The fall in demand plunges prices

A couple of key elements to consider in economics are: the time factor (not to be confused 6 months to 2 years) and the expected order of events. In order to understand why prices have no where to climb, we must first know the magnitude of the fall in demand. And this fall in demand is a direct reflection of the substantial fall in consumption. And that in turn the decrease in consumption is the product of the hordes of unemployed increasing every day. As you can see, is a fatal chain, was in decline, with increasing deceleration, beating more feebly.

Much of this evidence makes it very unlikely that a storm is looming inflationary as feared by those who anticipate an inflationary spiral when everything returns to normal. The problem is: When does this happen in 6 months, 2 years ...? In this respect, Wall Street yesterday suffered a fainting spell to make themselves known the couple fall in retail sales in 60 years. It is logical that if you increase the unemployment rate we are seeing the collapse of the global economy will not be resolved in a couple of months, not six. So do not be surprised if Athanasios Orphanides has gone even further as advised on this blog, noting that the real risk we face is that of deflation. In fact, the member of the European Central Bank said:

"The weakness of worldwide demand in recent months is likely to exert downward pressure on inflation, not only for this year, but also for next year and maybe beyond that"

¿Inflation Risks? On the contrary. While the productive sectors will continue their the long rider through the desert and increase the weight of countries who see their power industrial collapse, the demand will remain weak. In the fall of South Korea and Taiwan, now joins Singapore, whose economy, after eleven months of decline in exports, will suffer a drop of 9% of GDP. All the tigers of Asia, including Thailand, Malaysia and Hong Kong are suffering the consequences of a globalization that has increasingly turned away from real economy and gave flesh and blood to speculation and derivatives.

We live in times seizures, and certainly anything can happen. In fact, just six months, until the Fed had denied that crisis. Why speak of orthodoxy greater. In this regard, it is natural that prices rise to concern, but we need to understand the real causes that move and do not buy the ideas Friedman: his vision for the control of prices as the central element of the economy turned out to be a fallacy. Especially when their position for the control of prices (interest rates), ended up being as or more harmful than that which prevailed when the prices were fixed by decree. Both ways to control prices were ineffective. The myopia of both processes shows the type of glasses that faced with globalization. And that is why the present chaos.

To refresh your memory, the latest escalation inflationist had two components: a real, favorable to the economy producing goods and services, and unreal, induced by animal spirits. The real case was the strong increase in demand for milk, wheat and corn from China and India in 2007. They saw that it was time to better feed their people and triggered the sudden rise and shortages of basic foodstuffs. The decision caught by surprise by FAO, the body does see? that food production is in line with supply and demand globally.

The second component that triggers the price has to do with speculation, and here Bernie Madoff spent many resources that they manage, to speculate on the price of oil in that reckless marathon of 2008, which led oil prices to the $ 145 barrel. When oil began its collapse, came the immediate ruin of the investor of Steven Spielberg. For this type of operation is that financial transparency has become a key requirement of the new financial order should apply to both countries and companies. That is also why it is imperative for the G20 and the OECD.

Note: This article was originally published in Spanish in El Blog Salmón

Unemployment in USA will be the largest in 60 years

This graphic shows it the unemployment situation in Oregon from January 2000 to March, this year. The unemployment rate is about swift approaching the levels of 1982, the highest since records began to take these in March 1947.
The unemployment rate reached 12% in March, one of the largest increases in the country from 5,9% recorded in June last year. In these last nine months unemployment has risen steadily since the closure of many industries such as construction.
The date of recent months are approaching the peak of the recession of 1982 and since the historical records before 1976 are not fully comparables, it seems very clear that this 12% is the highest in the last 60 years, when the Department of Employment began to publish the figures.

Looking for a Global Central Bank

Whit the world in the midst a paralysis of the credit and a wave of unemployment that begins to provoke massive social movements (Japan and France have joined the protests in Greece and the UK), there are calls find mechanisms to protect the world economy of the flawed policies that a country, or a group of countries can perform, spreading like wildfire through the rest of the world.

In this regard the creation of a World Central Bank that is truly independent of any government or group of governments; and free of fiscal pressures, it becomes paramount. This currency can be assigned only as a means of international payment and as means international reserves, but couldn't be used inside by transactions for that country.

