Thursday, December 1, 2011
Nov. 30 (Bloomberg) -- European inflation remained at a three-year high and unemployment increased to the highest in more than 13 years, undermining an economy already hit by a worsening fiscal crisis.
The inflation rate in the 17-nation euro area held at 3 percent in November, the European Union’s statistics office in Luxembourg said in an initial estimate today. The region’s unemployment rate rose to 10.3 percent in October from 10.2 percent in the previous month, according to a separate report. That’s the highest since June 1998, before the euro was introduced, according to Eurostat.
The European Central Bank earlier this month unexpectedly cut interest rates as the region’s worsening fiscal crisis pushed the economy toward its second recession in as many years. While the euro area is showing signs of a deepening slump and companies including Deutsche Bank AG are cutting jobs, policy makers have rejected calls to counter the turmoil by printing money.
“The very serious possibility of euro zone gross domestic product contraction in the fourth quarter, coupled with recent overall signs that underlying inflationary pressures are easing, provides a compelling case for the ECB to cut interest rates again” next week, said Howard Archer, chief European economist at IHS Global Insight in London. “It’s evident that both businesses and consumers are very worried.”
The euro was little changed after the data were released, trading at $1.3276 at 11:07 a.m. in Brussels.
Economists had forecast euro-region unemployment to hold at 10.2 percent in October, according to the median of 29 estimates in a Bloomberg News survey. In the 27-member European Union, the jobless rate was 9.8 percent last month.
Euro-region finance ministers said at a meeting in Brussels late yesterday that they would seek a greater role for the International Monetary Fund in fighting the worsening debt crisis. European heads of governments meet on Dec. 9.
The European Commission said on Nov. 10 that euro-region inflation may average 2.6 percent this year and 1.7 percent in 2012. It also cut its growth forecasts for this year and next, citing the turmoil among the biggest risks. The ECB, which aims to keep annual gains in consumer prices just below 2 percent, will release its latest estimates on Dec. 8.
Financial Job Losses
With tougher budget cuts eroding consumer spending and global export demand cooling, the economy is showing increasing signs of slowdown. European economic confidence dropped more than economists forecast in November to the lowest in two years, while services and manufacturing output contracted.
About 16.29 million people were unemployed in October in the euro region, up 126,000 from the previous month, today’s report showed. At 22.8 percent, Spain had the highest jobless rate. Austria and Luxembourg had the lowest rates of 4.1 percent and 4.7 percent, respectively.
Job losses in the global financial services industry this year are close to surpassing 200,000 as Citigroup Inc., France’s BNP Paribas SA and Bank of America Corp. eliminate jobs to lower costs. BNP Paribas, France’s largest bank, said on Nov. 16 it will trim about 1,400 positions. Deutsche Bank last month announced 500 job cuts and further writedowns of Greek bond holdings in the wake of the crisis.
The ECB stepped up bond purchases last week as yields rose across the area. While officials were forced to resume purchases of covered bonds and extend cash provisions to banks, they have pushed back against investors and governments calling them to backstop the currency bloc by boosting bond-market interventions.
ECB Executive Board member Juergen Stark from Germany resigned in September to protest the central bank’s purchases of government bonds and new President Mario Draghi has called on governments to step up efforts to contain the turmoil.
“The ECB will continue to cut interest rates next week,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “It finds it easier to lower borrowing costs than pledge large packages on government bonds and may cut the benchmark below 1 percent if the situation continues to worsen.”
The statistics office will release a breakdown of November consumer prices next month. Euro-area core inflation, which excludes volatile costs such as energy, held at 1.6 percent in October from the previous month.
Following the announcement by UK's Foreign Secretary William Hague on Wednesday, Burucerdi called other European countries to avoid taking similar measures, after Germany, the Netherlands, France and Italy had already taken diplomatic steps against Iran.
"We recommend that other European countries avoid following in Britain's and the Unites States' footsteps," Burucerdi said. "The parliament approved downgrading the diplomatic relationswith Britain but Iran's public is pleased that the British diplomats are no longer in Tehran."
