I, for one, welcome our new Canadian Banking Overlords

[chequita guevara]

That's only for now. As Canada's exports drive to a screeching halt because no one can afford to buy their products anymore, Canada will come tumbling down.

Grain piles up in ports
Canada next in inability to finance shipments

John Greenwood, Financial Post
Published: Wednesday, October 08, 2008

The credit crisis is spilling over into the grain industry as international buyers find themselves unable to come up with payment, forcing sellers to shoulder often substantial losses.

Before cargoes can be loaded at port, buyers typically must produce proof they are good for the money. But more deals are falling through as sellers decide they don't trust the financial institution named in the buyer's letter of credit, analysts said.

"There's all kinds of stuff stacked up on docks right now that can't be shipped because people can't get letters of credit," said Bill Gary, president of Commodity Information Systems in Oklahoma City. "The problem is not demand, and it's not supply because we have plenty of supply. It's finding anyone who can come up with the credit to buy."

So far the problem is mostly being felt in U. S. and South American ports, but observers say it is only a matter of time before it hits Canada.

"We've got a nightmare in front of us and a lot of people are concerned it's going to get a lot worse," said Anthony Temple, a grain marketing expert based in Vancouver.

The port troubles occur as financial institutions worldwide experience an unprecedented level of failures; even the strongest global banks are taking shelter in government bailouts. Yesterday, the U. K was expected to invest as much as £45-billion ($87.01-billion) in three of the country's biggest banks, while the U. S. government rushed to put in place its US$700-billion rescue package for beleaguered financial market players. Ottawa has so far resisted pleas for direct financial aid for exporters.

Access to credit is key to the survival of maritime trade and insiders now say the supply is being severely restricted. More than 90% of the world's trade by volume goes by ship.

The Baltic Dry Goods Index, the main measure of shipping rates, is down 74% from its high back in May when trade with China was still strong.

"The credit crisis has made banks nervous and the last thing on their minds is making fresh loans," Omar Nokta, an analyst at investment bank Dahlman Rose, said in an interview with Reuters.

While shipping has always been a cyclical industry whose fortunes rise and fall with the global economy, analysts said the current crisis over the drying up of credit is something they have never seen before.

Jason Myers, head of the Canadian Manufacturers and Exporters, said exporters across Canada are getting caught up in the turmoil as customers delay payments, forcing them to shoulder the cost.

"What some companies are saying is we can't pay you until our customer pays us, so it becomes a question of who bares the financial risk and the cost," Mr. Myers said. "We're hearing about it more and more."

What that means is that manufacturers are getting hit as revenue slows and longtime customers disappear from the order book altogether. As profits decline, investment in product development starts to fall, too, he said.

The Canadian Wheat Board, one of the world's biggest grain marketers, has yet to refuse a customer because of poor credit, according to a spokeswoman. "As of this moment we haven't run into that problem," said Maureen Fitzhenry.

Officials at Viterra, Canada's leading grain handler, were not immediately available for comment.

The meltdown in financial markets has resulted in a dramatic slowdown in maritime trade, with major ports in Canada and the United States preparing for sharply reduced activity after several of the busiest years on record.

Statistics from the Port of Vancouver have yet to officially register a drop but at Los Angeles and Long Beach, Calif., among the biggest U. S ports, imports have already declined 9% this year.

[Asher]

I'm not sure you understand that this doesn't affect the banks' soundness, but rather it effects the economy as a whole.

The grain industry is already a net loss for Canada. Look into the socialist nature of the Canadian Wheat Board, che.

[chequita guevara]

It doesn't effect the banks directly, but when those goods can't be sold, the owners can't pay back their loans, and that's when Canada's banks will be facing a crisis.

[Asher]

Originally posted by Comrade Snuggles
It doesn't effect the banks directly, but when those goods can't be sold, the owners can't pay back their loans, and that's when Canada's banks will be facing a crisis.

It's a huge stretch to suspect this will affect the soundness of the banks.

[DinoDoc]

Originally posted by Comrade Snuggles
It doesn't effect the banks directly, but when those goods can't be sold, the owners can't pay back their loans, and that's when Canada's banks will be facing a crisis.

I'd hope Canadian banks weren't as stupid as thier American counterparts when it came to making loans to poor people that couldn't afford to pay it back.

[Wezil]

Oncle - the english debate video is here

http://watch.ctv.ca/news/election-2008/english-debate/#clip98314

[chequita guevara]

Originally posted by DinoDoc
I'd hope Canadian banks weren't as stupid as thier American counterparts when it came to making loans to poor people that couldn't afford to pay it back.

All business pretty much runs on credit. Farmers take out loans to get by until their crops are sold. I doubt most Canadians businesses have stockpiles of cash sitting around so that they don't have to borrow to produce.

[chequita guevara]

You should be welcoming your Chinese overlords.

BEIJING – One of the very few light moments during the Sichuan earthquake last May occurred as a family in Xiang'e dug through the rubble of its fallen home. The wife paced around an earth-mover, looking agitated but not grief-stricken, and I guessed she was looking for a lost pet. But when she began hopping up and down in excitement at the appearance of a mattress, I was momentarily stumped.

That is, until one of the men began tearing through the mattress lining.

Before long the wife was beaming, having rescued and quickly tucked away several wads of rolled up 100-yuan notes.


One might chuckle at the scene, as I did, but this family represents one reason some commentators think China can save the global economy.

The argument(s)
The argument that China can bail out everyone – or at least the American economy – is actually two-fold.

One strand argues that in the wake of double-digit national economic growth of recent years, China's businesses and consumers are well positioned to counter the dwindling spending in North America and Europe by picking up the slack in domestic consumption.