The current financial turmoil shows that indeed there was never a international financial order, to allow a country to take the right to print banknotes that were used for both internal and external consumption. U.S. abuse in his ownership of the currency. In this sense, the Fed has been instrumental in the genesis of the collapse and the generation of the current crisis. For something Alan Greenspan is accused as the main responsible for this crisis, although in the 80s and 90s was considered the great genius of the system, by to give free rein to the financial desregulatión. The question is, can fall as global world responsibility in one person?. No. But this was well.

The amount of dollars being printed in the United States to ensure break the impasse in which plunged the world the policies of the past 30 years, could mean an even greater calamity in the future. The graphic that leads this article shows the levels of public debt and private of U.S. from 1980 onwards, its decline towards the year 2000 and its explosive growth from that date by the Bush administration. But one thing is clear: 40 years before the Reagan government begin, marking an exciting period of stability. I suggest reviewing the U.S. debt, updated today.

The slow agony of the Thatcher age

In the late 70s and early 80s, by the strong pressure from the monetarist counterrevolution in support of financial interests, they started in the United Kingdom and the United States, began budget cuts, privatization of strategic enterprises and deregulation of financial markets.

The virulence of these three policy measures currently it's what has the world on fire. In the U.S. virtually all banks will must be nationalized, as noted in The New York Times, and the last bastions that still resist, JP Morgan and Wells Fargo, will also require substantial liquidity support from all taxpayer.

Alan Blinder of Princeton University has identified the six errors that led to the crisis and does not hesitate to qualify as a guilty monetarist counterrevolution advocated by financial deregulation total.

For three decades, the deregulation option was presented as the path to glory in spite of and the most disastrous theories of international trade at the global level, wiping out millions of businesses, causing an enormous concentration of wealth and denying the minimum levels participation.

The neoliberal revolution began in the UK and the U.S. spread around the world and should not miss the speed of the contagion to the current crisis, although some still try to minimize (for the jihad of economic thought as it is a crisis impossible, the market is perfect and it solves everything) has spread worldwide.

A sample of the evolution of this crisis is that the UK economy is about to undergo its most dramatic drop since 1946, with a drastic decrease of 3% this year, slightly less than the fall that are expected for the U.S.: 5.5%, but whose impact is causing massive levels of unemployment. Meanwhile, the pound coin that is not part of the euro area has fallen sharply against the euro and the dollar in recent weeks by growing fears of collapse of the British banking system, which last year had to nationalize Northern Rock and last week he was forced to sign a forced participation of 70% at Royal Bank of Scotland.

The current crisis, indeed, is still in its infancy, and as Vince Cable points out: "Governments are like someone who is trying to give the kiss of life to a corpse". Thus are the things.

Note: This article was published originally in El Blog Salmón, in Spanish. See the original article: La lenta agonía de la era Thatcher

Summers: "Vienen tiempos muy muy duros"

El Director del Consejo Nacional Económico de la Casa Blanca, Larry Summers, ha señalado que vienen tiempos muy duros para la economía estadounidense. El plan de estímulo que comienza a negociarse esta semana por 825.000 millones de dólares, requerirá de gran transparencia y seguimiento para que logre reactivar a una economía que se encuentra paralizada.

The Financial Crisis Revisited

Video - 4.05 min

He aquí un muy buen resumen en imágenes sobre el descalabro que nos toca vivir a todos en el mundo. Al menos, si compartimos todos este dolor y este miedo, esta auténtica incertidumbre provocada por los espíritus voraces, podremos aligerar este pesado equipaje que cargaremos por largo tiempo. Si el resultado final es reducir la desigualdad en el planeta, habrá valido la pena.
Felicitaciones a los creadores de estos clip, que con su ingenio nos ayudan a superar este miedo.
Dado que en el clip aparece varias veces la obra El Grito, de Edvard Munch, los invito a ver este artículo El Grito, veinte años más joven
¡Ánimo a todos! Debemos salir de ésta.

A long rider through the desert, at sunset

The Far West is no longer for adventure or promises of miracles and triumphs. The sharp fall in stock markets yesterday, shows that we have only seen the tip of the iceberg of the crisis. The collapse of the Dow Jones, the Ibex, the CAC, the FTSE, and others, remains fully the pattern of this crisis, announced in The fall of a plane in flames. And although some still wonder where is the crisis if they are not large cities in banks, as shows the scene of the film It's A Wonderful Life, by Frank Capra, with an example of bank runs in the 30s , forgetting that the transactions are done online today anywhere in the world, 24 hours a day, every minute, or those expressing horror at the apocalyptic interventionism that was to come as the only alternative to avoid total collapse.

