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Pressure Builds On U.S. Dollar

I don’t know about you, but I’m noticing more concern overseas these days about the greenback. From Bloomberg’s Mark Deen today:

Suresh Tendulkar, economic adviser to Indian’s Prime Minister Manmohan Singh, is urging the government to diversify its foreign exchange reserves and hold fewer dollars, he said today.

“The major part of Indian reserves are in dollars — that is something that’s a problem for us,” Tendulkar said in an interview in Aix-en-Provence, France today.

He also said that world currencies need to adjust to reflect trade imbalances.

India’s neighbor, China, also continues to exert pressure on the U.S. currency. From the staff over at the Business Intelligence Middle East website today:

China requested that a new global currency be discussed at next week’s G8 meeting in Italy. The news sent the dollar into a downward spiral and the price of gold rallied, confirming its status as a currency hedge.

Wednesday’s sharp rebound in Gold Prices to US$945 faded overnight after a Beijing official refuted claims that China wanted discuss a new global reserve currency at next week’s G8 meeting of political leaders in L’Aquila, Italy…

Specifically, the People’s Bank of China said the IMF should manage part of members’ foreign-exchange reserves.

“To prevent the deficiencies in the main reserve currency, there’s a need to create a new currency that’s delinked from the economies of the issuers,” the People’s Bank of China (PBOC) said in a review of the economy in 2008 released today. In March, the PBOC had urged the IMF to expand operations of its Special Drawing Rights currency (SDRs) and move toward a “super-sovereign reserve currency.”

The PBOC statement comes after a top Communist Party research chief said that China should buy gold and US real estate rather than Treasurys.

Former Chinese Vice Premier Zeng Peiyan highlighted the nation’s concern at the risks posed by a global financial system dominated by the dollar, urging more oversight of countries issuing reserve currencies.

“There should be a system to maintain the stability of the major reserve currencies,” said Zeng, the head of a research center under the government’s top economic planning agency. Fiscal and current-account deficits must be supervised as “your currency is likely to become my problem,” he said in a speech in Beijing today.

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The Russians haven’t kept quiet on the issue either. Bloomberg’s Mark Deen and Isabelle Mas wrote this afternoon:

Russian President Dmitry Medvedev has repeatedly called for creating a mix of regional reserve currencies as part of the drive to address the global financial crisis, while questioning the dollar’s future as a global reserve currency. Russia’s proposals for the Group of 20 major developed and developing nations summit in London in April included the creation of a supranational currency.

“We will resume” talks on the supranational currency proposal at the G-8 summit in L’Aquila on July 8-10, Medvedev aide Sergei Prikhodko told reporters in Moscow today.

Sources:

“India’s Tendulkar Says Govt Should Diversify Forex Reserves”
Mark Deen
Bloomberg, July 3, 2009

“Gold’s investment credentials boosted by China’s quest for new global currency”
MI-ME Staff
Business Intelligence Middle East, July 3, 2009

“India Joins Russia, China in Questioning U.S. Dollar Dominance”
Mark Deen, Isabelle Mas
Bloomberg, July 3, 2009

Roubini, Shiller, Whitney: No Economic, Housing Recovery Just Yet

Green shoots, or deceptive weeds? From Reuters this morning:

A rebound in key U.S. economic indicators masks an underlying malaise that will likely hamstring growth for many years and keep housing and banks in a rut, several top economists said Monday.

Nouriel Roubini, president of RGE Monitor, said a recovery in risk assets like stocks and emerging markets would not last, since it had been based on unrealistic expectations for a global economic rebound.

“I see subpar, anemic, below-trend growth for the next couple of years,” Roubini said on a panel sponsored by Time Warner.

Housing expert and MIT Professor Robert Shiller was equally pessimistic, saying, with regards to the four-year housing downturn: “This thing is not over yet.”

Banking analyst Meredith Whitney said she was even more bearish than her fellow panelists, saying that better bank earnings would eventually be challenged by the toxic assets on their balance sheets.

