Global Economy

Singha · Post by **Singha** » 09 Jan 2009 00:06

AP - good old bernie boy still at his post, stealing...

Prosecutors: Madoff was ready to send out $173M

By LARRY NEUMEISTER – 42 minutes ago

NEW YORK (AP) — Prosecutors say Bernard Madoff had $173 million in signed checks in his office desk that he was ready to send out at the time of his arrest last month.

The detail was provided in a court filing Thursday as prosecutors argued that Madoff should have his bail revoked and be sent to jail. They said the 100 checks were further evidence that he wants to keep his assets away from burned investors.

Investigators previously have said that Madoff had planned on distributing more than $200 million to his closest friends and family after he realized his scheme had unraveled. He was also accused of sending more than $1 million worth of jewelry to friends and family over the holidays.

Defense lawyers say he is not a risk to flee or a danger to community, and therefore should remain free on bail.

markos · Post by **markos** » 09 Jan 2009 10:01

KarthikSan wrote: U.S. debt is losing its appeal in China

The title says it all! And The Messiah said "Let there be money!" and he heard "The Chinese aren't buying T-Bills anymore" Maybe they will invest in the Indian rupee

Well, this is what happens when you just read the TITLE. Following are the excerpts from the actual article

But with U.S. interest rates still at very low levels after recent cuts to stimulate the economy, it is quite cheap for the U.S. Treasury to raise capital now. And there seem to be no shortage of buyers for Treasury bonds and other debt instruments: Prices for U.S. debt have soared as yields have declined.

The long-term effects of this shift in capital flows - with China keeping more of its money home and the U.S. economy becoming less dependent on one lender - are unclear, but the phenomenon is something economists have said is long overdue
......
Treasury data from Washington suggest the Chinese government might be allocating a higher proportion of its foreign currency to the dollar in recent weeks and less to the euro. The data also suggest China is buying more Treasuries and fewer bonds from Fannie Mae or Freddie Mac.

The overall pace of foreign reserve accumulation in China seems to have slowed so much that even if all the remaining purchases were U.S. Treasuries, the Chinese government's overall purchases of dollar-denominated assets will have fallen, economists said

But China's leadership is likely to avoid any complete halt to purchases of Treasuries for fear of looking like it is torpedoing the chances for a U.S. economic recovery at a vulnerable

Yes, the title says it all.. Never read anything beyond titles

May be A-Satyam raju can buy some treauries for $1 billion... oops I forgot, it was a fraud

Najunamar · Post by **Najunamar** » 09 Jan 2009 10:16

With China dropping off as the financier the last wheel holding up the US Treasuries - that bastion of hope for Obamasan, viz. Japan may soon realize there is no hope in pu(i)mping up US$. When that happens - trust me Herr Markos would be begging for the likes of R. Raju to throw even 3% real profits into the US.

markos · Post by **markos** » 09 Jan 2009 11:04

Najunamar wrote:With China dropping off as the financier the last wheel holding up the US Treasuries - that bastion of hope for Obamasan, viz. Japan may soon realize there is no hope in pu(i)mping up US$. When that happens - trust me Herr Markos would be begging for the likes of R. Raju to throw even 3% real profits into the US.

Why don't you read the entire article before conjuring the scenarios ? Didn't the article say that the slack in demand from China is picked up elsewhere ? Otherwise we should be seeing the treasury yields going up to attract the buyers instead of yields going to negative territory.

Looks like Citibank has been forced (by Durbin and Schumer and something that Obama had supported for long time) to agree for modification of mortgages by bankruptcy judges (they probably had no option after taking $45 billion tax payer money) which means bond-holders may have to take the hair-cut, as outstanding loan principal can be modified. Now I expect other banks will be forced to do the same. Since Soverign wealth funds also invested in these banks, will they oppose these provisions ? I doubt it

Lending industry was crying wolf and claiming that rates will go through the roof. But of late, rates have been falling with 30 year mortgage < 5%

markos · Post by **markos** » 09 Jan 2009 11:11

Now China can decide not to invest in treasuries or fannie bonds. But investment in debt always comes with a risk. If they can not stomach the risk, they shouldn't have invested in sub-prime securities and that lack of investment would have reduced the demand for those type of loans. Instead they were chasing higher yields at that time - something that was better than US treasury.

If China decides not to invest in US treasuries, US can decide to spend the entire stimulus within US, thus weakening the chinese exports, creating more unrest in their society.

There is already a demand to use steel made in US

http://money.cnn.com/2009/01/08/news/ec ... 2009010815

Some economists and trade industries want to ensure that stimulus money goes exclusively to American companies. As a result, they support measures that would force contractors in receipt of government funding to buy American products

ramana · Post by **ramana** » 10 Jan 2009 02:30

Full text

The sixth World Public Forum "Dialogue of Civilizations" held in Rhodes in the second week of October 2008, convened as all the previous ones under the joint auspices of the Glory of Russia Foundation and Kapur Surya Foundation, acquired added relevance from the troublous global context in which it was taking place. The planetary economy was undergoing a heart attack at that very time and all stock markets and financial institutions were in acute turmoil. Hence financial, economic and financial considerations could not fail to dominate the discussion and overshadow all other issues, despite the almost bewildering wealth of talent and information available from the hundreds of invited participants who had come from every continent and from several dozen countries.

Economists therefore tended to get the lion's share of attention, inevitably in some cases to the detriment of the outstanding scholars and inspirational trailblazers who represented the competing areas of politics and international relations, arts and culture, humanitarian matters, environmental and other scientific problems and philosophy in general, all reflecting diverse facets of the human condition and the state of its planetary home.

The host country, Russia, expectedly occupied a central role, but that reality also revealed that in most such international gatherings it is the USA, as leader of the dominant "West," that is the fulcrum of debates; thus the necessity of bi-polarity, absent real multi-polarity which is still a project, was made apparent. Only by highlighting the Russian and "Eastern" and Southern view on many issues could the subjectivity or, in many cases, the patent unfairness of the so-called "international community" consensus - in fact the "fiat" verdict of the American establishment, more or less enthusiastically supported by its satellite nations - be exposed. In contrast, the power, variety, and originality of intellectual, scientific, cultural and artistic life and activity in Russia was displayed to great advantage, belying the common outside view that the Federation is mainly a frigid repository of oil, gas and strategic minerals lorded over by oligarchs and the KGG.

That the current economic crisis is mainly caused by the corrupt, irresponsible speculative financial and monetary stratagems perfected by the Anglo-American banking system with the willing or forced consent of governments in the USA and Britain, not to mention Japan and the leading Western European nations, came as no surprise to the rather well informed participants. There were some brilliant analyses or even dissections of the processes that led to the disaster by experts from very different backgrounds, such as Helga Zepp Larouche from Germany, wife of the now venerable but always feisty "enfant terrible" of US politics whose dire predictions about the consequences of US political and economic systems have often been proved right, Lyndon Larouche; the senior French economic pundit Jacques Sapir from the IHESS and a bevy of distinguished Russian (Vladimir Popov, Alexander Ageev, Vladimir Potokov), Chinese (Xu Wen Hong), American and European practitioners of what has come to be rightly known as a conjectural science.

Russia, as one of the most egregious victims of capitalism gone wild in the last two decades, has understandably accumulated valuable and costly experience about of the nature of the beast, while China has been trying to preserve itself from its most noxious effect, even though Beijing still tries to have the best of both the socialist and liberal worlds, yet has not avoided suffering from some of their combined worst maladies.

The Chinese delegates were predictably sanguine about the ability of their country to protect itself from a potentially fatal downturn, but many foreign observers were much less confidant, pointing to the Asian colossus's critical dependence on exports to the USA and Europe and to the PRC's huge holdings of US sovereign debt instruments which may well turn out to be worthless, either in case of a default by the USA or of the only alternative, to wit, hyperinflation of the American currency. As a matter of fact, China is already suffering from an epidemic of factory closures leading to a job hemorrhage as a result of the worldwide collapse of credit and consumption.

