Let`s see what the day hath brought ... new-home sales appear [url=http://money.cnn.com/2009/07/27/real_estate/June_new_home_sales/index.htm]better than expected[/url], (though prices continue to drop), albeit with the usual lack of mention of [url=http://www.ritholtz.com/blog/2009/07/new-home-sales-fall-213/]seasonality and error bars[/url] by the MSM ... Barry Ritholtz (whose mother was a real estate agent) [url=http://www.ritholtz.com/blog/2009/07/more-nar-nonsense/]rips the NAR for their recent whining about tougher appraisal rules[/url] ... 64 banks have failed so far this year, including a whopping 7 last Friday (the FDIC likes to take down banks on Fridays: At work you might have "casual dress Fridays", at the FDIC they have "bank failure Fridays") and it looks like the [url=http://money.cnn.com/2009/07/24/news/companies/guaranty_financial.reut/index.htm]2nd-largest publicly-traded bank in Texas is about to go next[/url] ...


[b]The End of the End of the Recession:[/b]

The folks at ZeroHedge have collaborated with David Rosenberg, former chief North American economist at BofA (by way of Merrill Lynch) and one of the very few Wall-Street-affiliated economists not shy to [url=http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2820656/Merrill-forecasts-gloom-for-US-economy.html]tell it like it is[/url] over the [url=http://www.stockmarket.julyblogs.co.uk/economics/09_merrill_lynch_rosenberg.html]past several years[/url] (which likely explains why he is no longer at BofA) to produce an in-depth report titled [url=http://www.zerohedge.com/sites/default/files/The%20End%20Of%20The%20End%20Of%20The%20Recession.pdf]The End of the End of the Recession[/url]. Most assuredly *not* coming to CNBC any time soon... note that ZH/DR are preparing an entire separate report on the elephant in the green-shoots bedroom which is commercial real estate.


[b]China Economy In-Depth:[/b]

[url=http://money.cnn.com/2009/07/27/news/international/china_debt.reut/index.htm]China's hidden debt problem[/url]: [i]Despite robust growth, the world's third largest economy is potentially deeper in debt than originally thought.[/i]
[quote]BEIJING (Reuters) -- On the surface, China presents a fiscal study in contrast with the United States, keeping a remarkably low ceiling on debt even as it spends its way out of the financial crisis.

But when Chinese leaders meet their U.S. counterparts this week, they should pause for reflection before venting any criticism, because hidden liabilities mean China's books are uglier -- potentially much uglier -- than at first sight.

Thanks to successive years of fast economic growth and even faster government revenue growth, the official debt-to-GDP ratio was 17.7% at the end of last year, far lower than almost any other major economy.

The trouble is that excludes local government borrowing, the current surge in loans backstopped by Beijing and bad assets cleared from the banking system but still floating about.

When all are thrown into the pot, analysts estimate that China's debt may be closer to 60% of GDP, putting it in virtually the same league as the United States, which was at 70% at the end of 2008 before it launched its massive economic stimulus program.

To be sure, Washington is now set on a path of exploding debt that Beijing will largely avoid. The United States budgeted for a federal deficit of 12.9% of GDP this year, whereas China is aiming for just 2.9%.[/quote]
[i]My Comment:[/i] That 2.9% could easily multiply several times over if the Chinese export economy doesn`t begin to turn around soon, and another huge stimulus package (a.k.a. "Supplemental welfare for people, industry and banking") is needed. The "green shoots" being reported out of china are no more real than those in the U.S. - I've seen no concrete evidence that exports are reviving in any significant way, and it appears much of the stimulus money is being put to nonproductive speculative uses including making dubious loans because the government has mandated an increase in lending.

The article continues in that vein:
[quote]Most troublesome of all is the potential for a "debt bomb", in the words of China's Economic Observer newspaper, at lower levels of government as officials engage in financial engineering that is both opaque and highly leveraged.

Rules prevent Chinese banks from lending to governments the equity capital which they need to obtain further loans for investment. But local officials and banks are now exploiting a vast loophole thanks to intermediaries known as trust companies.

The process is simple enough. Trusts create specially designed "wealth products", which banks sell to their clients. Banks then give the funds to the trusts and they, in turn, funnel them to governments as equity capital.

Local authorities, in short, are piling debt on top of debt. The Chinese banking regulator has started to warn trusts and banks of the growing risks, state media recently reported.

It was not long ago that bad loans in China's banking system seemed to pose a massive debt threat to the wider economy. The core solution over the past decade was sustained double-digit growth, vastly expanding the denominator in debt-to-GDP ratios and generating the taxes to pay down the numerator.

Beijing is already looking to raise taxes where it can -- increasing the levy on cigarettes, for example -- but a return to super-charged growth is again its principal debt reduction plan.[/quote]
[i]My Comment:[/i] Betting on a return to double-digit growth is idiotic ... what fueled that growth for the past 2 decades, pray tell? Might it have been an unsustainable ramp-up in U.S. consumption fueled by a historically unprecedented explosion in consumer debt? You`re betting that trend will resume soon?

