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solarbirdGood 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.
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Dĕw neh gōh moh
Date: 2008-12-05 02:29 pm (UTC)Wondered if something was in the wind when we got an e-mail from our local-to-XJ agent saying "everything is fine here although I would suggest that any further transfers to Canada be done swiftly".
Harrumph.
no subject
Date: 2008-12-05 07:55 pm (UTC)no subject
Date: 2008-12-06 12:18 am (UTC)no subject
Date: 2008-12-06 12:29 am (UTC)"mmmmm, hospital full of Americans, let's blow it up!"
no subject
Date: 2008-12-06 12:46 am (UTC)no subject
Date: 2008-12-06 10:01 am (UTC)no subject
Date: 2008-12-06 06:19 pm (UTC)no subject
Date: 2008-12-06 10:57 pm (UTC)Used to worry me that I would become stuck in China if something went non-linear (for which see: 'splody). But then on the other hand realised that chances were the local authorities would always regard me as much more of a curiosity than as a threat, and so it did not much matter that they were insisting on holding on to my papers. After all, it's not like they could find a body-double for me over there (grey hair, blue eyes, very northern-European features and 1.8 m tall).
But still, the whole RFID thing is scary, and I would hope that people would have the common sense to store their documents Real Close to the microwave oven, or a source of high magnetic flux.
no subject
Date: 2008-12-05 07:56 pm (UTC)The alternative to a fiscal stimulus is a financial collapse that will make our long-term debt much worse than adding even a few more trillion in the short run. Look what's happening to state budgets already with only the leading edge of a collapse in revenue. Corporations are cutting back spending massively too, and the change in unemployment last month was the worst in almost 35 years. Without stimulus, revenue in both the public and private sector will crash even faster. We can't stimulate the economy with interest rate cuts because we're effectively at zero already. Tax cuts aren't of a sufficient scale to reverse what's happening unless we want to make the debt even worse and really devalue our money. The only thing left to do is spend, spend, spend--starting as soon as possible and channeling money into projects that will produce economic growth in the long run.
My big fear is that there aren't enough projects that can be started in the short term to spend money on. If you think locally, there are big ticket projects like replacing the 520 bridge, but there's no way that construction could be started in time to help stop this recession from becoming a depression. If our economy is still screwed in a year or two (and it will be) then fixing 520 might help. But the projects that are ready to start as soon as money are available are small-scale and won't begin to have a big enough effect.
no subject
Date: 2008-12-05 08:03 pm (UTC)I didn't say he was alone in calling for massive fiscal stimulus. I just said that of the people who saw this coming and said so - in other words, the people who have been right about this so far - he's the only one in that set who favours the massive stimulus and capital-injections approach.
The alternative to a fiscal stimulus is a financial collapse that will make our long-term debt much worse than adding even a few more trillion in the short run.
And the problem of stimulus+capital-injections/bailouts is that if you exceed the tolerance for treasury purchases - most of which are made at this point by China, Korea, and some gulf states, and China's the biggest player, and they're warning that they're getting real tired of this - you have the worst of all worlds: massive debt financing obligations at suddenly much higher interest rates, which leads to either something like hyperdeflation or printing and devaluation.
The stimulus portion alone isn't fatal. But a combined $9T debt package in a year - which are the numbers being tossed about, I'm not making these up - is doom.
Also, we're effectively at half a point if inflation has cratered off the way it appears to have done. But yes, we're quite low.
no subject
Date: 2008-12-06 09:50 am (UTC)