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INTEL PROFITS CRASH 90% AS DEMAND FALLS – PROFITS AT TECHNOLOGY LEADER INTEL CRASHED 90% IN THE FOURTH QUARTER ON WEAK DEMAND FOR SEMICONDUCTORS

Posted by Gilmour Poincaree on January 16, 2009

16.01.09

The Evening Standard

PUBLISHED BY ‘THE EVENING STANDARD’ (UK)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE EVENING STANDARD’ (UK)

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Posted in COMMERCE, COMMODITIES MARKET, CONSUMERS AND PSYCHOLOGICAL FACTORS, DIGITAL INDUSTRIES, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, ELECTRIC / ELECTRONIC INDUSTRIES, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, INDUSTRIAL PRODUCTION - USA, INDUSTRIES - USA, RECESSION, STOCK MARKETS, THE FLOW OF INVESTMENTS, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, USA | Leave a Comment »

BRASILEIRO É UM DOS MAIS OTIMISTAS EM RELAÇÃO À CRISE (Brazil)

Posted by Gilmour Poincaree on January 14, 2009

[ 14/01/2009 ]

Cruzeiro On Line

PUBLISHED BY ‘JORNAL CRUZEIRO DO SUL’

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘JORNAL CRUZEIRO DO SUL’

Posted in A PRESIDÊNCIA, BRASIL, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIA - BRASIL, ECONOMIC CONJUNCTURE, ECONOMY, EXPANSÃO AGRÍCOLA, EXPANSÃO ECONÔMICA, EXPANSÃO INDUSTRIAL, FINANCIAL CRISIS 2008/2009, FLUXO DE CAPITAIS, INTERNATIONAL, LUIS INÁCIO LULA DA SILVA, O PODER EXECUTIVO FEDERAL, RECESSION | Leave a Comment »

ADLAND AWAITS GERRY HARVEY’S WILL – RESPONSIBLE FOR SPENDING HUNDREDS OF MILLIONS OF DOLLARS ON ADVERTISING EACH YEAR, HARVEY NORMAN PROPRIETOR GERRY HARVEY IS ONE OF THE AUSTRALIAN MEDIA’S MOST WATCHED MEN

Posted by Gilmour Poincaree on January 10, 2009

January 10, 2009

by Nick Tabakoff – The Australian

PUBLISHED BY ‘THE AUSTRALIAN’

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE AUSTRALIAN’

Posted in AUSTRALIA, COMMERCE, COMMODITIES MARKET, COMMUNICATION INDUSTRIES, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, INDUSTRIAL PRODUCTION, INDUSTRIES, INTERNATIONAL, RECESSION, RESTRUCTURING OF PRIVATE COMPANIES, THE FLOW OF INVESTMENTS | Leave a Comment »

COLOMBIAN COFFEE GROWERS SUE OVER COMIC

Posted by Gilmour Poincaree on January 8, 2009

9:16AM Thursday Jan 08, 2009

Associated Press

PUBLISHED BY ‘THE NEW ZEALAND HERALD’

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE NEW ZEALAND HERALD’

Posted in AGRICULTURE, COFFEE, COLOMBIA, COMMERCE, COMMODITIES MARKET, CONSUMERS AND PSYCHOLOGICAL FACTORS, CRIMINAL ACTIVITIES, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FOOD PRODUCTION (human), FOREIGN POLICIES, HATE MONGERING AND BIGOTRY, INDUSTRIAL PRODUCTION, INDUSTRIES, INTERNATIONAL, INTERNATIONAL RELATIONS, JUDICIARY SYSTEMS, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY, STOCK MARKETS, THE FLOW OF INVESTMENTS, THE MEDIA (US AND FOREIGN), WORLD TRADE ORGANIZATION | Leave a Comment »

DON’T GET USED TO CHEAP OIL, ANALYSTS SAY (USA)

Posted by Gilmour Poincaree on January 7, 2009

January 6, 2009

by John Porretto – Associated Press – Energy Writer

PUBLISHED BY ‘THE BOSTON GLOBE’ (USA)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE BOSTON GLOBE’ (USA)

Posted in COMMERCE, COMMODITIES MARKET, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, ENERGY INDUSTRIES, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, GASOLINE, INDUSTRIAL PRODUCTION, INDUSTRIAL PRODUCTION - USA, INDUSTRIES, INDUSTRIES - USA, RECESSION, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, USA | Leave a Comment »

RENAULT ORDERS BOOSTED BY FRENCH CAR SCHEME

Posted by Gilmour Poincaree on January 7, 2009

January 6, 2009

Associated Press

PUBLISHED BY ‘THE BOSTON GLOBE’ (USA)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE BOSTON GLOBE’ (USA)

Posted in AUTOMOTIVE INDUSTRY, BANKING SYSTEMS, COMMERCE, COMMODITIES MARKET, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FRANCE, INDUSTRIAL PRODUCTION, INDUSTRIES, INTERNATIONAL, RECESSION, STOCK MARKETS, THE FLOW OF INVESTMENTS | Leave a Comment »

BRIDE, ACCUSED OF MARRYING FOR MONEY, WANTS TO STAY WED – TWO WOMEN ACCUSED OF KIDNAPPING A MAN FROM HIS ISSAQUAH NURSING HOME SO THEY COULD GET ACCESS TO HIS BANK ACCOUNT PLEADED NOT GUILTY IN KING COUNTY SUPERIOR COURT ON TUESDAY

Posted by Gilmour Poincaree on January 1, 2009

Wednesday, December 31, 2008 at 12:00 AM

by Jennifer Sullivan – Seattle Times Staff Reporter

PUBLISHED BY ‘THE SEATTLE TIMES’ (USA)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE SEATTLE TIMES’ (USA)

Posted in BANKING SYSTEM - USA, BANKING SYSTEMS, BANKRUPTCIES - USA, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, FRAUD, HOUSING CRISIS - USA, INDUSTRIES - USA, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, USA | Leave a Comment »

‘AD INDUSTRY TO WITNESS LONGEST SPENDING DECLINE SINCE GREAT DEPRESSION’

Posted by Gilmour Poincaree on December 30, 2008

30 Dec 2008, 1622 hrs IST

ANI

PUBLISHED BY ‘THE ECONOMIC TIMES’ (India)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE ECONOMIC TIMES’ (India)

Posted in BANKRUPTCIES - USA, COMMERCE, COMMODITIES MARKET, COMMUNICATION INDUSTRIES, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, FOREIGN WORK FORCE - LEGAL, INDUSTRIAL PRODUCTION, INDUSTRIAL PRODUCTION - USA, INDUSTRIES, INDUSTRIES - USA, NATIONAL WORK FORCES, RECESSION, RESTRUCTURING OF PRIVATE COMPANIES, STOCK MARKETS, THE FLOW OF INVESTMENTS, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, THE WORK MARKET, THE WORKERS, UNEMPLOYMENT, USA | Leave a Comment »

AS ECONOMY FALTERS, MORE PEOPLE GIVING UP PETS

Posted by Gilmour Poincaree on December 29, 2008

December 29, 2008

The Associated Press

PUBLISHED BY ‘THE ASBURY PARK PRESS’ (USA)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE ASBURY PARK PRESS’ (USA)

Posted in BANKING SYSTEM - USA, BANKRUPTCIES - USA, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, INDUSTRIAL PRODUCTION - USA, INDUSTRIES - USA, RECESSION, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, THE WORK MARKET, UNEMPLOYMENT, USA | Leave a Comment »

NEARLY 2 BN POUNDS WASTED ON UNWANTED CHRISTMAS GIFTS (UK)

Posted by Gilmour Poincaree on December 27, 2008

27 Dec 2008, 1004 hrs IST

AGENCIES

PUBLISHED BY ‘THE ECONOMIC TIMES’ (India)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE ECONOMIC TIMES’ (India)

Posted in COMMERCE, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, INDUSTRIAL PRODUCTION, INTERNATIONAL, RECESSION, UNITED KINGDOM | Leave a Comment »

WHAT HAPPENS TO UNSOLD MERCHANDISE?

Posted by Gilmour Poincaree on December 27, 2008

Dec. 25, 2008, 5:44PM

by Vinnee Tong

PUBLISHED BY ‘THE HOUSTON CHRONICLE’ (USA)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE HOUSTON CHRONICLE’ (USA)

Posted in COMMERCE, COMMODITIES MARKET, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, RECESSION, USA | Leave a Comment »

INVESTORS LOSE FAITH IN THE BANKERS OF HSBC

Posted by Gilmour Poincaree on December 25, 2008

December 23, 2008

by Landon Thomas Jr. and Julia Werdigier – The International Herald Tribune

PUBLISHED BY ‘THE INTERNATIONAL HERALD TRIBUNE’ (USA)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE INTERNATIONAL HERALD TRIBUNE’ (USA)

Posted in BANKING SYSTEMS, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FINANCIAL SERVICES INDUSTRIES, INTERNATIONAL, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY, THE FLOW OF INVESTMENTS | Leave a Comment »

THE RECKONING – ONCE TRUSTED MORTGAGE PIONEERS, NOW PARIAHS

Posted by Gilmour Poincaree on December 25, 2008

December 25, 2008

by Michael Moss and Geraldine Fabrikant – The International Herald Tribune

PUBLISHED BY ‘THE INTERNATIONAL HERALD TRIBUNE’ (USA)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE INTERNATIONAL HERALD TRIBUNE’ (USA)

Posted in BANKING SYSTEM - USA, BANKING SYSTEMS, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FINANCIAL SCAMS, FINANCIAL SERVICES INDUSTRIES, FRAUD, RECESSION, STOCK MARKETS, THE FLOW OF INVESTMENTS, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, USA | Leave a Comment »

HELL IS AN ETERNAL MAXED-OUT CREDIT CARD. IN HEAVEN THERE ARE NO DEBTS – WE MUST END THE BLIND PURSUIT OF PROFIT AND USE OUR WEALTH AND ECONOMIC POWER IN THE SERVICE OF A GREATER SOCIAL PURPOSE, JOHN SENTAMU SAYS (UK)

Posted by Gilmour Poincaree on December 24, 2008

December 24, 2008

by John Sentamu

PUBLISHED BY ‘THE TIMES’ (UK)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE TIMES’ (UK)

Posted in BANKING SYSTEMS, COMMERCE, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FINANCIAL SERVICES INDUSTRIES, INTERNATIONAL, RECESSION, UNITED KINGDOM | Leave a Comment »

DEBTS INCREASE AS CONSUMERS FALL FURTHER BEHIND

Posted by Gilmour Poincaree on December 18, 2008

Dec. 17, 2008, 5:33PM

The Associated Press

PUBLISHED BY ‘THE HOUSTON CHRONICLE’ (USA)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE HOUSTON CHRONICLE’ (USA)

Posted in BANKING SYSTEM - USA, COMMERCE, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, RECESSION, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, THE WORKERS, USA | Leave a Comment »

CREDIT CARD DELINQUENCIES UP, REPORT SAYS (USA)

Posted by Gilmour Poincaree on December 16, 2008

Monday, December 15, 2008 – 10:15 AM CST

Birmingham Business Journal

PUBLISHED BY ‘THE BIRMINGHAM BUSINESS JOURNAL’ (Philippines)

A growing number of Americans are falling behind on their credit card bills. The latest Fitch Retail Credit Card Index shows 60-day delinquencies have increased by nearly 24 percent since August, to 4.8 percent.

Fitch expects charge-offs – debts deemed uncollectible – to exceed 12 percent in the first half of 2009, up from current levels of about 9 percent.

Despite the bleak forecast, the Fitch index indicates retail credit card portfolios remain healthy because higher interest rates charged to cardholders continue to stay ahead of the charge-offs experienced by the card issuers. Ratings are not expected to be downgraded any time soon.

Fitch’s Retail Credit Card index tracks more than $72 billion in principal receivables backing approximately $40 billion in retail or private-label credit. The largest issuers in the index are Citibank Omni Master Trust and GE Private Label Master Trust.

Fitch Ratings is a global credit ratings firm based in New York.

CAPITAL ONE TAKES $505M IN WRITE-OFFS

Capital One Financial Corp., which earlier this month agreed to buy Chevy Chase Bank and its troubled loan portfolio, has some portfolio troubles of its own.

McLean, Va.-based Capital One disclosed in a Securities and Exchange Commission filing Dec. 12 that it charged off $403 million worth of credit card loans and $102 million worth of auto loans in November.

At the end of November, Capital One still had $69.8 billion in credit card loans on its books, but 4.7 percent of them are at least 30 days delinquent. Some $21.7 billion worth of auto loans were on the books at the end of November, with 9.5 percent of them more than 30 days overdue.

International loans are a smaller portion of Capital One’s portfolio. They, too, are showing weakness. Capital One wrote off $39.7 million worth of international loans in November, leaving $8.9 billion on the books. 5.4 percent of those loans were more than 30 days delinquent.