[quote]In the meantime, China needs to fund its rising deficit.

On that front, at least, the government can be supremely confident, even if it has to issue more than the planned 950 billion yuan in bonds this year and yet more to cover shortfalls in coming years.

"There is so much saving and so much liquidity, so there is definitely not a problem that China will not be able to finance its deficit," said Tao Wang, UBS economist in Beijing.[/quote]
[i]My Comment:[/i] That last claim strikes me as exceedingly interesting in light of the fact that the three most-recent Chinese debt auctions all [url=http://market-ticker.denninger.net/archives/1228-Black-Shoots-China-Debt-Sale-Fails.html]failed to attract enough buyers to absorb the debt on offer[/url]. Where is all that "excess liquidity" claimed by the UBS spokesshill?

The one thing that China is doing that *is* very smart is starting to (gradually) offload their guaranteed-to-soon-be-devalued $2.2 Trillion pile of U.S. sovereign and agency debt, by buying up economically vital commodities (or interests in countries producing them, e.g. oil in Sudan, iron ore in Australia) and on-sale distressed business assets worldwide. Much more detail and great insights into the economic goings-on in China and the prospects for a "statistical recovery" in the U.s. economy are in [url=http://www.zerohedge.com/article/some-weekend-thoughts-john-mauldin]John Mauldin`s latest newsletter[/url].

[quote=ewmayer;183026][I]My Comment:[/I] That last claim strikes me as exceedingly interesting in light of the fact that the three most-recent Chinese debt auctions all [URL="http://market-ticker.denninger.net/archives/1228-Black-Shoots-China-Debt-Sale-Fails.html"]failed to attract enough buyers to absorb the debt on offer[/URL].[/quote]My immediate thought on reading your comment was: Why are they struggling to sell their own bonds instead of simply selling their US bonds?

Answer confirmed in article: careful tiptoeing to avoid upsetting the apple cart.

At least my fears about a foreign government using its Treasury holdings as a financial weapon, a la Tom Clancy, are not coming to pass. Congrats to those who helped engineer China's trade dependency on us!

[QUOTE=cheesehead;183040]My immediate thought on reading your comment was: Why are they struggling to sell their own bonds instead of simply selling their US bonds?

Answer confirmed in article: careful tiptoeing to avoid upsetting the apple cart.

At least my fears about a foreign government using its Treasury holdings as a financial weapon, a la Tom Clancy, are not coming to pass. Congrats to those who helped engineer China's trade dependency on us![/QUOTE]

They did it to themseleves ... or better, we did it to each other, as this timely article by MSN's Jon Markman describes, in about as clear a fashion as I've ever seen:

[url=http://articles.moneycentral.msn.com/Investing/SuperModels/mad-world-chinas-bind-is-ours-too.aspx]The US-China Ponzi scheme[/url]: [i]By unwittingly tying together their fortunes as they pursued their own interests, the 2 nations have put themselves on an economic path of mutually assured destruction.[/i]
[quote]Imagine becoming so successful at your job that you stack up $2 trillion in income, which you conservatively place in short-term U.S. Treasury bonds for safekeeping.

Now imagine that when you try to cash in those bonds to buy a few things for your kids, the clerk at the bank abruptly shuts her window and tells you to go away.

That is essentially the situation faced by China these days as it wonders whether its plan to manufacture goods for U.S. consumers over the past two decades in exchange for a pile of credit slips was really such a hot idea.

The answer is coming up as a big, fat "uh-oh" as the U.S. deficit and debt obligations balloon to levels never before contemplated, and Beijing is denied requests to buy U.S. and Australian mines and oil properties. And as Beijing leaders talk openly, if obliquely, about their angst, they are unsettling world credit, currency and stock markets, which don`t know what to make of the idea that the world`s largest Ponzi scheme might be coming to an abrupt end.

This is a good time to assess the chilling possibilities, as the resolution of this pending crisis will afflict investors, workers and business owners alike.
[b]
Dangerous symbiosis
[/b]
What`s so Ponzi about the Chinese-U.S. relationship? Basically everything. Look at it this way:

After a currency debacle in 1998 left its economy in tatters, Beijing decided to radically restructure its financial relationship with the West. Policymakers pegged the value of China`s currency to the dollar, which had the effect of keeping it artificially low.

The cheap renminbi made it irresistibly inexpensive for U.S. companies to manufacture goods in China, even after shipping costs. As more companies shifted their operations to China, the U.S. manufacturing base was hollowed out in the name of globalization and profitability. Americans who once enjoyed high-paying factory jobs moved on to lower-paying service jobs.

China didn`t need much of anything made in America, so instead of buying cars from Detroit and furniture from North Carolina with its factory profits, it bought Treasury bills. The purchase of all those bills drove down U.S. interest rates. So as middle-class and blue-collar Americans saw their wages stagnate or decline, they discovered they could still keep their old lifestyles by borrowing.

Over the past decade, Americans were able to outspend their incomes by easily rolling their debts forward through serial home refinancing. The situation was never ideal, but it worked as long as the value of their collateral -- their homes -- kept rising.

