Iran Clarifies Leader’s Remark On Gays President Mahmoud Ahmadinejad of Iran was misrepresented by Western news media when he was quoted saying there were no homosexuals in Iran, an aide said Wednesday.... Read Full Article World Briefing | Europe: France: No Blessing For Carry-On Holy Water Inspectors at Tarbes-Lourdes-Pyrénées Airport barred passengers on a new Vatican-backed chartered flight to the shrine at Lourdes from returning to Rome with carry-on holy water.... Read Full Article Harvard Honours Successful Drop Out Bill Gates, who quit Harvard before going on to become the world’s richest person, his honoured by alma mater.... Read Full Article Iron Chiefs In London Cook-off BHP and Rio Tinto chiefs seek to secure support for their opposing positions in what has become a $400 billion merger stand-off.... Read Full Article World Briefing | Americas: Argentina: Huge March For Kirchner Tens of thousands of Argentines marched in downtown Buenos Aires in support of President Cristina Fernández de Kirchner as she confronted a 20-day farm strike.... Read Full Article |
Booms NewsWhat’s credit got to do with the price of rice?Now that the Bank of England has got off its high horse and decided to support British banks in much the same way that the European Central Bank has been supporting Spanish and German banks since last August, governments around the world are finally committed to publicly funded financial workouts. This is the “Plan B” that I have described here – the inevitable next stage in the credit crunch, once it became apparent that a market-based solution was doomed to fail. Now that Plan B has swung fully into action, global credit conditions should gradually return to normal in the months ahead. The bad news is that “normal” does not mean anything like the conditions that have prevailed in the world financial system and the global economy during the past few years.<br/> <br/> Three lasting changes in the world economy are likely to result from the credit crunch. First, the US economy, which should start to recover this summer in response to fiscal and monetary stimulus, will no longer be powered by housing and consumption, but mainly by exports and manufacturing. Secondly, the British and European economies, which are 12 to 18 months behind the US in a broadly similar monetary cycle, will only now begin to experience an economic slowdown and housing slump as serious as the one that has almost ended in the US. So, while the credit crunch may be in its final stages globally, its economic impact will probably be far more noticeable from now on in Britain and Europe than in the United States.<br/> <br/> Thirdly, the emerging economies of Asia and other developing regions will no longer enjoy export-led growth as consumption in America and Europe becomes structurally weaker. If the developing countries are to continue growing rapidly – and I believe that they will – they must rely on domestic consumption, infrastructure investment and their own home-grown property booms.<br/> <br/> These three fundamental shifts in the world economy are by now widely recognised. There is, however, another apparent consequence of the credit crunch that is less understood and is causing consternation and anxiety, especially in China and other developing countries. This is the upsurge in oil, food and commodity prices, many of which have almost doubled since the credit crunch began last August, even though the causal linkage between soaring commodity prices and a collapsing supply of credit remains obscure. If anything, the credit-induced slowdown in global economic growth and consumption since last August should have weakened demand for commodities and therefore pushed down prices. Yet the reality is that commodity prices have recently leapt higher every time the global banking system was hit by some new shock.<br/> <br/> As a result, China and other emerging countries, which last year were preparing to boost domestic consumption to compensate for weaker exports to the US, are now more worried about inflation and are raising interest rates to try to slow their domestic growth. This is potentially a very dangerous development for the world economy, which increasingly relies on domestic demand from Asia, the Middle East and Russia. This unexpected policy tightening by emerging nations also explains why stock markets fell far harder in Asia than in America and Europe in the first quarter of this year.<br/> <br/> Why, then, has a global collapse in credit created a boom in commodity demand? The short answer is that nobody knows. A common explanation in the media is that soaring commodity prices reflect a global panic about inflation, as the Federal Reserve Board supports the US banking system by printing money and slashing interest rates.<br/> <br/> This explanation does not pass muster for at least three reasons. First, because US inflationary pressures are already subsiding as a result of the credit crunch and the associated fall in house prices and employment. Secondly, because the ECB and the Bank of England show no sign of imitating the Fed’s expansionary monetary policies, yet commodity prices are soaring in sterling and euros as well as dollars. Thirdly, because the commodities rising fastest – such as rice, wheat and pork – cannot be used as long-term stores of value and so must reflect the balance of supply and demand for instant use, rather than fears about loose monetary policy and its possible effects on inflation many years ahead.