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G-20 Told Not To Count On U.s. Buyers

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http://www.nytimes.com/2010/06/06/world/asia/06summit.html?ref=business

BUSAN, South Korea — Treasury Secretary Timothy F. Geithner of the United States told his counterparts at a Group of 20 conference on Saturday that they should not rely on spending by American consumers for their economic recovery, and he urged Japan, Germany and China to boost domestic demand.

“We discussed how the ongoing shift toward higher saving in the United States needs to be complemented by stronger domestic demand growth in Japan and in the European surplus countries, and by sustained growth in private demand, together with a more flexible exchange rate policy in China,” Mr. Geithner said.

He spoke at the end of a two-day conference of finance ministers and central bankers from the world’s 20 leading economies. The officials gathered in this port city in southern South Korea to discuss ways of shoring up a fragile global recovery in the face of the euro zone debt crisis.

Their discussions gravitated toward how to strike a balance between two apparently contradictory goals: continuing to stimulate recovery while also reining in massive deficits in some member nations.

They also haggled over the thorny issue of reforming supervision of banks and other financial institutions to stop the world from plunging into a re-run of the 2008-2009 recession.

“We agreed that the withdrawal of fiscal and monetary stimulus must proceed in step with the strengthening of the private sector recovery in our economies,” Mr. Geithner told reporters.

“Fiscal consolidation should be ‘growth-friendly,’ ” he said, adding that the “pace and composition of adjustment” should vary across countries.

In a joint statement, the finance ministers and central bank governors mentioned the same agreement, after reaching a compromise over budget cuts needed to calm global financial markets rattled by a debt crisis in Europe. They said, without mentioning Europe by name, that the “recent volatility in financial markets reminds us that significant challenges remain and underscores the importance of international cooperation.”

“We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions,” their joint communiqué said. “Those countries with serious fiscal challenges need to accelerate the pace of consolidation.”

Dominique Strauss-Kahn, managing director of the International Monetary Fund, said that troubled euro zone countries, such as Greece and other southern European countries saddled with huge debts, “have to consolidate strongly even if it has some bad effect on growth,” Reuters reported.

"Fiscal consolidation should be ‘growth-friendly'" now that's a classic statement. Can you really have fiscal consolidation that's growth friendly, I assume he's talking about the short term with this.

Is the US going go supply China with cheap consumer products for them to buy to boost internal demand?

Considering the fiscal position of the Japanese where does he think they are going to get the money to spend from?

The Germans may have savings but why are you going to spend them when the govt is going to provide less in the future?

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http://business.timesonline.co.uk/tol/business/economics/article7144663.ece

Although the meeting’s final communiqué said that the global economy was recovering faster than anticipated, the event was overshadowed by unresolved sovereign debt problems in Europe, warnings of worldwide “fragility” and frenetic attempts to play down suggestions that Hungary could be poised for a Greek-style crisis.

......

“We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions,” read the second paragraph of the communiqué.

That part of the document — and the whole question of whether policy emphasis should be on deficit reduction or on maintaining stimulus — is understood to have been a source of wide and heated disagreement among G20 ministers.

“I think we’ve achieved a significant success by getting the endorsement of the G20 for the fiscal position we adopted just three weeks ago,” said Mr Osborne before beginning his return to the UK from a four-day visit to the Far East.

His comments were followed moments later by a warning from Dominique Strauss-Kahn, managing director of the International Monetary Fund, who said that global growth could take a hit if efforts to rebalance demand are not properly coordinated.

Although Mr Strauss-Kahn said that he was “totally comfortable” with calls on troubled countries to speed-up fiscal consolidation he cautioned that the process would have “some bad effect” on growth.

Other risks were also highlighted. Timothy Geithner, the US Treasury Secretary, preceded his arrival in Busan by sending a letter to his G20 colleagues in which he cautioned that the belt-tightening and greater saving by American household could reduce overall demand.

Can we expect the start of the double dip across the globe by Q3 or Q4 of this year?

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I remember Schiff back in 06/07:-

The US debt:- Ah........that never going to get paid back, those crediters will not get repaid.

