Global Economy

[Singha]

except from newsweek article on end to dubai building boom:-

There is, however, one category of visitor that is still making the cross-Atlantic trek to Dubai. As Wall Street firms have gone bust, "you're starting to see a lot of New York resumes floating around," says the private-equity investor, with more than a hint of schadenfreude. An influx of cash-strapped former masters-of-the-universe isn't exactly the kind of visitor the emirate's economic planners had in mind. But at least there are some people out there who still believe in Dubai's promise.

--.

[SwamyG]

I was in a conf yesterday. Some people predicted a big crash by the end of the month due to the Hedge Fund.

A guy in CNBC was talking about a drop of 1000 or 2000 in one day.

[vishwakarmaa]

isnt it stupid and deliberate corruption by the American Govt that the same rules which govern the
regular MFs were not applied to hedge funds? must be a lot of political money deployed down
that channel.

American politicians are more corrupt than even Pakistani ministers. Its only 'Media management'(owned by same corrupt corporate leaders) where USA scores nicely and we think USA has a clean and corruption-free system.

Reality is more interesting than fiction.

[vishwakarmaa]

The New York Times
Printer Friendly Format Sponsored By

October 24, 2008
West Is in Talks on Credit to Aid Poorer Nations
By MARK LANDLER

Economists praised the idea of giving emerging markets access to dollars. But the key to the effort’s success, they said, is whether the fund can line up support from central banks.

“The I.M.F. has only $200 billion of its own resources, which is not enough collateral,” Simon Johnson, a former chief economist of the fund, said. “It would be spectacular if they could pull this off.”

American Game is clear -

1. Spread the domestic financial crisis around the world.
2. When poorer states start falling, offer dollars(the cancer on world economy) and make them sign on blank paper - "you are now slave of America", "just do what we say".

IMF or world bank are just part of same game.

With Chinese grown in size in last few decades, USA can't ignore her. So, the americans talking of "please save our ass" with Chinese under the slogan of "Chinese should save world economy".

In reality, I don't think USA needs China to save her ass. If USA can fake its true GDP size by margin of 50% then, I am sure they can repeat the same.

[mayurav]

Roubini's latest talk ends with things coming down to geopolitical costs. He says China may ask for Taiwan to continue funding US current account deficit. Russia might take over Iceland to bail it out. His recounting of the steps to WWII was also chilling. Stock market collapse -> bank collapse -> real economy collapse -> large current account deficits -> trade and capital accounts barriers -> nationalism -> war.

One of the solutions I have been thinking about is for US to sell Alaska.

2012 has been thrown around as some major marker for a worldwide disruptive event. Wondering is this crisis is beginning.

[svinayak]

Roubini's latest talk ends with things coming down to geopolitical costs. He says China may ask for Taiwan to continue funding US current account deficit. Russia might take over Iceland to bail it out. His recounting of the steps to WWII was also chilling. Stock market collapse -> bank collapse -> real economy collapse -> large current account deficits -> trade and capital accounts barriers -> nationalism -> war.

One of the solutions I have been thinking about is for US to sell Alaska.

2012 has been thrown around as some major marker for a worldwide disruptive event. Wondering is this crisis is beginning.

This is close to the what will happen in reality.
2012 is the marker when the current global trading and financial system created in 1760s (which colonized India by 1830s) is going to be dismantled.
The aftermath will be period of chaos, unstability and anarchy.

[Kakkaji]

Some positive news amidst the doom and gloom:

One failed bank gets the housing fix right

When the FDIC seized mortgage giant IndyMac it was one of the biggest bank failures ever. Now the troubled lender just may lead us out of the housing mess.

[SwamyG]

Isn't 2012 part of the Ancient Mayan Doomsday scenario?

[svinayak]

[mayurav]

Roubini's latest talk ends with things coming down to geopolitical costs. He says China may ask for Taiwan to continue funding US current account deficit. Russia might take over Iceland to bail it out. His recounting of the steps to WWII was also chilling. Stock market collapse -> bank collapse -> real economy collapse -> large current account deficits -> trade and capital accounts barriers -> nationalism -> war.

One of the solutions I have been thinking about is for US to sell Alaska.

2012 has been thrown around as some major marker for a worldwide disruptive event. Wondering is this crisis is beginning.

This is close to the what will happen in reality.
2012 is the marker when the current global trading and financial system created in 1760s (which colonized India by 1830s) is going to be dismantled.
The aftermath will be period of chaos, unstability and anarchy.

Acharya avare, any thoughts/pointers to analyses about the resulting world order or the unfolding of this period of chaos?

[svinayak]

This is close to the what will happen in reality.
2012 is the marker when the current global trading and financial system created in 1760s (which colonized India by 1830s) is going to be dismantled.
The aftermath will be period of chaos, unstability and anarchy.

Acharya avare, any thoughts/pointers to analyses about the resulting world order or the unfolding of this period of chaos?

I have been thinking about this.
The period between 1700 - 1750 - India was cash rich and many nations borrowed money from Indian money lenders in Gujarat to expand their trade. EIC also borrowed money to expand in Asia and India.

That is how the British expanded and conquered all the colonies. This system adapted and morphed into the current financial system in the last 100 years. This will have to be dismantled.

