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More likely to be higher than expected as the economy deteriorates and credit markets remain problematic.

German Budget Squeezed as Crisis Hurts Revenue, Forces Outlays

By Brian Parkin

German Chancellor Angela Merkel’s government faces revenue shortfalls this year and will have to expand net borrowing in 2009 as the worst economic recession in at least 12 years takes its toll on the budget. Lawmakers meeting in Berlin overnight authorized next year’s net federal borrowing to rise to 18.5 bln euros ($23 bln) from the 10.5 bln euros forecast mid-year, the first increase since Merkel came to office exactly three years ago. The Finance Ministry also said today that the government may raise less money than planned from asset sales this year. “This is very clearly to do with the global financial situation,” Carsten Schneider, budget spokesman for the Social Democrats, coalition partners to Merkel’s Christian Democratic Union, said at a press conference in Berlin. “We are in very difficult economic times.” The government has tried to stem debt growth as the budget expands to pay for emergency programs ranging from tax relief on new low-emission cars to bigger subsidies for energy efficient buildings. Some economists have said that net borrowing may increase further as the recession deepens. “All signs point to a hard economic year for Germany, and this plays out on the budget,” Stefan Bielmeier, an economist with Deutsche Bank AG in Frankfurt, said in a Nov. 19 interview. Even so, Germany “may be getting off relatively lightly if it can keep the deficit that low.”

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(email exchange)

Thanks!

>   
>   On Fri, Nov 21, 2008 at 10:26 AM, wrote:
>   
>   Why don’t people get their facts straight? Blind ideology divorced from >   facts was the basis of the last 8 years! When are we going to learn?
>   
>   From Felix Salmon (Professor Zhen should see this as well):
>   

The return of the 70 per hour meme

You might expect it from right-leaning commentators like Will Wilkinson. You wouldn’t expect it from someone like Mark Perry, who lives in Flint, Michigan. And you certainly wouldn’t expect to see it in the New York Times, from the likes of Andrew Ross Sorkin. But all of them are perpetuating the meme that the average GM worker costs more than $70 an hour, once you include health and pension costs.

It’s not true.

The average GM assembly-line worker makes about $28 per hour in wages, and I can assure you that GM is not paying $42 an hour in health insurance and pension plan contributions. Rather, the $70 per hour figure (or $73 an hour, or whatever) is a ridiculous number obtained by adding up GM’s total labor, health, and pension costs, and then dividing by the total number of hours worked. In other words, it includes all the healthcare and retirement costs of retired workers.

Now that GM’s healthcare obligations are being moved to a UAW-run trust, even that fictitious number is going to fall sharply. But anybody who uses it as a rhetorical device suggesting that US car companies are run inefficiently is being disingenuous. As of 2007, the UAW represented 180,681 members at Chrysler, Ford and General Motors; it also represented 419,621 retired members and 120,723 surviving spouses. If you take the costs associated with 721,025 individuals and then divide those costs by the hours worked by 180,681 individuals, you’re going to end up with a very large hourly rate. But it won’t mean anything, unless you’re trying to be deceptive.

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The FOMC doesn’t seem to treat the swap lines any differently than the domestic lending arrangements:

In view of a further widening in financial market strains internationally, the Committee considered proposals to establish temporary reciprocal currency (”swap”) arrangements with several additional foreign central banks. Members unanimously approved the following resolution, which effectively permitted the Foreign Currency Subcommittee to establish a swap line with the Reserve Bank of New Zealand.

“The FOMC amends paragraph 1.A. of the Authorization for Foreign Currency Operations to include the New Zealand dollar in the list of foreign currencies in which the Federal Reserve Bank of New York may transact for the System Open Market Account.”

Meeting participants also discussed a proposal to set up temporary liquidity-related swap arrangements with the central banks of Mexico, Brazil, Korea, and Singapore. In their remarks, participants focused on the outlook for complementarity between these swaps and the new short-term liquidity facility that the International Monetary Fund was considering; on the governance and structure of the swap lines; and on the particular countries included. Several participants pointed to the international reserves held by the countries and the importance of ensuring that these temporary swap lines, like the others that had been established during this period, be used only for the purposes intended. On balance, the Committee concluded that in current circumstances the swap arrangements with these four large and systemically important economies were appropriate, and it unanimously approved the following resolutions.

“The FOMC directs the Federal Reserve Bank of New York to establish and maintain a reciprocal currency arrangement (”swap arrangement”) for the System Open Market Account with each of (i) the Banco Central do Brasil, (ii) the Bank of Korea, (ii) the Banco de Mexico, and (iv) the Monetary Authority of Singapore. Each such swap arrangement would be for an aggregate amount not to exceed $30 billion. Drawings under the arrangement require approval. Unless extended by the Committee, each such swap arrangement shall expire on April 30, 2009.

The FOMC amends paragraph 1.A. of the Authorization for Foreign Currency Operations to include the Brazilian real, the Korean won, and the Singapore dollar in the list of foreign currencies in which the Federal Reserve Bank of New York may transact for the System Open Market Account.

