It looks like you're using an Ad Blocker.
Please white-list or disable AboveTopSecret.com in your ad-blocking tool.
Some features of ATS will be disabled while you continue to use an ad-blocker.
as Portugal decided to increase spending
Portugal's opposition-led parliament has passed a bill on regional finance, turning down a mooted government austerity plan.
The Socialist government opposed the law, warning it would make it harder to limit Portugal's budget deficit.
The move may further unsettle global financial markets, already concerned about the economies of other European countries such as Greece and Spain.
The specter of sovereign default looms large for world economies in coming years, and the debt tsunami that has engulfed countries from the United States to Dubai poses a threat to recovery
While a near-term rebound is likely, the dollar will ultimately continue to decline because of the fundamental problems in the U.S. economy, said investor Jim Rogers, pointing to the 90 percent drop in the value of the British pound in the 20th century.
By Blaine Harden
Washington Post Foreign Service
Thursday, February 4, 2010
TOKYO -- It's been a humbling few days for Japan.
Toyota, the nation's largest company, announced vehicle recalls on three continents and shut down five assembly plants in the United States, and its president told the world, "We're extremely sorry."
Standard & Poor's threatened to downgrade the Japanese government's credit rating because Prime Minister Yukio Hatoyama is moving too slowly to reduce the debt. (WHAT?)
And China overtook Japan as the world's largest maker of cars, according to an announcement from the Japanese Automobile Manufacturers Association.
The triple whammy of manufacturing and fiscal problems is a harbinger of what Japan faces in the coming years as its listless economy meanders into an era of reckoning and national loss of face.
Within a year, Japan will probably lose to China its longtime status as the world's second-largest economy. It is also expected to descend into the uncharted waters of public indebtedness as government debt swells to double the size of the country's gross domestic product.
Although the alarming headlines grabbed the public's attention, Japan's most fundamental economic ills have not. Like distant melting glaciers, they have not alarmed voters, mobilized politicians or triggered a national emergency response.
"I do think the current situation is quite doomed, but Japan does not yet have a sense of crisis," said Hiroko Ogiwara, an economic commentator and author of popular books that advise housewives on money management.
The building blocks of Japan's future are collapsing, in the view of many economists. Japan has fewer children and more senior citizens as a percentage of its population than any country in recorded history, but the government does little to encourage childbirth or enable immigration.
Even as the working-age population shrinks, only a third of Japanese women stay on in the workforce after having a child, compared with about two-thirds of women in the United States. Government spending on education ranks near the bottom among wealthy countries.
Although the government has been talking for two decades about weaning itself from dependence on exports, Japan's economy remains addicted to exports for growth.
And deflation, the curse of the "Lost Decade" of the 1990s, is back with a paralyzing bite. Prices and wages are falling as aging consumers save their pension checks and wait for still-lower prices.
"It is a slow-motion implosion," said Takatoshi Ito, a professor of economics at the University of Tokyo. "The current direction is clearly unsustainable, and something has to be done. The more delayed the response, the more sacrifices will have to be made. It is not good for future generations."
Expert panels and detailed policy papers have been spelling out an antidote for decades:
-- Raise the consumption tax and control benefits for senior citizens, including pensions and access to health care.
-- Use the money to build day-care centers, improve public education and create a framework of subsidies that reward young people for bearing children and help mothers stay in the workforce.
-- Increase immigration so that by 2050, 10 million residents will be foreign-born.
The problem with these measures is that they are not very popular with voters, especially those older than 65, who make up about 22 percent of the population. These measures are likely to become less popular over time: By 2050, 40 percent of the population is projected to be older than 65.
"We haven't had a crisis big enough to force pensioners to see it is in their own best interest to force politicians to do the right thing," said Robert Feldman, head of economic research at Morgan Stanley in Tokyo.
'Haven't bottomed out'
Feldman and many other analysts say Japan has the capacity to respond to a crisis and to mobilize its human and industrial resources in a highly focused way.
Out of the ashes of World War II, it organized a miracle of manufacturing. After the oil shock of the 1970s, no industrialized country squeezed more affluence out of less imported energy than Japan.
"We are quite strong in times of real peril," Ogiwara said. "But we haven't bottomed out yet."
Japan's public debt is the highest among industrial countries as a percentage of GDP, but it is probably not going to be the problem that sinks the economy. For unlike the United States, which has borrowed heavily from China, Japan borrows almost exclusively from its citizens.
