This is some recovery we’re having isn’t it?
In the latest ‘forecast’, I put it in quotes because I’m not sure how something that is revised up and down faster than a whore’s drawers can possibly be called a ‘forecast’, but that aside, the IMF now thinks the US economy will now not grow at 3.3% as it ‘predicted’ in July, but at only 2.6%. At that rate of ‘revision’ I predict their prediction will be around 1.9 by Christmas. Of course I may have to revise my prediction if it looks like being wrong.
Anyway it’s not hard to see why the revision was necessary. Private companies in America were so buoyed up by their recovery they decided to share their optimism with 39000 of their employees by firing them. Another 39000 US families wondering how to pay the mortgage.
Of course US banks are now so utterly mired in legal challenges to almost every aspect of their mortgage and foreclosure procedures that the entire thing looks like bogging down. Some experts are now wondering how much financial damage the legal actions are going to inflict on Bank of America, JP Morgan Chase and ALLY financial.
But of course the Fed will save everything when it launches $500 billion’s worth of QE buying up every thing and anything. Except that the IMF also noted the “Quantitative easing is more likely to stimulate corporations to devour each other than to create employment.”
Oops! For once I agree with them. We can already see this is the case. The recent Mergers and acquisitions have been a by-product of the last stimulus and of the low interest rates on loans that the Fed has maintained through all its debt buying. (The Fed buys up US debt, which means there is always demand which keeps the rate low. All other interest rates are based on the main Fed rate. That’s how it’s done).
If QE goes ahead in America, then companies will be awash in money but will NOT use it to hire and produce. For the simple reason that without buyers there is no sense in making stuff. And if you don’t need to make anything, then you don’t need to hire anyone. And if you don’t hire anyone, then no one will have any money for buying things.
QE will be used to ‘buy’ profits. Companies will buy other companies and hope that the stock market thinks that by being bigger and having one less competitor, said company will be more ‘profitable’ and buy their stock thus making them ‘worth’ more.
As a company that is now ‘worth more’ they will issue some debt and use that money to look for someone else to buy and hope top repeat the cycle.
And THAT will be the recovery. Which will grind pointlessly on, until the banks explode or the dollar does.
So in theory at the end there will be this massive catfish of a company, need to work out which one and buy some stock!
Joking aside thanks for the link yesterday for the book I did read the intro for free on the internet and I am hooked so will buy a copy it does sound fascinating.
Actually todays post does help (I think) me understand why all this extra printing of money which should be inflationary isnt. Actually the thing that is inflationary is buying of goods with weak currencies and the commodities which have gone up. Therefore I continue on this thought and theorise that if the dollar falls more, then this will have inflationary effects on non-dollar currencies as oil etc is priced in dollars. But its not 'real' inflation i.e because people are having alot of extra cash and spending it having hopefully a great time. No its inflation from basic stuff they have to buy really. But at the same time there is a contraction of 'real' money supply.
Apologies if you have covered this before in a different post I havent been through the whole blog yet. If you have please point me in the right direction.
Thanks.
p.s You are right handed, I would have guessed left.
oops edit line 2 draws = drawers
Ahem…Thankyou Ben. Not finger trouble. Brain trouble. It's worse and I have it frequently.
Testa,
if you want to read specifically about inflation/deflation try these:
http://golemxiv-credo.blogspot.com/2010/08/inflation-deflation.html
http://golemxiv-credo.blogspot.com/2010/06/janus-faced-policy-debt-deflation-and.html
They are on that topic. Hope they help.
Thanks very much, really an excellent blog.
Reading about Japan in your blog and also the currency wars. Taking the points noted that Japan is deeper in the brown stuff than most and its recent failed attempts to stop the Yen rising. If Japan were to try and sell to foreign investors and somehow this didnt/did go to plan depending on your point of view i.e a failed auction do you think this drop the Yen? After all worked well for the EU. When does Yen not become a 'flight to security currency'. Thanks.
I don't think the Yen is a flight to security currency. It has been a carry trade currency.
If Japan had a failed auction it would be lights out. But they won't because the BoJ would step in and buy. But if the news got out that it would have been a fail but for the BoJ…
So reducing the rate of interest has canceled out the effect of QE?
Unclear
I imagine your voice is the book from the hitch hikers guide to the galaxy.
I gotta hook up some bleepy noises on the keyboard to improv as i read.
If you mix the name of your book with The Prodigy album Music for the Jilted Generation, you get Music for the Debted Generation.
I do like Songs of the Great Repression or,
Music of the Great Repression though.
I forgot what you were talking about now, let's scroll up.
I wish i was a banker, i love drinking bolly
http://www.myspace.com/strangetowncollective
Should change my name to bad penny.
check out the lovely old ladies rant page she has a great graph today and i know you guys love a good graph
http://emsnews.wordpress.com/
Whawww! Look at that graph!
24K, I'm not sure how you can let Prodigy fade in to the background whilst reading a book; however, surely 'I've Been Caught Stealing' or 'World's On Fire' would set the scene. For a really sombre setting you could try Massive Attack's 'Prayer for England'.
Hi Golem
Good to hear about the book. I'm going to try promoting it to a couple of American friends who provide debt consultancy. These are insanely positive guys regarding the future of the financial system. I believe this to be down to a toxic mix of American Dream and Knowledgism.
I don't like watching sad, real-life films, and I suspect that these guys won't read your book for similar reasons – the reality is just too much.
Any suggestions to how I approach these toughest of customers?
Morning Rich,
Thank you for offering to mention the book to people. That is the number one prior=ity for us now. So thanks.
My tack to those constitutionally unlikely to agree with a word of it, is to say, "But might it not be wise to know what sort of very different opinions are being formed and gaining traction? If you don't what other ideas are lodging in people's minds,how can you counter them? And of course, there is always the slim chance you might find something in there that makes sense, even if you don't like the sense it makes.
I presume this is why various large banks from are amoung my regular readers.
"I presume this is why various large banks from are amoung my regular readers."
Wow! that's a fantastic feather in your cap. There's enough stuff written about the financial crisis to keep an army of bank employees occupied every day. Yet they read you.
I'd presume that they think you're worth reading, possibly as an antidote to the bollocks coming from their own corporate spin doctors. Who knows?
I assume it is their pr dept keeping up with who is saying what and what opinions are being formed.
That they keep coming back is, I flatter myself, a sign that, they know I'm not talking rubbish (if I was a nutter they wouldn't waste their time), and that I must have made it on to some sort of long-list of people and places whose opinions are thought worth keeping tabs on.
OR each bank, unbeknownst to them, harbours at least one renegade.
Yo RichGB, you misunterstand. The prodigy mixed with the book name is a good name for my ep of songs asking questions rather than background music.
If you haven't heard the hitch hikers guide to the galaxy radio series the narrator (the book) always had bleepy noises in the background, that's what i want playing.
That's the voice in my head when i read the astounding facts and thoughts of this blog, as this reality is sure stranger than fiction.
G may not be a born comedian but he was sure spoon fed wit and wore clown pants nappies as a baby – HONK HONK.
As for the yanks, that's a bit like asking a christian to read the koran, different beliefs. You have to highlight the recent lawsuits etc that cast doubt over the system, that maybe there are flaws which are pointed out in the book. That only a fool would presume they know the truth without looking at other opinions in what is the worst finacial crisis in a century.
It's not as if everything is great and the book says different.
And all the cool kids are reading it, yanks fall for that one all the time.