Economist Editor: 2012 is going to be pretty sluggish — with risk of “self-induced” stagnation
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ATHENS—-Embattled Greek Prime Minister George Papandreou has called an emergency cabinet meeting later Tuesday amid an open revolt in his Socialist party that could topple his government.
“Papandreou is trying to control a growing revolt in the party after the defections and calls for him to resign. The future of the government may be decided at the cabinet meeting,” a senior party official told Dow Jones Newswires…….
The referendum is seen as a high-stakes gamble aimed at quelling a public backlash against controversial austerity policies but at the risk of derailing plans aimed at solving the euro zone’s debt crisis.
Dow Jones Europe Index has fallen hard since Greece announced it will hold a referendum on the austerity measures it has to take in return for the EU/IMF bailout proposal. Bearish divergence on 21-day Twiggs Money Flow indicates medium-term selling pressure. Breach of medium-term support at 230 would signal another test of primary support at 210. And failure of 210 would signal a decline to the 2009 low of 150*.
* Target calculation: 210 – ( 270 – 210 ) = 150
RBA cuts the overnight cash rate by 25bps – first rate cut since April 2009
As we predicted the Reserve Bank Board decided to lower the cash rate by 25bps to 4.5%…..
Undoubtedly the most important development in the Governor’s statement is his observation that “inflation is likely to be consistent with the 2-3 per cent target in 2012 and 2013.” …… The fact that there is now confidence that inflation will remain within the target band for an extended period allows the Bank to deal with the prospects of an economy which is only showing moderate growth.
via Bill Evans, Westpac Chief Economist
Assets of all exchange-traded funds fell in September by $89.29 billion, or 8.6 percent, to $951.46 billion.
Washington, DC, October 27, 2011 – The combined assets of the nation’s mutual funds decreased by $582.3 billion, or 5.0 percent, to $11.040 trillion in September, according to the Investment Company Institute’s official survey of the mutual fund industry.
via ICI – Trends in Mutual Fund Investing, September 2011.
Losses were primarily in Stock Funds which saw a 9.5% decrease.
Both in Europe and the U.S., structural weakness stems from government excess and slow economic growth. More important than stemming contagion is reversing the policies that created the problem in the first place.
via Edward P. Lazear: The Euro Crisis—Doubting the ‘Domino’ Effect – WSJ.com.
Although there has been some noise about easing real estate curbs amid recent aggressive price cutting and subsequent protests, Li Daokui’s [academic advisor and member of the monetary policy committee of the People’s Bank of China] view is consistent with Premier Wen Jiabao’s view that curbs will be remain in place. He believes that economic growth will slow, and the growth model which relies on real estate development will end.
He added that inflation in China will probably fall from about 5.5% for this year to just 2.8% next year…..
via China will not ease up on realty – macrobusiness.com.au | macrobusiness.com.au.
New home sales declined in September with detached house sales posting their lowest monthly level since December 2000, said the Housing Industry Association, the voice of Australia’s residential building industry.
via New home sales clobbered – macrobusiness.com.au | macrobusiness.com.au.
In fact “normal” for the last half century has been an unsustainable growth in debt, which has finally reached an apogee from which it will fall. As it falls–by an unwillingness to lend by bankers and to borrow by businesses and households, by deliberate debt reductions, by default and bankruptcy–aggregate demand will be reduced well below aggregate supply. The economy will therefore falter–and only regular government stimuli will revive it.
This however will be a Zombie Capitalism: the private sector’s reductions in debt will counter the public sector’s attempts to stimulate the economy via debt-financed spending. Growth, if it occurs, will not be sufficiently high to prevent growing unemployment, and growth is likely to evaporate as soon as stimulus packages are removed.
The only sensible course is to reduce the debt levels. As Michael Hudson argues, a simple dynamic is now being played out: debts that cannot be repaid, won’t be repaid. The only thing we have to do is work out how that should occur.
via Debtwatch No 41, December 2009: 4 Years of Calling the GFC | Steve Keen’s Debtwatch.
Nothing seems to have changed since Steve Keen wrote this in December 2009. Almost two years later and any private sector deleveraging has been compensated by increases in public debt to finance stimulus spending. Greece’s “default” may be the first step in a long journey — and the jury is still out as to whether recapitalization of European banks (after their “haircut”) will be funded out of debt or new equity.
