The man who trades freedom for security does not deserve nor will he ever receive either. – Benjamin Franklin
Technically, the U.S. is already bankrupt because it has a debt that is almost four times the size of its economy, says Puru Saxena, CEO of Puru Saxena Wealth Management. He tells CNBC’s Amanda Drury & Sri Jegarajah that the U.S. is at risk of hyperinflation.
Related video:
Fed to Buy Treasurys is Not a Good Sign (Chairman for Asia at Morgan Stanley)
Airtime: Thurs. Mar. 19 2009
For more than a year, the U.S. Federal Reserve System has been increasingly acting as the world’s central bank, injecting hundreds of billions of dollars into foreign government treasuries in an effort to increase liquidity in those countries.
The foreign central banks have used the U.S. currency to bail out financial institutions within their borders. The Fed program links its balance sheet directly to the fates of foreign central banks at a time when they’re on the ropes.
The program has so far gone unreported in the mainstream media and is a major expansion of Federal Reserve involvement in the global economy. It represents a stark break from the prior role of the Fed, moving it into territory more traditionally occupied by the International Monetary Fund (IMF).
MOSCOW, March 18 (RIA Novosti) – Russia is proposing that discussions into the possibility of creating a new world reserve currency are initiated at the upcoming G20 summit in London, a government source said on Wednesday.
“We fully agree that this is not the issue, which would enable us to get out of the crisis and cut costs. The main idea is to initiate discussions on this issue,” the government source said.
Russia earlier put forward a suggestion to the G20 summit which would see the IMF examining possibilities for creating a supra-national reserve currency, and also forcing national banks and international financial institutions to diversify their foreign currency reserves.
“We believe it is necessary to consider the IMF’s role in this process and also define the possibility and the need to adopt measures allowing for Special Drawing Rights (SDRs) to become an internationally recognized super-reserve currency,” Russia’s proposals read.
Read moreRussia wants to start debate on new reserve currency at G20
This is of course not about preventing a depression, because the depression is already here. Quantitative easing is the ultimate instrument to loot the people. The dollar is about to be destroyed and it seems that some elitists want to further accelerate the process. Why? Because the people are waking up to what is really going on.
Alistair Darling and senior figures in the US Treasury have been encouraging the Fund to issue hundreds of billions of dollars worth of so-called Special Drawing Rights in the coming months as part of its campaign to prevent the recession from turning into a global depression.
Should the move, which is up for discussion by the summit of G20 finance ministers this weekend, be adopted, it will represent a global equivalent of the Bank of England’s plan to pump extra cash into the UK economy.
However, economists warned that the scheme could cause a major swell of inflation around the world as the newly-created money filters through the system. The idea has been suggested by a number of key figures, including billionaire investor George Soros and US Treasury adviser Ted Truman.
Read moreIMF poised to print billions of dollars in global quantitative easing
Dominique Strauss-Kahn’s warning comes amid growing concern that at some point in the next year a major economy could have to seek support from the Fund. Mr Strauss-Kahn, who was yesterday attending the Group of Seven leading finance ministers’ meeting in Rome, said: “I expect a second wave of countries to come knocking.”
Related article:
IMF Says Advanced Economies Already in Depression (Bloomberg)
The IMF managing director also said the rich world was now in the midst of a “deep recession”. It came as the G7 pledged to avoid slipping into protectionism and repeating the same political and economic mistakes as were made in the 1930s. Ministers also pledged to do more to support their banking systems, sparking speculation that a number of countries, including Germany and France, will unveil new bail-outs and possibly set up “bad banks” as they scramble to fight the crisis.
Read moreIMF chief Dominique Strauss-Kahn warns second wave of countries will require bail-out
Dominique Strauss-Kahn said the Fund needed an urgent cash infusion if it was to continue bailing out troubled economies in the future. Mr Strauss-Kahn also indicated that the world’s advanced economies were now tipping from recession into full-blown depression, cementing fears about the scale of the economic slump in rich nations.
