Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Alex who wrote (19358)	9/20/1998 11:15:00 AM
From: goldsnow	Read Replies (1) \| Respond to of 116778

Brazil begs for lifeline as its economy sinks By Christina Lamb <Picture> BRAZILIAN officials are desperately trying to secure $100 billion (œ60 billion) in the United States to save the country - and the whole of Latin America - from the threat of bankruptcy. Investors have taken out more than $30 billion (œ18 billion) out of the country in the past six weeks as Brazil has become the latest casualty in what some observers are calling the worst international economic crisis for decades. Latin America's largest country is now in danger of defaulting on its debts - hitting banks worldwide. The government has increased interest rates to 50 per cent to try to stem the financial haemorrhage. With presidential elections due next Sunday, President Fernando Henrique Cardoso is trying to avoid devaluing the real, the currency he created after taking office in 1994 to defeat hyper-inflation. In an attempt to contain panic, his staff has been urging the media to play down the gravity of the crisis. But despite its damage-control efforts, papers such as the Rio de Janeiro-based Jornal do Brasil have been warning readers of apocalypse. Newspapers are full of advertisements from people selling cars and luxury items and restaurants are empty because people are eating at home to save money. Ken Baxter, a Rio-based merger and acquisitions adviser said: "Everyone's worried sick. We may not go broke, but we've just woken up to a two or three-year recession." Facing a total debt of $294 billion (œ175 billion) - of which œ28 billion matures next month - Brazil's Finance Minister, Pedro Malan, has spent the past week pleading with the International Monetary Fund, the Group of Seven leading industrialised countries and Washington for help to shore up the embattled currency. He is in daily contact with Alan Greenspan, the chairman of the United States Federal Reserve, and other American officials. However, Washington's failure to cut interest rates this week to ease the economic crisis prompted the Brazilian stock market to fall further after a 30 per cent drop so far this year. Rodrigo Fiaes, the head of equity research at Banco Icatu, said: "If Brazil goes, then Argentina goes, and if Argentina goes, then Mexico goes. This would be disastrous for the US and the world economy and we could see chaos and meltdown of wealth in a very short time." American banks will be hit badly if Brazil defaults, and US firms rely on the region as a big export market. The fear is that Washington is too distracted by its president's domestic difficulties to pay serious attention to Latin America, and that officials will be reluctant to commit so much money to one region. Giving Brazil even a quarter of what it is seeking would drain what little resources the IMF has left, and some people are giving warnings of throwing good money after bad. Brazil has been sucked into the crisis which began in Thailand last year, then spread across east Asia and on to Russia. Fearing further problems in "emerging markets", investors pulled money out of Brazil, the world's ninth largest economy. This hit Argentina, which sends a third of its exports to Brazil. Last week, the financier George Soros gave a warning that the global capitalist system was in danger of imploding. In testimony to the US Congress, he said there was "general panic" in Latin America. Stephen Rose of UBB Capital Markets said: "The one advantage that Brazil has is that it is so important to America." But he pointed out that any lifeline for Brazil would need to be more than $50 billion (œ30 billion) to make a difference, and that confidence had been so badly hit that investors were unlikely to return quickly. Brazil is also a lot healthier than Indonesia and Russia. But it has a serious weakness: a fiscal deficit which has doubled to seven per cent of gross domestic product in the past year. President Cardoso, a social democrat, has promised budget cuts and might be able to take advantage of the crisis to push them through Congress. After slashing inflation from 3,000 per cent to three per cent a year, he is now facing a crisis not of his own making. Strangely, the situation seems to have boosted his standing: Brazilians see him as a safer pair of hands than his socialist opponent. telegraph.co.uk

To: Alex who wrote (19358)	9/20/1998 8:59:00 PM
From: goldsnow	Read Replies (2) \| Respond to of 116778