[svinayak]

In China, Steps to Ease Mortgages as Real Estate Loses Its Sizzle


By KEITH BRADSHER
Published: October 23, 2008

SHENZHEN, China — China’s real estate bubble has lost its fizz in many cities, complicating the government’s effort to manage an economic slowdown here.
Falling prices have led developers to all but halt construction of this residential building in Shenzhen, and similar projects.

The pain is obvious in Liu Shirong’s apartment development. Mr. Liu, a shy electrical engineer, doesn’t mind living in a complex where only 50 of 780 apartments are occupied and the swimming pool is eternally empty. “I have peace and quiet at night,” he said.

But the vacant apartments are a nightmare for the mainly speculative investors who bought them a year ago. And nearby, only one of the two dozen towering cranes was still in operation on a recent afternoon.

Banking experts and economists expect this to produce a surge in loan defaults for Chinese banks by next spring or summer that will erode the high profits banks have been earning in the last three years although few banks seem likely to fail. But the effects of the bust could extend far beyond banking, complicating economic policy-making.

For that reason, the Chinese government announced a series of measures late Wednesday night to support real estate prices. The central bank told commercial banks to reduce mortgage rates and down payments for borrowers seeking their first mortgage. The finance ministry also reduced the stamp tax on real estate purchases, effective Nov. 1, but only for first-time home buyers acquiring an apartment of less than 90 square meters, or 969 square feet.


“Real estate developers are threatening the People’s Bank of China, saying, ‘If we die, the banks die first,’ ” said Yu Yongding, a former member of the central bank’s monetary policy committee and now an adviser to China’s cabinet. “If the government bows to this kind of pressure, we lose all the benefits of what we did before” to reign in inflation.

Paradoxically, the relative lack of sophistication of China’s mortgage system could keep its real estate bubble from expanding into a credit and financial crisis like the one that engulfed the West — though Western bankers had been trying for years to get the Chinese to bundle them and sell them as securities, one of the roots of the financial crisis.

“The chances of a systemic financial crisis in China in this cycle are extremely, extremely low,” said Arthur Kroeber, the managing director of Dragonomics Research, a consulting firm in Beijing.

Though China’s banking system has many problems, including rampant political influence and fraud in corporate lending decisions, mortgage lending is still more tightly regulated than in the West. The mortgage market remains closer to something out of the 1946 Frank Capra movie “It’s a Wonderful Life” than to the home loans with no down payments and practically no credit checks that proliferated in the United States.

http://www.nytimes.com/2008/10/24/busin ... f=business

Tight Credit Curbs Growth in India

By JEREMY KAHN
Published: October 23, 2008

NEW DELHI — Customers come in a tiny trickle to the showroom of Uppal Motors, a Honda motorcycle dealership near here in an upscale satellite of India’s capital.
The flight of foreign capital has put pressure on India’s banks, and the government has acted to prevent a run on Icici.

This time of year, the showroom is usually packed, for it is the week before the Hindu festival of Diwali, when many Indians buy gifts and more costly items. But not this year.

The call center workers and software programmers who normally shop here could afford a new motorcycle — if only the banks would lend to them, said Virender Uppal, the dealership’s owner, who added that sales were down 10 percent.

“They cannot meet the terms and conditions of the bankers,” he said. “Money is not being extended to them.”

Like so many countries, India is experiencing a credit crisis. The country, like many emerging markets, had little exposure to subprime home lending or to Western financial institutions. Still, the government is pulling out all its tools to combat the global financial turmoil, whose effects have been compounded by earlier decisions to tighten the money supply. And local businesses are grappling with a rapidly slowing economy.

The Indian economy expanded at a rate of more than 8 percent for the last three years, making India the fastest-growing country in the world after China. But growth is expected to slow this year, perhaps significantly.

Five finance companies once had sales representatives right inside Mr. Uppal’s dealership, ready to help customers arrange instant credit.

But three of them — including the Indian arms of Citigroup and GE Capital — recently closed their counters.

Those still offering credit have imposed new qualifications: they want buyers to own a residence; have at least one year in their current jobs; and keep plenty of money in the bank. And they now require down payments of as much as 40 percent, up from 20 percent.

India’s financial sector breathed a sigh of relief last week after the country’s central bank took a series of steps to ease the financial crisis, which had pushed overnight lending rates among banks to more than 20 percent. The overnight rate has since fallen to 7 percent. But the trouble may be just beginning.

Foreign institutions, many desperate for cash to cover margin calls and redemptions at home, have been pulling money out of India. Since January, foreign investors have taken $11 billion out of the Indian market, which has lost nearly 50 percent of its value in that time. This wave of selling accelerated during the last month as stock markets in the United States and Europe plunged.

The withdrawals, combined with fears that slowing Western economies will crimp Indian growth, have led to some of the biggest one-day declines in India’s benchmark Sensex index since the country’s financial crisis in 1990.

The rapid exit of foreign capital has also set off a precipitous decline in the rupee, which slid to its lowest level ever against the dollar, breaching the 50-rupee barrier Friday.