SINGAPORE (AP) — Oil prices edged higher to near $101 a barrel Thursday in Asia amid a surge in global stock markets after major central banks pledged to lower borrowing costs.
Benchmark crude for January delivery was up 32 cents to $100.68 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose 57 cents to settle to $100.36 on Wednesday.
In London, Brent crude was up 40 cents at $110.92 on the ICE futures exchange.
On Wednesday, the central banks of Europe, the U.S., Britain, Canada, Japan and Switzerland reduced the rates that banks must pay to borrow dollars. Separately, China's central bank also acted to release money for lending and help shore up slowing growth by lowering bank reserve levels for the first time in three years.
The moves sparked a jump in global equities, which oil traders closely watch as a barometer of overall investor sentiment. The Dow Jones industrial average soared 4.2 percent on Wednesday and most Asian stock markets rose sharply Thursday.
Signs of weak U.S. crude demand kept prices from rising further. The Energy Department's Energy Information Administration said Wednesday that oil and gasoline supplies grew last week, as imports rose and refineries slowed down because of weak demand.
"The bearish shocker was the whopping 5 million barrel build in distillate stocks that was much above our expected unchanged level," energy consultant Ritterbusch and Associates said in a report.
Fast forward to 2:08: "It is puzzling to some that Major General Zhang Zhaozhong, a professor from the Chinese National Defense University, said China will not hesitate to protect Iran even with a third World War... Professor Xia Ming: "Zhang Zhaozhong said that not hesitating to fight a third world war would be entirely for domestic political needs...." And don't forget Russia, which recently said it is preparing to retaliate against NATO and has put radar stations on combat alert: "Russia is another ally of Iran, with similar policy to that of China. Toward Iran." Watch, and please forward the entire video, for an explanation of how China is approaching the situation not only in Iran, but a perspective of how they view the western "threat", as well as what tensions they face domestically.
"The Iranian charge (d'affaires) in London is being informed now that we require the immediate closure of the Iranian embassy in London and that all Iranian diplomatic staff must leave the United Kingdom within the next 48 hours," British Foreign Secretary William Hague told parliament.
"We have now closed the British embassy in Tehran. We have decided to evacuate all our staff and as of the last few minutes, the last of our UK-based staff have now left Iran," he said.
Hague also announced that Iranian ambassadors had been summoned in countries across Europe to receive strong protests over the storming of the British embassy.
Britain, locked in a confrontation with Iran over its nuclear activities, has voiced outrage over the ransacking of its diplomatic premises in Tehran on Tuesday by hardline students and Basij militia in revenge for new British and Western sanctions.
"If any country makes it impossible for us to operate on their soil they cannot expect to have a functioning embassy here," Hague said.
This does not amount to the severing of diplomatic relations in their entirety. It is action that reduces our relations with Iran to the lowest level consistent with the maintenance of diplomatic relations," he added.
Hague said it was "fanciful" to think the Iranian authorities could not have protected the British embassy, or that the assault could have taken place without "some degree of regime consent".
He said European Union foreign ministers would discuss the embassy attack at a meeting in Brussels later on Wednesday and on Thursday. The EU ministers would discuss "further action which needs to be taken in the light of Iran's continued pursuit of a nuclear weapons programme," he said.
Britain and other Western nations accuse Iran of seeking to develop nuclear weapons but Tehran insists its programme is purely for peaceful purposes.
BRITAIN'S banks have been told to prepare for the end of the Eurozone, it emerged today.
City regulator the Financial Services Authority has told banks to ready themselves for armageddon by running "stress tests" on their balance sheets.
FSA chief Hector Sants met the heads of BARCLAYS,SANTANDER, HSBC, LLOYDS and RBS last week.
News of the shock warning came as the world's biggest central banks today launched a desperate bid to save the global economy by flooding markets with cheaper cash.
The Bank of England was one of six pledging to make it cheaper for big banks to access "unlimited amounts" of US dollars.
