Thursday, September 8, 2011
Strikes hit Rome, Madrid in midst of debt debate, slowdown
DUBLIN — Workers marched in Italy and Spain on Tuesday to protest planned spending cuts as new data confirmed fears of an economic slowdown across Europe.U.S. stocks also slid for the third straight day Tuesday, although they rose above the day’s lows in a late-afternoon rally. At the close, the Dow Jones industrial average was down 0.9 percent; the Standard & Poor’s 500-stock index, 0.7 percent; and the Nasdaq composite index, 0.3 percent.
Regional stock markets dropped for a third day, and some had lost about 10 percent of their value since Friday. After a sharp sell-off Monday to start the week, the Stoxx 50 index of euro-zone
“The Europeans face a difficult challenge, but we believe they have both the ability and the will to meet those obligations,” White House spokesman Jay Carney said, adding that President Obama and senior aides had been in regular consultations with European leaders.
Asian markets rebounded in Wednesday trading. Japan’s blue-chip Nikkei 225 index ended its morning session up 1.4 percent.
The market declines in Europe and the United States reflect widening concerns about the euro-area economy as governments battle a complicated and interconnected set of problems that have confounded them for nearly two years. Leading analysts have compared the situation to the months leading up to the 2008 collapse of Lehman Bros. and have warned that a fragile global economy could not stand another financial crisis of that magnitude.
But the sense of instability is clear, from the streets of capitals clogged with striking workers to the offices of central banks.
Officials at the Swiss National Bank surprised markets Tuesday by imposing a minimum exchange rate of 1.20 francs to the euro. The Swiss have been struggling to curb their soaring currency, which has become a haven amid jitters over the euro and which threatened the Swiss economy by driving up the price of the country’s exports.
Some analysts said they feared a disruption in currency markets if other nations take similar measures to keep their currencies from rising as the dollar and the euro slump.
The Swiss bank said it was prepared to buy “unlimited” amounts of foreign currency to support the minimum exchange rate. The Swiss franc fell nearly 8 percent against the euro for the day.
Also Tuesday, Greece’s finance minister sought to calm fears that his country was at serious risk of a second default, the Associated Press reported. Evangelos Venizelos pledged to speed up delayed reforms meant to trim the country’s bloated public sector, open tightly regulated professions to competition and kick-start an ambitious privatization plan.“Greece is not the pariah of the European Union. It is not a permanent sore and problem,” Venizelos told reporters. “It is an equal, competitive country that has a very serious problem regarding its public debt and fiscal deficit. We can and shall overcome this, but not without carrying out the structural reforms in full.”companies shed an additional 1.8 percent Tuesday.
Washington Post
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Finger scanners to keep tabs on librarians
Librarians are used to scanning books, but the librarians themselves may be getting scanned if a local council in suburban Melbourne has its way.
The AM program has revealed that the City of Monash in Melbourne's south-east is planning to introduce vein scanning technology to track employees' work hours.
The council says it is still considering the plan and has made no definite decision yet, but the Australian Services Union says the council has confirmed it is planning to introduce the scanners in its libraries next month.
The union's assistant branch secretary Igor Grattan says members are concerned about the invasion of their privacy.
"They're concerned about where this information is going to be stored, what will happen with the information when they leave council, who owns the information, what's the legal ramifications," he said.
"What about staff who are under 18 years, what about their rights?"
Biometric technology like iris, fingerprint and vein scanning is big in the movies and it is set to come to a workplace near you soon.
Governments and companies already use biometric technology to check the identities of their staff and protect sensitive information, and supermarket giant Woolworths uses fingerprint scanners to clock staff work hours.
The vein scanners are made by Japanese company Hitachi, which has installed tens of thousands of them at ATMs in Japan.
The technology captures the vein patterns in a person's fingers and stores them as a template for future scans.
Victoria's privacy commissioner Helen Versey says she is surprised that a local council would use such technology.
"It sounds surprising that you would need it for a library, but again without knowing the facts of the case I wouldn't like to say definitely whether it would be a breach of the Information Privacy Act or not," Ms Versey said.
"If they're creating a database of their employees' biometrics then that does raise some significant issues in terms of data security."
The council refused to do an interview with AM, saying it was looking at the technology for use in libraries but had not decided to go ahead with it yet.
But Mr Grattan said the union got confirmation from the council that it is planning to install the scanners next month, affecting up to 100 library staff, including casuals.
He said the council had originally intended to introduce the scanners at libraries, aquatic centres and aged care homes.
"At this stage, they've even said it's not going to be used down the depot at this stage so everything they say has got the 'at this stage'," he said.
