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Good morning, or, as I type this in Cascadia, good evening, and welcome to the 11 o'clock Financial News.
China's central government is pulling down the yuan. Brad Setser at the CFR thinks this is not a good idea. He sees it as a defense of their current accounts surplus. He doesn't raise the obvious worry about protectionism in response, but I do, here. At the same time, they're pressuring the US to "treat its creditors rather more nicely," specifically by making several adjustments in its financial policies. They're also preparing for a "worst case" scenario without stating what that scenario might be. Tricky games here, and we don't know what they are. But we do know that Zhou Xiaochuan, governor of the People's Bank of China, flew to the United States today (Thursday) for not particularly specified reasons.
This link will only be available while markets are closed, but: American Express is canceling its entire Business Line of Credit and Business Capital Line service effective 15 January 2009. This will kill an assortment of small businesses which are otherwise functional unless they can find replacement credit. Bank of America CEO Ken Lewis is recommending hoarding cash, which is more or less what banks have been doing.
Those replacements will probably not be easy. The Port Authority of New York and New Jersey had no bids on $300M in taxable bonds. They are ports-fees based and were given the highest short-term ratings by all agencies - not that this means much at this point, but still. No bids.
The proposed size of a new proposed round of fiscal stimulus - this is separate to the various bailout packages and funds - is now US$1trillion with a T. Part of the reason is an expected demand collapse - that's fun. November sales were very poor; of the major retailers, only Wal-Mart posted any gain at all year to year. Terrible unemployment numbers aren't helping, of course; Mish thinks unemployment will rise to Depression levels. And hey, with over US$8T in bailouts and backings already, hell, why not throw 12% or so to the population, ne? I'm hearing unlinkable commentary to the effect that the US should go ahead and tell as many T-bills as it can while there's still demand - anticipating a demand collapse sometime in 2009.
London Banker notes that what people save in a crisis reveals a lot about the people involved, and that the US's efforts in this appear to be keyed towards saving a lot of high-level executives and "the privileges of the financial elite" at the expense of the real economy.
GM is considering accepting a prepackaged bankruptcy package in exchange for bailout funding, apparently more willing to take a hybrid approach to business than cars. Mish thinks it's a good idea. I think it's a good idea if it will shake GM to the core; the company is more deadwood than not. Jim Manzi at American Scene looks over GM's proposed plan, however, and calls it "magical thinking" and says that "somebody who’s never read a real business plan might mistake this document for one, but it’s a joke."
Of all the people who were talking about this crisis before it happened, Dr. Roubini at RGE Monitor is the only one thinking that it can be handled by massive stimulus and other money-adding actions. Hopefully he's right again, because that's what's happening. Mark Thoma notes that we're a year in to this crisis and the worst is yet to come, and that's exactly when the worst policy tends to emerge. He really dislikes the Treasury plan to put into place a "temporary" programme - he thinks it'll be permanent - to artificially push down mortgage rates. He particularly likes that the National Association of Realtors are a big backer.
In extreme outsourcing news, The Times Group of India's Economic Times is reporting American insurance companies are setting up arrangements "with Indian corporate hospitals [to fly] patients to the country for treatment in order to cut costs." Malpractice cases will be interesting.
And finally, in rage news, bailout-recipient nearly-bankrupt insurer AIG is handing out bonuses that double the salaries of most of its upper executive staff, telling taxpayers to go fuck off, suckers, we're looting while we can. Even Bloomberg notes several lies, including one about CEO Edward Liddy taking a $1 salary for 2009; the actual amount is $3,000,000.
eta: Karl at Market Ticker says rumours are flying that China is going to devalue the Yuan by 30 to 35 percent in the very near future - see also Brad Setser's commentary above - and that this may be why Zhou Xiaochuan made the trip to the US. Nothing's showing up in forex right now, and that would of course be a huge swing - utterly uncharacteristic and unavoidable. So this rumour won't require any guesswork to verify.
eta2: Also, The Telegraph reports a much smaller number, but still a devaluation, here. But China Daily says recent action is not a policy shift. Watch this very, very closely.