It is worth noting in any event that a reduction in China's annual growth rate from the recent 11% rate to less than 8% would have relatively catastrophic effects, as would be the case if India's were reduced by 3% of 4% percentage points. Contrary to Washington, however, Beijing can pump hundreds of billions of its currency reserves into the domestic economy to keep it humming, while maintaining control over the value of its Renmibi Yuan; on the other hand, the USA can only add to its astronomical foreign debt as long as outside lenders will permit.

Among economists, the senior Russian financial expert Mikhail Khazin in particular pointed to parallels between the current American financial meltdown and credit freeze with the Russian collapse of 1998, which was likewise induced by a massive emission of speculative, esoteric debt instruments that poisoned the entire economy. However, in this case the septicemia is global as US financial markets in his words "for years…were sucking the resources out of the entire world" and created artificial domestic prosperity by printing currency and spreading it in American households in order to boost consumption, thereby eating the resources of future generations so that private debt in the country is now much larger than the national economy as a whole. The grim result of this situation is that the US will lose about one-third of its businesses and GDP in the coming months and years, thus sinking into full-fledged depression.

Some speakers at Rhodes were refreshingly candid, being markedly free from the heavy restraints on real dissidence which overshadow ideological discussions in the West. A few pointed out that the nature of the US-led global system required it to create and feed wars and also nurture and "synthetically" instigate terrorism in order to muster the resources needed for its survival, while dividing its allies, satellites and rivals in order to rule them. Recent examples in Iraq, Yugoslavia, Afghanistan, Sudan and Georgia (and on US soil itself on 11 September 2001) provided clear illustrations of the "modus operandi," but these notorious tactics are now falling short of their goals as the instigator is terminally ill.

Such autopsies are almost impossible in Euro-American public fora, where any allusions to those unpalatable truths are quickly drowned in floods of pious rhetoric about the West's commitment to freedom, justice and human rights, just as analyses of the shell game that underpins the global banking mechanisms are dismissed as conspiracy theories. Yet there is little doubt that the Federal Reserve of the USA is a private institution, mainly dedicated to the benefit of its shareholders, which plays a "check kiting game" with the US Treasury, just as commercial banks do among themselves, in order to suck up the private savings of citizens into the coffers of the financial elites.

These stratagems have led to a situation in which the Bush government is injecting at its sole discretion and without any supervision, untold hundreds of billions into the banks and financial institutions, in which its chief officials were groomed and selected and to which goes their loyalty. The so-called rescue or bailout package is becoming increasingly opaque, arbitrary, and probably illegal, to the extent that the Bloomberg Financial Services organization is now suing the Treasury to force it to clarify the use it is making of some $ 2 trillion worth of public funds which are meant to "save" major banks and corporations.

The world economy is now subordinated to this "Ponzi scheme" which Nathan Meyer Rothschild alluded to in his time by stating: "Give me the control of the credit of a nation and I care not who makes the laws…The great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests".

Ruminations over the ominous economic situation in the USA led many to try to predict the character and effects of future US leadership. Though the American Presidential elections had not yet taken place, few saw a strong possibility for a McCain victory, so palpable was the anger of the US electorate and the country's desperate need for a radical change of leadership.

In Rhodes, however, there was only measured elation about the expected Obama presidency which was not regarded with great trust by people too accustomed to American arbitrariness and arrogance to expect a great change in the "providential nation's" attitude. Russia and China gave the impression that they were hunkering down for self-protection against prospective new US political and economic, if not military, offensives to which the Kremlin opposes a national - and collective Eurasian - security policy recently articulated by President Medvedev and which some outside observers have dubbed as 'Russia's Monroe Doctrine".

Khazin's view that Obama would most likely be made a scapegoat for the country's ills which he would not be able to cure, only differed in degrees from the widely held belief that Obama is a gifted individual, selected and trained by the ruling oligarchy to carry out their mandate under the cosmetic appearance of revolutionary change, thus co-opting many of the dissidents into a system which he, on the surface, appears committed to challenge. This cynical view is supported by the unrivalled amount of financial and institutional support the Harvard-trained candidate has mustered from Wall Street, big business and the industrial and technological leadership of the country, including household names such as Warren Buffett, George Soros and the Silicon Valley kings.

The strikingly ironic or apocalyptic (depending on the point of view) allusions embedded in the new President's name (Barack Hussein Obama echoing three shibboleths and scarecrows of US foreign policy in the last two decades, to wit Iraq, (Saddam) Hussein and Osama) have come to everyone's mind, but only Muslims and people somewhat familiar with Islam noticed that Barack is the name of the Prophet's faithful charger.

It is also worth noting incidentally that prior to joining Columbia and Harvard, Obama was a student at Armand Hammer's Occidental College in California, whose mission is to train the supra-national elite of leaders of the future. Hence those countries which are in Washington's crosshairs as challengers and rivals such as Russia, China and even India, not to mention smaller but non-compliant nations like Iran, Syria, Bolivia, Cuba and Venezuela, must be prepared for a continuation of the traditional US power politics even if greater attempts are made at diplomacy in Washington and if the first Afro-American President is instinctively driven to try conciliatory gestures.

The question that arises is that if Obama is indeed a manufactured phenomenon on the US political scene, then who are the manufacturers and puppeteers? For it stands to reason that the imperial Shylock is not about to let control slip out of his hands and that he has planned strategies to keep securing his pounds of flesh and perpetuate his supremacy in various guises.

In the sea of criticism of the Bush regime and Neo-conservative political and economic theories, the few Republican Americans who had come to Rhodes stood as an island of defiance, or rather estrangement, and seemed oddly disconnected from the wider zeitgeist. They were unenthusiastic about John McCain as a Presidential candidate, as most of their fellow Christian Conservatives; but they appeared terrified of Obama's victory which they darkly hinted at as being a prelude to Armageddon. They seemed stuck in their own oversimplified Biblical world in which preventing abortion, preserving God's place in the Constitution, capitalism in society, and the right to bear arms for citizens sufficed to ensure a nation's compliance with the Divine Writ.

No wonder that such blinkered perspectives lead such a "Born Again" leadership to commit barbaric crimes and accumulate stupid blunders with a clear conscience, undisturbed by any inconvenient intrusion of reality. This self-styled Evangelical vision of the world for many betrays an odd kind of superstition consonant with Bush's evil genie, Carl Rove's famed statement to the effect that the Bush administration could design reality as it wished and force the rest of the world to live with it.

However, Protestant conservatives owe much of their appeal among American masses to the simple fact that they are the only ones to still oppose the politically correct ultra-liberal diktats of the self-styled intellectual and financial elites which make economically "progressive" opinions inseparable from a blind support to such faddish causes as homosexual marriage or the ban of any religious reference from the public arena. The very day that Barack Obama was elected by an overwhelming majority of Californians, the same state democratically adopted Proposition 8 which aimed to delegalize homosexual unions.

To the distress of fashionable Liberals, many people who want reform for social justice do not want to support marriages that would have been described in olden days as "anti-physical" and patently contrary to biological realities. It is indeed thought-provoking that many of those who claim to champion an ecological vision of life and society deny the existence of natural law in human affairs, although the Conservative notion that preventing homosexual marriage should be the main concern of a government is obviously off-target. "God, guns and gays" are well known hobby horses of the Christian Right and these simplistic pet-subjects have robbed its spiritual claims of much of their genuine validity.

