Fears of global liquidity crisis grip markets

NF Reporter · 08-10-2007, 07:54 AM

Reuters - Fears of a global liquidity crisis gathered pace on Friday, hitting stocks and high-yielding currencies, while the European Central Bank and Asian authorities acted to calm surging short-term borrowing costs.

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waltky · 08-10-2007, 09:04 AM

China threatenin' to add to the chaos...

China Weighs Economic "Nuclear Option"
Aug. 9, 2007 Officials Contemplate Dumping U.S. Cash Holdings

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Talking about currency rates is a lot like being forced by Mom to eat your vegetables: you know it's good for you, but you hate it. So, apologies for offering a big course of Brussels sprouts here, but it is information worth knowing. The Chinese are holding and investing something like $1.3 trillion they made from selling goods to America.

Now, some Chinese officials have floated the idea that these U.S. dollars could be used against the United States. Here is how the London Telegraph's Ambrose Evans-Pritchard reported the story: "Two officials at leading Communist Party bodies have given interviews in recent days warning — for the first time — that Beijing may use its $1.33 trillion of foreign reserves as a political weapon to counter pressure from the U.S. Congress.

"Described as China's 'nuclear option' in the state media, such action could trigger a dollar crash at a time when the U.S. currency is already breaking down through historic support levels." The words that hit were "NUCLEAR OPTION". Rarely do you find that in a story on currency.

Here is the problem: The United States maxed-out its credit cards long ago, and it needs to borrow and borrow both to raise still more money, and to pay interest on that ever-growing debt. The Chinese, with all those dollars, are willing to lend by buying U.S. Treasury bonds. That keeps interest rates down and that gives Americans extra bucks to buy… more goods from China.

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waltky · 11-11-2007, 07:06 PM

Gee, guess Congress will want another raise now...

Federal Liabilities Now Equal $175,000 for Every American
November 08, 2007 - Deficit spending and promised benefits for federal entitlement programs have put every man, woman, and child in the United States on the hook for $175,000, says a new report by David Walker, comptroller general of the United States.

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On Tuesday, Walker sent the results of his audit of the federal debt to Treasury Secretary Henry Paulson. The audit revealed that, as of Sept. 30, the last day of fiscal year 2007, the U.S. government owed $8.993 trillion. Of this nearly $9 trillion in debt, $5.049 trillion is in the form of Treasury securities held by the public, while the other $3.944 trillion is in the form of loans made to the Treasury from "surpluses" in the trust funds of federal entitlement programs, including the Social Security, Medicare, military retirement, and civic service retirement programs.

In addition to this debt, which represents money the federal government has already spent, the government also faces a gap between the projected revenue expected from the current tax structure and the spending that will be required to cover promised benefits in Social Security, Medicare, Veterans Administration and other entitlement programs.

"If these items are factored in," Walker said in his report, "the total burden in present value dollars is estimated to be about $53 trillion. Stated differently, the estimated current total burden for every American is nearly $175,000; and every day that burden becomes larger." Of the $5.049 trillion in debt currently held by the public, $2.22 trillion is held by foreign investors, Walker calculated. "[T]o service this foreign-held debt," Walker said, "the U.S. government must send interest payments abroad, which adds to the incomes of residents in other countries rather than to the incomes of U.S. residents."

In fiscal 2007, the federal government owed $433 billion in interest on the money it had already borrowed and spent. Of this $433 billion, $239 billion was paid in interest on Treasury bonds, and the other $194 billion was added, on paper, to the money that the Treasury already owes to the entitlement program trust funds. Over 25 years, the federal debt grew almost eight-fold, from $1.142 trillion in 1982 to $8.993 trillion in 2007.

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waltky · 11-16-2007, 02:49 PM

Granny says, "Dey really gonna mess their pants now"...

Credit losses 'may reach $400bn'
Friday, 16 November 2007, Mr Hatzius warned of a "substantial recession" risk

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Financial companies' losses due to the US sub-prime crisis could be as much as $400bn (£190bn), US investment bank Goldman Sachs has said.

The estimate by Goldman's chief economist Jan Hatzius is higher than that of the Federal Reserve but in line with some recent independent forecasts.

Mr Hatzius predicts leveraged investors may have to reduce their lending by $2 trillion as a result. "The macroeconomic consequences could be quite dramatic," Mr Hatzius said.

