An interesting piece on the markets not be able to avoid downside in the end despite central bank and political manipulation.

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Some say no way….

“I think the periphery goes into depression. When you look at a country like Greece, it’s now been in recession for three years. GDP is probably down 15 percent from the top. The stock market is down 90 percent, which is the equivalent of 1929 to 1932 in the U.S. This is depression-like,” Zulauf tells King World News, as reported by Business Insider.

“I expect next year one country, probably three, will exit the euro. That will make 2012 very interesting because there are no rules on how to exit the euro.”

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Hope is building for our nations job creators.

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UBS also said exports will drop…

The research is here.

Abstract

We construct a growth model with an explicit government role, where more government resources reduce the optimal level of private consumption and of output per worker. In the empirical analysis, for a panel of 108 countries from 1970-2008, we use different proxies for government size and institutional quality. Our results, consistent with the presented growth model, show a negative effect of the size of government on growth. Similarly, institutional quality has a positive impact on real growth, and government consumption is consistently detrimental to growth. Moreover, the negative effect of government size on growth is stronger the lower institutional quality, and the positive effect of institutional quality on growth increases with smaller governments. The negative effect on growth of the government size variables is more mitigated for Scandinavian legal origins, and stronger at lower levels of civil liberties and political rights. Finally, for the EU, better overall fiscal and expenditure rules improve growth. [Emphasis mine]

Non-Technical Summary

Governments tend to absorb a sizeable share of society’s resources and, therefore, they affect economic development and growth in many countries. However, despite necessary, government intervention is not a sufficient condition for prosperity, if it leads to the monopolization of the allocation of resources and other important economic decisions, and societies do not succeeded in attaining higher levels of income.

The existing literature presents mixed results as to the relationship between government size and economic development. On the one hand, the former may impact economic growth negatively due to government inefficiencies, crowding-out effects, excess burden of taxation, distortion of the incentives systems and interventions to free markets. On the other hand, government activities may also have positive effects due to beneficial externalities, the development of a legal, administrative and economic infrastructure and interventions to offset market failures.

Our paper includes several contributions: i) we construct a growth model allowing for an explicit government role, we characterize the conditions underlying the optimal path of the economy and determine the steady-state solutions for the main aggregates; ii) we analyse a wide set of 108 countries composed of both developed and emerging and developing countries, using a long time span running from 1970-2008, and employing different proxies for government size and institutional quality to increase robustness; iii) we build new measures of extreme-type political regimes which are then interacted with appropriate government size proxies in non-linear econometric specifications; iv) we make use of recent panel data techniques that allow for the possibility of heterogeneous dynamic adjustment around the long-run equilibrium relationship as well as heterogeneous unobserved parameters and cross-sectional dependence; vi) we also deal with potentially relevant endogeneity issues; and vii) for an EU sub-sample we assess the relevance of
numerical fiscal rules in explaining differentiated GDP and growth patterns.

Our results show a significant negative effect of the size of government on growth. Similarly, institutional quality has a significant positive impact on the level of real GDP per capita. Interestingly, government consumption is consistently detrimental to output growth irrespective of the country sample considered (OECD, emerging and developing countries). Moreover, i) the negative effect of government size on GDP per capita is stronger at lower levels of institutional quality, and ii) the positive effect of institutional quality on GDP per capita is stronger at smaller levels of government size. [Emphasis mine]

On the other hand, the negative effect on growth of the government size variables is more attenuated for the case of Scandinavian legal origins, while the negative effect of government size on GDP per capita growth is stronger at lower levels of civil liberties and political rights. Finally, and for the EU countries, we find statistically significant positive coefficients on overall fiscal rule and expenditure rule indices, meaning that having stronger fiscal numerical rules in place improves GDP growth.

For an excellent analysis of this new research, go here.

WASHINGTON (AP) — National home sales figures will be lowered dating back to 2007 after the private trade group that collects them said the numbers were too high.

The National Association of Realtors said Monday it will release the downward revisions for previously occupied homes on Dec. 21.

Among the reasons for the inflated figures, the Realtors group says: changes in the way the Census Bureau collects data, population shifts and some sales being counted twice. Last year’s total sales figure of 4.91 million was the worst in 13 years.

