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MERCADO APOSTA EM QUEDA DA INFLAÇÃO PARA 4,64% NESTE ANO, SEGUNDO BOLETIM FOCUS (Brazil)

Posted by Gilmour Poincaree on January 26, 2009

26 de Janeiro de 2009 – 11h07

por Ivan Richard – Repórter da Agência Brasil

PUBLISHED BY ‘AGÊNCIA BRASIL’

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PUBLISHED BY ‘AGÊNCIA BRASIL’

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Posted in ÍNDICES ECONÔMICOS - BRASIL, BRASIL, ECONOMIA - BRASIL, ECONOMIC CONJUNCTURE, ECONOMY, EXPANSÃO AGRÍCOLA, EXPANSÃO ECONÔMICA, EXPANSÃO INDUSTRIAL, FINANCIAL CRISIS 2008/2009, FLUXO DE CAPITAIS, INDUSTRIAL PRODUCTION, INDUSTRIES, INFLATION, INTERNATIONAL, RECESSION, THE FLOW OF INVESTMENTS | Leave a Comment »

INFLAÇÃO ARGENTINA FICA EM 7,2% EM 2008; PARA ANALISTAS, FICOU EM 20%

Posted by Gilmour Poincaree on January 14, 2009

14/01/2009 08:26

FolhaNews

PUBLISHED BY ‘CORREIO BRAZILIENSE’

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘CORREIO BRAZILIENSE’

Posted in ARGENTINA, BANKING SYSTEMS, CENTRAL BANKS, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, INFLATION, INTERNATIONAL, MACROECONOMY, RECESSION, THE FLOW OF INVESTMENTS, THE WORK MARKET | Leave a Comment »

RUSSIA, EU SIGN DEAL ON GAS TRANSIT VIA UKRAINE – NOVO-OGARYOVO, RUSSIA: RUSSIAN AND EUROPEAN UNION OFFICIALS CLEARED THE WAY FOR RESTARTING RUSSIAN NATURAL GAS SUPPLIES TO A FREEZING EUROPE WITH A DEAL SATURDAY ON THE DEPLOYMENT OF EU OBSERVERS TO MONITOR THE FLOW ACROSS UKRAINE

Posted by Gilmour Poincaree on January 11, 2009

Sunday, 11 Jan, 2009 – 02:43 AM PST

Agence France-Presse

PUBLISHED BY ‘DAWN’ (Pakistan)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘DAWN’ (Pakistan)

Posted in COMMERCE, COMMODITIES MARKET, ECONOMIC CONJUNCTURE, ECONOMY, ENERGY, ENERGY INDUSTRIES, EUROPE, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FOREIGN POLICIES, INDUSTRIAL PRODUCTION, INDUSTRIES, INFLATION, INTERNATIONAL, INTERNATIONAL RELATIONS, NATURAL GAS, PUBLIC SECTOR AND STATE OWNED ENTERPRISES, REGULATIONS AND BUSINESS TRANSPARENCY, RUSSIA, THE EUROPEAN UNION, THE FLOW OF INVESTMENTS, UKRAINE | Leave a Comment »

INFLAÇÃO PELO IGP-DI CAI EM DEZEMBRO, MAS FECHA 2008 COM ALTA DE 9,10% (Brazil)

Posted by Gilmour Poincaree on January 7, 2009

07/01/2009 09:12

Agência Estado

PUBLISHED BY ‘CORREIO BRAZILIENSE’ (Brazil)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘CORREIO BRAZILIENSE’ (Brazil)

Posted in ÍNDICE GERAL DE PREÇOS - DISP. INTERNA (IGP-DI), BRASIL, ECONOMIA - BRASIL, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, INFLATION, INTERNATIONAL, RECESSION | Leave a Comment »

PHILIPPINE DECEMBER INFLATION EASES TO 8%

Posted by Gilmour Poincaree on January 7, 2009

Tuesday January 6, 2009

Associated Press-Wire

PUBLISHED BY ‘THE STAR'(Malaysia)

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PUBLISHED BY ‘THE STAR'(Malaysia)

Posted in COMMERCE, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, INFLATION, INTERNATIONAL, PHILIPPINES, RECESSION | Leave a Comment »

ISRAEL INVADES GAZA: HEAVY FIGHTING AS TANKS CROSS BORDER – ARMOUR AND INFANTRY, BACKED BY JETS AND HELICOPTERS, LAUNCH OPERATION TO SEIZE HAMAS ROCKET SITES, AS MILIBAND DECLARES URGENT NEED FOR IMMEDIATE CEASEFIRE

Posted by Gilmour Poincaree on January 4, 2009

Sunday, 4 January 2009

by Donald Macintyre and Kim Sengupta in Jerusalem

PUBLISHED BY ‘THE INDEPENDENT’ (UK)

SHALON

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE INDEPENDENT’ (UK)

Posted in BANKING SYSTEM - USA, BANKRUPTCIES - USA, COMMERCE, COMMODITIES MARKET, CRIMINAL ACTIVITIES, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FOREIGN POLICIES, FOREIGN POLICIES - USA, HATE MONGERING AND BIGOTRY, HOUSING CRISIS - USA, HUMAN RIGHTS, INDUSTRIAL PRODUCTION, INDUSTRIAL PRODUCTION - USA, INDUSTRIES, INDUSTRIES - USA, INFLATION, INTERNATIONAL, INTERNATIONAL RELATIONS, ISRAEL, MIDDLE EAST, MILITARY CONTRACTS, PALESTINE, THE ARMS INDUSTRY, THE ISRAELI-PALESTINIAN STRUGGLE, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, USA, WEAPONS | Leave a Comment »

INFLATION DIPS FURTHER TO 6.61% (India)

Posted by Gilmour Poincaree on December 27, 2008

26 Dec 2008, 12:06 hrs IST

ECONOMICTIMES.COM

PUBLISHED BY ‘THE ECONOMIC TIMES’ (India)

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE ECONOMIC TIMES’ (India)

Posted in CENTRAL BANKS, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, INDIA, INFLATION, INTERNATIONAL, RECESSION, RUPEE (India) | Leave a Comment »

CENTRAL BANK PRESIDENT SURPRISED AT LOW NOVEMBER INFLATION DATA (Hungary)

Posted by Gilmour Poincaree on December 12, 2008

12 December 2008, Friday

MTI – THE HUNGARIAN NEWS AGENCY

PUBLISHED BY ‘THE HUNGARIAN NEWS AGENCY’

Budapest, December 11 (MTI) – Hungary’s central bank (NBH) and the markets were taken by surprise after the sharp drop in the November inflation rate, the bank’s president Andras Simor said on Thursday.

Annual consumer price inflation slowed to 4.2 percent in November from 5.1 percent in October, the Central Statistical Office (KSH) said on Thursday.

Analysts in the latest Reuters poll and those surveyed by the business daily Napi Gazdasag put November CPI at 4.8 percent while the average estimate of London-based emerging markets analysts polled by MTI-Econews was 4.58 percent.

Simor told a conference that the bank would nevertheless pursue a cautious interest rate policy and convince foreign investors that the bank is aware of the risks of cutting interest rates.

Simor added that were foreign investors to stay away from the Hungarian government securities market in 2009, funds from the IMF loan package would be available to finance Hungary’s external debt expiries.

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PUBLISHED BY ‘THE HUNGARIAN NEWS AGENCY’

Posted in BANKING SYSTEMS, CENTRAL BANKS, COMMERCE, COMMODITIES MARKET, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, HUNGARY, IMF, INFLATION, INTERNATIONAL, RECESSION, STOCK MARKETS, THE FLOW OF INVESTMENTS | Leave a Comment »

VIETNAM LOWERS GASOLINE PRICES BY 8 PERCENT AMID DECLINING WORLD OIL PRICE

Posted by Gilmour Poincaree on December 12, 2008

December 10, 2008 – 2:57 AM

Associated Press

PUBLISHED BY ‘THE STAR TRIBUNE’ (USA)

HANOI, Vietnam – Vietnam has lowered gasoline prices by 8 percent as world oil prices hover around $43 a barrel.

The government said Wednesday that effective immediately, the price of gasoline was cut to 11,000 dong (65 cents) per liter. The government also raised import tax from 35 percent to 40 percent.

The government has cut gasoline prices 10 times since they reached a high of 19,000 dong ($1.1) in July when world oil prices hit a record high of nearly $150 a barrel.

Light, sweet crude for January delivery was up 91 cents to $42.98 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore as investors looked to an expected OPEC production cut next week to help stabilize prices that have plummeted amid a global economic slowdown.

Vietnam exports about 16 million tons of crude oil each year but has to import all refined oil products. The country’s first oil refinery is scheduled to open early next year.

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PUBLISHED BY ‘THE STAR TRIBUNE’ (USA)

Posted in COMMODITIES MARKET, ECONOMIC CONJUNCTURE, ECONOMY, ENERGY, ENERGY INDUSTRIES, FINANCIAL CRISIS 2008/2009, GASOLINE, INDUSTRIAL PRODUCTION, INDUSTRIES, INFLATION, INTERNATIONAL, OPEC, PETROL, RECESSION, REFINERIES - PETROL/BIOFUELS, SINGAPORE, THE FLOW OF INVESTMENTS, USA, VIETNAM | Leave a Comment »

ANOTHER GROWTH FORECAST CUT FOR RP (Philippines)

Posted by Gilmour Poincaree on December 11, 2008

Friday, December 12, 2008 – Vol. XXII, No. 100

MANILA – PHILIPPINES

PUBLISHED BY ‘BUSINESS WORLD’ (Philippines)

The Asian Development Bank (ADB) has joined other multilateral institutions in downgrading growth forecasts for the region to take into account worsening global financial conditions.

In its Asia Economic Monitor for December, the Manila-based multilateral institution kept its 2008 forecast for the Philippines unchanged at 4.5%, but cut next year’s outlook to 3.5% from 4.7%.

The Washington-based World Bank has revised its Philippine projections to 4% from 5.9% for this year and 3% from 3-4% for 2009, while the International Monetary Fund (IMF) cut its 2008 and 2009 forecasts to 4.4% from 5.8% and 3.5% from 3.8%, respectively.

While the ADB’s forecast for 2008 remains within the government target of 4.1-4.8%, next year’s estimate falls below the official goal of 3.7-4.7%.