On Dec. 4, Capital One (NYSE:COF) agreed to acquire Washington, D.C.-area neighbor Chevy Chase Bank, and its $15.5 billion in assets, for $445 million in cash and 2.56 million Capital One shares. Capital One said it would take a credit charge of $1.75 billion for potential losses in Chevy Chase’s troubled loan portfolio.

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE BIRMINGHAM BUSINESS JOURNAL’ (Philippines)

Posted in BANKING SYSTEM - USA, BANKING SYSTEMS, COMMERCE, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, RECESSION, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, USA | Leave a Comment »

A TRUCK-ULENT DETROIT

Posted by Gilmour Poincaree on December 15, 2008

December 15, 2008

by Andrew Main, Business Editor – The Australian

PUBLISHED BY ‘THE AUSTRALIAN’

WERE you surprised on Friday to learn the $21 billion bailout of the US motor industry had been held up by the US Senate?

Me neither, any more than when we then learned that President George W.Bush subsequently said he was prepared to keep GM and Chrysler going at least until the end of the year.

But independent of how the rescue operation does end up being structured, it’s worth saying that the Republicans’ reluctance to throw money at Detroit deserves a fair bit more sympathy than the last time US legislators jacked up on a global issue, over the initial $US700 billion ($1.06 trillion) TARP bad debt rescue package.

In simple terms, why should the US taxpayer rescue an industry that has been fighting tooth and nail for decades not to move into the 21st century?

The main ostensible issues are about bringing down disproportionately high pay for Big Three car workers, but what’s just as important — particularly to president-elect Barack Obama — is modernising the products dramatically.

In the same way that George Bush senior notoriously announced at the Earth Summit in 1992 that “the American way of life is not negotiable”, the Detroit giants have been behaving for decades like the eccentric Corporal Klinger in the film and television series M.A.S.H.

In one episode Klinger spray-painted himself gold, dressed up as the Statue of Liberty and wrapped himself in the Stars and Stripes in a bid to be sent home from the Korean war as being mentally unstable. It didn’t work.

The big Detroit carmakers have been doing pretty much the same thing, building a perception in motorists’ minds that if they’re not driving something huge and locally made, then they’re letting the nation down. Cue old newsreel shots of American-made trucks helping to win World War II — over 50,000 6×6 trucks and 4WD jeeps went to help Stalin’s Russia, for instance.

But there’s a much more subtle game that’s been played for years by Detroit’s lobbyists in Washington: tax breaks for big vehicles.

Back in the 1970s, which is ironically when the first oil price shock occurred, the US income tax code was altered to give a break to small farmers and self-employed workers who needed a truck for work. Because there was a luxury car tax in place, now long gone, there was an immediate write-off allowable for any truck with a maximum gross weight of more than 6000 pounds (2720kg). The weight limit was set deliberately high to stop cheating by car manufacturers, since the only car you would find in the US that heavy is the President’s armoured limousine. That scale of vehicle is right at the top end of 4WD sizes in Australia.

The tax break got more generous as the years went by, not less, so that by 2003 you could get a year of purchase tax write-off of up to $US100,000, plus there was something called a “bonus deduction”; that climbed from 30 per cent to 50 per cent, and on top of that the whole cost of the vehicle could be written off over a generous five years.

It’s not quite a case of buyers being paid to own the giant SUV trucks, but it came close. Congress did a minor backflip in 2004 with the passage of the American Jobs Creation Act (honestly), cutting back the maximum initial write-off to $US25,000 but keeping the other two generous elements of the scheme. There’s other skulduggery in the cupboard, not least the fact that way back in the late 1970s light trucks and 4WDs were exempted from the legislative moves to improve US-made vehicles’ fuel consumption, and the fact that around 2005 the tax break for hybrid vehicles was pushed down (below $US2000) rather than up.

There’s also a strong piece of automotive folklore that Toyota fast-forwarded development of its Prius hybrid car because Washington had given Detroit a billion-dollar subsidy to get serious about hybrids. The chastened Detroit chiefs who last month got a huge shellacking for flying their corporate jets to Washington did make sure on their next visit that their industry’s most fuel-efficient new models were readily available for the politicians to look at, but the new models are clearly only just emerging from the development stage, unlike the Prius.

Obama has taken the view that there should be significant strings attached to any loan deal, most specifically requiring cars that are dramatically more environmentally friendly. Any economist will tell you, meanwhile, that the global capacity for car manufacturing has increased well past demand in recent years, mostly because of new factories in China and India, which invites the question of whether the US needs a car industry at all.

But one look at the unemployment, and thus electoral, consequences of a total Detroit shutdown will tell you that a compromise has to be on the way. Not if, but when.

But when it does come, the US legislators would be well advised to fix the tax rules to encourage more environmentally friendly vehicles. The industry likes to say it takes four years to develop a new model, yet there’s a fair chance that those new models have been designed already but not put on the production line. The makers certainly don’t have four years to play with — and maybe not even four months.

The most disgraceful canard of the lot from the Detroit spin industry has been that GM, Ford and Chrysler were building vehicles that US drivers wanted to buy. Looked at another way, the drivers wanted big SUVs because the tax laws had been fixed to favour them, plus of course the manufacturers enjoyed higher profit margins from making bigger easy-to-make trucks. Let’s not even speculate on who pushed for those tax breaks in the first place.

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE AUSTRALIAN’

Posted in AUTOMOTIVE INDUSTRY, BANKING SYSTEM - USA, BANKRUPTCIES - USA, CENTRAL BANKS, COMMERCE, COMMODITIES MARKET, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, INDUSTRIAL PRODUCTION - USA, INDUSTRIAL SUBSIDIES, INDUSTRIES - USA, MACROECONOMY, NATIONAL WORK FORCES, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY, STOCK MARKETS, THE FLOW OF INVESTMENTS, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, THE WORK MARKET, THE WORKERS, USA | Leave a Comment »

U.S. BUSINESS JUST SHUTTING DOWN – EXPERT

Posted by Gilmour Poincaree on December 15, 2008

4:00AM Monday Dec 15, 2008

Associated Press

PUBLISHED BY ‘THE NEW ZEALAND HERALD’

WASHINGTON – Signs that the US recession will be long and severe mounted with a fresh round of bad economic news, including plunging sales from manufacturers to stores and falling prices that raise fears of dangerous deflation.

The widening economic troubles did put a lid on inflation. But they raised concerns about the opposite threat – the potential for a bout of deflation that could drag down incomes, clobber home prices even more and shrink corporate profits.

“Everything is going wrong in the fourth quarter,” said Mark Zandi, chief economist at Moody’s Economy.com. “We have collapses in consumer spending, housing and now investment. Business is just shutting down.”

The new batch of data Friday showed retail sales fell by 1.8 per cent in November, marking a record fifth straight monthly decline.

The weakness was led by another sharp drop in auto sales – the worst sales month for automakers in 26 years. After an auto bailout collapsed in Congress on Thursday night, the White House offered a partial reprieve on Friday for the Detroit Three, pledging temporary help to avoid a “disorderly bankruptcy” for one or more of them.

Treasury Department officials were discussing with the automakers what form that support would take. That gave Wall Street a lift, with the Dow Jones industrials rising about 65 points to close just under 8630.

The stock market has shown signs of settling down the past two weeks. While there’s still volatility, the terrifying lurches of several hundred points at a time have become rarer.

The Dow has closed between 8000 and 9000 for 15 trading sessions in a row.

And on two of the last three days, it has moved only double digits for the day, the first time that has happened since Lehman Brothers went bust in mid-September.

A second report from the Commerce Department showed that all stages of production – manufacturing, wholesale and retail – suffered a record drop in sales in October, the month the financial crisis hit with force.

Businesses trimmed their total inventories by the biggest amount in five years, which probably means more cuts in production and layoffs in the months ahead.

And a Labour Department report showed wholesale prices dropped 2.2 per cent in November, the fourth consecutive monthly decline. They had fallen 2.8 per cent in October, a record.

Wholesale prices have not fallen for such an extended stretch since the period between October 2001 and January 2002, when the country was struggling to emerge from the last recession.

The severity of the current recession, already the longest in a quarter-century, was raising the risk of a period of deflation for the first time in the United States since the Great Depression of the 1930s.

While falling prices for fuel and other products mean people have more to spend on other items, a prolonged stretch of price declines can escalate into falling wages as businesses are forced to slash production costs to compete for sales.

Economists say the threat of deflation is remote but the risks are increasing as the downturn worsens, especially with Wall Street in upheaval and businesses and people having trouble getting loans.

“People are just scared at the moment with the financial markets locked up,” said David Wyss, chief economist at Standard & Poor’s in New York.

Wyss and other economists expect the Federal Reserve not only to cut rates sharply at the conclusion of its two-day meeting Tuesday, but also to signal other novel approaches it may employ to get credit into the system.

The Fed’s target for the federal funds rate, the interest that banks charge each other, is already at 1 per cent, tying the lowest level of the past 50 years.

The 1.8 per cent fall in retail sales in November was concentrated in bad results for automakers and a plunge in sales at petrol stations because of cheaper petrol.

Other businesses, such as department stores, posted modest sales increases.

But economists caution against reading too much into those gains, contending that the weak economy and continued layoffs will likely make this the weakest holiday shopping season for stores since the 1981-82 recession.

All the economy’s woes are expected to show up in a steep drop in overall activity during the current October-December quarter.

Some economists said the gross domestic product could fall by 5 per cent or more in the fourth quarter and keep falling next year.

Wyss said he expects the recession to end in June.

That would mean it had lasted for 18 months, which would be the longest downturn since World War II.

The current record is 16 months. Both the 1981-82 recession and the 1973-75 slump lasted that long.

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE NEW ZEALAND HERALD’

Posted in AGRICULTURE, BANKING SYSTEM - USA, BANKRUPTCIES - USA, COMMERCE, COMMODITIES MARKET, CONSUMERS AND PSYCHOLOGICAL FACTORS, DEFLATION, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, FARMING SUBSIDIES, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FOREIGN POLICIES - USA, FOREIGN WORK FORCE - LEGAL, GRAINS, HOUSING CRISIS - USA, INDUSTRIAL PRODUCTION - USA, INDUSTRIES - USA, MACROECONOMY, NATIONAL WORK FORCES, PETROL, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY, STOCK MARKETS, THE FLOW OF INVESTMENTS, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, THE WORK MARKET, THE WORKERS, USA | Leave a Comment »

DEBT COLLECTION ON THE RISE AS POLISH COMPANIES AVOID PAYING UP

Posted by Gilmour Poincaree on December 12, 2008

12th December 2008

Source: Rzeczpospolita (M.M.)

PUBLISHED BY ‘WARSAW BUSINESS JOURNAL'(Poland)

Polish companies are increasingly not paying liabilities to vendors and, in the construction sector alone, the amount of debts collected by debt collectors increased by 40 percent.

“They [exporters] feel the deterioration of the business situation on the Western markets most,” said Tomasz Starus of Euler Hermes. According to their latest report, entrepreneurs await for their payments longest in the richest regions of the country.

In the Mazowsze region, companies have an average delay in payments of three weeks, a period similar in Małopolska, Lower Silesia, Wielkopolska. The worst with this regard is the Pomorskie voivodship, with an average 22 day delay in payment, while in one of the poorest region – Podlaskie – only 12 days. It turns out that the situation is influenced by the presence of exporters that cause much of the delays.

Experts warn that the crisis is increasing and thus problems with covering debts will also increase.

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘WARSAW BUSINESS JOURNAL'(Poland)

Posted in BANKING SYSTEMS, COMMERCE, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, INTERNATIONAL, NATIONAL WORK FORCES, POLAND, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY | Leave a Comment »

GIRLS CHEW QAT TOO (Yemen)

Posted by Gilmour Poincaree on December 12, 2008

Friday December 12, 2008 – Issue: (1215), Volume 16 , From 11 December 2008 to 14 December 2008

by Saddam Ashmori For the Yemen Times

PUBLISHED BY ‘THE YEMEN TIMES’

In the governorate of Amran, some 50 kilometers north of Sana’a, chewing qat and smoking among women is strongly disapproved of by society. Although only a few elder women would practice these habits in the past, nowadays more and more women of different ages chew qat and spark up their cigarettes and hookahs, the ancient Middle Eastern water pipe filled with sweetened tobacco, on a daily basis during social gatherings similar to those of men.

Elham, a university student says that she picked up the habit when she was in high school: “I liked qat because it helped me stay up late to study, particularly during exams. Now, I chew qat every day and in increasing quantities.”

Um Ammar says that she usually chews qat at her friend’s house. “I chew every day at the qat session and smoke my hookah as well,” she points out. “Girls like these sessions as it’s an opportunity for them to share their problems and they talk about different things including politics and gossip.”

Some girls say they are only victims, as they succumb to peer pressure. “One of my friends insisted that chew qat and smoke with her until I became addicted,” says Siham, another university student. “Now, I don’t believe I can ever give up chewing or smoking. I have tried, but unfortunately I couldn’t quit, although I know the risks of these habits. I chew qat in front of my family members but started smoking in secret.”