Wonder if there’ll be more “money manure” coming from Washington down the road…

Source:

“More Pain Ahead For US Economy: Roubini, Shiller”
Reuters, June 15, 2009

IMF Chief Warns ‘Worst Is Not Yet Behind Us’

The head of the International Monetary Fund still sees rough seas ahead for the global economy. From MarketWatch today:

World leaders need to be cautious in attempting to roll back economic stimulus measures because the worst of the global recession isn’t over, International Monetary Fund Managing Director Dominique Strauss-Kahn said Monday in Kazakhstan, according to Reuters. The Group of Eight finance ministers, who met Saturday in Italy, said in a joint statement they would ponder unwinding stimulus measures amid signs of stabilization in the economy, but offered no timetable. The G8’s stance “is that we are beginning to see some green shoots but nevertheless we have to be cautious,” Strauss-Kahn said. “The large part of the worst is not yet behind us.”

Source:

“Worst not over, IMF chief warns: report”
MarketWatch, June 15, 2009

Russia Plans To Cut Back Its U.S. Treasury Holdings

Russia and China have repeatedly criticized the dominance of the U.S. dollar in the global economy for some time now. Each has called for a new supranational currency in the interests of stability. And today, Russia fired a shot at the world’s reserve currency when it announced it was going to reduce its holdings of U.S. government bonds. From Agence France-Presse (AFP) reporters:

Russia announced plans Wednesday to cut the US Treasury bond holdings in its 400-billion-dollar sovereign wealth fund, the central bank’s first deputy chairman, Alexei Ulyukayev, said.

“We plan to reduce the portion of US Treasuries since the window of opportunity has arisen to work with other (financial) instruments,” he was quoted by Russian news agencies as saying.

Ulyukayev said Russia would shift its reserves into International Monetary Fund (IMF) bonds and commercial bank deposits.

He added, however, that the move would be gradual and Russia would sell off its Treasuries as they reached maturity.

US Treasury bonds now make up 30 percent of Russia’s 400-billion-dollar reserves after the central bank reduced its holdings of high-risk assets, such as US mortgage-backed securities, Ulyukayev said.

The AFP article suggests Russia’s plan to cut Treasury holdings is part of a larger scheme to challenge the greenback. From the piece:

The central bank’s announcement came ahead of a planned meeting of leaders of four key emerging economies in Moscow on June 16, where the dollar’s role as the world’s global reserve currency will be discussed.

Russia has been aiming to challenge the dollar and raise the status of this group of emerging economies, dubbed the BRIC states — Brazil, Russia, Indian and China.

Ulyukayev also said Russia was ready to diversify its large reserves — accumulated over months of record-high oil prices as the world’s second-largest exporter — to include China’s yuan if it became a new global reserve currency.

“The more we diversify our portfolio, the better,” he said.

Source:

“Russia to cut its US treasury holdings: central bank”
Agence France-Presse, June 10, 2009

Where Consumers Are Cutting Back

From an Ipsos/Reuters poll of 23,000 people in 23 countries from April 14 to May 7 (hat tip Financial Armageddon)…

Ipsos polled people in the United States, Canada, Brazil, Mexico, Argentina, South Korea, China, Japan, Australia, India, Russia, Czech Republic, Poland, Hungary, Turkey, Sweden, Italy, the Netherlands, Belgium, Germany, France, Spain, and Britain.

The 23 countries make up 75% of the world’s gross domestic product.

Source:

“Exclusive: Global consumer confidence stabilizing”
Michelle Nichols
Reuters, June 2, 2009

It’s A Mad World After All

On Monday, the Federal Bureau of Investigation released their crime statistics for all of 2008. And, I, for one, am surprised at what the data revealed. From the Associated Press:

Cities in the United States got safer in 2008, while small towns grew more dangerous, according to FBI data released Monday.

The FBI says violent crime nationwide dropped by 2.5% last year. Property crimes also fell by 1.6%, according to the preliminary data collected by the FBI.

Cities with more than 1 million people saw murders fall by 4.3%; cities with 500,000 to 1 million people saw murders fall by nearly 8%, according to the FBI.

Yet in towns with fewer than 10,000 residents, murders rose 5.5%, rape increased 1.4%, and robbery 3.9%, the agency reported.

