So, how does a deflationary depression resolve itself?

http://wolfstreet.com/2016/01/23/davos-dalio-economic-deflationary-depression/

When Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, referred to a possible economic depression as he was being interviewed at the World Economic Forum at Davos, it does not mean what most people think it means...Most of us think about recessions and depressions in a linear way. That is, a depression is a really, really bad recession featuring even higher levels of unemployment and lower overall levels of economic activity.

But for Mr. Dalio, recessions are kind of normal, business-cycle related economic events that regularly occur every 5-10 years or so. The economy begins to overheat, the Fed raises rates in response (the removal of the “punch bowl”), business activity slows perhaps a bit too much in response, and voila! A recession results. Depressions, on the other hand, are secular or long term, occurring much less frequently. That’s because, according to Mr. Dalio, it takes a long time (perhaps decades) to accumulate the excess levels of corporate and government debt that end up triggering this type of economic event. A depression is a condition where more debt cannot be added to the system and instead it must be reduced, or as we say, deleveraging must occur. A depression always threatens systemic solvency.

There are several hallmarks of a systemic deleveraging or depression if you will:

1. Various asset classes begin to be sold (like oil and gas wells today for example)
   
2. As a result of these widespread asset sales, prices decline
   
3. Equity levels decline as a result
   
4. This triggers more selling of assets
   
5. Since there is less worthwhile collateral available credit levels contract
   
6. Overall economic activity declines.
   
   In short, there isn’t enough cash flow being generated to service all the accumulated debt. As a result assets have to be sold, bankruptcies become more common...What makes this such a pernicious process is that it is a self-reinforcing cycle of economic negativity...
   
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http://wolfstreet.com/2016/01/21/ruble-plunges-25-in-90-days-government-says-to-heck-with-it/

The ruble plunged 3.8% on Wednesday and another 2.8 on Thursday to a new all-time low of 83.85 to the dollar, at 5:30 PM Moscow time, blowing through the previous catastrophic panic low of December 2014. At the time, the Ministry of Finance and the Central Bank deployed desperate, and ultimately very costly shock-and-awe measures to stop the ruble from spiraling out of control. And it triggered all kinds of drama...On December 16, 2014, the Central Bank announced that it increased its benchmark rate by a brutal 6.5 percentage points to a dizzying 17%, after having already jacked up rates in the prior week to 10.5%. And the Ministry of Finance announced it would begin selling Russia’s crown jewels, its dwindling foreign currency reserves, and with the proceeds mop up rubles. It seemed to put a floor under the ruble for a few blinks of an eye, but then the ruble crashed 20% in no time, hitting 80 rubles to the dollar for a few moments, and it was going to be the end of the world, but then the ruble reversed course and spiked higher.

Today, there’s no such drama. The ruble is now lower than it had ever been. It has plunged 26% against the dollar in just three months. It’s also down 25% against the euro, 27% against the yen, and 23% against the yuan. This is an all-out ruble crash, not a “strong dollar” problem. And it’s down 63% against the dollar since early 2013. Back then, it took 29 rubles to buy a dollar. It took 62 rubles three months ago. It takes nearly 84 rubles now:



But there were no big announcements and no shock-and-awe moments. Instead, the Ministry of Finance and the Central Bank sat on their hands and let it happen. But Central Bank Governor Elvira Nabiullina did show up on TV in an interview to soothe her compatriots’ rattled nerves. After all, it was their money that was getting destroyed, and she owed them a few mollifying words.

The ruble is close to its “fundamental levels,” she said. “We will intervene only if we see risks to financial stability. There aren’t such risks now.”

it's a way for Russia to disconnect from the $$$ which was the goal, anyway, and to keep the oligarchy from draining the capital out of the country. If the ruble has no value outside Russia, it won't be moved outside Russia....

small governments, too, I'll betcha!

http://wolfstreet.com/2016/01/20/small-businesses-in-europe-fear-getting-trampled-by-ttip/

The powers behind it are multinationals.