The ADB said growth in developing Asia could slow to 5.8% next year from a likely 6.9% this year. Growth in the Association of South East Asian Nations was forecast at 4.8% and 3.5% this year and the next.

“The external economic environment for developing Asia is likely to worsen as major industrial economies contract further, global financial conditions remain constricted, and world trade growth slows sharply,” the ADB said in a report.

While growth remains relatively robust, a sharper or prolonged global recession, persistent financial stress with volatile capital flows, further tightening of external and domestic funding conditions, and excessively volatile foreign exchange markets present downside risks, it added.

Policymakers, the ADB said, should institute reforms aimed at exploring other sources of growth and reduce an over-reliance on exports.

Monetary policy, it added, must remain flexible to allow for a growth stimulus when needed, especially now that the balance of risks is shifting to slower growth from rising inflation.

The Bangko Sentral ng Pilipinas (BSP) raised policy rates by a percentage point earlier this year as inflation peaked on rising commodity prices. But with the numbers having eased in the last three months, expectations of a rate cut are high.

The BSP’s last rate-setting meeting for the year will be held next week. — GSDLP

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘BUSINESS WORLD’ (Philippines)

Posted in BANKING SYSTEMS, CENTRAL BANKS, COMMERCE, COMMODITIES MARKET, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, IMF, INDUSTRIES, INFLATION, INTERNATIONAL, PHILIPPINES, RECESSION, THE FLOW OF INVESTMENTS | Leave a Comment »

SUBPRIME FIASCO AND DEREGULATION

Posted by Gilmour Poincaree on December 9, 2008

December 08, 2008 Monday – Zilhaj 9, 1429

by Hasan Tariq Ghani

PUBLISHED BY ‘DAWN’ (Pakistan)

SUB-PRIME borrowers are defined as borrowers with a “bad credit history”. These borrowers have lesser credibility as compared to the normal conventional “prime borrowers”. Sub-prime borrowers also face high default risk, since some/most of them have faced bankruptcy in the past or have not been able to meet their debt obligations.

The broad category of these borrowers also incorporates the ones who have had lesser experience with debt and have a credit score (FICO score) below 620 (the score ranges from 300 to 850).

It is due to this high default risk on part of the borrowers that lenders demand greater compensation in form of higher interest rates. Sub- prime loans come in a variety of forms including sub-prime mortgages, car loans and credit cards. The most popular from among these aforementioned credit lines have indeed been sub prime mortgages. These mortgages are based on adjustable rate mortgages (arms) and are denoted by symbols such as 3/27.

The sum of the two numbers quotes the tenure or the time period of the mortgage (which in this case is 30 years), with the first number representing the number of years for which the interest rate on the mortgage remains fixed, regardless of market rates, while the subsequent number denotes the number of years for which the interest or the sub prime rate is adjusted according to a benchmark index.

According to the Wall Street Journal published in 2006, 61 per cent of the borrowers receiving the sub prime mortgages had FICO/ credit scores high enough to qualify as normal “prime borrowers”. But given the low interest rates for the first couple of years and an initial down payment lesser than $10,000, the “prime borrowers” were lured into taking on these risky sub-prime mortgages.

After the catastrophic events occurring on 9/11, the Federal Reserve (the American central bank), in an attempt to revive the collapsing American economy, started slashing the Fed Funds rate (inter bank lending rates), so as to increase consumption and spending by increasing money demand. Things were however running smoothly and the low interest rates were reaping the desired benefits for the American economy till the fear of inflation, or a persistent increase in the general price level, crept in.

In order to curb inflation, the Federal Reserve started increasing interest rates. This led to a proportional increase in the floating/adjustable part of the sub prime rates, which are linked to the benchmark interest rates and adjusted accordingly. This sudden and unexpected hike in the interest rate triggered massive foreclosures (seizure of property held as collateral by the lending bank) in the American mortgage industry.

The highly inflated so-called “real estate bubble”, which is very similar to the one currently being created in Dubai, finally exploded as the number of foreclosures in the American mortgage sector started picking pace. It was only a matter of time before the large investments made by mortgage firms and investment banks started going down the drain. To make matters even worse, a large portion of these “sour” mortgages were cut off into tranches, and sold off to investment banks, commercial banks and even the general public in the form of mortgage backed securities, after getting approval from different credit rating agencies, with the whole process being known as “securitisation”.

The originators(lenders) of these bad mortgages eventually thought that a bunch of hot shot investment bankers from Wall Street, by unleashing their creative skills, would come up with something innovative, that would help mitigate the risk of holding these “sour” mortgages by transferring the risk from their balance sheet on to a third party. This is a glimpse of how the process of securitization originated.

Some investment banks even went on as far as transferring their portfolios of “bad” mortgages to their fake off shore counterparts. One might wonder as to how these investment bankers were able to get good or at least decent ratings from credit rating agencies for the mortgage backed securities. Putting it in simple words, these highly qualified bankers were actually out “shopping” for credit ratings.

The rating agencies, after being intimidated by these investment giants, were forced to assign good ratings to their mortgage backed securities. After the formal window dressing process, these junk securities were sold off to investors, who unfortunately, were under the wrong impression of having sensibly invested their savings in lucrative ventures. Little did they realise that they would soon be weeping for having made the wrong investment decisions. It is also worth mentioning that some of these “dishonest” credit rating agencies are the same ones that have been very particular in downgrading our country’s credit ratings and making claims that we are on the verge of bankruptcy.

High rates of default by the sub prime borrowers led to the banks facing a liquidity crunch(severe shortage of cash), due to which they were unable to pay returns/interest to the holders of mortgage backed securities. Soon, the liabilities of many of these banks exceeded their assets, and once declared insolvent, many of these banks filed for bankruptcy.

The Federal Reserve played a key role in bailing out these distressed investment giants by acting as the lender of the last resort. But was it a wise decision to use hard earned tax payers money in providing temporary relief to those greedy banks that took on such risky investments? The $700 billion bail out plan by the Federal Reserve and the presence of the Federal Deposit Insurance Corporation (FDIC), seem to promote a phenomenon known as “moral hazard”.

Lets say hypothetically that a person gets a health insurance as well as a car insurance. Now this person is highly likely to drive recklessly and risk his life, given the fact that he knows that he is insured and will be compensated in the event of a loss or an injury. This explains the presence of moral hazard. Similarly, if the regulators keep on coming to the rescue of these banks who made certain reckless investment decisions by putting their shareholder’s and depositor’s money at stake, the banks are bound to behave in this fashion.

These private sector banks are the ones who have been favouring more of deregulation and comparing regulation with strangulation. But once in distress, they are the first ones to approach the government and the regulators for their assistance. A valuable lesson to be learned from the crisis is that a high level of deregulation can lead to a misery. In reality, there is no perfect example of a free market, or a market where there is no government intervention.

Certain checks and balances are necessary at the micro level in every sector of the economy to ensure it’s smooth functioning. The absence of a state can lead to anarchy and total chaos, which is exactly what we have observed in the sub prime debacle.

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘DAWN’ (Pakistan)

Posted in BANKING SYSTEM - USA, BANKING SYSTEMS, BANKRUPTCIES - USA, CENTRAL BANKS, COMMODITIES MARKET, DUBAI, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FINANCIAL SCAMS, FRAUD, HOUSING CRISIS - USA, INFLATION, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY, STOCK MARKETS, THE FLOW OF INVESTMENTS, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, UNITED ARAB EMIRATES, USA | Leave a Comment »

LEBANESE ECONOMY EVADES EFFECTS OF GLOBAL CRISIS – REPORT

Posted by Gilmour Poincaree on December 8, 2008

Monday, December 08, 2008

Lebanon This Week, with The Daily Star

PUBLISHED BY ‘THE DAILY STAR’ (Lebanon)

BEIRUT: In its first report on Lebanon’s economy since the global financial crisis, the Institute of International Finance (IIF) indicated that there were no noticeable direct effects of the global financial turmoil on Lebanon and sovereign spreads have increased less than in other emerging markets in October and November 2008, according to Byblos Bank’s Lebanon This Week.

The report said that Lebanese banks have few direct links to foreign counterparts affected by the current financial market turmoil, and that the sector’s regulatory framework has limited banks’ exposure to structured products that have been at the core of the global crisis.

It added that the banking system remains well-capitalized and highly liquid.

The IIF added that macroeconomic developments have improved significantly since the Doha accord last May, but warned that the main risk to the outlook comes from a potential deterioration in the political and security situation in the run up to the May 2009 parliamentary elections.

It projected economic growth at 5.5 percent in 2008 and at 3.5 percent in 2009, adding that the spillover from the global economic slowdown could adversely affect tourism and construction activity.

It also noted that consumer price inflation peaked in July 2008 at 14 percent year-on-year, reflecting the sharp rise in commodity prices, and then declined to 10 percent in September. It expected inflation to average 12 percent in 2008.

The IIF considered that fiscal performance improved in 2008 and estimated the primary surplus to slightly exceed 2 percent of GDP this year.

But it cautioned that the overall fiscal deficit, while narrowing, remains very large due to the continued large interest payments on the public debt, and projected a deficit of 9.8 percent of GDP in 2008. The report forecast a fiscal deficit of 9 percent of GDP for 2009.

The IIF said Lebanon’s large public debt remains the country’s core macroeconomic challenge. It added that the government faces sizeable gross financing needs of $5.5 billion in 2009.

The report also predicted public debt to decline to 165 percent of GDP by the end of 2008.

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE DAILY STAR’ (Lebanon)

Posted in 'DOHA TALKS', BANKING SYSTEMS, CENTRAL BANKS, COMMERCE, COMMODITIES MARKET, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, INFLATION, INTERNATIONAL, ISLAMIC BANKS, LEBANON, MACROECONOMY, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY, THE FLOW OF INVESTMENTS, THE LEBANESE CIVIL STRUGGLE | Leave a Comment »

CLOSED-DOOR SESSIONS IN ISLAMABAD ON 16TH, 17TH – World experts to discuss 5-year plan to boost tax collection

Posted by Gilmour Poincaree on December 5, 2008

Friday, December 05, 2008

by Ikram Hoti

PUBLISHED BY ‘THE NEWS’ (Pakistan)

ISLAMABAD: International experts are converging on Islamabad to hold “closed-door” sessions on December 16-17 to devise a five-year plan of taxation in the post-IMF-agreement era to boost tax collection in Pakistan without burdening the poor majority who are already suffering history’s worst stagflation.