The latest data show violent crime fell for a second straight year, after increases in 2006 and 2005…

Nationwide, murder and manslaughter dropped 4.4% in 2008.
Aggravated assault declined 3.2%, forcible rape decreased 2.2%, and robbery dropped 1.1%, according to the FBI. The country also saw a huge drop in car thefts — more than 13%.

The western region of the country saw the biggest declines, with a 4.2% drop in property crime and a 3.4% drop in violent crime. The Northeast saw a slight increase in property crime, which rose by 1.6%.

Also just released were the results from an annual study of global violence. In comparison to the U.S. crime numbers, there wasn’t much of a surprise here. From Reuters’ Peter Griffiths yesterday:

The economic downturn has made the world more violent and unstable in the last year, according to a study Tuesday that ranked New Zealand as the most peaceful country and Iraq the least.

The impact of high food and fuel prices in early 2008 and the deepening recession later in the year eroded peace, according to the Global Peace Index, compiled by a unit of The Economist magazine group.

Economic weakening has increased political instability, demonstrations and crime in some countries, according to the study, which is online at www.visionofhumanity.org/gpi/home.php.

“Rapidly rising unemployment, pay freezes and falls in the value of house prices, savings and pensions is causing popular resentment in many countries, with political repercussions,” the report says.

Iceland, the most peaceful nation last year, fell to fourth place after violent protests over its economic meltdown.

“There is a very, very strong correlation between peace and wealth,” Steve Killelea, founder of the Global Peace Index, told Reuters. “Peace is a leading indicator on economic prosperity.”

New Zealand replaced Iceland at the head of the table of 144 countries. The top 10 included all the main Scandinavian nations as well as Austria in fifth place, Japan seventh and Canada eighth…

The United States rose six places to 83rd, wedged between Ukraine and Kazakhstan.

Kazakhstan…

Sources:

“FBI: U.S. crime falls, but small town violence up”
Associated Press, June 1, 2009

“Global recession making world more violent: study”
Peter Griffiths
Reuters, June 2, 2009

Chinese Students Laugh At Treasury Secretary’s Remarks

“Geithner: China Confident in U.S. Policy Steps”

-Washington Post, June 2

“Treasurys up as Geithner, China inspire confidence”

-MarketWatch, June 2

“Geithner’s China Visit Seen Adding Fuel to ‘Great Comeback’ of U.S. Economy”

-Supply & Demand Chain Executive Magazine website, June 2

From the looks of these headlines this morning, it appears that U.S. Treasury Secretary Timothy Geithner is having a lot of success in bolstering Chinese confidence in U.S. assets during his visit to the People’s Republic of China.

Yet, I wonder if this is not just one more instance where “the devil is in the details.”

From the Washington Post’s Ariana Eunjung Cha this morning:

Geithner’s remarks stand in sharp contrast to the commentary in China’s official propaganda papers.

An editorial in the English-language China Daily said it will be “regrettable if [Geithner] underestimates and shuts his ears to voices from China’s civil society,” noting that there are worries that “Washington’s mushrooming deficit, generated by massive government borrowing to fuel its economic recovery plan . . . will undermine both the dollar and U.S. bonds.”

The Global Times, which is affiliated with the Communist Party, said an online poll found that 87 percent of respondents believe China’s dollar-assets are unsafe. The paper concluded, “Ordinary Chinese people are discontent with the declining value of China’s huge foreign exchange reserves denominated in U.S. dollars.”

And the Economic Information Daily, which is part of the official New China News Agency and affiliated with the State Council, in a headline demanded to know of Geithner: “How do you propose implementing fiscal discipline? How will you maintain the stability of the dollar after the crisis?”

Why do you suppose the Post reporter pointed out The Global Times was affiliated with the Communists? To discredit their statement?

Think this might be a case of “the pot calling the kettle black,” considering America’s socialist, and some would argue increasingly fascist, leanings these days?

Other publications also expressed doubts over Geithner’s success. From Peter Ford of The Christian Science Monitor this morning:

US Treasury Secretary Timothy Geithner said Tuesday he had found “a lot of confidence” in the US economy among Chinese leaders he met on his two-day visit here. In other circles, however, skepticism was widespread.

