Friday, November 28, 2008

Debt Rattle, November 28 2008: A Black Friday for Retail

George Grantham Bain Winter in New York City 1908
Union Square seen from a skyscraper

Stoneleigh: I wanted to say a big thank you from myself and Ilargi for all the donations that people have sent to our Christmas fundraiser. Before that this site had earned about $5000, including advertizing revenue. So far the fundraiser has brought in nearly $4000, for which we are very grateful. Although it is customary to single out larger donors for specific thanks, I am uncomfortable doing that because I know that many of our readers have very little themselves, and their donations, of whatever size, represent a significant outlay for them. That means a lot to us. We appreciate everything people have offered.

A reasonable initial goal is for Ilargi to earn more doing what he is best at than he would if he flipped burgers at McDonald's full time for minimum wage. What we do here has far more social utility, and is a far better use of Ilargi's considerable abilities, but it takes him 10-12 hours a day, 7 days a week. He could write books as some of you have suggested, but the problem with doing that is that one can't provide up-to-date information that people rely on to make important decisions. The global financial situation is evolving so rapidly that we need to bring you information as it happens, and interpret its importance immediately. Ilargi is better at that than anyone I know.

B: In Canada, we're already fully recovered from our Thanksgiving festivities. We wisely take a long weekend in early October to gather with family to give thanks. The weather is often very fine and the fall foliage spectacular, allowing us to escape the usual family drama with a lovely walk outdoors. If all goes well we end the weekend with a vague sense of wellbeing and the fixings for some great sandwiches. The day after Canadian Thanksgiving is called Dieting Tuesday.

And so it is that I have no practical experience of Black Friday, the day after American Thanksgiving when door-crasher specials and deep discounts entice Americans into malls to start the Christmas shopping season. Wikipedia tells me that the term Black Friday was originally used by traffic cops and bus drivers in Philadelphia because of the headaches caused by the traffic jams downtown. Only later was it used as a moniker for the day on which retailers became profitable. Neither of these definitions is what jumps to my mind when I hear the term - rather I think of the devastation caused by the mining of minerals and the production of plastic, the poor working conditions of the assemblers, the pollution caused by shipping, the energy consumed in operating the gadgets and the future landfills overflowing with toxins all as a result of the frantic consuming of the world's wealthiest people.

As we enter the sputtering last days of late capitalism, the messages from the powers that be become more and more absurd. Drill! Buy! Bail! These are the panicky cries of the masters of an unravelling economic system based on exponential growth. The Canadian prime minister promised that in an effort to stimulate the economy he will open up uranium resources to foreign companies (presumably to rip it out of the ground faster) and relax environmental regulations for oil exploration and development in the Arctic. Corporations fill our mailboxes with advertising porn enticing us to spend spend spend. And generally, as good citizens of capitalist countries, we do. We consume to the limit of our incomes and often a good deal more. We listen to politicians explaining how the only solution is to give our grandchildren's money to bloated half-dead corporations and we mutter but we don't mutiny.

According to the bleating heads, now is a good time to buy a brand new V8 Dodge Charger. Chrysler is offering employee pricing and a major Canadian bank (the soundest banks in the world we're told) will provide 0% financing for 84 months. I'm astonished at the absurdity of this. It makes sense for Chrysler to try to unload these ugly, impractical symbols of excess, and that is where the sense ends. Even if I was a middle aged guy who thought owning one of these powerful gas guzzlers would make me feel young again I would surely think twice about dropping my hard earned after-tax dollars on a car made by a near-bankrupt company notorious for producing unreliable vehicles. If I could get over that hurdle, I could probably also be convinced to avail myself of the opportunity to be indebted to RBC for the next seven years. If I was a loan officer at the bank though, I would automatically deny any applicant for a seven year loan on a Dodge Charger by simple virtue of the fact that to consider such a thing is indicative of poor judgment and therefore high risk. Perhaps if I was a loan officer who happens to read TAE from time to time, I might take into consideration that the value of this car might rise from zero to something in year 3 or so of the loan as it is pressed into service as shelter.

We just held a party using our children's cheap fuel, deep topsoil, abundant forests and clean water behaving like crack addicts frantically sampling every white speck, looking for more nature to keep the party going. We let ourselves be abused and lied to by governments and corporations because we didn't want to acknowledge that our way of life couldn't be sustained. And so we find ourselves still in the bar, minutes from closing time. We know the lights will come on and in the greenish glare, even in our impaired state, we'll recognize the ugly truth that we've wasted a lot of time and resources and hurt a lot of people. And even if we could afford the gas for our new Dodge Charger, we're too drunk to drive it home.

China slashes interest rates as panic spreads
The move came just one day after the World Bank predicted that China would grow by 7.5pc next year. The level of growth may appear robust by Western standards, but it would represent the slowest economic expansion in China for the last two decades. It is also perilously close to the 7pc minimum level of growth that Chinese economists believe is necessary in order to create enough jobs for the 6m university graduates who will enter the jobs market next year.

It is the fourth interest rate cut from the Chinese central bank in the last ten weeks as the government desperately battles an evident economic collapse. "China is out to save itself here," said Patrick Bennett, an analyst with Societe Generale in Hong Kong. The PBOC reduced its main borrowing rate by 1.08pc points to 5.58pc, the biggest one-off cut since the Asian Financial Crisis in 1997.

In recent weeks, a series of riots across central and southern China have flowered as disgruntled employees aired their grievances at the downturn. Today, around 500 protesters rioted at the Kai Da toy factory in Dongguan in the Pearl River delta, flipping over a police car and trashing computers in a dispute over payoffs to 80 fired workers. Tens of thousands of factories across the region have already shut their gates.

Yin Weimin, China's Social Security minister, has revealed that employment is the Communist Party's number one concern in the downturn and said the "situation is critical". Unemployment is expected to rise from 4pc to 4.5pc by the end of the year and anecdotal reports have suggested that 3m people have already been fired in the industrial province of Zhejiang alone. Two major provinces, Shandong and Hubei, have already responded by banning companies from firing staff without permission from the government.

The Chinese government has also announced a £373bn bailout to stimulate domestic growth by investing in infrastructure. However, only a fifth of the money is likely to come from central government coffers, with the rest coming from a mix of private enterprise and local government funds. "We're seeing a government that steps in, that is trying to do everything it can to keep growth at a decent rate, and has the financial means and the administrative capacity to make that happen," said Louis Kuijs, the head of the World Bank's China economics analysis.

"All my colleagues were shocked by such a big easing. It signals the government may believe the economic situation is really serious for it to call for such a drastic move," said Liu Dongliang, a currency analyst at China Merchants Bank in Shenzhen. The reserve requirements of Chinese banks were also cut by 1pc point, and 2pc points for smaller banks, freeing up around 360 billion rmb (£34bn) for lending.

Workers riot at Chinese factory producing Nerf toys for Hasbro
It started as a pay dispute at a southern Chinese toy factory. But it quickly turned into a riot as laid-off workers tapped into a network of friends and unemployed laborers who flipped over a police car, stormed into the plant and smashed office computers. The latest violent protest to rock China's export machine was still simmering Wednesday at the massive plant, which makes Nerf toys for the U.S. company Hasbro (HAS). The volatility underscored the urgency of China's efforts to keep stoking an economy weakened by the global financial crisis.

To protect jobs and social stability, the central government recently signed off on a multibillion-dollar stimulus plan. Officials have also been urging factories to avoid large layoffs and to try retraining employees to keep them off the streets. "When times are bad economically, a small incident can rapidly become a big one," said local Communist Party official Guo Chenming, who was monitoring the situation Wednesday outside the restive toy factory in the city of Dongguan.

Tempers began flaring Tuesday when the plant's Hong Kong owner, Kader Holdings Company, prepared to lay off 216 migrant workers at the factory that employs 6,500. About 80 senior workers claimed they were getting shortchanged on their severance pay, and they mobilized a mob of 500 — mostly other unemployed workers and friends, Guo said. The workers battled security guards, turned over a police car, smashed the headlights of police motorcycles and forced their way through the factory's front gate, Guo said. They went on a rampage in the plant's offices, damaging 10 computers, the company said.

The account was confirmed Wednesday by several of the 200 or so jobless laborers peacefully milling around the street in front of the four-story factory complex covered in soot-stained white and green tiles. Small groups of workers inside the factory pressed against glass windows and stared at the crowd below. When their shift ended, they flooded into the streets and mixed with the angry workers.

"The factory's management and the local officials really look down on the workers," said one laid-off worker who would only give his surname, Qiao, because he feared criticizing the company might jeopardize his chance of getting any compensation. Qiao accused the police of igniting the riot. "The workers just got angry because the police hit them first," said the 30-year-old migrant from the southwestern province of Sichuan, devastated by last May's monster earthquake.

Guo doubted the allegation, saying it would be foolish for the police to incite such a massive crowd. He also said the 80 workers didn't get full severance because of bad performance. But he added that the company didn't fully understand new labor laws and was also to blame. Kader's executive director Ivan Ting said the workers were compensated beyond what is required by Chinese labor law, but did not give a figure. A company statement said the toymaker is financially sound.

Basic assembly line jobs at the factory pay only 770 yuan ($112) a month, and overtime is rare now that most of the Christmas orders have been fulfilled. Shipping containers on trucks in the factory's courtyard were loaded with Hasbro boxes containing Nerf toys. Whipping up a mass protest can be easy in this part of southern China — called the Pearl River Delta in Guangdong province. It's one of the country's biggest manufacturing bases, and most of the residents are migrant workers who work long hours in factories and live in crowded dormitory rooms.

News of protests or mistreatment quickly spreads via mobile phone text messages. Crowds can quickly swell with gawkers who eventually join the action. Workers from the same provinces often band together and support each other. It's a major concern in major industrial zones in Guangdong, which has been hit hard by a series of factors: rising costs of wages and raw materials along with currency fluctuations and the global financial crisis. More than 7,000 companies in Guangdong have gone bust or moved elsewhere in the first nine months of the year, the official China Daily newspaper recently reported.

American businessman David Levy said local officials are intensely concerned about the economy. They have been visiting factories to make sure the plants are financially healthy and not ready to disgorge hundreds of angry workers onto the streets, he said. But Levy, a general manager Lastar Electronics, which makes cables in Dongguan, said most reports of plant closures are overblown or involve small operations that had problems before the recent global economic woes set in. "What I usually hear is, 'Yeah, we're down 20 to 30%.' You can take that hit unless you have a problem to begin with," he said. "All of the turmoil is not bubbling out into the streets."

But last month, one of Dongguan's biggest toy factories shut down, laying off 7,000 workers who protested in the streets for days demanding unpaid wages. The plant made toys for Hasbro and Mattel Inc. More closures will come in the next few months because of the global financial turbulence, said Lo Foo-cheung, vice president of The Chinese Manufacturers' Association of Hong Kong. Lo said companies will be cutting workers despite the government's warnings to keep them. "At the end of the day, it's a business decision," Lo said. "It's all about survival."

Meltdown not over, new US mortgage crisis looms
The full scope of the U.S. housing meltdown isn't clear and already there are ominous signs of a new crisis — one that could turn out the lights on malls, hotels and storefronts across the country. Even as the holiday shopping season begins in full swing, the same events poisoning the housing market are now at work on commercial properties, and the bad news is trickling in. Malls around the United States are entering foreclosure.

Hotels in Tucson, Arizona, and Hilton Head, South Carolina, also are about to default on their mortgages. That pace is expected to quicken. The number of late payments and defaults will double, if not triple, by the end of next year, according to analysts from Fitch Ratings Ltd., which evaluates companies' credit. "We're probably in the first inning of the commercial mortgage problem," said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.

That's bad news for more than just property owners. When businesses go dark, employees lose jobs. Towns lose tax revenue. School budgets and social services feel the pinch. Companies have survived plenty of downturns, but economists see this one playing out like never before. In the past, when businesses hit rough patches, owners negotiated with banks or refinanced their loans.

But many banks no longer hold the loans they made. Over the past decade, banks have increasingly bundled mortgages and sold them to investors. Pension funds, insurance companies, and hedge funds bought the seemingly safe securities and are now bracing for losses that could ripple through the financial system. "It's a toxic drug and nobody knows how bad it's going to be," said Paul Miller, an analyst with Friedman, Billings, Ramsey, who was among the first to sound alarm bells in the residential market.

Unlike home mortgages, businesses don't pay their loans over 30 years. Commercial mortgages are usually written for five, seven or 10 years with big payments due at the end. About $20 billion will be due next year, covering everything from office and condo complexes to hotels and malls. The retail outlook is particularly bad. Circuit City and Linens 'n Things have sought bankruptcy protection. Home Depot, Sears, Ann Taylor and Foot Locker are closing stores.

Those retailers typically were paying rent that was expected to cover mortgage payments. When those $20 billion in mortgages come due next year — 2010 and 2011 totals are projected to be even higher — many property owners won't have the money. Some will survive, but those property owners whose loans required little money up front will have less incentive to weather the storm. Refinancing formerly was an option, but many properties are worth less than when they were purchased. And since investors no longer want to buy commercial mortgages, banks are reluctant to write new loans to refinance those facing foreclosure.

California, New York, Texas and Florida — states with a high concentration of mortgages in the securities market, according to Fitch — are particularly vulnerable. Texas and Florida are already seeing increased delinquencies and defaults, as are Michigan, Tennessee and Georgia. The worst-case scenario goes something like this: With banks unwilling to refinance, a shopping center goes into foreclosure. Nobody can buy the mall because banks won't write mortgages as long as investors won't purchase them.

"Credit markets have seized up," corporate securities lawyer Michael Gambro said. "People are not willing to take risks. They're not buying anything." That drives down investments already on the books. Insurance companies are seeing their stock prices fall on fears they are too invested in commercial mortgages. "The system has never been tested for a deep recession," said Ken Rosen, a real estate hedge fund manager and University of California at Berkeley professor of real estate economics.

One hope was that the U.S. would use some of the $700 billion financial bailout to buy shaky investments from banks and insurance companies. That was the original plan. But Treasury Secretary Henry Paulson has issued a stunning turnabout, saying the U.S. no longer planned to buy troubled securities. For those watching the wave of commercial defaults about to crest, the announcement was poorly received.

"He's created havoc in the marketplace by changing the rules," Rosen said. "It was the stupidest statement on Earth." The Securities and Exchange Commission is considering another option that might ease the crisis, one that would change accounting rules so banks don't have to declare huge losses whenever the market declines. But the only surefire remedy is for the economy to stabilize, for businesses to start expanding and for investors to trust the market again. Until then, Tross said, "There's going to be a lot of pain going forward."

Treasuries Set for Best Month Since 1981 Amid Time of ‘Trial’
Treasuries headed for their biggest monthly gain since Ronald Reagan was in the White House, as President-elect Barack Obama said the U.S. faces a “time of great trial” and the economy shrinks. The gains drove 10-year yields to a record low of 2.91 percent after reports this week showed durable-goods orders fell more than twice as fast as forecast, consumer spending dropped the most since 2001 and the economy shrank in the third quarter more than first estimated. Traders bet the Federal Reserve will cut its benchmark interest rate by at least a half-percentage point on Dec. 16 to limit the slump, futures contracts show.

“The primary driver behind the fall in Treasury yields this month was the deterioration in the economy and the sinking realization that deflation could be a factor of life going forward,” said Bulent Baygun, head of interest-rate strategy in New York at BNP Paribas Securities Corp., one of the 17 primary dealers that trade government securities with the Fed.

The yield on the 10-year note was little changed at 2.97 percent at 11:16 a.m. in New York, according to BGCantor Market Data. The 3.75 percent security due in November 2018 rose 2/32, or 63 cents per $1,000 face amount, to 106 21/32. The two-year note’s yield fell three basis points, or 0.03 percentage point, to 1.07 percent. It dropped below 1 percent on Nov. 20, the lowest since regular sales began in 1975.

“Bullish bond-market sentiment persists on growing signs the economic recession is deepening while the outlook for inflation improves,” said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets. “There are still decent returns ahead, though possibly not on the scale we’ve seen this month.” Ten-year yields will sink to 2.75 percent by the end of the year, Stamenkovic said.

Futures on the Chicago Board of Trade show 66 percent odds the Fed will lower the target overnight lending rate between banks by a half-percentage point from 1 percent on Dec. 16 and a 34 percent chance of a three-quarter percentage point cut. The 10-year yield touched the least today since the Fed’s daily records on the note began in 1962, and since 1958 on a monthly basis. Investors have piled into longer-dated debt on speculation the contracting economy will subdue inflation, flattening the so-called yield curve. The difference in yield, or spread, between two- and 10-year notes narrowed to 1.90 percentage points, from 2.62 percentage points on Nov. 13, a five-year high.

Bonds rallied this week after the U.S. announced a plan to buy as much as $600 billion of mortgage securities, spurring demand for U.S. securities as a replacement for bonds backed by home loans that may be repaid early. “It will take the hard work, innovation, service and strength of the American people” to end the financial crisis, Obama said yesterday in his weekly radio address.

Investors seeking the safest assets kept yields on three- month Treasury bills at 0.04 percent, where they have been since Nov. 26. The yields dropped to 0.01 percent on Nov. 21, the lowest level since the 1940s, according to monthly figures from the central bank. U.S. notes and bonds may gain on speculation investors will buy notes to match changes in benchmark indexes as the gauges adjust to include debt sold this month. The Treasury holds its quarterly auctions of notes and bonds in February, May, August and November.