As long as China kept buying Fannie Mae (FNM), Freddie Mac (FRE) and Treasury credits, the scheme worked in a strange and beautiful way: Our driveways filled up with cars and boats, shopping malls spread out across the suburban landscape, and the retailer with the closest ties to China, Wal-Mart (WMT), became the United States` largest company.
[b]
Land-mine economics
[/b]
Was that so bad? Well, now think about this in the context of a Ponzi scheme such as the one perpetrated by disgraced financier Bernie Madoff.

Madoff`s clients for years thought they were rich because he sent them brokerage statements that said so. But that scheme worked only as long as new money kept coming in. When international money flows seized up last year and too many people wanted to redeem their accounts at once, Madoff`s $50 billion game fell apart. Then his victims suddenly discovered that their brokerage statements were worthless pieces of paper. Madoff clients` households crashed, and now one-time millionaires are broke. The reality is that they were [i]always[/i] broke; they just didn`t know it yet.

The credit that has kept American families afloat for the past 10 years is similar to those Madoff-produced brokerage statements. The credit is good only so long as China keeps recycling funds through the Ponzi scheme. But if Beijing leaders ever decide that it`s just too risky to own U.S. dollars and debt, then the system is going to come crashing down.

Of course, it is not really in China`s interest to stop the scheme, even if it wanted to, because its own economy would likewise blow up. Satyajit Das, a credit derivatives expert in Australia, likens this to stepping on one of those land mines that are activated by the weight of a victim`s body. As soon as the weight is lifted, the mine explodes, and the person`s leg is blown off.

China is thus frozen in place, damned if it does and damned if it doesn`t. It`s a classic Catch-22. China`s cache of U.S. bonds isn`t worth anything unless the bonds are sold. But selling them on any kind of scale will gut their value.
[u]
"People need to realize that China doesn`t actually have any real U.S. money," Das says. "Unless they can turn in their bonds and exchange them for something else, they`re only paper assets. Yet if they try to exit the position, they`ll destabilize the dollar, and the value of the rest of their assets will plunge. And that`s not even their biggest problem. It`s that they also need to keep buying Treasurys, or interest rates will go up and their capital losses will be terrible."
[/u]
In short, Das says, Beijing thought it had discovered the perfect scheme for establishing independence from the West, yet it has instead made its dependence worse than ever. And he observes that one unspoken reason that China has gone whole-hog on its massive, $650 billion fiscal stimulus program -- creating more factory capacity in a country that is already reeling from overcapacity -- is that the effort gives it cover to stockpile copper, oil, iron ore and other hard assets that it considers to be better stores of value than dollars.
[b]
The long, unwinding road
[/b][u]
Now here`s why this affects all of us: China and the U.S. together built the most monstrous liquidity bubble in world history as each pursued what it believed to be logical self-interest without any regulator, such as a stern global central banker, telling them that they were on a path of mutually assured destruction.

Now it`s reached the point where global capital markets will impose their own discipline. Because most money generated over the past decade was spent on consumption rather than investment -- it`s as if Madoff`s clients blew their fake money on chartering jets rather than buying real property as a store of wealth -- there are few new buyers of goods. This has killed U.S. retail sales, crushed employment, lifted the foreclosure rate, stymied homebuilders and undercut loan demand.
[/u]
There are no good solutions. The Chinese need to open their markets and let their currency float on the open market, but they won`t for political reasons. And the U.S. needs to either halt its runaway deficit spending so that the world is not even more flooded with our debt, or swallow its pride and issue Treasurys denominated in Chinese currency. That probably won`t happen either. Which means there is only one solution left: a long, slow, boring, lonely, soul-crushing process of digging out from under the piles of debt that got us into this mess.

You might even say that the bursting of the credit Ponzi scheme has left us all in jail now with Madoff. Let`s hope that our sentence is shorter than his.[/quote]
[i]My Comment:[/i] This brings to mind a quote from one of the founders of the Austrian school of economics (In somewhat simplistic terms, think of it as the anti-Ponzi school of economics, as opposed to the pro-Ponzi Neokeynesian school followed - alas - by most members of the U.S. Treasury and Federal Reserve, and thus by the U.S. government in general):

[i]"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

-- Ludwig von Mises[/i]

I wonder if Von Mises would classify "slow multidecadal bleed to zero" (e.g. the U.S. dollar as a store of value) as a "catastrophe" ... the Fed appears to have managed to stave off The Big One, by embracing monetization and "muddle through" economics, a la post-real-estate-bubble-and-crash Japan.

[quote=ewmayer;183053][URL="http://articles.moneycentral.msn.com/Investing/SuperModels/mad-world-chinas-bind-is-ours-too.aspx"]The US-China Ponzi scheme[/URL]: [I]By unwittingly tying together their fortunes as they pursued their own interests, the 2 nations have put themselves on an economic path of mutually assured destruction.[/I][/quote]I've just had a sudden flash of insight: It's all clever economic warfare by China!

It [I]is[/I] a la Clancy!

