Category: Economy

Economy1 Comment

Financial markets did not detect the deterioration of structural productivity trends in the early 2000s early enough

Colin Henderson

A fascinating analysis of economic conditions prior to 2007, sugesting that dropping productivity and the concurrent increase in asset prices contributed at least in part to the economic crisis, yet was not picked up by the market. Productivity and the crisis: Revisiting the fundamentals | Vox Most narratives of the crisis start with problems in the financial sector that then spilled over into the real economy. This column looks at the real side first and shows that labour productivity growth declined significantly in the years prior to the crisis, particularly in the US construction sector. Financial markets may have failed … Continue reading Financial markets did not detect the deterioration of structural productivity trends in the early 2000s early enough

Economy

Is China the next Lucent?

Colin Henderson

This is an interesting article over at Foreign Policy. It is interesting because it fits in the meme of what recovery looks like. Regular readers will by know by now I am firmly in the space that recovery will be framed by a smaller economy, and slower growth of that smaller economy. This piece compares the Chinese economy to Lucent during the dot com bubble. Lucent were selling to dot com company’s which disappeared. China was selling to US and to a lessor extent European consumers who have … disappeared. The minor distinction is that the consumers actually still exist, … Continue reading Is China the next Lucent?

Economy

Plan for Sound Banking – Conservative White Paper | analysis

Colin Henderson

Here is more on the Tory plan for banking outlined in the attached White Paper [57 pages]. Politics aside, lets take a look at the merits of this proposal and how it aligns with the problems I have perceived within banking and that are exacerbated over the last 2 years. The core issues I have seen are these: banks have become high dividend paying conduits due to protective regulation and tight association with Central Banks the regulatory protection produced a ‘cannot fail’ mentality about banks’ and .. this in turn resulted in no perceived need for a strong capital base, … Continue reading Plan for Sound Banking – Conservative White Paper | analysis

Economy, US3 Comments

China and America economic future – Ferguson/ Fallows debate

Colin Henderson

A summary in NYT of the fascinating Ferguson/ Fallows debate at Aspen on the economic relationship between China and US. Ferguson: US and China are divorcing economically.  China will focus on internal consumption, not exports.  “Depreciation (of US $) is inevitable and the Chinese are working to end the dollar’s role as the world’s reserve currency.” Fallows: “…  doesn’t know what the future will hold, but he believes that Chinese officials still see the dollar as their least risky investment. Domestically, China will not turn democratic, but individual liberties will expand. He agreed that China and the U.S. will dominate … Continue reading China and America economic future – Ferguson/ Fallows debate

Economy, Innovation

Bank deposits – the hidden risk associated with government guaranteed deposits

Colin Henderson

The focus on bank financial strength is generally on the lending side of the business and the potential for bad debts.  Here is another view, and something that drives some banks to make ever riskier loans to produce enough revenue to pay for their deposits. For Banks, Wads of Cash and Loads of Trouble | NY Times The 79 banks that have failed in the United States over the last two years had an average load of brokered deposits four times the national norm … But the hot money also came with a high cost. To lure the money from … Continue reading Bank deposits – the hidden risk associated with government guaranteed deposits

Economy

Future for many banks remains grim | Roubini

Colin Henderson

This interview with Roubini, on a visit to China, is wide ranging, and provides a good assessment of where we are in the economic cycle, why we got here, and importantly what to expect next.  In particular this assessment on US banks is sobering.  That aside, it is a worthwhile read. Dr. Doom Has Some Good News The first involved banks. Like Paul Krugman and others, Roubini had been warning that many banks were weaker than they seemed. Rather than trying to nurse them along, he said, the government should move straightaway to nationalization: “I’m concerned that we’re not going … Continue reading Future for many banks remains grim | Roubini

Economy1 Comment

“The Fourth Turning” | demographics and predictable change

Colin Henderson

Demographics is an interesting science, and one that has real impacts on society over time that are really only apparent after the fact.  Mauldin recounts a conversation with Strauss and Howe on their book, “The Fourth Turning“.  The premise is that the US and the western world move in 80 year cycles, with four ‘seasons’ within each cycle.  As historians, they have looked back in time, and concluded the cycles are quite consistent. Whether you buy that or not, the four cycles noted do describe the 20th century well, and place us firmly in the latter part of the third, … Continue reading “The Fourth Turning” | demographics and predictable change

Economy

OECD forecast revised upward, but underlying economic forecast conditions remain unchanged

Colin Henderson

The OECD today produced a report that is sure to be controversial. They are upgrading all their forecasts both for 2009, and 2010, but that FT headline mask the real underlying situation as it applies to consumers and businesses which I see as relatively no change from other forecasts. OECD sees strongest outlook since 2007 | FT Country Forecast for 2009 Forecast for 2010 Current Previous Current Previous US -2.8% -4.0% +0.9% 0% China +7.7% +6.3% +9.3% +8.5% Japan -6.8% -6.6% +0.7% -0.5% Eurozone -4.8% -4.1% 0% -0.3% Source: OECD The report notes that the unemployment rates and slackness in … Continue reading OECD forecast revised upward, but underlying economic forecast conditions remain unchanged

Canada, Economy, US3 Comments

Consumer mindsets in North America have shifted permanently with regard to finances

Colin Henderson

After my last post, I thought it better to follow up with some facts to support my contention that this economic recovery is L shaped in Canada and US.  This is not meant to be an economic projection, and I leave that to the professional economists.  However in terms of planning, banks ought to consider the high probability of a scenario where the reduction in economic activity will level off but hardly see growth in the near future.  This will be driven by consumer confidence and frankly their financial circumstances. If we go back to the root cause of the … Continue reading Consumer mindsets in North America have shifted permanently with regard to finances

Economy

World Bank GDF highlights growing risks to economic forecasts

Colin Henderson

When thinking about the future and the economic position of countries that banks must consider, I listen far less to politicians and more to IMF and World bank forecasts. The use (misuse) of the term recovery fails to acknowledge what the circumstances for people and businesses will be on the other side of the recession. Here is a new report from World Bank that looks to the future with more pragmatism, although they still use the word recovery.  Note their focus is skewed by their mandate for developing countries, however they have to look at the entire economic picture to … Continue reading World Bank GDF highlights growing risks to economic forecasts