Jump to content

Econ Disads Ankurstyle

Recommended Posts

As many of you know, I am very interested in global economics, generally specific to resources and politics. Periodically, I will be posting econ updates in this thread as I run across articles I deem worthy of cutting. Most of what I will cut will tend to be internal links for disads. Its up to you to find your links. The evidence will generally be self-explanatory as to what links you should use. For example, the second article/card in this bunch talks about the US debt... so its safe to say your link should be spending. I may or may not underline some sections to stress their importance (but this does not necessarily mean that’s how the evidence should be cut!!!). If I get a chance, I will post analyses as well to explain the significance of the evidence so as to make your life easier in understanding its relevance. Consider them very watered down mini-lessons in economics. And please take heed that these lessons are how I perceive the economy to be – economics, like debate, is very contentious – most people cannot agree on much of anything.


But if you have any economics related questions, feel free to ask them. Especially if there is something you don’t understand in the articles / cards I post.






List of posts:

Lesson 1: The dollar

Lesson 2: The sub-prime housing mess

Lesson 3: Pharma patents

Lesson 4: Commodities (oil)

Lesson 5: More housing

Lesson 6: Inflation

Lesson 7: Supply & demand and international agriculture

Lesson 8: Employment/unemployment, the Phillips curve and stagflation





Background: After divorcing ourselves from the gold standard in 1971, the dollar is able to be traded much like stocks – people are either betting that the value of the dollar will go up or down and will buy and sell the dollar at certain values. It is generally accepted that the relative value of the dollar compared to other currencies is a reflection of the value of our national economy. Currently, the dollar has been falling in value compared to most major currencies, especially the Euro. This trend began about five years ago and is steadily worsening. Without getting into specifics of why the dollar is devaluing (which will probably happen in a future update), it’s more important right now for you to note that the dollar is being steadily devalued and isn’t collapsing quickly.


The idea behind a slow devaluation is that the economy can slowly absorb the impacts of the devaluation steadily. Think about it like trying to blow a bubble (economy) with bubble gum in the wind (external pressures like currency devaluation) – if you blow too fast, the bubble is unstable and will likely pop because its flapping in the wind and you haven’t had a chance to figure out which way to stand (away from the win, facing the wind, at an angle to the wind). But if you blow the bubble slowly, you will have a chance to figure out which way to orient yourself so you can find the optimal position from which to allow the bubble to keep growing.


The Federal Reserve controls the interest rates it pays other banks for lending America money to finance our trade deficit and budget deficit (which is about 300 billion dollars per year not including the cost of the wars). Think of it like a savings account. You give the bank $100 dollars, and you get an interest rate of say 4% per year, then after 1 year, you are given a check for $104 dollars (your original 100 dollars plus the 4 dollars you earned in interest). The government issues bonds in much the same way where the bonds pay out an interest rate if other countries lend our government money for a specified period of years (generally 2, 3, 5, 10 or 30 year bonds). If the Federal Reserve increases the rates, then more people are likely to lend America money because they will earn more money in interest. If the Federal Reserve decreases the rates, then more people are likely to invest their money in other countries. Increasing interest rates leads to a stronger dollar (worth more relative to other currencies) and decreasing interest rates leads to a weaker dollar (worth less).


The Significance: If the dollar decreases in value, then imports become more expensive and our exports become cheaper for other countries to buy. To illustrate this, just follow the math. Let’s say that $1 is equal to 1E (euro). If you are American and want to buy a Swiss chocolate bar that costs 1E, you must spend $1 to get it. Now, if the dollar devalues by 25% such that each dollar is only worth 0.75E, then in order to buy the same candy bar, you need to pay $1.33 dollars. Of course, you aren’t earning more in your job, so everything you buy from another country is now much more expensive (this is called inflation – when it costs more to buy the same product). When prices increase, people spend less and save more. If they save, then companies are earning less money because they are selling less goods, and that means lower profits and lower profits means that companies start laying people off, they cut benefits (healthcare etc), and the stock market goes down. This is why the Federal Reserve pays so much attention to consumer spending numbers – because 70% of our economy is based on everyday purchases like CD’s and books at amazon.com, bread at the supermarket and the toaster to toast it in.


The quick and dirty moral of the story: Inflation is bad.



Today’s update focuses on currency rates (as will most updates) simply because its one of the biggest news stories at the moment.




___ Further global economic disruptions could exacerbate dangerous economic trends.

Dunphy 2007 (Harry, AP writer. Yahoo! News. “IMF: Global Economy Outlook Uncertain – IMF Chief Says Outlook for Global Economy Uncertain After Recent Market Turbulence.” Monday, October 22, 2007. news.yahoo.com)


The global economy faces a period of uncertainty, with risks to continued growth much higher than they were six months ago, the head of the International Monetary Fund said Monday. Spain's Rodrigo de Rato said recent turbulence in credit markets, the worst in a decade, is a warning that the continually expanding global economy of recent years cannot be taken for granted. "We still do not know the full extent of the decline in the house market and the subprime problems of the U.S. economy," he said, referring to risky mortgages made to borrowers in the U.S. with spotty credit or low income. He said further disruption in financial markets and further falls in housing prices could lead to a global economic downturn, making other risks -- rising food and oil prices, a falling dollar -- loom larger. As a result of the turbulence, he said the IMF expects "a slowdown in growth but not a recession in the United States, and a smaller slowdown in other advanced economies." De Rato spoke at the closing meetings of the IMF and its sister institution, the World Bank. It was his last address to the group; he is stepping down as the head of the 185-nation lending organization after 3 1/2 years. His successor, France's Dominique Strauss-Kahn, takes over Nov. 1. Groups demonstrating against global warming and war snarled traffic Monday around Capitol Hill, leading to dozens of arrests. The protests were part of a series of demonstrations that have taken place in Washington since Friday, the first day of the annual meetings of the World Bank and the IMF. Most of the protests have been peaceful. Monday's demonstrations, which involved several hundred people, were part of a "No Warming, No War" protest that combined an environmental agenda with an anti-war stand. The crowd included several people wearing polar bear suits and carrying a sign that read "Polar bears for solutions to war and global warming." De Rato said that, so far, movements in currency exchange rates have been orderly, "but there are risks that an abrupt fall in the dollar could either by triggered by, or itself trigger, a loss of confidence in dollar assets. "And there is a risk that exchange rate appreciation in countries with flexible exchange rates -- including the euro area -- could hurt their prospects, and that, in these circumstances, protectionist pressures could worsen." He likened the turmoil in credit markets to an earthquake. "Like most earthquakes, it has been something distant for most people, something they read about in the newspapers," he said. "But there is still a risk of aftershocks, and the full effects of the disruption we have already had will only be felt over time." He told his audience of finance ministers and central bankers that, along with the IMF, they need to consider what actions to take to limit the damage and what lessons can be learned from the crisis. Speaking for the host country, U.S. Treasury Secretary Henry Paulson said innovations in financial markets over the past five years have made them more complex. "We need to continue to be vigilant because all of our capital markets are not functioning normally. As we move to address current problems, we must also address policy issues to prevent a repeat of recent excesses," he said. Addressing his first plenary session of the two institutions, World Bank President Robert Zoellick said the bank had to stretch itself to become more relevant to the poor and middle income countries it tries to help. Zoellick, a former U.S. diplomat, trade representative and investment banker who took over July 1., said the bank's main priorities would be combatting poverty, helping countries emerging from civil strife, promoting regional cooperation to combat disease and climate change, aiding the Arab World and providing technical assistance. "There is a great need -- and a compelling opportunity -- for the World Bank group at this point in history," he said. The IMF-World Bank meetings took place against a backdrop of soaring oil prices, a falling dollar and the worst credit crisis in a decade, brought when markets essentially froze. The Group of 24 developing countries noted wryly in their communique that, for once, a financial crises began in one of the advanced nations instead of in Asia or Latin America, as has happened in the past.




___ Greenspan says we are likely approaching the debt threshold.

Carmichael & Kennedy 2007 (Kevin and Simon. Bloomberg. “Greenspan Says Demand for U.S. Debt May Be at `Limit' ” October 21, 2007. http://www.bloomberg.com/apps/news?pid=20601103&sid=aG3NEynW7ik8&refer=news


Oct. 21 (Bloomberg) – Former Federal Reserve Chairman Alan Greenspan said the dollar's depreciation may reflect growing unwillingness among foreigners to buy U.S. debt. “Obviously there is a limit to the extent that obligations to foreigners can reach,” Greenspan said in a speech in Washington today. The dollar's decline to its lowest since 1997 may be “an indication America is approaching this limit.” Greenspan's warning came after the U.S. Treasury reported last week that international investors sold a record amount of U.S. financial assets in August. Total holdings of equities, notes and bonds fell a net $69.3 billion after an increase of $19.2 billion in July. The dollar has declined about 8 percent against the euro this year and 4 percent against the yen. The former Fed chief, who published a 531-page memoir last month, spoke for about 35 minutes before taking questions for another half hour on the sidelines of the meetings this weekend of the International Monetary Fund and World Bank. The lecture was hosted by the Per Jacobsson Foundation. Greenspan also said that the August surge in the cost of credit after a jump in U.S. mortgage defaults was an ``accident waiting to happen,'' given that investors were pricing risk too low. ``Something had to give,'' he said. ``Had the crisis not been trigged by subprime mortgages it would have erupted in another sector or market.'' SuperSiv Fund Greenspan, 81, was critical last week of a plan by some of the U.S.'s biggest banks to help revive the asset-backed commercial paper market, which seized up because of investor concern that too much of the paper was backed by securities containing subprime loans. Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. announced a plan last week to raise money for a so-called SuperSiv that would buy assets from distressed structured investment vehicles. Investor uncertainty about the value of complex assets held by the vehicles has damped willingness to lend to the funds in the commercial paper market, stoking concern they'll have to dump holdings at fire-sale prices. U.S. Treasury Secretary Henry Paulson, the former head of Goldman Sachs Group Inc., helped broker the agreement. In an interview with Emerging Markets magazine published on Oct. 19, Greenspan was quoted as saying that he was unsure ``the benefits'' of the plan ``exceed the risks.'' `Best Assets' Paulson assembled a group of reporters later that day to discuss the SIV rescue, emphasizing that the initiative was led by banks, that he had consulted the Fed and other regulators as the deal was put together, and that he was confident the initiative would work. ``The concept is not to buy bad assets or assets that have credit problems,'' Paulson said after hosting a meeting of Group of Seven finance ministers and central bank governors. Investors will buy ``assets that aren't credit-impaired and don't have credit issues -- the very best assets,'' Paulson said. ``That will accelerate the return of liquidity to parts of this market.'' Today, Greenspan questioned whether there was any longer a market for such ``peculiar'' assets. While he praised ``innovation'' in securitized markets as ``positive,'' he noted that demand for sales of debt backed by subprime mortgages has dried up. `Peculiar Financial Structures' ``These peculiar financial structures that have become very prominent in the past four or five years are about to disappear from the scene,'' Greenspan said, citing ``various variations'' of collateralized debt obligations and ``special'' investment vehicles as examples. ``They have been tried and they have failed,'' Greenspan said. ``The failure is the basic way that investors have been misled as to what the value of these products is.'' The former Fed chief said central banks also increasingly appeared to have ``lost control'' of market interest rates beyond three to five years of maturity. Much of the speech was dedicated to explaining why he doesn't view the U.S. current-account deficit with ``undue concern.'' The current-account gap, a measure of trade that includes investment flows, is now about 5.5 percent of U.S. gross domestic product, compared with 6.75 percent in 2005. A reduction in ``home bias'' by international investors has channeled more money to the U.S., helping the country to finance its current-account deficit, Greenspan said. He said he may become more concerned about the trade gap if ``the pernicious drift toward'' U.S. government budget deficits ``isn't arrested and compounded by protectionist reversal of globalization.'' Such a reversal would deal a ``major blow to world economic prosperity,'' he said. To contact the reporters on this story: Kevin Carmichael in Washington at kcarmichael@bloomberg.net Last Updated: October 21, 2007 21:02 EDT




___ Current volatility of of great concern

Dougherty 2007 (Carter. New York Times. “Dollar hits a new low, oil hits a new high.” October 19, 2007. http://www.nytimes.com/2007/10/19/business/worldbusiness/19euro.html?ex=1350446400&en=82ef78f0a4913c7c&ei=5089&partner=rssyahoo&emc=rss)


