Economy, Markets and Finance - December 9th
By Simon Davies and Donald Hunt, SOTT.net
The markets last week reacted in a deflationary mode, spurred by the stunning loss of a half million jobs in the United States in November. Commodities were down, stocks were down, and US bonds were up (driving yields down) while Japanese bonds dropped on fears of increased government borrowing next year. Oil dropped sharply (23%), gold fell 7.5% and interest rates are falling closer and closer to zero. How close? The yield on the 3-month U.S. Treasury Notes, for example, is now 0.01%. In other words, if prices are going down, you are better off having money rather than things.
It's not looking out in the real economy but it's all roses for the banks as the EU began approving the various European bank bailouts. Hedge Fund news is dire with many, including the once mighty Fortress, stopping or severely limiting investor withdrawals while being reported to be "crumbling".
With the crisis in the auto sector, Ford is looking to sell Volvo the Swedish carmaker it bought ten years ago in a bid to raise cash.
China
China has been a big focus recently with the US and China holding the fifth Strategic Economic Dialogue on December 4th and 5th in Beijing. The US Treasury Press Release is of course couched in careful diplomatic language but still gives a hint at the ebb and flow of the struggle for position and dominance of those in the Circles of Power.
The propaganda writers need to take a holiday for nearly every economic press release now starts the same way, "agree to continue their close communication on systemically significant macroeconomic policies, and reaffirm their commitment to continue to take material measures as necessary to maintain financial market stability, promote sustained global growth, and continue their cooperation on issues related to global economic and financial stability, and consider ways to further enhance the exchange of information on regulatory issues".
As regular readers know, this means, "we are all in the same club and are working together to a New Economic World Order. All that follows is part of our trading between ourselves of your lives, your wealth, your income and your future. We're telling you straight so you can't complain later."
Chinese banks are to get greater access to the US as long as they sign up to being run like US banks while US banks get to trade bonds in China and support that trading with capital from outside China thereby circumventing China's capital controls. Just who gains most from this will have to be seen but we suspect that while Chinese concessions may seem to confer advantage to the US the Chinese are far smarter than to be fooled by US investment bankers. This may be suggestive of a high level of cooperation behind the scenes.
Talking of behind the scenes cooperation, US Agriculture Secretary Ed Schafer said the US and China "are confident that the seven-year Doha round of global trade talks can be completed by the end of this year". Given where the Doha round left off, with entrenched positions being defended, this seems a remarkable piece of insight.
The usual sop to the environment was offered up with the US and China agreeing "to continue their close communication and extensive collaboration in addressing the challenges of environmental sustainability, climate change, and energy security." While a series of commercial agreements relating to energy, logging and fisheries were either signed up or progressed towards "greater understanding". With the Bush Administration's environmental record and that of China one wonders why they bother with the fig leaf of environmental respectability and responsibility.
Both countries agreed to additional government backing for trade to a total of $20 billion.
The announcements in relation to "International Economic Cooperation" strongly suggest that China is being brought publicly into the inner club for the development and implementation of the New Economic World Order. The US agreed that China (and other important emerging economies) should be given more weight "in international financial institutions" and be members of the Financial Stability Forum.
Not to be left out Australian Treasurer Wayne Swan and Trade Minister Simon Crean were in China at the weekend "for talks on growing commerce between the two nations and the response to turmoil in global economies".
Canada
Canadian Prime Minister Stephen Harper, in a cynical move to prevent being ousted by opposition parties, has suspended parliament until January 26th. The sheer cynicism of the man is incredible especially when the issue he is stonewalling is the speeding up of infrastructure spending and aid to manufacturing, automotive and forestry businesses which he calls "socialist economics". Canada is therefore left with no sitting government for the next six weeks. Job losses in November were 70,600, the Canadian dollar is at C$1.30 to the US dollar having been at parity just six months ago and Royal Bank of Canada is taking more losses to its bottom line. One can tell where Mr Harper's loyalties lie.
