Sehen wir den Anfang einer weltweiten Rezession?
reduziert. Kompensation erfährt der Privatsektor durch einen Anstieg der öffentlichen Bauausgaben. So kann man sich ausrechnen wie schlimm es tatsächlich um den US Bausektor bestellt ist. Gruß Permanent
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US October construction spending falls 0.8 pct UPDATEAFX| 30 Nov 2007 | 11:46 AM ET
(Updates with analyst reaction) WASHINGTON (Thomson Financial) - US construction spending fell 0.8 pct in October as business construction began to fall and the decline in homebuilding continued.
Private construction was down 1.4 pct, the Commerce Department reported today. A 0.8 pct jump in government projects provided a partial offset to the private building contraction.
Residential construction was down 2.0 pct last month, worse than the 1.1 pct drop in September and matching the 2.0 pct decline in July. It was the 20th consecutive monthly decline in homebuilding.
"There will be more hefty declines to come," warned Ian Shepherdson of High Frequency Economics. "These numbers lag building permits, whose fall has re-accelerated in recent months." Non-residential or business construction fell 0.5 pct, its first decline since September of last year. Economist Patrick Newport at Global Insight called that an "ominous sign." Companies finance new construction with mortgages, just as households do, he said, and the loans have been securitized just like home mortgages. "But the market for these securities has dried up since August, and companies are scrambling to get funding for new construction projects." Office and commercial building continued to grow in October, but there were declines spending on manufacturing, recreational and power projects.
The growth in government construction covered the usual categories of education, health care, highways, and sanitation as well as a 12.4 pct increase for conservation and development.
October's total US construction spending was off 0.6 pct from a year earlier. Private spending was down 4.9 pct as a 17.5 pct non-residential increase could not make up for the 16.2 pct drop in housing. Government construction was up 14.6 pct from October of 2006.
dennis.moore@thomson.com null/rw COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved.
The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
Wiesbaden - Die deutschen Einzelhändler haben im Oktober deutliche Einbußen verkraften müssen. Die Umsätze brachen im Vergleich zum Vormonat preisbereinigt um 3,3 Prozent ein, wie das Statistische Bundesamt am Freitag in Wiesbaden unter Berufung auf vorläufige Zahlen mitteilte. Im Vergleich zum Vorjahresmonat gaben die Verbraucher zu Herbstbeginn trotz eines extra Verkaufstages real 0,6 Prozent weniger Geld in den Geschäften aus. Damit macht sich die Konsumzurückhaltung der Deutschen zu Herbstbeginn deutlich in den Kassen der Händler bemerkbar. Zuletzt hatte sich die Kauflaune laut Gesellschaft für Konsumforschung (GfK) wegen der rasant gestiegenen Preise für Lebensmittel, Energie und Sprit deutlich eingetrübt.
Arthur Laffer optimistich für US-Aktien und US-Wirtschaft.
Herr Laffer steckt die UW-Wirtschaft in der Krise?
Laffer: Nein, sie ist in Top-Form
Und die Subprime-Problem?
Laffer: ... sind Zeichen einer Kreditverknappung. Wir erleben zurzeit einen ganz normalen Wendepunkt in der Geldnachfrage. Seit 2003 sind die Zinsen von einem auf fünf Prozent gestiegen, das Wachstum fiel von 6,5 auf unter ein Prozent Anfang 2007. Deshalb kollabierte die Geldnachfrage. Um Inflation zu verhindertn , musste die Fed das überschüssige Geldangebot durch höhere Geldnachfrage aushebeln. So provozierte sie diesen Wendepunkt.
Und eine Kreditklemme?
Laffer: Ja, aber die ist kein ersthaftes Problem, schon gar nicht für die Weltwirtschaft. Wir haben keine Rezession.
Die kann aber noch kommen?
Laffer: Nein, die FED hat die Zinsen gesenkt un so einen exzellenten Job gemacht. Die langfristigen Zinsen liegen unter vier Prozent, das signalisiert Aufschwung. Die Fed wird witer senken können, denn es gibt keine Inflation. Die Rohstoffpreise werden fallen und der Dollar sich stabilisieren.
Es gibt keine Bankrise?
Arthur Laffer: Nein, wir sehen eine Bereinigung. Banken haben Kredite vergeben, die sie besser nicht vergeben hätten.
Oder sie haben sie innovativ verpackt?
Arthur Laffer: Alle neuen Finanzinnovationen bestimmen nur, wer den Verlust trägt. Wenn am Anfang einer Kette ein Haus von 100 auf 90 Dollar fällt, muss jemand zehn Dollar verlieren. Das ist nicht der Weltuntergang.
Banken verkraften die Abschreibungen?
Arthur Laffer: Ja. Und danach werden sie toll verdienen. Sie können zu den aktuellen Sätzen günstig Geld aufnehmen und teuer verleihen.
UnterWasser-Wirtschaft? UnterWelt-Wirtschaft?
