The Pool Room, Week Ending May 22nd 2009

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Fans of the Aus­tralian movie clas­sic “The Cas­tle” will remem­ber the arche­typ­al line “This one’s going straight to the Pool Room”, uttered by the ever-opti­mistic Dar­ryl Ker­ri­g­an when­ev­er he was giv­en a gift. If you haven’t yet seen the movie, con­sid­er set­ting aside a cou­ple of hours to watch it.

Debt­watch’s “Pool­room gifts” come from the media cov­er­age of the Glob­al Finan­cial Cri­sis. Some are gems–incisive bits of analy­sis that are an infor­ma­tive read. Oth­ers are … well, best char­ac­terised as spin, though they range from out­right spin, to delu­sion derived from think­ing like a neo­clas­si­cal econ­o­mist.

I used to gath­er these on a dai­ly basis and put them under the “Gems“and “Brick­ats” pages of the blog. But the work­load got the best of me, giv­en my oth­er activ­i­ties (the most impor­tant of which now are writ­ing an ana­lyt­ic book on the cri­sis, based of course in Min­sky’s Finan­cial Insta­bil­i­ty Hypoth­e­sis). Blog mem­ber Evan Har­ris kind­ly offered to take over the role, and from now on a week­ly col­lec­tion of items on the GFC will be pub­lished on Fri­days Syd­ney time under the title of “The Pool Room”  (or Sat­ur­days, if I have too social a time of it on the Fri­day, as hap­pened this week).

Entries there will be linked on the same page from then on, and I’ll roll the Gems and Brick­bats togeth­er for that pur­pose under the page title of “Pool Room”.

If you’d like to nom­i­nate an arti­cle or blog report that deserves an entry in The Pool Room, please send them to the email address “gfcwrap” (I’m writ­ing it this way to avoid auto­mat­ed email gath­er­ing pro­grams). Evan will then check them over, col­late them with his own nom­i­na­tions, and pass the copy on to me.

Just one quick obser­va­tion here on the role of the media in the GFC. I know that a lot of the blog mem­bers have a neg­a­tive view of the media, encap­su­lat­ed in the acronym MSM for “Main­stream Media”, which sees it as part of the over­all “spin cycle” that has led to this cat­a­stro­phe in the first place. Often this will result in antag­o­nis­tic atti­tudes towards par­tic­u­lar jour­nal­ists too, who are seen as reg­u­lar sources of pos­i­tive spin on finan­cial and eco­nom­ic affairs.

I have a less cyn­i­cal atti­tude towards the “Main­stream Media”, and the jour­nal­ists who work in it as well. Part of this reflects my own work his­to­ry: I spent some time as a con­tribut­ing edi­tor to a com­put­er mag­a­zine, an eco­nom­ic com­men­ta­tor for an ABC radio pro­gram (Indi­an Pacif­ic), a con­fer­ence organ­is­er on cov­er­age of “third world” issues for Aus­tralian NGOs and the Aus­tralia-Chi­na Coun­cil, and before becom­ing an aca­d­e­m­ic I had numer­ous fea­tures pub­lished on a spo­radic basis in news­pa­pers like the SMH, The Age and The Aus­tralian. I also did some semi-aca­d­e­m­ic work on the media: my first pub­lished piece in an aca­d­e­m­ic jour­nal report­ed on a work­shop I ran com­par­ing the Aus­tralian medi­a’s cov­er­age of the col­lapse of Indi­a’s Jana­ta Par­ty back in the 1980s to how it was cov­ered in Asian jour­nals.

I also have the “Main­stream Media” to thank for the fact that my icon­o­clas­tic views on the GFC have achieved such wide­spread cov­er­age.

So we have a sys­tem that on one lev­el gets vil­i­fied, and on anoth­er does a ster­ling job–how then to assess its role? My take is to regard the media as anoth­er, spe­cial indus­try in the over­all mar­ket econ­o­my, and jour­nal­ists as its pro­duc­tion line work­ers.

A lot of what they do is dic­tat­ed by what’s com­ing down the assem­bly line–and this will involve report­ing opin­ions on finance and eco­nom­ics uttered by rep­re­sen­ta­tives of oth­er com­pa­nies, and also indi­vid­u­als who have become “news­mak­ers” in their own right.

