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Global financial system implosion begins

There is a piece in the FT talking about steel production forecasts for 2009. Estimated drop of 10-14%, which would be the biggest one year decline since the end of World War 2 when steel output declined 27.3% in 1945.

They also guess that it may take 4 years for steel production to return to 2007 levels, although given how unstable things are now I think medium and long term forecasts in general are a bit silly.

Also following on from some figures about Japan that were posted earlier in this thread, their industrial output fell 8.1% in November compared to the previous month, the biggest decline on record. Their interest rates are now set at just 0.1% too.
 
goebfwai said:
Well a sustainable, quality of life optimal system, like charity, begins at home. You have to start somewhere! On the other hand William Rees-Mogg has a number of structural suggestions here in today's Times:

Six vital lessons of the 1931 depression
http://www.timesonline.co.uk/tol/comment/columnists/william_rees_mogg/article5408194.ece

I particularly liked his 6th lesson:
"...in a depression, too much and too early is safer than too little and too late."
Click to expand...

Are you aware of Mystic Mogg's reputation?
 
Gordon Browns new year message had a funny bit in it:

When the history books come to be written - 2008 will largely be remembered for the scale of the great economic and financial crisis. A year in which an old era of unbridled free market dogma was finally ushered out.
Click to expand...
 
goebfwai said:
Nouriel Roubini Says Worst Still Is Ahead of Us: Year in Review

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aUy55wEBqrB8
Click to expand...
He has been giving a 1/3 chance of a L shaped recession and a 2/3 chance of a U shaped recession with recovery only happening in 2010. One leading analyst of emerging markets I have been reading has been saying that this current crisis more resembles an emerging markets crisis than a more ususal western style crisis and is predicting a 10 year long recession. Still I am not 100% sold on the worst case scenarios as I think there may still be a gap to restart the economy using car loans: governments giving the car loan companies enough cash to start loaning cars and have car sales figures jump up again unfreezing the panic in everything but the banking sector.

The banks are still hopelessly fucked tbh. They have between $2-3 trillion in losses to book from this crisis and I think they are only about $800 billion through the process. One comentator made a very valid point though when they said that banks would need to loan more in future, largely because the non banking loans section was actualy bigger than the banking personal loans (think Ocean finance and all that).

I came across this analysis on TOD

Much%20Debt%20Rests%20on%20a%20Small%20Base.png



would note too that there are a lot of feedback loops in the tower. When things are very good, the feedback loops tend to make things look very, very good (higher wages-> higher spending -> profitable businesses -> more hiring -> rising home prices -> less need for government programs). These same feedback loops work the opposite direction when things are bad (layoffs, for example), making a bad economic scenario truly terrible. The huge tower is also expensive to maintain, and takes resources from productive uses, like building infrastructure and new factories. As more and more layers are added to the tower (like TARP), the tower becomes more and more unstable, and more and more likely to have big reactions to small events.
Click to expand...
Think about the additional debt from the perspective of a typical wage-earner. Suppose the typical wage-earner's income is 100 units in 2007, 105 in 2008, 110 in 2009, 115 in 2010, 120 in 2011, and so on. If the government spends the equivalent of 10 units on the bailout (the wage-earner's share of the total), and gives the wage earner 3 units of it back as a stimulus check in 2009, the wage-earner's 2009 income will equal 110 + 3 = 113 with the stimulus check. It should not be too onerous a task to pay the 10 units back through higher future taxes, since the wage-earner's income will be higher in future years, and he can use part of that increased income to pay the 10 back. With interest, the total amount to be re-paid may amount to 11 or 12 or 13, but even this may not be too onerous, because of rising income. Additionally, there may be the possibility of "rolling the debt forward", and not really repaying it, saving it for society's grandchildren, since it looks like the future is getting better and better.