Einfach mal nach OBI fahren Libuda, da gibt's Dachlatten im Sonder-Angebot ;-)
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Mortgage Rescue Is Shortsighted: Pimco ManagerHOUSING, REAL ESTATE, ECONOMYBy ReutersReuters| 06 Dec 2007 | 11:03 AM ET
A senior manager at the world's biggest bond fund criticized a federal mortgage rescue plan as short-sighted and said U.S. home prices may not hit bottom until 2010.
U.S. home prices may fall as much as 30 percent from the market's peak and likely won't trough until 2009 to 2010, according to Mark Kiesel, a portfolio manager at Pacific Investment Management.
"The question is, do we do it over a period of two to three years, or do we do it in 10?" Kiesel said in an interview. "Japan chose 10, and that didn't work so well."
Pimco, a unit of Munich-based insurer Allianze SE, managed $721 billion in assets through the end of September.
Kiesel, a longtime bear on the U.S. housing market, also questioned merits of a plan that President Bush is expected to unveil Thursday to help struggling American homeowners avoid foreclosure.
"This reeks of moral hazard," Kiesel said. "This is pure politics as we enter an election year, and it's not going to help the problem. It's going to prolong the bubble."
Kiesel said government interference in the free market may do more harm than good.
"A government bailout which alters contractual interest payments to bondholders will fuel moral hazard problems and raise mortgage rates for future borrowers and home buyers," he said. "This is not a path we want to head down in which government intervention bails out homeowners who failed to act responsibly."
The White House said Bush would speak on the battered U.S. housing market at 1:40 pm Washington D.C. time on Thursday. The White House said the president would discuss steps to help homeowners avoid foreclosure.
The plan that industry sources said Bush would outline is designed to temporarily hold rates steady for subprime borrowers who could not afford to stay in their homes otherwise.
As proposed by a mortgage investor trade group, the plan would offer a five-year "rate freeze" for subprime loans made from 2005 through the end of July, if the loans are due to reset over the next two and a half years, according to a document obtained by Reuters.
"The entire capital markets system revolves around contracts and the ability to have a legal claim on assets," Kiesel said. "If that fundamental premise is challenged, it's only going to make the costs of capital go up in the future."
Copyright 2007 Reuters. Click for restrictions
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Housing Prices to Drop 30% before Slump Ends: ReportHOUSING SLUMP PRICES ECONOMY.COM MOODY'SBy ReutersReuters| 06 Dec 2007 | 04:23 AM ET
Housing markets from Punta Gorda, Florida, to Stockton, California, will crash and suffer price drops of more than 30 percent before the housing crisis is over, a report from Moody's Economy.com said on Thursday.
On a national level, the housing market recession will continue through early 2009, said the report, co-authored by Mark Zandi, chief economist, and Celia Chen, director of housing economics.
The report paints a worsening picture of the hard-hit housing sector, which is in the midst of its worst downturn since World War II.
While activity will stabilize in 2009, it will not be until 2010 before a measurable improvement in sales, construction and pricing will emerge, the report said.
House prices are forecast to fall 13 percent from their peak through early 2009. After accounting for incentives home sellers are offering buyers, effective declines peak-to-trough will total well over 15 percent, the report said.
Punta Gorda, Florida, and Stockton, California, are the hardest hit markets in the U.S., with price declines from peak-to-trough forecast at 35.3 percent and 31.6 percent, respectively.
"This is the most severe housing recession since the post-World War II period," Zandi told Reuters.
Subprime Foreclosures
These markets have been hard hit due to several reasons, namely the exiting of investors from the areas, a fair amount of subprime mortgage loans causing an increase in foreclosures and overbuilding by home builders, Zandi told Reuters.
Home sales, however, should hit a bottom in early 2008, which will mark a 40 percent drop from peak-to-trough.
"The housing market's most fundamental problem is it is awash in unsold inventory," the report said.
In addition, the housing downturn will take a large toll on the rest of the economy. During the height of the boom in 2004-05, housing contributed nearly a percentage point to annual real gross domestic product, or GDP, growth.
In the current downturn, housing will subtract more than one percentage point from U.S. economic growth this year, and a percentage point and a half in 2008, with the effect on growth seen most pronounced next spring and early summer.
"The intensifying housing recession is expected to weigh on the broader economy, but not break it," the report said.
Aftershock
The Moody's Economy.com's report, titled "Aftershock: Housing in the Wake of the Mortgage Meltdown," said that when house prices hit their nadir, some 80 of the nation's 381 metropolitan areas will experience a double-digit peak-to-trough price decline.
Price declines, however, will vary in degree throughout the nation, with more than a 15 percent peak-to-trough expected around Washington and Detroit.
Significant declines are also expected throughout most of Arizona, California, Florida and Nevada. During the housing market's heyday, speculative activity was rampant in these areas, causing prices to surge much higher than other regions.
The Northeast corridor, and markets such as Boise, Idaho, along with Denver and Salt Lake City, will experience between 5 percent and 15 percent declines. In the rest of the industrial Midwest and parts of the Mountain and Pacific Northwest, prices will fall more modestly.
