the visible hand

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Archive for December, 2008

California: “$40 billion deficit through mid-2010”

Posted by ecoshift on December 31, 2008

Calif controller says may issue IOUs by Feb | Markets | US Markets | Reuters
Wed Dec 31, 2008 3:17pm GMT

NEW YORK, Dec 31 (Reuters) – California State Controller John Chiang warned state agencies that unless the governor and legislature resolve a budget dispute, his office will be forced to issue IOUs as early as Feb. 1.

“IOUs may have to be issued in lieu of salaries and per diem payments to 1,700 legislators, state elected officers, judges and their appointed staff, as well as tax refunds owed to individuals and businesses,” Chiang said in a letter released late Tuesday.

State officials have warned for some time that California could run out of cash by February. The state is facing a $15 billion cash shortage by the end of its fiscal year in June unless officials plug an $11.2 billion budget gap.

The state, the world’s eighth biggest economy and the largest issuer of U.S. public debt, is facing an even more alarming $40 billion deficit through mid-2010.

State Treasurer Bill Lockyer said last week that California is having trouble selling debt as municipal bond investors are wary of its budget problems and demanding an expensive premium.

Standard & Poor’s cited declining revenues in a recent note placing the state on review for a possible downgrade of nearly $47 billion of general obligation debt.

Republicans and Democratic lawmakers have been deadlocked over how to close the budget gap.

(Reporting by Ciara Linnane; Editing by Chizu Nomiyama)


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Wireless Conundrum

Posted by ecoshift on December 30, 2008

The Wireless Conundrum
John C. Dvorak – Columns by PC Magazine

“With all the headroom in an 802.11n connection, I see no reason why someone cannot segment a 50-Mbps chunk of connectivity (along with a slice of the Ethernet connection) to provide a public-service open channel for neighbors or passers-by. If it were totally firewalled off from the main network and equipped with a bandwidth cap to prevent abuse, we could be running a more efficient Internet economy. And it would entail something that the big phonecos and everyone else has been lobbying against: sharing. Neighborhood or community sharing in particular, just because it is a good thing to do.

While I currently keep my own system walled off (as mentioned above) I would gladly give away some bandwidth if it can be done safely.

There are too many corporations out there with no sense of community whatsoever. They would just as soon gouge their customers with the excuse that the shareholders demand it. “Doing it for the shareholders” usually translates into fat bonuses for the top executives.”

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Chinese Renminbi Likely to Be Used As Currency for Forex Reserves

Posted by ecoshift on December 25, 2008

Finance Conferences & Events by IQPC
Chinese Renminbi Likely to Be Used As Currency for Forex Reserves
Source: BBC Monitoring Asia Pacific
Pub. Date: Dec 25 2008 5:43 AM

Text of report in English by official Chinese news agency Xinhua (New China News Agency)

BEIJING, Dec. 25 (Xinhua) – China’s currency, Renminbi, is likely to join other international currencies to be used for forex reserves by other economies, according to Wu Xiaoling, former vice governor of the country’s central bank and now the deputy head of the financial and economic committee under the top legislature.

Wu made the remarks in her article carried by the latest annual issue of the leading business magazine Caijing.

Wu wrote that China should make preparations in its economic structure and its financial regime for its currency to be internationalized.

Prior to making the Renminbi, also called yuan, a currency used for forex reserves by other economies, it may be allowed to be used for trade settlements between China and some other countries and regions, according to Wu.

In China’s neighbouring countries, there were calls for the yuan to be used to settle bilateral trade payments, she said. China has signed settlement agreements with eight neighbouring countries, including Russia, Mongolia, Vietnam and Myanmar, assuming a voluntarily choice of settlement currency, she added.

Many were confident of the yuan and willing to settle trade payments in the Chinese currency, as it remained strong, Wu said.

“China should create conditions for the yuan to become an international settlement currency,” she stressed.

It is necessary to expand and deepen the yuan-denominated financial markets and step up the process to realize the full convertibility of the currency and provide investment channels for yuan holders, according to Wu.

Some believed the reason why China was able to remain untouched in the 1998 Asian financial woes was because of its lack of full convertibility under capital accounts. And this was also the factor behind the fact that China has not been so seriously affected by the current global financial crisis.