<br/> <br/> What, then, has suddenly boosted demand for agricultural commodities and how might this be related to the credit crunch? A possible explanation is that the rise in prices itself has triggered a self-sustaining upward spiral of demand, in which investors, wholesalers and final consumers want to buy more of a commodity each time its price rises and this leads to more hoarding and still higher prices. Such self-sustaining price trends are normally rapidly reversed because value-oriented investors and commodity producers start to trade against the trend, selling more each time the price rises. In present conditions, however, it is harder than usual for speculators to trade against the rising price trend, because bank lending has dried up. Several American grain wholesalers, for example, have been pushed towards bankruptcy because they have sold futures against grain supplies they bought in advance from US farmers and have then been unable to finance these temporary “short positions” until the next harvest comes along.<br/> <br/> By draining liquidity in this way from all financial markets, the credit crunch has exacerbated trend-following behaviour among investors, promoted stockpiling throughout the global supply chain and encouraged hoarding by consumers. This financially driven process, rather than a sudden increase in Chinese and Indian appetites, has probably been the main cause of this year’s shortfall in global food supplies.<br/> <br/> Similar influences may explain other surprising linkages that have suddenly emerged between financial markets. Since the credit crunch’s start, commodity prices have developed an uncanny correlation with the euro/dollar exchange rate (see chart) and this currency trend, in turn, has been powerfully correlated to two other momentum-driven trends – the collapse in US Treasury bond yields and the widening of credit spreads.<br/> <br/> If all these trends are driven ultimately by lack of liquidity in global financial markets, they are all likely to turn at about the same time, or in a fairly tight sequence - and this process may now be starting. The trend in credit spreads began to reverse in mid-March after the Bear Stearns rescue – and last week, more or less on cue, the predominant direction of the US bond market seemed to switch from lower to higher bond yields. If this rise in US bond yields proves sustainable, the overwhelming currency momentum against the dollar and in favour of the euro may also start to reverse. If that reversal occurs, the trend in commodities should soon follow and the panic about inflation in China and other emerging economies should start to subside. At that point, we will finally be able to say that the worst of the global credit crunch is over.Read Full Article Credit crisis: the cracks are opening in UK’s debt mountainSince at least the turn of the century, the twin booms in the housing market and the high street have seen Britain’s seemingly unstoppable army of consumers spending with abandon. In a “What the hell?” culture of “Buy today and worry tomorrow” that has gripped the nation, households have run up mountainous debts that now total £1.4 trillion.Read Full Article With a Whisper, Cuba’s Housing Market BoomsNearly all of Havana is owned by the state, but its residents are as obsessed with real estate as New Yorkers.Read Full Article Why the MPC can’t sit still on interest ratesPeriods of economic expansion tend to be slower, shallower and more elongated than people forecast. Periods of economic contraction are generally quicker, steeper and shorter than they expect. As the Monetary Policy Committee prepares to meet tomorrow to consider one of its most difficult decisions in years, this simple observation - made by Alan Greenspan after 20 years chairing the US Federal Reserve - provides a good guide to the setting of interest rates. Policy should match the differing characters of booms and busts: to manage the good times, rate rises are necessarily small, slow and steady; and to deal with a slowdown, cuts need to be early, sizeable and in quick succession.Read Full Article Buy-to-let booms as market slidesHomeowners are piling into buy-to-let properties despite wider signs of a slowdown in the mortgage market amid rising interest rates, according to two sets of figures published today.Read Full Article External News for: boomsBusiness booms during NCAA hoops - Buffalo Business FirstBusiness booms during NCAA hoopsBuffalo Business FirstOwning a bar/restaurant one block away from HSBC Arena helped. So did owning another in Allentown. Both were busier than usual between Thursday and Sunday ...and more »Business booms during NCAA hoops - Buffalo Business FirstBusiness booms during NCAA hoopsBuffalo Business FirstOwning a bar/restaurant one block away from HSBC Arena helped. So did owning another in Allentown. Both were busier than usual between Thursday and Sunday ...and more »Sonic booms don't water the desert - In-ForumSonic booms don't water the desertIn-ForumRegarding the letter written by Milo Buchholz in the March 15 Forum: He claims that the sonic booms caused by the space shuttle launch and return will cause ...Business booms during NCAA hoops - Buffalo Business FirstBusiness booms during NCAA hoopsBuffalo Business FirstOwning a bar/restaurant one block away from HSBC Arena helped. So did owning another in Allentown. Both were busier than usual between Thursday and Sunday ...and more »Sonic booms don't water the desert - In-ForumSonic booms don't water the desertIn-ForumRegarding the letter written by Milo Buchholz in the March 15 Forum: He claims that the sonic booms caused by the space shuttle launch and return will cause ...WA mining towns dominate property boom - Stock and LandWA mining towns dominate property boomStock and Land"In the regional areas we are generally seeing stronger price growth during the last 10 years thanks to mining and resource booms, and the fact that their ... |
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