While some point to rising default rates in the subprime mortgage market, which caters to borrowers with poor credit histories, as the root cause of the problems plaguing the housing market, Moody's Economy.com said an unwieldy supply of unsold homes is the prime factor.
The U.S. Census Bureau said that, as of the third quarter of 2007, there were close to 2.1 million vacant unsold homes for sale, equal to 2.6 percent of the stock of owner-occupied homes.
A well-functioning housing market has a substantial amount of inventory, but in the quarter century between the early 1980s and mid-2000s, the vacancy rate stayed near 1.7 percent.
The difference between the two vacancy rates provides a good estimate of the amount of excess inventory in the market, which currently totals nearly 750,000 homes and is by far the highest level of excess inventory in the post-World War II period, Moody's Economy.com said.
Moody's Economy.com, which is based in West Chester, Pennsylvania, is an independent subsidiary of Moody's Corp and provides economic research and consulting services to businesses, governments and other institutions.
Copyright 2007 Reuters. Click for restrictions.
Es ist immer wieder amüsant dem Mann mit dem schweizer Akzent zu lauschen. Seine Analysen sind in der Regel sehr gut und treffend. Ein Mann der polarisiert. In vielen Fällen schätze ich seine Meinung, mit der Aussage "Konfetti Dollar" geht er nach meiner Einschätzung allerdings zu weit. Aber so ist sie unsere Welt, wer Dinge nicht extrem darstellt dem hört man nicht zu . Wen es interessiert den sollte sich das Interview anschauen.
| HANDELSBLATT, Samstag, 8. Dezember 2007, 12:50 Uhr |
Mindestreserve weiter erhöhtChina strafft erneut seine Geldpolitik |
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China's central bank raises reserve requirement for banks again to try to cool economyupdated 4:02 a.m. ET Dec. 8, 2007The Associated Pressupdated 4:02 a.m. ET Dec. 8, 2007
BEIJING - China's central bank said Saturday it was raising the amount of money its banks must hold in reserve for the 10th time this year in an effort to cool the torridly expanding economy.
The rate will be raised by 1 percentage point to 14.5 percent as of Dec. 25 and will help rein in the rapid lending that is fueling growth, The People's Bank of China said on a statement posted on its Web site.
The move was aimed at "strengthening liquidity management in the banking system and curbing excessive credit growth," it said.
China's economy is in its fifth straight year of double-digit growth, reaching 11.5 percent in the third quarter this year.
Saturday's order comes on top of repeated interest rate hikes and investment curbs imposed on real estate, auto manufacturing and other industries in an effort to control a boom that Chinese leaders worry could ignite inflation or a financial crisis.
But at the same time, the economy is battling inflation, largely from sharp increases in food prices. The inflation rate surged to 6.5 percent in October, matching an 11-year-high set in August.
Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
| HANDELSBLATT, Montag, 10. Dezember 2007, 08:14 Uhr | |||
KreditkriseUBS schreibt 10 Milliarden Dollar ab  Die Subprime-Krise drückt die Schweizer Bank UBS ins Minus. Foto: dpa |
Die Karten im Wirtschaftshaus werden neu gemischt! Das Geld aus fernen Ländern ist auf einmal überall willkommen, weil man darauf angewiesen ist..........
Auf diese Gelegenheit haben viele Investoren aus aufstrebeneden Ländern nur gewartet. Nun stehen die Chancen gut, hier einen Fuß in die Türe der westlichen Lädern zu bekommen.
Permanent
die Araber sind bei der Citi eingestiegen; ich glaube allerdings nicht, daß die Chinesen im Finanzsektor einsteigen; einen maroden Finanzsektor haben sie ja schon im eigenen Land und müssen ihn nicht zukaufen; sie werden imho wohl eher im Tech-Bereich als Käufer auftreten; folgender Artikel stellt sogar das in Frage:
http://www.atimes.com/atimes/China_Business/IL05Cb02.html
Optionen
Das zeigt wie schwer es für Banken sein muss Kapital zu beschaffen.
Permanent
Gegenüber dem Vorjahresmonat kletterten die Preise um 5,7 Prozent, nach Preiserhöhungen von 4,7 Prozent im Oktober 2007 und 3,7 Prozent im November 2006.
Zudem wuchsen die Großhandelspreise binnen Monatfrist um 1,0 Prozent an, während sie im Oktober 2007 um 0,5 Prozent und im November 2006 um 0,1 Prozent gestiegen waren.
Produkte im Großhandel mit festen Brennstoffen und Mineralölerzeugnissen wurden im Vorjahresvergleich um 17,9 Prozent und auf Monatssicht um 7,5 Prozent teurer. (11.12.2007/ac/n/m)
Quelle: Finanzen.net / Aktiencheck.de AG
© Aktiencheck.de AG
| HANDELSBLATT, Dienstag, 11. Dezember 2007, 12:00 Uhr | |||
Kein TrendInflation lässt Ökonomen kaltVon Dorit Heß und Norbert HäringDie führenden Ökonomen großer deutscher Banken sehen in dem kräftigen Inflationsanstieg der letzten Monate kein großes Problem. Bild: HB | |
FANNIE MAE, CEO DANIEL MUDD, REAL ESTATE
By CNBC.comCNBC.com
| 11 Dec 2007 | 12:42 PM ET
The housing market isn't likely to recover fully for at least two years, while the mortgage industry faces continued massive losses, the CEOs of Fannie Mae and Freddie Mac said.
