Tuesday, February 3, 2009

Daily Sources 2/3

1. Maya Jackson Randall at Real Time Economics reports that the Federal Reserve plans to continue its dollar swap arrangements through the Fall.
"The Fed said the extension applies to the temporary reciprocal currency arrangements it has with each of the following banks: the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Canada, Denmark’s Nationalbank, the Bank of England, the European Central Bank, the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, the Norges Bank, the Monetary Authority of Singapore, the Sveriges Riksbank and the Swiss National Bank.

The Fed said the Bank of Japan will consider the extension at its next monetary policy meeting."
2. Sophie Tedmanson at the London Times reports that the Reserve Bank of Australia yesterday cut its benchmark interest rate by 1% to 3.25%, the lowest in 45 years. Prime Minister Kevin Rudd also announced a new stimulus package of $42 billion to be known as the "Nation Building and Jobs plan."
"Mr. Rudd said that $28.8 billion would be invested in schools, housing and roads and a further $12.7 billion will provide cash support for lower-income families to be paid next month. This means low-income earners such as farmers, students and stay-at-home mothers will receive a one-off payment of $950."
Stimulus measures announced since September 2008 amount to $78 billion, nearly 8% of Australian GDP.

3. Keith Bradsher, the longtime China journalist for the New York Times, reports that currency flows are reversing and now moving out of China.
"In Shanghai, cash-rich Chinese companies are buying high-yield bonds issued by distressed American companies at a time when many Western investors are steering clear of bonds even from solid companies.

All over the world, Chinese companies are sending home fewer of the billions of dollars they earn from exports, parking them in overseas bank and brokerage accounts instead.

And in Hong Kong, wealthy mainlanders are turning up at jewelry stores in growing numbers seeking diamonds, big ones."
Total outflows in the fourth quarter of 2008 were as much as $240 billion. The "accumulation in China’s foreign exchange reserves plunged 74% over the course of last year" to $40.45 billion in the fourth quarter. Mostly anecdotal, but worth reading.

4. In a post Sunday on his Maverecon blog, Willem Buiter takes aim at the buy American provisions in the House version of the $819 billion stimulus plan. The prevailing theory regarding the Great Depression is that protectionist measures were responsible for deepening and lengthening the downturn. At Davos, Buiter reports that the finance ministers of the rest of the world were quick to threaten retaliation should the provision become law. But, Buiter is quick to note, protectionism is on the rise globally. Worth reading in full.

5. Niall Ferguson at the Financial Times argues that the banks must be nationalized and new banks established from their ruins. He goes on to say,
"The second step we need to take is a generalized conversion of American mortgages to lower interest rates and longer maturities. The idea of modifying mortgages appalls legal purists as a violation of the sanctity of contract. But there are times when the public interest requires us to honor the rule of law in the breach. Repeatedly during the course of the 19th century governments changed the terms of bonds that they issued through a process known as 'conversion'. A bond with a 5% coupon would simply be exchanged for one with a 3% coupon, to take account of falling market rates and prices. Such procedures were seldom stigmatized as default. Today, in the same way, we need an orderly conversion of adjustable rate mortgages to take account of the fundamentally altered financial environment."
Well worth reading. I certainly think nationalization will be more politically viable than a "bad bank"--and obviously restructuring mortgages will be politically popular generally, and have the potential benefit of improving the debt-equity ratio of a great number of people, thus potentially increasing consumption via a resurrection of disposable income. Barry Ritholtz at the Big Picture posts that he has been led to understand that Goldman Sachs representatives effectively lobbied the senior staff of Senate Banking, House Financial Services, the Joint Economic Committee late last week. Ritholtz highlights the following points of the alleged Goldman presentation:
"'- Government actions to date have prioritized interacting with banking institutions rather than directly influencing troubled asset prices;
- 'To date, banks have executed minimal de-risking, have not attracted meaningful additional common equity capital or sufficiently increased lending'; and
- 'A government program which provides non-recourse loans for asset markets should have a material impact on addressing these current challenges and could be an attractive alternative for the "aggregator bank" to explore'"
He includes a copy of the complete bullet points allegedly presented to the staffers. Both are worth reading in full.

6. Fredrik Dahl and Parisa Hafezi at Reuters report that Iran placed its first satellite in orbit today. It is a telecommunications and research satellite, but the analyst community has noted that putting a satellite in orbit requires some of the same science needed for intercontinental ballistic missiles. The launch also should have the effect of bolstering morale of the regime as well. (The launch coincides with the 30th anniversary of the Islamic Revolution in Iran.) The Reuters piece notes that Iran is the ninth country in the world to be both capable of domestically manufacturing a satellite and launching it into space. Meanwhile, Thomas Erdbrink at the Washington Post reports that in a visit to Tehran, Hamas leader Khaled Meshal was told in a Sunday meeting with the Supreme Leader, Ayatollah Ali Khamenei, that "Islamic resistance needs to be ready for every eventuality, even for another war in Gaza." Meshal is on a regional tour to drum up support for Hamas, and in a speech at Tehran University Monday thanked Iranian supporters, "Thank you for all your support--the financial, political and media and popular support which you gave to us."

7. In light of recent pronouncements by Russian US analysts Andrew Pronin and Igor Panarin about the incipient break up of the United States (see Daily Sources 12/30 #12 and Daily Sources 1/22 #5) it is interesting to see, via an anonymous comment to yesterday's post, that the New Hampshire House of Representatives State-Federal Relations and Veteran's Affairs Committee will consider a bill which would deem any act not explicitly authorized by the US Constitution as a nullification of the compact itself. HCR 6--text here--is sponsored by four GOP state representatives, was introduced on January 8, and is scheduled to be considered by the committee next on Thursday. Not likely to go anywhere, but surely will be seen as grist for the mill overseas.

8. Ben Block at the World Watch Institute reports that the The International Renewable Energy Agency (IRENA) was launched yesterday. 75 nations have signed the treaty establishing the international agency, which would be dedicated to help governments and private industry expand renewable energy installments in the developed world and assist the developing world acquire the expertise to develop domestic alternative energy industries. The agency was an initiative of Germany, Spain and Denmark, and signatories include France, India, the UAE, and Kenya, though the US, UK, Japan, Australia, and China have chosen so far to remain observers. (An official from the US Embassy in Berlin served as the US representative at the meeting.) At this stage it is difficult to see how much clout this organization could potentially hold, but an interesting development nonetheless. 25 nations will need to ratify the treaty prior to their final accession to it.

9. Lydia Polgreen at the New York Times reports that the President of Libya, Muammar el-Qaddafi, was named chairman of the African Union yesterday.
"Colonel Qaddafi is an ardent supporter of a long-held dream of transforming Africa, a collection of post-colonial fragments divided by borders that were drawn arbitrarily by Western powers, into a vast, unified state that could play a powerful role in global affairs. He has repeatedly proposed immediate unity and the establishment of a single currency, army and passport for the entire continent. He pledged Monday to bring up the issue for a vote at the African Union’s next summit meeting, in July."
Quixotic, but those member nations which would be made uncomfortable by some of Qaddafi's more explosive announcements have apparently been outvoted.

10. Rebecca Wilder at News N Economics reports that 34.6% of national home sales were sold at a loss in 2008. In the fourth quarter, 42.2% were at a loss. In 2008 as a whole, 19.9% of the houses sold were in foreclosure. Ms. Wilder drew up a graph tracking sales at a loss from the first quarter of 2004:

Worth a look.

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