When Mr. Geithner told a student audience Monday that Chinese assets invested in Treasury bonds were “very safe,” his intended reassurance drew loud and dubious laughter.

A survey of 23 top Chinese economists, published in the daily Global Times on the eve of his arrival, found that 17 feared that Beijing’s huge dollar holdings put China in “a very dangerous position.”

More Communist propaganda, I suppose.

Ford added such views also existed outside the political and academic sphere. From the piece:

Ordinary citizens, however, appear to have little sympathy for such arguments, to judge by comments on Internet chat rooms.

“It’s a big joke that China’s money will disappear with nothing to be gained, and the beneficiary still says that the money is safe,” wrote one Internaut from Hebei Province on Sina.com, a popular Internet portal.

“Don’t trust Uncle Sam,” warned another. “Why do they enjoy the pleasures and we pay the bill?”

I suspect this situation might not continue for much longer.

Sources:

“Geithner: China Confident in U.S. Policy Steps”
Ariana Eunjung Cha
Washington Post, June 2, 2009

“Treasurys up as Geithner, China inspire confidence”
Deborah Levine
MarketWatch, June 2, 2009

“Geithner’s China Visit Seen Adding Fuel to ‘Great Comeback’ of U.S. Economy”
Supply & Demand Chain Executive Magazine, June 2, 2009

“Geithner visit: Chinese economists skeptical of US strength”
Peter Ford
The Christian Science Monitor, June 2, 2009

World Trade Center Shouldn’t Be ‘A Hole In The Ground’

This weekend, as we honor Americans who fought and died for our country, I can’t help but think of those who also perished on September 11, 2001. And when it was announced some time ago that the World Trade Center was to be rebuilt, I thought, what a great way to remember the victims of that horrible day and to show the rest of the world our tremendous resilience.

Problem is, as we approach the eighth anniversary of 9/11, there’s nothing there except “a hole in the ground,” to quote New York City’s Mayor Michael Bloomberg.

Click here for a May 2009 photo of the WTC site.

Reuters’ Joan Gralla talked about the never-ending saga to rebuild the former symbol of America’s economic might. Gralla wrote Thursday:

The latest logjam delaying the rebuilding of New York’s World Trade Center might be cleared by June 11, but that will require compromises, including a “realigning of the incentives,” Mayor Michael Bloomberg said on Thursday.

World Trade Center developer Larry Silverstein will probably be pressed to make more concessions to get the Port Authority of New York and New Jersey to guarantee bank loans for two of the three office towers he wants to build where the twin towers stood until the deadly attacks on September 11, 2001.

“Private development should be fundamentally backed by private capital,” Bloomberg told reporters after hosting a meeting at Gracie Mansion for Silverstein, Democratic Assembly Speaker Sheldon Silver, as well as the Port Authority and the Democratic governors of New York and New Jersey who run it.

After years of delays due to battles with insurers and clashes over designs and security, the Port Authority missed a deadline for preparing the site for Silverstein. The recession has curbed banks’ willingness to lend money for new buildings that lack tenants, as Silverstein’s towers largely do.

As a result, the site remains what the mayor, an independent, called “a hole in the ground.”

Back on July 7, 2008, I wrote about the delays at Ground Zero in New York City. In that post, I referenced Nathan Thornburg’s piece that appeared on the TIME magazine website on July 3. Thornburg wrote:

Rebuilding ground zero was going to be a great show of American defiance, a Knute Rockne speech to the nation. Seven years on, though, this grand statement is barely a stammer. In an unsparing new progress report, the site’s landlord admitted that every part of the project is over budget and behind schedule. It will take several months just to map out a new timeline.

The 16-acre site is a tangle of more than 100 contractors and subcontractors answering to 19 public agencies—a sorry pageant of feuding bureaucrats, shady contractors, litigious developers and overzealous regulators. Even 9/11 advocacy groups share the blame, halting work over smallish details about how best to honor the victims. Few are honored by this impasse of competing agendas.