Treasuries returned 5.07 percent this month, Merrill Lynch & Co. indexes showed. It was the most since October 1981, when former Fed Chairman Paul Volcker was battling to tame inflation that was running at more than 10 percent. Obama this week appointed Volcker, 81, to head a new White House economic board that will propose ways to revive growth. German bonds handed investors 3.8 percent this month and Japanese government securities 0.4 percent.

Corporate debt in the U.S. and Europe rose the most since 2003 in November. Investment-grade U.S. bonds returned 3.6 percent, after losing 7.4 percent last month, according to Merrill indexes. European notes returned 1.5 percent.

Yields indicate banks are less willing to lend than earlier in the year. The difference between what banks and the Treasury pay to borrow money for three months, known as the TED spread, was at 2.18 percentage points today. The spread, which reached a low this year of 76 basis points in May, was at 4.64 percentage points on Oct. 10, the most since Bloomberg began compiling the data in 1984. The Standard & Poor’s 500 Index fell 0.5 percent after posting its steepest four-day increase since 1933.

“We don’t think Treasuries are attractive,” said Shuhei Mochizuki, Tokyo-based assistant manager in the foreign bond section at Sumitomo Life Insurance Co., which has the equivalent of $31.5 billion in non-Japanese debt. “After yields fell in November, they don’t offer good value. The rally may pause.” A Bloomberg survey of banks and securities companies shows 10-year yields will increase to 3.56 percent by year-end. The most recent forecasts are given the heaviest weightings.

Trading volumes may be lower than usual today. The Securities Industry and Financial Markets Association recommended trading stop at 2 p.m. in New York, after the market was closed yesterday for the Thanksgiving holiday in the U.S.

Financial markets are part of public life. As a consequence they follow the rules of all public spectacles. That is, they are one part rational and part incomprehensible...and one part pure humbug. You never know exactly which part it is you’re looking at. But the markets are also moral, not mechanical. That is, they follow moral rules, such as – Thou Shalt Buy Low and Sell High...Thou Shalt Save Thy Money...Thou Shalt Not Speculate Unless Thou Knowest Exactly What Thou Art Doing.

Break those commandments...and you’re on the road to money Hell. No point in tinkering with the machine. You can’t ‘fix’ it. That’s just the way it works. Financial sins are punished, one way or another. But moral lessons – as opposed to mechanical knowledge – are cyclical, rather than cumulative. One generation learns. The next forgets. That’s why the biggest market trends tend to follow great, long cycles – approximately generational in length. In 1929, for example, stocks hit a generational high. They didn’t recover until 1954 – 25 years later. They reached a peak in 1966...and then declined until 1982. They didn’t reach another major peak until 2000 – 34 years later.

We all know what has happened since. The market tried to correct in 2001-2002, but the feds wouldn’t let it. They inflated the biggest bubble of credit and speculation in history......that bubble has just burst. What now? Well, we can expect a long period of regret, reorganizing and repentance. It takes time to undo mistakes. It takes time to learn. It takes time to correct the errors of a 25-year bull market.

If the real top of the bull market cycle came in 2000, we will probably see the next peak around 2025. Meanwhile, there is a dark valley to cross.
But wait...there’s more. Because while the private economy is reluctantly owning up to its mistakes...going into rehab...making amends...rebuilding balance sheets....and promising never to do such stupid things again...our leaders are doing all they can to stop the learning process.

“Here’s $800 billion,” was yesterday’s temptation. “Go out and have a good time.” “Rescue, Part 2” is how the International Herald Tribune describes it. The plan itself has two features. In the first, the feds will spend $200 billion to buy up loans made to consumers and small business. In the second, another $600 billion will be offered to the mortgage industry.

Our colleagues at describe the program: “It’s an $800 billion slush fund aimed at loosening credit for homebuyers, consumers and small businesses.
“And it may get bigger... Treasury Secretary Hank Paulson has left the door open for more funds. The facility may be expanded over time and eligible asset classes may be expanded later. Why doesn’t this come as a surprise? So there is still no telling how much more money the government will throw at this crisis. But our back-of-the-envelope calculations puts the running total at over $8 trillion.”

The Washington Post sums it up beautifully. “A year ago, the central bank had assets of $868 billion, of which about 90 percent was in Treasuries. Last week, it had assets of $2.2 trillion on its books, of which 22 percent was in Treasuries. How this will end, we don’t really know. But we know this: You can’t pump $8 trillion in funny money into the economy and not expect consequences.”

Meanwhile, the Europeans don’t want to be left behind: “The European Commission urged EU governments Wednesday to jointly combat the economic slowdown with euro200 billion (US$256.22 billion) in spending and tax cuts to boost growth and consumer and business confidence. If fully enacted, its two-year European Economic Recovery Plan' would see the 27 EU governments spend 1.5 percent of the bloc's gross domestic product to halt the slowdown that has already pushed some European nations into recession.”

But let’s not get distracted by the details. The markets are teaching people a lesson. The feds don’t like it. They want people to believe that the economy is a mechanical system...that they just need to find the right screws to turn...and the right levers to pull. Since the “machine” is visibly slowing down, these simpletons think they can get it going again. Just add more fuel!

Of course, as we saw in 2001-2007, the feds can certainly have a big effect on the economy. Their “economy as a machine” theory often seems to work. In fact, practically everyone believes it will work. They just argue about which screw to turn...and who should do the screwing. The Keynesians say you turn the screw marked “fiscal policy.” When private spending slumps, just replace it with government spending. Pretty simple, no? But when the feds turned that screw – arguably, too far – in the ‘60s and ‘70s, it didn’t seem to work. Instead, they got stagflation.

So, Milton Friedman pointed to the lever marked “monetary policy.” Give that a pull, he said. It will make sure that the economy always has just the right amount of credit at just the right price. So, Maggie Thatcher and Ronald Reagan both pulled on the monetary policy lever. And Alan Greenspan swore by it. He yanked it so hard in the recession of 2001-2002, the handle practically broke off. Milton Friedman was still alive at the time and actually approved of Greenspan’s handiwork, saying that he had ‘spared the economy a worse recession,’ or words to that effect.

Now the machine has broken down again. It has thrown itself into reverse; the 3rd quarter showed an absolute decline in US output – and it’s speeding up in the wrong direction! And now the terrified feds are ‘pulling out all the stops.’ Which means they using both Keynes and Friedman, and every other tool they can get their hands on.
But the real problem is this: the “economy as a machine” theory is much too simple. No theory, said the philosopher Godel, is ever complete. In science, each one is a stepping stone, towards a fuller and more complete theory. Even theories that take you in the wrong direction are useful – at least in science. They are eliminated...and discarded, so science can take a new direction.

In economics, no theory is ever discarded. Instead, they are merely recycled as market conditions change. “Markets make opinions,” say the oldtimers. In a boom, it is the free market theories everyone wants. “Leave the market will take care of itself,” they say. But in a bust, the cry goes up: “Help!”

For the moment, Mr. Market’s correction still dominates the economy. One way or another, it will continue for many years. But the Feds are turning the screws and pulling on the levers. Keynes is in fashion...for the present. But Friedman is still around too. Between the lot of them, they ought to be able to do some spectacular damage
But there is plenty of room for surprises...and more mischief from the feds. At some point, we presume the feds will succumb to the lure of the printing press. By some accounts, they already have. Then, we’ll really see some excitement.

'Shadow ECB' calls for immediate and drastic rates cuts
A forum of top economists from banks and institutes across Europe have called for drastic cuts in interest rates to head off a slump in the eurozone, slamming the European Central Bank for reacting too slowly to the fast-moving crisis. The ECB's "Shadow Council" - a body that issues its own verdict before each ECB meeting - voted yesterday for an immediate cut of at least one percentage point. Four of the members exhorted the ECB to follow the led of the Bank of England with an even bolder action. The current rate is 3.25pc.

"The mood was very grim," said Julian Callow, Europe economist at Barclays Capital, who voted for cut of 125 basis points. "There is a feeling that the damage from the credit crunch is yet to come. We're hearing that companies have seen a collapse in orders over the last few weeks," he said. PSA Peugeot Citroen is halting production for a month at its plant in Sochaux, the largest industrial site in France. Les Echos newspaper reports that electricity use by French industry fell by 7pc in October, suggesting that output is contracting sharply. Erik Nielsen, Europe economist at Goldman Sachs, said the ECB was falling behind the curve and had failed to offer markets a convincing "road-map" of its plans. "We may be looking at five quarters of negative growth. They should be cutting rates to 1pc or 1.5pc as fast as possible. I don't subscribe to this step-by-step approach. I'm afraid they are going to react too late," he said.

"If you look out 18 months, do you think that there is a risk of inflation or too much growth in the world? I fear the ECB may have to resort to 'quantitative easing'," he said, referring to the extreme forms of stimulus pioneered in Japan and now by the US Federal Reserve. "QE" - as it is known - is the next line of defence once rates fall near zero. "We know what the US playbook is, but we still don't know what the ECB is going to do. That makes me uncomfortable," he said. There is no sign that the real ECB is thinking along the same lines. Several members have sought to play down expectations of a big rate cut in early December, even warning that it would be dangerous for the bank to risk "running out of ammunition" by slashing rates too low. This argument is viewed as outdated in the rest of the world. "Central banks don't run out of ammunition. They have a nuclear arsenal they can use, if necessary," said Mr Nielsen.

Jacques Cailloux, Europe economist at RBS, said the ECB is wading into treacherous waters with its latest rhetoric. "We're quite surprised by some of the comments. It is a very dangerous game for central banks to talk about running out of ammo," he said. "The ECB needs to cut rates aggressively because we expect an abrupt decline in the availability of credit over the next six months. We are not saying they are blind, or in denial, but they are too reliant on lagging data for a shock has been so recent, and so great," he added. "We think the ECB needs to London. map out alternative measures telling us what it will do, should low rates fail to be enough. It is clear that the credit multiplier is not working at this point. Banks are depositing their excess cash back at ECB," he said.

A number of economists said the ECB may have to start thinking "outside the box", perhaps following the lead of the Fed in buying debt directly rather than just exchanging it for collateral. "The ECB has been behind the curve," Agnès Bénassy-Quéré, director of the Paris think-tank CEPII, who also voted for a 125bp cut. "Interest rates of 1pc are appropriate for the medium term, and quantitative easing may possibly be needed. You talk to any enterprise in France and they are now very concerned about their clients and the price of credit," she said. The shadow ECB is organized by Germany's business daily Handelsblatt.

The meeting was held yesterday at RBS headquarters in London. The last time the shadow clashed so fiercely with the real ECB was in December 2005, when private economists and bodies such as the OECD attacked Frankfurt for raising rates prematurely. As it turned out, the ECB was entirely vindicated. If anything, it should have raised rates earlier and more steeply to choke offthe credit boom. The ECB's ultra-hawks may yet be vindicated a second time.

Ruble Collapse Prompts Russia to Raise Rate on Currency Plight
Russia’s ruble headed for its biggest weekly decline against the euro in at least five years as the central bank let the currency depreciate and raised interest rates to halt an exodus of foreign capital. Bank Rossii widened the ruble’s trading band for the second time this week by about 30 kopeks (1 U.S. cent), or 1 percent, on each side, according to Mikhail Galkin, head of fixed-income and credit research at MDM Bank in Moscow. The central bank said today it will raise its benchmark refinancing rate to 13 percent from 12 percent to help stem currency losses.

Russia is among a handful of countries raising interest rates after it drained $148 billion from the world’s third largest foreign-currency reserves since August to arrest a 16 percent currency slide against the dollar. BNP Paribas SA estimates that investors pulled $190 billion out of the country since August as oil prices fell below the $70-a-barrel average required to balance Russia’s budget in 2009.

“I hope that in the near future the government will weaken the ruble,” Viktor Vekselberg, one of four billionaire partners in Russian oil company TNK-BP, told reporters in Moscow today. “The government’s priority is budget stability but for business the ruble policy is more important.” The ruble weakened 1.2 percent to 27.7578 per dollar by 2:27 p.m. in Moscow, and depreciated 0.7 percent to 35.6424 per euro. It lost 0.9 percent against the dollar and 3 percent versus the euro this week, the biggest decline since Bloomberg began collecting the data in December 2003.

Confidence in Russia has plummeted as the five-day war with Georgia, seizure in global debt markets and sliding oil prices sparked the worst financial crisis since the nation’s default in 1998, when the ruble plunged 71 percent versus the dollar. Urals crude, Russia’s main export oil blend, has closed for the past four days below $50 a barrel and was 1.3 percent lower at $48.61 a barrel today.

Bank Rossii keeps the ruble within a trading band against the dollar-euro basket to limit swings that hurt exports. The basket is made up of about 55 percent dollars and the rest euros. The ruble dropped 1 percent to 31.3041 against the central bank’s basket of dollars and euros today and 1.9 percent this week, the biggest weekly decline since the basket was introduced in February 2005. The weaker end of the band is now 31.30, MDM’s Galkin said. The central bank has avoided commenting on its actions in the currency market. Spokesman Vladimir Lavrov declined to comment.

“The currency is overvalued in nominal and real terms,” Nouriel Roubini, the New York University professor who predicted the current financial crisis two years ago, said in a Bloomberg Television interview in Moscow today. “How to move to a more flexible exchange-rate regime is going to be one of the most important policy challenges to avoid a hard landing.” Oil may drop as much as 20 percent next year should the financial crisis worsen, Roubini said.

While most of the world’s central banks are cutting interest rates to ease the worst financial crisis since the Great Depression, Russia along with Iceland, Pakistan and Serbia are having to increase borrowing rates in an attempt to prevent a stampede from their currencies. The refinancing rate will rise by 1 percentage point on Dec. 1, Bank Rossii said in an e-mailed statement today. The interest rate for one-day and seven-day loans from the bank in repurchase auctions will climb to 10 percent from 9 percent.

The central bank sold as much as $2.3 billion this week to prevent the ruble from falling beyond the weakest perimeter of its trading band, compared with about $7 billion last week, according to MDM Bank estimates. Policy makers are allowing the currency to depreciate now because there is less selling pressure compared with previous weeks, said Alexei Moiseev, head of fixed-income research in Moscow at Renaissance Capital. Companies have been buying rubles and selling dollars to pay more than 200 billion rubles ($72 billion) of taxes due this week plus more in oil-export tariffs, Moiseev said.

“That eases pressure on the ruble and their reserves a bit,” said Moiseev, who forecasts a decline of as much as 15 percent against the basket next year. The dollar’s 2 percent decline against the euro this week also allows the central bank to “mask ruble devaluation,” Tatiana Orlova, an economist in Moscow at ING Group NV, wrote in a research note today. ING predicts a drop of 15 percent by the end of 2009. Troika Dialog, Russia’s oldest investment bank, forecasts a 30 percent depreciation as declining oil prices erode the country’s $91.2 billion current-account surplus.

“The central bank is letting it fall because of oil, reserves depletion, all of that,” said Jon Harrison, an emerging-markets currency strategist in London at Dresdner Kleinwort, which is reviewing its ruble forecast after today’s move. “We can probably expect to see more of this.” To reduce pressure on the ruble, the central bank also told financial firms yesterday not to increase bets on foreign currencies during December above their average for the past month, in a letter on its Web site. Bank Rossii set a limit of 10 billion rubles today on so- called currency swaps. The agreements allow traders to bet on the exchange rate without having to sell currency upfront. The bank has restricted them since Oct. 20. The limit was 5 billion rubles yesterday and 10 billion rubles on the previous four days.

The central bank is unlikely to allow a “one-step devaluation” because it wants to avoid “panic among the public an abrupt move might trigger,” Jussi Hahtela, an analyst in Stockholm at Nordea Bank AB, wrote in an e-mail to clients today. Twelve-month non-deliverable forward contracts, used by traders to speculate on the currency, signal a 27 percent depreciation in the ruble against the dollar, to 35.25. NDFs are contracts used to fix a currency at a particular level at a future date. They are used by companies seeking to protect against foreign-exchange fluctuations.

Russia’s refinancing rate, seen as a ceiling for borrowing money and a benchmark for calculating tax payments, will rise to 13 percent on Dec. 1, from 12 percent. The interest rate for one-day and seven-day loans from the bank in repurchase auctions will be 10 percent, from 9 percent. Russia’s Micex index of 30 stocks dropped 2.6 percent to 600.70 today, curbing this week’s 16 percent advance.

Dying of Consumption
IT’S game over for the American consumer. Inflation-adjusted personal consumption expenditures are on track for rare back-to-back quarterly declines in the second half of 2008 at a 3.5 percent average annual rate. There are only four other instances since 1950 when real consumer demand has fallen for two quarters in a row. This is the first occasion when declines in both quarters will have exceeded 3 percent. The current consumption plunge is without precedent in the modern era.

The good news is that lines should be short for today’s “first shopping day” of the holiday season. The bad news is more daunting: rising unemployment, weakening incomes, falling home values, a declining stock market, record household debt and a horrific credit crunch. But there is a deeper, potentially positive, meaning to all this: Consumers are now abandoning the asset-dependent spending and saving strategies they embraced during the bubbles of the past dozen years and moving back to more prudent income-based lifestyles.

