Daily Digest

Daily Digest 11/15 - Stimulus Lifts Japan's Economy, Retail Sales Increase, Ireland Bail Out

Monday, November 15, 2010, 11:00 AM
  • A User’s Guide to the Crisis of Civilization: And How to Save It
  • Stimulus Helps Lift Japanese Economy
  • Oil Futures: Crude Rebounds After Last Week's Sell-off
  • Retail Sales Jump on Auto Strength
  • Bailing Out Ireland, Bailing Out Banks
  • O.K., You Fix the Budget
  • Fresh Attack on Fed Move

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Book Review: A User’s Guide to the Crisis of Civilization: And How to Save It (deb)

Dr. Ahmed examines five separate crises confronting our civilization: “Climate Catastrophe,” “Energy Scarcity,” “Food Insecurity,” “Economic Instability,” “International Terrorism” and the “Militarization Tendency.” While his coverage and explanation of the root causes of each of these crises is outstanding and well worth reading in their own right, this is not the true strength of the book. Rather, he clearly and directly explains that, while the impact of each of these crises is great, we can only understand their true impact and how to potentially solve or mitigate them as a system. We cannot solve or optimally mitigate climate change without considering peak oil, peak oil without considering the collapse of the nation-state, or global poverty without examining our economic and finance structure, etc.

Stimulus Helps Lift Japanese Economy 

Deflation, or a decline in prices, has also weighed on the Japanese recovery as it has tried to pull out of its worst recession since World War II. “The growth rate itself beat our expectations,” said Norio Miyagawa, senior economist at Mizuho Securities Research and Consulting. “But that growth was helped by a spike in spending by consumers racing to benefit from the last of the government incentives. We can expect the economy to slow in the coming months. After that, recovery will depend on how the global economy holds up.”

Oil Futures: Crude Rebounds After Last Week's Sell-off 

Prices were helped by slight recovery by the euro against the dollar, after the single currency hit a intra-day low of 1.3603 against the greenback during Asian trade. Crude prices are inversely correlated to the dollar, gaining as the U.S. currency weakens, as dollar-denominated commodities become cheaper for other currency holders. At 1238 GMT, the front-month December Brent contract on London's ICE futures exchange was 93 cents higher at $87.27 a barrel. The front-month December contract on the New York Mercantile Exchange was trading up 80 cents at $85.68 a barrel. The ICE's gasoil contract for December delivery was higher $1.25 at $743.50 a metric ton, while Nymex gasoline for December delivery was up 259 cents at $2.2358 a gallon.

Retail Sales Jump on Auto Strength 

Retail sales rose 1.2% last month, the Commerce Department said Monday. Economists surveyed by Dow Jones Newswires had projected sales would climb by 0.8%. The increase was the biggest since March and the fourth in a row. September sales rose 0.7%, revised up from a previously estimated 0.6% increase. The strong gain is important for the economic recovery. Consumer spending makes up most of gross domestic product, which is the broad measure of U.S. economic activity. GDP in the third quarter grew a modest 2.0%, supported by a solid but not very big gain in consumer spending. Consumers have been frugal, restrained by a U.S. unemployment rate of 9.6%. Still, the latest government data show nonfarm payrolls rose by a greater-than-expected 151,000 jobs in October, a sign of improving labor conditions that, if sustained, could lead to stronger spending and economic growth.

Bailing Out Ireland, Bailing Out Banks 

Frankly it’s a fiction of accounting whether the Irish banking sector or the Irish sovereign actually gets the bailout. Firstly given the nexus of funding guarantees that have bound the two together since the crisis, and which remain open to possible burden-sharing by bank bondholders. But secondly — and here’s the irony — because the recent capitulation in Irish government bonds also appears to have keelhauled the banks.

O.K., You Fix the Budget 

The looming federal deficits are so large that they are likely to occupy much of Washington’s attention for years. Arguably, this new deficit obsession — what some are calling the Age of Austerity — began this month. The midterm elections ushered in a Republican House majority pledging to shrink government, and on Wednesday the leaders of the bipartisan panel released the outline of a deficit-cutting plan for the panel’s members to debate. Like that panel, The New York Times has conducted its own analysis of the federal budget, but with a different final product. Rather than making recommendations, we are laying out a menu of major options, so that readers can come up with their own plan. We have received help along the way from the deficit panel, from Congressional and White House aides and from liberal, conservative and centrist budget analysts. The deficit puzzle on The Times’s Web site is the result.