This sort of stuff can be treat­ed by jour­nal­ists just like fac­to­ry work­ers might treat a par­tic­u­lar­ly eso­teric con­cept dreamed up by the design staff as they assem­ble it–“it looks like a load of crap to me, but what can I do about it?” I’m sure there were many work­ers utter­ing such sen­ti­ments as they assem­bled the Edsel for Ford all those decades ago, and I know there are many jour­nal­ists out there today who have to cov­er a news release in a fair­ly straight man­ner, but who pri­vate­ly think “what a crock” as they do so.

Also, jour­nal­ists are by def­i­n­i­tion gen­er­al­ists. They will find them­selves doing the mar­ket wrap at some stage in their career, and cov­er­ing Can­ber­ra pol­i­tics in another–or the morn­ing cop wrap. They sim­ply have to do it–it’s part of the job. Some­times, they will feel com­plete­ly out of their depth because they are gen­er­al­ists, and they’re right to restrain them­selves from any cyn­i­cal com­men­tary that some­one who isn’t doing this for a liv­ing might add, were they also cov­er­ing the same top­ic.

The best that a jour­nal­ist can do in a sit­u­a­tion like that is to try to get a con­trary opin­ion uttered by anoth­er “expert” into the sto­ry as well. But often there isn’t time to locate some­one, or space to run it. So some­thing that a GFC crit­ic can regard as spin gets pub­lished. But it’s not nec­es­sar­i­ly because the jour­nal­ist who wrote the sto­ry, or the media out­let that pub­lished it, actu­al­ly believes the spin.

Then the edi­tor might sug­gest a bal­anc­ing sto­ry be run at a lat­er date–and of course this cuts both ways: there may be a top crit­i­cal sto­ry on the GFC, quot­ing some­one like myself, Nouriel Roubi­ni, or Michael Hud­son, fol­lowed by anoth­er cit­ing, for exam­ple, Craig James or Alan Greenspan.

So gen­er­al­ly I’m inclined to regard the medi­a’s role in all this with a less jaun­diced eye than many crit­ics of the glob­al finan­cial sys­tem, and I cer­tain­ly won’t take a snipe at an indi­vid­ual jour­nal­ist for sim­ply report­ing a sto­ry.

The peo­ple I will take a swipe at are those who are them­selves econ­o­mists, or who act as eco­nom­ic jour­nal­ists for media outlets–hence men­tion­ing Craig James above, who has to be the loud­est cheer­leader for the “Hap­py times are here again, please buy stocks (through Com­Sec) now” per­spec­tive in Aus­tralia.  These peo­ple put them­selves for­ward as experts on the econ­o­my, and hence they’re fair game for me to point out when I think they’re less than expert.

That’s enough of a pre­lude. Below is the first set of gifts for the Debt­watch Pool­room. If you’d like to nom­i­nate can­di­dates for future weeks, please send them to that gfcwrap[at] Any feed­back would also be appre­ci­at­ed. And thanks again to Evan Har­ris for tak­ing on this role.

Aus­tralian-Relat­ed Links:

Push On To Sell Aussie Bonds, Lucy Bat­ters­by, SMH, 18 May
Unsus­tain­able debt? No prob­lem. Ramp up the “effec­tive mar­ket­ing of debt prod­ucts” bud­get, retrain those stiff bureau­crats and don’t men­tion the debt.

Bond Boost For Big Four Banks, Chris Zap­pone, SMH, 18 May
Our robust and con­ser­v­a­tive bank­ing car­tel receives anoth­er tax­pay­er-fund­ed prof­it boost. And “because of the state of the mar­kets there’s less com­pe­ti­tion than there used to be”! More hand­outs, less com­pe­ti­tion, “bank fees soar despite slow­down”, “$1 bil­lion in penal­ty fees”… nev­er waste a good cri­sis. And what’s $2m between friends?

Shop­pers Trade Down, Even With­in Stores, Jamie Freed, SMH, 18 May
Defla­tion watch 1. Bye, bye David Jones, hel­lo Tar­get.

Rents for lux­u­ry prop­er­ty in Aus­tralia tum­ble, Brid­get Carter,, 18 May [via Bub­ble­pe­dia]
Defla­tion watch 2. Will sub-lux­u­ry rents also be falling “at least 25%” in the near future? Beach shacks also lose their chic as emp­ty prop­er­ties depre­ci­ate (along with their own­ers’ egos).