The sessions are to be aimed at dealing with Pakistan’s national taxation and introduce sub-national taxation for the first time. Details of this version for Pakistan will be chalked out at the sessions of experts. It is IMF condition to improve collection but Pakistan has remained hesitant and needed international help not only in a foreign exchange injection but also in expert assistance that could plan the rescue without causing much stir, inflation and poverty enhancement.

The World Bank and the DFID are the main sponsors of the Dec 16-17 workshop and the media would not be informed about the conduct of, and decisions, at the workshop but The News has been able to acquire some details.

In the first place, the format for the sessions is “closed door’ so that there can be uninhibited discussion of the “issue and concerns of the main stakeholders.”

International experts will include Professor Martinez-Vasquez, Michael Keen, Christopher Waerzeggars and Carlos Silvani, along with the staff of a number of international agencies including the IMF, WB, WHO and DFID.

A “blueprint” for taxation and reforms will be prepared with a clear plan to increase the collection of taxes from 10 per cent (one of the lowest in the world) of GDP to 14-15 per cent.

A new mechanism would be proposed for this purpose to tax areas where the subsistence economy of the poor does not undergo additional cost. This would be simultaneous with another mechanism that would ensure plugging all slippages by installing an online connectivity between the Customs, Income Tax and Sales Tax Departments.

This connectivity would ensure information input to the three sides from taxable business generated in the country and through imports and exports. Efforts already made administratively and technically in this connection would be examined and the Pakistani bosses would be asked to explain why feet were dragged on this previously IMF-sponsored (1995) mechanism and it could not made operational.

They will also be asked to explain as to why the gap between the businesses generated and the taxes collected on them remained unattended and nothing significant was ever done conclusively to asses the gap and to minimise it. That would be a sensitive issue, as it would relate not only to the corruption and dereliction on the part of the tax machinery but also to politicians, the bureaucratic channels in the civil and military apparatus.

A key element in this regard would be the establishment of a tax system that “does not penalise investment and production incentives or discriminate against the poor, and, at the same time, provides adequate revenues in an orderly manner yet under a tight timeframe of 4-5 years.”

It is projected to achieve economic stability while keeping in view the revenue-incentive objectives. This tax reform strategy would need to be closely dovetailed with the administration reforms. A complete reassessment of the Pakistani tax system has already been conducted for this purpose.

The proposals for reform would be offered by Michael Keen of the IMF (Reforming the Income Tax and GST); Kasper Richter of the World Bank.

(Summary of the Bank’s Project Proposals); Ms Ayda and Mr Petit of the WHO (Excise System); Professor Martinez-Vasquez of Georgia State (Tax Policy Options); Carlos Silvani, head of the WB Review Mission (FBR Reforms Review and the Way Forward); Professors Roy Bahl and Sally Wallace (Sub-national Taxation).

“The purpose of the brainstorming sessions is to achieve the objective of a significant enhancement in Pakistan’s domestic resource mobilization as part of its stabilisation and reform strategy.”

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE NEWS’ (Pakistan)

Posted in BANKING SYSTEMS, CENTRAL BANKS, COMMERCE, DEPRESSION, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, IMF, INDUSTRIAL PRODUCTION, INDUSTRIES, INFLATION, INTERNATIONAL, PAKISTAN, REGULATIONS AND BUSINESS TRANSPARENCY, STAGFLATION, STOCK MARKETS, TAX EVADING, THE FLOW OF INVESTMENTS | Leave a Comment »

THE WEIMAR CHRONICLE – Chapter 6

Posted by Gilmour Poincaree on November 30, 2008

by Alex de Jonge

INFLATION

The year 1923 has a special and dreadful connotation in German history, for it was the year of the great inflation. If defeat, abdication and revolution had begun to undermine the traditional values of German culture, then the inflation finished the process so completely that in the end there were no such values left. By November 1918 there were 184.8 marks to the pound. By late November 1923 there were 18,000,000,000,000. Although the mark was eventually "restored," and the period of inflation succeeded by a time of relative prosperity for many people, life for anyone who had lived through the lunatic year of 1923 could never be the same again.

Such a cataclysmic loss of a currency’s value can never be ascribed to a single cause. Once confidence goes, the process of decline is a self-feeding one. By late 1923 no one would hold German money one moment longer than it was really necessary. It was essential to convert it into something, some object, within minutes of receiving it, if one were not to see it lose all value in a world in which prices were being marked up by 20 percent every day.

If we go back beyond the immediate cause of hyperinflation—beyond a total lack of confidence in a currency that would consequently never "find its floor," however undervalued it might appear—we find that passive resistance in the Ruhr was a major factor. Effective loss of the entire Ruhr output weakened the mark disastrously, encouraging dealers to speculate against it, since the balance of payments was bound to show a vast deficit. Confidence in the currency could only begin to be restored when resistance ended late in 1923.

It has been the "patriotic" view that reparations were also a significant factor. Certainly they constituted a steady drain upon the nation’s resources, a drain for which it got no return. But reparations alone would not have brought about hyperinflation. There were still other causes. Sefton Delmer believes that the true explanation lay in Germany’s financing of the war. She had done so very largely on credit, and was thereafter obliged to run a gigantic deficit. There were other more immediate causes, such as a total incomprehension of the situation on the part of Havenstein, director of the Reichsbank. Failing to understand why the currency was falling, he was content to blame it upon forces beyond his control—reparations—and attempted to deal with the situation by stepping up the money supply!

The first British ambassador to the Weimar Republic, Lord d’Abernon, had no illusions about the economic plight of Germany. He observed in his diary that "German finance is dying beyond its means," 1 and no one seemed to know why. In the meantime, he noted:

Currency experts have a sad fate. During life they empty every room in which they hold forth, and death finds them in madhouses. Berlin has been deluged with these gentlemen for the last week and still survives; but the currency has gone to the devil.2

He saw the Reichsbank compounding its own mistakes:

In the whole course of history, no dog has run after its own tail with the speed of the Reichsbank. The discredit they throw on their own notes increases even faster than the volume of the notes in circulation. The effect is greater than the cause; the tail goes faster than the dog.3

By October 1923 it cost more to print a note than the note was worth. Nevertheless Havenstein mobilized all the printing resources that he could. Some of the presses of the Ullstein newspaper and publishing group were even commandeered by the mint and turned to the printing of money. Havenstein made regular announcements to the Reichstag to the effect that all was well since print capacity was increasing. By August 1923 he was able to print in a day a sum equivalent to two-thirds of the money in circulation. Needless to say, as an anti-inflationary policy, his measures failed.

In his documentary novel Success, Leon Feuchtwanger has suggested that inflation had less obvious and more sinister causes. Certainly it had its beneficiaries as well as its victims. Anyone living on a pension or on fixed-interest investments—the small and cautious investor—was wiped out. Savings disappeared overnight. Pensions, annuities, government stocks, debentures, the usual investments of a careful middle class, lost all value. In the meantime big business, and export business in particular, prospered. It was so easy to get a bank loan, use it to acquire assets, and repay the loan a few months later for a tiny proportion of the original. Factory owners and agriculturalists who had issued loan stock or raised gold mortgages on their properties saw themselves released from those obligations in the same way, paying them off with worthless currency on the principle that "mark equals mark." It would be rash to suggest, as Feuchtwanger hints, that the occupation of the Ruhr was planned by industrialists to create an inflation which could only be to their benefit. Yet we should remember that Stinnes, the multi-millionaire, had both predicted that occupation and ended up the owner of more than 1,500 enterprises. It should also be remembered that some businessmen had a distinctly strange view of the shareholder. He was regarded by many as a burdensome nuisance, a drag upon their enterprise. He was the enemy and they were quite happy to see him wiped out to their benefit. Inflation was their chance to smash him. Witness the behavior of a banker at a shareholders’ meeting at which it was suggested he should make a greater distribution of profit: "Why should I throw away my good money for the benefit of people whom I do not know?"4

The ingenious businessman had many ways of turning inflation to good account. Thus employees had to pay income tax weekly. Employers paid their tax yearly upon profits which were almost impossible to assess. They would exploit the situation of a smaller businessman, obliged to offer six to eight weeks of credit to keep his customers, by insisting on payment in cash. The delay between paying for the goods and reselling them eroded any profit the small man might make, while the big supplier prospered.5

Whether or not the industrialists actually caused inflation, their visible prosperity made them detested by an otherwise impoverished nation. Hugo Stinnes became an almost legendary embodiment of speculation and evil. Alec Swan remembers how hungry Germans would stare at prosperous fellow countrymen in fur coats, sullenly muttering "Fabrikbesitzer" (factory owner) at them. The term had become an insult and an expression of envy at one and the same time.

Hyperinflation created social chaos on an extraordinary scale. As soon as one was paid, one rushed off to the shops and bought absolutely anything in exchange for paper about to become worthless. If a woman had the misfortune to have a husband working away from home and sending money through the post, the money was virtually without value by the time it arrived. Workers were paid once, then twice, then five times a week with an ever-depreciating currency. By November 1923 real wages were down 25 percent compared with 1913, and envelopes were not big enough to accommodate all the stamps needed to mail them; the excess stamps were stuck to separate sheets affixed to the letter.6 Normal commercial transactions became virtually impossible. One luckless author received a sizable advance on a work only to find that within a week it was just enough to pay the postage on the manuscript. 7 By late 1923 it was not unusual to find 100,000 mark notes in the gutter, tossed there by contemptuous beggars at a time when $50 could buy a row of houses in Berlin’s smartest street.8

A Berlin couple who were about to celebrate their golden wedding received an official letter advising them that the mayor, in accordance with Prussian custom, would call and present them with a donation of money.

Next morning the mayor, accompanied by several aldermen in picturesque robes, arrived at the aged couple’s house, and solemnly handed over in the name of the Prussian State 1,000,000,000,000 marks or one halfpenny.9

The banks were flourishing, however. They found it necessary to build annexes and would regularly advertise for more staff, especially bookkeepers "good with zeros." Alec Swan knew a girl who worked in a bank in Bonn. She told him that it eventually became impossible to count out the enormous numbers of notes required for a "modest" withdrawal, and the banks had to reconcile themselves to issuing banknotes by their weight.

