The ongoing financial turmoil and financial discussion thread

[Claeren]

Originally Posted by fotze

Well I can cling to the hope that as we have seen all of these "experts" are totally full of crap and are just wild arse guessing.

Currency swings could make this number irrelevant as well.

A 60 cent Loonie makes $45 look pretty good.

A 90 cent USD (or 110 cent loonie) makes $45 seem low.

Either could happen (but are extremes) what with the amount of turmoil in the markets and the degree of government intervention on both sides of the border.




Claeren.

[Slava]

Originally Posted by fotze

Well I can cling to the hope that as we have seen all of these "experts" are totally full of crap and are just wild arse guessing.

fotze, your projection here is the one that is absolutely right!!

[Bertuzzied]

Originally Posted by I-Hate-Hulse

Goldman Sachs just issued their oil forecast for 2009: $45

Bertuzzied's forecast for Goldman Sachs for 2009: $2.52

Currently at $69.14. 54 week high was $217.80.

[flamesfever]

Claeren and Slava:

What are the ramifications for interest rates should we get into large deficit territory?

[CaptainCrunch]

I thought that the UAW's had already made a ton of concessions in order for this bailout to proceed.

I seem to recall that they took a sharp reduction in pay. Stopped paying laid off workers, and reduced the required benefits.

Not that I'm union, but I think that there needs to be a better solution then just looking at wage and salaries. There's an efficiency problem in the automakers world, and there are some huge fundemental spending and process flaws that need to be addressed on an equal number to the poor dumb s on the line.

[Slava]

Originally Posted by flamesfever

Claeren and Slava:

What are the ramifications for interest rates should we get into large deficit territory?

Interest rates are more predicated on inflation and economic growth really. If inflation starts to climb than you will see rates climb to keep it muted. Honestly a little inflation is whats needed though; if house prices in particular start to creep up or flatten out than the recovery is here!

[Claeren]

Interest rates are not tied to deficits in the direct sense. A large deficit does not directly mean high interest rates. Look at Japan, big deficits but rates have been largely near zero for nearly 20 years.

With the amount of debt destruction going on rates will stay low (as happened in Japan) because it is inherently deflationary.

If that trends slows and all of the money that has been pumped into the market starts accelerating forward rates go up to curb inflation.

The most interesting aspect to me is how willing people will be to buy Canadian debt versus American debt. America's one huge saving grace right now is that people are still seemingly trusting its currency as a holder of value and that is allowing them a lot of leeway in the short term to try and pay off the pain of this credit collapse.

Does Canada get the same benefit of the doubt with a $30 Billion/year deficit? Hard to say? What happens if things in the States get really shaky? Does Canada look like a solid place to park your money or does it look just as bad as the States? Hard to say?

Lots of questions, less answers....




Claeren.

[flamesfever]

Originally Posted by Claeren

Interest rates are not tied to deficits in the direct sense. A large deficit does not directly mean high interest rates. Look at Japan, big deficits but rates have been largely near zero for nearly 20 years.

With the amount of debt destruction going on rates will stay low (as happened in Japan) because it is inherently deflationary.

If that trends slows and all of the money that has been pumped into the market starts accelerating forward rates go up to curb inflation.

The most interesting aspect to me is how willing people will be to buy Canadian debt versus American debt. America's one huge saving grace right now is that people are still seemingly trusting its currency as a holder of value and that is allowing them a lot of leeway in the short term to try and pay off the pain of this credit collapse.

Does Canada get the same benefit of the doubt with a $30 Billion/year deficit? Hard to say? What happens if things in the States get really shaky? Does Canada look like a solid place to park your money or does it look just as bad as the States? Hard to say?

Lots of questions, less answers....




Claeren.

I guess my fear was that we'd have to raise interest rates to attract money to cover the deficit.

The situation sure highlights the importance of having a stable government, and well run economy.

[Phanuthier]

So with all the news last night of the bailout falling through (and after a huge drop in the morning) ... whats causing markets to shoot up? I'm confused.

[Claeren]

^ The talk that the Treasury will step in and save them with their $700B piggy bank if Congress does not step in with a seperate program.

So short term the market is holding right now but medium-long term something has to give in my not so humble opinion.



I don't see how this can be bottom in peoples minds UNLESS you think (a) all 3 auto-companies will be fine and/or (b) one or more of them collapsing is not a big deal. I can't accept either argument so.... ?

I think they are just trying to delay the collapse until the markets are a bit stronger again so as to spread out the pain a bit and not bring the entire American economy to the brink of collapse in one fell swoop. Since the real estate industry, banks and financials of all sorts and retail are already facing a tough world they figured they'd keep one out of the ring for a year?

