from the hip

American newspapers, most notably New York Times, have now started to wonder why American consumers aren’t spending. And in the financial sector, stock brokers and real estate agents seem to expect that it will happen next week or so, judging from the advise they are giving. That really doesn’t seem very likely at this point.

Why do American consumers spend less?

Well. The financial system in the US is still not completely shored up. AIG just reported a loss of 25 billion dollars for the third quarter and will be receiving a 150 billion aid package. Fannie Mae lost 29 billion dollars. Circuit City is going down. Airlines are in trouble. GM and the whole American car industry is in deep trouble.

As for the overseas markets, most indicators are down there as well. Every time the numbers are revised, they get worse. Right now, according to Wall Street Journal, they indicate a deep recession in Europe as well. IMF (see figure) now assumes that 2009 will be worse than 2008 for the world as a whole.  For 2009   IMF predicts a decline in GDP in the advanced economies of 0.3 percent. If this happens, it will be the first time during the periode following the Second World War.  For the US IMF predicts a decline of  0.8 percent, and for the Euro-area 0.7 percent for 2009. So there will be little pull from overseas markets for American businesses.

Now, add to this that the banking system isn’t working, loans are hard to get, unemployment is on the rise and millions of jobs are threatened.  Consumer confidence is at the lowest ever.

Also, factor in a negative wealth effect. The positive wealth effects, the effect of people getting richer on paper when housing prices were rising, were key to the growth the last 5-7 years. Now this operates exactly in the opposite direction, and serves to limit peoples spending up and above the effects of other factors.

So, what does it mean?

So how likely is it that consumers will start spending in the near future? Not very. Let’s assume for a moment that consumer spending will continue as today for a while.

Consumer spending is down 30 percent on cars, and 3 percent on the average across all sectors. Consumer spending appears likely to fall next year for the first time since 1980. Perhaps by the largest amount since 1942.

If it stays the way it has been for the last three months for a full year, that means demand for goods and services from consumers in America will be down about 1200 billions. And, spending is still dropping. As well, demand from businesses is dropping. And, as I wrote above, demand from abroad is falling as well. And right now, American businesses have just barely started to adjust to these new numbers and levels. And this adjustment will mean more lay offs and more negative earnings reports. That is simply how it works. And it is hard to see any “quick fixes” that can act as a miracle cure and lift us out of this situation in the short term. Rather, the adjustments will have to work their way through the system.

As far as American consumers are concerned, I notice people using words like “lacking trust” or “fear” as reasons for the decline in consumption. These words suggest that consumers are driven by psychological factors, emotions, beliefs and sentiments. Such words, I think, are the wrong ones in this case. Right now, I think American consumers act very rational - markets are turbulent, times are getting harder, uncertainty is high, so the rational response is to buckle down, sit still and wait for the fog to clear up.

So, for the moment, and for a while, it is just going down, I think. We are nowhere near the bottom. I don’t think we will see new growth for at least 18 months.

That’s what I think.

See also:

• Yahoo Finance: Home values drop for 7th straight quarter
• New York Times: Best Buy Lowers Its Outlook for 2009
• Washington Post: Why GM Stalled
• Washington Post: Obama Asks Bush to Back Rescue of Automakers
• New York Times: A Town Drowns in Debt as Home Values Plunge
• Wall Street Journal: Indicators Across Europe Point to Deeper Recession
• New York Times: Jobless Rate at 14-Year High After Big October Losses
• Times:First full-year slump since 1940s, says IMF

When Saul A. Kripke published his thought in Naming and Necessity everybody was either furious, or exhilarated, or thoroughly perplexed (see also The New Theory of Reference - Kripke, Marcus, and Its Origins (Synthese Library) ). Naming and Necessity laid out a new way of thinking about the relation between language and the world. Kripke proposed the theory of direct reference, where a name “rigidly designates” its referent. That is, a name is a “tag” attached to its referent, with no descriptive content. Kripke also proposed an alternative theory for how names are transmitted, the causal theory of names.

It is somewhat interesting to view the words (names or tags) that are used on the current international crisis from such a perspective. Doing that, is becomes remarkable how the names used to denote this beast have changed over time.

