Consumer Confidence Lowest Ever

The Conference Board said on Tuesday its index measuring consumer sentiment tumbled to 38.0 in October, down from 61.4 in September and the lowest reading since the index was first published back in 1967.

Some other notable statistics about the US gloom–

• Housing prices are down 16.6%
• Stock prices are down 25% in October alone
• Consumer debt totals 2.56 trillion USD

The real news here is that consumer spending depends largely on consumer confidence, and investment spending will not happen without the promise of a decent return. We have a better understanding of things–I think–than people did during the Great Depression, but if people horde their money for a long time we will have a hard time recovering.

The Great Depression gave rise to Keynesian Economics. I wonder if a new depression would bring a new view of economics. Current models are rightly criticized for a few things, like implying that income is the end-all measure of welfare, encouraging policy linked to growth, even if society suffers in the end.

Iraqis lack know-how in spending

“Our efforts are devoted to helping the Iraqis spend their own money,” said Marc Wall, the U.S. Embassy’s coordinator for economic transition in Iraq. “We’ve zeroed in on it in the last year or two.”

Sounds suspiscious to me. Americans will teach Iraqis how to spend money? Blind leading the veiled. Further in the article–

…lawmakers asked why the Iraqis haven’t spent more of their own money on reconstruction efforts while U.S. taxpayers shell out some $12 billion a month for Iraq — most for military operations.

Who is doing a better job of (not) spending their money? Maybe the US should ask Iraq for spending advice.

And I wonder how much of the reconstruction is contracted to US companies.

Speaking of OPEC…

Stung by what it called “a dramatic collapse” in crude prices, the OPEC cartel said on Friday that it would reduce output by a steeper-than-expected 1.5 million barrels a day. But that action failed to brake the price decline, and oil dropped 5 percent more by the end of the day.

While oil prices have declined, an apparant exception to the workings of supply and demand, you can be sure that prices are higher than they would have been otherwise. Since oil prices are largely influenced by speculation in futures markets, it is likely that investors expected an even bigger cut in supply, not the steeper-than-expected story in the article.

Natural Gas Cartel

Russia, Iran and Qatar made the first serious moves Tuesday toward forming an OPEC-style cartel on natural gas, raising concerns that Moscow could boost its influence over energy markets spanning from Europe to South Asia.

Wow. Looks like we will soon have a new cartel to use as a real-world example. Finally an alternative to OPEC.

May be interesting to see if this new cartel can wield as much power as OPEC has over the last thirty years. One consideration–is the demand for natural gas as inelastic as the demand for petroleum?

Some Benefit from Cannibalism

 Female spiders who eat would-be suitors produce more babies, and those babies are stronger and bigger, than spiders who stick to more mundane fare, researchers reported on Tuesday.

“Now we know that, at least in one species, sexual cannibalism benefiting females occurs in nature,” Dr. Jordi Moya-Larano of the Estacion Experimental de Zonas Aridas in Spain, who led the study, said in a statement.

Hmmmm. I wonder if this phenomenon is limited to spiders.

Only 9% growth…

Report out that China’s growth is slowing, only growing at 9% last quarter, compared to just over 10% the previous two quarters. Slowing demand for exports is blamed.

China’s State Council has begun drafting measures to counter the slowdown, including export tax rebates on labor-intensive products such as clothing, as well as on electronics and small appliances. They also promised more support for the ailing housing sector and money to rebuild areas devastated by the May earthquake, state-controlled media said Monday.

The money for rebuilding is certainly understandable, but the support for more exports does not seem necessary. 9% growth would be a windfall for most. It may be that policy makers are expecting a bigger drop in growth unless something is done.

At least in Suzhou, one certainly does not see a need for housing support. We have huge apartment blocks going up everywhere. Watching all the change is interesting, but I dread the traffic and noise getting even worse.

End of Globalization?

As European and American leaders plan a meeting on the economic crisis, President Bush is already backing the US away from any kind of international oversight.

Just hours before the joint statement, Mr. Bush, in an appearance with Mr. Sarkozy and Mr. Barroso at Camp David, warned that any effort to overhaul the international financial system must “preserve the foundations of democratic capitalism — a commitment to free markets, free enterprise and free trade.”

Meetings will not take place until after the US election. Better yet if they wait until the new president has taken office. Surely the US–in the global economy it encouraged–must accept some oversight from international concerns. The current crisis originated in the US, but has affected investment everywhere.

The fear and distrust of foreign oversight implies a retreat into a closed economy,  meaning less foreign investment, deficit spending becomes more difficult, and imported goods become more expensive. Will we see increased trade tariffs?

As Bushman says, retreat from free trade and globalization is a frightening idea, but to my mind that is where his paranoia will leave us.

Cap and trade?

The global downturn is effecting resource prices as investors predict continued falls in demand for all kinds of goods.

 Price of European carbon permits falls.

Industrial carbon emissions will fall faster in Europe as result of a coming recession, cutting the demand for and price of emissions permits under the European Union’s emissions trading scheme, said Deutsche Bank analysts.

CO2 emissions are predicted to drop by 100 million tons in 2009, and some are encouraged that industry and banks might become more willing to underwrite a stronger fight against global warming. With oil selling at lower prices, there is also the fear that consumers may abandon efforts to conserve energy and their use of petroleum.

Given the unlikely event of higher tax prices, I wonder if the US will soon create a cap-and-trade market for carbon.

Nobel Prize

The latest Nobel prize for economics was awarded to Paul Krugman.

Krugman’s work looked at on how economies of scale — the idea that as the volume of production increases, the cost of making each unit falls — worked alongside population levels and transportation costs to affect global trade. Krugman’s theory was that because consumers want a diversity of products, and because economies of scale make production cheaper, multiple countries can build similar products, such as cars. Sweden builds its own car brands for export and to sell at home, for example, while also importing cars from other countries.

Funny, I know Krugman’s editorials from the New York Times, but I did not remember he was an economist.

Why is the US Dollar Growing Stronger?

Stock markets are swooning, credit markets remain frozen, and some foreign officials are predicting that the United States will lose its status as a financial superpower. And yet the dollar — the most visible symbol of America’s financial might — is surging.

Interesting only in that the dollar’s value is increasing just as the American economy looks to be in shambles. How to explain?

The author, Mark Landler, guesses that the explanation lies with the US dollar’s role as a reserve currency. At a time of global economic uncertainty, people buy-up more dollars to protect them against the sudden devaluation of their own currencies.