"As governments in the United States and Europe figure out how to bail out their struggling states - California and Greece the prime candidates for failure - the rest of the world can consider the body's vestigial organs, such as the appendix, and wonder if such a fate now awaits the US dollar and the euro." - Chan Akya

(From the Economist): "Greece only accounts for between two and three percent of Union GDP"

www.economist.com/blogs/charlemagne/2010...source=hptextfeature

WHAT percentage of US GDP Does California account for? Far far more than 2 or 3 percent I wager.

CHAN, I allege that you have made a misleading comparison.

Interesting literary usage,

misleading in scale, not in substance.

looked it up and your quite right if Greece is 2-3 of Europe, California is 13% of US GDP.

Link in atimes.com: atimes.com/atimes/Global_Economy/LA30Dj01.html
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atimes.net: www.atimes.net/Global-Economy/vestigial-organs.html

Hmm ... I am unclear about the "accusation" here, particularly as it relates to moral hazard. Greece is say one-sixth as important to Europe as California is to the US; and even so instead of shrugging off the potential failure you have the EC running circles talking about 'syndicated bond' facilities and so on. If anything, that makes the Europeans much MORE silly as compared to the US.

The point of course is that Greece is not the only European country in trouble, it is likely that Portugal, Ireland, Italy and eventually Spain will follow suit. Hence it is a test case. In the US, it so happens that the first state to approach bankruptcy - California will run out of cash again in March - is also the biggest.

So the comparison was in terms of who is the first to tip over the edge, and what was the policy response in either case...

Not quite so misleading, is it?

CA

Beware of Greeks bearing bonds.

for what its worth, 43 states are facing shortfalls

www.cnn.com/2008/US/12/10/map.state.budgets/index.html


as most jurisdictions have fixed and debt servicing obligations, this is going to make discretionary spending a thing of memory.

Leads to a kind of vicious downward spiral, lay off, less taxes, more lay offs even less tax and so on.

not a pretty picture.

anecdotally, seems Hong Kong must be in a bit of a panic, they are bidding up available properties in my neighbourhood. a neighbour was selling his mothers house, and there was a group of Hong Kong byers bidding it up, he got 400,000 over his asking price. he said they were angry, nasty to one another, in some kind of frenzy. very unusual, but one hears stories of this type locally. seems the real estate people have taken to lo-balling the asking price by about 50,000 or so, attracting a crowd and watching the show. but 400,000 on a 1,400,000 ask is a lot.

I guess they figure Vancouver is still a safe harbour, not sure how this will play out, lots of anxiety and fear around town, and things can turn nasty in recessions. all the racial and cultural differences that flow under the radar when things are good come bubbbling to the surface.

not really looking forward to it,

off to Florida to pick up a camper van, going to drive across the southern US. will let you know what I observe.

Chan Akya wrote:
Hmm ... I am unclear about the "accusation" here, particularly as it relates to moral hazard. Greece is say one-sixth as important to Europe as California is to the US; and even so instead of shrugging off the potential failure you have the EC running circles talking about 'syndicated bond' facilities and so on. If anything, that makes the Europeans much MORE silly as compared to the US.

The point of course is that Greece is not the only European country in trouble, it is likely that Portugal, Ireland, Italy and eventually Spain will follow suit. Hence it is a test case. In the US, it so happens that the first state to approach bankruptcy - California will run out of cash again in March - is also the biggest.

So the comparison was in terms of who is the first to tip over the edge, and what was the policy response in either case...

Not quite so misleading, is it?

CA


WELL CHAN, you are certainly in your usual fine form. I failed to take into account the "flow on" effect of other inpecunious European EU member states applying for bailouts after the EU permitted GREECE to set the precedent: Likewise the US WIth California. WHAT was foremost in my mind was that given that California accounts for a fairly high pro-rata of the US GDP (surprised to learn it is only about 13%) is it possible that California is in the "too big to fail" category (Ie, the Obama administration will be obliged to help it out given it has already set the precedent with big, insolvent banks and insurence companys)?

