Asian markets plunge on Lehman, Merrill woes

NF Reporter · 09-16-2008, 06:20 AM

AP - Asian stock markets plummeted Tuesday as the collapse of Lehman Brothers and takeover of Merrill Lynch spurred fears of an imminent global financial crisis.

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waltky · 10-12-2008, 05:42 AM

China not happy gettin' stuck with our bad paper...

China criticises West over crisis
October 12, 2008 - A TOP Chinese official criticised rich nations for the problems in the global financial system today and called on them to "shoulder the responsibility" of preventing more fallout.

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Yi Gang, number two in China's central bank, also urged the International Monetary Fund (IMF) to increase its surveillance of developed nations where he said "weak financial policy discipline" was the cause of problems. "The major reserve currency-issuing countries should shoulder the responsibility for preventing further spillovers and minimising shocks to other countries," the deputy governor of the People's Bank of China told a meeting of the IMF. The US and eurozone are by far the largest currency reserve-issuing countries in addition to Switzerland, Japan and Britain.

"Under the current international monetary system, the lack of effective surveillance of reserve currency-issuing countries and their weak financial policy discipline has resulted in excess global liquidity and disorderly capital flows," Mr Yi said in a statement. He said this had caused difficulties for other countries in their bid to preserve macroeconomic stability and boost growth "while posing serious risks for global economic and financial stability". "The Fund (IMF) must draw lessons from the crisis and take corrective measures to enhance its surveillance over the developed countries, especially the reserve currency-issuing countries," he told the IMF's International Monetary and Financial Committee.

China has the biggest foreign exchange reserves in the world of nearly two trillion US dollars. Official figures showed the country held 1.8088 trillion US dollars at the end of June. Its double-digit economic growth is also highly dependent on exports to the United States and the eurozone and Mr Yi pointed to a "much worse than expected" impact of the financial crisis on the real economy. "The deepening and widening of the US financial crisis has triggered a major global slowdown and escalating uncertainty," Mr Yi said. He called on rich nations to implement "bailout packages" for their ailing banks quickly.

"It is imperative that the major advanced economies co-ordinate rapid implementation of bailout packages to avoid deflation and facilities the global recovery," he said. The finance chiefs of the Group of Seven major advanced economies announced yesterday a broad five-point action plan to tackle the global financial crisis, which has caused stock markets to crash amid a credit crunch. The G7 pledged to use "all available tools" to support key institutions and prevent their failure in the worst financial crisis since the 1930s Great Depression.

China criticises West over crisis | Business Breaking News | News.com.au

waltky · 11-07-2008, 03:06 AM

Deflation could lead to depression...

Deflation: the new threat
November 6, 2008: Deep global rate cuts show that policymakers fear a drop in price levels, regardless of their brave words.

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Forget about inflation. The opposite threat - deflation - is what has policymakers sweating now.

Central banks across Europe slashed interest rates again Thursday. The Bank of England cut its policy rate to 3% from 4.5% - a cut three times as big as the market expected - while the European Central Bank trimmed its own rate by half a point, to 3.25%. The moves come a week after the Federal Reserve cut the Fed funds rate to 1%, touching the lows it set earlier this decade before the housing bubble took shape.

The cuts are remarkable because it was only four months ago that the ECB was raising interest rates to stem inflation fears tied to the surging prices of energy and food. But since then, the deleveraging that has upended the financial sector has accelerated, and economic activity has slowed sharply. Policymakers have changed their tune accordingly, saying falling commodity prices will ease pressures for wage increases and support broad price stability.

"Real sense of concern"

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Deflation Anxiety: The Rising Threat of Falling Prices
Thursday, Nov. 06, 2008 : Of all the financial challenges the next Administration may face, perhaps the most dangerous — and least appreciated — is deflation.

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The stunning decline in the price of oil gets the business headlines — and has a good-news feel as it helps cash-strapped American consumers the most — but the cost of an entire range of commodities has also plunged in the past quarter: copper, gold, nickel and steel have all fallen as global demand has weakened. One popular gauge of commodity prices, the Reuters CRB Index, tumbled 22.3% in October, the biggest drop in the index's 48-year history.

With the economy in the U.S. "contracting significantly" in the fourth quarter, as San Francisco Fed president Janet Yellen recently put it, an issue that was practically unthinkable three months ago is now, for the Fed, front and center: the possibility of the U.S. entering a phase of deflation, or protracted declines in the general price level. In its statement accompanying the most recent interest-rate cut, the Fed said, "In light of the declines in the prices of energy and other commodities and weaker prospects for economic activity, [the Fed] expects inflation to moderate."

That's the optimistic view — and, for now, the dominant view of the Fed, most economists believe. But lurking not far from the surface of economic policymakers' deliberations these days is the dreaded d word: deflation. "Sure, we're very cognizant of it," one source familiar with Fed's thinking on the matter told TIME this week. "We don't think we're there yet, but we're very aware of the possibility." So is Wall Street. At Merrill Lynch, chief investment strategist Richard Bernstein issued a report within hours of Barack Obama's election, listing three developments for investors to monitor closely: fiscal stimulus, taxes and deflation.

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