Category Archives: Economy

The Ghost Ships of Singapore

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“Some experts believe the ratio of container ships sitting idle could rise to 25 per cent within two years in an extraordinary downturn that shipping giant Maersk has called a ‘crisis of historic dimensions‘. Last month the company reported its first half-year loss in its 105-year history.

Martin Stopford, managing director of Clarksons, London’s biggest ship broker, says container shipping has been hit particularly hard: ‘In 2006 and 2007 trade was growing at 11 per cent. In 2008 it slowed down by 4.7 per cent. This year we think it might go down by as much as eight per cent. If it costs £7,000 a day to put the ship to sea and if you only get £6,000 a day, than you have got a decision to make.

‘Yet at the same time, the supply of container ships is growing. This year, supply could be up by around 12 per cent and demand is down by eight per cent. Twenty per cent spare is a lot of spare of anything – and it’s come out of nowhere.’

These empty ships should be carrying Christmas over to the West. All retailers will have already ordered their stock for the festive season long ago. With more than 92 per cent of all goods coming into the UK by sea, much of it should be on its way here if it is going to make it to the shelves before Christmas.

Read more: http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession.html#ixzz0RB7WbWSO

via  Lew Rockwell.

Argentina and Uruguay Fight Over Polluted Water at the Hague

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The Pentagon, among others, has made the point that riparian disputes are going to be at the top of the agenda in global politics in the coming years. Water is essential to survival and central to border disputes between China and India, Pakistan and India, and even in Latin America, where water is abundant.

In this case, Uruguay’s construction of two paper mills on the River Uruguay has set off a dispute with Argentina, which claims the construction is in violation of a long-standing treaty and is polluting the river as well as the Argentina tourist town on the other side of the border. The two countries have taken the dispute to the  Hague, which is now hearing the case.

What’s my interest in this?

Uruguay remains comparatively unpolluted next to its neighbors, but the paper mills, which will boost Uruguay’s exports by 15% are symptomatic of increased development that could very well change that picture shortly. Uruguay’s attraction as a farming country is the relatively cheap cost of good quality soil, abundant water, and a history of organic use . But with multinationals and governments gobbling up land all over the world, you wonder how long that will continue.

The area around the middle of the border with Argentina, especially at the lower end, near Colonia (the Soriano area), has the highest quality soil and is intensively cultivated. Argentines often buy there because of the proximity to Buenos Aires, via the ferry at Colonia. The farming tends to horticulture, with potato farming and dairy well represented. I haven’t looked in that region because of the high prices – a hectare can run to over $8000, and I’ve seen prices as high as $20,000 and more, depending on the improvements and the location of the land.

In the middle of the border area, in the department of Paysandu, land usage runs to cattle farms and wheat.

Further north, in Salto, a pretty university town, citrus farming takes precedence, as the soil isn’t as high in fertility.

All these areas are well watered by rivers, like the Uruguay and the Rio Negro, which cut through the relatively flat, unspectacular land. But these are also the areas where land prices have shot up the most recently because of the influx of Argentines, looking for a safer place for their money and freedom from increasingly onerous agricultural laws….

China Files WTO Complaint Over US Tire Tariffs…

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In the news:

“Beijing filed a World Trade Organization complaint Monday over new U.S. tariffs on Chinese tires, stepping up pressure on Washington in the latest in a series of trade disputes.

The conflict is a potential irritant as Washington and Beijing prepare for a summit of the Group of 20 leading economies in Pittsburgh on Sept. 24-25 to discuss efforts to end the worst global downturn since the 1930s.”

More here at AP.
My Comment:

Begin the trade wars..or rather, so continue the trade wars.
America dumps subsidized farm products in China, China levies penalties on exporters who don’t use 40% Chinese parts in their products….it’s all part of the effort to shore up exports to prevent the economy of either country from sliding further into depression…

The Over-Medicated and the Under-Medicated

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From Dissident Voice, a piece by Joseph Grosso on the drug companies’ recreation of the definition of disease:

“This year will see the publication of the new edition of the Diagnostic and Statistical Manual of Mental Disorders (DSM-V), the field bible for mental health professionals. If earlier editions are any indication the latest one will feature and slew of newly established disorders all to be treated with the latest anti-depressants or anti-psychotics……

Other disorders, both mental and physical, conjured up or legitimized in recent years include Social Anxiety Disorder, Premenstrual Dysphoric Disorder, Irritable Bowl Syndrome, Estrogen Deficiency disease, Osteoporosis, not to mention the always stretching boundaries of ADD (see Adult ADD) and ADHD to include more and more drug takers. It can’t be said that the effort of branding new disorders and expanding the very concept of what disease is has been a failure for the drug companies. Prescription drug use has skyrocketed over the past two decades. Americans now spend money on prescription drugs in amounts that equal or surpass the amount spent on higher education and automobiles. Their profits enable to have a death lock over the country’s political process. The predictable flipside being that, according to a 2005 survey by the National Center on Addiction and Substance Abuse the number of Americans who admitted to abusing prescription drugs doubled from 1992-2003.