Nobody is arguing that the rebuilding effort–which will add as much Class-A office space as exists in all of downtown Atlanta–is simple. But lower Manhattan is in danger of becoming a metaphor for America’s sluggish response to our most pressing economic challenges. A recent U.S. Chamber of Commerce report shows a litany of problems: an overloaded rail infrastructure that needs new tracks, signals, tunnels and bridges. Most ports need dredging; almost half of all canal locks are obsolete. While China is spending nearly 9% of its gdp on infrastructure, Americans lose $9 billion a year in productivity from flight delays alone.

It is, at heart, about competitiveness. As the U.S.’s largest construction project limps along, China has built the equivalent of several World Trade Center sites in its furious run-up to the Olympics. While conscript labor and forced relocations aren’t the American way, the U.S. can’t be pleased about being lapped by a developing nation. The global economy rewards countries with the concentration and focus to build quickly and solidly. Bits and bytes are important, but so are steel and mortar. It’s not too late for ground zero to be a showcase for American engineering, efficiency and ingenuity. Anything less risks sending exactly the wrong message.

Too late?

Source:

“NY WTC rebuilders might solve impasse by June 11”
Joan Gralla
Reuters, May 21, 2009

Doctor Doom: U.S. Government Will Go Bust

Swiss money manager Marc Faber, otherwise known as “Doctor Doom” by some in the mainstream media, lived up to his name this morning during an appearance on CNBC. From CNBC staff today:

A sustainable recovery will occur only when the corporate system will be cleaned of losses and capitalism risks collapsing if this does not happen, Marc Faber, the author of “The Gloom, Boom & Doom Report,” told CNBC Friday.

The central banks will continue to print money at full speed, but long-term this strategy will lead to a fall in purchasing power and living standards, especially in developed countries, Faber said.

The years 2006 and 2007 were “the peak of prosperity” and the world economy is not likely to return soon to that level, he added.

“I think the final low in markets will occur when the system is cleaned out,” Faber said.

Unless the system is cleaned out of losses, “the way communism collapsed, capitalism will collapse,” according to Faber. “The best way to deal with any economic problem is to let the market work it through.”

The Federal Reserve’s policy of printing money is destabilizing the markets and creating “enormous volatility” said Faber, who in his latest “Gloom, Boom & Doom Report” wrote that it was money printing that had pushed stock prices up.

“The US government for sure will go bust. That I guarantee you. Not tomorrow, but it will go bust,” he added.

Source:

“Dr. Doom: Capitalism Could Fail Like Communism”
CNBC, May 15, 2009

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Wall Street Pay To Be Dictated By Washington?

The Wall Street Journal reported today that the Obama administration is seriously contemplating changing compensation practices on Wall Street and throughout the financial services sector. The Journal’s Damian Paletta and Deborah Solomon wrote:

The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter.

The initiative, which is in its early stages, is part of an ambitious and likely controversial effort to broadly address the way financial companies pay employees and executives, including an attempt to more closely align pay with long-term performance.

Administration and regulatory officials are looking at various options, including using the Federal Reserve’s supervisory powers, the power of the Securities and Exchange Commission and moral suasion. Officials are also looking at what could be done legislatively.

Among ideas being discussed are Fed rules that would curb banks’ ability to pay employees in a way that would threaten the “safety and soundness” of the bank — such as paying loan officers for the volume of business they do, not the quality. The administration is also discussing issuing “best practices” to guide firms in structuring pay.

At the same time, House Financial Services Committee Chairman Barney Frank (D., Mass.) is working on legislation that could strengthen the government’s ability both to monitor compensation and to curb incentives that threaten a company’s viability or pose a systemic risk to the economy.

Just more posturing, or another nail in the coffin for Wall Street as we know it?

Some, like legendary investor Jim Rogers, would say it really doesn’t matter, as they argue a new financial center is being established in Asia. They might have a point, considering that’s where the money is flowing to these days.

As usual, time will tell.

Source:

“U.S. Eyes Bank Pay Overhaul”
Damian Paletta, Deborah Solomon
Wall Street Journal, May 13, 2009

Potential Economic Costs Of Next Flu Pandemic

There’s a lot of press being given to the new strain of swine influenza popping up all over the planet. While talk of the threat to human lives is understandably getting the most attention right now, I can’t help but wonder about the potential financial fallout if the flu develops into a pandemic.