The truth is that the world is in chaos and made the man who left the White House yesterday is one of the main culprits. In this connection the movie by WSJ The fall of Wall Street by those who did, with testimony from the first source. United States takes eight years and lost to the new occupant of the White House might touch him at least three of the four years of his government to amend the course. It's the lost decade. This is because the U.S. is in ruins in the center of the largest debt in its history, as noted in The troubling U.S. deficit, a deficit caused by an ideological preference for creating debt to manage macroeconomic management and silence the cycle.

To understand the magnitude of the problem and why there are so few options for those responsible for economic policy, should be given a look at this graphic that shows the growth of the real economy and the growth of the financial sector since 1952. In those years, the level of debt both in the public and private sector was approximately 60% of GDP. For three decades remained flush controlled. But since 1981, as shown in the chart, the deficit soared. Within a few years, the debt increases by 20 times and the debt / GDP ratio becomes 360%. Moreover, much of this debt is in the private sector, as seen in the other graph. The public debt is around 52% of GDP, but private debt increases 22 times, three times faster than the overall economy as a whole.

Why the government will make Obama an important turning point on how to look at the world. It will be a return to the real world. That machine was the U.S. consumer had to burst one day, and they have. It is time for the skinny cows, since 6% of world population, devoured nearly 50% of global production. Does that mean the magnitude of the crisis? Enough that oil consumption dropped 10% in the U.S. for the price back to levels of four years ago. Imagine what it comes with a general decline in consumption from 15% to the world.

All the crises of the last 70 years occurred far from the U.S.. And in each, the U.S. was the buyer of last resort, thus avoiding a deepening crisis. Now that this country is the epicenter of the crisis, the world falls into the quagmire created by the ideology of inequality. No buyer of last resort. Nor will it for a long time for three decades because economists never thought about the likelihood of an event like this. And those who believed it, as Keynes and Minsky were treated as bastards, were treated as heretics by system.

This has reduced the range of maneuver for the governments economic policy. U.S. and UK experienced devaluations. EU countries may not be reluctant to abandon the euro and allowing widespread bankruptcies but politically unacceptable. Finally, encourage the use of inflation will be allowed to dilute the debt and spread across all consumers. The patient left the ICU, you must run with oxygen hoses and ponds behind him to revive an economy that has been completely collapsed.

Images Graphic 1, Graphic 2

Note: This article was published originally in El Blog Salmón, in Spanish. See the original article: La larga cabalgata por el desierto, al atardecer
Nota: Este artículo fue publicado originalmente en El Blog Salmón. Vea el artículo original: La larga cabalgata por el desierto, al atardecer
Imagen | striatic
Link: Economist's View

Fundamentalism and realism in Economy

To 79 years of crack of the 24 of October of 1929, the present debate of economic science has shown the deep division between realists and fundamentalists as formerly it were it the debate between keynesian and monetaristas, been account that the Keynes was essentially monetarista (of there the title of its work: The General Theory of the Employment, Interest and Money) as they showed Clower and Leijonhufvud in years 60s.

The economic fundamentalism implanted by the neoliberal doctrine from principles of the 80 it has been contradicted with the present financial crisis that it has to the world surrounded in an ancestral psychological fear. Beyond the speculative bubble of the Dow Jones from aims of the 90s to the last year (that took it to a sobrevalue of more than 14 thousand points and must be sincerar around the 7,000) fundamentalists they have appealed to the unshakeable faith in the models to the point that if an observation does not fit in the context, must be excluded from the analysis because “the markets are perfect”. For the fundamentalists the crises do not exist because they are attributed “to market faults”. And its answer to solve the faults of the market is “with more market”. For the fundamentalists the one is the man that must adapt to the necessities of the economic system and not the economic model the one that must adapt to the human necessities.

The exposition of Adam Smith was a progressive model for its time. It’s proposal looked for to put in front to the hobbsiana thesis of homo homini lupus where the collapse of the humanity was inevitable without the presence of a protected regulator Leviathan in the force of the Law. The thesis of Smith was to reveal the collaboration and proactive impulses of the man (taken of David Hume) and to show that this one far from looking for its extermination looks for to develop the progress. This long ago more patent in the Theory of the moral feelings where Smith plays with harmony balance of the social invisible hand suggested by Mandeville and Newton. For that reason The Wealth of Nations marks the beginning of economic science, understood like a theory that it looks for to explain the growth and the social progress.