Reading between the lines, I get the impression that if Greece is helped by EU it will not come in the form of a gift but with onerous terms and conditions atached; such as reduced government spending and structural reforms. Likewise Federal aid to the likes of California. IN THE long run it could be good for both. Brazil is today allegedly one of the most promising of the World's "emerging" economies specifically because some years back it went insolvent and had to accept a program of structural reform prescribed in return for IMF bailout loans. Brazilian governments had previously resisted initiating such reforms for reasons of political unpopularity. HAving to follow the IMF formula allowed Brazilian politicans to dodge the heat by blaming it all on powers external to BRAZIL, notably the IMF.
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BY THE way Michael, I WISH you well on your campervan trip across the southern USA and am looking forward to reading your impressions. Keep in touch!

PS: I nearly forgot to ask:

HOW are CANADA's provences coping at present?

THE travails of the insolvent states of the US (led by California) have received widespread publicity, but I am not presently aware of any CANADIAN provence threatened with the same.

IN particular how goes the BC provincial budget and (More narrowly) the City of Vancouver: IN the light of the cost of your winter Olympics possibly not being succicently renumerated by a mix of income by corporate sponsorship, TV Broadcast rights and enhanced visitor spending?

too early to tell about the Olympics but the general impression is bad, its not the kind of thing you want to be hosting in the middle of a world wide economic slow down. security is insane, thats why I'm leaving town, parking restrictions, streets blocked off, its totally nuts.

Provinces, Ontario is taking a big hit, because of the auto industry and manufacturing. Forestry in BC is in terrible shape, oil and gas are down but not too bad. the resource sector is on pins and needles waiting for the other shoe to drop in China. Because we are so dependent on the US things will not be good until they get it back together and that might be awhile.

the big worry seems to be on the revenue side, taxes are way down, and Provincial budget projections aren't properly accounting for it. what this means is that a lot of political jurisdictions will be having to raise fund at the same time, interest rates have to go up and were back into another negative spiral.

Lots of lay offs, teachers in certain school districts, funding for esential programs is way down, forestry department just laid off a bunch as did workers compensation.

In the mean time Hong Kong and the rest of Asia keeps bidding up the price of real estate. We now have least affordable ratios in the country. [factored on average income/average price] and lots of people are not happy about it. when working professional couples cannot afford to buy because foreigners with leveraged money are skewing the market the sh*t will hit the fan eventually.

Recessions do that to people, everybody is everyones friend when thing are good, but when thing turn down things get tense. I live in a very mixed neighbourhood, I can get on the local buss and count 10 different ethnic groups. So I am quite concerned about how this could play out. One of my workers, is fixing up a place in a Punjabi neighbourhood, lots of unemployed youth just hanging out, mostly OK but things get nasty often enough to make everybody wary.

Interesting line of enquiry about Canada. I just saw in the Financial Times yesterday about Canadian banks emerging virtually unscathed from the crisis because they were never allowed to bump up leverage quite to the same extent as their American counterparts. More importantly, the article makes the point that "Canadian bankers never thought they were above the fray" like their American counterparts did i.e. they always did LISTEN to their central bank and adopted relatively conservative policies.

All good stuff.

Another bit of information I read recently (perhaps in the FT, perhaps elsewhere) pertained to the cities with the highest prices of real estate. While the usual suspects like Monaco, London, HK etc. are all in there, what is interesting is that when you flip the measures to look at affordability rather than nominal prices, Vancouver comes across as the worst i.e. lowest affordability. This is perhaps due to the Hong-Couver phenomenon you describe above; what interests me is the response of residents to such a price anomaly.

Given that Canada is a pretty big country, with an extremely low population density (half of Australia's if memory serves right), it doesnt make sense you'd have such asset bubbles especially if banks are being rather prudent. What are the artificial barriers e.g. plot ratio or development constraints that allow this condition to continue?

CA