The Dow sinking.
Gold sinking.
Oil sinking.
Copper sinking.
Yields sinking.
We struggled with this, Dear Reader. We meditated. We prayed. We drank heavily.
And finally
we overcame the rank desire to say: We told you so!
As you know, Martin Wolf, of The Financial Times, is the voice of The Economics Establishment. All that is great and good in the field which isnt very much is given voice by Wolf. Then, it is acceptable for policymakers, Treasury ministers, and central bankers, not to mention the people you talk to at cocktail parties.
And lo! Here cometh the neo-Keynesian economist. What saith he?
He says the world is drifting towards Japan.
Of course, that was the message 10 years ago from a certain feral economist who will not be mentioned. He maintained that Japan was a leader, not a follower
and that the US would follow in Japans footsteps
with about a 10-year lag.
He even wrote a book on the subject, with Addison Wiggin: Financial Reckoning Day.
Where he got these ideas, we dont recall. What we do recall is that almost everyone laughed at him. Japan? they said. The US is nothing like Japan. We have a dynamic, robust economy. We have Lehman Bros., Bear Stearns and Countrywide low doc mortgages. We have Alan Greenspan. And George W. Bush. We have mission accomplished in Iraq. We have Silicon Valley, Bernie Madoff and a housing boom. Japan has none of those things. Ha. Ha.
But now, the last laugh is on the other foot!
Japans market topped out in 1990. The US market topped out in real terms in 2000. Thereafter, Japan saw on-again, off-again recession
sinking prices, generally
and slumpy conditions. The US economy staged a limp recovery in the 02-03 period
then gave investors a bubble head-fake. Now, its back to the slump
and now, both Europe and America are looking more Japan-like every day.
Martin Wolf explains:
On May 10, 2012, the yield on the German 10-year bund was 1.44 per cent, on the US 10-year Treasury was 1.85 per cent and on the UK 10-year gilt was 1.9 per cent.
These are extraordinary numbers. They are particularly striking in the cases of the US and UK, which unlike Germany, run very large fiscal deficits and are experiencing very rapid increases in public sector indebtedness.
This combination of falling government bond rates with very rapid rises in public sector indebtedness reminds us, of course, of the experience of Japan since 1990.
At the end of 1990, when its bubble economy went pop, the Japanese governments 10-year bond was yielding 6.7 per cent. As the economy subsequently declined, deflation took hold and fiscal deficits and public debt exploded. But yields on 10-year Japanese government bonds (JGBs) fell to close to 2 per cent in 1997 and then, with sizeable fluctuations, to troughs of 0.8 per cent in 1998, 0.4 per cent in 2003 and, recently, to 0.9 per cent. In short, the worse the Japanese governments present and prospective debt position has become, the lower the interest rates on JGBs has also become.
Similarly, in July 2007, just before the beginning of the crisis and consequent explosion in fiscal deficits and debt, the US 10-year Treasury yielded 5.1 per cent. Now, almost five years later, the bonds of this alleged fiscal basket case yield less than 2 per cent. Again, in the UK, another supposed basket case, with huge fiscal deficits and a slipping austerity programme, yields have fallen from 5.5 per cent in July 2007 to below 2 per cent.
What does it mean?
Well, if the US and Europe are following Japan
and Japan is going nowhere
then three of the worlds large major areas are dead in the water.
And if that is the case, you can expect the entire world economy to go Japan.
That will mean lower commodity prices. A lower price of oil. A lower price of gold. Lower interest rates yes, look for the yield on US 10-year notes to drop below 1%. Bad unemployment figures. Low
or negative growth
falling real estate prices.
and probably a stock market crash.
Hold onto your hats!
And more thoughts
Well, okay
so the Yahoo! guy embellished his resume a little. Big deal. Really, were surprised to see people make such a fuss about it. After all, who can honestly say they havent put a little positive spin on their own achievements. We have!
But let us rush to clean up our credentials before Dear Readers make a federal case of it.
Okay
on our age. It says we were born in 1959. Must be a typo. We were really born in 1953
okay
48.
And, it says we attended Harvard University. Well, yes
we certainly did attend Harvard
But through some bureaucratic mix-up our name was never on the official student list and our diploma must have gotten lost in the mail.
As for the Pulitzer Prize, we wouldnt say that we were awarded the prize, not exactly. There again, it seems to be a case of a slight mis-wording. Pulitzer Prize-winning describes the quality of our work
as widely recognized, at least in the office here.
And we didnt exactly invent the Post-It note. We just invented something like it, with scotch tape and a piece of paper. Same idea.
And, okay, did we really win the Nobel Prize in economics? We probably shouldnt have used the word win. We were nominated
well, mom thought should have been nominated. She was putting us in the running
or something like that.
There, we hope that clears up any misunderstandings.
*** How do you like that? A guy comes from Brazil. He makes billions helping Zuckerberg launch Facebook. And then he leaves the country. Youd think hed be more grateful. Or at least more sentimentally attached to the land that gave him so much loot.
But no. Edouardo Saverin is pulling out of the USA. Bloomberg reports:
Eduardo Saverin, the billionaire co-founder of Facebook Inc. (FB), renounced his US citizenship before an initial public offering that values the social network at as much as $96 billion, a move that may reduce his tax bill.
Facebook plans to raise as much as $11.8 billion through the IPO, the biggest in history for an Internet company. Saverins stake is about 4 percent, according to the website whoownsfacebook.com. At the high end of the proposed IPO market capitalization, that would be worth about $3.84 billion. His holdings arent listed in Facebooks regulatory filings.
Saverin, 30, joins a growing number of people giving up US citizenship ahead of a possible increase in tax rates for top earners. The Brazilian-born resident of Singapore is one of several people who helped Mark Zuckerberg start Facebook in a Harvard University dormitory and stand to reap billions of dollars after the worlds largest social network holds its IPO.
But the rich are doing it all over the world.
A report from London tells us that the French are moving to town. Frances new president has pledged to raise income taxes on the rich to 75%
and to boost Frances wealth tax too. Wealthy French people are buying houses in South Kensington to escape.
As for the rich in Argentina, theyve been making tracks for many years. As soon as they get some money they buy an apartment, in Miami!
Here in Baltimore, wealthy people have been getting out of town since the top in real estate in 1927.
And now, the rich are leaving Maryland too. Governor OMalley says wealthy people can afford to pay a little more in taxes
Well, yes, they can afford it. But that doesnt mean they will like it.
Were moving to Florida, says an old friend.
Wait for me, says your editor
Meanwhile, the Irish and Spaniards are leaving their homelands too. Money is the reason. But smaller amounts of it. There are few jobs in Ireland or Spain, so theyre leaving to find work.
Even the Chinese are jumping ship. No kidding. Taxes are low in China.