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"Change" - Americans' net worth shrinks $1.33 trillion in 1Q

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Postby rath » Mon Jun 15, 2009 12:22 am

A new world order as US sinks.

HERE'S a big lesson of the first international financial crisis of the 21st century: some old-fashioned economies are weathering the storm better than those that borrowed big to spur growth or those that bet heavily on debt-strapped American consumers.

The US, the economy at the centre of the turmoil, is dragging down world growth. On Wednesday, Federal Reserve chairman Ben Bernanke gave his most pessimistic assessment to date of the US economy's outlook, strongly suggesting that a recession was likely.

In testimony before Congress, he also said the Fed projected slower global growth over the coming quarters.

How the other economies fare could offer important insight that world leaders already are trying to glean.

Over the coming week, the global economy will be at the centre of discussions as finance ministers gather for the spring meetings of the International Monetary Fund and World Bank in Washington. At the top of their agenda: what steps to take to revamp global financial regulation, ease the global credit squeeze and boost growth.

Countries such as Australia, Brazil, the United Arab Emirates and Qatar are still expanding smartly, although down from 2007, because they have rich veins of high-priced oil, iron ore, alumina or copper. Old-line heavy machinery makers such as Germany and Japan are riding out the problem because they have diversified their markets.

On the flipside, consumer-goods exporters of Asia that rode to prosperity by trading with the US - Thailand, the Philippines, Malaysia and even China - are seeing their lofty growth rates sag. And the Baltic countries, Hungary and Iceland, which borrowed heavily to finance growth, are now watched by international financial institutions to see whether they will come unhinged by the credit squeeze.

"The remarkable difference between this period of financial upheaval and those in the past is the performance of developed and developing countries," World Bank president Robert Zoellick said in a speech on Wednesday at the Centre for Global Development, a Washington think tank.

"Not only has the epicentre of the quake shifted (away from developing countries), but so far the tremors have shaken markets differently." Right now the global economy looks well positioned to weather the turmoil, unless the US falls into a deep, lingering recession. The global economy is expected to grow 3.8 per cent this year, compared with 4.7 per cent a year earlier, according to numbers due yesterday from The Peterson Institute for International Economics, a Washington think tank.

Resource-rich countries - including Russia, Brazil and Australia - are poised to keep prospering. Vast appetites for raw materials in China, India and elsewhere give commodity producers alternatives to the US market, and have lessened the chance of a commodities crash.

Russia, a centre of the last global financial crisis in the late 1990s, now touts its economy as a "safe harbour" thanks to surging prices for its oil, gas and other commodity exports. Brazil, another late 90s loser, has become a new economic pillar thanks to soaring demand for iron ore, coffee and sugar.

Brazil's interest rates are heading downward after years in the stratosphere, giving Brazilians relatively cheap credit which they're ploughing into new homes, cars and small businesses.

"So far, Main Street Brazil is untouched by the crisis," says Luis Largman, the chief financial officer of Cyrela Brazil Realty, a Sao Paulo-based home builder. Last July, just as the sub-prime crisis was beginning, his company scrapped plans for a bond sale meant for US investors. It instead raised the funds, about $US285 million, among Brazilian investors at nearly the same cost. The company is now posting record sales.

For some commodity producers, the biggest danger is overheating. Middle Eastern oil producers are sinking their new wealth into government-financed roads, airports and new oil and gas field development. But the spending is stoking inflation. That is exacerbated by a sharply falling US dollar, which raises the price of imports in Persian Gulf nations.

In Qatar, inflation is running at 14 per cent. In the UAE, inflation has triggered a series of violent protests by expatriate labourers angered by their falling buying power. In response, some governments in the region are lifting Customs duties on construction materials and food imports, and boosting government salaries by as much as 70 per cent.

A number of world economies might be in for pain, including Turkey and the parts of Eastern and Central Europe that have borrowed heavily on global markets to finance spending on consumer goods and real estate. The likes of Romania, Bulgaria, Hungary and the Baltic trio of Latvia, Lithuania and Estonia could now face a drying up of credit. That raises the risk of a replay of the 90s financial crisis, when Latin America, Russia and Southeast Asia couldn't repay their foreign currency debts, causing banks and companies to fail and plunging economies into recessions.

Sparsely populated Iceland is among the newly vulnerable countries. At the end of last year, its foreign debts, held mainly by banks, amounted to 430 per cent of its gross domestic product, several times the level in the countries of Eastern Europe.

