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US Economy in CRISIS! (pg. 27)
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| exstasie |
| quote: | Originally posted by jon jon
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Pshh...
not even close :P
" A Depression is considered a rare but extreme form of recession, a depression is characterized by abnormal increases in unemployment (√), restriction of credit ( √), shrinking output and investment (√), numerous bankruptcies (√), reduced amounts of trade and commerce (√), as well as highly volatile relative currency value fluctuations , mostly devaluations (√). Price deflation or hyperinflation are also common elements of a depression."
Oh wait...
:(
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| Gypsy |
My prof went on a rant about The Baltic Dry Index today and effectively scared the out of everyone. We are so ed.
Massive Decline In Shipping Threatens Maritime Jobs
www.independent.co.uk/news/business...ine-995066.html
The Independent 6 November 2008
Shipping: Holed beneath the waterline
The staggering and sudden decline in the cost of chartering a cargo ship reflects both the global economic slowdown and the ongoing credit crunch. Sarah Arnott reports
Hold on to your hat: the Baltic Dry Index was down at 826 points yesterday, a shattering [93%] drop from its high of 11,793 in May.
The index, which tracks the price of shipping bulk cargo, might not sound like a reason to choke on your cornflakes. But it is an unparalleled, if subtle, barometer of the global trade in economic building blocks like iron ore, coal and grain - and it is telling a worrying tale.
Put simply, the cost of shipping has dropped through the floor. Sending a tonne of iron ore from Brazil to China in early June would have set you back more than $100 (£62) per tonne, or around $15m per voyage. But freight rates have now dropped to only slightly over $10 per tonne, or just $1.5m for the 70-90 day journey.
As if that wasn't dramatic enough, the drop in daily charter rates is even sharper. At the peak of the market, a 170,000-tonne Capesize bulk carrier was hired out at the eye-watering daily rate of $234,000. At the beginning of this week, it was $5,611 - a fall of nearly 98 per cent.
Peter Kerr-Dineen, chairman of Howe Robinson shipbrokers, said: "The scale of change in rate is utterly staggering - the market has come down from super-boom territory to pretty close to bust, effectively in two months."
Contracting demand for imports in recession-wary economies across the world is a factor, as are steadily falling commodity prices and the mechanics of supply and demand in the shipping industry itself. But the real trouble is less obvious, largely unprecedented, and potentially devastating.
The wheels of international shipping are greased with "letters of credit" issued to buyers of bulk cargo by their banks. These guarantee the value of the shipment once it is in transit but before it is delivered. The problem is that the credit crunch, with the resulting liquidity problems in the international banking sector, is taking its toll on the availability of these entirely routine instruments. "We have the hugely worrying and unprecedented development where there are perfectly credit-worthy shippers and receivers unable to open perfectly standard letters of credit," Mr Kerr-Dineen said.
Cargos are sitting on docksides because the finance is not available to ship them, with the gravest implications for the future. "This is a nuclear bomb in the freight market, and in world trade," Mr Kerr-Dineen said. "Liquidity has to return because if there is insufficient money to provide standard finance, world trade will be sharply cut back and economic growth will implode."
This comes at the worst possible time, on top of a string of other adjustments already affecting the shipping market. After an unparalleled boom over the last five years - fuelled in large part by rocketing Chinese demand - it was to be expected that the overheated market would cool. And in the shipping industry itself, the number of vessels started to catch up with demand. Meanwhile ballooning commodity prices were being undercut as additional supply, fuelled by the high prices, started to come on stream.
Against such a background, more recent concerns over the economic slowdown in both the East and the West have pushed users of commodities to run down their existing stocks, rather than buy in new supplies at what are still relatively inflated prices.
These are all to some extent predictable economic adjustments, but a more sinister effect has been that de-stocking is masking the shortages caused by the dearth of credit. Mr Kerr-Dineen says there are around three months left before stocks run out.
"If the problem is not resolved, there will be no way in which even the sharply revised economic growth forecasts for 2009 will be met, because without normal trade economies cannot function. Ultimately, flour mills will run out of wheat and power stations will run out of coal," he said.
So far, the most significant problems have been confined to the bulk-commodities trade. Manufactured goods have been less affected because there is less reliance on letters of credit, said a source in a large container shipping company. Large shippers like Walmart or Nike do not need the letters because they are, in effect, sending to themselves. And even where trade is between companies, long-standing commercial relationships leave a lot more to trust than in the more volatile commodities market.