FRANKFURT, Oct. 18 — The dollar sank to a new low against the euro Thursday as fresh evidence of losses in the mortgage industry stoked fears of a sharper-than-expected economic slowdown in the United States and crude oil rose to another record. In late afternoon trading in New York, the euro traded at $1.4294, up from $1.4186 on Wednesday. Crude oil for November delivery rose $2.07, or 2.4 percent, to $89.47 a barrel. In after-hours electronic trading, the price rose slightly above $90. The declining dollar has made commodities, which are priced in dollars, more attractive as investments, while tensions between Turks and Kurds over border violence in northern Iraq have helped keep oil prices rising. The dollar’s retreat came as European employers issued their clearest call yet for international action at the Group of 7 meeting, which begins on Friday, to curb currency market volatility. A strong euro has the potential to slow European exports, and volatility upsets plans for hedging.BusinessEurope, the Brussels federation of employers’ associations, said in a letter to four European finance ministers that the “unduly rapid movements” of currencies were “an increasing source of concern, with the euro and other European currencies reaching historically high levels in recent months.” It also called for an upward valuation of the yuan and the yen.Euro zone finance ministers agreed Oct. 8 to advocate for a higher yuan at the Group of 7 meeting. Officials overseeing the euro will also visit China before the end of the year to urge Beijing to revalue its currency. After appearing to stabilize for a few weeks, the euro rose to an all-time high of $1.4310 during trading Thursday before giving up some of its gains. Markets were rattled Thursday when Bank of America reported a sharp drop in third-quarter profit because of write-downs of bad debts; poor results from investment banking, reflecting credit market turmoil; and consumer banking setbacks. That helped feed worries that the credit squeeze stemming from the housing industry’s decline would hit corporate profits and slow growth. “It’s amazing how much these initial announcements can drive a dollar sell-off these days,” said Simon Derrick, head of currency research in London for Bank of New York Mellon. “That said, I think the skids were already underneath the dollar earlier this week.” Indeed, the data continued a bad week for the United States economy, where an end to housing industry woes is not yet in sight. A government report Wednesday showed that new home construction plunged to a 14-year low in September. New signs of weakness in the United States could lead the Federal Reserve to cut its benchmark interest rate when it meets this month, a step that might bolster the economy but would also reduce the appeal of dollar-denominated assets. Coming at a time when the European Central Bank is considering when to raise rates again, this differential in rates has emerged as a main driver of the dollar’s weakness. BusinessEurope called on the Group of 7 finance ministers and central bankers to find solutions “within the sphere of multilateral consultations, and notably with clear commitments in the G-7.” The letter was also signed by the heads of business lobbies in Germany, France and Italy. “Persistent disequilibria in the world economy continue to harbor the danger of further appreciation of European currencies in the face of large external deficits in the U.S. and inflexible currency regimes in other parts of the world,” they wrote. The comment alluded to the enormous United States current account deficit, whose sheer size has left currency markets vulnerable to jitters that foreigners would tire of lending the cash required to cover the shortfall, a reflection of how much more Americans spend than they save. It also referred to China’s foreign exchange management, which has kept the yuan low against the dollar.





Clayson 2007 (Stephen. ResourceInvestor.Com. “The dollar: How low can it go?” October 21, 2007. http://www.resourceinvestor.com/pebble.asp?relid=36971)


LONDON (ResourceInvestor.com) -- Last week the dollar touched a new low, and with economic news from the U.S. not making for entirely comfortable reading, there is likely more pain to come. The Federal Reserve is due to meet again later this month, and it would surprise no one if the outcome of that meeting were to be another rate cut – perhaps by a quarter point following last month’s drastic half point cut. Hence the dollar’s weakness this week, as it was the Fed’s last cut that set the currency sliding once again and gave the gold price the energy it needed for its run up to current levels. But why are people so confident in the Fed’s next move? Well, economic indicators from the U.S. still aren’t looking good, despite the Fed’s last rate cut. The recent poor financial results from Bank of America, the jump in unemployment benefit claimants, and the news that U.S. home starts are significantly down all sow the seeds of worry. In addition, fear regarding any as yet undetected fallout from the sub-prime mortgage meltdown is still running high, and sentiment, among investors and consumers, is still vulnerable. Therefore it is probably incumbent on the Fed to err on the side of caution. Rate cuts take time to feed through the economy, so although the last one may or may not have been enough to avert real economic upset, if the picture isn’t clear cut, then the Fed may well decide to play it safe and cut rates again. And that will unleash further bearish pressure on the dollar. Hovering ominously in the background for U.S. economy is inflation. Although the slowing economy should relieve inflationary pressure, the weakening dollar and soaring oil prices may more than outweigh that relief, potentially resulting in a period of inflation combined with economic sickliness; in other words, stagflation. In view of this, one wonders if the U.S. really still wants to see the renminbi appreciate. The U.S. government has been vocal in calling for a higher renminbi, but the stronger the renminbi gets then the stronger the inflationary pressure of Chinese imports, which realistically are now an integral part of the U.S. economy; something that is unlikely to change by much. The only bright spot as far as the depreciating dollar goes is that it boosts U.S. export competitiveness, to an extent. But it is the consumer that powers the U.S. economy as much as the industrial base and inflation is doing the consumer no favours. If one takes the size of the still monstrous U.S. trade deficit to be somewhat indicative of dollar’s need to fall, then there is a lot more falling to be done. And another rate cut will pull the dollar further down, without a doubt. But a bigger factor is the attitude of the dollar’s overseas supporters, primarily the East Asian nations for whom the U.S. is a big export market, and in particular China. Their strong purchases of U.S. treasuries and dollar-favourable foreign exchange reserve policies have been the crucial factor in holding the dollar reasonably steady for some years. They still have the power to either defend the greenback, or pull the rug. It is impossible to say which way they now lean. But if U.S. rates are cut again soon and the dollar’s fall continues with enough conviction, then the East Asians may begin to feel that the writing is on the wall whatever they do. In that case, a crash could be sudden and brutal.




The coming collapse of the US dollar

June 11, 2007



The skew in the global financial system -- commonly called 'global imbalance' -- seems to be fast spiralling out of control. For some time now economists have been engaged in the mother of all debates: whether the US dollar would collapse by as much as 40% when compared to other currencies (some are even betting on the US dollar going belly-up) or whether there would be an orderly devaluation -- that is, a gradual revaluation of other currencies vis-a-vis the US dollar. In effect, the question that is confronting us is not 'whether' but 'when' and by 'how much.' This global imbalance can be understood in economic terms by simply examining the massive size of America's twin deficits -- trade and budgetary. Put modestly, Americans have been living way beyond their means, consuming much more than what they could possibly afford and, in the process, borrowing far beyond their capacity for too long. This was facilitated by a policy of maintaining weak currencies across the world, notably in Asia. This policy of maintaining a competitive exchange rate for their currency to boost exports has resulted in a race to the bottom amongst various countries. Nevertheless, this arrangement suited countries, both Asian (with a huge unemployed population) and American, (as it provided cheap imports for its huge consumption binge). While the going was good, everyone profited and expected the arrangement to continue indefinitely. Unfortunately, linearity as a concept has limited appeal in real life, much less is global macroeconomics. No wonder, of late, countries are discovering that this arrangement has its limitations. The current account deficit of the United States translates into current account surplus of exporting countries. To cover this deficit, US borrows: this corresponds to the forex reserves of exporting countries. The crux of the issue is that no other country, barring the US, has such a huge consumption pattern and an ability to absorb this huge export surplus. In substance, countries are producing their goods, exporting it mostly to the US, and parking the resulting export surpluses with the US to facilitate US to finance its imports! Clearly, the global imbalance is a by-product of this mindless competition by various countries to devalue their own currencies and the reckless consumption in US. Naturally, it is indeed tempting to blame US consumption for this crisis. However, one must hasten to add that the emerging economies -- notably Asian countries, especially after the1998 currency crisis -- with their fixation for weak currencies, are equally to be blamed. The net result? Well, consider these facts: By mid-May 2007, the US National Debt stood at approximately at mind-boggling $8.85 trillion -- i.e. approximately $28,000 for every American. The basic structure of the American economy is that the deficit of the US government is 4% of the GDP and the household sector 6%, which are offset by a domestic savings of 3%, largely from corporates, leaving a substantial national deficit of 7% to be covered by the capital flows from the rest of the world. The current account deficit of the United States for 2006 is estimated to be in excess of $850 billion. This approximates to 7% of its GDP. Surely, even for the US, this is unsustainable. In order to ensure that this money is routed into America and to sustain its gargantuan borrowing programme, the US has repeatedly raised its interest rate to its current levels of 5.5%. While the very size of the US debt makes any further increase in interest rates virtually impossible (as it would make borrowings uneconomical), any cut in interest rates to stimulate its economy and make it competitive would mean that the US may not get the money it requires to sustain itself. On March 28, 2006, the Asian Development Bank [Get Quote] is reported to have issued a memo, advising members to be ready for a collapse of the US dollar. Since end March 2006, the US Federal Reserve has stopped publishing the quantum of broad money (that is the aggregate of US dollars circulating in the entire world -- technically called 'M3') in the US economy. This is the worst possible signal that the US Federal Reserve could have sent to the world. Suspended sense of disbelief. Obviously, what aids and sustains the US dollar is a 'suspended sense of disbelief' amongst countries about the value of US dollar. Yet, common sense tells us that the excess supply will obviously result in a fall in the value of any product. The US dollar is no exception. Late Iraqi leader Saddam Hussein was fully aware of this paradigm. Seeking to exploit the inherent weakness of the US dollar, Saddam wanted to trade his crude in Euros, which would have lead to a lower demand for the US Dollar and thereby triggered a dollar collapse. And those were his 'weapons of mass destruction -- WMD.' And if some analysts are to be believed, Venezuela and Iran too possess the very same WMD. Naturally, it requires some specious arguments and military intervention to protect the US dollar. Never in the history of mankind has a national army protected the national currency so vigorously as the US Army has done is the past decade or so. What is bizarre to note here is that despite the fact that crude is produced mainly in the Middle East; officially it can be purchased in dollar terms from one of the two oil exchanges situated in New York and London. Obviously, should Iran carry out the threat to commence oil trade in Euros or better still an oil exchange, the US dollar would come under tremendous pressure. The US dollar is akin to the promissory note of a defunct finance company. It is common knowledge that a currency, when not backed by anything precious is just a piece of paper. When US abandoned the Gold Standard in early 70s, countries habituated by then to the US dollar under the Bretton Woods arrangement continued to accept the US dollar as an international currency without demur as the world was not prepared for any other alternative. Else, the global economy would have collapsed by 1971. But the diplomatic silence did not solve the problem. It merely postponed it and it has come back to haunt us. Post gold standard, by a tacit approval of the Organisation of Petroleum Exporting Countries (OPEC) and strategic manoeuvring, the US had ensured that its currency is implicitly backed by crude, instead of gold. This explains the American 'geo-political and strategic interests' in the Middle East. But over time even this was found to be insufficient and consequently the oil standard of the 70s gave way to an implicit multiple commodity standard of today. Naturally, commodity prices -- including crude prices -- have soared in the past few years. Unfortunately, this arrangement too is failing the US. No wonder, the US dollar increasingly resembles a promisory note of a defunct finance company. It is no coincidence that global trade in most commodities, including oil, is denominated in US dollars as the respective international exchanges are located in the US. To what extent are the prices of these commodities manipulated to protect the US dollar is anybody's guess. However, it may not be out of place to mention that a barrel of oil which cost less than $10 to produce is sold approximately at $70 in the international market. But as commodity prices go up it has lead to inflation across the globe. No wonder, countries are forced to increase their interest rates to fight inflation. This has triggered an interest rate hike across continents and the US is finding it extremely difficult to sustain its current borrowing programme: it hardly has any elbow room to manoeuvre. Doomed if it does, damned if it doesn't. Meanwhile, countries are increasingly realizing that the value of the US dollar that they are holding is fast eroding, whatever be the 'officially managed exchange rate.' And if fewer people want the US dollar -- as for instance when oil is traded in Euro the demand for the US dollar will fall -- it would trigger an avalanche. No wonder, the US Fed is unwilling to make public the M3 figures, as it does not want the holding position of the US dollar to be publicised. Interestingly, in such a doomsday scenario, some economists are still betting on central banks of other countries to defend the US dollar. It would seem that the US has 'outsourced' even this sovereign function to the central banks of other countries. After all, should the US dollar collapse, the biggest losers will not be the US but those who have US dollar-denominated forex reserves. Naturally, countries holding US dollar reserves are caught on the horns of a serious dilemma -- should they seek to correct the global imbalance, it could result in the imminent collapse of the US dollar, and should they continue to defend the US dollar, they would be a long-term loser as the current arrangement has seeds of self-destruction. While every central banker is conscious of this fact and thereby seeks to postpone the inevitable while nervously looking for his counterpart in any other country to break ranks and thereby trigger the collapse. Surely, the emperor is without any clothes. There are only two possibilities from here on: Either we are witness a global meltdown of the US dollar, or allow controlled US dollar devaluation (read, revaluation of other currencies). If it is a global meltdown the global economy is doomed, if is an orderly devaluation, it is damned. The author is a Chennai-based Chartered Accountant. He can be contacted at mrv1000@rediffmail.com.