First Home Buy­ers Vul­ner­a­ble, Chris Zap­pone, SMH, 19 May
Obvi­ous­ly a prop­er­ty sto­ry not vet­ted by the sales team. Doesn’t Mr Zap­pone know that Fair­fax is on the ropes?

Recov­ery This Year: RBA [orig­i­nal title lat­er changed], SMH, 19 May
Glenn Stevens fore­cast­ed the worst finan­cial cri­sis since the Great Depres­sion with unerr­ing accu­ra­cy (“no one saw this com­ing”) and fol­lowed it up with an embat­tled (“recov­ery by the end of 2008”). He didn’t pre­dict infla­tion to drop to a decade low as he jacked up inter­est rates less than a year ago. Here’s his lat­est for­ay: “… too soon to say if a recov­ery had begun, though devel­op­ments over recent months are cer­tain­ly con­sis­tent with the view that a recov­ery will get under way towards the end of the year.” A sage-like Ken Hen­ry stands shoul­der-to-shoul­der with Stevens evok­ing hap­py mem­o­ries of Bush, Howard and WMD.

Job Well Done Gov­ern­ment Tells ASIC, Jacob Saulwick & Ruth Williams, SMH, 19 May
Obvi­ous­ly Kevin and his mul­ti-mil­lion­aire Mrs didn’t take out mar­gin loans with our robust and con­ser­v­a­tive bank­ing car­tel (Which Bank?) to invest in Storm Finan­cial.

Home Afford­abil­i­ty “Dra­mat­i­cal­ly Bet­ter” Than Five Years Ago, Jes­si­ca Irvine, SMH, 20 May
“Dra­mat­i­cal­ly bet­ter” doesn’t square too well with the ver­dict of the 2009 Demographia Inter­na­tion­al Hous­ing Afford­abil­i­ty Sur­vey, a respect­ed inde­pen­dent sur­vey wide­ly cit­ed through­out the OECD. Guess the great Aus­tralian dream isn’t that afford­able after all. It would be use­ful to know the exact method­ol­o­gy behind the Reserve Banks “afford­abil­i­ty” cal­cu­la­tion.

No Dis­tress in Pub Sales, Says ALE, Natal­ie Craig, SMH, 20 May
Of course not. The Man­ag­ing Direc­tor of ALE says so.

Bail­ing On Britain, Jesse’s Cafe Amer­cain, 20 May
Aus­tralia is the num­ber one choice for dis­en­chant­ed Poms who want out. Maybe they can buy those emp­ty beach shacks.

Div­ing Shares Teach Uni­ver­si­ty a Les­son, Heath Gilmore, SMH, 21 May
What do Gen­er­al Motors and Uni­ver­si­ty of Syd­ney have in com­mon? Both seem to have mor­phed into wannabe invest­ment funds first, car man­u­fac­tur­ers / edu­ca­tors sec­ond. Task for Uni­ver­si­ty of Syd­ney Eco­nom­ics grad­u­ates: how many full-fee-pay­ing for­eign stu­dents does it take to plug a 23% cap­i­tal loss on a $1.15 bil­lion port­fo­lio? (Extra marks for sub­tract­ing fund man­age­ment fees)

Altru­ism at the Fee Fac­to­ry?, Ian Ver­ren­der, SMH, 21 May
Great arti­cle by the ever-crit­i­cal Ian Ver­ren­der. Key quote: “Imag­ine what would have hap­pened to the prof­it if the Cana­di­ans had not rid­den in on a white charg­er in the nick of time.” Yes, ma and pa pen­sion­ers in the land of the maple leaf are prop­ping up Mac­quar­ie bonus­es this year. The lob­by­ists help out too. More dri­v­el.

NZ Cou­ple Laugh­ing All the Way from the Bank, SMH (Domin­ion Post), 22 May
Con­tributed by Steve Keen. Per­fect illus­tra­tion of how cred­it mon­ey is “man­u­fac­tured” out­side of offi­cial Cen­tral Bank pol­i­cy. Whoops! I only meant to make $100,000 boss! Wall St and Hedge funds man­u­fac­ture US$1,400,000,000,000,000 of deriv­a­tives and that’s okay. A cou­ple runs off with US$6,000,000 and it’s time to call the CIB and Inter­pol. Though maybe the par­ty is com­ing to an end.