We had to chuckle when Marc Dreier, founder and managing partner of the 250-lawyer New York firm Dreier LLP, was arrested, detained and subsequently bailed for C$100,000 on charges of criminal impersonation. It seems he broke the cardinal rule, "don't get caught".
Europe
Unsurprisingly, the European Union decided, to bend its rules on state financing of business with the approval of the French bank rescue plan. Approval for the Austrian plan is expected shortly while the details of the German plan are being negotiated. Approval of the German plan will allow a "massive injection of state capital into Commerzbank".
Italian Minister of Welfare, Maurizio Sacconi, said "The threat of bankruptcy of our national economy should be considered real," while an unnamed leading member of the governing party, Forza Italia, said " The collapse of the world financial system may cause the Italian state to be unable to pay pensions and salaries to government employees". The minister responsible for the economy, Minister of Economy and Finance, Giulio Tremonti, countered that the economic situation was not dire.
Just two months ago Italy announced a 'stabilisation package' of €20 billion for the banks with Prime Minister Silvio Berlusconi promising that, "No bank will go bankrupt". A week later Italy joined Germany, France, Spain, Holland and Austria in the €1,500 billion "greatest bank bailout in history" which included €40 billion in equity for banks on a "case by case" basis, said Giulio Tremonti.
So it looks like ordinary Italians, just like everywhere else, will have to take the pain so that the bankers can take the gain.
Jerome Kerviel, the so called "rogue trader" blamed for French bank Societe Generale's record trading losses lost his bid to meet with his former chairman Daniel Bouton in a move that smacks of judicial cooperation in the scapegoating of Kerviel.
In Marseille oil workers exercised their right to strike against new French laws that are a backdoor privatization of cargo handling operations and port services.
Dark Pool
In an interesting development, ICAP, one of the world's largest inter-bank brokers is set to establish a "dark pool" share exchange. A "dark pool" is an exchange that does not disclose the details, including price, of trades allowing investors to act anonymously and for trades to be matched on an undisclosed basis. In a world of "free and open" markets and in which private citizens are being tracked in their every move we find this development noteworthy to say the least.
Also this week, rumours circulated that Deutsche Boerse is in merger talks with the world's biggest owner of stock markets NYSE Euronext signaling even further consolidation in this often misunderstood but important sector.
Talking of consolidation, Qantas Airways CEO Alan Joyce and British Airways counterpart Willie Walsh met in Hong Kong this weekend for talks on a potential merger. A move that would make sense for the airline management teams and perhaps enable the combined airline to negotiate better pricing from Airbus and Boeing enabling it to compete with Singapore Airlines and Emirates Airline.
Deflation
While a government-funded massive infrastructure rebuilding program would be a good thing right now, the bigger problem will remain unresolved and that is that the government has to borrow money from the bankers to fund the program and then we get taxed to pay interest to the bankers. Why should the government, which should have the right to create money, cede that right to private bankers, then pay them for it? Usually a party has to pay to gain a valuable privilege from another party. Who is in charge? To whom do governments owe their allegiances to? The people or the Money Power (banks)?
The free-marketers, those who define 'free' as meaning no government interference, frighten the public with scary words like socialism, inflation, government-controlled, and nationalization to keep us from asking these questions. They control the economics departments and the bankers control the media conglomerates, so they can do this.
After Enron, Collateralized Debt Obligations and Credit Default Swaps, why is nationalization such a horrible idea? Because they have taught us to be afraid of government. And there are many reasons to be afraid of government power, but really what we need to be afraid of is the power of governments controlled by the Money Power. If governments actually functioned as instruments of the collective good will, what would there be to be afraid of?
It is worth asking that question to drive home the extent to which our whole existence has been ponerized, corrupted by an evil power that has limited not only our actions but our very ability to imagine anything better.
Steve Fraser asks why not nationalize, starting with the banks?