Related article: IMF Says Advanced Economies Already in Depression (Bloomberg)
The IMF head made the comments in Kuala Lumpur in Malaysia over the weekend, where he is attending a meeting of central bankers from Southeast Asia. The Fund has bailed out a number of countries including Iceland, Latvia and Pakistan but Mr Strauss-Kahn said there would be many others in need of help in the months ahead.
“Today, the IMF’s resources are enough to face the situation but because we are facing a global crisis, the needs may be much bigger than previously,” he said. “We have to intervene in Asia, Africa and Central Europe, Latin America, and maybe elsewhere. I can’t promise that in six to eight months from now, we will have enough resources.”
Read moreIMF may run out of cash to fight crisis in six months, Strauss-Khan warns
Two years ago, Iceland was top of the UN living index. Now it is in the frontline of the global economic crisis after the failure of its banks, reports Sophie Morris in Reykjavik
Reykjavik: Iceland must confront the fact that it has been blighted by a man-made disaster
Source: Meltdown: Iceland on the brink (Independent)
When Iceland’s ruling coalition broke apart Monday, it became the first government to fall as a result of the world financial crisis. It may not be the last.
Iceland’s case is unique because the tiny country’s entire banking system collapsed in October, decimating the value of the life savings of most residents on the island. Still, other countries in Europe are experiencing political unrest because of the global economic downturn.
Related articles:
– Iceland sends jumpers to help the UK (BBC News)
– How Iceland went from world’s biggest hedge fund to pariah in in global markets (Guardian)
– Iceland’s government topples amid financial mess (AP)
– Waking up to reality in Iceland (BBC News)
In Latvia last week, a riot ensued after 10,000 protesters marched on parliament. Demonstrations also turned violent in recent weeks in Bulgaria, Lithuania and Greece.
“I think we are still headed sharply downhill in the world economy and the U.S. economy, and I don’t pretend to know how far,” said Ralph Bryant, a former director of the Federal Reserve Board’s Division of International Finance and a senior fellow at the Brookings Institution. “Every country in Europe is troubled by these things.”
“Very little has been done,” he said. “I don’t say nothing has been done, but it’s moving very, very slowly.”
Frustration turns to violence
Iceland’s government fell after the U.S.-educated prime minister, Geir Haarde, couldn’t reach a deal on sharing power with another party in his coalition.
That came after Haarde last week called for elections in May, ahead of those scheduled for 2011, after weeks of protests by Icelanders upset about soaring unemployment and rising prices. Haarde announced Friday that he has cancer and would not seek another term.
David Cameron: ‘If we continue on this path the money will run out’ (PA)
Britain risks bankruptcy and a humiliating bailout by the International Monetary Fund (IMF) because of Gordon Brown’s borrowing, David Cameron said yesterday. With official confirmation that the economy has entered recession expected today, the Tory leader delivered his strongest warning yet: “If we continue on Labour’s path of fiscal irresponsibility, at some point – and it could be very soon – the money will simply run out.”
His speech to the Demos think-tank in London raised the spectre of the 1976 bailout, when James Callaghan’s Labour government was forced to make deep public spending cuts in return for a £2.3bn loan from the IMF.
Related articles:
– Sterling plunges to record lows (Financial Times – 23 Jan 2009)
– Recession figures heighten the gloom (Independent)
– Jim Rogers: Now it’s time to emigrate, says investment guru (Independent)
– Is Britain facing bankruptcy? (Guardian)
– Bank of England Governor paves way to start Bank print presses (The Times)
– Jim Rogers: ‘UK has nothing to sell’ (Financial Times):
“The City of London is finished, the financial centre of the world is moving east.”
– Jim Rogers: ‘Sell any sterling you might have; It’s finished’ (Times)
His remarks are bound to provoke Labour accusations that he is running the country down. Mr Cameron insisted he was not predicting a date by which the Government would “end up back at the IMF”. But he added: “What I am saying is that we are running the risk of those things happening and those are risks that no government should responsibly run.”
The Tory leader added: “We are borrowing, according to the Government’s current estimates, 8 per cent of our GDP in the next financial year. That is the same percentage that Denis Healey [the then chancellor] was borrowing when he went to the IMF in 1976.”
