Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Friday's IndicatorsUS personal income was .1% lower in July, reflecting continued weakness in the job market, but private sector wages were actually up $6.7 billion after a big decrease of $24.5 billion in June. July consumer spending rose .2%, powered by cash-for-clunkers, and the June figure was revised upwards to an increase of .6%. For the second quarter, spending fell at a 1% annualized rate. Savings fell as incomes were squeezed, to 4.2% from 4.5% in June.The fact that the private sector is starting to put some money on the table is good news, but one has to wonder how much of it is being confined to top earners. The fact that savings fell so much may be a consequence of such skewed distribution. And if that is the case, the implications for a relatively quick economic recovery must remain in doubt. On Wall Street, positive statements by Dell (despite a steep drop in 2Q earnings) and Intel (on the basis of a more optimistic sales forecast) have failed to energize the stalled tech sector at the time of writing, at about 11.00 am EST. The UK, unlike its continental counterparts France and Germany, saw negative second-quarter growth of .7%, according to the Swiss newspaper Neue Zuercher Zeitung (for some reason I couln't find this story in the headlines of the UK dailies). But UK house prices rose in July for the third straight month, and at the highest rate in five years. In Japan, which will hold a general election on Sunday, unemployment hit a record high of 5.7% in July, while deflation of 2.2% continued to ravage the positive growth figure announced a fortnight ago. This will no doubt contribute to the widely anticipated big defeat for the ruling Liberal Democratic Party. Ambrose Evans-Pritchard noted yesterday that Japanese exports fell yet again in July, with big declines in exports to its major partners China and the US. And the Baltic Dry Index, a key barometer of international trade, has been falling for 11 weeks, as Evans-Pritchard says. Finally, LIBOR, a key set of interest rates for banks lending to each other, continued a dramatic recovery since the collapse of Lehman Brothers saw them rise to unheard-of levels last September and October. Still, however, smaller banks are finding it difficult to borrow at low rates. All in all, the data remain disturbingly mixed. Signs of strength are offset by continuing imbalances and unwindings across the board. And there's no way economies can stand on their own feet without historic levels of government support. Labels: Ambrose Evans-Pritchard, consumption, corporate earnings, Dell, economic indicators, intel, Japan, LIBOR, personal income, Trade, United Kingdom Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Wednesday's Recommended ReadingOn China's stimulus, by a (sort-of) insider. Interesting how the author faces up to some serious problems, but disconcerting insamuch as no mention is given to the likely environmental impact of the massive infrastructure-building program, especially in its more extravagantly wasteful aspects (dirty airports to nowhere, etc).The FT's Krishna Guha on the future of central banking. Substitute class analysis at a couple of major points and you could be getting somewhere... Ambrose Evans-Pritchard on Bernanke's re-appointment. He makes several of the points other commentators, like Stephen Roach have, but with a wider perspective, and more style: His reflex is to see any fall in demand as an outside shock to be corrected by extra stimulus. What he does not accept is that the adrenal glands of the economic system have been depleted by perpetual credit stimulus, giving the world a form of Addison's Disease. Labels: Ambrose Evans-Pritchard, Ben Bernanke, Bureau of Labor Statistics, central banking, Federal Reserve, Krishna Guha, Yu Yongding Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Squeezing Both Ends of the Labor MarketThese two recent pieces focus on disturbing developments in labor markets. Ambrose Evans-Prithchard zeroes in on unbelievable global undercapacity rates, and on troubling disinflationary readings, in spite of massive money creation schemes undertaken in the US, UK and Japan. Surely tongue-in-cheek, he actually ends his piece "Back to socialism anybody (The only objection I'd have to this deals with the "back to")?"The second piece, posted on Time Magazine's "The Curious Capitalist" blog, fleshes out Evans-Pritchard's view by looking at developments on the high end of the labor market, and specifically on Silicon Valley. The essential insight here is that the demand for talent may be forcing technology companies to redouble their efforts in an increasingly competitive market by attempting to initiate ever-larger labor-saving technological advances. It also makes the key point that the wage gap in this country goes far beyond Wall Street. Taken together, the picture that emerges is one in which a geographical form of labor arbitrage (playing off workers in one part of the world against others in other parts of the world) is being reinforced by technology that both increases the market power of the highest-paid while reducing that of just about everyone else. This is hardly a novel insight, but