I Don't Think Turkey is Lehman Brothers 2.0

I'm not convinced that Turkey is going to be the big one, Lehman Bros. 2.0. There will be a Lehman Bros. 2.0, but not now I think.

It's been reported for many moons that Turkey's long financial boom was fueled by foreign loans denominated in foreign currency, principally dollars and euros. Now with the lira in free fall (the lira is trading at an all-time low against the dollar) those loans will be impossible to pay back. Turkish companies will go bankrupt. 

Turkey will likely issue capital controls to prevent panicked money from fleeing the country, repudiate a portion of the debt, and then Erdogan will go looking for a bailout because Turkey will probably not be able to export its way out of the crisis thanks to the devalued lira.

Does this mean that Erdogan is less likely to throw his weight around on the international scene? I doubt it. Erdogan's popularity in part is due to his willingness to tweak great powers.

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"Turkey’s Financial Crisis Surprised Many. Except This Analyst." by Landon Thomas Jr.

Corporate, financial and other debt denominated in foreign currencies, mostly dollars, represents about 70 percent of Turkey’s economy, according to the I.I.F. Turkish companies and real estate developers used borrowed dollars to pay for new factories, shopping malls and the skyscrapers that now define the Istanbul skyline. 

The threat is that as the lira loses value, it becomes more expensive for Turkish companies to repay their dollar-denominated loans. Indeed, a growing number of companies in Turkey already have said they cannot repay these loans.

[snip] 

If Mr. [Tim] Lee’s 2011 call now looks prescient, it hasn’t won him much new business.

Lately, just as Turkey began its crackup, a number of his clients have left him.

Yes, he might have been right on Turkey. But his persistent gloom was wearing thin, especially as the markets continued to soar. 

“It has been some hard sledding,” Mr. Lee admitted. “I have lost a lot of clients because I have been too bearish.” 

Yet he is doubling down on his doomsday message: The river of global cash will dry up, the dollar will spike and there will be a series of financial seizures. Investors, he thinks, will flee developing economies, then Europe and eventually the American stock and bond markets. 

“It won’t be a banking crisis this time around — it will be a financial market crisis,” Mr. Lee said. “And I am very confident that it will happen.”

"Turkey’s Economic Woes Fuel Fears of Contagion in Markets" by Jack Ewing and Alexandra Stevenson:

There were already ominous signs on Monday. After the Turkish lira fell even further against the United States dollar, investors dumped other emerging-market currencies. The Indian rupee also dropped to a record low against the dollar. And in Indonesia, the rupiah flirted with a three-year low against the American currency. 

[snip]

Stock markets across Asia, including in Hong Kong; Seoul, South Korea; Shanghai; and Tokyo, fell on Monday, with many exchanges dropping nearly 2 percent during the day. European markets fared only slightly better. Stocks opened in the red, though the losses were less severe than on Friday. The euro hovered around its lowest point against the United States dollar in a year.

Shares of European banks suffered some of the biggest losses. Those hit included not only the likes of BBVA of Spain and UniCredit of Italy, which have large holdings in Turkey, but also lenders such as Commerzbank and Deutsche Bank, which do not have major operations there.

David Brooks Wants a Revolution but Can't Bring Himself to Say It

“Musicians, if they choose to, can drive a tonal wedge through the noisome pestilence; the stench that often accompanies our contemporary societal lifestyles,” [Junie Morrison] said. “I wanted to conceptualize an escape from the tensions and atmospheric pollution, even if it’s only a temporary psycho-acoustical one.”

The last paragraph in Jon Pareles' obit, "Junie Morrison, a Funk Mastermind, Dies at 62," the Ohio Players, Funkadelic, Parliament, P-Funk All-Stars and solo creative powerhouse.

Yesterday's New York Times op-ed page was a wonder.

David Brooks, who has been shuckin' and jivin' in his column since the dark days of the Lehman meltdown (in other words, almost a decade of bullshit), has really hit his stride with the rise of Trump. Now his ruminations are as dark and baleful as a college town coffeehouse anarchist.

Yesterday's "This Century is Broken" really must be read to be believed. Basically Brooks gets it right.

Most of us came of age in the last half of the 20th century and had our perceptions of “normal” formed in that era. It was, all things considered, an unusually happy period. No world wars, no Great Depressions, fewer civil wars, fewer plagues.