By the autumn of 1923 the currency had virtually broken down. Cities and even individual businesses would print their own notes, secured by food stocks, or even the objects the money was printed on. Notes were issued on leather, porcelain, even lace, with the idea that the object itself was guarantee of the value of the "coin."10 It was a view of the relationship between monetary and real value that took one back five hundred years. Germany had become a barter society; the Middle Ages had returned. Shoe factories would pay their workers in bonds for shoes, which were negotiable. Theaters carried signs advertising the cheapest seats for two eggs, the most expensive for a few ounces of butter which was the most negotiable of all commodities. It was so precious that the very rich, such as Stinnes, used to take a traveling butter dish with them when they put up at Berlin’s smartest hotel.11 A pound of butter attained "fantastic value." It could purchase a pair of boots, trousers made to measure, a portrait, a semester’s schooling, or even love. A young girl stayed out late one night while her parents waited up anxiously. When she came in at four in the morning, her mother prevented her father from taking a strap to her by showing him the pound of butter that she had "earned."12 Boots were also highly negotiable: "The immense paper value of a pair of boots renders it hazardous for the traveler to leave them outside the door of his bedroom at his hotel.". 13

Thieves grew more enterprising still in their search for a hedge against inflation.

Even the mailboxes are plundered for the sake of the stamps attached to the letters. Door handles and metal facings are torn from doors; telephone and telegraph wires are stolen wholesale and the lead removed from roofs.14

In Berlin all metal statues were removed from public places because they constituted too great a temptation to an ever-increasing number of thieves. One of the consequences of the soaring crime rate was a shortage of prison accommodation. Criminals given short sentences were released and told to reapply for admission in due course.15

It was always possible that one might discover an unexpected source of wealth. A Munich newspaperman was going through his attic when he came upon a set of partly gold dentures, once the property of his grandmother, long since dead. He was able to live royally upon the proceeds of the sale for several weeks.16

The period threw up other anomalies. Rents on old houses were fixed by law, while those on new ones were exorbitantly high. As a result in many parts of Germany housing was literally rationed. If one were fortunate enough to live in old rented property, one lived virtually free. The landlord, however, suffered dreadfully: to repair a window might cost him the equivalent of a whole month’s rent. Thus yet another of the traditional modes of safe investment, renting property, proved a disaster. Hitherto well-to-do middle-class families found it necessary to take in lodgers to make ends meet. The practice was so widespread that not to do so attracted unfavorable attention suggesting that one was a profiteer. Pearl S. Buck records the case of one family where the woman of the house reluctantly confessed to her husband that they would have to have a lodger. He greeted the news not with anger, but with a sigh of relief: the neighbors had begun to talk. Real property lost its value like everything else. Pearl Buck notes the case of a couple selling their house in order to marry their daughter in some kind of style. More telling is a famous song of inflation:

We are drinking away our grandma’s

Little capital

And her first and second mortgage too.17

As noted in the famous and highly intelligent paper the Weltbühne, the song picked out the difference between the "old" generation of grandparents who had scraped and saved carefully in order to acquire the security of a house, and the "new generation" for whom there could be no security any more, who "raided capital" or what was left of it, and were prepared to go to any lengths to enjoy themselves. Where their parents’ lives had been structured with certainties, the only certainty that they possessed was that saving was a form of madness.

Not all Germans suffered, of course. Late in 1923 Hugo Stinnes did what he could to alleviate the misery of his fellow countrymen by the magnanimous decision to double his tipping rate in view of the inflation.18 Along with rents, rail fares were also fixed and did not go up in proportion to inflation. Consequently, travel appeared absurdly cheap. Alec Swan recalls crossing Germany in the greatest style for a handful of copper coins. Yet even this was beyond the means of most Germans. A German train in 1923 would consist of several first-class carriages occupied entirely by comfortable foreigners, and a series of run-down third-class carriages crammed to bursting with impoverished and wretched Germans.

Although the shops were full of food, no one could afford it except foreigners. Germans often had to be content with food not normally thought of as fit for human consumption. In Hamburg there were riots when it was discovered that the local canning factory was using cats and rats for its preserved meats. Sausage factories also made much use of cat and horse meat.19 Moreover, as we shall see, some of the most famous mass murderers of the age used to preserve and sell the meat of their victims in a combination of savagery and an almost sexual obsession with food that mythologizes much of the darkness and the violence that were latent in the mood of Weimar.

If 1923 was a bad year for the Germans it was an annus mirabilis for foreigners. Inflation restored the sinking morale of the army of occupation ; small wonder when every private found himself a rich man overnight. In Cologne an English girl took lessons from the prima donna of the opera for sixpence a lesson. When she insisted that in future she pay a shilling, the prima donna wept with delight.20 Shopping became a way of life: "All through that autumn and winter whenever we felt hipped we went out and bought something. It was a relaxation limited at home, unlimited in the Rhineland.". 21

Germany was suddenly infested with foreigners. It has been suggested that the English actually sent their unemployed out and put them up in hotels because it was cheaper than paying out the dole.22 Alec Swan stayed with his family in a pension in Bonn. They had moved to Germany because life was so much cheaper there. The inmates of Swan’s pension were mostly foreigners of strange complexion, such as the Swede suffering from tertiary syphilis who would bombard heads of state with urgent telegrams. There was also an extremely fat German, christened Glaxo by the Swans. He was in the habit of helping himself to gigantic mounds of the spaghetti which formed the staple diet of the common table, saying apologetically, "My stomach, my stomach," with a hand upon the offending organ, as a form of explanation.

To find oneself suddenly wealthy in the midst of tremendous hardship proved rather unsettling. Inflation corrupted foreigners almost as much as the Germans. The English in Cologne could think of nothing else.

They talked with sparkling eyes and a heightened color, in the banks, the streets, the shops, the restaurants, any public place, with Germans standing around gazing at them.

Scruples were on the whok overwhelmed by the sudden onslaught of wealth and purchasing power beyond one’s dreams.23

As Alec Swan put it:

You felt yourself superior to the others, and at the same time you realized that it was not quite justified. When we went to Bellingshausen, which was a sort of wine place near Königswinter, we would start drinking in the afternoon. I would always order champagne and my Dutch friend would shake his head in disapproval. We’d have two ice buckets: he with some Rhine wine and me with German champagne. It was really rather ridiculous for a chap of my age to drink champagne on his own.

Being as wealthy as that was an extraordinary feeling, although there were many things you couldn’t get in Germany. It was impossible to buy a decent hat, for instance. But you could have any food you wanted if you could pay for it. I haven’t eaten anything like as well as that in my life. I used to go to the Königshalle (that was the big café in Bonn) at eleven o’clock in the morning for a Frühschoppen and a Bergmann’s Stückchen, a large piece of toast with fresh shrimps and mayonnaise. For a German that would have been quite impossible.

I paid two million marks for a glass of beer. You changed as little money as you could every day. No, one did not feel guilty, one felt it was perfectly normal, a gift from the gods. Of course there was hatred in the air, and I dare say a lot of resentment against foreigners, but we never noticed it. They were still beaten, you see, a bit under and occupied.

My mother did buy meat for three or four German families. I remember I bought an air gun, and, when I grew tired of it, I gave it to my German teacher’s son, with some pellets. Some time later the woman came to me in tears saying the boy had run out of pellets, and they could not afford to buy any more.

On another occasion Swan, all of twenty-two at the time, took the head of the Leipzig book fair out for a meal and looked on incredulously as the elderly and eminent bookseller cast dignity to the winds and started to eat as if he had not had a meal in months.

Stories of money changing and currency speculation are legion. Bureaux de change were to be found in every shop, apartment block, hairdresser’s, tobacconist’s. An Englishman named Sandford Griffith remembers having to visit a number of cities in the Ruhr which had local currencies. He stopped at a dealer’s to change some money, but when he produced a pound note the dealer was so overcome by such wealth that he simply waved a hand at his stock of currency and invited the astonished Englishman to help himself.24 Foreigners acquired antiques and objets de valeur at rock-bottom prices. A favorite trick was to buy in the morning with a down payment, saying that one would fetch the rest of the money from the bank. By waiting until the new exchange rate had come out at noon before changing one’s money into marks, an extra profit could be made on the amount that the mark had fallen since the day before.25

The population responded to the foreign onslaught with a double pricing system. Shops would make their prices up for foreigners. It would cost a tourist 200 marks to visit Potsdam, when it cost a German 25. Some shops simply declined to sell to foreigners at all.26 In Berlin a Schlemmsteuer, or tax on gluttony, was appended to all meals taken in luxury restaurants.27

Foreign embassies were also major beneficiaries of inflation, giving lavish banquets for virtually nothing. Indeed the Weltbühne noted with great resentment the presence of foreign legations of nations so insignificant that they would never hitherto have dreamed of being represented in Germany.28 The spectacle of foreigners of all nations, living grotesquely well and eating beyond their fill in the middle of an impoverished and starving Germany did not encourage the Germans to rally to the causes of pacificism and internationalism. The apparent reason for their inflation was there for all to see, occupying the Ruhr.

The surface manifestations of inflation were unnerving enough, but its effect upon behavior, values and morals were to reach very deep indeed, persisting for years after the stabilization of the mark, right up to the moment when Hitler came to power. The middle class—civil servants, professional men, academics—which had stood for stability, social respectability, cultural continuity, and constituted a conservative and restraining influence was wiped out. A French author met a threadbare and dignified old couple in spotless but well-worn prewar clothes in a cafe. They ordered two clear soups and one beer, eating as if they were famished. He struck up a conversation with the man, who spoke excellent French and had known Paris before the war. "Monsieur," the man replied, when asked his profession, "I used to be a retired professor, but we are beggars now.".29

There was a general feeling that an old and decent society was being destroyed. If the year 1918 had removed that society’s political traditions and its national pride, 1923 was disposing of its financial substructure. In response, people grew either listless or hysterical. A German woman told Pearl Buck that a whole generation simply lost its taste for life—a taste that would only be restored to them by the Nazis. Family bonds melted away. A friend of Swan, a most respectable German whose father was a civil servant on the railways, simply left home and roamed the country with a band. It was a typical 1923 case history. Young men born between 1900 and 1905 who had grown up expecting to inherit a place in the sun from their well-to-do parents suddenly found they had nothing. From imperial officer to bank clerk became a "normal" progression. Such disinherited young men naturally gravitated toward the illegal right-wing organizations and other extremist groups. Inflation had destroyed savings, self-assurance, a belief in the value of hard work, morality and sheer human decency. Young people felt that they had no prospects and no hope. All around them they could see nothing but worried faces. "When they are crying even a gay laughter seems impossible . . . and all around it was the same . . . quite different from the days of revolution when we had hoped things would be better.".30

Traditional middle-class morality disappeared overnight. People of good family co-habited and had illegitimate children. The impossibility of making a marriage economically secure apparently led to a disappearance of marriage itself.31 Germany in 1923 was a hundred years away from those stable middle-class values that Thomas Mann depicted in The Magic Mountain, set in a period scarcely ten years before. Pearl Buck wrote that "Love was old-fashioned, sex was modern. It was the Nazis who restored the ‘right to love’ in their propaganda.".32

Paradoxically, the inflation that destroyed traditional German values was also largely responsible for the creation of that new, decadent and dissolute generation that put Berlin on the cosmopolitan pleasure seeker’s map, and has kept it or its image there ever since. It was no coincidence that 1923 was the year that the Hotel Adlon first hired gigolos, professional male dancers, to entertain lady clients at so much per dance. It was also a period when prostitution boomed. A Frenchman accustomed enough to the spectacle of Montmartre was unable to believe his eyes when he beheld the open corruption of Berlin’s Friedrichstrasse.33 Klaus Mann remembers:

Some of them looked like fierce Amazons strutting in high boots made of green glossy leather. One of them brandished a supple cane and leered at me as I passed by. "Good evening, madame" I said. She whispered in my ear: "Want to be my slave? Costs only six billion and a cigarette. A bargain. Come along, honey.".

