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.
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.
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.
The price of oil fell Thursday, shedding more than half its value since the summer’s highs, after a government supply report signaled weak demand for petroleum products.
Light, sweet crude for November delivery fell $4.69 to $69.85 a barrel on the New York Mercantile Exchange. Oil is now down 52% from July’s all-time high above $147 a barrel.
Thursday’s closing price was the lowest since Aug. 23, 2007 when oil settled at $69.83 a barrel.
Granted it has been a little more then a year. Still oil prices more than doubled from the price they were at back in August of last year and then went back again to the old price in little more than a year. Makes you wonder what next year will bring.
The amount of money that has been promised to back stop the financial system is unreal. The logic behind these sums is that the fear engulfing the financial system was unwarranted. But now data has come out showing that the real economy started cliff diving before the financial system started to unravel.
The retail sales report, released by the Commerce Department, showed that automobile sales took the biggest hit last month, falling about 4 percent. A broad range of products sat unsold in stores as well, including furniture, electronics, and clothing. At department stores, sales fell 1.5 percent.
“There is almost nothing positive to say about these figures,” Rob Carnell, an economist at ING Bank, wrote in a note.
Even a sharp drop in gasoline prices did not lure Americans back to the mall. A measure of inflation at the producer level, the Producer Price Index, fell 0.4 percent in September as energy prices fell on the back of cheaper oil.
But prices for many other products stayed high; outside of energy products, businesses and wholesalers paid 0.4 percent more for finished goods in September than in August, according to the Labor Department.
In the last year, producer prices are up 8.7 percent, a big jump and a sign of faster inflation. Even outside of gasoline, prices are up 4 percent for the year.
A measure of conditions in the manufacturing industry, released by the Fed on Wednesday, plunged to the lowest level since the survey began in 1991. The Empire State survey dropped to minus 24.6 as demand for factory orders plummeted in October. The reading was at minus 7.4 in September.
The Dow was up almost a 1,000 points today. Governments around the world have guaranteed with their lives that there will be no more problems. And I mean that in the most literal way possible. The sums that European Governments have thrown at the problem are out of this world. From Brad Setser….
The US and Click Here to continue reading.
The Ape Man actually wrote this rant a while ago when he was getting fed up with Tanta’s screeds against Puritans. But it still works today.
California is going to Washington, D.C., to ask for $7 billion to cover its budget shortfall. Otherwise it won’t be able to pay for its teachers, cops, firemen, and other essential services. Unfortunately, California won’t be alone. A number of other states are experiencing a huge dive in tax revenue and could be going cap in hand to Uncle Sam alarmingly soon. How bad could it get? The potential cost for all the 31 states facing both major and minor shortfalls could be as much as $53.4 billion.
The data is based on a study by the Center on Budget and Policy Priorities released at the end of September and shows the states that have seen the biggest shortfalls in tax revenue in their fiscal 2009 budgets.
Read the article to see a list of the states that are in trouble. As bad as this list seems, I am pretty sure that it is already out of date. New York’s short fall in particular looks too small considering the melt down of the stock market and how much Wall Street impacts New York’s budget.
For the fifth year in a row, emigration from the Netherlands exceeded immigration last year, reaching 123,000 emigrants, which amounts to 7.5 emigrants per 1000 inhabitants. Dutch media has repeatedly reported this phenomenon because it caught demographic forecasters by surprise. The last emigration wave occurred fifty years ago, and at present the Netherlands is the only Western European country experiencing net emigration, although similar trends are visible in the UK (Salt and Rees, 2006) and to lesser extent in Germany.
According to Baron Bodissey, a comparable outflow in the US would be 2.3 million people leaving the country. Most of these emigrants are moving to other places in Europe so some might argue that this not really a problem for Europe as a whole. But this attitude overlooks the real problem.
There seems a growing trend in Europe of the professional classes feeling little attachment to their native soil. Thus, they are more and more willing to uproot and go to where they think they can get a better deal. In the long run this is going to make it even harder to sustain Europe’s social model. It is hard to tax the better off to support the less well off if better off are willing to leave.