This is a painful but necessary adjustment. Since the mid-1990s, vigorous growth in American consumption has consistently outstripped subpar gains in household income. This led to a steady decline in personal saving. As a share of disposable income, the personal saving rate fell from 5.7 percent in early 1995 to nearly zero from 2005 to 2007.

In the days of frothy asset markets, American consumers had no compunction about squandering their savings and spending beyond their incomes. Appreciation of assets — equity portfolios and, especially, homes — was widely thought to be more than sufficient to make up the difference. But with most asset bubbles bursting, America’s 77 million baby boomers are suddenly facing a savings-short retirement.

Worse, millions of homeowners used their residences as collateral to take out home equity loans. According to Federal Reserve calculations, net equity extractions from United States homes rose from about 3 percent of disposable personal income in 2000 to nearly 9 percent in 2006. This newfound source of purchasing power was a key prop to the American consumption binge.

As a result, household debt hit a record 133 percent of disposable personal income by the end of 2007 — an enormous leap from average debt loads of 90 percent just a decade earlier.

In an era of open-ended house price appreciation and extremely cheap credit, few doubted the wisdom of borrowing against one’s home. But in today’s climate of falling home prices, frozen credit markets, mounting layoffs and weakening incomes, that approach has backfired. It should hardly be surprising that consumption has faltered so sharply.

A decade of excess consumption pushed consumer spending in the United States up to 72 percent of gross domestic product in 2007, a record for any large economy in the modern history of the world. With such a huge portion of the economy now shrinking, a deep and protracted recession can hardly be ruled out. Consumption growth, which averaged close to 4 percent annually over the past 14 years, could slow into the 1 percent to 2 percent range for the next three to five years.

The United States needs a very different set of policies to cope with its post-bubble economy. It would be a serious mistake to enact tax cuts aimed at increasing already excessive consumption. Americans need to save. They don’t need another flat-screen TV made in China.

The Obama administration needs to encourage the sort of saving that will put consumers on sounder financial footing and free up resources that could be directed at long overdue investments in transportation infrastructure, alternative energy, education, worker training and the like. This strategy would not only create jobs but would also cut America’s dependence on foreign saving and imports. That would help reduce the current account deficit and the heavy foreign borrowing such an imbalance entails.

We don’t need to reinvent the wheel to come up with effective saving policies. The money has to come out of Americans’ paychecks. This can be either incentive driven — expanded 401(k) and I.R.A. programs — or mandatory, like increased Social Security contributions. As long as the economy stays in recession, any tax increases associated with mandatory saving initiatives should be off the table. (When times improve, however, that may be worth reconsidering.)

Fiscal policy must also be aimed at providing income support for newly unemployed middle-class workers — particularly expanded unemployment insurance and retraining programs. A critical distinction must be made between providing assistance for the innocent victims of recession and misplaced policies aimed at perpetuating an unsustainable consumption binge.

Crises are the ultimate in painful learning experiences. The United States cannot afford to squander this opportunity. Runaway consumption must now give way to a renewal of saving and investment. That’s the best hope for economic recovery and for America’s longer-term economic prosperity.

Wal-Mart worker killed in bargain-hunting stampede
A Wal-Mart worker died after being trampled by a throng of unruly shoppers as consumers, who had snapped their wallets shut since September, flocked to stores before dawn Friday to grab deals on everything from TVs to toys for the traditional start of the holiday shopping season, feared to be the weakest in decades. Retailers extended their hours — some opening at midnight — and offered deals that promised to be more impressive than even the deep discounts that shoppers found throughout November.

The 34-year-old Wal-Mart worker was taken to a hospital where he was pronounced dead at about 6 a.m., an hour after the store opened, when a throng of shoppers “physically broke down the doors, knocking him to the ground,” a police statement said. Wal-Mart Stores Inc., in Bentonville, Ark., would not confirm the reports of a stampede during the day-after-Thanksgiving bargain hunting, but said a “medical emergency” caused them to close the store. A 28-year-old pregnant woman and three other shoppers suffered minor injuries and also were taken to hospitals for observation, a police spokesman said.

By 3:43 a.m., about 50 people had lined up in preparation for the 5 a.m. opening at a Wal-Mart store in Cary, N.C. Shannon Keane, 38, of Cary, who arrived with her son, Miles, 13, at midnight, said she was buying only one item today: an iPod for her son. “He really wanted this one thing,” Ms. Keane said. “So we're here for this one thing.”
Ms. Keane, who was recently laid off from her job at an insurance company, said she was on a budget this year because her unemployment checks were also helping support family in Colorado. “I really can't focus on gifts,” she said. “I have to focus more on helping them pay their bills. It's hard,” she said of being a single mom on a small income. “I've always filled the tree. But you have to be honest. This year, I'll do the best I can.”

Best Buy, which threw its doors open at 5 a.m. offered such early morning specials as a 49-inch Panasonic plasma HDTV for $899.99 (U.S.) and a $189.99 GPS device by Garmin. Toys “R” Us, was offering up to 60 per cent discounts from 5 a.m. to 10 a.m. But it was clear that despite the crowds that showed up for the early morning deals, shoppers' worries about the economy — massive layoffs, tightening credit and dwindling retirement accounts — tempered buying.

Many consumers, clutching the store circulars, were focused on a few items Friday and said they were slashing their overall holiday budgets from a year ago as they juggle paying their rent and other bills while putting food on the table. “I have never slept here before to save a few bucks, but with the economy so bad I thought that even a few dollars helps. Saving a few bucks here and there helps,” said Analita Garcia of Falls Church, Va., who arrived at a local Best Buy store at 7 a.m. Thursday with 10 other family members. She bought a Dynax LCD 32-inch TV for $400, slashed from $500, along with an iPod and several DVDs.

“This year a lot of people I know won't be getting Christmas presents. I have to pay the rent and bills, and I have two little ones at home to think of,” Ms. Garcia added. At the Best Buy store in Syracuse, N.Y., a line snaked past stores and around walkways on the second floor of Carousel Center a few moments before the store's 5 a.m. opening — about eight hours after some people near the front of the line had arrived. Rob Schoeneck, the mall's manager, estimated about 1,000 people were waiting for the electronics store to open and said the crowd was about the same size as a year ago.

Inside, Kira Carinci, 33, a teacher from Cicero, N.Y., searched for the $80 “Guitar Hero III: Legends of Rock” video game and guitar controller bundle for her son but said she is more concerned about money than she was last holiday season. She said she had set aside a certain amount for Christmas spending. “I don't usually save, so this year is a little different,” she said.

Black Friday — which falls on the day after Thanksgiving and officially starts the holiday shopping period — received its name because it historically was the day when a surge of shoppers helped stores break into profitability for the full year. But this year, with rampant promotions of up to 70 per cent throughout the month amid a deteriorating economy, the power of this landmark day for the retail industry could be fading.

Still, while it isn't a predictor of holiday season sales, the day after Thanksgiving is an important barometer of people's willingness to spend for the rest of the season. And particularly this year, analysts will dissect how the economy is shaping shoppers' buying habits, including whether they will spring for big-ticket items or focus on small purchases like gloves and hats.

Another issue that Wall Street analysts are watching is how shoppers will pay for the gifts. Shoppers, who may be maxed out on their credit cards or trying to manage to their money better, have been increasingly using cash or debit cards instead of credit cards to pay for purchases in recent months. “No credit cards this year,” said Linda Patton of Louisburg, N.C. who was shopping at a local Wal-Mart on Friday. “We're trying not to carry over any bills.”

Last year, the Thanksgiving shopping weekend of Friday through Sunday accounted for about 10 per cent of overall holiday sales, according to ShopperTrak RCT Corp. The group hasn't released estimates for Black Friday sales this year, but experts believe it will remain one of the season's biggest selling days, even as shoppers remain deliberate in their spending. Britt Beemer, chairman of America's Research Group, expects to see the surge of shoppers dramatically taper off throughout the day and into the weekend. “I think we are going to see the busiest Black Friday ever, but will it carry over past 10 a.m.?” he said. “The bottom line is a great Black Friday does not make a season.”

A gloomy Christmas awaits UK retailers, CBI warns
More gloom was poured on the UK high street, with a dismal retail survey from the CBI topping off a week that has seen the collapse of Woolworths and MFI. The CBI's closely watched distributive trades survey dropped sharply in November after 62pc of retailers reported lower sales compared with a year ago, while only 16pc reported a rise. That led to a survey balance of -46pc, a big drop from the -27pc in October and worse than expected. Christmas is unlikely to provide any cheer, with a balance of -40pc expecting a strong fall in year-on-year sales.

Looking further ahead a balance of 37pc think that conditions in the retail sector will deteriorate in the next three months, prompting 57pc of companies to slash expenditure - the biggest proportion since the survey began in 1983. Retailers linked to the housing market were among the worst hit, but there was also a sharp decline in sales volumes in the grocery sector, ending two years of continuous growth. Only the footwear and leather sector reported a growth in sales. Andy Clarke, chairman of the CBI distributive trades panel, and retail director at Asda, said: "Christmas is going to be extremely tough this year, with retailers having to work harder than ever to keep the tills ringing. The added pressure of changing millions of prices, to reflect the cut in VAT, will be an unwelcome and costly burden.

"Big ticket items like consumer durables, furniture, carpets and DIY, are really being hit, and with a thawing of the housing market remote, this is unlikely to change." Economists were sceptical over whether or not the VAT cut from Monday, announced this week by the Chancellor as part of the pre-Budget report, would be enough to get consumers spending again. "The recent VAT cut and, more importantly, the widespread price discounting, may yet succeed in getting consumers to part with their cash. But we doubt it, when unemployment is rising and credit's hard to get," said Vicky Redwood, UK economist at Capital Economics.

Underlining the tough conditions faced by retailers, department store chain John Lewis said that sales were down 13.3pc in the week to November 22, compared with a year earlier. "The CBI survey and latest John Lewis sales data maintain belief that the consumer is in intensive care and is unlikely to be significantly revived by the VAT cut from 17.5pc to 15.0pc," said Howard Archer, chief economist at IHS Global Insight.

"The problems facing consumers run deep, and they can only be partly countered by the VAT reduction, sharp cutting of interest rates by the Bank of England and the increasingly desperate discounting and sales promotions being seen on the high street." The Bank's Monetary Policy Committee will make it's next interest rate decision on Thursday, and economists are expecting a further reduction of at least 0.5 percentage points, following last month's shock 1.5pc point cut which took rates down to 3pc.

Retailers Offer Big Discounts, and Then Pray
Black Friday, long the Super Bowl of shopping, is at hand, but it may have become nearly irrelevant. Check out the deals that were already on offer earlier this week: Diamond earrings at Macy's were chopped to $249 from $700. A Marc Jacobs bag at Saks, originally $995, fell to $248.45. And for men, a Ted Baker suit at Lord & Taylor was selling not for the usual $895, but for $399.99. Such crazy prices are a sign of the times, and analysts expect many more such deals during one of the toughest holiday seasons in decades.

Laden with excess inventory, hungry for sales and worried because of five fewer shopping days between Thanksgiving and Christmas this year, the nation's retailers went into a price-cutting frenzy long before the day after Thanksgiving, the traditional start of the holiday shopping season. For weeks, they have been trying to outdo one another to capture the attention of consumers who have become numb to run-of-the-mill discounts. As the latest T. J. Maxx slogan goes: "Every day is Black Friday."

In fact, retailers have had so many early "doorbusters" — jaw-dropping deals usually reserved for Black Friday — that "it's almost not necessary to get up at 5 in the morning," said Bill Dreher, a senior retailing analyst with Deutsche Bank Securities. But the retailers are just getting warmed up.

The Toys "R" Us chain is planning the deepest discounts in its history on Friday, with 50 percent more doorbusters than last year. Other retailers are promising that their deals will be even more striking than the sales they have already unveiled — with Wal-Mart, for instance, promising large flat-panel televisions for less than $400. Such bargains are likely to set the tone for the shopping season to come.

"There's no reason to suspect this will end," said Dan de Grandpre, editor in chief of, which has been tracking Black Friday deals for about a decade. "This kind of heavy discounting will continue until we see some retailers start to fail, until they start to go out of business." Indeed, the intense competition could erode profits at many chains. Some retailing analysts even fear it could condition consumers to shop only when merchandise is deeply discounted.

Still, stores plan to pull out all the stops on Friday and through the weekend. After all, November and December sales make up 25 to 40 percent of many retailers' annual sales, according to the National Retail Federation, an industry group. (The day after Thanksgiving is called Black Friday because it was, historically, the day that many retailers moved into the black, or became profitable for the year.)

The deals were laid out in circulars tucked into newspapers on Thanksgiving Day, on retailers' Web sites and on sites dedicated to sales and shopping strategies, like and Many stores planned to open just after midnight Friday morning, and others — including Wal-Mart, Sears, Macy's, Best Buy, Circuit City, Toys "R" Us and Old Navy — set their openings for 5 a.m. Target will open at 6 a.m. and BJ's Wholesale Club at 7 a.m.

Consumers have been resisting the stores' entreaties. In the first two weeks of November, retail categories like apparel, luxury goods and electronics and appliances all had double-digit sales declines, according to SpendingPulse sales reports from MasterCard. Grocers are just about the only stores doing well in this economy, as people hole up and eat at home instead of going to restaurants. "If you're in a sector that doesn't sell food, you're under a lot of pressure," said Michael McNamara, vice president of SpendingPulse.

Projections vary about the likely success of this year's Black Friday and the days following. A National Retail Federation survey said fewer people planned to shop this weekend — as many as 128 million, down from about 135 million who said they planned to shop Thanksgiving weekend sales last year. But a survey from the International Council of Shopping Centers found the opposite, that more people plan to shop this year.

Retailers are hoping for the best. "This year I expect it to be bigger than ever," said Gerald L. Storch, chairman and chief executive of Toys "R" Us. Citing the down economy, he explained: "I believe it will be huge because Black Friday is all about bargains." Ken Hicks, president and chief merchandising officer for J. C. Penney, said the day "probably will not be as big as it has been recently, but it's still going to be a huge day."

While bargains are already on offer at J. C. Penney, Mr. Hicks said the company's doorbusters would make it worth lining up before sunrise. Over all, J. C. Penney, which plans to open at 4 a.m., will have 20 percent more specials this year than last year, like a five-piece luggage set for $38.88. "We're selling some items purely intended to drive that traffic in," Mr. Hicks said.

So are other retailers. Disney Stores, which had a few midnight openings last year, planned to open more than half of its 200 stores at the Cinderella hour this year. Almost everything in those stores, including one-day-only specials, will be an additional 20 percent off until 10 a.m.

At Toys "R" Us, anyone who buys a black 16-gigabyte iPod Nano will get a $50 gift card. Wal-Mart, the nation's largest retailer, will offer jeans and sherpa-lined hooded sweatshirts for $4 and $8. Even Dollar General will have Black Friday deals, like a Black & Decker coffee maker for $15.

For the holiday season as a whole, retailing analysts expect weak sales. Standard & Poor's Equity Research is predicting a 5 percent decline, calling the holiday shopping season "the gloomiest in recent decades." The National Retail Federation, which made one of the more optimistic predictions, said sales would increase 2.2 percent, well below the average 4.4 percent yearly increase retailers have enjoyed for the last decade.

The only real winners this season are bargain-hunters with money to spend. With more deals on the way after Friday, shoppers can get impressive savings without necessarily having to brave the crowds or the cold on the day after Thanksgiving. "There's a small cadre of people who love Black Friday shopping," Mr. de Grandpre said. "Everybody else hates it."

Japan’s Recession Deepens as Factory Output Slumps
Japan’s recession deepened last month as companies cut production, consumers spent less and fewer people looked for work. Factory output fell 3.1 percent from September, when it rose 1.1 percent, the Trade Ministry said today in Tokyo. Household spending slid 3.8 percent, the eighth consecutive drop.

Companies surveyed said they plan the sharpest production cuts in 35 years as exports decline in the wake of the worst financial crisis since the Great Depression. Sharp Corp. said it may make fewer televisions and fire workers; Toyota Motor Corp. will lay off half of its temporary staff; and Canon Inc. has postponed building a 100 billion yen ($1 billion) printer cartridge factory in southwestern Japan.

“This is an unprecedented export recession,” said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. “The world stopped turning for about a month and a half after the middle of September, so it’s not surprising you’re seeing horrendous numbers.” The Nikkei 225 Stock Average rose 1.7 percent today. That wasn’t enough to stop the sixth monthly decline, the worst losing streak on record. The gauge has lost 44 percent this year, and the broader Topix index has tumbled 43 percent. The yen traded at 95.26 per dollar as of 4:20 p.m. in Tokyo from 95.41 before the figures were published. Japan’s currency has risen 11 percent since September, adding to exporters’ woes by eroding their profits earned abroad.

Companies plan to reduce output 6.4 percent this month, the most dismal outlook since the survey began in 1973, and a further 2.9 percent in December, the Trade Ministry said. The government lowered its assessment of production, saying it’s on a “downward trend. Today’s data is forcing me to reconsider the outlook; Japan’s recession could be more severe than the previous one,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “The shocking production number was the biggest disappointment.”

