Archive for the ‘Great Depression’ Category

Credit Rating Downgrade Likely for Pakistan, Sri Lanka, Vietnam in Crisis

November 10, 2008

Pakistan, Sri Lanka and Vietnam are the Asian countries most at risk of a credit-rating downgrade as the global economy heads into a recession and funds become scarcer, said Standard & Poor’s.

“Pakistan is the weakest, followed by Sri Lanka, then Vietnam,” said Elena Okorotchenko, head of Asian sovereign ratings at S&P. “Pakistan faces severe pressure from the external side, the fiscal side, the monetary side, economic growth and politics. There are five angles in which we analyze a country’s ratings and Pakistan is negative on all counts.”

Foreign investors are exiting Asia’s emerging markets as they seek less-risky returns amid the worst financial crisis since the Great Depression. That’s making it more difficult for nations in the region to pay for imports and is shrinking their foreign reserves.

By Patricia Lui, Bloomberg

A foreign currency bank clerk works next to bundles of banknotes ...

“No country is immune from the global turmoil,” Okorotchenko said in a Nov. 5 interview in Singapore. “Asia is facing this crisis in a far stronger position than 10 years ago. But even countries with very strong fundamentals are facing fund pull-outs as investors de-leveraging have no regard for fundamentals.”

Pakistan’s credit rating was cut by S&P on Oct. 6 to CCC+, or seven levels below investment grade, on concern it won’t be able to pay its $3 billion debt servicing costs due in the coming year. It approached the International Monetary Fund last month for a bailout package after its foreign reserves shrunk to $3.71 billion on Oct. 25 from $14.2 billion a year ago.

Funding difficulties are the biggest threat to Sri Lanka’s ratings, Okorotchenko said. S&P rates Sri Lanka’s long-term foreign currency debt at B+ with negative outlook.

Funding Concerns

“Sri Lanka is facing funding concerns with rising short- term commercial debt while expectations of efforts to bring down fiscal deficits have proved incorrect,” she said. “I cannot know at this stage if they will go to the IMF but they will definitely need to think of their funding sources.”

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Economy won’t stop Obama’s priorities, aides say

November 9, 2008

The economic crisis will not stop President-elect Barack Obama from expanding health care, overhauling education and energy policy, and passing a middle-class tax cut soon after he takes office in January, senior aides said on Sunday.

Meanwhile the U.S. Congress should act to ease the pain of an economy sliding into recession by extending unemployment benefits and boosting aid to states struggling to meet their health-care obligations, they said.

Obama’s transitional team has outlined an ambitious agenda for the next several months as it scrambles to assemble an administration in the face of what is widely viewed as the worst economic slump since the Great Depression.

By Andy Sullivan, Reuters

The economic crisis will not prevent Obama from pursuing the priorities he outlined on the campaign trail, said John Podesta, co-chair of Obama’s transition team.

These include extending heath care to the nation’s 47 million uninsured, reducing U.S. reliance on foreign oil, and improving public education, Podesta said.

“These are all core, if you will, economic questions and they need to be tackled together, and I think you’ll have a program, and a strategy to move aggressively across all those fronts,” Podesta said on CNN’s “Late Edition.”

Congress is expected to return in a temporary session as soon as next week to take up a stimulus package defeated by Senate Republicans in September.

That package should not be tied to a free-trade deal with Colombia as some Republicans have suggested, said Illinois Rep. Rahm Emanuel, who will become Obama’s chief of staff when he takes office on January 20.

“You don’t link those essential needs to some other trade deal,” Emanuel said on ABC’s “This Week.”

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Capitalism, fiscal woes; contempt for economic liberty

November 9, 2008

There has always been contempt for economic liberty. Historically, our nation was an important, not complete, exception. It took the calamity of the Great Depression to bring about today’s level of restrictions on economic liberty. Now we have another government-created calamity that has the prospect of moving us even further away from economic liberty with the news media and pundits creating the perception that the current crisis can be blamed on capitalism.

We see comments such as those in the New York Times: “The United States  has a culture that celebrates laissez-faire capitalism as the economic ideal.” Or, “For 30 years, the nation’s political system has been tilted in favor of business deregulation and against new rules.” Another says, “Since 1997, Mr. Brown [the British prime minister] has been a powerful voice behind the Labor Party’s embrace of an American-style economic philosophy that was light on regulation.”