Seven Reasons Why a Weak Dollar Hurts America

Mr. Delfeld has held positions as ETF Specialist with Union Bank of Switzerland, U.S. Representative to the Asian Development Bank, a Forbes Asia Columnist, stockbroker in Tokyo, Hong Kong & Sydney, and U.S. Treasury consultant. He is a graduate of Fletcher School of Law & Diplomacy and a Fellow at Keio and Sophia University, Tokyo.


posted on: October 19, 2007 | about stocks: UUP / UDN


Martin Feldstein, the Chairman of the Council of Economic Advisors under President Reagan, wrote an article for the Financial Times this week which outlines why he believes that a more “competitive” or weaker US dollar is good for America. Here is my case why a weaker dollar hurts America: First, a weaker dollar translates into a cut in the real spending power of American consumers - in effect - a reduction in real income. Second, a weaker dollar weakens the role of the U.S. dollar as the world’s reserve currency. Why should investors and central banks around the world invest in US assets when their value is steadily declining? Third, the chances of a weaker dollar leading to a sharp reduction in America’s trade deficit is highly unlikely since 40% of the current deficit is due to oil imports that are denominated in US dollars. An additional 20% is due to trade with China which is of course controlling the value of its currency. Fourth, a weaker dollar is inflationary since it increases the cost of imports. Fifth, business leaders know that discounting prices may bump near term revenue and profits but at a real cost to long term profitability not to mention inflicting damage to the brand name. This is what we are doing to the brand of America by trying to increase exports by lowering their price in the global marketplace. Better to stand firm on price and sell into global markets on the basis of what is great about American products – superior quality, innovation and service. Sixth, investors seem to like a weaker dollar since the profits of American multinationals get a boost from foreign earnings being translated into U.S. dollars. Again, this is short-term thinking and vastly overstated since most multinationals have sophisticated treasury departments that hedge currency exposures. What a weaker dollar really does is to encourage American and international investors to invest in non-American markets. The more the dollar drops, the more global equities rise. Many Asian currencies are hitting record highs against the U.S. dollar. The Australian dollar has climbed to a 25 -year highs, while the Singapore dollar has touched 10-year highs. The Brazilian real, which has jumped 18% in value against the U.S. dollar this year, and the Indian rupee's sharp appreciation against the U.S. dollar during the past year, have supercharged U.S. dollar investors' returns in those markets. According to EPFR Global, investors are pouring money into global funds - with net inflows of $96.94 billion into world equity funds so far in 2007, while taking out $9.6 billion out of U.S. equity funds. Brazil's local stock exchange, the Bovespa, reported that investors have injected $1.2 billion into the market in September alone. Foreign investors slashed their holdings of U.S. securities by a record amount as the credit squeeze intensified, according to the latest Treasury figures. The Treasury said net sales of US market assets – including bonds, notes and equities – were $69.3bn in August after a revised inflow of $19.5bn during July. The August outflow exceeded the previous record decline of $21.2bn in March 1990. Last and perhaps most importantly, I view a policy of weakening the U.S. dollar to improve America’s competitive position as the path of least resistance. Let’s not roll up our sleeves and cut federal spending, greatly simplify our tax code to encourage productivity and achievement or reduce corporate tax rates and excessive regulation. Let’s just wink and weaken and let our nation’s currency drift lower on automatic pilot. My view is that the value of a nation’s currency reflects the perceived value of country in the global marketplace. Maintaining and strengthening the value of our nation’s currency is in the best interest of American consumers, businesses and investors.




U.S. Recession Would Hit China - And Send The Dollar Plummeting

posted on: September 24, 2007 | about stocks: SPY / DIA / QQQQ


Andy Greig: After overseeing client accounts for over 15 years, Andy is certainly at home in the role of allocating capital. His track record of helping individuals achieve their financial goals enabled Andy to co-found a boutique investment firm catering to wealthy clients.


The Fed cut provided a nice boost to the markets, especially commodity names, cyclicals, and technology. Now, obviously there was a fair amount of short covering on this rally, but there also seemed to be some genuine buying. I enjoyed this as much as anyone. But I did not like the big moves up in the basic materials and the big move down in bonds. I also was not impressed with the move in financials. The problem I see potentially looming is stagflation. There, I said it, stagflation - like we last saw in the 1970s and early 1980s. The economy is on the brink here. The Fed admits as much with their 50 b.p. cut. A rate cut takes a few months to filter through and in the meantime, business spending and (to a lesser extent) consumer spending may slow further in anticipation of a recession. Adding to the problem is real inflation caused by the weak dollar. We are a huge net importer and a weak and weakening dollar means we are effectively importing inflation. The bond and gold markets are pricing this probability in quite aggressively. Should we enter into a recession in the next few months or if we are already in one, the emerging markets will implode, especially China. The collapse of China will cause our recession to be much deeper and prolonged. China would suffer greatly from a U.S.-led consumer retrenchment. Like it or not, they depend heavily on us to buy prodigious quantities of items to keep their economy humming. A U.S. recession would clearly derail their growth both from an export and investment standpoint. Now, here's where it gets scary. China has been a huge supporter of the dollar through its buying of US treasuries. If China does get hit, our dollar will be in a world of hurt. That will send inflation soaring and there will be nothing the Fed can do. With our massive deficit, it will be a Herculean effort to convince the world they want to hold dollars. Maybe if rates go to double digits we will get some takers - just like the 1978-1981 period. There are ways to make obscene amounts of money from this scenario, or even the possibility of the scenario. I am taking some of those steps now in my portfolio. If I were an oddsmaker, I would put a 25% chance on the worst case scenario, 50% on a milder variation, and 25% that we can pull out of this Greenspan-caused liquidity nightmare intact. I think Greenspan really messed the economy up by saving LTCM, and trying to "soft land" the internet bubble by flooding the market with cheap money. That, however, is best left for another post.



(this last two is more educational than evidence... since its pretty much a blog)

  • Upvote 4
  • Downvote 4

Share this post

Link to post
Share on other sites
Guest svfrey

sweet idea, ankur

i'll probably jump in too and post good econ updates articles whenever i get the chance

all in the spirit of communism.... :rolleyes:


  • Upvote 1
  • Downvote 1

Share this post

Link to post
Share on other sites

dont take this the wrong way, but i really would like to keep extraneous comments out of this thread. i appreciate the good vibes, but the biggest pain in trying to learn using these threads is sifting through the clutter... thanks in advance.

  • Upvote 1
  • Downvote 1

Share this post

Link to post
Share on other sites

I have a few questions I would be interested in hearing your thoughts about:


What is the brink? It seems that spending is terminally non unique. Is there any strategic value to any sort of spending DA with an economy impact that isn't a tradeoff scenario? (perhaps more later)

Share this post

Link to post
Share on other sites

you should probably not talk for me. :P


spending disad isnt non-unique - its the most unique disad there is in any debater's arsenal. uniqueness is reasons why the disad is not occurring. the fact that there is spending in the status quo, even deficit spending, doesnt mean that the disad is non-unique because a disad can only be non-unique if you have crossed the threshold which should have caused the disad and the impacts didnt occur. and until spending does actually collapse the economy, the disad is 100% unique.


what the spending disad lacks is a clear threshold as to what point at which impacts will occur. and this is where you need to be well versed in economic theory to provide the analytics you need to win the argument.


the uniqueness for a spending disad (in debatespeak) isnt that spending is low, or that its at a 'managable' pace. its a hypothetical (and very blurry) line between politics, risk management, and global markets. here's an example of all three factors:


the dollar is still priced high - if the dollar was strong against other currencies, it would still be viewed as a sound investment. we could deficit spend for a long, long time if the dollar was strong because if its strong, commodities would remain priced in the dollar, creating an artificial demand for dollars, thus requiring other countries to directly finance our debt or trade with us (and thus create an interwoven economic fabric which dooms them if we falter) if they wish to purchase commodities. therefore, if the dollar collapses, the countries who were previously viewing america as an economic pillar are suddenly worried about the risk of their investments. if the dollar loses 25% of its value against your currency, then you instantly lose 25% of your investment. so if the dollar falls quickly, investors in the dollar start to worry and pull their investments by not purchasing more debt. the reason they continue to invest is because a slow and measured devaluation gives them time to hedge against the american dollar, and with the strength of their currency begin to step in and start picking up our equities. i just read somewhere in the past week that foreign companies are ramping up their purchasing of american companies - the same way we were buying up foreign companies over the past 30 years. but if the dollar collapse is rapid, then there is no time to hedge against the dollar appropriately, and so a sell-off is the only way to avoid losing a substantial piece of your investment.


the link you use shouldnt be a pure spending link. it should be a series of links setting the stage for a confluence of factors - all of which result in the collapse of the dollar. no one link will EVER win you an econ disad because generally speaking, all econ disads lack thresholds. a good econ disad is going to take you time to develop. you shell the disad in the 1nc with the single link story, and then you develop the analysis behind the congruence of factors with additional 2nc link stories:


a) discretionary off-budget spending leads to snowball spending, and deficits are approaching the threshold

B) plan causes terrorism which jacks up cost of oil. this leads to inflation which hurts the dollar.

c) developing the african economy results in our exploiting them as we exploited asia, thus feeding our trade deficits which hurt the dollar.


etc etc.

  • Upvote 2

Share this post

Link to post
Share on other sites

Please read the third article carefully. Its a very well written article and could really bolster a lot of internal link stories on econ disads.


Current Economics Lesson: What is this business with the sub-prime mortgages? Why is it causing this credit-crunch? And why is the credit-crunch important to the economy?


The traditional way banks determine your creditworthiness is to look at your income and assets and determine what size loan you qualify for. The sub-prime mess begins here. But before we get into that, know the following - there are two basic types of mortgages - fixed and adjustable (Adjustable Rate Mortages or ARMs). In a fixed mortgage, your interest rate is locked in when you purchase the mortgage. In an adjustable mortgage, the bank reserves the right to adjust your interest rate based on the federal rate.


Also, foreclosure is what happens when you default on your loan (i.e. cant make your payments) and the bank seizes your house. When you take out a loan, you dont actually own the house until the loan is 100% repaid. The bank owns your house, so if you dont pay, they have the right to evict you from the house and sell it to someone else so they can get their money back.


Back on subject, the housing boom earlier this decade was a direct result of the Federal Reserve dropping interest rates to historic lows. This means banks can borrow money from the government at a lower cost, and the savings are passed onto the consumer so mortgage rates were low. In order to finance the American dream, with housing growing at an absurdly high rate, banks decided to start offering more ARMs to people who were otherwise not qualified to receive mortgages, i.e. people with poor credit scores. The banks then took bunches of these loans, packaged them into something similar to 'stock' (securities) and sold them to investors. They are often called asset-backed securities because the securities are based on actual assets (the houses).


With interest rates rising quickly to slow down growth and inflation, a lot of the people with poor credit who were stuck with ARMs found that their monthly payments were increasing rapidly. Sometimes, their payments would jump from $1500 to $2200 dollars or more per month. Because people were unprepared for such a sticker-shock, they are defaulting on their loans. If a few people default on their loans, nothing happens - the industry wide historic rate was something around 0.05%. But when tens or hundreds of thousands of people default on their loans, with many more to come, then banks and investors lose their shirts. They end up foreclosing and get stuck with a property which they cant sell (because there is a huge supply in the housing market, too many houses, not enough demand due to the higher interest rates) and they arent making money back in the form of interest because they have foreclosed on the house. So the banks are losing a LOT of money. To make matters worse, there is not much liquidity in the housing market. Liquidity is the ability of some asset to be converted into dollars without a significant loss in value. Obviously, with a high supply of foreclosed houses, its harder to sell the houses and banks have to cut the sale price of a house in order to sell it. Thus, banks suffer a problem of liquidity where they cant convert their assets to money which is used to create new loans.