[quote=Jon Markman]Policymakers pegged the value of China's currency to the dollar, which had the effect of keeping it artificially low.[/quote]Aha! That was the clever Chinese way of setting the trap!

[quote]The cheap [URL="http://www.bing.com/search?q=renminbi&form=MSMONY"]renminbi[/URL] made it irresistibly inexpensive for U.S. companies to manufacture goods in China, even after shipping costs. As more companies shifted their operations to China, the U.S. manufacturing base was hollowed out in the name of globalization and profitability. Americans who once enjoyed high-paying factory jobs moved on to lower-paying service jobs.[/quote]Brilliant! Brilliant! How wonderful to undermine America while cleverly disguised as an irresistable bargain!

[quote]China didn't need much of anything made in America, so instead of buying cars from Detroit and furniture from North Carolina with its factory profits, it bought Treasury bills.[/quote]Accumulating an arsenal ...

[quote]The purchase of all those bills drove down U.S. interest rates. So as middle-class and blue-collar Americans saw their wages stagnate or decline, they discovered they could still keep their old lifestyles by borrowing.[/quote]Genius! Western capitalists sell the rope to hang themselves!

[quote]The credit is good only so long as China keeps recycling funds through the Ponzi scheme.[/quote]China's in charge!

[quote]But if Beijing leaders ever decide that it's just too risky to own U.S. dollars and debt,[/quote][I]Translation:[/I] But if Beijing leaders ever decide to spring the trap ...

[quote]then the system is going to come crashing down.[/quote]!

[quote]Of course, it is not really in China's interest to stop the scheme, even if it wanted to, because its own economy would likewise blow up[/quote]... and that's [U]exactly[/U] what they want us to think!

[quote]Satyajit Das, a credit derivatives expert in Australia, likens this to stepping on one of those land mines that are activated by the weight of a victim's body. As soon as the weight is lifted, the mine explodes, and the person's leg is blown off.

China is thus frozen in place, damned if it does and damned if it doesn't.[/quote]... or at least that's what someone unsuspecting of the [U]real[/U] economic war might think ...

[quote]one unspoken reason that China has gone whole-hog on its massive, $650 billion fiscal stimulus program -- creating more factory capacity in a country that is already reeling from overcapacity -- is that the effort gives it cover to stockpile copper, oil, iron ore and other hard assets that it considers to be better stores of value than dollars.[/quote]... which happens to be part of the war plan ...

[quote]This has killed U.S. retail sales, crushed employment, lifted the foreclosure rate, stymied homebuilders and undercut loan demand.[/quote]Notice that he did [U]not[/U] say, "This has killed China's retail sales, crushed China employment, lifted the Chinese foreclosure rate, stymied Chinese homebuilders and undercut Chinese loan demand." Kinda one-sided damage, wasn't it?

[quote]The Chinese need to open[/quote]Typo. Should have been: "We need the Chinese to open ..."[quote]their markets and let their currency float on the open market, but they won't for political[/quote](read: military)[quote]reasons.[/quote][quote]And the U.S. needs to < snip > or swallow its pride and issue Treasurys denominated in Chinese currency.[/quote]... which would fit right in with the view of the U.S. as a paper tiger that doesn't know how to avoid losing face, wouldn't it?

- - -

Ask ourselves: Suppose China did exactly what we think they "can't afford" to do. Just what kind of ratio would there be between the [I]real[/I] damages on each side?

China suffers capital losses on its foreign bond holdings. Awww... Maybe 400 billion dollars in losses? (A mere fraction of the cost of U.S. invasions of Afghanistan and Iraq, while taking down the most powerful nation on Earth ...) Well, at least that lowers their tax bill.

U.S. and EU set new records for depth of economic ruin. (You ain't seen nothin' yet. TARP will be just a handkerchief blowing in the wind.)

Far-fetched?

Read the ending of Clancy's [I]Debt of Honor[/I] again ... just [i]one[/i] jumbo jet, just [i]one[/i] disgruntled pilot, just [i]one[/i] deliberate crash into just [i]one[/i] important building ...

cheesehead, you are manufacturing a conspiracy.

Also, China holds a lot more than $400 billion in U.S. debt.

DarJones

[quote=Fusion_power;183183]cheesehead, you are manufacturing a conspiracy.[/quote]That's a nice compliment, but the credit really should go to Tom Clancy!

[I]Debt of Honor[/I] includes financial warfare as well as physical warfare.

[quote]Also, China holds a lot more than $400 billion in U.S. debt.[/quote]Last figure I saw was $800 billion in Treasury bonds, for which I estimated a 50% loss.

But I did forget their other debt holdings. My subconscious didn't, but I ignored his warning ("Isn't that too low?"). Even if a 100% loss cost the same as Iraq/Afghanistan, that would be pretty cheap for wrecking the U.S. :-)

For the sino-conspiracymongers, ask yourselves: Why would China want to destroy their #1 export market? (Yes, I admit the phrase "...especially since we're doing such a good job of it ourselves..." springs to mind.) You think the Chinese leadership is foolish enough to want to court the prospect of a couple hundred million out-of-work people?