$A Fall the Work of Spec­u­la­tors, Clan­cy Yeats, SMH, 22 May
Oh my God: the RBA dis­cov­ers that investors make deci­sions with­out ref­er­ence to “new infor­ma­tion about either the glob­al or domes­tic econ­o­my”. We didn’t deserve a cur­ren­cy crash in 2008 on par with Ice­land. Their debt-based Ponzi-scheme is also denom­i­nat­ed in for­eign cur­ren­cy but they don’t have kan­ga­roos.

NAB is $1b break­through Off­shore Fund­ing Deal, Richard Gluyas, The Aus­tralian, 22 May
NAB with­draws from the pub­lic teat (for now): “It’s anoth­er step towards the return of nor­mal fund­ing arrange­ments [pre cred­it crunch].” Yes, it’s nor­mal for total Aus­tralian debt to be over 160% of GDP and now it’s nor­mal to jack it up some more. As Chuck Prince said “As long as the music is play­ing you’ve got to get up and dance”… just before he was fired.

Stock Pick­ers See Upturn with­in a Year, The Aus­tralian (Times Online except head­line), 21 May
The same stock pick­ers who pushed the stock mar­ket to new highs fol­low­ing the cred­it lock­down in August 2007? The same stock pick­ers who pre­dict­ed a slug­gish econ­o­my in ear­ly 2008 that would rebound lat­er in the year? The same stock pick­ers who’ve shift­ed the results of their cat­a­stroph­ic bets onto the tax­pay­er after loot­ing hun­dreds of bil­lions in bonus­es? Per­haps the same stock pick­ers who man­age your pen­sion fund. The sub-edi­tors at the Aus­tralian have help­ful­ly sexed-up the orig­i­nal Times’ head­line, Alis­tair Camp­bell style. Char­lie Aitken pours the whisky in the kids’ milk… just don’t scare them with mem­o­ries of his famous call “the whole sub-prime issue is over-stat­ed and losses/defaults will be nowhere near where the armaged­don­ists believe. “ And be sure not to notice that his argu­ment ignores the role of debt (unlike 23% of con­sumers). Yes, Char­lie, “you appear smarter if you are bear­ish”. MACCA cites the high­ly regard­ed David Rosen­burg as a dis­sent­ing voice (also on video).

Great South­ern Crash Fells Expert Opin­ions, Michael Pas­coe, SMH, 22 May
The assump­tion seems to be that expert opin­ions (this time KPMG) can be relied upon for any­thing oth­er than bloat­ed fees. A tip for young play­ers: now that’s just sil­ly.

Australia’s Debt Moun­tain Pales Into Insignif­i­cance, SMH, 22 May
That ol’ chest­nut: when down­play­ing debt, be sure to only focus on gov­ern­ment debt. Yes, Australia’s gov­ern­ment debt is tiny com­pared to oth­er coun­tries. But so was Iceland’s before it implod­ed (all the debt was held by the over-sized banks). Even the US, the undis­put­ed debt behe­moth, doesn’t look too awful when you only focus on offi­cial gov­ern­ment debt (ignor­ing unfund­ed lia­bil­i­ties). So record cred­it card debt, record auto financ­ing, Har­vey Nor­man 48-month inter­est free loans, mas­sive mort­gages (requir­ing two income earn­ers to cov­er the month­ly pay­ments), high­ly geared com­mer­cial real estate, record cor­po­rate debt and now record gov­ern­ment stim­u­lus spend­ing matched with shrink­ing gov­ern­ment rev­enues are all noth­ing to wor­ry about? Has any­one noticed Aussie gov­ern­ment bonds have leapt above 5% in the last week? A great way to end the week.

Glob­al Econ­o­my:

US Home­builder Con­fi­dence Ris­es To Eight Month High, SMH/Bloomberg, May 19
Well, that’s how Bloomberg spun the sto­ry. Quite a head­line con­sid­er­ing the con­fi­dence index rose from 12 (out of 100) to a mighty 14. In 2005 the index was 72. Now for some con­text that you won’t find in this arti­cle: surg­ing prime delin­quen­cies, Option­ARM loans are re-set­ting, lim­it­ed jum­bo financ­ing, few move up buy­ers and even more shad­ow sup­ply.

