Recession Woes
Oct. 29th, 2008 09:32 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
danalwynBoring and depressing economic details behind the cut. Really boring - I mean it. And possibly wrong.
If you're used to blogs, and presumably everyone who reads this is, you're used to the structure of the blogverse. I generally separate blogs into two categories, those who publish information, and those who pick up on it. In the first category, I divide them into three tiers. The third tier tend to be very focused professional bloggers, who are either directly involved in the field they blog about, or are very well informed amateurs. They are the ones who discover new trends ahead of time, make predictions, and look at some of the wilder and stranger possibilities with a jaundiced eye. From there they go to blogs that, although still specialized, deal with a much wider array of subjects. Sometimes writers from first tier blogs are also on second tier blogs, but the volume is reduced, so only the things they feel are really important get up on the second site. Second tier blogs, good ones, tend to have a wider audience, and to serve as information feeds for the first tier blogs, who collect news and information on a wide variety of subjects.
The general information flow is that an analyst with a third tier blog picks up on some press release, or some odd factoid (sometimes as little as a photograph by someone with a Flicker account) and analyzes it, finding some tidbit of information. Since third-tier bloggers read each other's work, others begin to zoom in on the topic. After a time it seeps into the second-tier blogs, growing exponentially until it hits the first tier ones. A general rule seems to be that by the time something hits the first tier, it's already made the news is some shape or form. From there it goes to the other side of the blogosphere, disseminating through both people's personal blogs, and dozens of other news blogs that are in some way connected. This is especially true of foreign affairs, where information is not often spread well by conventional channels. By the time the first tier blogs pick up on things, the third tier blogs are already all chatting about something else. Witness piracy in Somalia for example.
If you've been following economics blogs lately, you probably have whiplash. But now the thing I'm getting from them is "Hang on to your hats folks, it gets bumpy from here."
"Bumpy from here?" the rest of us scream, "If it's going to get bumpy, what the hell has it been up 'til now?"
Even though the media is doing its best to find new and interesting things to talk about during their "crisis reports", they are still very far behind the bloggers. Weeks ago, while everyone was watching the Dow play yo-yo with America's retirements, the professionals were pointing at the credit crisis indicators - the LIBOR rate, and the TED spread, which had rocketed to stratospheric heights. These were indicators that, the performance of markets notwithstanding, the credit system had frozen up and we were being choked with it. By last week, the LIBOR had been stabilized, and the TED spread was dropping (it's been up and down this week, but mostly driven by the continuing run on T-bills), but the professionals were already moving on, talking about the growing problem of imminent third-world collapse.
Argentina and Brazil both pushed the emergency panic button last week, followed by the Ukraine, and now a dozen other countries on the edge of the developed world hang on the brink, but speculation has already moved on. Currency crisis were the subjects du jour last week, only to become reality this week when the continuing rise in the yen forced currency markets into all kinds of contortions, and look like they may take investment in the third-world to the brink. But already attention has turned to other indicators.
The problem, of course, is that all the economic indicators went south at one time, with the fall of Lehman Brothers. Ever since then, everyone's been in catch-up. The LIBOR rate skyrocketed, but nobody paid attention to it while AIG was getting bailed out, while the Dow was in freefall, and while Hank Paulson was talking about buying $700 billion dollars of bad American decision making. Only once the pertinent emergencies were at least addressed did people move on and note that the credit markets were frozen.
Now, unfortunately, we've gotten past the immediate financial indicators. Global finance is on hold, or at least holding as well as we could expect. The Dow is somewhat stabilized, the LIBOR rate is at least consistent, and we have a moment to catch our breath. We've lost a couple of trillion dollars, but that was just paper. Now we have the chance to look at all the other indicators that we've been ignoring in the heat of the moment, and discover how totally screwed we all are.