Smith was a liberal progressive in all the line. For that reason it does not have anything to do with the Neoliberalism the Friedman who makes of the market “only that matters”, in the this sense thesis of Friedman were questioned and its “intellectually corrupt” exposition, as it indicates Paul Krugman, is just beginning to be revealed. The market fundamentalism is what on the brink of madness has to the world in this present collapse and the global paralysis. Because the markets are not divine justice, but rather the force angry and destroyer of the nature. What we are seeing every day, perplex, is the fury of the market, ideologized by the fundamentalist currents of the free capital.

James Tobin, in his critic to Monetary Frame of Friedman (The Monetary Interpretation of History), of 1965, indicates the easy thing that he was to pass of the phrase “the money matters” to “the money is the unique thing that matters”. And this is what Friedman in his fundamentalist absolutism did: “the money is the unique thing that matters”, and made of the monetary policy and the control of the inflation the axis of the action of the central banks, closing the way to other preoccupations like the growth, the employ, the total use or the distribution of the entrance.

Tobin, in one more a “realistic” line, raised the necessity to dissuade the practices of financial speculation with a tax that increased in price it, to be able to develop to policies oriented to the total use and the growth of the real economy. However, the “Tobin rate” gradually was left by the governments and central banks and the capital flows freely circulated and at the speed of the light around all the planet looking for the differential of easy gain that it inflated the bubble that today falls resoundingly like a controlled demolition.

The realists of the economy have been more conscientious of the limits of the models and they are quick to settle contrastables decisions of economic policy with the direct experience, of in case complex. The neoliberal medicine far from solving the problems of the humanity as Friedman promised to it (the hunger, unemployment, the inequality), has created a polarized and unequal world more. It is clear that the patient must be put under a different treatment.

The basic prescription of the fundamentalists of the market was “to stabilize, to liberalize, to privatize” applying the prescription not to generate an increase maintained of the prices. Thus it was as the inflation were reduced remarkably to global level in years 90. But this also was consequence of the high temporary gains produced by the privatizations.

The fundamentalist models of the call “positive economy” and its estocastics dynamics of the general balance cannot explain the present crisis. This is the alert call that their models are incomplete and must be completed by economists who do not follow table-strickles the orthodox theoretical recipe book. It is necessary to return to direct to the economy towards the total use and this time with a growth model that bets by the conservation of the planet, the quality of life and environment. The easy gain to the Wall Street, does not go more.

Note: This post was originally published in El Blog Salmon. See the original version in Spanish.
Nota: Este texto fue publicado originalmente en El Blog Salmón. Vea la versión original aquí.

Image | Daquella manera

Estados Unidos se llena de pueblos fantasmas

Estados Unidos se llena de pueblos fantasmas. Este video muestra un poblado de casas nuevas vendidas el año 2005 en 970.000 dólares. Hoy nadie paga por ellas 540.000 dólares. La magnitud de la crisis adquiere cada día nuevas y desconocidas dimensiones.

The fall of a plane in flames

79 years from the greatest economic crisis of the modern era, that El Economista did not hesitate to call a macabre tribute, history repeats itself with the sinking of the U.S., an aircraft in flames that will burn for a long time. Data of the U.S. economy for the third quarter of this year show the declaration of 40 states going into a deep recession and the remaining ten joining them soon, in a long journey through the desert for at least a couple of years. Like in a catastrophe film, the gigantic mass, paradigm of Capitalism, carry out a decline more uproarious than the one of the twin towers, the fall of the Wall of Berlin and the collapse of the Soviet block. Its figures are comparable only to the fall of the Roman Empire.

The question we will have time to respond, is could it have been avoided? For now, we are involved in a systemic hurricane that will cause a brutal breakdown in the global economy. The problem is no longer the crisis of high-risk mortgages, but of a high risk structure and global financial system whose tidal wave begins to wipe out the real economy. Commodity prices have begun its descent, which can extend to next year. Oil prices are 30% lower than a year ago and 50% lower than three months ago. A similar path is followed by other raw materials. Copper has plummeted to US $ 1.59 a pound, and nothing can prevent it to reach US $ 1.00.