The Worst Is Yet to Come”: If You’re Not Pet­ri­fied, You’re Not Pay­ing Atten­tion, Yahoo Finance, May 15
Over-the-top? Per­haps. “The stress tests were a ‘con game to get pri­vate mon­ey to finance these insti­tu­tions because [Trea­sury] can’t get more mon­ey from Con­gress. It’s the ‘greater fool’ the­o­ry.’” And lo and behold here comes the pri­vate mon­ey… “You have to do it while things have improved and you’re real­ly run­ning the gaunt­let if you don’t.”

The Night They Re-read Min­sky, Paul Krug­man, NYT, May 17
Con­tributed by blog mem­ber hbl. It aint often that Min­sky makes an appear­ance in the NYT, the US’s trusty “News­pa­per of Record”.

S&P500 Earn­ings Decline: 90%, The Big Pic­ture, May 17
Note sec­ond com­ment: “Reminds me of the line from Croc­o­dile Dundee…”Now that’s a knife!” Check out this sim­ple graph while you’re at it. Those green shoots require vats of indus­tri­al weed killer.

S&P500 Swings [since the peak in Oct 07], Chart Store, May 19 (via The Big Pic­ture)
As one of the com­ments says: “it’s a traders mar­ket”. The buy-and-hold strat­e­gy is dead, along with your pen­sion. Lucky that the insid­ers know where the S&P is head­ed, though these days who the hell knows?

Japan­ese Econ­o­my Shrinks At 15.2% Annu­al Pace in 1Q, Naked Cap­i­tal­ism, May 19
Excel­lent cit­ing of ridicu­lous spin in the FT arti­cle ref­er­enced at the bot­tom of the post. More intel­li­gent views from FT Alphav­ille. A post in Japan Econ­o­my Watch notes that Japan­ese gov­ern­ment debt is not held by for­eign­ers – in stark con­trast to our sun burnt coun­try.

Fed Sees Hope­ful Signs But Down­grades 09 Fore­cast, Yahoo Finance, 20 May
The sub-title says it all: “Fed expects improve­ments in months ahead, even as it down­grades the eco­nom­ic out­look for 2009.” The Fed steps into the green shoots fer­tilis­er as it re-fore­casts unem­ploy­ment sig­nif­i­cant­ly high­er than it did only 3 months ago. Blog mem­ber MACCA cites a Mish arti­cle which begs to dif­fer with the par­ty line.

Here Comes the Option­ARM Explo­sion, Clus­ter­stock, 21 May
Per­haps we should ask Char­lie Aitken for a quote, with or with­out pas­tries.

Glob­al Banking/Finance:

Egan-Jones Takes a Dim View of Mor­gan Stanley’s Health, NYT, 8 May (via Naked Cap­i­tal­ism)
This less­er-known but vast­ly more rep­utable rat­ings agency says MS needs $40bn of new cap­i­tal to remain sol­vent… just a tee­ny wee­ny bit high­er than the $1.8bn claimed by the gov­ern­ment (fol­low­ing the Stress Tests). Yet MS wants to repay TARP funds.

Mered­ith Whit­ney Inter­view, CNBC, 12 May
Bril­liant inter­view dis­cussing the state of US banks and the impact of gov­ern­ment inter­ven­tion on invest­ing. Here’s anoth­er video out­lin­ing the mort­gage fraud under­pin­ning the major banks bal­ance sheets. There was lit­tle men­tion of sys­temic fraud in the Stress Test scam.

Trea­sury Plans Help For Muni Bond Mar­ket, Finan­cial Times (US), 15 May
“Rat­ing agen­cies would also come under pres­sure to improve state and local gov­ern­ments’ cred­it rat­ings, with the SEC tasked with check­ing that they are not assign­ing too high a risk of default com­pared with cor­po­rate bonds.” Hold on a minute? Aren’t these the same rat­ings agen­cies that Kevin described as “a tough bunch of cus­tomers”? Sure­ly they can’t be pres­sured to improve gov­ern­ment cred­it rat­ings? Let’s not even men­tion the unfor­tu­nate fact that Aussie coun­cils are los­ing mil­lions as they watch their syn­thet­ic CDOs – triple AAA rat­ed by these “tough cus­tomers” – go down the toi­let. $12m for a sin­gle coun­cil adds up to a lot of park­ing tick­ets.

