Is The Global Economic Crisis Worse Than Expected?

[Astronuc]

There is a thread on the US economy, but the problems are globally endemic. All national and regional economies are affected, and the problems undermine security and general welfare. It appears that the global economic crisis realized in 2008 is more severe than expected.


Downturn Accelerates As It Circles The Globe
Economies Worse Off Than Predicted Just Weeks Ago
http://www.washingtonpost.com/wp-dyn/content/article/2009/01/23/AR2009012304172.html

The world economy is deteriorating more quickly than leading economists predicted only weeks ago, with Britain yesterday becoming the latest nation to surprise analysts with the depth of its economic pain.

Britain posted its worst quarterly contraction since 1980 on the heels of sharper than expected slowdowns reported from Germany to China to South Korea. The grim data, analysts said, underscores how the burst of the biggest credit bubble in history is seeping into the real economies around the world, silencing construction cranes, bankrupting businesses and throwing millions of people out of work.

"In just the past few days, we've had a big downward revision, we're seeing that an even bigger deceleration is on the way than we thought," said Simon Johnson, former chief economist at the International Monetary Fund and a senior fellow at the Peterson Institute for International Economics.

The depth of the troubles, analysts say, indicates that nations may need to spend more than the billions of dollars already planned on stimulus packages to jump-start their economies, and that a global recovery could take longer, perhaps pushing into 2010.

Analysts are particularly concerned about the slowdown in China and the recession in Europe. There is mounting concern about the stability of the euro and the British pound, which dropped to a 24-year low against the dollar yesterday. Analysts are fretting about the possibility of a debt default in a euro-zone country that could send fresh shock waves through global financial markets.

The problems in Europe now appear to be as bad if not worse than those in the United States. In the last quarter of 2008, the British economy shrank at an annualized rate of 6 percent. That is worse than economists expected, but also showed the British recession may be even harsher than the one in the United States, where analysts predict data expected next week will show the U.S. economy to have contracted between 5 and 5.5 percent in the last quarter of 2008.
. . . .

UK in recession as economy slides
http://news.bbc.co.uk/2/hi/business/7846266.stm

The UK is now in recession for the first time since 1991, official government figures have confirmed.

Gross domestic product fell by 1.5% in the last three months of 2008 after a 0.6% drop in the previous quarter.

That means that the widely accepted definition of a recession - two consecutive quarters of negative economic growth - has been met.

It represents the biggest quarter-on-quarter decline since 1980, and a 1.8% fall on the same quarter a year ago.

The worse-than-expected contraction sent sterling to a 24-year low against the dollar, with one pound buying $1.355.

Meanwhile the FTSE 100 index fell almost 2%, below 4,000 points.
. . . .

RBS shares plunge on record loss
http://news.bbc.co.uk/2/hi/business/7836882.stm

Royal Bank of Scotland shares have plunged 67% after the bank said it was heading for a record loss.

The bank said it expects to report a deficit before write-downs of between £7bn and £8bn for 2008.

It will also write down assets, largely related to its takeover of ABN Amro in 2007, of up to £20bn in 2007.

RBS's final deficit is set to beat Vodafone's 2006 loss of £15bn, the current UK record. The bank also said jobs would go because of the downturn.

The firm's shares ended Monday trading down 23.1 pence to 11.6p.

As part of the government's package to rescue British banks announced on Monday, the Treasury said it would swap £5bn of preference shares for ordinary shares in the bank, taking its stake in RBS to nearly 70%.
. . . .
RBS led a consortium, which also included Dutch bank Fortis and Spain's Santander, that bought ABN Amro in 2007.

BBC business editor Robert Peston said that the acquisition "must now rank as one of the worst and most ill-timed takeovers in history".
. . . .

Fourth-quarter 2008 results (BBC)
Citigroup: $8.3bn (£5.7bn) loss
Bank of America: $1.7bn loss
Deutsche Bank: Estimated $6.4bn loss (4.8bn euros; £4.4bn)
JP Morgan Chase: $702m profit

Pakistan stares into economic abyss
http://news.bbc.co.uk/2/hi/south_asia/7672359.stm

The September bombing of the Marriott Hotel in Islamabad shocked Pakistanis and strengthened fears that the state was unable to stem a spreading Islamist insurgency.