Real Estate and Financials are already hemorrhaging jobs by the hundreds of thousands. Retail will start doing the same after Christmas. Keeping auto workers in their jobs for an extra year makes sense? For a measely $15 Billion? lol




Claeren.

[Phanuthier]

Oh right, missed that news lol

I think what they'll do is give them the bailout (fffkkkkk) but at least 2/3 will die within 5 years. They're just going to delay the, and taxpayers will be paying out of the ass for years to come for it.

Obviously like you, I don't want to see them bailed out.

[SeeGeeWhy]

Originally Posted by CaptainCrunch

I thought that the UAW's had already made a ton of concessions in order for this bailout to proceed.

I seem to recall that they took a sharp reduction in pay. Stopped paying laid off workers, and reduced the required benefits.

Not that I'm union, but I think that there needs to be a better solution then just looking at wage and salaries. There's an efficiency problem in the automakers world, and there are some huge fundemental spending and process flaws that need to be addressed on an equal number to the poor dumb s on the line.

Wow, what a huge concession to make!

[SeeGeeWhy]

Also, isn't there supposed to be a significant lag effect between stimulation activities like rate cuts and the resulting reponse in the economy?

[CaptainCrunch]

Originally Posted by SeeGeeWhy

Also, isn't there supposed to be a significant lag effect between stimulation activities like rate cuts and the resulting reponse in the economy?

In this case probably not. From my understanding I think its Chrysler has enough liquid cash to cover costs til the end of this month. They need the cash injection just to keep the lights turned on.

In my mind this is why the bailout is a bad idea, the big three will be back with their hands out in 3 months as any changes to their model will probably take a year to ripple through their organization.

[Bobblehead]

Originally Posted by SeeGeeWhy

Also, isn't there supposed to be a significant lag effect between stimulation activities like rate cuts and the resulting reponse in the economy?

Yeah, but finance has gotten so much faster I'm not sure what the metrics are for speed of adjustment now.

When I took macroeconomics in the late 80s/early 90s, it was said that generally policies that affect exchange rates would require 2 years before the final results were complete. That was the time needed for contracts to end and new ones to be negotiated, capital and job casts to work their way through, etc. And while many of those things are still in place, the capital markets are (or were) so big, and transactions and news travel so quickly, that the initial impacts can be huge. But contracts still need to be negotiated/renegotiated in the new atmosphere before the total impact can be realized.

[Claeren]

Originally Posted by Phanuthier

Obviously like you, I don't want to see them bailed out.

That is the big problem in my mind.

The conservative in me 100% agrees because (as you well know) that capital should be allocated to winning American business and winning American producers that can step in and fill that output void with their high value American products.

The problem is that there is not anyone to step in! It is all foreign manufacturers with better technology, better management, better innovation and (therefore) better product.

You let them collapse and there is nothing domestic to take their place. So the logic starts to fray? To not save them is to essentially forfeit a massive part of your industrial base to other nation states. A nation like America simply cannot be in that position. (< which goes beyond economics and markets, it starts to compromise your ability to provide industrial output in major wartimes for example.)


It is not a good decision to have to make. I am glad I am not the one to make it.




I would almost like to see those companies fail but then provide government seed capital to 2 or 3 start-ups with really progressive management teams to buy the Big-3's technology (out of bankruptsy). At least then you are working to rebuild that capacity and innovation inside of America but on a clean slate? New management, new (non union?) workers, no debt, new factories, etc.


So in short, it is not even losing the money that bothers me (though it does), it is the fact that even if you don't spend the money there is not really any American company benefitting from it like theoretically (in a closed system) they would.

Thus: You are screwed if you do the bailout and you are screwed if you don't do the bailout so.... you don't do the bailout I guess? Yet it is so far from being a triumph of capitalism... ?




Claeren.

[CaptainCrunch]

Someone can probably correct me because I don't know labor law that well. However if the big three all declared bankruptsy, and another interest purchased them, wouldn't the union agreements have to be lived up to?

[Bobblehead]

Originally Posted by CaptainCrunch

Someone can probably correct me because I don't know labor law that well. However if the big three all declared bankruptsy, and another interest purchased them, wouldn't the union agreements have to be lived up to?

IANAL but I think it would depend if the buyout was the company as a going concern, or the assets. I think the bankruptcy trustee would decide that - however he is going to get the most money possible.

[Claeren]

Originally Posted by CaptainCrunch

Someone can probably correct me because I don't know labor law that well. However if the big three all declared bankruptsy, and another interest purchased them, wouldn't the union agreements have to be lived up to?

If you bought the entire company yes.


If the assets are simply being liquidated then no, someone could buy single assets (like a factory or a technology patent) without taking on labour agreements.




Claeren.

[flamesfever]

What does Harper do now?