"China has to make a transition from being export-oriented toward domestic consumption-oriented," said Michael Pettis, a finance professor at Beijing University. "Any large continental economy can't depend on external demand for its own growth."

The other strand has to do with China's reserves. With nearly $2 trillion in foreign exchange reserves and a massive sovereign wealth fund, commentators say, the Chinese can easily bail out the United States.

This was certainly the rallying cry at last month’s World Economic Forum gathering of business leaders and policymakers from Europe and North America in the northern port city of Tianjin. "China has a voice and has a wallet with a voice," intoned the CEO of a multinational company.

But both of these scenarios are unlikely, if not completely fanciful, say economists in Beijing.

Spending habits don’t change instantly
For one, the transition to a consumption-driven economy doesn't happen overnight. "We're really talking about a 5 or 10 or 15-year process," Pettis said. "The United States went through its own process, and it took a very, very radical, a very deep crisis, quite a long time ago."

And China's household savers who sock away as much as 30 percent of their annual personal income, compared to the near-zero percent the average American family saves, are unlikely to change their spending habits any time soon.

"Since we began our economic reforms [30 years ago]," said Zhang Ming, an economist with the Research Center for International Finance in Beijing, "we haven't done a good job of offering social and welfare services." So families here in effect are taxing themselves by saving for their children's education, buying a home, medical care, and retirement.

More to the point, "Chinese consumers are steadily consuming more, but this is a long-term process that could only be propelled into a short-term global fix by a foolish leap into American-style lending practices," Andy Rothman, chief China strategist at CLSA Asia-Pacific Markets, wrote in a research note this week.

Corporations, meanwhile, will only spend or increase their investments if there is a reason to do so (hint: profit). But businesses have begun stockpiling inventories, because they can't find buyers, which sooner or later means they will need to start cutting back, too.

Can’t loan anymore money
As for whether Beijing will step up by loaning the U.S. more money, the notion is "nonsensical," said Pettis. "It’s not really meaningful."

China already owns an estimated $1 trillion of U.S. debt – most of which is U.S. Treasury bonds and the rest in U.S. agency debt. "The U.S. credit crisis has led to losses in China’s own wealth," noted Zhang. So where are they going to get more money for new loans to the U.S. – to buy more debt?

"The argument was that China already has almost $2 trillion. Yes, but those are already lent to the U.S. and European governments," argued Pettis. "So they can’t re-lend them. They would have to take the money back and then lend it, which is not a new loan."

Rumors of a China-led bailout have been so rife, in fact, that the central bank here, the People’s Bank of China, had to deny reports carried in Hong Kong newspapers that the government would buy up to $200 billion worth of U.S. Treasuries to ease the financial crisis in America.

Dealing with its own economic slowdown
"The question is, is it realistic to expect that one country, the size of China's economy, can hold up the rest of the world's economy?" asked Louis Kuijs, Senior Economist with the World Bank. "I would have my doubts, simply because the size of China's economy is not yet large enough. It's important to remember that [the Chinese economy] is still significantly smaller than Japan’s and not many people are looking at Japan as the country that can shoulder the rest of the world economy."

As far as the leadership in Beijing is concerned, the best China can do is to maintain its current growth trend, as Premier Wen Jiabao underlined at the World Economic Forum in Tianjin. "Maintain China's strong, steady and fast growth and avoid fluctuations. This is the biggest contribution to the world economy under the current circumstances," he said.

Keeping economic growth steady is not as easy as it sounds. In fact, given recent indicators, China is unlikely to do any rescuing apart from its own economy.

A confluence of factors means that the economic outlook here is less than rosy: growing inflation; slowing exports; a free-falling stock market (down more than 60 percent from its highs in 2007); and a hot housing market that’s cooled (the average rate of property prices on the coast slowed to 6 percent in August from 25 percent last November, according to China Reality Research studies).

Now add to the mix the widening financial crisis which has spread to Europe and parts of Asia.

"I would be very surprised if a slowdown in world growth did not reflect very, very significantly on Chinese growth," Pettis said. "What we are hoping for is that domestic consumption grows to make up for reductions in export. That is still an open question, we don't know if that is going to happen or not. But, if domestic consumption doesn't grow significantly, I suspect we are going to see a slowdown of the Chinese economy."

And even though an economic slowdown here translates to single-digit GDP growth in the range of 8 to 9 percent (still considered impressive), this would mark the first time an entire generation of Chinese have experienced such a thing.

The last time the Chinese economy suffered was in 1997, around the time of the Asian financial crisis, Pettis pointed out, but that was before the nation saw the kind of wealth accumulation that exists now amongst the middle class.

Feeling their pocketbooks pinched might have serious political implications, too, especially coming on the heels of a Summer Olympics that bolstered popular sentiment for the government.

Indeed, "the next few months in China could be really interesting," said Pettis.

[Kidlicious]

Originally posted by Comrade Snuggles
You should be welcoming your Chinese overlords.

The article doesn't support what you are claiming. However, I think it's more likely that China would more quickly take government action should there be a world depression than the US.

[Fake Boris]

Originally posted by Wezil
Oncle - the english debate video is here

http://watch.ctv.ca/news/election-20...ate/#clip98314

Thanks, I've watched the economic part of the debate.

Not a single word from Stephane Dion about banks crumbling.

Asher, where are you?

[Wezil]

np, always happy to stir some ****.

[Asher]

Originally posted by Oncle Boris


Thanks, I've watched the economic part of the debate.

Not a single word from Stephane Dion about banks crumbling.

Asher, where are you?

Have you looked at his plan (the 5-point, 30-day plan)?

Step 1 is to look at Canada's banking regulatory framework, implying something is wrong with it.

[Lancer]

Originally posted by Wezil
np, always happy to stir some ****.

[Wezil]

I typed the ****. I'm not obscene.

[Lancer]