There are three indicators that people are now defining as worrisome. The first remains the continuing strength of the yen, which is bad news, especially for some questionable ventures in investing in the third world which were financed on a cheap yen. There's been some noise about reducing the value of the yen, but unless Japan starts printing money (which would turn the yen from rising to volatile and possibly bring the whole thing crashing down on our heads), that crisis is still ongoing. The second is the Baltic Dry Index, which has been in freefall for a while. The BDI is an index that gives an approximate price for how much it costs to ship goods (actually by ship in this case) from one place to another. In the month after the Lehman bankruptcy, the BDI fell by about 76 percent. And the worst, of course, is the consumer confidence index, which is falling rapidly toward depths normally reserved for Jacques Cousteau.
Everyone is now getting worried because these are concrete index numbers. The Dow can lose 10% in a day, but it can also gain 10% in a day, without a single effect on the companies who make up the DJIA 30. The LIBOR rate is decided upon by a bunch of old white guys in London, and is an arbitrary measure of how much they think it's likely to hail on them today. These are largely paper values, and can have paper solution.
The yen rate is set by a global market too vast to handle. The BDI is a measure of how much it costs real companies to load real goods onto a ship and send it across the ocean. If the BDI has dropped to that depth, it means that people are not shipping goods - which means that there are shiploads of televisions, food products, and industrial tools which are sitting in warehouses on the wrong side of the world, and not getting shipped to where people actually buy them. And with the Consumer Confidence Index sitting in the dumps, it doesn't matter what you make or where you make it, nobody is going to buy it. You can fix the credit market all you want, but it doesn't matter if nobody buys cars, houses, washing machines, or anything but the essentials.
Two weeks ago this could have been seen as a financial crisis; a lot of paper wealth going up in smoke. But factories were still making cars, people were still buying TVs, and everything was mostly unchanged. Now, those televisions are stuck on a wharf in China, nobody is buying those cars, and suddenly the "real world" is looking a whole lot grimmer. Ford and GM are hanging by a thread, South Korea is tightrope walking over a yawning abyss, China's economic engine is beginning to make weird noises, and the rest of the world is holding its breath.
The good news, I suppose, is that everyone expects this to blow over in about a year to two years. But hang onto your hats until then. It's going to get bumpy from here.
ETA: Okay, the LIBOR rate is really not decided in London, but I expect it's still decided by a majority of old white guys, and released in London, so it still counts.
If you're used to blogs, and presumably everyone who reads this is, you're used to the structure of the blogverse. I generally separate blogs into two categories, those who publish information, and those who pick up on it. In the first category, I divide them into three tiers. The third tier tend to be very focused professional bloggers, who are either directly involved in the field they blog about, or are very well informed amateurs. They are the ones who discover new trends ahead of time, make predictions, and look at some of the wilder and stranger possibilities with a jaundiced eye. From there they go to blogs that, although still specialized, deal with a much wider array of subjects. Sometimes writers from first tier blogs are also on second tier blogs, but the volume is reduced, so only the things they feel are really important get up on the second site. Second tier blogs, good ones, tend to have a wider audience, and to serve as information feeds for the first tier blogs, who collect news and information on a wide variety of subjects.
The general information flow is that an analyst with a third tier blog picks up on some press release, or some odd factoid (sometimes as little as a photograph by someone with a Flicker account) and analyzes it, finding some tidbit of information. Since third-tier bloggers read each other's work, others begin to zoom in on the topic. After a time it seeps into the second-tier blogs, growing exponentially until it hits the first tier ones. A general rule seems to be that by the time something hits the first tier, it's already made the news is some shape or form. From there it goes to the other side of the blogosphere, disseminating through both people's personal blogs, and dozens of other news blogs that are in some way connected. This is especially true of foreign affairs, where information is not often spread well by conventional channels. By the time the first tier blogs pick up on things, the third tier blogs are already all chatting about something else. Witness piracy in Somalia for example.
If you've been following economics blogs lately, you probably have whiplash. But now the thing I'm getting from them is "Hang on to your hats folks, it gets bumpy from here."
"Bumpy from here?" the rest of us scream, "If it's going to get bumpy, what the hell has it been up 'til now?"