Najwa says that, after she completed high school, her family didn’t allow her to attend university. “I found myself always idle and bored and resorted to chewing qat and smoking with my friends. It helps me momentarily relax and to forget some of my troubles.”

Um Arwa says that she chews qat to keep slim. She says that she doesn’t have her supper because qat causes loss of appetite. “If I chew qat, I don’t eat supper and only eat a small portion at breakfast. This helps me to maintain my grace,” she points out.

Many girls in Amran lead a life of chewing and smoking with little regard to the dangers that result from such practices. Balqees Al-Masswari, a sociologist, says that the reason of this increasing trend is a vacuum in other forms of entertainment such as clubs for women. She says that it is widely thought that chewing qat and smoking bring about psychological relaxation, which prompts many girls to practice these habits. She also stressed that families are responsible for their daughters’ well-being.

“The absence of family scrutiny on the behavior of girls during their teenage years makes them subject to peer pressure with little awareness of its consequences. Some girls believe that these practices are part of a woman‘s freedom,” says Al-Masswari, adding, “Families should educate their daughters about the dangers of qat and smoking to health.”

General medical practitioner Dr. Faisal Makhidi confirms that chewing qat and smoking have many bad consequences on health. “Many girls who come to the hospital suffer from health problems due to qat and smoking such as pulmonary diseases, toothache and insomnia, apart from other serious ailments including cancer and liver diseases,” he says.

He maintains that smoking and chewing qat have many detrimental effects on pregnant women and their unborn child. In addition, the practices decrease the amount of breast milk during feeding and can even lead to infertility and schizophrenia.

For centuries, men in Yemen have gathered around hookahs to puff fruit-scented smoke and chew qat, talk and pass the time. Today, unaware of the devastating -quite possibly even deadly- consequences of the habit, women are increasingly taking it up as a favorite pastime.

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PUBLISHED BY ‘THE YEMEN TIMES’

Posted in COMMERCE, COMMODITIES MARKET, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FRUITS AND FRESH VEGETABLES, HEALTH SAFETY, INTERNATIONAL, RECESSION, YEMEN | Leave a Comment »

DEUTSCHE POST CEO SEES SHORT RECESSION, ASIA EXPANSION

Posted by Gilmour Poincaree on December 11, 2008

December 11, 2008

Tehran Times Political Desk

PUBLISHED BY ‘TEHRAN TIMES’ (Iran)

SINGAPORE (Reuters) – Deutsche Post chief executive Frank Appel said on Wednesday the firm will continue its Asian expansion and keep job cuts to a minimum outside the United States as it expects a short but sharp global recession.

“We are pretty confident that the recession will be deep but pretty short,” he said, predicting business and consumer confidence can recover as quickly as it had disappeared in recent weeks. “We don’t have to cut too many jobs.”

Appel said that Deutsche Post’s DHL unit, Europe’s largest express courier company, had invested around $2 billion in Asia in recent years, and “we will see similar numbers in coming years”.

DHL last month said it will halt U.S. domestic services and cut 9,500 jobs after failing to gain share in a market dominated by United Parcel Service and FedEx Corp.

FedEx on Monday warned that earnings for its fiscal year ending May 2009 will be lower than expected due to a global economic slump.

Appel, who spoke at a briefing on a global trade study commissioned by DHL, was more bullish about economic prospects, saying he expected the global economy to recover faster than most people thought.

According to the study by the Economist Intelligence Unit, trade between Asia and the West will shrink by about 4 percent in 2009 before recovering in 2010, recovering faster than cross-Atlantic traffic, which will likely remain in the doldrums until 2011.

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘TEHRAN TIMES’ (Iran)

Posted in ASIA, COMMERCE, COMMODITIES MARKET, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FINANCIAL SERVICES INDUSTRIES, FOREIGN POLICIES, GERMANY, INTERNATIONAL RELATIONS, IRAN, MACROECONOMY, RECESSION, SINGAPORE, THE FLOW OF INVESTMENTS | Leave a Comment »

BUY NOW, SUFFER LATER: HOW BANKS CASH IN ON CREDIT-CARD BATTLERS (Australia)

Posted by Gilmour Poincaree on December 10, 2008

December 10, 2008

by Kelly Burke – Consumer Affairs Reporter

PUBLISHED BY ‘THE SIDNEY MORNING HERALD’ (Australia)

Consumers are racking up more than $1 billion in cash advances on their credit cards in a single month, marking a 14 per cent increase on the same time last year.

With the exception of dubious pay day lenders, cash advances on credit cards are one of the most costly ways of borrowing money, with daily interest calculated at as much as 21 per cent with no interest-free period.

Yet according to the latest figures from the Reserve Bank, credit card holders withdrew $1092 million in cash from their credit card accounts in September, an increase of $134 million compared to last September.

The number of credit cards held by Australians has also increased by 10 per cent over the past year, prompting the NSW Opposition yesterday to accuse the State Government of defaulting on its responsibility to ensure ethical lending practices for credit cards.

In May last year, the then Minister for Fair Trading, Linda Burney, announced that the NSW Government was “leading the push to rein in credit card debt”, promising to crack down on providers offering easy access to credit cards without any rigorous assessment of the card holder’s ability to repay, and offers of large increases in credit limits on existing cards.

Since then, a discussion paper on the issue, promised in December last year but delivered eight months late, concluded that the introduction of any new credit laws in NSW would take between three and five years.

At a subsequent Council of Australian Governments meeting in October, it was agreed the responsibility for the regulation of credit card lending practices be gradually transferred to the Commonwealth from next year.

Ms Burney’s successor, Virginia Judge, said the NSW Government was now assessing the submissions received on the discussion paper and would report back to the Commonwealth early next year. But the Opposition’s spokeswoman for Fair Trading, Catherine Cusack, said the Government appeared to have lost interest in credit card reform and no longer considered the issue important.

The RBA’s latest $1092 million figure for monthly credit card cash advances is not a record. The figure first tipped the $1 billion mark in December 2004 and since then has fluctuated between $869 million and $1114 million.

The co-ordinator of the Consumer Credit Legal Centre, Karen Cox, said with the exception of people using the cash advance service for topped-up credit cards while holidaying overseas, consumers resorting to cash advances did so because of extreme financial stress, rather than through choice.

Christopher Zinn, a spokesman for the consumer advocate group Choice, said many people were not aware of the hidden costs associated with cash advances, including the practice by some billers of counting payments made through Bpay using a credit card as a cash advance.

Moreover, low interest rate cards can sometimes charge the most for cash advances. An ANZ Balance Visa card, for example, charges an interest rate of just 13.41 per cent, but its cash advance rate is 20.41 per cent.

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PUBLISHED BY ‘THE SIDNEY MORNING HERALD’ (Australia)

Posted in BANKING SYSTEMS, COMMERCE, CONSUMERS AND PSYCHOLOGICAL FACTORS, E-COMMERCE, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, INTERNATIONAL, RECESSION | 1 Comment »

LOBSTER FISHERS GROW DESPERATE – PRICES PLUNGE (Canada)

Posted by Gilmour Poincaree on December 10, 2008

Published: Tuesday, December 09, 2008

by Janet Whitman – Financial Post

PUBLISHED BY ‘THE FINANCIAL POST’ (Canada)

NEW YORK – Add the lobster industry to the list of those bashed and battered by the global economic meltdown.

The price fishermen are fetching for a fresh catch has tanked to a nearly two-decade low as consumers lose their appetite for extravagance.

Wholesalers here have knocked about US$3 a pound off their prices, but fancy restaurants and high-end hotels around the city aren’t biting.

“There’s something about the psyche of consumers that says it’s a luxury item,” said Ian MacGregor, a New York wholesaler who typically sells a million pounds of lobster a year to New York’s top restaurants and hotels. “We’re selling one-claw lobster for as little as US$4.50-a-pound.

“We haven’t seen prices that low forever,” said Mr. MacGregor. “But the restaurant industry doesn’t seem to be reacting.”

The situation is becoming desperate for Maine and Nova Scotia fishermen, who are barely breaking even after paying for diesel and bait.

At the season’s open last week on Nova Scotia’s South Shore, fishermen staged a spontaneous two-day strike, putting up a road blockade and refusing to pull traps, to protest the weak prices. They soon voted to go back to work, however, after agreeing that a little money was better than none at all.

With the global economy crumbling, the “shore” price fishermen are getting for a pound of lobster has fallen to $3.25, down from $5 a year ago and $7 before Christmas last year. Fisherman are worried the price might dip below $3 a pound, nearing the low of $2 in 1990 that led to strikes.

“I would say this is the most difficult situation I’ve seen, no question about it,” said Ashton Spinney, a fisherman in Argyle, N. S., who bought his first licence to fish lobster in 1957. “The lobster fishery is the economic engine that drives the economy here in south western Nova Scotia. None of these difficulties are of its own doing. It’s going to need serious help.”

One big reason fishermen are finding themselves in much deeper water this time around is because the business is a lot more expensive than it was a couple of decades ago.

As lobster prices soared over the past decade, many fishermen in Maine and Nova Scotia upgraded their boats, with some spending $450,000 or more on new vessels.

With the price of acquiring a lobster licence costing around as much in recent years, some fishermen could be in danger of bankruptcy.

To cope with the downturn, Nova Scotia fishermen are pushing for politicians to extend employment insurance benefits and to force banks to come up with longer payback periods for boat loans.

“No bank is interested in owning a bunch of lobster boats,” said Denny Morrow, executive director of the Nova Scotia Fish Packers Association on Yarmouth, N. S.

“Everybody in the industry is hunkering down. It’s going to be a tough time for a year or two. [But] we’ve gone through business cycles before and there’s always a brighter day ahead.”

As the economy is struggling, demand — and prices -are likely to remain weak, he added.

“Lobster is a special-occasion food. It’s not something people eat on Wednesdays or twice a week.”

One positive to come out of the lower prices is that some consumers who might not have thought of purchasing lobster in the past are considering it now.

Dan Zawacki, who started a mail-order lobster business 21 years ago in Chicago, believes his sales are holding up because customers who might be reluctant to spend hundreds on an expensive meal out with wine feel they can afford the luxury of a less expensive lobster dinner delivered direct.

He introduced a half-price “Lobster Bailout” promotion to stimulate demand last month after the U. S. government approved a US$700-billion bailout for Wall Street.

“I had a customer call me the other day and say it’s one of those affordable luxuries,” said Mr. Zawacki.

“He told me he might not go out and spend $3,000 on a flat-screen TV, but he does like to have a nice dinner around the holidays.”

In New York, Mr. MacGregor has seen a similar jump in consumer demand from customers at his retail location, the Lobster Place, in Manhattan’s Chelsea Market, as prices come down. “But the vast majority of lobster we sell is still to restaurants and hotels,” he added.

That means that until the economy starts to turn around and customers at restaurants, hotels and cruise ships start demanding lobster again, the price is likely to remain cheap.

BY THE NUMBERS

The sinking tale of a marine crustacean’s prices:

– $3.25 per pound, the current price of off-the-boat lobster in Nova Scotia.

– $5 per pound, the price this time last year.

– $7 per pound, the price by last Christmas.

– $4-$5 the price many Nova Scotia lobstermen need to break even.

– $2 per pound, the price 18 years ago, which led to a strike by Nova Scotia lobstermen.

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE FINANCIAL POST’ (Canada)

Posted in CANADA, COMMERCE, COMMODITIES MARKET, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, ENVIRONMENT, FINANCIAL CRISIS 2008/2009, FISHERIES, INDUSTRIAL PRODUCTION, INDUSTRIES, INTERNATIONAL, NATIONAL WORK FORCES, RECESSION, THE WORK MARKET, THE WORKERS | 1 Comment »

NO ROOM FOR WISHFUL THINKING – THE SLUMP IS HERE WITH A VENGEANCE (USA)

Posted by Gilmour Poincaree on December 9, 2008

Saturday December 6 2008

by Larry Elliott, Economics Editor – The Guardian

PUBLISHED BY ‘THE GUARDIAN’ (UK)

The shocking jobs data from the US yesterday should remove the last doubt about the potential of the current crisis to turn into the most serious economic shock to the global economy since the 1930s.

The fact that the world’s biggest economy shed 533,000 jobs last month smacks of a slump. While it is unlikely to prove as long and as deep as the Great Depression, more jobs were lost last month than at any time since 1974, when the decision by Opec to turn off the oil taps brought the postwar boom to a shuddering halt.

To make matters worse, the jobless figures for September and October were revised sharply higher so that payrolls were down by 1.25 million over the latest quarter.

Some analysts saw hope in the fact that the unemployment rate rose only modestly from 6.5% to 6.7%. But that was because more than 400,000 people left the labour force altogether last month, presumably on the grounds that there was no prospect of finding work.