Any dialogue between various religions tends to be overshadowed by the issue of conversions and the misgivings they arouse, especially in the "less developed" continents of Asia and Africa, but also in Latin America, and even in the countries of the former Soviet Union. The traditionally indifferent attitude of Orthodox Churches to other creeds can provide a welcome respite to all others from the often aggressive proselytization practiced by Protestants (especially Evangelicals) and Roman Catholics. There was a widespread sentiment in favour of respecting and not simply tolerating non-monotheistic faiths, which made some "Abrahamic" clerics uncomfortable as all three Semitic religions see themselves as invested with the Mission to reveal the True God to all mankind, and do not encourage their followers to recognize "pagan" or "idolatrous" beliefs.

Likewise, Israeli writer Israel Shamir's call for a united nation of Palestine for all its citizens, irrespective of religion and liberated from the ideological militancy of Zionism, was heard in hushed silence, but followed by enthusiastic applause as it provided a welcome change from the fire-breathing philippic earlier proffered by the representative of the European Jewish Council and predictably directed against Iran, Hamas, Syria and Russia in that order. Indeed Shamir's apology on behalf of his country's and community's aggressiveness and thirst for power and control was music to many ears.

All in all, at Rhodes, some of the world's fine minds were not afraid to go where few in the supposedly free West dare to tread.

The author is Convener, Editorial Board, World Affairs Journal

is this an alternate to Davos?

vsudhir · Post by **vsudhir** » 10 Jan 2009 08:22

FT is reporting that three associations representing fund managers in Australia, the UK and US have joined forces to warn that their industry would be damaged if market regulators publish detailed information on short selling trading positions.

Link

/Psst, did someone mention ethics and unimpeachable integrity?? Who? I got a bridge to sell 'em....

Nayak · Post by **Nayak** » 10 Jan 2009 08:40

Korean scientist seeks sweeper's job

10 Jan 2009, 0056 hrs IST, AFP
Print Email Discuss Share Save Comment Text:
SEOUL: A jobless scientist with a doctorate in physics has applied for a street sweeper's job, reflecting the severe economic slump and rising
unemployment, officials said.

The 36-year-old physicist was among 63 people who applied for five openings as sweepers, Seoul's Gangseo district office said. Eleven of the applicants were university graduates, it said.

"I doubt whether any doctorate degree will be of any help to become a sweeper," Chung Young-Ik, an official in charge said. "He must have been in a very desperate situation to seek this job but we are selecting new sweepers, not scientists," he said.

The district office said competition had become tougher this year for the sweeper jobs, with an average 12.6 people vying for each opening, up from eight people last year. The $25,000 starting salary for a sweeper is greater than what inexperienced graduates earn by working at large businesses, Chung said.

vsudhir · Post by **vsudhir** » 10 Jan 2009 18:08

Citigroup's Rubin Resigns

The former Treasury Secretary steps down from Citigroup amid rumors of a Smith Barney sale, giving investors serious doubts about a turnaround for the bank

Is Citigroup going down or what? With an Indian face at the helm, at that.
If Lehman's fall was bad for the fin system, wonder what citi's troubles might do.
Troubled times indeed.

markos · Post by **markos** » 10 Jan 2009 23:46

vsudhir wrote:Is Citigroup going down or what? With an Indian face at the helm, at that.
If Lehman's fall was bad for the fin system, wonder what citi's troubles might do.
Troubled times indeed.

As I stated earlier, don't be paranoid about indian face of Pandit. Rubin got $120 million in compensation over 10 years and did nothing. From what I understand, he was one of the backers of Pandit. Robin along with his fellow-oaf greenspan created the current mess. IMO, creation of Citi in its current form 10 years ago, the biggest sub-prime entity ignoring all the existing laws at that time, is the main cause of the current unprecedented turmoil in credit and housing markets.

http://biz.yahoo.com/ap/090110/citigroup_rubin.html

If Morgan Stanley ends up buying Smith Barney, it "sounds like the beginning of a liquidation," said Christopher Whalen, managing director of Institutional Risk Analytics.

"Citi is under enormous pressure to downsize right now," added Bert Ely, a banking industry consultant in Alexandria, Va. After Citigroup received an extra dose of government funding, he said, "my sense is that the pressure has been increasing to accelerate the process."
.....
"Robert Rubin, in my opinion, spent a decade neglecting his duties as a director, just judging by their performance," Whalen said.

Now Citi is trying to unload the its crown-jewels. Citi/Pandit is trying to sell its retail brokerage Smith-barney to Morgan Stanley (btw, Smith Barney is the bigger firm and Pandit came from Morgan Stanley, go figure...) which to me, means Citi deaparately needs capital.

Had this step been taken earlier or spun Smith Barney as an independent company, share holders would have benefitted.

As I had stated before, what is failing is the so-called universal/global banking model of Citi. This is an admission of the fact

Pandit already made $200 million in less than two years by selling his lemonade company to Citi which got quickly shut down. Also under his watch, the stock nose-dived from $32 to $3.

http://www.iht.com/articles/2008/03/14/ ... 14citi.php

Pandit received about $165.2 million in connection with the sale of Old Lane Partners, the investment firm Citigroup bought last April for as much as $800 million to lure him to the company. He received an additional $2.7 million in the roughly six months he served as head of Citigroup's investment bank and alternative investments group.

And in January, Pandit was given a sign-on grant of stock and performance-based options worth over $48 million, though the options currently no cash value. That brings the total to at least $216 million.

More on how pandit sold a lemon to suckers at Citi

First comment in the article summarizes it well
http://dealbook.blogs.nytimes.com/2008/ ... port-says/

Pandit the Bandit
You never cease to amaze me
Sold them junk and became their boss
Made hundreds of millions while they lost billions
Still smiling while firing workers
Pandit the Bandit
The ultimate “prince” of Wall Street

vsudhir · Post by **vsudhir** » 11 Jan 2009 08:05

China attempts moving away from dollar over-reliance

Several indications leaking in in bits and pieces that the non-Americans no longer trust the greenback.

The chief executive of jewellery giant De Beers SA made waves this week when he suggested the global diamond industry consider pricing the shiny gems in a currency other than the U.S. dollar.

That comment, from the head of the world's largest diamond company, is the latest in a string of signs that the greenback's glory days could be fading.

A UBS Investment Research report says that while it would be wrong to write off the U.S. dollar as the global reserve currency, its roughly 90-year iron grip on that position is loosening. “The use of the U.S. dollar as an international reserve currency is in decline,” said UBS economist Paul Donovan.

“The market share of the dollar in international transactions is likely to decline over the coming months and years, but only persistent policy error - or considerable fiscal strain - is likely to cause the dollar to lose reserve currency status entirely.”

The UBS report maintains that the gradual slide of the U.S. dollar is being driven not by the world's central banks, but by the private sector, as individual companies increasingly abandon the greenback as their international currency of choice.

“The private sector's use of reserves is more important than official, central bank reserves – anything up to 20 times the significance, depending on interpretation,” Mr. Donovan said. “There is evidence that the move away from the dollar as a private-sector reserve currency has been accelerating since 2000.”...

[url=http://www.nakedcapitalism.com/2008/02/ ... ollar.html]Link[\url]

Am thinking this unprecedented pumping in of $$$ under TARP, carp and other bailout/stimuli schemes won't help matters much but at this stage, I doubt anyone in DC cares. The immediate effects of not acting can be calamitous.

Meanwhile dlagon is puffing and huffing smoke onlee

Victor Shih, a specialist in Chinese central banking at Northwestern University, said that when he visited the People’s Bank of China for a series of meetings this summer, he was surprised by how many officials resented the institution’s losses [on dollar assets].

He said the officials blamed the United States and believed the controversial assertions set forth in the book “Currency War,” a Chinese best seller published a year ago. The book suggests that the United States deliberately lured China into buying its securities knowing that they would later plunge in value.

“A lot of policy makers in China, at least midlevel policy makers, believe this,” Mr. Shih said.

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...