. . . Some of those who looked most handsome and elegant were actually boys in disguise. It seemed incredible considering the sovereign grace with which they displayed their saucy coats and hats. I wondered if they might be wearing little silks under their exquisite gowns; must look funny I thought … a boy’s body with pink lace-trimmed skirt.34

Commercial sex in Berlin was not well organized and was considered by connoisseurs to be inferior to that of Budapest, which had the best red-light district in Europe. But in Berlin there was no longer any clear-cut distinction between the red-light district and the rest of town, between professional and amateur. The booted Amazons were streetwalkers who jostled for business in competition with school children. Hans Fallada has painted the following portrait of a shop girl:

Pepa Ledig was at twenty-two no longer a blank page. She had ripened, not in a peaceful atmosphere, but during the war, postwar and inflation. Only too soon she knew what it meant when a gentleman customer in her bootshop touched her lap significantly with his toe. Sometimes she nodded . . . 35

Stefan Zweig gives us another glimpse of inflationary Berlin:

Along the entire Kurfürstendamm powdered and rouged young men sauntered, and they were not all professionals; every schoolboy wanted to earn some money, and in the dimly lit bars one might see government officials and men of the world of finance tenderly courting drunken sailors without shame. . . .

At the pervert balls of Berlin, hundreds of men dressed as women, and hundreds of women as men danced under the benevolent eyes of the police…. Young girls bragged proudly of their perversion. To be sixteen and still under suspicion of virginity would have been considered a disgrace in any school in Berlin at the time.36

Another visitor was struck by what he referred to as Berlin’s "pathological" mood:

Nowhere in Europe was the disease of sex so violent as in Germany. A sense of decency and hypocrisy made the rest of Europe suppress or hide its more uncommon manifestations. But the Germans, with their vitality and their lack of a sense of form, let their emotions run riot. Sex was one of the few pleasures left to them. . . .

In the East End of Berlin there was a large Diele (dancing cafe) in which from 9 p.m. to 1 a.m. you could watch shopkeepers, clerks and policemen of mature age dance together. They treated one another with an affectionate mateyness; the evening brought them their only recreation among congenial people. Politically most of them were conservative; with the exception of sex they subscribed to all the conventions of their caste. In fact, they almost represented the normal element of German sex life.

… There was a well-known Diele frequented almost entirely by foreigners of both sexes. The entertainment was provided by native boys between 14 and 18. Often a boy. would depart with one of the guests and return alone a couple of hours later. Most of the boys looked undernourished…. Many of them had to spend the rest of the night in a railway station, a public park, or under the arch of a bridge.37

Inflation made Germany break with her past by wiping out the local equivalent of the Forsytes. It also reinforced the postwar generation’s appetite for invention, innovation and compulsive pleasure seeking, while making them bitterly aware of their own rootlessness. It is not surprising that cocaine was very much in vogue in those years. The drug was peddled openly in restaurants by the hat-check girls, and formed an integral part of the social life of Berlin.

Inflation was also taken as evidence that the old order was morally and practically bankrupt. Capitalism had failed to guarantee the security of its citizens. It had benefited speculators, hustlers, con men and factory owners. It had spawned Hugo Stinnes, but had done nothing for the common good. The need for an alternative system appeared universally self-evident, and until one came along the thing to do was to enjoy oneself, drink away grandma’s capital, or exchange one’s clothes for cocaine: a dinner jacket got you four grams, a morning coat eight.38

Inflation and the despair that it created also acted as the catalyst of aggression. It was at this time that anti-Semitism began to appear in Berlin. An attractive German lady remembers walking through a prosperous suburb with a Jewish friend when someone called to her in the street, "Why do you go around with a Jew ? Get yourself a good German man." In one sense she found it understandable. The ordinary German was very slow to adjust to the special situation of inflation, and in 1923 anyone who was not very quick on their feet soon went under. Jews were better at economic survival in such situations than were other Germans—so much so, she says, that by the end of inflation they had become terribly conspicuous. All the expensive restaurants, all the best theater seats, appeared to be filled by Jews who had survived or even improved their position.

One can imagine that Germans who had lost their own status might have resented the spectacle. One old conservative I spoke to added a second reason for the rise of anti-Semitism in a Prussian society which had traditionally been quite free of it. The arguments advanced are his own, and tell us something of his prejudices. He believes that the Weimar Republic was too liberal with regard to immigration from the East, admitting thousands of Jews from Galicia and the old pale of settlement, persons who, in his words, were "Asiatics, not Jews." They found themselves in a strange anonymous town, free of all the ethical restraints imposed by life in a small community where their families had lived for several generations. They tended therefore to abandon all morality as they stepped out of their own homes, morality being strictly a family affair. They would sail as close to the wind as the law would allow, for they had no good will, or neighborly esteem to lose. The gentleman in question is convinced that their mode of doing business during the inflation did a great deal to create or aggravate more generalized anti-Semitic feelings.

Yet precisely these immigrants were to prove a mainstay of the republic. An old Berlin Jew who had spent some time in prewar Auschwitz told me that it was just these Eastern Jews who offered the most active and effective resistance to National Socialism. They were activists where native Berliners, Jew and Gentile alike, were more inclined to remain on the sidelines.

Certainly the period saw a rise in pro-National Socialist feelings. The first Nazi that Professor Reiff knew personally was a schoolboy in his last year. The young man’s father, a small civil servant, had just lost everything through inflation, and as a result his son joined the party. Pearl Buck records the views of an antimonarchical businessman worried by inflation, who said of the Nazis: "They are still young men and act foolishly, but they will grow up. If they will only drop Ludendorff and his kind, maybe someday I’ll give them a chance.".39

For many people, who felt that they had lost all zest for a life rendered colorless by war and poverty, who
could see that they lived in a world in which Schieber won and decent folk lost, a new ideology combining patriotism and socialist anticapitalism seemed to be the only viable alternative to a totally unacceptable state of financial chaos and capitalist laissez-faire. The shock of inflation had made people mistrustful of the past, immensely suspicious of the present, and pathetically ready to have hopes for the future. It was perfectly clear to them that new solutions were needed, equally clear that until such solutions should appear they could put their trust in nothing except the validity of their own sensations.

The mood of the inflationary period is summed up by Stefan Zweig. It is a mood that endured well beyond inflation itself to become the mood of the Weimar age, a blend of pleasure seeking, sexual and political extremism, and a yearning for strange gods.

It was an epoch of high ecstasy and ugly scheming, a singular mixture of unrest and fanaticism. Every extravagant idea that was not subject to regulation reaped a golden harvest: theosophy, occultism, yogism and Paracelcism. Anything that gave hope of newer and greater thrills, anything in the way of narcotics, morphine, cocaine, heroin found a tremendous market; on the stage incest and parricide, in politics communism and fascism constituted the most favored themes.40

It was indeed a time for the revaluation of all (devalued) values.

The mood of 1923 persisted long after inflation ended, which is why the manner of its ending is offered here as a postscript, for nothing was restored but the currency.

Restoration of confidence was only possible when passive resistance in the Ruhr ended in the autumn of 1923. At the same time, the Reichsbank appointed Hjalmar Schacht to deal with inflation. He was an extremely able man with a clear grasp of essentials. He realized that his main problem was to restore confidence both within and without Germany, and to try to prevent people from spending money as soon as it came into their hands. He established a new currency, based on the notional sum total of Germany’s agricultural wealth, the Roggen-Mark (rye mark). This had the effect of restoring psychological confidence in the currency. He combined the move with a gigantic bear trap laid by the Reichsbank to catch the speculators who would regularly build up huge short positions in marks, in the almost certain expectation that the mark would continue to fall against the dollar: i.e., they sold marks they hadn’t got, knowing that they could buy them for a fraction of their present value when the time came to meet the demand. When the mark stopped falling, thanks to the Reichsbank’s engineering, they had to rush to close their positions, and were forced to buy marks which had actually begun to go up. Many speculators lost the entire fortunes which they had built up over the year.

Schacht’s measures sufficed to stop the rot, but in the period between the ordnance declaring the new currency and the appearance of the first notes, there was an interim of pure chaos in which, as Lord d’Abernon noted, "four kinds of paper money and five kinds of stable value currency were in use. On November 20,1923,1 dollar =4.2 gold marks =4.2 trillion paper marks. But by December the currency was stable." The last November issue of the weekly Berliner Ulustrirter Zeitung cost a billion marks, the first December issue 20 pfennigs. Confidence seemed to have been restored overnight. Germany could breathe again.

There were those, however, who could not accept that the old certainties were lost, as this sad little postscript will prove. In the old days the highest denomination printed had been the brown thousand-mark note which had a prestigious, almost magic significance. Many people among the older generation found it impossible to accept that its value was now gone forever. The notes were seen as the symbol of the golden age of stability before inflation, and it was the touching hope of many that one day they would be restored to full value. In the meantime they were hoarded and even collected. They could be bought in the Munich flea market for five marks a million. That there was still a demand for them at all is proof of the belief that one day the Reichsbank would honor its pledge and exchange paper for gold. Weimar’s electoral system of proportional representation encouraged the proliferation of small political parties, of which there were many. But without a doubt, the strangest and saddest political party of them all was the "Party for the Revaluation of the Thousand-Mark Note.".