Britain has foreign reserves of under $61bn dollars (£43.7bn), less than Malaysia or Thailand. The foreign liabilities of the UK banks are $4.4 trillion – or twice annual GDP – according to the Bank of England. The mismatch is perilous.
It is why sterling has crashed 10 cents from $1.49 to $1.39 against the dollar in two days. The markets have given their verdict on Gordon Brown’s latest effort to “save the world”.
Related article:
– Gordon Brown brings Britain to the edge of bankruptcy (Telegraph)
Credit default swaps (CDS) measuring risk on British debt have reached an all-time high of 125 basis points, just below Portugal. The yield spread on 10-year Gilts over German Bunds has doubled to 53 basis points since last week.
Standard & Poor’s has quashed rumours that it will soon strip Britain of its AAA credit rating – an indignity averted even after the International Monetary Fund bail-out in 1976. But there was a sting yesterday as it responded to the Treasury plan for the banks. “Market confidence in the sector has eroded to such a degree that it is not clear whether these measures by themselves will bring about a material improvement,” the IMF said. “As a result, full nationalisation of some banks remains a possibility in our view.”
Spain was relegated from AAA to AA+ on Monday, and Spain’s public debt is a much lower share of GDP.
Jan. 19 (Bloomberg) — Four years after Ukraine embraced the West with the election of President Viktor Yushchenko in the Orange Revolution, the former Soviet nation’s economy is collapsing and investors expect the country to default.
Even with the International Monetary Fund’s $16.5 billion bailout, Ukraine’s finances are deteriorating as the country battles with Russia over natural gas prices and the cost of steel, its biggest export, sinks.
Related articles:
– Ukraine’s industrial powerhouse reels under crisis (Reuters)
– Russia, Ukraine Say To Resume Gas Transit To Europe (Wall Street Journal)
– Russia, Ukraine sign 10-year gas supply deal (Reuters)
Yields on Ukraine’s $105 billion of government and company debt are the highest of any country with dollar-denominated bonds except Ecuador, which defaulted in December. The currency, the hryvnia, weakened 38 percent in the past 12 months against the dollar. The benchmark stock index lost 85 percent in 2008, the biggest drop in the world after Iceland, data compiled by Bloomberg show.
“The market is telling us there is a high probability of a default,” said Tom Fallon, head of emerging-markets at La Francaise des Placements in Paris, which manages $11 billion and sold its Ukrainian holdings six months ago. “It’s an advantage that the country is committed to policy measures that the IMF is prepared to back, but that is no guarantee it won’t default.”
The gap in yields between Ukraine’s bonds and Treasuries tripled in the past four months to 25.1 percentage points. The country’s bonds yield 9.6 percentage points more than debt sold by Argentina, which defaulted in 2001 and has yet to compensate all holders, according to JPMorgan Chase & Co. data.
Read moreUkraine Bonds Flag Default as Russia Has ‘Upper Hand’
– UK jobless rise of 40000 in a week just ‘tip of the iceberg’ (Telegraph)
– Schwarzenegger Says Deficit has ‘Incapacitated’ State (Bloomberg):
Jan. 15 (Bloomberg) — Governor Arnold Schwarzenegger said California has been so “incapacitated” by a fiscal crisis that threatens to leave it unable to pay bills within weeks that the only issue he and lawmakers must consider is how to fix it.
– Charter misses $74 mln in debt interest payments (Reuters):
NEW YORK, Jan 15 (Reuters) – Charter Communications, the fourth largest U.S. cable operator, said on Thursday it missed interest payments of $73.7 million as it continues to negotiate a debt restructuring with bondholders.
The company said it has until Feb. 15 to make the payment and avoid default, which could push it into bankruptcy.
– ECB cuts rates by 50 points to 2% (Financial Times):
Eurozone interest rates fell by half a percentage point to their lowest in more than three years on Thursday as the European Central Bank said that it expected the recession to deepen and signalled that borrowing costs could fall further.
Jean-Claude Trichet, ECB president, warned that growth forecasts published only last month would have to be revised downwards in a sign of the ferocity of the downturn.