At this moment, 3,382,680 people have signed a European Citizens’ Initiative calling for an immediate end to the negotiations of the Transatlantic Trade and Investment Partnership (TTIP). “Stop these sinister trade deals,” is the site’s motto. It’s by far and away the highest number of signatures ever achieved by such a petition. Mass demonstrations, meetings, and rallies have been held in towns and cities across the continent as well as coordinated international days of action against TTIP. While protests from anti-globalization groups and labor unions have hogged what little limelight there has been, the depth of European skepticism goes much deeper. Thousands of local councils and municipalities have preemptively declared themselves to be TTIP-free zones, including Spain’s second biggest city, Barcelona.

Now, despite the European Commission’s increasingly desperate efforts to paint TTIP as SME-friendly, growing ranks of small businesses are beginning to question the wisdom of signing the so-called free trade agreement, which has little to do with actual “trade,” and everything to do with expanding the rights and powers of large corporations. A new Business Against TTIP platform has just been launched in Britain, fronted by UK Entrepreneur of the Year Titus Sharpe. “The small and medium-sized enterprise (SME) sector is critical to the UK economy,” Sharpe writes in the UK Independent. “We account for more than 99% of the private sector and we provide jobs for more than 15 million people. Our gross value add to the British economy is £339 billion.”

The European Commissioner for Trade, Cecilia Malmström, argues that “Europe’s smaller firms and the communities they operate in stand to be among the biggest winners” from TTIP. A bizarre claim given that only 0.5% of SMEs in the UK and 0.7% of businesses across Europe actually engage in trade with the U.S., and the value of those exported goods and services is less than 2% of the added value produced by European SMEs as a whole. For most of Europe’s small businesses, the vast bulk of their exports go to other European countries. However, a number of studies predict that TTIP will see a considerable drop in trade between EU countries as a result of trade diversion to the USA, with one warning of “European disintegration, unemployment and instability” as a direct result of TTIP.

The fact that growing ranks of time-pressed small businesses are starting to actively campaign against TTIP is no minor matter. By bowing at every turn to the demands of big business, the TTIP negotiators risk turning a very important ally into a very powerful adversary, and not just on the European side: in total there are 20 million SMEs in the EU and 28 million in the US.

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http://www.alternet.org/economy/davos-club-these-are-people-who-gave-us-world-where-62-people-own-much-38-billion?akid=13900.227380.PLHX2H&rd=1&src=newsletter1049268&t=5

Global elites meet in the remote Swiss town of Davos each year for the World Economic Forum. The conclave began in 1971, but it became an essential destination in the 1990s. When globalization became the buzzword, Davos became its headquarters. Big business, politics and the media meet, exchange business cards and go away better connected to each other. Deals are sometimes struck, but more than anything harmony among the world’s elite is established. This is what the Davos Summit is intended to do, to create a Davos civilization for the important people of the planet.

Each year, before the summit, Oxfam International publishes a report on global wealth. This year’s report came out with some shocking news. In 2010, 388 individuals owned as much wealth as half the world’s people, around 3.6 billion people. The obscenity then was dramatic. Last year, the number fell to 80 human beings who own as much as 3.6 billion people. This was getting to be too much.

The data this year is even more shocking. Only 62 people own as much as 3.6 billion people. Sixty-two! Inequality has been on a steady march forward.

It is very likely that these 62 people or their representatives were at Davos. They are the core of Davos civilization. Champagne corks will pop, caviar will drip to the floor; the wealthy have much to celebrate. Even the slow-down in China will not slow them down. The 62 make as much money in the bear market as in the bull market.

What will the 62 discuss at Davos? The theme for this year is how to “master the fourth industrial revolution.” What is the fourth industrial revolution? The first industrial revolution is seen as the move from human power to machine power in the early 19th century. By the late 19th century, science had been harnessed by industry to produce the technological or second industrial revolution. Into the mid 20th century, computers made their appearance and opened up the digital or third industrial revolution. The fourth one is about robots and mechanization—the displacement of workers by machines.

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http://www.alternet.org/economy/robert-reichs-hilarious-crusade-save-capitalism-and-americas-middle-class-part-1?akid=13909.227380.a736lZ&rd=1&src=newsletter1049419&t=9

This part 1 of a 2-part interview.

