World Economic News
'First Run on a British Bank Since 1866'
Sept. 19 (EIRNS)"These are historic times," says Martin Wolf in an op-ed in today's Financial Times, amidst general debate in that paper as to whether the Bank of England should not have been more liberal in its refinancing of mortgage-backed debt, supposedly to avoid such bankruptcies.
"Financial panic has hit both the public and the politicians of the U.K. over the past week, to deliver two remarkable results," says Wolf, adding, "The first run on a British bank since the collapse of Overend and Gurney in 1866; and the transformation of bank deposits into public debt at the stroke of a pen." Wolf claims it was necessary for the Bank of England to guarantee the deposits of Northern Rock, citing the danger of "contagion" as the main reason. "On Monday [Sept. 17], the shares of institutions dedicated to lending for house purchases collapsed. Northern Rock may not have been a systemically important institution. But its implosion became a systemically important event."
China: U.S. Rate Cuts Will Encourage Carry Trade
Sept. 22 (EIRNS)People's Bank of China Governor Zhou Xiaochuan, speaking Sept. 21 at the Asian Financial Forum in Hong Kong, said that China is concerned about the widening gap between Chinese interest rates and those in the U.S., due to increasing Chinese interest rates, and the Fed's cut last week. This gap has "not much affected China's currency policy," partly because the RMB is not fully convertible, Zhou said. China will nevertheless monitor changes related to the U.S. interest rates, he said, according to Xinhua, since the rate gap will encourage arbitrage and carry trades, bringing more hot money into China.
German Daily: 'A Dollar Disaster on the Horizon'
Sept. 21 (EIRNS)Bernd Ziesemer, chief editor of the German economic daily Handelsblatt, posted a short article with that headline on Sept. 21 on his blog. He writes: "Sometime in the future, the big dollar collapse is coming. Many authoritative economists have forecast it for a long time." People should not be deceived by the fact that the U.S. currency, so far, has "slowly, undramatically depreciated. If a dollar disaster occurs, the current subprime crisis will be peanuts in comparison."
EIR's Claudio Celani posted a comment: "Mr. Ziesemer, if central banks go on with their policy, a dollar collapse is as guaranteed as the Amen in the Church. Read what Lyndon LaRouche has to say on that." Celani gave the link to LaRouche's opening speech at the Sept. 15 Kiedrich conference (see InDepth for LaRouche's speech.)
A few hours later, six more readers posted their comments, convinced of the imminence of a dollar collapse. One agreed with LaRouche's estimate of the situation and asked: "What kind of society do we want to rebuild, after this one has collapsed?"
Are We Prepared for the Next Big Crisis, Darling?
Sept. 22 (EIRNS)In an interview Sept. 22 with the Times of London, British Chancellor of the Exchequer Alistair Darling offered a proposal which would potentially triple the British government's insurance of depositors' deposits from approximately 33,000 pounds ($66,000) to 100,000 pounds ($200,000). The change in depositors' insurance would be applied to all banks in the British banking system, not just the troubled Northern Rock home-mortgage lender. This indicates that Darling, and others in British policy elites, are concerned about, and trying to prepare for, the next phase of the spreading British and international crisis that goes far beyond Northern Rock.
The existing British Financial Services Authority (FSA) insures 100% on the first 2,000 pounds that a depositor holds on deposit at a bank, and 90% on the next 31,000. That amount would be increased up to 100,000, Darling told the Times. Darling also proposed changes to the Bank of England's lender-of-last-resort system, so that a failing institution would have quicker access toand would not have a stigma attached toobtaining a bailout loan from the Bank of England. Darling will unveil the full proposals in testimony before parliament next month.
John McFall, chairman of Britain's parliamentary committee that scrutinizes Darling and the Treasury, told BBC today, "We need people to feel reassured that if something happens, they can get their money almost immediately." In wheelbarrows, perhaps?
China Moves Against Inflation; Limits Biofuels
Sep. 22 (EIRNS)China is taking more emergency measures to deal with inflation, including the stabilization of food prices before the upcoming Autumn holiday and National Day, Xinhua reported. The use of corn for biofuel production will be subject to more controls, to ensure adequate grain supplies. China has capped the proportion of corn for industrial use at 26% until 2010, according to Xinhua. "Our land has already been worn out to feed 1.3 billion people," said Zhai Huqu, president of the Chinese Academy of Agricultural Sciences, warning that reliance on the mass consumption of corn for energy would also lead to environmental problems.
China is also considering steps to curb steel exports, including putting restrictions on steel projects in the processing sector. Export rebates for many steel products had been lowered to zero, while tariffs for some steel products have risen to 15%.
European Union Plays Economic Dictator to Spain and Italy
Sept. 22 (EIRNS)European Union anti-trust authorities warned Spain and Italy yesterday that they faced legal actions and fines for protecting their utilities and highway companies, respectively, from foreign bids, according to the Financial Times.
The EU accused Spain of violating its laws by imposing conditions on a bid by Enel and Acciona for joint control of Endesa, Spain's largest power company. The EU also ordered Italy to remove obstacles to a takeover of highway operator Atlantia by Abertis Infraestructures of Spain, and is threatening to punish Italy if it does not change its national law on takeovers to conform to EU dictates by Oct. 1.
Under EU rules, the commission has exclusive authority to review large takeovers in 27 member-nations.
Russia To Invest $1 Trillion in Infrastructure by 2020
Sept. 20 (EIRNS)Russia must invest at least $1 trillion into its infrastructure by 2020, acting Russian Economic Development and Trade Minister German Gref announced today in Sochi, on the eve of the Sochi Investment Forum. The forum theme is "Russia on the Threshold of Large-Scale Investments in Infrastructure," with special focus on Sochi itself, in preparation for the 2014 Olympic Games, and the Pacific port of Vladivostok, which may host the 2012 APEC summit. Discussion will focus on investment in transport, energy, telecommunications infrastructure, and Russian agriculture. RosBusiness reports that President Vladimir Putin is expected to meet with Russian and foreign business leaders at the meeting, and the "midterm risks for the world financial system" will be on the agenda, as well as state and private financing of state projects.
Sinking Brits Seek To Take Spanish Down With Them
Sept. 18 (EIRNS)Shares in Spanish banks collapsed yesterday after Adam Applegarth, chief executive of the sinking Northern Rock mortgage bank, told the media that three Spanish banks had sought European Central Bank help last week. This was enough for investors to cash out their holdings in most of the leading banks, since it is widely known that the huge Spanish real state bubble is already losing air very rapidly.
Despite statements from Spanish Finance Minister Pedro Solbes saying, "There are no parallels between what happened in the UK and the situation here," everyone knew this crisis was coming. Already last week Banco Popular cancelled the placement of 2 billion euros worth of mortgage-backed securities because they know there would be no buyers. Ahorro Titulizacion, an investment vehicle belonging to several Spanish banks, also canceled a securitization issue because the selling of debt as assets has collapsed.