World News (Mon 29th. Aug ‘ 11)

Here is a rough transcription of the presentation for people who are hard of hearing. Apologies for the lack of grammar, I am working to improve the automated transcriptions -
Hello you ready for another week let’s go. The Telegraph and an article with a caption under Christine the gardens face Christine Lingard called for substantial and mandatory recapitalisation to bolster European banks balance sheet in a remarkably gloomy assessment of the world economy Ms Lingard warned that urgent action is required to stave off the threat of global recession and another credit crisis new article we read the sounding a stark warning to stronger European countries such as Britain prepare and Germany the new IMF chief said we could easily see the further spread of economic weakness to core countries and even more debilitating liquidity crisis to reduce these risks she called for substantial and mandatory recapitalisation to bolster European banks balance sheets which will be key to cutting is the chains of contagion Ms Legato was speaking at the US Federal reserve’s annual forum at Jackson hole said the recapitalisation should first be financed through private channels but can also be sourced from Europe wide bailout fund so the EF SF or ESM that it is now goodbye banks right later in the article rumours have swept the markets in recent weeks causing a number of high-profile banks to deny that they have liquidity problems the French bank associate Asia know I’ll was forced to issue a statement saying order on market rumours where I’m through as a classic of it all rumours are and who doesn’t matter what they are their own and all after it led a pack of French banks with plunging share prices East Yorkshire price plunges it’s harder to do and offering to sell more shares however despite Missoula guards concerns only nine banks failed the European banking authorities ECB’s stress tests in July which meant they only had to raise €2.5 billion in total so when she was finance minister she was probably part of the only tickle our influence that stole the stress tests to be taking the easy on the hand and make it look good so that’ll gives the word confidence is a banking system confidence just does not cut it any more to of the United States of America reduction will cut chart about real Jean D be and the blue red greeny purple colours are personal consumption expenditures PCT personal consumption 70% of GDP grows private domestic investment companies buying new factory net exports of goods and services that the balance between exports and imports government consumption expenditures and gross investment obvious what Mattis and the dotted blue line is the real GDP with see it falling down in the great recession coming back up but 4% GDP that could push Don it would be very nice and it hasn’t dropped down and what Doug Short pointing out in this chart more than anything is the blue which is the personal consumption expenditures on the last quarter is a mere sliver and US GDP will go nowhere as long as personal consumption is a mere sliver moving onto Project syndicate where Stephen Roach writes an article called one number says it all he writes from Newhaven and the number is 0.2% to you when I that’s a sliver it is the average annualised growth of US consumer spending over the past 14/4 calculated inflation-adjusted terms from the first quarter of 2008 to the second quarter of 2011 never before in the post-World War II error have American consumers been so weak for so long this one number in capsule a much of what is wrong today in the US and the global economy he writes his article and we get to this at the end instead of what he’d written earlier the US needs and menu of policies tailored to the needs and pressures bearing down on American consumers some possibilities are debt for giving us to speed up the deleveraging process creating savings policies that restore financial security to crisis battered Americans and of course jobs and the income they generate the US economy as well as the global economy cannot get back on its feet without the American consumer it’s time to look beyond ideology on the left as well is on the right frame the policy debate with that key consideration in mind that all something from me here that go against the US economy as well as the global economy cannot get back on its feet without the American consumer this is fact the can we see the absolute dangerous trap this is what is proposed here then is to get the American consumer consuming again which will be good for American GDP and world GDP the can we not see house stupid this is the have died after pointing out you know I mean it’s it’s like running a business and relying on one client or your one major client has your major customer because of that major customer goes away or just doesn’t come into your shop for a while but that is the world economy relying on the American consumer so the idea is to get the American consumer consuming again can’t be right right back in the United States and the whole idea of the last well that this chart goes back to our 1990 that this is MBA purchase application mortgage applications and we can see it went up in the upper as the world tried to pour money into the United States to keep the American consumer going the Americans consumer consuming and consumed on housing and ran that up but now it running down the lid down to levels of 1996 now Gillian Tet writing the financial times Julie and Julia contextually intact in any murder mystery it pays to watch the boring grey man or woman in the corner quiet unobtrusive characters can be deadly so to in finance four years ago the giant US money market funds seemed some of the dullest actors on the global financial scene but in 2007 they quietly helped to spark the crisis in the mortgage-backed securities world when they silently stopped rolling over bonds then in 2008 they furtively wielded the knife again pooling funds from some American banks and the repo purchase markets more about that one day I hope now that shadow ones again as my colleague Stan McCrum Tallis Dimas and Jennifer queues of reported in recent weeks these funds have been quietly backing away from European banks either refusing to rollover loans or slashing mature trees of the funds that they do provide Fitch for example recently calculated that the largest US money market funds cut their exposure in absolute terms by $30 billion in July even before the latest turmoil peanuts you say seeks America is rich a lot of this money is pension money and it’s slopping around the world and it’s these money flows that are causing all the problems money is turning up in the wrong places later we get from Suki Mann being quoted but it’s worth watching that those money market funds what those money market funds do next for one thing in their antics tend to have a powerful impact on market psychology particularly given folk market memories of 2008 secondly this quiet exodus has reminded US and European investors alike of something that policymakers have hitherto tended to downplay namely the rather surprising degree to which Eurozone banks depend on short term financing and what not Northern rock off right at the start of this crisis and really was the main weak point in the all the Wall Street banks now we come to money that is not peanuts Morgan Stanley for example calculates that of the eight freely in Euro funding that is currently in place for the largest 91 Eurozone banks and 58% needs to be rolled over in the next two years more startling still some 47% of this funding is less than a year in duration much of that is in euros €8 trillion needs to be rolled over 60% of that so that’s what I even half trillion in the next two years who’s going to roll that 5 1/2 trillion will the money be in the right place at right time end of the world part one by John moulding we have this is so quite into the article it’s worth reading the whole thing he always is worth reading we have a fundamentally different economic scenario than at any time in the past 66 years why then should we accept the same expect the same outcome every indicator employment GDP ISM sentiment etc is far below its average result two years after the official end of the recession that should speak volumes talking about United States so why does the CBO are criminal budget office something congressional because Congress is making projections for future deficits based on what appeared to be warm mildly optimistic assumptions that means future deficits are likely to be worse than expected if we enter a recession as I expect then revenues will be down as unemployment will be up and profits down and expenses will go up that don’t mean you missed deficit reduction currently being negotiated by the gang of 12 will disappear in a cloud of smoke and maze of mirrors this will mean that more pain in the terms of future spending cuts and/or tax increases will be needed I know a fair number of congressional staffers read this letter so pay attention hear your bosses need to be given a heads up they they know full well if we are in for a slow growth muddle through decade then the private projection the deficit projections by the CBO are dismally off get the spreadsheets factor in slower growth and higher unemployment and to recessions by the end of the decade typical for the aftermath the banking debt crisis and see what those deficit projections look like I think that’s a fair warning but it won’t make any difference at all to the CBO and other governmental project and projectors they will project optimistic views and even moulding here if we are in for a slow growth muddle through decade I think that is a big ask because if America doesn’t get spending again that the whole world economy has got itself in the state where the Americans need to spend 25 years that taken to get this this system in place where everything is predicated on Americans spending and if they don’t spend the rest of the world falls apart and then because now it is a global economy that it is now all locked altogether it will be global recession after global recession knocking back to America out the world I think it could be very very optimistic to get away with slow growth muddle through decade factor that it CBO a good week.