But it's not just the endemic violence that has created a sense of imminent collapse in Pakistan. The country is going through its worst economic crisis in a decade, with massive trade and budget deficits, plunging foreign currency reserves and capital flight.

"It's a crisis of the money economy, and that is very serious," says economist Qaiser Bengali.

"If we are unable to meet our debt repayment, if we're unable to pay for imports, then the wheels of agriculture and industry will certainly come to a stop. Given that Pakistan imports its oil, our aircraft and lorries will not be running without oil."

Reform and restructuring of various national economies is necessary, not only in the US but globally.

 

[mgb_phys]

The UK was stupidly over leveraged.
Government policy since 1980 which emphasised owning your own house at any cost, staying out of the Euro for party political reasons and basing an economy on financial services after destroying manufacturing.

 

[Potential]

I would not be surpised to see the Euro currency become obsolete in the near future. When the purse strings start becoming stressed, each country will naturally back up their own currency, and if they have additional reserves, they will help with other countries.

 

[mgb_phys]

Or being expanded, when countries like Britain and Iceland see what currency speculators can do to their economy.

Can US states decide to issue their own currency? Perhaps Montana might decide that backing up losses on Wall St and in California isn't in their interest.

 

[Potential]

Good point! I believe Texas is a case of unusual circumstances when they joined the Union. I would think if any US state could issue their own currency, Texas could be the first. A state could inspect their net cash flows of all their citizens relative to the federal deficits.

Look what happened to Iceland so far.

 

[mgb_phys]

Look what happened to Iceland so far.

It looks like Iceland is going to end up joining the EU as a quid-pro-quo for being allowed into the Euro. It is part of the European economic area which is a nice little loophole for smaller countries, it means they get free trade with the EU but don't have to accept all it's conditions. In Iceland's case this was to protect it's fisheries.

Britain joining the euro is trickier, there is strong anti-europe feeling (somewhat politically motivated) and it has a great deal of trade with the USA so the pound was always caught between two large currencies. Upto now this has mostly been an advantage, at least for the financial institutions that make money off the differences - but has been a real pain for industry. If the crash means that industry now matters more than the banks things might change - the trouble is picking a rate to enter at.

 

[Potential]

It looks like Iceland is going to end up joining the EU as a quid-pro-quo for being allowed into the Euro. It is part of the European economic area which is a nice little loophole for smaller countries, it means they get free trade with the EU but don't have to accept all it's conditions. In Iceland's case this was to protect it's fisheries.

Britain joining the euro is trickier, there is strong anti-europe feeling (somewhat politically motivated) and it has a great deal of trade with the USA so the pound was always caught between two large currencies. Upto now this has mostly been an advantage, at least for the financial institutions that make money off the differences - but has been a real pain for industry. If the crash means that industry now matters more than the banks things might change - the trouble is picking a rate to enter at.

I think you just lost me. Isn't Iceland and Great Britain a part of the EU? Maybe your meaning was something different?

http://en.wikipedia.org/wiki/Member_State_of_the_European_Union

 

[mgb_phys]

Britain (like Denmark) is in the EU but not in the euro - it uses it's own currency
Iceland (like Norway) isn't in the EU but is in the European Economic Area - this means they get free trade with the EU but don't have to open up all their industries to EU competition. It means they don't get any financial assistance from the EU but also don't have to pay for French farmers (sorry ;-)
It's a sort of half-way house for small rich countries that want to protect some local conditions while still having good relations with the rest of Europe.

 

[Potential]

You are exactly correct. TY. 16 our of 27 EU members form the Euro currency.

http://en.wikipedia.org/wiki/Euro

 

[mgb_phys]

You are exactly correct. TY. 16 our of 27 EU members form the Euro currency.

