Econ: The Forecast is...?

[notyoueither]

I don't think the writer is questioning the future of capitalism in general, just a particular strain of it.

On the topic of Sharia, it is a legal system, yes? It could be used within a state with either market or planned economy, right? Or is Sharia a system of its own?

[RedFred]

Sharia law compliant investments could occur in a quasi-capitalistic environment. It is becoming big in many of the oil-exporter, large pools of capital, middle east countries.

But my thought was more that the strongest ideological challange to unfettered free-enterprise economies may not be a mixed economy, socialist or communist alternatives. Instead it may come from totalitarian Muslim fundamentalist states.

[Naked Gents Rut]

I really doubt doing away with interest will appeal to anyone besides Islamic fundies.

[notyoueither]

Sharia law compliant investments could occur in a quasi-capitalistic environment. It is becoming big in many of the oil-exporter, large pools of capital, middle east countries.

But my thought was more that the strongest ideological challange to unfettered free-enterprise economies may not be a mixed economy, socialist or communist alternatives. Instead it may come from totalitarian Muslim fundamentalist states.

I can see that for Muslim countries.

I doubt that will be the outcome in the rest of the world.

It does tie in with reversing globalisation and a reversion to local interests and norms though, so I'm not sure how the article missed any mark.

[RedFred]

I thought the 'no current alternatives' to capitalism part was off the mark.

The big creditor nations including China as well as the Middle East oil nations can reasonably be expected to wield considerable economic clout in the future.

But keep the good articles coming. It all helps as I struggle to make sense of the current economic mess.

[notyoueither]

I'm not sure how to view China, but it might be argued that they have adopted capitalism.

[Kidlicious]

This can go here.

http://www.bloomberg.com/apps/news?p...FTc&refer=asia

China’s Investment Surges 26.5% as Exports Plunge (Update2)
March 11 (Bloomberg) -- China’s investment spending surged as the nation poured money into roads, railways and power grids to counter a plunge in exports, which a separate report showed fell by a record in February.

Urban fixed-asset investment climbed a more-than-estimated 26.5 percent in January and February combined to 1.03 trillion yuan ($150 billion) from a year earlier, the statistics bureau said today in Beijing. Exports tumbled 25.7 percent.

Premier Wen Jiabao’s 4 trillion yuan package of tax cuts and infrastructure spending may help him to achieve a target of 8 percent economic growth this year even as world trade collapses. Signs of a Chinese recovery, including a surge in lending and gains in power consumption, have powered a 17 percent gain in the Shanghai Composite Index in 2009.

“China’s economic growth may rebound strongly in this quarter and the next because of the investment expansion prompted by the stimulus package,” said Xing Ziqiang, a Beijing-based economist at China International Capital Corp. “However, slumping exports may drag down investment by manufacturers, so that growth slows again in the second half.”

The gain in spending beat the 21.5 percent median estimate of 11 economists in a Bloomberg News survey.

The Shanghai index fell 1.1 percent as of 2:46 p.m. local time, paring the biggest gain this year among 91 benchmark indexes tracked by Bloomberg. The yuan traded at 6.8409 against the dollar from 6.8392 before the data was released.

Railway Spending Triples

Surging spending outweighs a slump in trade because fixed- asset investment accounts for 40 percent of China’s economic growth, versus 7 percent for net exports, said Sun Mingchun, a Hong Kong-based economist at Nomura Holdings Inc.

Railway investment tripled from a year earlier, agricultural spending doubled, and coal-mining expenditure jumped 59.6 percent, the statistics bureau said. The number of new projects climbed 28 percent to 18,533.

As the world’s second-largest oil consumer, China has approved and started at least $35 billion of energy projects since the stimulus plan was announced in November, according to data compiled by Bloomberg. The nation last month began building the eastern section of its second west-east gas pipeline, valued at 93 billion yuan.

