Archive for the ‘credit’ Category

China’s Economy: Weak Sister or Strong in Fundamentals?

November 14, 2008

Weakness in China’s economy is worsening and the government faces a severe challenge as it tries to avert a sharp downturn, an official said Friday, as new data showed investment growth cooling.

“The downturn trend in our economy is more obvious, especially since September. We hope a rapid downturn in growth will not occur,” Mu Hong, a deputy chairman of the nation’s main planning agency, said at a news conference.

Mu expressed confidence Beijing’s multibillion-dollar stimulus package would help the country weather the global downturn. But he said, “This international financial crisis is a new challenge for us. It is a severe challenge.”

Beijing is moving quickly to launch the package and will distribute most of a planned 100 billion yuan ($15 billion) in additional government spending within the next two weeks, Mu said. He said the money will be spent on housing, rural development, highways, public health and environmental protection.

Read the rest from CNN:
http://www.cnn.com/2008/BUSINESS/11/14/china.economy.a
p/index.html?section=cnn_latest

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China’s Economic Fundamentals Are Strong

BEIJING (AFP) – China said Friday the fundamentals of its economy remained strong amid the global financial crisis and it was confident of maintaining fast growth.

Following a slew of figures released this week showing growth in the world’s fourth largest economy was continuing to slow, senior government officials insisted the country was weathering the international storm.

A woman shops for vegetables in Beijing. The fundamentals of ... 
A woman shops for vegetables in Beijing. The fundamentals of China’s economy remain good despite the global financial crisis, with the government confident of maintaining fast growth, a senior official said(AFP/File/Frederic J. Brown)

“The origin of the financial crisis is outside the country and its impact on our financial system is limited. The fundamentals of our economy are still good,” National Development and Reform Commission vice chairman Mu Hong said.

Mu pointed to a stimulus package worth four trillion yuan (586 billion dollars) announced over the weekend as proof of the government’s ability and commitment to keeping the economy growing swiftly.

“I think the central government‘s decision to make significant changes to economic policy … showed its firm determination and confidence in stabilising the economy and maintaining fast growth,” he said.

“This determination and confidence are not baseless. They are based on the judgements of the domestic and international economic environment and the situation in China.”

Speaking at the same briefing on the financial crisis and China’s response, central bank vice governor Yi Gang said the nation’s banking system had plenty of money, indicating no concerns about a US-style credit crunch.

Read the rest:
http://news.yahoo.com/s/afp/20081114/bs_afp/finance
economychina_081114065615

Russia’s Defense Industry Hit by Credit Crunch, Ivanov Says

November 11, 2008

Russia’s defense industry is facing difficulties in meeting orders from the state because of the global credit crunch, Deputy Prime Minister Sergei Ivanov said.

Sergei Ivanov
Sergei Ivanov

Many companies are suffering from cash-flow problems, Ivanov said in remarks carried on state television. The financial crisis is “hitting some defense companies quite hard,” and the situation could prove “troublesome” for the industry, he said.

This video grab from Russian NTV channel shows the Russian nuclear ... 
AFP/Ntv
Above: This Russian submarine had an on board non nuclear accident that killed 20 this week.  She was on sea trials and scheduled to be tranferred to India.  She is now emblematic of Russia’s failing defense industry.


By Sebastian Alison, Bloomberg

Banks in which the state holds a large stake, including OAO Sberbank, Russia’s biggest bank, VTB Group, the second largest, and state development bank Vnesheconombank, should consider lending to defense contractors, he said.

Ivanov was speaking today at a meeting in Moscow of a government commission on strategic enterprises and the defense industry.

“We’re talking about an industry with a lot of expenses and not too much revenue,” said Masha Lipman, an analyst at the Moscow Carnegie Center. She noted that Russia has recently made major arms sales to countries like Venezuela on credit with no repayments due for years.

Lipman said Russia’s Defense Ministry has been sending out mixed signals, for example by announcing cuts in military staffing numbers. This will produce tens of thousands of unemployed officers and the cost of retraining them for civilian jobs will be high, she said.

