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Monthly Archives: December 2008

Except for the stock market, which soared on news of another rate cut, the US economy looks worse and worse–deflation, unemployment, and the lowest Federal Funds Rate ever.

Consumer prices fell at the fastest rate on record in November, while home construction skidded nearly 20 percent to its lowest levels in 50 years, according to government data released Tuesday.

Maybe I am overly pessimistic, but I don’t even expect stock prices to stay high. Tomorrow will likely be dominated by cautious profit-taking.

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New report out on continued corruption in SE Asia. Since my two years in Kazakhstan I have wondered at the real harms of it. If it is expected as a normal cost of doing business, can not the market mechanism still work to bring efficient outcomes?

And there is good reason for an appreciation of coruption too. If you can afford it, corruption allows you great freedom. You can do just about anything. A greased wheel is as good a metaphor as any.

For years, corruption has greased the wheels of commerce and politics in Southeast Asia, a favored destination for investors in emerging markets.

Global oil demand will contract for the first time since the early 1980s as world economic growth slows to a near standstill, the U.S. government said on Tuesday.

Wow. Did not expect to see this.–an actual decrease in world-wide demand. I would have expected increases in China and India enough to keep demand growing. Things must really be changing in the U.S., still the biggest oil consumers. I remember the early 80’s. That is when I sold my Karman Ghia and bought a bicycle.

And–

The lower forecast came as the EIA revised down its projection for 2009 global economic growth to 0.5 percent next year, from the 1.8 percent projection it made in its previous report issued in November.

Half a percent growth for the world next year. At least it is still positive. Actually, I have thought for a long time that lower growth rates should be encouraged. Growth should be limited to about the level of population growth. Technological development can still bring improvements in lifestyle. The negative externalities of our preoccupation with higher income have clearly been very high.

Oh really? Something tells me they are only trying to sound as optimistic as possible. With discount rates already close to zero, they can not do much more to encourage borrowing.

Other tools? Lower reserve requirements? Not a good idea as they would be risking even more troubles in the banking sector. Already people don’t have much reason to keep their money at the bank.

The Fed can keep buying securities, but returns there are getting thin (not that it should matter to the Fed). They can buy as long as they have a seller I suppose.   Is this what is meant by the rather vague statements quoted in the article?

A chorus of Fed watchers expect the FOMC to lower fed funds to zero by January, and to expand quantitative measures to pump more liquidity into markets, echoing efforts by Japan’s central bank to revive that country’s economy in the 1990s.

“The Fed has a number of options to help ease the economy through this difficult transition,” Lockhart said.

The U.S. central bank could continue to boost market liquidity even though interest rates cannot fall below zero, he said. “There are many other mechanisms that the (FOMC) can use to provide liquidity.”

Today the economics news got scarey.

The Fed is widely expected to cut rates later this month to 0.5 percent, the lowest since the 1950s, and Bernanke said lower rates are feasible but conventional policy is constrained.

Long-term government bond yields have also dropped on mounting expectations inflation in major economies will turn into falling prices, or deflation, and the sharp drop in commodity prices.

Interest rates at 1/2% probably put them below liquidity trap levels, meaning that people will prefer to keep their money to themselves rather than loan it to someone else at such a low return.  And with deflation too? If people learn to expect decreasing prices we have another reason for spending to dry-up.

I haven’t seen much lately on how Asia is expected to wade through this flood of bad news, but I suspect that we will be insulated a bit, even if Asian stocks are taking a hit right now. Where I am in Suzhou, it may be that even more foreign companies will locate here as the need to find cheap labor becomes even more desperate.

Consumers made repeat trips to stores and spent more on bargains this holiday weekend, but the early rush is unlikely to save retailers from a bleak sales season, analysts said on Sunday.

The whole world–almost the whole world–was watching sales figures from the post Thanksgiving shopping weekend in the US. I can confirm this as my British and German and Korean friends here in China were all discussing the financial news over the weekend. Looks like sales are good, but only for discounted prices. Revenues may not be enough to spur much of a recovery.

In related news, stimulus packages continue to be discussed and promised, and interest rates are moving lower, providing discounts for investment money too. Strange that the attacks in Mumbai and Thailand are linked–somehow–to the dire economy.