Science, Culture and Integral Yoga

... Here, then, is the unnerving possibility: that another, imminent global crisis could make the half-century between the 1970s and the 2020s the equivalent for the United States of what the half-century before 1950 was for Britain. This may well be the Big One: the multi-decade endgame of U.S. ascendancy. The chronology makes historical sense -- four decades of premature jitters segueing into unhappy reality.

The most chilling parallel with the failures of the old powers is the United States' unhealthy reliance on the financial sector as the engine of its growth. In the 18th century, the Dutch thought they could replace their declining industry and physical commerce with grand money-lending schemes to foreign nations and princes. But a series of crashes and bankruptcies in the 1760s and 1770s crippled Holland's economy. In the early 1900s, one apprehensive minister argued that Britain could not thrive as a "hoarder of invested securities" because "banking is not the creator of our prosperity but the creation of it." By the late 1940s, the debt loads of two world wars proved the point, and British global economic leadership became history. ...

With the help of the overgrown U.S. financial sector, the United States of 2008 is the world's leading debtor, has by far the largest current-account deficit and is the leading importer, at great expense, of both manufactured goods and oil. The potential damage if the world soon undergoes the greatest financial crisis since the 1930s is incalculable. The loss of global economic leadership that overtook Britain and Holland seems to be looming on our own horizon. ... more »

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Thursday, May 15

The Reason Behind High Oil Prices

by ronjon on May 15, 2008 02:00AM (PDT)

...Commodities have often been the refuge for investors who have lost money on equities or fixed-income investments. Moreover, the commodities rush today is not limited to oil; now we also have runaway food and feed prices. Could it be that all the financial losses on subprime mortgages, plus the anticipation that the option ARM mortgages about to reset could be an even bigger problem, combined with the huge losses in securities last year, are why investment money today is flooding into often unregulated commodities, where the demand pricing of the final goods is inelastic? Consider this: You may not buy gasoline or even eat today, but by next Monday you'll probably have to do both, no matter what it costs. Basically, besides enabling the Fed to bail out Wall Street and our banks again, every time you gas up or eat you may be paying investors to cover other financial losses. We know that investors can't control their losses on mortgages, securities, or bad loans. But, demonstrably, if not restrained they can drive up the price of goods that we can't get out of buying. Odds are, that's what's really been going on. ... more »

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Monday, May 12

Happy Days Are Here Again - Not!

by ronjon on May 12, 2008 02:00AM (PDT)

...The risk analyst Sayajit Das has had the most insight into the financial markets dimension of this meltdown. Well before the credit crunch hit, he was warning that it was coming and what would bring it on. So what's his take now? That what's happened so far is only phase one in a massive deleveraging of a world addicted to debt. ...

It's a classic asset price cycle. Look at just about every boom and bust cycle in history, and you'll find it was built on cheap credit, easy lending and lax underwriting standards. And this boom was the biggest. The legacy is a burden of household debt without precedent. As real estate prices boomed, households felt wealthier and borrowed against their (inflated) assets. As the price of property soared way beyond the growth in wages, people borrowed more and more to break into the market, running up debts on credit cards to make ends meet. In countries such as the US, where wages were stagnant or falling in real terms, people borrowed against property to maintain their lifestyles.

Now the easy finance is drying up. If there's a serious global downturn that pushes up unemployment rates, it could get ugly, as people unable to service their debts are forced to sell assets causing a further downward spiral. Default rates will rise and financial institutions will suffer further losses. Beyond the household sector, there's the vast army of self-employed workers who set up small businesses after the corporate downsizing cycle of the 1990s. Many borrowed against their homes to do so, and have survived on thin margins during good economic times. In any downturn, they'll be the first to go. ... more »

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Sunday, May 11

Effects of the US recession on Asian growth, by Nouriel Roubini

by ronjon on May 11, 2008 02:00AM (PDT)

In early 2006, economist Nouriel Roubini broke rank from the prevailing consensus opinion and blew the whistle on the US housing bubble and held out grim warnings of a US ‘recession’. That contrarian bearish outlook has been proved spectacularly right two years later, and Roubini, a former White House aide and chairman of the Roubini Global Economics Monitor, is justifiably credited with having first ‘called’ the sub-prime crisis. Here are his latest forecasts:

"In the last few day I have been at the Asian Development Bank meetings in Madrid and then visited Hong Kong and China. I have presented my view on the severity of the US recession and its potential effects on economic growth in China and Asia. Will this region decouple from the US economic contraction?

The answer depends on the severity of this recession. If the US recession is short and shallow (a V-shaped recession lasting six months) then there is enough of a domestic growth dynamics in the rest of the world and in Asia that the global economic slowdown would be very modest. But if the recession is more severe (a U-shaped recession lasting 12 to 18 months) then that US contraction, together with the sharp slowdown in the other G3 economies (a good fraction of the EU could be soon in a recession - specifically UK, Spain, Ireland, Italy and Portugal - and the rest of the EU is sharply slowing down; while Japan is also headed towards a recession) will negatively affect growth in China and Asia, much more than currently expected by macro analysts and markets. Direct and indirect trade channels, financial channels, credit crunch channels, dollar weakness channels and confidence channels would lead to a signifcant slowdown of growth in Asia. ..."

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