The People's Daily is the official newspaper of China's ruling Communist Party. The Chinese-language overseas edition is a small circulation offshoot of the main paper.

Its pronouncements do not necessarily directly voice leadership views. But the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington's economic policies and global financial dominance in the wake of the credit crisis.

Am no fan of yamrika but the loss of confidence in USD cannot but be severely disruptive of the whole 'international trading system' and pile on more misery in these already bleak times....

Expect to see a few wars flare up to ease the strain the ruling elites everywhere will start to feel as the downturn sinks its fangs in....

John Snow · Post by **John Snow** » 11 Jan 2009 09:38

The dollar demise a little too early to call, will have serious collateral damage to many countries. The mismanagement by Spincity is un believeble.

The re used to be a joker called "Jones of the world" on this forum who was frothing with rage about 7 yrs ago when I suggested the whole world should vote in US presidential elections as the decisions made in dupleecity impact bilions of citizens of the world who are non Americans.

vsudhir · Post by **vsudhir** » 11 Jan 2009 20:26

The US can't unilaterally inflate its way out of the crisis

A blogpost admittedly, but a knowledgeble one, IMO.

Should they ever need to fight the other way, they can sell off USD and buy CNY until the crisis has passed, and the permanent, underlying current account surplus takes care of the problem.

Japan and China do not have any lasting inflation problem either, though both caught an inflationary wave during the commodity bubble. They have certainly both experienced deflation in the recent past. The economies survived, with a little discomfort. There is very strong structural deflation in both economies, with extraordinarily deep capital, and in China's case at least, virtually limitless labor. Deflation appears to be returning and it probably doesn't present a severe threat to either economy.

Deflation does pose a dire threat to the US economy. With immense debt outstanding to GDP, far higher than anything seen before, the US economy may have approached the Chandrasekhar limit of debt. Debt-deflationary spirals are not fun. Even worse, we have very large, persistent trade deficits and a poor NIIP.

The US has also invested very little in tradeable sectors. When we had all the cheap funding in the world, we built houses in the Inland Empire and bought a lot of cars. Why did America choose to consume or invest in residential real estate, rather than a machine shop in Michigan? Many ascribe that to avarice or stupidity, but it's unfortunately more likely a result of American workers and capital being totally uncompetitive at current and envisioned pricing. As evidence, American exports did finally start to respond a bit when the dollar index sunk a long way, but they've begun to fall again now during the recession, while the dollar's rising again. American goods and services need to be cheaper in other countries to be desirable.

I know, a lot of words, but pray why can't the US inflate its way out of the crisis? By effectively devaluing the dollar, and thereby all dollar denominated debts?

The dollar can't weaken against major competitors, though. China, Japan, and other pegging nations prevent it. China probably can't really break their peg without bankrupting the PBoC, which holds dollars as assets and yuan as liabilities. Much of the world, if revalued, could no longer rely on exports to America and Europe for growth, sinking into deeper -- more deflationary -- recessions of their own. They will probably not revalue any time soon.

China has also demonstrated the ability to sterilize, effectively or at least marginally so, extremely high levels of intervention. Enough for real exports and hot money when the global economy was fine, and certainly enough in our trade depressed world. I believe that through greater bond issuance and raised required reserves, they can effectively sterilize a really, really big pile of yuan. Japan has started running a trade deficit.

OK, am not 100% convinced though the arguments have some merit otherwise. Read-worthy, IMHO.

Najunamar · Post by **Najunamar** » 11 Jan 2009 21:07

Question to Gurulog:

Agreed that per the blog & comments posted by vsudhirji that the USTO has been unable to move credit markets despite adding to the money supply. However now they have another potent weapon (Brahmostra if you will) in attempting to intervene in the equities market. What if (in the unlikely event) the new TO convinces Congress and is able to ratchet up this intervention further - this will accomplish the task of pumping $ into aam aadhmi's pockets no? (perhaps not the very poor but those impoverished investors still in the stock markets) - This will be the magic wand by which higher inflation numbers can be achieved. Is this a plausible or even possible scenario?

But, after the higher inflation results it could a) go out of hand leading to hyperinflation as predicted by doomsdayers (low probability event given the amount of US debt people around the world still will hold) or b) the scenario envisioned by the blogger (more competitive devaluations by Asians).

Suraj · Post by **Suraj** » 12 Jan 2009 00:35

Najunamar wrote:But, after the higher inflation results it could a) go out of hand leading to hyperinflation as predicted by doomsdayers (low probability event given the amount of US debt people around the world still will hold) or b) the scenario envisioned by the blogger (more competitive devaluations by Asians).

What does hyperinflation have to do with debt ? It is a monetary phenomenon borne out of the destruction of the value of a currency, because of excess fiat printing. Inflation driven by the destruction of the value of a currency if in fact a weapon that a central bank has, because the debt is denominated in its own currency. Right now, in the US, those who hold money are unwilling to trust it with the financial system, and that is what it causing the pithily described 'credit crunch'. The US has never faced a major hyperinflationary situation, but it has faced a vicious deflationary spiral, as it did in the 1930s. In their haste to avoid the latter, they may just tip scales towards the former.

It's not clear how competitive devaluation of domestic Asian currencies help much. It might temporarily buttress the value of their US debt holdings in their currencies, but they are destroying their own currencies.

Najunamar · Post by **Najunamar** » 12 Jan 2009 05:47

http://article.nationalreview.com/?q=Mm ... I4YmY0M2U=

I know this is sacrilege for those who follow the Friedmanesque assertion that Inflation is always and everywhere a monetary phenomenon but with heavy intervention by non-market forces at least in short periods I believe history has shown it possible to have the money supply increase without concomitant inflationary pressures (not necessarily a good thing either - economics is depressing!). In this context I suppose it is important as to how the money supply is increased - if as the BoJ did the printing presses were used merely to encourage the Yen carry trade thus ensuring the money did not filter down to the aam adhmisan in Japan then there is no inflation. Unfortunately for the US no such venue exists for them to hold huge FX reserves in other currencies or would they do the unthinkable by stocking up on Yen and Yuan?

Suraj · Post by **Suraj** » 12 Jan 2009 09:24

The Japanese 'lost decade' situation was a combination of consumers unwilling to spend (they saved and held savings in precious metals, US treasuries and land - the last mentioned causing land prices to rise and affect investment, which needs land) and producers unwilling to invest; their growth in the mid 2000s is tied significantly to Chinese demand for machinery. Until then, low interest rates did not stimulate investment or consumption. Until 2001, the Japanese had low interest rates but continuing deflation. Their quantitative easing was a deliberate effort to cause inflation to break the back of the continuous deflationary spiral (e.g. Krugman's analysis of Japan's liquidity trap).

Another thing is that along with load demand, there's such a thing as willingness to lend, which is the a problem right now. I don't think the article suggests that you can have excess money supply growth without inflation. It just indicates that under specific circumstances particular monetary policies (e.g. a particular level of quantitative easing) may be ineffective at curbing deflation.

Ameet · Post by **Ameet** » 13 Jan 2009 12:13

US could lose 2 million more jobs in 2009

http://money.cnn.com/2009/01/12/news/ec ... 2009011211

NEW YORK (CNNMoney.com) -- The nation could lose 2 million more jobs in 2009 after the loss of 2.6 million last year, a business research firm said in an employment report issued Monday.

The forecast came in a report issued by the Conference Board, which said its Employment Trends Index fell 1.6% last month to stand at 99.6.

"The continued deterioration in the Employment Trends Index signals that no turnaround in the labor market is expected in the near future," Conference Board senior economist Gad Levanon said in the report.

The index has declined for 17 straight months, with drops of 1.6% or more over the past six months.

Wachovia chief economist John Silvia says that nothing has really changed in this month's report.

