Daily Sources 3/16

1. Real Time Economics carries the full text of the G20 communique released on Saturday. Key excerpts:

"2. Our key priority now is to restore lending by tackling, where needed, problems in the financial system head on, through continued liquidity support, bank recapitalisation and dealing with impaired assets, through a common framework (attached). We reaffirm our commitment to take all necessary actions to ensure the soundness of systemically important institutions.
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5. We are committed to helping emerging and developing economies to cope with the reversal in international capital flows. We recognise the urgent need to pursue all options for mobilising International Financial Institution (IFI) resources and liquidity to finance countercyclical spending, bank recapitalisation, infrastructure, trade finance, rollover risk and social support. We agreed on the urgent need to increase IMF resources very substantially. This could include further bilateral support, a significantly expanded and increased New Arrangements to Borrow (NAB), and an accelerated quota review. We should also ensure that all Multilateral Development Banks have the capital they need, beginning with a substantial capital increase for the Asian Development Bank, and put it to best use to help the world’s poorest.
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7. We have also agreed to: regulatory oversight, including registration, of all Credit Rating Agencies whose ratings are used for regulatory purposes, and compliance with the International Organisation of Securities Commissions (IOSCO) code; full transparency of exposures to offbalance sheet vehicles; the need for improvements in accounting standards, including for provisioning and valuation uncertainty; greater standardisation and resilience of credit derivatives markets; the FSF’s sound practice principles for compensation; and the relevant international bodies identify non-cooperative jurisdictions and to develop a tool box of effective counter measures."

2. Michael Wines, Keith Bradsher, and Mark Landler at the New York Times reported on Friday that Chinese Prime Minister Wen Jiabao aired some of Beijing's worries with regard to their holdings of US debt ahead of the G20 meeting in London.

"'President Obama and his new government have adopted a series of measures to deal with the financial crisis. We have expectations as to the effects of these measures. ... We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.'

He called on the United States to 'maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.'"

3. Xinhua reports that the Chinese Ministry of Finance announced on Friday that the 5 billion yuan (~$732 million) stimulus plan directed at subsidizing the purchase of automobiles and motorcycles in rural areas will translate into a 10-13% discount, respectively.

"Farmers who buy light trucks and minivans from March 1 to Dec. 31, would get a 10 percent discount, with the ceiling subsidies of 5,000 yuan (~$732.29).

Subsidies of 2,000 and 3,000 yuan (~$292.92 and ~$439.37) can be use to replace old three-wheeled and four-wheeled vehicles respectively.

From this Feb. 1 to Jan. 31 in 2013, farmers who buy motorcycles would get 13 percent of the purchase price back, with ceiling subsidies of 650 yuan (~$95.20)."

4. Borzou Daragahi at the Los Angeles Times reports that Iranian state television on Saturday carried an announcement by government officials that a $3.2 billion deal to develop the South Pars natural gas fields had been stuck with China.

5. Marcus Hand at Lloyd's List reports that Singapore port container cargo traffic fell by an annual rate of 20% in February. The number of containers that went through the port fell by 6% from January to 1.85m teu. Singapore's port is the world's largest container port.

6. Pamela Constable at the Washington Post reports that Pakistani President Zadari announced early today that he would reinstate a number the judges deposed by Pervez Musharraf in 2007, including former Chief Justice Iftikhar Mohammed Chaudhry.

"Zardari's turnabout came after thousands of demonstrators poured into the streets of this leafy capital of Punjab province [Lahore] Sunday, throwing rocks at police and cheering wildly. A wide cross section of Pakistan's political, social and religious sectors joined the day-long protests.

As the demonstrations escalated, police first responded with volleys of tear gas. But by mid-afternoon they suddenly withdrew from the streets, while numerous city and provincial officials were reported to have resigned. The swift collapse of authority signaled the end of Zardari's bid to seize control of Punjab, the most politically influential region of the country, and raised serious questions about his ability to remain president."

Worth reading in full. Includes links to fascinating pictures of hordes of lawyers protesting in Pakistan.

7. Haig Simonian at the Financial Times reports that on Friday Switzerland's finance minister, Hans Rudolf Merz, "said Bern would abolish the strict distinction between tax fraud, a crime in Swiss law, and tax evasion, a civil offence." Merz stressed that customer accounts would remain secret in all but exceptional cases, meaning that a specific request from an investigative body would be required in order to obtain the data, or so I infer. As I've said before, changes of 500 plus year traditions are better indicators, to me, of what kind of stresses the financial system is under than most. (h/t Yves Smith at naked capitalism.)

