Food Prices Hit Record High......

One can only hope that the very critical price of Rice ( see Chart & Rice Market Monitor ) will stay well below the last "riot" highs from 2008..... UPDATE: Jim Rogers Rotates From Gold To Rice, Sets Foundation For Next Bubble ZH

Man kann nur hoffen das der alles entscheidende Preis für Reis ( siehe Chart & Rice Market Monitor ) weiterhin deutlich unter dem letzten (Unruhe)Hoch aus dem Jahr 2008 bleiben wird....UPDATE: Jim Rogers Rotates From Gold To Rice, Sets Foundation For Next Bubble ZH


WSJ

The index doesn't measure domestic retail prices, which can be affected by a wide range of factors, including government subsidies. Instead, the index tracks export prices and can still serve as a barometer of what consumers may pay.

FT

Food prices hit a record high last month, surpassing the levels seen during the 2007-08 crisis, the UN’s Food and Agricultural Organisation said on Wednesday.

The Rome-based organisation said the increase did not constitute a crisis. But Abdolreza Abbassian, senior economist at the FAO, acknowledged that the situation was “alarming”. He added: “It will be foolish to assume this is the peak.”

The jump will increase fears about the repetition of the crisis of 2007-2008. However, poor countries have not so far seen the wave of food riots that rocked countries such as Haiti and Bangladesh two years ago, when prices of agricultural commodities jumped.

The increase in food costs will also hit developed economies, with companies from McDonald's to Kraft raising retail prices.

Higher food prices are also boosting overall inflation, which is above the preferred targets of central banks in Europe.

Compare the food CPI problems of the ECB, BOE & FED with the rest of the world.....

Der Rest der Welt kann über die Nahrungsmittelpreisprobleme der EZB, BOE & Fed wohl nur gequält lächeln.....

Please note that the chart above covers only the first 6 Month in 2010....Looking at the monthy price table it should be clear that the real spike happenend since July.....

Der obige Chart wird noch weniger appetitlich wenn man bedenkt das lediglich der Zeitraum bis einschließlich Juni 2010 berücksichtigt ist....Ein Blick auf den Food Price Index zeigt leider das der Löwenanteil des Anstieges im 2. Halbjahr vollzogen worden ist....


H/T FT Alphaville

Probably not an understatement that at least a "small" part of the increase is related to the wisdom of the central banksters around the world..... I´m very sceptical that without "QE" & with "credible" central bankers ( and politicians ) we would face similar headlines.....UPDATE: Speaking of "credible" people Ben Bernanke and the Price of Oil.....Wouldn´t surprise me if way too many on Wall Street & in the numerous "ivory towers" around the world are calling develompents like this "collataral damage"....

Denke es ist keine Untertreibung zu sagen das zumindest ein "kleiner" Anteil des Preisanstieges der geballten Weisheit der weltweiten Notenbänker geschuldet ist..... Ich kann mir nur sehr schwer vorstellen das wir ohne "QE" und mit "glaubwürdigen und vertrauenserweckenden" handelnden Personen ähnliche Schlagzeilen zu verkraften hätten...UPDATE: Da wir gerade von Glaubwüdigkeit gesprochen haben Ben Bernanke and the Price of Oil...Würde mich ebenfalls stark wundern wenn an Wall Street & in den leider reichlich vorhandenen "Elfenbeintürmen" eine solche Entwicklung nicht als "Kollataralschaden" bezeichnet wird.....
UPDATE:

Just in time comes the follwoing chart via FT Germany showing the correleation from REAL US rates ( rhs inverted ) & the commodity complex...... And the FED is not alone.....

Passender hätte der folgende Chart der FT Deutschland nicht sein können.....Mit Ausnahme des fehlenden "QE" Hinweises hätte ich den dazugehörigen Bericht nicht besser formulieren können .... Zu allem übel muß man leider feststellen das die FED in Ihrer Politik nicht allein auf weiter Flur steht.....

Real rates in the Euro area & UK....

Realzinsen unter Aufsicht der EZB und der BOE.......

H/T FT Deutschland

H/T FT Deutschland

Back with then original Story..... Weiter mit dem Eröffnungslink.....

The FAO said its food price index, a basket tracking the wholesale cost of commodities such as wheat, corn, rice, oilseeds, dairy products, sugar and meats, jumped last month of 214.7 points – up almost 4.2 per cent from November.

The FAO is drawing comfort from relatively stable prices for rice, one of the two most important cereals for global food security, which remains far below its record high. Rice is the staple of 3bn people in Asia and Africa.

The FAO food index is at its highest since the measure was first calculated in 1990. During the 2007-08 food crisis, the index reached a peak of 213.5 in June 2008

However, the cost of the other critical staple, wheat, is now rising fast on the back of poor harvests.

“This is a high prices situation,” said Mr Abbassian, although he pointed to the fact the costs of cereals – and particularly rice – were below the peaks set in 2007-08.

“Rice and wheat are, from a global food security perspective, the critical agricultural commodities, not sugar, oilseeds or meat,” he said.

The increasing costs of sugar, whose price recently hit a 30-year high, oilseeds and meat are the main reason behind the rise in the FAO food index

.

The rise of commodity prices makes it likely that the global food import bill will hit a record high in 2011,after topping $1,000bn last year for only the second time. In November, the FAO raised its 2010 forecast to $1,026bn, up almost 15 per cent from 2009 and within a whisker of a record high of $1,031bn set in 2008 during the food crisis.

At least the "food import bill" will provide incentives to withstand or slow down the "competitive devaluation trend".....UPDATE: Asia Fights Inflation With Stronger Currencies
Wenn man überhaupt etwas positives an der Situation erkennen will dann vielleicht das die bedrohlich steigenden Nahrungsmittelpreise den bisher vorherrschenden "Währungskrieg" mit der klaren Tendenz die eigene Währung künstlich niedrig zu halten, wenn auch nicht aufhalten, so doch zumindest verlangsamen könnte.....UPDATE: Asia Fights Inflation With Stronger Currencies

Agricultural commodities prices have surged following a series of crop failures caused by bad weather. The situation was aggravated when top producers such as Russia and Ukraine imposed export restrictions, prompting importers in the Middle East and North Africa to hoard supplies.

