The G-175

G-175 Nations Convene To Discuss How Things Can't Possibly Be Any Worse

The dignitaries, who traveled from all across the world, arrived early Thursday morning to tackle a week's worth of possible resolutions. Items on the schedule included a motion to sit in hopeless resignation as the terrifying spread of hepatitis claimed the lives of millions, as well as a multilateral treaty, signed by all present, to shake their heads in defeat and disgust at rising poverty rates.
Three hours of official cursing at G-20 nations and their inherent wealth and greed followed.
"Our people are starving," said Tanzanian minister of agriculture Steven M. Wasira, contributing to a heated debate over whether all nations involved were completely screwed or absolutely fucked. "We cannot grow anything in the north because of the drought, and flooding in the south has stopped us from harvesting what little food we do have. I come here today to ask that you please help the poor citizens of my—"
Wasira's plea ended abruptly when the Days Inn ballroom the summit was using had to be cleared for a 5 p.m wedding reception.

GE and Citi earnings reports - spring 2008 redux...

They, again, remind me of Spring 2008, post-Bear. Like the eye of a hurricane. There's much more bad stuff ahead, and few - esp Citi - seem willing to face reality.

In Citi's case, note that they put aside $2.7Billion in reserves for loan losses, whereas yesterday JPMChase put aside 4$billion. Anyone really think that Citi's portfolio is healthier than Chase's? Please speak up.

Some of the bad stuff clearly in our (and the banks') future:

1. The CRE disaster has only just begun. The largest real estate bankruptcy in the nation's history passed yesterday with nary a peep (General Growth Properties: Largest Real Estate Bankruptcy Thus Far ), but there's no reason to think that malls, office buildings, condo complexes, sports arena, entertainment complexes etc are gonna suddenly be in great demand
2. The consumer is getting sicker, not healthier. Much badness ahead on credit cards, student loans, car loans, and the ongoing decline in residential real estate shows no signs of bottoming, despite rumors to the contrary (Housing Construction Fell Again in March) Since the moratorium 'expired' foreclosures have surged.
3. Speaking of the consumer, unemployment is clearly headed towards 10+%, easy. Probably 11+%. Worse than the stress tests presume, and the Administration forecasts. Much more downward pressure on spending in the future, with subsequent problems for CRE, corporate loans, small business loans, etc etc....
4. Other Macro problems remain, esp in Europe and Japan. How bad can these get? Well, I'd be planning for the worst, as the worst has consistently been surprising people ever since august 2007. I rather took the Central and Eastern Euros at their word two months ago that their situation was dire. Not much has happened since then (save for more $ for the IMF from the G-20 - but the UK might suck that up) to cause one to think things there are materially better. If Central and Eastern Europe go down, dominoes fall, starting with Austria (65% leveraged to Eastern Euro banks), then Germany, France etc get very strained. not to mention the slow-motion disaster that the UK has become. Spain, Italy, Ireland, Iceland, Ukraine, Latvia, etc are already in the tank. As for Japan, well, see this: Japan Says Economy in ‘Severe' State, View Unchanged US Banks - esp Citi, remain extremely exposed to all these problems
5. Despite all the brave talk from Chase and Goldman about giving TARP money back, Citi (and BoA) do not have that luxury. And all banks will see the huge but temporary revenue gift from all the Agency purchases the feds dropped in their laps disappear next quarter. By late Q3, aerly Q4, these guys will be running on fumes, again.

Complacency at green shoots is very dangerous.

Obama: The American "voracious consumer market" has ended

Epic.

Here's the Times just now. Pretty mind blowing, and awfully darn encouraging. Seems Obama's come to the G-20 armed to explain how the world needs to be rebalanced:

Obama Plays Down Rift Over Economy on Eve of Summit
By DAVID E. SANGER and MARK LANDLER 3:45 PM ET
The president also cautioned that the U.S. was unlikely to return to its role as a “voracious consumer market” that could anchor the world economy.

This is utterly epic folks, and further evidence that Obama gets it. I rather suspect that Larry Summers had a lot to do with this statement.

Here's more:

In essence, the United States is pressing Europe and other nations to spend more now — when a coordinated stimulus could do the most good. But over the long term, Mr. Obama appeared to be preparing the world for a reshaped global economy in which the United States no longer was the ultimate export market for the world’s established and emerging powers. It was that habit of overconsumption, he appeared to say, that led to the boom-and-bust cycles that he has said must end.

“The United States will do its share,” he said, “but I think that one of the things that Gordon and I spoke about is the fact that in some ways the world has become accustomed to the United States being a voracious consumer market and the engine that drives a lot of economic growth worldwide. And I think that in the wake of this crisis, even as we’re doing stimulus, we have to take into account our own deficits.”