And EU chiefs warned Europe had TEN DAYS to solve the debt crisis or face catastrophe.
The central banks' shock action should make it easier for businesses and households to borrow — and for banks to fund themselves.
Stock markets around the world soared, with the FTSE 100 up 152 points by 2pm. Germany's DAX leapt four per cent.
In a statement, the Bank of England said: "The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit."
The Bank of England was joined by the European Central Bank, the US Federal Reserve, Bank of Japan, Bank of Canada and the Swiss National Bank.
They launched weekly and then three-monthly auctions of dollars in September in a bid to make more cash available.
But lowering the cost is a clear sign of the growing fear that the Eurozone crisis will spark a crippling double-dip.
Earlier today, EU monetary chief Olli Rehn warned: "We are now entering the critical period of ten days to complete and conclude the crisis response of the European Union."
France's central bank governor Christian Noyer added: "We are now looking at a true financial crisis."
ATHENS (Reuters) - Emergency staff ran hospitals, schools closed and thousands of austerity-weary Greeks took to the streets on Thursday in a 24-hour general strike that tested the resolve of a national unity government.
Chanting "Get out, take the budget and get out of here!," Greeks poured into the square in front of parliament to protest about a new dose of austerity medicine prescribed by foreign lenders as the price for bailout loans.
European leaders approved an 8 billion euro ($10.8 billion) tranche of aid this week to prevent Greece, now led by technocrat Prime Minister Lucas Papademos, from going bankrupt.
Unions representing about 2.5 million people -- around half of the national workforce -- called the strike to protest about the tax hikes and spending cuts imposed on Greeks already reeling from pension and salary cuts.
"They are killing us. They are killing workers. They are killing the Greek spirit," said Evangelos Routsas, a 55-year-old protester. "We are here to tell them we won't be silent."
The measures are part of Greece's 2012 budget due to be approved by parliament next week.
"Enough is enough. We have taken to the streets to say that this budget is an austerity budget -- a starvation budget -- which must not be passed," Christos Kiosis, a union chief at Athens water utility EYDAP, told NET TV.
A series of strikes this year have added to the debt-choked country's troubles. A 48-hour stoppage in October degenerated into violence with clashes between rival groups and police.
Shops and businesses in central Athens were open, but public services faced disruption. Piraeus port, the country's largest, was affected while trains, buses and trams halted services in the morning ahead of further stoppages in the evening.
The ancient Acropolis site was shut to tourists. Garbage collectors, doctors, journalists and bank employees also walked off the job. Many schools were shut.
Police said about 14,000 demonstrators had gathered in central Athens by early afternoon but unions put the number at more than 20,000.
"Nothing has changed. It's the same policy. They have led us to the point of no return," said Panagiotis Proutzos, head of a Greek union for workers in the tourism sector. "Greece is at a dead end and this is catastrophic for workers."
"KILLING THE GREEK SPIRIT"
Many protesters expressed the deep disgust Greeks feel towards their political class, with few expressing any hope of better times under a technocrat like Papademos.
"What do they expect when they appoint a non-democratically elected prime minister, who also happens to be a banker? Of course we are angry. They should all leave," said 46-year-old Manolis Katsandonis, a mechanical engineer.
In a letter to foreign lenders released late on Wednesday, Papademos said Greeks backed the reforms needed to secure its membership of the euro zone and the government was determined to implement the necessary measures.
Papademos's coalition has the express mandate to ram through parliamentary approval of an unpopular 130-billion-euro bailout deal before an election slated for February 19.
A former European Central Bank vice president, Papademos was sworn in last month after his predecessor, Socialist premier George Papandreou, was ousted over his call for a referendum on the bailout deal hammered out in October.
Since then Greece has tottered on the verge of bankruptcy. Squabbles among political leaders held up the release of bailout money while European partners watched in exasperation.
With the aid tranche virtually secured -- it is expected to be released after International Monetary Fund approval next week -- Papademos's focus now shifts to pushing the budget through parliament.