Fannie Mae CEO Daniel Mudd told CNBC that he doesn't expect the real estate market to recover fully until 2010.
"I would say right now we're still in a period of dislocation, prices moving up and down," Mudd said in a live interview. "We should start to settle out next year and through '09. We should see some improvement toward the end of that period."
Meanwhile, Freddie Mac expects to see $10 billion to $12 billion in credit losses on the book of mortgages it currently owns, CEO Richard Syron said at an investors conference sponsored by Goldman Sachs.
Freddie's Syron said in a separate interview with CNBC that the company has instituted a hiring freeze to help control costs as the guarantor's mortgage losses mounts.
"This is a tough time for a lot of people. It's been a very tough time with investors," he said. "We all have to share the pain."
Fannie and Freddie are government sponsored entities that are the two biggest mortgage lenders in the U.S.
Mudd predicted home prices would slip about 12 percent total by next year, which he said will be the key towards a full market correction and subsequent recovery.
"Prices inflated too fast and now we're in a process where prices are coming down to the level of supply and demand, which is still growing," he said. "It's going to take a couple of years to make that adjustment... The underlying basis, housing in America, is still solid."
Mudd also defended Fannie Mae's recent increase in up-front fees for loan applicants, which critics complain is making it more difficult even for top-quality buyers to afford mortgages.
"The business that we're in is to provide guarantees to lenders that those underlying loans will perform over time," he said. "The certainty with which you can guarantee that those loans can perform is more expensive."
Both Freddie and Fannie have raised capital lately to help them through the real estate difficulties.
Freddie Mac at the end of November raised $6 billion in capital via a preferred stock offering. At Fannie Mae, a cut in the dividend and sale of $7 billion in preferred stock earlier this month will give it "incremental extra capital" to manage its business of guaranteeing mortgage securities and make opportunistic purchases for its portfolio, Mudd said .
"That's our expectation," he said when asked if the capital-raising efforts would be enough.
© 2007 CNBC.com
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November Inflation Surged; Retail Sales Also StrongINFLATION, RETAIL SALES, PRODUCER PRICE INDEX, ECONOMY, FED, INTEREST RATESBy ReutersReuters| 13 Dec 2007 | 08:49 AM ET
Inflation at the wholesale level was stronger than expected in November, thanks to higher gasoline prices, but retail sales also exceeded expectations as holiday shoppers coped with higher energy costs and the fallout from the housing slump.
U.S. producer prices surged at a 34-year high rate of 3.2 percent in November on a record
rise in gasoline prices, the Labor Department said.
Excluding food and energy prices, the producer price index rose an unexpectedly large 0.4 percent, the heftiest gain since February, the report showed. When cars and light trucks also
were stripped out, core producer prices rose 0.1 percent.
The rise in prices paid at the farm and factory gate was the largest since August 1973 and was well ahead of analysts' expectations of a 1.5 percent gain. Analysts polled by Reuters
had forecast core prices to rise 0.2 percent.
The 7.2 percent increase in producer prices from November 2006 was the largest 12-month gain since November 1981.
Gasoline prices rose 34.8 percent in the month, eclipsing the previous record gain of 28.8 percent in April 1999. Prices for all energy goods also rose by a record 14.1 percent,
surpassing the previous high of 13.4 percent recorded in January 1990.
Sales at U.S. retailers osted a much stronger-than-expected 1.2 percent rise in November, government data showed as holiday shoppers coped with high energy costs and the fallout from a housing slump.
Excluding autos, retail sales gained 1.8 percent, the Commerce Department said.
Economists polled by Reuters forecast retail sales to rise 0.6 percent while sales ex autos were also projected to increase by 0.6 percent.
However, part of the increase was fueled by mounting energy prices, with gasoline sales spurting 6.8 percent higher in November, which was the largest monthly gain since September
2005 in the wake of Hurricane Katrina.
Still, sales excluding gasoline and autos gained 1.1 percent in November after growing just 0.1 percent in the previous month.
First-time claims for U.S. unemployment benefits eased by a slightly more-than-expected
7,000 last week, a Labor Department report showed.
New applications for state unemployment insurance benefits fell to a seasonally adjusted 333,000 in the week ended Dec. 8 from an upwardly revised 340,000 the week before. Analysts
polled by Reuters were expecting claims to ease to 335,000 from the previously reported 338,000.
The four-week moving average of new claims, which smooths out week-to-week fluctuations, fell slightly to 338,750 from a revised 340,750 the prior week.
The number of people continuing to receive jobless benefits after an initial week of aid rose to 2.64 million in the week ended Dec. 1, the most recent week for which statistics are
available. Analysts had forecast claims would hold steady at 2.60 million.
The four-week moving average of continued claims rose to 2.61 million, the highest level since the week ended Jan. 7, 2006.
