On the rise of sovereign wealth funds, there are two sources of expert opinion that should be automatically discounted: government officials and bankers. No politician or bureaucrat is going to stand up and declare that government-controlled pools of cash -- the stuff that politicians and bureaucrats thrive on -- are a bad thing. All we need to do in the face of the rise of SWFs, they say, is impose a little more transparency and a few "commercial" rules. "They must maintain high standards of international integrity," Finance Minister Jim Flaherty said in a waffling speech earlier this week.
And certainly no bankers are going to shut their doors when some gazillion-asset wealth manager from the Kingdom of Kash comes looking for a place to park another batch of nationalized billions seized from citizens and corporations -- often through cartel operations --all over the world. If the Kuwait Investment Authority wants to deposit US$1-billion into the balance sheet of Citigroup, nobody at Citigroup is going to raise objections on the grounds that the KIA is a relic of forms of state control and confiscation that freedom-loving people fought wars and revolutions to overthrow. God bless the Kingdom of Kuwait!
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Friday, February 1, 2008
Russia Creates a $32 Billion Sovereign Wealth Fund
Russia has split its oil proceeds into two funds and cleared the way for one to invest in foreign stocks and bonds, officials said Thursday. But actual investments are not expected to begin until fall at the earliest.
The move sets up an investment pool with $32 billion, rivaling big American hedge funds and offering another sign of the dizzying wealth these days of oil-producing countries like Russia.
Officials here are already moving to address possible concerns from regulators in the United States and Europe about a government entity investing on the stock exchanges with such large resources.
A deputy finance minister, Dmitry V. Pankin, offered assurances in an interview Thursday that the new fund would serve purely economic goals. “What are they worried about, foreign investment coming to their country?” Mr. Pankin said of critics in Western countries. “They should not worry, they should hope.”
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The move sets up an investment pool with $32 billion, rivaling big American hedge funds and offering another sign of the dizzying wealth these days of oil-producing countries like Russia.
Officials here are already moving to address possible concerns from regulators in the United States and Europe about a government entity investing on the stock exchanges with such large resources.
A deputy finance minister, Dmitry V. Pankin, offered assurances in an interview Thursday that the new fund would serve purely economic goals. “What are they worried about, foreign investment coming to their country?” Mr. Pankin said of critics in Western countries. “They should not worry, they should hope.”
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New $20B subprime bailout on the table
Senator Chris Dodd proposes setting up a fund that would buy defaulting subprime mortgages and restructure loans for borrowers.
A proposal to bail out subprime mortgage borrowers who are at risk of foreclosure was floated at a Senate Banking Committee hearing Thursday.
Senator Chris Dodd, the committee chair, said he is working to create a Home Ownership Preservation Corporation, which would purchase mortgage securities that are backed by at-risk, subprime loans from lenders and investors.
This corporation would give these lenders and investors a better price for the securities than they would get if the properties backing them were put through foreclosure.
Additionally the loans on these properties would be restructured so that borrowers could afford the new payments and remain in their homes.
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A proposal to bail out subprime mortgage borrowers who are at risk of foreclosure was floated at a Senate Banking Committee hearing Thursday.
Senator Chris Dodd, the committee chair, said he is working to create a Home Ownership Preservation Corporation, which would purchase mortgage securities that are backed by at-risk, subprime loans from lenders and investors.
This corporation would give these lenders and investors a better price for the securities than they would get if the properties backing them were put through foreclosure.
Additionally the loans on these properties would be restructured so that borrowers could afford the new payments and remain in their homes.
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US economy loses 17,000 jobs in January
The US economy suffered 17,000 job losses in January marking the first monthly losses since 2003, a government snapshot showed Friday in a fresh sign of brewing economic trouble.
The surprise loss in nonfarm payrolls caught most economists off guard as many had predicted that employment growth would continue in January.
Economists had anticipated that the world's biggest economy would create 70,000 new jobs in January, but the Labor Department said payrolls fell for the first time since August 2003.
"We should expect to see more bad news on the labor market, at least through the middle of the year, before the heavy doses of monetary and fiscal stimulus begin to kick in," said Nigel Gault, an economist at Global Insight.
The government revised December's job growth significantly higher to show 82,000 new posts were created compared with an initial estimate of 18,000 positions.
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The surprise loss in nonfarm payrolls caught most economists off guard as many had predicted that employment growth would continue in January.
Economists had anticipated that the world's biggest economy would create 70,000 new jobs in January, but the Labor Department said payrolls fell for the first time since August 2003.
"We should expect to see more bad news on the labor market, at least through the middle of the year, before the heavy doses of monetary and fiscal stimulus begin to kick in," said Nigel Gault, an economist at Global Insight.