When banks cant create new loans, that means there is a credit-crunch. People use loans for all sorts of things. Someone wants to put a new deck on their house, they might take out a home-equity loan. If you want to start a new business, you might take out a business loan. If you are a big company and you want to create a whole new manufacturing plant, you borrow from the bank to make the plant. When banks cant make these loans, then growth slows down. Businesses cant get loans to grow their business. People cant get loans so they cant go to college or buy a house. Everything slows down to a crawl. And its not so much that banks cant create new loans, its that banks become risk-averse. They fear that you will default on your loan and thus arent willing to lend you money unless your credit is really really really good and you have a lot of assets to put up as collateral and they'll charge you a higher interest rate. But people cant pay high interest rates, so growth slows down.


The economy is best measured not by how many goods are sold or produced, but how money filters through the economy. You get paid at McDonalds, and you buy some groceries. That means the supermarket makes some money and pays its employees. It also paid some farmers for the food so the farmers can pay their employees. Those people in turn buy food from MCDonalds when they go out to eat. The effect of this is that people get paid, and as long as people spend money, people will continue to get paid. When people stop spending money, thats a big problem - it causes companies to lay off their employees, it hurts American companies from being able to compete with international companies.


So when there is a credit-crunch, and inflation is high, and unemployment is increasing, then thats a trifecta. People are losing jobs (and thus spending less money), what money they spend is worth less and less (inflation) and they cant get loans to build their lives so they cant earn more money.


The whole economy depends on consumer spending and the availability of credit. When these two attributes are troubled, you have problems.





This first piece of evidence is to be used as an internal link on the collapse of the financial system. The idea behind this is rather simple - corporations often borrow on the order of tens or hundreds of millions - i.e. a sizable chunk. If those corporations default on loans, then the credit industry tanks and the financial system in America explodes. This is not much unlike the cause of the great depression in that the severity of the depression occurred when banks were going out of business.

During the depression, people were buying stocks on margin (pay x% now, but you are on the hook for the whole thing), and putting up their houses or not much of anything of value as collateral. Banks were all willing to go for this because of the roaring 20's - stockmarket was flying high with no end in sight (sound like the sub-prime bubble anyone?). When the market tanked, people couldnt fork over the money to pay off their margin accounts, banks got stuck with the bill. Because banks started having trouble, people ran out and took their money out of the banks - so banks didnt have any more money to loan to other people. Thus if banks cant make money, they are losing money and close their doors.

Thus, the idea for this evidence is that if you can link the affirmative plan to hurting American business competitiveness (free or generic drugs anyone?) you will cause American companies to default on their loans, and they will collapse the financial system and we have a new Great Depression.




Rising Fears of Corporate Defaults

The price of insuring even the safest corporate debt against default has shot up, on demand from big investors who fear serious housing and credit-related trouble

by Steve Rosenbush


Big investors are increasingly concerned about the prospect of widespread defaults among U.S. companies with currently sound credit ratings. One glaring piece of evidence? The price of insuring corporate debt against default has soared, according to a new report from analysts at Walnut Creek (Calif.)-based Credit Derivatives Research.


The price of default insurance on a key composite of investment-grade corporate bonds soared 20% this week, according to Tim Backshall, chief credit derivatives strategist at Credit Derivatives. As of Oct. 25, it would cost $600,000 a year to insure a $100 million investment in the CDX, an index of 125 corporate bond issues including such companies as General Electric (GE), builder Toll Brothers (TOL), and Radian Group (RDN), which provides credit protection to mortgage lenders and others. Last week, such insurance would have cost $500,000. In January, the cost was $350,000.


Even more worrisome, the price of insurance on the supposedly safest "super senior" class of CDX debt is rising, too. That "super senior" class, or tranche, means the buyer of the insurance is protected unless more than 30 of the 125 components of the CDX default over a certain period. The price of such insurance on the "super senior" tranche is now $140,000 a year, up 55% in just the past week, fueled by heavy demand.


It's the change in the price of insurance on the "super senior" debt that caught the attention of Credit Derivatives. "There's a rising risk of more widespread defaults on corporate debt, as opposed to a few idiosyncratic defaults," says Byron Douglass, a senior Credit Derivatives research analyst and author of the report. "They could be more contiguous over the next few years."


Merrill Adds to Concerns

Demand for corporate default insurance is rising. The surging cost reflects the sentiment of big investors such as pension funds and hedge funds, which can trade in such insurance contracts even if they don't hold the underlying debt tied to the insurance policy. Such investors use the insurance policies to bet that the number of defaults will rise as the credit crunch and the slowing housing market exact a toll on the economy, pushing a greater number of companies into default. They don't even need to bet on which specific companies will default, since the insurance is tied to the index, overseen by Dow Jones (DJ).


Comments by Merrill Lynch (MER) Chief Executive Stanley O'Neal on Oct. 24 may have stoked the general fears (BusinessWeek, 10/24/07). He said Merrill, which reported an $8 billion write-down that same day, sold off lower-rated assets during the first quarter as the credit crunch began. It held on to higher-rated tranches of debt, and hedged against their possible decline in value. "We hedged…but not aggressively or fast enough," O'Neal said. The fact that Merrill's huge write-down was tied to higher-rated tranches of debt may have scared investors.


The concern is driven by several forces, according to Credit Derivatives. There's a fear that troubles in the housing market will depress consumer spending. There's also rising nervousness that huge, credit-related write-downs in the banking sector could force a major financial institution to go under, according to Backshall. Citigroup © reported a $6 billion write-down (BusinessWeek, 10/15/07) earlier in October. Merrill Lynch reported $8 billion in write-downs on Oct. 24. The worry is that a combination of housing and credit-related problems will cause systemic trouble in the financial system and the economy, leading to widespread defaults.


Low Default Rate, For Now

Such jitters abound in the market. On Oct. 25, shares of insurance and banking giant American International Group (AIG) dipped more than 6% at one point, after a Citi Investment Research analyst estimated that AIG could face losses as high as $1.6 billion from its exposure to subprime markets. The financial-services conglomerate said those fears were unfounded, but its shares finished 3.2% lower at $61.79, after setting a new 52-week low during the session.


The default rate on corporate debt has been just over 1% (BusinessWeek, 11/10/06) for some time. That's well below average, which is in the 4% range. No one expects the rate to remain so low forever. But the assumption has been that defaults would rise mostly in the speculative, or junk, part of the market. The fear that widespread defaults could occur among well-established companies with investment-grade credit ratings is new.


The systemic risk is that investors will be forced to sell off higher-rated assets to cover bad bets on assets with lower ratings—indeed, in its bombshell news this week, Merrill Lynch warned it could not guarantee against such a risk. In such a climate, default insurance has become the hot new buy among large investors.


Rosenbush is a senior writer for BusinessWeek.com in New York



Guesstimates Won’t Cut It Anymore


Published: October 28, 2007

New York Times online


THE props holding up the values of risky mortgage securities finally started to give way last week. And that means the $30 billion in losses and write-downs taken by big brokerage firms in the third quarter are not likely to be the last.


Even as developments in the credit markets went from bad to worse this year, investors for the most part have remained upbeat about the values of the mortgage securities they held. One reason that they could keep their heads in the sand was that these complex securities are hard to value in good times, impossible during periods of stress.


Executives of companies with big stakes in mortgages also accentuated the power of positive investor thinking. Emerging periodically from their corner offices, these executives opined that in spite of rocketing delinquencies, most loans continued to perform well. Rating agencies, fending off complaints that they had been slow to downgrade, maintained that they would adjust their ratings only after they saw actual loan failures. Government officials trotted out regularly to contend that upheaval in the mortgage market was a minor scrape.


After last week, however, it was no longer plausible to deny that mortgage loans, and the complex securities derived from them, had crashed — and caused a lot of damage in the process.


First to face the music was Merrill Lynch, which stunned investors Wednesday with an $8.4 billion write-down, $7.9 billion of which was for mortgage-related assets. The write-down was $3.4 billion more than it had warned investors about just three weeks before.


Until that moment, investors had been willing to trust companies claiming to have limited exposure to the credit mess. But Merrill’s third-quarter results made clear that such confidence must now be earned, not presumed.


In a pained, hour-long conference call, Merrill’s top executives said that almost $8 billion of the firm’s capital had been vaporized in the third quarter because it had underestimated the degree to which its holdings of collateralized debt obligations, or C.D.O.’s, had tanked. C.D.O.’s are pools made up, for the most part, of mortgage securities divvied up into tranches of differing risk levels.


The executives on Merrill’s dismal conference call conceded that even after they decided to value their C.D.O. holdings more conservatively — resulting in losses — much of their methodology was based on “quantitative evaluation.” (For the rest of us, that means that Merrill was in the unfortunate position of still having to guesstimate its exposure to losses.)


ANALYSTS quickly responded by forecasting an additional $4 billion in write-downs on Merrill’s portfolio. Marking positions to model — a favorite reality dodge on Wall Street — just doesn’t cut it anymore.


To be sure, Merrill was especially overexposed in C.D.O.’s, choosing as it did to go into the business relatively late but in a very big, very voracious way. Other banks and brokerage firms are not likely to have as much junk on their books.


Nevertheless, Merrill’s decision to write down its holdings as it did gives a clear signal to other banks and brokerage firms that valuing similar assets at lofty levels is no longer acceptable or credible.


Then, on Friday, Moody’s Investors Service began downgrading C.D.O.’s. Despite the subprime turmoil, some of these securities had continued to carry high ratings — until Friday. Moody’s cut or placed on review for possible downgrade securities from dozens of C.D.O.’s, some rated as high as AAA. The C.D.O.’s that may be subject to a downgrade hold subprime mortgage loans worth $33 billion, and there are probably more to come.


Moody’s move was not a surprise. It warned several weeks ago that C.D.O.’s were finally coming under its microscope. But Moody’s downgrade is notable because many investors holding C.D.O.’s — like insurance companies — have to sell them when their ratings fall significantly.


With the C.D.O. market stopped dead in its tracks, it is not clear who will be willing to buy and at what price. But it’s a good bet that these forced sales aren’t going to add buoyancy to the market. A better bet may be to expect Wall Street to recognize further losses.


“We’ll definitely see a lot more write-downs,” said Josh Rosner, an expert on asset-backed securities at Graham-Fisher, an independent research firm in New York. “I think that the exposures that we are seeing and the announcement out of Merrill are the leading edge, not the end.”


ONE reason that Mr. Rosner expects more losses from banks and brokerage firms relates to the calendar. So far, the write-downs that banks and brokerage firms have taken have come during periods when managements were preparing their financial statements but hadn’t submitted them to outside auditors for a more thorough vetting.


Intense auditor scrutiny comes once a year, and that is the period we are in now — fiscal years at many big brokerage firms, Morgan Stanley, Lehman Brothers and Bear Stearns, for example, end in November.


“When it comes time for the auditors to attest, they are going to be very conservative,” Mr. Rosner said. That means write-downs will have to reflect the reality in the market, not some rosy scenario.


Way back in 2003, Warren Buffett defined derivatives — like those exploding on a balance sheet near you — as financial weapons of mass destruction.


“The derivatives genie is now well out of the bottle,” he wrote, “and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear.”


Last week, Merrill Lynch shareholders got a taste of that toxicity. Others will soon have their turn.


Source Quals: Gretchen Morgenson is assistant business and financial editor and a columnist at the New York Times. She has covered the world financial markets for the Times since May 1998 and won the Pulitzer Prize in 2002 for her "trenchant and incisive" coverage of Wall Street. Ms. Morgenson joined The Times as assistant business and financial editor in May 1998. Previously, she was assistant managing editor at Forbes magazine since rejoining the magazine in March 1996. Before that, she was the press secretary for the Forbes for President campaign from September 1995 to March 1996. From August 1993 to August 1995, Ms. Morgenson was the executive editor at Worth magazine. As the number two editor, she oversaw all financial coverage. She also wrote an investigative "Full Disclosure" column monthly. From November 1986 to August 1993, she was an investigative business writer and editor at Forbes magazine. She broke the story of anti-investor practices on the Nasdaq stock market that was followed by Justice Department and SEC investigations. Earlier, she oversaw several Forbes investing sections and their Washington bureau. From January 1984 to November 1986, she was a staff writer at Money magazine. Ms. Morgenson was a stockbroker for Dean Witter Reynolds in New York from September 1981 to January 1984. She began her career at Vogue magazine as an assistant editor in August 1976. By the time she left the magazine in July 1981, she was a writer and financial columnist. Born in State College, Penn., on January 2, 1956, Ms. Morgenson received a B.A. degree in English and history from Saint Olaf College, Northfield Minn., in 1976. She is the author of "Forbes Great Minds Of Business," published by John Wiley & Co., in 1997 and co-author of "The Woman's Guide to the Stock Market," published by Harmony Books in 1981. She is married, has a son and lives in New York City.



