Category Archives: Uncategorized

China News Highlights

Posted on by


[Skip to the end]

Much of the world seems to be going this way.

Enough fiscal will turn this around.

China’s Hu Calls for Efforts to Increase Demand, Xinhua Says

By Wang Ying

Nov. 1 (Bloomberg) — Chinese President Hu Jintao said the government needs to continue efforts to boost domestic demand to bolster financial stability and counter the impact of the global credit crisis, the state-run Xinhua News Agency reported.

The authorities will continue to consolidate the “foundational position” of agriculture and to deepen economic reforms and openness, Hu was quoted as saying. Hu spoke during a visit to the northwestern province of Shaanxi between Oct. 28 and Oct. 29, according to the report late yesterday.

China’s economy, the world’s fourth largest, expanded in the third quarter by 9 percent from a year earlier, the slowest pace since 2003. The government lowered interest rates three times in the past two months, increased export rebates and cut property transaction taxes.


[top]

Share

Hungary to meet euro terms earlier

Posted on by


[Skip to the end]

Note the contractionary terms highlighted below:

Hungary Pays With Growth Prospects for IMF-Led Bailout Package

By Zoltan Simon

Oct. 29 (Bloomberg) — Hungary will meet euro-adoption term faster than previously planned after securing a 20 billion-euro ($25.5 billion) aid package to stabilize its recession-bound economy.

The country should adopt the euro “the faster the better,” Economy Minister Gordon Bajnai and Andras Simor, the head of the central bank told reporters today. The aid package will “unequivocally” stem the financial crisis in local markets, Bajnai said.

Hungarian stocks, bonds and the currency plunged this month because of concern that the country may have difficult financing its budget and current account deficits.

The aid package will help Hungary with its balance of payments and increase investor confidence by more than doubling foreign-currency reserves, Simor said.


The central bank, which raised the benchmark interest rate last week to 11.5 percent, the EU’s highest, from 8.5 percent to halt the currency’s plunge, will “think it over” on the direction of monetary policy after the rescue plan, Simor said. The bank continues to aim for price stability, he said.


To reduce country’s reliance on external financing, Prime Minister Ferenc Gyurcsany plans to cut spending next year by freezing salaries and canceling bonuses for public workers and reducing pensions. Hungary today also canceled all government bond auctions through the end of the year.

The standby loan, which Hungary can draw on as needed, will more than double the country’s 17 billion euros worth of foreign currency reserves, Simor said. The loan carries an interest rate of 5 percent to 6 percent, a standby fee of 0.25 percent annually and can be repaid in three to five years. Hungary can access the funds until March 2010, Simor said.

Part of the loan will be used to provide liquidity to banks, Simor said, without elaborating. Banks in Hungary have started to curtail or suspend foreign currency lending because of the difficulty in accessing euros and Swiss francs, the most popular foreign currency loans.

Euro applicants must keep inflation, debt and budget deficits within check. Hungary expects consumer prices to rise 4.5 percent, with a budget deficit at 2.6 percent of gross domestic product and declining debt next year.


[top]

Share

Austria abandons bond offering

Posted on by


[Skip to the end]

Not looking at all promising.

Austria abandons bond offering

By David Oakley

Austria, one of Europe’s stronger economies, cancelled a bond auction yesterday in the latest sign that European governments are facing increasing problems raising debt in the deepening credit crisis.

The difficulties of Austria, which has a triple A credit rating, highlights the extent of the deterioration, which saw benchmark indicators of credit risk such as the iTraxx index hit fresh record wides yesterday.

Austria is the fourth European country to cancel a bond offering in recent weeks amid growing worries over its exposure to beleaguered eastern European economies such as Hungary.

Hungary, which has been forced to turn to the International Monetary Fund to shore up its crisis-hit economy, also scrapped an auction for short-term government bills after only attracting Ft5bn ($22.5m) in a Ft40bn offering.

Analysts said Austria had dropped plans to launch a bond next week because investors wanted bigger premiums to offset the credit worries and fears over lending by its banks to eastern Europe.

The Austrian Federal Financing Agency did not give a reason for the move.

Spain, another triple A rated country, and Belgium have cancelled bond offerings in the past month because of the turbulence, with investors demanding much higher interest rates than debt managers had bargained for.

Market conditions have steadily deteriorated in recent days with the best gauge to credit sentiment, the iTraxx investment grade index, which measures the cost to protect bonds against default in Europe, widening to more than 180 basis points, or a cost of €180,000 to insure €10m of debt over five years, yesterday.