The ones that don't are the newly joined eastern European countries - they will all almost certainly join the Euro and their currency exchange rates should be locked to it already so it's just a matter or reaching some legal agreements and to actually swap the notes.

Only Britain and Denmark have a political objection to joining.

 

[Potential]

I guess that means the Mark and Franc were also converted and quit trading in the same manner you are projecting?

 

[mgb_phys]

I guess that means the Mark and Franc were also converted and quit trading in the same manner you are projecting?

All the currencies that were going to form the Euro agreed many years in advance and their exchange rates were locked, then there was an internal 'electronic' currency for a few years and finally they all switched actual notes/coins on the same day (1 January 1999) it actually went amazingly smoothly!

Britain joined the fixed exchange rate part for a while but it went in at an artificially high level for political reasons which ended up being a bit of a disaster.
Getting the rates set for all the other countries is the tricky part - but when just left to the bureaucrats seems to have worked.

 

[Potential]

It appears our new US Treasury head is trying to pressure China, as of last Friday, to quit pegging their currency (or allow it to float). Could backfire in a big way since China is one of our largest bankers. I am not sure what our angle is, as I am still pondering the situation. I don't think we are after trade relation improvment by making a currency statement, at least right now. It could be a power move by us to let China know the US dollar is the only currency that can handle the volume of cash China has and is expected to accumulate in the future. If this is the case, and we are not after trade balance improvement, I am wondering what we are after, specifically.

 

[Astronuc]

Yahoo Biz Headlines from AP (Jan 30, 2009)

Hitachi forecasts $7.7B loss; to cut 7,000 jobs -
http://biz.yahoo.com/ap/090130/as_japan_hitachi.html
Japanese electronics maker Hitachi Ltd. predicted it would post a massive net loss this fiscal year and said it will slash about 7,000 jobs as part of a global restructuring plan.

NEC's loss widens, plans to cut 20,000 workers
http://biz.yahoo.com/ap/090130/as_japan_earns_nec.html
Japanese electronics giant NEC Corp. said it will cut 20,000 workers worldwide as it tries to stanch widening losses from semiconductors and other businesses that have been hard hit by competition and the global economic slump.

Honda cuts annual forecast as 3Q profit tumbles
http://biz.yahoo.com/ap/090130/as_japan_earns_honda.html
Honda Motor Co. slashed its annual profit target by over half Friday as profit tumbled 90 percent in the latest quarter, hit by rising costs, a stronger yen and falling sales in key markets.

Economy likely shrank at fastest clip since '82
http://biz.yahoo.com/ap/090130/economy.html
The country tumbled deeper into recession and probably logged its worst economic performance in a quarter-century during the final three months of last year as battered consumers and businesses throttled back spending.

Euro zone jobless rate climbs, inflation falls
http://biz.yahoo.com/ap/090130/eu_eu_economy.html
The jobless rate in euro zone countries climbed to 8 percent in December -- the highest in over two and a half years -- while inflation dropped as the economic downturn intensified, the EU's statistical agency said Friday.

Japan factory output plunges, jobless rate jumps
http://biz.yahoo.com/ap/090130/as_japan_economy.html
The pain of Japan's recession is spreading from the factory floor to the living room, as December figures showed companies slashed output at a record pace, the jobless rate surged and household spending fell sharply.


We live in interesting times. I'll be interested to see the reflections in the media upon this period in 20+ years, assuming I live that long.

 

[mgb_phys]

We live in interesting times. I'll be interested to see the reflections in the media upon this period in 20+ years, assuming I live that long.

I suspect everyone will have forgotten about it by then.
Remember the oil crisis 30years ago - it was the end of the world, but the only legacy was the 55mph speed limit.

Looking at the lists of companies, even Japanese ones, the successful ones (Toyota, Honda, Sony) are posting reductions in profits - ie. they still made $100M, just not the $1Bn they made the year before. The ones going to the Wall are the Chryslers and Hitachis.

You also have to look at how many layers of dy/dx the headlines report. "Biggest drop in the rate of GDP growth in 40 years" means it went up -just less fast than it has been doing. It's like complaining that you won the lottery every year for the last 10 years - and this year only won the Bingo at the church social.

