IMF gloomy on growth, warns on inflation Wednesday July 9, 8:21 am ET By Alan Wheatley, China Economics Editor TOYAKO, Japan (Reuters) - It is hard to know how far the global financial crisis still has to run, with the extent of further credit losses hinging on what happens to the U.S. housing sector, IMF chief Dominique Strauss-Kahn said on Wednesday. "What is sure is that the consequences for the real (economy) sector of the financial crisis are still in front of us," Strauss-Kahn, the International Monetary Fund's managing director, said in an interview. With sky-high food and oil prices adding to the economic pain caused by financial strains, Strauss-Kahn said the IMF was fairly pessimistic about global growth prospects this year and, especially, in 2009. But he told a news conference later that softening growth was less of a threat than inflation, which he said was rampant in some countries. "In developed countries, central banks have taken it into account and have the correct monetary policy stance. In emerging countries and some low-income countries, in some of them at least, inflation is out of control. That means monetary policy probably has to be tightened in coming weeks or coming months." Strauss-Kahn said the lesson from the 1970s and 1980s was that inflation can last for years, or even decades, if central banks and governments choose the wrong policy settings. "That's why it's very important today, and that's what the IMF is doing, to draw attention to this question," he said. DOLLAR NEAR FAIR VALUE, YUAN TOO CHEAP In the interview, Strauss-Kahn reaffirmed the IMF's view that the dollar is close to its medium-term equilibrium value when adjusted for inflation and measured against a basket of currencies of America's trading partners. "The euro is probably slightly on the strong side, while other currencies like the renminbi are obviously undervalued," he said. Although the United States needs to boost net exports to offset weakening domestic demand, Strauss-Kahn said a competitive exchange rate was not the only driver of exports. "Prices are important, of course, but quality, service and other things that go with exports are more and more important," he said. "It's not only a simple mechanical question of the exchange rate." Ties between the IMF and China have been strained since the fund introduced new currency surveillance rules in June 2007 that make it easier for it to determine whether a country is keeping its exchange rate fundamentally misaligned to boost exports. Beijing objected to the rulebook, regarding it as a ploy by the United States to enlist the fund in its campaign for a stronger yuan. The dispute delayed completion of the IMF's 2007 report on China under Article 4 of the Fund's charter. Strauss-Kahn said the 2007 review would be folded into this year's, which would be debated by the IMF's board of directors in late August or early September. "I have repeatedly said that the renminbi was significantly undervalued, and the board is going to give its own comment on this during the Article Four in six, seven weeks from now. "The discussions are taking place and we will see -- but I won't tell you know -- what exactly the IMF staff is going to write and how the board of the IMF is going to react," he said. Beijing is worried that an IMF finding that the yuan is fundamentally misaligned could expose it to trade sanctions. The yuan, also known as the renminbi, has risen more than 20 percent against the dollar since Beijing scrapped its peg to the dollar in July 2005 and let the currency float in managed bands. But it has risen much less against other major currencies. Strauss-Kahn said the IMF's discussions with China revolved around how fast the yuan should appreciate. "The Chinese authorities are quite aware of the fact that it is in their own interest to move the exchange rate -- to revalue the real exchange rate. They are facing a high level of inflation and they also have other undesirable consequences of this undervalued exchange rate. "But of course it's not easy to do. We all have to understand that the move has to take place but to take place progressively." (Reporting by Alan Wheatley and Yoko Nishikawa; Editing by Hugh Lawson)
Fannie, Freddie sink on government rescue fears Friday July 11, 6:55 am ET By Alan Zibel, AP Business Writer Fannie, Freddie shares drop as worries of government rescue build amid ongoing housing woes WASHINGTON (AP) -- Fears that the government will be forced to rescue Fannie Mae and Freddie Mac could well become a self-fulfilling prophecy. Shares of the government-chartered mortgage finance giants plummeted Thursday and are trading at levels last seen in the early 1990s. If the prices don't recover, it will be harder for the two companies to raise more money through stock sales to compensate for losses from the housing bust. Investors are afraid their stakes will vanish if the government is forced to rescue the companies. "The government has to step in and do something," said Friedman, Billings, Ramsey & Co. analyst Paul Miller. Freddie Mac shares fell $2.26 or 22 percent, to $8, after sinking as low as $6.75 earlier in the day. Shares of Fannie Mae fell $2.11, or 13.8 percent, to $13.20, after earlier falling to $11.70. http://biz.yahoo.com/ap/080711/fannie_freddie_capital_concerns.html