Same Ol Same Ol JP Mor­gan, Bank Impode-O-Meter, 17 May
It’s the lit­tle details that nev­er seem to reach news­pa­per reports. “Armed with their new “Mark-to-Mick­ey Mouse” account­ing sub-stan­dards, JP Mor­gan felt free to report their fis­cal first quar­ter 2009 earn­ings in the tra­di­tion­al man­ner of the cred­it bub­ble. They front­loaded prof­its with one time gains, papered over loss­es, and beat pho­ny pre­arranged expec­ta­tions.”

Chas­ing the Shad­ow of Mon­ey, Zero Hedge, 18 May
Bril­liant if some­what lengthy arti­cle. Also con­tributed by blog mem­ber hbl. Sam­ple quote:

It is imme­di­ate­ly obvi­ous that the expan­sion of pub­lic shad­ow mon­ey is no match for the mas­sive con­trac­tion seen in the pri­vate side… the ques­tion of the effi­ca­cy of the QE roll­out and oth­er pub­lic shad­ow mon­ey expan­sion has a tinge of futil­i­ty to it…”

The Wreck of Mod­ern Finance, Mar­tin Hutchin­son, Pru­dent Bear, 18 May
Con­tributed by blog mem­ber Lyon­wiss. A schol­ar­ly expla­na­tion of the prob­lems of assess­ing risk in high finance and its con­tri­bu­tion to the GFC. Sim­i­lar to Taleb’s Black Swan the­sis.

No Option On Finan­cial Pain, Option ARMagge­don, 18 May
Excel­lent analy­sis of BankUnited’s trou­bles first pub­lished last Octo­ber. It col­lapsed on 21 May. The arti­cle dis­cuss­es the Option ARM deba­cle, soon to be screen­ing in a the­atre near you. Only 9% of BankUnited’s cus­tomers signed to Option ARMs were mak­ing full pay­ments on their mort­gage. 9%! These mort­gages are the real­i­ty under­ly­ing the tox­ic secu­ri­tised assets that the US Fed now has on its bal­ance sheet. Oh, and lead­ing Pri­vate Equi­ty play­ers like Black­stone and Car­lyle got to pick up the pieces dirt cheap includ­ing bil­lions in retail deposits… nev­er waste a cri­sis.

The Fla­grant­ly Vis­i­ble Hand, Zero Hedge, 19 May
Every now and again there’s a glitch in the matrix. Using $10 to $20 bil­lion to move a mar­ket isn’t that much mon­ey when the US gov­ern­ment has bankrolled its too-big-to-suc­ceed banks by $12.8 tril­lion. Relax, your super­an­nu­a­tion relies on this game con­tin­u­ing. Some more manip­u­la­tion. And more. And more.

Pen­sions Ben­e­fit Guar­an­tee Cor­po­ra­tion Deficit Increas­es, Cal­cu­lat­ed Risk, 20 May
Bailout alert. The US pen­sion fund implo­sion should be on everyone’s radar. Den­ninger chips in and Pen­sion Pulse pro­vides more in-depth analy­sis and notes “… ris­ing stock mar­kets will not save pen­sions. As inter­est rates fall to his­toric lows, future pen­sion lia­bil­i­ties have soared. You need high­er asset val­ues and high­er inter­est rates to reign in those bal­loon­ing pen­sion deficits.” I won­der how much improp­er influ­ence goes on in Sydney’s CBD.

With Media Absent, A Sen­a­tor Reports the News, Deep Cap­ture, 5 May
Deep Cap­ture is the ulti­mate mar­ket manip­u­la­tion blog. Its pri­ma­ry focus is naked short sell­ing (stock coun­ter­feit­ing). Spare some time and a lot of moti­va­tion to read The Sto­ry includ­ing the incred­i­ble Wikipedia fine print (towards the end of Part 1). Also read one of the all time great blog posts from a relat­ed com­men­ta­tor and watch this video on naked short sell­ing and its link to the Bear Stearns and Lehman col­laps­es.


US Debt Clock, real time
Wow. I hon­est­ly don’t know what else to say. Time for a new cur­ren­cy (hush, hush)?