By Walter E. Williams
The Washington Times

First, let’s establish what laissez-faire capitalism is. Broadly defined, it is an economic system based on private ownership and control over of the means of production. Under laissez-faire capitalism, government activity is restricted to the protection of the individual’s rights against fraud, theft and the initiation of physical force.

Professor George Reisman has written a very insightful article on his blog titled “The Myth that Laissez Faire Is Responsible for Our Financial Crisis.” ( nsible.html) You can decide whether we have an unregulated laissez-faire economy. There are 15 Cabinet departments, nine of which control various aspects of the U.S. economy. They are the Departments of: Transportation, Housing and Urban Development, Health and Human Services, Education, Energy, Labor, Agriculture, Commerce and Interior. In addition, there is the alphabet soup cluster of federal agencies such as: the IRS, the FRB and FDIC, the EPA, FDA, SEC, CFTC, NLRB, FTC, FCC, FERC, FEMA, FAA, CAA, INS, OHSA, CPSC, NHTSA, EEOC, BATF, DEA, NIH and NASA.

Here’s my question to you: Can one be sane and at the same time hold that ours is an unregulated laissez-faire economy? Better yet, tell me what a businessman, or for that matter you, can do that does not involve some kind of government regulation.

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No Economic Recovery Before 2011

October 20, 2008

By Harry Wallop and Edmund Conway
Telegraph (UK)
Consumer spending, which has been one of the main drivers of the Gordon Brown’s decade of boom, will collapse by the end of the year and not return to fully-positive territory until 2011, according to the Ernst & Young Item Club.

The report, which also predicts another 500,000 people will lose their jobs, provides a clear illustration of how the turmoil in the financial sector has spread “like a pandemic” from the City to “every part” of the lives of ordinary families.

It comes just days ahead of official figures showing that the economy is now in the early stages of a full-blown recession.

The Item Club, an influential forecasting house, predicts that consumer expenditure – on everything from food, clothes, holidays, household bills, home improvements and entertainment – will fall by 1.2 per cent in 2009, and increase by just 0.2 per cent in 2010 before growing by 1.9 per cent in 2011.

This compares to an average annual growth of 3.5 per cent over the last decade.

The report is the most gloomy assessment yet of how the impending recession will hit householders, with consumer expenditure the benchmark of how well or badly people are coping with economic pressures.

Professor Peter Spencer, the report’s author, said: “The way the virus is spreading is like a pandemic. It’s not just spreading from New York across the Atlantic. It is also spreading from the City to the real economy.

“The people who will really be squeezed are younger families with children who are finding it difficult to keep hold of their job – and dare I say it – their homes.”

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Worst Economic Slump Since Great Depression

By Edmund Conway
The Telegraph
The warning underlines the fact that policymakers have failed to prevent the financial crisis from turning into a full-blown economic slump. It comes as world leaders agreed to hold a summit in New York billed as the “Bretton Woods meeting for the 21st century”.

In its major assessment of the global economy’s health, Deutsche Bank also warned that Britain is even more vulnerable than the US or the euro area, as it predicted that the powerhouses of India and China would fail to support the wider global economy through the downturn.

The banks’ economists Thomas Mayer and Peter Hooper said: “We now expect a major recession for the world economy over the year ahead, with growth in the industrial countries falling to its lowest level since the Great Depression and global growth falling to 1.2pc, its lowest level since the severe downturn of the early 1980s.”

According to the International Monetary Fund, global growth of anything less than 3pc constitutes a world recession. The warning was echoed by Richard Berner of Morgan Stanley, who said: “A global recession is now under way, and risks are still pointed to the downside for commodity prices and earnings.”

The forecasts came as President George W Bush called a summit of the Group of Eight leading economies for the weeks after the US Presidential Election in order to organise a concerted response to the economic downturn.

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How Does Current Crisis Compare to Great Depression?

October 11, 2008

By Robert Kittle
WJBF TV, Augusta, Georgia

Published: October 11, 2008

West Columbia, SC—With all the coverage of the current economic crisis that’s now worldwide, there have been a lot of comparisons made to the Great Depression that lasted through the 1930s. Leading up to the stock market crash in October 1929, the United States was in an era of economic growth. Easy credit allowed people to speculate in the stock market, borrowing money to invest thinking the growth of their stocks would pay them back. That’s very much like the growth in the housing market before the recent crash, with people using easy credit to buy more house than they could afford, thinking the homes’ rising value would keep them afloat.