The Catastrophist View

What would it take to send the U.S. economy—and New York’s—into free fall? A doomsday primer.

By Duff McDonald Published Oct 28, 2007



Peter Schiff is laughing at me. I’ve just asked him to entertain the following notion: that we dodged a bullet during August’s financial-market turmoil and, with the stock market bouncing right back from every dip, things might be okay. So why worry?


He stops laughing. “Why worry?” he asks. “Because we dodged a bullet but are about to step on a hand grenade.”


Sitting in a corner office of a nondescript building just off I-95 in Darien, Connecticut, Schiff, the president of brokerage Euro Pacific Capital, will spend the next hour spelling out a singularly pessimistic view of the American economy. And he will do so while exhibiting a curious juxtaposition unique to the bearish prognosticator: He speaks of disaster with a smile on his face. No, he’s not happy about our impending doom. But he is happy that people are finally taking him seriously.


Some people, anyway. The recessionary fears that were sparked by the global liquidity crisis in August have eased, largely because of a resilient stock market and a belief that the Federal Reserve’s interest-rate cut in September curtailed deeper losses. When Goldman Sachs invested in its own imploding Global Equity Opportunities hedge fund in August, calling it an “opportunity” and not a “rescue,” people laughed. Guess who laughed last? Goldman, which had reportedly enjoyed a $370 million gain on its $2 billion rescue by October. The optimists stay focused on stories like Steve Jobs’s next stroke of genius.


But Schiff, whom CNBC calls “Dr. Doom,” has not, as bears do when winter approaches, gone off to hide in a cave. Why not? Because every single one of the underlying economic factors that he has identified as cause for concern has worsened. And his is no longer a lone voice in the woods. If you don’t care to listen to a man nicknamed Dr. Doom, you can listen to people like former Federal Reserve chairman Alan Greenspan, esteemed bond-fund manager Bill Gross, or famed money manager Jeremy Grantham. They’re part of a growing chorus of voices that are saying many of the same things as Schiff.


Their bearish arguments come in many shapes and sizes, but here’s the basic one: The past five or six years have been deceptively fortunate ones for the U.S. economy. That’s because any troublesome developments—the surge in oil prices from $28 per barrel in 2003 to about $87 today, for example—have been papered over by rising home prices. Home equity has been used to buy flat-screen TVs, SUVs, and more homes. Wall Street bought up all this debt from lenders, thereby allowing them to lend more.


The softening of real-estate prices in most parts of the United States put a crimp in this system, but it hasn’t stopped it. The question is, what, if anything, will? What will bring on the apocalypse that Schiff and others believe is inevitable? They see it like this:



The Bottom Continues to Fall Out of the Housing Market

Manhattan’s gravity-defying real estate aside, it’s quite clear the nation is experiencing a genuine housing crisis. In August, pending home sales dropped 6.5 percent, and they currently sit at their lowest level since 2001. The National Association of Realtors conducted a recent survey that showed more than 10 percent of sales contracts fell through at the last moment in August, primarily owing to disappearing loan commitments from banks. The crisis will only deepen, when more borrowers see their adjustable-rate mortgages adjusted upward. There was a foreclosure filing for one of every 510 households in the country in August, the highest figure ever issued, and by one estimate, more than 1.7 million foreclosures will occur in the country by the end of 2008. That’s not just subprime borrowers: According to the Federal Housing Finance Board, while nearly 35 percent of conventional mortgages in 2004 used ARMs, some 70.7 percent of jumbo loans—those above $333,700 (the jumbo threshold in 2004; it’s now higher)—did too.


Historically, bond-market investors have been the boring counterparts to their equity-market brethren. But in his October Investment Outlook, famed bond investor Bill Gross was anything but. The managing director of money management firm pimco pointed out that the Federal Reserve is caught in a bind: It must continue to lower interest rates to ameliorate this burgeoning housing crisis, but in doing so, it “risks reigniting speculative equity market behavior, and … a run on the dollar.” (More on the dollar later.) Gross doesn’t have the answers but observes that the Fed is “in a pickle, and a sour one at that.” Worse yet, concerns that a rate cut might be inflationary actually caused bond yields to rise in the wake of the rate cut, something that doesn’t normally happen. The Fed’s influence, always overstated, might turn out to be nonexistent in a credit market that remains on edge.


Hedge-fund veteran Rick Bookstaber, the author of A Demon of Our Own Design, spells out a potentially disastrous scenario that could unfold regardless of what the Fed does: Continued foreclosures result in a further drop in housing prices, which results in further foreclosures, which result in a further drop in housing prices. Even for those of us not selling, reduced home values result in a reduced sense of security, which results in reduced consumption, which results in a slowing economy, which … you get the point.



The Derivatives-Related Meltdown, Part II

Anybody who glances occasionally at the financial pages these days knows that mortgages issued to home buyers are packaged together (in a process called securitization) into a collateralized-debt obligation, or CDO. That’s what’s known as a derivative, a security whose value depends on the value of other securities. The price of the CDO, you see, is “derived” from the prices of the underlying mortgages. (It works with credit cards, too, or bank loans—any kind of debt will do.)


In principle, the idea of a CDO makes perfect sense. In buying $5 million worth of a CDO, an investor has essentially lent money to an entire portfolio of homeowners, instead of placing all his eggs in one basket, say, by funding a single $5 million mortgage. In the real-estate-crazy environment of the past decade, the CDO market took off like a rocket. But the buyers of these derivatives made a critical error—they confused the spreading of risk with the elimination of risk. A booming economy made this confusion not just possible but irresistible. With relatively few defaults in the first half of the decade, investment firms, including many hedge funds, came to see CDO returns as a sure thing and loaded up on them, often borrowing money to do so, taking on debt to buy debt and thereby setting up a potentially deadly chain reaction. The readiness of the secondary market to buy all these mortgages encouraged the lenders to run wild and lend to anyone who walked through the door, leading—inevitably, in retrospect—to a decline in loan quality. Analyst Christopher Wood of Asia-Pacific investment house CLSA succinctly defines the problem in his highly readable newsletter Greed & Fear: “[securitization] has one fatal flaw, which will ultimately prove to be its undoing … it removes the incentive of those making the loan to worry about whether the loan is a good credit.”


Still, it all held together until mortgage defaults began to cut into the yields of these CDOs and holders looked to sell them, only to realize their value had slipped. Forced liquidations as a result of that “price discovery” were a primary factor in Bear Stearns’ hedge-fund calamity in August. And it’s not over yet: The aftershocks of the mortgage meltdown are still being felt, as banks such as Citigroup and Deutsche Bank announce multibillion-dollar write-downs.


Each time one of these write-downs has been announced, the market has had a curiously positive response, taking the news as a sign that the worst was over and the banks were cleaning up their books. But because these derivatives are linked to other debt, there’s no reason to be certain that trouble won’t bleed into other markets. Among other things, the liquidity crisis froze the market in structured investment vehicles (SIVs), a nifty bit of financial engineering that banks use to profit from the spread between short-term debt and long-term debt. No one yet knows how nasty these losses could turn out to be because SIVs are stashed, Enron style, off the books.



Consumers Run Out of Steam (and Take the Economy Down With Them)

The U.S. economy, for all its worldly sophistication, is driven by mall shoppers and late-night Amazon addicts—70 percent of the gross domestic product is accounted for by consumer spending, which is buttressed by debt. According to the Federal Reserve, total U.S. household debt was, as of August, $2.5 trillion—a 24 percent increase in the past five years. Total credit-card debt, including gas cards and the like, was $915 billion.


The willingness of consumers to keep spending and piling on debt in the midst of a slowing real-estate market is hailed on Wall Street as an act of patriotism, which Schiff considers perverse. Imagine, he suggests, that you ran into a good friend and asked him how he was doing. His reply: “I took out a third mortgage, maxed out my credit cards, and emptied out my kids’ college savings account so I could buy a bigger TV and a new car, and we’re going to Greece on vacation over the holidays. Things are great!” Schiff lets the idea sink in and then finishes the thought: “And we’re celebrating the fact that we’re doing this as a nation?”


In a recent interview, John Santer, a district director of NeighborWorks America, a community-based nonprofit, pointed out that 43 percent of American households spend more than they earn each year, and fewer than six in ten have enough savings to last them three months if they were suddenly out of a job. So where’s the money coming from? From 1991 to 2005, Americans borrowed $530 billion against the value of their homes each year.


James Glassman, a senior economist at JPMorgan Chase, told a Tulsa, Oklahoma, luncheon crowd in early October that before 1985, consumer spending grew in line with income, but since that time, it’s grown half a percent faster on an annual basis. As a result, household savings, which once reached 10 percent of income, is now literally negative. “My guess is that in five years we’ll look back and realize … that the consumer we knew for twenty years is coming to an end,” he said.


Roger Ehrenberg, an ex–Wall Streeter and author of the financial blog Information Arbitrage, forecasts extreme financial pain. “You’ve got a weaker dollar, declining economic fundamentals, and a debt-strapped consumer—I’d call that a bad fact set,” he says. “Lay on top of that the mortgage problem and declining home values, and you can paint a pretty ugly picture.”



That the Rest of the World Decides They Don’t Need Us and the Dollar Tumbles Hard

The dollar is falling, possibly collapsing, depending on whom you talk to. The greenback has sunk close to its lowest point in the post-1973 floating-exchange-rate era, so low that it’s been overtaken by the Canadian dollar—affectionately known as the loonie—for the first time since 1976. How low will it go? When Alan Greenspan was asked by Lesley Stahl of 60 Minutes last month what currency he’d like to be paid in, his response was telling: “[The] key question … is, ‘In what currency do you wish to hold your assets?’ And what I’ve done is I diversify.” Translation: He isn’t betting on the dollar. And neither is the majority of Wall Street.


Here’s why catastrophists see that as a major problem: About 25 percent of our government debt is held by foreign governments, with the major holders being Japan ($610.9 billion), China ($407.8 billion), the U.K. ($210.1 billion), and our friends in the Middle East, the oil-exporting countries ($123.8 billion). When the current Fed chairman, Ben Bernanke, cuts rates to soften the housing blow for Americans, he also weakens the dollar by making dollar-based investments less attractive. And when the dollar weakens, so, too, does the value of these gigantic positions held by the foreign governments. At some point, they’re no longer going to tolerate the losses we inflict on them by lowering rates, and if that happens and they start dumping dollars, watch out for the peso.


The bulls will tell you that foreign governments understand the American economy is the key to global economic health, and that they’ll suck it up and take it when we devalue their debt. To which Schiff offers another analogy. Imagine if five people were washed up on a desert island: four Asians and an American. In splitting up their duties, one Asian says he’ll fish; another will hunt, another will look for firewood, and another will cook. The American assigns himself the job of eating.


"The modern economist looks at this situation and says the American is key to the whole thing,” says Schiff. “Because without him to eat, the four Asians would be unemployed.” The alternative: Without the American, the Asians might eat a little more themselves and even spend some time building a boat. This is happening as we speak: With the rise of the Chinese consumer class, the local citizenry is now spending, and the country is no longer totally dependent on exports. Which means they’re no longer totally dependent on us.


Readers of the financial press are surely familiar with the buzzword of the moment, decoupling. It’s used to describe how U.S.-Europe and U.S.-Asian trade relationships are becoming less dependent at the same time as European-Asian ties are growing. Most Asian nations, including China, are importing goods to Europe at a much faster rate than they do to the U.S. And the U.S. now accounts for a declining share of European exports. The bearish interpretation: that the longtime global embrace of the dollar is loosening.



That We Don’t See It Happening Because It’s a Slow-Motion Train Wreck

Last but not least, we can circle back to the Dow Jones Industrial Average making new highs in October—14,087.55 on October 1—offering hope that our equity portfolios will carry us through to the other side of whatever it is we’re on the wrong side of. Before addressing the fact that the equity market might just be clueless, there’s one last dollar-related point to make. The true value of a stock portfolio isn’t really its quoted worth in dollars—it’s what you could buy with that portfolio if you were to sell it.


Given that we as Americans don’t manufacture that much anymore (we’re a service economy!), we are largely talking about foreign-made goods, such as flat-screens from Korea or cars from Germany. Over time, if the dollar continues to slump, foreign manufacturers will raise prices to compensate for what they’re losing in the exchange rate. In that light, a Dow at 14,000 with the euro at $1.42 is really no different from a Dow at 13,000 with the euro at $1.33. (One reason the price of oil has risen so high is that it is quoted in dollars, and the sellers thereof have had to continually jack up the per-barrel price to maintain their own purchasing power at home and elsewhere.)