The economic costs associated with a flu pandemic could be substantial, if not devastating, according to some studies out there. From Reuters’ Tan Ee Lyn this past weekend:

… health experts have long warned that the next flu pandemic was overdue and urged countries around the world to prepare for the dramatic economic impact of such a catastrophe.

Below are estimates of economic costs of such a disaster:

• The World Bank estimated in 2008 that a flu pandemic could cost $3 trillion and result in a nearly 5 percent drop in world gross domestic product. The World Bank has estimated that more than 70 million people could die worldwide in a severe pandemic.
• Australian independent think-tank Lowy Institute for International Policy estimated in 2006 that in the worst-case scenario, a flu pandemic could wipe $4.4 trillion off global economic output.
• Two reports in the United States in 2005 estimated that a flu pandemic could cause a serious recession of the U.S. economy, with immediate costs of between $500 billion and $675 billion.
• One report, from the Congressional Budget Office, said hospitals would have difficulty controlling infection and might become sources for spreading the illness.
• A second report by New Jersey-based WBB Securities LLC predicted a one-year economic loss of $488 billion and a permanent economic loss of $1.4 trillion to the U.S. economy.
• SARS in 2003 disrupted travel, trade and the workplace and cost the Asia Pacific region $40 billion. It lasted for six months, killing 775 of the 8,000 people it infected in 25 countries.

Should infection from this new strain of swine influenza reach pandemic proportions, I fear the worst for a global economy struggling to recover from the worst financial crisis since the Great Depression.

Source:

“FACTBOX: Economic costs of a flu pandemic”
Tan Ee Lyn
Reuters, April 25, 2009

IMF: Global Recession Deeper, Recovery Slower Than Previously Thought

“It’s going to be a while before a report is going to say there’s clear
signs of an economic recovery.”

-Colin Bradford, Brookings Institution economist, on today’s IMF report

More gloomy economic projections from the International Monetary Fund. Bloomberg’s Timothy Homan and Simon Kennedy wrote this morning:

The International Monetary Fund said the global recession will be deeper and the recovery slower than previously thought as financial markets take longer to stabilize.

The Washington-based IMF said in a new forecast released today that the world economy will shrink 1.3 percent this year, compared with its January projection of 0.5 percent growth. The lender predicted expansion of 1.9 percent next year instead of its earlier 3 percent projection.

The fund’s latest outlook highlights the precarious state in which the world economy remains, even amid signs the worst slump since World War II may be easing. Recovery isn’t assured and will depend on policy efforts to cleanse banks’ balance sheets and craft measures that spur demand, the IMF said.

“The key factor determining the course of the downturn and recovery will be the rate of progress toward returning the financial sector to health,” the fund said in its semi-annual World Economic Outlook. “Even once the crisis is over, there will be a difficult transition period, with output growth appreciably below rates seen in the recent past.”

Having said this time last year that the world economy would grow 3.8 percent in 2009, the IMF tied its more pessimistic assessment to a “recognition that financial stabilization will take longer than previously envisaged.”

Homan and Kennedy discussed the details of the semi-annual publication. They wrote:

Advanced economies will continue to lead the slump by shrinking 3.8 percent this year and failing to grow in 2010, the IMF said. The fund cut its forecasts for this year and next for all the Group of Seven economies and said Germany, Italy and the U.K. will still be shrinking in 2010…

The U.S. economy will slide 2.8 percent this year before stalling next year.

On the job front, the Bloomberg reporters noted:

Such cutbacks will propel unemployment to 9.2 percent next year in the advanced economies from 8.1 percent this year, while in the U.S. the jobless rate will jump to 10.1 percent in 2010. The Labor Department said this month that unemployment in the U.S. climbed to a 25-year high of 8.5 percent in March.

You can access the latest edition of the “World Economic Outlook” here.