But firms using containers to ship bulk products such as bananas, meat or fish are feeling the pinch. "We are certainly seeing unusual delays in issuance of letters of credit for commodity trades," the source said.
Banks are charging more to issue the letters, and nervous traders are requiring guarantees, where historically trust might have been enough.
Jeremy Penn, chief executive of the Baltic Exchange which runs the Baltic Dry Index, said: "Sentiment is also a key driver and has gone completely into reverse. People are also waiting for prices to fall further. There is no incentive to do today what they think will be cheaper tomorrow."
George Cambanis, head of global shipping at Deloitte, said: "Everybody can still hold their breath for the time being, but it is anybody's guess how long it will take for money to start circulating again."
He added: "Trading has virtually come to a standstill, because there is no cargo for the ships. There has also been no trading of vessels in the last few weeks, so there is no market value out there for companies' capital investment in their ships."
No longer oiling the wheels
Freight cargo is not the only piece of the global economic infrastructure being hit by the on-going constriction of credit. Companies looking for forward hedging are also struggling to find banks willing to put up the cash.
Earlier this week, Michael O'Leary, the chief executive of Ryanair, admitted that his plans to hedge 2009's fuel requirements went awry because banks were not willing or able to take the risk. "We were originally planning to hedge about 50 per cent of our needs for the next 12 months but we just couldn't get there," he said. "Banks in hedging are withdrawing and fuel companies don't trust the banks as counter party risk."
The budget carrier was stung by soaring oil prices that reached $147 per barrel in July and more than doubled the airline's fuel bill, from $393m (£318m) to $789m (£638m) in the first six months of the year. |
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| MarkT |
I like the pic, lol.
seriously though, I don't understand why so many are hung up on whether or not we are (or will be) in a recession, as if crossing some ill-defined line means anything. All it generally means is consecutive quarters of negative growth (which is not even a unanimously accepted definition), but it fails to capture the severity and duration of the economic climate. so who cares?
e.g. what would you prefer: a few quarters of slight, negative growth (a 'recession') followed by a recovery...or a dozen quarters of nil or marginal growth (not a 'recession')? clearly the latter is going to have a far more severe impact, yet wouldn't qualify as a recession under the general definition.
granted that consumer confidence/market sentiment is impacted by terms thrown around in the media (since the media blows everything out of proportion) so it's not irrelevant, but... |
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| rabbitjoker |
| quote: | Originally posted by Engine9
now us economy is weak, while ours is still ok but somehow our dollar is more then 10 cents less then the american one.. but as Yohan said its probably because our govt and banks are trying to keep it low so that our exports dont suffer and keep our economy going..
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It has nothing to do with the gov't and banks controlling dollar valuation. It has everything to do with demand for Canadian currency.
Bottom line: Canada has a petro-dollar.
When oil is $140 per barrel, if foreigners want to buy the IO, they have buy Canadian dollars first. Demand for the dollar is high; value of the dollar is high.
When oil is $60 per barrel, lower currency demand, lower currency value. |
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| Skipper |
I must admit, these days of mass capitulation had me encouraged we were finding a bottom, but they just won't stop! The news is getting worse every day. I thought it might relax now that Q3 earnings season is over, but we've got the banks all reporting now, which is making things worse.
What could be different about this recession is that it's what's known as a "balance sheet recession", which is when businesses are focused on debt reduction, not profit maximization. Consumers get nervous about debt too, and normal central bank moves don't have the intended effect. Money pumped into the economy just gets put towards debt repayment - which is why the $100billion pumped into the US economy earlier this year didn't have much effect. Another sign of a balance sheet recession is when the domestic savings rate jumps unexpectedly, as it recently did in the US. Balance sheet recessions can last years - Japan's lasted for 15.
Personally, I think the correction happening to the American consumer's net worth is long overdue. The world economy has been buoyed by spending on credit for years, and the bubble had to burst. But it's going to be ugly, and I have doubts as to whether the level of spending will ever be fully restored - how could it, unless americans dip back into credit? Maybe other nations get richer and we see demand from them, but I think it will be a long time before you see americans spending the way they have been leading up to this nightmare.
It's frightening to have just started working in the capital markets as this mess began to snowball, but I really feel like I'm watching history almost every day at this point. |
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| Tunnel Rat |
| quote: | Originally posted by Skipper
I must admit, these days of mass capitulation had me encouraged we were finding a bottom, but they just won't stop! The news is getting worse every day. I thought it might relax now that Q3 earnings season is over, but we've got the banks all reporting now, which is making things worse.