– Pfizer May Fire 2,400, One-Third of U.S. Sales Force (Bloomberg):
Jan. 15 (Bloomberg) — Pfizer Inc., the world’s biggest drugmaker, may fire almost a third of its U.S. sales force, or as many as 2,400 workers, in a plan under consideration by senior management, people familiar with the discussions said.h the discussions said.
– JPMorgan chief says 2009 will be bleak (Financial Times):
The US financial and economic crisis will worsen this year as hard-hit consumers default on credit cards and other loans, Jamie Dimon, chief executive of JPMorgan Chase, has predicted in an interview with the Financial Times.
– JPMorgan Profit Drops 76 Percent on Asset Writedowns (Bloomberg)
– Yet another blow to the US newspaper industry (Guardian)
– Aircraft industry shocked by view from ground (Financial Times)
– Airbus forecasts ‘very challenging’ year (Financial Times):
Airbus on Thursday said its new commercial aircraft orders had fallen sharply last year, as the European aerospace group forecast “a very challenging year” for the industry in 2009. Net new orders fell by 42 per cent last year to 777, from a record 1,341 won in 2007.
– Irish government fears IMF intervention (Guardian)
– Ireland plans drastic cuts to prevent debt crisis (Telegraph):
Ireland is to demand pay cuts for civil servants and public employees to prevent the budget deficit soaring to 12pc of gross domestic product by next year – becoming the first country in the eurozone to resort to 1930s-style wage deflation to claw back competitiveness.
– If anyone doubted scale of crisis, work even halts in Dubai on world’s tallest tower (Scotsman)
– Hedge funds ‘encourage bankruptcies’ for profit (Guardian)
– Spain’s Debt Costs Rise at Bond Sale After S&P Alert (Bloomberg)
– Banks gird for commercial property collapse (FinancialWeek):
Some of the biggest financial institutions have huge, potentially troublesome commercial real estate stakes, Standard & Poors data shows. Based on information in their most recent financial reports, Citigroup and Barclays each had more than $20 billion worth of commercial mortgage-related investments. Merrill Lynch, acquired by Bank of America last year, had some $19.7 billion in such investments, according to S&P.
Belarus has secured an emergency loan of $2.5bn (£1.74bn) from the International Monetary Fund.
It becomes the sixth country after Iceland, Hungary, Ukraine, Latvia, and Pakistan to need a rescue since the crisis began.
The ex-Soviet state – still run by strongman Alexander Lukashenko – has suffered a run on its foreign reserves as the economic downturn engulfs Eastern Europe. The country’s key exports are potash fertilizer and oil products, both hit hard by the commodity crash.
The IMF’s chief, Dominique Strauss-Kahn, said the tough terms of the bail-out include “strict public-sector wage restraint” and cuts in state spending. Russia has pledged a further $2bn.#
Secretary Paulson Remarks on the Economy Before the U.S. Chamber of Commerce
“The structure of our economy is sound and our long-term economic fundamentals are healthy.” – Henry Paulson
January 22, 2008
Source: Treasury
Paulson: U.S. Banking System Fundamentally Sound
“Our banking system is a safe and a sound one,” Paulson insisted on CNN’s “Late Edition.”
Mon Jul 21, 2008
Source: CNBC
Bush: US Economy is Sound Despite Problems
“We can have confidence in the long term foundation of our economy. And I believe we will come through this challenge stronger than ever before,” he said.
15 July 2008
Source: VOA News
Part I: “The End for the Dollar and all Fiat Currencies (1/5)“
Part II: “The Next Bubble to Pop! (2/4)“
Part III: “On Gold and Market Manipulation (3/5)“
Part IV: “The Significance of Gold Backwardation Explained (4/5)“
Part V: More on Gold and Silver Backwardation and Manipulation (5/5)
Supplement to explain futures market basics and backwardation: “The Money Matrix – What the Heck Are Derivatives? (PART 10/15)“
With such people in top positions around the world … prepare for the worst.
Thanks to their debt and inflation creating policies they have assured that “The whole society is going to suffer.” (IMF boss Dominique Strauss-Kahn).
They are creating the worst depression ever.
‘The whole society is going to suffer,’ warns IMF boss Dominique Strauss-Kahn
Billions more will have to be pumped into the economy to avoid it spiralling into an even ‘darker’ recession, the head of the International Monetary Fund has warned.