Source:

“IMF Says Global Recession Will Be Deeper, Recovery Slower”
Timothy R. Homan, Simon Kennedy
Bloomberg, April 22, 2009

IMF: Global Losses Could Surpass $4 Trillion By End Of 2010

From Reuters UK this afternoon:

The economic crisis may be at its worst now and a recovery could follow unless downside risks materialise, euro zone countries are likely to tell a Group of Seven meeting on Friday, a G7 source said.

Yep. Things are looking up for the global financial system. Or, at least, that’s what we’re told. From Bloomberg’s Timothy Homan today:

Worldwide losses tied to distressed loans and securitized assets may reach $4.1 trillion by the end of 2010 as the recession and credit crisis exact a higher toll on financial institutions, the International Monetary Fund said.

Banks will shoulder about 61 percent of the writedowns, with insurers, pension funds and other nonbanks assuming the rest, the Washington-based lender said in a report released today on the state of the global financial system. The fund forecast $2.7 trillion in losses from U.S.-originated loans and assets, compared to its estimates of $2.2 trillion in January and $1.4 trillion in October…

The $4.1 trillion estimate is the first by the IMF to include loans and securities originating in Europe and Japan.

Bloomberg Television reported elsewhere today that global financial institutions have suffered writedowns and credit losses exceeding $1.3 trillion since a credit crunch began in mid-2007.

The IMF report follows one issued by JPMorgan Chase analysts last Friday that warned banks are looking at $400 billion more in losses. From Bloomberg’s Jody Shenn yesterday:

Banks are likely to realize about $400 billion more in losses on soured assets, requiring further injections of government capital, JPMorgan Chase & Co. said. Banks will need to set aside about $215 billion more in reserves against their holdings of $2.1 trillion of U.S. home loans that haven’t been packaged into securities, mortgage-bond analysts led by Matthew Jozoff in New York wrote in a report dated April 17.

A surge in defaults on subprime mortgages that began in 2006 escalated a U.S. housing slump, leading to a global economic downturn. Banks worldwide have taken writedowns and losses of $920 billion so far, compared with $900 billion of capital raised, the analysts wrote.

Sources:

“UPADTE 1-Euro zone to tell G7 econ may be at bottom –source”
Jan Strupczewski
Reuters UK, April 21, 2009

“IMF Says Losses From Crisis May Hit $4.1 Trillion (Update1)”
Timothy R. Homan
Bloomberg, April 21, 2009

“Banks Face $400 Billion More in Losses, JPMorgan Says (Update1)”
Jody Shenn
Bloomberg, April 20, 2009

U.S. Farmers Wary Of Recession

Here’s the latest on how American farmers are holding up during the global economic downturn, courtesy of AP business writer Josh Funk today:

The U.S. Department of Agriculture predicts that farm income will fall some 20 percent, or $18.1 billion, to $71.2 billion this year. The lessons of the 1980s farm crisis — when farmers learned the dangers of assuming too much debt when times are good — are about to be tested.

“People that took on a lot of debt — these are the ones I think are going to be in some trouble,” said Iowa State University economics professor Mike Duffy.

So far, it seems the U.S. farming industry hasn’t suffered too badly from the economic slowdown. From the piece:

“The strong farm economy has been a partial insulation from the effects of the recession,” Federal Reserve economist Jason Henderson said.

The Midwest and Plains states also missed most of the housing-related problems in the economy over the past year because home values didn’t boom or bust. And area economists have said rural bankers tended to be more cautious when lending, and were unlikely to invest in the risky mortgage-backed securities that have hurt several major investment banks…

Henderson, who monitors the rural economy within the 10th Federal Reserve District, predicts farm-dependent regions will see slower economic growth in 2009 because farm profit margins will be thinner. He said it’s hard to forecast how much of a hit agriculture might take over the next year because there are big questions about how the recession is affecting demand for commodities, food and exports.

Funk also brought up the topic of farmland values, which I last talked about in early March. He wrote:

Farmland values had soared as countries such as India and China bought more corn and soybeans and the ethanol industry expanded rapidly. Both those economic forces have shifted dramatically in the past year, and now values are in decline.

Source:

“Weak crop prices end feast in farm states”
Josh Funk
Associated Press, April 9, 2009