"I know that this is frustrating for a lot of people because they would like to see a change in the trend," Silvia said. "But what we're seeing is the same as before."

However, Silvia also said that the worst may be behind us and that 2 million more jobs seems a bit aggressive an assessment.

"A lot of companies have already cleared the decks in 2008," Silvia said. "Given that we've already claimed a loss of 2.6 million jobs, we can probably expect to see another million and a half."

But the job market remains tough for those looking for work. The "jobs hard to get" component of the report rose to 42% in December from 37.1% in November.

"We can expect to see a further decline in the next six months, but we've probably already seen the biggest number we're going to see," said Silvia.

svinayak · Post by **svinayak** » 13 Jan 2009 17:13

http://online.wsj.com/article/SB123146363567166677.html

Atlas Shrugged': From Fiction to Fact in 52 Years

By STEPHEN MOORE

Some years ago when I worked at the libertarian Cato Institute, we used to label any new hire who had not yet read "Atlas Shrugged" a "virgin." Being conversant in Ayn Rand's classic novel about the economic carnage caused by big government run amok was practically a job requirement. If only "Atlas" were required reading for every member of Congress and political appointee in the Obama administration. I'm confident that we'd get out of the current financial mess a lot faster.

Ameet · Post by **Ameet** » 13 Jan 2009 23:51

Another great banking practice - "stripping". IMO not enough bad things can happen to these guys and the industry. They can all end up being ditch diggers for all I care. Of course the execs have already made a deal with the US government that no one goes to jail, as long as they pay a fine. Iran is mentioned heavily in the article and a purchase for tungsten, which is used to make long range missiles. What the article doesn't mention is that a single transfer was done to buy 30,000 tonnes of tungsten by Iran.

http://www.iht.com/articles/2009/01/11/ ... php?page=1

British bank helped Iran moved billions into U.S.
By Vikas Bajaj and John Eligon
Sunday, January 11, 2009

Iranian banks illegally shifted billions of dollars through American financial institutions in recent years, and the authorities suspect some of the money may have been used to finance Iranian nuclear and missile programs.

Details of the illicit transfers came to light on Friday when the New York State and U.S. authorities announced that a large British bank had agreed to pay $350 million to settle accusations that it had helped the Iranian banks hide the transactions.

The British bank, the Lloyds TSB Group, "stripped" information that would have identified the transfers in order to deceive American financial institutions, which are barred from doing business with Iranian banks, Robert Morgenthau, a New York district attorney, said. Lloyds acknowledged its conduct and agreed to turn over detailed records of the transactions.

"They went to great lengths to obliterate any identification," Morgenthau said.

The district attorney's office was still investigating nine major banks that might be engaging in similar conduct, but prosecutors declined to name them. Morgenthau said, however, that money in one transaction was used to buy a large amount of tungsten, an ingredient for making long-range missiles. He said he suspected that other funds might have been used to finance Iran's nuclear program.

In the current case, investigators were unsure what the money was used for, said Daniel Castleman, the chief assistant district attorney. The stripping made it impossible to determine where the money was going, he said. "We don't know of any money that has gone to any terrorist organizations, individuals or anything like that," he said.

Lloyds has agreed to examine all of the transactions it stripped to try to determine where the money was headed. In all, Lloyds hid the source of billions of dollars that passed through the United States, prosecutors said. Lloyds also hid transfers from banks in Sudan, which are also banned from doing business with American institutions.

Half of the $350 million Lloyds has agreed to pay will go to the U.S. government and the rest to Morgenthau's office, which will divide the money between the city and the state.

Morgenthau said he hoped the money, the largest financial penalty his office has ever collected, would provide a boost to tight city and state budgets.

Although prosecutors did not identify specific individuals at Lloyds responsible for the fraud, Castleman said, "It was a systemic, wide-ranging scheme." The training manual given to employees of Lloyds even included a section on how to strip transactions, prosecutors said.

Banks in several nations are banned from doing business with American institutions, but the United States is particularly concerned about Iran, which it says finances terrorists and runs an illicit nuclear weapons program. Iran denies those accusations.

The investigation into Lloyds goes back to 2006. It was conducted jointly by Morgenthau's office and the Justice Department, with the assistance of the Treasury and banking regulators.

According to a deferred prosecution agreement, Lloyds handled $300 million of Iranian transfers and $20 million of Sudanese transfers that ended at American banks. Morgenthau said billions of dollars of transactions went through American banks but ended outside the country.

Several employees in Lloyds' international payment processing unit in London removed from the bank's central system orders from certain foreign banks, according to the agreement released Friday by Morgenthau's office. Employees struck out identifying information about the originating banks on printed copies of the payment instructions, which someone then re-entered into the payments system. When American banks received the transfers, they seemed to have originated at Lloyds.

Worried that they might be violating American law, senior officials at Lloyds stopped the stripping operation for Iranian banks in 2004, but transfers from Sudan were stripped as recently as 2007.

Under the agreement between Lloyds and Morgenthau, no employees, officers or the bank will be charged with a crime unless evidence emerges that the bank or its employees and officers knew that specific transfers were sent to or by terrorist groups or "proliferators of weapons of mass destruction." The agreement lasts for two years.

In recent years, officials in the Treasury have stepped up a campaign to have foreign banks sever links with Iranian banks, which they accuse of providing support for groups like Hezbollah and Hamas, in addition to financing Iran's own nuclear ambitions.

In November, the Treasury barred American financial institutions from handling certain money transfers for Iranian interests that had been previously allowed, closing what it described at the time as the "the last general entry point for Iranian banks." Certain exceptions are still allowed for humanitarian aid and remittances.

In December, the U.S. authorities moved to seize the assets of the Assa Corporation, which the Treasury says is a front for Bank Melli, the largest Iranian bank. Assa owns a stake in a New York office tower.

Morgenthau's office had been investigating ties between the Iranian government and Assa and a related entity, the Alavi Foundation, since 2006. Morgenthau said evidence unearthed in that investigation led his office to inquire about money transfers made through Lloyds.

Ameet · Post by **Ameet** » 14 Jan 2009 22:06

Indians flee as Dubai dreams crash

http://www.dnaindia.com/report.asp?newsid=1221350

It's the great escape by Indians who've hit the dead-end in Dubai.

Local police have found at least 3,000 automobiles -- sedans, SUVs, regulars -- abandoned outside Dubai International Airport in the last four months. Police say most of the vehicles had keys in the ignition, a clear sign they were left behind by owners in a hurry to take flight.

The global economic crisis has brought Dubai's economic progress, mirrored by its soaring towers and luxurious resorts, to a stuttering halt. Several people have been laid off in the past months after the realty boom started unraveling.

On the night of December 31, 2008 alone more than 80 vehicles were found at the airport. "Sixty cars were seized on the first day of this year," director general of Airport Security, Mohammed Bin Thani, told DNA over the phone. On the same day, deputy director of traffic, colonel Saif Mohair Al Mazroui, said they seized 22 cars abandoned at a prohibited area in the airport.

Faced with a cash crunch and a bleak future ahead, there were no goodbyes for the migrants -- overwhelmingly South Asians, mostly Indians - just a quiet abandoning of the family car at the airport and other places.

While 2,500 vehicles have been found dumped in the past four months outside Terminal III, which caters to all global airlines, Terminal II, which is only used by Emirates Airlines, had 160 cars during the same period.

"The construction and real estate industry has been hit following the global slowdown and the direct fallout is that professionals working in the realty industry are rapidly losing their jobs," said a senior media professional, in-charge of a realty supplement in Dubai. "In fact, my weekly real estate supplement usually had 60% advertisement and ran into 300-odd pages. In the last seven weeks, it's down to 80 pages and with fewer advertisments," he added.

