Wednesday, February 11, 2009

Generational personal finance and the current bust

Mish has an excellent post Wealth Does Not Pass Three Generations which describes what is sometimes referred to as "tired-blood" syndrome referring to the tendency of heirs of wealth to squander it.

"This is how I see it:

Few alive remember the great depression. Most boomers headed into retirement have seen rising asset prices all their lives. Those boomers thought they could live off their houses and/or investments in the stock market, expecting prices to rise forever, even though it was mathematically impossible for that to happen. Now, headed into retirement, boomers are realizing they are actually savings poor given that asset prices have crashed.

Moreover, children who have seen their parents wiped out in bankruptcy or foreclosed on are going to have a completely different attitude towards debt than their reckless parents did. Expect to see more frugality from parents and their children alike.

Three generations from now the lessons of today will have again been forgotten and the cycle will repeat."

Tuesday, February 03, 2009

Update on BoJ share purchases

BOJ may buy $111.5 billion in shares held by banks

"a midday announcement that the Bank of Japan will resume buying shares held by financial institutions, with plans to spend up to 1 trillion yen ($111.5 billion) through April 2010...The BoJ did not say when it would begin buying shares. It plans to halt the buying by the end of April 2010 and dispose of all shares it acquires by autumn 2017...

The last time the central bank had run a similar share purchase, it spent 202 billion yen purchasing shares from financial institutions during the 22 months ended in September 2004. At the time, the central bank had pledged to buy as much as 3 trillion yen of shares.

The BoJ began disposing of its holdings in October 2007 but suspended the program during the market slump last autumn. The central bank held 1.273 trillion yen of shares as of September 2008, it said in the statement."

This does nothing but distort equity markets and hinder rationalization of the country's economic structure.

Re emergence of states' rights movement ?

As a result of financial crisis and the federal government response:

New Hampshire Throwing Down the Gauntlet to the Federal Government

(from Jesse's Café Américain)

"a copy of House Resolution 6 being discussed by the New Hampshire Legislature....

That any Act by the Congress of the United States, Executive Order of the President of the United States of America or Judicial Order by the Judicatories of the United States of America which assumes a power not delegated to the government of United States of America by the Constitution for the United States of America and which serves to diminish the liberty of the any of the several States or their citizens shall constitute a nullification of the Constitution for the United States of America by the government of the United States of America. Acts which would cause such a nullification include, but are not limited to:

I. Establishing martial law or a state of emergency within one of the States comprising the United States of America without the consent of the legislature of that State."

Very interesting...nullification was at the core of the Confederate secessionist doctrine.

Monday, February 02, 2009

Demographic update

Tracking Trends in Low Fertility Countries

Over the long term, TFRs below 2.1 children per woman can eventually lead to population decline because couples are not replacing themselves in the population. Many European countries have been far below the 2.1 replacement level for years and some are experiencing population decline as a result."

"Many reasons are given for very low fertility and the causes certainly vary from country to country. The rise in living costs and the need for two-earner families play a large role, particularly where childcare needs of two-earner families have been neglected. Changing values that place more emphasis on consumer goods and travel play some role. In Eastern Europe, economic collapse following the breakup of the Soviet Union and the Warsaw Pact in 1989 caused among the sharpest declines in TFRs."

"While countries certainly differ, the overall story seems to be the same. Countries whose policies recognize the need to accommodate two-earner families so that having a child is not an economic disaster appear to have had some success in raising TFRs. But the cooperation of society is also required. In Germany, it is often not socially acceptable to leave one’s child in someone else’s care the entire day; women who do are referred to as rabenmutter (raven mother). Such attitudes will have to change for Germany's fertility to increase significantly. In Japan, the cooperation of employers in lightening work schedules and introducing more flexibility as well as childcare has been mandated by the government. But even these measures can be overshadowed by recessions and a lack of confidence in the economic future."

Severe economic contraction in Japan

Veneroso: Japan on the Edge of the Abyss

"1)The Japanese industrial production data and METI forecast was bad beyond all imagining. Industrial production might fall by 1/3 in the 12 months ending in January. It could fall in a mere four months between November and February by more than half the U.S. Great Depression decline which took almost four years....December industrial production came in down 9.6%, worse than the METI forecast. It is now down almost 21% year over year. METI forecasts a further 4.7% decline in February. The inventory to production ratio soared again. Maybe METI will be correct.

If it is, Japan industrial production will have fallen 28% (non annualized) in four months. It will have fallen by a third in about a year. Nothing in the history of major nations compares. A 28% decline in four months would be more than half of the entire decline in U.S. industrial production over the 3 years and nine months of the U.S. Great Depression."

"3) The trade weighted yen is by far the strongest currency in the world. Japan is losing competitiveness fast. Given the lags in trade matters will get worse."

I will add comments when I have some time available...