MikeRiddeII's Blog

Nov. 20 (Bloomberg) -- Pope Benedict XVI was the first to predict the crisis in the global financial system, a prophecy dating to a paper he wrote when he was a cardinal, Italian Finance Minister Giulio Tremonti said.



The prediction that an undisciplined economy would collapse by its own rules can be found'' in an article written by Cardinal Joseph Ratzinger, who became pope in April 2005, Tremonti said yesterday at Milan's Cattolica University.



German-born Ratzinger in 1985 presented a paper entitled Market Economy and Ethics at a Rome event dedicated to the Church and the economy. The future pope said a decline in ethics can actually cause the laws of the market to collapse.



Pope Benedict in an Oct. 7 speech reflected on crashing markets and concluded that money vanishes, it is nothing and warned that the only solid reality is the word of God.



The Vatican's official newspaper, l'Osservatore Romano, on the same day criticized the free-market model for having grown too much and badly in the past two decades.



To contact the reporters on this story: Flavia Krause-Jackson in Rome at fjackson@bloomberg.net; Lorenzo Totaro at in London or ltotaro@bloomberg.net



Last Updated: November 20, 2008 05:54 EST



By Flavia Krause-Jackson and Lorenzo Totaro



http://www.bloomberg.com/apps/news?pid=20601085&sid=aGSJzqaJm_b0&refer=europe

Fears of a severe global recession gripped financial markets on Thursday, sending interest rates to record lows and driving down US stock prices to their worst close in more than a decade.<br />

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Economic news across the world was almost uniformly bad. US jobless claims soared while slumping Japanese exports threatened to push the economy further into recession and the Swiss central bank unexpectedly slashed interest rates by a full percentage point. In China, officials warned that the employment outlook was becoming grim, as the global financial crisis led to more factory closures in the export sector.<br />

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Two-year US interest rates slid below 1 per cent to their lowest levels yet amid a gathering conviction that the Federal Reserve would cut interest rates again next month. UK bond yields dropped to their lowest levels since the second world war.<br />

The S&P 500 equity index fell 6.7 per cent to 752.44 - its lowest close since 1997 - as financial stocks plunged. Earlier in Europe, the FTSE 100 fell 3.3 per cent and Germanys Dax lost 3.1 per cent.<br />

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This is all about disinflation and deflation, said Alan Ruskin, a strategist at RBS Greenwich Capital. Rates can go low and stay low for a protracted period.<br /><br />

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On top of Wednesdays announcement of a record one-month fall in the US consumer price index, the rising risk of a damaging deflationary crunch also pushed oil prices below $50 a barrel for the first time since 2005, amid signs of fracture in the Opec oil cartel.<br /><br />

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For some time it has not been a question of whether we will see deflation but if it will be the benign kind, where lower commodity prices boost consumption, or a malign spiral of falling prices pushing up the value of debt, said Julian Jessop, chief international economist at the consultancy Capital Economics. Todays figures all point to the malign variety.<br />

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Official figures showed 542,000 US workers filing new claims for jobless benefits last week, the highest number since the early 1990s recession. The figures were well above economists forecasts of just over 500,000, and are likely to mean another sharp drop in employment in November.<br />

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The White House said US president George W. Bush would sign a bill pending in Congress to extend unemployment benefits to workers by at least seven weeks, and longer for states with higher unemployment rates.<br /><br />

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On Thursday some short-term US Treasury bills were quoted near or below zero per cent. Two-year bond yields fell as low as 0.96 per cent, the lowest since the two-year note was created in 1976, before edging up later in the day. Yields on the 30-year bond fell to a record low of 3.58 per cent.<br />

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Market analysts said panic had set in among traders. Markets are utterly unhinged, said Bill ODonnell, strategist at UBS.<br />

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Additional reporting by Javier Blas in London and Geoff Dyer in Beijing<br />

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Copyright The Financial Times Limited 2008<br /><br />

<br />

By Alan Beattie in London and Michael Mackenzie in New York<br />

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Published: November 20 2008 20:48 | Last updated: November 20 2008 21:16<br />

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http://www.ft.com/cms/s/0/8b5f0d60-b743-11dd-8e01-0000779fd18c.html

Reuters

Merrill CEO says economic environment recalls 1929

Tuesday November 11, 9:38 am ET



NEW YORK (Reuters) - Merrill Lynch & Co (NYSE:MER - News) Chief Executive John Thain said he did not expect the global economy to recover quickly from the credit crisis and that the environment more closely resembled 1929, the advent of the Great Depression, than recent slowdowns.



Speaking Tuesday at a financial services conference sponsored by his bank, Thain said credit remained constricted and asset prices generally were still falling, following the housing market collapse and a crisis of confidence.



These led to market-shaking events, including the bankruptcy of Lehman Brothers Holdings Inc (Other OTC:LEHMQ.PK - News), and Merrill's own decision to quickly sell itself to Bank of America Corp (NYSE:BAC - News) for $50 billion.