The Reserve Bank of India, the country’s central bank, revealed that it has spent at least $8 billion to buy rupees in the market to soften the currency’s fall. Analysts said they suspected that the bank had an informal goal of trying to keep the rupee from trading at more than 50 to the dollar.

So far, India’s foreign currency reserves have been adequate to weather this storm. The country’s total reserve assets declined about 7 percent from August, to $274 billion in the second week of October, according to the most recent figures available. While that pales in comparison with the $1.9 trillion amassed by China, the other emerging giant in Asia, economists said it was more than adequate to cover India’s obligations.

“India, from a macro point of view, is not that exposed to foreign debt,” Seema Desai, an analyst with the Eurasia Group in London, said.

Ms. Desai said that India’s reserves were greater than those of Brazil and far exceeded those of some emerging economies in Eastern Europe, which were in deep trouble because of the crisis.

Still, bond rating agencies downgraded India’s sovereign debt this summer to near junk status as the country faced a yawning fiscal deficit and spiraling inflation. India’s bonds traded lower at the start of October, but have recovered in recent days.

The central bank now must walk a fine line between defending the rupee and making sure there is enough cash in a system already suffering from a severe credit crisis.

[SwamyG]

I have been thinking about this.
The period between 1700 - 1750 - India was cash rich and many nations borrowed money from Indian money lenders in Gujarat to expand their trade. EIC also borrowed money to expand in Asia and India.

That is how the British expanded and conquered all the colonies. This system adapted and morphed into the current financial system in the last 100 years. This will have to be dismantled.

Acharya: Do you know the kind of credit that existed for businesses and individuals in India (apart from the money lenders) ? And the wealth that was created must be from trade? What was the state of consumerism?

[svinayak]

I have been thinking about this.
The period between 1700 - 1750 - India was cash rich and many nations borrowed money from Indian money lenders in Gujarat to expand their trade. EIC also borrowed money to expand in Asia and India.

That is how the British expanded and conquered all the colonies. This system adapted and morphed into the current financial system in the last 100 years. This will have to be dismantled.

Acharya: Do you know the kind of credit that existed for businesses and individuals in India (apart from the money lenders) ? And the wealth that was created must be from trade? What was the state of consumerism?

Which period are your talking about?

[Neshant]

Check out the following article. Its got important info in it.

First, you see EU (mainly France) and Japan + China trying to establish a new financial global order that hopes to remove US and the dollar from center stage. US will try desperately to downplay any suggestions for changes in the current global financial system at the upcoming world economic summit. But the numbers are against them.

Second you see that China, Japan and South East Asia have established some Asian fund where India is prominent by its absence.

------

Leaders call for new rules for financial system

http://timesofindia.indiatimes.com/Busi ... 639473.cms

BEIJING: Seeking a common approach to the global financial turmoil, Asian and European leaders called for new rules guiding the global economy.

The 43 nations participating in the Asia-Europe Meeting summit reconvened for a second day of meetings in China's capital Saturday..

Assembled leaders also agreed to "undertake effective and comprehensive reform of the international monetary and financial systems," the statement said. It appears to mark a step toward an Asian-European consensus ahead of next month's crisis summit of the world's 20 largest economies in Washington.

On Friday, French President Nicolas Sarkozy said Asian and European nations need to take a unified front to the Washington meeting.

South Korea, China, Japan and the 10-country Association of Southeast Asian Nations have merely recommitted themselves to an $80 billion emergency fund to help those facing liquidity problems, to be established by next June.

[Neshant]

Babus better be on point for the next few months. There is a very strong move towards displacing the US as the global financial tsar which IMHO is not in India's interest.

-----
http://www.reuters.com/article/companyN ... 6920081024

U.S. has plundered world with dollar, Chinese state newspaper rages

BEIJING — The United States has plundered global wealth by exploiting the dollar’s dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.

The front-page commentary in the overseas edition of the People’s Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.

A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said.

[VikramS]

I am surprised at the doom-gloom talk here. People like Roubini/Faber etc. are right once every decade and enjoy their few days in the sun.

There is a serious problem in the US no doubt. Worse it was handled badly. Letting Lehman Brother's fail in a chaotic manner triggered a wave of panic all over the financial markets. The Congress voting down the bailout plan made it even worse. However money is flowing back and the US financial system has started the process of healing.

The proof is in the pudding. The USD is on a tear. China reported 9.9% GDP growth with many saying that the rate was around 6-7% (based on commodity imports). Russia is watching oil prices closely. A few billions loaned to Iceland will not make it a financial powerhouse or a dominant geopolitical power; to set the perspective even this year US banks have reserved an order of magnitude higher amount as bonuses!

There is even a risk of the Euro loosing its current status as the Euro-Zone expands and more Eastern European countries which much more fragile banking systems (like Hungary) become a part.

China does not even have a freely currency. The visibility into its banks is limited. They have been out of trouble thanks to rapid growth. Their stock market had tanked a long before anyone else. They have an export oriented economy which will feel the pain of the Western slowdown significantly; they also have the risk of social unrest emerging if the exports slowdown and the aspirations are not met. So all this talk of China controlling US and China wanting a quid pro quo (Taiwan) to bail out the US etc is a bit premature, to say the least. The article above talks about trade between Europe and China to be denominated in Euro/Yuan/Yen etc but that requires China to open up and Chinese financial system to be deemed trustworthy. That is years if not decades away. BTW the reforms being mentioned are similar to what is being proposed to clean up the system in the US.