Copyright 2007 Reuters. Click for restrictions.
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Greenspan sees early signs of U.S. stagflationupdated 12:02 p.m. ET Dec. 16, 2007Reutersupdated 12:02 p.m. ET Dec. 16, 2007
WASHINGTON (Reuters) - The U.S. economy is showing early signs of stagflation as growth threatens to stall while food and energy prices soar, former U.S. Federal Reserve Chairman Alan Greenspan said on Sunday.
In an interview on ABC's "This Week with George Stephanopoulos," Greenspan said low inflation was a major contributor to economic growth and prices must be held in check.
"We are beginning to get not stagflation, but the early symptoms of it," Greenspan said.
"Fundamentally, inflation must be suppressed," he added. "It's critically important that the Federal Reserve is allowed politically to do what it has to do to suppress the inflation rates that I see emerging, not immediately, but clearly over the intermediate and longer-term period."
The U.S. central bank has lowered its benchmark interest rate three times since mid-September as a housing downturn, tightening credit conditions, and steep food and energy prices threaten to push the U.S. economy into recession.
But cutting rates can have the unwanted side effect of pushing up prices, so the Fed finds itself in a tricky position of trying to revive growth without spurring inflation.
Last week, U.S. data showed that wholesale inflation rose at the highest rate in 34 years, while consumer prices rose the most in more than two years.
Greenspan repeated his assessment that the probability of a U.S. recession had moved up toward 50 percent but noted that corporate America's debt levels were in good shape, which should help cushion the blow from tightening credit terms.
"The real story is, with the extraordinary credit problems we're confronting, why the probabilities (of recession) are not 60 percent or 70 percent," he said.
"Because of the decline in long-term interest rates for a protracted period of time, American business was able to fund a significant part of its short-term liabilities and take out low-cost, long-term debt, so the credit needs have not been all that large," he said.
Greenspan has drawn some criticism for keeping the trendsetting federal funds rate at a low 1 percent from June 2003 through June 2004, which some argue contributed to a housing bubble that is now bursting spectacularly.
Greenspan said real estate prices will stabilize only when the overhang of unsold new-construction homes begins to ease, and estimated that financial losses could be in the range of $200 billion to $400 billion as securities tied to failing subprime mortgages lose value.
He warned against any sort of government bailout plan for homeowners that interfered with the normal functioning of markets for home prices or interest rates, saying it would "drag this process out indefinitely." Offering cash to stricken homeowners instead would cause less long-term damage, he said.
"It's only when the markets are perceived to have exhausted themselves on the downside that they turn," he said. "Trying to prevent them from going down just merely prolongs the agony."
(Reporting by Emily Kaiser; editing by Steve Orlofsky)
(c) Reuters 2007. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
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Stagflation Rears Its Head--Just in Time for HolidaysSTAGFLATION, ECONOMY, INFLATION, RECESSION, FEDERAL RESERVE, ALAN GREENSPAN, MORTGAGE CRISIS, FINANCIAL AIDBy CNBC.comCNBC staff and wire reports| 17 Dec 2007 | 01:53 PM ET
With just a week to go before Christmas, investors are facing the unpleasant prospect of a slowing economy and rising prices--the dreaded "stagflation."
Former Federal Reserve Chairman Alan Greenspan fueled the worries on Sunday by saying that stagflation is a growing possibility, given last week's data showing spiking consumer prices.
"We are beginning to get not stagflation, but the early symptoms of it,'' Greenspan said.
And with inflation on the rise, investors can't necessarily count on the Fed to cut interest rates further.
The Fed's decision last week to cut rates only a quarter point disappointed the markets, yet higher-than-expected gains in wholesale and consumer prices reported late last week supported the Fed's view that inflation remained a problem.
Higher inflation is also a problem for consumers, whom retailers rely on during the holidays to fuel their profits. Sales data has suggested tepid spending by Americans, who are struggling with higher food and energy costs and tumbling home values.
"The consumer is two-thirds of our economy. The consumer holds the key to whether we have a recession in 2008," said Alfred E. Goldman, chief market strategist at A.G. Edwards.
Yet in one positive sign, the latest CNBC Holiday Central Survey found that Americans were ready to increase their holiday spending despite the downbeat outlook on housing and the economy.
Meanwhile, a Fed economist said that the economy faces a heightened risk of recession.
"There appears to be a significant chance of registering at least one quarter of negative GDP growth, which in the past has often been associated with a recession," Glenn Rudebusch,
associate director of research, said in the San Francisco Fed's latest "FedViews" newsletter. "All in all, we foresee anemic growth through the spring of next year."
Even President Bush, while saying the fundamentals of the U.S. economy remained strong, warned on Monday that "storm clouds" are looming.
"This economy's pretty good," Bush told a Rotary Club audience in Fredericksburg, Virginia. "There's definitely some storm clouds and concerns but the underpinning is good."
In economic data, the U.S. government said the current account deficit, the broadest measure of international trade, narrowed in the third quarter compared to the second quarter, as expected, to the lowest level in two years.