China:- Will decouple from the US, allow the Yuan to rise & then China's 1.4 billion people can afford its own goods & services, they won't & don't need us!

Mike

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I remember Schiff back in 06/07:-

The US debt:- Ah........that never going to get paid back, those crediters will not get repaid.

China:- Will decouple from the US, allow the Yuan to rise & then China's 1.4 billion people can afford its own goods & services, they won't & don't need us!

Mike

So those living in rural areas have huge disposable income then ready to splash on out the latest electronic gadgets?

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I remember Schiff back in 06/07:-

The US debt:- Ah........that never going to get paid back, those crediters will not get repaid.

China:- Will decouple from the US, allow the Yuan to rise & then China's 1.4 billion people can afford its own goods & services, they won't & don't need us!

Mike

Good. Less Chinese sh!te coming in to the US, people making do with less, local manufacturing getting a rebirth, and generally less "stuff" clogging up the arteries. Bring it on.The age of the minimalist is here.

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Timothy Geithner there is talking the most sense I've heard from any politician ever. The heart of the monster - BALANCE.

Chances of success without schism or friction and protectionism/default or at least the threat thereof - practically nil.

how can you return the balance....what do China want that they are going to spend money on?

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Ahh - well the point is there should be a rule governing how much trade can be conducted one way before the other has to reciprocate (Keynes tried to design that after the War but the Americans overruled him). It could involve moving factories back to the US that make iPODs and the like. You don't buy - you don't sell. Barter has a lot going for it.

bit late now...we borrow from them, they sell us their stuff.

its a bit like working for a company all day, they pay you but you buy everything from the company store. you can never get ahead.

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Ahh - well the point is there should be a rule governing how much trade can be conducted one way before the other has to reciprocate (Keynes tried to design that after the War but the Americans overruled him). It could involve moving factories back to the US that make iPODs and the like. You don't buy - you don't sell. Barter has a lot going for it.

Seems like it could have been an interesting system.

Thank god the Americans knew what they where doing...

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bit late now...we borrow from them, they sell us their stuff.

its a bit like working for a company all day, they pay you but you buy everything from the company store. you can never get ahead.

Not really.

If the Chinese and Germans don't wish to amend their business plan and generate more inflation/currency appreciation then of course they deserve to be defaulted upon.

We've done this to death - the song remains the same.

Geithner of course is correct. Chance of China and Germany doing it? As hotairmail says, next to nil in the near term. So we keep ending up with either protectionism (my favoured policy) and/or war (least favoured but possible - I mean Obama has all but gone to war with Britain over the BP thing and it was Halliburton and Transocean that caused it)

Edited by Red Kharma

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http://market-ticker.denninger.net/archives/2375-Prepare-NOW-They-Get-It.html

Anyone who doesn't believe that "they" (the powers that be) "get it" at this point needs to remove their head from their ass:

G-20 central bankers and finance ministers agreed in a joint statement today that “within their capacity, countries will expand domestic sources of growth.” At the same time, European Central Bank President Jean-Claude Trichet told reporters that Europe’s best contribution to the global rebound is to achieve fiscal sustainability.

Those two are polar opposites. You just heard Trichet admit that what everyone wants they cannot have.

Look folks, if you currently spend 11% of GDP by borrowing money and blowing into the economy to prop it up and you achieve "fiscal sustainability" (defined as not doing that any more) GDP will inevitably contract by the amount of stimulative borrowing you withdraw.

Geithner said at a press briefing today that “credible commitments to fiscal sustainability over the medium term” are needed to generate a durable recovery. Spain’s Finance Minister Elena Salgado said at a separate European press briefing that deficit reduction should come “no later than 2011.”

Game's up folks - that's six months out.

Look, let's be straight with everyone here. This is the current deficit additions for the first five months of 2010 (click for a larger copy):

That's nearly $700 billion in five months. Annualized it's $1.68 trillion. Last year's total was $1.647 trillion.

Ignore the CBO and other government claims. That which is borrowed is that which is owed, and the increase in that which is owed over a year's time is the true deficit in the budget, irrespective of all claims otherwise.