This is a steep increase since Monday of last week, when the index closed at 142bp.

Huw Worthington, European strategist at Barclays Capital, said: “These are difficult markets. Austria did not need to raise the money, so it has decided to hold off but, if these conditions persist, it could prove a problem for some governments as their debt needs to be refinanced.”

Analysts warn that the huge pipeline of government bonds due to be issued in the fourth quarter and next year could increase problems for some countries, particularly those already carrying large amounts of debt that needs to be refinanced or rolled over.

European government bond issuance will rise to record levels of more than €1,000bn in 2009 – 30 per cent higher than 2008 – as governments seek to stimulate their economies and pay for bank recapitalisations.

The eurozone countries will raise €925bn ($1,200bn) in 2009, according to Barclays Capital. The UK, which is expected to increase its bond issuance from the current €137.5bn in the 2008-09 financial year, will take the figure above €1,000bn.

Italy, with a debt-to-gross domestic product ratio of 104 per cent, is most exposed to continuing difficulties in the credit markets. Analysts forecast that it will need to raise €220bn in 2009.


[top]

Share

IMF Ukraine loan and conditions counterproductive

Posted on by


[Skip to the end]

UPDATE 3-IMF, Ukraine agree $16.5 bln loan with conditions

By Sabina Zawadzki and Lesley Wroughton

KIEV/WASHINGTON, Oct 26 (Reuters) – The International Monetary Fund and Ukraine said on Sunday they had reached an agreement in principle for a $16.5 billion loan package to ease the effects of the global financial crisis.

But analysts said politicians would have to set aside differences to adopt a set of financial measures needed to clinch the deal and secure the loan.

The IMF statement said nothing about the conditions it sought from Ukraine. But a joint central bank and finance ministry statement said the government would have to draw up a balanced budget and introduce measures to support banks.


[top]

Share

Roubini prediction

Posted on by


[Skip to the end]

Yes, getting closer. The eurozone could be first.

All due to errant political responses.

This did not have to happen.

Operationally it’s a simple matter for governments to spend their way out of it.

The problem is political, mainly due to ignorance of monetary operations and how a non-convertible currency functions.

Roubini says forecast of Market shutdown coming true

By Ben Sills and Amanda Ross-Thomas

Oct. 24 (Bloomberg) — New York University Professor Nouriel Roubini said the suspension of U.S. futures trading today shows his prediction that financial markets will be shut down amid panic selling is coming true.

“This morning, even before the markets in the U.S. opened, the S&P futures fell by more than their daily limit,” resulting in futures trading being halted, Roubini told a conference in Madrid today. “What I said yesterday has already started.”

Roubini said yesterday that policy makers may need to shut down financial markets for a week or two as investors dump more assets. In July 2006 he predicted the financial crisis and in February this year he forecast a “catastrophic” meltdown that central bankers would fail to
prevent, leading to the bankruptcy of large banks exposed to mortgages and a “sharp drop” in equities.
Roubini said today that the risks of a “multi-year economic stagnation” in the U.S. are increasing. “Things are getting worse, they are not getting better,” he said. “There’s a growing risk of something worse, an L-shaped recession.”
Roubini, a former senior adviser to the U.S. Treasury Department, said earlier this month that the world’s biggest economy will suffer its worst recession in 40 years.


[top]

Share

Canada News | Ottawa to guarantee inter-bank lending

Posted on by


[Skip to the end]

Excellent move!

Someone finally understands that the CB demanding collateral from its own regulated banks is redundant for ‘local currency’ lending to member banks.

The Fed should have done this long ago and saved a year of financial turmoil, as I’ve been proposing for a long time.

This means bank failures will be due to solvency, and not liquidity.

Ottawa to guarantee inter-bank lending

By Kevin Doherty

OTTAWA — Canada’s government will guarantee the lending the country’s banks do with other financial institutions.

Finance Minister Jim Flaherty said Thursday the government is establishing the Canadian Lenders Assurance Facility on a temporary basis to backstop wholesale lending.

Mr. Flaherty said he is establishing the lending facility to ensure Canadian banks aren’t left at a competitive disadvantage. More than a dozen countries have pledged hundreds of billions of dollars to guarantee interbank lending.

Banks will access the insurance from the facility on commercial terms. Mr. Flaherty said there will be no cost to taxpayers.