Still, a rising Dow is better than a falling Dow, and the bulls are piling into every rally. Which still doesn’t impress Jeremy Grantham, chairman of Boston-based money manager GMO, in the least. “The equity market is always slow to pick up on someone else’s crisis,” he says, referring to the turmoil in both the housing and fixed-income markets. “And so you’ve got a slow-motion train wreck that has to work itself through the system.”


How will it work itself through? Grantham points to the recent strength in profit margins, fueled by—you guessed it!—our plummeting savings rate, and says there’s nowhere to go but down. “If you start with an overpriced market and bring profit margins down, that’s more than enough to bring stock prices down,” he says. “It is the most certain mean-reversion in all of finance.” Grantham calculates that the U.S. stock market will have to fall by a full third before it gets to its “fair value.” At which point we will likely be in full-blown recession. And when that happens, Schiff says, we will see a country in downsizing mode, “selling the consumer goods we’ve been buying back to the Chinese. It will be one big, giant repossession.”


So assuming all this is true, that Schiff and his fellow doomsayers are right about the rotten core of the U.S. economy, how will this affect New York City? We’ve grown accustomed to the idea of our local economy, particularly the real-estate market, being inherently stronger than the nation’s and possibly immune to whatever woes strike the rest of America. Wall Street, after all, makes money on downs as well as ups, and the stampede of foreigners and foreign cash could, if anything, be aided by the weak dollar.


Last week, though, the argument against New York invincibility was implicitly made when Merrill Lynch announced a larger-than-expected write-down of $7.9 billion dollars in its third quarter alone, primarily due to losses in the credit markets. Numbers as large as that can paradoxically seem trivial due to the abstract nature of accounting—a “write-down” involves no movement of real-life cash, just a readjustment of some theoretical values—but here’s something nontrivial to consider: Merrill Lynch is one of the largest employers in New York City. While so far only a few Merrill bigwigs have been shown the door, it’s almost certain that a chunk of the company’s rank and file will soon follow. All told, New York–based financial companies had already announced more than 42,000 layoffs as of October, according to one study, and the pace could pick up through the end of the year. That’s people who won’t be bidding up new apartments, who won’t be going out to dinner five times a week, who won’t be testing the outer limits of their credit cards at Barneys. The downstream effects of this could be even more severe, as every Wall Street job is estimated to account for another 1.3 to 2 jobs, meaning that additional job losses could push 100,000.


Meanwhile, the public sector is feeling it, too. A recent report by Nicole Gelinas, published by the Manhattan Institute, forecast a budget deficit for New York City next year and predicted that Mayor Bloomberg, who enjoyed a string of budget surpluses until this year, will likely be forced to leave his successor with a double whammy: a deficit and a projected 50 percent increase in outstanding debt. Of course, the catastrophists could be dead wrong, as they have been for going on a decade now—but to them, it sure smells like the seventies all over again.



This next article can be cut to link how the rising interest rates on mortgages is squeezing people into bankruptcy. In order to keep their houses, people are maxing out their credit cards and if things get worse, they become bankrupt. They are cutting their spending on everything from food to clothing and luxury items for sure. This hurts the national economy because consumer spending is 70% of our total economic spending. Worse still if millions default on their credit cards, then the credit card companies (which operate just like banks) are out all that money and they cand lend money anymore and they collapse. You get fallout similar to the banking sector.



Stressed US borrowers use plastic to delay default

Sun Oct 28, 2007 1:56 PM EDT

By Nick Carey



CHICAGO (Reuters) - This may be Johari Reeves' last chance to catch up on her mortgage payments. The credit cards, she'll worry about later.


"We fell behind (with the mortgage) and twice we agreed to new repayment schedules that didn't work out," said the 31-year-old, a compliance officer at a small bank on Chicago's blue-collar South Side. "It's been a lot of stress. But this time, if all goes well, we should be able catch up."


In August 2006, Reeves and her husband bought a $214,000 home with almost no money down, leaving them with a monthly payment of $1,636 -- higher than they planned on, especially with her husband's furniture sales job largely commission-based and business not good due to the U.S. housing slowdown.


An attempt this spring at refinancing with another lender fell through, leaving them behind on payments and struggling.


But as part of her efforts to avoid defaulting on the mortgage, Reeves said she has "maxed out" all her credit cards, spending to the limit on basic needs. "Now all I'm doing is making the minimum monthly payments."


According to nonprofit groups providing debt counseling to home owners, more Americans like Reeves risk being swept up by the next wave of home owners to default on their mortgages.


The reason? A second debt mountain on top of the first.


Rising mortgage payments and tighter lending standards for refinancing amid the subprime credit crisis have dried up once-easy access to home equity loans for many middle-income borrowers -- so desperate borrowers are using credit cards to cover basics while trying to keep up with home payments.


"When credit conditions dry up, marginal borrowers turn to plastic," said Merrill Lynch North American Economist David Rosenberg. "We're seeing signs of that already."


In an October 5 research note, Rosenberg called rising credit- card delinquency rates as the "next skeleton in the closet."


It is one scary skeleton -- and a specter of bankruptcy.


The problem with using credit cards -- with their high interest rates -- to stave off default brought on by "reset" adjustable mortgage interest is that it merely postpones an inevitable crisis, said Gregary Brown, social policy director at Metropolitan Family Services in Chicago.


"Our biggest concern right now is that there are lot of people who will face a choice between bankruptcy or foreclosure," he said. "Either way, it's going to suck."




Nancy Barba -- a financial counselor at a local community group, the Resurrection Project -- helped Johari Reeves negotiate her latest attempt at a repayment schedule for her mortgage.


"The credit cards will be a problem later," Barba said. "But right now, the main concern is the house."


Barba and other counselors said people from a broad range of income levels were facing similar problems with their credit cards, especially those with adjustable rate mortgages.


"We're not just talking to people with subprime loans but also people who bought homes almost out of their range struggling with a higher mortgage rate," said Cate Williams at Money Management International, a nonprofit group.


"They're now using plastic to pay for basics like gas and food and are running into trouble," she said.


U.S. Federal Reserve data for August showed revolving consumer credit, mainly credit and charge cards, rose $6.14 billion, or 8.1 percent, to $915.47 billion -- the highest monthly increase seen since the second quarter of 2006.


More worrying, said Merrill Lynch's Rosenberg, were Fed data for credit-card delinquency, which hit a three-year high in the second quarter of this year.


The next worry? The U.S. holiday retail spending season is rapidly approaching and, according to Rosenberg and others, this could push many home owners over the edge.


"People are stretched thin even before the holidays," said Geoff Smith, project director at Woodstock Institute, a Chicago community development group. "If they spend a lot, about three months after Christmas when the bills and mortgages are past due, we could see a rise in delinquency and foreclosures."


Although the 2005 U.S. Bankruptcy Abuse Prevention and Consumer Protection Act made it more difficult to file for bankruptcy, John Talmage of nonprofit group Social Compact predicts: "We should see a spike in bankruptcy applications."






and the End of the Guns and Butter Economy

by Scott B. MacDonald

Editor, KWR International Advisor

October 27, 2007


Over the past thirty years, the United States has sought and to some extent achieved a guns and butter economy; that is the pursuit of both political-military objectives and an affluent lifestyle. On the political front, it has dominated the international system, presiding over the defeat of the Soviet Union, its hegemonic rival during the Cold War, and forming a successful military coalition to liberate Kuwait in the first Iraq war. It became even more unilateral under the Bush the younger administration, with aggressive policies against militant Islam and Iraq in Middle East and South Asia.


At the same time, the consumer-driven U.S. economy continued to expand, with the last great burst being the spike in homeownership in the 2003-2006 period. Homeownership since the mid-1950s was long stuck at 65 percent of the total population, but by year-end 2006, on the back of cheap credit and lax underwriting standards, it reached 69 percent. Significantly, countries such as China, Japan and Germany benefited from the U.S. guns and butter economy, content to sell their exports and finance their purchases via the buying of U.S. debt. This was the upside of globalization.


But in July 2007 the U.S. financial system signaled that the era of cheap money and lax standards was over. Two Bear Stearns hedge funds collapsed and panic hit credit markets, pounding the stock and bond values of any company associated with mortgage lending and housing. By August the rout filtered into the derivatives market (especially those structured financial products that contained exposure to U.S. sub-prime debt), negatively impacting European and Asian bank and insurance investment portfolios.


The contagion eventually rippled into London's inter-bank market, forcing central banks to inject considerable amounts of liquidity to keep the system running. Even then, nervousness about the standing of banks, especially those dependent on short-term commercial paper for mortgage lending, forced the UK's Northern Rock into a government rescue. This was the downside of globalization.


The U.S. economy is edging toward a significant slowdown in what is left of 2007; it will take concerted effort and luck to avoid a recession. The housing sector is hitting depths associated with the 1930s. The Fed's September 18th cuts in the discount window and in Fed Funds gave markets a temporary relief, a situation helped along by private sector actions to consolidate the financial sector. This is reflected in Bank of America's purchase of Countrywide Financial shares and Citigroup's stepping up with credit lines for GMAC. But there remains a long distance to the shore of economic safety.


A shadow is being cast by a deficit of unresolved problems in an economy overloaded with debt, a retreating federal responsibility for national infrastructure, and large (and seemingly unending) overseas burdens. In the short-term, the problem that looms on the horizon is that the housing meltdown is finally chipping away at the consumer, who in the butter part of the U.S. economy, accounting for about 70 percent of GDP. The consumer relied on home equity (and foreign capital) to finance the ongoing parade of goods and drove many households into negative territory in terms of savings. Why save when you are penalized (taxed) on savings amidst an unrelenting society-wide pitch to consume? Easy money during the Greenspan years helped keep the guns and butter economy afloat without too many major adjustments. That dynamic has changed.


On the short term side there is going to be further bad news on housing. There is a very real prospect of steeper declines in housing prices, pushed along by a growing inventory (already 9 months of new homes waiting to be sold not to mention those homes taken off the market by frustrated would be sellers). In addition, there is a huge resetting of adjustable rate mortgages over the next 12 months, with a large spike in March 2008. Adding to the list of woes is the increasing pace of personnel downsizing in the mortgage industry and declining profitability in the financial sector.


On the longer-term side of the equation, the economic landscape is chilling, considering the massive structural problems. The guns part of the economy is a concern - the war in Iraq and other missions (Afghanistan and Africa) cost somewhere between $3-5 billion a day. In August, the Congressional Budget Office (CBC) estimated as of June 2007 up to $500 billion has been spent on combat operations in Iraq. The CBO also noted that if the United States were to maintain 75,000 troops in Iraq over the next five years, the nation would have to pay an additional $900 billion. Moreover, there are further costs attached to training police and ground forces in Iraq and Afghanistan as well as long-term health costs associated with wounded personnel.


There are other structural problems - a long term imbalance between government expenditures and revenues (related to ongoing pressure for tax cuts). There is a massive problem with national infrastructure - it is aging rapidly and needs to be upgraded with a price tag of $1.6 trillion. That includes roads, bridges, ports and other public utilities.


Any doubt of the infrastructure problem one need only point to the July 2007 steam conduit that exploded in Manhattan - the piping was laid 83 years ago when Calvin Coolidge was president and was part of a system that started to provide energy to New York City in 1882. In August 2007, a 40-year old bridge in Minneapolis collapsed, leaving several dead in the accident's wake. The national infrastructure is literally falling down around the population, but the most recently passed Senate transportation and housing bill contained at least $2 billion for pet projects that include a North Dakota peace garden, a Montana baseball stadium and a Las Vegas history museum.


Equally important is the issue of Medicare, Medicaid and Social Security, the combined basis of which is expected to grow 22 percent faster than the economy over the next decade. This should come more sharply into focus next year when the first of 78 million baby boomers become eligible for early Social Security benefits.


American politics have reached a very dysfunctional stage, with considerable energy given to the indulgence of maintaining an economy and the debt required to keep it going, with little thought being given to the adjustments now in motion. Along these lines, it is easier to blame the outside world for troubles at home, hence the turn to protectionism (with a number of bills pending in the U.S. Congress). The plunging value of the U.S. dollar and the huge sell-off in U.S. securities by foreigners in August ($163 billion) should convey the message that not all is well and that unless there is an effort to start living more within one's means, the rest of the world is going to stop financing the North American credit glutton. The days of guns and butter for the U.S. economy are over; what is going to replace it is a much more volatile world, with substantial questions over the U.S. dollar as the major international currency and the ability of the U.S. consumer to absorb the world's exports. As the U.S. adjusts to this changing scenario, so will the rest of the global economy. It is not going to be an easy transition.