Japan’s economy shrank last quarter, entering the first recession since 2001. The International Monetary Fund predicts the U.S., Europe and Japan will all contract next year, the first simultaneous downturn since World War II. Exports tumbled 7.7 percent last month, the fastest pace in seven years, and shipments to Asia, where Japan makes about half of its overseas sales, fell for the first time since 2002. The drop caused inventories to climb to the highest level in five years, today’s report showed.

“The numbers in Japan are stunningly bad,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. He said Japan’s reliance on exports of cars, TVs and stereos to the U.S. leaves it the most vulnerable in Asia to the drying up of credit available to American consumers. Panasonic Corp., the world’s largest consumer-electronics maker, slashed its full-year profit forecast by 90 percent yesterday, citing the stronger yen and weakening demand for flat-screen TVs.

Separate figures showed retail sales slumped in October and the ratio of jobs available to each applicant slid to 0.80, the lowest since May 2004. The unemployment rate unexpectedly fell to 3.7 percent from 4 percent as people gave up seeking work. “It would be wrong to interpret this number as a sign of improvement in the workforce,” said Koji Katoh, the bureau’s director of labor statistics. “People probably aren’t looking for jobs given all the news that the economy is deteriorating.”

Companies plan to fire at least 30,067 temporary and part- time workers by March 31, according to a survey released by the Labor Ministry today. Toyota, the world’s second-biggest carmaker, said last week it will cut 3,000 contract staff, joining Isuzu Motors Ltd. and Mazda Motor Corp. in announcing layoffs. Toyota slashed output 17 percent in October.

“It’s a social tragedy that people who want jobs can’t get them,” Economic and Fiscal Policy Minister Kaoru Yosano said. The worsening labor market “is an issue the government and the ruling coalition should be worried about.” Prime Minister Taro Aso yesterday asked ruling-party lawmakers to find ways to protect contract employees’ jobs and help unemployed people find work, the Nikkei newspaper reported, without citing anyone. Aso said he wants the measures to be drawn up by Dec. 10, the newspaper reported.

Inflation slowed for a second month, the government said today. Consumer prices excluding fresh food rose 1.9 percent from a year earlier. Lower costs alone may not spur spending by households, whose sentiment has slumped to the worst on record. “The effect of cheaper goods is being outweighed by negative factors such as the gloomy outlook for incomes and the job market,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo.

Majority Stake for U.K. in Royal Bank of Scotland
— The British government took majority control of Royal Bank of Scotland on Friday after investors shunned the lender's share sale, paving the way for a larger government role in Britain's banking sector. Investors signed up to buy 0.24 percent of the shares, which were offered as part of a plan to bolster the bank's capital, and the government, which had underwritten the sale, picked up the rest, leaving it with a 57.9 percent stake in RBS. The government also agreed to buy a separate block of preferred shares bringing its investment in RBS to about $31 billion. The investment leaves taxpayers already with a paper loss of more than $3 billion, based on Thursday's closing price.

RBS was one of three British financial firms that tapped government help to fulfill stricter capital requirements intended to help banks survive the credit crisis. Two others — Lloyds TSB and the mortgage lender HBOS, which have recently agreed to merge — also relied on the government to take up any shares they cannot sell. But some analysts warned that even those stricter capital rules might not guarantee the stability of Britain's banks as the turmoil in the financial markets continued.

"We have no idea whether this will work or whether it's just flipping matches at a damp bonfire," said Justin Urquhart Stewart, a fund manager at Seven Investment Management in London. The lack of interest in the share sale "just underlines the loss of faith by everybody in the banking sector." Investors balked at buying RBS stock after it dropped below the offer price of 65.5 pence a share earlier this month. Before that, some investors considered buying the shares to avoid the government taking a stake, which would mean stricter limits on dividend and bonus payments. But they failed to do so when it became cheaper to buy the shares on the open market than through the share issue. The shares fell 5.8 percent to 52 pence in London on Friday.

"We are grateful to the government for its underwriting and broader financial support to liquidity and funding markets," the RBS chief executive Stephen Hester, who took over earlier this month, said in a statement. "We regret that existing shareholders did not take up their pre-emptive rights but understand that market sentiment toward the banking sector made this uneconomic in the short term."

The government's majority stake means that RBS's management will remain in place and will run the bank on a daily basis, but the government will ensure that it adheres to the conditions of the bailout plan, which includes offering more favorable loans to some businesses. The government stake is held by a special holding vehicle led by Philip R. Hampton, a former finance director of Lloyds, who will ensure that RBS is run in a way that maximizes value for taxpayers. The government plans to hold the stake until the shares recover and can be sold at a profit.

New moves to ease strain of Canadian credit crisis
Finance Minister Jim Flaherty moved yesterday to ease the strain caused by the global credit crisis, pledging an additional $700-million for two federal lenders and legislative housekeeping that would give the government authority to buy shares in banks. Mr. Flaherty also said in his autumn economic update that he would double the time period under which companies must make up for shortfalls in federally regulated pension plans.

The measures reflect the continued fallout of the global financial crisis, which has caused banks around the world to record writedowns of about $1-trillion this year. Those losses, combined with worries about financial institutions' exposure to assets linked to the U.S. housing market, are making banks reluctant to lend and have contributed to the collapse of international stock markets.

In other steps aimed at shoring up confidence in Canada's banks, Mr. Flaherty said he would increase the Canada Deposit Insurance Corp.'s borrowing limit to $15-billion from $6-billion, a figure set in 1992 and no longer adequate given the growth of deposits in the past 16 years, a senior Finance official said.

Mr. Flaherty also said he would rewrite Canada Deposit's mandate to give the agency's board of directors more flexibility to react to a systemic failure in the financial system. Under the current standard, Canada Deposit is required to spend in a way that limits its own losses. That could tie the agency's hands if officials decided its proper role was to offer blanket coverage as part of a financial salvage operation.

Another piece of legislation made quaint by the financial crisis also forced Mr. Flaherty to risk raising the spectre of a public bailout of Canadian banks by acknowledging the government doesn't currently have the power to buy shares in financial institutions - something governments in the U.S. and Europe did, to the tune of hundreds of billions this year, to keep their banks from failing.

Mr. Flaherty, who has maintained throughout the financial crisis that Canada's banks are sound, insisted yesterday that the financial measures in his update were simply precautionary. "These are additional tools in our toolbox," Mr. Flaherty said in a speech to the House of Commons. "I hope we never have to use them."

In an interview this week, Bank of Montreal chief executive officer Bill Downe said the federal government has never seriously discussed the idea of taking a stake in a Canadian bank. Robin Walsh, a spokesman for the Canadian Bankers Association, said yesterday that there is "absolutely no expectation" that any of the government's new financial sector measures would be used. BMO and the country's other banks are being accused by some of the country's biggest industry associations of maintaining what they deem overly restrictive lending requirements, driving up the cost of lines of credit and business loans.

In response to that push, Mr. Flaherty said he would give Export Development Canada an equity injection of $350-million, which he predicted would lead to an additional $1.5-billion in credit for the country's exporters, especially makers of automobile and parts makers. The Business Development Bank of Canada also will get an infusion of $350-million, which the government said would allow the Crown lender to increase loans by $1.5-billion. Ottawa-based EDC's main function is to back the loans exporters get from banks. BDC loans to small and medium-sized companies.

"The downturn in sales and exports is going to be dramatic in the first half of the year," said Jayson Myers, president of Canadian Manufacturers and Exporters. "This is not a lot of money. We need to see this used to the best extent possible to get private sector finance." Mr. Myers welcomed the planned changes to pension requirements, saying the issue was a major concern of his members, which include some of the country's biggest companies.

Currently, firms with federally regulated pension plans must show they can meet requirements over a five-year period. That has been made more difficult by the 40-per-cent collapse in North American stock markets this year. Mr. Flaherty said he would change the rules to give companies 10 years to make up any shortfalls in their pension funds.

BCE deploys heavies for one last shot
BCE Inc. has dispatched two senior officials to do battle with a relatively unknown KPMG partner who has blocked the world's largest leveraged buyout, while already turning its full attention to life without a takeover. KPMG managing partner Susan Glass, the author of the now famous solvency valuation that has all but sunk BCE's planned $35-billion sale, is facing an all-out lobbying effort from BCE heavyweights Thomas O'Neill, chairman of the audit committee and former chairman of PricewaterhouseCoopers, and Siim Vanaselja, the telecom company's chief financial officer and a former KMPG tax partner.

The BCE executives know they face a daunting task, with one senior source at the company saying that reversing KPMG's decision could be likened to “trying to push water uphill.” The last-ditch pitch from BCE will focus on changing Ms. Glass's view of what BCE would be worth in the unlikely event the company had to be liquidated. She will be asked to take a more generous view of the market value of BCE assets.

The KPMG team spent four months running the numbers on what BCE would look like after being taken over by the Ontario Teachers' Pension Plan, and concluded the company didn't pass solvency tests after it shouldered $32-billion of new debt. Sources close to KPMG said the BCE decision, while weighty, was a by-the-book call for Ms. Glass, a former accounting professor at McMaster University who joined the firm in 1989 and quickly rose up the ranks, in part owing to her skill in assessing the value of takeover targets.

“There's been no angst or rancour in the relationship [with KPMG]; it's all been very professional,” said one source close to BCE who declined to be identified. Several company executives and advisers said yesterday there is little chance the deal can now be resurrected. One top executive said: “This deal has had so much of an Alice in Wonderland feel to it, you never know what's going to come around the next corner. So even though it's remote, it could happen. But it's remote.”

While BCE has until Dec. 11 to sway KPMG, sources said BCE's directors aren't holding out much hope on the lobbying effort. The board is set to meet on Dec. 2 and the bulk of that session is expected to be devoted to recrafting BCE's future as an independent company. If the deadline for the takeover expires on Dec. 11, as expected, the company plans to roll out its new strategy the following day.

Richard Currie, chairman of BCE's board, said yesterday that the company's directors were surprised and disappointed by KPMG's decision, which came after nearly two years of takeover talks and delays. “There's not much one can say about it, in terms of anger or exhaustion. We did the very best we could do all the way through,” said Mr. Currie, former president of Loblaw Cos. Ltd. “As far as I am concerned, the board has done a superb job under very difficult circumstances, and if the deal doesn't go through, it is not because of a lack of trying.”

The board's plans for the company are expected to be very different from the aggressive shakeup Teachers and its partners had in store for BCE. According to sources, Teachers was finalizing plans to sell within days of the planned takeover some of its assets, including regional phone trust Bell Aliant Regional Communications Income Fund and possibly its Internet portal Sympatico and its 15-per-cent stake in CTVglobemedia Inc. Now it appears those asset sales, like the takeover of BCE, are off the table.

At the very least, BCE is expected to reinstate a generous dividend – the quarterly payments to shareholders were cut off in July to conserve cash. Analysts also said yesterday that BCE has enough cash on hand to buy back up to $2.7-billion in shares, but sources say BCE chief executive officer George Cope and the board prefer to plow cash into growth opportunities. “I would not be surprised to see BCE buy back the public stake in Bell Aliant, as George Cope has never been convinced of the value of that spinout,” said one banker who works with BCE, adding that the trust turns out a reliable amount of cash, and is trading at a relatively attractive valuation.

While analysts are already raising the possibility of trying once again to merge BCE and Telus Corp.- the two held brief talks in the summer of 2007 – sources at both companies say there are no such plans in the works. Sources say BCE's board also has no intention of asking a second audit firm to review KPMG's work. While BCE's management ranks are set under Mr. Cope – there have been sweeping job cuts in recent months – a number of BCE directors are expected to step down from the board at the next annual meeting, if the takeover does not play out. Mr. Currie did not reveal his plans, except to say he wants to ensure the company is on sound footing.

Company Bonds Give Investors Best Returns Since 2003
Corporate bonds in the U.S. and Europe gave investors the biggest returns since 2003 in November, as yields widened to a record relative to government debt.
Investment-grade U.S. bonds returned 3.6 percent this month, after losing 7.4 percent in October, as Treasury yields declined on concern the recession is deepening, according to Merrill Lynch & Co. indexes. European notes returned 1.5 percent, the most since September 2003. The positive returns were the first since August, before the collapse of Lehman Brothers Holdings Inc. sent company debt tumbling. Sales of new debt rose.

Increased issuance is “the best possible news for the market,” said Santiago Rubio, who helps oversee 14 billion euros ($18 billion) as the Madrid-based head of asset allocation at a unit of La Caixa, Spain’s biggest savings bank. “There was a chance that premiums offered wouldn’t be enough to attract investors,” but they “are working,” he said. The extra yield on investment-grade debt over government bonds in the U.S. rose by 0.33 percentage point to an average 6.39 percentage points, the highest since Merrill started collecting the data in 1996. Spreads on European bonds rose 0.21 percentage point to a record 4.14 percentage points. Merrill’s U.S. Treasury Master Index has returned 5.1 percent this month. The yield on the 10-year Treasury note fell to a record today.

“U.S. corporate bonds are offering positive returns after having been decimated in September and October,” said Wilmer Stith, a fund manager at MTB Investment Advisors in Baltimore, which manages $14.5 billion. “But on a relative basis, they are still lagging U.S. Treasuries.” Spreads widened as concern that Citigroup Inc. would fail led to a government bailout of the New York-based bank, the MSCI World Index of stocks slipped 8 percent and the risk of companies defaulting increased to a record.

Investors bought $127.5 billion of bonds in the U.S. and Europe this month after governments guaranteed banks’ debt sales to kick-start lending, according to data compiled by Bloomberg. Credit markets froze this year following almost $1 trillion of losses and writedowns by the world’s biggest financial companies since the start of 2007. U.S. companies issued $49.7 billion of debt in November, almost twice the sales last month and the most since June, when they sold $74.3 billion, Bloomberg data show.

JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs Group Inc. sold $17.25 billion of bonds under the Federal Deposit Insurance Corp. guarantee started this week. Credit-default swaps on Goldman fell after the sale, indicating an improvement in the perception of credit quality, according to CMA Datavision prices for the contracts.
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company’s ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

JPMorgan also sold 1.5 billion euros and 600 million pounds ($923 million) of bonds due 2011 this week. “I think next week you’ll see quite a bit of issuance, and you’ll see that right through Christmas,” said Paul Spivack, global co-head of the investment-grade syndicate at Morgan Stanley in New York. “You’re going to see more and more investors participating in this,” he said, commenting on bank- bond sales under the FDIC program.
Bonds rated at least Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s are considered investment grade.

Banks in the U.K., Ireland and France raised a total $26.4 billion this month under government pledges to guarantee their debt. Royal Bank of Scotland Group Plc, Lloyds Bank TSB Plc and Bank of Scotland Plc, a unit of HBOS Plc, raised the equivalent of $14.8 billion of U.K.-backed debt in euros and pounds this month. Allied Irish Banks Plc and Bank of Ireland sold $5.2 billion of government-backed bonds in euros, and Societe de Financement de l’Economie Francaise raised a total of 5 billion euros for banks this month. Irish Nationwide Building Society, a customer-owned lender, SFEF and Bank of Scotland are among European financial companies that are preparing to sell government-guaranteed bonds.

Even with November’s gains, corporate bond returns in the U.S. are down 12 percent for 2008, on track for the worst year ever, Merrill data show. European bonds lost 1.9 percent last month and are also poised for their biggest annual decline, according to Merrill’s European Corporate Index. Bonds rated below investment grade in the U.S. lost 8.8 percent this month, after tumbling 16.3 percent in October and 8.3 percent in September, according to Merrill indexes. The debt is down 31.8 percent in 2008, set for its worst-ever year. In Europe, high-yield, high-risk bonds handed investors a loss of 4.6 percent in November, after slipping 19 percent in October and 9 percent in September. “The market’s pricing in a record default rate” on non- investment grade bonds, said Todd Youngberg, senior vice president of high-yield debt at Aviva Investors in Chicago, who manages $2 billion.

Companies that have been able to raise money have paid for the privilege. Metro Finance BV, a unit of Dusseldorf-based German retailer Metro AG, sold 500 million euros of five-year bonds priced to yield 590 basis points more than midswaps, compared with 32 basis points for five-year bonds in May 2007. Finmeccanica SpA, Italy’s largest defense company, sold 750 million euros of five-year bonds priced to yield 475 basis points, or 4.75 percentage points, more than the benchmark mid- swap rate on Nov. 26. When the Rome-based company sold 20-year bonds in 2005, the spread was 72 basis points. “Right now it’s not easy to raise funds,” Alessandro Pansa, Finmeccanica’s chief financial officer, told reporters in Rome on the day of the sale. “You succeed only if you’re credible.”

Lest We Forget, by Paul Krugman
A few months ago I found myself at a meeting of economists and finance officials, discussing — what else? — the crisis. There was a lot of soul-searching going on. One senior policy maker asked, “Why didn’t we see this coming?” There was, of course, only one thing to say in reply, so I said it: “What do you mean ‘we,’ white man?”

Seriously, though, the official had a point. Some people say that the current crisis is unprecedented, but the truth is that there were plenty of precedents, some of them of very recent vintage. Yet these precedents were ignored. And the story of how “we” failed to see this coming has a clear policy implication — namely, that financial market reform should be pressed quickly, that it shouldn’t wait until the crisis is resolved.

