worry. In fact, what happened was that Geithner declared a "debt issuance suspension period" (DISP), to be in effect from May 16 to August 2. No new debt would be issued. Ok, that sounds good. But what about the aforementioned bills that would come due in the interim

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Chart of the day: Debt Ceilings – A historical perspective

Edward Harrison — Fri, 15 Jul 2011 01:48:07 +0000

This comes from the Washington post: Since 1980, the debt ceiling has been raised 39 times. It was raised 17 times under Ronald Reagan, four times under Bill Clinton and seven times under George W. Bush. Congress is currently in a contentious debate with the White House on whether to raise the ceiling by the

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Tax Holiday: Homeland Investment Charade

Marc Chandler — Fri, 08 Jul 2011 15:30:00 +0000

It is not clear that there is a political consensus for a stand-alone tax holiday. There may be support for the stand-alone tax holiday as part of a larger corporate tax reform effort. If it is enacted, job growth and capital investment is unlikely to be aided, if for no other reason than the lack of capital is not the reason for the jobless recovery and sluggish investment

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Chart of the Day: UK National Debt 1922 to Present

Edward Harrison — Sat, 02 Jul 2011 02:00:17 +0000

As a result of the two great wars in the 20th century, the UK’s national debt soared such that by the end of World War II, public net debt was well over 200% of

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Chart of the Day: Depth and duration of jobs crisis

Edward Harrison — Thu, 30 Jun 2011 21:00:35 +0000

Last week I showed you one way to look at the jobs crisis in graphical form. Here’s another from Calculated Risk.

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Plus ça change – LDC edition

Edward Harrison — Mon, 27 Jun 2011 13:30:06 +0000

This blurb from Paul Krugman and Robin Wells' review of Jeff Madrick's book on the credit crisis sums up why the busts keep getting bigger

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Privatizing Will Make Life Worse

Michael Hudson — Sat, 25 Jun 2011 15:00:29 +0000

This article was published in the NYT more than 20 years ago, forecasting precisely what has happened in Russia

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A ‘United States of Europe’ or Full Exit from the Euro? (Part 1)

Marshall Auerback — Fri, 24 Jun 2011 13:45:43 +0000

This is the first in a two-part essay on the origins of the sovereign debt crisis. Here the emphasis is on Germany’s central role in the last century and a half of European history and in the formation of the euro

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The impotence of monetary policy

Edward Harrison — Fri, 24 Jun 2011 00:30:51 +0000

For my part, I am with Richard Koo. Monetary policy reflation will not work in a balance sheet recession when fiscal policy is contractionary. But at some point, the Fed will be compelled to act anyway

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Goldilocks, the Crash, and the Perfect Fiscal Storm

Randall Wray — Wed, 22 Jun 2011 12:50:25 +0000

Randall Wray revisits the Clintonian Goldilocks economy to find the seeds of the Global Financial Crisis, using the sectoral balance approach

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What are the differences between QE1, QE2 and QE3?

Edward Harrison — Mon, 20 Jun 2011 14:00:26 +0000

Last week, when discussing what QE3 could look like I indicated that were the Federal Reserve to start expanding its balance sheet, QE3 will see interest rate caps after a pause and period of reflection. Let me address the differences between the various QEs here to illustrate why interest rate caps are being contemplated

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Free Money For Big Banks, Lumps of Coal For Everybody Else

Michael Hudson — Fri, 17 Jun 2011 16:00:00 +0000

In the case of bailing out Wall Street – and thereby the wealthiest 1% of Americans – while saying there is no money for Social Security, Medicare or long-term public social spending and infrastructure investment, the beneficiaries are obvious. So are the losers. High finance means low wages, low employment, low industry and a shrinking economy under conditions where policy planning is centralized in hands of Wall Street and its political nominees rather than in more objective administrators

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Roach: Return of the Living Dead

Edward Harrison — Thu, 16 Jun 2011 13:47:35 +0000

Rather than adding stimulus with the aim of goosing demand to help the economy reach escape velocity, I would say that the central objective of economic policy is to help the economy reach full employment. Doing so will increase demand, increase output, and cut budget deficits tremendously. Policy makers should do this while aiding the economy in reallocating scarce resources to areas that will sustain longer-term productivity growth. In America, that means less resources in finance and housing and perhaps more in technology and infrastructure

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Chart of the Day: How Deep Was Your Recession?

Edward Harrison — Thu, 09 Jun 2011 12:05:50 +0000

I mean to ask how deep the downturn in your country was. On Tuesday, Martin Wolf had a good graphic on this. The upshot of his analysis is that while US GDP growth compares favourably to Japan and Western Europe, its unemployment compares unfavourably to Germany in particular

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China GDP history

Guest Author — Wed, 08 Jun 2011 17:20:16 +0000

This chart is for year over year ‘real’ GDP growth. Note the recurring first quarter spikes followed by dips, presumably due to front loading annual state spending and lending

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Will Greece Allow Central Bankers To Destroy Sovereignty?

Michael Hudson — Tue, 07 Jun 2011 19:00:14 +0000

ECB intransigence leaves little alternative to breakup. Europe’s payments-surplus nations are waging financial war against the deficit countries. Without a common union based on mutual support within a mixed economy – one capable of checking financial aggression – the European Central Bank replaced the military high command. Its bold gamble is whether the Greeks will be as stupid as the Irish, not as smart as the Icelanders

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Will Greece Allow Central Bankers To Destroy Sovereignty? originally appeared on Credit Writedowns

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