It’s looking like we’re not going to get to enjoy one of those times again. The 21st century is looking much nastier and bumpier: rising ethnic nationalism, falling faith in democracy, a dissolving world order.

At the bottom of all this, perhaps, is declining economic growth. As Nicholas Eberstadt points out in his powerful essay “Our Miserable 21st Century,” in the current issue of Commentary, between 1948 and 2000 the U.S. economy grew at a per-capita rate of about 2.3 percent a year.

But then around 2000, something shifted. In this century, per-capita growth has been less than 1 percent a year on average, and even since 2009 it’s been only 1.1 percent a year. If the U.S. had been able to maintain postwar 20th-century growth rates into this century, U.S. per-capita G.D.P. would be over 20 percent higher than it is today.

Slow growth strains everything else — meaning less opportunity, less optimism and more of the sort of zero-sum, grab-what-you-can thinking that Donald Trump specializes in. The slowdown has devastated American workers. Between 1985 and 2000, the total hours of paid work in America increased by 35 percent. Over the next 15 years, they increased by only 4 percent.

For every one American man aged 25 to 55 looking for work, there are three who have dropped out of the labor force. If Americans were working at the same rates they were when this century started, over 10 million more people would have jobs. As Eberstadt puts it, “The plain fact is that 21st-century America has witnessed a dreadful collapse of work.”

That means there’s an army of Americans semi-attached to their communities, who struggle to contribute, to realize their capacities and find their dignity. According to Bureau of Labor Statistics time-use studies, these labor force dropouts spend on average 2,000 hours a year watching some screen. That’s about the number of hours that usually go to a full-time job.

Fifty-seven percent of white males who have dropped out get by on some form of government disability check. About half of the men who have dropped out take pain medication on a daily basis. A survey in Ohio found that over one three-month period, 11 percent of Ohioans were prescribed opiates. One in eight American men now has a felony conviction on his record.

This is no way for our fellow citizens to live. The Eberstadt piece confirms one thought: The central task for many of us now is not to resist Donald Trump. He’ll seal his own fate. It’s to figure out how to replace him — how to respond to the slow growth and social disaffection that gave rise to him with some radically different policy mix.

What Brooks does next is textbook Brooks. He dodges the obvious, logical conclusion -- namely, that the source of all this domestic woe and disintegration is late stage financialized monopoly capitalism, a.k.a., neoliberalism -- by tossing sand in the reader's eyes by providing an ersatz sociological explanation instead, which invariably ends up blaming the victim. To wit --

The hard part is that America has to become more dynamic and more protective — both at the same time. In the past, American reformers could at least count on the fact that they were working with a dynamic society that was always generating the energy required to solve the nation’s woes. But as Tyler Cowen demonstrates in his compelling new book, “The Complacent Class,” contemporary Americans have lost their mojo.

Cowen shows that in sphere after sphere, Americans have become less adventurous and more static. For example, Americans used to move a lot to seize opportunities and transform their lives. But the rate of Americans who are migrating across state lines has plummeted by 51 percent from the levels of the 1950s and 1960s.

Americans used to be entrepreneurial, but there has been a decline in start-ups as a share of all business activity over the last generation. Millennials may be the least entrepreneurial generation in American history. The share of Americans under 30 who own a business has fallen 65 percent since the 1980s.

Americans tell themselves the old job-for-life model is over. But in fact Americans are switching jobs less than a generation ago, not more. The job reallocation rate — which measures employment turnover — is down by more than a quarter since 1990.

There are signs that America is less innovative. Accounting for population growth, Americans create 25 percent fewer major international patents than in 1999. There’s even less hunger to hit the open road. In 1983, 69 percent of 17-year-olds had driver’s licenses. Now only half of Americans get a license by age 18.

In different ways Eberstadt and Cowen are describing a country that is decelerating, detaching, losing hope, getting sadder. Economic slowdown, social disaffection and risk aversion reinforce one another.

Of course nothing is foreordained. But where is the social movement that is thinking about the fundamentals of this century’s bad start and envisions an alternate path? Who has a compelling plan to boost economic growth? If Trump is not the answer, what is?

What Brooks describes is monopoly capitalism and economic inequality run amok. It is obvious to anyone growing up playing Monopoly. When the other players own all the property and have built hotels on it, rolling the dice and moving around the board is painful if not deadly.