The Realtors consulted with several government and private housing market experts, including the Federal Reserve, the Department of Housing and Urban Development, the Mortgage Bankers Association, the National Association of Home Builders, mortgage giants Fannie Mae and Freddie Mac and CoreLogic, the California-based data firm that first raised doubts about the annual numbers earlier this year.

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Analysts have long warned that the $1.32 area was the only thing standing between the euro and chartist Armageddon. Well, don’t look now…

In the event of a convincing break of the euro below that technical support, Bank of America and Scotia Capital are targeting a re-test of the common currency’s Oct. 4 low at $1.3145, with Scotia’s analysts saying a test of 1.30 is all but a near-term certainty.

Credit Suisse is even more bearish: The bank’s analysts wrote this morning that they expect the euro to hit $1.25 by early next year.

The euro today off about 1.5% to trade recently near $1.3196 after hitting intraday low — and the lowest point since early October — of $1.3178.

A euro break of $1.3145 would take common currency back to levels not seen since January.

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Argentina could be nearing a shale oil and gas boom similar to the one that transformed the US energy landscape as former state monopoly YPF eyes another 1bn barrel discovery adjacent to a Patagonian field whose reserves were more than six times bigger than thought.

YPF has almost finished drilling a 502 sq km area just north of the discovery zone and believes full results will be equally vast. Two of the three wells are in production and “the yield is exactly the same,” says Tomás García Blanco, YPF’s executive director for upstream.

Asked if this heralded another 1bn barrel discovery, Mr García Blanco says: “Yes. But until the third well is drilled … I would like to be cautious. We hope to know by the end of the year or January 2012.”

The group, which is 57.43 per cent owned by Spain’s Repsol, announced in November that it had discovered 927m barrels of oil equivalent in a 428 sq km zone of the Vaca Muerta (“Dead Cow”) formation in south-western Argentina – more than six times higher than its initial estimate in May of 150m barrels. The discovery is three-quarters oil and one-quarter gas, it says.

That, Mr García Blanco notes, is based on “conservative” estimates that only 4 per cent of all the hydrocarbons will be extracted. Some in the US believe recovery rates of 8 per cent or even 15 per cent may be possible in time – something that will lead to eye-popping estimates of the potential for shale worldwide.

Argentina has some of the world’s biggest and best-quality reserves of shale hydrocarbons, which are trapped thousands of metres underground and released by fracturing rocks using high-pressured water, sand and chemicals. The US Energy Information Administration this year ranked Argentina third globally in terms of technically recoverable shale gas resources with 774,000bn cubic feet.

Brazil is still expected to grow 9.5% in 2012; but this is the second cut in recent weeks.

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This was the first drop in over 28 months…

Remember all those gloomy predictions by Celente, Rogers, Henry, Rubini, Krugman, etc. ? Well how is it the consumer keeps on keeping on ?

Furthermore, every recession was supposed to see this “dead consumer” and it seems the sales numbers show the biggest black Friday ever along with  cyber sales continuing to bowl on naysayers.

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President Obama’s popularity is plummeting, with more U.S. voters disapproving of his job than approve it, according to a recent poll.

More than half of U.S. voters believe he is performing badly in his role as the country’s leader compared to 48 per cent last month.

And although Obama has predicted unemployment will continue to drop, nearly all voters – 94 per cent – say the economy is in bad shape.

Unpopular: Obama, pictured speaking about jobs during a tour of a building renovation near the White House earlier this month, is losing favour among voters

He announced during a television interview that the number of people out of jobs could drop to eight per cent by next year’s election – the lowest since he moved into the White House in 2008.

‘I think it’s possible,” Obama told CBS’s 60 Minutes in an interview set to air on Sunday.

Read more: http://trade.cc/oxt

Keep in mind that Blodget was found guilty of securities fraud and is banned from the securities industry.

by Henry Blodget

In the war of rhetoric that has developed in Washington as both sides try to blame each other for our economic mess, one argument has been repeated so often that many people now regard it as fact:

Rich people create jobs.

Specifically, entrepreneurs, when incented by low taxes, build companies and create millions of jobs.

And these entrepreneurs, therefore, the argument goes, can solve our nation’s huge unemployment problem–if only we cut taxes and regulations so they can be incented to build more companies and create more jobs.