Meanwhile, the New York Fed's Empire State Manufacturing Index fell more sharply in December than economists anticipated.
And U.S. homebuilder sentiment remained at a record low for a third consecutive month in December, weighed down by problems in the mortgage market and a huge supply of unsold houses, an industry group said on Monday.
Investors, meanwhile, are skeptical that a special Federal Reserve credit auction announced last week will do much to solve the global credit crunch.
The Fed is offering $20 billion in 28-day credit through an auction Monday. The central bank will not release the results until Wednesday, but the aim of the auction is to encourage commercial banks to borrow from the central bank. That, in turn, would boost banks' lending to businesses and consumers and keep the economy humming.
© 2007 CNBC
Nouriel Roubini's Global EconoMonitor
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Central Banks Are Getting Desperate in Dealing with the Liquidity Crunch and Resorting Again to Stealth Reductions in Policy Rates
Nouriel Roubini | Dec 18, 2007
Central banks are obviously getting frustrated and effectively desperate in dealing with a most severe liquidity crunch that has gotten significantly worse since August. Even last week’s coordinated announcement of central banks monetary injections has done little so far in reducing the Libor spreads (at maturities from two weeks to 3 months) relative to overnite policy rates, relative to government bonds of matching maturity and relative to the Overnite Index Swap (OIS) rate. The three month Libor versus policy rate differential is still 69bps in the US, 95bps in the Eurozone (its highest level in years); and 93bps in the UK. We will see the effect of the first of the TAF auctions by the Fed on Wednesday but there is little reason to believe – based on current spreads – that this first auction has eased liquidity conditions in interbank markets. As pointed out by Cecchetti the kind of new auctions at term horizons that the Fed is performing now have been performed by the ECB for a long time; and in the Eurozone such auctions has so far miserably failed to reduce the various Libor spreads; so why would these new instruments be effective in the US if they have not been effective in the Eurozone?
So central banks are now becoming even more creative in dealing with the liquidity crunch and starting to do the kind of stealth policy rate reductions that they performed last August and September. The ECB just announced a special liquidity operation that will allow financial institutions to borrow for two weeks unlimited amounts at a rate of 4.21% (close to its policy rate of 4%); the two-week euro Libor had been 4.9% before the announcement. So the ECB is providing a temporary monetary policy easing of 70bps for a two week period.
The operation is highly unusual and heterodox; and while getting creative in dealing with liquidity crunches may be appropriate this action signals some desperation on the part of the ECB. The problem is that the ECB is the only G7 central bank – apart from the BoJ – that has not reduced at all its policy rate. And since most financial and other private contracts are indexed to Libor, an average Libor that is about 100bps above policy rates it is equivalent to the ECB having raised its policy rate by 100bps in the last few months. So not only the ECB has not reduced its policy rate in spite of major signals and risks of economic slowdown in the Eurozone (oil price shock, strong euro hurting European competitiveness, effects of the US sharp slowdown, liquidity and credit crunch, sign of a slowdown in economic activity, beginning of a deflation of housing bubbles in Europe); it has effectively increased its policy rate by 100bps as Libor – rather than the policy rate – is the relevant cost of capital for the financial system.
If the ECB wants to deal with a liquidity crunch that is not only due to the year end "turn" (as Libor spreads are 100bps even at 3 month maturities) it should not directly manipulate market rates at two weeks maturities – as it has effectively done with this temporary two week monetary policy rate easing, i.e. lending at 4.21% when market rates were 4.9%). This latest operation is effectively a manipulation of market rates as – instead of using market auctions to determine the price of liquidity – the ECB effectively is promising to provide unlimited liquidity for two weeks at a rate well below market rates. Call it effectively a cut in the policy rate for a temporary two weeks period. As commentators in the FT put is this is a big Chrismas subsidy by the ECB to financial markets:
“This is basically Father Christmas to those who have access,” said Erik Nielsen, economist at Goldman Sachs. “They are bailing out people who have not really adjusted their balance sheets to the new reality.” But Julian Callow, economist at Barclays Capital in London, said the ECB was “simply doing their job at being lender of last resort”.
And since the ECB has estimated the demand for liquidity at over 260 billion euros this operation is potentially quite a subsidy to financial markets. The ECB should instead seriously consider cutting its policy rate below 4% as the downward economic risks to growth are now serious and the credit and liquidity crunch is getting extreme. Even the BoE and the BoC did a cosmetic but at least initial 25bps policy rate cut.
At the same time the Fed appears to have started again the stealth Fed Funds easing that it did perform in August and until the September 18th Fed Funds 50bps cut. Indeed, right after the 25bps cut in the Fed Funds rate on December 11th the Fed has started to do open market operations at rates below the new Fed Funds target rate of 4.25%. On Wednesday December 12th the Fed did a $12 billion 8 day repo at an effective rate of 4.066, i.e. 19bps below the Fed Funds rate (with accepted collateral being Treasuries). Then on Thursday December 13th it did a $6 billion 14 days repo at a rate of 3.95% (with accepted collateral being Treasuries); on the same day it did another $10 billion 14 days repo where average rate on the component backed by Treasuries was 4.01% and the rate on component backed by Agency debt was 4.27% (both rates being well below the 7 day Libor); a third overnite repo that day occurred again at rates below the Fed Funds for the component backed by Treasuries. Then yesterday Monday December 17th the Fed did another overnite repo where the rate on the $7.5 billion backed by Treasuries collateral was 3.95%, i.e 30bps below the overnite Fed Funds rate of 4.25%.