The global credit crunch means Iceland's banks must pay higher interest now to borrow funds abroad, which they then lend at home. In response, local companies and households are curtailing their borrowing and spending.

Iceland's policy makers counter that the country's banks have ample funds to service their debts and that recent investments in aluminium smelting will spur export revenues.

Still, Iceland's currency, the krona, is under heavy pressure. The cost of buying insurance for debts owned by Icelandic banks has reached the highest level of any country's lenders. That usually means investors believe a debt default is a strong possibility.

Asian consumer goods exporters also face a slowdown because their economies' fortunes are tied so tightly to US consumer spending, which has been slowed. A repeat of the 1990s crash in the region is unlikely, though, because Asian nations have built large cash reserves and current account surpluses, which they could use to pay off foreign debts.

In the 1980s and 90s, Thailand lifted itself from poverty by attracting foreign companies to build cameras, televisions and refrigerators there and then sell them to US consumers. Over the past few years, Thailand's exporters have been trying to wean themselves from dependence on US shoppers. It isn't easy. Exporters in China, Vietnam, Malaysia and elsewhere in Asia are trying the same thing, deepening competition. Plus, the patterns of global trade are so complex that it's not easy to steer products to a particular destination.

European consumer goods companies are also feeling the pinch. Emerging economies churn out their own simple products more cheaply, while a declining US dollar has made Italian clothes, French wine and German cars more expensive for Americans.

Exports account for about 70 per cent of the sales of bicycle-maker Look Cycle International, based in Burgundy, France, and the US is one of its biggest markets. Late last year, Look cut the euro prices it charged its US unit for importing bicycles by 15 per cent, so its bikes' prices wouldn't soar in US shops. That cut into its own profits, Look says.

Now that a dollar is worth barely 63 euro cents, Look doesn't bother to swap its US revenues for euros. Instead, it keeps the dollars in a bank account and hopes the dollar will strengthen.

European nations that are big exporters of capital goods - the heavy tools and machinery used in manufacturing - are faring better. Companies in Germany, Switzerland and parts of Italy have so far managed to blunt the effects of the rising euro by diversifying away from the US market. Unlike their consumer goods counterparts, these manufacturers are still able to rely on sales to emerging economies. Machinery sales also depend on quality of engineering, where some European companies may be perceived to have an edge.

Industrial goods makers in Japan also say they are coping with the US downturn. When the US economy last tanked in 2001, machine-tool maker Mori Seiki, in Nagoya, Japan, showed a loss for the first time in years. But it has since diversified its customers and this time it expects to turn a profit, says its president, Masahiko Mori.

About 25 per cent of Mori's worldwide sales are to the auto industry, which have already been affected by a downturn in US consumer spending. But Mr Mori thinks demand from other countries will make up for this. "Of course the US market is still important," he says. "But our increase of business from BRICs (Brazil, Russia, India and China) and Europe means we've diversified our risk."
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Postby rath » Mon Jun 15, 2009 12:22 am

March, 29th 2009.

China is the largest holder of U.S. dollars -- approximately $2 trillion. With the Federal Reserve's program to buy U.S. Treasury bonds and expand the Term Asset-Backed Securities Loan Facility (TALF) program, China is concerned that printing all of this extra money will have a negative impact on China's holdings.

If, for example, as a result of the Fed's moves, the dollar were to fall, any country holding dollar reserves would see their holdings devalued. And this what China fears --that its $2 trillion will be devalued.

Zhou Xiaochuan is the governor of China's central bank. He sees the present world financial system as quite fragile and has proposed that a new currency be introduced as a standard in international trade and financial transactions. His proposal would build upon the present system of SDRs (special drawing rights). At present SDRs are used by the International Monetary Fund as a unit of settlement. These SDRs are based on a basket of four currencies -- the U.S. dollar, yen, euro and sterling.
Zhou's new world currency or SDR would be valued on a basket of currencies from all major economies and would not be tied to any specific currency.Then a settlement system would be set up that could be used in international trade and financial transactions. Zhou does say that it would take extraordinary foresight by world leaders to enact such a proposal.
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Postby rath » Mon Jun 15, 2009 12:23 am

China, the US government's largest creditor, is ''worried'' about its holdings of Treasuries and wants assurances that the investment is safe, Premier Wen Jiabao said.