Fresh Attack on Fed Move 

group of prominent Republican-leaning economists, coordinating with Republican lawmakers and political strategists, is launching a campaign this week calling on Fed Chairman Ben Bernanke to drop his plan to buy $600 billion in additional U.S. Treasury bonds. "The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment," they say in an open letter to be published as ads this week in The Wall Street Journal and the New York Times. The economists have been consulting Republican lawmakers, including incoming House Budget Committee Chairman Paul Ryan of Wisconsin, and began discussions with potential GOP presidential candidates over the weekend, according to a person involved.


The Status Quo's Fundamental Paradigms Are Broken

Here is a typical presentation of the Status Quo's faith in the "China Story" that China's growth can and will continue unimpeded for decades to come: Elizabeth C. Economy is a well-informed, insightful analyst. Yet she presumes that China can grow like a tree to the sky and that its consumption of oil and other resources can likewise double every few years forever. There is not one word in this long essay which even hints at the possibility that constraints in the real world might hinder China's vast ambitions and appetites for "the good life" of middle-class consumption for its 1.2 billion citizens. Though China runs a good PR game about building a "green economy," we should note that its energy consumption equaled the U.S. this year and its production of vehicles far surpassed the U.S. this year.

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."


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Re: Daily Digest 11/15 - Stimulus Lifts Japan's Economy, ...

"(Reuters) - The world should examine whether using a basket of currencies is more appropriate than the current system with the U.S. dollar as the single reserve currency, a top Asian Development Bank official said on Monday.

"The economic centre of gravity is shifting and it is shifting to Asia. So we have to think whether in that context, a single currency serving as a reserve currency is appropriate," said Rajat Nag, managing director general of the ADB.

Nag did not say which currencies might be in a proposed basket but World Bank President Robert Zoellick has suggested a cooperative monetary system including the dollar, the euro, the yen, the pound sterling and the yuan.

Zoellick had also suggested using gold as an indicator to help set foreign exchange rates."

"Nov. 15 (Bloomberg) -- Europe’s sovereign debt crisis has turned the region’s credit markets upside down, with companies now the safest ever relative to governments.

“In the old order, sovereigns were tighter than corporates,” said Greg Venizelos, a credit strategist in London at BNP Paribas SA, the world’s largest bank by assets. “There’s been a repricing and corporates are now better credit quality than sovereigns in the periphery.”"

"BEIJING — China should reduce its dependence on international reserve currencies, which have contributed to an "unstable" world monetary system, a central bank official was quoted Monday as saying.

Jin Zhongxia, deputy director-general of the People's Bank of China's international department, told a weekend forum that wider use of the yuan currency to settle accounts would help cut risks, the state-run China Daily reported.

"The existing international monetary system, centered on a small number of reserve currencies, is quite unstable," Jin was quoted as saying.

Jin expressed concerns about the dollar, whose value has been falling for three months, and US Federal Reserve moves to buy 600 billion dollars of government bonds to boost domestic growth, which could further drive down the dollar.

Over-printing of reserve currencies "places emerging economies in a dilemma," he said."

"WASHINGTON — Brian Sugalski badly needs a financial break, and he's looking to Congress to provide it.

The 39-year-old, laid off in May from his job as operations manager for a printing company, is among about 2 million Americans who will lose extended unemployment benefits beginning in early December if lawmakers don't act.

Sugalski and his wife, Julie, have moved in with his mother-in-law in the Village of Horseheads in New York's Southern Tier and are living mostly on his $540-a-week unemployment check from New Jersey, where the couple used to live.

"It's not an ideal situation for a lot of reasons, but thank God we had a place to go until I can get back on my feet," Sugalski said. "I know people in worse situations than I am."

Laid-off workers who face losing benefits if Congress doesn't act are those who began receiving state unemployment checks after June 1, a group that includes more than 200,000 New Yorkers."

"BEIJING (AP) -- China's major banks have stopped lending to real estate developers as the government tries to cool an investment boom and surging home prices, a state newspaper said Monday.

The top four state-owned lenders suspended credit to developers at the end of October after exhausting the industry's annual loan quota, China Real Estate Business said, citing unnamed bank employees. It said the government limit for total real estate lending next year might be reduced by up to 20 percent.

Chinese regulators are trying to cool surging credit, worried that runaway lending might be fueling a dangerous boom and bust in real estate."

"Federal Reserve Chairman Ben S. Bernanke’s $600 billion plan to spark inflation in the U.S. economy is already showing signs of succeeding, if the market for bond options is any indication.

As the central bank starts a second round of purchases of Treasuries through its so-called quantitative-easing policy, investors are paying eight times more than in April for options on interest-rate swaps that protect against rising yields relative to those that bet on them falling, according to Barclays Plc data. Bonds that compensate for higher consumer prices also show heightened inflation expectations."