I think it´s a safe bet that around the world subsidies & government involvement ( food stamps, price controls, ban on exports etc ) will not "deflate".....

One uselful "involvement" would be to start with the derivatives complex... ;-)

Sicherlich wird weltweit das Thema Subventionen & "Regierungseinmischungen" ( Essensmarken, Preiskontrollen, Exportbeschränkungen usw. ) in den nächsten Jahren häufiger die Schlageilen dominieren....

Eine der wenigen produktiven "Einmischungen" wäre, wenn man sich dem Thema "Derivate & Terminbörsen" mal etwas genauer widmen würde... ;-)UPDATE:

Food production is down, hunger is up and prices are rising / INFOGRAPHIC The Globe And Mail

U.N. Data Notes Sharp Rise in World Food Prices NYT

Needless to say that the NYT & GAM make no reference when it comes to the relation of prices & "sound money" .... ;-)

Überflüssig festzustellen, das es auch die NYT & GAM versäumen zumindest in einem Nebensatz die nicht unwesentliche Korrelation von Preisen und "verantwortungsvoller Geldpolitik" zu erwähnen.... ;-)

Immerhin wunderschön zu sehen das eine Firma wie Monsanto, die bei diesen Nahrungsmittelpreisen eigentlich durch die Decke gehen müßten, noch immer 50% vom Hoch notiert.....Um meine SCHADENFREUDE zu verstehen, muß man sich zwingend Monsanto - mit Gift und Genen ansehen.... Meiner Meinung nach die beste und wichtigste Doku der letzten Jahre über eine Firma die wahrscheinlich über noch bessere Lobbyisten verfügt(te) als alle Banken der Wall Street zusammen ..... ;-)

More UPDATES :

Youths riot in Algeria over high food prices Associated Press

Riots over rising food prices and chronic unemployment spiraled out from Algeria's capital on Thursday, with youths torching government buildings and shouting "Bring us Sugar

Wednesday's violence started after evening Muslim prayers. It came after price hikes for milk, sugar and flour in recent days, and amid simmering frustration that Algeria's abundant gas-and-oil resources have not translated into broader prosperity.

Food Riots Commence As The Fed's Loose Money Policy Leads To First Violence Of 2011 Zero Hedge

Mann bei Protest gegen teures Essen erschossen Die Welt

Big Picture Agriculture / Lester Brown via Reformed Broker

In the United States, which harvested 416 million tons of grain in 2009, 119 million tons went to ethanol distilleries to produce fuel for cars. That's enough to feed 350 million people for a year.... The combined effect of these three growing demands is stunning: a doubling in the annual growth in world grain consumption from an average of 21 million tons per year in 1990-2005 to 41 million tons per year in 2005-2010. Most of this huge jump is attributable to the orgy of investment in ethanol distilleries in the United States in 2006-2008.

Bond Vigilanties

The reasons behind the ugly scenes in Tunisia are down to a combination of political and economic factors, but at least part of the discontent stems from rising food and energy prices

The problem these countries face is that food and energy prices are a much bigger percentage of an emerging consumer's shopping basket than for a developed consumer's basket. Food and energy therefore carry a much higher weight in domestic consumer price indices within emerging markets, which is something I discussed last year when going over some of the risks to the emerging market story

To an extent, higher food and energy prices are a result of expansionary economic policy in the US combined with a reluctance of emerging market countries (particularly China) to allow their currencies to appreciate versus the US dollar. Would it not be ironic if the very policies that US authorities have pursued to return the US economy to growth then proceed to be the cause of global economic weakness?

Food Stamp Usage Hits New High Of 43.2 Million ZH



It´s safe to say that without similar programs in the G7 countries we would see similar "riots" like in Algeria etc.....

Man muß kein Prophet sein, um zu erkennen das in den G7 Ländern ohne ähnliche Programme längst "ziviler Ungehorsam" wie momentan in Algerien, und demnächst wohl noch deutlich mehr Ländern, zu sehen sein würden....

The food price vulnerability index Citi via FT Alphaville / Tilt

The index has been created by Citigroup and its based on the idea that a country’s central banks are more likely to have to respond to a food price shock if:

1) the consumer price index is sensitive to changes in good prices.

2) growth is strong — the chances of contagion from food prices to core CPI are strongest when demand pressures are in any case robust.

3) Relatively loose monetary policy– on the grounds
that a country already behind-the-curve might have some nasty catching-up to do if a food price shock leads to a surge in inflationary pressures overall.

And China ticks all those boxes.

Back with a vengeance Economist

Russia Imposes Inflation-Driven Price Controls: Will Use Price Caps On "Socially Important" Commodities

Russia has just announced it would proceed with price caps on a variety of foodstuffs, from buckwheat, to potatoes, assorted fruits and vegetables and all other commodities it deems "socially important" accoding to Russian newspaper gazeta.ru.

Interactive Map Of Recent Food Riots And Price Hikes ZH

Visualizing "Froth" In China.......

Fits perfectly to the last post on the "China Syndrome".....

Paßt hervorragend zum letzten Post in Sachen "China Syndrome"...

H/T The Mess That Greenspan Made



In this context it really will be interesting how much of the recent credit bonanza will go bad... Here is one rough estimate....

Nachdem man den Clip gesehen hat dürfte klar sein das ein nicht unwesentlicher Teil der letzten Kreditexoplosion eher früher als später in die Kategorie "problematisch" fallen dürfte.... Hier kommt eine grobe Einschätzung....

WSJ

But 2009's lending has surely stored up some problems for China's banks. If, say, 20%of 2009's new loans go bad, and 10% of likely new loans in 2010 also run into trouble, total nonperforming loans would reach $381 billion, or 8% of China's 2009 GDP, UBS economist Tao Wang calculates. Nor has China ever truly resolved the bad debts it shifted off banks' balance sheets a decade ago.