''We have lent a huge amount of money to the United States,'' Wen said at a press briefing in Beijing today after the annual meeting of the legislature. ''Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the US to maintain its good credit, to honor its promises and to guarantee the safety of China's assets.''

China should seek to ''fend off risks'' as it diversifies its $US1.95 trillion ($3 trillion) in foreign-exchange reserves and will safeguard its own interests, Wen said. Chinese investors held $US696 billion of US Treasuries as of the end of 2008, an increase of 46% from the prior year.

Treasuries have dropped this year as President Barack Obama sells record amounts of debt to fund his $US787 billion economic stimulus package. Merrill Lynch's US Treasury Master index shows the securities declined 0.5% last month, after falling 3.1% in January, the most since April 2004. The dollar has dropped 17% against the yuan since China ended a fixed exchange rate in July 2005.

Treasuries declined, causing the yield on the 10-year US Treasury note to rise 3 basis points to 2.89% in Hong Kong, according to BGCantor Market Data. The yuan was little changed at 6.8380 per dollar. The Shanghai Composite Index of stocks climbed 0.7%.

Stable yuan

''China is worried that the US may solve its problems with the fiscal deficit and banks by printing money, which will stoke inflation,'' said Zhao Qingming, a Beijing-based analyst at China Construction Bank Corp., the country's second-biggest lender. ''If the US can make sure this won't happen, then China will continue to invest.''

US Secretary of State Hillary Clinton urged China, while visiting officials in Beijing on Feb. 22, to continue buying US debt, which she called a ''safe investment.'' She didn't press China on its foreign-exchange policy, backing away from January comments by Treasury Secretary Timothy Geithner that the Chinese government manipulates its currency to boost exports.

China will maintain its policy of seeking a stable yuan, even as gains against the euro and Asian currencies hurt the nation's exporters, Premier Wen said. People's Bank of China Governor Zhou Xiaochuan pledged last week to maintain yuan stability as investors pull money out of emerging-market assets because of slowing global economic growth.

Independent policy

While the yuan has weakened 0.2% against the dollar this year, there has been a ''drastic depreciation'' in the euro and Asian currencies that has put a lot of pressure on Chinese exporters, Wen said. The currency has gained 8.6% against the euro this year and 6% against the Philippine peso.

''Our goal is to maintain a basically stable yuan at a balanced and reasonable level,'' Wen said on the final day of the meeting of the National People's Congress. ''At the end of the day, it is our own decision and any other countries can't press us to depreciate or appreciate our currency.''

Collapsing exports have dragged the economy to its weakest growth in seven years and eliminated the jobs of millions of migrant workers. Wen reaffirmed China's target of an 8% expansion in 2009 as economies from the US to Japan contract, saying the goal was ''difficult but possible'' to achieve.

Stimulus plans

China can add ``at any time'' to 4 trillion yuan ($900 billion) of stimulus measures to revive the world's third- biggest economy, Wen said. Gross domestic product expanded 6.8% in the fourth quarter, compared with 9% for all of last year and 13% for 2007.

''We have reserved adequate ammunition,'' Wen said, adding that the fiscal deficit is under control and the debt level still safe. ``At any time, we can introduce new stimulus.''

Yu Yongding, a former adviser to the central bank, said in an interview on February 10 that China should seek guarantees that its US debt holdings won't be eroded by ''reckless policies.'' While Wen used the Chinese word for ''guarantee'' in his answer, it was translated into English as ''ensure.''

Delegates of China's legislative advisory body suggested that the biggest foreign holder of US debt diversify away from Treasuries into more risky assets at the annual meeting that started on March 3.

Jesse Wang, executive vice president of China Investment Corp., said on March 4 that his $US200 billion sovereign wealth fund may invest in ''undervalued'' commodity assets. Zhang Guobao, head of the National Energy Administration, said China should invest more in commodities instead of hoarding the US dollar, the official Xinhua News Agency reported on March 7.

''We have adopted a principle of diversification with our foreign-exchange investments,'' said Wen. ''So far, our holdings are generally safe. China will mainly use the reserves for outbound investments and trade.''

Bloomberg News
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Postby Tairaa » Mon Jun 15, 2009 9:52 am

1.95 trillion? Holy moses!