“Probably we will see that no such cuts will be made, because if you cut expenses in one place, you create them in another place,” she said.

Georgia War

Russia approved 344 billion rubles ($13 billion) in new defense spending last month following its five-day war with Georgia in August, Ivanov said on Oct. 16.

“Additional funds will be spent on purchases of modern weaponry, especially aircraft,” Ivanov, a former defense minister, said during a meeting with President Dmitry Medvedev.

At the same time, Russian state revenue may slump as the price of oil, its biggest export, plunges and capital flight accelerates on concern the global economy is entering a recession.

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http://www.bloomberg.com/apps/new
s?pid=20601095&sid=adH6D0VFaSVY

Obama to inherit feeble economy awash in red ink

November 5, 2008

To the victor goes the mess. Barack Obama‘s presidential election victory comes with an albatross of a prize — an economy beset by a stubborn housing slump and the worst financial crisis in 70 years.

Consumers and businesses are sharply reducing their spending and the government is awash in red ink.

“He will inherit an economy that is in recession and … is likely to get worse before it gets better,” said Stuart Hoffman, chief economist for PNC Financial Services.

The current administration on Wednesday will detail its plans to borrow a record $550 billion in the final three months of the year as a down payment for the various financial rescue packages put into effect in response to the global crisis.

A Treasury Department official on Monday projected the government would need to borrow an additional $368 billion in the first quarter of 2009. Treasury is expected to bring back its three-year notes to help cover the increased borrowing needs.

Still, investors seemed to draw hope Tuesday from the selection of a new presidential administration, while shrugging off the latest in a series of grim economic reports. The Dow Jones industrial average surged more than 300 points. The Dow and the other major stock indexes all finished with gains of more than 3 percent.

In this Sept. 12, 2008 file photo, James Ross works the assembly ... 
In this Sept. 12, 2008 file photo, James Ross works the assembly line making Chrysler’s new 2009 Dodge Ram pickup at the Warren Truck Plant in Warren, Mich. The government said Tuesday, Nov. 4, 2008, factory orders dropped for the second straight month in September as businesses cut back on purchases of steel, computers and other equipment amid the economic downturn.(AP Photo/Carlos Osorio, file)

By CHRISTOPHER S. RUGABER, AP Economics Writer

Asian stocks rallied Wednesday on the back of Wall Street’s gains and renewed investor confidence. Asian investors were hopeful Obama would tackle the U.S. financial crisis with renewed vigor, although some voiced concerns that a Democratic president and Congress might turn more protectionist. Japan’s Nikkei 225 stock average climbed 4.5 percent, while Hong Kong’s Hang Seng index rose 3.2 percent.

Futures trading fell after initially rising. Dow futures fell 126, or 1.3 percent, to 9,461, while S&P futures declined 1.5 percent to 988.4.

Analysts said investors appeared to be looking forward to the end of political uncertainty and hoping the new U.S. president will move to boost the economy, which got another bit of dismal news Tuesday.

The Commerce Department reported Tuesday factory orders dropped 2.5 percent in September from August, more than three times as much as analysts had expected. Excluding autos and aircraft, orders fell 3.7 percent, the steepest drop since 1992, when the department began tracking sector-specific changes.

The weakness was led by a heavy drop in nondurable goods orders, which fell 5.5 percent. That included a 17 percent drop in the value of petroleum and coal products, reflecting the decline in oil and gas prices in September.

Analysts said the report wasn’t as bad as it looked, because much of the decline was driven by the drop in the value of oil and gas orders.

But orders for non-defense capital goods excluding aircraft, considered a good indication of business investment plans, fell 1.5 percent. That follows a 2.3 percent drop in August and indicated companies are cutting back on their investments.

“Corporate America is buying into the recession story, and they are paring their investment spending accordingly,” said Ken Mayland, president of ClearView Economics.