Chanos: China Bubble Ready to Burst


With China the main driver of global markets it´s no wonder why i´m "sceptical" when it comes to China, the sustainability of the recent recovery & risk / reward ratios in almost any asset class.... ?

Thanks to the "Volcker Rule" Wall Street Finest can spin any correction of this overvalued / priced for perfection & overbought market on Washington / Obama.... In reality this is only the catalyst aka excuse to sell ( based in part on the "shocking" conclusion that the times for easy bailouts are finally over! > "Power To The People" ) ..... Can´t blame them ( except WSJ see bottom of the post ) ...... At least there is now a good chance that some of the "froth" & "complacency" will be "fleeing" the market.... ;-)

Wenn man jetzt in Betracht zieht das China den bisherigen Aufschwung an den Märkten zu einem ganz gewichtigen Teil geschultert hat verwundert es nicht das ich seit geraumer Zeit eine "skeptische" Sichtweise im Hinblick auf China, Nachhaltigkeit des Aufschwungs & Chance / Risikoverhältnis habe.... ?

Immerhin haben so die Strategen der Wall Street dank der "Volcker Rule" jetzt einen Anlaß gefunden diesen bereits seit einiger Zeit anfälligen ( weil bis zur Perfektion gepreist, überkauft & extrem bullishen Sentiment) Markt abzuverkaufen und den "Schwarzen Peter" Washington / Obama ( und der schockiernden Erkenntnis das die Zeiten der bedenkenlosen Bailouts vorbei sind > "Power To The People" ) zuzuschieben.....Kein Vorwurf ( mit Ausnahme des WSJ, siehe Ende des Postings ) ...... Immerhin dürften damit die Zeiten der extremsten "Übertreibungen" & fehlender "Wachsamkeit" zumindest für einige Tage der Vergangenheit anhören..... ;-)

WSJ Spin Barry Ritholtz

But it doesn’t take much looking to see other, more plausible, less politically motivated explanations than the floated Volcker/Obama proposal.

The market’s biggest losers were not finance related issues, but rather were commodity-related stocks.

While the financial sector suffered a 3% decline after some disappointing earnings from various banks, it was the commodities sector that got whacked 4.3%. China made a major announcement they were restricting bank lending to cool inflation and slow the economy.

The WSJ article? Never so much as mentioned China or commodities.

Oh boy.....WSJ goes Yellow Press......When i meant Wall Street Finest would spin the correction i had folks like Cramer, Strategist, Analysts, Guest on Bubblevision etc in mind.....

WSJ auf Bildzeittungsniveau.... Muß gestehen das ich mit der Behauptung das die überfällige Korrektur von den "Experten" Washington in die Schuhe geschoben wird eher an die üblichen Verdächtigen wie Volkswirten, Analysten, Strategen und regelmäßigen Gesten in den Medien gedacht habe.....

Chinese Banks Already Lend Out 20% Percent Of Targeted Loan Growth For 2010 Withing The First Two Weeks Of January

Does anybody remember my post from last week....? Thank god there are almost no ( other ) signs of "froth" & "complacency".... ;-)

Habe eigentlich meinem Posting von letzter Woche wenig hinzuzufügen.....Gottseidank sind ja ansonsten weit und breit keinerlei Anzeichen von "Übertreibungen" & fehlender "Wachsamkeit" zu erkennen.... Ansonsten könnte einem doch glatt Angst und Bange werden... ;-)

China Asks Some Banks to Limit Lending on Insufficient Capital Bloomberg

China has told some banks to limit lending and will restrict overall credit growth in the nation to 7.5 trillion yuan

ICBC, Bank of China and other lenders have effectively stopped granting new loans after the banking system extended about 1.5 trillion yuan in new credit during the first two weeks of this month, Market News International reported today

This equals almost 30% of the total 2008 volume.....Looks like China still needs more Ghost Towns .... ;-)

Die o.g. Zahl entspricht ca. 30% der Kreditvergabe die im gesamten Jahr 2008 stattgefunden hat... Sieht so aus als wenn China noch nicht genügend Ghost Towns in die Steppe gesetzt hat.... ;-)

Update: FT Alphaville

.....but the latest figures, issued Tuesday, show that full-year property sales in China zoomed by 75.5 per cent from a year ago to Rmb4,399.5bn($644bn), with residential sales jumping a whopping 80 per cent, according to the National Bureau of Statistics.

Sounds fairly bubbly to us, particularly considering that Chinese home prices rose nearly 8 per cent in December alone, the fastest growth in 18 months, despite new attempts by Beijing to cool speculative zeal.

Shanghai mortgages rise 1,600% in 2009 China Economic Review

Banks lent out US$14.58 billion in new mortgages in Shanghai in 2009, a 1,600%increase from the previous year, the South China Morning Post reported.

Of the total, US$5.7 billion went to buyers of new properties and US$8.88 billion to those buying second-hand properties, according to the People's Bank of China.

Average prices of Shanghai homes rose 68% from 2008

WSJ

"With exports facing hard times, real estate has become an important pillar of China's economic growth," said Ji Zhu, professor of economics at Beijing Technological and Business University. "No one wants to see housing prices fall," he argued— not investors, not property developers, and certainly not government officials.

HERDING......

Goldman: World Markets Teetering At Post Crisis Highs, All Betting On China BI



HORDING

What really drove Chinese commodity imports? FT Alphaville

Further to the suspicion that much in the way of Chinese metals imports are related to schemes to game the cheap money there by circumventing capital controls – -whether in order to bet on Yuan appreciation or commodity price rises

Havn´t heard the word "SUSTAINABLE" for a long long time.......

Habe merkwürdigerweise den Begriff "SELBSTRAGEND" bzw. "NACHHALTIG" lange nicht mehr im Zusammenhang mit den Märkten zu hören bekommen......