Markets
The markets last week reacted in a deflationary mode, spurred by the stunning loss of a half million jobs in the United States in November. Commodities were down, stocks were down, and US bonds were up (driving yields down) while Japanese bonds dropped on fears of increased government borrowing next year. Oil dropped sharply (23%), gold fell 7.5% and interest rates are falling closer and closer to zero. How close? The yield on the 3-month U.S. Treasury Notes, for example, is now 0.01%. In other words, if prices are going down, you are better off having money rather than things.
It's not looking out in the real economy but it's all roses for the banks as the EU began approving the various European bank bailouts. Hedge Fund news is dire with many, including the once mighty Fortress, stopping or severely limiting investor withdrawals while being reported to be "crumbling".
With the crisis in the auto sector, Ford is looking to sell Volvo the Swedish carmaker it bought ten years ago in a bid to raise cash.
China
China has been a big focus recently with the US and China holding the fifth Strategic Economic Dialogue on December 4th and 5th in Beijing. The US Treasury Press Release is of course couched in careful diplomatic language but still gives a hint at the ebb and flow of the struggle for position and dominance of those in the Circles of Power.
The propaganda writers need to take a holiday for nearly every economic press release now starts the same way, "agree to continue their close communication on systemically significant macroeconomic policies, and reaffirm their commitment to continue to take material measures as necessary to maintain financial market stability, promote sustained global growth, and continue their cooperation on issues related to global economic and financial stability, and consider ways to further enhance the exchange of information on regulatory issues".
As regular readers know, this means, "we are all in the same club and are working together to a New Economic World Order. All that follows is part of our trading between ourselves of your lives, your wealth, your income and your future. We're telling you straight so you can't complain later."
Chinese banks are to get greater access to the US as long as they sign up to being run like US banks while US banks get to trade bonds in China and support that trading with capital from outside China thereby circumventing China's capital controls. Just who gains most from this will have to be seen but we suspect that while Chinese concessions may seem to confer advantage to the US the Chinese are far smarter than to be fooled by US investment bankers. This may be suggestive of a high level of cooperation behind the scenes.
Talking of behind the scenes cooperation, US Agriculture Secretary Ed Schafer said the US and China "are confident that the seven-year Doha round of global trade talks can be completed by the end of this year". Given where the Doha round left off, with entrenched positions being defended, this seems a remarkable piece of insight.
The usual sop to the environment was offered up with the US and China agreeing "to continue their close communication and extensive collaboration in addressing the challenges of environmental sustainability, climate change, and energy security." While a series of commercial agreements relating to energy, logging and fisheries were either signed up or progressed towards "greater understanding". With the Bush Administration's environmental record and that of China one wonders why they bother with the fig leaf of environmental respectability and responsibility.
Both countries agreed to additional government backing for trade to a total of $20 billion.
The announcements in relation to "International Economic Cooperation" strongly suggest that China is being brought publicly into the inner club for the development and implementation of the New Economic World Order. The US agreed that China (and other important emerging economies) should be given more weight "in international financial institutions" and be members of the Financial Stability Forum.
Not to be left out Australian Treasurer Wayne Swan and Trade Minister Simon Crean were in China at the weekend "for talks on growing commerce between the two nations and the response to turmoil in global economies".
Canada
Canadian Prime Minister Stephen Harper, in a cynical move to prevent being ousted by opposition parties, has suspended parliament until January 26th. The sheer cynicism of the man is incredible especially when the issue he is stonewalling is the speeding up of infrastructure spending and aid to manufacturing, automotive and forestry businesses which he calls "socialist economics". Canada is therefore left with no sitting government for the next six weeks. Job losses in November were 70,600, the Canadian dollar is at C$1.30 to the US dollar having been at parity just six months ago and Royal Bank of Canada is taking more losses to its bottom line. One can tell where Mr Harper's loyalties lie.
