Steve Keen’s Debtwatch

For those who have not heard of Steve Keen, I have looked at Keen and whilst I don't agree with everything, there is some truth in what he says.

The Consumer society & Debt are common threads in many countries, it is not just Australians that have that affliction. That said, the following chart, of Keen's, does show a variation, whereas the Private Debt lines are similar to many countries, the GOVERNMENT DEBT has never been large as many other countries, as a % of GDP, it was very low at the beginning of this GFC and has risen only marginally since.

So, Australia is actually reasonably well placed at present, but as the financial storm returns, which is happening now, Australia will not be immune from the effects! I expect Real Estae prices to follow a similar course to the USA & Europe at some time, in the not too distant future.


If I read Keen's chart on Income Distribution correctly, it is interesting in that Workers income is falling, whilst Bankers are rising and the two are on a collision course, sounds likely.

This could be equally applicable, to many Voters, as well as investors!

Bracing for a Double-Dip Recession: Going Global

The last time the U.S. economy suffered through a double-dip recession, this country was struggling to overcome the fallout from an Arab oil embargo, Vietnam War-era deficits, and an inflationary spiral that just wouldn't let go.

That 1981-82 double-dip downturn - the result of an economic "shock treatment" aimed at curing those ills - consisted of two recessions that were separated by a single quarter of growth.

The current backdrop is very different from the one that was in place back then, but the threat of a double-dip recession is no less real.

The world's No. 1 economy lost 8.4 million jobs during the recession that got its start in December 2007, making it the worst national downturn since the Great Depression and the biggest loss of employment since the end of World War II.

The U.S economy shrank a larger-than-expected 4.1% from the fourth quarter of 2007 to the second quarter of 2009, the Commerce Department recently reported. Household spending fell 1.2% last year - the biggest decline in 67 years and double what was previously believed, the government said.
Link -
http://seekingalpha.com/article/221515-bracing-for-a-double-dip-recession-going-...
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Trust me, I'M NOT A POLITICIAN.

This time IS DIFFERENT!

This time, the inputs are different, whilst some outcomes may seem similar, but this time is different!

The Mighty US Banking System?

Last Report dated - 01/08/2010

Banks gone this week - 8

Banks Gone last week - 1

Banks gone since last report - 10

Banks gone this month, so far (August) - 10

Banks gone last month (July) - 22

Total Banks failed, so far, in 2010 - 132

Total Banks Failed in 2009 - 140

FDIC Link -
http://www.fdic.gov/bank/individual/failed/banklist.html
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The next 12 months will see many more US Banks fail!

Cameron Economy to Take Pounding, Traders Turn Bearish (Update1)

Aug. 23 (Bloomberg) -- The British pound’s biggest rally in 14 months is in jeopardy as Prime Minister David Cameron’s budget cuts begin to curb economic growth.

Foreign-exchange forecasters are the most pessimistic on the pound since May 2009, when Standard & Poor’s said the U.K. was at risk of losing its AAA credit rating, according to data compiled by Bloomberg.

“It’s a turning point for the pound,” said Ian Stannard, a London-based senior currency strategist at BNP Paribas SA, the third-most-bearish of 34 forecasts for the pound against the dollar compiled by Bloomberg as of Aug. 20. “The data has peaked and it’s set to deteriorate.”

The pound fell 12 percent from the start of the year to a low of $1.4231 on May 20 on concern former Prime Minister Gordon Brown’s Labour Party would fail to tackle a budget deficit that had reached 12.6 percent of the economy.

Cameron Takes Over
Cameron’s Conservative Party ended 13 years of Labour rule in the May 6 election and formed a coalition government with Nick Clegg’s Liberal Democrats, promising cuts to tackle the shortfall. Sterling jumped 7.9 percent against the dollar in the two months through July.

“The actions we took in the budget have removed the biggest downside risk to the recovery, a loss of confidence and a sharp rise in market interest rates,” Osborne said in a speech at Bloomberg’s London offices on Aug. 17. “Britain now has a credible plan to deal with our record deficit. We must stick by it.”

Osborne said in his speech on Aug. 17 that economic data pointed to a “gradual recovery.”

“We can start to be cautiously optimistic about the economic situation,” he said.

A weaker pound may not be enough to give an additional kick to the economy as Cameron’s austerity program slows the recovery, said Brian Kim, a currency strategist at UBS in Stamford, Connecticut.

“The fiscal side in the U.K. is going to hamper growth,” Kim said in an interview. “We could see more sterling weakness in the second half of the year.”
Link -
http://noir.bloomberg.com/apps/news?pid=20601087&sid=aEcHGwaWopGY&pos=1
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More -

C

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R

eliable

A

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P

aradoxes

These people are blinded by the past, just as the Australia Liberals are and they are quickly followed by most other Politicians.