"Enron-Esque Characteristics" Hiding An Even More Explosive Credit Growth In China

Ob boy......Looks like the Chinese have learnt quite a bit from their western rivals....;-) All this confirms my "sceptical" view on the sustainability of the recent recovery in China...... Nice to see that this kind of creative accounting is rewarded with a big valuation premium.... You really cannot make this up..... For an up to date inside view on China i highly recommend the blog China Financial Markets from Michael Pettis. A must read.

Sieht so aus als wenn die Chinesen in Sachen Bankenbilanzierung schnell vom Westen gelernt haben.....;-) All das bestätigt mich in meiner "skeptischen" Sichtweise das was momentan in China abgeht nachhaltig ist.... Immerhin ist es nett zu sehen das solch "Kreativität" momentan mit einem gewaltigen Bewertungsaufschlag gehandelt wird..... Paßt hervorragend zum sonstigen Marktgeschehen.... ;-)Wer einen erstklassigen und vor allem zeitnahen Blick auf das Geschehen in China haben möchte für den sollte China Financial Markets von Michael Pettis Pflichtlektüre sein....

Then and now: Banks and their book value Graph FT Alphaville

China Cracks Down on Banks' Loan-Sale Practice WSJ
BEIJING—China's banking regulator has quietly cracked down on banks selling their loans to trust companies, taking aim at a little-understood category of transactions that had fueled concerns about transparency in the banking system.

The transactions at issue had enabled banks to move loans off their balance sheets by temporarily selling them to Chinese trusts, lightly regulated companies that then repackaged the loans into financial instruments for clients.

The banks promised to repurchase the loans any time between a few weeks and a few years later.

The China Banking Regulatory Commission issued a notice banning banks that sell loans to trusts from removing the loans from their balance sheets, said an executive in the risk management department of a Chinese bank who has seen the document. The notice was issue Dec. 24, but wasn't made public.

Banks have been unwilling to discuss the trust deals publicly, but analysts who had studied the transactions say the banks were using them to report lower loan totals at a time when China's government was indicating concern about credit expansion and pushing lenders to increase their capital ratios as a precaution against bad loans.

While no official data on the loan-sale practice is publicly available, Shanghai Benefit Investment Consulting, a research company, estimates that 734 billion yuan ($107.53 billion) of bank loans were packaged into trust products in 2009.

About 80% of that was issued in the second half of the year, as Beijing's concern about loan growth mounted

The volume of new bank loans more than doubled in 2009, as Chinese lenders-almost all of which are majority owned by the state—assisted government efforts to stimulate the economy.

Not all the loans sold to trusts fall into the category barred by the CBRC notice, but the order appears to have nearly halted such transactions. According to Shanghai Benefit, only seven new trust products backed by banks loans have gone on sale this month, compared with 465 for the whole of December.

The regulatory change could add to difficulties for some Chinese banks that were already facing constraints on their lending this year by the declines in their capital-to-loan ratios as a result of last year's credit explosion.

Still, analysts say it's likely to be another banner year for bank lending in China, with many forecasting 2010's new loans will be between seven trillion and eight trillion yuan, down from around 9.5 trillion last year but far above the annual average for previous years.

> To put this number into perspective the loan figure for a booming 2008 was under 5 trillion Yuan......

> Um das in Verhältnis zu setzen muß man wissen das im Boomjahr 2008 unter unter 5 Billion Yuan an Krediten vergeben worden sind....

UPDATE:

> Looks like they have already "achieved" almost 8% percent of their 2010 lending target ( 12% of the 2008 loans....) within the first week.... Second UPDATE: Chinese Banks Already Lend Out 20% Percent Of Targeted Loan Growth For 2010 Withing The First Two Weeks Of January & Visualizing "Froth" In China....... Hey, but "Don´t Call It A Bubble"...... ;-)

> Sieht ganz so aus als wenn die chinesischen Banken bereits knapp 8% der für 2010 ( oder 12% der im Jahr 2008 ausgegebenen Kredite ) "vorgesehenen" Kreditvergaben in der ersten Januarwoche ausgekehrt hätten......"Don´t Call It A Bubble"...... ;-) Zweites UPDATE Chinese Banks Already Lend Out 20% Percent Of Targeted Loan Growth For 2010 Withing The First Two Weeks Of January & Visualizing "Froth" In China....... ....Bernanke würde jetzt sagen "Don´t Call It A Bubble"......

Between January 4 and 8, commercial banks issued loans worth 600 billion yuan, a new high in years. Caing.com

It seems that China's commercial banks have slowed the lending pace due to warnings from the People's Bank of China (PBOC) and banking regulator. However, new statistics showed that the pace actually accelerated during the first week of 2010.

New lending by banks reached 600 billion yuan, with the five biggest banks accounting for 280 billion yuan, according data obtained by Caixin Media.

> Let´s hope that at least a small part from the staggering amount is related to the reintegretaion from the "funny" off balance sheet structures.....

> Bleibt nur zu hoffen das zumindest ein kleiner Teil der unglaublichen Summe darauf zurückzuführen ist das einiges wieder in die Bilanz eingegliedert worden ist.....

Update:

China Hits Brakes on Economic Stimulus WSJ

China, which for more than a year has been pushing its banks to pump out cash to offset the global downturn, abruptly reversed course Tuesday, in the clearest sign yet that Beijing has turned its attention to controlling the repercussions of that credit explosion.

Starting Monday, most Chinese commercial banks will be required to put 16% of their deposits on reserve, an increase of a half percentage point.

The new rate will effectively lock up 300 billion yuan, or around $44 billion, that might otherwise have been lent, according to Tom Orlik, China analyst at Stone & McCarthy Research Associates.

Next to the 40 trillion yuan or more in loans outstanding and a 24 trillion yuan stock market, that is a small amount.

> Sweet Babystep... Too little and definitely way too late.....

> Wie niedlich..... Bestenfalls ein Anfang und definitv erheblich zu spät.....