India that way is much better insulated than China. Their might be a slowdown in export of services but since much of the growth in internal, things will not be affected. Plus the collapse in oil prices will curb inflation and deficit.

BTW, this does not mean that the stock markets have bottomed. With the level of global fear then can keep on going down. November will have the next window of hedge fund redemptions and the closing of Mutual funds years. The fund managers will not be buying till the hedge funds are done selling.

Also someone mentioned how the hedge funds are for the rich. A significant chunk of investment into hedge funds comes from institutional investors including large corporations, insurance companies, pensions funds, endowments etc. So the average mom-pop investori is likely to be exposed to hedge funds one way or another.

And as one CNBC commentator mentioned, when markets are in fear, the flock to the strongest. And strength is not just financial, it is also military. That is where the buck stops (but most people on BR already know that unlike the lpoliticians in India).

[vsudhir]

Hedge fund woes

Economist take on hedge fund industry in the doldrums.

[SwamyG]

Acharya: The period you mention: 1700 - 1750

[Ananth]

Vikram:

There was an analysis posted on this thread that USD is raising across many currencies due to global de-leveraging. Take the case of India. FIIs have sold till date around 12B$ due to redemption pressure back home. That is artificially inflating the demand for dollars. RBI is selling dollars and buying rupees. That is why in India our dollar reserves have fallen. Money is being taken out, and that rate has spiked. You can also see that across several commodities, where the positions are being unwound across the board. The fall in commodity prices, if sustained, will reduce the demand for dollars. If it is really a flight to safety then we will see this dollar rally sustain. However if the de-leveraging hypothesis is correct, the rally is bound to end. One of main reasons why people went with dollar was not only due to overwhelming size of American economy but the stability that it offered. Dollar has never been constant, but its rate of change was glacial. Whenever if changed drastically like mid 80s, it caused consternation. If the reserve currency becomes volatile, its qualititative selling point will take hit. Some "basket currency" model might slowly start replacing dollar out-of-limelight.

[John Snow]

de link dollar from oil pricing and trading you will see the true value of dollar

[Singha]

for that the arabs have to take the lead. EU and Japan buy mainly from arab wells , with
part of EU supply coming from Russia.

by themself - Russia, Venezuela and Iran are not strong enough to overturn the dollar
std in oil settlements.

[Bade]

From the above observations, it looks like the safest career ironically is in the US military in the immediate future. That is the connection to oil for the dollar.

[Singha]

can someone in US comment if this yard sale thing is ramping up all over?

NYT

As Yard Sales Boom, Sentiment First Thing to Go
Heidi Schumann for The New York Times

In Manteca, Calif., a center of the foreclosure crisis, garage sales help raise much-needed cash.
By PATRICIA LEIGH BROWN
Published: October 24, 2008

MANTECA, Calif. — As the classified ads put it, everything must go. Socks. Christmas ornaments. Microwave ovens. Three-year-old Marita Duarte’s tricycle was sold by her mother,
Heidi Schumann for The New York Times

Three-year-old Marita Duarte watched as her family sold possessions, including her tricycle, at a recent garage sale in Manteca, Calif.

On Mission Ridge Drive and other avenues, lanes and ways in this formerly booming community, even birthday celebrations must go. “It was no money, no birthday,” said Ms. Duarte, who lost her job as a floral designer two months ago. The family commemorated Marita’s third birthday without presents last week, the occasion marked by a small cake with Cinderella on the vanilla frosting. They will move into a rental apartment next month.

An eternity ago, people in this city in northern San Joaquin County braved four-hour round-trip commutes to the San Francisco Bay Area for a toehold on the dream. Today, Manteca’s lawns and driveways are storefronts of the new garage-sale economy — the telltale yellow signs plastered in the rear windows of parked cars Friday through Sunday directing traffic to yet another sale, yet another family.

“You can get great deals,” said Sharrell Johnson, 32, who was scouting for toys in the Indian summer heat last Friday amid boxes of tools and DVDs and forests of little skirts and shirts dangling from plastic hangers on suspended rope. “Sad to say, you’re finding really good things. Because everybody’s losing their homes.”

The garage-sale economy is flourishing here and in many other regions of the country, so much so that some cities have begun cracking down. With more residents trying to increase their income, the city of Weymouth, Mass., limited yard sales to just three a year per address. Detective Sgt. Richard Fuller said it was now common to see 15 cars parked in front of a house.

Richmond, Ind., has had such an onslaught of garage sale signs posted in the right of way that the city has placed stickers on prominent light poles warning of violations and fines.

But it is a Sisyphean task: Manteca’s ordinance, restricting residents to two sales a year, is widely ignored.

The sales are part of the once-underground “thrift economy,” as a team of Brigham Young University sociologists have called it, which includes thrift stores, pawn shops and so-called recessionistas name-brand shopping at Goodwill.

“This is the perfect storm for garage sales,” said Gregg Kettles, a visiting professor at Loyola Law School in Los Angeles who studies outdoor commerce. “We’re coming off a 20-year boom in which consumers filled ever-bigger houses. Now people need cash because of the bust.”