 

FOOTNOTES

Chapter 6 – INFLATION

1 d’Abernon, vol. II, p. 23
2 Ibid, p. 22
3 Ibid, p. 24
4 Bonn, p. 2 78
5 Buck, p. 143
6 Ludecke, p. 148
7 Zweig.p. 237
8 Ibid, loc. cit.
9 Daily Express, February 24, 1923
10 Ostwald,p. 63
11 Adlon.p. 99
12 Ostwald,p. 130
13 Clark, p. 11
14 Ibid, loc. cit.
15 Ibid, p. 12
16 Schonberger, p. 155
17 Ostwald.p. 181
18 Adlon.p. 98
19 Ostwald, pp. 84-5
20 Tynan.p. 132
21 Ibid, p. 157
22 Zweig.p. 223
23 Tynan.p. 157
24 Lochner, p. 102
25 Ibid, p. 103
26 Got, p. 67
27 Ibid, p. 57
28 Weltbuhne,
November 1922
29 Beraud.p. 82
30 Buck, p. 163
31 Ibid, p. 141
32 Ibid, loc. cit.
33 Beraud.p. 22
34 Mann, p. 77
35 Fallada, Wolf, Among Wolves, p. 15
36 Zweig.p.238
37 Landauer, pp. 77-80
38 Got, p. 53
39 Buck, p. 232
40 Zweig.p.238

Posted in BANKING SYSTEMS, COMMERCE, COMMODITIES MARKET, DEPRESSION, DEUTSCHMARK (Germany), ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL MARKETS, FOREIGN POLICIES, GERMANY, HISTORY, HYPERINFLATION, INDUSTRIAL PRODUCTION, INDUSTRIES, INFLATION, INTERNATIONAL, INTERNATIONAL RELATIONS, NATIONAL WORK FORCES, THE WORK MARKET, THE WORKERS, WARS AND ARMED CONFLICTS | Leave a Comment »

UNIVERSITY PROFESSOR DETAINED FOR DESTABILIZING FINANCIAL SYSTEM (Latvia)

Posted by Gilmour Poincaree on November 22, 2008

Nov 21, 2008

TBT Staff in cooperation with BNS

VENTSPILS – The rector of Ventspils University College has expressed his surprise over the detention of a lecturer for attempts to destabilize the Latvian financial system.

University College Rector Janis Vucans told the Baltic News Service that he did not know the exact reasons for the detention of lecturer Dmitrijs Smirnovs, but that he expected to receive a written explanation.

The rector said that the discussion that led to the lecturers detention was an ordinary talk in which each participant voiced his own opinion and vision.

Asked whether Smirnovs’ detention should be taken as interference with a person’s freedom of speech, Vucans said that Smirnovs is a lecturer at the Ventspils University College, delivering lectures on banks and monetary systems. “On what basis should we lecture? Not on examples of some Switzerland or the US, the situation in Latviais more important to us,” he said.

“The question is whether we are teaching something abstract, what does not refer to us, or we are trying to educate our students on issues that are topical,” said the rector. “As far as I understand, his statements are not populist, but based on analysis,” said the rector.

Smirnovs’ detention was one in a string of detentions allegedly following a rumor that the lat was on the verge of devaluation. Parliament made it a crime to spread such rumors after a previous incident saw hundreds of thousands of lats sold over the course of a few days.

Smirnovs said in the discussion: “The only thing I can advise: first, not to keep money in banks, second, not to accumulate savings in lats as it is very dangerous now. Convert them to the US dollars. The euro is an artificial currency, and what is achieved by the euro in a year, can be lost in a month. These are real threats to the value of the euro. Maybe some people do not understand it, but the main oppositionist and competitor to the US is the European Union (EU). The main goal of the US is to destroy the EU as it does not benefit from a strong and united Europe, strong currency – the euro.”

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE BALTIC TIMES’ (Estonia, Latvia and Lithuania.)

Posted in CURRENCIES, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FREEDOM OF SPEECH AND CONSCIENCE, HUMAN RIGHTS, HYPERINFLATION, INFLATION, INTERNATIONAL, JUDICIARY SYSTEMS, LATVIA, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY | Leave a Comment »

CHEATING THE POOR (Philippines)

Posted by Gilmour Poincaree on November 22, 2008

First Posted 02:45:00 11/22/2008

Editorial

Philippine Daily Inquirer

On Nov. 18, the National Food Authority (NFA) published an innocuous-looking notice in the CHEATING THE POORpapers: “In reference to our previous announcement we would like to remind the public that effective December 1, 2008, the sale of highly subsidized NFA rice at P18.25 per kilogram will be limited to those holders of Family Access Card (FAC) in NCR and Rice Allocation Ledger (RAL) at the provincial level as validated by the Department of Social Welfare and Development.”

Behind that notice is a story of incompetence, inefficiency and buck-passing, and of officialdom being blind to what the public could clearly see all along: their leaders and fellow citizens subverting the system for personal advantage.

When the government admitted that there was a rice crisis, it also announced that it would pour billions of pesos into providing subsidized rice for the poor and that it would institute rationing to ensure that everyone would get at least something. What followed was a stampede, as queues formed and government’s perennially creaky infrastructure groaned under the weight of public panic and official promises.

Observers began to notice that the queues forming had a curious human composition. People who weren’t residents of the area would appear in them. There seemed to be roving bands of entrepreneurial folk—whole families at a time—queuing up to then resell their subsidized rice to middle-class types who wanted to save on rice for their household help or company employees. We won’t even go into the whispered allegations of importers profiting from the emergency purchases decreed by President Gloria Macapagal-Arroyo, or the politicians who found sorting out the confusing queuing going on to be a good way to allocate patronage.

The emergency purchase and distribution of rice was funded by the expanded value-added tax. But as the crisis atmosphere concerning rice, then oil, has dissipated, to be replaced by growing concern over the global financial crisis, it seems that the government threw good money after bad, with nothing to show for it as far as rice is concerned.

Social Welfare Secretary Esperanza Cabral, who has had her fair share of having otherwise rational pro-poor programs altered beyond recognition by the President’s obsession with political patronage above all else, admitted recently that what the World Bank said in a report was true: Only a third of the rice bought in great quantities and at great cost, for resale at subsidized prices for the poor (families with five members, and a monthly income of P5,000), found its way into the hands of the poor. As much as 41 percent of the subsidized rice, on the other hand, found its way into non-poor households, which, as we’ve pointed out, was widely noticed and commented on during the rice crisis. The two wealthiest sectors of society, according to the same World Bank study, consumed 16 percent of the NFA’s subsidized rice—again something conspicuous during the rice crisis, when chauffeurs waited for the entrepreneurial beneficiaries to sell their rations to the drivers’ bosses.

Everyone, we believe, will welcome both Cabral’s admission that something is wrong (studies to look at the organizational flaws, bureaucratic inefficiency and mismanagement of our government agencies represent a worthy and useful thing to do, and not just “destabilization”) and the NFA’s efforts to fix matters by refocusing on validating the identities of those who want subsidized rice. But this is a government that has periodically engaged in trying to map the population without, it seems, ever accomplishing the task in a manner that actually works.

The flaws in the system point to two real problems: the way the national government finds even well-intentioned programs swamped by the sheer logistics required by such programs, and the way local governments, which are supposed to be an increasingly independent partner and not just a servant of the national government, end up thinking only of patronage and short-term political gain, and not the common good. The end result is billions wasted, public confidence further reduced, and the poorest of the poor getting the short end of the stick.

Copyright 2008 Philippine Daily Inquirer. All rights reserved.

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Posted in AGRICULTURE, CORRUPTION, CRIMINAL ACTIVITIES, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, INDUSTRIAL SUBSIDIES, INFLATION, INTERNATIONAL, PHILIPPINES, RECESSION | Leave a Comment »

WALL STREET CAST ITS VOTE FOR NEW YORK FEDERAL RESERVE PRESIDENT TIMOTHY GEITHNER FOR TREASURY SECRETARY, RALLYING IN HIS FAVOUR

Posted by Gilmour Poincaree on November 22, 2008

November 22, 2008

LATEST: Rob Curran

Article from: Dow Jones Newswires

The Dow Jones Industrial Average surged nearly 500 points in the last hour of trading after reports Reutersthat president-elect Barrack Obama would name Mr Geithner to the top Treasury post.

Buyers became energised after a report by NBC News that Mr Obama will personally unveil Mr Geithner as the incoming Treasury boss at a news conference on Monday, along with other members of his economic team.

The report by NBC’s Andrea Mitchell, who is married to former Fed chairman Alan Greenspan, cheered depressed investors, even though there was no immediate confirmation.

“The market is running up on the news that Timothy Geithner will be the next treasury secretary,” said Peter Cardillo of Avalon Partners.

“Maybe it can bring confidence back.”

Yet the Dow still lost more than 5 per cent on the week, as Citigroup plunged to levels not seen in 15 years and traders worried about the survival of General Motors and Ford.

Mr Geithner, 47, is intimately familiar with Wall Street and worked on recent rescue efforts for the financial system. Those rescue efforts are a work in progress, however.

Citigroup fell US94 cents, or 20 per cent, to $US3.77, taking its losses to 60 per cent for the week and 72 per cent for November as the bank scrambles to review strategic options.

Selling of Citi’s shares grew heavier after chief executive Vikram Pandit said he had no desire to sell the Smith Barney brokerage unit. The stock’s close was the lowest for Citi since the last day of 1992; it has lost more than $US53.8 billion ($67.7 billion) in market value in November.

“It’s mind-boggling,” said Bud Haslett, chief executive of Miller Tabak Capital Management.

Traders say the Treasury Department’s decision last week not to buy distressed assets abruptly changed the outlook for banks.

“The change in the direction of the Troubled Asset Relief Program was the major thing” weighing on financials, said Peter McCorry, senior equity trader at Keefe Bruyette & Woods. “Changing the rules of the TARP is an indication that the rules can and will change mid-game.”

The Dow rose 494.13 points, or 6.54 per cent, to 8046.42, its biggest gain in more than a week.