But for all the comparisons, there’s nothing like living through both times to give you perspective. Cornelia Freeman is 96 years old and lives in a retirement community in West Columbia. She was 17 when the stock market crashed and remembers well living through the Great Depression.

“Oh, I remember one horrible day. My father, we lived in the country on a farm and we had plenty, you know, lot of food. But he was a director in the bank in Orangeburg and he was called to come. And the citizens had started a run on the bank,” she explains. He left early in the morning and got home very late, “really looking despondent”, she says. The bank had run out of money and became one of more than 9,000 that failed nationwide during the Depression.

But the actual day-to-day life during the time wasn’t as bad for her family as it was for many others, since her family had the farm and they raised all their own food. “We accepted the fact that we weren’t going to live quite like we had,” she says.

USC economist Dr. Bill Hauk says of the comparison between now and then, “There are enough similarities to say there’s definitely something wrong here. We definitely do need to be concerned. I think the comparisons to the Great Depression are certainly premature and hopefully unneeded.”

He thinks the government learned a lot of lessons from the Great Depression and has policy tools now it didn’t have back then to keep the economic problems from getting as bad.

“We’re certainly looking at a recession. I don’t think anybody would say there’s no cause for worry. But are we going to be seeing bread lines on the streets and things of this nature, 25 percent unemployment? No, I don’t think so,” he says.

The Great Depression did make Mrs. Freeman a lot more frugal. “Until this day, I can’t throw away anything,” she says. “You’ll be surprised, my little box of Christmas ribbons that came off of packages.”

Other than that, though, she doesn’t think it had a lasting effect on her. She does have advice, though, for all of us going through the current uncertainty. “Accept doing without and you can cope, you can cope with what you have.”

The End Of American Capitalism?

October 10, 2008

By Anthony Faiola
Washington Post Staff Writer
Friday, October 10, 2008; Page A01

The worst financial crisis since the Great Depression is claiming another casualty: American-style capitalism.

Since the 1930s, U.S. banks were the flagships of American economic might, and emulation by other nations of the fiercely free-market financial system in the United States was expected and encouraged. But the market turmoil that is draining the nation’s wealth and has upended Wall Street now threatens to put the banks at the heart of the U.S. financial system at least partly in the hands of the government.

A money changer counts out US 100-dollar banknotes at a currency ...

The Bush administration is considering a partial nationalization of some banks, buying up a portion of their shares to shore them up and restore confidence as part of the $700 billion government bailout. The notion of government ownership in the financial sector, even as a minority stakeholder, goes against what market purists say they see as the foundation of the American system.

Yet the administration may feel it has no choice. Credit, the lifeblood of capitalism, ceased to flow. An economy based on the free market cannot function that way.

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China may hold key to calming the storm in world economic markets

October 8, 2008

By Eadie Chen and Simon Rabinovich

China, the world’s biggest holder of currency reserves, may yet play an important part in calming a global financial storm from which it is largely sheltered.

Prime Minister Wen Jiabao, who has promised to “join hands” with other nations to tackle the deepest financial crisis since the Great Depression, says the biggest contribution China can make is to keep the world’s fourth-largest economy humming.

To that end, China has cut interest rates twice in three weeks, including a move on Wednesday. Yet speculation is swirling that Beijing could also chip in with a vote of confidence by pledging to hold onto its vast dollar assets and even buy more to help fund the massive bailout of the U.S. financial system now under way.

“For the sake of long-term U.S.-China relations, for the sake of China presenting a better image, I think China should stand up and say that it supports the U.S. dollar and is buying Treasuries,” said Tao Xie, an expert on U.S.-China relations at the Beijing Foreign Studies University.

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Gridlock On U.S. Financial Crisis Rattles Asian Markets

September 26, 2008

By Danny McCord

HONG KONG (AFP) – Asian stock markets fell Friday as political wrangling held up a 700-billion-dollar bailout package for the US financial system despite earlier hopes that a deal was near.

