Strictly OT, but should interest many here:
Tony Dye - Telegraph

It's an obituary of Tony Dye, contrarian British fund manager fired for predicting crashes. He lived just long enough to be vindicated.

^ yes, picosec brings up an interesting point. People talk about fractional-reserve lending being the driver of the present disaster, but if that's the case I don't understand why there's so much asset-backed investment paper taking it in the pants right now.

at any rate, the path of a given dollar through the international economy is quite fascinating to study. I get the feeling I only understand 1% of the big macroeconomic picture here.

Economists usually assume one variable is dependent and another indep. But variables are usually intertwined, which is incovenient for economic modelling.

Daniel said "Economists usually assume one variable is dependent and another indep. But variables are usually intertwined, which is incovenient for economic modelling."

I'd encourage Daniel to read Working's "What do Statistical Demand Curves Show" published, I think, in the late 1920's, and the substantial work that came out of the Cowles Commission in the 1950's on the subject of multiple equation modeling. I'd have to say that your training wrt econometrics is quite rusty.

Now imagine the trade deficit graphed in Euros or Yen. Real purchasing power declines.

On the Clock writes:
So, are we ready to pre-christen Monday as the "St. Patrick's Day Massacre"? How does it not get ugly in 48 hours?

I think it gets real ugly if there's not a deal for Bear done by Monday.

No one will trade with them or use them as a counterparty now that S&P downgraded them. They're done without a buyout.

JPM and some private company are apparently the two suitors. $15 bid, $80 ask.

It would be nice to see a tax on oil. A big tax on oil. Coupled with an equal tax cut somewhere else - say a massive increase in the standard deduction and an increase in the earned income tax credit. Those tax cuts would be spent - including spent on staying current on the 110% LTV mortgage. And the tax on oil would help support the value of the dollar a little. And look at the list of the top ten oil exporters in the world. This would not just be good economics, but good foreign policy.

I'm becoming increasingly skeptical of the U.S. recession + decoupling = stagflation argument. First off, it seems to really underestimate the effects of US consumption over the last decade. Second, it assumes the BRIC countries are immune to their own cyclical downturns.

The bubble is also bursting in Spain, Britain and Ireland. That, plus the higher Euro will be a drag on Germany and France, that will lead to Eastern Europe taking a hit. Meanwhile, in Asia, Japan is getting hit hard and Singapore was already in recession last quarter. The boom in China just as to pause, maybe a mild recession that any industrial economy growing at 10% is bound to have from time to time, and commodities collapse, that brings down Australia, NZ, Brazil, Russia...

I'm not saying it will be the 1930s, I just think the predictions that China's growth will just go from 11% to 7-8% are absurdly optimistic.

I wish you would stop quoting Paul Krugman - its like a red rag to a bull ( oops I mean bear ) . In particular this idea of "good news on the US$" is shit. As is his description of :

"Right now, Ben and co. are trying desperately to get a grip on the economy’s problems. "

Actually they CAUSED the problems and since PK doesn't acknowledge that then I have to contend that he too is the problem.

Finally,there's this in his article:

But for our purposes, the $1.55 euro is about the only thing we’ve got going for us.

Why focus on the only thing that's going for us - its like reaching out for a feather as you fall off a cliff, stupid stupid stupid. But I dispute the causal nature of all this.. The various parameters in play are in delicate harmonious equilibrium - there is an "ISness" to these things, not a causative one ( as anybody who looks at Hamiltonians or conservation principles would readily acknowledge).

My particular beef about him is that he is not stupid - ergo...

-K

P.S. though I hate to admit, his essay on Interstellar Trade is truly amusing - nooo I didn't parse it math or physics errors or accuracy - the idea that he entertains the idea is good - and his writing style is very very good.

Economics: the final frontier - Paul Krugman Blog - NYTimes.com
http://www.princeton.edu/~pkrugman/interstellar.pdf 

-K

"It would be nice to see a tax on oil. A big tax on oil. "

I wouldn't mind. Take the money and spend it on renewable energy infrastructure, alternative fuels, solar, EV battery tech, new forms of public transit, etc: stimulate the economy and cut energy imports down the line.

Or just go into deficit to do it. Deficit spending's okay if it's for a societal investment that pays off.

BottomCall, if your number is correct, it's almost on par with the number 3 Al-Quieda's killed or captured in Iraq!

CR wins the argument with Setser, I think. Setser's idea that China's accumulation of dollars could not continue has not proved true. He thought China should/would be forced to revalue the yuan to reduce the inflow. But what may reduce the dollar outflow to China is a US recession brought on by the bursting housing bubble. Thus bubble bursting brings on recession that reduces US purchase of Chinese goods that leads to changes (how large still to be determined) in trade flows. We can hope.

No, correlation does not prove causation.
However, it is perfectly correct to state that equity withdrawn from US homes went to China, whether by direct or indirect route.
The Fed may control the flow of funds, but has absolutely no control over the use, purpose or direction of funds. That's why the Fed has a responsibility, in my view, of monitoring events very closely and if action they are taking is not having a specific positive effect, of ending that action promptly before they do damage.
My feeling is that Bernanke is now doing considerable damage. He may mean well, but the price of his actions, as paid out in the reduction of the dollar, is enormous.

Perstrings, that was indeed a fascinating PP presentation on upcoming mortgage security losses (but there is an extra space in the URL you need to take out).

Lots and lots of pain yet to come.

Speaking of the end of MEW...
From Saturday's SF Chronicle

Pleasant Hill resident Caleb Mitchell, 25, had his Washington Mutual home equity line cut in half last month to $55,000 from $110,000. He had already drawn $54,400, leaving him just $600 in additional borrowing power.

"Before, I knew I could make it for years and get through any lag in the real estate market," he said. "Now I have to push hard and find other means."

Mr. Mitchell has a situation most 25-year-olds don't find themselves in.

And in Sunday's SF Chronicle, More in foreclosure choose to walk away  revisits a favorite recent topic of this board.

used the credit line to help cover payments on investment property he owns

"investment property" = enslaving someone else IMO. RIH, wanna-be slumlord.

«The most important takeaway I have from your comments is that China should remain the biggest exporter to the US, but everyone else who exports to the US will be hit by slower activity here.»

But despite their accumulation of dollars, China is the biggest exporter to the USA only in an accounting sense. Because China adds relatively little value -- it imports a lot of stuff from elsewhere, assembles components, and re-exports.

In effect a lot of China exports are really Japanese, Taiwanese, Korean (and those of major primary commodities) exports "laundered" via a final assembly step China.

The chinese government are both very smart and quite desperate, so a large part of their "value proposition" is precisely their value to other countries to "launder" their exports to the USA while taking a (relatively small) cut, and thus the chinese government has been very supportive of the price of USA government securities, and of the USA dollar, to buy goodwill with USA politicians who have to finance some expensive wars.