Global Economy Bursting?

[Randolph Kinney]

Dollars and U.S Treasury debt are flooding the world as we continue adverse trade policies and domestic social programs.

When the U.S. goes under, it will take the world with it.

 

[Terrel L. Shields]

Randolph, you keep scaring me...

The French elections seem destined (here at poll closing time) to see another conservative government fall. This is about 6 in Europe who have rejected austerity and embraced a "kinder, gentler" form of dealing with the crisis...come on folks. Europe is in for a real ride. France does not want to bite the bullet. They want their 35 hour work week, unions dictating wages and conditions, even who is boss...They want 6 week vacations. Nevermind the economic circumstance. And Germany IS the European economy. They want austerity...for everyone else. This is going to be major crisis time sooner or later. It cannot continue as it is going.

 

[Austin]

The socialist frogs will go down with the ship. What do they have to lose? Rider her until she drops. The Germans will end up owning the whole farm in the end. Didn't fire one shot. Like taking candy from a baby.

 

[Randolph Kinney]

China’s Population Crash Could Upend U.S. Policy

http://www.bloomberg.com/news/2012-04-30/china-s-population-crash-could-upend-u-s-policy.html

Today’s most important population trend is falling birthrates. The world’s total fertility rate -- the number of children the average woman will bear over her lifetime -- has dropped to 2.6 today from 4.9 in 1960. Half of the people in the world live in countries where the fertility rate is below what demographers reckon is the replacement level of 2.1, and are thus in shrinking societies.

In the U.S., we are accustomed to thinking about how this trend affects the welfare state: Longer lives and fewer children make it harder to finance retirement programs. But the rest of the developed world is aging faster, and it’s worth thinking about how that will change America’s global position, as well.

The U.S.’s traditional allies in western Europe and Japan will have less weight in the world. Already the median age in western Europe is higher than that of the U.S.’s oldest state: Florida. That median age is rising 1.5 days every week. Japan had only 40 percent as many births in 2007 as it had in 1947.
These countries will have smaller workforces, lower savings rates and higher government debt as a result of their aging. They will probably lose dynamism, as well.

All these effects will, in turn, almost certainly make these countries even less willing than they already are to spend money on their armed forces. Americans who want Europe to bear more of the free world’s military burden -- or even provide for its own defense -- are probably going to be disappointed. So will those who expect Europe to take on humanitarian missions. It won’t even be able to maintain its current weight in future debates about the values of peace and democracy.

But one country that worries American military strategists will also face serious demographic challenges. China’s rise over the last generation has been stunning, but straight-line projections of its future power and influence ignore that its birthrate is 30 percent below the replacement rate.

The Census Bureau predicts that China’s population will peak in 2026, just 14 years from now. Its labor force will shrink, and its over-65 population will more than double over the next 20 years, from 115 million to 240 million. It will age very rapidly. Only Japan has aged faster -- and Japan had the great advantage of growing rich before it grew old. By 2030, China will have a slightly higher proportion of the population that is elderly than western Europe does today -- and western Europe, recall, has a higher median age than Florida.

China, notoriously, has another demographic challenge. The normal sex ratio at birth is about 103 to 105 boys for every 100 girls. In China, as a result of the one-child policy and sex- selective abortion, that ratio has been 120 boys for every 100 girls. From 2000 to 2030, the percentage of men in their late 30s who have never been married is projected to quintuple. Eberstadt doesn’t believe that having an “army of unmarriageable young men” will improve the country’s economy or social cohesion.

He thinks demographic change will pose two problems specific to China. Its society has relied heavily on trust relationships within extended-family networks. In a country where fewer and fewer people will have uncles, those networks will rapidly atrophy. The government, meanwhile, relies for its legitimacy on a level of economic performance that demographic trends imperil.

All in all, Eberstadt concludes, “we might want to have some additional new friends and allies in the world.” America’s growing ties to India, a nation he describes as “aging moderately,” strike him as promising. But he warns that it has not made the most of its population: “India has an appalling education deficit.”

Foreign-policy thinkers can often lose sight of demographic trends, Eberstadt says, because from a policy makers’ view “they tend to look really glacial. If it’s not happening in the next 48 to 72 hours, it’s not in the inbox.” But “population change gradually and very unforgivingly alters the realm of the possible.”

 

[Austin]

I watched Warren Buffett being interviewed yesterday on Fox Business. He was asked what it will take to solve the housing problem. His reply was the only way to solve the problem is new household formations to increase demand. That takes people and we have a declining birth rate and no jobs to make the payments if we did have population growth. In summary, the housing market is screwed for our life time.

 

[Randolph Kinney]

Stock Trading Is Still Falling After ’08 Crisis

Even though American stocks have doubled in price in the last three years, investors and traders large and small keep giving the market the cold shoulder.

Trading in the United States stock market has not only failed to recover since the 2008 financial crisis, it has continued to fall. In April, the average daily trades in American stocks on all exchanges stood at nearly half of its peak in 2008: 6.5 billion compared with 12.1 billion, according to Credit Suisse Trading Strategy.

The decline stands in marked contrast to past economic recoveries, when Americans regained their taste for stock trading within two years of economic shocks in 1987 and 2001.