Quicker Environmental Reviews

The environment ministry today said it cut its review time for new building proposals to two days from five. The regulator approved 246 projects with a total investment of 970 billion yuan in the first two months.

Construction-equipment sales in China may rise 20 percent in the second half as orders recover because of the spending, according to Lonking Holdings Ltd., the nation’s biggest maker of four-wheeled earthmovers.

The trade surplus narrowed to $4.8 billion, about an eighth of the amount in the previous month, the customs bureau said in a statement today. Imports fell 24.1 percent from a year earlier.

None of 16 economists in a Bloomberg News survey predicted such a large decline in exports, the biggest since Bloomberg data began in 1995. The median estimates were for a 1 percent fall in overseas shipments, a 22.5 percent drop in imports and a $28.3 billion surplus.

“There’s no hope for export demand to recover any time soon,” said Wang Qian, a Hong Kong-based economist at JPMorgan Chase & Co. “How fast imports recover depends on how soon the government’s stimulus package kicks in and creates real demand in major industries.”

Yuan Versus Dollar

After hitting a record $40 billion in November, China’s trade surpluses may stay below $20 billion for the next six months because of weaker demand, according to CICC’s Xing.

China has responded to the collapse in world trade by halting the yuan’s three-year advance against the dollar in July last year and reducing export taxes on products from toys to textiles.

A devaluation “cannot be ruled out if the outlook for the export sector worsens,” said Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong.

The government plans to gradually cut all export taxes to zero to support overseas shipments, Commerce Minister Chen Deming said this week. More than 30 percent of the goods produced in Chinese factories are sold overseas, he said, in an interview published in Study Times, a Communist Party newspaper.

“Local manufacturers will continue to feel the squeeze brought on by a contraction in global consumption, and pressures on the government to quickly roll out the fiscal stimulus projects will intensify,” said Sherman Chan, a Sydney-based economist at Moody’s Economy.com.

Plunging exports and imports forced 20,000 small- and medium- sized companies in China’s Guangdong province to close since October, shedding 2 million jobs, the Nanfang Daily newspaper reported last month.

Those feeling the squeeze include suppliers to companies such as Mattel Inc., the world’s biggest toymaker, and U.S. department- store chain J.C. Penney Co. U.S. consumer confidence has tumbled as a recession deepens in the world’s biggest economy.

Impressive, considering they already spent so much on investment. But then that's where to get the growth then. Too bad for other nations who will have to increase consumer spending to create growth.

[chequita guevara]

http://www.reuters.com/article/wtUSInvestingNews/idUSTRE52966Z20090310

45 percent of world's wealth destroyed: Blackstone CEO
Tue Mar 10, 2009 3:42pm EDT

By Megan Davies and Walden Siew

NEW YORK (Reuters) - Private equity company Blackstone Group LP (BX.N: Quote, Profile, Research, Stock Buzz) CEO Stephen Schwarzman said on Tuesday that up to 45 percent of the world's wealth has been destroyed by the global credit crisis.

"Between 40 and 45 percent of the world's wealth has been destroyed in little less than a year and a half," Schwarzman told an audience at the Japan Society. "This is absolutely unprecedented in our lifetime."

But the U.S. government is committed to the preservation of financial institutions, he said, and will do whatever it takes to restart the economy.

U.S. Treasury Secretary Timothy Geithner plans to unfreeze credit markets through a new program that will combine public and private capital in a fund that would buy bank toxic assets of up to $1 trillion.

"In all likelihood, that will have the private sector buy troubled assets to clean the banks out in terms of providing leverage ... so that we can get more money back into the banking system," Schwarzman said.

He expects the private sector to end up making "some good money doing that," but added there were complex issues on how to price toxic assets.

He put part of the blame for the financial crisis to credit rating agencies.

"What's pretty clear is that, if you were looking for one culprit out of the many, many, many culprits, you have to point your finger at the rating agencies," he said.