Britain and other leading economies will need to double their economic bailout packages during 2009, which is shaping up to be a ‘really bad year’, according to Dominique Strauss-Kahn.
‘I’m specially concerned by the fact that our forecast, already very dark . . . will be even darker if not enough fiscal stimulus is implemented,’ Mr Strauss-Kahn told BBC Radio 4.
The IMF, which oversees the world’s economic system, is urging governments around the world to splurge a staggering £80trillion in a co-ordinated war against recession.
That would represent around 2 per cent of global annual economic output.
But Chancellor Alistair Darling’s stimulus package accounts for just 1 per cent of Britain’s national income.
Read moreIMF’s warning to Britain: Bailouts will need to double to prevent economic collapse
Britain has become a worse credit risk than McDonald’s and a host of other large companies, figures produced for The Independent reveal.
The collapse in Britain’s credit rating has taken place over the past two and a half months, since the Government underwrote the banking system and decided to spend its way out of recession. Investing in UK government debt is now almost twice as risky as buying McDonald’s corporate bonds, according to the market in credit default swaps (CDS), which provides insurance for the buyers of such debt.
The government debt of large economies such as the UK would normally be considered far more secure than corporate bonds. However, on 29 September, the cost of buying insurance against default on UK five-year government debt became more expensive than the equivalent cover for the US burger chain and has since overtaken Kellogg’s and Coca-Cola, according to data from Bloomberg.
The cost of insuring British debt soared on that day, as the Government nationalised Bradford & Bingley, increasing fears that the state would have to bail out the banking system.
The cost of insuring for a year against default on £10m of five-year UK debt has jumped from less than £30,000 to £120,000, compared with the current price of £77,000 to protect against a similar McDonald’s default.
Hungarian Forint notes of differing denominations sit on display in Budapest on Nov. 19, 2008. Photographer: Balint Porneczi/Bloomberg News
Dec. 8 (Bloomberg) — The slowing global economy is halting the spread of monetary union into eastern Europe and may lead to another year of losses for the Polish zloty, Hungarian forint and Czech koruna.
The zloty fell 21 percent against the euro from a record high in July as Poland headed for its biggest economic slowdown in almost a decade, while Hungary turned to the International Monetary Fund, World Bank and European Union for a bailout as the forint weakened 15 percent. Koruna volatility almost tripled as it depreciated 12 percent. The two-year mandatory trial period before adopting the euro allows swings of no more than 15 percent.
Poland, Hungary and the Czech Republic joined the European Union in 2004, committing to enter the 10 trillion-euro ($12.7 trillion) economy of countries sharing a single currency. The dream faded since July as the worst global financial crisis since the Great Depression drove investors from emerging markets. Now, New York-based Morgan Stanley and UBS AG in Zurich predict more foreign exchange losses in eastern Europe.
Read moreEuro Dreams Shattered for Poles, Hungarians, Czechs as Currencies Plummet
Dec. 4 (Bloomberg) — The European Central Bank cut interest rates the most in its 10-year history after the region’s economy suffered the first recession since the introduction of the euro.
ECB policy makers meeting in Brussels lowered the benchmark lending rate to 2.5 percent from 3.25 percent. Only 17 of 56 economists in a Bloomberg News survey correctly forecast the move, with 35 predicting a cut of 50 basis points and 4 calling for a full percentage-point reduction.
The ECB’s decision came after the Bank of England today cut its key rate by one percentage point to 2 percent, the lowest level since 1951, and Sweden’s Riksbank pared rates the most in 16 years. The Federal Reserve’s benchmark rate now matches a five- decade low as central banks rush to respond to the global recession.
“This is better than 50 basis points, but they are still late coming to the party,” said Laurent Bilke, an economist at Nomura International in London who used to work as a forecaster at the ECB. “The economy is in deep recession now, so rates should come down as quickly as possible.”
Read moreECB Delivers Biggest Rate Cut Ever as Economy Slumps
If you want to see a very emotional financial analyst this is a must see.
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Max Keiser calls treasury secretary Hank Paulson a “Financial Terrorist”. He states America is issuing non collateralized bonds that are worthless.