And so the garages and yards of Manteca, some tinder-dry from neglect, offer a crash course in kitchen-table economics each weekend. On Klondike Way: “Tools, various household items, & much more!” On Virginia Street: “Moving Sale! Fridge, washer & dryer, men’s clothing, bike, BBQ, dinette, dresser, fans, microwaves, recliner, DVD player. Everything must go!”

When life’s daily trappings and keepsakes are laid out for sale on a collapsible table, sentiment is the first thing to go. “The cash helps a lot,” Constantino Gonzalez, Ms. Duarte’s neighbor, said of the family’s second sale in two weeks, in which he and his wife, Julia, were reluctantly selling their children’s inflatable bounce house for $650, with pump.

Since losing his construction job, Mr. Gonzalez, 43, has been economizing, disconnecting the family’s Internet and long-distance telephone service, and barely using his truck and the Jeep, strewn with leaves in the driveway. He has taken to picking up his children from school on his bicycle, with 6-year-old Daniel on the handlebars, cushioned by a terry-cloth towel.

The inflatable bounce house is the children’s favorite toy, but the family’s $1,800 mortgage payment is coming. So it sits propped up in its bright blue case, awaiting customers, many of them desperate themselves. Customers are searching for bargains on necessities so they might chip away at the rent, the truck payment, the remodeling bill on the credit card.

“We need to eat,” Mr. Gonzalez tells his children about selling off their toys. “I can’t cover the sun with my finger. So why lie?”

As he spoke, he watched his neighbor across the street pull out of her driveway with her family for the last time, their pickup truck piled high with chairs, firewood and other belongings, like modern Joads from Steinbeck’s “Grapes of Wrath.” “Bad loan,” explained the neighbor, Alex Martinez, who works nights at an automobile assembly plant in faraway Fremont. The garage sale she had held the week earlier barely made a dent.
Skip to next paragraph
The New York Times

As the family drove off, a woman with frosted hair wearing high heels got out of a parked car and placed a sign in the window of the former Martinez place: “Coming Soon: Innovative Realty.”

This is McCain-Palin placard country, where signs for the anti-gay-marriage state ballot measure, “Yes on 8,” pepper the landscape and billboards advertising “Buy Now/Low Rates" seem like grim fossils of a bygone age. Manteca lies at an epicenter of the foreclosure crisis, with median home values having fallen by nearly half since 2006, from $440,000 to the current $225,000. In San Joaquin County, Moody’s has estimated that more than 1 in 10 houses with mortgages have a payment that is more than 30 days late. Unemployment rates have increased by a third, from 7.6 percent in September 2007 to 10.2 percent this fall, said Hans Johnson, a demographer at the Public Policy Institute of California.

Before the downturn, Manteca, population 67,700, and other towns in the northern San Joaquin Valley were on the leading edge of growth, with stucco subdivisions carved out of almond orchards. Today some 1,500 to 2,000 homes in Manteca, which is 32.7 percent Hispanic, are in various stages of foreclosure.

Paul Farnsworth’s garage on Widgeon Way was a latter-day five and dime, his driveway an eclectic assortment of artificial flowers, cookie jars, decanters, spotlights, radar detectors, Hot Wheels miniature cars, a Dirt Devil. Mr. Farnsworth’s recent garage sales supplement his income as a manager for a beverage distributor, which pays about half of what he made as an apricot and cherry farmer in nearby Tracy. (He was laid off when the farm was sold.) Neither he nor his wife Ann, a beautician, can afford to retire.

“People want things for half, and I don’t blame them,” observed Mr. Farnsworth, 65, adding that only one couple that morning had not dickered on the price. His own house, appraised at $375,000 three years ago, is worth $200,000 today. He has resorted to holding garage sales “to help make payments on a house that’s worth less than what I owe,” he said, the irony not lost on him.

Ebi Yeri’s yard held big-ticket items: beds, a smoked-glass and black lacquer dinette set and — the pièce de résistance — a 51-inch Hitachi projection television that he had replaced with a plasma flat screen. Still, it pained Mr. Yeri to sell. He had it set thematically to the HGTV channel, figuring that “a judge show might offend somebody.”

Mr. Yeri, 35, was decluttering to offset losses in his 401(k), which he described as “in the tank.” He said he also cut costs by being “lighter on the foot,” driving 10 miles an hour slower than the speed limit on his 156-mile commute to and from his software job in San Jose.

On Chenin Blanc Drive, Robert Dadey, a car salesman, was holding his 20th garage sale. “I need money,” he said simply about selling the Oakland Raiders memorabilia, teddy bears and $40 brown ultrasuede recliner in his midst on the lawn. “It’s bad times.”

[vina]

de link dollar from oil pricing and trading you will see the true value of dollar

Guys, lets get real here and get some perspective. The US is the 900lb gorilla and the rest are some teeny weeny pymgy rhesus.

What will you replace the dollar with ? . Which currency will finance global trade with? . The wampum called Euro ? The world economy is decided on basically the price of two things. 1) The dollar and 2) The Euro Dollar rate. This is reality, coz it prices the largest and most overwhelming flow of goods and services anywhere in the world. The rest is all Maya.