Housewives and pensioners keep much of their money in bank savings accounts. They don't mind ultra-low interest rates and are unlikely to withdraw their money if Standard & Poor's blows a whistle on Japan's sovereign rating .
Japan is not Iceland," said Ito, the economics professor, referring to the country that went bankrupt in fall 2008 when it could not meet foreign-debt obligations.
Ito said that even in the extremely unlikely event that Japan defaults on its debts, "it would not be an international crisis or a currency crisis."
But Ito and other economists also said the interest rates that the Japanese government pays to borrow from its citizens are creeping upward as the pool of Japanese workers and savers drains.
By 2060, Japan will have two retirees for every three workers, a ratio that will dry up savings and could overwhelm pension and health-care systems.
THE world's top central bankers began arriving in Australia yesterday as renewed fears about the strength of the global economic recovery gripped world share markets.
Representatives from 24 central banks and monetary authorities including the US Federal Reserve and European Central Bank landed in Sydney to meet tomorrow at a secret location, the Herald Sun reports.
Organised by the Bank for International Settlements last year, the two-day talks are shrouded in secrecy with high-level security believed to have been invoked by law enforcement agencies.
Speculation that the chairman of the US Federal Reserve, Dr Ben Bernanke, would make an appearance could not be confirmed last night.
The event will be dominated by Asian delegations and is expected to include governors of the Peoples Bank of China, the Bank of Japan and the Reserve Bank of India.
Start of sidebar. Skip to end of sidebar.
Related CoverageShare carnage: Super to suffer End of sidebar. Return to start of sidebar.
The arrival of the high-powered gathering coincided with a fresh meltdown on world sharemarkets, sparked by renewed concerns about global growth and sovereign debt.
Fears countries including Greece, Portugal, Spain and Dubai could default on debt repayments combined with disappointing US jobs data to spook investors.
Australia's ASX 200 slumped 2.4 per cent, to a its lowest close since November 5, echoing a sharp fall on Wall Street.
Asian share markets were also pummelled, with Japan's Nikkei 225 down almost 3 per cent and Hong Kong's Hang Seng slumping 3.3 per cent.
The damage was also being felt by European markets last night with London's FTSE 100 down sagging 1 per cent in early trade.
Sovereign debt fears rippled through to the Australian dollar which was hammered to a four-month low of US86.43 and was trading at US86.77 cents last night.
"This does feel like '08 and '07 all over again whereby we had these sort of little fires pop up and they are supposedly contained but in reality they are not quite contained,'' said H3 Global Advisors chief executive Andrew Kaleel.
"Dubai should have been an isolated incident and now we are seeing issues with Greece, Portugal and Spain.''
It wasn't all bad news with the RBA yesterday upping its Australian growth forecasts and flagging more interest rate rises this year.
The central bank estimates the economy grew 2 per cent in 2009, and will expand by 3.25 per cent in 2010, and by 3.5 per cent in 2011.
The outlook for global growth is likely to be a key theme of the high level central bank talks.
The gathering also comes at an important time for the BIS as it initiates an overhaul of the global banking system which will include new capital rules applying to banks and more stringent standards regulating executive pay.
A key part of the two-day talkfest will be a special meeting of Asian central bankers chaired by the governor of the Central Bank of Malaysia, Dr Zeti Akhtar Aziz.
Influential BIS general manager Jaime Caruana is also expected to take a prominent role in the talks.
Federal Treasurer Wayne Swan will address the central bank officials at a dinner on Monday night.
By Shelley Smith
Feb. 5 (Bloomberg) -- Non-performing loans in China have risen into the “trillions of renminbi” because of poor lending practices, an insolvency lawyer said.
“We work really closely with SASAC, the state-owned enterprise regulator in China, and there are literally trillions and trillions of renminbi of, frankly, defaulting loans already in China that no one is doing anything about,” Neil McDonald, a Hong Kong-based business restructuring and insolvency partner with Lovells LLP, said at an Asia-Pacific Loan Market Association conference yesterday. “At some point there’s going to be a reckoning for that.”
China’s government is tightening controls, including banks’ reserve ratios, to prevent record lending from fueling inflation. The Shanghai office of the China Banking Regulatory Commission warned yesterday that a 10 percent fall in property values would treble the number of delinquent loans in the city. Liu Mingkang, chairman of the CBRC, said Jan. 4 that loans were channeled into stock and property speculation last year, which China has been taking measures to stop. CBRC’s press officer is not immediately available for comment today.