8. Eurointelligence notes a media report that Finnish manufacturing orders are down 38% year over year in January.

9. OPEC decided in its meeting Sunday to maintain the current quota allocations, and called on its members to fully comply with them. Current compliance is 79% according to the cartel--the producers which are probably the largest over-suppliers are Iran and Venezuela, ironically usually the biggest hawks in the group. The OPEC press release following the meeting can be found here. Key excerpt:

"The Conference, however, welcomed, some initial signs reported of a reversal in crude oil-stock trends, and a narrowing of the contango in the front price structure, indicating that the adjustment process instigated through OPEC measures vis-à-vis excess supply in the market is gradually helping to redress balance, and was also pleased to observe that following the decision taken by the 151st (Extraordinary) Meeting of the Conference in December 2008 to cut 4.2 mb/d from the actual September 2008 OPEC-11 production level with effect from 1st January 2009, compliance for the month of February, according to secondary sources, was 79%, which has contributed to balancing the price of the OPEC Reference Basket at around US$40/b since the beginning of the year, despite the critical economic outlook.

The Conference therefore emphasized its commitment to comply fully with its decision of December 2008, in order to further contribute to market stability. The Secretariat will monitor very closely developments in the market. Furthermore, the Conference will convene in Vienna, on Thursday 28th May 2009, to consider any further actions deemed necessary."

On a side note, the cartel decided to lengthen Abdullah Salem el-Badri's (of Libya) stay as Secretary General of the organization for another three year term. At Environmental Capital, Spencer Swartz reports that Russia decided not to join the organization or coordinate any serious production cuts.

"[Russian deputy prime minister Igor Sechin] proposed a slew of things for Russia and OPEC ministers to work on together, such as coordinating (i.e., raising) taxes on foreign oil firms’ crude production and refining operations."

Moscow had indicated that it would consider to what extent OPEC was complying with headline cuts before it joined in cooperation. Even so, this has to be considered good news in the West, given recent noise from Moscow and hints from Tehran.

10. Rania El Gamal at Reuters reports that Sheikh Nasser al-Mohammad al-Sabah told al-Watan newspaper that the country would officially cancel the al-Zour 615 kb/d export refinery construction project today in remarks published Sunday. In May, KNPC awarded $8.4 billion in construction tenders to four South Korean and one Japanese firm to build the refinery.

11. Rainbow Nelson at Lloyd's List reports that the Chavez administration expects the Venezuelan Congress to pass a law tomorrow which would transfer the administration of ports from the regional to the state level.

"'We are going to recover the ports and airports in the whole republic, oppose it whoever wants to, this is the law of the republic,' Mr Chavez said on his weekly television program ‘Alo Presidente’.

He warned Henrique Salas, who governs the department of Carabobo and oversees Venezuela’s most important port, Puerto Cabello, and Manuel Rosales, the governor of Zulia, which oversees the port of Maracaibo, that the navy and army would be used to quell any opposition to the move."

Opponents have pledged to resist the law.

12. The Associated Press reports that Mexico has slapped import duties on 90 US products in retaliation for the cancellation of a program that had allowed Mexican trucks to trasnport goods within the US.

13. Mary Williams Walsh at the New York Times reports that AIG issued a press release Sunday which provided the names of the institutions and governments which received payments via the bailout monies provided to the insurance company.

"Financial companies that received multibillion-dollar payments owed by AIG include Goldman Sachs ($12.9 billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion), Citigroup ($2.3 billion) and Wachovia ($1.5 billion).

Big foreign banks also received large sums from the rescue, including Société Générale of France and Deutsche Bank of Germany, which each received nearly $12 billion; Barclays of Britain ($8.5 billion); and UBS of Switzerland ($5 billion).

AIG also named the 20 largest states, starting with California, that stood to lose billions last fall because AIG was holding money they had raised with bond sales."

14. Justin Fox at the Curious Capitalist dug up the Bureau of Economic Research data on unemployment in the Great Depression to compare them to the financial crisis of 2008.



As Fox notes, nonfarm employment accounts for a much larger share of total employment in the US today than it did in 1929. Still, nonfarm employment accounted for about 78% of all private sector hours worked at that time, according to Robert Higgs at the Independent Institute.