The Oieropeans couldnt find their asses with their two hands . They are united neither economically nor politically and the Euro's strenght is largely a reflection of the dollar's weakness rather than it's inherent strenght. Now in times of panic and crisis like we are in, which currency is everyone running to ? The green back or the Euro wampum ? .

As for fanciful notions of "alternate" currencies and everything lets leave it to the frothing in the mouth "subaltern" studies and "subaltern" economics and south south solidarity ideologues in JNU and other places. That kind of make believe world is not for BRF.

[svinayak]

* OCTOBER 24, 2008, 10:13 P.M. ET

Reliance on Exports Now Hurts Asia
By PETER STEIN and CARLOS TEJADA
The meltdown in Asian stock prices on Friday stemmed in part from the growing realization that the heavy reliance on exports that has driven Asia's powerful growth is now turning into the its worst enemy.

The evaporation of consumer spending in the U.S. and Europe is starting to hit deeply at Asian manufacturing titans that thrive on sales to the rest of the world, and that are now rapidly scaling down their capital spending.

On Friday, after reporting a 44% third quarter profit drop, South Korea's Samsung Electronics Co. said it will reduce memory chip capital expenditure this year by an unspecified amount due to weak market conditions, and may also lower its overall capital-spending plans for next year in line with the weak business environment. Japan's Sony Corp. Thursday lowered its outlook for its fiscal year ending March 2009 and warned that the deteriorating business climate could force the company to scale back capital spending, close plants and cut jobs to shore up profit. The news sent Sony shares plunging 14% in Tokyo on Friday.

The worsening gloom in Asia comes despite the fact that on the whole the region -- site of a major economic meltdown a decade ago -- today has limited exposure to the debt that is now causing havoc with the financial systems of the U.S. and Europe. While some countries, notably South Korea, are reliant on funding through international credit markets that have dried up in recent months, Asia's banks haven't invested heavily in mortgage-debt derivatives or other products that have poisoned the balance sheets of their Western counterparts.

[John Snow]

Lets get back to basket of multiple currencies and SDRs instead of dollars.
Marks, Francs Pound Sterling, etc,
It will create jobs for DOO (desi oracle operators to write code again just like during Euro introduction days


By the way I got my pink slip friday from my customer AIG ($200 per hr billing kaput) while the bas$%#@ in AIG England went on hunting expedition spending US$120,000 tax money of US.

So I am taking vacation and goint to des Savere wali gadi se chelejayenga kuch le ke jayenga.

[svinayak]

10:40 a.m. | October Blues: Here are some October performances, through a few minutes ago. In each case, I took a major index from the country in question. All figures are in U.S. dollars.

U.S., down 26%
Canada. down 37%
Mexico, down 44%
Argentina, down 43%
Brazil, down 48%
Chile, down 30%
Peru, down 42%

Britain, down 31%
Germany, down 35%
France, down 31%
Switzerland, down 20%
Italy, down 30%
Ireland, down 35%
Iceland, down 83%
Netherlands, down 35%
Belgium, down 37%
Denmark, down 35%
Finland, down 26%
Greece, down 45%
Poland, down 46%
Czech Republic, down 45%
Russia, down 53%
Hungary, down 50%
Lithuania, down 37%
Turkey, down 50%
South Africa, down 42%
Israel, down 22%

Japan, down 23%
Hong Kong, down 30%
China, down 21%
Taiwan, down 23%
South Korea, down 46%
Australia, down 34%
New Zealand, down 25%
India, down 36%
Singapore, down 35%

The variance is not that great, with the exception of poor Iceland. And remember that prices were way down from last year before October began.

You will note that the United States is among the best performers. Don’t you feel better now?
http://norris.blogs.nytimes.com/2008/10 ... ted-panic/

[Raj Malhotra]

Crude oil will / should go down to US$ 20 per barrel and it will party time again.

[Arya Sumantra]

What will you replace the dollar with ? . Which currency will finance global trade with?

Gold.

If the GoI wants to save the poor grassroots from effects of inflation, it needs to start a savings scheme in villages for lower and middle income groups wherein the savings account will be in terms of weight of gold and interest paid will be in grams of gold. The cash withdrawn will thus vary depending on gold to rupee conversion rate on the date of withdrawal.

GoI might also want to reconsider barter trade especially with countries with low forex reserves but lot of mineral wealth or other agri outputs. Imagine India re-exporting under Indian brands, finished goods made from finest Cuban tobacco or Colombian Coffee or Ghana Cocoa brought through barter trade. It will enable India to play middleman on goods made from world's finest commodities.

[vsudhir]

By the way I got my pink slip friday from my customer AIG ($200 per hr billing kaput) while the bas$%#@ in AIG England went on hunting expedition spending US$120,000 tax money of US.

So I am taking vacation and goint to des Savere wali gadi se chelejayenga kuch le ke jayenga.

JS garu,

lemme know if you're heading hyd side. Nenu kooda akkadikay bandi teestanu sometime next yr though.