The broad S&P 500 index rose 47.59 points, or 6.32 per cent, to 800.03, a day after closing at its lowest mark since 1997. The tech-oriented Nasdaq Composite added 68.23 points, or 5.18 per cent, to 1384.35. For the week, the Dow lost 5.3 per cent, the S&P 500 lost 8.4 per cent and the Nasdaq was down 8.7 per cent – and all three had their biggest drops in four weeks.

In response to Wall Street, the Sydney Futures Exchange’s December share price index futures contract jumped 68 points to 3500, representing an 83.5-point premium to the benchmark S&P/ASX 200 Index and suggesting a solid start to the Australian market on Monday.

The Australian dollar settled offshore trading at just above US63 cents.

In the most volatile Wall Street market since the 1930s, traders say it takes little to push the market in one direction or another.

“We’re dealing with a lot of redemptions,” said one manager at a fund of funds, indicating that forced selling due to clients’ requests for cash is ongoing.

Goldman Sachs Group rose $US1.31, or 2.5 per cent, to $US53.31, finishing the week with a loss of 20 per cent. Morgan Stanley rose US85c, or 9.2 per cent, to $US10.05, but declined 16 per cent on the week.

The model of Wall Street banks is under strain as investments across all asset classes turn sour, and trading with leverage goes out of style.

KeyCorp fell US64c, or 9.3 per cent, to $US6.27 after the regional bank slashed its dividend.

Dell shed US51c, or 5.2 per cent, to 9.30. Third-quarter profit exceeded the Wall Street estimate, helped by cost cuts, but revenue fell to $US15.16 billion from $US15.65 billion a year earlier.

The shopping season begins in force next week, and traders will see if consumer-spending fears are justified. The Consumer Select Discretionary SPDR, a basket of retailers and other consumer stocks, rose $US1.12, or 6.9 per cent, to $US17.45, but fell 9 per cent this week, just one of many wild swings.

Gold mining companies surged as a wave of “deflation” fears receded for now.

Gold is used as a safe haven, but also a hedge against inflation, a market worry that was replaced by deflation lately. Newmont Mining added $US5.79, or 25 per cent, to $US28.79, but has fallen by almost half since its peak.

In Europe, the London FTSE 100 index fell 2.43 per cent to 3780.96 points — its lowest closing level since April 3, 2003, capping an overall fall of 10.68 per cent for the week.

In Paris, the CAC 40 plunged 3.33 per cent and in Frankfurt the DAX shed 2.20 per cent, with banks Allianz and Deutsche Bank among the heavy losers.

“Although this morning saw a slight rally for the UK market, the afternoon has seen these gains eroded with the market nose diving,” said David Jones, a strategist at IG Index in London.

“Sentiment this week has turned even gloomier than we have been used to of late.”

Additional reporting by AFP and staff writers

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INFLATION DROPS AGAIN IN OCTOBER (Ghana)

Posted by Gilmour Poincaree on November 18, 2008

Volume: 19 Edition No: 33 Date: Monday, November 17, 2008

by Stephen Odoi-Larbi

The annual inflation rate fell to 17.30 per cent in October down from GHANAIAN17.89 percent a month earlier, Dr. Grace Bediako, Government Statistician, said on Friday. This is the fourth consecutive monthly drop, since inflation went up to a high of 18.41 per cent in June.

The month-to-month change, which is the change in the CPI from previous month to the current month, recorded a rate of -0.67 per cent in October.

The main reason for the fall was good harvest and falling prices of food items, mostly in the rural areas. Dr. Bediako said the level of inflation in 2008 continued to be higher for the non-food group than the food group and higher in the rural areas than the urban areas.

The contribution of the non-food and food groups in October stood at 10.43 and 6.87 percentage points respectively. In the non-food group, the contributions of hotels, cafés and restaurants, clothing and footwear, and housing utilities sub-groups were highest in price change, contributing more than one percentage point to the annual rate of inflation.

Fish, bread and cereals sub-groups continued to contribute the largest to price change in the food group.

Inflation rates recorded in the regions range from 24.18 per cent in the Northern Region, to 13.22 per cent in Ashanti. Six regions recorded inflation rates above the national rate of 17.30 points.

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ANALISTAS NÃO ESPERAM MAIS AUMENTO DE JUROS NESTE ANO (Brasil)

Posted by Gilmour Poincaree on November 18, 2008

17/11/2008

Analistas de mercado aumentaram para 13,31% a projeção da taxa básica de juros ao final de 2009. JUROS 'BÁSICOS'Segundo o boletim Focus, publicação semanal elaborada pelo Banco Central com base em projeções de analistas de mercado sobre os principais indicadores da economia, a estimativa anterior era de 13,25%.

Para este ano, no entanto, os analistas não esperam por mais aumento dos juros básicos. Atualmente a Selic está em 13,75%. A última reunião deste ano do Comitê de Política Monetária (Copom) que define a Selic, será em dezembro.

Sobre o crescimento da economia (Produto Interno Bruto – PIB), os analistas mantiveram a projeção para este ano de 5,23% e de 3% em 2009.

Para o crescimento da produção industrial neste ano, os analistas aumentaram a expectativa de 5,77% para 5,8%. Em 2009, eles esperam crescimento de 3,16%, contra 3,7% da estimativa anterior.

Para este ano, os analistas projetam a dívida líquida do setor público em 39,04% do PIB, ante a expectativa anterior de 39,5%. Para 2009, a estimativa caiu de 38,5% para 38%. Quanto menor a relação entre dívida e PIB, maior é a confiança do investidor na capacidade do Brasil de honrar seus compromissos.

Os analistas mantiveram a projeção de déficit de US$ 30 bilhões no saldo das transações correntes (todas as operações do Brasil com o exterior) em 2008 e de US$ 31,65 bilhões no próximo ano.

Quanto ao superávit comercial (saldo positivo das exportações menos as importações), a estimativa para 2008 foi ajustada de US$ 23,82 bilhões para US$ 23,78 bilhões. Para 2009, subiu de US$ 13,03 bilhões para US$ 13,32 bilhões. A projeção para o investimento estrangeiro direto(dinheiro que entra na parte produtiva da economia, a chamada economia real, gerando emprego e renda) em 2008 foi mantida em US$ 35 bilhões e reduzida de US$ 26 bilhões para US$ 25 bilhões, em 2009.

Para o valor do dólar no final deste ano, os analistas aumentaram a projeção de R$ 2,05 para R$ 2,10. Ao final de 2009, a estimativa do câmbio passou de R$ 2,01 R$ 2,10.

Fonte: Agência Estado

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Posted in BALANÇA COMERCIAL, BANCO CENTRAL - BRASIL, BRASIL, COMÉRCIO - BRASIL, ECONOMIA - BRASIL, EXPANSÃO ECONÔMICA, FLUXO DE CAPITAIS, INFLATION, O MERCADO FINANCEIRO, ORÇAMENTO NACIONAL - BRASIL, REAL (Brasil), SETOR EXPORTADOR, SUPERÁVIT COMERCIAL, TAXA DE CÂMBIO - BRASIL, TAXA SELIC | Leave a Comment »

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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UN GIGANTE EN RECESIÓN (USA)

Posted by Gilmour Poincaree on November 15, 2008

15 de Noviembre del 2008

Hedelberto López Blanch

Mientras los servicios, las finanzas y el consumo sufrían enormes dificultades en Estados Unidos a lo Oh no !!!largo de los últimos meses, los discursos oficiales como los del presidente George W. Bush aseguraban que no existían problemas porque la economía del país era muy fuerte y podría resistir cualquier embate

“No se puede tapar el sol con un dedo”, este viejo adagio refleja perfectamente la situación que atraviesa Estados Unidos pese a que sus principales figuras políticas y económicas no quieran reconocerlo.

Mientras los servicios, las finanzas y el consumo sufrían enormes dificultades a lo largo de los últimos meses, los discursos oficiales como los del presidente George W. Bush aseguraban que no existían problemas porque la economía del país era muy fuerte y podría resistir cualquier embate.

El primer reconocimiento de que las cosas no marchan lo realizó recientemente el presidente de la Reserva Federal (FED) o Banco Central de Atlanta, Dennis Lockhart, quien manifestó que “la economía entró realmente en recesión”.

Las declaraciones de Lockhart fueron hechas en un discurso pronunciado en una conferencia ante empresarios en Palm Beach, Florida, horas después de la publicación de la tasa de desempleo, que alcanzó 6, 5 % en octubre, nivel no registrado desde marzo de 1994.

El funcionario señaló que la primera estimación oficial indica que el Producto Interno Bruto (PIB) retrocedió 0, 3 % en el tercer trimestre de 2008 en relación con el anterior y que los datos de octubre sugieren un descenso más fuerte para el cuarto trimestre. La recesión se define tradicionalmente cuando en dos trimestres consecutivos se produce un retroceso del PIB.

“La economía estadounidense se debilitó dramáticamente y las perspectivas a corto plazo no son alentadoras. Los factores de esa contracción provienen de los gastos de consumo, de las inversiones de las empresas, de la producción industrial y de la demanda externa de productos estadounidenses que cayeron fuertemente”, subrayó el también integrante del Comité de política monetaria de la FED estadounidense.

Son muchos y disímiles los enredos que padece Washington desde la llegada en 2001 de Bush y su equipo a la Casa Blanca.

Aunque heredó de su antecesor William Clinton un superávit presupuestal de 128 000 millones de dólares, el déficit alcanza al cierre fiscal del 30 de septiembre pasado, 483 000 millones de dólares, según la Oficina de Presupuesto del Congreso (CBO).

La cuenta corriente de la balanza de pago que contabiliza los intercambios de mercancías y servicios con el exterior alcanzó en 2007 un déficit superior a 750 000 millones de dólares, o sea, 5, 6 % de su PIB.

La deuda nacional se ha incrementado en los últimos ocho años, en más de 65 % hasta casi 9 billones de dólares, sin agregar las deudas de las gigantes hipotecarias financieras Freddie Mac y Fannie Mae.

La deuda total (pública, empresarial y personal) llegó este año a los 48 billones de dólares, 3, 4 veces el PBI norteamericano que es alrededor de los 14 billones.

En sentido general, los indicadores son negativos como la inflación anual que cifra el 6 %, su mayor nivel en 17 años. El desempleo se disparó oficialmente a 6, 5 % que afectan a unas 10 millones de personas, de las cuales 2, 2 millones perdieron sus trabajos en el último año.