"It was going to be the leisure centre and they've backed off from that, but I can give you a direct quote, it's recently brought to my attention that council intends to administer this system in the infrastructure services area," he told AM.
Another issue is where the biometric material will be stored and how secure it would be.
Security experts like Stephen Wilson from Lockstep Consulting warned there are risks.
"The risk is that you need a master copy, like a master scan, against which people are compared when they're coming and going. And the security of that master scan is absolutely critical," he said.
"The weakest link in any security system is usually a person - a database administrator holding the keys with access to these master copies is actually in a position of great power and influence and potentially is corruptible."
Mr Wilson says the data is valuable to organised crime.
"Electronic systems are becoming increasingly dependent and increasingly reliant on personal data," he said.
"So any data that I've got that defines somebody in terms of their drivers' licence or their credit card numbers or their home and address, that all adds up to a portfolio of information that is valuable to identity thieves."
ABC News
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Iran ready to counter threat scenarios
“We warn all enemies of this [Islamic] establishment and revolution not to think of any invasion, conspiracy or sedition against this religious establishment, because they would face a hard and crushing response from the brave fighters of this land,” Deputy IRGC Commander Lieutenant General Hossein Salami said on Wednesday, IRNA reported.
The commander hailed the vigilance of the Iranian nation and the country's leadership against enemy plots and scoffed at enemy attempts to harm the Islamic establishment in Iran as “unreachable dreams.”
“At the time, Iran's Islamic Revolution Guards Corps has organized its deterrent and martial prowess against the enemies of the establishment and the revolution, based on the most challenging and dangerous scenarios of threats,” he stated.
Salami said the IRGC was fully prepared under any circumstances, noting that the army decided its strategies and missions according to the threats from the country's enemies.
“In fact, the IRGC has prepared based on creativity, freedom of move and precise identification of sources of threat as well as the time and size of the threat,” he added.
Press Tv
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US Economy Is Basically 'Still In Recession': Fed's Evans
The U.S. economic outlook has "clearly" deteriorated this year, and the continued softness of economic indicators shows that the headwinds facing the country are even stronger than thought, Chicago Federal Reserve President Charles Evans said on Wednesday.
"Conditions still aren't much different from an economy still in recession ," Evans, speaking at a seminar in London said.
He said the Fed faced significant challenges in overcoming the obstacles left behind by the financial crisis.
Evans, a voting member on the Federal Open Market Committee , said he believed central banks should focus on medium- rather than short-term inflation as many short-term effects such as fluctuations in food and energy prices were beyond policy makers' reach.
Given how "truly badly" the U.S. was doing on the jobs front, the Fed should consider more aggressive action, he said.
He did not explicitly call for morequantitative easing or bond purchases but called for "strong action."
"I argue that the Fed should seriously consider actions that would add very significant amounts of policy accommodation," he said. "Such further policy accommodation does increase the risk that inflation could rise temporarily about our long-term goal of 2 percent," he said.
The Fed Open Market Committee said in August that it would continue to keep its benchmark interest rate low for at least through mid 2013, acknowledging that the recovery it had hoped for had so far failed to take shape.
The Fed ended a $600 billion Treasury bond-buying program at the end of June.
CNBC
More:
http://www.cnbc.com//id/44421047
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Greek Euro Exit: 60% Currency Devaluation, Default, Banking Sector Collapse
“The Euro should not exist,” reads the first line of a note released by UBS Tuesday, which analyzes the possibility of an EU break-up and concludes that the costs are too high to bear, both for “strong” and “weak” European nations.
The cost of a peripheral secession would be about €9,500 to €11,500 per person the first year ($13,360 to $16,172), then €3,000 to €4,000 annually in coming years ($4,219 to $5,625) , according to UBS, along with a collapse of the domestic banking system, corporate and sovereign default, massive currency devaluation, and a fall in the volume of trade of about 50%.
The case for a “strong” country ala Germany isn’t as bad, but would still constitute a substantial blow to that economy, a collapse in the banking sector, and a complete loss of export-competitiveness.
Recurring sovereign debt problems in Europe have escalated beyond smallperipheral nations and currently jeopardize the existence of the whole Union, as Italy and Spain (the third and fourth largest economies within the block) have come under fire by bond vigilantes and now require ECB help. (ReadEurope’s QE? A Look At The ECB’s Purchases Of Italian Debt).
It is common knowledge today that the EU was an ambitious project that idealistically sought to integrate Europe, socially, politically, and economically, but failed in taking into account internal imbalances.