In other words, by even considering raising taxes on “the 1%,” we are considering destroying the very mechanism that makes our economy the strongest and biggest in the world: The incentive for entrepreneurs to start companies in the hope of getting rich and, in the process, creating millions of jobs.

Now, there have long been many absurd holes in this theory, starting with

1. Taxes on rich people (capital gains and income) are, relative to history, low, so raising them would only begin to bring them back in line with prior prosperous periods, and
2. Dozens of rich entrepreneurs have already gone on record confirming that a modest hike in capital gains and income taxes would not have the slightest impact on their desire to create companies and jobs, given that tax rates are historically low.

So this theory, which many people regard as fact, is already ridiculous.

But now a super-rich and super-successful American has explained the most important reason the theory is absurd, while calling for higher taxes on himself and people like him.

Read the rest of Blodget’s absurd piece here.

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While most of the country is still mired in a troubled economy, North Dakota is riding an unprecedented boom that has jobs looking for people, rather than the other way around.

“And largely that’s driven by the oil play in what we call the Bakkan Formation,” Lynn Helms, Director of North Dakota Dept. of Natural Resources explains.

“We’re estimating now about 18,000 square miles of western North Dakota, another 6,000 square miles in Montana, Saskatchewan and Manitoba that is mature oil-source rock. It can be drilled up almost (like) an oil-producing factory. We did not drill a single dry hole in the last year-and-a-half,” she said.

PARIS (AP) – The Moody’s rating agency downgraded three leading French banks on Friday, saying that the spiraling debt crisis in Europe was making it hard for them to get loans and that the situation may get worse.

After a review, Moody’s lowered the overall financial strength ratings of BNP Paribas, Societe Generale and Credit Agricole SA. The banks’ long-term debt ratings were also downgraded, saying they were “affected by the fragile operating environment for European banks.”

Banks are at the front-line of the debt crisis raging across the 17-country eurozone that has threatened to drag the global economy back into recession.

It took action a day after a regulator said European banks have to raise about €115 billion ($154 billion) — more than expected — to meet a new standard meant to shore up the lenders against market turmoil.

BEIJING (Reuters) – China’s industrial output growth dropped in November to its slowest pace in more than two years and inflation tumbled as economic conditions deteriorated, raising expectations that Beijing will pursue a more pro-growth policy to support jobs.

Easing inflation pressure on consumers at the same time as data signals a serious risk of a sharp industrial slowdown is potentially perilous for policymakers trying to engineer a soft economic landing against a backdrop of a deepening crisis in China’s main export market — debt-ridden Europe.

“The sharp contraction in the real economy, the external uncertainties lingering on, plus the easing inflationary pressure all point to a larger scope for further policy easing. So the basic tone of the macro policy will lean towards the pro-growth side,” said Nie Wen, analyst at Hwabao Trust in Shanghai.

A deluge of data on Friday showed China’s annual consumer inflation rate tumbled in November to 4.2 percent, the lowest level since September 2010 and slightly below expectations. It was the first time since February it had fallen below 5 percent.

Inflation has dropped from a three-year high of 6.5 percent in July, allowing Beijing to shift its policy stance towards offering support for the economy, especially as CPI is now closer to the full-year government target for 2011 of 4 percent.

WASHINGTON (AP) — The U.S. trade deficit narrowed in October to its lowest point of the year after Americans bought fewer foreign cars and imported less oil.

The shrinking trade gap boosted growth over the summer and may do so again in the final three months of the year.

The Commerce Department said Friday that the trade deficit shrank 1.6 percent to $43.5 billion. It was the fourth straight monthly decline.

Overall imports fell 1 percent to $222.6 billion, which largely reflected a 5 percent decline in oil imports. The average price of imported oil fell for the fifth straight month to the lowest level since March. Oil prices rose last winter because of turmoil in the Middle East and North Africa.

Exports slipped 0.8 percent to $179.2 billion, the first drop after three months of gains. Shipments of industrial supplies, such as natural gas, copper and chemicals, fell. Exports of autos and agricultural goods also dropped.

Finally, fucking thank you.