Mumbai resident D Nair (name changed) had been living in a plush highrise in Sharjah for the past four years. However, the script went horribly wrong when his contract was terminated. Nair used all his credit cards to their maximum limit, shopping for people back home. He then discarded his Honda Accord before returning to India for good. Nair, who stays in a rented apartment in Navi Mumbai today, has a Rs15 lakh loan with a Dubai bank.

Another such victim of the meltdown said he bid goodbye to his car in a small bylane near the airport and hailed a cab. "I was scared because a number of us were doing the same and did not want to be questioned by the police. There was no way I could afford to pay the EMI of 1100 Dhirams for my Ford Focus," he told DNA on condition of anonymity.

When contacted, the dealer for Asgar Ali cars in Sharjah said, "We are helpless and do not know how to tackle this issue. A large number of such owners are from Indian, Sri Lanka, Bangladesh and other South Asian countries."

svinayak · Post by **svinayak** » 14 Jan 2009 23:21

http://www.marketwatch.com/news/story/f ... A420EBB1CF}

Fault lines emerge at Fed
Bernanke, Plosser differ publicly on new policy
By Greg Robb, MarketWatch
Last update: 11:04 a.m. EST Jan. 14, 2009
Comments: 14
WASHINGTON (MarketWatch) - Key fault lines are emerging at the Federal Reserve over the central bank's journey into uncharted monetary policy.
In a speech on Tuesday, Philadelphia Fed Bank president Charles Plosser publicly took issue with positions advocated by Fed chief Ben Bernanke.
Plosser urged the Fed to "proceed with caution" with the new policy.
On Monday, Bernanke signaled that it was full speed ahead - with existing programs needing additional resources and new ones in the works to stabilize the financial system.
"It is a huge disagreement," said Robert Brusca, chief economist at FAO Economics.
While the Fed chairman has made it a practice to run a more democratic central bank, the disagreements come at a crucial time when the Fed is striving to appear on top of the current financial market crisis and steep recession.
The Fed has expanded its balance sheet from $900 billion to well over $2 trillion in its efforts to restore the credit markets to health.
Bernanke has argued that focusing on the size of the balance sheet misses the point, arguing the Fed's various asset purchase programs are not easily summarized in a single number.
But Plosser said that the growth of the Fed's balance sheet was a key metric.
"It is not appropriate to ignore quantitative metrics in this new policy environment," Plosser said.
On the surface, the debate is about how the describe the programs.
Bernanke and Fed officials have gone to great lengths to say that the new policy is not "quantitative easing" similar to the Bank of Japan's actions in the 1990s.
Instead, Bernanke called the new program "credit easing" and tried to put the focus on "the mix of loans and securities that it holds and on how this composition of assets affects credit conditions for households and businesses."
But Plosser is bringing the spotlight right back to the Fed's balance sheet.
"The size of the balance sheet does offer a possible nominal anchor for monitoring the volume of our liquidity provisions," Plosser said.
Underneath the surface is a real concern about how and when the Fed tries to exit from its new monetary policy.
Fed officials who pay attention to the money supply believe that the Fed's current policy of printing money never ends well and the danger of inflation is very high. They believe the Fed must withdraw the stimulus before there is any sign of inflation or it is too late.
Bernanke wants the flexibility to take his time.
Plosser also argued that the Fed has put its independence at risk by buying long-term assets. He worried that some "interest groups" will try to use political persuasion to stop the Fed from selling these longer-term assets even if the central bank has decided it makes sense.
"We will need to have the political fortitude to make some difficult decisions about when our policies must be reversed or unwound," Plosser said.
Bernanke said that he would watch this situation closely but didn't expect it to be a "significant problem." End of Story
Greg Robb is a senior reporter for MarketWatch in Washington.

amol.p · Post by **amol.p** » 15 Jan 2009 12:07

Bank of America in talks for more U.S. bailout funds

http://www.reuters.com/article/newsOne/ ... DY20090115..

Bank of America has struggled to digest its January 1 buyout of former Wall Street brokerage giant Merrill Lynch & Co.Merrill's fourth quarter losses exceeded expectations and spurred Bank of America in mid-December to start talking to the U.S. Treasury Department, which is managing the bailout.

Bank of America and Merrill Lynch together received $25 billion from the TARP in October.

Ultimately everybody wants to run business & do acquistions on govt. money

amol.p · Post by **amol.p** » 15 Jan 2009 12:10

Nortel goes bankrupt with $12 billion in liabilities.
Indian IT cos feel pinch of Nortel's bankruptcy

http://economictimes.indiatimes.com/Nor ... 981729.cms

amol.p · Post by **amol.p** » 15 Jan 2009 12:19

Motorola to cut 4,000 more jobs, sees weak sales

Motorola said it sold about 19 million handsets in the fourth quarter of 2008. That fell short of several analysts' estimates of 22 million and above."They're in this spiral of greater losses, lower investments, weaker product lines, greater losses, and so on and so forth," he said. "They're shrinking dramatically

http://economictimes.indiatimes.com/art ... 982110.cms

svinayak · Post by **svinayak** » 16 Jan 2009 01:00

The entire economy is taking a hit from the current financial crisis, and Google is no exception. Today Google shares are trading at $340, which is $100 less or 22% off the price they were on September 25, 2008 ($440). A huge chunk of the options granted to employees (approximately 7.4 million shares) have a strike price of $440 or above. A lot has changed since September 25th and they could change again and be back in the money. But presently, 75% of the stock options granted to employees are worthless.

Suddenly, the mood at Googleplex is not so cheery. Officially, Googlers say that it is a great place to work and that it is not about the money. But off the record, you will hear and see a different story. With 75% of the employees sitting on worthless stock, the anxiety level is increasing.

Reality has set in. Many Googlers are realizing that it is no longer a quick ‘get rich’ option. Many took huge pay cuts in the hopes that they could make-up for it in stock. Now, they are caught in a catch-22 situation. Many are starting to look elsewhere and most places - at least in Silicon Valley where most Googlers are - have a hiring freeze.

To make matters worse, most of the hiring at Google happened after 2005 when the boom was in full swing. Google, too, was firing on all cylinders and needed bodies company-wide. Employees were recruited from practically ever company in the valley. In the rush to jump onto the Google express, many employees burnt bridges with their previous employers. Many projects were dropped mid-stream often costing their previous employers millions and jeopardizing their product lines. A CEO of a major silicon valley company said, “They have no friends left.” He said his companies has disallowed the use of Google products and I hear two more companies are following suit.

Anujan · Post by **Anujan** » 16 Jan 2009 01:32

Acharya wrote:http://online.wsj.com/article/SB123146363567166677.html
Atlas Shrugged': From Fiction to Fact in 52 Years

By STEPHEN MOORE

Some years ago when I worked at the libertarian Cato Institute, we used to label any new hire who had not yet read "Atlas Shrugged" a "virgin." Being conversant in Ayn Rand's classic novel about the economic carnage caused by big government run amok was practically a job requirement. If only "Atlas" were required reading for every member of Congress and political appointee in the Obama administration. I'm confident that we'd get out of the current financial mess a lot faster.

The article does not make any sense at all. The author decided "lets take a popular book, marry it to republican ideology of small government, add a dash of false information about Obama's policies and act all indignant"

The scene is eerily similar to an event late last year when six bank presidents were summoned by Treasury Secretary Hank Paulson to Washington, and then shuttled into a conference room and told, in effect, that they could not leave until they collectively signed a document handing over percentages of their future profits to the government.

This wouldn't have happened if they didn't ask for bailouts from *public* funds to rescue their banks. A more appropriate response for demands of public funds to bail out private enterprises would be to require criminal investigation into the entire top management, with the assumption of "guilty until proved innocent".

Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations.

Except that this crisis was not spawned by politicians alone. It was by greedy bankers, who first brought down the walls between investment and commercial banking, and then fought for reduced regulation of the CDS market.

