10 FRIDAY NOVEMBER 21, 2014
PATTAYA MAIL
VOL. XXII No. 47
Wall Street Crash: Have we actually learnt anything? Paul Gambles Co-founder of MBMG Group We’ve just passed the 85th anniversary of Black Tuesday, the pinnacle of the Wall Street Crash, when 16 million shares were traded in one day. Have economists, central banks and governments learnt anything from these events and the aftermath of the 2008 crisis? Economist Prof. Steve Keen thinks not and is concerned about a long-term recession. According to the US Secretary to the Treasury, “The high tide of prosperity will continue.”1 Yet the German economy is showing signs of weakness, seeing its hardearned prosperity dwindle because of external economic circumstances and obligations it wished it hadn’t signed up for. Meanwhile, France is evaluating its role in a European Union and in Spain there is discontent amongst academics and businessmen alike over government spending. As Southeast Asian countries attempt to further modernize their economies, there is deadly conflict in Jerusalem and Afghanistan. The above is a selective summary of events in 1929; although it could easily be used to describe the state of the world over the last five years. One of the many consequences of Black Tuesday was the soaring in US private debt, which in the years following the 1929 crash reached 130% of GDP. That remained a record level until 2009, when it topped 175% of GDP.2 Prof. Steve Keen is head of the School of Economics,
US Generic Government 10-Year Bond Yield (Sept 24-Oct 24, 2014)
Source: Bloomberg History and Politics at Kingston University, London and a leading advocate of the school of thought that debt, and changes in debt, determine outcomes in economies and markets. He sees the level and growth of private debt as the root explanation for both financial crises: “A rising level of private debt compared to income ultimately gets to the stage that it is such a burden that, first of all, credit-fuelled growth stops growing because people don’t want to take on any more debt, and secondly, the servicing costs of the debt can overwhelm the economy. That’s what I saw back in 2005. That’s why I said a financial crisis was coming in the very near future.”3 Keen observes that, since 2008, no enduring stability has been created; instead there is another accident waiting to happen, probably in the next 1-4 years. That said, he thinks that this is likely to be just another recession in a
long-term cycle of going nowhere for the next couple of decades.4 As a matter of fact, just two weeks ago the 10-year US Treasury Bond yield dropped so quickly (see chart) that one bank’s representatives elected to switch off its computers which automatically generated buy and sell quotes, for fear of losses and being left with unwanted stock.5 Speaking on Bloomberg Surveillance,6 LPL Financials Fixed Income strategist Anthony Valeri saw this as “Eyecatching to say the least”, and said that it spoke to the illiquidity in the market. “We
be within in the 2.0-2.3% range to the end of the year. Marginal debt is at an alltime high (see chart) and last week, a drop in the markets may once again have exposed some fragility: there were rumours that at least one hedge fund was forced to liquidate. All this comes while the Federal Open Market Committee7 carries on regardless, in the mistaken belief that the Fed’s QE money-creation policy is actually working. Footnotes: 1 Andrew W. Mellon, Secretary of the Treasury, September 1929, as quoted in John Kenneth Galbraith (1954), The Great Crash 1929,
Mariner Books; Reprint edition (September 10, 2009) 2 Crash, Boom, Pop! Economics and the Financial Crisis come to Comics, IDEA Economics Press Release, October 23, 2014 3 idem 4 WTF - What the Future holds, MBMG Update, November 5, 2013 5 http://www.bloomberg. com/news/2014-10-26/treasury-liquidity-squeezeseen-in-dealer-who-shutoff-machine.html 6 Bloomberg Surveillance, October 23, 2014 7 http://www.federalreserve .gov/newsevents/press/ monetary/20140917a.htm
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Thailand to sell rice, rubber to China Commerce Minister Gen Chatchai Sarikulya said negotiations at the ministerial level are underway for Thailand to sell 2 million tonnes of rice and 200,000 tonnes of natural rubber to China on a government-to-government basis. Sales will be made to China’s state enterprise Cofco and delivery will be made in 20152016, said Gen Chatchai, adding that sales will be conducted with Cofco only for the purpose of transparency. Gen Chatchai said the plan to sell rice and rubber to China is being made following requests to Chinese government leaders to buy more agricultural products from Thailand during the 22nd Asia-Pacific Economic Cooperation (APEC) Summit held in Beijing last week. Company representatives arrived in Thailand Wednesday to discuss ways to invest in the rubber industry in Thailand, while trade associations will discuss China’s plan
knew that corporate markets were on the illiquid side,” he said, “but to see those types of moves in the Treasury market, which we hadn’t seen an intra-day move like that since the fall of 2008. […] It just shows that some of these moves can be exacerbated to the up or the downside. In 2013 we saw it to the high side, and here in 2014 we saw it to the low side.” According to Valeri, analysts are giving up on their forecasts, “3% annual yield on 10-year bonds isn’t going to happen in 2014. They are lowering it by consensus to around 2.5%.” Valeri says that yields will be probably
to boost its investment in Thailand and enlarge Thai exports there, he said. Gen Chatchai said he met farmer representatives to discuss rice strategy and prices after finding that rice contained high moisture as the rainy season is about to end. Rice exporters and millers bought rice at prices much below the target, said Gen Chatchai. Concerned parties will be invited for talks in future in order to solve the problem, he said. Differing reports on rice in storage is not necessarily a problem, Gen Chatchai said. The Commerce Ministry reported 18 million tonnes stored, while a subcommittee inspecting the former government’s rice-pledging program said there were 19.2 million tonnes on hand, but Gen Chatchai said the difference probably resulted from inspection at the different times. The ministry will ask the National Rice Policy Committee to resume sale of warehoused rice without a negative impact on domestic rice prices, he said. (MCOT)
BoT says Thai economy remains strong Despite a slight increase in non-performing loans (NPLs) by commercial banks and high household debt levels, Thailand’s general economy remains stable, a spokesman for the Bank of Thailand (BoT) said last week. Spokesman Chirathep Senivongs Na Ayudhya said the public should not worry about an announcement made earlier by rating agency Standard and Poor’s on Thailand’s economic growth, saying it could be unstable and negatively affect financial institutions. The central bank, he said, asserts that the country’s
economy is still stable and financial institutions are performing normally even as nonperforming loans during the third quarter stood at 2.34 percent, up slightly from 2.15 percent at the end of 2013, which was considered as “not too high and steady,” Chirathep said. Commercial bank reserves for possible NPLs at the end of September stood at 135 percent, displaying their financial strength, he said. Household debt, which stood at 83.5 percent of gross domestic product at the end of the second quarter this year, although high, was not a major factor
impacting the country’s economic recovery, he said. But it should serve as a warning to the government not to stimulate the economy through more borrowing. There are signs that household debt has declined since the end of 2013 and it would continue to fall with the country’s economy improvement in 2015. Chirathep said the BoT’s Monetary Policy Committee still has no plan to ease its policy rate as it must consider the country’s latest economic figures when it meets for the last time this year on December 17. (MCOT)