And the fact that they are continuing to "invest" means that they are planning on getting something out of it.
"George Bush says he speaks to god every day, and christians love him for it. If George Bush said he spoke to god through his hair dryer, they would think he was mad. I fail to see how the addition of a hair dryer makes it any more absurd."
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Postby rath » Wed Jun 17, 2009 11:48 pm

17 June 2009

Obama launches overhaul of US financial regulation

• Federal Reserve would get powers to supervise big banks
• Hedge funds forced to register with watchdog
• Consumer body would stop 'predatory lending'
• Mortgage firms forced to keep loans in-house

The biggest overhaul of US financial regulation since the Great Depression was outlined by the White House today in a politically delicate effort to stop reckless risk-taking, predatory lending and dangerous debt.

In a wide-ranging package intended to prevent a future financial crisis, President Barack Obama set out a list of measures including tougher powers for the Federal Reserve to oversee "too big to fail" banks, registration of hitherto unchecked hedge funds and the creation of a consumer agency to protect the public from incomprehensible small print on loans or mortgages.

Obama cited weak and confused oversight as one of the factors behind the credit crunch: "A regulatory regime basically crafted in the wake of a 20th century economic crisis – the Great Depression – was overwhelmed by the speed, scope and sophistication of a 21st century global economy."

He said the changes were intended to promote innovation and unleash creativity while discouraging recklessness or abuse, adding: "We did not choose how this crisis began but we do have a choice in the legacy this crisis leaves behind."

New authority for the Federal Reserve forms the centrepiece of the plan. The Fed's chairman, Ben Bernanke, has been widely praised for his handling of the financial crisis and the central bank will get responsibility for watching over "systemically significant" institutions where failure would jeopardise the broader financial system.

Other reforms include the introduction of regulation for exotic derivatives such as credit default swaps, blamed for the near-collapse of America's biggest insurer, AIG. New rules will force mortgage companies to hang on to at least 5% of their loans rather than passing on all risk by bundling up products and securitising them on the secondary credit markets.

Yet the shake-up stopped short of a more radical clear-out of the cluttered regulatory universe once envisaged by the White House. There had been calls for the creation of a single financial body akin to Britain's Financial Services Authority to replace Washington's "alphabet soup" of regulators. But the only organisation to disappear in the plan will be the Office of Thrift Supervision, which oversaw troubled firms including AIG, Washington Mutual and Countrywide Financial.

Business leaders called for a simpler regime. David Hirschmann, president of the US Chamber of Commerce's centre for capital markets, said: "We're concerned that overall, the proposal simply adds to the layering of the system without addressing the underlying and fundamental problems."

Vigorous lobbying by financial institutions influenced the Obama administration's plans, as did a desire to avoid an all-out war with Republicans in Congress, who are instinctively suspicious of any extension of government power.

John Boehner, the Republican leader in the House of Representatives, expressed scepticism about the prospect of a new consumer regulator, saying he disapproved of the government "deciding what interest ought to be charged on credit cards". He continued: "I think it's just going to be too big of a foot on an industry that already is having financial problems."

The White House indicated that it favoured closer international co-operation on financial oversight, a topic which has been energetically promoted by Gordon Brown.

Obama said "gaps between nations" were equally unacceptable as the gaps between regulators within the US. Hedge funds, which have avoided US control by basing themselves in offshore regimes, will have to start reporting to the Securities and Exchange Commission.

Some questioned whether a reshuffling of responsibilities would prevent a repetition of the financial crisis. Peter Morici, business professor at the University of Maryland, said the credit crunch should not be blamed on a lack of regulators but instead on a lack of effective foresight within regulatory agencies.

"The morass being proposed is an example of blind faith in government regulation, much as those who want few strings have blind faith in market discipline," said Morici. "The trick is to get regulation right, not mound it like whipped cream on a banana split."

Others asked why so many regulatory chiefs were still in their jobs. Dean Baker, co-director of the Centre for Economic and Policy Research, said: "The regulators failed and I would say that if we want to prevent the next bubble, we have to hold people accountable for this one. Fire them."
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Postby Tairaa » Thu Jun 18, 2009 8:54 am


People are SO naive.
Good luck fellas.
FDR gets to supervise banks, that's an interesting concept.
"George Bush says he speaks to god every day, and christians love him for it. If George Bush said he spoke to god through his hair dryer, they would think he was mad. I fail to see how the addition of a hair dryer makes it any more absurd."
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Postby Dark-Samus » Fri Jun 19, 2009 3:08 am

Same bullcrap over and over... :roll: :roll: :roll:
Truth doesn´t control you, you control it...
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