Also, I dispute any claim that full-on economic warfare between the US and China "would hurt us" (i.e. the US) more. Worst case: the U.S. defaults on its debt. What would be the consequences of that? Obviously it would mean an inability to borrow money from abroad, which would entail a sudden reversion to having to live within our means. A wrenching adjustment for a nation used to living to gross material excess, yes. But: Even though the U.S. has exported much of its manufacturing base overseas in the past 50 years, consider the following:

- We are self-sufficient in terms of food production, in fact have persistent surpluses there, i.e. no risk of mass starvation (contrast that with China);

- We have vast quantities of natural resources, and even though we lack sufficient quantities to meet our needs in certain key ones (notably oil), we have enough to meet our basic needs (e.g. oil-derived chemicals and pharmaceuticals) and could make up much of the shortfall by way of the three-pronged strategy of (i) conservation (half as many cars, each carrying 2-3 passengers most of the time and averaging > 50 mpg would save huge amounts of oil, for starters), (ii) conversion (many products currently obtained from crude oil can be gotten elsewhere, e.g. from coal, albeit generally at a higher cost), and (iii) food for oil exchange (many oil exporters are food importers, and cannot easily "conserve food".)

- Even though our industrial base is much smaller than it used to be, we still have all the needed technical know-how to reconstruct it with relative ease (especially since most of the exported industry was relatively low-tech, e.g. steel smelting) and the natural resources needed to do so. (Admittedly, pollution would rise, but we're at war here, remember?) All the key high-tech sectors of the economy (e.g. computers, pharma/bio, aerospace and yes, even automotive) are still here, never having left to any significant extent.

- As with other sectors, our bloated military would need to go on a crash diet (many folks around the world would consider that a very good thing), but maintaining a sufficient *defensive* capability would require only a small fraction of our current expenditures. China has a huge army, but no Navy of note. Anyone care to comment on how much money and time it takes to build a world-class blue-water naval capability?

- Despite the graying of the baby boomers, we have plentiful, still-relatively young labor force.

Sorry, cheesehead, no buy-in from me on the "China T-Bond Torpedo" hypothesis.

--------------

Regarding the accelerating pace of bank failures, one of Barry Ritholtz`s readers [url=http://www.ritholtz.com/blog/2009/07/bank-failures-reported-by-fdic-2/#comments]comments poetically[/url]:
[quote]Not really much of a surprise. The surprise — if there is one — is that there are not a whole lot more banks that are dying, and I attribute this to the demise of mark-to-market accounting, which is doubtless leaving lots of dead banks aimlessly roaming the prairies, howling at the moon as the deep winter of CRE default approaches.

If one drives the velocity of money to zero, economic activity eventually ceases, and the smaller banks are the canaries in the coal mine.

This is why we have the unceasing happytalk “strategy”, with green shoots prouting everywhere, when in rality, NOTHING HAS CHANGED. We still have basically the same people (GS, JPM, etc) running the same scams (CDS, HFT, etc) using unlimited leverage, with the American taxpayer taking the hit for their mistakes. The intent is to sucker in the sideline money, and to convince the consumer that it’s OK to spend like it’s 2007 once again.

However, despite the misleading financial news propaganda, they sheeple see all around them the signs of their fellow sheeple being eaten alive via foreclosure, layoffs, evaporation of retirement funds, soaring health care and education costs, and they are not about to move away from their strategy (really, the only course availble to them) of paying down debt and cutting expenses, which only reduces the movement of money in the system.

If we had seen a REAL* stimulus, instead of the nonsense that masqueraded as one, the administration might have a chance (only a chance) at success, but in reality, the only thing that is going to change things is for the old corrupt business practices to be swept away, and a new era of transparency to be ushered in. But transparency is the Last Thing on Earth that our political leaders and their bankster masters, want to see.

Eventually, the creeping slowdown will start causing larger banks to seize up, climbing all the way to the ones most deserving of dissolution. It’s just a pity that they will be the last ones to go, rather than the first. So much needless destruction.

(*REAL stimulus = one that funneled money to the bottom of the economic pyramid via infrastructure spending and the like, rather than wasting it in the myriad ways that it was deployed)[/quote]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aHAlgPzZVadw]McGraw-Hill Second-Quarter Profit Drops 23%; Full-Year Sales Forecast Cut[/url]: [i]McGraw-Hill Cos., the owner of Standard & Poor’s and BusinessWeek, reported second-quarter profit fell 23 percent and cut its 2009 sales forecast, citing a weakening market for advertising and school textbooks.[/i]
[quote]In the financial services division, which includes the Standard & Poor’s credit-ratings unit, sales fell 8.4 percent to $673.8 million. Revenue from the information and media unit declined 12 percent to $236.2 million. [/quote]
[i]My Comment:[/i] The Bloomberg headline only mentions textbooks and the like, but reading the full article to get to the S&P results (quoted), it looks like there`s also a "weakening market for fraudulent credit ratings"...