it's instructive to revisit it now and then. And, with data like these, the picture of thew underlying trend seems to become more well-defined all the time. Labels: Ambrose Evans-Pritchard, bailout, Bureau of Labor Statistics, financial crisis, labor arbitrage, overproduction, technology, The Curious Capitalist Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bleak Picture in Asia, More Gloomy ThoughtsOn Asia, from the Financial Times.. A tidbit:"The figures are further proof that Asia's economy fell off a cliff in the closing months of 2008 and raise the likelihood that the bad news will continue to flow as the region's export-dependent nations are forced to cut jobs and manufacturing capacity because of weak western consumer demand. The collapse in Asian exports over the fourth quarter was "nothing short of breath-taking", said Frederic Neumann, Asia chief economist at HSBC. "Economic models and experience suggest that financial turmoil tends to transmit far more gradually into the real economy than has occurred this time around. In fact, the severity and rapidity of the fall in output exceeds anything we have ever seen before." Ambrose Evans-Pritchard has this to say about the global situation in general, and this on a possible reversal in Germany's view of the EU project. Labels: Ambrose Evans-Pritchard, Asia Times, bailout, European Union, financial crisis, Germany Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Germany May Rescue Debt-Laden EU MembersFrom Ambrose Evans-Pritchard's column. Yves Smith has linked to this page, too. But I haven't seen anything about it in my brief perusal of German newspapers today.Germany may rescue debt-laden EU members Germany has acknowledged for the first time that it may have to rescue eurozone states in acute difficulties, marking a radical shift in policy by the anchor nation of Europe's monetary union. By Ambrose Evans-Pritchard Last Updated: 7:18PM GMT 17 Feb 2009 Finance minister Peer Steinbruck said it would be intolerable to let fellow EMU members fall victim to the global financial crisis. "We have a number of countries in the eurozone that are clearly getting into trouble on their payments," he said. "Ireland is in a very difficult situation. "The euro-region treaties don't foresee any help for insolvent states, but in reality the others would have to rescue those running into difficulty." Credit default swaps (CDS) measuring risk on Irish debt rose to 386 basis points yesterday despite Berlin's show of support, suggesting that the markets remain sceptical over hard-line German financier's change of heart. The CDS on Austrian debt surged to 180 on fears of banking contagion from Eastern Europe, while Greece, Belgium, Italy and Spain have all seen a surge in default costs. However, it is clearly Ireland that is now in the eye of the storm as Dublin struggles to prevent the budget deficit spiralling up to 12pc or even 13pc of GDP as the economy contracts. Fears are mounting that Ireland may not be able to cover the massive liabilities of its banking system. The Maastricht Treaty prohibits eurozone bail-outs by EU bodies but Article 100.2 allows for aid to countries facing "exceptional occurrences beyond its control". The European Investment Bank is already providing aid by steering project finance to regions in distress. This could be expanded subtly into short-term help. Read the rest of the article Labels: Ambrose Evans-Pritchard, bailout, Eastern Europe, financial crisis, Germany, Ireland, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Ambrose Evans-Pritchard: Worst Over?This reckoning is interesting coming from the noted bear:Recession: glimmers of hope? The first glimmers of hope are starting to emerge across the world. The pace of economic decline is slowing. Housing sales are picking up, even if prices are falling. Credit markets have begun to thaw. By Ambrose Evans-Pritchard Last Updated: 8:49PM GMT 04 Feb 2009 This is the time-honoured pattern expected to be seen when the downward spiral burns itself out and the cycle starts, very slowly, to turn, helped this time by an unprecedented global monetary and fiscal blitz. But it may equally be a false dawn. The Baltic Dry Index measuring freight rates for iron ore and other bulk goods has been creeping up for two months after crashing 94pc in the worst fall in shipping history. Copper prices are also edging up after plunging by two-thirds from their June peak. So are lumber prices. The debt markets have opened like a flower in spring, at least in one sense. Companies issued $246bn (171bn pounds) in bonds in January, the most since the credit crisis began. France's EdF has raised 9bn euros (8bn pounds). Shell and RWE each raised 3bn euros this week. Blue-chip groups can borrow again. Read the rest of the article Labels: Ambrose Evans-Pritchard, bailout, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 'We're All Mercantilists Now'So says Ambrose Evans-Pritchard. Here's a snippet:Yields on 10-year US Treasuries are 2.84pc--lower than Germany (3.3pc) or France (3.81pc). One-year notes are 0.46pc. The worse the crisis gets, the more the world wants to place its shrunken wealth in the care of Washington. The US Treasury is finding it all