The factory orders report came a day before the release of the Institute of Supply Management’s gauge of activity in the U.S. services sector for October. That index will be released Wednesday and is expected to fall, though not as steeply as its sister manufacturing index did Monday, when it dropped to its lowest level since the country’s last deep recession, the 1981-82 downturn.

Automakers also reported terrible October sales figures on Monday, with sales down 45 percent at General Motors Corp., 30 percent at Ford Motor Co., 25 percent at Honda Motor Co. and 23 percent at Toyota Motor Corp.

The government reported last week that the overall economy, as measured by the gross domestic product, shrank at an annual rate of 0.3 percent in the July-September quarter. Two straight quarters of lower GDP generally mean a recession, and many economists expect the fourth quarter to be worse than the third.

The nonpartisan Committee for a Responsible Budget estimates all the government economic and rescue initiatives, starting with the $168 billion in stimulus checks issued earlier this year, total an eye-popping $2.6 trillion.

Besides the borrowing numbers, Treasury on Monday released estimates by major Wall Street bond firms projecting that total borrowing for this budget year, which began Oct. 1, will total $1.4 trillion, nearly double the previous record.

Major Wall Street firms projected the deficit will hit $988 billion for the current budget year, more than twice the record. In July, the administration projected a deficit for this year of $482 billion, but that was before the financial crisis erupted in September.

Supporters of the government rescue packages argue that the ultimate cost to taxpayers should end up being a lot smaller, partly because the Federal Reserve is extending loans to banks that should be paid back.

Severe economic crisis threatens Pakistan’s stability

October 14, 2008

By Saeed Shah, McClatchy Newspapers

ISLAMABAD, Pakistan — A worsening economic crisis in Pakistan is pushing millions more people into poverty, and experts fear that it could help Islamic extremists recruit new converts.
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A Pakistani money-changer counts US dollars in Islamabad on ... 
A Pakistani money-changer counts US dollars in Islamabad on October 8, 2008. Already nearly broke when the global financial crisis took hold, Pakistan now faces further woes that could take the nuclear-armed nation’s security situation closer to the edge, experts said.(AFP/File/Aamir Qureshi)
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The crisis began early this year, as democracy was restored after more than eight years of military rule. Now Pakistan’s hard currency reserves have shrunk to $3.5 billion , and without an international rescue package, America’s key ally in the fight against al Qaida is likely to default on foreign debt repayments in the next two months, economic experts said.

Inflation is running at 25 percent, according to official figures, electricity is in short supply, and Pakistan’s currency, the rupee, has been devalued 25 percent against the dollar. Investor confidence has fallen so low that on Monday, police had to surround the Karachi Stock Exchange to protect it from angry investors. The Exchange already had lobbied the government unsuccessfully to be allowed to close for two weeks.

Terrorist acts by Islamist insurgents have accelerated capital flight and discouraged foreign direct investment. Depositors are lined up at banks to withdraw their money or to send it abroad.

“The canvas of terrorism is expanding by the minute,” said Faisal Saleh Hayat , a member of parliament and a former interior minister under Pervez Musharraf , the U.S.-backed former president. “It’s not only ideological motivation. Put that together with economic deprivation and you have a ready-made force of Taliban , al Qaida , whatever you want to call them. You will see suicide bombers churned out by the hundred.”

“In Pakistan , there are a huge proportion of people just above the poverty line. A slight shock in their income can push them below the poverty line,” said Sadia Malik , director of the Mahbub ul Haq Human Development Center in Islamabad , the capital. “This is the kind of shock that would have pushed a huge number of people into the poverty trap,”

The prices of wheat, rice and milk have more than doubled in the last year. The price of flour used to make roti bread, the food staple, has jumped from 12 rupees ( 15 cents ) a kilo last year to 28 rupees ( 35 cents ). Economists warn that prices would spiral even higher if Pakistan defaulted on its foreign debt.

Before the crisis, an estimated that 56 million Pakistanis, around a third of the population, already were living below the poverty line….