Nor was this a temporary shakeout precipitated by the collapse of Lehman Brothers. Revisions to the back data show payrolls were down by more than 400,000 in September, before the escalation in the financial crisis had any effect.

Apart from any impact on shares, bonds and the dollar, yesterday’s woeful jobs data will have three consequences. If 1.25 million people suddenly stop earning a wage, there will be an impact on consumer spending. And if consumers are not spending, companies are not going to invest – even assuming that they can get the finance. We are likely to see output contract at an annual rate of about 4% in the fourth quarter – and it could be even worse. And what happens to America matters to everybody else, especially the big exporting nations: China, Germany, South Korea, Japan.

The second effect will be social. America does not have the generous welfare nets enjoyed in Europe, so unless those made jobless can quickly find work, there will be hardship, poverty and the threat of disorder.

The need to put people back to work leads to the third consequence. There will be further interest rate cuts by the Federal Reserve and other “unconventional” measures to drive down long-term rates. There will be suggestions that America can’t wait for the $500bn fiscal stimulus the president-elect is planning. And there will be help for the motor industry. One of the few Americans likely to have found hope in yesterday’s report will be Rick Wagoner, the boss of General Motors.

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE GUARDIAN’ (UK)

Posted in AUTOMOTIVE INDUSTRY, BANKING SYSTEM - USA, BANKRUPTCIES - USA, CENTRAL BANKS, CHINA, COMMERCE, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, EUROPE, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FOREIGN POLICIES, GERMANY, INDUSTRIAL PRODUCTION - USA, INDUSTRIES - USA, INTERNATIONAL RELATIONS, JAPAN, MACROECONOMY, NATIONAL WORK FORCES, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY, SOUTH KOREA, STOCK MARKETS, THE EUROPEAN UNION, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, THE WORK MARKET, THE WORKERS, USA | Leave a Comment »

WHY US HOLDS KEY TO GLOBAL RECOVERY

Posted by Gilmour Poincaree on December 8, 2008

8 Dec 2008, 0000 hrs IST, ET Bureau

Editorial

PUBLISHED BY ‘THE ECONOMIC TIMES’ (India)

The conventional wisdom holds that economic ups and downs are transmitted across THE TRACKS OF A TROPICAL CYCLONEcountries by financial and trade flows. This does not seem sufficient to explain why, when the US economy fell of a cliff after October, other emerging market economies are falling off a cliff too. The bankruptcy of Lehman brothers was a watershed in the US. It suddenly created fear of counter-party risk, and financial markets of all sorts froze out of fear.

This freeze hit the real economy: producers could not get credit, and consumer credit plunged too. Fear of recession led consumers to cut spending, producing a sharp slump in GDP that still has some distance to go. Now, we in India were blase‚ when the US subprime mortgage problem arose in mid-2007. Our banks had virtually no subprime exposure, and the high leverage of the US financial sector had not been repeated here.

GDP growth continued strong, averaging almost 7.7% in the first half of the financial year. This was seen as evidence that our economy had decoupled from the west’s in substantial measure, though not wholly. That now looks a complete illusion. Since October, emerging markets have collapsed almost simultaneously with the US economy.

How do we explain the instant transmission of the US collapse globally? Had the transmission mechanism been trade or financial flows, we would have seen a time lag. In fact there was no time lag because of a new channel of transmission — fear. When Indian bankers heard that markets in the US had frozen, they feared the worst in India, and so virtually froze lending here too.

Consumer fear swept across the world, and Indian consumers slashed spending as in the US. INDONESIAN FARMERS PROTESTING IN JAKARTA - 2007The internet, TV and other electronic channels transmitted fear from the US to the rest of the world instantly. The lesson: recovery from the recession is likely to be transmitted by global mood change too. Optimists think the recovery will begin first in a string of emerging markets like China and India. Maybe so, but the last two months suggest that the epicentre of economic transmission remains the US. Bernanke may determine our recovery more than Subbarao.

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PUBLISHED BY ‘THE ECONOMIC TIMES’ (India)

Posted in BANKING SYSTEM - USA, CENTRAL BANKS, CHINA, COMMERCE, COMMERCIAL PROTECTIONISM, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, HOUSING CRISIS - USA, INDIA, INTERNATIONAL, MACROECONOMY, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY, THE FLOW OF INVESTMENTS, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, THE MEDIA (US AND FOREIGN), USA | Leave a Comment »

US ECONOMY ‘WEAKER IN ALL AREAS’

Posted by Gilmour Poincaree on December 8, 2008

Wednesday, 3 December 2008

PUBLISHED BY ‘BBC NEWS’ (UK)

The Federal Reserve Board has painted a bleak picture of the US economy in its influential Beige Book, a report used to help determine US interest rates.

It says economic activity has weakened across the US in the past two months, with retail sales, and vehicle sales in particular, “down significantly”.

It also reports weak service and manufacturing sector activity, and falling prices in weak housing markets.

The anecdotal report follows a series of bad US economic figures.

The book, based on information collected before 24 November, also says that consumer spending has weakened, while lending has contracted.

The labour market and tourism, it says, also slowed.

Earlier on Wednesday figures from the Institute of Supply Management showed that service sector activity in the US dropped to a record low in November.

“The data today tells you the recession is as severe as most people fear it is at this point,” said Marc Pado at Cantor Fitzgerald.

Last week, the National Bureau of Economic Research confirmed that the US entered recession in December 2007.

The Beige Book is compiled eight times a year and is based on reports and comments from businesses across the US.

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PUBLISHED BY ‘BBC NEWS’ (UK)

Posted in COMMERCE, COMMODITIES MARKET, CONSUMERS AND PSYCHOLOGICAL FACTORS, DOLLAR (USA), ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, INDUSTRIAL PRODUCTION - USA, INDUSTRIES - USA, NATIONAL WORK FORCES, RECESSION, THE FLOW OF INVESTMENTS, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, THE WORK MARKET, THE WORKERS, USA | Leave a Comment »

ASIAN MARKETS MIXED ON OUTLOOK FOR CHINA, US

Posted by Gilmour Poincaree on December 1, 2008

1 Dec 2008, 1220 hrs IST, AGENCIES

PUBLISHED BY ‘THE ECONOMIC TIMES’ (India)

SEOUL, South Korea: Asian stock markets were mixed on Monday as investors digested signs that the U.S. holiday shopping season got off to a tepid start over the key Thanksgiving weekend.

While Japan’s market fell, stocks in Hong Kong and mainland China rose on expectations of further measures by the Chinese government to boost the economy after last month’s big interest rate cut and multibillion dollar stimulus package.

“These are the appetizers of a full meal, “said Winson Fong, managing director at SG Asset Management in Hong Kong, which overseas about $3 billion in equities in Asia, referring to those earlier measures. “It’s not the end.”

Hong Kong’s Hang Seng index was up 297 points, or 2.1 per cent, to 14,185.8, continuing its rally from last week, when it rose nearly 10 per cent. China’s Shanghai Composite index was up 0.4 per cent to 1,879.66.

India’s benchmark Sensex index also rose, climbing 2.4 per cent to 9,305.94, reflecting at least some investor confidence in the wake of the terrorist attacks in Mumbai, where the stock exchange is located, that left at least 174 people dead.

Stocks in Australia, Singapore and South Korea also fell. Early reports from the U.S. showed modest gains in retail sales on Black Friday, the traditional start of the American holiday shopping season, but business appeared to fall off during the remainder of the weekend, considered one of the most important of the year for U.S. retailers. Also, sales gains seemed to come at the expense of profits as companies slashed prices to lure shoppers.

‘We don’t know if it’s driven by sales or if U.S. consumers are getting their confidence back,’ said Fong.

Investors around the world are paying close attention to the weekend sales figures for clues on the strength of the American economy, a vital export market.

According to preliminary figures released Saturday by ShopperTrak RCT, a research firm that tracks total retail sales at more than 50,000 outlets, sales rose 3 per cent to $10.6 billion on Friday from the same day a year ago. A more complete sales picture of how the Thanksgiving shopping weekend fared won’t be known until Thursday when the nation’s retailers report November same-store sales, or sales at stores opened at least a year.

Stocks in Thailand rose, led by energy stocks, amid hopes that the country’s political crisis will be resolved soon. Anti-government protesters have occupied Bangkok’s two main airports for nearly a week, cutting off air freight, stranding tourists and causing millions of dollars in lost sales. The benchmark SET index was up 0.8 per cent at 405.09.

In Tokyo, the benchmark Nikkei 225 stock average lost 123.34 points, or 1.5 per cent, to 8,388.93, retreating after advancing 7.6 per cent last week. Investors sold exporters as the yen strengthened, which erodes exporters’ overseas earnings.

‘Despite a rise on Wall Street last Friday, sentiment was downbeat as investors were bracing for weak U.S. manufacturing data due out later in the day,’ said Kazuhiro Takahashi, an equity strategist at Daiwa Securities SMBC Co. Ltd., referring to the Institute for Supply Management’s report for November.

Wall Street advanced for a fifth straight session Friday, the first time the Dow Jone industrial average to accomplish that feat since July 2007. For the week, the Dow climbed 9.7 per cent for the week and the broader Standard & Poor’s 500 index jumped 12 per cent.

U.S. stock futures were down, suggesting Wall Street would open lower Monday. Dow futures were up 59 points, or 0.7 per cent, to 8,763, and S&P futures were up 6.8 points, or 0.8 per cent, to 888.5.

Oil prices fell to near $53 a barrel after OPEC declined to cut production at an informal meeting in Cairo on Saturday. Light, sweet crude for January delivery was down $1.13 to $53.30 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore.

In currencies, the dollar declined to 95.22 yen from 95.48 yen in New York late Friday. The euro was little changed at $1.2685.

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PUBLISHED BY ‘THE ECONOMIC TIMES’ (India)

Posted in CHINA, COMMERCE, COMMODITIES MARKET, CONSUMERS AND PSYCHOLOGICAL FACTORS, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, ENERGY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, HONG KONG, INTERNATIONAL, OPEC, PETROL, SOUTH KOREA, STOCK MARKETS, THE FLOW OF INVESTMENTS, USA | Leave a Comment »

FOUR NEW REPORTS REVEAL BATTERED ECONOMY (USA)

Posted by Gilmour Poincaree on November 27, 2008

Nov 26, 2008 1:54 PM (18 hrs ago)

by Martin Crtsinger, AP

WASHINGTON (Map, News) – The government released a quartet of reports Wednesday that paint a bleak picture of the nation’s economy: Jobless claims remain at recessionary levels, Americans cut back on their spending by the largest amount since the 2001 terrorist attacks, orders to U.S. factories plummeted and new-home sales fell to the lowest level in nearly 18 years.

The Labor Department reported that initial requests for unemployment benefits fell to a seasonally adjusted 529,000 from the previous week’s upwardly revised figure of 543,000. But claims remain at recessionary levels. The four-week average, which smooths out fluctuations, rose to 518,000, its highest level since January 1983, when the economy was emerging from a steep recession.

One minor bright spot showed the number of people continuing to claim unemployment insurance dropped unexpectedly to 3.96 million, from the previous week’s 4.02 million, which was the highest level in 25 years. The labor market has grown by about half since 1983.

Meanwhile, the Commerce Department reported that consumer spending plunged by 1 percent in October, even worse than the 0.9 percent decline that had been expected. Consumer spending accounts for two-thirds of total economic activity.

Orders to U.S. factories for big-ticket manufactured goods also plunged last month by the largest amount in two years. Orders for durable goods dropped by 6.2 percent, more than double the decline economists expected. The Commerce Department report showed widespread declines throughout manufacturing led by decreases in autos and airplanes.

The department also reported that new-home sales decreased 5.3 percent last month to a seasonally adjusted annual sales pace of 433,000 homes, the lowest level since January 1991, another period when the country was undergoing a steep housing downturn.

The median price of a new home sold in October fell to $218,000, down 7 percent from a year ago, and the lowest since September 2004.

The Dow Jones industrial average rose about 50 points in early afternoon trading Wednesday.

With the economy showing further signs that it is headed into a steep swoon, the administration and the Federal Reserve rolled out two new programs Tuesday that would provide up to $800 billion in an effort to get more loans flowing in such critical areas as mortgage lending, credit cards, auto loans and small business loans.

Credit markets liked the new efforts, but private economists said the new moves were not likely Treasury Secretary Henry Paulson appears on a television as a trader works on the floor of the New York Stock Exchange, Tuesday Nov. 25, 2008 - AP Photo - Richard Drewto be the last changes in the government’s vast rescue program, which has already undergone significant alterations since it was passed by Congress on Oct. 3.

Analysts believe more work will need to be done because of their expectations that the economy’s vital signs will continue to worsen as the country slips into what many believe could be the worst recession since the early 1980s.

The unemployment rate has hit a 14-year high of 6.5 percent, putting pressure on personal incomes. The government reported Tuesday that the overall economy, as measured by the gross domestic product, shrank at an annual rate of 0.5 percent in the July-September quarter, reflecting the fact that consumer spending fell at the fastest pace in 28 years.

