The Chinese government is lying about how bad the situation is

From Bloomberg….

China investors should be “defensively positioned” as a decline in the nation’s tax receipts signals a steeper slowdown in spending than retail sales figures show, according to Goldman Sachs Group Inc.

“Tax data show much sharper deceleration in income and consumption in the past few months than suggested by official retail sales or income growth figures,” Goldman Sachs analysts Joshua Lu, Caroline Li and Fiona Lau wrote in a note today.

Value-added tax has “de-linked sharply” from retail sales figures, the analysts wrote. VAT rose 1 percent in the fourth quarter from a year earlier, while retail sales gained 21 percent, according to the note.

When the sales tax figures diverge sharply from the total sales figures, one set of figures has to be wrong.

Running out of options

From the Times…

Islamabad’s capitulation to the Taleban over the Swat Valley has raised fears that the Pakistan route, which accounts for 75 per cent of supplies, could soon be closed.

“The Taleban know if they make a pincer movement they can choke off that access completely,” Mr Neill said. “The options for the US are closing rapidly.”

That is why, for the first time, people are thinking the unthinkable: Iran. Last week a US Nato commander said that individual member countries could seek supply routes through Iran.

The US, when it went into Afghanistan, did not predict the turn of events in Pakistan. The search for new roads may force it to entertain alliances every bit as unexpected.

The article also describes how the attacks by the Pakistani Taliban have cut down on the supplies available to be sold in the PX stores.

The Debtors Rule

From Bloomberg….

Japan’s exports plunged 45.7 percent in January from a year earlier, resulting in a record trade deficit, as recessions in the U.S. and Europe smothered demand for the country’s cars and electronics.

The shortfall widened to 952.6 billion yen ($9.9 billion), the biggest since 1980, the earliest year for which there is comparable data, the Finance Ministry said today in Tokyo. The drop in shipments abroad eclipsed a record 35 percent decline set the previous month.

A nation that used to finance the US is now having to sell assets to finance itself.

From the Telegraph….

The cost of bankruptcy protection on German debt has reached an all-time high on spill-over from the financial crisis in Eastern Europe and mounting concerns about the stability of Germany’s banking system.

People are becoming more wary about lending to the German government. Used to be that the thought of Germany defaulting was unthinkable.

It use to be said that the Debtor was the slave to the Lender. But nowadays it is reversed. As Gregor says….

Collectively, the debtors are in control. Not the creditors. This is why the the Creditors, not the Debtors, will be making most of the concessions in the years ahead. Whether the US public debt is inflated away, rescheduled, or repudiated–or some combination of all three–it doesn’t matter much. The process is already underway.

He is speaking of the domestic US market, but it is just as true world wide.

Pigs are Flying

From the Wall Street Journal….

It used to be that credit-card companies lured customers with cash rewards. Now American Express Co. is paying to get rid of them. The card issuer is offering selected customers a $300 AmEx prepaid gift card if they pay off their balances and close their accounts.

The unusual move underscores how quickly conditions have deteriorated in the credit-card market. The current economic morass was provoked by spiking mortgage defaults. But as the economic crisis widens and unemployment climbs, there is growing concern that credit-card defaults will soar into the stratosphere as well.


From Naked Capitalism…..

The latest canard is the pretense at negotiations with AIG. If you recall, AIG, which is regulated by a host of countries at the insurance subsidiary level, came begging to Uncle Sam because it had a credit default swaps unit at the holding company level that had written unhedged policies that looked pretty certain to crater the parent company. Even though the subsidiary companies are well regarded (in many cases very well regarded) they cannot readily upstream cash to the parent. The only way to realize value is by selling them, and this isn’t a great environment for doing that.

What has been appalling about AIG is that Uncle Sam initially imposed a suitably puntitive deal but then for reasons that remain a mystery, relented . Since the federal government is NOT a regulator of AIG, there was no reason to expect the authorities to step in, save Ben Bernanke and Hank Paulson’s attentiveness to the needs of the financial sector generally. AIG has globe-spanning operations, and there is no good reason why the US public should be stuck with the consequences of their lousy risk management decisions. But not only did AIG get considerably more in loans in version 2.0 of its deal with the US government, but the terms on its initial loans were improved considerably.

I have to tell you, in all my years of private sector dealings, when a company comes back for more money, particularly when it has missed targets (as AIG did, it claimed the initial loan would be sufficient), the new money, be it debt or equity, comes on vastly more costly terms. And it is simply unheard of to revise an initial deal to be more company friendly. I do not know why the travesty of the kow-towing to AIG’s faux needs has not resulted in more ridicule.

And it only gets worse. AIG is on the verge of getting even more fawning treatment from a “sympathetic” government. Do little guy deadbeats get such kid glove treatment?

I have no use for the Big Three auto makers plea that they need government money. Unlike Yves Smith, I want to see them go bankrupt.

But I can’t help feel that auto unions and every other blue collar worker in this country have every right to be mad enough to chew nails. We will make an industrial company beg to get 20 billion and at the same time we shovel hundreds of billions of dollars at one white collar company that helped to get us into this mess.


From the Telegraph….

The British Bankers’ Association said that customers withdrew £2.3bn in January, the biggest drop since records began.

The BBA said personal deposits fell by £2.3bn as spending drained cash and savers sought alternative ways of getting a return on their cash. The previous high for falling deposits was £1.5bn in 1997.

Predictable, but it is still not what you want to see.


From Spiegel….

Pakistan is capitulating to the Taliban in the picturesque Swat Valley, where the Islamists plan to introduce Sharia law. Now the militants’ triumph threatens to encourage radicals throughout the region.

The defeat was celebrated as if it had been a victory. The chief minister of the North-West Frontier Province greeted a delegation from the local Taliban. The Taliban officials, with their long beards and turbans, had come to the governor’s office to sign a treaty. After arriving in large limousines, the men were seated on velvet armchairs and served food on silver trays.

Then the pious foes of the government in Islamabad were given a coveted piece of Pakistan as a gift.

Read the whole thing if you have not been following this story.

Greenspan almost proved right

From the AP….

Wall Street has turned the clock back to 1997. Investors unable to extinguish their worries about a recession that has no end in sight dumped stocks again Monday. The Dow Jones industrial average tumbled 251 points to its lowest close since May 7, 1997, while the Standard & Poor’s 500 index logged its lowest finish since April 11, 1997. It’s as if the decade’s dot-com surge, collapse and subsequent recovery never occurred.

The Dow is just over 100 points from 7,000. Both indexes have lost about half their value since hitting record highs in October 2007.

At first I thought that this took us back to when Greenspan made his famous “irrationally exuberant” speech. But turns out that was made at the begining of 96 when the Dow was below 7,000. Almost there.

I always thought the man’s biggest problem was that he stayed in the job for too long. The longer you are in, the more you resemble the inmates.