We had to chuckle when Marc Dreier, founder and managing partner of the 250-lawyer New York firm Dreier LLP, was arrested, detained and subsequently bailed for C$100,000 on charges of criminal impersonation. It seems he broke the cardinal rule, "don't get caught".
Europe
Unsurprisingly, the European Union decided, to bend its rules on state financing of business with the approval of the French bank rescue plan. Approval for the Austrian plan is expected shortly while the details of the German plan are being negotiated. Approval of the German plan will allow a "massive injection of state capital into Commerzbank".
Italian Minister of Welfare, Maurizio Sacconi, said "The threat of bankruptcy of our national economy should be considered real," while an unnamed leading member of the governing party, Forza Italia, said " The collapse of the world financial system may cause the Italian state to be unable to pay pensions and salaries to government employees". The minister responsible for the economy, Minister of Economy and Finance, Giulio Tremonti, countered that the economic situation was not dire.
Just two months ago Italy announced a 'stabilisation package' of €20 billion for the banks with Prime Minister Silvio Berlusconi promising that, "No bank will go bankrupt". A week later Italy joined Germany, France, Spain, Holland and Austria in the €1,500 billion "greatest bank bailout in history" which included €40 billion in equity for banks on a "case by case" basis, said Giulio Tremonti.
So it looks like ordinary Italians, just like everywhere else, will have to take the pain so that the bankers can take the gain.
Jerome Kerviel, the so called "rogue trader" blamed for French bank Societe Generale's record trading losses lost his bid to meet with his former chairman Daniel Bouton in a move that smacks of judicial cooperation in the scapegoating of Kerviel.
In Marseille oil workers exercised their right to strike against new French laws that are a backdoor privatization of cargo handling operations and port services.
Dark Pool
In an interesting development, ICAP, one of the world's largest inter-bank brokers is set to establish a "dark pool" share exchange. A "dark pool" is an exchange that does not disclose the details, including price, of trades allowing investors to act anonymously and for trades to be matched on an undisclosed basis. In a world of "free and open" markets and in which private citizens are being tracked in their every move we find this development noteworthy to say the least.
Also this week, rumours circulated that Deutsche Boerse is in merger talks with the world's biggest owner of stock markets NYSE Euronext signaling even further consolidation in this often misunderstood but important sector.
Talking of consolidation, Qantas Airways CEO Alan Joyce and British Airways counterpart Willie Walsh met in Hong Kong this weekend for talks on a potential merger. A move that would make sense for the airline management teams and perhaps enable the combined airline to negotiate better pricing from Airbus and Boeing enabling it to compete with Singapore Airlines and Emirates Airline.
Deflation
So we're in a recession?
Tuesday, December 02, 2008
Duh.
Now credit card issuers are sucking $2 trillion out of the economy, adding yet more deflationary pressure to the economy. Deflation is bad for people who owe money because they can't repay their loans, yet the credit card companies appear intent to cause deflation. Deflation is also bad for merchants because they bought their goods at the old cheap dollar higher price and now can only sell them at the new expensive dollar lower price, meaning they lose money on their goods. Capitalism only works with a little bit of inflation to "prime the pump", so that debts get paid off in cheaper dollars and goods get sold off at a higher price than what they were bought for. So deflation, if it continues, is going to be a b**ch.
The current response of the Federal Reserve and Treasury constitutes pushing on a string -- pushing money into the banking system in hopes that the banking system will lend it out. But a) the banking system is showing no sign of lending the money out, and b) even if they wanted to lend the money out, there's a shortage of people who can afford to repay loans, so they'd have trouble lending it out. You'd be better off dropping bales of $100 bills out the back of a fleet of helicopters if your intent is to re-inflate the economy, at least those $100 bills would go to buy stuff and thus provide jobs.