The package aims to reduce the budget deficit to 6.7 percent of GDP next year from 9 percent this year, a task made harder by a deep recession now in its fourth year in Greece.
The central bank has warned of more pain ahead and has bluntly said the alternative to austerity is life outside the euro zone that would push the country back several decades.
The Western world has run out of ideas and is "finished financially" while emerging economies across the world will continue to grow, David Murrin, CIO at Emergent Asset Management told CNBC on the tenth anniversary of coining of the so-called BRIC nations of Brazil, Russia, India and China, by Goldman Sachs' Jim O'Neill.
"I still subscribe and I've spoken about it regularly on this show that this is the moment when the Western world realizes it is finished financially and the implications are huge, whereas the emerging BRIC countries are at the beginning of their continuation cycle," Murrin told CNBC.
Murrin added he believes the power shift from the West to emerging economies beyond Europe and the United States was "unstoppable" and he blamed a lack of ideas from Western leaders on how to stimulate growth together with contracted demographics and rising inflation as catalysts for Western decline.
"We suffer from no growth and we suffer from imported inflation… that means we have negative real growth and societies fracture when you have negative real growth and quite simply our society faces fractures for trying to stick Europe back together again is not going to work with that underlying paradigm, unless you can create five percent growth to overcome that imported inflation," Murrin explained.
Murrin said that the East was depending less on the West and the rise of a consumer society was the first step in the expansion of an economic empire.
"If you look at the cycle of an empire system from regionalization to expansion to empire, the first phases of that catalyst are when you have a self fuelled consumer society and so actually that process of building your consumer base which is really what's going on in China, day by day their consumer base increases and the dependence on the West decreases," he said.
Murrin added that while China is by far the biggest emerging economy and would be at the center of a new economic order, other emerging nations were set to join the BRIC countries and new political orders and alliances would come about as a result.
"This isn't just a BRIC story, this is the end of the Christian Western Empire versus the rise of the whole emerging world led by China as the foremost and most powerful," Murrin told CNBC.
"I think it's going to be the whole world trying to contain China's growth and there's going to be completely new alliances that take place... between Australia, Japan and India and America and possibly Russia if the foreign policy is expansive enough, there's going to be a ring of containment trying to hold this bulging entity which is like no other nation we've ever seen coherently challenge for control of world commodities and resources," he added.
Intervention Not the Answer
Finally, Murrin stressed that Europe in particular was set to experience a rapid and deep decline and intervention by the European Union and its financial institutions was not a solution to stimulate growth.
"I think there's a real reality amongst investors and just taxi drivers, that without growth, the system's not sustainable, so intervention is just a drug and we all know that the more drugs you put into someone, the more the system becomes immune to their response and so I don't see this as a solution," he said.
Pointing to previous economic downturns, Murrin said the West was much less equipped than the emerging world to deal with its current decline.
"In all our examples of disastrous events, Argentina, Russia, the Asian crisis, they're not good references for us in the West because they take place in countries with good demographics, good commodity stories and essentially underlying tides which lift them away from their problems," he said.
"We in the West have none of those, we live in a world where resources are increasing in prices, where we're a consumer society, we're an old society, we're not innovative, we're not expansive, so we don't have any of those natural lifting qualities to actually pick us out of the mire which is what decline is really about," he added.
The central banks of the world are acting as if it is 2008 all over again. Desperate times call for desperate measures, and right now the central bankers are pulling out all the stops. The Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, the Bank of Japan and the Swiss National Bank have announced a coordinated plan to provide liquidity support to the global financial system. According to the plan, the Federal Reserve is going to substantially reduce the interest rate that it charges the European Central Bank to borrow dollars. In turn, that will enable the ECB to lend dollars to European banks at a much cheaper rate. The hope is that this will alleviate the credit crunch which has gripped the European financial system by the throat. So where is the Federal Reserve going to get all of these dollars that it will be loaning out at very low interest rates? You guessed it - the Fed is just going to create them out of thin air. Our currency is being debased so that Europe can be helped out. Unfortunately, the impact of this move will be mostly "psychological" because it really does nothing to address the fundamental problems that Europe is facing. It is up to Europe to solve those problems, and so far Europe has shown no signs of being able to do that.