About those precedents: Why did so many observers dismiss the obvious signs of a housing bubble, even though the 1990s dot-com bubble was fresh in our memories? Why did so many people insist that our financial system was “resilient,” as Alan Greenspan put it, when in 1998 the collapse of a single hedge fund, Long-Term Capital Management, temporarily paralyzed credit markets around the world? Why did almost everyone believe in the omnipotence of the Federal Reserve when its counterpart, the Bank of Japan, spent a decade trying and failing to jump-start a stalled economy?

One answer to these questions is that nobody likes a party pooper. While the housing bubble was still inflating, lenders were making lots of money issuing mortgages to anyone who walked in the door; investment banks were making even more money repackaging those mortgages into shiny new securities; and money managers who booked big paper profits by buying those securities with borrowed funds looked like geniuses, and were paid accordingly. Who wanted to hear from dismal economists warning that the whole thing was, in effect, a giant Ponzi scheme?

There’s also another reason the economic policy establishment failed to see the current crisis coming. The crises of the 1990s and the early years of this decade should have been seen as dire omens, as intimations of still worse troubles to come. But everyone was too busy celebrating our success in getting through those crises to notice. Consider, in particular, what happened after the crisis of 1997-98. This crisis showed that the modern financial system, with its deregulated markets, highly leveraged players and global capital flows, was becoming dangerously fragile. But when the crisis abated, the order of the day was triumphalism, not soul-searching.

Time magazine famously named Mr. Greenspan, Robert Rubin and Lawrence Summers “The Committee to Save the World” — the “Three Marketeers” who “prevented a global meltdown.” In effect, everyone declared a victory party over our pullback from the brink, while forgetting to ask how we got so close to the brink in the first place. In fact, both the crisis of 1997-98 and the bursting of the dot-com bubble probably had the perverse effect of making both investors and public officials more, not less, complacent. Because neither crisis quite lived up to our worst fears, because neither brought about another Great Depression, investors came to believe that Mr. Greenspan had the magical power to solve all problems — and so, one suspects, did Mr. Greenspan himself, who opposed all proposals for prudential regulation of the financial system.

Now we’re in the midst of another crisis, the worst since the 1930s. For the moment, all eyes are on the immediate response to that crisis. Will the Fed’s ever more aggressive efforts to unfreeze the credit markets finally start getting somewhere? Will the Obama administration’s fiscal stimulus turn output and employment around? (I’m still not sure, by the way, whether the economic team is thinking big enough.)

And because we’re all so worried about the current crisis, it’s hard to focus on the longer-term issues — on reining in our out-of-control financial system, so as to prevent or at least limit the next crisis. Yet the experience of the last decade suggests that we should be worrying about financial reform, above all regulating the “shadow banking system” at the heart of the current mess, sooner rather than later.

For once the economy is on the road to recovery, the wheeler-dealers will be making easy money again — and will lobby hard against anyone who tries to limit their bottom lines. Moreover, the success of recovery efforts will come to seem preordained, even though it wasn’t, and the urgency of action will be lost. So here’s my plea: even though the incoming administration’s agenda is already very full, it should not put off financial reform. The time to start preventing the next crisis is now.

Chesapeake Energy may sell $1.8B stock to get cash

Chesapeake Energy Corp., the nation's largest producer of natural gas, seeks to raise up to $1.8 billion through common stock sales in an effort to fund its drilling and exploration activities and mitigate the impact of lower natural gas prices on cash flow.In two filings with the Securities and Exchange Commission late Wednesday, the company said it will issue shares worth as much as $1 billion before fees and also registered 50 million shares worth at most $791 million for potential sale.

Oklahoma City, Okla.-based Chesapeake said it will use proceeds from the $1 billion offering for general corporate purposes, including fund exploration, development and other capital expenditures. The move would dilute holdings of shareholders, who already suffered through a substantial decline in Chesapeake's stock price this year. Shares closed at $20.24 on Wednesday, off 73 percent from the stock's $74 52-week high set this summer.

But the company said cash flow, borrowings and cash on hand have not been enough to pay for capital expenditures. Chesapeake has used up the remaining financing available under its $3.5 billion bank credit facility and only $251 million is left of another $460 million credit line. Credit markets remain tight with financial institutions under duress. While cash flow from operations had risen in the first nine months of 2008 compared to a year ago, it's heavily dependent on natural gas prices, which have fallen off sharply.

"Changes in market prices for natural gas and oil directly impact the level of our cash flow from operations," the company said in a filing. Chesapeake has hedged about 73 percent of its remaining natural gas and oil reserves in 2008 and 67 percent of expected production in 2009 at average prices of $9.09 and $8.65 per thousand cubic feet equivalent (Mcfe), respectively. In Nymex trading Thursday, natural gas for January delivery slid 9.7 cents to $6.781 per 1,000 cubic feet.

The company has cut back on its capital expenditure budget through 2010 in light of global economic distress and concerns about oversupply of natural gas in the U.S. market. Chesapeake said it's negotiating with several "significant" leaseholders to acquire leaseholds at reduced prices. In the filing, it said some leaseholders may agree to accept common stock for all or part of the deal.

The company has struck several multibillion-dollar transactions recently. In September, BP PLC's U.S. arm said it plans to buy a 25 percent stake in Chesapeake's Fayetteville Shale assets in Arkansas for $1.9 billion. A month earlier, BP said it had bought similar Chesapeake assets in Oklahoma for $1.7 billion. Earlier this month, Chesapeake sold even more natural gas assets to Norwegian energy company StatoilHydro for $3.38 billion.

Shell delays Alberta oil sands project
Royal Dutch Shell Plc is delaying another Canadian oil sands project, saying Thursday it has withdrawn a regulatory application for its 100,000 barrel per day Carmon Creek thermal project as it looks to shave costs by revamping the project. The delay is the latest blow to what had been an ambitious schedule of projects for Canada's oil sands. The oil sands region of northern Alberta contains the largest oil reserves outside the Middle East, but they are technically challenging and expensive to extract.

Shell, one of the biggest players in the oil sands, last month delayed an expansion of its oil sands mining operation when costs rose and oil prices fell. Adrienne Lamb, a spokeswoman for the company, said Shell is reviewing and redesigning the Carmon Creek project and plans to submit a new application to regulators. The company hasn't yet decided when that will take place.

"The review is looking at opportunities to reduce costs and improve the profitability of the project," Ms. Lamb said. "As a result of that we expect there will be some changes ... Rather than update the application we decided the best path forward is to submit a new application." Shell had been expected to make an investment decision on Carmon Creek in 2010. However Ms. Lamb said that will now be delayed because of the changes and the company hasn't decided on a new schedule.

Shell had not released a cost estimate for the project, which was to have been built in two 50,000 barrel per day tranches. Unlike the company's mining operations, Carmon Creek would use thermal techniques to produce the reserves, pumping steam into the ground to liquefy the tar-like bitumen so that it can be pumped to the surface.

Along with Shell, Suncor Energy Inc., Nexen Inc., Petro-Canada, Canadian Natural Resources Ltd. and others have said they'll delay or defer projects in the region because falling oil prices have squeezed profits while costs stay high. A shortage of skilled labour in the remote region has helped push up costs as companies compete for a small pool of tradesmen and contractors.

Copper's Every Dip Is Felt in Arizona
For this isolated mining town, which lives and dies by the price of copper, the last few years have been a roller coaster ride of steep climbs and sudden dips. Over all, however, the direction seemed to be up. Copper's dizzying climb began in 2003, when prices surged in response to booming demand from China and other fast-industrializing economies. The price spike spurred a major revival of Arizona's once-battered mining industry, and towns like Morenci, once devastated by layoffs, returned to flush times.

This past summer, even as the dire housing market contributed to widespread job losses and other economic woes in Arizona, copper prices reached a record, drawing thousands of new workers to the mines, where jobs were plentiful. But the arrival of the credit crisis this fall has stalled the mining boom. Reeling financial markets stripped copper of 60 percent of its value in only a few months, and expansion projects in Arizona, the nation's leading copper-producing state, are being postponed.

A sense of anxiety permeates Morenci, where almost everyone follows copper's daily rise and fall on financial cable shows and the Internet. "Everybody is just wondering day-to-day what is going to happen," said Hector Ruedas, a Greenlee County supervisor and member of the Morenci school board who once worked in the mines. The speed and the depth of the price plunge has taken even longtime industry observers by surprise. "The end has come just incredibly abruptly," said Nyal Niemuth, chief mining engineer for the Arizona Department of Mines and Mineral Resources. "There weren't many of us predicting this collapse."

In late October, Freeport-McMoRan Copper & Gold, the copper industry's largest employer in Arizona, announced plans to lay off 600 mine workers in the state. Those layoffs came in addition to hundreds of independent contactors already let go by the company. "Most of those employees were recently hired, many in anticipation of expansions, which have been deferred," Eric Kinneberg, a company spokesman, said in an e-mail message.

Demand for copper — a key material in construction and manufacturing — has long been a proxy for the overall health of the world economy. After a steep slide this autumn, prices stabilized in recent days. Another fall could signal that a more prolonged global recession is on the way. At today's price of about $1.67 a pound, copper remains marginally profitable to produce at many Arizona mines, giving some mining communities hope they may avoid broader layoffs.

"Right now we're taking a deep breath and hoping that everything's going to be O.K.," said Mayor Fernando Shipley, of Globe, Ariz., home of several mines and one of the country's last operating smelters. A collapse in copper production — and a return to the mass layoffs and mine closings of the past — would be a major reversal for Arizona's copper industry, which has only just recovered from one of its worst slumps in decades.

That era of relentless downsizing, driven by a sustained period of copper prices lower than at any point since the 1930s, reversed course sharply in late 2003, as prices surged in response to turbocharged demand from China. The mining industry responded by increasing employment and initiating a wave of exploration and new development not seen in a generation. For long-depressed mining towns like Morenci, the thousands of added jobs meant new life.

The Morenci mine — owned by Freeport-McMoRan, which acquired the mine in its merger with the Phelps Dodge Corporation last year — doubled its work force over the last five years, to 4,000 employees. Production at the mine has risen 55 percent since 2003, to an average of one million tons of ore a day. Earlier this fall, despite the gathering economic storm, an almost frenetic energy pulsed through Morenci, a remote hamlet tucked in a valley in southeast Arizona, evidence of the intense effort that has been required to bolster the mine's production.

Business was brisk at the town's two diners and one supermarket. Hundreds of new homes, many still under construction, lined steep hillsides dotted with sagebrush and creosote. And day and night, mud-streaked pickups and tanker trucks loaded with sulfuric acid and diesel rumbled continuously along the two-lane highway that cuts through the center of town.

Despite the new construction, the town's limited housing stock — all still company-owned — has been overwhelmed, leading Freeport to haul in several dozen corrugated steel trailers to fill the gap. The trailers, assembled in an expansive gravel lot, form a makeshift community the miners call Man Camp. There, $20 a day secures a tiny room, as well as breakfast, lunch and dinner in a company mess hall. "Three hots and a cot," said Ed Morin, a miner who lived at the camp for almost a year before leaving earlier this month because of family obligations. "It's not a bad deal." Earning about $28 an hour, Mr. Morin saved more than $60,000 in less than a year by working hundreds of hours of overtime; his work ethic was motivated in part by the experiences of his father and grandfather, both miners who lived through copper crashes.

"When copper's big, you hit it hard and save up for a rainy day, when they lay you off," Mr. Morin said. "It's the mining game. My daddy played it for years." With the sharp fall in copper prices, the atmosphere in Morenci has shifted sharply since this summer, Mr. Ruedas said. "The mood is not good," he said. "You go downtown and there aren't smiling faces anymore."

The surge in exploration and development extended across the West, from Alaska to New Mexico. But the epicenter of the boom was Arizona, the source of 62 percent of United States copper and about 5 percent of world supply. Alongside Chile, the state continues to rank as one of the two richest copper provinces in the world. It is dotted with rich, near-surface copper deposits, a remnant of long-dead volcanoes.

Over the last five years, the world's largest mining interests — BHP Billiton, Freeport-McMoRan, Rio Tinto and Sumitomo — poured more than a billion dollars into reopening shuttered operations and expanding production at existing mines in the state. For the first time in more than 30 years, they also opened new mines, bringing a promise of prosperity to struggling rural areas, along with challenges.

Among the first to be touched by the expansion was Safford, Ariz., a small agricultural community about 150 miles southeast of Phoenix, where Freeport-McMoRan recently opened a $550 million open-pit copper mine. When work on the mine began in July 2006, 1,500 construction workers flooded into the Safford Valley with money to burn, fueling a gold-rush mentality.

"We had been a sleepy little rural community for a long, long time and all of a sudden, when the rest of the world's economy was going in the tank, ours was just exploding," said James A. Palmer, chairman of the Graham County board of supervisors. "There were lines to get into restaurants, there were help-wanted signs everywhere. If you had a pulse, you could get a job." After decades of stagnant growth, the city's sales tax revenue doubled in three years. New roads are being paved, and the regional hospital is building a new cancer wing. Main Street, once full of empty storefronts with boarded-up windows, is nearing 95 percent occupancy.

Not all, however, were pleased by the arrival of the mine. Bud Smith, 84, is a cotton farmer whose grandfather settled in the Safford Valley well over a hundred years ago, after traveling there from Utah in a covered wagon. He said he disliked the noise of the mine and the heavy traffic it has brought to the area. "Now, you pull out on the road and it's just a solid string of cars, coming and going at shift change," said Mr. Smith, sipping a cup of coffee in El Coronado, a cafe on Main Street. "I don't care for it, but that's progress, I guess."

Mixed emotions can also be found in Miami, Ariz., where the boom brought back mining jobs many thought were lost for good. According to Mayor Chuy Canizales, the area's mines recently announced a hiring freeze and suspended major new mining projects indefinitely. Layoffs may soon follow. "We're just barely hanging on," said Mr. Canizales, a 35-year employee of Freeport-McMoRan. "But we've survived worse in the past, and I think we'll pull through." For old-timers, the price swings of recent months evoke searing memories of strikes and layoffs, buyouts and bankruptcies — and the hard times that invariably follow a copper crash.

They are also a reminder that the towns and the mines share a common destiny. "It goes up and down, the copper industry," said Richard Perez, 68, a retired miner who runs a diner in town. "Being with the copper mines is like being with a wife for 25 years. You argue and you fight sometimes, but when it's over and done with, you're happy to have them around."

UBS Finds Limited Tax Fraud Involving Wealthy Americans
UBS has discovered only a small number of tax-fraud cases as part of an investigation into whether the Swiss bank helped clients dodge American taxes, the bank's chairman, Peter Kurer, said Thursday.

"Our investigations have uncovered a limited number of cases of tax fraud under both U.S. and Swiss law," Mr. Kurer told shareholders at a special meeting in Lucerne, Switzerland. He asserted that Swiss bank-client confidentiality agreements had not been broken in an unfolding investigation of the bank's activities, adding that the rules were not "there to protect cases of tax fraud."

The United States Justice Department has argued that UBS, a huge bank based in Zurich that has extensive operations in the United States, helped as many as 17,000 of its American clients evade $300 million a year in taxes through hidden offshore accounts. Mr. Kurer's remarks contained no specifics about whether he disputed the American estimate, nor did he clarify what number of fraud cases he would regard as "limited."

Raoul Weil, who oversaw UBS's lucrative cross-border private banking operations until 2007, was indicted this month by an American grand jury in Florida on a charge of conspiracy. Mr. Kurer asked for the support of the shareholders, of which about 2,400 gathered at a conference center on Thursday to approve UBS's recapitalization program. (The bank's name derives from one of its corporate predecessors, the Union Bank of Switzerland.)

The chairman said he was trying to navigate through difficult times. Shareholders applauded when Mr. Kurer noted that former executives and other managers had agreed to repay the bank a total of $59 million in bonuses. He added that UBS was still in discussions about getting more money back. Marcel Ospel, who was the bank chairman when it accumulated more than $40 billion in write-downs on assets linked to the mortgage market in the United States, surrendered about $18 million. The former chief executive, Peter Wuffli, and the ex-finance chief, Marco Suter, also gave up part of their compensation.

Mr. Kurer reiterated that none of the bank's current managers would receive a bonus for 2008 and that UBS was going ahead with plans for a new remuneration system, announced earlier this month. The new system includes lower bonuses that will not be fully paid up front. Some shareholders still expressed dissatisfaction with management and criticized UBS for seeking help from the Swiss government shortly after saying it would not need extra funds to weather the crisis.

The bank agreed earlier to transfer $60 billion worth of toxic assets tied to the American subprime market into a separate entity backed by the Swiss central bank and to issue mandatory convertible notes to the government, which could leave UBS partly state-owned. Shareholders approved the steps by an overwhelming majority at Thursday's meeting.

Mr. Kurer called on shareholders to support management despite a 66 percent decline in the bank's share price over the last year and said he "understands the disappointment and anger" among them. But, he added, "Fear and anger are bad advisers. To solve problems we have to keep a clear head and work together and not against each other."

