The ascent of money

Thursday, July 16th, 2009

Niall Ferguson’s book, The Ascent of Money: A Financial History of the World, is now available in a full-length four-part documentary. Known for his intellectual firepower, Ferguson is an historian who specializes in financial and economic history and teaches at Harvard.

The Ascent of Money is well researched and especially relevant for putting the current financial crisis in historical context. As Ferguson said, “Money’s rise has never been a smooth upward ride … Financial history has repeatedly been interrupted by gut-wrenching crises, of which today’s is just the latest.”

Each of the parts lasts for about an hour, but is conveniently broken up into chapters should one only wish to view certain sections.

Part 1: From bullion to bubbles

Ferguson examines the current global financial crisis in the context of the financial history of the West. Topics in this part include: the beginnings of money lending, stocks, bonds and credit.

Part 2: Bonds of war

Ferguson documents the rise of modern finance in Europe and its expansion into the Far East, including the ascendancy of the Rothschilds and bond markets, and the decline of Europe’s landed aristocracy.

Part 3: Risky business

The roots of the insurance industry in Europe; disasters like Hurricane Katrina expose problems in risk management; the history of hedge funds.

Part 4: Planet Finance

Ferguson chronicles the spread of good - and bad - financial practices across the globe, and the consequences for all of us.

Source: PBS - Thirteen/WNET

Tags: Aristocracy, Ascendancy, Ascent, Bond Markets, Bonds Of War, Economic History, Financial History, Financial Practices, Firepower, Global Financial Crisis, Hedge Funds, Historical Context, History Of The World, Insurance Industry, Money Lending, Planet Finance, Risky Business, Rothschilds, Stocks Bonds, Target
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US dollar – a currency in decline

Thursday, July 16th, 2009

The comments below were provided by Peter Greene of Fusion IQ.

In the midst of the longest and deepest, post World-War II recession, America’s financial position relative to the rest of the world has deteriorated sharply. Three decades of massive trade deficits have turned the United States from the world’s top lender into the world’s largest debtor and as a result has made it dependent on the whims of so-called emerging nations, laden with huge foreign currency reserves, to finance the bailout of Wall Street Oligarchs, and President Barack Obama’s social programs.

Foreigners own roughly half of the US government’s publicly traded debt, or $3.47-trillion, representing nearly 25% of the size of the US economy - the highest level in history. If foreign lenders were to significantly reduce their purchases of US Treasury notes, without even dumping their current holdings, US long-term interest rates could zoom higher and the US dollar could crumble.

That would be a double whammy for the US economy. Higher yields on Treasury debt could translate into higher mortgage borrowing rates for homebuyers, which would weigh on the housing market, while a weaker US dollar could lift the price of crude oil to above $70 per barrel, resulting in an “oil shock” to the world economy. This nightmare scenario has been relegated to the den of doomsayers and fear mongers, yet is starting to become an increasingly realistic proposition.

Some of the biggest foreign lenders to the US Treasury, such as Brazil, China, India, Russia and Qatar, are grumbling aloud about the endless string of trillion dollar US budget deficits projected in the years ahead. Lenders are crying foul over the Federal Reserve’s radical experiment with “quantitative easing” (QE) - the printing of vast quantities of US dollars, and monetizing the US government’s debt.

The Congressional Budget Office (CBO) recently forecast the US budget deficit for fiscal 2009 to reach a mind-boggling $1.825-trillion or approximately 13% of GDP. Next year, the budget deficit is expected to total $1.43-trillion under Obama’s budget plan. Furthermore, the CBO sees the US deficits between 2010 and 2019 totalling $9.1 trillion, thereby raising doubts about America’s ability to finance its debt at low interest rates, and whether it can maintain its top-tier AAA credit rating.

