On-Money

If you want to understand the credit crunch and what the meaning of CDOs (Collateral Debt Obligation) and CDS (Credit Default Swap), along with sub-prime mortgages then this is as fine as way as you’ll ever find.

It’s a terrific flash animation produced by Jonathan Jarvis with very high production values.

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Despite a reduced global growth forecast of 2.7% and slackening demand in commodities such as oil,  metals and agriculture, the developing world particularly China still has growing demand. The recession should be seen as cyclical with underlying growth reduced and continuing into 2009 but structural demand is still present albeit somewhat quiescent at present.

In the last five years 30% of crude oil demand growth and 60% of copper demand growth has come from just one country: China. Compared to the USA in the same period, where demand has been declining in copper and almost unchanged in crude oil.  Inflationary pressures had begun to tell on China so their easing off fir a short time offers some respite.

Reduced oil prices down from the peak of $140/barrel in July 08 are also reducing the incentive to find new supplies or bring more expensive oil supplies online.  However demand will not stay depressed forever and there will be a long term need to increase oil supply.

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Deeper U.S. Recession Will be exported to the World. The US credit crunch is going global and the US recession could become severe despite the promised benefits of the just-enacted TARP. Indeed, the recession now threatens to go global, with industrial economies on the brink of recession and both trade and financial shocks threatening the developing world. These shocks will help lower inflation and give officials the ability to respond with easier monetary and other policies.

It’s likely the US GDP will contract by 1% or more in the next nine months and the jobless rate will exceed 7%. The freeze in financial markets is getting worse and implementation of TARP is at least a few weeks away.

Global growth is now forecasted to be 2.7% in 2009, down 0.8% from a few weeks ago. Mainly because of trade and financial shocks, technical recessions have hit many industrial economies. Growth in exports is slowing and there is a risk of a downturn in capital spending.

Inflation is less of a bugbear as growth slows and inflationary heat diminishes. This slowing down varies from country to country however. a global slowdown is now forecast. But just how severe and for how long? No one knows and forecasts of interest rates curves have got steeper helping the dollar but this may not last.

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 People taking home more than £100,000 a year should pay higher tax rates, the Trades Union Congress has suggested. 

The £27.7bn fortune of steel magnate Lakshmi Mittal was said to be double his nearest 19th Century equivalent and the TUC will call for higher tax rates to be imposed on earnings between £100,000-£150,000 and over £200,000.

the TUC has published a study – Do the super rich matter? to coincide with the organisation’s annual congress in Brighton.  The report says that the Russian oil magnate and Chelsea Football Club owner Roman Abramovich is currently Britain’s second-richest man, worth £11.7bn, followed by the Duke of Westminster on £7bn, the Hinduja brothers on £6.2bn and Alisher Usmanov on £5.7bn.

The report suggests that while in the 1990s a value of £50 million was necessary to be be in the UK’s 200, but now more than £400m is needed.

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Comment: Those with memories of the 1970s will remember when very high taxes were introduced and many film stars, successful writers etc left the country to avoid nearly 100% tax. This continued until Margaret Thatcher dropped taxes to a lower top rate. The super rich do not have taxable salaries as such and can relocate to avoid punitive tax regimes.  The 70s were typified as Britain being the sick man of Europe and higher tax rates of thos sort would speed up a return to those times.

A flatter tax system would reduce administrative costs and be easier to administer with concomitant gains through reduced HMRC labour costs. These days £100,000 is not unusual in the City of London and higher rate taxes would have an adverse effect on one if the UK’s major earners.

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 The U.S. government is planning to take over Fannie Mae and Freddie Mac on Sunday, September 7 and all shareholders of the two mortgage giants will lose out. 

This is expected to be announced later today, and is believed to be possibly the largest financial bailout in the nation’s history, in an attempt to prevent further damage to a housing market experiencing the worst downturn since the Great Depression.

The government will run the two companies suggesting that the chief executives would be removed. The two government-sponsored enterprises were sent a letter by their regulator, the Federal Housing Finance Agency, that detailed problems at the companies and said why the federal government was taking control.

The two companies own or guarantee almost half of the country’s $12 trillion in home mortgage debt and being placed in receivership would be a major blow to the administration and likely to have adverse effects on the dollar as well as confidence in the administration. A bailout would avoid the more onerous step of being placed in a receivership in the interests of debtholders.