The Dollar and the Bonds are counterfeit. They have nothing backing them. This will lead to an economic collapse to all countries who play into this Wall Street scheme.
Developing nations are giving away their commodities for worthless paper.
Source: YouTube
The IMF’s chief economist is warning the global financial crisis is set to worsen and the situation will not improve until 2010, a report says.
Olivier Blanchard also warned that the institution does not have the funds to solve every economic problem.
“The worst is yet to come,” Blanchard said in an interview with the Finanz und Wirtschaft newspaper, adding that “a lot of time is needed before the situation becomes normal.”
He said economic growth would not kick in until 2010 and it will take another year before the global financial situation became normal again.
Read moreWorst of global crisis yet to come: IMF chief economist
Turkey is reported to be in negotiations with the International Monetary Fund for a $40 billion loan. Very shortly, the Baltic States and at least a dozen developing countries will be filing for IMF handouts. But how will the venerable lender of last resort fund itself?
According to a fact sheet posted on its website in October, the IMF had $200 million available for emergency loans to the third-world, and another $50 billion in “additional resources”. But the IMF’s liquidity is rapidly dwindling. Between the crisis facilities concluded with Ukraine, Hungary, Serbia, Iceland and Pakistan, and the expected spate of new loan requests, the IMF should be running out of money within the first quarter of next year. Quite simply, unless the rich nations (including American tax-payers) can add to the IMF’s funding capabilities, the global recession will cause unprecedented havoc, chaos, hunger and turmoil in the world’s poverty pockets.
Residents stand on the rubble of shops and a house damaged in the fighting between Pakistan army and militants in Kanju, a troubled area of Pakistan’s Swat Valley, Tuesday, Nov. 18, 2008. Pakistani security forces are engaged in fierce fighting against militants and Talibans in various areas including Swat Valley, a northwest region that used to be beloved tourist destination. (AP Photo/Sherin Zada) (Sherin Zada – AP)
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ISLAMABAD, Pakistan — The U.S. military apparently struck at Islamic militants outside Pakistan’s lawless tribal belt for the first time Wednesday, firing a missile that killed six suspected insurgents taking refuge away from the conflict zone along the Afghan border.
The government denounced the attack as yet another “grave provocation” amid a series of U.S. military operations in the country that have enflamed widespread anger among ordinary Pakistanis.
The harsh words were a sharp contrast to comments Tuesday by U.S. and NATO officials who reported increased cooperation from Pakistan in the fight against militant groups. Tens of thousands of U.S. and NATO troops are stationed in neighboring Afghanistan.
“It looks like the Americans are not listening, but this is such a great provocation that it will bring a strong response from the government of Pakistan that will dissuade them,” presidential spokesman Farhatullah Babar said of the latest missile strike.
He declined to say what the response would be.
The government, which relies heavily on U.S. financial aid, has not gone beyond criticizing raids. Some experts question whether the leadership secretly condones the attacks while speaking out publicly against them, but the government denies that.
Read moreSuspected U.S. Missiles Strike Deep Inside Pakistan
Nov. 15 (Bloomberg) — Pakistan agreed to a $7.6 billion loan package with the International Monetary Fund, to help the south Asian country avert defaulting on its debt with the first such program in four years.
The loan “will be used for the balance of payments and to build our foreign reserves,” Shaukat Tarin, the finance adviser to the prime minister, said today at a televised news conference in Karachi. The IMF will give the loan in installments over 23 months at interest rate of 3.5 percent to 4.5 percent, he said.
Pakistan has been forced to seek funds from the IMF after its foreign-exchange reserves shrank 75 percent in the past year to $3.5 billion last week, the equivalent of one month’s imports, and a group of donor nations declined to provide funds.
“The IMF loan will help in stabilizing the economy only if the government shows the political will to implement the Fund’s program,” said Samiullah Tariq, head of research at InvestCapital & Securities Ltd. in Karachi. Pakistan’s civilian governments from 1988 to 1999 did not complete seven separate IMF loan programs because of “tough” IMF conditions, he said.