Gas prices: Lowest since 2005
Gas prices fell to their lowest level since 2005, coming within 4 cents of $1.80 a gallon, according to a daily survey of gas station credit card swipes by motorist group AAA. Gas prices slipped 1.1 cents to a national average of $1.835 a gallon, according to Friday's survey. Prices have fallen by more than 55% since hitting a record high of $4.114 a gallon in mid-July as the price of crude oil, gasoline's main ingredient, has plummeted.

Concern about falling fuel consumption in the midst of the current economic crisis has propelled oil prices down more than 60% since July. Typically, energy expenditures are the first to be trimmed back during periods of economic sluggishness as business activity declines and consumers try to save money by driving less, say economists. Gasoline prices are now below $2 a gallon, on average, in 43 states. Missouri had the lowest prices at $1.546 a gallon. Alaska continues to have the highest prices at an average of $2.817 a gallon.

The price of diesel fuel, which is used by most trucks and commercial vehicles, fell 1.2 cents to a national average of $2.775 a gallon, according to AAA. Diesel prices have fallen more than 40% since hitting a high of $4.845 in July. Meanwhile the price of E85, an 85% ethanol blend made primarily corn, has also fallen 1.2 cents to $1.617 a gallon on average, according to AAA. E85 can be used as a gas substitute in special configured "flex-fuel" vehicles. However, it is difficult to find outside of the corn-producing Midwest region, and it is not sold at the pump in some states.

Detroit rebound? Wait 'til after next year
A profitable U.S. auto industry just around the corner? Given the crisis hitting the industry, it sounds about as realistic as flying cars. Congressional leaders are demanding to see details by this Tuesday about how U.S. automakers will start making money again before they'll agree to even have a vote on the $25 billion federal loan package the industry is seeking.

Many critics of the bailout suggest that automakers have shown no indication of how they'll return to profitability. Some argue the Big Three U.S. automakers are doomed to fail even if they get loans from the government. But General Motors, Ford Motor and Chrysler have already made sizable cuts in production and staffing throughout the year with additional cuts coming in the next few months.

While it's tough to offer guarantees of profitability with so much uncertainty about the economy, if the automakers get the federal help they are asking for, the Big Three could be back in the black as soon as 2010. With that in mind, here's what GM, Ford and Chrysler are likely to point out next week in their business plan to Congress:

Lower employment costs
GM, Ford and Chrysler have been downsizing for years and have all continued to make even deeper cuts this year which will save them billions of dollars. GM plans to cut more than 7,000 salaried and contract employees this year as it aims to trim nonunion labor costs by 30%, or about $2 billion annually. Those departures did not begin until this quarter and most of the remaining employees should leave by the end of the year. So some of the savings won't take effect until next year. And the cost of the severance and retirement packages is causing steeper losses in this year.

Ford and Chrysler are planning similar size cuts in their non-union staff. Chrysler plans to identify by Wednesday 5,000 salaried and contract staff who will leave the company, about 25% of that remaining workforce. Even hourly workers, despite their union protection, are being affected. So far this year 14,000 hourly staff have left GM, while Ford has trimmed about 7,000 and Chrysler about 8,000 in the last year. Much of those cuts have come through buyouts, but union members are also finding they have weaker job protection than they did before the 2007 labor contract.

"There is a cost to downsizing," said David Cole, chairman of the Center for Automotive Research, a Michigan think tank that supports the bailout. "But the payback is pretty rapid, as long as you can make it to that point." And more cuts are coming. GM is set to close three plants in December. That will eliminate more than 6,000 additional jobs. Chrysler is set to close its Newark, Del., plant in December, which employs about 1,000 people.

Retiree health care savings
This is the area where the automakers may see some of the biggest savings, assuming they can make it to 2010. GM is expected to save about $3 billion a year by having the cost of retiree health care shifted to union-controlled trust funds. Ford is likely to save about $2 billion. Estimates at closely-held Chrysler are tougher to come by, but some think it could translate to $1 billion a year or more in savings for the company. The companies will have to fund those trust funds to meet an estimated $100 billion in unfunded obligations that they face between them. But the United Auto Workers union has agreed to let the companies delay making payments into the fund during the current cash crisis.

The UAW also agreed in the 2007 contract to a two-tier wage structure for all new hires. As part of that deal, which has already kicked in, new hires receive none of the expensive benefits, such as retiree health care coverage, which have been a competitive drain on the automakers. This should allow the Big Three's plants to have a similar cost structure to those operated in the United States by the Asian automakers once the last of the current autoworkers retire.

Reduced capacity, incentives
All three companies are closing plants and other manufacturing facilities as they try to bring their capacity in line with reduced demand. This is a process that started years ago but has accelerated this year. GM has announced it is eliminating 12 production shifts, which will bring their North American capacity to only about 3.7 million vehicles.
Beyond the reduced operating costs from plant closings, the most important advantage for automakers might be cutting into the glut of cars and light trucks that are piling up in the face of weak demand. That excess capacity forces the automakers to offer cash back, financing and other incentives to try to move the unsold cars. estimates that incentive costs for the U.S. automakers this year is roughly $2,000 a vehicle more than in 2002, a period when the U.S. economy was just coming out of recession and unemployment was still rising. If the automakers could just get back to those levels, it would save them about $12 billion as a group, even if sales remain at current depressed levels.

Sales rebound expected...and needed
In addition to cutting capacity, the Detroit automakers are also converting existing SUV plants so they can produce smaller cars, which are now in greater demand. Still, even with the tens of billions of dollars in planned savings, it's tough to see the U.S. automakers pulling out of this crisis if sales remain at their current levels, the worst in at least 25 years.

Industrywide, U.S. auto sales toppled to a seasonally-adjusted annual sales rate of 10.5 million in October. Full-year sales are likely to come in at just over 13 million and are forecast to be about 12 million in 2009. "No one, not even Toyota (TM) is cash-flow positive if sales are 10 million vehicles a year," said Shelly Lombard, the automotive credit analyst for Gimme Credit. She said that even before the recent cuts, GM and Ford were on target to be able to make money in a 15 million-annual-sales market. With the additional cuts prompted by this crisis, they are probably close to making money in a 14 million-sales environment, she said.

Fortunately for them, a 14 million-sales level is very achievable. Sales stayed above 16 million every year since 1999 before this year and haven't sunk below 14.7 million since 1993. Sales should rebound to about 14 million in 2010, according to forecasts, and climb back over 15 million the following year. Industry officials and experts concede that it is difficult to make predictions that far out in the current economic environment. But if sales don't rebound, it's not hard to figure out what will happen to the Big Three - even with a federal bailout and all the planned cost savings. "If the sales number is still 12 million a year or two from now, they're dead," said Lombard.

European unemployment soars
Unemployment in the 15 nations that share the euro shot up to 7.7% in October - the highest level in two years - as growth dropped sharply, the EU statistics agency Eurostat said Friday. Prices also plunged with the annual inflation rate sinking to 2.1% in November from 3.2% in October, Eurostat said. Lower inflation gives the European Central Bank more room to reduce interest rates, which would help stoke growth.

The euro area officially went into a recession in spring and summer this year when growth shrank in the second and third quarters, as a financial crisis curbed global demand. In real terms, this means job losses - lots of them and more to come.

Eurostat said some 225,000 more people were seeking work in October from the previous month. That means some 12 million people in the euro area were out of work last month. It also said unemployment in September was worse than it had first estimated, revising the rate upward to 7.6% from the 7.5% it reported last month. Across all the EU's 27 states, some 17 million people were job-hunting in October, 290,000 more than a month earlier. The EU jobless rate was 7.1% in October, up from 7% in September.

The EU's executive Commission forecasts that the labor market will get even worse next year, with the euro-zone rate climbing to 8.4% in 2009 from a decade-low of 7% at the end of 2007. This will see an extra 2 million people out of work. Unemployment is highest in Spain, at 12.8%. The bursting of a housing bubble has put builders out of work just as the tourism industry has been hurt by the global economic downturn.

The European Commission this week called on EU governments to pay out $258 billion in tax cuts, soft loans to industry and credit guarantees to encourage growth. Tumbling exports have hurt Europe's manufacturing industry - particularly in Germany, the world's largest exporter - which had helped drive economic growth this year even as household spending froze.

But one of the most important tools to manage the economy is out of the hands of most European governments - the independent European Central Bank decides on borrowing costs for euro nations and until recently was slow to cut interest rates while inflation was high. The price index is a calmer 2.1% this month, the lowest since September 2007. It is also close to the ECB's guideline of just under 2%. Oil prices have dropped by more than half since July while retailers are slashing prices in the key Christmas shopping season.

The bank's mandate is to tackle inflation, which it has repeatedly stressed was too high this year, but the lower figure released Friday will allow it to move more aggressively to slash rates and kickstart the economy. In recent days, bank governors have spoken out in favor of lowering its key interest rate - now 3.25% - to tackle the slowing economy. They next meet to decide rates is on Dec. 4 in Brussels.

Marco Valli, an economist at Unicredit, said he expected the ECB to make a "shy cut" next week to bring the interest rate to 2.75% next week. Bank of America's Gilles Moec said he thought the bank might gun for a more dramatic cut to 2.5%. Lower borrowing costs can tempt businesses and households to borrow more - as long as banks pass on the cuts to customers.

That isn't always the case in the current climate of tight credit. Banks are more fearful about taking on risks in the wake of the financial crisis and are finding it harder and more expensive to borrow money on credit markets that they lend on to customers. In Britain, the government has pressured banks to pass on hefty interest rate cuts to hard-pressed homeowners and small businesses. Some banks prefer to freeze their rates to claw back profit and shore up their reserves.

Europe Inflation Rate Drops Most in Almost 20 Years
Europe’s inflation rate fell by the most in almost two decades and unemployment increased, adding to pressure on the European Central Bank to continue cutting interest rates to battle the recession. Inflation in the euro area slowed to 2.1 percent in November from 3.2 percent in October, the European Union’s statistics office in Luxembourg said today. The drop is the biggest since at least 1991 and puts the inflation rate at the lowest in more than a year.

The Frankfurt-based ECB has already cut its benchmark rate by 100 basis points in two moves since early October, part of a wave of reductions by central banks around the globe as they combat the worst financial crisis since the Great Depression. The drop this month brings euro-area inflation close to the ECB limit of just under 2 percent, which it has exceeded every month since September 2007.

It “gives the ECB more room to maneuver,” said Christoph Weil, an economist at Commerzbank AG in Frankfurt, who expects a 75 basis-point reduction next week to 2.5 percent. “And the rate cut process will continue.” Economists had forecast that inflation would ease to 2.4 percent in November, based on the median of 34 estimates in a Bloomberg News survey. The statistics office will publish a breakdown of the inflation numbers next month.

A separate report today showed the euro-region unemployment rate rose to 7.7 percent in October from 7.6 percent in September, the highest level since January 2007. That follows data yesterday that showed European economic confidence dropped to a 15-year low in November, while retail sales fell the most in at least five years. The euro fell 1.3 percent to $1.2732 as 1:22 p.m. in London and European government bonds rose. The yield on Germany’s 10-year bund, Europe’s benchmark, declined 4 basis points to 3.23 percent, taking its drop in November to 66 basis points.

ECB President Jean-Claude Trichet said in a newspaper interview this week that there may be “negative growth” next year. EU Monetary Affairs Commissioner Joaquin Almunia has also said he sees the euro-area economy shrinking in 2009.

Investors expect the ECB to lower the benchmark rate by at least 75 basis points at a Dec. 4 meeting from the current 3.25 percent, Eonia forward contracts show. While economists at Fortis Bank and Bank of America all expect to see the ECB reduce the rate by 75 basis points to 2.5 percent, most are sticking to their forecast for a 50 basis-point reduction, according to a survey by Bloomberg News. The median of 53 forecasts is for a cut to 2.75 percent.

A 75 basis-point reduction would take the ECB rate to the lowest since May 2006. The ECB has never cut its key rate by more than 50 basis points since it was founded in 1999 and some council members indicated that they don’t favor larger rate cuts. Austria’s Ewald Nowotny said this week that the ECB should keep some “firepower” in reserve. Data point “to a further deterioration in economic activity in late 2008,” said Gilles Moec, an economist at Bank of America in London. “Since inflation is also receding faster than anticipated, there is a clear case for a ‘higher-than-usual rate cut’ on Dec. 4 by the ECB.”

Crisis hits Romania at poll time
Not too long ago it was riding the wave of Eastern Europe's economic boom. With 8% annual growth, Romania - one of the newest members of the European Union - was the envy of Old Europe, seemingly impervious to the global economic decline. But the aura of invincibility has started to fade before a crucial round of parliamentary elections on Sunday.

In recent weeks, Fitch and Standard and Poor's credit agencies cut Romania's rating to "junk", worried by its large current account deficit and reliance on short-term borrowing. Hit by the global financial crisis, foreign investment has slowed and the local currency has fallen against the euro. The young millionaires of the property market shivered when prices took a dive to levels never seen in the past decade.

Just as the credit rating agencies realised something was wrong in the state of Dracula, politicians have realised that talking about "bust" rather than "boom" could give them the edge in elections. Politicians have jumped on the bandwagon of populist promises. The Social Democratic Party has bounced back in opinion polls in the past week after its leader started to talk about redistribution of wealth and the need for Romanians "to tighten their belts".The pro-Western Democratic Liberal Party, formerly part of the government coalition, is struggling to adjust its message to respond to an electorate which feels Romania is no longer insulated from the worldwide turmoil.

The credit agencies' decision to cut the rating came after the government initially caved in to unions' pressure to raise teachers' salaries by 50%, putting the country's finances at risk. Romania's central bank sits comfortably on a 27bn euro reserve but its large current account deficit and reliance on short-term borrowing makes it vulnerable at times of crisis, said David Riley, head of Fitch's global sovereign ratings group. Romania's deficit is expected to exceed 14% of GDP (Gross Domestic Product) this year and, for David Riley, such figures clearly suggest that external financial support will be needed.

Romania is now the only country in the European Union with a junk rating on its bonds, which is bad news for the Romanian government, given that investors are more conscious than ever of ratings downgrades. A country which attracted 7.2 bn euros (£5.8bn) worth of investment in 2007, appears to have lost its appeal to investors. Once enthusiastic about Eastern Europe, investors have dumped assets amid concerns that other countries with large debt deficits could follow Hungary into crisis. The downgrade also hit the local currency, the Romanian leu, which fell against the euro. Foreign investors, who made serious money in Romania in the last decade, are now suffering.

French car maker Renault temporarily closed its Romanian plant, Dacia, as demand for its cheap compact model, Logan, started to dwindle worldwide. But hardest hit is the once-booming property market. With prices in old communist blocks of flats falling 30% year-on-year and new developments also hit by from falling demand, some foreign investment funds have to quit the country overnight. "They tried to sell, but the prices they were offered were so low, that they had to stay," says Ioan Radu Zilisteanu, the Romanian Association of Estate Agents' spokesman, who says that investments in the local property market fell 50-60% in 2008.

So far the Romanian government have maintained that they have enough resources to weather the storm by themselves - without seeking help from the international community - but some analysts wonder if the country is blinded by its own success. After six years of economic boom, with salaries rising by an average 15% a year, many Romanians have difficulties grasping the impact of a truly global economic recession. The government is under pressure not only to raise the teachers' salaries, but also to raise the minimum wage and improve social benefits. "I am sure that many populist policies they are talking about now will never see the light of day when the new government is up and running. They are simply impossible to apply," says Radu Craciun, the chief investment officer at the US pension fund Interamerican.

Whoever wins the next election will face a challenging task - to keep the economy growing in 2009, despite the global downturn. "The reality is that, next year, Romania will have difficulties in financing the ballooning deficit. In the current climate the direct investments will fall and some of the past debts will have to be repaid. Private companies will also have problems when raising money overseas," says Interamerican's Radu Craciun, adding that the authorities will have to tread carefully if they want to protect what Romania has achieved so far. "We will have an adjustment. Things cannot continue as they are and next year we will see, for the first time in many years, an increase in the unemployment rate," he said. There is still time for Romania to engineer a soft landing for its economy. "The question is whether Romania manages to adjust its pace of growth through a soft-landing, by controlling spending, or it will take a massive hit on its currency," he said.

UK Treasury admits Northern Rock was 'irresponsible'
The Government has finally admitted what most of the country has long suspected – that Northern Rock was the most "irresponsible" of Britain's mortgage lenders. The admission is a marked retreat for the Treasury, which insisted after the nationalised bank was put on state life-support that its mortgage book was "good quality". Responding to questions about Northern Rock's repossession rates in a House of Lords debate on Tuesday, Lord Myners, financial services secretary to the Treasury, said: "Foreclosures are higher in Northern Rock than in other mortgage lenders because its lending was more irresponsible. It is as simple as that."

Northern Rock has argued that its mortgage book was twice as good as the industry average because it had less than half the proportion of problem loans as rivals. The Financial Services Authority used the measure to justify its statement in September last year that the bank "is solvent, meets all capital requirements and has a good-quality loan book". The claim was repeated in January, when the Chancellor told the Commons that "Bank of England lending is secured against Northern Rock's assets such as high quality mortgages, assessed by the FSA as being of good quality". However, the "arrears rate" has risen rapidly from 0.57pc in December to "above 2pc". Part of the increase has been down to the shrinking overall mortgage book, but the bank has also ditched "inadequate" controls that it conceded had flattered the arrears numbers.