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Boone Pickens, on CNBC, recently said oil was over supplied currently. This world renowned expert expects a downward movement in oil prices in the near to medium term. The Libyan oil is coming back online more quickly than early estimates indicated. In Nov. Libya was already providing 600,000 bopd to world markets. Libya’s National Oil Corporation said it expects to provide 800,000 bopd of light sweet crude to world markets by year end. OPEC officials estimate that Libyan output will return to pre-conflict levels by mid-2012. The 300,000 bopd that will be available at the world level once the 150,000 bopd Seaway pipeline (to Cushing, Okla. from the Texas coast) is reversed in the spring of 2012 should act to lower overall oil prices too. The extra oil that the Saudi’s have provided to replace the Libyan oil may not disappear.

With the extra continuing expenses the Saudi government recently incurred in compromising with the Saudi rioters, the Saudi government will be loathe to curb their production. They are using the extra income to pay for the increased benefits they acceded to. Other OPEC economies that are hurting will likely over produce too. Admittedly there is talk of an EU ban on Iranian oil for political reasons. To me this seems unlikely as the EU is moving steadily into recession. Higher oil prices due to a self imposed ban on Iran exports would only exacerbate the recession(s). All this means that the price of oil is likely to go down in the near term.

The secular growth in energy demand due to emerging markets growing energy demands is still in place longer term; but shorter to medium term we may see a move downward, especially if the EU Summit disappoints investors. Such a disappointment would presage a deeper EU recession(s). I’m sure most people can remember the commodities crash as the recent US recession took hold. The EU mediated commodities crash should be smaller. Futures trading rule changes have prevented many futures from becoming as over bought as they were before the US recession. Plus the EU is not quite as much of an oil glutton as the US, so the decrease in EU demand for oil will be smaller than that seen in the US. Still an EU decrease in demand is coming.

In the shorter term, the EU credit crisis events may provide more dramatic moves either way. However, medium term the EU recession should move commodities prices downward. It is less clear whether this down move will include gold, but just about everything else should come under significant pressure. Even EU food consumption may lessen. The EU recession(s) will also have trickle down effects on its major suppliers such as the US, China, and Japan (and on its minor suppliers too).

In one of the gloomiest predictions about the fallout from a breakup of the euro, Citigroup’s chief economist on Thursday warned a collapse of the currency will result in years of a global depression that could send unemployment spiking above 20% in the West.

The comments, from Citigroup chief economist Willem Buiter, underscore the growing concern that policymakers won’t be able to forge a credible solution that will keep the currency union intact.

Buiter, previously a professor at the London School of Economics, said the ensuing chaos caused by the unlikely event of a disorderly sovereign default and exit by all five periphery nations would trigger a financial catastrophe and global depression. The disaster, he said, would send GDP plummeting more than 10% and unemployment in the West surging to 20% or more.

“If Spain and Italy were to exit, there would be a collapse of systemically important financial institutions throughout the European Union and North America and years of global depression,” Buiter wrote.

Thankfully, Buiter sees little chance of these worst-case scenarios actually coming to fruition. He forecasts a 5% or lower chance of a disorderly default and exit by all five periphery states.

Likewise, Buiter believes the likelihood of an exit by Germany and other fiscally strong countries is even less likely, attributing a less than 3% probability of such an event. That’s a good thing because he believes this outcome would perhaps be even more disastrous and extremely messy from a legal standpoint.

Still, the financial markets appear to be bracing for at least the possibility that the eurozone will no longer have 17 nations.

Hurt by comments from the ECB, the euro slumped nearly 1% against the dollar and fell below $1.33 on Thursday. Individual European bank stocks like Deutsche Bank (DB: 28.25, -1.28, -4.32%) and Barclays (BCS: 11.36, -0.67, -5.57%) suffered steep selloffs as well.

According to The Wall Street Journal even some central banks are take precautionary steps to prepare for life without the euro, including central banks in Ireland, Greece, England and Switzerland.

If the only nation to leave the currency and suffer a disorderly sovereign default was Greece, Buiter said it would be “manageable” because it accounts for just 2.2% of euro-area GDP.

Ultimately, Buiter said the potential for economic ruin should present a compelling argument for keeping the eurozone intact as much as possible.

“The case for keeping the Euro Area show on the road would seem to be a strong one: financially, economically, and politically, including geopolitically,” he wrote.
Read more: http://www.foxbusiness.com/economy/2011/12/08/citi-euro-collapse-would-cause-global-depression-send-unemployment-above-20/#ixzz1fy0fqlhN