Read the rest:
http://news.yahoo.com/s/mcclatchy/20081013/
wl_mcclatchy/3071426_1

Europe puts more than US on the line for banks

October 13, 2008

By ANGELA CHARLTON and EMMA VANDORE, Associated Press Writers

PARIS – Europe put $2.3 trillion on the line Monday to protect the continent’s banks, a figure that dwarfs the Bush administration’s $700 billion rescue program, in its most unified response yet to the global financial crisis after a stumbling start.
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The pledges by Britain and the six countries that use the euro helped soothe stock markets, along with a promise by top central banks to provide unlimited short term dollar credits.
French President Nicolas Sarkozy delivers a speech during a ... 
French President Nicolas Sarkozy delivers a speech during a press conference after an extraordinary Cabinet meeting at the Elysee palace in Paris, Monday, Oct. 13, 2008. Sarkozy said his government will provide up to Euro360 billion (US$491 billion) to help banks stay afloat through the financial crisis. The measure is part of a raft of proposals agreed with other governments sharing the euro currency on Sunday to unblock frozen credit markets.(AP Photo/Christophe Ena)

The action by Germany, France, the Netherlands, Spain, Portugal, Austria and Britain came after weeks in which the governments often acted at cross purposes and sniped at each other — a piecemeal approach that failed to stop steep and frightening slides on financial markets.

“The time of each one for itself is fortunately over,” French President Nicolas Sarkozy said, following a Cabinet meeting that approved France’s spending in the framework of the plan.

“United Europe has pledged more than the United States,” added Sarkozy, who has taken a lead in getting the cooperation.

The pledged money will not go into a collective pot. Instead, governments were deciding individually how much to commit to supporting their own banks under broad guidelines agreed at a summit Sunday. The sums are considered a maximum, and might not all be spent if the financial crisis eases.

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http://news.yahoo.com/s/ap/20081013/ap_on_bi_ge/eu_
europe_meltdown;_ylt=Ah_1dsixaJ0s77MY8jMVC.Ks0NUE

The Next World War? It Could Be Financial.

October 12, 2008

By Peter Boone and Simon Johnson
The Washington Post
Sunday, October 12, 2008; Page B01

The global financial outlook grows more dire by the day: The United States has been forced to shore up Wall Street, and European governments are bailing out numerous commercial banks. Even more alarmingly, the government of Iceland is presiding over a massive default by all the country’s major banks. This troubling development points not only to an even more painful recession than anticipated, but also to the urgent need for international coordination to avoid something worse: all-out financial warfare.

The ramifications of Iceland’s misery are probably more serious than people realize. The country’s bank assets are more than 10 times greater than its gross domestic product, so the government clearly cannot afford a bailout. This is going to be a large default, affecting many parties. In the United Kingdom alone, 300,000 account holders face sudden loss of access to their funds, and the process for claiming deposit insurance is not entirely clear.

But there’s a broader concern. With European governments turning down his appeals for assistance, Iceland’s prime minister, Geir Haarde, warned last week that it was now “every country for itself.” This smacks of the financial autarchy that characterized defaulters in the financial crisis in Asia in the late 1990s. Similarly, when Argentina defaulted on its debt in 2001-’02, politicians there faced enormous pressure to change the rule of law to benefit domestic property holders over foreigners, and they changed the bankruptcy law to give local debtors the upper hand. In Indonesia and Russia after the crises of 1998, local enterprises and banks took the opportunity of the confusion to grab property, then found ways to ensure that courts sided with them.

This is a natural outcome of chaotic times. Iceland’s promise to guarantee domestic depositors while reneging on guarantees to foreigners may be just a first step. British Prime Minister Gordon Brown’s decision last week to sue Iceland over this issue may escalate the crisis. The use of counterterrorist legislation to take over Icelandic bank assets and operations in the United Kingdom also has a potentially dramatic symbolic effect.