Wu said China should not become “self-complacent and close itself from the outside world” because of its lack of full convertibility, which was “not a good thing”. Otherwise, the country would be “at a disadvantage when the world economy stabilized and made a takeoff again,”she added.

The Chinese Government has decided to allow the yuan to be used for settlement between Guangdong Province and the Yangtze River Delta and the special administrative regions of Hong Kong and Macao.

Meanwhile, Guangxi Zhuang Autonomous Region and Yunnan Province will be allowed to use Renminbi to settle trade payments with ASEAN (Association of Southeast Asian Nations) members, according to a government announcement on Wednesday evening.

But the Government did not give any details of how and when the pilot currency programme would start.

“The move will mitigate the risk of exchange rate fluctuations for Chinese exporters and their trade partners,” Zhao Xijun, finance processor at Renmin University of China, was quoted as saying by Thursday’s China Daily.

Most of China’s external trade is settled in US dollar or the euro at present. But, the paper said, many analysts predicted the dollar might depreciate substantially in the coming years because of the ailing US economy.

“The move will also increase the yuan’s acceptance in Asia, which will help it become an international currency in the long run,” Zhao told the paper.

The yuan’s acceptance has been rising in recent years, thanks to the nation’s economic prowess and its 1.9 trillion reserves of foreign exchange, according to the paper.

Originally published by Xinhua news agency, Beijing, in English 0853 25 Dec 08.

(c) 2008 BBC Monitoring Asia Pacific. Provided by ProQuest LLC. All rights Reserved.

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Turn The Big 3 Into Car Foundries . .

Posted by ecoshift on December 5, 2008

Interesting idea here.  Take Big 3 expertise and capacity and turn it into the hub of a flexible manufacturing network…. But first let’s fire all of upper management.


Let’s Take A Lesson From The Chip Industry: Turn The Big 3 Auto Makers Into Car Foundries . .
By Tom Foremski – December 3, 2008

The reason we have such a huge choice of low cost computers and all sorts of gizmos and gadgets, smart phones, and electronic toys is because of the amazing advances in chip designs. Hundreds of small chip design firms are producing incredibly advanced semiconductors that power a slew of innovative devices.

But the reason we have so much innovation in the chip industry is because of a manufacturing revolution that began more than twenty years ago. In 1987, Taiwan Semiconductor Manufacturing Company (TSMC) was founded as a new type of chip company–it was a semiconductor foundry–it made chips for other companies.

This completely transformed the chip industry and ushered in an innovation explosion. Chip designers didn’t have to build their own chip factories, they could buy production time from chip foundries. Previously, chip startups had to raise hundreds of millions of dollars, primarily to pay for chip production–yet their value was in the designs.

Chip foundries led to a dramatic cut in the cost of establishing a chip company. Investment now went into chip design, not building a manufacturing line and learning how to run it.

This simple manufacturing revolution is responsible for all the innovation in electronics. And that’s a model that could be effectively applied in the automotive world, and unleash a wave of innovation.

Manufacturing expertise . . .

I support a bailout of the automakers for one key reason: manufacturing expertise. If they shut down then we lose many decades of manufacturing knowledge and processes–it would be hugely expensive to recreate.

That manufacturing expertise can be used to build a Hummer, or it can be used to build hybrids, electric cars, and anything with wheels and an engine.

There is a tremendous amount of innovation in transportation that could be unlocked if you didn’t have to have build your own factory to make the vehicles.

General Motors and the other car makers know how to re-tool lines to make all sorts of vehicles. They know what designs, and components work, and what doesn’t; they have relationships with parts manufacturers, they have software design systems, test systems, air tunnels, algorithms…

They also know how to get through the red tape of qualifying vehicles for US roads. There is a massive amount of knowledge and expertise within the Big 3 that could be applied to producing the greenest of green vehicles.

My proposal is to use government monies to convert the Big 3 auto makers into car making foundries, in a similar fashion to chip-making foundries. That way, small startups with great ideas could quickly get their designs into production without requiring massive amounts of capital and learning how to build and operate a car factory.