Abolishing the income tax. Now that really would be a genuine economic stimulus. But Mr. Obama and the Democrats in Washington want to do the opposite: to raise the income tax "for purposes of fairness" as Barack Obama puts it.

There is always a tension between personal freedom (you get to keep all the money you make, spend it any way you like, give it to anyone you like) and social justice (do we have an institutionalized obligation towards the sick homeless person on the street ? or just a moral obligation ? or no obligation ?).

First a caveat: The proponents of social justice, conveniently forget meritocracy (why would I, after spending 11 years after high school studying and living the life of a mendicant, pay 35% tax on the highest slab of my income when I finally start earning, when compared to a guy who made his highschool girlfriend pregnant and got a job selling tyres ?).

Now the punch: Personal freedom proponents propound their theory of "no income tax", "no inheritance tax". Conveniently forgetting that social mobility even in developed countries is low (the no 1 determinant of your economic status, is the economic status of your parents. If you want to be rich, just be born to rich parents.). In this condition, whither social justice ? Look at it in another way. Why should we have democracy ? Lets just crown the son of the King. Someone rightly observed, that capital (money) is the objective of the new monarchy. Paris hilton of questionable intelligence and education, signs a 10 million $ contract, because her father is rich and "has connections". Money has an absolute value and is the only commodity capable of growing without any effort on the part of the owner. (Just deposit $100 million your dad gave you, in treasury bonds and live a comfortable life forever. Whither meritocracy and reward for intelligence and hard work ?).

Now the whopper about Obama's income tax raise. Everybody making below 250,000$ will see a reduction in their income tax. Why is this a bad idea ?

The author's muddled article reads
1. I am against big government and regulation
2. The economic disaster was caused by lack of regulation and oversight. I oppose bailouts
3. The bailouts are okay, but I oppose the government demanding equity from the company who got the bailouts
4. I demand reduction in taxes for the rich

Whaa ?

Ananth · Post by **Ananth** » 16 Jan 2009 01:34

Link for Acharya's post: http://www.webguild.org/2008/10/google- ... o-bail.php

amol.p · Post by **amol.p** » 16 Jan 2009 12:23

U.S. Gives Bank of America a $138 Billion Lifeline

In that amount us govt. can buy all the leading banks with their current valuations...!!!!!!!!!

http://www.bloomberg.com/apps/news?pid= ... refer=home

Today’s emergency action shows officials so far have failed to quell concerns about the viability of some of the biggest banks even after deploying $350 billion of a financial-rescue fund and a doubling of the Fed’s balance sheet. The announcement came after a day in which Bank of America and Citigroup Inc. shares both tumbled amid concern of rising credit losses.

ramana · Post by **ramana** » 17 Jan 2009 00:21

Now makes sense the Bush and Obama duet to get the remaining TARP funds released!

amol.p · Post by **amol.p** » 17 Jan 2009 10:39

US banks lose billions as state aid pours in

Bank of America lost $1.79 billion in the fourth quarter
while Merrill lost $15.3 billion
and Citi revealed a quarterly loss of $8.29 billion, its fifth in a row,

http://economictimes.indiatimes.com/US_ ... 990243.cms

Vipul · Post by **Vipul** » 17 Jan 2009 18:35

Forex tide turns outward in China.

Hong Kong: China, which was until recently awash in a 'hot money' tsunami, is now likely experiencing "very, very large, unexplained" capital outflows, say economists, and the trend reversal could have implications for China's overseas investments, and the future of the US dollar.

Official foreign exchange reserves rose in the fourth quarter of 2008 by $40 billion to $1.95 trillion, "but once adjusted for valuation changes in the portfolio, total inflows may only have been $10 billion, which means, according to our model an 'unexplained' foreign exchange outflow in Q4 of $240 billion," says Standard Chartered economist Stephen Green.

"Even if the scale is not as large as the headline figure suggests, the trend is pretty clear: 'unexplained' money (which includes 'hot' money) is leaving China," he adds.

Any estimate on capital outflows must be treated with caution, reasons Royal Bank of Scotland economist Ben Simpfendorfer. Even so, he estimates that "a decline in foreign exchange reserves of 'up to' $300 billion cannot be entirely ruled out."

China's commercial banking officials have noted a sudden increase in foreign exchange demand in recent months. Additionally, Chinese yuan-denominated deposits in Hong Kong have fallen in anticipation of a slowdown -- and perhaps even a reversal -- in the appreciation of the yuan as officials pull out all stops to rescue exporters battling a falloff in orders from the US and Europe.

Morgan Stanley Asia chairman Stephen Roach, however, reckons that the recent data is not entirely worrisome. "Net-net, the rate of foreign exchange reserve accumulation has slowed a lot, but it is still increasing. The capital outflows issue has tempered the rate of reserve accumulation, but it has not swung it into negative territory."

In any case, with about $2 trillion in reserve, he says, China "has a cushion that no country has ever had on the reserve front."

Others believe that the trend reversal could prompt a change in China's investment preference.

"A lack of support from foreign investors will see the Chinese government further tighten rules on capital outflows," reckons Moody's Economy.com economist Sherman Chan.

"Bargain-hunting in the global marketplace will be curbed, as funds are preferred to be allocated to local projects that are needed to keep the domestic economy afloat." The trend reversal, if confirmed, may also have implications for China's foreign exchange reserve accumulation in 2009, reasons Green. "It will also have implications for China's purchases of US securities," he adds.

The trend could likely prompt China's central bank to target a stable yuan over the next six months in order to deter a further rise in capital outflows, says Simpfendorfer. "The experience of early December, when the yuan's weakness sparked a surge in US dollar demand, was a timely warning on the risks of permitting the currency to weaken."

Najunamar · Post by **Najunamar** » 18 Jan 2009 06:07

http://biz.yahoo.com/ap/090117/missing_ ... nager.html

$350M is the tab in this case - such is the magnitude of all the scams we have seen so far that this seems like petty cash (a billion here and a billion there and then we'll be talking real money in trillions to paraphrase a Senator!)

John Snow · Post by **John Snow** » 18 Jan 2009 11:44

Ananth wrote:Link for Acharya's post: http://www.webguild.org/2008/10/google- ... o-bail.php

So Acharayji is bang with his old trick of not posting the source to give us clues to his wisdom eh?

ajay_ijn · Post by **ajay_ijn** » 18 Jan 2009 22:40

US retail giant Circuit City goes out of business, to liquidate assets

New York Economic downturn leading tightening of consumer spending has forced bankrupt second largest electronic retailer in the United States, Circuit City, to go out of business.

The company which had filed for bankruptcy protection in November in the hope of emerging as slimmer outfit apparently came to the conclusion that it is not possible and decided to close its stores across the United States and liquidate its assets.

The company announced the closure of all 576 of its stores after its efforts failed to even to find a buyer.

Reports said that most of its 34,000 employees would be laid off. It would put its merchandise on sale today and close its doors permanently by the end of March.

Analysts said this shows that uphill task that incoming President Barack Obama will face in his efforts to create hundreds of thousands job and some even questioned whether the stimulus package proposed by him could the do the trick.

"We are extremely disappointed by this outcome," said James A. Marcum, acting president and chief executive of Circuit City Stores. He called the liquidation "the only possible path" for the 60-year-old company.

"Regrettably for the employees of Circuit City and our loyal customers, we were unable to reach an agreement with our creditors and lenders to structure a going-concern transaction ... and so this is the only possible path for our company," he added.

The demise of Circuit City, while not surprising given its declining sales, is part of a radical shift taking place in retailing, the New York Times said, adding that weak chains unable to weather the freeze-up in consumer spending and choked by tight credit markets are closing.