Rating companies have been the focus of intense criticism for their role in granting top "AAA" ratings for complex bonds that later plummeted in value, resulting in subsequent rating cuts, in many cases to junk status.

"Once you bought into ... the Triple A paper and it turned out to be paper that was in many situations going to end up defaulting, then you really had the makings of a global problem," he said.

Schwarzman said problems were then exacerbated by mark-to- market accounting rules. Those rules ask banks and other financial institutions to price assets at a value related to how they would be sold in the open market.

Blackstone reported a quarterly loss in February after writing down the value of its portfolio and eliminated its fourth-quarter dividend.

Asked where was a good place to invest, Schwarzman said it made sense to buy cyclical names, which are less exposed to the economic cycles.

He said investors also may find value in debt products, including "senior layers of certain securitizations," where investors can see 15 percent to 20 percent returns, he said.

Geographically, he said there were "pockets of strength" in China, which is committed to getting to an 8 percent growth level, and in India, where the economy is slowing but banks are in good shape.

Which just goes to show you modern capitalism is built on air.

[Victor Galis]

Which just goes to show you modern capitalism is built on air.

Or more sensibly one might conclude that a lot of that paper wealth never really existed.

[chequita guevara]

Same thing, different words.

[snoopy369]

Indeed a combination of both... though I wouldn't say "modern Capitalism" is built on air, just a large portion of it (the finance/investment industry). If there were a practical and implementable way to reform the stock market to remove the focus on gambling and return it to actually investing in actually doing business, I'd be the first proponent of it... sadly I can't figure out a way (the only step remotely feasible is shutting down the options market entirely, but I think that won't accomplish much and is of debatable acceptability anyway).

[Seeker]

"The environment ministry today said it cut its review time for new building proposals to two days from five. The regulator approved 246 projects with a total investment of 970 billion yuan in the first two months."

......errr....is that really a good thing? Two days? What kind of projects can have any kind of meaningful review in only two days?

[notyoueither]

Far from being out of the woods, we're still stuck in the thorns.

http://www.bloomberg.com/apps/news?pid=20601109&sid=a0JxdKUPIyk4&refer=home

Libor’s Creep Shows Credit Markets at Risk of Seizure (Update1)

By Gabrielle Coppola and Liz Capo McCormick

March 11 (Bloomberg) -- The cost of borrowing in dollars is rising as the global recession deepens and central bank efforts to prop up the financial system fail to prevent a growing number of banks from requiring government bailouts.

The London interbank offered rate, or Libor, that banks say they charge each other for three-month loans stayed at 1.33 percent today, near the highest level since Jan. 8 and up from this year’s low of 1.08 percent on Jan. 14, the British Bankers’ Association said. The Libor-OIS spread, a gauge of bank reluctance to lend, widened to the most since Jan. 9.

Short-term borrowing costs are increasing as banks hoard cash and governments struggle to thaw credit markets after finance companies reported almost $1.2 trillion of writedowns and losses since the start of 2007. Banco Popolare SC yesterday became Italy’s first lender to seek state aid. Lloyds Banking Group Plc, the U.K.’s largest mortgage provider, ceded control to the government March 7. U.S. regulators seized 17 failing banks so far this year.

“The market is beginning to think that the solution is either not politically possible, or we can’t afford it, or maybe there isn’t a solution,” said Bob Baur, chief global economist at Des Moines, Iowa-based Principal Global Investors, which manages $198 billion of assets. Libor’s rise “is just another indication of that concern,” he said.

The U.S. committed about $10 trillion to combat the financial crisis that started in August 2007 as losses on securities tied to subprime mortgages caused credit markets to seize up. European governments put up more than 1.2 trillion euros ($1.5 trillion) to protect their banking systems.

No Trust

Rising Libor shows banks remain skittish 19 months later because they still don’t know if they can trust each other, said Soren Elbech, treasurer of the Inter-American Development Bank, a Washington-based lender to Latin American and Caribbean countries. Libor is used to calculate rates on $360 trillion of financial products worldwide, according to the Bank for International Settlements in Basel, Switzerland.