"Investors say they are seeing opportunity and taking on greater risk, looking more to emerging markets such as China, Brazil and India than developed countries, a Bloomberg survey shows.

The U.S. was in fourth place behind those economies in offering the most opportunity, in the latest quarterly Bloomberg Global Poll of 1,030 investors, analysts and traders who are Bloomberg subscribers. The world’s largest economy was also named the third-worst place to invest behind the European Union and Japan. Some respondents cited the Federal Reserve move to buy $600 billion of Treasuries as cause for concern."

"Washington— The government's pension insurer said its deficit widened to $23 billion in its budget year that ended Sept. 30.

The Pension Benefit Guaranty Corp. said its total obligations increased by $11.5 billion. The PBGC has $79.5 billion in combined assets to cover obligations that total $102.5 billion.

The combined deficit, $23 billion, is an increase from $22 billion in 2009.

In total, PBGC paid about $5.6 billion in benefits owed to retirees and their surviving beneficiaries, because their pension plans could not last year.

PBGC said: "This financial position is the result of inadequate plan funding and misfortunes that have befallen plan sponsors. In part, it is a result of the fact that the premiums PBGC charges are insufficient to pay for all the benefits that PBGC insures, and other factors." "

....................8A) PBGC Took Over Pension Plans Covering 109000 In Past Yr; Deficit Widens


  • Other news, headlines and opinion:

Greece 2009 deficit revised up to 15.4% of GDP

German stance may push nations toward bankruptcy-Greek PM

South Africa's ANC Plans Research on Nationalization

Fed buys $7.9 bln in bonds; Treasurys stay down

END THE FED! (InflationUS Video)

Three-Fold Jump in Dollar Purchases Fuels Rally in Bonds: Argentina Credit

China May Surpass U.S. by 2020 in `Super Cycle,' Standard Chartered Says

Housing to Continue in Recession with Loan Volume Slipping: iEmergent

Home Prices Fall in Half of Major Metros on Post-Credit Sales Declines

Insider Trading

ICN 11/08/10 Fed To Print $900B, Peter Schiff, Ron Paul, Inflation, and Silver Manipulation (Video)

U.S. Postal Service on the Verge of Going Broke? (Video)

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Re: Daily Digest 11/15 - Stimulus Lifts Japan's Economy, ...

Book Review: A User’s Guide to the Crisis of Civilization: And How to Save It (deb)

Corrected link to Users Guide: http://www.theoildrum.com/node/7110NK

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QE Explained, both funny and scary

Easy funny and scary explanation of QE. Apologies if anyone has seen it before.


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Re: Daily Digest 11/15 - Stimulus Lifts Japan's Economy, ...

great analytical post by kunstler:

Sixty Lame Minutes - So, last night CBS hauled Aubrey McClendon, CEO of Chesapeake Energy, on board their flagship Sunday infotainment vehicle, 60 Minutes, to blow a mighty wind up America's ass (as they say in professional PR circles).   McClendon told the credulous Leslie Stahl and the huge viewing audience that America "has two Saudi Arabia's of gas." Now, you know immediately that at least half the viewers misconstrued this statement to mean that we have two Saudi Arabia's of gasoline. Translation: don't worry none about driving anywhere you like, or having to get some tiny little pansy-ass hybrid whatchamacallit car to do it in, and especially don't pay no attention to them "green" sumbitches on the sidelines trying to sell you some kind of peak oil story....     First of all, they are talking about methane gas, not liquid gasoline or oil. There are large deposits of methane gas locked into shale deposits roughly following the Appalachian mountain chain & in hot spots out west. It's hard to get at. You have to basically blow up the shale rock deep underground with high pressure water that is loaded up with chemicals and sand particles to keep the rock fragments separated once they are blown apart. Chesapeake Energy specializes in this rock fracturing (or "fracking") method for drilling. You can get gas out of the ground this way. The question is how much, over what time period, at what cost.
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Re: QE Explained, both funny and scary

Hey Russ, haven't seen it before.  Loved it.  Thanks for the repost.  Every Tom, Dick & Harry (and Jane) should watch this.

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Dublin warned it has 24 hours to make decision

"Dublin warned it has 24 hours to make decision as EU emergency talks loom amid fears Irish banks' contagion may spread to other eurozone countries"

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Re: Daily Digest 11/15 - Stimulus Lifts Japan's Economy, ...


That "Ok You Fix the Budget" article from the NY times is full of great lines like this!...

Countries can run small deficits forever, because one year’s economic growth effectively pays for the previous year’s budget shortfall.

Obviously built on the assumption economies always grow forever!

That piece also fails to acknowledge it's essentially too late now; the deficits cannot be fixed

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Real Estate

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