“This is a proactive step,” Mr. Flaherty told reporters. “There is this concern that our institutions could be disadvantaged competitively.”


[top]

Share

ECB taking lower quality collateral vs USD lending

Posted on by


[Skip to the end

Trichet urges banks to lend after recovery begins (Update2)

By Simon Kennedy and Anne-Sylvaine Chassany

Trichet acknowledged his own central bank had taken on risk by boosting liquidity and accepting lower-rated securities as collateral for loans.

“We’re taking risks and we’ve made decisions that increased our risks, because we were facing a systemic liquidity crisis of first importance,” he said. The ECB is an “inspirer of confidence,” Trichet said.

Yes, and now with the Fed’s money via the swap lines, and into a slowing economy.


[top]

Share

Putin consolidating control

Posted on by


[Skip to the end]

As suspected:

Putin may Use Credit Squeeze to ‘Destroy’ Oligarchs (Update1)

By Torrey Clark and Henry Meyer

Oct. 17 (Bloomberg) — Vladimir Putin came to power in 2000 vowing to destroy Russia’s oligarchs “as a class.” Within two years, he’d driven two into exile and imprisoned another.

Now, he may use the global markets meltdown to finish the job.

The $50 billion that the prime minister and President Dmitry Medvedev have pledged to lend cash-strapped companies will extend state control over business leaders. Billionaires seeking bailouts — including Oleg Deripaska, Russia’s richest man, and Mikhail Fridman — will have to give authorities veto power over their companies’ financing decisions.

“This will give the state more leverage over the country’s biggest companies and main industries,” said Chris Weafer, chief strategist at UralSib Financial Corp in Moscow. “In 2008, there is only one real oligarch: the state.”

All this marks a reversal from a decade ago, when oligarchs bankrolled Boris Yeltsin’s almost-insolvent government. As recently as April, Russia’s 100 wealthiest citizens had a combined fortune equivalent to about a third of the economy, Forbes magazine estimated.

The nation’s 25 wealthiest businessmen have seen their worth shrink by $230 billion, or 62 percent, according to Bloomberg calculations. And Putin controls the strings on the biggest remaining purse — $531 billion in government reserves, which he is doling out through state-run Vnesheconombank, or VEB, where he presides as chairman of the supervisory board.


[top]

Share

Fed to lend to CBs in unlimited quantities unsecured (Update2)

Posted on by


[Skip to the end]

Functionally, the Fed seems to have agreed to lend USD to the ECB in unlimited quantities unsecured and non-recourse.

This defies comprehension.

It’s potentially functionally a fiscal transfer.

Interesting they have the authority to do that.

They wouldn’t even do it for the US banks where the Fed demands collateral for loans.

It opens the door to widespread fraud and corruption as the ECB can now lend USD without supervision or regulation and in any quantity.

Somehow this got under Congress’ radar screen.

Watch for the size of the first USD auction.

The ECB and other CBs are going to set a rate and fill all requests at that rate.

Could be over $1 trillion?

Should bring USD LIBOR down to near the Fed Funds rate.

Helps the euro vs the USD at first.

However, the primary way they pay the Fed back is for someone down the line to sell euros and buy USD.

USD debt is external debt for foreign CB’s, so they are in much the same position the emerging market nations used to be in when they were choked with USD debt.

Still trying to comprehend all the ramifications, but they are very large.

This also means no government should default in the eurozone due to bank funding issues.

As long as the Fed lends unsecured and in unlimited quantities to the ECB and they do the same with their banks, the banks will be able to continue operating regardless of how technically insolvent they may be. It’s only when the funding is cut off or regulators step in that the problems surface.

It’s like the Fed is at risk of backing an international ponzi scheme again, watch for the size of the auctions.

They could snowball into the trillions, and be very difficult to shut down.

Which would also mean accelerating inflation.

Fed Releases Flood of Dollars, Market Rates Fall (Update2)

by John Fraher and Simon Kennedy

Oct. 13 (Bloomberg) The Federal Reserve led an unprecedented push by central banks to flood the financial system with dollars, backing up government efforts to restore confidence and helping to drive down money-market rates.

The ECB, the Bank of England and the Swiss central bank will auction unlimited dollar funds with maturities of seven days, 28 days and 84 days at a fixed interest rate, the Washington-based Fed said today. All of the previous dollar swap arrangements between the Fed and other central banks were capped.


[top]

Share