[svinayak]

[svinayak]

Some Currencies Plunge as Stocks Sink Worldwide
Todd Heisler/The New York Times

Outside the New York Stock Exchange on Friday, a day of decline in the global markets. The Dow Jones industrial average recovered somewhat from an early dip.
Article Tools Sponsored By
By MARK LANDLER and VIKAS BAJAJ
Published: October 24, 2008

WASHINGTON — Fear that the financial crisis is infecting once-healthy economies

Dealers at a currency exchange in Tokyo. The yen drove down currencies in emerging markets.

Uncertainty also roiled currency markets as investors continued to turn to the security of the United States dollar and the Japanese yen and drove down currencies of developing countries like Brazil, Ukraine and South Korea and even of developed countries like Britain.

In the United States, where the crisis began, investors were less alarmed than elsewhere. A rout in Asian and European stock markets sent the Dow Jones industrial average swooning by more than 500 points in early trading in New York, but trading recovered enough ground through the day to leave the Dow down 312.30 points, or 3.6 percent.

Just a year ago, a drop of that size would have been considered a black day in the markets, but in these days of routine triple-digit declines, it offered a modicum of relief to traumatized investors.

Still, there were chilling new developments that attested to the wide scope of the crisis, despite efforts by heads of state, central bankers and corporate leaders to stop the bleeding. Cash flowed into the dollar and the Japanese yen, the two most sought-after safe havens in a storm-tossed world, as it fled from emerging markets.

Hedge funds and other investors are pulling money out of these countries on an immense scale, analysts said, and putting it into dollars and yen. There were few safe harbors, as commodities also tumbled. Fears of a spreading global recession caused oil prices to fall 5 percent, to $64.15, even after OPEC, the oil cartel, announced it was cutting output. Government-backed mortgage bonds and debt issued by top-rated corporations were also dragged down in the undertow.

“This is a panic in the way of the fine 19th-century panics, where we all run around like headless chickens,” said R. Jeremy Grantham, chairman of the Boston-based investment firm GMO, who had predicted stocks would tumble. “I have been in the business for 40 years, and I have never seen anything like this.”

So great are the concerns among policy makers about the turmoil in currency markets that it has prompted talk of a coordinated intervention by the leading industrial countries in coming days, to quell the soaring dollar and put a floor under emerging-market currencies.

Such a move — in which the Federal Reserve and other central banks would sell dollars and yen and buy other currencies — has been used extremely sparingly by the United States in recent years.

“The risk is huge, but it is appropriate at this point, because if the emerging markets go into default, the consequences would be catastrophic,” said Kenneth S. Rogoff, an economist at Harvard.

When a developing country’s currency loses value rapidly, it impedes the ability to pay back loans from Western banks. That could cause a rash of corporate or even government defaults — a feature of previous financial crises in Asia and Latin America.

[vina]

What will you replace the dollar with ? . Which currency will finance global trade with?

Gold.

Ah.. Harking back to the "golden" days . Unfortunately wont work in today's day and age and it just kills the flexibilty of monetary policy. You cant intervene in any meaningful way monetarily and the effect of going to gold standard would be extremely deflationary and basically shrink the current global economy by many orders of magnitude.

Just google around for the experience of Great Britain and Lord Randolph Churchill (yeah, Winston's dad) and the effects of going back to the gold std, the stagnation of the 20s from which Great Britain never recovered and leading to the current irrelevance / banana/poodle status (the rest of the world had roaring 20s!).

[vina]

Lets get back to basket of multiple currencies and SDRs instead of dollars.
Marks, Francs Pound Sterling, etc,

Snow garu, the Bretton woods system worked, because the Dollar could anchor the global economy (and back then was fully convertible to gold) and the rest of the global currencies were Wampum that could be firmly anchored to the dollar with nearly fixed exchange.

The world had close to 30 years of "Peace Progress and Prosperity" under the US economic and monetary hegemony (the US Fed effectively sets monetary policy for the world), problem is, when US started running defecits under Vietnam war and had to inflate their economy, the system fell apart.

[Raju]

Anything is better than the US dollar.

Bretton Woods and US dollar reserve is the yokel of anglo-saxon imperialism that countries still have to carry. The sooner this goes, the better.

[Neshant]

Some change or another is going to be proposed in november during the global summit so watch for it. EU/China/Japan..et. al will push for the change while US will resist it.

My guess is that the former nations want an international governing body that oversees currency and financial operations of all nations. The SDR makes sense in that aspect as you don't need gold or USD to anchor the currencies, just responsible govts with transparent book keeping and accounting and some global entity to check on all member nations.

I do not think its in India's interest to follow this plan just yet as we are not big hoarders of dollars, unlike the east asians. It benefits us a lot less than others.

[vina]

Ah.. A timely article in today's NYTimes from Greg Mankiew , specially for the gold std luddites!..

October 26, 2008
Economic View
But Have We Learned Enough?
By N. GREGORY MANKIW

LIKE most economists, those at the International Monetary Fund are lowering their growth forecasts. The financial turmoil gripping Wall Street will probably spill over onto every other street in America. Most likely, current job losses are only the tip of an ugly iceberg.

But when Olivier Blanchard, the I.M.F.’s chief economist, was asked about the possibility of the world sinking into another Great Depression, he reassuringly replied that the chance was “nearly nil.” He added, “We’ve learned a few things in 80 years.”