The major central banks of the world say that they want to "enhance their capacity to provide liquidity support to the global financial system." But essentially what is happening is that the Federal Reserve is going to be zapping large amounts of dollars into existence and loaning them out to the ECB very, very cheaply. Think of it as a type of "quantitative easing" on a global scale.
The decision to do this was reportedly made by the Federal Reserve on Monday morning. For the moment, this move seems to have stabilized the European financial system. It is quite unlikely that any major European banks will fail this weekend now.
But as mentioned above, this move does nothing to solve the very serious financial problems that Europe is facing. This intervention by the central banks is merely just a speed bump on the road to financial oblivion.
Most Americans are not going to understand what the central banks of the world just did, but it really is not that complicated.
The following is how CNN chief business correspondent Ali Velshi broke down what the central banks have done....
In an attempt to stave off the consequences of a global credit freeze, the Federal Reserve, in coordination with major central banks, has created a credit line available to those central banks, whereby they can borrow dollars at reduced interest rates for periods of three months. The central banks, in turn, can lend to commercial banks in their respective countries. This is meant to reduce the cost of short-term borrowing for troubled European banks and to give them immediate access to dollars.This was done immediately after the collapse of Lehman Brothers as well, to alleviate the consequences of banks being largely unwilling to lend to other banks, even for short periods, for fear that the borrowing banks could fail.
Okay - so the Federal Reserve is loaning giant piles of cheap money to the European Central Bank.
So where in the world does all of that money come from?
As a CNBC article recently explained, all of this money is created right out of thin air by the Federal Reserve....
Neither the dollars nor the Euros come from anywhere. They aren’t moved or debited from anywhere. They are invented right on the spot with a few taps on the key pad. And that’s all. There’s no printing press fired up to make new dollars or euros.This is sometimes called “fiat money.” But that makes it sound as if some command from a sovereign created the money. It’s really closer to “keyboard money,” since it is created by data entry in a computer.
Does that sound bizarre to you?
But that is how the global financial system really works.
We live in a crazy world.
So what did the financial markets of the world think of this move by the Federal Reserve?
It turns out that they absolutely loved it.
The Dow was up 490 points, and that was the biggest gain of the year so far.
Unfortunately, this stock market rally is not going to last indefinitely. If you are still in the market, enjoy this while you can because eventually a whole lot of pain is going to be coming.
Again, nothing has been solved. Europe is still in a massive amount of trouble. But the announcement did make everyone feel all "warm and fuzzy" for at least a day.
Michelle Girard, a senior economist at RBS Securities, said the following about this move....
"The impact is more psychological than anything else"
Just think of it as "comfort food" for the financial markets.
It was also a very desperate move.
In fact, some even believe that this move happened because a major European bank was in danger of failing.
Just check out some of the things that Jim Cramer of CNBC has been saying on Twitter....
If the Fed didn't act we would have had the largest bank failure ever this weekend, i believe.The actions the governments took today shows that there was without a doubt a major bank about to fall this weekend. That's very dire....I believe a major European bank would have gone under this weekend.... That's why they did this....
An article in Forbes has also speculated that this move was made because a major European bank was in imminent danger of failing....
Did a big European bank come close to failing last night? European banks, especially French banks, rely heavily on funding in the wholesale money markets. Given the actions of the world’s largest central banks last night, it raises the question of whether a major bank was having difficulty funding its immediate liquidity needs.
Perhaps we will never know the truth, but the reality is that the Federal Reserve and the European Central Bank would have never taken coordinated action like this if they did not believe that there was some sort of imminent threat to the global financial system.
Sadly, this latest move is also going to have some side effects.
Pimco senior vice president Tony Crescenzi says that all of this "liquidity" is going to dramatically increase the size of the U.S. monetary base....