The EU’s monetary policy was clearly dysfunctional, as low rates fueled asset bubbles in peripheral nations, which, as the EU-wide economy expanded, grew larger and larger. “Politicians generally fail to appreciate that economic threats can also wear a (temporarily) positive appearance, in the form of bubbles,” reads the UBS note. As the bubble began to pop, the underlying economic programs exploded in tandem.
As the gravity of Europe’s problems grew, commentators have begun speculating about the possibility of an EU break-up, either in the form of a country deciding to leave or being forced to leave by its peers. This essentially leaves two scenarios, which the UBS note takes into account: a “weak country” exit (Greece, Ireland, Portugal, for example), and a “strong country” exit (Germany, France, for example) We are going to focus on the former. (Read Risk Of Euro Break Up Higher Than Ever As Political Storm Hits In September).
As an aside, UBS’ analysts point to the legal difficulties of a member country leaving the Eurozone. The EU, constituted by a series of treaties including the Lisbon Treaty, the Maastricht Treaty, and the Rome Treaty, wasn’t built to deal with break-up, and doing so would require amending the treaties and face protracted political limbo. Sovereign nations, though, could unilaterally leave. So what would happen if, say, Greece left the Euro?
The costs of leaving the monetary union and establishing a new national currency (NNC) are huge, according to UBS. The first major hurdle would be a sovereign default. Secession from the EU would practically require a redenomination of foreign debt in NNC, so as to guarantee some sort of control over the debt. “This would constitute default in the eyes of most investors.” Default means billions in losses for EU banks, local banks, creditors and probably debtors around the globe.
Currency devaluation would be severe. While many have said a 15% to 20% devaluation would help weak countries gain competitiveness, the situation would be much more extreme: UBS estimates our “weak country” would see its currency fall by 60% (taking Argentina and the fall of the US monetary union in the ‘30s as precedents). This, in turn, would lead to a spike in the cost of capital.
“At a very conservative estimate, this would entail a 700bp risk premium surge. If the banking system is completely paralyzed then the cost of capital de facto increases an infinite amount. In the extreme paralysis of finance, capital is not available at any price.”
Rising capital costs would both take their toll on local firms, from large to small, and banks. Firms would collapse as funding dries up and the possibility of bringing in money from abroad becomes increasingly difficult(people have to accept the new NNC). The banking system would completely collapse. Investors will withdraw money en masse in response to the uncertainty surrounding the forcible revaluation of accounts into NNC. From the note:
Confronted with the obvious uncertainties surrounding the establishment of a NNC, the obvious response of anyone with exposure to the secessionist banking system is to withdraw money from the bank as quickly as possible. This could be done electronically – unless the government puts in place stringent capital controls. In that event, the wise depositor anticipating the creation of a NNC would withdraw their money in physical Euro form, pack it into a suitcase and head over the nearest international border – unless the government seals their borders to the movement of people. In that event, the sensible depositor would withdraw their money in physical Euro form, pack it into a suitcase and bury it in their garden. The only way that can be prevented is to shut the banking system entirely, or perhaps place a limit on the amount of withdrawals that can be made over the transition period.
The costs of recapitalizing the banking system would probably be borne by depositors. In Argentina, the government enforced the conversion of dollar accounts into pesos “at the old official exchange rate” and then devalued against the dollar. Along with an expected bank run, the depositors in our weak country would see their accounts’ value fall by 60% in the case of 60% devaluation, according to UBS. (Read Euro Banks Stocking Up On Dollars To Avoid Liquidity Squeeze).
Trade would completely break down as well, as a forced devaluation wouldn’t be met by a host of idle trading partners willing to accept NNC-denominated goods that are 60% cheaper. It would be reasonable to expect a 60% tariff in response to a 60% depreciation of the NNC, a response the European Commission “explicitly alludes to,” according to UBS, bringing trading volumes down by about 50%.
Finally, along with a corporate default, we would face civil unrest and a society tipped into chaos, as unemployment spikes and people are left without basic necessities, much like in Argentina back in 2001-2002. A very rough estimate leads UBS’ analysts to estimate secession would cost each person in that country €9,500 to €11,500 per person the initial year. “These are conservative estimates. The economic consequences of civil disorder, break-up of the seceding country, etc, are not included in these costs,” warn the analysts.
Despite much talk of the possibility of a break up, if UBS’ analysts are right, “conservative” estimates show that secession is pretty much a death wish for any small European nation. The situation for a large country is similarly prohibitive. No one wants riots, looting, and long-term poverty. No one wants a repeat of Argentina back in 2002. (The video below shows what the situation was like in Argentina as the crisis hit).
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