"We are going to be in a very difficult economic environment for a significant period of time," Thain said. He said the U.S. economy "is contracting very rapidly," creating uncertainty "at least over the next few quarters."



Thain nevertheless said market conditions for financial services companies were improving.



As an example, he said Merrill recently issued some three-month commercial paper, which companies typically use to fund day-to-day operations, when for a time it had been able only to issue overnight paper.



Commercial paper markets had seized up following Lehman's September 15 bankruptcy, which led to a run on some money market funds that buy the short-term debt.



"I'm cautiously optimistic that things are starting to get better in financial services," Thain said.



"Although things are starting to improve, this is going to be a long process, and this is not going to get better quickly," he added. "It is not like '87, it is not like '98, it is not like 2001."



For Merrill, he said, the outlook is not all bleak as its merger combines Bank of America's strengths in retail banking, corporate lending and Treasury services with Merrill's strengths in wealth management, investment banking, and sales and trading.



"We're in a good space to weather this economic storm," he said.



The merger is expected to close by year-end. Bank of America and Merrill shareholders are scheduled to vote on the transaction on December 5.



(Reporting by Elinor Comlay and Jonathan Stempel; Editing by Lisa Von Ahn)



http://biz.yahoo.com/rb/081111/business_us_merrill_thain.html?printer=1

The financial crisis will drive down global economic growth to its lowest since 2002 with a big risk it will drop even further, the International Monetary Fund has warned.



Though Olivier Blanchard, the fundâs chief economist, said that the chance of another Great Depression was ânearly nilâ, the IMF said that the US and European economies were mainly already in or close to recession.



âThe world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s,â the IMF said. âThe situation is exceptionally uncertain and subject to considerable downside risks.â



The fund said that global growth was likely to slow to 3.9 per cent growth in 2008 and 3 per cent in 2009, sharply down from 5 per cent growth last year. Some economists regard 3 per cent or 2.5 per cent global growth as equivalent to a world recession, given the trend rates of growth in the global economy, but Mr Blanchard said that such definitions were unhelpful.



Mr Blanchard said that Wednesdayâs co-ordinated interest rate cuts from the major economies were âdefinitely a step in the right directionâ, though declined to say whether more reductions would be needed in the short term. âMore may be needed, and if so we hope it is done,â he told reporters. âFifty basis points [cut] is not nothing.â



The IMF chief economistâs optimism that the world would avoid a repeat of the Great Depression of the 1930s was based on an expectation that governments would follow the right policies. European governments were having difficulty in coordinating their response to the crisis and more action was needed to shore up their shaky financial systems, he said.



The fund reduced its forecast for global growth next year by nearly a full percentage point, compared with its previous projection in July, with expected US growth for 2009 cut by 0.7 percentage points to 0.1 per cent â hovering just above a âfull recessionâ of a year-on-year fall in growth rather than the narrower definition of âtechnical recessionâ of two successive quarters of a shrinking economy. Predicted growth for the eurozone in 2009 was cut by a percentage point to an increase of 0.2 per cent.



Emerging market economies, which have seen rapid falls in asset prices this week but have yet to bear the brunt of the slowdown in the real economy, would fare somewhat better, the fund thought.



The projection for Chinese growth next year was cut by half a percentage point to a still-healthy 9.3 per cent, and India was forecast to grow at 6.9 per cent. Charles Collyns, the deputy director of the IMFâs research department, said that India, being less open an economy than China and many of the industrialised economies, had strong internal drivers of growth which should shield it from the worst of the economic downturn.



Growth in sub-Saharan Africa, being also less exposed to financial turmoil, would slow to 6.3 per cent next year from 6.9 per cent last year, the fund said.



Copyright The Financial Times Limited 2008



IMF sees greatest shock since 1930s, By Alan Beattie in Washington, Published: October 8 2008 16:14 | Last updated: October 8 2008 16:14



http://www.ft.com/cms/s/0/c5db5c1c-9549-11dd-aedd-000077b07658.html?nclick_check=1

Telegraph.co.uk, By Ambrose Evans-Pritchard, Last Updated: 11:05AM BST 06 Oct 2008



We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars.



Investors will learn today whether the Paulson bail-out - fattened to $850bn (£480bn) by Congress - can begin to halt the death spiral in the credit system. So far, the response looks terrible.



Germany is now in the hot seat. The collapse of a rescue deal for Hypo Real Estate on Saturday threatens a â¬400bn (£311bn) bankruptcy that nearly matches the Lehman Brothers debacle for sheer scale.



Chancellor Angela Merkel has been forced to pull her head out of the sand, guaranteeing all German savings, a day after she rebuked Ireland for doing much the same thing. Reality intrudes.



During the past week, we have tipped over the edge, into the middle of the abyss. Systemic collapse is in full train. The Netherlands has just rushed through a second, more sweeping nationalisation of Fortis. Ireland and Greece have had to rescue all their banks. Iceland is facing an Argentine denouement.