What does this means? Simply that, like in August and September the Fed is now doing stealth reductions in the effective Fed Funds rate as it is lending every day significant amounts of liquidity at rates well below the target Fed Funds rate of 4.25%. And in spite of such stealth reductions in the Fed Funds rate the liquidity conditions in money markets remain as strained as ever. It is true that the average effective Fed Funds rate has remained very close to the target rate of 4.25% for the last week; this is different from August-September when the effective Fed Funds rate was on average below the target rate. But some financial institutions – the few and lucky ones having access to the Fed’s repos – are now borrowing at below the target Fed Funds rate not only overnite but also at maturities of one week and two weeks when the Libor rate on those horizons is well above the overnite Fed Funds rates. Thus, the latest repos of the Fed are done on terms even easier than the those just announced by the ECB: the ECB is providing unlimited liquidity for two weeks at a rate close to its policy rate (but 70bps below equivalent market rates); the Fed is providing more limited but significant liquidity at rates well below its policy rate not only for overnite operations but also for operations with an horizon of one and two weeks.
Of course, as it has been argued in this forum since last August when the crunch first emerged, this severe liquidity crunch would get worse rather than better, is due not to illiquidity alone but also to insolvency, widespread lack of trust and counterparty risk, un-measurable uncertainty, wrong incentives and information asymmetries in financial markets and the existence of a shadow non-bank financial system where you have a huge number of non-bank financial institutions that are severely illiquid and do not have direct or indirect access to the Fed’s open market operations, discount window, auctions and other forms of lender of last resort support. This crisis represents the first crisis of financial globalization and is the most severe financial turmoil hitting advanced economies in the last twenty years. But central banks are treating this liquidity and credit and solvency crisis and crunch as if it was a run-of-the-mill mild liquidity crisis – like the one that occurred during the near collapse of LTCM.
And the central banks – the Fed in particular – have been behind the curve for over a year now. The Fed totally underestimated the housing recession arguing – like most market folks – that this was a temporary slump that would bottom out by the end of 2006 (sic!); it kept on saying throughout the winter of 2006 that the sub-prime problem was a niche and contained problem when it was not just sub-prime mortgages but also near prime and prime and excessive and reckless lending and leverage across the entire financial system; it kept on arguing that the housing slump would not affect other sectors and would not lead to a more severe economic slowdown that is in full swing now; it underestimated the risk of broader contagion to the financial system and ended up being literally surprised when the liquidity and credit crunch hit in the summer time; it then it deluded itself in believing that this crunch was temporary and that Fed easing would resolve it; and it was then surprised (as Kohn admitted in its last speech) when the crunch got worse rather than better in the fall and has now gotten much worse than in August. So, the Fed has been persistently wrong for over a year now in its assessment of the economy and of financial markets.
As argued here liquidity palliatives and band aid will not work. Certainly at this point monetary policy will have very limited ability to prevent the hard landing that the US is now experiencing and a severe global economic slowdown as we are now paying the price for the credit excesses, the asset bubbles, the reckless leverage, the lack of minimal appropriate supervision and regulation of financial markets of the last few years. A sharp recession is unavoidable and necessary to cleanse the financial system and the economies from such excesses.
But the failure of central banks and the Fed to provide the appropriate diagnosis and prognosis of the crisis and now their failure now to provide enough monetary policy easing to reduce the collateral damage on the real economies of the fallout of the bust now of the biggest ever credit house of cards is worrisome. Monetary policy easing will not avoid the necessary recession and massive financial losses that will be experienced by economies and financial markets regardless of what monetary authorities do now.
This forum was the very first to argue over 17 months ago in August 2006 that this was a solvency crisis - starting with subprime and housing but bound to spread to the entire financial system - and that a recession would be unavoidable by 2007. But arguing now that a harsh medicine of monetary tightening (keeping policy rates on hold or even raising them) is the bitter and painful medicine that markets and investors need to ensure the appropriate fall of asset prices, the appropriate deleveraging of the financial system, and the appropriate and unavoidable losses is – in my view incorrect. That severe fall in asset prices, that deleveraging and reintermediation in the banking system of off-balance sheet and off-banking intermediation, those massive losses in the trillion dollar range will occur regardless of how much monetary policy easing occurs now. What central banks should worry now is the risk of a global recession; and this requires lower policy rates, not temporary monetary injections and stealth reduction in policy rates and manipulation of market rates. The time for fixing the international financial system, reforming regulation and supervision, reducing moral hazard, dealing with the mess of securitization, avoiding another asset bubble will come once the collateral damage to real economies is reduced. You don’t withhold liquidity during a five-alarm fire because of the moral hazard of fire insurance or the collateral damage to a building of excessive use of water.