 

[Office_Shredder]

It appears our new US Treasury head is trying to pressure China, as of last Friday, to quit pegging their currency (or allow it to float). Could backfire in a big way since China is one of our largest bankers. I am not sure what our angle is, as I am still pondering the situation. I don't think we are after trade relation improvment by making a currency statement, at least right now. It could be a power move by us to let China know the US dollar is the only currency that can handle the volume of cash China has and is expected to accumulate in the future. If this is the case, and we are not after trade balance improvement, I am wondering what we are after, specifically.

The US has been concerned about Chinese currency manipulation for a while. If their currency is artificially low, it means it's cheaper for other countries to buy their goods, which helps expand their manufacturing base and increase foreign investment. In particular, that means less people investing in the US economy, which especially now is considered a bad thing (the lack of investment)

 

[mgb_phys]

If their currency is artificially low, it means it's cheaper for other countries to buy their goods, which helps expand their manufacturing base and increase foreign investment. In particular, that means less people investing in the US economy, which especially now is considered a bad thing (the lack of investment)

Isn't this what Europe was been complaining about the US doing for the last 5 years?

 

[Astronuc]

Japan's Panasonic to cut 15,000 jobs, shut plants
http://biz.yahoo.com/ap/090204/as_japan_earns_panasonic.html
Wednesday February 4, 7:37 am ET
By Yuri Kageyama, AP Business Writer
Japan's Panasonic to cut 15,000 jobs, shut 27 plants to cope with slump; forecasts annual loss

TOKYO (AP) -- Panasonic Corp. said Wednesday it will slash as many as 15,000 jobs and shut 27 plants worldwide, joining a slew of major Japanese companies announcing deep cuts as the global slowdown batters the world's second-largest economy.

Mitsubishi Motors, Mazda project annual losses
http://biz.yahoo.com/ap/090204/as_japan_earns_autos.html
Wednesday February 4, 6:51 am ET
By Tomoko A. Hosaka, Associated Press Writer
Mitsubishi Motors, Mazda project annual losses, hammered by global slump, strong yen

TOKYO (AP) -- Mitsubishi Motors and Mazda -- Japan's No. 4 and No. 5 automakers -- both reported quarterly losses Wednesday and joined a growing list of Japanese automakers expecting to fall into the red for full fiscal year.

Japan's Mitsubishi, Mazda and Subaru to sink into red
http://news.yahoo.com/s/afp/20090204/bs_afp/japanautoearningscompany_20090204113932

Honda cuts forecasts again, Toyota losses to balloon
http://news.yahoo.com/s/nm/20090130/bs_nm/us_autos_4

 

[Astronuc]

World stocks fall on grim company earnings
http://biz.yahoo.com/ap/090205/world_markets.html
Thursday February 5, 6:29 am ET
By Carlo Piovano, AP Business Writer
World markets fall on poor earnings as investors prepare for interest rate decisions in Europe

LONDON (AP) -- World markets fell Thursday, as the drumbeat of ugly corporate earnings undermined optimism over government stimulus measures and urged caution ahead of interest rate decisions later in the day.

Sharp losses at Deutsche Bank, Swiss Re and a weak statement from consumer goods giant Unilever followed similarly grim reports from technology bellwether Cisco Systems Inc. and China's Lenovo Group.

But with interest rate announcements due later Thursday from the Bank of England and European Central Bank, stock movements were somewhat limited.

By mid-morning in Europe, Britain's FTSE 100 index was 0.6 percent lower at 4,205.05 and Germany's DAX down 0.8 percent at 4,456.55. The French CAC 40 fell 1.3 percent to 3,029.02.

That followed losses in Asia, where Japan's Nikkei 225 slipped 1.1 percent to 7,949.65, and China's Shanghai index lost 0.5 percent to 2,098.02.

Markets expected a mixed open on Wall Street. Dow industrials futures rose 5 points, or 0.1 percent, to 7,930 and Standard & Poor's 500 futures fell 1.9, or 0.2 percent, to 827.20.
. . . .