"Power To The People" Iceland Edition......

I expect that hand in hand with a rising Sovereign Misery Index the times for bailing out anyone without ( hopefully non violent ) brewing tensions & extreme political backlash are at least getting tougher (outside the US ;-) ..... Needless to say that i largely agree with the following quote from Mish... Iceland has a good chance to nagotiate a much better deal after the referendum......

Ich denke das Hand in Hand mit einem steigenden Sovereign Misery Index die Zeiten der "bedenkenlosen" Bailouts ( Ausnahme selbstredend die USA ;-) ohne "größeren" öffentlichen Widerstand ( hoffentlich weiterhin gewaltfrei ) nicht mehr ohne weiteres ohne politische Folgen durchgewunken werden können... Überflüssig zu erwähnen das ich größtenteils mit dem nachfolgenden Fazit von Mish übereinstimme..... Ich jedenfalls wäre ebenfalls erbost für Kunden, die wegen eines minimalen Zinsvorteiles oftmals mit gewaltigen Summen zu Kaupthing & Co gewechselt sind, jetzt die Zeche zu zahlen...... Gehe jede Wette ein das Island nachdem das Referendum stattgefunden hat einen deutlich besseren Deal aushandeln kann und wird......

Iceland's President Effectively Tells UK "Go To Hell" - Hooray For Iceland Mish

Congratulations to Iceland for figuring out that it is better to suffer a credit rating downgrade than to torture its citizens for a decade or longer Iceland may have other problems but at least that one was resolved (hopefully), the quick and painless way.

And that should have been the model for US banks as well. The stockholders and bondholders should be the first ones wiped out.

Instead Bush started and Obama continued with a policy to punish the innocent to bail out the wealthy, leaving the average taxpayer deep in the hole, against the clear will of the majority.

Photo Gallery: Iceland's Deeply Unpopular Payback Der Spiegel

WSJ Iceland's president vetoed a bill to reimburse the U.K. and the Netherlands for bailing out depositors of a failed Icelandic bank, throwing into question the international plan to rescue the island nation's banks and casting doubts on its bid to join the European Union.

President Ólafur Ragnar Grímsson on Tuesday cited massive public opposition in his decision to reject the bill, which was approved in late December by the Icelandic parliament after months of wrangling.

Iceland's president is the head of state, but rarely wields real executive power.

The veto was only the second time since Iceland's independence from Denmark in 1944 that a president used that authority.

Under Iceland's constitution, the bill -- which calls for nearly $6 billion in repayment ( The money represents 40 per cent of the country's gross domestic product via Times Online, see also Wikipedia ) over 15 years, plus interest -- will be put to a public referendum.

Opinion polls suggest it has little chance. ( 70% against )

But without the payback, Iceland may lose or delay access to badly needed bailout money from the International Monetary Fund and Nordic neighbors. The IMF has approved $2.1 billion in

British and Dutch authorities were stern. The U.K. Treasury said Britain "expects Iceland to live up to its obligations."

"We are very disappointed about the decision," said a Dutch finance ministry spokesman. "Iceland has the obligation to pay back the money."

Almost since the onset of the financial-system collapse in October 2008, Icelanders have blamed a cadre of greedy bankers for turning a prosperous nation into an international economic pariah.

There is strong resistance to piling debt on ordinary citizens to undo the bankers' mess. The bill would have seen Iceland repay the U.K. £2.35 billion ($3.79 billion) and the Netherlands [euro €1.32 billion ($1.89 billion) over 15 years.

That amounts to nearly $20,000 for each of the 300,000 Icelanders.

The October 2008 collapse of one bank, Landsbanki Islands, triggered the trouble.

Hundreds of thousands of British and Dutch depositors, wooed by high interest rates, had placed money with Landsbanki through an Internet arm operating in those countries called Icesave

Under European financial rules, Iceland was required to maintain deposit insurance for those customers, but the collapse of all three of the island's big banks swamped the tiny insurance program. Britain and the Netherlands stepped in to cover their own citizens, and then demanded the money back from Iceland.

Eiríkur Svavarsson, a spokesman for InDefence, a group of Icelanders that organized the petition, said the country would honor its debts but would do so "in line with its economic strength."

It isn't clear how badly Mr. Grímsson's veto will disrupt the international aid on which Iceland depends. The IMF has said its funding isn't directly tied to an Icesave resolution, but notes that other lenders have made that condition, and it is reluctant to put money forward if others don't.

After the veto, Fitch Ratings cut Iceland's long-term foreign-currency credit rating to junk and said the future outlook was negative. Fitch also cut the long-term local-currency rating to BBB-plus.

NYT

But the presidential rebuke is being described as a momentous decision for Iceland. It also highlights a widening rift between European governments — pressed by bond investors, ratings agencies and the International Monetary Fund to cut budgets and shrink deficits — and their recession-battered citizenry.

Late last month, the constitutional court in Latvia vetoed a move by the government there to cut pensions in line with an I.M.F.-sponsored austerity package. That development threatens the I.M.F. agreement and the country’s ties with foreign creditors.

Governments in Ireland, Greece and even Britain are also finding it difficult to satisfy both bond investors and voters

> I highly recommend to read the official declaration..... Well said!

> Empfehle sich die offizielle Deklaration im Wortlaut durchzulesen..... Klasse und einleuchtend logisch!

Ice Land Declaration

> Here a very good clip how from 2008 how Iceland got into deep deep troubles.....

> Hier ein sehenswerter Clip aus dem Jahr 2008 der schön aufzeigt wie Island in den Abgrund stürzen konnte.....

> I just couldn´t resist to post this Kaupthing Bank commercial..... You cannot make this up...... Enjoy if you are not an Icelander.....

> Kann mir nicht verkneifen nochmal die inzwischen berühmte Werbung der Kaupthing Bank zu bringen..... Tragisch genial! Für alle die nicht Isländer sicher ein Vergnügen......



H/T Ultimi Barbarorum

Trade Tensions Are Brewing........