Falling off a cliff - this would be a good technical description of what the US Dollar Index looks like. The risk of the dollar doing just that probably lies with what China decides to do. China’s holdings of US Treasury debt have soared by $257 billion from a year ago to $763 billion today, exceeding Japan’s holdings of $686 billion. Yet any precipitous move by Beijing to become a net seller of US Treasury debt runs the risk of igniting a US dollar selling panic, triggering massive losses in China’s own portfolio of Treasuries and the collapse of its main export market, the United States. Technically the recent triangular consolidation (orange lines) looks like a bearish wedge. While there is a support band in the 78.22 to 77.40 range (green lines) a violation of this would trigger a renewed bearish move downward.

[PduP: For more on the most likely near-term direction of the US Dollar Index, Adam Hewison's (INO.com) short technical analysis also provides valuable insight. Click here to access the presentation.]

Source: Peter Greene, Fusion IQ, July 15, 2009.

Tags: Barack Obama, Congressional Budget Office, Currency Reserves, Doomsayers, Double Whammy, Emerging Markets, Endless String, Fear Mongers, Foreign Currency, India, Mortgage Borrowing, Nightmare Scenario, oil, Oil Shock, Peter Greene, Price Of Crude Oil, Radical Experiment, Realistic Proposition, Three Decades, Us Budget Deficit, Us Treasury Notes, World Economy, World War Ii
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ECRI Declares the Recession Over

Thursday, July 16th, 2009

ECRI’s Lakshman Achuthan declares the recession over with the US economy tracking up to 2.4% in the third quarter…

There is a great deal of skepticism about the economy, and many mixed offerings in terms of opinion on outlook. The Slate.com article, The Recession is Over!, discusses the contrasting view of Lakshman Achuthan, of ECRI (Economic Cycles Research Institute), one of the most highly regarded independent economists, known for a long list of accurate and prescient economic forecasts, who points out that three significant leading indicators are currently flashing green.

The economic data that get the most play in the news— unemployment, retail sales—are coincident or lagging indicators and historically have not revealed much about directional changes in the economy. ECRI’s proprietary methodology breaks down indicators into a long-leading index, a weekly leading index, and a short-leading index. “We watch for turning points in the leading indexes to anticipate turning points in the business cycle and the overall economy,” says Achuthan. It’s tough to recognize transitions objectively “because so often our hopes and fears can get in the way.” To prevent exuberance and despair from clouding vision, ECRI looks for the three P’s: a pronounced rise in the leading indicators; one that persists for at least three months; and one that’s pervasive, meaning a majority of indicators are moving in the same direction.

The long-leading index—which goes back to the 1920s and doesn’t include stock prices but does include measures related to credit, housing, productivity, and profits—hits bottom and starts to climb about six months before a recession ends. The weekly leading index calls directional shifts about three to four months in advance. And the short-leading index, which includes stock prices and jobless claims, is typically the last to turn up.

All three are now flashing green. According to Achuthan, the long-leading index growth rate has been recovering since November 2008, the weekly leading index has been recovering since last December, and the short-leading index growth rate bottomed in February 2009. In sequence, each turned up, “and by April the three Ps had all been satisfied.” Sure, corporate profits continue to disappoint, and the unemployment rate is climbing. But for ECRI, which navigates by relying exclusively on its instruments, that’s only a part of their picture. They’re the Spocks of the economic forecasting crowd—unemotional, uninvested in anything but the logic of what history and their dashboard tell them. “From our vantage point, every week and every month our call is getting stronger, not weaker, including over the last few weeks,” says Achuthan. “The recession is ending somewhere this summer.” In fact, it may already be over.

The Recession is Over!

http://www.slate.com/id/2222742/

Source: Slate.com/Washington Post

Tags: 1920s, Business Cycle, Directional Changes, Economic Cycles, Economic Data, Economic Forecasts, Ecri, Exuberance, Four Months, Hopes And Fears, Jobless Claims, Lagging Indicators, Lakshman, Lakshman Achuthan, Leading Indicators, Least Three Months, Proprietary Methodology, Recession, Retail Sales, Skepticism, Stock Prices
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