But in the end Congress is going to have to vote for a major jobs program, one which removes tax incentives for outsourcing and adds tax incentives for creating jobs right here in the USA, one which offers direct hiring CCC-style to work on repairing our crumbling infrastructure and clean up our roads and parks and etc., i.e., a new New Deal. Either that, or we face the potential of the recession deepening even further into a new Great Depression, and unlike the 1930's, we don't have the infrastructure or social capital in place to deal with a Depression -- no extended families anymore, no large number of factories that can be put back to work to employ people anymore, no experience with "living rough" anymore, etc. You can't keep pushing on a string and expecting the other end of the string to move. People need money and jobs to pull on their end of the string before pushing on the string will have significant effects. Otherwise, all you're doing is shoving one end of the string around -- and getting nowhere.
While a government-funded massive infrastructure rebuilding program would be a good thing right now, the bigger problem will remain unresolved and that is that the government has to borrow money from the bankers to fund the program and then we get taxed to pay interest to the bankers. Why should the government, which should have the right to create money, cede that right to private bankers, then pay them for it? Usually a party has to pay to gain a valuable privilege from another party. Who is in charge? To whom do governments owe their allegiances to? The people or the Money Power (banks)?
The free-marketers, those who define 'free' as meaning no government interference, frighten the public with scary words like socialism, inflation, government-controlled, and nationalization to keep us from asking these questions. They control the economics departments and the bankers control the media conglomerates, so they can do this.
After Enron, Collateralized Debt Obligations and Credit Default Swaps, why is nationalization such a horrible idea? Because they have taught us to be afraid of government. And there are many reasons to be afraid of government power, but really what we need to be afraid of is the power of governments controlled by the Money Power. If governments actually functioned as instruments of the collective good will, what would there be to be afraid of?
It is worth asking that question to drive home the extent to which our whole existence has been ponerized, corrupted by an evil power that has limited not only our actions but our very ability to imagine anything better.
Steve Fraser asks why not nationalize, starting with the banks?
Under the present dispensation, the bailout state makes the government the handmaiden of the financial sector. Under a new one, the tables might be turned. But who will speak for that option within the limited councils of the Obama team?David Graeber explains the reasons for this lack of hopeful, creative imagination:
A real democratic nationalization of the banks -- good value for our money rather than good money to add to their value -- should be part of the policy agenda up for discussion in the Obama era. As things now stand, the public supplies the loans and the investment capital, but the key decisions about how they are to be deployed remain in private hands. A democratic version of nationalizing the financial system would transfer these critical decisions to new institutions created by Congress and designed to pursue public, not private, objectives. How to subject the flow of credit and investment capital to public control ought to be on the drawing boards if we are to look beyond the old New Deal to a new one.
Or, for instance, if we are to bail out the auto industry, which we should -- millions of jobs, businesses, communities and what's left of once powerful and proud unions are at stake -- then why not talk about its nationalization, too? Why not create a representative body of workers, consumers, environmentalists, suppliers and other interested parties to supervise the industry's reorganization and retooling to produce, just as the president-elect says he wants, new green means of transportation -- and not just cars?
Why not apply the same model to the rehabilitation of the nation's infrastructure; indeed, why not to the reindustrialization of the country as a whole? If, as so many commentators are now claiming, what lies ahead is the kind of massive, crippling deflation characteristic of such crises, then why not consider creating democratic mechanisms to impose an incomes policy on wages and prices that works against that deflation?
...If original thinking doesn't find a home somewhere within this forming administration soon, it will be an omen of an even more troubled future to come, when options not even being considered today may be unavailable tomorrow. Certainly, Americans ought to expect something better than a trip down (the grimmest of) memory lanes into the failed neo-liberalism of yesteryear.
The first question we should be asking is: How did this happen? Is it normal for human beings to be unable to imagine what a better world would even be like?