It’s two weeks before Thanksgiving, and a crowd of 500 people has filled the Silicon Valley Commonwealth Club to hear former U.S. Labor Secretary Robert Reich discuss a decidedly less than festive topic: How the economy is leaving most Americans behind. The subject, which inspired Reich’s latest book, Saving Capitalism, hits particularly close to home here, where uber-rich tech titans coexist with legions of low-wage workers, even as the middle class is increasingly squeezed out of nearby communities like Redwood City and Milpitas by ever-rising housing prices. But Reich has no intention of bludgeoning his audience with bleak statistics and grim predictions. “As you can see, the economy has worn me down,” says the 4-foot-11-inch Reich, pausing as laughter spreads across the room. “Really, before the Great Recession I was, you know, 6-foot-2.”

Moments earlier, when I met Reich in an empty banquet room and asked if he preferred to be called “Professor” or “Bob,” he answered in a deadpan voice: “‘Your Highness.’” I had traveled from Los Angeles to trail Reich for a couple of days to better understand the man who has become at once the most visible, and most entertaining, critic of the nation’s unequal economy. In an era dominated by polarizing blowhard commentators, Reich is an anomaly: The avuncular scholar who prefers to disarm rather than denigrate.

“He can never be accused of being a zealot,” Alan Simpson, the arch-conservative former Republican Senator from Wyoming and one of Reich’s best friends, explained to me later. “A zealot is one who, having forgotten his purpose, redoubles his efforts. He is not that. He’s a very complex and a very deep, centered human being. And he thinks of human beings who are not doing well, and he gravitates toward, ‘How do you solve that?’”

Reich’s humor is woven seamlessly into a narrative that is also veined with generous doses of history, a style that, along with his fame, has made him a popular professor at the University of California, Berkeley’s Goldman School of Public Policy, where he has been a faculty member since 2006.

“Bob is one of the best explainers out there,” said Jared Bernstein, Vice President Joe Biden’s former chief economist and who, like Reich, is one of the country’s most prominent progressive voices on inequality. “He takes issues that are complicated and multilayered and distills their essence into quick, simple, accurate and entertaining points that make sense to any interested party. Listening to Bob is like watching a master musician or athlete.”

As he nears 70, Reich is explaining at a furious pace, with a nonstop output of blog posts, op-eds, videos and lectures. (He has even appeared in an animated video for Capital & Main.) “I don’t want to do anything else,” he told me the day after the Silicon Valley speech. “This is extremely satisfying. I have the best job in the world.”...Reich rolls with the punches. During his Silicon Valley speech, he acknowledged that his new book has raised the ire of both ends of the political spectrum. While on a promotional tour through several red states, he told the Commonwealth Club audience, he found that “nobody liked the title, Saving Capitalism. They were kind of annoyed — ‘It sounds like you are being critical. What’s wrong with capitalism?’ I got back to Berkeley and nobody liked the title. They said, ‘Why do you want to save it?’”

**************************************************************

“Bill Clinton is a very skillful, charming man, and I learned a lot watching him at close range,” observed Reich, who met Clinton when they were on a boat sailing to England as young Rhodes Scholars in 1968. “I learned what skillful politicians do to win people over. I certainly learned that I’m not one, and I also learned how easy it is to confuse means with ends. This is a deep and endemic problem in politics, because a politician is always trading off means and ends. But sometimes those trade-offs are so demanding and persistent that a politician loses sight of what the ends are all together. It all becomes means.”




so much more at link

http://www.alternet.org/economy/robert-reich-why-white-working-class-abandoned-democratic-party?akid=13900.227380.PLHX2H&rd=1&src=newsletter1049268&t=11

...The conventional answer is Republicans skillfully played the race card. In the wake of the Civil Rights Act, segregationists like Alabama Governor George C. Wallace led southern whites out of the Democratic Party. Later, Republicans charged Democrats with coddling black “welfare queens,“ being soft on black crime (“Willie Horton”), and trying to give jobs to less-qualified blacks over more-qualified whites (the battle over affirmative action).