  • Upvote 2

Share this post

Link to post
Share on other sites

First, this thread is very helpful, thanks for posting it


Second, how would you suggest framing a DA to an international CP using economics; the one i have in mind is a Euro Inflation (Tomak's idea in Synergy's thread) DA.



Share this post

Link to post
Share on other sites
First, this thread is very helpful, thanks for posting it


Second, how would you suggest framing a DA to an international CP using economics; the one i have in mind is a Euro Inflation (Tomak's idea in Synergy's thread) DA.




You need to be more specific. What international CP is it? Econ disads generally need to be more specific otherwise they just dont link.

Share this post

Link to post
Share on other sites

there could be several links.


if the plan causes growth (lets say it creates new generic pharma indutries) then high wage growth leads to wage inflation. thus if done in the euro-zone, its inflation of the euro. even if its something like giving food aid, the actual food needs to come from somewhere right? so if you pay a buncha farmers for their food, demand goes up, prices follow. if prices follow then, africans cant afford to sell their food and they produce less and need more food aid, thus widening the scope fo the food aid program. initial cost is a drop in the bucket of real cost. commodity inflation leads to slowdowns in consumer spending.


its really all the same things as one would say about american dollar inflation, minus the absurdly high deficits we run.

Share this post

Link to post
Share on other sites

I figure I can release these now... I have removed corporate identifiers for legal reasons.


And to piggyback off the idea of not finding cures, I suggest putting in an impact based off MRSA (methycillin-resistant staphylococcus aureus). If people dont find new stronger antibiotics, they will continue using the weaker versions which will create a stronger superbug like MRSA. Antibiotics need to stay one step ahead of bacteria and loss of innovation means the bacteria will catch up and surpass existing antibiotics and then we are all screwed.



Any further state-sponsored pharmaceutical patent infractions may result in suspension of pharmaceutical R&D.

Press Review 2007 (Internal Corporate Press Review. Corporation Not Named by File Originator and Indicators Removed. Original news available as per content. May 30, 2007)


The Press-Enterprise reports that earlier this month, Brazil's president announced that his government had decided to revoke the patent of Efavirenz, a powerful HIV/AIDS antiretroviral manufactured by Merck. The decision was hardly surprising. It came on the heels of several recent decisions by Thailand's military junta to revoke the patents on a number of drugs manufactured by Western pharmaceutical firms, including Efavirenz. Such actions are supported by public-health activists, nongovernmental organizations, and even some members of Congress, and they're happening with increasing regularity. In negotiations with the Brazilian government, Merck offered to reduce its price on Efavirenz by 30% – a surprising move, considering that Brazil has the ninth-largest economy in the world. But Brazil rejected the offer. Also, Thailand's leaders tasked the state-owned drug manufacturer with producing the drugs – and the Thai government excludes all other manufacturers from selling it generics. In other words, Thailand's actions weren't about helping its citizens – they were about making money. More important, the actions of both nations set a dangerous precedent. Once a less-expensive generic is available somewhere, it soon winds up everywhere. That's the reality of today's global supply chain. Providing life-saving medicines to the world's poorest and sickest is an important task. But if these recent actions are replicated again, drug makers may realize that they don't have the resources – or incentives – to research new cures. Sure, governments may guarantee "free" medicines for their citizens. But without new drugs, such guarantees will no longer matter.




Violating patents drives big pharma out of business ultimately damaging future patient care.

Press Review 2007 (Internal Corporate Press Review. Corporation Not Named by File Originator and Indicators Removed. Original news available as per content. May 2, 2007)


The Wall Street Journal indicates that contrary to the assertions of the Thai government and Doctors Without Borders, violating drug companies' patents and making knock-offs of their drugs is not in the long-term best interest of patients. Just as letting people shoplift today can drive stores out of business tomorrow – and just as price controls make customers happy for a day but produce long-term shortages – so to do patent violations gut the incentive to invest millions in researching the even better drugs of tomorrow. Why would we expect profit-driven companies to do all the work of creating new drugs if governments are just going to steal them anyway, in complete violation of international patent agreements (which already include public health crisis escape clauses)? Economically and scientifically ignorant moves like this could shrivel or destroy the pharmaceutical industry, and that will not make the Thais or anyone else healthier in the future.




Patent violations crush growth.

Aghion 2001 (Philippe Aghion (Harvard), Christopher Harris (Kings College), Peter Howitt (Brown), John Vickers (Oxford). Review of Economic Studies. “Competition, imitation and growth with step-by-step innovation.” v68. p467.)


With respect to imitation, we find that a lot of it is always bad for growth. That is, as the ease of imitation goes to infinity the growth rate always falls to zero. However, a little imitation is almost always growth-enhancing; holding constant the degree of competition, the marginal effect of raising the ease of imitation above zero is almost always to raise the growth rate. The only cases in which this does not hold are cases in which the degree of competition is close to maximal. Thus the usual Schumpterian effect of imitation always prevails for large propensities, but is usually outweighed by the composition effect of promoting more frequent neck-and-neck rivalry when the propensity is not too large. In short, our findings are that the effect of PMC [product market competition] on growth usually is monotonically positive, but sometimes is inverse-U shaped, whereas the effect of imitation on growth usually is inverse-U shaped but sometimes is monotonically negative.


Analysis based on totality of article: Imitation is the violation of patents resulting in duplicates. Allowing just a little imitation (i.e. allowing the patents to expire after X period of time) is growth enhancing. Whereas eliminating patents results in zero growth and possibly results in negative growth (i.e. loss of innovation). The reason patent expiration is growth-enhancing is because the innovating company will see their income stream slow to a trickle when a drug goes off patent. In order to keep revenue high, they need new drugs, so they continuously keep researching new drugs so they can grow their business. If you violate patents early, then the income gets cut off and companies dont have the income to fund research and they have no incentive for research because its going to be stolen anyways. And when you are talking about research on the order of billions of dollars per year, thats a LOT of money. You can link that into jobs (about 1 million people work at the top ten pharma companies measured by market capitalization). You can link it into a widening of the trade deficit because of a loss of tens of billions in sales. If you cut a growth good file, you can link it to growth. You can get significant economic impacts to the disad. And better still, you have good impacts off the internal link - loss of medicines means everyone gets more sick or more dead.



McAlpine & Ecker 2007 (James and David. Current Opinion in Drug Discovery & Development. “Political, economic and demographic influences on the course of drug discovery.” 10(2): 120-121.)


Economic issues are not the only factors driving the major changes in the drug discovery process. Political factors also play a large role. The US FDA has as its charter to protect the health of the nation and guarantee that drugs coming onto the market lack unacceptable toxicities. Unfortunately, the general populace, encouraged by the press, has come to expect that new pharmaceuticals will be devoid of any adverse side effects. It has become politically expedient for some members of the US congress to castigate the FDA and the pharmaceutical companies for any reported side effect of a marketed drug. This precipitates a spiral in which the FDA demands more extensive clinical trials, thereby increasing the cost of progressing a drug to market, and hence increasing the cost of the drug when it is marketed. The pharmaceutical industry is considered the villain responsible for the high cost of drugs and hence the political pressure for some form of price regulation: a 'Catch-22' situation is developing.




McAlpine & Ecker 2007 (James and David. Current Opinion in Drug Discovery & Development. “Political, economic and demographic influences on the course of drug discovery.” 10(2): 120-121.)


Together with the public of developed countries demanding less expensive pharmaceuticals, has come the demand for safer drugs. No politician has been willing to step forward and point out the contradiction here. Pharmaceutical R&D costs are heavily weighted on clinical trials. The requirement for increasingly more rigorous clinical trials aimed at assuring safety has driven the cost of bringing a new drug to the market to the vicinity of a billion US dollars. Despite the fact that pharmaceutical companies spend, on average, 17% of their income on R&D, which is more than almost any other large industry, they are regarded very poorly by the populace, and are rated below life insurance companies, automobile manufacturers and not significantly above tobacco companies.

  • Upvote 3

Share this post

Link to post
Share on other sites

I pretty much disagree with the kind of doomsdaying "experts" and economic theory predictions you lay out. But it's fine if you want to continue.


what the spending disad lacks is a clear threshold as to what point at which impacts will occur. and this is where you need to be well versed in economic theory to provide the analytics you need to win the argument.
nope, all you really need to know is that every week cato/heritage put out sweet cards describing how the latest promise of fiscal discipline is a total joke. your analytics may look persuasive to debaters, but that's only because all of us are underqualified.

Share this post

Link to post
Share on other sites

Ankur, don't the internals swamp uniqueness? With a trillion and a half or more in debts held by foreign goverments (and Iraq raising that more all the time), what difference does a few (tens of) billions for Africa make?

Share this post

Link to post
Share on other sites

synergy and birdwing,


its a constantly evolving system which needs to take into account many variables. as mentioned previously, if the dollar was strong we could deficit spend far more than we can currently. there is a balance between when other countries tire of our continuous debt. with the rise of the chinese/indian middle class, their interconnectedness with america is limited. the idea that but cutting us off they slash their own throat is largely dead. it was true five-ten years ago, but a lot has changed since. there are new articles suggesting that there is a rift in opec between political ties to the united states and the desire to reprice oil in euro. if the euro becomes the full-on reserve currency of the world, the dollar tanks out of control. the horror of that is impossible to imagine or forecast because its impact would be severe. inflation would easily jump into double digits and depending on how bad it really cgets when combined with other factors, could reach high double digits. and this is all brought on by the fact that the dollar is falling in value. and its falling in value because we keep cutting interest rates and no one wants to hold onto dollars - that shows weakness in demand for dollars. every action taken which softens the market for dollars is inherently bad and takes us closer to the cliff. at least the democrats have done something right with PAYGO.


also as i mention previously, its insufficient to have a simple budget link to a spending disad. pure deficit spending alone doesnt cause the problem - if that was the case, we'd have been in trouble long, long ago. the situation is dependent on an interconnected myriad of factors. i highlight the following major factors as currently relevant based on my observations of the economy

  • long-term durable goods
  • consumer spending / sentiment
  • unemployment
  • inflation
  • raw materials
  • currency
  • credit crunch/liquidity
  • trade deficit


for example, by citing falling consumer spending on durable goods (housing) you have a slowdown in the industry which provided the most growth in jobs over the past decade (from actual construction to the mortgage lenders). the loss of jobs will increase unemployment and decrease wage inflation pressure. that means companies who are holding onto employees will give fewer raises and bonuses. that would indicate a periodic recession because inflation still goes up and it has a net effect on short term spending which makes up 70% of our economy.


but what happens to the currency when you toss in violations of the PAYGO system reestabilshed earlier this year in the house? what happens when you throw in a terrorism link and what it does to oil prices? what happens when you throw in a 'deficit spending is good when it generates jobs but bad otherwise' argument? what happens when you cite widening of the send doctors and nurses abroad to help out there and in effect worsen the shortage here, thus increasing costs of healthcare? what happens when you grant compuslory licenses and the pharmaceutical industry shuts its doors and you get a loss of 1 million jobs and 10s of billions used to narrow the trade deficit (and in effect widen the trade deficit)? what happens when you throw all that together and it all hits at the same time?


what most people dont realize is that to develop a good econ disad it will take you virtually the entire 2nc to do it. but once you do develop in, and demonstrate its interconnectedness of internal links, its very tough to beat because of the depth you can go on it. a simple non-unique wont work.

  • Upvote 1

Share this post

Link to post
Share on other sites

I just don't see it as strategic. All of the things you mention prove my point: the economy is influenced by so many things that it is impossible to identify any threshold to the disadvantage. For one thing, no good team is going to do all of the things you say. They're not going to send doctors and nurses and grant compulsory licenses at the same time. And if they increase terrorism, you don't need an economy link, you'll read Alexander or its equivalent.


Most plans aren't going to cost enough to make any difference in the Federal deficit. What percentage of the Federal budget would increased MEDFLAGS be? ARV access? Water systems?


Uniqueness is a real problem, but alternate causality is much more of a problem. How do you parse out the impact of plan from all the other factors in the economy? The National Priorities Project estimates that the Iraq war has cost us $464 billion so far. That's the elephant in the living room. The articles you cite say that foreclosures are going to hurt the banking industry; that's going to happen either way. U.S. savings rates and consumer spending patterns aren't going to change overnight unless there is a major recession to cause it, by which time your impact has already happened. And I would guess that most teams will have at least some turns saying that plan helps the U.S. economy.