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=avBbCbuEn33g]Bank of China to Continue Lending Expansion Unless Government Clamps Down[/url]: [i]Bank of China Ltd., which doled out the most loans among Chinese banks in the first half, plans to keep expanding credit unless the government clamps down on the nation’s record lending boom.[/i]

[i]My Comment:[/i] They're a-blowin` one whopper of a bad-loan bubble in China in a furious effort to keep their economy "growing" ... but not to worry, BofC probably has assurances from the smart folks at Standard and Poors (a division of McGraw-Hill Inc) that the chances of a significant portion of those government-mandated loans defaulting are "miniscule". And you can take that to the bank (soon to be insolvent, but shhh - you didn`t hear it here).


All is not gloomy, however - we have a +0.5% month-over-motnh (but still -17% year-over-year) green shoot in the latest Case-Shiller housing-price stats:

[url=http://money.cnn.com/2009/07/27/real_estate/May_Case_Shiller/index.htm]Home prices up for 1st time in 3 years[/url]: [i]Index of 20 major cities rises on a monthly basis for the first time since July 2006, hinting that the worst of the declines may be over.[/i]
[quote]The month-over-month increase was 0.5%, according to the report from financial data company Standard & Poor's and economists Case-Shiller. It was the first increase in the monthly index since July 2006.

On an annual basis, home prices in the 20 cities fell 17.1%, but it was the fourth straight month that the year-over-year decline lessened.
0:00 /1:58Builders hope for piece of pie

"This could be an indication that home price declines are finally stabilizing," said David Blitzer, chairman of the index committee S&P, in a prepared statement.

While acknowledging that the report was good news, Mark Zandi, chief economist for Moody's Economy.com, downplayed the importance of a single month's statistics.

"I think it's a temporary respite," he said. "It reflects the recent decline in foreclosure sales, and prices will continue to fall over the next several months."[/quote]
[i]My Comment:[/i] Markie Zee, man, you`re harshin` my buzz, dude...

[quote=ewmayer;183195]For the sino-conspiracymongers, ask yourselves: Why would China want to destroy their #1 export market?[/quote]Because there are more important things than money when you are the [I]central nation[/I] AKA Middle Kingdom.

[quote]You think the Chinese leadership is foolish enough to want to court the prospect of a couple hundred million out-of-work people?[/quote]Such may be a necessary cost of maintaining one's status as [I]central nation[/I] AKA Middle Kingdom.

[quote]Also, I dispute any claim that full-on economic warfare between the US and China "would hurt us" (i.e. the US) more. Worst case: the U.S. defaults on its debt.[/quote]... and the U.S. economy is shattered, and ... well ... only [I]a[/I] hundred million out-of-work people. Think more seriously about the consequences! War is not a game!

[quote]What would be the consequences of that?[/quote]You wrote "full-on economic warfare", not "wimpy Treasury-bond skirmish". Can't you imagine a few more consequences than debt default? (Have you read [I]Debt of Honor[/I]?)

[quote]Obviously it would mean an inability to borrow money from abroad, which would entail a sudden reversion to having to live within our means. A wrenching adjustment for a nation used to living to gross material excess, yes.[/quote]There you go. See, you can do it!

Wrenching adjustment from wretched excess!

[quote]But: Even though the U.S. has exported much of its manufacturing base overseas in the past 50 years, consider the following:

- We are self-sufficient in terms of food production, in fact have persistent surpluses there, i.e. no risk of mass starvation (contrast that with China);[/quote]Wasn't there something in the news just yesterday about our primary health problem being [U]obesity[/U]?

(Part of the plan is that we eat ourselves to death, or at least to couch-potatoism.)

[quote]- We have vast quantities of natural resources, and even though we lack sufficient quantities to meet our needs in certain key ones (notably oil), we have enough to meet our basic needs (e.g. oil-derived chemicals and pharmaceuticals) and could make up much of the shortfall by way of the three-pronged strategy of (i) conservation (half as many cars, each carrying 2-3 passengers most of the time and averaging > 50 mpg would save huge amounts of oil, for starters), (ii) conversion (many products currently obtained from crude oil can be gotten elsewhere, e.g. from coal, albeit generally at a higher cost)[/quote]Chinese special forces units will infiltrate us to unleash rubber-eating bacteria -- there go all the tires for those cars -- and coal-eating bacteria. Or maybe they'll just lob them in by missile ... or [I]kite[/I].

[quote]- Even though our industrial base is much smaller than it used to be, we still have all the needed technical know-how to reconstruct it with relative ease[/quote]... and the Chinese know-how-eating bacteria? How do we recover from [I]them[/I]?

[quote]natural resources needed to do so.[/quote]... natural-resource-eating bacteria ...

[quote]All the key high-tech sectors of the economy (e.g. computers, pharma/bio, aerospace and yes, even automotive) are still here, never having left to any significant extent.[/quote]... computer-eating bacteria, pharma-eating bacteria, ...

[quote]- As with other sectors, our bloated military would need to go on a crash diet (many folks around the world would consider that a very good thing),[/quote]... military-bloating bacteria ...

[quote]but maintaining a sufficient *defensive* capability would require only a small fraction of our current expenditures.[/quote]... *defensive*-capability-eating bacteria ...