There will be not recovery, gradual or otherwise, these AUS-terity programs will simply rip the guts out of the Publics disposable income and exacerbate the downdown!

I would also factor the mining 'boom' into that, it could well turn out to be a mining bust in the near future.

The DOW is again down heavily in early trading and was briefly under 10,000!

The PPT may again be called into action?

Austerity vs. Stimulus: Damned Either Way?

At the highest corporate and government levels, there is confusion about how to heal national and global economies. The US and Japan lean towards further stimulus. The EU and UK are pursuing austerity.

The Basic Argument Against Austerity
On a private individual level austerity makes sense. However it is not as applicable to governments because spending cuts reduce GDP and tax revenues and risk making a recession worse. That’s expected in the short term, but the risk is that the economy never escapes the spiral of lower GDP making debt reduction harder if not impossible. Even if austerity would ultimately work, democracies may lack the political will to stay the course until it works, if the economic suffering provokes enough popular opposition.

The metric everyone is watching is the debt/GDP ratio.

So the big question becomes, when austerity plans take effect, will debt shrink faster than GDP so that debt service costs drop and national finances can return to health.

Other Austerity Opponents
There have been additional repeated reports (by assorted economic heavyweights like Nobel Prize winning economist Joe Stiglitz) questioning whether austerity measures will not only fail to restore nations to fiscal health but may make their economies even weaker, throwing them into double dip recession or outright depression

Nomura Bank Chief Economist Richard Koo has also argued extensively that the nature of the current global downturn, a ‘balance sheet recession,’ characterized by the bursting of a debt-financed asset price bubble that leaves many private sector balance sheets with more liabilities than assets, cannot return to self-sustaining growth until private sector balance sheets are repaired, which requires continued stimulus. See here for details.

Pro-Austerity Arguments
Here’s the short version. The Keynesian pro-stimulus approach has also failed to produce thus far in the current crisis, if in fact it ever really worked in the past, and the end result is likely to be worse than that of austerity. Stimulus merely delays the collapse until the time when bond markets no longer accept the sovereign debt that funds the stimulus at affordable rates (or at least threatens to do so soon). When it comes, the collapse is much worse due to the accumulated mountain of debt and deeply devalued currency. No nation has ever inflated their way into prosperity.

In response to Richard Koo, David Merkel responds:
Ridiculous. He is arguing that we need to follow Japan’s path of useless stimulus and more government debt. Do we have to see the US govt debt market fail through default or inflation?

You can’t escape the need to liquidate debts. Economies don’t work well at high debt levels. Until total Debt/GDP gets down to 1.4x, we won’t see strong growth. The depression did not end because of FDR’s policies, or WWII, but because debts got paid down and compromised. By 1941, total debt/GDP got down to 1.4x, and stay near there for the next 43 years, which were years of rapid growth in the real economy not led by leverage. The period 1985-2009 saw the enormous growth in debt up to 3.7x GDP, which now has produced our current crisis.

Stimulus thus far in the US, EU, and UK has also failed to spark unequivocal recovery, and recent data suggests the US and most of the EU may be tipping back into recession, if in fact they ever exited it. Concerning the US, Dave Rosenberg of Gluskin Sheff says the US has remained in recession.

Conclusion: Which Is The Lesser Evil? Depends Which Risks You Fear More
It is not clear whether austerity or continued stimulus is the way to go, and the confusion appears to be at the highest private and official levels, with the US opting for more stimulus and the EU and UK enacting austerity. Neither has worked thus far, but advocates of both approaches would argue that merely more time is needed to prove their approach correct.

What is clear is that neither stimulus nor austerity has worked yet.

Austerity: Kill off nascent recovery so that GDP fails to grow faster than debt falls, locking the economies into a death spiral of lower GDP, inability to pay off debts or even the need to add debt. Meanwhile contracting growth and unemployment risk social unrest and political instability. Current examples of failed austerity thus far include Ireland and Greece.

Stimulus: Has yet to provide conclusive recovery, though advocates say it has averted a much worse contraction thus far. Opponents argue that crash has merely been delayed and will be worse due to the massive additional debt burden and/or currency devaluation and possible hyperinflation if liquidity is withdrawn too late. The argument is somewhat complicated because Quantitative Easing involves giving money to banks, and that money can neither cause inflation nor aid recovery if banks choose to simply retain the funds to repair their own balance sheets and/or refrain from all but the safest lending. At some point, once recovery gets moving, they will start lending, and that is when the inflation risks start, unless central banks are adept at quickly withdrawing the liquidity from bank coffers.
Link -
http://seekingalpha.com/article/222158-austerity-vs-stimulus-damned-either-way?s...
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Damned either way, is fairly accurate!