The bigotry now spewing forth from Donald Trump and several of his Republican rivals is an extension of this old race card, now applied to Mexicans and Muslims – with much the same effect on the white working class voters, who don’t trust Democrats to be as “tough.” All true, but this isn't the whole story. Democrats also abandoned the white working class.

Democrats have occupied the White House for sixteen of the last twenty-four years, and in that time scored some important victories for working families – the Affordable Care Act, an expanded Earned Income Tax Credit, and the Family and Medical Leave Act, for example. But they’ve done nothing to change the vicious cycle of wealth and power that has rigged the economy for the benefit of those at the top, and undermined the working class. In some respects, Democrats have been complicit in it.

Both Bill Clinton and Barack Obama ardently pushed for free trade agreements, for example, without providing the millions of blue-collar workers who thereby lost their jobs any means of getting new ones that paid at least as well. They also stood by as corporations hammered trade unions, the backbone of the white working class. Clinton and Obama failed to reform labor laws to impose meaningful penalties on companies that violated them, or enable workers to form unions with a simple up-or-down votes...

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http://www.alternet.org/economy/next-recession-way-heres-everything-you-need-know-about-markets-oil-collapse?akid=13897.227380.YB4K0f&rd=1&src=newsletter1049234&t=5

Given how the first few weeks of January have played out, I feel sorry for anyone who chose as a New Year’s resolution to check their retirement accounts more assiduously. Stocks hit a 15-month low last Friday. Analysts cite a number of factors in the slowdown – China’s economic woes, the strong dollar – but the biggest culprit appears to be the dip in the price of oil, from a high of $100 a barrel in mid-2014 to under $29 a barrel, which is over three times cheaper than the price of the barrel itself. By the way, the Iranian nuclear deal, which will allow the major oil producer to return to global markets, makes future price prospects worse, not better.

At this moment, everyone should repeat to themselves the mantra that the stock market is not the economy, stop checking their portfolios, and get on with their lives. However, the oil price collapse could spill into the real economy, and not in the ways everybody expected when prices began to fall over a year ago. At that time, as Paul Krugman explained over the weekend, the conventional wisdom held that oil price drops would benefit the U.S. economy on net. The theory goes that reductions in the price of gasoline help consumers, who have a higher propensity to spend money than oil companies and their executives. Consumers would take the windfall savings and cycle it through the economy, increasing growth. Sure, oil companies would feel the pain, but the benefits would spread to many more people. President Obama referred to this in the State of the Union address when he quipped, “Gas under two bucks a gallon ain’t bad, either.”

But this overlooked a couple points. (Typical for Krugman...I am very down on him!) Number one: Over the past several years, fossil fuel production has grown as a share of the U.S. economy. Serious disruptions in price – like the 70 percent drop we’re seeing now – is battering shale producers in North Dakota and Oklahoma as much as traditional oilmen in Texas and Louisiana and Alaska. That includes the fracking boom, which has spread throughout the country. Moreover, lots of new producers built their businesses on a pile of debt. They had to purchase equipment and fund operations until their exploration hit paydirt. Investors loaned much of this energy-related debt in the form of junk bonds, made attractive because they earned a higher yield than more traditional investments. With interest rates near zero, investors craved higher returns. So they handed out massive amounts of corporate loans to the energy sector and elsewhere. Junk bonds reached $1.7 trillion over the past five years; about 27 percent of this high-yield debt came from oil companies.

This worked out fine, as long as defaults remained low and yields high. But Krugman identifies the problem: Severe price drops have dramatic effects on oil producers, and everyone who profits from the hydrocarbon-based economy. Suddenly, highly leveraged oil companies who set their business models on the expectation of $100 a barrel could not survive with the price below $40. State and national governments dependent on oil tax revenue, from Saudi Arabia to Alaska, needed to patch big holes in their budget. The subsequent cutbacks and bankruptcies and debt writedowns drag on the economy. And the way in which debt connects the oil industry to the financial system rippled the impact out further. Investors started to flee the junk bond market, to such a degree that some institutions catering to them had to shut down their funds and halt redemptions, preventing clients from quickly pulling their money. High-yield investment managers may not have the cash reserves to deal with a continuing, significant capital flight.