While American children living in the suburbs get pumped with medication for all sorts of overstated or marketed illnesses, children living in the planet’s rapidly expanding slums perish of preventable digestive-tract diseases rooted in contaminated drinking water and overall polluted conditions. In sub-Saharan Africa alone neglected tropical diseases (NTDs) are the most common conditions affecting the region’s poorest 500 million people. A recent assessment published in the journal PLoS Neglected Tropical Diseases estimates that hookworm, an infection that weakens immune systems and causes anemia, occurs in 40-50 million school aged children. Schistosomiasis, the second most prevalent NTD claims 192 million victims and is ‘possibly associated with increased horizontal transmission of HIV/AIDS.’ There are many others (Lymphatic filariasis, onchocerciasis, roundworm) often overlapping in the same individuals. Why put all of them under the banner of ‘Neglected’? The WHO webpage puts it thusly:

The misery caused by neglected tropical diseases is largely hidden. Affected people live almost exclusively in remote rural areas and sprawling shantytowns, where lack of safe drinking water, poor education, poor sanitation, substandard housing and where access to health care may be virtually non-existent… Neglect also occurs at the level of research and development. The incentive to develop new diagnostic tools, drugs, and vaccines is low for diseases with a market that cannot pay…”

White Hats Telling White Lies

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My piece on Team Obama’s propaganda effort on behalf of its economic interventions,
“Green Shoots and White Lies,” is up at Lew Rockwell this morning.

I’m posting the part that sums up a few of the biggest whoppers the administration is pushing to get those old animal spirits juiced up again. Will the PR work? Well, no one ever went broke underestimating the intelligence of the public. Tell a lie big enough and tell it often enough and people will buy it.

White Hats Telling White Lies:

Fudge One:

Goldman Sachs had a great quarter, making a profit of $3.5 billion and the government made $1.4 billion on its investment in Goldman Sachs. The government also got a 15% return on its investment in the eight biggest banks.

Truth:

Goldman had a great quarter only because it moved its reporting calendar to cut out December 2008, when it had a loss. And the government only made a profit on the TARP money it gave to Goldman because

* It funneled more money via the bailout of insurance giant AIG to AIGs counterparties, including Goldman (which took in $13 billion of the AIG money).
* Warren Buffett made a pre-TARP financial investment in Goldman.
* Goldman got the benefit of exceptionally low interest rates from the government at the expense of savers and to the benefit of borrowers.
* Goldman was issued FDIC-guaranteed bonds.

Without that extra welfare thrown at it, Goldman would actually be broke, not showing a profit. Ditto for the other banks.

Fudge Two:

The labor market is getting better because jobs are growing. The unemployment rate fell from 9.5% in June to 9.4% in July.

Truth:

That number only shows a slowing in the growth of unemployment. And even that small improvement has been offset by other aspects of the labor market that are worsening quite sharply:

* The duration of unemployment is increasing
* Temporary jobs are declining.
* The percentage of the eligible population receiving unemployment insurance has increased (0.1 percentage point to 4.7%. by September).
* The four-week moving average of initial claims has moved to its highest level in a month.

(Reuters, September 3, 2009)

Even when jobs have been added, they’ve been created by government spending and they’ve been in areas like education, health, and government. In the purely private economy, in manufacturing, construction and retail, job losses have been huge. (“Brown manure not green shoots,” Nouriel Roubini, Forbes, July 9, 2009.)

Note: Recent improvement in the ISM (Institute of Supply Management) Index that signals expansion of production (and thus hiring) also needs to be discounted against the huge price inflation an increasingly pressured dollar will entail. That’s beside the effects of a hike in the Federal Funds rate that’s bound to follow a dollar-crashing scenario.

Note: The ISM is a leading indicator of executive expectations for future productions, orders, inventories, hiring, and deliveries.