The Col­lapse of the Neolib­er­al Mod­el: Where Rus­sia Went Wrong, Michael Hud­son, Coun­ter­punch, May 14
Con­tributed by blog mem­ber Mar­venger. Stel­lar arti­cle cri­tiquing the mon­e­tarist mod­el pro­mot­ed by the West and its impact on com­mod­i­ty coun­tries (whoops – Aus­tralia is a com­mod­i­ty coun­try).

Dif­fer­ent Con­cep­tions of China’s Future Role in the Glob­al Finan­cial Sys­tem, Brad Setser, 15 May
Sol­id arti­cle by the “CFR-approved” Setser. Key quote: “Is a sta­ble inter­na­tion­al finan­cial order one defined by large-scale Chi­nese financ­ing of the US, in dol­lars, to sus­tain a large US cur­rent account deficit?”

Glob­al Sys­tem­at­ic Cri­sis: June 2009, Leap2020, 16 May [sub­scrip­tion required for full arti­cle]
Well, well, well, one for the bear’s bear. Ball­sy fore­cast­ing indeed. Note that Leap2020 is strong­ly affil­i­at­ed with the EU. Blog mem­ber Lyon­wiss con­tributes an inter­view from Jan­u­ary with David Kor­ton who calls for a “new econ­o­my ded­i­cat­ed to serv­ing life”.

Asia Will Author Its Own Destruc­tion If It Trig­gers a Cri­sis Over US Bonds, Tele­graph (UK), 17 May
Didn’t the neo­clas­si­cists preach that coun­tries should build up their export sec­tor above all else to reduce reliance on West­ern aid? PD Bower’s com­ment (see same page) is a clas­sic: “So let’s get this straight. Asia has all the pro­duc­tive capac­i­ty and sav­ings pool, the west has a Ponzi scheme econ­o­my based on spec­u­la­tion and ven­dor financ­ing using worth­less fiat mon­ey and they [Asia] are the ones in trou­ble!” See also a bet­ter arti­cle from Michael Pet­tis writ­ing in the FT (he’s usu­al­ly at and an NYT piece enti­tled Chi­na Becomes More Picky About Debt. Blog mem­ber ak links the present geopo­lit­i­cal envi­ron­ment to the Opi­um Wars of the 19th cen­tu­ry.

Chi­na To Pump Bil­lions Into Brazil To Ensure Ener­gy Secu­ri­ty, Wall St Jour­nal, 18 May
Anoth­er exam­ple of the poten­tial for Chi­na to replace the US as the dom­i­nant super-pow­er. This has huge impli­ca­tions for the future of the USD. Now Chi­na and Brazil “plan to axe the dol­lar” accord­ing to the FT – major news and very can­did head­line for a main­stream news­pa­per. But the UAE gives Uncle Sam a reprieve.

Will the Dol­lar Stan­dard Col­lapse?, Clus­ter­stock, 18 May (via Naked Cap­i­tal­ism)
Use­ful analy­sis of the impact of a trade sur­plus on a country’s domes­tic econ­o­my. Blog mem­ber Bull­turned­bear con­tributes David Walker’s con­cerns about the US retain­ing its AAA rat­ing (award­ed by those “tough cus­tomers” at Stan­dard & Poor —  – so you can have a $60 tril­lion debt moun­tain and still keep the AAA bumper stick­er when you’re the world’s biggest but sick­est.

Dol­lar Stops Being Russia’s Basic Reserve Cur­ren­cy, Prav­da, 19 May
“The euro-based share of reserve assets of Russia’s Cen­tral Bank increased to the lev­el of 47.5 per­cent as of Jan­u­ary 1, 2009 and exceed­ed the invest­ments in dol­lar assets, which made up 41.5 per­cent.” More reveal­ing insights from Prav­da.

S&P: UK Out­look Revised To Neg­a­tive, Zero Hedge, 21 May
More from those “tough cus­tomers” – maybe Kevin and Nafen Rees were right after all! “The sov­er­eign down­grade mon­ster is back on the ram­page… S&P fired a blank shell straight at the heart of the usurp­er for­mer­ly known as the devel­oped world, when it put UK’s cred­it out­look on neg­a­tive.” Let’s take a look at that US Debt Clock one more time.

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