From Volume 7, Issue 3 of EIR Online, Published Jan. 15, 2008

Global Economic News

ECB Head Trichet Cites 'Spiraling Risks' of Inflation

Jan. 10 (EIRNS)—At his first press conference this year, Jean-Claude Trichet, governor of the European Central Bank (ECB), issued a call to EU governments, those 15 inside the Eurozone and the other 12 outside, to contain what he termed "spiraling risks" of inflation and to preserve "monetary stability" by not making concessions to labor unions' demands for higher wages. Only vaguely, Trichet described what in reality is a full-blown global financial collapse, with misleading terms like "upside risks" and "downside risks," "protracted inflation," but was very definite on the ECB's antipopulation line: he spoke of a "clear message" to the EU governments not to let down on their budget-cutting "reforms."

Trichet's statement that the ECB was "not neutral," but pro-austerity, and was "fully prepared to intervene" by "preemptive steps," was read as a not-so-veiled threat of new interest rate increases.

An EIR journalist noted that the official inflation rate of 3.1% that Trichet was citing, did not reflect the dynamic of real inflation in everyday crucial consumer goods like food and gasoline, and that because of that dynamic, more and more experts would agree with "American economist LaRouche, who says that we are already at the beginning of a process of hyperinflation." Furthermore, EIR asked, if things turned to the worse during 2008, who would be the lender of last resort? Trichet answered after some seconds of visible irritation, that the ECB was not an institution to take care of "solvency problems," implying that the ECB did not want to be a lender of last resort.

Speculators Bet on Oil Hitting $200 a Barrel by December

Jan. 7 (EIRNS)— The fastest-growing bet in the oil market these days, is that the price of crude will double to $200 a barrel by the end of this year. Options to buy oil for $200 on the New York Mercantile Exchange (Nymex) have risen ten-fold in the past two months, to 5,533 contracts, a record increase for any similar period, according to Bloomberg News. The contracts purchased in early December have appreciated 36% since then, as futures contracts for crude oil reached a record $100.09 per barrel on Jan. 3.

This is obviously pure financial speculation, indicative of the mania dominating the markets. Options, which give speculators the right to buy 1,000 barrels of oil in December, are becoming a favorite for traders even if they don't expect crude to reach $200, simply because it is a cheaper way to speculate. The Nymex options expire, worthless, if crude fails to reach the "strike" price, but can increase in value if the price of oil goes up. According to one analyst, these figures indicate that investors believe the likelihood of crude reaching $125 a barrel in December has almost doubled since Dec. 25, to 18%. There were 500 of the options on Nov. 7.

At work in the background are two opposing views, both based on the "law" of supply and demand. The first says supplies are limited and price will stay high; the other, sees demand slipping as the U.S. goes into a depression. One of the most insane corollaries of this theory, is that, in the words of one trader, "We can't be in a recession, look at the price of oil!"

U.K. Property Market Faces Biggest Collapse in 25 Years

Jan. 7 (EIRNS)—The only thing that kept British commercial property prices up last year is the fact that no one dared to put their assets up for sale, but now LaSalle Investment Management put Condor House, on the market for £130 million ($256 million) six months ago. The building sold last month for about 117 million pounds, 10% below the asking price. According to Bloomberg, appraisal values for commercial property and derivatives contracts fell at a record rate in November, indicating commercial property companies could suffer their biggest annual losses in more than a quarter century.

The U.K. market is falling apart, quotes Peter Hobbs, London-based head of research at RREEF Real Estate, a Deutsche Bank AG said. Britain's £700 billion commercial property market will perform worse in 2008 than in the rest of Europe, the U.S., and Asia, Hobbs said.

Jones Lang LaSalle Inc., the world's second-largest commercial real estate broker, estimates transactions in the U.K. are down 60% during the last quarter of 2007 to about 5 billion pounds.

One major reason for the collapse is that companies are being forced to sell assets because of the withdrawal of funds by investors. Further net outflows could result in funds being forced to liquidate assets, which could potentially spark a selloff in the market, said Sally Collins, a senior advisor at Bestinvest, which counsels British savers with more than £2 billion of investments.

Projects that are already under construction are failing to find tenants, especially as banks and financial companies are laying off thousands of workers. British Land has yet to find tenants for its Ropemaker and Leadenhall Building developments in London's main financial district, which are scheduled to be completed by 2011. The company's shares tumbled 45% in 2007, exceeding the average 39% decline for U.K. real estate stocks.

China Takes Even Stronger Measures Against Inflation

Jan. 10 (EIRNS)—The Chinese government will take more measures to stabilize prices and punish hoarding and speculation of basic commodities, the China Daily reported today. At a meeting of the State Council executive led by Premier Wen Jiabao, it was decided that "prices of gasoline, natural gas and electricity shall not be adjusted in the near future, and charges for gas, water, heating and public transport in cities shall not be raised," a statement said. "Fees for medical treatment shall be stabilized. Prices of major fertilizers, such as carbamide and phosphate fertilizer, shall be kept steady too and can only be raised really because of cost increase and after being approved by the regulator."

On a temporary basis, the government will intervene in setting prices of daily necessities, in line with the Price Law.

All large-scale producers of key consumer products must get government approval before imposing any price increases, as will large-scale wholesalers and retailers that want to raise prices. The Price Law allows the State Council to temporarily freeze prices or centralize the price-setting power on part of or the whole market if the prices undergo strong fluctuations.

Cheng Guoqiang, deputy director of the Market Economy Institute, with the Development and Research Center of the State Council, said that the measures were taken after key government meetings held last year set the tone of "preventing economic growth from evolving from rapid to overheating and preventing price hike shifts from going from structural to inflationary."

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