He said the development could lead to a "substantial recession" if it happened over a year, or to a prolonged period of weak economic growth if it occurred over up to four years.

'Wrong analogy'

waltky · 11-29-2007, 03:03 AM

Global recession starting?...

World economic growth rate slowing: UN
29 Nov 2007, The world economy has been growing more slowly after global unemployment jumped to 6.3 per cent last year, the highest in a decade, the United Nations reported.

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Because it is the world's largest economy, the United States and its weakening housing market are "the major drag for this global slowdown," said the UN report, released on Wednesday. It puts the expected growth of 2007 world gross product at 3.2 per cent, down from an average 3.8 per cent a year during the previous decade.

"We see a number of worrisome trends," said Sha Zukang, the UN's undersecretary-general for economic and social affairs. "Globally, despite robust rates of economic growth, employment creation is lagging behind growth of the working-age population."

Some 195 million people were unemployed in 2006, an increase that despite continued growth in global economic output is "giving rise to the phenomenon of jobless growth," the report said. The global labor pool comprises about two-thirds of the 4.6 billion people of working age, which the UN puts at 15 and older.

In the decade ending in 2006, the global unemployment rate rose to 6.3 per cent, up from about 6 percent, according to the UN's Department of Economic and Social Affairs, Conference on Trade and Development and five regional commissions.

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waltky · 01-09-2008, 08:17 PM

U.S. recession likely to spread...

UN Sees Risk of Global Recession
09 January 2008 - A new U.N. report says the risk of global economic recession is rising. The report, by the U.N. Conference On Trade and Development, says international trade is expected to slow and the world economy to cool off.

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World economic growth was robust last year. The report notes more than 100 economies achieved three percent growth or more. And growth in developing countries rose on average nearly seven percent. Africa, it notes, grew by nearly six-percent and is expected to exceed that figure this year. But, the U.N. Conference On Trade and Development says there is a clear danger of the world economy coming to a near standstill in 2008.

The report says this will hit many poor nations hard, slow world trade and put an end to the boom in commodity prices. Heiner Flassbeck is an official at the U.N. agency. He says the major uncertainties for 2008 arise from the U.S. economy.

"We have seen already a crisis in the third quarter of last year, the so-called sub-prime crisis," he noted. "This has sent some shock waves all around the world and these shock waves have had already a number of repercussions that could lead to a much worse outcome in 2008." U.N. economists say significant spillover effects from the problems in the U.S. mortgage markets have spread to major European countries and, to a lesser extent, to Japan and other developed economies.

Flassbeck says the world can no longer count on the United States as being the sole locomotive of the world economy. He says Japan and Europe have to do more to take over this role. But, he adds, there is no sign yet that other major developed economies are strong enough to replace the United States as the engine of global growth. He says the world economy would suffer a severe blow if the United States were to go into recession.

More VOA News - UN Sees Risk of Global Recession

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U.N.: U.S. decline could moderate China's economic growth in 2008
Jan. 9, 2008 -- China might see a "significant dent" in its economic growth rate, if the U.S. economy slides into a recession, said the United Nations in a report released on Wednesday.

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China is expected to grow at a robust pace of 10 percent in 2008, moderating from the 11.4 percent growth estimated for 2007, said the report entitled World Economic Situation and Prospects 2008. The annual report also considered a more pessimistic scenario under which housing prices in the United States make a more significant dive and push the U.S. economy into a recession in 2008. Should this happen, economic growth in China would drop below 8 percent in 2008.

In the baseline forecast, the UN's prospects for the Chinese economy in 2008 remain positive overall. Fixed investment continues to be a key growth driver. Private consumption, which was relatively weak in the past compared with other components of GDP, will strengthen due to a strong growth in wages and the positive wealth effects from the significant rise in stock prices over the past two years.

The U.N. report said the weight of the Chinese economy in the world has been steadily increasing. China contributed about 17 percent to global growth in 2007, about the same as the United States. China's trade with the rest of the world has been growing three times as fast as the world average since its accession to the WTO in 2001. If it keeps up the momentum, China will become the largest exporting economy in 2009.

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waltky · 01-17-2008, 01:39 AM

Granny movin' her chopstick mutual funds to Halliburton stock...