Analysts Say More Banks Will Fail by Louise Story Monday, July 14, 2008 As home prices continue to decline and loan defaults mount, federal regulators are bracing for dozens of American banks to fail over the next year. But after a large mortgage lender in California collapsed late Friday, Wall Street analysts began posing two crucial questions: Just how many banks might falter? And, more urgently, which one could be next? The nationâs banks are in far less danger than they were in the late 1980s and early 1990s, when more than 1,000 federally insured institutions went under during the savings-and-loan crisis. The debacle, the greatest collapse of American financial institutions since the Depression, prompted a government bailout that cost taxpayers about $125 billion. http://finance.yahoo.com/banking-budgeting/article/105391/Analysts-Say-More-Banks-Will-Fail
New layoff filings jump as companies retrench Thursday July 24, 10:20 am ET By Jeannine Aversa, AP Economics Writer New layoff filings rise sharply as companies cutback work forces amid economic troubles WASHINGTON (AP) -- The number of newly laid off people filing claims for unemployment benefits bolted past 400,000 last week as companies trimmed their work forces to cope with a slowing economy and fallout from a collapsed housing market. The Labor Department reported Thursday that the number of new applications filed for these benefits rose by a seasonally adjusted 34,000 to 406,000 for the week ending July 19. That matched the level seen in late March. The last time claims were higher was after the devastation of the Gulf Coast hurricanes in mid-September 2005. Then, they spiked to 425,000. The new snapshot of layoffs was worse than economists were forecasting. They were expecting claims to rise to 375,000 according to the consensus estimate of Wall Street economists surveyed by Thomson/IFR. A year ago, new claims were much lower -- at 308,000. The rise in claims underscores the deterioration in employment conditions. http://biz.yahoo.com/ap/080724/economy.html
Bush administration projects record 2009 deficit Monday July 28, 12:13 pm ET By Andrew Taylor, Associated Press Writer Government officials: 2009 deficit will reach $482 billion, record driven by economy sag WASHINGTON (AP) -- The next president will inherit a record budget deficit of $482 billion, according to a new Bush administration estimate. A Bush administration official said the deficit was being driven to an all-time high by the sagging economy and the stimulus payments being made to 130 million households in an effort to keep the country from falling into a deep recession. A $482 billion deficit approaching billion would easily surpass the record deficit of $413 billion set in 2004. http://biz.yahoo.com/ap/080728/budget_deficit.html
Jobless claims hit highest point since March 2002 Thursday August 7, 12:57 pm ET By Jeannine Aversa, AP Economics Writer Jobless claims hit highest point in more than 6 years as companies hunker down WASHINGTON (AP) -- The nation's jobs market sent a fresh cry of distress as the number of newly laid off people unexpectedly hit the highest level in more than six years, a Labor Department report showed Thursday. The faltering economy and tight credit have forced companies to cut back, and as the job market shrinks, consumer spending may dwindle, too. All that spells potentially more trouble for the country later this year as the bracing tonic of the government's tax rebates disappears. "Consumers will be very tight fisted in the coming months," predicted Richard Yamarone, economist at Argus Research. "Nothing shuts down the consumer -- and the economy -- like the loss of a job." http://biz.yahoo.com/ap/080807/economy.html
25% of home sales result in loss Values have fallen so far in many cities that sale prices don't cover what sellers originally paid. That means more hard times before markets recover. By Les Christie, CNNMoney.com staff writer Last Updated: August 13, 2008: 1:38 PM EDT NEW YORK (CNNMoney.com) -- More homeowners than ever are selling at a loss, propelling the real estate market deeper into crisis. In the 12 months that ended June 30, nearly 25% of all homes sold nationwide fetched less than sellers originally paid, according to real estate Web site Zillow.com. While the nation's double-digit decline in home prices has been well documented, the new report underscores the economic force of those price declines. Homeowners are walking away with much less in their pocket when they sell. And that affects more than the real estate market. "It's stunning what's happening out there," said Stan Humphries, Zillow's vice president of data and analytics, who looked at statistics that date back to 1996. "The numbers are the worst we've seen and it's not just the magnitude of the problem but the scope - so many markets are affected." http://money.cnn.com/2008/08/13/real_estate/sellers_suffering_huge_losses/index.htm?cnn=yes
US May Be Running Out Of Options To Stop Recession Tuesday September 9, 10:15 am ET Now what? After a bailout of Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FNM - News), $168-billion of fiscal stimulus measures, a housing-rescue package and three-and-a-quarter percentage points worth of Federal Reserve interest rate cuts, the economy is still struggling and in some ways looks worse than ever. And while the recent one-two punch of rising joblessness and shrinking payrolls restarted the recession debate, it begs an even bigger question: What will it take to bring the economy back to health, especially in a presidential election year? âThe answer is quit making dumb mistakes,â says Dan Mitchell a senior fellow at the Cato Institute. Mitchellâs answer is actually a lot more complicated that it appears. As an ardent supply-side economist, heâs inherently opposed to government intervention in the free markets. But