Las automotrices General Motors, Ford y Chrysler anunciaron que cesarán a más de 6 000 A rusty and old Chevrolettrabajadores, la farmacéutica Merck dijo que eliminará 7 200 empleos, 12 % de su nómina. Yahoo informó un recorte de por lo menos 10 % de sus trabajadores y Xerox, unos 3 000 y la mensajera DHL a otros 3 000, junto con una larga fila de empresas que están haciendo lo mismo.

Asimismo, el Instituto de Políticas Económicas (EPI) calcula que el subempleo llegó a 17, 1 millones de trabajadores, un incremento de 21 % desde el inicio del año. Además, unos 2 billones de dólares en fondos para pensiones de jubilados se perdieron en el último año y medio.

Con las quiebras de las inmobiliarias solo en el tercer trimestre de 2008 se efectuaron 765 568 juicios hipotecarios donde familias completas pierden sus hogares, un 71 % comparado con el mismo periodo de 2007. Desde la crisis hipotecaria, 3 600 000 personas han sido desalojadas de sus casas.

En una espiral demoledora, continúan cayendo los precios de las viviendas, los bancos reportan pérdidas récord pese a los rescates financieros gubernamentales y se han reportado 800 000 casos de bancarrota en compañías y negocios individuales.

Para el premio Nobel de Economía Joseph Stiglitz, los rescates contribuyen a los déficit crecientes a corto plazo, y a incentivos perversos a largo plazo. Los directores generales, inversionistas y prestamistas se marchan con sus millones, mientras que se pide a los contribuyentes norteamericanos pagar la factura.

Al señalar que el presidente de Freddie Mac, Richard Syron, ganó 14, 5 millones de dólares en 2007 y el director general de Fannie Mae, Daniel Mudd, obtuvo 14,2 millones ese mismo año, Stiglitz puntualizó que “estamos presenciando una nueva forma de sociedad entre la inversión privada y el estado, en la cual el público soporta sobre sus espaldas todo el riesgo, y el sector privado se lleva toda la ganancia”.

Los vientos huracanados continúan soplando sobre Estados Unidos. Tras alcanzar la crisis a compañías de la aeronáutica como Continental Airlines, American Airlines y United Airlines, ahora el turno le ha tocado a las compañías automotrices.

Los gigantes General Motors y Ford reportaron pérdidas de 4, 200 millones y 2, 980 millones de dólares respectivamente durante el tercer trimestre de 2008.

GM dijo que eliminará la mayoría de su personal de oficina y reducirá el gasto en 2. 500 millones en 2009, mientras Ford recortará en 10 % los salarios en Estados Unidos.

La GM, Ford y Chrysler, antes conocidos como “los tres grandes” pidieron al sector un paquete de medidas de rescate para enfrentar los problemas de liquidez y continuar sus operaciones en una “situación económica difícil”.

En definitiva, las malas noticias sobre la economía brotan por doquier en Estados Unidos y ya sus directivos no pueden negar la indeseable recesión.

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PUBLISHED BY ‘OPCIONES’ (Cuba)

Posted in BANKING SYSTEM - USA, CENTRAL BANKS, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, INDUSTRIAL PRODUCTION - USA, INFLATION, NATIONAL WORK FORCES, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY, STOCK MARKETS, THE FLOW OF INVESTMENTS, THE WORK MARKET, TRADE DEFICIT - USA, USA | Leave a Comment »

MEDVEDEV: CRISIS COSTING GLOBAL ECONOMY $1.5 TRILLION (Russia)

Posted by Gilmour Poincaree on November 14, 2008

14/11/2008

The financial crisis has already cost the global economy a whopping $ 1.5 trillion, Russian President Russian President Dmitry MedvedevDmitry Medvedev said at the 10th EU-Russia Industrialists’ Round Table in Cannes on Thursday.

Such serious consequences, he said, highlighted the need to reform the global financial system, especially its main financial institutions – the International Monetary Fund and the World Bank.

Russia will pass a set of bills to create an international financial center in Moscow before the end of the year, according to Medvedev.

Russia would also voice its proposals on enhancing national and international financial institutions at the G20 meeting in Washington on November 15, he said. Other ideas proposed by Russia will include removing the disproportion between the amount of financial instruments and real return on investment programs and enhancing the transparency of public companies.

Russia will also offer measures to tighten controls and increase responsibility of ratings agencies and auditing companies, expand responsibility for crisis management to all market operators, and ensure benefits from the removal of barriers in international trade and from the freedom of capital movement.

Inflation in Russia will stand at about 13.5 percent, Deputy Prime Minister Alexander Zhukov told reporters yesterday, noting that it was slowing down. The Central Bank of Russia is more optimistic about inflation, expecting a 13 percent inflation this year.

At the end of October the Central Bank submitted draft guidelines for Russia’s monetary policy in 2009-2011, reporting an increase in inflation for all major product groups, which is a clear sign that fundamental inflation factors are at work.

In the short term, curbing inflation solely through the Central Bank’s measures will be restricted, the document says. High inflation risks are supported by uncertainty over the financial crisis, changes in investor behavior and producers’ pricing policy.

The ruble’s real effective exchange rate could rise by 3.5-5 percent in 2008, the Central Bank estimates. Similarly, the M2 money supply could grow 28 percent this year, while the narrow monetary aggregate is projected to stand at between RUB 5.35 trillion and RUB 5.4 trillion (approx. $196bn to $198bn) as of January 1, 2009.

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PUBLISHED BY ‘RosBusinessConsulting’ (Rumania)

Posted in BANKING SYSTEMS, CENTRAL BANKS, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, INFLATION, INTERNATIONAL, REGULATIONS AND BUSINESS TRANSPARENCY, RUSSIA | Leave a Comment »

SHARP DIP IN INFLATION MAKES ROOM FOR RATE CUTS (India)

Posted by Gilmour Poincaree on November 14, 2008

14 Nov 2008, 0000 hrs IST, REUTERS

NEW DELHI: Inflation dropped sharply to its lowest in nearly six months in early November as prices of metals and fuels fell, and analysts said the unexpectedly low figure gave the Reserve Bank of India (RBI) room to cut rates.

The substantial easing in inflation comes at a time when Indian policy makers are struggling to protect growth and shield the economy from the impact of the global economic slowdown.

India’s wholesale price index, the most widely watched inflation measure, rose 8.98 per cent in the 12 months to Nov. 1, well below forecasts for a rise of 10.37 per cent, data showed on Thursday.

It was the lowest reading since May 24, when the rate was 8.90 per cent and well below early August’s peak of 12.91 per cent.

Analysts said a decline in global commodity prices, robust domestic agricultural output and a fall in demand in a slowing economy helped bring the rate to single-digits well ahead of earlier expectations.

“Taking comfort from the decline in inflation and responding to the worsening demand outlook, we expect the Reserve Bank of India to cut the reverse repo rate by 100 basis points and the repo rate by 150 points by March 2009,” said A. Prasanna, an economist at ICICI Securities.

He said inflation was likely to ease to 4.5 per cent by March 2009. The repo is the central bank’s main lending rate while the reverse repo is the rate at which it absorbs excess cash from the banking system.

Strong evidence that India’s $1 trillion economy, Asia’s third largest, is slowing has emerged in recent weeks. Factory output has been sharply lower, manufacturers have trimmed output and put expansion plans on hold. Government excise receipts — factory gate taxes — contracted in October.

Economists and policy makers expect growth to slow to 7 per cent in the current fiscal year to March, from the close to 9 per cent seen in the previous three years.

SLEW OF MEASURES

Despite rebounding in September to a just respectable 4.8 per cent, analysts have warned annual growth in industrial output, a key indicator, was set for a severe slowdown after the credit crisis paralysed India’s money markets in October.

That pushed up firms’ interest costs as they battled tough business conditions and shrinking export markets.

Authorities have taken a slew of measures in recent weeks including cutting the repo by 150 basis points to 7.5 per cent and lowering banks’ reserve requirements to improve liquidity and boost growth.

India’s financial markets, which have borne the brunt of the financial crisis in recent months, were closed on Thursday for a national holiday.

The receding threat of inflation will cheer India’s Congress Party-led ruling coalition as it gears up for a string of state elections in coming weeks and federal polls by early 2009.

Suresh Tendulkar, a top economic adviser to Prime Minister Manmohan Singh, told Reuters the latest inflation data provided room for the RBI to act on rates.

“My hunch is the Reserve Bank of India will wait for one or two weeks and then take a call,” he said.

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PUBLISHED BY ‘THE ECONOMIC TIMES’ (India)

Posted in CENTRAL BANKS, COMMERCE, COMMODITIES MARKET, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FUELS, INDIA, INFLATION, INTERNATIONAL, METALS, METALS INDUSTRY, THE FLOW OF INVESTMENTS | Leave a Comment »

INFLATION DIPS TO 8.98 % (India)

Posted by Gilmour Poincaree on November 13, 2008

Friday, Nov 14, 2008

Special Correspondent

NEW DELHI: Contrary to the expectations of both economic analysts and policy planners, the rate of inflation dipped sharply to 8.98 per cent for the week ended November 1 from 10.72 per cent in the previous week, thanks mainly to lower prices of non-administered petroleum products, certain food items and other commodities such as metals.

The earlier-than-expected slide in the wholesale price index-based inflation to single digit after a gap of 21 weeks should bring comfort to the authorities. For, the Reserve Bank of India (RBI) can now take further steps to ease money supply so as to catalyse growth in the economy which is experiencing a severe slowdown in the wake of the global financial crisis.

The fall to single digit has come as a pleasant surprise to many top economists who had projected that the inflation rate would slide below double digits only by early next year.

Apart from others who had voiced similar views in the recent past, it was only earlier this week that Prime Minister’s Economic Advisory Council (PMEAC) chairman Suresh Tendulkar said: “Inflation seems to be on the decline as international commodity prices are coming down and the domestic harvest is good. Early next year, inflation would be in single digit.”

What aided the sharpest-ever fall in WPI inflation in over five months was the slump in prices of various petroleum-based fuels such as naphtha, aviation turbine fuel (ATF), furnace oil and light diesel oil as global crude prices plummeted from $145 a barrel in July to the prevailing $56-60 a barrel.

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PUBLISHED BY ‘THE HINDU’ (India)

Posted in AGRICULTURE, COMMODITIES MARKET, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, INDIA, INFLATION, INTERNATIONAL, METALS, PETROL | Leave a Comment »