What could be different about this recession is that it's what's known as a "balance sheet recession", which is when businesses are focused on debt reduction, not profit maximization. Consumers get nervous about debt too, and normal central bank moves don't have the intended effect. Money pumped into the economy just gets put towards debt repayment - which is why the $100billion pumped into the US economy earlier this year didn't have much effect. Another sign of a balance sheet recession is when the domestic savings rate jumps unexpectedly, as it recently did in the US. Balance sheet recessions can last years - Japan's lasted for 15.
Personally, I think the correction happening to the American consumer's net worth is long overdue. The world economy has been buoyed by spending on credit for years, and the bubble had to burst. But it's going to be ugly, and I have doubts as to whether the level of spending will ever be fully restored - how could it, unless americans dip back into credit? Maybe other nations get richer and we see demand from them, but I think it will be a long time before you see americans spending the way they have been leading up to this nightmare.
It's frightening to have just started working in the capital markets as this mess began to snowball, but I really feel like I'm watching history almost every day at this point. |
Never count out the Americans (as much as I hate to say that)....I really think Americans are going to rally for a big change and big comeback eventually (and we'll follow, being so reliant on them financially). I speak to Americans everyday, and they all feel such excitement about Obama. He's like George Bush after the 9-11 attacks - before anyone knew anything. The entire world was behind him to lead (Bush as an avenger, Obama as a futurist). And the world seems keen on Obama running the White House so far.
And a big sign of changes to come is the hesitancy to bailout the Big 3. The sentiment seems to be anti unions/failing companies, and I could see America becoming a leader in new energies (our vast natural potential as a source of that is where Canada fits in nicely). The Big 3 might shrink to 2, but they can streamline and do more research rather than mass production with unions running that show.
I'd venture a guess that talk about a common North American currency might start up more heavily again too. We are experiencing the best example of a global economy we've ever seen, and a unified dollar to counter the Euro and other upcoming currencies will allow us to be more competitive.
I ain't no economist, but it's safe to say the "bling bling" lifestyle is gone for a while. |
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| Skipper |
| quote: | Originally posted by Tunnel Rat
Never count out the Americans (as much as I hate to say that)....I really think Americans are going to rally for a big change and big comeback eventually (and we'll follow, being so reliant on them financially). I speak to Americans everyday, and they all feel such excitement about Obama. He's like George Bush after the 9-11 attacks - before anyone knew anything. The entire world was behind him to lead (Bush as an avenger, Obama as a futurist). And the world seems keen on Obama running the White House so far.
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I don't understand what Obama has to do with spending on credit?
What I'm saying is that I don't think it will be anytime soon that Americans return to spending levels seen previously, and that will cause a really prolonged recovery, considering American consumption drives a good portion of global economic activity. |
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| exstasie |
| quote: | Originally posted by Skipper
I don't understand what Obama has to do with spending on credit?
What I'm saying is that I don't think it will be anytime soon that Americans return to spending levels seen previously, and that will cause a really prolonged recovery, considering American consumption drives a good portion of global economic activity. |
If Obama says spend...
The people will spend! :D
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| SniFFleS |
| quote: | Originally posted by Tunnel Rat
Never count out the Americans (as much as I hate to say that)....I really think Americans are going to rally for a big change and big comeback eventually (and we'll follow, being so reliant on them financially). I speak to Americans everyday, and they all feel such excitement about Obama. He's like George Bush after the 9-11 attacks - before anyone knew anything. The entire world was behind him to lead (Bush as an avenger, Obama as a futurist). And the world seems keen on Obama running the White House so far.
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Ya and that whole war on terror turned out awesome for them and so did Bush.
Obama is more of the same, he wants to print money and spend and put fuel on the fire. Americans themselves don't have any savings and the banks don't wanna give any more debt. The American government has no savings they are in severe debt and countries like Japan and China are going to stop buying American bonds. When this happens which is already starting too, the US won't even have enough to fund there outstanding interest on there debt.
Best idea is to shirt USD and wait because when people stop buying USD to cover there margin calls USD will drop. |
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| spolitta |
| Yeah, Wait until the dollar collapses :tongue3 |
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| jchung52 |
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| Yohan |
^Except Chinese runs on surplus export dollars with the Yanks.
No surplus means less spending on People's Liberation Army. That's gotta piss off some commies ;) |
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