heâll also tell you that most of what the federal government has done is meant to ease the popping of the housing bubble, which it created in the first place, thanks to artificially low interest rates, government-supported mortgage lenders and liberal lending requirements. This past weekend's government takeover of mortage giants Fannie and Freddie was just the latest example of that. Still, many on Wall Street are skeptical that the bailout will do much to resolve the housing and credit crisis. âThe best thing to do is to let housing prices reach their natural level as soon as possible, so people know what's real and what's not,â Mitchell says. Like thatâs going to happen. If not, then what will? Chances are nothing, at least in the short term, given the November presidential election. âWe're not going to get anything done until after the inauguration,â says Robert Brusca, chief economist at Fact & Opinion Economics. âMarch at the earliest.â After any legislation becomes law, add another couple months for the money to start to hit. Interventionism aside, the governmentâs fiscal measures thus far have drawn mixed reviews from economists. At best, they helped to slightly soften the blow of the credit crunch and slowing economy. At worst, the return on investment was low because the measures were ill conceived in the first place and in the end not enough of the tax rebate money was spent and thus put back into the economy. âThe fiscal stimulus seemed to be designed to maximize the likelihood of the re-election of the incumbent.â Nomura International Chief Economist David Resler. âWe would have been better off, if we had announced right then and there that we would extend the Bush tax cuts, which would have had a more direct impact,â says Resler. âIf you cut taxes, it affects peoples stream of income,â Brusca. Theyâre more likely to spend money than with a one-time refund.â Others say thereâs a remote chance that a lame duck Congress and president might work with incoming leaders to throw more money at the problem, should it be abundantly clear the economy in recession in November. Thereâs more of a chance the Fed will lower interest rates again, economists say, but they would require greater confidence that the oil bubble is over and the dollar rebound is for real. âThe Fed is kind of sitting there in a bind,â says economist Dean Baker of the Center for Economic Policy Research, because inflation is too high and growth too weak. He says another rate cutâ either a quarter percent or a half percentâwould be extraordinary, but these are extraordinary circumstances.â Some Fed members might certainly agree, having seen the FOMCâs| aggressive monetary easing do little to lower mortgage rates and trigger the normal borrowing activity that stimulates economic growth. âThe economy is definitely weaker than the fed had expected,â says Brusca. And though it is rare for the central bank to change interest rates before a presidential election, both of the political parties could spin a rate cut to their advantage. âI'm not sure anything it could do would be particularly helpful,â adds Resler. âThe problem is not that there isnât enough liquidity. The problem is that the liquidity there isn't finding its way to end users.â Much may depend on how evident the economic deterioration is. Many economists are now convinced the US is in recession. Thereâs considerable debate, however, as to whether the worst is over or yet to come and how long the contraction will drag on, even if the labor markets continues to show signs of distress. âI'm not even beginning to think about emerging, we're still sliding down,â Noble prize-winning economist Martin Feldstein told CNBC Friday. Feldstein, whoâs also president emeritus of the Bureau of Economic Research, the official arbiter of recessions, is among those who isnât ruling out a flat or negative GDP number in the third and fourth quarters. If thatâs the case, the recession would be a year old, assuming it started in December, as some economists do. Even more interventionist-oriented economist like Baker see little chance of immediate improvement, especially if more of the usual remedies are applied. âWe're not going to get this fixed until we get the dollar down and the trade deficit at a more manageable level,â says Baker, whose equation calls for less imports, more exports and more jobs. For Mitchell, however, less is more.| âIf the economy happens to hit a bump in the road the best thing to do is let market forces bring it back."
A politico favorite phrase.. .but not even the proverbial "snowball's chance in Hell" until the Boomers die off... and likely not even then. The "low labor cost" genie was let out of the bottle, and cannot be put back in.
IMF head: worst of financial crisis may lie ahead Wednesday September 17, 4:46 am ET JEDDAH (Reuters) - The worst of the financial crisis may still lie ahead and more major financial institutions may face trouble in coming months, IMF director general Dominique Strauss-Kahn said on Wednesday. "The roots of the crisis are behind us, the roots being the fall in housing prices. The consequences for some financial institutions are still in front of us. We have to expect that there may be in the coming weeks and coming months other financial institutions with some problems," he said. Still, the world economy was very resilient and should rebound in 2009, Strauss-Kahn said to reporters after a meeting with Gulf Arab finance ministers and central bank governors. (Reporting by Daliah Merzaban and Souhail Karam in Jeddah; Writing by Thomas Atkins; Editing by)