[quote]China has a huge army, but no Navy of note. Anyone care to comment on how much money and time it takes to build a world-class blue-water naval capability?[/quote]... world-class-blue-water-naval-capability-eating bacteria ...

[quote]- Despite the graying of the baby boomers, we have plentiful, still-relatively young labor force.[/quote]... relatively-young-labor-force-eating bacteria (H1N1 is just a test prototype) ...

[quote]Sorry, cheesehead, no buy-in from me on the "China T-Bond Torpedo" hypothesis.[/quote]But what about all the *-eating bacteria?

(I have [I]got[/I] to develop the habit of using the wink smilies!)

More on the China bubble
 

This from an admitted China permaBull, no less:

[url=http://money.cnn.com/2009/07/29/markets/thebuzz/index.htm]How do you say 'bubble' in Mandarin?[/url]: [i]Chinese stocks are on a tear and banks are lending like there's no tomorrow. Sound familiar? But China needs to remain healthy. The U.S. can't afford for it to slump.[/i]
[quote]China's economy is still growing rapidly. But some eerie similarities to the U.S. economy just before the credit markets started to unravel two years ago are starting to emerge.

Consider this. Before Wednesday's plunge, Chinese stocks had been racing higher -- the Shanghai Composite was up 16% in July alone. Last week, China State Construction Engineering Corp. went public and surged 70% in its first day of trading.

Now think back to July 2007 -- the Dow closed above 14,000 for the first time (it would peak in October).

Just as American banks once were, Chinese banks are being loose with credit. According to figures from the People's Bank of China, China's central bank, banks made 7.37 trillion yuan ($1.1 trillion) in new loans during the first half this year. By way of comparison, Chinese banks issued 4.91 trillion yuan in new loans during all of 2008. China's lending target for all of this year had been just 5 trillion yuan.

As such, there are reports that China's top banks may soon impose limits on new loans, which could lead to slower growth in China's economy. The hefty loan volume is raising the specter of a potential bad loan bust in China, similar to the subprime nightmare that U.S. banks had to endure.

"Lending from Chinese banks was high-powered stimulus, but the risk is that loans are being made in an environment where more of them are likely to go bad," said Andrew Busch, global currency strategist with BMO Capital Markets in Chicago. "Non-performing loans may soar."

[b]Why China matters[/b]

Now you might be wondering why this is a problem for the United States to worry about. Well, China just so happens to be the largest holder of U.S. Treasurys, holding more than $800 billion worth as of the end of May. Busch speculates that [u]if Chinese banks are suddenly hit with a wave of loan losses, China could try and shore up their balance sheets by selling U.S. bonds.[/u]

So far, China has continued to be a big buyer of U.S. debt. But Chinese officials have expressed increased signs of frustration about the mounting U.S. debt load.

"The Chinese have been complaining since the beginning of the year about how the U.S is managing its fiscal house. They are very concerned that the U.S is going to issue and issue and issue more Treasury securities," Busch said.

At some point, China may move beyond just threatening talk and actually take action. A China-led sell-off could cause bond prices to fall and interest rates to shoot higher. That could have disastrous implications on the U.S. economy since higher rates could cripple chances for a sustained recovery.

That's going to make it all the more imperative for U.S. officials -- most notably, Treasury Secretary Timothy Geithner -- to assure China that the United States is not going to dig itself too deep a debt hole. Geithner held talks with Chinese officials in Washington earlier this week about various economic issues.[/quote]
[i]My Comment:[/i] But there`s only so much "happy talk" from Geithner et al can accomplish ... when it comes to the Treasury Markets, Chinese officials surely also realize that [url=http://www.zerohedge.com/article/weak-five-year-auction-interest-substantial-drop-indirect-bids]actions speak more loudly than words[/url]. For the record, I am firmly in "there is a huge speculative bubble in China which will soon pop" camp. The Shanghai composite index nearly doubled this year despite no signs of a revival in the Chinese export economy ... oh yeah, that`s very rational.

Microsoft Embraces the New Frugality
 

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aFRrN7b_DxGg]Microsoft Prescribes Permanent `Diet Regime' After First Annual Sales Drop[/url]: [i]Microsoft Corp., coping with its first annual sales drop, will make frugality a new way of life, Chief Financial Officer Chris Liddell said.[/i]


Amusing headline [i]des Tages[/i]:

[i]"Daimler has Q2 loss of $1.51 billion, result beats analyst estimates."[/i]


Oh wait, I take that back ... this Bloomberg "Green Shoots Sproutin` All Over, Bitches!" [strike]propaganda pump[/strike]headline is even more laughable, when contrasted with the underlying data it claims to describe:

[url=http://www.bloomberg.com/apps/news?pid=20601068&sid=arIOipxoB_N8]U.S. Durable Goods Orders, Excluding Cars and Planes, Unexpectedly Advance[/url]: [i]Orders for U.S. durable goods, excluding automobiles and aircraft, unexpectedly rose in June, signaling manufacturing may expand in the second half of the year.[/i]
[quote]Excluding transportation equipment, demand for goods meant to last several years climbed 1.1 percent, the most in four months, the Commerce Department said today in Washington. [u]Total orders fell 2.5 percent, the first decrease in three months.[/u]

The durable-goods figures used to calculate economic growth indicate companies plan to boost investment in coming months, adding to evidence the worst recession in five decades is starting to ease. Caterpillar Inc. is among companies seeing steadier demand as government stimulus plans here and abroad start to kick in, signaling an economic recovery is in sight.