Fudge Three:

Increases in real personal income in April and May will increase consumer spending.

Truth:

The increases were caused by tax-rebates and unemployment benefits kicking in, and most of it was saved, not spent (80 cents on the dollars). There was a temporary lift in consumer spending, but it petered out quickly. And as unemployment rises, benefits decline, and credit tightens in the future, consumption will decline even further

Fudge Four:

The bank stress tests came out better than expected.

The bank stress tests led Ben Bernanke to conclude that nearly all of the banks had enough capital to absorb higher losses should the economy worsen, and that the Treasury stood ready to provide more.

(AFP, “Hope is alive for green shoots,” May 11, 2009)

Truth:

The bank stress tests used an unemployment figure of 10.3% (the most adverse case). But unemployment is likely to be 11% and above by next year. If you take into account discouraged and partially employed workers, some economists suggest the figure is more likely to be 16%.
 Another point. The stress tests overlooked all the other ways in which the government was paying for the banks, through FDIC guarantees and cheaper loans, for instance.

Fudge Five:

The housing market is improving.

In July, the Pending Home Sales Index was up 3.2%. Another improvement was in the value of U.S. homes. In the second quarter that number fell year-on-year (the 10th consecutive quarterly decline), but it fell by a smaller amount than in the previous quarter, for the first time since 2007.

Truth:

The improvement in home sales has been mostly in the lower end of the market and it largely reflects foreclosure sales and government credit, not real improvement in the market.

The slowdown in price decline has been offset by negatives in other areas:

* 23% of all homeowners owe more on their mortgages than their houses are worth.
* 22% of all home sales nationwide in June were foreclosure resales.
* 29.2 percent of all homes sold in June were sold for less than the owners originally paid.

(Portfolio.com August 11, 2009)

Loan problems aren’t confined to subprime. Prime mortgages are going underwater too.

Meanwhile, the market also has to deal with the decline in commercial real estate, which is undergoing one of the greatest contractions in retail in decades. Rents, even in the best urban shopping districts, have been declining.

(Colliers International Spring 2009 Retail Report, May 14, 2009).

Beyond commercial real estate, there are also all the other plagues about to visit us, when personal loans, auto loans, and student loans tighten over the coming years.

Bottom line?
There is no real basis for sustained optimism about the economy yet.

How Green Are Our Shoots!

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I’m working on a new piece on the propaganda effort on the economy coming out of Team Obama. Here’s a part:

“How green are our shoots!
Thus say both Chairman Ben Bernanke and Treasury Secretary Tim Geithner.
And the public believes them. How come?

It all began in March. In the first televised interview by any sitting Fed chairman in 20 years (CBS 60 Minutes), Bernanke used the term, “green shoots” for the first time. He pointed out that the Dow Jones index had recovered from 12 year lows in 2008 and the banking system had stabilized. No more big banks would fail, he predicted (AFP, March 15, 2009).

Two months later, His Timness echoed Big Ben. Geithner cited reduced spreads on corporate and muni bonds, the reduction in costs in credit protection at the big banks, and smaller risk premiums in the interbank market. He too said the economy was recovering. (Tim Geithner, Statement before the Senate Banking Committee, May 20, 2009)

In June, World Bank President Robert Zoellick joined the ‘shooters.’ Zoellick is a former US trade representative notorious for forcing US government subsidies and trade policies inimical to small farmers onto emerging markets. Zoellick noted “signs of global recovery,” but cautioned that they might be killed off if protectionism were adopted (Reuters, June 8, 2009)

Translation: foreigners had better not object to US government-managed trade policies…or the global recovery will fold.

Put out….or look out.

Zoellick added his own revealing metaphor to the shooter lexicon: “Right now there is a low-grade fever; it isn’t full influenza, but we need to keep a close watch…”.[my emphasis]

[Oddly, Zoellick’s own employees at the World Bank contradicted their boss’s assessment in a report only a couple of weeks later (See “World Bank Global Economic Outlook” below]

In May billionaire hedge-fund manager George Soros was seeing green. And in July , chief wonk of the Obama economic team Lawrence Summers detected greenery in remarks to the Peterson Institute for International Economics.

Green shoots were now being sighted by everyone:

*In July the International Monetary Fund published its World Economic Outlook update
The Fund revised expected global growth in 2010 upward to 2.5%. The main source of the improvement, it claimed, was a brightening outlook for Asia.