Suppose on the other hand that the typical wage-earner's income is 100 in 2007, 98 in 2008, 96 in 2009, 94 in 2010, 92 in 2011, and so on. If the government spends the equivalent of 10 units on a bailout, and gives the wage-earner 3 units of it back as a stimulus check in 2009, the 3 units added to the 96 units will bring the wage-earner almost back up to where he was in 2007, (since 96 +3 = 99). The difficulty comes in paying back the 10 (or 11 or 12 or 13) units, because these will need to be subtracted from the wage-earner's lower future income, putting him in progressively worse financial shape. Also, the possibility of "rolling the debt forward" is likely to go away, since those buying government bonds will figure out that in 2020, when the typical wage-earner's income is down to 74, the chance of the wage-earner using part of that income to repay the debt from 2009 is pretty poor.
Click to expand...


This graph feeds well into those who say that the current asset deflation was preceeded by years of income deflation as manufacturing was offshored and debt used to replace income growth.
Why_Households%20Arent%20Buying.png


And from another angle:
Energy%20Consumption%20-%20US%20Produced%20vs%20Imports.png



http://www.theoildrum.com/node/4915#more

Its a world of possibilities and what might happen..... much of it not good at all but not totaly hopeless.
 
Has anyone done a meta-analysis of all the economists and columnists predictions for the shape and duration of the recession? Maybe we could work out an average line and confidently predict that the economy will either get worse or get better...

david dissadent said:
Deep as always KS.
Click to expand...

You being sarky? :D

I realise the comment was a bit obvious - if there were only 1,000 people on the planet and 500 of them had water and the other 500 had food there'd be trade between them (or war, but I'm an optimist) - but at the time I got the feeling that people were thinking that everything would stop dead, and that trade, which AFAIC is a basic human activity, would just stop.
 
Heh, I'm still amazed at the gall of these "finance wizards" about predicting the length of the recession. If they were so good at their jobs we wouldn't be in this mess.
 
hipipol said:
Porb duration of downturn 4 -5 years
Or at least thats the anecdotal feedback I'm getting from peeps at the mo, howver the cheery fucks at Morgan Stanley seem to think this:
Global Growth of 0.9% in 2009 and 3.3% in 2010 - not bad, deluded, but not bad http://www.morganstanley.com/views/gef/archive/2008/20081221-Sun.html
Click to expand...

Talkie Toaster said:
Heh, I'm still amazed at the gall of these "finance wizards" about predicting the length of the recession. If they were so good at their jobs we wouldn't be in this mess.
Click to expand...

Amusing follow on posting happening there...
 
There was an excellent economics blog linked on this thread. skepticonomics or something like that. Said he 'called it' a year ago. What was it again?
 
I find the scale of US job losses hard to absorb:

http://www.guardian.co.uk/business/2009/jan/09/us-unemployment-payrolls

More than half a million jobs were lost in the US last month, taking the unemployment rate to its highest in 16 years.

Job losses over the whole of last year totalled 2.6 million, the biggest annual loss since 1945 when 2.75m jobs were shed, the US labour department said.

The bulk of the year's job losses came in the last four months when 1.9m people were laid off. In December alone, US employers cut 524,000 jobs. The original numbers for October and November were also revised higher.
Click to expand...
 
The bond bubble is an accident waiting to happen
http://www.telegraph.co.uk/finance/...-bubble-is-an-accident-waiting-to-happen.html

These are also worth a read...
Insurance that worsens crunch
Robert Peston
12 Jan 09, 12:01 AM
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/01/insurance_that_worsens_crunch.html

Fighting Off Depression
Paul Krugman
http://www.nytimes.com/2009/01/05/opinion/05krugman.html?partner=rssnyt&emc=rss

See also Krugman's 'Fifty Herbert Hoovers' article below. This is a situation we could be facing in the UK as local councils try to find a third solution or face up to the prospect of 1) seeing their reserves being eroded or even wiped out by declining tax revenues and income from council services, or 2) slashing jobs and council spending.

"But even as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers — state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation’s economic future."

http://www.nytimes.com/2008/12/29/opinion/29krugman.html?partner=rssnyt&emc=rss
 
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