China's central government is pulling down the yuan. Brad Setser at the CFR thinks this is not a good idea. He sees it as a defense of their current accounts surplus. He doesn't raise the obvious worry about protectionism in response, but I do, here. At the same time, they're pressuring the US to "treat its creditors rather more nicely," specifically by making several adjustments in its financial policies. They're also preparing for a "worst case" scenario without stating what that scenario might be. Tricky games here, and we don't know what they are. But we do know that Zhou Xiaochuan, governor of the People's Bank of China, flew to the United States today (Thursday) for not particularly specified reasons.
This link will only be available while markets are closed, but: American Express is canceling its entire Business Line of Credit and Business Capital Line service effective 15 January 2009. This will kill an assortment of small businesses which are otherwise functional unless they can find replacement credit. Bank of America CEO Ken Lewis is recommending hoarding cash, which is more or less what banks have been doing.
Those replacements will probably not be easy. The Port Authority of New York and New Jersey had no bids on $300M in taxable bonds. They are ports-fees based and were given the highest short-term ratings by all agencies - not that this means much at this point, but still. No bids.
The proposed size of a new proposed round of fiscal stimulus - this is separate to the various bailout packages and funds - is now US$1trillion with a T. Part of the reason is an expected demand collapse - that's fun. November sales were very poor; of the major retailers, only Wal-Mart posted any gain at all year to year. Terrible unemployment numbers aren't helping, of course; Mish thinks unemployment will rise to Depression levels. And hey, with over US$8T in bailouts and backings already, hell, why not throw 12% or so to the population, ne? I'm hearing unlinkable commentary to the effect that the US should go ahead and tell as many T-bills as it can while there's still demand - anticipating a demand collapse sometime in 2009.
London Banker notes that what people save in a crisis reveals a lot about the people involved, and that the US's efforts in this appear to be keyed towards saving a lot of high-level executives and "the privileges of the financial elite" at the expense of the real economy.
GM is considering accepting a prepackaged bankruptcy package in exchange for bailout funding, apparently more willing to take a hybrid approach to business than cars. Mish thinks it's a good idea. I think it's a good idea if it will shake GM to the core; the company is more deadwood than not. Jim Manzi at American Scene looks over GM's proposed plan, however, and calls it "magical thinking" and says that "somebody who’s never read a real business plan might mistake this document for one, but it’s a joke."
Of all the people who were talking about this crisis before it happened, Dr. Roubini at RGE Monitor is the only one thinking that it can be handled by massive stimulus and other money-adding actions. Hopefully he's right again, because that's what's happening. Mark Thoma notes that we're a year in to this crisis and the worst is yet to come, and that's exactly when the worst policy tends to emerge. He really dislikes the Treasury plan to put into place a "temporary" programme - he thinks it'll be permanent - to artificially push down mortgage rates. He particularly likes that the National Association of Realtors are a big backer.
In extreme outsourcing news, The Times Group of India's Economic Times is reporting American insurance companies are setting up arrangements "with Indian corporate hospitals [to fly] patients to the country for treatment in order to cut costs." Malpractice cases will be interesting.
And finally, in rage news, bailout-recipient nearly-bankrupt insurer AIG is handing out bonuses that double the salaries of most of its upper executive staff, telling taxpayers to go fuck off, suckers, we're looting while we can. Even Bloomberg notes several lies, including one about CEO Edward Liddy taking a $1 salary for 2009; the actual amount is $3,000,000.
eta: Karl at Market Ticker says rumours are flying that China is going to devalue the Yuan by 30 to 35 percent in the very near future - see also Brad Setser's commentary above - and that this may be why Zhou Xiaochuan made the trip to the US. Nothing's showing up in forex right now, and that would of course be a huge swing - utterly uncharacteristic and unavoidable. So this rumour won't require any guesswork to verify.
eta2: Also, The Telegraph reports a much smaller number, but still a devaluation, here. But China Daily says recent action is not a policy shift. Watch this very, very closely.
