Oil prices continued falling on Tuesday, tumbling to 3-1/2 year low, as concern about the floundering global economy and falling demand again took center stage.
U.S. crude for January delivery fell $2.32 to settle at $46.96 a barrel. It was the lowest closing price since May 20, 2005, when oil settled at $46.80 a barrel.
I was running out of vocabulary last month to describe just how bad October was for the domestic automakers. But whatever you want to say about October, November was significantly worse.
When I first saw the figure for November sales of cars manufactured in North America– 236,000 units– I thought maybe somebody had mistyped the first digit. Even 336,000 would have been a very bad month. But 236,000 is 17% below the dreadful October figure and 40% below the number sold in November of 2007.
The Treasury Department is considering a plan to revitalize the U.S. home market that would push down mortgage rates for home loans, according to people familiar with the matter.
The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%, more than a full percentage point lower than prevailing rates for a standard 30-year fixed-rate mortgage.
Government officials are under pressure to address falling housing prices and mounting foreclosures, which underpin the current financial crisis. Treasury has struggled for months to come up with a plan that would ease the strains on borrowers without appearing to bail out homeowners and lenders.
Why did they arbitrarily choose to make rates a full percentage point lower? As long as we are printing money, why don’t we drop rates all the way down to 1%? After all, its not like using low rates to encourage people to buy houses has ever caused problems in the entire history of the America. And housing prices always go up.
When I was a boy I went to a carnival and attempted one or two of those games designed for you to fail. I could not climb the balancing ladder far enough to ring the bell. But I was convinced that if I was given a few more tries I would make it.
These days the Click Here to continue reading.
From a interview with Gao Xiqing, president of the China Investment Corporation,…
Americans are not sensitive in that regard. I mean, as a whole. The simple truth today is that your economy is built on the global economy. And it’s built on the support, the gratuitous support, of a lot of countries. So why don’t you come over and … I won’t say kowtow [with a laugh], but at least, be nice to the countries that lend you money.
Talk to the Chinese! Talk to the Middle Easterners! And pull your troops back! Take the troops back, demobilize many of the troops, so that you can save some money rather than spending $2 billion every day on them. And then tell your people that you need to save, and come out with a long-term, sustainable financial policy.
Everything this guy says in this interview has a lot of truth in it. Even the part quoted above has a lot of truth in it.
But “gratuitous support?” Give me a break. We all know why the Chinese lent the Americans so much money. It was a calculated policy to help their exporters. An insanely stupid policy perhaps. But calculated none the less.
They got what they paid for. History was put on hold for 8 years. Like the Great Wall of China, that was an impressive achievement. But I think it will look rather futile in the end.
Having said all that, the man’s complaint is basically valid. China has taken a lot of crap from ignorant people in the US who don’t realize how good they had it or how much of that was due to China’s intervention. The exercises of US power in Iraq and Afghanistan along with the attendant economic boom would have been impossible without China’s economic support.
However, doing the world a favor and getting hated for it is what being a superpower is all about. People are always going to see the downsides of a exercise of power by a another nation and they will never acknowledge the benefits. Just ask any American.
Edit: It should be noted that China is still shoveling money down the rat hole.
However, I think Brad Setser is overstating his case a bit. I think that when we finally get good data on the November and December we our going to find that China’s exports fell through the floor. That is going to put downward pressure on the Renminbi all by itself.
One notes that Russia has been running a current account surplus for a long time. During that period they followed China in trying to hold down the value of their currency. Now they are struggling to keep the Rubble from collapsing in value.
Having said that, it clear that China is still growing its reserves to some degree. The only question is by how much.
As always, however, large government actions carry unintended consequences. While lower long-term rates may be seen as a boon to spending, they also substantially increase the net present value of pension fund liabilities. Coming at a time when declining asset performance has left a hole in pension funds’ balance sheets, lower long term rates make the asset-liability mismatch even worse. Among those funds most adversely affected include, quelle surprise, the defined-benefit plans of the Big 3, who themselves are lobbying for fresh government bailouts.
This is even more true if the effect of all this money printing is inflationary.
From the Wall Street Journal….
As part of a renewed bid to win backing for a government bail out, GM requested a total of $18 billion in federal loans — $6 billion more than it said it would a few weeks ago — and added it needs an immediate injection of $4 billion to stay afloat until the end of the year.
The urgency of GM’s request stirred up new worries that GM may have to file for bankruptcy protection. In Detroit on Tuesday, top officials from the United Auto Workers union said at a meeting that GM could be forced into a Chapter 11 filing before Christmas if the auto maker fails to get government funding in the coming days, people familiar with the matter said Tuesday.
Gov. Arnold Schwarzenegger declared a fiscal emergency Monday and called lawmakers into a special session to address California’s $11.2 billion deficit.
The state’s revenue gap is expected to hit $28 billion over the next 19 months without bold action. The emergency declaration authorizes the governor and lawmakers to change the existing budget within the next 45 days.
Without quick action, the state is likely to run out of cash in February.
In a democracy, endless problems call for endless money.
Thailand is an example of what happens when a society becomes divided to the point of paralysis and neither faction is willing to abide by the term of the other faction. W. Scott Thompson at the IHT argues that Thailand has always been vulnerable to a logjam but always had a monarch to clear it. Now the monarch can’t clear it and everyone is waiting to see what happens next.
We have not been following Thailand much lately. But they are in the process of falling apart.
Speaking of nations that are falling apart, Ukraine is going from bad to worse. As everyone knows, Ukraine is deeply divided between the pro EU western half of the country and the pro Russian eastern half of the country. Now a country that was almost ungovernable in the best of times is facing an economic crisis that would shake the foundations of well governed nation. This from the Economist….
Ukraine’s currency is plummeting in response to the country’s declining economic prospects and financing difficulties. With the IMF now having a major say in policy decisions, non-market solutions are improbable; instead, the aim is to achieve an orderly depreciation rather than a rout. Ultimately, a weaker exchange rate will be beneficial to the economy. Yet the adjustment will be painful, and this may fuel political impulses that run counter to IMF strictures.
And of course, there is always Pakistan.
As I have argued previously, you are going to see lot more of this as the economic crisis deepens.
Tanta has indeed died and the stock market has indeed had a really bad day. Whether the two are correlated is anyone’s guess, but I have seen arguments for sillier correlations.
Can you guess where this comes from?
Equally also, our thrust has been founded on our unwavering belief that extraordinary circumstances must be confronted through extraordinary interventions and not through halfbaked or even wholesale 16th century economic dogmas that have been long discarded in their founding countries.
As Monetary Authorities, we have been humbled and have taken heart in the realization that some leading Central Banks, including those in the USA and the UK, are now not just talking of, but also actually implementing flexible and pragmatic central bank support programmes where these are deemed necessary in their National interests.
That is precisely the path that we began over 4 years ago in pursuit of our own national interest and we have not wavered on that critical path despite the untold misunderstanding, vilification and demonization we have endured from across the political divide.