Asia Stocks Plunge in Fear of U.S. Recession
Jan 16, 2008 - Asian Markets Plunge on Worries That US Is Sliding Into Recession; Hong Kong Sinks 5.4 Percent

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Asian markets plunged Wednesday on growing speculation the U.S. economy a vital export market is sliding into a recession that could lead to a global slowdown. Investors dumped stocks after an overnight sell-off on Wall Street and on news that Citigroup Inc. had lost nearly $10 billion in the fourth quarter as it wrote down mountains of bad mortgage assets the latest fallout from the credit crisis. Weak U.S. retail sales figures added to the gloom.

"American financial mismanagement has brought us to this economic meltdown," said Francis Lun, a general manager at Fulbright Securities in Hong Kong. "Asian stock markets are all suffering; nobody has escaped." In Hong Kong, the benchmark Hang Seng index sank 5.4 percent its biggest percentage drop since the Sept. 11 terrorist attacks to 24,450.85. Tokyo's Nikkei 225 index fell 3.4 percent to 13,504.51 points, its lowest in more than two years.

Markets in Australia, China, India, South Korea, New Zealand and the Philippines also dropped sharply on uncertainty about the U.S. economy and the full extent of the subprime mortgage crisis. In Europe, where markets had fallen sharply Tuesday, stocks slid again. Britain's FTSE 100 and Germany's DAX were both down about 1 percent in morning trading.

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Fed's Economic Outlook: Bleak
Jan. 16, 2008 - The Federal Reserve is Concerned as Businesses and Consumers Hold Back Spending

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The economy lost momentum heading into the new year as shoppers tightened their belts and manufacturers were stung by weak demand for cars and housing-related goods. The Federal Reserve's new snapshot of business conditions around the country, released Wednesday, suggested that the strains from a persistent housing slump and harder-to-get credit are affecting the behavior of individuals and businesses alike making them more cautious.

The report comes as a recent string of economic indicators ranging from a plunge in retail sales to a big jump in the unemployment rate stokes worries that the country is heading for its first recession since 2001. The Fed report said the economy in fact grew during the survey period from the middle of November through December "but at a slower pace" than the previous survey taken during the late fall. Credit problems intensified in December as did troubles in the housing market. That threw Wall Street into a fresh bout of turbulence.

Federal Reserve Chairman Ben Bernanke, in a major speech last week, pledged to aggressively cut a key interest rate to prevent all these problems from plunging the economy into a recession. Many economists now predict the Fed will lower rates by a bold half-percentage point at the end of a two-day meeting on Jan. 30. The Fed started cutting rates in September, the first time in four years; it lowered rates three times last year. However, some critics on Wall Street and elsewhere criticized Bernanke for not taking action sooner and more forcefully.

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waltky · 01-19-2008, 02:36 PM

China got banking problems of their own...

China said to find $118B in bank misconduct
January 19 2008: Reports say auditor findings result in 177 bank managers being fired.

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Auditors found misconduct at Chinese banks involving about 860 billion yuan ($118 billion) last year and 177 bank managers have been fired, news reports said Saturday. A total of 445 cases of irregularities were found, down 58.4 percent from 2006, the Xinhua News Agency and the Shanghai Daily newspaper reported, citing the China Banking Regulatory Commission. They gave no details or and did not say whether anyone would be prosecuted.

Auditors have stepped up oversight of Chinese state-owned banks in recent years as they try to become more competitive and as some sell shares to foreign investors. Last year 12,687 people were fined or received other punishment for bank misconduct, the banking commission said on its Web site. It was not immediately clear what offenses those fired or fined in the latest reported round had committed. In the past, bank misconduct has included embezzlement and taking bribes to grant improper loans.

The government has also been cracking down on violations of curbs on lending for real estate speculation. The news reports cited the commission as the source of details on the total amount of money involved in misconduct cases. The statement on the commission Web site gave no financial details.

Source

waltky · 01-22-2008, 03:55 AM

World markets reeling...

World markets continue to sink over U.S. woes
22 Jan. 2008 - India exchange briefly suspended after 9% drop tied to investor pessimism

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Global stock markets extended their shakeout into a second day Tuesday, plunging amid worries that a possible U.S. recession will cause a worldwide economic slowdown. The dramatic declines in Asia and Europe were expected to spread to Wall Street, where stock index futures were already down sharply hours before the trading day began. Japan's Nikkei 225 index, the benchmark for Asia's biggest bourse, plummeted 5.7 percent to close at 12,573.05 on the Tokyo Stock Exchange, the lowest close since Sept. 8, 2005. In China, the Shanghai Composite Index fell 7.2 percent to its lowest close since early August.