Wow. WOW

Here's a snapshot of once-in-a-century global realignment happening before our eyes, and very much for the better for all involved, imo. Martin Wolf must have smiled whe he heard these words

But we still nedd to nationalize and break up the big banks ASAP, beginning with Citi....

IMF fun

Well, not fun exactly.

But it is indeed fascinating to observe a normally staid and bureaucratic institution get all lathered up. But unprecedented and scary times tend to get even the most gray of organizations speaking forcefully. And speaking forcefully, and lathered up, the IMF indeed is.

They can be found here: http://www.imf.org/external/index.htm

Some recent and attention-getting missives from headquarters, emphases added:

1. World Faces Crisis Crossroads at G-20 Summit, Says IMF In a video conference with journalists based in London, Paris, and Washington, Strauss-Kahn outlined five key subjects on which the IMF wanted to see progress at the summit to combat the worst economic downturn in 60 years, in addition to considering how to improve regulation of the fractured global financial system.
2. IMF’s note for the G-20: “The prolonged financial crisis has battered global activity beyond what was previously anticipated. Global GDP is estimated to have fallen by an unprecedented 5% in the fourth quarter (annualized), led by the advanced economies, which contracted by 7%. GDP declined by around 6% in both the United States and Europe, while it plummeted at a post-war record of 13% in Japan. Growth also plunged across a broad swath of emerging economies … against this backdrop, global activity is expected to contract in 2009 for the first time in 60 years.”
3. Global Economic Slumps Challenges Policies A pernicious feedback loop between the real and financial sectors is taking its toll. The continuation of the financial crisis, as policies failed to dispel uncertainty, has caused asset values to fall sharply across advanced and emerging economies, decreasing household wealth and thereby putting downward pressure on consumer demand. In addition, the associated high level of uncertainty has prompted households and businesses to postpone expenditures, reducing demand for consumer and capital goods. At the same time, widespread disruptions in credit are constraining household spending and curtailing production and trade
4. Advanced Economies to Contract Sharply in 2009 Advanced economies will suffer deep recessions in 2009, the assessment said. Leading economies in the Group of Seven are expected to experience the sharpest contraction for these countries as a group in the post-war period by a significant margin (see table). The IMF said that in the fourth quarter of 2008 global GDP contracted by 5 percent at an annualized rate. The IMF is still working on its projections and will announce numbers for countries around the world on April 22.

Expect more colorful language in that April 22 report, as the writers at the IMF are seemingly only getting warmed up....

International economic diplomacy: "Much worse than you think"

Courtesy of Baseline Scenario: Much Worse Than You Think: International Economic Diplomacy

By Simon Johnson, about how the world is starving the IMF of resources just when they're needed most. Scathing, even bitter commentary on the stupidity and mendacity of our 'leaders' in crisis. Here's an excerpt. His entire screed will be in the New Republic online. (Emphases mine)

Yes, European leaders and the Bush Administration pushed hard for the IMF to cut back on skilled and experienced staff just as the global crisis broke - and as the IMF was emphasizing, politely in public and pointedly in private, that this was a major crisis likely affecting all countries. In fact, given that this emphasis was not welcome by governments, this apparently hardened the resolve of key players to push through senseless, unnecessary, and irresponsible cuts.
Egregious stupidity and borderline malpractice goes unnoticed in the international economic diplomacy space, or at least not picked up on by leading news sources or in the general public discussion. Why? To some (the media), it doesn’t quite meet the threshold for newsworthy - it’s a little too far from the interests of readers and a bit too hard to explain in a news program; nobody cares as much about international issues as they do about domestic bailout scandals - for which there is a much higher tolerance for compelling details. To others (much of the public), it seems too technical and surely something best left to experts. And - remarkably and mistakenly - those who follow the IMF closely (e.g., in the development community) think that this downsizing somehow fits with what they have been trying to achieve; they were completely snowed.
European policy towards the IMF is a masterpiece of misdirection and disinformation. The proportions and audacity should take your breath away. And of course the same principle applies to government officials dealing with international economic policy as it does to CEOs of failing banks: never admit responsibility and definitely never suggest there was the slightest mistake in the past (because that might actually be newsworthy to the mainstream or, even more scary, draw Jon Stewart’s attention).
Rearranging the deck chairs on the Titanic looks productive by comparison. The actions of the G7 with regard to the IMF in 2008 - and the attitudes of the Europeans still today - are more like burning lifeboats and throwing skilled pilots overboard. In this context, what are the odds that the upcoming G20 heads of government summit on April 2nd will truly be productive?

Wow.