This time around, the stock market has many more players, including high-speed trading firms, which have recently come to account for over half of all stock market activity. But even they, like all other major groups, have recently been doing less overall trading.

Many market experts say the biggest reason for the shrinking volume is that traders and investors remain leery that the economy will suddenly turn on them in the wake of the financial crisis, the wild swings in stock prices and the European debt troubles.

Investors and financial industry professionals are struggling to understand what the decline could mean, particularly if it continues. Less rapid trading by short-term speculators could be a good thing for buy-and-hold investors tired of being burned by the market. But the decline could also signal a broader turn away from the domestic stock market by investors who want to hold less of their nest eggs in stocks and by companies that opt for raising capital in bond markets instead of issuing shares.

The New York-based system of stock trading has been showing the strain of the slowdown. The New York Stock Exchange said last week that trading in the first quarter fell 23 percent from a year earlier. A few days earlier, Nasdaq announced that its first-quarter revenues from stock trading in the United States were down 7 percent from a year ago. Both exchange companies have aggressively moved to capture other businesses that do not rely on stock trading, but they have also embarked on cost-cutting programs.

Among retail investors, the most reliable source of trading volume has been the day traders who were given access to cheaper trading by discount brokers like E*Trade and TD Ameritrade.

Stock trading now accounts for 16 percent fewer customer trades at TD Ameritrade than it did in 2009.

The shift is partly attributable to the growing number of seniors moving from stocks to bonds, which is typical in retirement. But surveys by the institute have shown that investors young and old have grown less willing to invest in domestic stocks, even with interest rates on bonds at record lows in recent years.

Some of this money has flowed into increasingly popular exchange-traded funds, which are baskets of assets that trade like stocks. But even more has flowed into bonds. Some financial advisers worry that Americans preparing for retirement are giving up the investment gains that are possible in stocks and ignoring the possible future risks in bonds.

________________________

The markets are a measure of risk and reflect that sentiment, not just for equity and debt, but also for the economy as a whole.

One aspect that is missing from this article is the pile-up of cash just sitting. Corporations have trillions of dollars in cash and equivalents as do individuals. Why hold cash at near zero returns?

The Federal Reserve can and does enter into the market, whenever, to change policies or to reinforce policies.

The tax laws are set to change in a big way and must change to support the mountain of debt piling up.

Spending is set to change in a big way too.

I suspect we will see another trauma event in the markets, soon. And that reinforces the behavior of holding cash.

 

[berniek]

The socialist frogs will go down with the ship. What do they have to lose? Rider her until she drops. The Germans will end up owning the whole farm in the end. Didn't fire one shot. Like taking candy from a baby.

You will be surprised how pragmatic the French can be compared to Americans.

 

[Riick]

....This is about 6 in Europe who have rejected austerity and embraced a "kinder, gentler" form of dealing with the crisis...come on folks.
....France does not want to bite the bullet. They want their ......vacations. Nevermind the economic circumstance.
And Germany ... They want austerity...for everyone else.
This is going to be major crisis time sooner or later.
It cannot continue as it is going.

I keep wondering WTF is going to happen.
Between USA and Europe it looks like a race to see who can inflate
their money faster, and thus screw the other by having cheaper goods,
via a workforce working for lower & lower & lower wages & buying power.

I'm not a good enough student of economics; Is or Isn't (?)
that similar to the "beggar thy neighbor" trade policies of the 1930's?
.

 

[Workbox]

Until we see headlines that the new European governments actually " want to get out of the Euro", the can is still on the road.

 

[Randolph Kinney]

Billion-Dollar Traders Quit Wall Street for Hedge Funds

http://www.bloomberg.com/news/2012-...traders-quit-wall-street-for-hedge-funds.html

Wall Street’s biggest banks have lost almost two dozen of their most-profitable credit traders in the past 13 months as regulators limit the kind of risk-taking that amplified the housing crisis four years ago. As banks slash or defer pay and reduce the amount they’re willing to wager, the traders are seeing better opportunities at hedge funds and investment firms that seek to profit in markets lenders are retreating from.

More than three years after bad bets on housing led to the collapse of Lehman Brothers Holdings Inc. and emergency sales of Bear Stearns Cos. and Merrill Lynch & Co., lenders are responding to toughened capital rules that damp risk-taking and make trades costlier.

In the U.S., the so-called Volcker rule, the provision in the 2010 Dodd-Frank Act named for former Federal Reserve Chairman Paul Volcker, will set limits on risk-taking by depositories with government backing.

“Many of the major investment banks just don’t have the capital they used to, and a lot of that is because of the Volcker rule,” Marc Lasry, co-founder of Avenue Capital Group LLC, said May 2 in an interview with Bloomberg TV’s Stephanie Ruhle at the Milken Institute Global Conference.

Regulations limiting banks’ proprietary trading “has been great” for his New York-based hedge fund, he said. “Nobody’s really competing with you as much as they used to.”

Unlike equities, fixed-income trades typically are privately negotiated outside exchanges, increasing the fees traders collect by making bids and offers because they’re more difficult to execute.

To make markets in debt securities, banks typically risk their own capital to buy assets from clients before lining up someone else to sell them to, sometimes making bets on the direction of markets. The new rules are curbing that, turning traders more into middlemen.