“Counterparty risk appetite is something that’s very much” on investors’ minds, Elbech said in a phone interview yesterday.

The stress is reflected in the so-called Libor-OIS spread, which measures the gap between three-month Libor in dollars and the overnight index-swap rate, or what traders expect the Federal Reserve’s target rate for overnight loans between banks to average during the term of the contract.

That spread averaged 11 basis points from December 2001 to July 2007, and soared to 364 basis points in the weeks following the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc. Libor- OIS was 107 basis points yesterday. A basis point is 0.01 percentage point.

Forward Contracts

Contracts in the forward market show traders expect the spread to narrow to 85 basis points in a year, according to data compiled by Tullett Prebon Plc, the second-biggest broker of transactions between banks after ICAP Plc.

While the gap is forecast to shrink, Alan Greenspan, chairman of the Federal Reserve from August 1987 to January 2006, said in June he won’t consider markets back to “normal” until Libor-OIS falls to 25 basis points.

Dollar Libor for three months rose for 11 days through yesterday as banks sought cash to cover commitments through the end of the first quarter.

“The liquidity will be horrible in the next couple of weeks,” Vincent Chaigneau, head of international rates strategy at Societe Generale SA in London, said yesterday.

Credit Market Cracks

While stocks around the world staged their biggest one-day rally of the year yesterday after Citigroup Inc. said it was having its best quarter since 2007, credit markets weakened.

The extra yield investors demand to own U.S. corporate bonds instead of Treasuries rose to 8.09 percentage points, the most since December and up from the low this year of 7.03 percentage points on Feb. 11, according to Merrill Lynch & Co. index data.

Wider borrowing spreads show growing concern about corporate defaults as the recession worsens. The global economy will contract this year in what can be called the “great recession,” Dominique Strauss-Kahn, managing director of the International Monetary Fund, said in a speech to African central bank governors and finance ministers in Dar es Salaam, Tanzania, yesterday.

“The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes,” Strauss- Kahn said. “Continuing deleveraging by world financial institutions, combined with the collapse in consumer and business confidence, is depressing domestic demand across the world.”

Nationalize Banks

Strauss-Kahn later told France 24 Television it may make sense to nationalize some U.S. banks.

“The debate over nationalization certainly exists in the U.S.,” Strauss-Kahn said. For some banks “this would be a good solution,” he said, without naming specific financial companies.

The Federal Deposit Insurance Corp. classified 252 banks as a “problem” in the fourth quarter, up 47 percent from the third quarter.

Fed Chairman Ben S. Bernanke said yesterday in Washington that if officials can make financial markets “reasonably stable” then “there’s a good chance that the recession will end later this year, and that 2010 will be a period of growth.”

The Fed chief, answering questions after a speech, prefaced his comment by saying his “forecasting record on this recession is about the same as the win-loss record of the Washington Nationals,” the worst team in U.S. Major League Baseball last year with 59 wins and 102 losses.

Bernanke said that a 10 percent U.S. unemployment rate is “well within the realm of possibility” and is part of the “adverse” second scenario for so-called stress tests that regulators are performing on the 19 largest American banks to determine how much more capital the government will provide.

To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.netLiz Capo McCormick in New York at emccormick7@bloomberg.net

Last Updated: March 11, 2009 08:33 EDT

[Impaler[WrG]]

If Obama doesn't bite the bullet and Nationalize the Banks ala the Swedish model and defuse the CDS bomb I think we will be looking at GDII. He has so far certainly been as good a Democrat as one could hope for on his spending policies but if he can not solve the underlying monetary and Financial sector ills he can't succeed. I so hope he doesn't become the Hover of our time.

[The Mad Monk]

I would like to hear more about the Chinese tax cuts.