I think the biggest problem, though, is impact. You spend 8 minutes in 2AC and your impact is Plan = recession. It would certainly be a stretch to say that recession gets to Mead or Bearden. An affirmative might even choose to impact turn with recession good, (a position far short of de-dev.)


I think the affirmative has lots of room to go against such a big story. More creative minds than mine might come up with better answers.


1. No link. Plan spending is de minimis. Link evidence presumes larger expenditures.

2. No threshold. The economy is resilient.

3. No causation. Circuit breakers work.

4. Turn. Plan increases worker productivity in Africa; Africa's economy is key to global economy.

5. Alternate causality. Impact of Iraq war on economy dwarfs plan impact.

6. Not unique. The economy's already in a tailspin. Recession is inevitable.

7. Turn. Consumer confidence is key. Plan increases consumer confidence.

8. Case outweighs. Extend nuclear terrorism advantage, bird flu advantage . . .

9. Turn. Terrorism, which we solve, kills the economy. Bird flu, which we solve, kills the economy . . .

10. Turn. We need a recession now to wash out structural inequities. Avoiding a recession now leads to a depression later, which does link to Mead and Bearden.

11. Turn. Recession good. Decreases meat and tobacco consumption. Meat and tobacco kill.

12. Turn. Recession slows oil demand, decreasing revenues for Iran. High Iran oil revenues accelerate nuclear weapons program, decreasing the time for diplomacy to work. Diplomacy would solve.

13. Risk analysis goes aff. There are hundreds of influences on the economy; as a judge you have a low level of confidence in what triggers disadvantage. But you know that by giving ARV's you will save millions of people.

14. Turn. We're one good recession away from the socialist revolution, but the window is closing. Only socialism can solve for the economy, world war, lack of food . . .

15. Turn. Focusing on the economic impact of a (relatively) paltry effort to help Africa is racist. Racism is really bad.

16. Turn. Politics. The Republicans still have a chance in the '08 elections. A recession kills those chances. Veto-proof majorities for the Democrats are key to ____________.

17. Economy is bouncing back. Third quarter growth was good. This updates, meaning evidence predicting recession didn't take increased productivity into account.

18. Turn. Recession forces Bernanke to cut interest rates again. Decreased interest rates decrease Chinese economic growth (China is America's largest creditor nation. Decreased interest rates decrease the value of China's holdings). Chinese economic growth fuels ASAT technology, leading to world war. Or fuels beef consumption, devastating world grain markets.

19. Recession doesn't cause war.

20. Recession doesn't cause death.


I don't think it's strategic, because if you spend 7 or 8 minutes in the block to explain all the links, you still don't have huge impact, you're not solving case, and you could very easily lose to the turns.

Share this post

Link to post
Share on other sites
I just don't see it as strategic. All of the things you mention prove my point: the economy is influenced by so many things that it is impossible to identify any threshold to the disadvantage. For one thing, no good team is going to do all of the things you say. They're not going to send doctors and nurses and grant compulsory licenses at the same time. And if they increase terrorism, you don't need an economy link, you'll read Alexander or its equivalent.


Most plans aren't going to cost enough to make any difference in the Federal deficit. What percentage of the Federal budget would increased MEDFLAGS be? ARV access? Water systems?


Uniqueness is a real problem, but alternate causality is much more of a problem. How do you parse out the impact of plan from all the other factors in the economy? The National Priorities Project estimates that the Iraq war has cost us $464 billion so far. That's the elephant in the living room. The articles you cite say that foreclosures are going to hurt the banking industry; that's going to happen either way. U.S. savings rates and consumer spending patterns aren't going to change overnight unless there is a major recession to cause it, by which time your impact has already happened. And I would guess that most teams will have at least some turns saying that plan helps the U.S. economy.


if thats all true, then there isnt such a thing as an affirmative advantage or negative disadvantage with ANY credibility. not hege, not nuke war, nothing. there is a difference between academic debate and reality and debate never has and never will bridge that gap... so really, debate is always going to focus on the warrants and argumentation...


and if your answers were blipped as you mentioned them, without analysis, I would simply respond "group all. there is no warrants to any of it. kick it." and any competent judge would. economics is not governed by two nouns and a verb. you have to do actual analysis. you cant win a debate making those points. period. not against a 2nc who is going to answer each one of those points in detail.


i mean, i can do a line by line, and i can three point everything with detailed warranted analysis - and thats precisely my point. a full 2nc of analysis cant be grouped - it must be answered, the aff cant do it with blippy answers like your or by spouting off a couple cards. it simply CANNOT be done.



Oh, and the impact of "everyone dies" without accessing mead or bearden isnt enough?

Economic collapse isnt enough? High double possible even triple digit inflation not enough for you?


And I'd love for ANY aff team on this resolution to try and convince me that ANY PHcA program solves nuke war. Thats about the biggest load of steaming cow manure ever.

Share this post

Link to post
Share on other sites

Ankur, give me some credit. I wasn't suggesting blip answers. I presume most of those answers would have at least one piece of evidence (with warrants) associated with them. I'm pretty sure that I could win lots of rounds with a combination of those answers, together with the evidence that would go with them.


You make me laugh when you say the impact is "everyone dies". I would be interested in the warrants of the impact card. How does everyone die? Do they starve to death? Freeze, because of lack of heat? Die from angst because they can no longer afford I-Pods? High double and triple digit inflation (which I think unlikely in the United States) doesn't do it either. There have been countries who underwent that kind of inflation; everyone didn't die.


You don't like the affirmative nuclear war impact stories from public health. That's fine. I agree there is a disconnect between debate and the real world. So consider a more real world approach to warrants. Aff is going to give ARVs or water to Africa. Many millions of people will live who would otherwise die. Many more millions will live healthier, happier lives. Those affirmatives have solvency evidence.


Compare them to an economic disadvantage. The negative has to hit the window: the economy is in bad shape now, but will pull through. Plan pushes the economy past the threshold. Negative has no evidence saying "American provision of ARVs (or clean water or . . . ) will be the final straw for the U.S. economy. The probability of affirmative solvency is much greater than the risk of the negative disadvantage. And if the impact of the disadvantage is recession, the affirmative's impact is bigger too.


The negative block gets to three point every affirmative answer. That's true whether it's an econ disadvantage, politics, a counterplan or a kritik. An econ disadvantage could be successful, I'm sure, but it seems to me that it would have to be in combination with something that at leasts mitigates case. Given the nature of the disadvantage, the negative probably can't combine it with a counterplan. So, you had better be winning good case defense or turns as well as the disadvantage. By the time you have to do all that, it just doesn't seem strategic to me.

Share this post

Link to post
Share on other sites

Well, my point with these disads is that debate has devolved over the past decade or two. Although there are a lot of positives to take away from the changes, there are a lot of negatives too. Debate has become focused on the number of arguments you can spout off as opposed to the quality of your arguments. Economics disads are a position to be won by clash not by pointing out lack of clash i.e. the aff/neg dropped turns 1,4,9!!!. Econ is a place where judges are actually called upon to evaluate the superior debating. And thats precisely the form of debate I a) prefer B) advocate and c) is needed today. This is the style of debate that is coveted and craved by case debaters - like myself. I won functionally every neg round I was in, on case!. Not because I spammed the other team out of the round (which was also true) but because I was simply deeper on all the cases than they were. While they spent time cutting updates to 50 disads, I would focus on one argument - solvency... and face crush everyone. I agree the same is true of ANY argument - whether its disads critiques or case. If you are just flat out knowledgable and deep and able to communicate your expertise on the subject to the judge, you will win the round.


The reason I prefer economics is because economics is at the heart of most disads whether you recognize it or not. It gives way to any set of impacts you want to choose, thus giving you an opportunity to use the disad as a case turn as well, and the internal link story is flexible enough that you actually CAN cater a specific counterplan to avoid the disad entirely. I also prefer economics because understanding how macroeconomics works is very important to everyone's ability to make informed rational choices. Your choices in the elections could, and probably should, be subject to economic analysis. Your personal finance choices are affected by economics. And its a subject that is RARELY (if ever) approached in high school unless you take the course as an elective, assuming your school offers the subject. I think gaining an inside-look into the inner workings of the economy is very insightful into other real world phenomena, and that can only benefit debaters.


The fact that you can put out all those answers off the top of your head is nice. And thats the whole point. You win these disads in the trenches and between the tackles, not with a fancy-schmancy long pass from your own endzone to Randy Moss for 99 yards. The problem with the 'lets me see if they drop stuff' approach is that the debaters are a) not learning much about their content of the argument B) are only learning technique of competitive argumentation but no substance of real world argument construction and c) taking many risks competitively.





I dont have a lot of time right now... so here's a simple example.


My pharma specific evidence above is a good start. The link/internal link itself is an impact on its own (my preferred means of creating disads).


Plan: anything violating pharma patents whether its compulsory licensing, abolishing patents, authorizing early generics, preferential selections etc.



A) Uniqueness: Pharma research growing

B) Link: Violating patents bad, kills pharma industry - Press Review 2007

C) Internal Links:

1. Loss of pharma research balloons trade deficit which is currently shrinking. Trade deficit growth bad.

2. Loss of pharma research causes massive unemployment, unemployment is bad.

3. Current patent structure is key to growth, violations crush growth. Growth is good - Aghion 2001

D) Impact - Those economic factors contribute to economic collapse (standard econ theory cards). The loss of pharma research makes MRSA outbreaks inevitable (also easily available if you do the research). MRSA outbreaks can kill everyone.


I call this an economics disad because the link to the death is the economics of patents and their impact on innovation/research & development. Disads are characterized by their link, not impact. Politics disads are called such because of their link, why shouldnt econ disads be the same?

  • Upvote 1

Share this post

Link to post
Share on other sites

ankur, we know that the pharma DA's are real popular now. But against most generics teams, your ability to do amazing econ analysis is useless because it will not be responsive to their neolib bad, de-dev good Ks of your DA and link story.

Share this post

Link to post
Share on other sites

explain. i want to make sure i understand your position before i respond, because i am pretty sure i know what arguments you are talking about and pretty sure that they dont affect anything... but i want to verify.

Share this post

Link to post
Share on other sites

Your standard arguments like


Econ collapse inevitable

Neolib bad

De-Dev Good


so the strength of the econ DA - in its varied and developed L and IL stories is nullified because they are attacking you at the impact level. Which for some reason has the worse lit in debateland. I mean, the guy writing DeDev stuff might be a nutjob, but he is warranting his arguments better than Mead and isn't a schitzo like bearden.


What do you think or Bernies recent speech as econ U? And his arguments about the dollar, inflation, and the recent lack of effect of interest rates cut.

  • Upvote 1

Share this post

Link to post
Share on other sites

care to actually EXPLAIN those arguments? this is an educational thread. i want anyone reading this thread to have a CLEAR understanding of your position. saying neolib bad is about as useful as saying nik flum blarney floo. :P;) and who said you cap a econ disad with mead and bearden? i sure as heck didnt. they are less qualified to write on economics than barndt.


second, personally i think the credit crunch is one of the best things to happen to america in a long time, but it will take some time for the dust to settle and in the meanwhile the economy looks like a whirlpool - the harder you fight it, the more you get sucked in. the reason i think its good is because there must be a balance between spending and income. you cant charge things forever. the higher credit card rates (based loosely on the fed) and higher monthly mortgage payments is going to squeeze a lot of people into bankruptcies. foreclosures are still increasing and now credit card defaults are rising too. the net result of this trend in increasing bankruptcies is that people with bad credit (i.e. people who were not making sound financial decisions to begin with) wont be eligible for credit for a long time. this means they must live within their means and actually SAVE something because under the bush administration, more parties claiming bankruptcies are being obligated to pay a percentage of their debt over a structured period. the combined effect is that the economy doesnt collapse because the people still have needs - bread, toasters, and whitewalled tires. it means retailers like walmart dont go under, and credit card and mortgage lending companies which didnt overextend themselves on risky business bets will survive the long crunch.


but the catch to that is inflation in the form of wage inflation (still rising despite a softer economy), price inflation in both core and non-core components.


at the end of the day, inflation is generally the big monster at the end of the table pounding its fists demanding attention. and wall street never likes what the fed needs to do to dampen the effects of inflation, but someone needs to take the political heat - its the very reason why carter's administration was short lived. people like to attribute it to the iran hostage crisis, but that was nothing. it was the fact that the fed was acting to avert inflation and those moves were unfavored by individuals because it hurts everyone's bottom lines.

Share this post

Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Create New...