from : Le Figaro

Menace de gel des marchés Fear of frozen financial markets

Dans ce contexte, sans céder à la panique, les entreprises américaines prennent leurs précautions. Leur hantise : une crise de confiance sur les marchés de crédit qui gèlerait à nouveau les circuits normaux de financement, comme durant l'automne 2008. Tirant les leçons de cet épisode, beaucoup ont dopé leurs montants de liquidités. «Notre principale protection contre un scénario défavorable, ou une issue mouvementée, est d'avoir beaucoup de liquidités», avoue par exemple Keith Sherin, directeur financier de General Electric. Le plus grand conglomérat des États-Unis disposait du coup de 91 milliards de dollars en cash fin juin. D'autres trésoriers comme ceux de Ford et Eaton ont récemment confirmé leurs mesures préventives en matière de trésorerie disponible.

Pour les gérants de fonds mutuels, en particulier les sicav obligataires, l'augmentation de la part liquide de leurs actifs est une précaution en cas de demandes de retraits plus fortes que d'ordinaire de la part d'épargnants inquiets. Selon le cabinet iMoneyNet, la liquidité des fonds investis en obligations d'État est remontée à 70% contre 62% début juin. Même les États américains se préparent au pire. La Californie par exemple a choisi d'emprunter 5 milliards de dollars auprès de banques dès aujourd'hui, plutôt que d'attendre le mois d'août et risquer d'avoir à payer plus cher. Une dégradation de la dette américaine se traduirait en effet par la dégradation dans la foulée de quelque 7.000 collectivités locales américaines.

Sad!

Debt (cont'd)

by : Caroline Pailliez

WORRISOME

Economists are worried by the impass which American politicians seem to have reached over the ceiling to the US debt.

«Members of Congress need to reach a decision as soon as possible. The official deadline is August 2, but in reality the American President has till next Friday to find a way to up the debt ceiling. Because it could take a few weeks for the various States and members of both political parties to ratify an agreement.» explains Sébastien Lavoie, economist with the Banque Laurentienne.

In a press conference this morning, Barak Obama has given Congress 36 hours to find a solution.

«American Treasury Bonds are used in most financial transactions. The US dollar is the reference currency. If it should strongly devaluate, the whole of the financial system would be severely shaken» claims Carlos Leitao, chief economist for Real Estate, Banque Laurentienne.

«The United States are great borrowers. which means that by creating uncertainty, they worry their creditors, such as China, for example, which could well decide to diversify its holdings.The United States could find it more difficult to finance themselves on the markets», says Paul-André Pinsonneault, chief economist, Banque Nationale groupe financier.

Everyman Affected

In the end, ordinary consummers will bear the brunt of the costs. « If they do not find a way to agree among themselves, American politicians will have the choice to not pay their debtors or to cut directly into programs and raise taxes to find financing, thinks Germain Belzile, research director to the Institut économique de Montréal. Interst rates will rise quickly, which will strain consumption all the more.»

For every dollar expended, the government currently borrows 40 cents. «This means that if they do not finance themselves on financial markets, the US wil lhave to cut 40% of their programs,» adds Mr Lavoie.

A Political Game

«Upping the debt ceiling is something the government does regularly. But never with such difficulty. With press conferences and public interventions, Barack Obama is putting supplementary pressure on Republicans» feels Mr Belzile.

The Republicans wish to reduce expenses by 2 400 billion dollars US in exchange for their accord with upping the debt ceiling, without having to augment taxes for the better off in the bargain.

Debt

source: Le Monde 15.07.2011
Romain Brunet


The American Debt : a risky strategy pursued by the Republicans

Can one expect to see an agreement on a new ceiling for the American debt before August 2? The days go by and negotiation seems at a standstill between the White House andtheRepublicans, now in a majority in the House of Representatives. President Barack Obama, Treasury Secretary Timothy Geithner, President of the Federal Reserve Ben Bernanke, and the rating agencies Moody’s and Standard and Poor have all forwarned : default of payment on the part of the United States would have grave economic consequences for the counry and the world at large.