Juts what the doctor ordered...... As i´ve feared last week the "conditions" for world trade are not getting better...... Lets all hope that the tensions don´t escalate....... Just in China to request WTO consultations with US over tyre dispute - Commerce Ministry China says: - US tyre decision violates WTO rules. - Wants dialogue with US on tyre tariffs.Source: RTRS

Würde noch zum perfektem Sturm fehlen...... Wie bereits letzte Woche befürchtet verbessen die die "Rahmenbedingungen" für den immer noch in der Reha befindlichen Welthandel nicht wirklich. Die Spannungen zwischen einzelnen Ländern und der Ruf nach Protektionismus wird doch deutlich vernehmbarer. Bleibt nur zu hoffen das diese nicht wirklich eskalieren....... Update: China to request WTO consultations with US over tyre dispute - Commerce Ministry China says: - US tyre decision violates WTO rules. - Wants dialogue with US on tyre tariffs.Source: RTRS )

A Tale of Two Depressions VOX

The downward spiral in global trade volumes has abated, and the most recent month for which we have data (June) shows a modest uptick. Nonetheless, the collapse of global trade, even now, remains dramatic by the standards of the Great Depression.

Volume of world trade, now vs then

China Probes ‘Unfair Trade’ in U.S. Chicken and Auto Products

Sept. 14 (Bloomberg) -- China announced dumping and subsidy probes of chicken and auto products from the U.S., two days after President Barack Obama imposed tariffs on tires from the Asian nation.

Chinese industries complain that they’re being hurt by “unfair trade practices,” the nation’s Ministry of Commerce said on its Web site yesterday. The dumping investigation relates to poultry alone, a spokesman said in Beijing today. The ministry didn’t specify the value of imports of the products.

Rising protectionism may hamper world trade and undermine the global economy’s recovery from recession, the European Central Bank ( see end of the post for details )said last week.

The U.S. placed tariffs starting at 35 percent on $1.8 billion of tire imports from China, backing a United Steelworkers union complaint against the second-largest U.S. trading partner.

China Reacts Quickly and Badly to Tire Tariffs Naked Capitalism

It would be better if we were not proven correct on this one, but when the US imposed stiff tariffs on imported tires from China late on Friday, we noted, “This could get interesting in a bad way.” The Chinese responded quickly over the weekend to announce they were investigating US auto parts and chicken, which together account for roughly as much as the disputed tires ($1.2 billion versus $1.3 billion for tires).

But protectionism is driven by the desire to protect jobs. Unemployment has not peaked in the US, and some analysts suggest that China’s job losses are far worse than the 20 million often bandied about, more on the order of 30 to 50 million. So political pressure is set to intensify.

The New York Times treats the Chinese reaction as a surprise. But the tire tariffs relied upon a special provision in the WTO agreement for China’s entry that set a lower bar for trade violations than the normal anti-dumping sort. This is the first time that rule has been used as the basis for an action against China, and China may feel it important to fight that precedent.

Obama Risks Global Trade War With Misguided Tariffs Mish

Not a single job will return to the US as a result of these tariffs. Imports from China will drop but imports from elsewhere will rise.Thus, the unfortunate tragedy in this mess is that Obama's kowtowing to the unions is going to cost union jobs. The ultimate irony is misguided unions are cheering every step of the way.To date, Obama is repeating the same mistakes Roosevelt and Hoover made during the Great Depression

Now, Obama's tire and steel tariffs will strongly encourage more unions and labor groups to seek relief under "Section 421" of U.S. trade law. That misguided law does not require petitioners to prove unfair trade practices.

If Obama keeps this foolishness up, which right now seems highly likely, he risks a global trade war similar to the global trade crash kicked off by the Smoot-Hawley Tariff Act signed by President Hoover in the early stages of Great Depression.

China Strikes Back on Trade WSJ

Citing a jump in Chinese imports, the Obama administration said Friday it would impose stiff tariffs on Chinese-made tires for the next three years, invoking a section of trade law that China agreed to as a condition for its joining the World Trade Organization in 2001. The move essentially would cut off the source of nearly 17% of all tires sold in the U.S. last year and hit cost-conscious consumers particularly hard, as retailers will have to find alternative sources for the lower-end tires that make up much of what China sends to the U.S.

Beijing responded quickly. Sunday, its Ministry of Commerce said it was starting antidumping procedures against U.S. exporters into China of chicken and auto products. It said it had received complaints from local producers that the U.S. products were being dumped in China at below-market prices. The ministry denied that the move, which could lead to sanctions, was protectionist.

Both chicken and auto products have been part of a battle between China and the U.S. in which both sides have already instituted trade-restricting measures. China has already effectively blocked U.S. exports of poultry products in retaliation for a similar U.S. block of Chinese poultry. And earlier this year, China raised tariffs on imported auto parts.

Foreign businesses operating in China have also argued that China is itself engaging in protectionism. The European Union Chamber of Commerce in China recently released a catalog of business complaints chronicling a deteriorating atmosphere for foreign enterprises operating in China. The country's recent stimulus package, for example, in some cases favored domestic manufacturers, the EU Chamber said.

Chinese President Hu Jintao is set to meet Mr. Obama this month at an economic summit in Pittsburgh. Mr. Obama is to visit China in mid-November.

Chinese officials "are definitely going to do something to express their dissatisfaction, but it won't be serious," Mr. Yan said. "The two sides need each other."

Michael Pettis / China Financial Markets

A few months ago I wrote about an HKMA paper that suggested that the implicit interest-rate subsidy to SOEs ( State Owned Enterprises)– not relative to the “right” interest rate in China (whatever that may be but which is certainly many percentage points higher than the official lending rates) but relative to the borrowing cost of large Chinese private corporations – accounted for 100% of SOE profitability. If China had reasonable interest rates, in other words, (and in fact there were negative real rates for much of the recent past), SOEs would on average be value destroyers.