The FOMC delegates to the Foreign Currency Subcommittee the authority to approve individual drawing requests of up to $5 billion under each of the aforementioned swap arrangements with the Banco Central do Brasil, the Bank of Korea, the Banco de Mexico, and the Monetary Authority of Singapore.”

In addition, to address the sizable demand for dollar funding in foreign jurisdictions, the FOMC authorized the expansion of its existing swap lines with the European Central Bank and Swiss National Bank; by the end of the intermeeting period, the formal quantity limits on these lines had been eliminated. The quantity limits were also lifted on new swap lines set up with the Bank of Japan and the Bank of England. The FOMC authorized new swap lines with five other central banks during the period. In domestic markets, the Federal Reserve raised the regular auction amounts of the 28- and 84-day maturity Term Auction Facility (TAF) auctions to $150 billion each. Also, the Federal Reserve announced two forward TAF auctions for $150 billion each, to be conducted in November to provide funding over year-end. In total, up to $900 billion of TAF credit over year-end was authorized.

Despite the substantial provision of liquidity by the Federal Reserve and other central banks, functioning in many credit markets remained very poor, a situation that reflected market participants’ uncertainty about their liquidity needs and their future access to funding as well as concerns about the health of many financial institutions. To strengthen confidence in U.S. financial institutions, the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) issued a joint statement on October 14, which included several elements. First, the Treasury announced a voluntary capital purchase plan under which eligible financial institutions could sell preferred shares to the U.S. government. Second, the FDIC provided a temporary guarantee of the senior unsecured debt of all FDIC-insured institutions and their holding companies, as well as all balances in non-interest-bearing transaction deposit accounts. The statement included notice that nine major financial institutions had agreed to participate in both the capital purchase program and the FDIC guarantee program. Third, the Federal Reserve announced details of the CPFF, which was scheduled to begin on October 27. After this joint statement and the announcements of similar programs in a number of other countries, financial market pressures appeared to ease somewhat, though conditions remained strained.

The expansion of existing liquidity facilities as well as the creation of new facilities contributed to a notable increase in the size of the Federal Reserve’s balance sheet. The amount of primary credit outstanding rose considerably over the intermeeting period, with both foreign and domestic depository institutions making use of the discount window. TAF credit outstanding more than doubled over the period. Credit extended through the Primary Dealer Credit Facility rose rapidly ahead of quarter-end; although it subsided subsequently, the amount of credit outstanding remained well above the levels seen before mid-September. The Term Securities Lending Facility (TSLF) auctions conducted over the intermeeting period had very high demand; in addition, dealers exercised most of the options for TSLF loans spanning the September quarter-end.

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This is highly constructive if we increase aggregate demand from the bottom up-

Infrastructure revenue sharing, support of higher education, expanded basic research grants, offering federally funded $8 per hour jobs to anyone willing and able to work, payroll tax holiday, etc.

In sufficient size to restore output and employment in the remaining sectors.

I would not move to support the financial sector elements that mainly function as a brain drain from the real sectors.

The relatively ’simple’ banking model of the almost distant past employed a moderately paid financial sector of moderate size that was more than sufficient to support relatively high levels of output and employment. For example, housing starts exceeded 2.5 million per year in the early 70’s with a population of about 215 million.

Financial Job Losses May Double to 350,000 by 2009 (Update1)

By Philip Lagerkranser

Nov. 21 (Bloomberg) — The bloodletting in the financial- services industry will accelerate in coming months, with job cuts doubling to about 350,000 worldwide by mid-2009, said Brian Sullivan, chief executive officer of search firm CTPartners.

Reductions on that scale would be equivalent to 20 percent of the global workforce at financial companies before the credit crisis began, said Sullivan, whose firm has worked with Citigroup Inc. and JPMorgan Chase & Co. Banks, brokerages and funds have eliminated about 170,000 positions worldwide.

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Good news-

The Fed line item believed to be the swap line advances fell a bit to 608 billion from 615 billion the week before.

Not sure, for example, if they are valuing the dollars extended to the ECB or the euros held by the Fed as collateral.

The lines are set to expire in April.

And no way to tell whether the foreign $ borrowing is to fund $ assets already on their books, or whether they are funding beyond that.

The swap lines take some pressure off the process of covering dollar losses by selling local currencies to buy dollars to cover dollar losses.

This helps support, for example, the euro vs the dollar.

However, uncovered dollar losses grow with any depreciation of the local currency, so that risk remains until the currency aspect of the losses are ‘covered.’
This is still completely off the Congressional radar screen.

No one even asked why the Fed would loan over 600 billion to foreign central banks which can be used to support their auto industry at our expense.

And no one indicated that what the autos need most are buyers who can afford the new cars.

A payroll tax holiday would give the automakers and financial sector what they need most- consumers who can afford to make their payments.

(And how about those Democrats critical of companies paying high wages- time have changed!!!)

(Also, Congress could change tax laws to the point of eliminating corp. travel by private jet if they wanted to. Instead they give tax advantages and then
are critical of their utilization. But that’s another story…)

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Automatic stabilizers at work. Deficit still far too low at $500 billion, which is about 3.5% of GDP.

• Non TARP Fiscal Balance (Released EST)

Non TARP Fiscal Balance ()

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