Nariman Behravesh, an economist at IHS Global Insight, said he was expecting GDP to shrink at a 4 percent rate in the current quarter, reflecting the battering consumers are taking from the worst financial crisis since the 1930s. He predicted that the economy would remain in recession through the first half of next year.

“We are in the early stages of one of the worst recessions in the postwar period, even factoring in a massive stimulus program,” Behravesh.

To revive the economy, President-elect Barack Obama has said a top priority will be working with Congress to enact a stimulus package with the goal of creating 2.5 million new jobs over the next two years. Analysts believe such an effort will require spending between $500 billion to $700 billion, a figure that would be on top of all the money being spent to stabilize the financial system.

In the latest efforts to stabilize the financial system, the Federal Reserve announced Tuesday that it will buy $200 billion in securities backed by different types of debt including credit card loans, auto loans, student loans and loans to small businesses. That market essentially froze in October. These types of loans as a result have become harder to obtain and have carried higher interest rates

The Fed also announced that it will spend $500 billion to buy mortgage-backed securities guaranteed by mortgage giants Fannie Mae and Freddie Mac and another $100 billion to directly purchase mortgages held by Fannie, Freddie and the Federal Home Loan Banks.

This would greatly expand an initial modest effort announced in September with the goal of creating increased demand for mortgage-related assets. The hope is that this will drive down the price of mortgages and make home loans more available.

Analysts predict the Fed program could send mortgage rates down by as much as one-half to a full percentage point in coming months, helping to spur demand in the beleaguered housing market, which is suffering its worst downturn in decades.

The latest federal moves raised U.S. commitments to contain the financial crisis to nearly $7 trillion – though no one thinks the government will actually spend anything like that figure.

In the case of the Federal Reserve, the amount covers huge loans that financial institutions will have to pay back. In the case of the Treasury rescue effort, the government will at some point sell the stock it owns back to the banks, presumably when the banking system is doing better and the stock will be worth more.

Copyright 2008 The Associated Press. All rights reserved.

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BAILOUTS: $7 TRILLION AND RISING – Every day brings more news about the government’s efforts to fix the economy. Here is how the plans are taking shape

Posted by Gilmour Poincaree on November 27, 2008

Last Updated: November 26, 2008: 3:29 PM ET

by David Goldman, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) — The U.S. government is now willing to spend more than $7 trillion BURNING DOLLARS AND WASTING MONEY WITH THE BAILOUT PLANSto help rescue the economy. That’s about $23,000 for every American, and more than half of U.S. annual gross domestic product.

It’s a staggering and unprecedented amount of money. The last time the government went on a spending spree to cure a crisis was in the late 1980s and 1990s during the savings and loan crisis. But the $160 billion ($237 billion in today’s dollars) it spent then comes nowhere close to what’s being spent now.

But it may not be as bad as it seems: A substantial portion of that $7 trillion is investment, the government hasn’t spent close to the total allotment yet, and the taxpayer may come out on top in the end.

“It’s a lot of money, but it’s not like it’s out the door, never to be seen again,” said Dean Baker, co-director of the Center for Economic and Policy Research. “A lot will be lost, but we’re not going to lose anywhere close to $7 trillion.”

The government has invested about $3 trillion of the total allotment, and it has already received much of that investment back. For instance, the Fed has gotten back about $1.2 trillion of the $1.6 trillion it has lent banks in its ongoing Term Auction Facility.

The government collects interest on its loans and when it takes an equity stake in a company or takes hold of an asset-backed security, those holdings could mature in value over the duration of the government’s possession of them.

“At the end of the day, it’s an expensive plan, but the government had to step in,” said John Silvia, chief economist at Wachovia. “It’s a difficult thing to estimate, but the government could sell the assets at a decent price once the market’s better.”

Furthermore, some of the $7 trillion will likely never be spent. The government can spend up to $1.4 trillion in purchases of short-term business debt under the Fed’s Commercial Paper Funding Facility, but so far it has spent just $270 billion on the program.

Pessimists say the government is spending too much, putting taxpayer dollars at risk. Some say, that for all the government has spent, the results don’t match the actions.

But optimists argue that much of the bailout serves as a guardrail, preventing the financial system from falling into a total collapse. And most economists argue that the cost of not acting would be far greater.

“We’re doing this to prevent a financial collapse,” said Baker. “Not acting would be much worse, because the financial system would grind to a halt.”

More bailout measures still may be coming, as economists say the serious problems facing financial institutions have not yet subsided.

“More banks will likely fail, and I wouldn’t be surprised if the FDIC has to go to Congress to get recapitalized,” said Baker. “There’s lots more bad debt that has yet to show up.”

There’s also a growing chorus of voices outside of Treasury to spread bailout money around.

The recent struggles of GM (GM, Fortune 500), Ford (F, Fortune 500) and Chrysler have built momentum for a bailout of the U.S. auto industry. Automakers have until Dec. 2 to submit proposals for how they would use – and pay back – $25 billion of government funding. The Bush administration has said it does not want a Detroit bailout to come from TARP funds.

Some government officials like FDIC Chair Sheila Bair have called for TARP money to be used to guarantee mortgages backed by private lenders to encourage them to restructure loans to troubled homeowners.

And President-elect Barack Obama has stated his support for another economic stimulus package in the form of tax rebates to consumers, states and municipalities. Economists believe the bill will cost about $500 billion. The proposal has gained traction in Congress, with hopes that consumer spending and aid to governments will help boost the economy.

Here is how the government has thus far invested billions of dollars to rescue banks, companies, consumers and their homes.

SAVING WALL STREET

The government has taken these steps to aid financial institutions.

Term-auction facility: $1.6 trillion in loans to banks so far in exchange for otherwise unwanted collateral. The Fed increased its monthly auction limit to $300 billion in October, up from $20 billion when the Fed began the program.

Dollar swap lines: Unlimited dollars to 13 foreign central banks to provide liquidity to foreign financial institutions. The Fed lifted its cap after raising it to $620 billion in October from $24 billion in December.

Bear Stearns: $29 billion in a special lending facility to guarantee potential losses on its portfolio. With the lending facility, JPMorgan was able to step in to save Bear from bankruptcy.

Lending to banks: $70 billion lent on average every day to investment banks, after facility opened to non-commercial banks for first time in March. $92 billion a day to commercial banks.

Cash injections: $250 billion allocated to banks from $700 billion rescue package in exchange for equity stake in the financial institutions in the form of senior preferred shares.

Citigroup: $300 billion in troubled asset guarantees and $45 billion in cash-injections to prevent fourth-largest bank from failing.

Fed rate cuts: Down to 1% in October 2008, from 5.25% in September 2007.

SAVING MAIN STREET

Consumers are benefiting from the government’s actions in recent months.

Stimulus checks: $100 billion in stimulus checks made their way to 140 million tax filers to boost consumer spending and help grow the economy.

Unemployment benefits: $8 billion toward an expansion of unemployment benefits, to 39 weeks from 26 weeks. Some states must now offer 39-week benefits after an extension act was passed in November.

Bank takeovers: $15.5 billion drawn down so far from the FDIC’s deposit insurance fund after 22 bank failures in 2008.

Rehab foreclosed homes: $4 billion to states and municipalities in assistance to buy up and rehabilitate foreclosed properties.

Student loan guarantees: $9 billion so far in government purchases of student loans from private lenders. Higher borrowing costs made student loans unprofitable for a number of lenders, many of whom stopped issuing the loans.

Money-market guarantees: $50 billion in insurance for money-market funds. The Fed then began to lend an unlimited amount of money to finance banks’ purchases of debt from money-market funds. The Fed then agreed to purchase up to $69 billion in money-market debt directly. In October, the Fed said it would loan up to $600 billion directly to money-market funds, which was extended for six months in November.

Housing rescue: $300 billion approved for insurance of new 30-year, fixed-rate mortgages for at-risk borrowers. The bill includes $16 billion in tax credits for first-time home buyers. But lenders have been slow to sign on.

Deposit insurance: $250,000 in insurance for interest-bearing accounts, up from $100,000. The FDIC also issued unlimited guarantees on non-interest- bearing accounts and newly issued unsecured bank debt.

Consumer loans: $800 billion extended to consumer loan-backed securities, including $200 billion for assets backed by credit cards and car loans and $500 billion in mortgage-backed securities. The Fed will also buy $100 billion of Fannie Mae and Freddie debt to try to make loans cheaper.

SAVING CORPORATE AMERICA

Uncle Sam has intervened to help companies in the following ways.

Business stimulus: $68 billion in tax breaks to corporations to help loosen the stranglehold on businesses trying to finance daily operating expenses.

Fannie Mae, Freddie Mac: $200 billion to bail out the mortgage finance giants. Federal officials assumed control of the firms and the $5 trillion in home loans they back.

AIG: $152.5 billion restructured bailout, including a direct investment through preferred shares, a easier terms on a $60 billion loan, and new facilities meant to take on the companies exposure to credit-default swaps.

Automakers: $25 billion in low-interest loans to speed the industry’s transition to more fuel-efficient vehicles.

Commercial paper facility: $271 billion in corporate debt purchased so far by the Fed since its so-called Commercial Paper Funding Facility opened. The Fed allocated $1.4 trillion for the program.

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TOWARDS A NEW ECONOMIC NARRATIVE (Ireland)

Posted by Gilmour Poincaree on November 26, 2008

Published: November 26th, 2008

Author: Michael Taft of Notes on the Front

Crisis? It’s baby-crunching time. We no longer have the luxury of attacking others’ prescriptions – OH ... those darn stairs againthose issued by the Government, employers’ spokespersons and stockbroker economists. The proverbial punter at the bar is impatient: ‘So what’s your big idea?’ It’s a fair question.

Let’s be under no illusion. The right is driving this debate. And the main ‘opposition’ in all this has been Fine Gael who wants more of the same. A debate? You need two sides to have a debate. All we have is the sound of one hand slapping us about.

So far, the Left, with some exceptions, has staked out a small ground. It opposes cutbacks, proposes infrastructural projects and more training places, and suggests alternative revenue streams such as cutting tax reliefs. Some good ideas but, to date, they do not cohere into a programme of expansion and renewal. They do not, as yet, constitute a new narrative.

And neither will this. It is, instead, an invitation to progressives to draft up their own programmes and proposals, to put forward their own contributions; to do better than what’s contained here. But the foundational principles must be to:

– Expand fiscally – junk the cutback vs. tax increase trap. We need money, lots of it, to put back into the economy.

– Expand demand – more spending, not less, is what the economy needs to maintain and expand business activity

– Expand indigenous enterprise: Lay the structural foundations for a new enterprise base – public and private; this will take time, so we have to start soon, tomorrow, this evening

That’s the ticket – expand, expand, expand. For illustrative purposes I have come up with a 10-point programme but no single programme can address all issues. For instance, I have not addressed recapitalising our banking system, educational investment, reducing poverty and labour market issues. In a fully-blown progressive project, these will take centre-stage.

But paramount in all this: the Left must become audacious. It must put forward its vision with courage and confidence. For the Left is right and the Right is wrong. We must defend our programme against all nay-sayers, pessimists, neo-liberals and shills for vested interests: on the doorstep, at community meetings, on RTE panels, in the Dail. No fear, no capitulation.

In short, we have to go on the offensive, all economic guns blazing. So let’s start.

Expand Fiscally

1. Borrow ‘Til We Drop

The fiscal meltdown is the result of the economic decline, not the cause. To prioritise the budget A DRAWING BY UMBERTO BOCCIONIdeficit is to obsess over the symptoms, not the disease. Cutting public spending and increasing taxes will result in less consumption and business activity. This, in turn, will create further fiscal imbalances, which will in turn prompt more right-wingers to demand even further cuts – and round and down we go. The patient sickens.

We need to borrow. We need to borrow big time. You can’t cut-and-tax your way out of a recession – you spend. And borrowing is the main instrument. Borrowing will get us ‘over the hump’. We won’t take money out, we will put money in. In times of recession, borrowing is good.

Don’t mind the fiscal reactionaries: we have plenty of scope to borrow. Our debt repayments come to only 1.5 percent of overall wealth. If an average industrial worker had the same level of debt repayments as Ireland Ltd., it would come to €50 per month. Even if this repayment were doubled, most households would light many candles in a fiscal hosanna.

– So, expand overall net debt to 55% of GDP over the next three years and aim to balance the current budget at the end of downward business cycle (it could take up to six-seven years before we close the output gap and get the economy operating at optimal level). This could provide us with between €30 and €40 billion additional resources above the Government’s projected expenditure – an enormous investment to spend and invest, lend and expand. A NARRATIVE TALE

2. Tax Lay-About Capital, Not Work

Just to ensure that we don’t get caught in a debt-spiral, buttress our borrowing with new tax measures – but only on capital and higher incomes. It’s okay to tax these folk – they have higher liquidity which doesn’t end up getting spent or invested productively. Here are two proposals:

– A once-off, Donald Trump-like, tax on capital assets over €1 million. This tax could be paid off over a seven year period. It could raise some serious dosh, but it’s important that productive assets aren’t hit.