too easy to suck in enough global capital to fund trillion-dollar deficits. This is the "exorbitant privilege" of reserve primacy that so vexed Charles de Gaulle. You could hear the gnashing teeth at Davos. "They can print the dollars," said a weary Ernesto Zedillo, Mexico's former president. The injustice of it. The arch-sinner is dodging its own disaster, leaving scores of well-behaved countries starved of capital and exposed to the crunch from Hell. In Davos, protectionism is a dirty word The beggar-thy-neighbour phase has begun in earnest. "Buy American" legislation has advanced from a barely credible threat to imminent reality on Capitol Hill in just weeks. By Ambrose Evans-Pritchard Last Updated: 11:31PM GMT 31 Jan 2009 The House has voted for a bill that prohibits the use of foreign steel in most infrastructure projects funded by Barack Obama's $820bn (563bn pound) rescue package. The Senate is drawing up plans to widen that to all manufactured goods. This is what happens when a country loses half a million jobs a month, and when the state becomes spender-of-last-resort. Taxpayers are tribal. They do not want precious stimulus to feed the foreigner. Even so, this Dutch auction has the disorderly feel of the Smoot-Hawley Tariff debacle in 1930, though this time the collapse of commerce--if allowed to happen --will have very different consequences for the global balance of power. Mr Obama can veto the law, should he wish to pick a fight with Capitol Hill from day one. The world watches and waits in horror, especially in Davos. "Everybody here is talking about protectionism. There's not a prime minister present not talking about protectionism," said Peter Sutherland, former (GATT) trade chief and now chair of BP. Days earlier, US Treasury chief Tim Geithner called China a "currency manipulator" --meaning that Beijing holds down the yuan to boost exports. The term is turbo-charged. It implies mandatory trade sanctions under US law. Mr Geithner's bluntness prompted an angry outburst by Chinese premier Wen Jiabao behind closed doors in Davos. Mr Wen later let rip against "blind pursuit of profit" and unstable economic models based on "low savings and high consumption". Not a word about China's role in accumulating $1.9 trillion of reserves and thereby helping to stoke a global credit bubble; Mr Wen clings to the fallacy that greedy banks alone created this disaster. A fat lot of good it will do him. Read the rest of the article Labels: Ambrose Evans-Pritchard, bailout, financial crisis, Monetary Policy, trade policy Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). BIS warns of collapse in global lendingFrom Ambrose Evans-Pritchard of Britain's Daily TelegraphBank for International Settlements warns of collapse in global lending The City of London has suffered a dramatic collapse in its core business as global lending falls at the steepest rate since records began, according to new figures from the Bank for International Settlements (BIS). By Ambrose Evans-Pritchard Last Updated: 7:15PM GMT 08 Dec 2008 Cross-border loans worldwide fell by $1.1 trillion (740bn pounds) in the first half of the year, reflecting the scramble by the financial industry to cut leverage by pulling credit lines and slashing risky exposure. Foreign lending by UK banks fell by a staggering $884bn, equal to 81pc of the entire contraction in international lending. The City is facing a double blow since worldwide issuance of bonds and securities has also gone into freefall, plummeting 77pc from over a trillion dollars to $247bn in the third quarter. The City has been the epicentre of Europe's structured credit industry. The collapse in bond issuance reflects the near-total closure of the capital markets in the late summer as credit spreads surged. Bonds issued in euros dropped by 94pc from $466bn to $28bn over the quarter. The UK banking sector includes branches of US, European, Asian and Mid-East institutions. These banks tend to use London as a base for their global credit and investment operations. Though foreign, they make up a crucial part of the City nexus and are a mainstay for accounting firms, lawyers and the panoply of financial services that enrich the City. In its quarterly report, the BIS warned the US Federal Reserve, the Bank of England and other central banks that near-zero interest rates and emergency monetary stimulus may come at a cost. By opening the cash spigot, the authorities risk displacing the money markets and may "discourage banks from lending to other banks". The money markets are a crucial lubricant for the financial system, but they cannot function if rates fall too low. The sector can wither away, as Japan discovered during its "Lost Decade". The BIS also hinted that the European Central Bank and Sweden's Riksbank may have blundered by raising rates this year to contain the oil shock. It said short-term energy spikes have no lasting effect on inflation or wage deals. "Evidence suggests an absence of strong second-round effects on inflation. The temporary inflationary impulse will soon drop out," it said. Labels: Ambrose Evans-Pritchard, bailout, Bank for International Settlements, banking system, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