Brooks has been doing this -- putting sociological effects ahead of political-economic causes -- since global capitalism tanked in 2008. At the time I thought, "Well, he's got to do something. He's The Times' house conservative." And while he brings yesterday's column back around to the necessity of bolstering economic growth, he nowhere states the obvious: The super-rich love this low growth economy because they keep vacuuming up a greater share of the total wealth, which means even greater power and prestige.

What Brooks is really arguing for is a revolution. But he is a prophet in the employ of bankers, and he wants to keep his job at "the newspaper of record." So he'll keep confusing effects for causes.

Fergusonized America

A devastating unsigned editorial in the Gray Lady today. Appearing right below a truly despicable attack on Vladimir Putin in wake of the Ukrainian ceasefire announced yesterday ("A Cease-Fire in Ukraine"), "Jobs Stall and So Does the Economy" tells you everything you need to know about the dire straights of the U.S. homeland six-years after the Lehman Brothers meltdown:

The latest data also underscore how incremental improvements in labor conditions have failed to undo the damage from the recession and the prolonged slow recovery. For example, the share of adults in the labor force is no longer declining, as it did in 2013, but it remains at levels last seen in 1978. 

The recent unemployment rate, 6.1 percent, is down from the recession-era high of 10 percent in 2009, but it is still higher than at similar points in recoveries from other downturns going back to 1982. Worse, the unemployment rate today would be 9.6 percent if it included the estimated 5.9 million jobless people who would be working or looking for work if the job market were stronger. 

The generally bleak monthly data are broadly in line with other data on income and wealth released this week by the Federal Reserve. From 2010 to 2013, the Fed found that average incomes dropped by 8 percent for the bottom 20 percent of families and rose by 10 percent for the most affluent 10 percent. For everyone in between, incomes fell or stagnated. 

Wealth was also skewed. Overall it barely grew from 2010 to 2013. But it fell by 21 percent for the bottom 20 percent of families, to a mere $65,000 of net worth, and rose by 2 percent, to $3.3 million, for the top 10 percent. 

It is increasingly obvious that inequality of income and wealth are weighing on economic growth — especially on job creation and pay raises — by concentrating income and assets in the hands of a few who already have more than they can spend. 

The situation is not self-correcting. In fact, in the absence of government policies to foster balance, it is self-reinforcing. The Fed should continue to try to stimulate the economy with loose monetary policy. But only Congress can put in place the broad new policies on taxes, labor standards and immigration that will give all Americans a shot at a rising standard of living.

And we know, what with Democrats headed for almost-certain losses in both the House and Senate (not that they were any help anyway; they can't even get a vote on raising the minimum wage to the floor of the House), that there is no chance for any sort of stimulative, pro-growth legislation coming out of Congress anytime soon.

Things are going to get worse. We're all Ferguson now. Those armored personnel carriers and assault rifles likely will be used in your town before long as jobs continue to evaporate and misery spreads. The Haves are doing fine, and they'll be sure to protect it.

A Good Time to Get Out of the Market

I started investing in the stock market in 2005. I didn't know anything. I thought of it as an experiment. Could I teach myself? When my ex-girlfriend sold (fortunately at the peak of the real estate boom) a condo she had purchased with money we had saved together during our 11-year relationship she paid me out my share of the principal, about $30,000. I took that money and opened a couple online brokerage accounts. At first I got bit by the irrational exuberance of the renewable energy stocks when oil was pushing towards $150 a barrel. For a moment I was looking like a genius. But in the end I made some hasty and poor purchases of penny stocks, and I lost thousands of dollars. Then came Lehman. Riding that out took some intestinal fortitude.

Now the stock market is back to where it was before the meltdown. And I'm getting out. Slowly I plan to unwind if not all most of my stocks before May. My reason? I don't think the eurozone is going to make it. This is from a naked capitalism post today, "Is the Eurozone Nearing a Make or Break Point?":

One of my colleagues studied in Germany, has extensive, high level political and economic contacts there, and reads the press daily. He also describes his sang froid as “somewhere between that of a Chinese sage and a dead animal.”

Needless to say, he not prone to overstatement or overreaction and also has a propensity to makes Delphic remarks.