Trading was halted in India when the Sensex index plummeted 9.75 percent within minutes of opening. Hong Kong's Hang Seng index dropped 8 percent by midday after diving 5.5 percent the day before. "Unless we get some positive 'shock effects,' such as drastic measures from the U.S. government, there is almost no hope for a recovery in stocks," said Koji Takeuchi, senior economist at Mizuho Research Institute in Tokyo. Asian markets have fallen sharply since the start of the year: Japan's benchmark index has sunk nearly 17 percent, while the Hang Seng is down a stunning 22 percent.

Oil prices also declined amid speculation that slower U.S. growth will weaken demand for crude. Spot gold, which usually benefits from market uncertainty, fell to a 2-week low of $860.90 per troy ounce. U.S. markets were closed Monday for a holiday commemorating civil rights leader Martin Luther King Jr. But Wall Street future prices were down sharply, portending a plunge when trading begins at 9:30 a.m. Eastern time.

Bush plan fails to restore confidence

waltky · 03-10-2008, 01:32 AM

The third wave is almost on us...

Markets rattled by signs of renewed credit crisis
March 9, 2008 : Tight money markets, tumbling stocks and the dollar are expected to heighten worries for investors this week as pressure mounts on central banks facing what looks like the third wave of a global credit crisis.

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Last week, money markets tightened to levels not seen since December, when year-end funding problems pushed lending costs higher across the board. In response, the U.S. Federal Reserve Board unveiled new measures to ease liquidity strains Friday, injecting $200 billion into the banking system, and said it was in close consultation with central bank counterparts.

However, the Fed failed to lift the mood much. Investors, who want to see if any further plan is in the works to prevent a financial market seizure, will probably scrutinize words from major central bankers including Fed officials this week. The European Central Bank president, Jean-Claude Trichet, is expected to hold a news conference in Basel, Switzerland, on Monday after a meeting of the Group of 10 central bankers, who masterminded a joint cash injection plan last year.

"It's another round of the credit crisis," said Jesper Fischer-Nielsen, interest rate strategist at Danske Bank in Copenhagen. "Some markets are getting worse than January this time. There is fear that something dramatic will happen and that fear is feeding itself. "Central banks have shown great resolve to try to solve the problems and I'm sure they will do again," Fischer-Nielsen said. The vice chairman of the Swiss National Bank, Philipp Hildebrand warned last week that the world might be in a new, more dangerous phase of the crisis. If that is the case, the latest wave is the third one.

More Markets rattled by signs of renewed credit crisis - International Herald Tribune

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Banks may lose $325 billion over mortgages
Sun., March. 9, 2008 - JPMorgan says financial institutions facing a ‘systemic margin call’

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Wall Street banks are facing a "systemic margin call" that may deplete banks of $325 billion of capital due to deteriorating subprime U.S. mortgages, JPMorgan Chase & Co., said in a report late on Friday. JPMorgan, which sent a default notice to Thornburg Mortgage Inc. after the lender missed a $28 million margin call, said more default notices and margin calls were likely. The Carlyle Group's mortgage fund also failed to meet $37 million in margin calls this week.

"A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages," according to the report co-authored by analyst Christopher Flanagan. "We would characterize this situation as a systemic margin call." The credit crisis that began about a year ago will likely intensify after Friday's weak February U.S. employment report "that most definitely signals recession," JPMorgan said.

Indeed, corporate bond spreads widened to a new record on Friday, surpassing levels seen in October 2002 during a boom in bankruptcies following the dot-com crash. U.S. employers cut payrolls in February for a second consecutive month, slashing 63,000 jobs, the biggest monthly job decline in nearly five years, the U.S. Labor Department reported on Friday. "The weak February employment report points to an economy in recession," JPMorgan said.

The JPMorgan report included a revised bleaker forecast for subprime-related home prices. The bank now sees prices falling 30 percent, from its prior 25 percent forecast. Those prices have declined 14 percent since mid-2006, JPMorgan said. The U.S. jobs results also came after the Federal Reserve expanded the amount of its short-term auctions to $100 billion in total in the central bank's latest effort to ease credit concerns. Ongoing concerns about bond insurers, known as monolines, and their effort to save their top ratings also are weighing on market sentiment.

Banks may lose $325 billion over mortgages - Mortgage mess - MSNBC.com