Northern Rock's new chief executive Gary Hoffman admitted to the Treasury Select Committee last week "we are above the industry average" on repossessions and predicted that the bank will account for "just over 10pc of total repossessions" this year. He blamed it on Northern Rock's controversial 125pc "Together" mortgage, which accounts for "one-third of our book ... about 50pc of our overall arrears and three-quarters of our repossessions". Arrears on the Together portfolio are about 3pc.

Asked to explain why Northern Rock's repossessions are above average, Mr Hoffman said: "We want to keep customers in their properties ... but because we have the Together Book ... that has been driving more possessions. I do not think it is our policies. I think it is about our book." Northern Rock, which famously wrote one in five new mortgages in the months before the crisis and about 20pc of whose mortgage book is expected to be in negative equity next year, declined to comment on whether it was the country's most "irresponsible" lender.

West Coast ports face struggle to maintain relevance
The slowdown in international trade has left the docks at the nation's biggest seaport complex quieter than they've been in years. Some workers, particularly non-union "casuals," at the Los Angeles and Long Beach ports wait for shifts that never come. Automobiles and other merchandise pile up as consumers dig in for a long economic winter. But the problems at the twin ports, along with smaller West Coast harbors, extend beyond the nation's economic woes, maritime experts say, and changes on the horizon could leave the seaports struggling to keep customers.

That's the assessment of a recent report by London-based Drewry Supply Chain Consultants, a maritime industry research firm that has about 3,000 clients in more than 100 countries. West Coast ports will see increased competition from the Panama Canal, which is undergoing a bigger-than-expected expansion due to be completed in 2014, Drewry said. In addition, rising Chinese labor costs will push some manufacturing back to Mexico and South America. Even if global trade returns to its formerly robust pace, Drewry said, "any new trade will probably pass the West Coast by. Volumes are unlikely to decline, but the days of strong growth on the Pacific Coast are behind us." The implications are potentially enormous.

The ports of Los Angeles and Long Beach are directly or indirectly responsible for 886,000 jobs in California, according to a 2007 study by the Alameda Corridor Transportation Authority. The $256 billion in U.S. trade that moved through the ports that year, including $62.5 billion in California cargo, was also responsible for $6.7 billion in state and local tax revenues, the study said. But times change, Drewry and other maritime experts say, and future economic conditions will shine a more favorable light on the all-water routes to East Coast and Gulf Coast ports by way of the Panama and Suez canals. Some of that trend can be seen already. A.P. Moller Maersk, the world's biggest shipping line, this year reduced its business from Asia to the U.S. West Coast in favor of stronger Asia-to-Europe trade. This month, the Denmark-based giant announced more changes. Maersk said it would join with the world's third-largest shipping line, France's CMA CGM, and cut back its Asia-to-U.S. business by an additional 8% with new routes through the Panama and Suez canals.

The new business partnerships come at a time when the maritime industry is reeling from the global economic slowdown and credit crisis, delaying delivery of new vessels and killing deals considered too much of a revenue risk. Those pressures, Drewry says, will result in changes that will be difficult to unravel even as global trade eventually recovers. Officials at West Coast ports say that they are doing what they can to remain competitive. But Drewry and other authorities say the ports suffer from a number of problems, including a lack of land for expansion and rail capacity that is significantly lower than in the past, despite billions of dollars in investments. The two largest ports -- Los Angeles and Long Beach -- also face steep and costly environmental hurdles to expansion projects that had slowed to a crawl until this year. Some of those plans face serious legal challenges from trucking and trade groups.

In the meantime, the Panama Canal expansion project has come a long way from something that generated amused smirks from the maritime community when it was first announced in 2006. As a sign of the new esteem with which the project is now regarded, Panama Canal Authority Administrator and Chief Executive Alberto Aleman Zubieta was honored Monday with an excellence award at the Asia-Pacific Economic Cooperation Summit in Lima, Peru, for "successfully moving the canal from a profit-neutral utility to a business-oriented enterprise." Now, Drewry says, West Coast market share is about to take a serious hit, "possibly forever," from a "rejuvenated, aggressive and soon-to-be widened Panama Canal" that will have locks capable of handling cargo ships carrying as many as 13,000 containers -- much larger than the 8,000-container ships it was originally expected to accommodate. Drewry isn't the only one who thinks so. "With the ability to handle most of the world's largest ships, the Panama Canal will begin to enjoy better economies of scale than its primary competitor, which is the transpacific intermodal route from Asia to the West Coast and to the rest of the U.S. by rail," said Asaf Ashar, head of the Washington office of the University of New Orleans' National Ports and Waterways Institute.

"It's cheaper to move cargo by ship than it is to transfer it to rail and go overland," Ashar said. "The logical conclusion is that market share will be lost." Meanwhile, East Coast ports are frantically working to be prepared once the Panama Canal expansion is complete. The American Assn. of Port Authorities, which represents most of the Western Hemisphere's major harbors, is devoting the current issue of its Seaport Magazine and an upcoming seminar in January to the shifting international trade routes and the Panama Canal expansion. "It's become a very big deal," said Aaron Ellis, a spokesman for the trade group.

Port of Los Angeles Executive Director Geraldine Knatz said the port's willingness to address environmental concerns ended a logjam of expansion projects this year. Saying that the port "should be investing $1 million a day in its capital spending plan" to increase efficiency and reduce pollution, Knatz said the facility was on pace to award $383 million in construction contracts this year. Knatz said port officials were fully aware of the threat posed by projects such as the Panama Canal expansion, but she said the local ports had no choice in the way they must proceed. "We're aware that some cargo has been diverted because of what we are trying to accomplish here," Knatz said, "but there is no way we would have been able to move forward at all with these construction projects if not for the steps we are taking to reduce pollution."

Economic crisis decreases amount of money immigrants can send to families abroad
While many struggle to understand how the financial crisis will affect them directly, Sedalia resident Jaime Santana’s family in Mexico and Cuba felt the effects almost immediately. Santana, a Mexican-born mortgage broker, was forced by reeling housing and credit markets to find a new, steadier source of income. “The financial situation was very bad,” Santana said. “The economy, in general, did a 360-degree turn, and the ones that were hit were the sales contractors like me.”

He began to work in home loans part time and took a full-time position with the Boys and Girls Club of West Central Missouri. As a result, his remittances— or support money to family abroad — has been cut by about 50 percent, from approximately $500 each month to about $250. In adjusting his spending to a different job and a new economic climate, Santana – like countless other Hispanics and other immigrants — made a difficult decision most others don’t have to think about: cutting remittances sent to support his loved ones in Mexico and Cuba.

A study conducted this year by Inter-American Dialogue found that immigrants to the United States send remittances home about 15 times per year, with an average amount of about $250. Thus, the average immigrant sends home about $3,500, or about 15 percent of earnings, each year. “There is some degree of confusion in the sense that there are people who think what happens on Wall Street is something isolated,” said MU political science professor Moisés Arce, a native of Peru whose research focuses on transitioning Latin American economies. “But there is also the other thought, which says that if the stock market drops, it will have strong effects on the job market, liquidity and credit. I think public perception is now more in the latter position.

“It gets difficult. If you don’t have any money, you can’t send any. That hurts them, it hurts you, it hurts everyone,” he said. “It’s a vicious cycle." “With the economic situation – as well as with state immigration laws that have passed – it is becoming more difficult for people to get work,” said Eduardo Crespi, director of Columbia’s Centro Latino, an organization that provides resources and guidance to the area’s Hispanics. “People are not able to send remittances because they don’t have the money to send remittances. That is what’s happening at the moment in our community.”

According to the World Bank, people living in Latin America received $61 billion in remittances in 2007 alone – more than East Asia and Europe combined and more than the entire continent of Africa. Remittances flowed to Mexico – the country of origin of most of Columbia’s Hispanic immigrant community – in the amount of $25 billion that year. While some immigrants, such as Santana, are able to move from job to job with relative ease, others have to deal with very different circumstances.

Carlos, a native of Mexico who works at a Mexican restaurant in Columbia and asked that his last name be withheld because he is undocumented, said neither he nor his brother, who dug their way across the border, have been affected directly by the economic crisis. The cost of gas, food and rent have increased since their arrival five years ago. “Before, we could send $800 or $900 every 15 days. Now we send $500 every 15 days. Things are very expensive,” Carlos said. “Those of us who come here to work – it is always for our families. And when the economy is this low, it always causes shame because we can’t help our people the way we did three or four years ago.” Carlos said that, as much as he recognizes that there is a problem, undocumented immigrants such as he are helpless. “The undocumented, like me – we have always gotten the bottom of the barrel, the lowest pay, and by virtue of the fact that we don’t have papers, we can’t fix our situation," he said. "Like it or not we have to deal with it. If they pay us $8 or $9 an hour, that’s how it will be, and we won’t quit because of that. It (the crisis) matters, but we can’t do anything."

Should child care be at mercy of market?
The global credit crisis has claimed an unlikely victim in Australia with the fall of the world's largest child care company, leaving thousands of parents to wonder who will look after their children and raising questions about whether community services should be left to the marketplace. The company, ABC Learning Centers, was placed in the hands of administrators on Nov. 6 when it revealed that it could no longer repay more than 1 billion Australian dollars, or $1.54 billion, racked up during a debt-fueled expansion into the United States and Britain.

Chris Honey, a spokesman for ABC's receiver, McGrathNicol, said Wednesday that 656 of the 1,042 centers across Australia would continue to operate through next year under a revised business plan. But the future of the remaining 386 centers, covering about 30,000 children, is still in doubt. The collapse of the company, which looks after about 120,000 Australian children, or 25 percent of the day care population, has sent the government scrambling to avoid the economic and political fallout of leaving tens of thousands of working parents stranded without child care services. Critics say the rise and fall of ABC Learning will become a textbook case highlighting the dangers of allowing the private sector to dominate essential services like education, care for the elderly and utilities.

"This is not just an Australian story," said Deborah Brennan, a social policy expert at the University of New South Wales, who has been studying ABC for the past 18 months."It is a story about where a rather blind belief in market forces can get you in the area of community services."
ABC opened in 1988 as a single kindergarten run by Eddy Groves, an entrepreneur based in Brisbane. The company grew slowly until the late-1990s, when the conservative government at the time stopped subsidizing nonprofit child care centers and introduced a market-based approach that gave parents tax rebates they could spend on whatever form of day care they chose.

Flush with these government payments, ABC embarked on an aggressive strategy of buying up smaller, independently run centers across Australia. The company stock was listed in 2001 with just 43 centers. By 2006, ABC had claimed more than a quarter of all day care places nationwide; in some regions, it controlled up to half of the market. The government's rebate strategy made the child care sector a more attractive place for private companies, which could count on a stream of public money to fill their coffers. It also gave them a green light to raise their prices, knowing the rebates would cover the difference, Brennan said. About 70 percent of Australia's child care market is now controlled by private companies. What makes Australia unique, however, is the degree to which one company has been allowed to dominate the market. The largest child care providers in the United States and Britain control only about 2 percent or 3 percent of all day care places, compared to ABC's 25 percent in Australia.

Brennan and other critics say it is no coincidence that the cost of child care rose by 65 percent from 2001 to 2006, while household incomes grew by 17 percent, according to figures compiled by the Task Force on Care Costs, an independent monitor of the price of social services. And quality may have suffered as well, according to a survey of 600 child care workers at 217 long-stay day care centers conducted in late 2005 by the Australia Institute, an independent research organization.

One in five corporate child care employees who answered the survey said they would not send their children younger than 2 to the centers where they worked, citing poor staff-to-child ratios, lack of equipment and overly rigid routines. Only one in 25 workers at smaller, community-run centers said the same. "What was held out to the Australian public was that the market would bring choice, competition, higher quality and lower prices, and in fact it did none of those things," Brennan said. "There's never been another decade where the price of child care has increased so rapidly."

By the middle of 2006, ABC was being hailed as a stock market success story, valued at 4.8 billion dollars. Groves, a former milkman who turned his delivery run into a multimillion-dollar dairy distribution business before turning to child care, was named one of Australia's richest men under 40 by BRW, a monthly business magazine that publishes a closely watched annual "rich list."

At the height of his fortune, Groves bought a basketball franchise, traveled by private jet and drove a red Ferrari, according to media reports chronicling his career. His professional success and love of fast cars also earned him the nickname "Fast Eddy" among business journalists and colleagues. Also in 2006, ABC borrowed millions of dollars to buy a U.S. child care chain, La Petite Holdings, for $330 million, and the British chain Busy Bees Group for £71 million, or $109 million. By June 30, 2007, ABC owned more than 2,200 centers in four countries, making it the world's largest publicly listed child care company by the company's calculation. It had total liabilities of 2.16 billion dollars, up from 111 million dollars in 2004.

The ABC house of cards began to collapse in February, when auditors discovered accounting irregularities that, once addressed, caused a 42 percent decline in recorded profits for the six months to Dec. 31, 2007. The news led to a 70 percent slump in ABC shares, sending investors fleeing. By mid-2008, ABC was struggling to repay its debts as a result of rising interest rates. But analysts say reckless management and a shaky balance sheet propped up by intangible, or nonmonetary, assets were also responsible for the company's failure.

The plunge in ABC's share price led to margin calls for Groves, who was forced to sell his stake of 40 million dollars stake in the company, leaving him with a minor holding, according to Stephen Mayne, an independent shareholder activist who tracks Australia's major corporations in his online newsletter, The Mayne Report. Groves stepped down from the ABC board and management altogether on Sept. 30. Calls to ABC were referred to McGrathNicol, the receiver, which said it could not comment on past decisions by ABC management.

In an Oct. 14 speech to the Ipswich Chamber of Commerce in his home state, Queensland, Groves said the company's rapid expansion into the United States, coupled with sharp falls in the Australian dollar - which made ABC's U.S. debts more expensive, was partly responsible for the company's decline. He also blamed a climate of fear among investors and short-selling hedge fund managers for undermining debt-heavy companies like ABC, sending share prices into free fall.

"We went down a pathway that we probably shouldn't have gone down when we headed to the U.S.," Groves said at the luncheon. But he blamed the imperative to please investors, rather than poor judgment, for the decision. "The enormous amount of pressure that the public market can put on a company to continue to grow is astounding," he said. The Australian stock exchange halted trading in ABC shares on Aug. 21, when the company failed to release its latest financial figures. By then, shares had fallen 94 percent to 54 cents from their 2006 peak of 8.80 dollars a share. The company has sold 60 percent of its U.S. operations to Morgan Stanley Private Equity and has also sold down its holdings in Britain. But Ferrier Hodgson, ABC's bankruptcy administrator, has said that the company still owes 1.6 billion dollars to creditors, including Australia's big four banks and Temasek, the investment arm of the Singapore government.

Now Australia must decide how to fill the hole left by ABC's collapse. Officials are searching for parties to purchase all or part of ABC. But finding a buyer may be difficult in the current credit market, especially since up to 40 percent of ABC centers are unprofitable in their current state, according to Deputy Prime Minister Julia Guillard. Child care is already in short supply in parts of Australia, especially cities, where parents can wait for months to secure a place. The government has pledged 22 million dollars to keep all of ABC's 1,042 Australian centers running until the end of the year, but it has ruled out nationalizing the chain. Children's advocacy groups across the board have called on the government to rethink its market-based approach to child care. "The government now needs to think about how we are going to change the competition and regulatory environment to make sure this doesn't happen again," said Helen Kenneally, executive director of Childcare Associations Australia, which represents independent operators. "We think that there needs to be a limit on the number of services that any one person can own or manage nationally, or manage in a regional area."

Prime Minister Kevin Rudd has signaled that he may do just that. In a speech to Parliament on Nov. 21, he said the government was considering introducing tougher "creeping acquisitions" laws to stop corporations from establishing monopolies by gobbling up smaller players."That is the problem we face - it is a problem of market concentration," Rudd said. "When you have a company like that, with 25 percent of market share for long-day places in Australia, there is a problem for mums and dads right across the nation if something goes wrong."


Anonymous said...
This comment has been removed by a blog administrator.
Farmerod said...

Robert K

You are entitled to your opinion but you are not entitled to make ad hominem attacks . If you have a point to make, make it respectfully.

Anonymous said...

3 cheers for being able to spell "ad hominem" but no such attack was made. Your post following the phantasm implies that but I didn't attack the man/woman rather the post itself which was a bad joke (ad postem?).

Show some courage.

Anonymous said...

I'm in a quandary. This is my favorite website and having been on the web since 1993, that is saying something. But when something smells funny and I say so, I would expect my statement to be left to stand on it's own merits or lack thereof.

I have recommended this site to just about every sentient being I have contact with, thinking that it can really make a difference. Then I see that it's pro tem caretakers are the type who can dish it out but can't take it.

This site regularly and repeatedly trashes people, ideas and philosophies but when it is returned, the post is summarily deleted. Pretty cowardly IMO.

Farmerod said...

Show some courage.

Would you really have had the courage to say that to him/her in person? If not, don't say it here either.

This site regularly and repeatedly trashes people, ideas and philosophies but when it is returned, the post is summarily deleted

I disagree. Only ideas and philosophies are routinely trashed here. Well, OK, Ben and Hank are trashed ... but they deserve it ;-)

And you, too, are most welcome to trash the ideas here, including those in the intro. Just don't trash the writer, who is a regular reader of this blog, like you.