He said the Eurozone is over. In pretty much those words, a simple sentence, no caveats or conditionals. I nearly fell out of my chair. This apparently reflects the German recognition as a result of the Italian elections that they will not be able to surmount domestic opposition in Italy and potentially other periphery countries and would rather pull the plug than continue funding their trade partners. He said there was a fair bit of discussion of Germany leaving the Eurozone after the election. I quizzed him on how they thought they could do that, since the new DM would presumably trade at a big premium to the Euro. We discussed that the likely outcome would be further labor “reforms”. Maybe I am naive, but I don’t see how this would not undercut an critical German strength, that of the good, if also sometimes combative, relationship between German workers and management. My source finally said widespread recognition of the existential impasse at most a couple of months away. He’s never this definitive.

There is an argument being made that the break up of the eurozone would be good for US markets; that it would lead to increased liquidity that would be pumped into infrastructure. Here's the naked capitalism response to this idea:

Anyone who can fathom how you get to that conclusion (beyond religious faith in the Fed), please explain it to me. Have they not considered what happens to all that debt the ECB bought if there is no Eurozone, or the Eurozone is very much shrunken? And Germany has so much nice shiny infrastructure already they had trouble in the crisis finding anything more to do on that front. This whole crisis is in large measure the result of the iron grip neoliberal thinking has on policy-making. That wasn’t dented one iota as a result of the global financial crisis. Why should a second eruption change that, absent a lot of further upheaval in terms of who is in the power seat?

For a good example of this "iron grip" of neoliberal thinking, take a look at today's lead unsigned editorial in the New York Times, Egypt Needs to Act. How should Egypt act? By embracing IMF-prescribed austerity:

Mr. Morsi’s job is to persuade the political opposition to join him in a suite of economic reforms that would raise taxes, trim energy subsidies and pave the way for a much larger $4.8 billion loan package from the International Monetary Fund. The I.M.F. loan, in turn, would open the door to even more aid and investment from financial institutions and other countries.

This is a perfect illustration of the mental illness afflicting elite institutions. The Times has been arguing vociferously against austerity on the home front (less so in the case of Europe). But overall the Old Gray Lady is still a megaphone for neoliberalism.

December Jobs Report

There is a frontpage story today by Catherine Rampell detailing yesterday's job report.  One-hundred-fifty-five-thousand jobs were added in December which kept the unemployment rate steady at 7.8%. "But it was not enough to reduce the backlog of 12.2 million jobless workers, underscoring the challenge facing Washington politicians as they continue to wrestle over how to address the budget deficit."

It has been over four years since the bankruptcy of Lehman Brothers pushed the Dow into freefall, and still high unemployment persists. I'm a reader of the Monthly Review, a small socialist magazine, and to me their perspective is persuasive. Advanced capitalist economies like the United States, Western Europe and Japan have difficulty posting high annual GDP growth.  This leads to financialization or casino capitalism -- the resort to legerdemain in the form of complex investment devices like derivatives to juke the growth numbers.  This paradigm is bust and another bubble has yet to come along to replace it.  The class war raging in D.C. between Republicans and Democrats is in many ways about the nature of the next bubble. Democrats like Obama are meekly, tepidly pointing the way to a green economy. Republicans are energetically -- look at all the money super PACs raised during the election -- attempting to re-inflate the go-go days of the Wall Street through the repeal of Dodd-Frank, slashing the top tax brackets, voucherizing Medicare, privatizing Social Security. What is so bizarre about the Republican point of view is how anti-majoritarian it is; it clearly benefits only a tiny elite -- the 1% -- yet it dominates one (if not both) of the major political parties.  It speaks to the power of capital and the electronic forms of communication at its command.

One-hundred-fifty-five-thousand jobs for the month absorbs those entering the work force due to population increase but not much more.  At the current rate of job creation it will take, according to Rampell, "seven years to reduce the unemployment rate to its prerecession level."

Given the uncertainty over what Congress will do, estimates of the unemployment rate’s path this year vary wildly. The more optimistic forecasts for the end of 2013 predict that unemployment will fall to just above 7 percent, which would be considerably below its most recent peak of 10 percent in October 2009, but still higher than its prerecession level of 5 percent.

Rampell, who from watching her on New York Times webcasts has a slightly arrogant manner, ends her story with a description of what the extension of emergency unemployment benefits (as part of the fiscal cliff deal) actually means for laid off workers.  It's compelling.