Talks over the rescue proposal were gridlocked Thursday as lawmakers were at loggerheads over the way forward, with Democrats accusing the Republicans of dragging their feet.

Tokyo’s Nikkei closed down 0.94 percent, Hong Kong was off 2.0 percent at the break, Sydney ended the day 0.5 percent down and Taiwan shares shed 2.2 percent.

Some stocks had risen earlier, taking a cue from Wall Street, which closed 1.82 percent up on prospects that an agreement could be reached.

US Democrats said Republican White House contender John McCain had sabotaged the rescue package, which they said had largely been agreed upon.

“John McCain did nothing to help, he only hurt the process,” Senate Majority Leader Harry Reid told a joint news conference with Senate banking committee chairman Christopher Dodd.

Under the proposal the government would buy 700 billion dollars of toxic mortgage-related assets at the heart of the global credit crisis. The move would be the biggest government bailout since the 1930s Great Depression.

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Woori Finance fell 4.5pc on concern the credit crisis is deepening after Republicans splintered over the proposed $700bn bailout and WaMu was seized by regulators. Mitsui OSK Lines, Japan’s largest operator of dry-bulk ships, lost 3.8 pc.

“The assumption is that the bailout will take longer than expected, which is negative,” said Tsuyoshi Shimizu, a senior fund manager at Mizuho Asset Management Co., which oversees $26bn.

“As with Washington Mutual, the longer it takes to pass something, the more victims we’re going to see.”

The MSCI Asia Pacific Index fell 1.1pc to 113.52 by lunchtime in Tokyo, erasing an earlier 0.9pc advance. The index has declined 0.6pc this week, a fourth weekly retreat.

Japan’s Nikkei 225 Stock Average lost 1.4pc to 11,843.98. New Zealand’s NZX 50 Index dropped 0.9pc after government data showed the economy contracted in the second quarter, driving the nation into its first recession in a decade.

Standard & Poor’s 500 Index futures slid 1.7pc after a group of House Republicans led by Eric Cantor of Virginia said they wouldn’t back a plan based on the approach outlined by Treasury Secretary Henry Paulson and backed by President George W. Bush and Democratic leaders.

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Treasury’s Paulson unveils financial plan

March 31, 2008

WASHINGTON – The Bush administration is proposing the most sweeping overhaul of the financial regulatory system since the Great Depression.

The plan would change how the government regulates thousands of businesses from the nation’s biggest banks and investment houses down to the local insurance agent and mortgage broker.

Treasury Secretary Henry Paulson unveiled the 218-page plan in a speech in Treasury’s ornate Cash Room. He declared that a strong financial system was important not just for Wall Street but also for working Americans.

The administration’s plan was already drawing criticism from Democrats that it does not go far enough….

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Fire Sale of Bear Stearns Bear Sparks Rout, Bush Tries to Calm

March 17, 2008
By Jack Reerink 

NEW YORK (Reuters) – A fire sale of Bear Stearns Cos Inc (BSC.N) stunned Wall Street and pummeled global financial stocks on Monday on fears that few banks are safe from deepening market turmoil.

A U.S. two dollar bill is taped to the revolving door leading ...
A U.S. two dollar bill is taped to the revolving door leading to the Bear Stearns global headquarters in New York March 17, 2008.(Kristina Cooke/Reuters)

Trying to assuage worries that the credit crisis is spinning out of control, President George W. Bush said the United States was “on top of the situation,” but the sell-off intensified in the early afternoon.

The U.S. Federal Reserve geared up for a deep cut in interest rates on Tuesday to blow money into the fragile financial system — the latest in a series of rate cuts that has brought down borrowing costs by 2-1/4 percentage points and hammered the U.S. dollar to record lows.

Staff at Bear Stearns‘ Manhattan headquarters were welcomed to work on Monday by a two-dollar bill stuck to the revolving doors — a spoof on the bargain-basement price of $2 per share that JPMorgan Chase (JPM.N) is paying for the firm. A hopeful Coldwell Banker real estate agent was hawking cheap apartments to employees who saw the value of their stock options go up in smoke.

The combination of Bear Stearns’ bailout and the Fed’s offer on Sunday to extend direct lending to securities firms for the first time since the Great Depression highlighted just how hard the credit crisis has hit Wall Street.

And it scared market players worldwide….

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