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The unemployment rate rose to 5.7%, and payroll employment (ex farm labour) continued to drop in July (-51,000), the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Employment continued to fall in construction, manufacturing, and several service-providing industries, while health care and mining continued to add jobs.

Statistics

Average hourly earnings rose by 6 cents, or 0.3%, over the month. Both the number of unemployed persons (8.8 million) and the unemployment rate (5.7%) rose in July. Over the past 12 months, the number of unemployed persons has increased by 1.6 million, and the unemployment rate has risen by 1.0%.

Over the month, the unemployment rates for adult men (5.3%) and whites (5.1%) edged up while the rates for adult women (4.6%), blacks (9.7%), and Hispanics (7.4%) were little changed. The jobless rate for teenagers increased to 20.3% in July.

The unemployment rate for Asians was 4.0% in July. Among the unemployed, the number of reentrants to the labor force in July rose by 207,000 to 2.7 million. This number has increased by 623,000 over the past 12 months.

The number of unemployed (ex-workers) stayed steady in July at 4.4 million, but rose by 778,000 over the year. The civilian labor force, at 154.6 million, was little changed in July, and the labor force participation rate remained at 66.1%.

Total employment, at 145.8 million, was about the same as in June. The employment-population ratio, at 62.4% in July, was the same as in June 2008 but was down from its most recent high of 63.4% in December 2006.

In July, the number of persons who worked part time for economic reasons rose by 308,000 to 5.7 million and has risen by 1.4 million over the past 12 months.

Declines Across Industry

Over the month, employment continued to decline in manufacturing, construction, employment services, wholesale trade, and the information industry.

Construction shed 557,000 jobs since its September 2006 employment peak, with almost 75% of the decline occuring since October 2007.

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The Chancellor of the Exchequer, Alistair Darling today insisted that the UK economy was facing “unique pressures” from the credit crunch plus the rise in oil and food prices, as he attempted to clarify his appraisal that the global economic conditions were the worst for 60 years.

In a television interview to explain his comments made in a newspaper earlier this week about the grave state of the economy, the chancellor said the government had to help people. “We are facing a profound economic downturn along with every other country in the world,” Darling said.

“The difference is between us and previous governments is that we are taking action to help people – whether it is rescuing Northern Rock, or helping people to get back into work as they lose their jobs, or tax rebates which are due at the end of September.”

Darling insisted that the government would “help” people hit by the crisis, and played down rumours of tension with senior ministers.

“All my colleagues, the prime minister, every single one of us, are focused on one single thing – that is helping people, helping the economy go through what is a very difficult time. “

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Sales figures for July of pre-owned houses showed a 3.1% increase in July 2008.  This is attributed to a 7% drop in median house prices to $212,000 (UK £114,439), as a consequence of the US sub-prime crisis.

In the same period, over 272,000 people in the US received notice of foreclosure, a rise of 55% on July 2007 according to analysts Realtytrac. The US Government has introduced new measures to try and help home owners from losing their property.

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Charles Bean, the Bank of England’s deputy governor warned that the downturn was as bad as in the 1970s and that everytime things looked up as if they were going to improve, a setback occurred. At Christmas 2007 he said that he had thought that things were past the worst but since then things had deteriorated.

He predicts that if the oil prices stabilised, along with credit markets then growth should pick up and inflation start to fall. And he suggested that the current UK standstill in growth was only temporary.

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We had trouble with the past blogging system so this one is a lot more reliable.

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Beggars in central London are taking home up to £280 a day from soft- hearted shoppers and commuters.

The average figure for beggars is £55 a day, more than a workers average earnings. Those who earn £280 a day are on a similar income to Head Teachers and GPs.

A quarter of people give in the belief that they are helping to provide for bed and food. But in fact, research has shown that 60% of beggars are not homeless, and 70% of those arrested test positive for Class A drugs, such as heroin, crack, or cocaine.

Shoppers and commuters are being asked to donate money to charities which help the homeless instead of giving to beggars.

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Millions of households across Britain will pay more for their water in the coming weeks.

From April the average bill for each household for water and sewage services will increase by 7% to £312.

It is thought that those using South West Water, the most expensive in the country, will see their bills rise by 13.7%, bringing the average bill to £483.

It has been said that the extra money will be put towards maintaining pipes, sewers and treatment works, also connecting £1 million new properties to the network and preventing or reducing flooding from 'high risk homes'.

For years the water companies have been running a sub-standard service and now customers are being forced to bail them out.

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