– Phase out all tax relief (save for relief on productive investments) for people earning in excess of €100,000. Why should we subsidise their VHI premiums for private hospitals?

These are just two suggestions to give the wealthy, if not a soaking, then a right good splash. We are only limited by our imaginations and by the fact that the top 75,000 households in this country own over €300 billion in wealth. There’s a lot of lay-about capital running about. Let’s grab it and put it work for all of us.

[Another way to turn down the fiscal heat is to open up the Pension Reserve Fund for investment in infrastructure and enterprise projects on a commercial basis – see below.]

3. Public Safety Committees

Robespierre – where are you when we need you? If the Left is to argue for higher spending and A DRAWING BY M.C. ESCHERborrowing, people will need confidence that this ‘expansion’ is being spent wisely. So let’s establish the equivalent of public safety committees in every Government Department and major public agency (HSE, Public Works, etc.) through a substantial expansion of the Comptroller and Auditor General’s office. This would enable the office to examine in real-time not only the expenditure, but the expenditure process itself. All results, observations, requests for information (and replies) should be made immediately available on a new website dedicated to Government spending.

A further initiative would be to subject every line of expenditure – including tax expenditures (reliefs, allowances, exemptions, etc.) – to stress-tests that measure both economic efficiency and social equity. If they don’t pass these tests, get rid of them (e.g. subsidies to private fee-paying schools). Inefficient and inequitable expenditure remains out of inertia – or because it benefits a vested interest. Roll out the guillotine.

Expand Demand

4. Spread it Around

How can we get more money into people’s pockets? Especially when tax cuts are not a viable option? First stop is the national wage agreement. The current agreement is not a recession buster. It spreads wage increases equally throughout all income groups, rather than concentrating them in those groups that have a higher propensity to spend; namely, low and average income-earners. Secondly, it doesn’t allow the workforce to maximise their wages, even if local conditions permit. If a multi-national is making shed-loads of profit, wouldn’t it be more economically beneficial to allow employees to negotiate additional wage increases within the social partnership framework? Rather than having profit shipped out of the country, the money would be retained and circulated here.

A recession-busting wage agreement would contain two elements:

– A flat-rate base pay increase: an example would be between €25 and €30 per week (this doesn’t rule out an additional percentage increase, but that increase should be small)

– Provision for local bargaining.

Employers would have little cause to complain. They would still be protected by the ‘inability to pay clause’. If they can’t pay some or all of the flat-rate pay increase, or any local bargaining LANDSCAPE NARRATIVEtop-up, they won’t have to, provided they come clean with the Labour Court.

Additional measures to increase demand in the economy would be to:

– Introduce the right to collective bargaining: Study after study shows that those who negotiate through their unions earn more for the same job than those who don’t. IBEC warns the multi-nationals won’t wear this. The fact is nearly two-thirds of multi-nationals deal with the unions. It’s our home-grown enterprises that don’t recognise unions (and they wonder why they’re so unproductive). Organised workforces will strike better deals – again, win-win.

– Re-introduce pay-related unemployment benefit. At least if people are left temporarily jobless, they shouldn’t be left income-less. This cushion will help people take full advantage of retraining opportunities if needed, and maintain their spending power.

There is still a lot of profit out there. In 2007, 500 companies made over €26 billion in profits while 90 percent of the top 1000 companies were in profit. Even if the recession reduces this, there’s NARRATIVE THRU SECURITY VIDEO CAMERASstill a lot of money there to spread around. So renegotiate the wage deal (it’s been done on two previous occasions so there can be no objection from precedent); or bring forward the next wage deal. Whatever we do, make sure that social partnership remains relevant to the times.

5. Competition This!

Inflation is falling – recessions are great for that sort of thing. But there are still sectors where unjustifiably high prices are being maintained. And this costs households and businesses. So let’s really do this competition thing and put more money in people’s pockets.

Strip the Energy Regulator of the power to set ESB tariffs (which he sets above the market level to incentivise private sector investment); strip him of the power to prevent competition between energy companies (currently, the ESB is required to lose market share); in other words, let the market set the rate. The Regulator should only intervene if any company is abusing their market position. This alone will bring down energy costs, benefiting businesses and households.

Take up Colm Rapple’s excellent idea to require retailers to provide real-time price information to a revamped National Consumer Agency which would put up the information on an interactive, regionally based website. The Tanaiste said people should shop around – well, let them shop around on the website; and shame the price gougers. In addition, this new NCA should be given statutory powers to examine price setting mechanisms (including profit margins and management remuneration) in comparison with other countries, and to issue pricing guidelines where there are real violations of the competitive code.

6. Go on a (Social) Binge

While the last thing we need is to artificially inflate the construction sector to previously unsustainable levels – the last thing we need is to throw building workers on to the dole queue or let valuable skills leave the country, especially with all the social and environmental work that needs to be done. Soaking up this excess capacity (and it doesn’t stop at building workers: materials suppliers, transport, manufacturing – all have a stake in this) can provide a needed stimulus and leave us with enhanced assets. On this point, the Labour Party has been strong:

– Launch a new social housing programme – let’s start housing people who can’t make it on to the property ladder

– If we need schools, hospitals, public leisure centres, community centres, etc. – now’s the time to build them

– Launch a conservation maintenance programme on our older housing stock (this need not cost INTERACTIVE NARRATIVEthe taxpayer any money in the long-term).

Let’s be clear – this is not a substitute for expanding our enterprise base; it can only be a stop-gap, a means of limiting the decline, ameliorating the worst effects of the recession. If it is to be part of a long-term strategy it will be complementary within a broad capital programme.

The biggest drag on demand and the biggest drain on the Government’s budget is unemployment so these measures give us room to manoeuvre, a breathing space – and ensure that people have a warm place to live in and children aren’t taught under leaky roofs.

A New Enterprise Pact
7. A New Green Deal
Ireland’s infrastructure is so bad (it’s ranked 64th in the world by the Davos crowd) that there’s more than enough to keep us busy for years to come. Roads, rail, public transport, telecommunications (we need to bring Eircom back into public ownership); crikey, our port infrastructure ranks worst than some landlocked countries.

Front-loading our infrastructural investment will not only increase our long-term competitiveness, it will help increase demand and reduce Government current expenditure (saving on unemployment benefits, increase in tax revenue).

But there’s one area that deserves particular mention because the idea that the environment must take second place to the economic agenda is starting to circulate – one more example of the short-sightedness and failure of imagination that got us in this mess. The green agenda (as distinct from the Green Party’s agenda) is not only absolutely necessary to our environmental health and competitiveness, it is one more instrument to tackle the recession and return us to growth.

Renewable energy and conservation technologies: For god’s sake, even the Bush-appointed US ambassador has to remind Ireland about exploiting its’ natural resources – off-shore wind, tidal, and wave. We can muck about with ‘market signals’, ‘tax incentives’ and, of course, the old reliable – pleading with foreign capital to nod in our direction; or we can just do it ourselves. When we needed to electrify the country the ESB did the job – at times being hobbled by its very shareholder, the Government. So give them their head; get the ESB, Bord Gais, public agencies and private companies working to one sectoral agenda: research, product development, trials and tests, commercialisation in:

– ICT innovation (hardware and software) to optimise multiple renewable energy systems on a micro scale

– Wave and tidal, wind (especially off-shore), geothermal and innovating solar energy applications,

– Eco-construction, energy efficiency services, anaerobic digestion technologies,

– Water and wastewater treatment along with waste management, recovery and recycling

These are examples of public sector-led job creation in the private sector, building capacity in the home market and preparing for a new export industry when the inter-connectors with the rest of Europe come on line.

If these weren’t enough, there’s wider work in the whole area of green collar activity in manufacturing and services, and prioritising green public investment and procurement.

Going green means stepping up, not cutting back, our expansionary programme.

8. Money’s Too Tight to Mention

Finance is the servant of economic activity. Credit is an instrument of economic growth. Financial institutions are products of society and its laws, not the other way around.

But even in a new dispensation of recapitalisation and tighter regulation, alternative investment streams will have to be found. There is a fundamental deleveraging process at work – both among banks and households; we can’t short-cut this process but neither can we wait for it to purge the system. We will need to prise open new credit streams. Beating banks about the head will only get so far (no matter how much fun it is). Expansionist policies need expanded credit to turn it into sales, exports, jobs and profits. Beyond traditional regulatory instruments we can:

– Establish of a network of Development Banks, modelled on the US community development banks, which would work within their local regions, providing credit and saving facilities to EAST NEUK NARRATIVEhouseholds and businesses. If this were linked up to An Post Banking, it could become a considerable public-led force in Irish banking – needed all the more if the number of banks contract and competition is reduced.

– ‘Socialise’ a small percentage of the deposit base of Irish banks. All deposit-taking institutions would ‘lend over’, say, one percent of their deposits to Enterprise Development Funds which would, in turn, act as a type of venture-capital or seed-capital fund for development enterprises – private or public (see below).

– Establish SSIA-type savings instruments to supplement the Enterprise Development Funds – attracting small and large investors, making money work for the economy while guaranteeing a competitive rate of return on such savings.

– Open up the Pension Reserve Fund to invest in capital and enterprise projects on a commercial basis. Not only would this take the heat out of our borrowing requirement, it would mean Fund monies are investing in Irish enterprise, not arms manufacturers.

9. The Enterprise Guarantee

There are a lot of things wrong with the current social partnership model: (a) its historical reliance on providing low wage increases in return for tax cuts, (b) the refusal of one partner to recognise the other (the employers’ and government’s refusal to recognise the right to collective bargaining), and (c) a ‘partnership’ at the top, a jungle at the local level.

We need a deep-rooted, democratic partnership of all stakeholders working throughout all layers of the economy. We need a new enterprise guarantee – as wide-ranging as any undertaking given to banks. Specifically, sector-wide strategies should be created, pursued and monitored through these new structures with the participation of employers, trade unions, the state and other stakeholders. Extra-ordinary benefit would be given to high-road enterprises – private and public – that fulfil the social and economic criteria:

Benefit: A new Premiership-league set of supports would be granted to progressive enterprises to overcome all the obstacles to expansion: training personnel for internationalisation, working capital to finance exports, information to locate/analyse markets, identifying foreign business opportunities, contacting potential overseas customers, developing new products for foreign markets, learning foreign business practices, meeting export product quality/standards/specifications, assistance with exporting procedures/paperwork. All this would be buttressed by access to Enterprise Development Funds.

Responsibility: Recognition of trade unions, family-friendly work practices, employment of people with disabilities, environmental audits, employee participation structures, in-kind benefits (health insurance, crèche costs), commitment to high R&D expenditure, transparency in company accounts; all in all – a full democratic partnership.

This is the New Enterprise Pact, the high-road to jobs, profits and wealth; this is the new face of Irish enterprise. This, and not the slash n’ burn model, will set the ground for sustainable growth in the future. Make no mistake: creating a new generation of indigenous, progressive companies – which will take time – is one of the most urgent items on the economic agenda.

10. Reinventing Public Economic Activity

The Left should argue for a truly pluralist ‘mixed market economy’. Already, we have ‘private sector’ companies who are reliant on the public sector (through PPPS, procurement, grant-aiding, tax relief, etc.). Now we must create new models where the private and the public can develop to their maximum potential and mutual benefit.

A starting place is the local or the regional. Unfortunately, local government is practically irrelevant to the local economy. While it is beyond the scope here to discuss institutional reforms, whatever new structures emerge must have the capability to invest in local/regional economic activity, from its own resources and from access to Enterprise Development Funds.

What kind of new models? We don’t have to reinvent the wheel. Some forms have been around a long-time, some are getting a second wind, and some are being created to rise to the challenges of globalisation and the new recessionary environment. Each of these deserves their own detailed research. But let’s do a quick jaunt through the pluralist typology:

Community-Owned Companies: Companies owned primarily by people living in a local community. In the US this is becoming a fast growing model – communities have established everything from cafes to shopping districts, cinemas, shops, even sports clubs; maintaining business activity and jobs.

Non-profit Companies: While traditionally focused on social services (hospitals, charities, educational institutions), many in the US have broken out of this mould and have expanded into competitive manufacturing and service sectors.

Municipal Enterprises: This is local public enterprise – companies established to fill a need in a local area. There are over thousands of these enterprises throughout the EU.

Community Development Corporations: These are companies established in local areas with Boards representing all the stakeholders, that seek to invest in local business activity – both start-up and expanding companies.

Consumer Cooperatives and Employee Ownership: These are more traditional forms, going back decades. However, they are getting a revival as local communities and regions find ways of reinvigorating their economies.

Of course, many companies are a mixture of the above (e.g. employee ownership/community owned, etc.) This is only a brief survey. But it shows that we do not have to remain reliant on traditional private sector or large public enterprise models. We won’t build a new economy on these alone – we will build a new economy based on a plurality of enterprises, with the different degrees of public and private sector penetration.

