Over at Fed Watch, Tim Duy reminds us to be keenly aware of the subtleties of international finance — and simpleton thinking that there are quick fixes. If everybody tries to export their way out of their finance problem all will lose. So too if even a bunch of countries try. It is one thing to be rightfully worried about Europe and the PIIGS, but we need also add in worries later this year about the USA and California, NY, and other states (also counties and municipalities). For those of us who have lived long enought to have assets, where do we find a "safe haven"? Or do we? At Clusterfuck Nation, James Howard Kunstler believes that it is "over," meaning Western Civilization. Kunstler believes that we have finally pumped up the ultimate bubble, government debt pretty much worldwide, and that all bets are now off. We'll see! To Duy, We Can't All Be (Net) Exporters 4/29:
The Greek crisis, which helped further extend the Dollar's uptrend in place since the beginning of the year, is a reminder that global imbalances are still with us - and, if not corrected, will eventually threaten the sustainability of the global recovery. Indeed, how sustainable can any recovery be if the vast majority of nations are pursuing an export oriented growth strategy? After all, clearly that is not a game all can play - there needs to be a net importer to offset the net exports. Who wants to fill that role? If the US is pushed into filling that role, we have simply come full circle over the past three years.
The Administration is clearly aware of this challenge, but concerns are growing that any action will fall short of what is necessary to bring about real change. From Sudeep Reddy at the Wall Street Journal:
President Barack Obama's goal of doubling U.S. exports over the next five years will be difficult to meet, business leaders and economists say, because of the lack of momentum on demolishing trade barriers and the shift by more American companies toward producing overseas.
U.S. exporters want Washington to put more pressure on trading partners to eliminate tariffs, crack down on intellectual-property violations and take a harder line on trading partners' currency policies. American firms say stronger action by the federal government could substantially boost prospects for U.S. exports.
Policymakers argue that it is far too early to admit defeat:
Christina Romer, chair of the White House Council of Economic Advisers, calls the administration's export target "an ambitious but reasonable goal."
"Going up 100% over a five-year period is not such a radical idea when you think about historical experience," she said, noting that exports increased more than 75% between 2003 and 2008. "It is going to be a gradual process. We are just starting the concrete steps in terms of what we can do to lower the fixed costs associated with exporting through trade promotion and commercial diplomacy."
… Am I the only one that finds the Administration's focus on doubling exports somewhat disingenuous? Economic growth depends on net exports - doubling exports is a fine goal, as long as import growth is contained, such that the net effect is positive. But with the economy bouncing back, will import growth remain contained? Recent signs are not supportive - the recovery so far has ended the improvement in the real trade gap….
[A]s the broad global financial crisis continues to fade, nations will increasingly attempt to withdraw fiscal support for their economies - even more so with the Greece example now so vivid - and attempt to rely on external growth to compensate. It is not a game everyone can win. But if it deteriorates into competitive devaluations, it is a game everyone can lose.
Creeping hyperinflation anyone? As frightening as that prospect seems, Jim Kunstler spins it into something more immediately ominous. In And Chicks for Free, 5/10 Kunstler says:
[I]mbalances of global finance are so grotesque now that the whole money system is hanging together with nothing but spit and prayer. I get rafts of e-letters every week warning of a supposedly-coming global currency -- a companion idea to the notion of a one-world government. Both are idiotic fantasies. Events are taking the nations of the world in the other direction: towards break-up, down-sizing, down-scaling. Likewise, if major currencies such as the Euro and the dollar blow up, they're much more likely to be replaced by more local bank-notes backed by gold than by some hypothetical Amero or Globo-buck.
At seven a.m. Eastern time, the European stock markets were zooming, and Bloomberg even carried a wonderfully mysterious headline saying Greek Bonds Rally. That was especially rich -- like, who in the fuck is going to load up on Greek bonds now? Is there a pension fund somewhere run by such dimwits that they would sell their positions in the Goldman Sachs issued Timberwolf CDO in order to get in on the new bargain in ten-year Greek sovereigns? I hope those pensioners are prepared to spend what remains of their lives selling chestnuts from pushcarts on the streets of Oslo, because they sure won't be clipping coupons in front of any World Cup telecast.
As if life in the USA wasn't surreal enough last week. Once upon a time, the stock market was a place where people with capital went to look for productive activity to invest in -- say, a company devoted to making soap flakes, an underpants factory. Now the market is a robot combat arena where algorithms battle for supremacy of the feedback loops. Thursday's still-baffling fifteen-minute "crash" was an excellent demonstration of the diminishing returns of technology. People too-clever-by-half, aided greatly by computers, have now gamed the investment indexes so successfully that these markets no longer have anything to do with investment -- they're just about shaving micro-points of profit at high volumes by micro-milliseconds off mere differentials in... math! This is truly quant heaven, a place where only numbers matter and there is no correspondence to anything in the real world. In other words, last Thursday's bizarre action was a warning that the American stock markets have flown up their own aggregate ass.
So there you have it! If you find a safe place to hide assets, let me know. Goldbugs want you to buy gold. Rick Bookstaber (3/8) tells us that gold too is a bubble. According to Felix Salmon, 5/7, PIMCO's El-Erain is hyper-bearish and wants you to send money to them so they can out-compete all others. So does Goldman Sachs. Or maybe you are too small a fish for Goldman to bother with. In any case, Happy Tuesday.
[End Note: I'm not a big fan of Debt Jubilee. I believe people (and nation states) ought to be accountable for their debt. On the other hand I believe that institutions, e.g. financial institutions (government and private) ought to be accountable for setting up arrangements that are understandable to those who use them. We have a big problem on our hands and seemingly no answers. This post is a bid dark, even for me. Oh well, I categorized it under "irrational pessimism"--mine.]