Rogoff (2)

A few more gems from the rest of the interview:

• The needed re-regulation of the global economic system will eventually happen, but not for another 4-5 years
• The US will end up with another $8-10 Trillion in debt (on top of our existing $11 Trillion), prompting a '1970's-style' bout of near-hyperinflation to reduce it. Not as bad as Germany after WWI, but pretty darn bad. Rogoff points out that he's only saying this because, again, this is a once in 100 years event, and the aftermath is gonna be ugly for a while
• Most large US financial institutions will need to go through 'some sort of accelerated bankruptcy', and the sooner the better. The longer the Obama administration delays this, the worse things will become, and the greater the risk of 'recessions for a decade' as in Japan. We have to 'face the music', and now.
• This mess will prompt a necessary and long-overdue re-evaluation of American values and consumption at the household level (something your faithful correspondent has long been forecasting...)

Do yourself a favor and take the 20 minutes to view the whole thing. Here's the link again: http://www.pbs.org/now/shows/511/index.html

And read his paper (with Carmen Reinhart) on the aftermath of financial crises (previously recommended): http://www.economics.harvard.edu/faculty/rogoff/files/Aftermath.pdf

Next time you hear Cramer, Kudlow, Luskin and all the rest of trained seals on CNBC et al, keep the much-better-informed Rogoff in mind

International developments are, ummmm, unsettling, to put it very mildly

Three things here, in particular:

1. That crucial G-20 meeting is shaping up to be, as the Brits say, a cock-up No Clear Accord on Stimulus by Top 20 Nations
2. China, with much very good reason, is not pleased with their US 'investments' China has more to worry about than its Treasury holdings (thank you Dr Setser!)
3. Pakistan is on the brink of collapse Clash With Police Melts Into Huge Rally

So, you have, over the past three days, a confluence of almost impossibly bad news that many have long dreaded.

In order, from incredibly bad to horribly worse to unspeakably worst:

• A recurrence of 1930's-style global governmental disfunction/protectionism (which led to The Depression).
• China signaling, in no uncertain terms (for them) that the punch bowl will go away if the US doesn't get its fiscal and monetary act together. Where's the money for US debt gonna come from? And why, pray tell, won't the dollar collapse?
• The worst of all possible geo-political messes going, errr, nuclear? And in a very bad neighborhood....

Folks - things are shaping up to be calamitous, with a global Depression, if not a global economic collapse, in the cards. And I haven't even mentioned that the world's banking system is still in the final stages of self-destruction, with French Revolution-style anger being directed (quite accurately) at the 'leaders' therof. This weekend's greed mongering by AIG sure doesn't help matters

But count on most attention to be paid manana to whether the stock market rally will be sustained for another week or three.

This is getting Shakespearean. All the main players in this drama are tragically flawed, self-obsessed, fatalistic, and increasingly doomed. Yet none are able to perceive it: The G-20 cannot act in its collective interest due to parochial concerns; China cannot admit that they are very much at fault for over-saving and currency manipulation; the US is timid yet still arrogant in the face of creating and furthering the banking crisis; and the whole world is hoping that Pakistan can be fixed by act of god

Thus continue to be sewn the seeds of our destruction: we know the demons we face, yet lack the will and the capacity to face them

Mr Brown goes to Washington

The British PM is in DC to prepare for the upcoming G-20 meeting (if you haven't circled April 2 on your calendar, you should). And, as ever, we can count on the British media - even the civilised portion thereof, which is dwindling - to be a tad more blunt than their American counterparts.

Here's the lede in The Guardian:

Gordon Brown will today urge Barack Obama to join forces in a concerted effort to prevent global depression as the first talks between a European leader and the new US president take place against a backdrop of deepening financial chaos.

An effort to prevent global depression. Hmmm. Think I'll skip that cold shower I was planning to take. This is bracing enough. More:

The global nature of the economic crisis was underlined yesterday when the US problems of HSBC forced the British-based bank to seek an extra £12bn to boost its capital, while losses on business written in London by the American insurer AIG were the catalyst for a fresh sell-off on Wall Street.....
Traders said that comments by the investor Warren Buffett that the US would remain a shambles in 2009 had added to the gloomy mood. Meanwhile, surveys of manufacturing from the UK, Europe and the US all confirmed that industry is shedding tens of thousands of jobs each month in response to the weakest global demand for more than 30 years....
Amid signs many emerging countries are facing extreme financial stress, the White House talks will also focus on the need to provide the International Monetary Fund with extra resources and extra powers to act as an early warning system of global economic problems...

For fun, here's a small sampling of this morning's Google News search results for the P word:

EU official warns protectionism may be gaining ground
Sweden seeks China's support against protectionism
Pascal Lamy: If we go down the road of protectionism, disaster awaits
WTO director urges trade instead of protectionism
OECD warns against protectionism
SE Asian leaders unified on protectionism: official
Meltdown response: Ecuador erects trade barriers
Top Ford of Europe Exec Warns of Growing Protectionism