Over and above the debt problem, it is a power battle that has been at issue for the lastweeks in Washington. The Republicans have demanded that the American President agree to lower expenses in return for a higher debt ceiling. Barack Obama has accepted this principle and was ready in July, to agree to a deficit reduction of 4 000 billion dollars over ten years with 3 000 billion in budget cuts and 1 000 billion in increased income.Unacceptable for the opposition, which will not hear of increased taxes.

Eric Cantor, elected member form Virginia and nuber 2 of the Republican group inthe House of representatives, has become something of a hero for the young newly elected out of the Tea Party stream, seeming at times to take the place of John Boehner, Speaker of the House. The latter arrived in Congress in January firmly committed to reducing government spending and are ideologically opposed to any augmentation of fiscal pressure. «It would be nonsense to impose higher taxes on Americans in an economy such as this one, argued Mr Cantor, Friday July 8. We will not raise taxes, do not have the backing of the electorate to raise taxes» he repeated, Monday July 11.

PRECEDENTS IN 2011

As with Republicans claiming Tea Party allegiance, Eric Cantor is proving to be intransigent on this question since beginning negotiations with the White House, thus risking putting the United States in a default situation. «There is only one person who has not made the slightestconcession, bemoaned, Wednesday July 13, Democratic Senator Charles Schumer referring to Mr Cantor. One cannot let Eric Cantor decide everything. If Eric Cantor decides everything, I am afraid we will go into default.»

It is not the first time that Republicans have proven to be inflexible this year. During discussions on the 2011 budget, in April, they had obliged the Democrats to cut expenses, waiting for the last minute before sighning an accord and coming close to a paralysis of the federal government, a ‘shutdown’.

Minnesota, for its part, was not able to avoid a shutdown, on July 1. The Democratic Governor and the Republicans controlling the local Parliament unable to come to an accord on the State budget, government had to stop, leading to closing administrative services. parks, autoroutes and making technically unemployed twenty-two thousand employees, reports the New York Times. As is now the case for Barack Obama and the Republicans in Congress, Mark Dayton came up against a refusal on the part of Republicans in his State to augment taxes. Paralysis in Minnesota lasted two weeks, until the Governor finally gave in, Thursday July 14.

NEWT GINGRICH’S FAILIURE IN 1995

Eric Cantor is hoping to get the same result from president Obama. But the impact of a defult on the part of the United States would be greatly more negative thatn a ‘shutdown’ of one of the federated States. As much for Republicans as others. This is essentially what declared, Wednesdy July 13, Senator Mitch McConnell, leader of minority Republicans in the Senates and author of a counter-proposition to permit upping the debt ceiling. «I refuse to help Barack obama get re-elected by pushing Republicans to become responsible for a bad economy», he stated, adding that such a strategy had failed in the past.

In 1995, The Republicans, who controlled Congress, had in effect opposed Democratic President Bill Clinton on the financing of a number of federal programs, leading to a paralysis of the Federl State between November 14 and 19, and then from December 16 to January 6 1996. « The reason why a default is no better an idea now than had been that of Newt Gingrich in 1995, is that it destroys your image..(...) That had helped Bill Clinton get re-elected and I do not wnat to helf Barack Obama», warned Mr McConnell.

The warning on the part of the Senator from Kentucky does not seem to have been heard. Republicans in the House of Representatives thus announced, Friday July 15, that they would vote, Wednesday July 20, a plan to up the ceiling accompagnied by an amendment to the constitution to impose a balanced budget. The proposition would lower federal expenses by 2 500 billion dollars and would limit administrative expenses to a percentage under discussion. A plan which Barack Obama has already rejected, and has qualified as «not serious».

Cosine

Recherche

There is a research phase to colouring comics in the Franco-Belgian school : it is called‘recherche d’ambiance’ i.e. finding the right lighting and colour ingredients for a given scene and time of day. Here I have chosen a scene from the Web that shows the coastline of Holland and lifted the colours using Photoshop. The imagine is quite evocative; if one looks closely there is a city at the horizon and windmills to the left.

Overnight

Scale

Rotation

from Largo Winch,vol XVII : Francq & Van Hamme, Mer Noire, 2010.


New York, November 2008.

To all associates of Goup W.

Since the second semester of 2008, the world economy has been heavily burdened by the financial crisis. Let us review briefly the unfolding of this unravelling whose origin can be found in the United States.