Even though the media is doing its best to find new and interesting things to talk about during their "crisis reports", they are still very far behind the bloggers. Weeks ago, while everyone was watching the Dow play yo-yo with America's retirements, the professionals were pointing at the credit crisis indicators - the LIBOR rate, and the TED spread, which had rocketed to stratospheric heights. These were indicators that, the performance of markets notwithstanding, the credit system had frozen up and we were being choked with it. By last week, the LIBOR had been stabilized, and the TED spread was dropping (it's been up and down this week, but mostly driven by the continuing run on T-bills), but the professionals were already moving on, talking about the growing problem of imminent third-world collapse.
Argentina and Brazil both pushed the emergency panic button last week, followed by the Ukraine, and now a dozen other countries on the edge of the developed world hang on the brink, but speculation has already moved on. Currency crisis were the subjects du jour last week, only to become reality this week when the continuing rise in the yen forced currency markets into all kinds of contortions, and look like they may take investment in the third-world to the brink. But already attention has turned to other indicators.
The problem, of course, is that all the economic indicators went south at one time, with the fall of Lehman Brothers. Ever since then, everyone's been in catch-up. The LIBOR rate skyrocketed, but nobody paid attention to it while AIG was getting bailed out, while the Dow was in freefall, and while Hank Paulson was talking about buying $700 billion dollars of bad American decision making. Only once the pertinent emergencies were at least addressed did people move on and note that the credit markets were frozen.
Now, unfortunately, we've gotten past the immediate financial indicators. Global finance is on hold, or at least holding as well as we could expect. The Dow is somewhat stabilized, the LIBOR rate is at least consistent, and we have a moment to catch our breath. We've lost a couple of trillion dollars, but that was just paper. Now we have the chance to look at all the other indicators that we've been ignoring in the heat of the moment, and discover how totally screwed we all are.
There are three indicators that people are now defining as worrisome. The first remains the continuing strength of the yen, which is bad news, especially for some questionable ventures in investing in the third world which were financed on a cheap yen. There's been some noise about reducing the value of the yen, but unless Japan starts printing money (which would turn the yen from rising to volatile and possibly bring the whole thing crashing down on our heads), that crisis is still ongoing. The second is the Baltic Dry Index, which has been in freefall for a while. The BDI is an index that gives an approximate price for how much it costs to ship goods (actually by ship in this case) from one place to another. In the month after the Lehman bankruptcy, the BDI fell by about 76 percent. And the worst, of course, is the consumer confidence index, which is falling rapidly toward depths normally reserved for Jacques Cousteau.
Everyone is now getting worried because these are concrete index numbers. The Dow can lose 10% in a day, but it can also gain 10% in a day, without a single effect on the companies who make up the DJIA 30. The LIBOR rate is decided upon by a bunch of old white guys in London, and is an arbitrary measure of how much they think it's likely to hail on them today. These are largely paper values, and can have paper solution.
The yen rate is set by a global market too vast to handle. The BDI is a measure of how much it costs real companies to load real goods onto a ship and send it across the ocean. If the BDI has dropped to that depth, it means that people are not shipping goods - which means that there are shiploads of televisions, food products, and industrial tools which are sitting in warehouses on the wrong side of the world, and not getting shipped to where people actually buy them. And with the Consumer Confidence Index sitting in the dumps, it doesn't matter what you make or where you make it, nobody is going to buy it. You can fix the credit market all you want, but it doesn't matter if nobody buys cars, houses, washing machines, or anything but the essentials.
Two weeks ago this could have been seen as a financial crisis; a lot of paper wealth going up in smoke. But factories were still making cars, people were still buying TVs, and everything was mostly unchanged. Now, those televisions are stuck on a wharf in China, nobody is buying those cars, and suddenly the "real world" is looking a whole lot grimmer. Ford and GM are hanging by a thread, South Korea is tightrope walking over a yawning abyss, China's economic engine is beginning to make weird noises, and the rest of the world is holding its breath.
The good news, I suppose, is that everyone expects this to blow over in about a year to two years. But hang onto your hats until then. It's going to get bumpy from here.
ETA: Okay, the LIBOR rate is really not decided in London, but I expect it's still decided by a majority of old white guys, and released in London, so it still counts.