Daily Sources 11/7

1. CJ Chivers and Ellen Barry at the New York Times report OECD observers in South Ossetia at the time the conflict began have called into question Georgia's narrative regarding the start of the war. The independent accounts have Georgia targeting the separatist capital Tskhinvali on August 7th with indiscriminate artillery and rocket fire. The notion that the United States encouraged adventurist behavior by a tiny, mafia-run, north Caucasian state in exchange for worsening relations with a major power with more than 5,000 nuclear warheads and the ability to actually deliver them to American soil is just beyond infuriating to me. To what end, exactly? What American interest could possibly be served by deliberately aggravating relations with Moscow?

2. Yves Smith has a very interesting post asking whether reports on the risks Swiss banks took in recent years has ruined Switzerland's status as a banking haven. Switzerland has been facing down inquiries by American and European fiscal authorities trying to determine whether their citizens were paying their taxes. The official policy of turning away tax investigators at the borders is one of Geneva's comparative advantages in the financial sector. But, if it turns out that Switzerland is forced to look for financial support from the international system, given that the central bank is not large enough to combat a systemic crisis on its own, will the Swiss be forced into a transparent banking regime?

3. William Sim at Bloomberg reports that the Bank of Korea lowered its benchmark rate by 0.25% (or 25 basis points) to 4%. This is the third time the bank has cut rates in four weeks and central bank Governor Lee Seong Tae said he stands ready to take further action if needed.

4. Rob Delaney's article in Bloomberg suggests that China's Finance Minister Xie Xuren may not attend the November 15 global summit on the financial crisis. (h/t Yves Smith @ naked capitalism)"Xie will not attend the Group of Twenty meetings in Sao Paulo, Brazil, this weekend, one finance ministry official said. Xie's attendance for next week's Washington summit on financial crisis is yet to be confirmed, the official added."

5. Brad Setser at Follow the Money reports that central banks are globally fleeing from risk and purchasing treasuries. Setser argues that the bottom can be called when the balance sheet of the Fed starts to shrink. Worth reading in full.

6. Platts reports that Devon has found new oil offshore Brazil in the Campos Basin.
x. Paul Krugman thinks that the latest economic data means we are sure to have a zero interest rate policy in the near future. That essentially means that one of the tools of the government to stimulate the economy will have been exhausted. I'm not sure if it means he expects inflation. He is referring to the Bureau of Labor Statistics report released today which shows that nonfarm payroll employment fell by 240,000, raising the unemployment rate to 6.5% from 6.1%. I think it is significant that 1.6 million people were marginally attached to the labor pool in October, 273,000 more than last year. "Marginally attached" workers are people who want a job and have looked for one in the last 12 months, but have not in the last four weeks, and so are not counted as "unemployed." Krugman also links to Stephanie Rosenbloom's article on the sharp decline in retail sales:

"Sales at Neiman Marcus, the luxury department store, dropped nearly 28 percent in October compared with the same month last year. Sales fell 20 percent at Abercrombie & Fitch, nearly 17 percent at Saks, 16 percent at Gap and nearly that much at Nordstrom.

Of the more than two dozen major retailers that reported on Thursday, most had sales declines at stores open at least a year, the majority of the decreases in double digits."

That, and Rex Nutting at Marketwatch's story that Goldman Sachs economists expect unemployment to rise to 8.5% next year and even higher in 2010. Goldman expects the Fed to cut the federal funds rate to 0.5% (from 1%) by December.