Between 200 and 2003, the price of home ownership in the U.S. nearly doubled. Meanwhile, and in parallel, the prime rate set by Federal Reserve went from 6,25% to 1% in order to stimulate a national economy gone into recession. As a result :still hooked on consummerism, US citizens multiplied low interest-rate loans, for the most part against their homes. And credit brokers, engaged in a fierce competition among themselves, became less and less vigilant about the solvability of borrowers. Thus were created subprimes, mortgage loans that did not meet the usual criteria of solvability.

But between 2004 and 2006, given an interior economy stimulated by new buying, the prime rate of the Federal Reserve goes back up, stepwise, to 5,25%. Thus making too easily approved loans more expensive. This is the story of the snake biting its own tail. Incapable of meeting their obligations, numerous debt-ridden borrowers at variable rates now have to face up to selling off their homes or experiencing foreclosure. Andthe American real estate boom goes flat with catastrophic results.

All this could have remained a problem confined to the United States if credit brokershad not had the clever idea of transforming these loans-due to bonds. What can be thought of as the share-holding of credit. Without being overseen by the SEC (Securities Echange Commission, the Stock Market ‘police’ in the U.S.) since these were private securities. These bonds, in principle guaranteed by the lending institutions, were bought in large number by business banks and investors world wide. One should keep in mind that in 2006, there was a great deal of liquidity available on the financial market. The exponential growth of China and India, the mad money from constantly more expensive petroleum, had created an enormous financial mass lookingfor supposedly profitable investment opportunities.

It is on February 7, 2007 that a communiqué from HSBC, the financial Asiatic-British giant very present in the U.S., first casts doubt on the viability of creating bonds from subprimes. But without immediate panic.

Most of the major banks had created investment funds out of their subprime titles which they had bought in great quantities : hedge funds (an ironic name if one appreciates black humour). They are starting to worry. But it is too late, The subprime Titanic is sinking from all quarters.

In order to keep a positive balance-sheet for their shareholders, bankers then decideto hang on to their liquidity (deposits from clients) to compensate for losses on their hedge funds. Thus they no longer make loans. Not to other banks, not to business, notto individuals. In July 2007, the crisis spreads to the entire financial planet. Credit is frozen, money is rare, business starts to slow down. But the problem remains masked.The average man, even those who govern, do not suspect the seriousness of thecoming catastrophe.

In 2008 the bomb goes off. and fragments. First a few small American banks go under. No problem, it is the law of the land among cowboys. Then others. Elsewhere. Less small. In China, first. Then in Japan, in Europe, in India, everywhere, unleashing a veritable Stock Market panic. Economic actors sell off their assets, worsening the crisis in confidence. In the summer of 2008, the total debt load of individuals in the U.S. incapable of meeting their loans reaches 233 billion dollars ( two-thirds of gross interior product for a country the size of Belgium). an amount that has more then doubled since. And on september 15, an anouncement is made of the bankrupcy of Lehman Brothers, one the better known and oldest Wall Street financial institutions. Boom! What follows is well-known.

By the end of 2008, the (announced) losses experienced by the banks of the world amount to one thousand billion dollars. A number one will soon discover to be a great under-evaluation. While the money ‘evaporated’ on the Stock Market by individuals and institutions clocks in, at the same date, at twenty-six thousand billion dollars (26(10^12 )$). Those who live on investment income, small and large, loose up to 60% of their holdings. And individuals, incapable of staying on top of their debts, end up in financial counselling and mediation.

What started out as a financial crisis has become an economic one. Thus necessarily social, as a result of massive firings world-wide ( one foresees 25 million new unemployed in 2009). It is a downward spiral : less buying power, thus less consumer buying, thus lower production, thus fewer personnel. Deflation is not far off. And governments, not without reticence, spend to avoid Recession turning into depression. With the results we now know.

Group W.,in various fashion, is not exempt from torment. But thanks to measures I have put in place, we will try to limit the damage. By bringing solidarity into play. As you no doubt know, my aim, when I accepted the heritage of Nerio Winch, was not to become more rich but to well preserve the jobs and quality of life of the five hundred thousand employees of the Group. And I will try to do all I can to sustain this objective.

Let us reach out to each other and we will succeed.

LW

Reflection

Neat!

Graphic Arts

Happy C-Day!