*Simon Johnson, IMF economist–turned-Peterson-Institute-spokesman-turned green-shooting-star even went on PBS to announce, “we are turning some sort of corner.” (August 20, 2009)

*Surveys of economists and business leaders in the summer showed that, in contrast to only a few months earlier, slightly more than half thought that the economy had bottomed.”

There’s a lot more I’m working on. Hope to have it on Lew Rockwell tomorrow, although I’d like to see it on some left-anarchist sites too. What began as a bit of trivia hunting (I was trying to figure out when the “green shoots” meme started) ended up throwing some interesting light on politics, the media, and the economy….

World Bank Global Outlook: No Green Shoots

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This harsh reality is reflected in the World Bank Global Outlook Report of June 22, 2009.
It notes the following for 2009:

*Global growth is set to fall by 2.9%
*World trade is likely to shrink by nearly 10%
*Industrial production in rich countries will drop by 15% from August 2008
*Developed economies will contract by 4.5% in 2009 and grow only in 2010 and 2011
*The US economy will decline by 3%
*Private capital flows to developing countries are likely to be halved, from $US 707 billion (2008) to $US 363 billion (2009)
*Industrial production in developing countries, excluding China, is set to fall by 10%.
*GDP growth in developing countries will fall from 5.9% (2008) to 1.2%.

Commercial Real Estate Worsening..

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Commercial Mortgage-Backed Securities (financial instruments backed by debt derived from commercial real estate mortgages) are in growing trouble, says the Wall Street Journal:

“The CMBS sector is suffering two kinds of pain, which, according to credit rater Realpoint LLC, sent its delinquency rate to 3.14% in July, more than six times the level a year earlier. One is simply the result of bad underwriting. In the era of looser credit, Wall Street’s CMBS machine lent owners money on the assumption that occupancy and rents of their office buildings, hotels, stores or other commercial property would keep rising. In fact, the opposite has happened. The result is that a growing number of properties aren’t generating enough cash to make principal and interest payments.

The other kind of hurt is coming from the inability of property owners to refinance loans bundled into CMBS when these loans mature. By the end of 2012, some $153 billion in loans that make up CMBS are coming due, and close to $100 billion of that will face difficulty getting refinanced, according to Deutsche Bank. Even though the cash flows of these properties are enough to pay interest and principal on the debt, their values have fallen so far that borrowers won’t be able to extend existing mortgages or replace them with new debt. That means losses not only to the property owners but also to those who bought CMBS — including hedge funds, pension funds, mutual funds and other financial institutions — thus exacerbating the economic downturn...”

My Comment

So there you have the reality under the green shoots hype. The economy might be showing good signs – why wouldn’t it, the amount of money that’s been thrown into it – but in the long-run, the refusal to let the underlying problem correct itself only drags out the crisis and makes it worse. And that’s just CMBS, one part of the entire commercial real estate market. The whole market is $6.7 trillion.

The failing loans make up about 1/60th of the entire market, but since they’re widely dispersed in individual and institutional portfolios, their impact will be far greater and more cumulative than their numbers would suggest. That was what happened with residential ARMs.

We explain the whole crisis in “Mobs, Messiahs, and Markets” (check out the new paper-back edition that came out from John Wiley, August 24, 2009) – look at the financial sections – “Flattening the Globe” (that explains the un-Friedmanesque facts behind globalization) and the section called “Bubble Kings.”

It’s a quick and easy but thoroughly researched run-down of what happened in the financial markets. You’ll be able to figure it out, even if you never took a course in economics.

In fact, it might be harder for you if you did take college economics, where the underlying premise is that static models can do better than real world analysis in predicting what’s going to happen.

How many of these academic experts, including Ben Bernanke, anticipated what might happen and explained clearly and accurately why it would happen? None, it looks like.

There’s a lot of revisionism going on now..People are rewriting what they said two years ago or five, or even farther back. But the truth is, the emperor (expert opinion) has been caught out wearing a g-string. And nothing much else.

The experts are buck (excuse the term) naked….

Milton Nascimento Sings the Jet Samba

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Brazil’s Milton Nascimento sings Anton Carlos Jobim’s musical celebration of Rio de Janeiro, Samba do Avaio (The Jet Samba) . The lyrics reference the statue of Christ the Redeemer that towers over the city and the Guanabara.

Minha alma canta
(My soul sings)
Vejo o Rio de Janeiro
(Seeing Rio de Janeiro)…..

Cristo Redentor
Braços abertos sobre a Guanabara…