The Bank of England did cut its key rate by at least half a percentage point from the current 1.5 pct to a new record low to 1 pct.

So where are the buyers? Why aren't the companies buying back their stocks?

I guess people are watching the losses continue and expecting the economy to bottom out sometime mid-year.


Cigna takes 4Q loss on runoff reinsurance losses
http://biz.yahoo.com/ap/090205/earns_cigna.html


GE's stock would seem to be a good investment. Based on the current price of $11.26, its $1.24 dividend represents 10.90% annual return. The question remains whether or not GE can maintain the dividend.
http://finance.yahoo.com/q?s=GE

 

[Astronuc]

WTO chief warns of looming political unrest
http://news.yahoo.com/s/afp/20090207/bs_afp/financeeconomygermanytradewto_20090207141558

BERLIN (AFP) – The global economic crisis could trigger political unrest equal to that seen during the 1930s, the head of the World Trade Organization (WTO) said in a German newspaper interview Saturday.

"The crisis today is spreading even faster (than the Great Depression) and affects more countries at the same time," Pascal Lamy told the Die Welt newspaper.

. . . .

Hmmmm.

 

[kronon]

Any idea who he's alluding to?

 

[Astronuc]

ArcelorMittal posts first ever quarterly loss
http://biz.yahoo.com/ap/090211/eu_luxembourg_earns_arcelormittal.html
World's largest steel maker posts $2.6 billion 4Q loss as demand plunges

BRUSSELS (AP) -- ArcelorMittal SA, the world's largest steel maker, reported Wednesday its first ever quarterly loss -- at $2.6 billion -- during the fourth quarter as it wrote down the value of assets amid collapsing demand.

The loss compares with a $2.4 billion profit a year earlier.

Sales during the three months to Dec. 31 fell 21 percent to $22.1 billion from a year ago, the company said.

It blamed the loss on pretax charges of $4.4 billion to write down the value of stockpiled steel and raw material contracts as well as payouts to workers being laid off.

Chief executive Lakshmi Mittal told reporters that the steel market could take between "two and two and a half years in terms of coming back to normalcy."

ArcelorMittal reduced output by 45 percent in the quarter and plans to do the same in the first three months of this year, until it manages to reduce steel stocks, it said.

Bank of England says Britain in 'deep recession'
http://biz.yahoo.com/ap/090211/eu_britain_economy.html
Bank of England governor says Britain in 'deep recession,' money supply may need to be eased

LONDON (AP) -- The head of the Bank of England said Wednesday that Britain was in a "deep recession" that would require further easing of monetary policy, including expanding the money supply.

"The UK economy is in a deep recession," bank Governor Mervyn King said at a news conference, who also gave his clearest sign yet that the Bank of England was ready to in effect print money to get the economy going again.
. . . .
The Bank of England is due to begin buying some financial assets this week as part of a 50 billion pound asset purchase facility authorized by the government. Because the new facility will be financed by the issue of government debt, the money supply will not be increasing.
. . . .
. . . Expanding the money supply could help inflation rise back towards the 2 percent target and boost the output in the economy, King said.

"This will work eventually," said King.
. . . .

Now there's a twist - encouraging inflation - but just a little.


Survey: euro zone economic climate worsened in 1Q
http://biz.yahoo.com/ap/090211/eu_europe_economy_survey.html
Euro zone survey shows 1Q economic climate hit lowest since 1993

FRANKFURT (AP) -- An Ifo institute survey released Wednesday showed confidence in the economies of the 16 countries using the euro currency worsened for the sixth consecutive quarter and is now the lowest since the survey began in 1993.

The Munich-based institute's survey of international and national organizations showed the economic climate in the first quarter of 2009 fell to 45.8 points, from 50.8 points in the last quarter of 2008. The economic climate average is 90.4 points.

Economic expectations for the next six months rose, however, to 49.6 points from 41.9 points, as observers hoped for an eventual turnaround in the euro zone and world economies.

