For obvious reasons, a cartoon like the one below would not normally be hoisted up here, but, since it’s so damn funny, making an exception seemed like a good idea in this case.
From the Tom Toles archive (and blog) at the Washington Post.
On May 26, 2010,
in Our Culture,
by Tim
On May 26, 2010,
in Article of the Week,
by Tim
Recent developments in the euro zone that increasingly look like they will lead to the restructuring (if not the collapse) of one of the world’s major currencies and the potential for this “contagion” to move first north to the U.K. and then west to the U.S. have many people wondering what’s gone wrong with the global monetary system.
How could advanced Western economies have run into such trouble?
With trillions of dollars in debt now transferred from private sector balance sheets onto those of governments (where very different rules apply), could the problems seen in mainland Europe today spread to the British Isles and then to the U.S. where fiscal and economic conditions are, arguably, even worse?
Despite all the talk about slashing budgets in the former and upward revisions to economic growth forecasts in the latter, it seems clear that these two Anglo Saxon nations are not yet clear of danger and, if that danger comes, we may see something that rhymes not-so-nicely with the events of late-2008 as history is not prone to repeating exactly.
How did it come to this point of staring into the abyss and, perhaps, falling in?
In a word, the problem is “debt”.
Too much of it.
There are those who say that, like many things in life, a little debt is a good thing and this is very true.
Credit markets connect investors and entrepreneurs, both of whom presumably understand the risk that is involved, and when a good idea gets a little money behind it, wonderful things can happen – economic growth, job creation, and rising standards of living to name just a few.
And borrowing by governments is not necessarily a bad thing.
On May 26, 2010,
in Housing,
by Tim
The Commerce Department reported(.pdf) that new home sales surged 14.8 percent last month, up from a seasonally adjusted annualized rate of 439,000 in March to 504,000 in April, as the homebuyer tax credit was about to expire and buyers secured their checks for between $6,500 and $8,000 from the government, apparently not knowing or caring where prices would go in the absence of such government largess.
Recall that since new home sales are reported at the time that contracts are signed, the April data represents the peak impact of the tax credits and, as was the case last fall, a sharp decline should be expected when the May data is reported next month.
Also worthy of note is that the current level of sales is still quite anemic. Even with the improvements in recent months, it’s still not much above the pre-2008 all-time low of 401,000 in 1991 and still below that figure in population adjusted terms.
On May 26, 2010,
in Economy,
by Tim
The world’s economists are falling all over themselves trying to outdo one another in raising their forecasts for U.S. and global economic growth – first the dismal science’s “cream of the crop” at the NABE (National Association for Business Economics), then the braintrust at the Federal Reserve, and now the OECD (Organization for Economic Cooperation and Development) as detailed in this report at Bloomberg.
The economy of the OECD’s 30 members will grow 2.7 percent this year, more than the 1.9 percent predicted in November, the Paris-based group said today in a report. Including non-members such as China, the global economy will expand 4.6 percent this year and 4.5 percent in 2011, compared with an average of 3.7 percent during the decade through 2006.
The projections highlight the divergence in the global economy after it emerged last year from its worst slump in more than half a century. While the economies of China and India risk overheating, indebtedness may threaten expansion in the developed world, according to the OECD, which advises its members on policy.
“A first substantive risk is related to developments in sovereign debt markets,” OECD Chief Economist Pier Carlo Padoan wrote in the report. Elsewhere, “a boom-bust scenario cannot be ruled out, requiring a much stronger tightening of monetary policy” in some countries, including China and India, he said.
Translation: If the European debt crisis that now appears to be careening out of anyone’s control doesn’t get any worse and if China is successful in reining in asset bubbles that become more dangerous with each passing week, the global economy should grow nicely.
On May 26, 2010,
in Commodities,
by Tim
The popular SPDR Gold Shares ETF (NYSE:GLD) has seen some huge additions to the “tonnes in the trust” in recent days, 16.7 tonnes showing up on Monday and 30.4 tonnes added yesterday, the biggest single-day increase since February 2009.
So far this year, a total of 134 tonnes have been added to the trust, nearly all of the net gain coming in just the last month. This compares to last year’s record increase of 353 tonnes and, here too, the gains were concentrated, almost all of 2009’s overall increase occurring in the first quarter during the height of the financial market panic. Inventory now stands at an all-time high of 1267 tonnes valued at an astonishing $49 billion.
Full Disclosure: Long gold coins and GLD at time of writing
On May 26, 2010,
in Uncategorized,
by Tim
TOP STORIES
Doubts on European Central Bank Amid Crisis – NY Times
Double-dip fears over worldwide credit stress – Telegraph
Junk Bonds Widen to Most Since December Following Forced Sales – Bloomberg
Wall Street ‘Popping Champagne’ Over Watered-Down Financial Reform Bill – HuffPo
Private pay shrinks to historic lows as gov’t payouts rise – USA Today
Study: Global Banks May Need $1.5 Trillion in Capital – Bloomberg
Outlook remains stable on U.S. AAA rating: Moody’s – Reuters
Home values headed to new lows? – CSM
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MARKETS/INVESTING
Oil climbs 3 percent to above $70 – Reuters
SPDR Gold ETF at new record as markets crash – Mineweb
World stocks up, but traders wary on Europe, Korea – AP
Money managers go for the gold in market rout – and beyond – Reuters
James Montier Debunks Traditional Asset Allocation Theory – Zero Hedge
Q1 Indian gold purchases seen as robust – WGC – Mineweb
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