Chinese banks issued a record 9.6 trillion yuan ($1.4 trillion) of new loans last year as part of a 4 trillion yuan stimulus package aimed at bolstering growth through the global financial crisis.
“At some point in China, maybe it will be two, three or five years, but at some point there will be in the property markets and in the markets generally, there will be rationalization of very poor lending practices,” McDonald said during the panel discussion on restructuring and refinancing at the Global Loan Market Summit in Hong Kong.
Bad Loan Ratio
Over the past decade China’s government has spent more than $650 billion bailing out state banks after years of government- directed lending caused bad loans to balloon. The average non- performing loan ratio at Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd. dropped to about 1.6 percent as of Sept. 30 from more than 20 percent before each bank was bailed out, according to earnings reports.
New loans last year helped ignite a Chinese real-estate boom, with prices in 70 cities rising at the fastest pace in 18 months in December.
Should property prices fall 10 percent in Shanghai, China’s second-most-expensive property market, the ratio of delinquent mortgages would almost triple for the city’s banks to 1.18 percent, according to the Shanghai branch of the CBRC yesterday, citing a stress test based on Sept. 30 figures. A 30 percent decline would cause the ratio to jump almost fivefold, the agency said.
Fitch Ratings said Dec. 17 that Chinese banks’ capital strength is probably more “strained” than it appears as lenders use more off-balance sheet transactions to make room for loans.
It was the first time the CBRC announced estimates for how much a property-market slump in Shanghai would hurt banks, underscoring the government’s concern that real-estate speculation may spur bad debts.
The regulator reiterated that banks should monitor property loans more closely and curb lending to developers with weak capital.
The State-Owned Assets Supervision and Administration Commission supervises and manages state-owned assets.
The inevitable coming of the sovereign debt panic finally engulfed Europe this week as the derisively (or perhaps affectionately) named PIGS spilled their slop on the continent. But Portugal, Ireland, Greece, and Spain are hardly worthy of so much attention. In truth, they are little more than the currently favored proxies among the leveraged speculator community (cough) for the larger problem of all sovereign debt. Indeed, the credit default swaps on these smaller European satellite states were not alone this week in making large moves higher. UK sovereign risk rose strongly, and so did US sovereign risk. With a downgrade warning from Moody’s to boot.
Notable among three of the PIGS are their relatively small populations, and small contributions to either world or European GDP. While Spain has a population over 45 million, Portugal and Greece have populations roughly equal to a US state, such as Ohio–at around 10 million. And Ireland? The Emerald Isle has a population similar to Kentucky, at around 4 million. While the PIGS are without question a problem for Europe, whatever problems they present for Brussels are easily matched by the looming headache for Washington that’s coming from large, US states such as California, Florida, Illinois, Ohio, and Michigan.
I’ve identified seven large US states by four criteria that are sure to cause trouble for Washington’s political class at least for the next 3 years, through the 2012 elections. These are states with big populations, very high rates of unemployment, and which have already had to borrow big to pay unemployment claims. In addition, as a kind of Gregor.us kicker, I’ve thrown in a fourth criteria to identify those states that are large net importers of energy. Because the step change to higher energy prices played, and continues to play, such a large role in the developed world’s financial crisis it’s instructive to identify those US states that will struggle for years against the rising tide of higher energy costs.
The seven states to make my list are California, Florida, Illinois, Ohio, Michigan, North Carolina, and New Jersey. Each has a population above 8 million people. Each has had to borrow more than a billion dollars, so far, to pay claims out of their now bankrupt unemployment insurance fund. Also, each state currently registers broad, underemployment above 15% as indicated by the U-6 measure for the States. And finally, each state is a large net importer of either oil, natural gas, electricity, or all three of these energy sources
A lot of people are very upset about the rapidly increasing U.S. national debt these days and they are demanding a solution. What they don't realize is that there simply is not a solution under the current U.S. financial system. It is now mathematically impossible for the U.S. government to pay off the U.S. national debt.
You see, the truth is that the U.S. government now owes more dollars than actually exist. If the U.S. government went out today and took every single penny from every single American bank, business and taxpayer, they still would not be able to pay off the national debt. And if they did that, obviously American society would stop functioning because nobody would have any money to buy or sell anything.
And the U.S. government would still be massively in debt.