Thus, I respectfully disagree with the very serious and intelligent arguments made recently by many thoughful analysts (most recently Rogoff today in the FT) that central banks should not ease as this will prevent the necessary adjustment and may cause future bubbles, more moral hazard and future inflation; these are legitimate and sensible concerns but confuse the appropriate policy response in the short run versus the medium term. Those necessary real and financial adjustments will occur regardless of that monetary easing today; and the way to prevent future excesses, bubbles and manias is to eliminate the monetary easing as soon the collateral damage to the real economies is minimized and to introduce appropriate regulation and supervision of a financial system that has run amok.
As Larry Summers put it correctly - by warning about moral hazard fundamentalism - during a crisis you provide effective temporary regulatory forebearance and deal with the short term risks to growth. Using the hammer of tight money and regulatory crackdown to deal with systemic medium long-run excesses risks exacerbating an already severe liquidity and credit crunch whose severity monetary easing can only marginally dampen and risks causing an even more severe recession than the necessary one that will occur even in the presence of a monetary easing. Sophisticated monetary and regulatory policy will provide short-term easing while seriously and expediously redesigning a regulatory framework for the financial system that reduces future excesses and moral hazard.
This was the balanced approach to crisis resolution and prevention that those of us who were involved in the resolution of emerging market crises of the last decade took: provide large liquidity to illiquid but solvent sovereigners/countries, reduce and eventually cut off lending to illiquid and insolvent sovereigners, restructure coercively claims that needed restructuring with creative new approaches to debt restructurings and design a new long-term international financial architecture that would prevent emerging market crises in the first place and resolve them more efficiently if/when they did occur. Designing a more robust international architecture for the long run and minimizing moral hazard was not inconsistent with providing massive short run liquidity to those countries that were illiquid, willing to clean up their act and deserving of such support.
A similar balanced approach to crisis resolution and serious reform of the international financial system is required today.
Fed Minutes: Credit Crunch Hurting Economic GrowthFED MINUTES: CREDIT CRUNCH THREATENED ECONOMIC GROWTHBy ReutersReuters| 02 Jan 2008 | 02:44 PM ET
Members of the Federal Reserve's interest rate setting committee worried last month that a credit crunch could sharply brake economic growth and require big interest rate cuts, minutes of the U.S. central bank's December meeting released Wednesday show.
"Some members noted the risk of an unfavorable feedback loop in which credit market conditions restrained economic growth further, leading to additional tightening of credit;
such an adverse development could require a substantial further easing of policy," the minutes said.
At the same time, members of the Fed's rate-setting Federal Open Market Committee realized that financial market conditions might improve more rapidly than they expected, which would make it appropriate to raise borrowing costs, reversing earlier cuts.
The Fed cut rates by a quarter-percentage point to 4.25 percent at the meeting.
Risks to growth had risen since their last meeting in large part due to deteriorating credit markets, the Fed said.
Even so, the policy-makers weighed the lagged impact of cumulative interest rate cuts, and a strong labor market, which suggested the economy retained some forward momentum. Overnight, interbank borrowing costs stood at 5.25 percent when the Fed began trimming borrowing costs in September.
"Members also recognized that financial market conditions might improve more rapidly than members expected, in which case a reversal of some of the rate cuts might become appropriate," the minutes said.
Earlier Wednesday, an industry report showed that U.S. factory activity contracted in December, ending 10 consecutive months of expansion, with activity falling to its weakest since April 2003.
Meanwhile, construction spending unexpectedly rose 0.1 percent in November despite ongoing
housing market woes that pushed private home building down 2.5 percent -- the sharpest drop in nearly six years, a Commerce Department report showed.
The Institute for Supply Management said its index of national factory activity fell to 47.7 in December from 50.8 in November, below economists' median forecast for a reading of 50.4. A reading below 50 indicates contraction in the sector.
New orders, a gauge of future growth, fell sharply to 45.7 last month -- its lowest since October 2001 -- from 52.6 in November.
The December employment index rose slightly to 48.0 from 47.8 in November, while the ISM prices paid index, which measures inflationary pressures within the factory sector, rose
to 68.0 in December from 67.5.
"It was a severe drop that seems to have been driven by declines in the most important component: orders," said Pierre Ellis, senior economist at Decision Economics in New York.
"Confidence that export- and investment-led growth will help the economy going forward will be weakened considerably by this report," Ellis said.
Economists polled by Reuters expected construction spending in November to fall 0.4 percent. November's increase to a $1.165 trillion seasonally adjusted annual rate came after a revised 0.4 percent decline in October, first estimated as a 0.8 percent decline.
Private home building fell to a $484.9 billion rate in November, the lowest since August 2003. This sector has fallen for 21st consecutive months since a peak in home building in
February 2006.
Despite the housing slump, private non-residential construction rose 1.7 percent to a record annual rate of $375.8 billion.
Public construction, too, rose in November with state and local government building up 2.5 percent while federal construction was up 2.2 percent.
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