The US commercial paper market is closed. It shrank $95bn last week, and has lost $208bn in three weeks. The interbank lending market has seized up. There are almost no bids. It is a ghost market. Healthy companies cannot roll over debt. Some will have to sack staff today to stave off default.



As the unflappable Warren Buffett puts it, the credit freeze is âsucking bloodâ out of the economy. âIn my adult lifetime, I donât think Iâve ever seen people as fearful,â he said.



We are fast approaching the point of no return. The only way out of this calamitous descent is âshock and aweâ on a global scale, and even that may not be enough.



Drastic rate cuts would be a good start. Central bankers still paralysed by a misplaced fear of inflation â whether in Europe, Britain, or the US â have become a public menace and should be held to severe account by our democracies. The imminent and massive danger is now self-feeding debt deflation.



The lesson of the 1930s is that any country trying to reflate in isolation will be punished. The crisis will ricochet from one economy to another until every one is crippled. We are seeing it play again in this drama as our leaders fail to rise above their narrow, parochial agendas.



The European Central Bank â which raised rates into the teeth of the crisis in July â has played a shockingly destructive role in this enveloping slump. Its growth predictions this year have been, and still are, delusional. Neglecting its global role, it has vastly complicated the fire-fighting efforts of Washington.



It could have offered âcoverâ to the US Federal Reserve this spring when Ben Bernanke was forced by events to slash rates to 2pc. It could at least have signalled an end to monetary tightening. That is how an ally ought to behave.



Instead, it stuck maniacally to its Gothic script, with equally unhappy consequences for both sides of the Atlantic, as well as for China, Japan, and India. The euro rocketed yet further, which it turn set off an oil shock as crude metamorphosed into an anti-dollar with leverage.



The ECB policy was self-defeating, even on its own terms. It merely drove headline inflation even higher, while deeper forces of underlying debt deflation pulled the real economies of Germany, Italy, France, and Spain into a recessionary vortex.



Far from offering reassurance, the weekend mini-summit of EU leaders served only to highlight that nobody is in charge of this runaway train. There is still no lender of last resort in euroland. The £12bn stimulus package is risible.



Angela Merkel has revealed her deep limitations. It was she who vetoed French efforts to launch a pan-EU rescue package, suspecting that any lifeboat fund would prove to be Trojan Horse â a way of co-opting German taxpayers into colossal transfers of wealth to Latin Europe.



In that she is right, but it is too late now for dysfunctional EU political games. By demanding that those who caused the damage should pay for it, she crossed the line into caricature, or worse.



Her comments echo word for word the âweâre alright Jackâ attitudes of Euro-pols during the first US banking crises in 1930-1931, until the storm hit Europe and the entire cast was swept away by furious electorates, or simply shot. Thankfully, this EU stupidity is at last drawing serious criticism.



âWe have to make sure Europe takes its responsibilities, like the US: action must be taken quickly and in a concerted manner,â said IMF chief Dominique Strauss-Kahn.



As for the US itself, it has not yet exhausted its policy arsenal. It can escalate further up the nuclear ladder. The Fed can cut interest rates from 2pc to zero. If that fails, it can let rip with the mass purchase of US debt.



âThe US government has a technology, called a printing press,â said Fed chief Ben Bernanke in November 2002. (His helicopter speech).



In extremis, the Treasury/Fed can swoop into any market to shore up asset prices. They can buy Florida property. They can even buy SUV guzzlers from the car lots in Detroit, and mangle them in scrap yards. As Bernanke put it, the Fed can âexpand the menu of assets that it buys.â



There is a devilish catch to this ploy, of course. It assumes that foreign creditors will tolerate such action.



#!!#an entered its Lost Decade as the worldâs top creditor, with a vast pool of household savings to cushion the slump. America starts its purge with net external liabilities of $3 trillion, and a savings rate near zero. Foreigners own over half the US Treasury debt, and two thirds of all Fannie, Freddie, and other US agency bonds.



But the risk of a dollar collapse is one for the distant future. Right now the world faces the opposite problem. There is a wild scramble for dollars as a $10 trillion pyramid of global lending based on dollar balance sheets âdeleversâ with a vengeance.



This is a âshort squeezeâ on those who have used the dollar for a vast global carry trade. International banks are facing margin calls on their dollar leverage. It is why the Fed is having to provide $1.25 trillion in dollar liquidity for the entire global system, according to estimates by Brad Setser from the Center for Geoeconomic Studies.



The crisis engulfing Europe, Asia and emerging markets, makes life easier for Washington. The United States is becoming a safe-haven again.



The Fed can now hope to pursue monetary stimulus âa lâoutranceâ without being slapped down by the currency, debt, and commodity markets. Take comfort where you can.



http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3141428/Germany-takes-hot-seat-as-Europe-falls-into-the-abyss.html

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