Global economic turmoil Cold water treatment for Clinton plan By Nick Beams 18 September 1998 US President Clinton's call for concerted action by the major capitalist powers to confront the global economic crisis seems to have fallen on deaf ears. In a major address to the Council on Foreign Relations in New York last Monday Clinton said the growing economic turmoil was "the biggest financial challenge facing the world in a half century". He called for collaboration between the US, Japan and Europe to "spur growth". His remarks were timed to coincide with a statement from a meeting of G7 finance ministers and officials in London that called for co-operation to "reinforce existing programs in support of growth-oriented policies". This was widely interpreted as signalling a push to cut interest rates and increase government spending. But since the speech central bankers and finance ministers have been pouring cold water on the idea. The president of the German Bundesbank, Hans Tietmeyer said he saw no reason for an interest rate cut in Europe as the situation there was different from Japan and the US. The deputy governor of France's central bank, Herve Hannoun, immediately supported his comments. British Finance Minister Gordon Brown also cast doubt on interest rate cuts. "There is both a concern about what is happening and a preparedness to take action where it is necessary," he said, "but we must not either take the precipitate action that was taken at other times which led to serious results in the late 80s." Brown was referring to the aftermath of the October 1987 share market crash when central banks cut interest rates to prevent a repetition of the events of 1929. World financial markets did rebound, but the rapid expansion of credit had other longer-term consequences. It was the chief cause of the Japanese share market and asset bubble, whose collapse in the early 1990s has now led to the virtual insolvency of the Japanese banking system under the weight of bad loans estimated to be as much as $1,000 billion. Besides getting the thumbs down in Europe, the biggest blow to the Clinton-G7 initiative appears to have come from the United States itself. In testimony given to the House Banking Committee on Wednesday, Federal Reserve Board chairman Alan Greenspan said there was no plan "at the moment" by the leading central banks to co-ordinate interest rate cuts. The conflicts over the Clinton proposal reflect deep divisions and perplexity in the ruling classes over what action needs to be taken to meet the growing financial crisis. According to the representatives of the banks and financial institutions, the crisis is not the outcome of the operation of global markets as such, but a lack of proper financial supervision and firmly established international practices. Opponents of this view insist that if left to itself the market will produce a downward economic spiral as the financial crisis brings recession and even depression. The chief danger to the world economy, they maintain, is deflation--falling demand, leading to a decline in prices and asset values--and the creation of overcapacity in all sections of industry. Therefore, to combat deflation interest rates must be cut to encourage business and consumer spending, combined with a lift in direct government spending. But an examination of the state of the world economy, and the deepening conflicts between the major capitalist powers--Japan, Europe and the United States--reveals that there are real barriers confronting any attempt to produce a global stimulus package. In Japan the central bank has already cut overnight interest rates from 0.5 percent to just 0.25 percent, while the interest rate on 10-year bonds has already fallen below 1 percent. And the stimulus packages initiated by the Japanese government over the past five years--greater in size than the New Deal of the 1930s--have failed to prevent the deepest recession in the post-war period. While the Japanese government is unable to join a stimulus program, the European capitalist powers are unwilling to do so. Interest rates are already at near historic lows of 3.3 percent in France and Germany, compared to 5.5 percent in the US. At the same time the European powers are opposed to increased spending, having imposed major cuts in order to meet the financial criteria to enable the launch of the single currency, the euro, next year. And the launch of the euro raises another impediment to unified action. Not the least of the aims of the European powers is to establish an international currency that can challenge the global dominance of the US dollar. If interest rates are cut and government spending increased, the euro will be seen as a "weak" currency. While these considerations do not feature in the public utterances of the G7 powers they are never far from the surface. For example, in an editorial published on Wednesday, warning of the potential danger for a weakening of the US presidency arising from what it termed the "Lewinsky affair", the Financial Times cautioned the European Union to avoid "provocative gestures" and to eschew "loose talk about the euro becoming a rival to the dollar". But the main impediment to stimulatory action to halt the global slide into slump is not in Europe or Japan but in the United States itself. Concluding his speech to the Council on Foreign Relations, Clinton recalled the immediate post-war period when the United States re-organised the world capitalist economy and laid the foundations for a new period of expansion. Just as "the World War II generation did it for us 50 years ago," he said, now it was time to "rise to our responsibility" and "redeem the promise of the global economy". The United States of the immediate post-war period and the United States of today form a striking contrast. Fifty years ago, America was the dominant power of world capitalism, with massive trade surpluses and capital reserves which were able to finance global expansion. It enters the present crisis with a balance of trade deficit set to reach $250 billion for 1998 and possibly go over $300 billion by 1999. Fifty years ago the United States was the world's biggest creditor and source of capital. Now it is the biggest debtor. Last year foreign-owned assets in the US exceeded its foreign assets by over $1,300 billion and the negative position of the US on international investments is expected to reach at least $2,000 billion by the end of 2000, more than twice the value of exports. At the end of World War II, the United States played the leading role in establishing the International Monetary Fund and the World Bank to set in place the financial structures for economic expansion. Today, when, in Clinton's words, world capitalism faces its greatest financial challenge in half a century, the US Congress is still refusing to approve an additional $18 billion for the IMF, despite the fact that it has all but run out of money. The IMF has less than $9 billion to meet new calls for assistance. Fifty years ago, the leaders of world capitalism had a program for the reconstruction of world capitalism and established organisations to implement it. Today, the crisis of the global capitalist order is nowhere more graphically expressed in the fact that these organisations themselves are breaking down. wsws.org