Robert, go ahead and have the last word, respectfully please. If you would like to continue this discussion past that, email me at

Anonymous said...

B, nice piece of writing, to which I offer a musical accompaniment.

♫ ♪ ♬
I lift my glass to the awful truth,

Which you can't reveal to the ears of youth,

Except to say it isn't worth a dime.

And the whole damn place goes crazy twice,

And its once for the devil and its once for Christ.

But the Boss don't like these dizzy heights.

We're busted in the blinding lights

Of closing time.

Not to worry though, the world always has another

Man With A Solution

Farmerod said...

Robert said this as, hopefully, his last word. I removed the portion that attacked the intro writer.

Robbie K said...
***Would you really have had the courage to say that to him/her in person? If not, don't say it here either.***

Ummhh...yes but that's irrelevant. Thirty years as a karate instructor shouldn't give me any passes. I just didn't think my initial post was bad enough to be deleted. That being done creates the notion that it was pretty vile when I think otherwise. Of course, I could do the intro tomorrow and then blast through a box of Kleenex when no one falls in love with my etchings.

Stoneleigh said...

Robert K,

We are pleased that you like the site.

You are entitled to your opinion of B's piece, and that's not why the comment was deleted. The reason was the name you called the author. Feel free to express your opinion without the name calling.

We understand that there is a multitude of styles here at the moment, and this may well be jarring to those who are used to Ilargi's work. We will do our best to continue delivering the news that you need to know, and our interpretation. I will write intros as often as I can, but I can't do it every day as I work fulltime, and I don't have Ilargi's stamina either. On days when I can't do it, we will have pieces by guest contributors. Some you may like more than others.

Ilargi currently has no internet access, but he is trying to remedy that and will be back online as soon as he can. It'll be a while before he'll be in a position to take over again every day though, as he's traveling in Europe.

Unknown said...

For the record, I think it's a good piece, B. Well done!

Farmerod said...

Liberals unveil plan to topple Tories

This is getting interesting.

Anonymous said...

Just a note to say I think everyone here is doing a great job! It is not easy to fill Ilargi's shoes, and I think the work all of you are doing is quite admirable.

I found quite by accident some videos by Dr. Joern Berninger who talks about this economic crisis as taking 3 years to unfold, 3 years to be in and 3 years to recover. I've also had library requests in for the recommended reading listed here, and they've all come to me at once - I feel like I'm back in school again!

Anonymous said...

It was with some excitement that I reread B's posting, hoping to see something to disagree with, but suspecting also that B had simply stated something that our friend RK isn't comfortable hearing. That's the usual reason people attack with whatever language was used, self protection, not wanting to see one's reflection in the mirror.

I'll never know, but all I see in B's posting is what strikes me as a fairly accurate assessment of our current greed and credit based lives in the early 21st century, with what seems a fairly middle of the road (in regards to the more rationally coherent positions, of course) view of what that is going to lead to.

Obviously, through the last months, the quality of analysis of TAE was bound to attract people hoping to pull in some short term profit taking, ie, members of the parasitic institution of finance, aka vultures, that have taken on the somewhat grotesque appelation of 'the financial industry'. This was always a danger of publishing analysis this good on an ongoing basis.

One thing that people out of the USA are probably not aware of is the tendency to adopt the practive of 'create controversy' where none exists, by putting out ridiculuous positions at more or less random then positing that such positions form one possible pole, which has to be taken as seriously as the real thinking it opposes, when all they are are ridiculous claims with no legitimate support from anyone who is not a propagandist for industry x or y, or some right wing christian sect.

I have no idea what position rk was putting forth, his subsequent postings say nothing more, which I assume means he had nothing to say in the first place, which means, probably, that removing the initial posting was not a bad idea.

Greenpa said...

well, B, I'm scratching my head trying to figure out what "smelled funny" about your essay.

"We just held a party using our children's cheap fuel, deep topsoil, abundant forests and clean water behaving like crack addicts frantically sampling every white speck, looking for more nature to keep the party going. "

Yeah, precisely; well summed.

What struck me reading your words was that they exactly mirrored my epiphanies of - 40 years ago.

Literally. Thing is, back then, almost nobody was able to hear you, if you spoke of such things. Over the decades, I've gotten quiet about it, though a little more vocal in the last 2 years.

Maybe I should speak up more. :-)

The Lizard said...

"B": Fine intro.

It's enjoyable to read a selection of intros from readers.

"One death is a tragedy; a million is a statistic."
- Joseph Stalin

Let's hear how individuals are living these times, on a personal level, and stay out of Uncle Joe's statistics.

Anonymous said...

Didn't seen it ... don't care
Liberals unveil plan to topple Tories


Because there was no spending spree proposal...for who? the big 3?
Let's get real.

Those unemployed because of the financial crises, big 3, etc., could not, would not accept a job that pays less than what they will receive in U.I. and even welfare.

There are still "help wanted" ads out west.
Which of those laid off people want to move west,
have the skills
the physical condition to be hired for any infrastructure stimulus projects?

Retraining and Employment insurance extension is the only options.
Read this for a laugh.

'The biggest turkey I ever hired'
One new employee decided to take a nap in the CEO's office the first week on the job. Oops.
By Anne Fisher, senior writer
NOVEMBER 26, 2008: 5:52 AM ET

el gallinazo said...

Well developed intro B

I am amazed at the depth of talent in this blog readership. Can't imagine what prompted the bruhaha. Far fewer nettles than Ilargi's standard fare.

I guess I qualify as one of Uncertain's "vultures." Maybe I should change my name. I'm too small time to become "el condor."

el buitre

Bev said...

I was a little worried that writing the intro would be a character building experience, as the standards are pretty high around here and my qualifications are pretty thin. I do seem to be quite capable of pissing people off, and in spite of some editing for tone, it looks like I did it again.

Thanks to OC and Stoneleigh for keeping it civilized around here so I don't need to brush up on my karate.


Stoneleigh said...

One issue with the current set-up is that, as the job is no longer done by one person, there is less of a connection between the specific events of the day and the intro article. Ilargi used to do the news gathering, then think about everything he had just read and write and intro for it.

Now the news gathering is done by various people, and it is all assembled into a post by another person, and the intro is written by yet another. Intros are often written in advance, and even if they are written on the day, the writer has not been in a position to read all the day's news first and tailor the intro to it.

It's a tribute to Ilargi that it has taken a whole team of people to replace him, and still there are aspects of what he usually does that we cannot match. Inevitably there will be differences in style from day to day, and we will probably never achieve the close connection between the intro and the following articles, but we will do our best to deliver you a valuable experience here at TAE. I think the team Ilargi has assembled are doing a great job.

scandia said...

B,"...the value of this car might rise from Zero to something in year 3 or so of the loan if it is pressed into service as shelter..." Br-r-r such a chilling image! I personally know someone who lived in her car with a teen-age son in Toronto. I wonder how many Cdns have already given up on paying rent? Tough conditions in winter.
I felt sick reading of the Wal Mart employee trampled to death by the herd!All for cheap stuff!!!Incredible.

David said...

Nice job, B. Ilargi's great, but it's fun to have some new voices in here playing ringmaster.

I think of what a wild and mind-blowing archive this site will someday be... as long as the grid stays up...

Bev said...

Scandia, There's a book called Car Living: How to Make It a Successful, Sane, Safe Experience by A.J. Heim for practical advice. I read it a while back out of sheer curiousity and surprisingly, I ended up feeling like it was something quite possible to do. This knowledge is quite liberating.

Anonymous said...

B, well said!!!

More Americans should be conscious that non-participation with our predatory economic system is our moral obligation. Rejecting a consumer lifestyle jams our predatory Western culture -- and it's good for the soul and the planet.


Farmerod said...

Because there was no spending spree proposal...for who? the big 3?

I actually think the main reason we're going to brink on this is the $1.95/vote/year that the gov't gives to the parties based on the last election. Of course, no-one in the opposition can say this.

The Keynesian stimulus packages that the left seems to advocate make the Right squirm. But the much larger amounts of cash that Harper et al have allocated to bailing out the Cdn financial system makes most on the Centre-Left uncomfortable, particularly after having just witnessed multiple such failures the world over.

I don't think there should be any bailouts for banks or other corporations. Those jobs - and the system itself - will be gone for a long time. Any spending the state does should be on the most critical of public needs only. If the gov't thinks the international bond market will tolerate borrowing the vast sums imagined by either camp, not to mention both, they will be sadly mistaken.

Those unemployed because of the financial crises, big 3, etc., could not, would not accept a job that pays less than what they will receive in U.I. and even welfare.

Most people wouldn't. What's your point?

There are still "help wanted" ads out west.

Yes...for now but, even now, mainly for McJobs.

Which of those laid off people want to move west,have the skills
and/or the physical condition to be hired for any infrastructure stimulus projects?

Some will undoubtedly try moving to find work. 'Twas all the rage in the early 30's to varying degrees of success (i.e. none to some). As far as physical condition; that can change quickly when the need warrants as Ric, for one, attested to yesterday.

Retraining and Employment insurance extension is the only options.

Keeping people busy, particularly young men, will be extremely important. But their work will have to be somewhat meaningful. In the 30's, Canada essentially had work-prison camps established in the hinterland to get young men away from the big cities where they were causing so many problems. But getting those young men to move this time might be more difficult. The only retraining that would have much permanent benefit would be for organic farm work. We won't need many more IT guys, framers, electricians or decorators for a while.

A good book on Canada's depression years was Pierre Berton's The Great Depression.

Anonymous said...

Hi OC!
"The only retraining that would have much permanent benefit would be for organic farm work."

Any stimulus infrastructure project
will not require the skills of those layed off from the big 3 meltdown and getting E.I.

First of all they are all working now or have just qualified for E.I.

Secondly, the emphasis is on stimulus for 2009-10.

Latest info ...
Ottawa sets deadline for auto makers
The big 3 go to Washington 02 Dec., (without a Canadian commitment for money),
Prepare a report for Ottawa for 05 Dec.
Discussion and vot e of confidence 08 Dec.
It does not sound to me like our gov. is stupid.

Anonymous said...

Stoneleigh --

Could you comment on this post at nakedcapitalism:

Thank you

Unknown said...

I've had this thought floating around that probably this is not the end for capitalism as many are predicting.

An end of some of the excesses for a generation maybe. The super available credit, the exponential market gambling will and should be minimized.

However, if this is going to be as bad as the 1930's (or worse), two things come to mind;
1. We are still a long way from where we are to that same place. I still see 90%+ people who want to work, having jobs, people still spending in the shops and still driving on the roads. On the slippery dip of depression we have only just let go of the safety rail at the top with a long way to slide.
2. The Great Depression did not wipe out capitalism. Modified it maybe, but also confirmed the long generational waves spoken about above.

So the phoenix will rise again maybe with a different plumage waiting for our children or grandchildren to make similar mistakes.

So what we are seeing is the crash that we had to have, made MUCH worse by governments manipulating the markets by trying to stop the cycles that are inevitable.

Farmerod said...

Comparing the Great Depression to what we may face this time around would be an excellent essay topic for someone to address and perhaps a great daily theme to have some day. Although, as we read on the DR several days ago, the depression that we about to face may very well be more like the one in the late 1800's which was apparently much worse than the Great Depression.

On the other hand, maybe we should just agree that whatever we're in for will probably just be really really bad. And, given that, what are doing about it? Perhaps that's another theme for another day.

But I do think that if the phoenix does rise, someone will shoot it down for dinner.

Anonymous said...

kerrysl, how the Great Depression impacted Capitalism in this country really depends upon where you look. Compare the tenant farmers of Oklahoma with the larger farmers of California who exploited migrant workers. In the mid 1930's, they recruited workers from China, Mexico and Europe in addition to displaced American farm workers.

I wouldn't say that it 'modified' but rather shaped modern capitalism. It certainly shaped much of American attitudes on consumption, spending and saving until the general prosperity of the 1950's further widened the disparity of wealth.

At that time, the increasing urbanization and collective denial of the poverty of greater than 1/5th of the American population directly influenced the counter-culture and civil right's movements of the 1960's. I would argue these two social rebellions equally influenced the shape of modern capitalism by sparking a fundamental and conservative backlash - Hence the rise of the "Me" generation.

Jal, you wrote:

Those unemployed because of the financial crises, big 3, etc., could not, would not accept a job that pays less than what they will receive in U.I. and even welfare.

I can't speak for the newly minted unemployed; however, those of us who lost our steady job status peak-bubble in the West take what we can get workwise. Dunno where all those signs are you speak of, unless you mean the ones that read, "Work at home for two hours a day and earn 4k a month." Those signs are generally interspersed with the ones reading "Buy a home, no money down, no qualifying."

The Lizard said...

Attacking Margaret Attwood

To do your own fact-checking, "Limits To Growth - The 30 year update" is available here.

Anonymous said...

Cough cough...Wild Gypsy
"I can't speak for the newly minted unemployed; however, those of us who lost our steady job status peak-bubble in the West take what we can get workwise. Dunno where all those signs are you speak of ..."

Since I'm not job hunting I have not tried to find out what is adv. on line.

scandia said...

OC, re the reason for a non confidence vote being the $1.95 per vote, Why can't anyone in the opposition say this? This is my reason primarily for non confidence.I think it should be stated with an outline as to why participatory democracy is a good thing. Seems one speaks out of both sides of the mouth- on one lamenting the declining numbers/apathy at the polls,on the other eliminating a public funded means to communicate on issues in an election.This gov't's proposal is privitization taken to its doctrinal extreme.

Anonymous said...

jal, I apologize if I have caused you a cough.

I see there must be more work up north of our border. Perhaps I will start advising folks to look up there.

Udjathorus said...

long-time reader, first-time poster. Let me just spell out a big THANK YOU to Ilargi, Stoneleigh, OC, B, Stranded Wind and others...


bluebird said...

In the intro on 11/24/08, Stranded Wind mentioned the instability in Pakistan and India. Could you return to give us some comments how the attacks in Mumbai, India, could further destabilize that area, and possible consequences for us in the U.S. Thanks.

Anonymous said...

Baking Kafka,

wonderful song choice, from an amazing record ("democracy is coming to America"!). Was it just coincidence another erudite comment by "kafkaland" showed up on Salon this morning in the Guns 'n Roses review?
Just realized another personal benefit of TAE-I work in manufacturing in New England (yeah, sounds strange, doesn't it?)-stranger yet, due to the applications of our product, we're as busy as ever. Without TAE's daily reminders, I'd be myopically saying, "crisis, what crisis?"
As there is no way to separate the political from the financial, an insightful post can be found at Chris Flloyd, 11/20/08-"Plus ca change..."

Anonymous said...

Just noticed I spelled Floyd wrong-for those not familiar with his excellent (radical) writing, here's the link:

Bev said...

Peter, thanks for the link to Chris Floyd. I'm not sure my skeptical world view needed more reinforcement, but there it is.

Anonymous said...

And one more link....I assume most everyone here also reads EMS News, but if not, and since TAE included Krugman's editorial, it serves as a take-off point for one of her best analyses to date:

B, I know what you mean, and I hope we can also employ our growing mental skills in constructive endeavors, such as Charles Eisenstein's "The Ascent of Humanity", and the Archdruid's attempts to broaden our understanding of collapse, and practical ways to "prepare". Quite a balancing act, huh? BTW, loved your editorial yesterday.

Farmerod said...

I should mention that B has a blog on which the director's cut of yesterday's intro essay is posted.

Farmerod said...

I should also say that I don't want to talk so much about politics anymore, not only because this isn't a political site. I had a dream last night where I was in Jack Layton's apartment waiting for my transit bus to come. A bunch of people, including Olivia, were there. It was late. He started to do that tomahawk-chop, throwing-holy-water thing and saying, Maybe you can wait for your bus outside? I'm really busy!

I woke up in a cold sweat.

bluebird said...

Check out the full-size picture
Winter Wonderland: 1908
"Union Square from a skyscraper."

lots more detail

Anonymous said...

I'm confused as i also read Garth Turner's website. Someone was saving for a home and put money into a MF which has tanked. Garth advised the person to stay invested and not get out as they've lost 1/2 their value and are sounding closer to the bottom than the top. Therefore by holding them, although they're going up, then down the market will anticipate a better economy in 6 to 8 months before the economy improves and up to a year before the real estate stabilizes.
So now I don't know what to think. Any comments would be appreciated.

el gallinazo said...

Garth is trying to be clever, saying that equities are a leading indicator of real estate prices, so you hold the equities for a while and then cash them out while they are on the rise and real estate is at the bottom.

This might make a little sense if this were just another normal recession - which it ain't. We are currently in a suckers' rally after which equities will tank to levels not seen seen since the 1930's. And that's in nominal dollars. In constant dollars, they will be well below that.

"So now I don't know what to think. "

Try........ "Garth Turner doesn't know his ass from a hole in the ground" for size.

Anonymous said...

el pollo,

Thank you for your wisdom and shedding light on what I just wasn't figuring out.
You give people a ton of valuable information on this post!

Anonymous said...

the most horrible begining of black friday - that dead man from wal-mart - some say (Arnold Mindell) that first seconds or minutes of some event are saiyng what is going to happen during its course, what would unfold...