Hopelessness isn't natural. It needs to be produced. If we really want to understand this situation, we have to begin by understanding that the last thirty years have seen the construction of a vast bureaucratic apparatus for the creation and maintenance of hopelessness, a kind of giant machine that is designed, first and foremost, to destroy any sense of possible alternative futures. At root is a veritable obsession on the part of the rulers of the world with ensuring that social movements cannot be seen to grow, to flourish, to propose alternatives; that those who challenge existing power arrangements can never, under any circumstances, be perceived to win. To do so requires creating a vast apparatus of armies, prisons, police, various forms of private security firms and police and military intelligence apparatus, propaganda engines of every conceivable variety, most of which do not attack alternatives directly so much as they create a pervasive climate of fear, jingoistic conformity, and simple despair that renders any thought of changing the world seem an idle fantasy. Maintaining this apparatus seems even more important, to exponents of the "free market," even than maintaining any sort of viable market economy. How else can one explain, for instance, what happened in the former Soviet Union, where one would have imagined the end of the Cold War would have led to the dismantling of the army and KGB and rebuilding the factories, but in fact what happened was precisely the other way around? This is just one extreme example of what has been happening everywhere. Economically, this apparatus is pure dead weight; all the guns, surveillance cameras, and propaganda engines are extraordinarily expensive and really produce nothing, and as a result, it's dragging the entire capitalist system down with it, and possibly, the earth itself.
The spirals of financialization and endless string of economic bubbles we've been experience are a direct result of this apparatus. It's no coincidence that the United States has become both the world's major military ("security") power and the major promoter of bogus securities. This apparatus exists to shred and pulverize the human imagination, to destroy any possibility of envisioning alternative futures. As a result, the only thing left to imagine is more and more money, and debt spirals entirely out of control. What is debt, after all, but imaginary money whose value can only be realized in the future: future profits, the proceeds of the exploitation of workers not yet born. Finance capital in turn is the buying and selling of these imaginary future profits; and once one assumes that capitalism itself will be around for all eternity, the only kind of economic democracy left to imagine is one everyone is equally free to invest in the market - to grab their own piece in the game of buying and selling imaginary future profits, even if these profits are to be extracted from themselves. Freedom has become the right to share in the proceeds of one's own permanent enslavement.
And since the bubble had built on the destruction of futures, once it collapsed there appeared to be - at least for the moment - simply nothing left.
Markets
The markets this week
| Previous week's close | This week's close | Change | % change | |
|---|---|---|---|---|
| Gold ($) | 819.00 | 757.10 | 61.90 | 7.56% |
| Gold (€) | 645.59 | 594.64 | 50.95 | 7.89% |
| Oil ($) | 54.43 | 41.76 | 12.67 | 23.28% |
| Oil (€) | 42.91 | 32.80 | 10.11 | 23.55% |
| Gold:Oil | 15.05 | 18.13 | 3.08 | 20.49% |
| $ / € | 0.7883 / 1.2686 | 0.7855 / 1.2732 | 0.0028 / 0.0046 | 0.36% / 0.36% |
| $ / ₤ | 0.6507 / 1.5368 | 0.6779 / 1.4751 | 0.0272 / 0.0617 | 4.18% / 4.01% |
| $ / ¥ | 95.400 / 0.0105 | 92.870 / 0.0108 | 2.53 / 0.0003 | 2.65% / 2.86% |
| DOW | 8,829 | 8,635 | 194 | 2.19% |
| FTSE | 4,288 | 4,049 | 239 | 5.57% |
| DAX | 4,669 | 4,381 | 288 | 6.17% |
| NIKKEI | 8,512 | 7,918 | 595 | 6.99% |
| BOVESPA | 36,596 | 35,347 | 1,248 | 3.41% |
| HANG SENG | 13,888 | 13,846 | 42 | 0.30% |
| US Fed Funds | 0.50% | 0.06% | 0.44 | 88.00% |
| $ 3month | 0.04% | 0.01% | 0.03 | 75.00% |
| $ 10 year | 2.92% | 2.71% | 0.21 | 7.19% |
Labels: debt, Deflation, economic stimulus, infrastructure
posted by Donald Hunt at 2:11 PM
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