The government revised December's job growth significantly higher to show 82,000 new posts were created compared with an initial estimate of 18,000 positions.
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IMF gets gloomier on the US economy
The International Monetary Fund, the world's leading economic watchdog, warned that the risks to global economy remain on the downside as it reduced its growth forecast for the second time in less than six months.
In an unscheduled update to its semi-annual World Economic Outlook which was issued in October, the IMF said it now expects global GDP to reach 4.1pc this year rather than its initial forecast of 4.4pc, and some way down on the 4.9pc achieved last year.
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"The overall balance of risks to the global growth outlook is still tilted to the downside," the IMF noted. "The financial market strains originating in the US sub-prime sector have intensified, while the recent steep sell-off in global equity markets was symptomatic of rising uncertainty," it continued.
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In an unscheduled update to its semi-annual World Economic Outlook which was issued in October, the IMF said it now expects global GDP to reach 4.1pc this year rather than its initial forecast of 4.4pc, and some way down on the 4.9pc achieved last year.
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"The overall balance of risks to the global growth outlook is still tilted to the downside," the IMF noted. "The financial market strains originating in the US sub-prime sector have intensified, while the recent steep sell-off in global equity markets was symptomatic of rising uncertainty," it continued.
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Who cares for the dollar? Not the Fed, surely!
Central bankers, economists and analysts are an anxious lot. As stock markets across continents are inexorably linked to the US Fed, they realise that the move to cut interest rates has far reaching implications. They know for sure that to save the United States' financial sector as a whole from complete collapse, the Fed has taken a huge gamble, especially on the dollar.
This could, in turn, have a debilitating impact on the US financial sector, American economy and by extension on the global economy, as talked about in the previous part of this column.
But as global markets debate the rate cut move, the US Fed -- the author of the move itself -- goes virtually un-scrutinised and unquestioned, in and outside the US. Crucially, the approach of the Fed to savings, investments, stock markets and the symbiotic link provided to all these is central to understanding its motives and what drives its decisions.
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This could, in turn, have a debilitating impact on the US financial sector, American economy and by extension on the global economy, as talked about in the previous part of this column.
But as global markets debate the rate cut move, the US Fed -- the author of the move itself -- goes virtually un-scrutinised and unquestioned, in and outside the US. Crucially, the approach of the Fed to savings, investments, stock markets and the symbiotic link provided to all these is central to understanding its motives and what drives its decisions.
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THE DEATH OF THE DOLLAR
It is difficult to know where Bush has accomplished the most destruction, the Iraqi economy or the U.S. economy.
In the current issue of Manufacturing & Technology News, Washington economist Charles McMillion observes that seven years of Bush has seen the federal debt increase by two-thirds, while U.S. household debt doubled.
This massive Keynesian stimulus produced pitiful economic results. Median real income has declined. The labor force participation rate has declined. Job growth has been pathetic, with 28 percent of the new jobs being in the government sector. All the new private sector jobs are accounted for by private education and health care bureaucracies, bars and restaurants. Three and a quarter million manufacturing jobs and a half million supervisory jobs were lost. The number of manufacturing jobs has fallen to the level of 65 years ago.
This is the profile of a Third World economy.
The "new economy" has been running a trade deficit in advanced technology products since 2002. The U.S. trade deficit in manufactured goods dwarfs the U.S. trade deficit in oil. The United States does not earn enough to pay its import bill, and it doesn't save enough to finance the government's budget deficit.
To finance its deficits, America looks to the kindness of foreigners to continue to accept the outpouring of dollars and dollar-denominated debt.
The dollars are accepted because the dollar is the world's reserve currency.
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In the current issue of Manufacturing & Technology News, Washington economist Charles McMillion observes that seven years of Bush has seen the federal debt increase by two-thirds, while U.S. household debt doubled.
This massive Keynesian stimulus produced pitiful economic results. Median real income has declined. The labor force participation rate has declined. Job growth has been pathetic, with 28 percent of the new jobs being in the government sector. All the new private sector jobs are accounted for by private education and health care bureaucracies, bars and restaurants. Three and a quarter million manufacturing jobs and a half million supervisory jobs were lost. The number of manufacturing jobs has fallen to the level of 65 years ago.
This is the profile of a Third World economy.
The "new economy" has been running a trade deficit in advanced technology products since 2002. The U.S. trade deficit in manufactured goods dwarfs the U.S. trade deficit in oil. The United States does not earn enough to pay its import bill, and it doesn't save enough to finance the government's budget deficit.
To finance its deficits, America looks to the kindness of foreigners to continue to accept the outpouring of dollars and dollar-denominated debt.
The dollars are accepted because the dollar is the world's reserve currency.
Read Complete Story
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