The financial bubble that started in 1995 with the Dow Jones, that tripled its value in 12 years (from 4000 to 14300 points) was clearly unsustainable, and despite the warnings, nobody did anything. Sooner or later the bubble had to burst because the system could not heal their own internal wounds, and the miracle of sanitation promised by Friedman's theory and his apostasy to Keynesian thesis, that markets are not self regulated, literally squashed this economic theory that had the answer.

Though an exact replica of the Japanese crisis, the current crisis is interwoven throughout all arteries of the system. The channels of transmission of the cycle now operate at the speed of light, 24 hours, every second. When Japan had its crisis in the 90s (its "lost decade"), as Latin America had in the 80s, these channels were not so developed. And these financial crisis via bubble (Japan) or debt (Latin America), suffered its long agony. The Asian crisis was also monetary following the devaluation of the Thai Baht currency by 50% by trade tensions. Same thing in Russia, Brazil, Mexico, Argentina.

The difference of this crisis with the recent crisis in developing countries, is that while strong recessionary forces thoroughly undermined their domestic economies, failed to cause damage to the developed countries, so allowing the relative stability of the system. So it was during the last crisis. Industrialized countries pushed the so-called locomotive of the market and the system distributed the losses by encouraging the mass concentration of capital and widening the gap between rich and poor.

This structure, established as a hegemony in the world, favored monetary policy and financial system over employment, sustainable development, quality of life, real growth. The shift of the central concern of economy to a pure utility equation, ended betting for speculation easy gain. The so-called monetarist counterrevolution led by Friedman’s absolutist quest for "the only money matters" and "the market is the best allocator of resources", achieved the gradual dismantling of the very pillars that had lifted the system.

This happened with the phasing out (since early 70s with Nixon and the 80s under Reagan and Friedman) of the Glass-Steagall Act, created in May 1933 by Franklin Delano Roosevelt for the banking supervision and regulation. The fact, minimized until today, left the system without the very axes that permitted its operation, taking the locomotive to run over a glazed and brittle surface that would soon show its internal fragility. And the belief that an autopilot would correct any deviation, has led the world to these most bitter hours.

The “neo-liberal road roller” trend to social Darwinism and to the concept of a rational consumer seeking only monetary value, this time will mean to the economy a global stagnation: growth of 0%. Because this time, is not just a small country that succumbs. It's the economy that consumes most of the planet and its high debt accuses negative savings. It is inevitable that his drag causes the collapse of several European countries, many of which (the United Kingdom, Ireland, Denmark) are already in recession, to be followed in the next days by Latin American countries like Mexico and Brazil, spreading to other economies like wildfire. This collapse will drag millionaire world-wide bankruptcies with its increasing spiral of unemployment and deepening of the crisis, which will force the countries to take part massively in the economic activity to avoid the paralysis, rescuing the strategic companies that they manage to cushion the impact of a stagnation that is forecasted for a minimum of two years. The hour of the bifurcation, according to the sociologist Immanuel Wallerstein, has arrived.

Note: this text was originally published in El Blog Salmon. See the original version in Spanish

Nota: este texto fue publicado originalmente en El Blog Salmón. Vea la versión original aquí
Imagen | Origins of Business

Ukraine in the doors of hell

The increasing crisis that it invades to the European periphery it's complicate the international scene. What it is happening in the Ukraine is extremely serious and the authorities still are not agreed in the measures to take. The center of the crisis has stopped being the U.S.A. to happen to the countries that more strongly are become indebted. And the lack of liquidity is causing strong pressures in countries like Bulgaria, Estonia, Rumania, Turkey, Iceland and the Ukraine, among others.

The ucraniana economy has carried out a spectacular entrance to the recession in the fourth trimester of the 2008 with a fall near 30% of its industrial production. The graphical one shows this strong fall after having a rate of growth of 11% in 2007. This year will be near at 3%, but the next year will be reduced to 0% and less. This is one violent fall. The projections of the World Bank for the next year speak of a global contraction economy of 4%. And still there are many governments who do not decide what measures to take to face the difficult year that comes.

More information:
Fistful of Euros | Edward Hugh, Blog de Edward Hugh
En El Blog Salmón | La caída de un avión en llamas
Imagen | Ukraine National Statistics Office