There’s more to this story. A lot of high-yield debt was packaged into collateralized loan obligations (CLOs), resembling the securities composed of mortgage loans during the housing bubble. Other debt went into mutual funds marketed to ordinary investors, not just the big boys. And energy-related junk bonds, the raw material inside these other derivatives and investments, “could be worth close to zero,” according to Gretchen Morgenson at the New York Times. Precisely how much debt is out there, how much is wrapped up with energy, and how many derivatives magnify the problem isn’t fully known. Most important, who will buy high-yield debt if the sell-off continues? The lack of transparency makes it difficult to price these instruments as they fall. And we really don’t know whether the contagion will spread, constricting not just energy investment but investment in other economic sectors. So far we have indications of a slowdown beyond commodities, but it’s early...In other words, nobody should predict a recession from this news – the numbers at play are far smaller than the size of the housing bubble, for one thing. But the underlying uncertainty is creating lots of anxious investors. And anxiety can transform into panic, a good characterization of the stock market in the past couple weeks. Is that a leading indicator or a false one? We will surely find out.


Then, he hits you with the BAD news!

David Dayen is a contributing writer to Salon who also writes for The New Republic, The American Prospect, Politico, The Guardian and other publications. He lives in Los Angeles.

It's cold and damp, and rain is forecast for the week...maybe snow next week. I hate to whine, but there's been no snow all winter...I doubt that even 6 inches have fallen since November's surprise. Mom's snowdrops were ready to burst into bloom yesterday, after two days at freezing with abundant blessed sunshine. There's no snow to deter them! And little ice on the Great Lakes (15%) either...the water level is going to plummet.

Try to have a good week, in spite of it all, and I'll do the same!

http://www.marketwatch.com/story/us-stock-futures-knocked-lower-by-slide-in-oil-prices-2016-01-25?siteid=YAHOOB

Wall Street was set for a downbeat open on Monday, looking set to shave off part of last week’s gain as a drop in oil prices took a toll on the investing mood again.

Futures for the Dow Jones Industrial Average YMH6, -0.23% dropped 42 points, or 0.3% to 15,962, while those for the S&P 500 index ESH6, -0.14% fell 3.45 points, or 0.2%, to 1,895.75. Futures for the Nasdaq 100 index NQH6, -0.18% gave up 11.25 points, or 0.3%, to 4,236.25.

Some analysts suggested trading volumes may be lower than usual due to the weekend blizzard that paralyzed several large East Coast cities, including New York City and Washington, D.C...

Divine intervention!

http://www.marketwatch.com/story/why-this-market-still-hasnt-got-a-grip-on-a-winning-strategy-2016-01-25?siteid=YAHOOB

Poof! Nearly $8 trillion has been sucked from the carcass of the 2016 global equity market so far, and despite the solid pulse in recent days, nobody’s in a celebratory mood just yet. In fact, the gloomers are still holding court in the media. Why wouldn’t they be? Pain sells and double-digit declines are everywhere, with Russia, Italy and China carving deeper into bear territory.

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But if Friday was merely a blip in a continued freefall, it was quite a blip. Global stocks exploded for their biggest gain since 2012, according to Bloomberg. The MSCI’s benchmark of world equities rose 2.6% as buyers stepped up and shorts scrambled in the face of potentially more stimulus.

If that 500-point storm midweek didn’t open the selling floodgates, maybe retail investors are a bit more patient than they get credit for. After all, while the headlines screamed blood in the streets, investors bought the dip in what Fidelity said was one of the 10 busiest retail trading days ever.

David Stockman, the tireless bear making noise on the Contra Corner blog, said the “no-man’s land” trend that has gripped markets won’t allow that to be a winning strategy. “Apparently, the day traders and robo-machines think BTFD (buy the f***ing dip) still works,” he wrote. “But they are going to be sorely disappointed — just as they have been for nearly 700 days running.”

And what then? “At some juncture in the not too distant future,” Stockman wrote, “the stock averages are going to break this trading range, and plunge back down to earth.”

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