Keep reading…

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Be Nice to the Countries That Lend You Money

Posted by ecoshift on December 4, 2008

Be Nice to the Countries That Lend You Money” – The Atlantic (December 2008)

“In his first interview since the world financial crisis, Gao Xiqing, the man who oversees $200 billion of China’s $2 trillion in dollar holdings, explains why he’s betting against the dollar, praises American pragmatism, and wonders about enormous Wall Street paychecks. And he has a friendly piece of advice: ‘Be Nice to the Countries That Lend You Money’”

by James Fallows

Americans know that China has financed much of their nation’s public and private debt. During the presidential campaign, Barack Obama and John McCain generally agreed on the peril of borrowing so heavily from this one foreign source. For instance, in their final debate, McCain warned about the “$10 trillion debt we’re giving to our kids, a half a trillion dollars we owe China,” and Obama said, “Nothing is more important than us no longer borrowing $700billion or more from China and sending it to Saudi Arabia.” Their numbers on the debt differed, and both were way low. One year ago, when I wrote about China’s U.S. dollar holdings, the article was called “The $1.4 trillion Question.” When Barack Obama takes office, the figure will be well over $2 trillion.

During the late stages of this year’s campaign, I had several chances to talk with the man who oversees many of China’s American holdings. He is Gao Xiqing, president of the China Investment Corporation, which manages “only” about $200billion of the country’s foreign assets but makes most of the high-visibility investments, like buying stakes in Blackstone and Morgan Stanley, as opposed to just holding Treasury notes.

Gao, whom I mentioned in my article, would fit no American’s preexisting idea of a Communist Chinese official. He speaks accented but fully colloquial and very high-speed English. He has a law degree from Duke, which he earned in the 1980s after working as a lawyer and professor in China, and he was an associate in Richard Nixon’s former Wall Street law firm. His office, in one of the more tasteful new glass-walled high-rises in Beijing, itself seems less Chinese than internationally “fusion”-minded in its aesthetic and furnishings. Bonsai trees in large pots, elegant Japanese-looking arrangements of individual smooth stones on display shelves, Chinese and Western financial textbooks behind the desk, with a photo of Martin Luther King Jr. perched among the books. Two very large, very thin desktop monitors read out financial data from around the world. As we spoke, Western classical music played softly from a good sound system.

Gao dressed and acted like a Silicon Valley moneyman rather than one from Wall Street—open-necked tattersall shirt, muted plaid jacket, dark slacks, scuffed walking shoes. Rimless glasses. His father was a Red Army officer who was on the Long March with Mao. As a teenager during the Cultural Revolution, Gao worked on a railroad-building gang and in an ammunition factory. He is 55, fit-looking, with crew-cut hair and a jokey demeanor rather than an air of sternness.

His comments below are from our one on-the-record discussion, two weeks before the U.S. elections. As I transcribed his words, I realized that many will look more astringent on the page than they sounded when coming from him. In person, he seemed to be relying on shared experience in the United States—that is, his and mine—to entitle him to criticize the country the way its own people might. The conversation was entirely in English. Because Gao’s answers tended to be long, I am not presenting them in straight Q&A form but instead grouping his comments about his main recurring themes.

Does America wonder who its new Chinese banking overlords might be? This is what one of the very most influential of them had to say about the world financial crisis, what is wrong with Wall Street, whether one still-poor country with tremendous internal needs could continue subsidizing a still-rich one, and how he thought America could adjust to its “realistic” place in the world. My point for the moment is to convey what it is like to hear from such a man, rather than to expand upon, challenge, or agree with his stated views.

Keep reading…

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Yellow expected as a bright spot for 2009

Posted by ecoshift on December 3, 2008

I just ordered two shirts in expresso brown.  But then I find the concept of fashion personally elusive.  I depend on my daughter to save me from serious embarrassment.

Yellow expected as a bright spot for 2009 – Yahoo! News

“NEW YORK – Enough gloom and doom: There’s a prediction from a leading color source that cheerful and sunny yellow will be the influential color of 2009.

Pantone, which provides color standards to design industries, specifically cites “mimosa,” a vibrant shade of yellow illustrated by the flowers of some mimosa trees as well as the brunch-favorite cocktail, as its top shade of the new year. In general, Pantone expects the public to embrace many tones of optimistic yellow.”