Most of the press focus is on US-China disputes, and the truth is that these matter a lot because this is the most important trade relationship, but trade-surplus countries are in disputes almost everywhere. This, in my opinion, is only likely to continue. I suspect that we will make a concerted effort to coordinate the adjustment process only after things have gotten much worse for everybody.

>Here is the comment from the ECB.....

>Hier der oben angesprochene Kommentar der EZB......

Protektionismus : EZB sieht "Spirale der Vergeltung" FTD

The ECB is pointing to a study that after the G-20 Summit in November 2008 17 of the 20 states have been implementing protectionist measures.... This is in stark contrast to what they have promised ( my translation )

Sie verweist auf eine Studie, nach der nach dem G-20-Gipfel im November 2008 17 der 20 Staaten protektionistische Maßnahmen angekündigt hatten - obwohl sich die Staats- und Regierungschefs dort klar gegen jeden Protektionismus ausgesprochen hatten

Competitive Devaluation "Israel Edition"

With exports making up about 45% of the country's economy it is no wonder the Bank of Israel is intervening massively.....More countries will follow the Swiss, Israel & China......Will be interesting to see when Japan will voice "their concern" about the recent Yen strength.....This are not good news for global trade......I expect the € to be the main target of the intervetions.... More significant "headwinds" for European exporters.......

Da Exporte knapp 45% der Wirtschaftsleistung ausmachen ist es wenig verwunderlich das die Bank of Israel diesen für alle Tradingpartner ungünstigen Weg gewählt hat gegen den Shekel zu intervenieren......Denke das auf Sicht sich immer mehr Länder der Schweiz, Israel und China ( die USA kommen ja schon seit geraumer Zeit ohne Interventionen aus... ;-) anschließen werden.... Bin gespannt wann Japan in den Ring steigt und sein "Unbehagen" über die jüngste Yen Stärke zum Ausdruck bringt......Unschwer zu erkennsen das dies auf Dauer für den globalen Handel wenig förderlich ist..... Da der Großteil der Anpassungen zu Lasten des € geht sind das alles in allem keine guten Nachrichten für die europäischen Exporteure......


Israel's Fischer Wins Kudos for Central Bank Role Amid Crisis WSJ

From May 2008 through the end of last month, Mr. Fischer spent $28.4 billion, or about 14% of Israel's gross domestic product, buying foreign currency. While the central bank never said it was acting to weaken the Israeli shekel, the purchases did just that, helping to keep Israeli exports competitively priced.

> If you consider that since the intervetion the Shekel has devalued even against the Greenback you know how "succsessful" they have been.....You can watch the effects on the exchange rate here ( switch to the 1 year chart )

> Man muß eigentlich nur erwähnen das der Shekel seit der Intervention sogar gegenüber dem USD abgewertet hat..... Einen besseren "Erfolgsnachweis" kann es nicht geben......Den Effekt der Anwertung kann hier ( bitte die Jahrescharts Einstellung wählen ) "bewundert" werden

Update:

US Fires Opening Salvo In Trade Wars With China Mish

Trade Tensions With China Quietly Escalating Naked Capitalism

Protektionismus : EZB sieht "Spirale der Vergeltung" FTD

Sie verweist auf eine Studie, nach der nach dem G-20-Gipfel im November 2008 17 der 20 Staaten protektionistische Maßnahmen angekündigt hatten - obwohl sich die Staats- und Regierungschefs dort klar gegen jeden Protektionismus ausgesprochen hatten

The ECB is pointing to a study that after the G-20 Summit in November 2008 17 of the 20 states have been implementing protectionist measures.... This is in stark contrast to what they have promised ( my translation )

A Tale of Two Depressions VOX

The downward spiral in global trade volumes has abated, and the most recent month for which we have data (June) shows a modest uptick. Nonetheless, the collapse of global trade, even now, remains dramatic by the standards of the Great Depression.

Volume of world trade, now vs then

Protectionism On The Rise....."China Edition"

First the US and now China ( the country with the biggest surplusses ) ...... Just what the doctor ordered...... Now combine this with the following chart ( for more more "depressing" charts see A Tale of Two Depressions & World Trade Shrinks ) and we all can only hope that this kind of "cancer" isn´t spreading.... But i have some serious doubts.....

Nachdem die USA ja bereits trotz einmal mehr großer Worte von Obama die "Buy American" Klausel in Ihrem Konjunkturpaket haben festschreiben lassen kommt jetzt der nächste Tiefschlag...... Wenn die Weltkonjunktur eines nicht gebrauchen kann dann ist es eine Ausuferung des Protektionismus. Der Welthandel ist eh im freien Fall ( siehe klasse Chart via WSJ World Trade Shrinks )..... Das jetzt ausgerechnet China ( das Land mit den größten Handelsüberschüssen ) genau in diese Richtung marschiert ist mehr als bedenklich und läßt einem bei dem nachfolgenden Chart ( mehr depressive Charts via A Tale of Two Depressions ) noch pessimistischer in die Zukunft blicken.......

‘Buy China’ policy set to raise tensions FT

China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus programme in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world.

In an edict released jointly by nine government departments, Beijing said government procurement must use only Chinese products or services unless they were not available within the country or could not be bought on reasonable commercial or legal terms.

The government also said it was launching an investigation in response to complaints from domestic industry associations which accuse local governments of favouring foreign suppliers in procurement related to the country’s Rmb4,000bn ($585bn, €421bn, £356bn) economic stimulus package.

Just a few months ago Beijing was raging against a proposed “Buy American” clause included in the US economic rescue package.

“Some countries raised clauses to prioritise the purchase of products of their own countries in their economic stimulus packages,” Yao Jian, a Chinese commerce ministry spokesman, told reporters in February. “We express deep concern about these [measures] ... under the current financial crisis, measures issued by all countries should not cause negative impacts, and especially they should not send out wrong messages.”

Most economists agree China’s economy is starting to recover as a result of its aggressive stimulus package but the country is still struggling with unemployment and fears widespread layoffs could lead to serious social unrest.