There’s a name for this: mixed-market economy. The Left should argue for participatory pluralism, not a corporatist/statist one-size-fits-all.

* * *

So there you have it:

– Overcoming the fiscal trap by borrowing, taxing capital assets and opening up the Pension Reserve Fund to infrastructural and enterprise investment

– Increasing demand and consumption through a new pay deal, extension of welfare benefits, anti-inflation measures
– Putting our enterprise base on a new footing through a new Green deal, opening up new investment streams, an Enterprise Guarantee and new models of public economic activity.

Do with these proposals what you will. Improve on them. Come up with better ones. Add and subtract.

But however we go about the business of creating a new progressive programme for the economy, let’s make one binding and irrevocable commitment: that it will be done. That we won’t let the Right set the agenda. We will fight them every step of the way.

It’s not just that the future of the Left depends on it; the future prosperity of the economy is in the firing line.

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PUBLISHED BY ‘IRISH LEFT REVIEW’

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WHAT ROLE SHOULD EXPANSION OF DOMESTIC DEMAND PLAY ? (China)

Posted by Gilmour Poincaree on November 26, 2008

07:37, October 28, 2008

As the global economic downturn triggered by the subprime lending crisis progresses, the changes of China’s major economic indexes is fairly meaningful. The third quarter GDP growth stands at 9.9 percent this year, a year-on-year increase of 2.3 percent, while the contribution rate of foreign trade to economic experienced a yearly decrease of 8.9 percent.

China, which heavily depends on external economy, is facing a severe challenge as the financial tsunami is spreading to the substantial economy. The external demand is weakening and rgw decrease of export can not be offset in a short period of time. The expansion of domestic demand is imminent. What role should the expansion of domestic demand play in such a grave situation? Where does its emphasis lay? And is there any policy for it to develop?

Investment

Maintaining a reasonable pace, ensuring job opportunities

There are two parts in expansion of domestic: increasing investment and encouraging consumption. Yang Yiyong, director of Institute of Social Development under National Development and Reform Commission (NDRC) noted that it was much in evidence to witness the role of consumption on economic growth. However, China should attach more emphasis to investment now, the public investment in particular.

China has taken a series of macro-control measure to tackle major economic problem resulted from over-heated investment. The narrowing difference between investment and consumption does not mean the current investment scale is reasonable. Judged from a global economic perspective and China’s development, investment should always be a vital driving force of growth.

China witnessed a 27 percent increase of social fixed assets investment in the first three quarters this year. The growth was mainly generated by projects in construction, and the new projects are in great need of investment, for instance, the investment in textile has dropped below the ten-year average line.

The slowdown of industrial growth and the shrink of corporate profit have brought enterprises’ profits down to 19.4 percent, a yearly decrease of 17.6 percent. The investment and trade in Yangtze and Pearl Rive Delta Regions cooled down, and enterprises’ new credit demand declined. The slowing growth of investment in real estate sector will bring great pressure on future assets investment.

Li Xiaochao, spokesperson with National Bureau of Statistics, said stable growth of investment is a precondition of steady economic development. The focus now should be on government investment, reconstruction of quake-hit areas and project development in terms of agriculture, water conservancy, power, communication, urban construction as well as people’s livelihood.

Investment contributed to 40.9 percent of GDP growth last year, and the public investment in infrastructure construction has provided people with jobs and income. Yu Yongding, director of Institute of World Economics and Politics under Chinese Academy of Social Sciences, noted the expansion of domestic demand could achieved through enlargement of government investment, but a new round of blind expansion and waste of resources must be avoid. Apart from Beijing-Shanghai high speed railway, metropolitan underground, nuclear power, the emphasis of investment should be place on consumption expansion and structure improvement, increase of public products supplying, people’s livelihood and service industry, namely, community nursery, kindergarten, hospital, school, convenience-for-people facilities, which will boost consumption demand.

According to one CPPCC member, the corporate investment, which is of weak staying power, needs to be granted more favorite policies, especially for those SMEs that created the majority of jobs, in terms of reducing tax and arousing enterprises’ passion in investment. The restriction on private capital should be lifted, which will make the private investment yield well.

Consumption

Focusing on improvement of people’s livelihood, raising income and stabilizing expectation

The expansion of domestic demand is dependent on enlargement of consumption

China took actions to improve inadequate consumption in past years, which pushed economy to grow by 4.5 percent. The retail volume of social commodities in the first three quarters this year grew by 22 percent, a 6.1 percent increase over the same period last year, and it will be 14 percent, the highest level since China adopted reform and opening-up policy 30 years ago, if price factor were not considered. It is thought to be the golden period for national consumption to grow.

However, the consumption rate in China is still relatively low, with that in 2007 registering only a disappointing 49 percent, lower than world’s average level of 61 percent and the average for the developing countries. The imperfect urban and rural social security system and ambiguous resident’s income expectation bring about limitation for the growth of consumption demand.

The core of consumption stimulation lies on income growth. Yang maintained the top priority is to adjust the pattern of national income distribution, increase consumption and expand the proportion of middle-income people. Many experts put forward a series of measures such as the setting up a CPI-pegged salary growth mechanism, carrying out salary increase policy for public servants by the end of this year, expanding consumption, raising the starting point for levying personal income tax, issuing subsidies to low-income residents and ensuring more social benefits to low-income families. Government should issue a package of measures to stimulate economy and develop capital market in view of the sluggish market.

Additionally, government also needs to take initiative in improving people’s livelihood, increasing public expenditure, strengthening social security system, and finding solution to the pressing issues of aging, medical care and unemployment.

With public savings hitting as much as two trillion yuan, experts believe more favorite policies should be issued to encourage consumption. Meanwhile, restriction on service industry, such as tourism, culture, recreation, fitness should be lifted, and auto business encouraged. Additionally, tax on house trading should be lowered, supervision on consumption safety be strengthened and export of commodities be expanded.

Rural demand

The expansion of domestic demand relies heavily on the exploration of rural market.

The countryside is the first place where domestic demand should be expanded. 800 million farmers, which account for two thirds of the total population consume one third of the domestic commodities. According to statistics, urban consumption is four times higher than that of farmers, and farmers’ consumption power is the weakest though they have strong desire in consumption. Besides motor bikes, rural consumption on durable consumption goods among per 100 farmers is 50 percent less than the urban level. The per capita cash income in rural areas this years has exceeded urban per capita disposable income. Furthermore, the current global economic downturn did not affect China’s rural economy, which shows the development potential and lucrative prospect in rural market.

According to the Third Plenary Session of the 17th CPC Central Committee, farmer’s personal income will be doubled by 2020 compared to this year’s level. The average net income for farmers was 4140 yuan last year. There is still large room to help farmers increase their income, specifically, to raise rural subsidies and the grain purchase price.

Xie Yang, deputy director of the Agriculture Department under Development and Research centre of the State Council, held the best way to speed up urbanization in rural areas is to raise farmer’s income. It is estimated that roughly 1.5 million farmers will move to urban areas if urbanization process progresses by one percent, which will create great opportunities and accelerate rural consumption.

There are many weak links in rural area, which call for more fiscal benefits. The infrastructure and distribution network in rural areas need large amount of investment, and so do the rural education, medication as well as reduction of burdens. In that way, China’s economy will not be vitalized until rural consumption is developed.

By People’s Daily Online

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PREMIÊ CHINÊS PEDE CONFIANÇA ÀS EMPRESAS PARA ENFRENTAR CRISE (China)

Posted by Gilmour Poincaree on November 24, 2008

23/11/2008 – 23:57

Reuters

O primeiro-ministro chinês, Wen Jiabao, pediu às empresas nacionais que mantenham sua WEN JIABAOconfiança em lidar com a crise financeira mundial, durante uma visita ao delta do Rio Yangtsé – região rica, mas dependente de exportações -, informou neste domingo (26) a agência de notícias estatal Xinhua.

A China está tentando aumentar o consumo doméstico para compensar a queda na demanda por exportações do país, da qual sua economia depende fortemente. A Província de Zhejiang, visitada por Wen, bem como o centro financeiro do país, Xangai, são conhecidos por seus empreendedores privados.

A manutenção da confiança das empresas é uma “arma poderosa para lidar com os efeitos adversos da turbulência econômica mundial e a instabilidade financeira”, disse Wen, durante um giro pelas empresas que produzem em larga escala e por empreendedores privados locais.

“Deve ser dada grande importância às dificuldades e desafios enfrentados pelas empresas privadas e definidas mais políticas de apoio a elas para criar um ambiente seguro para seu desenvolvimento”, disse ele.

Wen encorajou os envolvidos em negócios em Yiwu, um centro da indústria do vestuário, a se concentrarem no mercado interno e também fortalecer sua posição no exterior.

A China já concedeu alguma ajuda a fabricas de vestuário em dificuldades, ao restabelecer alguns abatimentos fiscais sobre exportações.

A visita do primeiro-ministro ao delta do Yangtsé ocorreu no momento em que Shandong, uma outra província costeira com empresas importantes, anunciou uma redução de quase 3 por cento nos indicadores de emprego no fim de setembro, disse a Xinhua em um outro artigo. WEN JIABAO - CARICATURE

“A desaceleração da economia causada pelo derretimento financeiro mundial tem outros impactos negativos sobre os legítimos direitos dos trabalhadores”, afirmou um porta-voz da federação provincial de sindicados, citado pela Xinhua. Ele mencionou a redução na taxa de aumentos salariais e um número crescente de disputas trabalhistas.

Shandong tem o segundo mais elevado PIB da China, perdendo apenas para a província de Guangdong (Cantão), no sul.

Wen fez um chamado às grandes empresas para que efetuem fusões ou se reestruturem, eliminem capacidade de produção ociosa e elevem investimento em pesquisa e desenvolvimento.

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WHO WILL FINANCE AMERICA’S DEFICIT?

Posted by Gilmour Poincaree on November 17, 2008

 

Nov 13, 2008

by David P Goldman

The United States government needs to borrow US$1 trillion a year, before a new stimulus package, or handouts for the auto industry, or healthcare reform, or a dozen other spending programs promised by the incoming administration of president-elect Barack Obama. Where will the Treasury find the money?

A bizarre jump in the US Treasury’s real cost of borrowing points to severe market disruption if the Treasury deficit continues to rise. It appears that the Treasury market is also a victim of global de-leveraging. The new administration has far less budgetary flexibility that it seems to think. In 1981, under comparable circumstances, Ronald Reagan had far greater room to maneuver. I conclude that the new administration is virtually powerless to prevent marked deterioration of the US economy.

A comparison of Obamanonomics and Reaganomics is instructive. Even in the unlikely event that the Obama administration were to adopt Reagan-style incentives to risk-taking and investment, the effect of such incentives would be weaker and slower to take effect than in 1981-1984.

Exhibit 1: Inflation-indexed 10-year Treasury (TIPS) yield vs 10-year breakeven inflation. Inflation-indexed 10-year Treasury (TIPS) yield vs 10-year breakeven inflation.

As shown in Exhibit 1, the yield of the 10-year inflation-indexed Treasury (TIPS) tripled from 1% to 3% between June and October 2008. Nominal Treasury yields fell slightly, because the inflation-expectations component of Treasury yields (the difference between ordinary 10-year Treasury notes and inflation-indexed TIPS) collapsed, from 250 basis points to less than 100 basis points.

The jump in TIPS yields should ring alarm bells. It is not only that inflation-indexed Treasury yields never have risen so fast and so far since their introduction in 1997. What is most bizarre is that the movement in “real” Treasury yields is not only massive, but in the wrong direction. Both economic theory and all past experience tell us that when economic activity falls, “real” yields also should fall.

Exhibit 2 below shows that 10-year TIPS, or “real” Treasury yields have moved in the same direction as equity market returns. The inflation-adjusted Treasury bond yield is a rough proxy for real long-term interest rates (it is only a proxy because the consumer price index – or CPI – is not necessarily a good measure of inflation). Real rates are supposed to reflect growth expectations; higher growth means higher returns to financial assets, including bonds. TIPS yields are plotted against 12-month returns to the S&P 500. The two lines move together except during the past few weeks, when they take sharply opposed directions.

Exhibit 2: TIPS yields triple while S&P 500 crashes. TIPS yields triple while S&P 500 crashes.

How weird the behavior of TIPS yields has been during the past few months is made even clearer by Exhibit 3, below. We observe that TIPS yields and S&P 500 returns lined up neatly between 2004 and 2008, and suddenly moved in the opposite direction.

 

 

 

 

 

 

Exhibit 3: Scatter plot of TIPS Yields vs 12-month S&P 500 returns, January 2004 through October Scatter plot of TIPS Yields vs 12-month S&P 500 returns, January 2004 through October 20082008.

Just when we should have expected “real” Treasury yields to collapse along with equity market returns, they spiked upwards, and by the largest margin on record. Evidently something has changed, and changed drastically. One component of Treasury yields, expected inflation, has collapsed, and the “real” component has jumped.