How effervescent…

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American Airlines Now Charging Fees To Non-Passengers

Posted by ecoshift on December 2, 2008

The auto industry and (GM in particular) may be floundering and begging Washington for bailouts — but not so for the plucky American Airlines. Unlike investment banks and auto manufacturers this is a company that knows what innovation really means.

Advocates for the American Airlines recovery plan point out that while the auto industry mostly invested in overseas manufacturing and financial markets drove housing prices out of reach of most American workers American Airlines provides real value to non-passengers. Just the faint hope that someday, maybe, non-passengers might possibly be able to fly to an exotic location for a long overdue vacation or an early retirement makes all the nickel and diming expenses of the airline’s recovery plan a worthwhile investment in their own well-being.

Analysts say it’s too early to assess whether the American Airlines response to tight credit markets and a withering economy will actually cost the average American non-passenger less than recent financial market bailouts. But, privately many predict significant savings for non-passengers when compared to the per capita cost of a government bailout.

American Airlines Now Charging Fees To Non-Passengers | The Onion
December 1, 2008 | Issue 44•49

FORT WORTH, TX—Cash-strapped American Airlines announced a new series of fees this week that will apply to all customers not currently flying, scheduled to fly, or even thinking about flying aboard the commercial carrier….

The fees, the latest introduced by American Airlines in a continuing effort to combat its financial woes, will take effect on Monday. According to company officials, these charges will include a $25 tax on citizens traveling with any other airline, as well as a mandatory $30 surcharge for passengers who decide to just stay home for the holidays instead….

Arpey said that non-passengers of American Airlines should expect to pay a small fee when making Greyhound bus reservations, choosing to drive to their final destination, or simply being a citizen of the United States with a valid Social Security number.

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credit-card lines to decline by 45 percent

Posted by ecoshift on December 1, 2008

Credit-card industry may cut $2 trillion lines: analyst |
Mon Dec 1, 2008 4:06pm EST

(Reuters) – The U.S. credit-card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.

The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.

“In other words, we expect available consumer liquidity in the form of credit-card lines to decline by 45 percent.”

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lumber futures closed sharply lower

Posted by ecoshift on December 1, 2008

CME Lumber Review: Sharply Lower On Weak Stocks, Cash
Mon, Dec 1 2008, 20:38 GMT

CME Lumber Review: Sharply Lower On Weak Stocks, Cash

KANSAS CITY (Dow Jones)–CME lumber futures closed sharply lower Monday as steep declines in the Dow Jones Industrial Average added to pressure from a nearly lifeless cash market.

The nearby Jan contract fell $5.50 per 1,000 board feet, or 2.84%, to close at $188.00, while March settled $8.00, or 3.81%, lower, at $201.80. May settled $8.30, or 3.66%, lower at $218.70 and at one point was down the $10.00 daily limit.

A Chicago-based broker said the feature of the day was position rolling out of January and into March.

During the session, the January/March spread traded 755 times in a range from $13 to $14.60, premium March, and closed at $13.80.

The March/May spread traded only six times at $15 to $15.80, premium May, and closed at $16.90.

Fundamental traders sold because the cash market that was too weak to support the premiums built into the futures market, a western broker said. Cash markets were nearly inactive, and prices were difficult to pin down.

In addition, the back months of the market were carrying a premium to the nearby months that was unsustainable, the Chicago-based broker said.

As with other commodity markets, the lumber market declined as the stock market lost ground after five straight closes higher, brokers said. The Dow Jones Industrial Average has become the leading minute-by-minute economic indicator, and traders lacked the confidence to buck the indicator.

The brokers said the market left a gap on daily charts that it will want to fill eventually, but it also hit limit down in May, which indicates there is business yet to be done below that level.

Dow Jones Newswires published a price for British Columbia spruce-pine-fir 2x4s of $180 to $185, unchanged from Friday.

JAN 188.00 dn 5.50 192.60 187.80
MAR 201.80 dn 8.00 208.00 201.30
MAY 218.70 dn 8.30 223.80 217.00

-By Lester Aldrich, Dow Jones Newswires; 913-322-5179;

(END) Dow Jones Newswires

December 01, 2008 15:38 ET (20:38 GMT)”

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