The edict was issued jointly by the legislative office of the State Council,China’s cabinet, the national development and reform commission (the country’s powerful state planning agency) and the ministries of industry and information, supervision, housing, transport, railways, water resources and commerce.

The new edict bans local governments and departments from discriminating against domestic suppliers in their procurement. Foreign companies operating in China argue that the opposite is in fact true and that they have been largely cut out of procurement related to the government’s stimulus package.

> More evidence via Michael Pettis that the potential for trade conflicts are rising......

> Hier ein anderes Beispiel das verdeutlich das sich Risiko von Handelskonflikten sich merklich erhöht hat.....

Trade tensions are not improving. Last week I had dinner with a very senior China manager at a large German company and he told me expected anti-dumping suits to surge in the first quarter of next year. As if to beat him to the punch yesterday’s Financial Times came up with this story (“China accused of predatory pricing practices”)

“We are puzzled by this discussion, especially since most European companies operating in China are locally incorporated and have not benefited directly from the government’s stimulus package,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China.

“Requiring government procurement to favour Chinese goods and services certainly won’t help to address China’s trade surplus of €170bn.”

UPDATE: Ambrose Evans-Pritchard

China risks trade suicide Beijing is playing with fire by issuing a `Buy China' edict for its stimulus package.

Beijing risks making the same catastrophic error as the US Congress when it passed the US Smoot-Hawley Tariff Act in 1930. America was then the rising surplus power, like China today. It was the chief beneficiary of an open global system.

By imposing tariffs, Washington triggered massive retaliation. While nobody escaped the Great Depression that ensued, the effects were unequal. The US suffered a far steeper decline in output than the rest of the world. Britain muddled through relatively well in a trade bloc behind Imperial Preference.

China’s action is extremely disturbing. It confirms what we have long feared, that the Chinese government is sufficiently worried about rising unemployment to adopt suicidal measures. Nor does this episode instill confidence in the `China recovery story’.

China kennt die Kraft der Illusion FTD

Das Land will nur noch chinesisch kaufen, frisiert volkswirtschaftliche Statistiken und hängt weiter vom Ausland ab. Ganz schön merikanisch geworden

Die bisher größte Verwunderung löste Peking mit dem für das vierte und das erste Quartal gemeldeten BIP-Wachstum aus - 6,8 und 6,1 Prozent im Jahresvergleich sollen es gewesen sein. Das erstaunt, wo doch die Stromproduktion seit dem vierten Quartal zwischen einem und zehn Prozent im Vergleich zum Vorjahr rückläufig war. In China entfallen 80 Prozent des Stromverbrauchs auf die Industrie.

Number Of The Day "Japan´s Export Plunge Record 27 Percent"

WOW! The strong Yen didn´t help......... I expect that the entire currency complex has the potential to become the next "battleground" ( hopefully not combined with "trade wars" see Has Beggar Thy Neighbor Started? via Naked Capitalism & The Major Risks for 2009: Tariffs, Wars, Currency, etc. from Merrill Lynch's David Rosenberg via Infectious Greed)........ The race to the bottom is already underway..... Let´s hope that we won´t see a crash of a major currency ( british Pound )...... At least there will be always a bull market ( one weak vs another less weak currency)..... Got Gold......?

Donnerwetter! Bleibt zu hoffen das wir als vergleichbare Exportnation etwas besser abschneiden...... Denke den Japanern wird gerade jetzt der erstarkte Yen nicht sonderlich gefallen..... Ich befürchte das uns das Thema Wechselkurse in den kommenden Jahren desöfteren heimsuchen wird ( hoffnetlich nicht auch in Form von "Handelskriegen" siehe auch Has Beggar Thy Neighbor Started? via Naked Capitalism & The Major Risks for 2009: Tariffs, Wars, Currency, etc. von Merrill Lynch's David Rosenberg via Infectious Greed)...... Der Versuch die Währung möglichst schwach zu halten ist weltweit bereits im vollen Gange. Ich würde mir nur wünschen das wir das ohne Kollaps eine der größeren Währungen überstehen. Denke da besonders an das britische Pfund...... Immerhin ermöglichen diese Märkte immer einen garantierten Bullenmarkt ( schwache vs einer wenigen schwachen Währung ) ...... Got GOLD?

Thanks to Bespoke

Japan Exports Plunge Record 27% as Recession Deepens Dec. 22 (Bloomberg) -- Japan’s exports plunged the most on record in November as global demand for cars and electronics collapsed, signaling more factory shutdowns and job cuts are likely as the recession deepens.

Exports fell 26.7 percent from a year earlier, the Finance Ministry said today in Tokyo. That was more than the 22.3 percent decline estimated by economists and the sharpest since comparable data were made available in 1980.

Shipments to the U.S. slid an unprecedented 34 percent and sales to China slumped the most in 13 years

The government today lowered its assessment of the world’s second-largest economy, saying it’s “worsening” for the first time since 2002. Gross domestic product shrank in the past two quarters, sending Japan into its first recession since 2001.

Toyota, Honda Motor Co. and Sony Corp. are among the companies that are shedding thousands of workers and closing production lines as profits dwindle. Car exports slid 32 percent last month, the most ever, and semiconductors slumped 29 percent, the ministry said.

UPDATE : Toyota Forecasts First Operating Loss in 71 Years on Yen, Sales

Compounding the drop in demand is the stronger yen, which erodes overseas profits. Every 1 yen gain against the dollar and euro trims Toyota’s annual operating profit by 40 billion yen and 6 billion yen, according to the company. The carmaker in November based its second-half earnings outlook on 100 yen to the dollar and 130 yen to the euro.

Today’s report showed the global recession is spreading to the emerging markets that propped up exports as demand from the U.S. and Europe evaporated. Exports to Asia fell 27 percent, the most in 22 years. Shipments to China, Japan’s largest trading partner, tumbled 25 percent, the steepest decline since 1995.

Exports to Europe slid 31 percent, the second-most ever.