“The manufacturing recovery is happening now,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, [u]who predicted a gain in orders excluding transportation[/u]. Shipments of durable goods “are likely to grow in the third quarter, and that’s an important reason why we expect the overall economy will begin to grow.” [/quote]
[i]My Comment:[/i] So let me get this straight: Total DG orders *fell* big-time, but once you subtract the "big negatives", you get a nice positive number? Oh yeah, really objective there ... in effect you are saying "Excluding the plunge in some durable goods, other durable goods orders looked good." As to Barclays chief shill Maki, the fact that he was flat-out wrong in his bullish prediction but is still sticking to his pre-prepared bullish spin tells you pretty much what you need to know: He`s just another guy with something to sell, and will say *anything* to get you to buy it. Again from the same piece, the folks at CAT seem to be drinking the same delusional Kool-aid:
[quote]"Caterpillar Inc. is among companies seeing steadier demand [u]as government stimulus plans here and abroad start to kick in, signaling an economic recovery is in sight[/u]."[/quote]

That's a logical fallacy - a one-time bottom-line boost from government deficit spending is what`s "in sight", rather than an economic recovery. To their credit, CNN/Money have a just-ever-so-slightly-different [url=http://money.cnn.com/2009/07/29/markets/markets_newyork/index.htm]take on the same data[/url]:
[quote][u]U.S. durable goods orders plunged 2.5% in June, a far bigger decline than economists were expecting. The drop revived some worries that the economy may not be stabilizing as quickly as investors have been betting.[/u]

Orders for long lasting manufactured goods saw the biggest monthly decline since January, the Commerce Department reported.[/quote]

[b]Big Finance Gears Up for "War" Against Consumer Protection Plan:[/b]

The New York Times` Bob Herbert opines on the banking and mortgage industries gearing up for "war" against the Obama administration`s proposed Consumer Financial Protection Agency:

[url=http://www.nytimes.com/2009/07/14/opinion/14herbert.html?scp=1&sq=chutzpah herbert&st=cse]Chutzpah on Steroids[/url]: [i]What is up with the banks and the rest of the financial industry? The people running this system remind me of gangsters who manage to walk out of the courthouse with a suspended sentence and can’t wait to get back to their nefarious activities.[/i]
[quote]These malefactors of great wealth (thank you, Teddy) developed hideously destructive credit policies and took insane risks that hurt millions of American families and nearly wrecked the economy. Then they were bailed out with hundreds of billions of taxpayer dollars, money that came from the very people victimized by the industry’s outlandish practices.

Now the industry is fighting against creation of an agency that would protect taxpayers and ordinary consumers from a similarly devastating onslaught in the future. And at the same time they are scrambling to raise credit card interest rates and all manner of exploitive fees to build a brand new superstructure of questionable profits on the backs of the taxpayers who came to their rescue.

We’re reaching a whole new level of chutzpah here.

The Obama administration wants to create a Consumer Financial Protection Agency that would shield individuals and families from deceptive practices and outright fraud by banks and other businesses offering credit cards, mortgages, home loans and other forms of consumer finance.

Everything we’ve learned in this recession tells us we need such an agency. As Treasury Secretary Timothy Geithner described it, “This agency will have only one mission: to protect consumers.”

Protecting the consumer is, of course, anathema to the industry. So it’s preparing for war. The Times’s Edmund Andrews neatly summed up the matter when he wrote that “banks and mortgage lenders are placing top priority on killing” the president’s proposal.[/quote]
[i]My Comment:[/i] So much for Big Finance "having learned anything" from the housing bubble and resulting crash...

[b]Systemic Risks Posed by HFT:[/b]

Quantitative-finance guru Paul Wilmott has an Op-Ed on high-frequency trading and the danger of all the big players trying to out-game each other via similar strategies (rather than doing anything to help spur genuine price discovery in the equity markets) in today`s NYT. Note that Wilmott only talks about straight (and perfectly legal) HFT in which all participants have access to the pricing data (in theory) at the same time, not the (also perfectly legal, alas) scam that is [url=http://www.reuters.com/article/businessNews/idUSTRE56R5OA20090728?feedType=RSS&feedName=businessNews&rpc=23&sp=true]flash orders[/url].

[url=http://www.nytimes.com/2009/07/29/opinion/29wilmott.html?_r=1&ref=opinion]Hurrying Into the Next Panic[/url]: [i]On top of an already dangerously influential and morally suspect financial minefield is now being added the unthinking power of the machine.[/i]

Fascinating thread on HFT [url="http://www.bogleheads.org/forum/viewtopic.php?t=40738"]here[/url]