Read the rest:
http://www.washingtonpost.com/w
p-dyn/content/article/2008/10/10
/AR2008101002441.html?hpid=opinionsbox1

Bush says anxiety feeding market instability

October 10, 2008

By TERENCE HUNT, AP White House Correspondent
October 10, 2008

WASHINGTON – President Bush said Friday that the government’s financial rescue plan was aggressive enough and big enough to work, but would take time to fully kick in.

“We are a prosperous nation with immense resources and a wide range of tools at our disposal … We can solve this crisis and we will,” Bush said in brief remarks from the White House Rose Garden.
President George W. Bush speaks about the global financial and ... 

Bush spoke as leaders of the world‘s leading economies gathered in Washington amid frozen credit markets, panic selling in stock markets and a looming global recession.

The president noted that major Western economies were working together in an attempt to stabilize markets and end the spreading panic.

“Through these efforts, the world is sending an unmistakable signal. We’re in this together and we’ll come through this together,” Bush said.

Finance ministers and central bankers from the Group of Seven — the United States, Japan, Britain, Germany, France Italy and Canada — were here for a weekend meeting. Bush plans to meet with the leaders on Saturday.

Bush said he understood how Americans could be concerned about their economic future, “that anxiety can feed anxiety and that can make it hard to see all that’s being done to solve the problem.”

Economy: Americans Tightening Belts

October 10, 2008

By Ron Scherer
The Christian Sciences Monitor

New York – The dramatic changes in the US financial system – the debt write-downs and consolidation of corporate balance sheets – are now mirrored at kitchen tables around the United States.

Households are cutting spending, paying down debt, and rebuilding their personal balance sheets. The belt-tightening may have been spurred by two years of falling home values followed by surging energy and food prices, but the effect could be longer lasting.

Americans are now trying to live within their incomes. If they succeed, it would boost the anemic US savings rate and signal a shift in the way Americans view their finances.

A customer pushes her shopping cart past a display at a Wal-Mart ... 
A customer pushes her shopping cart past a display at a Wal-Mart Supercenter in Rogers, Arkansas, June 5, 2008.(Jessica Rinaldi/Reuters)

“As the US economy boomed, people thought of credit as savings,” says Dennis Jacobe, Washington-based chief economist at the Gallup Organization. “They saw it as something they could fall back on…. Now a lot of people are finding out they do not have the money they felt they had.”

One indication of this new world: On Tuesday, Federal Reserve data showed that consumer credit contracted 3.7 percent in August, the first drop in 10 years.

For many Americans, the belt-tightening began when the price of gasoline surged past $3 a gallon 1-1/2 years ago.

Read the rest:
http://news.yahoo.com/s/csm/20081010/ts_csm/
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Bernanke warns of possible recession

April 2, 2008
By JEANNINE AVERSA, AP Economics Writer 

WASHINGTON – Federal Reserve Chairman Ben Bernanke warned Wednesday the economy may shrink over the first half of this year and that “a recession is possible.” Yet, he didn’t offer any assurances of further interest rate cuts.

US Federal Reserve Bank Board Chairman Ben Bernanke responds ...
US Federal Reserve Bank Board Chairman Ben Bernanke responds to questions during a joint congressional hearing on the country’s economic outlook on Capitol Hill in Washington, April 2, 2008.REUTERS/Jonathan Ernst (UNITED STATES)

Bernanke’s testimony to the Joint Economic Committee was a much more pessimistic assessment of the economy’s immediate prospects amid a trio of crises — housing, credit and financial.

“It now appears likely that gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly,” Bernanke told lawmakers. GDP measures the value of all goods and services produced within the United States and is the best barometer of the United States’ economic health. Under one rule, six straight months of declining GDP, would constitute a recession.

Still, Bernanke said that he expects more economic growth in the second half of this year and into 2009, helped by the government’s $168 billion stimulus package of tax rebates for people and tax breaks for businesses as well as the Fed’s aggressive reductions to a key interest rate. Nevertheless, the chairman acknowledged uncertainty about the Fed’s next steps, notwithstanding the mounting economic woes.

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http://news.yahoo.com/s/ap/20080402/ap_on_bi_ge/
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