Read morePakistan Agrees to $7.6 Billion IMF Bailout Program
Nov. 10 (Bloomberg) — China pledged a 4 trillion yuan ($586 billion) stimulus plan to prop up growth in the fourth-largest economy as the world heads toward a recession.
The funds, equivalent to almost a fifth of China’s gross domestic product last year, will be used by the end of 2010, the Beijing-based State Council said yesterday on its Web site. Following a weekend meeting in Sao Paulo, finance ministers from the Group of 20 nations, of which China is a member, issued a joint statement saying they are ready to act “urgently” to tackle the economic slump.
“If the Chinese use this as a diplomatic initiative, it could be an important step toward a more coordinated response,” Simon Johnson, a senior fellow at the Peterson Institute for International Economics and former chief economist of the International Monetary Fund, said in Boston.
China is taking steps to bolster its economy, the biggest contributor to global expansion, less than a week before President Hu Jintao goes to Washington for talks with world leaders on ways to revive growth. U.S. President-elect Barack Obama vowed last week to push a package through Congress “immediately after” taking office in January if lawmakers and the Bush administration can’t agree on one before then.
China accounted for 27 percent of global economic growth last year, more than any other nation, according to IMF estimates. Central bank Governor Zhou Xiaochuan said Nov. 8 that boosting spending at home is the best way China can help avert a prolonged world recession.
`Intensifying’ Crisis
Read moreChina Unveils 4 Trillion Yuan Spending as World Faces Recession
The perilous state of the UK economy was exposed as the Bank of England’s Monetary Policy Committee made an unprecedented 1.5 percentage point cut in interest rates.
Winston Churchill meets the Queen in 1955. Photo: PA
The shock vote brought interest rates down to 3pc for the first time since January 1955, when Winston Churchill was prime minister. Economists forecast that the cut could pave the way for further reductions – with some claiming that rates could hit a historic low of 1pc.
Thursday’s move was interpreted as a desperate attempt to protect the UK economy from a severe recession.
“There has been a very marked deterioration in the outlook for economic activity at home and abroad,” said the MPC in an explanatory statement, adding that the threat of inflation was now receding.
It warned that after the most serious crisis in the global banking sector for almost a century, households and businesses were likely to find it difficult to obtain credit “for some time.” The MPC counted falling share prices, a sharp reduction in UK output, and a squeeze on household budgets among a nasty cocktail of circumstances that have combined to hit both businesses and consumers hard.
The MPC’s decision came amid a raft of gloomy news and data emerged. Figures from Halifax, the UK’s biggest mortgage lender, showed that house prices have fallen by 15pc over the past 12 months.
It was the sharpest drop since the survey began in 1983 and brought the average house price down to £168,176 in October, compared with almost £200,000 in the same month last year.
Read moreUK: Perilous state of economy revealed by MPC’s shock move
The International Monetary Fund has slashed its forecast for the world economy next year, predicting outright contraction for the rich economies of North America, Europe, and Japan for the first time since the Second World War.
Taxi driving through Tokyo at night. Photo: GETTY
“Prospects for global growth have deteriorated over the past month. The financial crisis remains virulent. Markets have entered a vicious cycle of asset deleveraging,” said the fund yesterday.
Britain’s economy will suffer and will see the steepest decline in G7 club of leading powers, shrinking 1.3pc as the crunch in the City of London leads to more job losses. Germany will decline by 0.8pc, The US and Spain by 0.7pc.
Sending shivers through stockmarkets everwhere, the Fund cut its world outlook next year to just 2.2pc, down from 3pc just a month ago. This is a global recession under the IMF’s 3pc rule-of-thumb.
“Financial stress is likely to be deeper and more protracted than envisaged in October. Markets are pricing in expectations of much higher corporate default rates, as well as higher losses on securities and loans,” it said.
“Activity is increasingly being held back by slumping confidence. As the financial crisis has become more entrenched, households and firms are increasingly anticipating a prolonged period of poor prospects for jobs and profits. As a result, they are cutting back.”
Olivier Blanchard, the IMF’s chief economist, called on authorities around the world to respond rapidly with combined monetary and fiscal stimulus, saying risk on an inflationary surge had subsided as commodities prices slump.
