From the AP….

The Dutch government says it will invest 10 billion euros ($13.4 billion) in banking and insurance company ING Groep NV to boost its capital position.

Finance Minister Wouter Bos says the move was necessary to calm “market expectations” even though the bank was “healthy.”

Bos said at a news conference Sunday the government’s stake would be around 8.5 percent of the company, but the investment is temporary. The government will name two members to ING’s supervisory board.

ING said separately it will cancel dividends for the year and the company is reviewing executive pay.

From the Economist….

As a result of this security, TIPS have traditionally offered a pretty low yield. But recently that yield has been rising; the 20-year issue was this week offering 3%. As a contrast, the index-linked gilt (a similar security issued by the British government) with a 2035 maturity was offering a yield of just 1.5%. Three percent is better than the yield on offer from most money-market funds, and it will rise with inflation.

And then latter on in the same article…

Nevertheless, lower inflation seems fully reflected in prices, to say the least. One measure of value is the break-even inflation rate, which is the rate of annual price rises above which the investor makes more from TIPS than from conventional Treasury bonds. Mark Capleton, a strategist at Royal Bank of Scotland, says the break-even inflation rate is zero over the next five years and just 1% over the next ten. It would be a remarkable period of history for such a low rate to be achieved. Indeed, the temptation for governments round the world in the face of the credit crisis will be to inflate the problem away.

Just to make it perfectly clear, the only way you would make more money buying a conventional Treasury bond over TIPS (which is the same as a treasury bond except it is indexed for inflation) is if inflation stays below zero over the next 5 years and below 1% over the next 10. If inflation stays at 0% or above for the next 5 years or above 1% for the next 10, you will make more money buying TIPS. With those kinds of odds, why in the world would you ever buy a conventional Treasury bond.

To me, this is proof that the treasury market has gone insane. I can imagine that inflation rates might reach reach zero for one year. But 5 years? I think you will see solders on the streets handing out free dollar bills before you see that happen. I don’t have much confidence in the powers that be, but I have confidence that the can create inflation if they really set their mind to it.

From Macro Man…

And let’s make no bones about it- the US (and almost certainly the world) economies are sliding into recession, if they ain’t there already. Yesterday’s monthly drop in industrial production (2.4%) was the lowest since Mrs. Macro was born (i.e. 1974.) Ex-post, of course, the figure was spun off as being negatively impacted by the hurricanes and Boeing strike last month.

This, of course, begs two questions:

1) Haven’t there been other hurricanes and strikes in the last 34 years?
2) It’s not exactly new news that there were hurricanes and strikes last month, so why weren’t they in the economists’ forecasts (which expected a 0.8% monthly drop)?

From Felix Salmon…..

Has there been a more demoralizing and disappointing major stock market, over the course of the past 20 years, than Japan’s? It reached its nominal all-time high of 38,957 in December 1989; it closed today at 8,693, just 800 points or so north of its 2003 low.

The current crisis in the US does not surprise me. But the problems that Russia is having do.

This may surprise those people who know that I have long said that the Russian state is doomed to catastrophic failure. But I figured that Russia’s problems were a couple of years away from being really serious. And maybe 5 to 10 years away from being catastrophic.

The reason I thought this is that Russia built up huge reserves when oil prices where high. Moreover, oil prices are still pretty high by historical standards. Now I figured that oil prices would fall with the US economy. But I thought those huge reserves would keep Russia from having big problems for a bit. But that does not seem to be the case. From the The Financial Times…..

Banks across Russia have faced a rise in outflows as depositors have begun to lose trust in all but the biggest state banks, VTB and Sberbank, which have received most of the government’s liquidity support.

Tatyana Sadovskaya, the director of a branch of Khnati Mansisk Bank in the city of Nizhnevartovsk, on Wednesday told Interfax news agency that in response to rumours of her bank’s insolvency: “People have formed long lines at cashiers and at bankomats, people are taking their deposits and closing their accounts.”

Natalia Elisseva, vice-president for financial development at the Bank Nizhni Novgorod, based in the city of the same name, said the number of clients closing accounts had risen. “If there is something that can sink the banks, it is panic amongst the population . . . If there is a panic, not one bank will stand, regardless of state support.”

These problems are in spite of the fact that the Russian government has sett aside 200 billion dollars to bail the banks out. That 200 billion dollar figure is bigger relative to the size of the Russian economy than 700 billion dollars is relative to the US economy. I am a little bit shocked that there was so little effect from this amount of money.

And there is this from Bloomberg…

The government is set to collect less money as revenue from energy exports grows at a slower pace and the central bank continues to spend its reserves to prop up the ruble amid global financial turmoil. Energy, including crude oil and natural gas, accounted for 73 percent of all exports to the Baltics and countries outside of the former Soviet Union through August.

“If the price keeps going down they will have to send the budget back to parliament looking for spending cuts,” said Vladimir Tikhomirov, the chief economist at UralSib Financial Corp. in Moscow, in a phone interview today. “Even in September the budget was still in surplus, so I don’t think there is a really big threat in the next three months.”

Given that we as Americans are used to running a deficit this might seem like nothing. But it is a stunning fall in government revenues in a short amount of time. This is far faster then seems justified by the drop in oil prices. I think the Russians must be hit hard by a production drop off as well as the falling prices. It is the only way I can account for how fast the government’s revenues are falling off the cliff.

These days it seems like history is moving too fast.

From Bloomberg….

Industrial production in the U.S. fell in September by the most in almost 34 years as hurricanes and an aircraft strike combined with the credit crunch to weaken manufacturing.

The 2.8 percent decrease in production at factories, mines and utilities exceeded forecasts and followed a revised 1 percent decrease in August, the Federal Reserve said today. For the third quarter, output fell at an annual rate of 6 percent, the biggest decline since 1991.

From Fortune……

Why was it so desperate for cash? The company offers only the blandest reasons for its move, but investors were clearly worried that commercial paper was an important factor. Commercial paper is how corporations borrow for short periods, typically just a few days, for immediate purposes; it’s attractive because companies borrow only what they need, and interest rates are low. Lots of firms use commercial paper, frequently just for paying day-to-day bills, but no company uses it anything like GE. GE Capital alone has about $74 billion of commercial paper outstanding; the next largest player, J.P. Morgan, has about $47 billion. GE understood there was risk in relying so heavily on this source of funding but believed it was well prepared for any disruption through access to other sources, such as bank lines of credit.

On the morning of Oct. 1, the markets swirled with rumors that GE couldn’t roll over its commercial paper coming due. Like so much else that has happened in recent weeks, this possibility would have seemed outlandish just a month before; a spokesman insists the company has experienced no such problems. But in light of GE’s huge commercial paper obligations and the disruption of global credit markets, the rumors became just barely plausible. That’s when the stock suddenly dropped 10%, and the price of GE credit default swaps jumped. Regardless of how realistic the market’s fears were, the episode puts the Fed’s decision five days later to backstop the commercial paper market in a new light, as a signal of support for the commercial paper market’s biggest player.