The downturn comes after years of growth, when retailers responding to a flood of demand from consumers spending borrowed money opened thousands of stores. Now that the housing downturn and economic crisis have turned off the credit spigot and sent frightened consumers into hiding, it is becoming evident that many of those stores are not needed, the paper added.

Many more retailers are expected to follow suit as they run out of working capital or are unable to refinance their debt, the paper said.

Singha · Post by **Singha** » 18 Jan 2009 22:46

not sure this is reported here: Nortel has filed for bankruptcy. ( my friend there had just departed it - a wise move, his estimate was they have cash for 2 yrs..but apparently not ). some israeli cos who picked up on nortel backed techs like
PBT might also be affected I guess.

http://www.independent.co.uk/news/busin ... 18580.html

http://www.hindu.com/2009/01/16/stories ... 461800.htm

Nortel Networks files for bankruptcy

TORONTO: Nortel Networks Corp, North America’s biggest telephone equipment maker, filed for bankruptcy, hoping to save a once highflying business whose decade-long decline has accelerated with the global economic crisis. The filing marks a crucial stage in the slow deterioration of one of Canada’s most prominent companies.

Among the biggies of Indian outsourcing firms that are expected to bear the heat of the development are Tata Consultancy Services (TCS), Wipro, Infosys and Sasken Communication Technologies, industry sources said.

Some of Nortel’s clients in the country include Reliance Infocomm, Bharat Sanchar Nigam, Bharti Airtel and GAIL (India). However, Infosys Technologies does not see any impact on its finances, its Chief Financial Officer V. Balakrishnan said on Thursday.

Wipro said it expected a major portion of Nortel Networks business would continue. Nortel accounts for less than 1.5 per cent of the information technology business revenue of Wipro, Manish Dugar, CFO, Wipro Technologies, said. — Agencies

Singha · Post by **Singha** » 18 Jan 2009 22:51

ottawa citizen
http://www.ottawacitizen.com/Business/L ... story.html

Nortel Network's decision to seek bankruptcy protection was not a big surprise. But one group of people that didn't expect how quick and rough the consequences are the hundreds who have recently been laid off.

The severance packages they were expecting this week have been halted. Even though parts of their packages are backed by law, the court orders putting Nortel into bankruptcy protection takes precedence.

Many are experienced research engineers who were making $80,000 to $100,000 at Nortel.

"We've worked for a company that has gone through tough times, but had always treated laid-off employees fairly," said Marcus Leech, a Nortel engineer for 19 years. "But now it's all gone in a puff of Chapter 11 (U.S. bankruptcy law protection) smoke."

The laid-off employees must now wait with all the other unsecured creditors owed billions while Nortel reorganizes.

They probably won't be paid for more than a year because bankruptcy is typically a long and complex process.

And the payments could be a fraction of what they are entitled to while Nortel sells divisions and uses scarce cash to hang on to remaining staff, keep suppliers happy, pay higher-priority creditors and reorganize.

"I am shocked. I feel numb," said Ed Juskevicius, 50, an engineer for 27 years who worked on advanced technology with former chief technology officer John Roese for the last two years.

"It hasn't been fun at Nortel over the last year. Still, it was exciting work and I was proud to work there and I hated to see it end."

He had been counting on the severance package spelled out in his agreement with Nortel. But, "Ernst & Young (the court-appointed monitor in the bankruptcy protection) is telling us we are just unsecured creditors and have to get in line."

Vijay Jog, chancellor professor of finance at Carleton University, said that while severance payments are guaranteed by law, they enjoy no special precedence in a bankruptcy.

Mr. Juskevicius joked that he might end up selling snowblowers at Home Depot -- a fate that fell to another former Nortel employee years ago.

"I thought I would have a few months to plan the future. Now it is going to be a few weeks."

Nortel spokeswoman Karen Monaghan said: "As Nortel goes through the restructuring process there will be impacts on employees.

"We know this is difficult news for employees whose contributions have been, and continue to be, key to Nortel's innovation. This is a tough, but necessary, step as we restructure to put Nortel on sound financial footing once and for all."

After 16 rounds of layoffs, the Nortel engineers knew that job security at the big telecommunication equipment maker was virtually nil.

But they still counted on severance packages while they searched for work in a difficult job market.

What they didn't know was that Nortel had already started talking to bankruptcy trustees. Ernst & Young has disclosed in court documents that it was retained Sept. 26 "to analyze options available to refinance and restructure the company's operations."

"This could not have come a worse time. Many of us have families to support and mortgages to pay and we don't have a lot of cash reserves. We may have to sell houses or declare personal bankruptcy," Mr. Leech said.

He and Mr. Juskevicius were part of a November layoff of 1,300 employees. Many others in this group have yet to receive their layoff notices.

In addition, Nortel was still working late last year on hundreds of other layoffs from three earlier rounds of cuts under chief executive Mike Zafirovski.

The numbers of Nortel employees facing unemployment with no realistic hopes of immediate severance packages could grow as Nortel reorganizes.

Mr. Juskevicius and Mr. Leech have spent the last two months looking for work. They received a regular paycheque because Nortel had not given the required notice period for major layoffs.

But prospects are weak in an Ottawa job market where technology employment has fallen 21 per cent in two years. "I've sent out résumés for 30 positions and I haven't got one call back. Not a single interview," said Mr. Juskevicius.

He was expecting a severance package of about one year's pay this week. Mr. Leech was counting on about nine months pay.

In addition to severance payments, Nortel used bankruptcy protection to stop $107 million in interest payments on debt and a slew of other bills to conserve dwindling cash reserves of $2.4 million.

The Ernst & Young report warned that Nortel believed that it could run out of cash this spring if drastic action was not taken.

That was a big departure from just a few months earlier when Nortel executives said the cash would last until the end of 2009.

While Nortel said that it had ample unrestricted cash of $1 billion in operations around the world, national rules make it tough to get quickly, and bankruptcy protection makes it nearly impossible.

For example, to get $200 million to finance the Ottawa research operation, Nortel Canada had to give Nortel U.S. a mortgage on the Carling Avenue campus.

The rough treatment that bankruptcy brings means that Nortel will be devoting cash to current and future operations, not paying past obligations.

It has, for example, promised Flextronics, the company that makes 75 per cent of Nortel products, payment of $120 million over the next six months to ensure continued production.

To stop employees -- worried at the prospects of more layoffs and the rough treatment of the laid-off staff -- from bolting, there will be "annual incentive" payments and special incentives "to retain key employees necessary to preserve Nortel's global operations."

Pensioners will continue to be paid. But funding of pension actuarial deficits for existing employees will be curtailed. Nortel will pay for current service of employees, but not the past service.

Going forward, Nortel will try to sell some divisions to raise cash to finance the remaining company. If it is unsuccessful, the company could be liquidated for nominal amounts that likely won't cover all debts. (I feel people are not interested in inorganic growth at this stage, everyone is just in survival mode)

The bankruptcy itself will be expensive, triggering tens of millions of dollars in legal and accounting expenses that will be the first to be paid.

Ernst & Young, the monitor in the Canadian action, will get $5 million initially for its services.

Arya Sumantra · Post by **Arya Sumantra** » 19 Jan 2009 05:04

Singha wrote:Nortel Network's decision to seek bankruptcy protection was not a big surprise.

Very True. Nortel's big downfall came when the dot com bubble burst. Its market cap was so huge and a big part of Toronto Stock Exchange (TSE) index. So when its stock price collapsed with collapse of dot come bubble the TSE index was badly hammered. People in Canada learnt their lesson and since then Nortel has been in the financial ICU.

Sanjay M · Post by **Sanjay M** » 19 Jan 2009 07:05

Monetary Stresses Stir Fears of EU Breakup

Raja Bose · Post by **Raja Bose** » 19 Jan 2009 07:28

So after many rounds of 'chodna nahin, girna mat'...Nortel finally takes the plunge.....