Keep in mind that any use of the Fed’s swap facility expands the Fed’s monetary base: all dollars, no matter where they are deposited, whether it be Kazakhstan, Japan, or Mexico, wind up back in an American bank. This means that any time a foreign central bank engages in a swap with the Federal Reserve, the Fed will create new money in order to make the swap. Use of the Fed’s liquidity swap line in late 2008 was the main cause of a surge in the Fed’s monetary base at that time. The peak for the swap line was about $600 billion in December 2008. Some observers will therefore say that the swap line is a backdoor way to engage in more quantitative easing.
When there is more money floating around out there but the same amount of goods and services, prices go up.
So will we eventually see more inflation in the United States because of all this?
That is what some are fearing.
Meanwhile, politicians in Europe have failed to come up with a plan to address the European financial crisis once again.
They are calling it a "delay", but the truth is that it should be called a "failure". The following comes from an article in USA Today....
The ministers delayed action on major financial issues — such as the concept of a closer fiscal union that would guarantee more budgetary discipline — until the heads of state meet next week in Brussels.
So will European politicians come up with a real plan next week in Brussels?
That seems unlikely.
The reality is that this latest move by the major central banks of the world does not change the fact that Europe is in a huge amount of trouble and is most likely headed for a very painful financial collapse.
One more thing that this latest move by the central banks of the world highlights is the fact that we do not have any control over what they do.
All of these central banks are run by unelected bureaucrats that answer to nobody. The decisions that these central bankers make affect all of our lives in a very significant way, and yet we have zero input into these decisions.
Most of the decisions that these central bankers make seem to benefit big banks and big financial institutions. They always claim that the benefits will "filter down" to the rest of us. But most of the time what ends up filtering down to us is the economic pain that comes from their bad decisions.
As I have written about so many times before, these central banks need to be abolished. The American people need to tell Congress to shut down the Federal Reserve and to start issuing debt-free United States currency.
We do not want a bunch of unelected central bankers to "centrally plan" the U.S. economy or to "centrally plan" the global economy.
The more these central bankers monkey with things, the more they mess things up.
Yes, this latest move has stabilized things for the moment, but big trouble is on the horizon for the global financial system.
Count on it.
Nov. 30 (Bloomberg) -- The Federal Reserve and five other central banks set up agreements to distribute each other’s currencies in the event of a global funding crisis.
Central banks agreed to establish temporary bilateral currency swap arrangements “so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant,” the Fed said today in a press release, calling the agreement a “contingency measure.” The European Central Bank and the central banks of Canada, Japan, Switzerland and the U.K. agreed to the arrangements.
The bilateral agreements were announced alongside coordinated action by the six central banks aimed at boosting dollar liquidity. Bilateral swaps would enable, for example, the Fed to provide euros, Swiss francs, or British pounds to U.S. banks if needed. The accord allows a broader distribution of liquidity and allows a bank to deal directly with its home central bank, said Dino Kos, a former New York Fed executive vice president in charge of open market operations.
“At present, there is no need to offer liquidity in non- domestic currencies other than the U.S. dollar,” the Fed said in a statement. “The central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise.”
Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., called the bilateral arrangements “a novel step and a curious feature of today’s announcement” that “are apparently being set up as a backup plan in the event of a worsening in global financial conditions.”
A sovereign default in Europe, for example, could tighten funding for hundreds of banks around the world. So rather than European operations of Citigroup Inc. or Morgan Stanley seeking euros from the ECB, the Fed could contribute to euro liquidity by doling out loans to those institutions in the U.S.
The central banks also agreed today to lower the cost of dollar swap arrangements. The premium banks pay to borrow dollars overnight from central banks will fall by half a percentage point to 50 basis points. A basis point is 0.01 percent.
The cut in the dollar swap rates is a message from central banks that says, “Please use it, and we are going to make it cheaper for you to use,” said Kos, now a managing director at the New York research firm Hamiltonian Associates Limited.
The dollar swap lines will be extended by six months to Feb. 1, 2013. The new pricing will be applied to operations starting on Dec. 5. The bilateral swap agreement is also in place through Feb. 1, 2013.