"The economic climate indicator deteriorated in the first quarter of 2009 in all countries of the euro area and has now reached a historic low," Ifo president Hans-Werner Sinn said in a statement.

"In the coming six months, the weakening of the economy will continue in the euro area, albeit at a slower pace," Sinn said.

. . . .

Sanofi-Aventis 4Q profit sinks 76 pct on charge (AP)

Nissan is laying off about 20,000 employees, GM is shedding 10,000, and even Walmart is letting 700-800 go.

 

[mgb_phys]

LONDON (AP) -- The head of the Bank of England said Wednesday that Britain was in a "deep recession" that would require further easing of monetary policy, including expanding the money supply.

Whats even funnier, in an attempt to pretend to keep government spending down, every major capital project is now a 'private finance initiative'. The school, hospital, road, railway etc, is built by a private contractor and leased back to the government over 40-100years.
It has been shown to cost 2-3x as much to do it this way (because the builder has you over a barrel) but it looks like the government is reducing spending.

Now all these schemes have dried up as the contractors run out of credit. So the government is going to bail them out with cheap loans so that they can continue.
All this is because the private sector is so much more efficient.

 

[mheslep]

... and even Walmart is letting 700-800 go.

Yes, in the Arkansas HQ. Of course for 2009 WM has plans for 'tens of thousands' of new jobs net, and 125-140 new stores. WM opened 166 new stores w/ 33800 new jobs, 2008.

 

[Astronuc]

Yes, in the Arkansas HQ. Of course WM has plans for 'tens of thousands' of new jobs this year net, 125-140 new stores in 2009. WM opened 166 new stores w/ 33800 new jobs, 2008.

They should build their stores close to apartment complexes or trailer/mobile home parks so that people don't have so far to go to work, and in fact they'd save lots of money just walking to work.

Low prices and low wages are great for those who enjoy high wages/salaries.

 

[mheslep]

...Low prices and low wages are great for those who enjoy high wages/salaries.

 

[mgb_phys]

Presumably those with money benefit from buying things at low prices made possible by the low wages of the store employees.

 

[Astronuc]

I can't really get excited about "for 2009 WM has plans for 'tens of thousands' of new jobs net, and 125-140 new stores. WM opened 166 new stores w/ 33800 new jobs, 2008."

George Bush and his fellow republicans can get all excited about low wage jobs with limited of no benefits, but I can't. But then it's better than having them on welfare, isn't it?

Walmart also imports cheap products from China and other nations that exploit their low wage earners as well.

 

[mheslep]

I can't really get excited about "for 2009 WM has plans for 'tens of thousands' of new jobs net, and 125-140 new stores. WM opened 166 new stores w/ 33800 new jobs, 2008."...

But WalMart 'letting go 700-800' does excite? What was the point of posting that earlier? Do you favor the pending fiscal stimulus legislation, at least the infrastructure & road building part? What's the difference between that government program and the construction of a hundred 100,000 sq ft buildings by WM and all the construction jobs, the property taxes to municipalities to go along with that, other than the fact that the WM buildings won't bloat the US debt or cost the taxpayers anything?

 

[russ_watters]

I can't really get excited about "for 2009 WM has plans for 'tens of thousands' of new jobs net, and 125-140 new stores. WM opened 166 new stores w/ 33800 new jobs, 2008."

George Bush and his fellow republicans can get all excited about low wage jobs with limited of no benefits, but I can't. But then it's better than having them on welfare, isn't it?

Since unemployment is the highest - by far - for people with no skills, these types of jobs are exactly the types of jobs that are needed the most: http://www.bls.gov/emp/emptab7.htm

And I'm not sure what that has to do with this or why it would be true:

Low prices and low wages are great for those who enjoy high wages/salaries.

People who make high wages are not affected by creation of low wage jobs and if they don't shop at wal mart, they wouldn't care much about the new stores opening.

Also:

Walmart also imports cheap products from China and other nations that exploit their low wage earners as well.

Non sequitur, plus an unsubstantiated, generic claim of "exploitation".