Yes, we have. But have we learned what caused the Depression of the 1930s? Most important, have we learned enough to avoid doing the same thing again?

The Depression began, to a large extent, as a garden-variety downturn. The 1920s were a boom decade, and as it came to a close the Federal Reserve tried to rein in what might have been called the irrational exuberance of the era.

In 1928, the Fed maneuvered to drive up interest rates. So interest-sensitive sectors like construction slowed.

But things took a bad turn after the crash of October 1929. Lower stock prices made households poorer and discouraged consumer spending, which then made up three-quarters of the economy. (Today it’s about two-thirds.)

According to the economic historian Christina D. Romer, a professor at the University of California, Berkeley, the great volatility of stock prices at the time also increased consumers’ feelings of uncertainty, inducing them to put off purchases until the uncertainty was resolved. Spending on consumer durable goods like autos dropped precipitously in 1930.

Next came a series of bank panics. From 1930 to 1933, more than 9,000 banks were shuttered, imposing losses on depositors and shareholders of about $2.5 billion. As a share of the economy, that would be the equivalent of $340 billion today.

The banking panics put downward pressure on economic activity in two ways. First, they put fear into the hearts of depositors. Many people concluded that cash in their mattresses was wiser than accounts at local banks.

As they withdrew their funds, the banking system’s normal lending and money creation went into reverse. The money supply collapsed, resulting in a 24 percent drop in the consumer price index from 1929 to 1933. This deflation pushed up the real burden of households’ debts.

Second, the disappearance of so many banks made credit hard to come by. Small businesses often rely on established relationships with local bankers when they need loans, either to tide them over in tough times or for business expansion. With so many of those relationships interrupted at the same time, the economy’s ability to channel financial resources toward their best use was seriously impaired.

Together, these forces proved cataclysmic. Unemployment, which had been 3 percent in 1929, rose to 25 percent in 1933. Even during the worst recession since then, in 1982, the United States economy did not experience half that level of unemployment.

Policy makers in the 1930s responded vigorously as the situation deteriorated. But like a doctor facing a patient with a new disease and strange symptoms, they often acted in ways that, with the benefit of hindsight, appeared counterproductive.

Probably the most important source of recovery after 1933 was monetary expansion, eased by President Franklin D. Roosevelt’s decision to abandon the gold standard and devalue the dollar. From 1933 to 1937, the money supply rose, stopping the deflation. Production in the economy grew about 10 percent a year, three times its normal rate.
(note.. hardcore "conservatives" I know argue that it was just nothing,but largely the huge inflation due to WWII that finally moved the world towards full recovery and employment)
Less successful were various market interventions. According to a study by the economists Harold L. Cole and Lee E. Ohanian, both of the University of California, Los Angeles, and the Federal Reserve Bank of Minneapolis, President Roosevelt made things worse when he encouraged the formation of cartels through the National Industrial Recovery Act of 1933. Similarly, they argue, the National Labor Relations Act of 1935 strengthened organized labor but weakened the recovery by impeding market forces.

LOOKING back at these events, it’s hard to avoid seeing parallels to the current situation. Today, as then, uncertainty has consumers spooked. By some measures, stock market volatility in recent days has reached levels not seen since the 1930s. With volatility spiking, the University of Michigan’s survey reading of consumer sentiment has been plunging.

Deflation across the economy is not a problem (yet), but deflation in the housing market is the source of many of our present difficulties. With so many homeowners owing more on their mortgages than their houses are worth, default is an unfortunate but often rational choice. Widespread foreclosures, however, only perpetuate the downward spiral of housing prices, further defaults and additional losses at financial institutions.

The Fed and the Treasury Department, intent on avoiding the early policy inaction that let the Depression unfold, have been working hard to keep credit flowing. But the financial situation they face is, arguably, more difficult than that of the 1930s. Then, the problem was largely a crisis of confidence and a shortage of liquidity. Today, the problem may be more a shortage of solvency, which is harder to solve.

What’s next? Perhaps the most troubling study of the 1930s economy was written in 1988 by the economists Kathryn Dominguez, Ray Fair and Matthew Shapiro; it was called “Forecasting the Depression: Harvard Versus Yale.” (Mr. Fair is an economics professor at Yale; Ms. Dominguez and Mr. Shapiro are at the University of Michigan.)

The three researchers show that the leading economists at the time, at competing forecasting services run by Harvard and Yale, were caught completely by surprise by the severity and length of the Great Depression. What’s worse, despite many advances in the tools of economic analysis, modern economists armed with the data from the time would not have forecast much better. In other words, even if another Depression were around the corner, you shouldn’t expect much advance warning from the economics profession.

Let me be clear: Like Mr. Blanchard at the I.M.F., I am not predicting another Great Depression. We have indeed learned a lot over the last 80 years. But you should take that economic forecast, like all others, with more than a single grain of salt.

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President Bush and advised Mitt Romney in his campaign for the Republican presidential nomination.

[shyam]

Why India is not actively present in most of the global monetory initiatives, after the current crisis?

[vina]

Get real. We are still a relatively small 3rd world economy , that is still less than 1% of global trade. And plus, we dont have a fully convertible currency!. So we don't have the chips, how do you expect a high table at the casino ?