This comes out to roughly 12% of GDP. If we contract that deficit spending in 2011 to the European standard of no more than 3% of GDP then either GDP contracts by the difference (8-9%) or the government extracts that from you in the form of taxes.

Either way you don't have it - it is either not produced and thus not paid or it is produced and stolen. Irrespective of how it is achieved you are going to see roughly 10% of your "standard of living" come out of your hide.

It would be nice if it stopped there, but it both won't and can't. That which you don't have you can't spend, which means that the "excess capacity" in the economy goes up, not down. Employment will not increase, it will stagnate or get worse. Budgets will have to be slashed at state, local and federal levels - like it or not.

Rather than you taking it in the chute what should happen is what I described in my last post - that is, the fraudsters and scammers in the banking and "finance" industry who sold you, and the nation, on the premise of ever-increasing debt being sustainable, should be the ones who are put out of business at the same time.

Unless we the people demand that this happen it of course will not. The consequences of such a refusal will be profound and extraordinarily unpleasant, while those who caused this mess by their intentional and willful acts will continue to keep their ill-gotten gains.

Remember one thing folks - political promises are not debts. They have no standing in the line other than the willingness and ability to fund them. When that disappears, and it will, you will discover that the so-called "promises" you were made have the value of used toilet paper.

This is unavoidable, and no amount of bleating will change it. I wish there was a solution to this problem, but there is not. The promises made cannot be kept, not due to lack of political will but inability to continue to compound debt upon debt upon debt any longer.

We entered this downturn because people could not pay the debts they owed. We are still in this mess because people still cannot pay. The government attempted to shift those debts to itself, and now it is in danger of being unable to pay.

The Federal Reserve Z1 will be out on the 10th, and I will be updating the charts showing total systemic debt on that day. I expect they will continue to show contraction, despite the efforts of government to stimulate credit demand and thus continue the expansion.

That is the end game that leads to the Mises-style "adjustment" and there is nothing that can be done to prevent it.

The government has spent two years trying to stop the contraction by replacing private credit demand with public. The attempt to re-ignite private credit growth has failed, exactly as I expected it to and have repeatedly stated it would here on these pages.

All that has happened is that governments have now started to be unable to meet their debt commitments - so instead of businesses (and banks) going under, we now have the risk of governments going under.

The idiots in Washington DC and indeed around the world refused to recognize that they are the gnat on the horse's ass. If you look at the above chart you can see it clearly - Federal Debt is a small fraction of the total in the system. It is therefore mathematically impossible for The Federal Government to supplant and replace private credit demand and ability to pay. Something that is 20% of the whole cannot support the whole - it's that simple.

The sustainable long-run percentage of debt in the system is about half of what is now present. If we were to shrink "financial instruments" and "non-financial business credit" by 60% and household credit by about half we'd be in the upper part of the sustainable range.

That's where we're headed - whether we like it or not - as the government is reaching the end of its ability to prop this thing up.

The knock-on effects to GDP that will engender will be hideous. Just to go back to 2000's GDP would knock forty percent off. To return to a sustainable debt ratio on a $10 trillion GDP would require us to contract credit outstanding by some 55% - and that would put us at the top of the range.

I said when I began writing The Ticker that had we taken our medicine in 2001 we would have had to suffer a mild Depression - a 10-12% correction to GDP. In 2007, we would have had to suffer a 20% correction to GDP - roughly equivalent to The Great Depression of the 1930s.

I also said that if the government did what they've now done, the damage could easily be twice that bad, with a potential 40% decline in GDP in the cards.

Is there a guarantee that things will get that bad? No. But is it entirely possible? Yes, and if you believe not and want to expound on that in public you need to explain how your scenario can come about, given the clear mathematical evidence.

See charts at the link.

Denniger's take on the G20 statement.

It's certainly going to be interesting when govts pull the stimulus I can't see how GDP is not going to contract. Private demand isn't there to make up for it. However if his 40% contraction happens it will be total state failure there is no way govts could service there debt on that level of tax revenue. Game over for fiat.

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  • 152 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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