There is no question as to why the expected-inflation component has fallen, for it has done so along with the S&P 500 and the main commodity price index (the Constant Maturity Commodities Index published by UBS and Bloomberg). This relationship is shown in Exhibit 4 below.

Exhibit 4: 10-year breakeven inflation, Constant Maturity Commodity Price Index and S&P 500, 10-year breakeven inflation, Constant Maturity Commodity Price Index and S&P 500, February 1, 2008 to November 6, 2008 (normalized).February 1, 2008 to November 6, 2008 (normalized).

Equity, commodity and Treasury bond markets all are registering a deflationary crash in precisely the same way. That seems clear enough. The dog that barked, but shouldn’t have, is the “real” component of Treasury yields.

The answer to the mystery of tripled real Treasury yields is to be found in the collapse of leverage in the global financial system. Indirectly, the rapid expansion of leverage in the global banking system contributed to demand for Treasuries. When de-leveraging commenced in August, an important component of demand for Treasuries declined sharply. That is bad news for Washington, but even worse news is that it will continue to decline sharply, just when Washington most requires global support for the US government debt market.

Global leverage indirectly increased demand for Treasuries in three principal ways:

1. It fed the boom in raw materials prices, increasing demand for Treasuries on the part of central banks as well as financial institutions in commodity-producing countries.

2. It pushed up the value of emerging market currencies, prompting emerging market central banks to intervene in foreign exchange markets by purchasing dollars which then were invested in Treasuries.

3. It contributed to the rise in global equity prices, which prompted investors to diversify their portfolios and purchase safer assets including Treasuries.

The carry trade, in which investors borrow low-interest currencies (dollars or yen) and buy high-interest emerging market currencies, created demand for Treasuries by funneling money into emerging markets that ended up as dollar reserves in their central banks.

Exhibit 5: Net foreign purchases of US Treasury securities, 12-month rolling total. Net foreign purchases of US Treasury securities, 12-month rolling total.

At the peak of demand for US government securities, net foreign purchases of Treasuries came to $400 billion per year, according to the Treasury’s TIC data base (Exhibit 5). Who were the buyers? The Treasury data offers some answers.

 

 

 

 

Exhibit 6: Foreign holdings of US Treasury securities as of August 2008 (US$ billions): total holdings, year-on-year % change, and year-on-year absolute change.

total holdings, year-on-year % change, and year-on-year absolute change.

We observe that the biggest increase came from offshore banking centers (the UK, Switzerland, Luxembourg, and Caribbean banking centers). This tells us little because anyone may transact through such centers. “Other emerging markets”, notably Brazil and other commodity producers, were the second-largest contributor, followed by Japan and the oil exporters.

Private purchases of Treasuries are larger than official flows in recent years, as shown in Exhibit 7:

Exhibit 7: Private vs official net purchases of US Treasury securities. Private vs official net purchases of US Treasury securities.

As noted, private purchases of US Treasuries seem to scale to global wealth. We observe a fairly close relationship between global equity market capitalization (as measured by the MSCI World Index) and private purchases of US Treasuries, as in Exhibit 8.

 

 

 

 

 

Exhibit 8: Private net purchases of US Treasuries scale to MSCI World Index, 1988-2008. Private net purchases of US Treasuries scale to MSCI World Index, 1988-2008.

An exception occurred during the peak of the US equity boom of the late 1990s, when Treasury purchases fell off at the peak of the boom. Evidently this exception reflected the general euphoria of the time and investor preference for riskier assets. We do not have Treasury data past August, and it well may be the case that a similar exception will emerge during the second half of 2008, as foreign investors increase their net purchases of Treasuries while stock markets crash, and for a symmetrically opposite reason. Investors may prefer safer assets.

We cannot directly estimate the impact of de-leveraging on the Treasury market, but it seems clear that the explosion of leverage during the past five years had a profound, if temporary, impact on the world market’s demand for US government securities. As a rough gauge of the growth of global leverage, we observe that between 2003 and 2008, US banks’ claims on foreigners nearly tripled from $1.2 trillion to $3 trillion.

Exhibit 9: American banks’ claims on foreigners. American banks' claims on foreigners.

We can observe in the movement of market prices, though, a close relationship between the breakdown of the carry trade and the rise in real Treasury yields. Withdrawal of leverage from the system forced market participants to liquidate carry trade positions, that is, to unwind short positions in Japanese yen, and to liquidate long positions in carry trade currencies such as the Brazilian real, Turkish lira, South African rand, Australian dollar and so forth. I use the parity of the Brazilian real to Japanese yen as a rough proxy of demand for carry trade. As Exhibit 10 below makes clear, the collapse of the carry trade (the fall of the Brazilian real against the yen) closely tracks the rise in 10-year TIPS yields. The visual relationship is confirmed by econometric analysis.

Exhibit 10: Inflation-indexed (TIPS) Treasury yield vs Brazilian real/yen parity. Inflation-indexed (TIPS) Treasury yield vs Brazilian real/yen parity.

The Treasury market benefited from the explosion of bank leverage during the past 10 years, as emerging market central banks became the most important new buyers of US government securities. De-leveraging and the collapse of commodity markets combine to destroy global demand for Treasuries, limiting the US government’s capacity to borrow from overseas sources.

Other major holders of US Treasury securities are likely to wish to reduce their holdings rather than to increase them. China’s accumulation of foreign reserves represented “rainy day” savings for the nation, and the severity of the present crisis shows how well-advised China was to accumulate a large volume of reserves. China has announced plans to spend the equivalent of 20% of gross domestic product in a stimulus program which is likely to increase the country’s demand for foreign capital goods.

China’s trade surplus is likely to diminish sharply, both due to falling export demand and import growth arising from the stimulus package. Chinese reserves are likely to cease growing and may even decline as a result. Oil-producing countries, moreover, may have to spend reserves in order to maintain import levels as a result of the collapse of oil prices.

Foreign net purchases of US Treasury securities peaked at a $400 billion annual rate, and will fall sharply from this level. Domestic resources to purchase Treasury securities, moreover, are thin. When Ronald Reagan took office, America’s personal savings rate was 10%; today it is around 0%, although it has spiked up in recent months. Disposable income in the US now stands at slightly under $11 trillion. If the US returned to the personal saving rate of 1981, individuals would save $1 trillion a year, enough to fund the Treasury deficit, assuming that all net new portfolio investment flowed into Treasury securities. Nothing, though, would be left over for investment in anything else.

One way to gauge how onerous the Treasury’s borrowing requirements appear compared with available savings is to take the ratio of government borrowing to gross private savings, as in Exhibit 11 below.

Exhibit 11: Federal budget deficit as a % of gross private savings. Federal budget deficit as a % of gross private savings.

We observe that in 1981, the deficit stood at around 15% of gross private savings, and reached 30% at the worst. The deficit already has reached 50% of gross private savings, before the new administration has had the opportunity to increase spending.

In 1981, moreover, the United States was in current account surplus, and foreign purchases of Treasury securities were a very small factor in the financing of the government deficit. Today, the current account deficit (and the corresponding capital account surplus) is almost 6% of GDP.

It is far from clear from whom, and on what terms, the US Treasury will obtain $1 trillion a year, or even more, to finance its deficit. The overseas well has run dry, and domestic financing of the deficit would require a drastic increase in the savings rate at the expense of spending, or outright monetization of the debt by the Federal Reserve.

One way to increase the government savings rate, of course, is to increase taxes, but that is an unlikely course of action during a severe recession.

Monetization of debt remains a possibility, and to some extent would only continue the current trend. Total Federal Reserve Bank credit outstanding has more than doubled in the year to November 6, 2008, rising by $1.2 trillion to $2.06 trillion. This reflects loans, securities purchases, and related actions by the Fed to bail out the financial system. If the deflation persists, the Federal Reserve may be compelled to purchase US government debt.

Another possibility is that risk appetite among investors at home and abroad will continue to fall, inducing a portfolio shift towards Treasury securities. In this case “crowding out” will occur through risk-preference. It will not be so much that competing borrowers are crowded out of the lending market, but that investors will stampede away from risk. In this scenario, even a very low federal funds rate will not help to restore economic activity.

The point of lowering the risk-free rate is to push investors towards riskier assets. In a normal business cycle, falling output leads to lower yields on low-risk bonds, which in turn encourages investors to add risk to their portfolios by investing in businesses. If the safest of all investments, namely US Treasuries, suddenly offer much higher real yields, comparable to the boom years of the late 1990s, why should investors take risk?

In any of these scenarios, the result of global de-leveraging is dire: the more the US government tries to bail out businesses and households, the more bailing out the economy will need. The Bush administration’s response to the financial crisis, and the likely content of the Obama administration’s economic program, will deepen and prolong the economic downturn.

It is not generally remembered that the premise of the Reagan administration’s tax cuts was Robert Mundell’s work on the optimal level of government debt. Mundell, who won the Nobel Prize in 1991 for his work on international economics, observed that an increase in government debt might represent an improvement in market efficiency, if it corresponded to an increase in incomes. That might occur if a reduction in taxes caused an increase in the deficit, while stimulating economic growth. In that case, Mundell argued, a tax cut would increase efficiency if the additional revenues arising from the growth effect were larger than the interest on the bonds issued to cover the ensuing deficit.

In 1981, Ronald Reagan had a very different starting point:

1. The personal savings rate stood at 10%.

2. The current account was in surplus.

3. The top marginal tax rate was 70%.

The capacity of the US and the world to finance an increase in the federal deficit was much greater, and the incentives arising from reducing the top marginal tax rate from 70% to 40% were much greater than any incentives that might be envisioned from tax cuts from the present level.

Even the best-designed economic policy would be hard-put to provide growth incentives without a substantial increase in the savings rate and a corresponding reduction of consumption, implying a very sharp economic contraction. If the Treasury tries to spend its way out of recession, the results are likely to be very disappointing.

David P Goldman was global head of fixed-income research for Banc of America Securities and global head of credit strategy at Credit Suisse.

(Copyright 2008 Asia Times Online (Holdings) Ltd. All rights reserved.

 

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FILIPINOS’ PESSIMISM UP — MASTERCARD POLL

Posted by Gilmour Poincaree on November 17, 2008

11/13/2008

Filipino consumers have grown more despondent and are among the most pessimistic in Asia with a BREATH/VOLUME MOMENTUM OSCILLATORconfidence index of 40 against a 47.4 average in the region during the first half and from a far higher 67.7 a year ago, results from the latest MasterCard Worldwide Index of Consumer Confidence released yesterday showed.

Most Asian consumers are pessimistic on the six month period ahead, the survey showed.

While consumers in Vietnam, China, India and Singapore relatively remained optimistic; Hong Kong and Taiwan consumers registered steep declines in consumer confidence levels.

Consumer confidence across the region has dropped seven points from six months ago, as a result of current economic volatility and the prospect of a global economic recession.

The current regional consumer confidence score of 47.4 is significantly below the score six months ago of 55 and a year ago of 67.3, according to Mastercard.

The level, however, remained higher than the 1997-1998 Asian economic crisis average of 32.3.

Overall consumer outlook has also fallen across the five indicators that make up the index compared to six months ago: employment (41.2 vs 54.2 six months ago), economy (42.1 vs 51.8), quality of life (44.0 vs 48.2) and the stock market (45.5 vs 53.4) and regular income (64.3 vs 72.2).

The index is based on a survey which measures consumer confidence on prevailing expectation in the market for the next six months. It is calculated based upon percentage response figures, with zero as the most pessimistic, 100 as most optimistic and 50 as neutral.

Only four out of the 14 markets surveyed — Vietnam, China, India and Singapore — were optimistic SHOPPERSabout the first half of next year. Vietnam tops the index with a score of 88.1 and the only market that has increased its score from six months ago.

China (76.6), India (63.9) and Singapore (62.3) remain optimistic about the first half of 2009 but they are less optimistic than they were six months ago (China: 82.7; India: 82.1; Singapore: 87.3).

Thai consumers continue to be pessimistic, though confidence levels have risen slightly from six months ago (23.7). The current score is, however, much lower than a year ago (44.2).

At the other end of the spectrum, nine markets are pessimistic about the first half of 2009, with Hong Kong (41.8 vs. 83.1 six months ago) and Taiwan (32.1 vs. 71.3 six months ago) recording the biggest declines.

“Consumers across AsiaPacific are clearly feeling the effects of the global credit crisis. While Asian financial institutions may be less affected by the global credit crunch and the financial sector melt down, Asian markets have been just as severely suffered the impact; and the regional powerhouses like China and India are equally affected. While the consumer confidence scores in China and India are still optimistic, confidence levels are still much lower than they were before,” Dr Yuwa Hedrick-Wong, economic advisor to MasterCard in Asia-Pacific said.

The latest survey was conducted from Sept. 1 to 29 2008 and involved 6,019 consumers across 14 key Asia-Pacific markets.

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