Richard Koo explains how cutting government deficits too early in Japan prolonged the de-leveraging cycle by almost 10 years.
INET interview with Richard Koo, Chief Economist of Nomura Research
Richard Koo: The effect of de-leveraging after a banking crisis
This video from 2010 is particularly important. Richard Koo explains how the private sector paying off debt leads to a rapid contraction in national income.
INET interview with Richard Koo, Chief Economist at Nomura Research
Asia monthly charts
Monthly charts help fit the current market action into a long-term perspective. The Nikkei 225 index broke support at 9000 and is likely to test the 2009 low of 7000*. 63-Day Twiggs Momentum respecting the zero line (from below) confirms the primary down-trend.
* Target calculation: 9000 – ( 11000 – 9000 ) = 7000
The Seoul Composite found (primary) support at 1650/1700, followed by a reaction to 1900. Declining 13-week Twiggs Money Flow warns of selling pressure. Respect of resistance at 1900 is likely, which would indicate another test of primary support.
* Target calculation: 1700 – ( 1900 – 1700 ) = 1500
The Shanghai Composite index is testing support at 2400. Failure would confirm the strong primary down-trend signaled by declining 63-day Twiggs Momentum.
* Target calculation: 2500 – ( 3500 – 2500 ) = 1500
The Hang Seng index is retracing to test resistance at 20000. Declining 13-week Twiggs Money Flow warns of selling pressure. Respect of resistance, would indicate another test of 16000.
* Target calculation: 16 – ( 20 – 16 ) = 12
India’s SENSEX is headed for a test of resistance at 17500/18000 after a small bullish divergence on 13-week Twiggs Money Flow indicated buying pressure. Respect of 18000 would warn of another test of 16000.
* Target calculation: 16 – ( 18 – 16 ) = 14
Singapore’s Straits Times Index is in a similar position. Respect of resistance at 2900 would signal another test of 2500. Failure of support would confirm the strong primary down-trend signaled by declining 63-day Twiggs Momentum.
* Target calculation: 2500 – ( 2900 – 2500 ) = 2100
ASX weekly chart
Just a reminder that the ASX is still in a bear market. Bullish divergence on 13-week Twiggs Money Flow indicates buying pressure on the All Ords and the index is testing the descending trendline. Breakout above 4400 would signal that a bottom has formed, while reversal below 4200 would warn of another test of primary support at 3900.
The ASX 200 weekly chart shows a similar picture, but 63-day Twiggs Momentum deep below zero warns that it may be some time before this bear (market) goes back into hibernation.
* Target calculation: 5600 – ( 6600 – 5600 ) = 5100
CPI now moves balance of probabilities for next rate cut from December to November – Westpac
In the August Statement on Monetary Policy the Bank [RBA], relying on two recent prints of 0.9%qtr for underlying inflation, forecast that annual core inflation would print 3.25% in both 2011 and 2012. We are now confronted with the reality that annual core inflation for the year to September 2011 has printed 2.47% with a reasonable estimate that given the slowdown in the economy the fourth quarter will print around 0.5%qtr. That will allow the Bank to lower its inflation forecast for 2011 to 2½%yr with a similar outcome likely in 2012.
Given the Governor’s recent statement that an improving inflation environment allowed scope to ease policy it now seems almost certain that Westpac’s forecast which was made on July 15 — that we could expect a rate cut by the end of 2011 — will prove to be correct.
In fact given the Bank’s previous record of moving rates every November for the last five years and given that the case for a rate cut is indisputable the balance of probabilities has now moved to a November cut from our original call of December.
via Westpac Economics – first impressions
Wall Street is Still Out of Control, and Why Obama Should Call for Glass-Steagall and a Breakup of Big Banks
In the wake of the bailout, the biggest banks are bigger than ever. Twenty years ago the ten largest banks on the Street held 10 percent of America’s total bank assets. Now they hold over 70 percent.
….I doubt the President will be condemning the Street’s antics, or calling for a resurrection of Glass-Steagall and a breakup of the biggest banks. Democrats are still too dependent on the Street’s campaign money.
That’s too bad. You don’t have to be an occupier of Wall Street to conclude the Street is still out of control. And that’s bad for all of us.
China: the case of the missing inflation – FT.com
While most analysts pored over the numbers to get a sense of how growth was holding up, at least two spotted a large discrepancy between reported price changes and implied price changes.
The gap is more than just an academic curiosity. It suggests that inflation is a lot stronger than the government has been saying and could explain why Beijing has been so reluctant to loosen policy despite a slowing economy.
….China chalked up an implied GDP deflator of 10.3 percent year-over-year in the third quarter, the highest since it started publishing quarterly growth figures in 1999, noted Wei Yao, an economist with Societe Generale. That was well above the 6.3 percent rise in the consumer price index during the same three months.
Diana Choyleva, an economist with Lombard Street Research, found that the chasm was even bigger in quarter-on-quarter terms: the GDP deflator was up 3.8 percent, while CPI was up just 1.5 percent.
….the gap between the deflator and CPI is usually innocuous, just a couple of percentage points.
Stimulus spending, austerity and public debt: James Galbraith
Prof. James Galbraith on fiscal stimulus and public debt:
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Agree:
- Fiscal stimulus should not be a short-term program that will run out. The term should be 10 to 20 years so that business can make long-term plans.
- Stimulus spending should focus on investment that creates assets — to be offset against the accompanying liabilities.
Disagree:
- Austerity cuts are foolhardy. ~ Austerity cuts should free up money for investment in infrastructure projects.
Strongly disagree:
- “There is no long-term debt problem here. We’re clearly in a sustainable situation otherwise the markets would not give the US government the (low) rates they are.” ~ Keep telling yourself that!
Iron ore crash – macrobusiness.com.au
Spot iron ore prices have shed 19 percent so far this month in a sell-off largely fueled by slower construction steel demand in China, the world’s biggest buyer of imported iron ore at around 400 million tonnes a year.
In Europe, a more important market for Vale than Rio, steel markets have taken a knock given uncertainty surrounding the region’s debt crisis.
Growth of Europe’s steel production will slow in 2012 along with activity in the steel-using sectors, Eurofer, the European steel producers association, has forecast.
via Iron ore crash – macrobusiness.com.au | macrobusiness.com.au.
S&P 500 and Europe encounter resistance
The S&P 500 pulled back from resistance at 1250 and is headed for a test of short-term support at 1200. Failure would test primary support at 1100, while breakout above 1250 would signal an advance to 1400*. Rising 21-day Twiggs Money Flow continues to indicate secondary buying pressure.
* Target calculation: 1250 + ( 1250 – 1100 ) = 1400
Dow Jones Europe index also ran into resistance at 250, bearish divergence on 21-day Twiggs Money Flow warning of short-term selling pressure. Reversal below 230 would test primary support at 205/210, while breakout above 250 would signal an advance to 290*.
* Target calculation: 250 + ( 250 – 210 ) = 290