The TED spread has popped below 3.00, on sharp falls in LIBOR rates. This is a highly significant move at this point. Markets are up, I would think on the news, but more apparently on rumours of another
GM wants to merge with/buy out Chrysler, but can't get the credit or investor support necessary to do so. They're looking for government support.
Meanwhile, the New York Times reports on a political concensus to let the budget deficit just keep growing:
...the extra spending, a sore point in normal times, has been widely accepted on both sides of the political aisle as necessary to salvage the banking system and avert another Great Depression.That's certainly optimistic. Let's hope they're right this time.
“Right now would not be the time to balance the budget,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan Washington group that normally pushes the opposite message.
There are also assumptions that help to make America’s deficits tolerable, even logical.
One is that people all over the world are willing, even eager, to lend to the United States, confident that the world’s most powerful nation will always repay on time, whatever its current difficulties.
Another assumption, also based on 60 years of post-World War II experience, is that although the economy is sliding into recession, in a year or two that recession will end and the national income (also known as the gross domestic product) will expand once again.
When that happens, the national debt — the accumulated borrowing to finance all the annual deficits — will shrink in relation to the income available to pay off the debt.
Frugality has become the new keyword. Kevin Depew has a rambling but interesting post here about liquidity traps; Minyanville's Todd Harrison worries about geopolitical action, pointing at articles like this one. Kevin Depew talks about the dollar rally as a function of debt payoff. Brad Setzer at the CFR talks about the renewed importance of the G7, and I think there are some dollar lessons to be learned there as well. In a separate post, he discusses central bank policy divergence, with the US Federal Reserve taking on essentially as much risk as possible as other central banks seek safety. He does not consider this stabilising.
Eric Janszen talks in Harpers about a target of 5,000 on the DOW, and, more interestingly, about the CDO market and the actual payoff value, which could be quite high, and notes:
As the economy contracts, the inexorable logic of the American political economy is to increase protectionist and unilateral measures, as if the United States were still a net creditor as in the late 1970s. If such policies are pursued (which caused the world trade negotiations to collapse earlier this year) the results will be disastrous for America: the current orderly diversification from the dollar may become disorderly.I'm noticing more protectionist talk on economic fora, particularly in ones where people should know better. It's a bad idea. Brad Setzer thinks the US deficit will fall as demand for consumer goods dries up, which makes sense to me, so tariffs would be ridiculously counterproductive.
Daebo Shipping warns of "serial counterparty defaults." "He added that the bulk market was also being affected by what he thought was a collapse in forward freight agreements and other derivatives."
Far Eastern Economic Review's article "The Great Crash of China" is a little breathless, but does point out the transition China is going through right now as an instability point as it tries to transition from low-grade manufacturing jobs to higher-grade manufacturing jobs. A reverse migration back to the smaller villages - and a wave of resulting unrest - is not at all unlikely.