It started out as the US sub-prime mortgage crisis. Then as is spread, it became simply the mortgage crisis, as it was now international. Then the credit crisis and the credit crunch. Then that changed into the banking crisis, and to underscore the fact that it is indeed international, the international banking crisis. Then, as other types of international financial institutions, eg. AIG, started to feel its impact visibly, it became the financial crisis.

Now, the naming used implies it has become an even more general crisis, affecting even more sectors of the economy. Thus, now we call it the recession. Some have even started to use the word depression, and started to build connotations linking it phenomenologically to the great depression.

It goes on and on - the financial crisis. Now Bank of England slashes interest rates to a 53-year low. The Independent writes:

Interest rates were today slashed to a 53-year low to fight off recession - but fears were growing that hard-pressed homeowners would fail to reap the benefit.

The shock 1.5 per cent cut by the Bank of England’s Monetary Policy Committee (MPC) is the biggest move since March 1981 and brings rates to 3 per cent - last seen in 1955.

Stock markets were stunned by the size of the cut and experts predicted rates could reach an all-time low of 1.5 per cent by mid-2009 as the Bank desperately bids to ward off a prolonged slump.

Also, the European Central Bank cut interest rates by 50 basis points today and signaled another reduction was possible later this year. In Germany the no. 2 bank has decided to tap into the government rescue plan, and the government will propose tax breaks on car purchases to stimulate spending!

The bottom still seems distant.

See also:

• New York Times: European Banks Reduce Rates, Some Sharply
• Guardian: Shock as Bank of England slashes rates to 3%
• New York Times: Bleak Reports Keep Markets in Free Fall
• Guardian: Wall Street and London shares plunge

I started writing about the credit crisis in the US and the possible international consequences of that crisis a long time ago. But writing about it gave me a strange feeling. Obviously I was writing about something that interested just a very few. And, equally clear was the feeling that I was writing about something nobody really wanted to hear about. Also, I strongly felt back then, something which major actors in the financial world as well as governments and central banks were more or less in denial about.

I am not happy to have been right. I am not happy that this crisis so far has turned out to be every bit as serious as I and a relatively small number of other people wrote back then. On the contrary, it is sad. Of course.

Today I feel that perhaps it is that unwillingness to see, to listen, to take the right measures at the right time, that has turned what was once a credit crisis in the US, originating in flawed valuation of the so called sub-prime mortgages, into the wild international beast we today speak of as the international financial crisis. Today governments all over the world fight against this crisis. And we have seen, I should think, that the crisis is not due to the price of oil, and that it cannot be solved by interest rate cuts. And a large number of financial institutions, from Lehmann to the Royal Bank of Scotland, have fallen victim to the crisis. At first there was no response. Then there was too little too late, as the Dainish Bank, for instance, noted. And now it is pure panic.

But now the fight is very much an uphill battle. Much time has been lost. And in this case lost time translates into lost confidence. That confidence must, of course, be restored. But it will take time. And even when the confidence in the international financial system has been restored, the battle will not have been won. There will also be serious shake outs in many sectors of the economy, will large companies failing and new winners emerging. And the global recession we are facing will not be over until consumers start increasing their spending again.

I fear they will not do so for quite some time.

See also:

• Financial Times: The week that panic stalked the markets
• Wall Street Journal: EU Writes Menu of Options
• Financial Times: UK to inject £39bn into banks
• Politiken: IMF frygter finansiel nedsmeltning
• Politiken: Eurolande klar med finansiel redningsplan
• Times: Royal Bank of Scotland under state control
• Guardian: Europe follows Brown plan for survival as EU bank bail-out plan is agreed
• Dagbladet: Europeiske land vil samkjøre krisepakker

While the economic downswing is still making itself felt in the US, it is now also hitting several European countries hard. And inflation is soaring, and hit a record high of 4.1 percent last month.

“There’s no obvious trigger for strong economic growth in Europe until the end of 2009,” says David Owen, chief European economist at Dresdner Kleinwort in London. “Massive [financial] imbalances need to be worked out, and the corporate sectors in many countries remain in a substantial deficit.”

Consumer confidence for the euro area has fallen to negative 29.7, the lowest it has been since 1993. And the news about the plunge in factory orders in Germany, led to the following comment, reported in the New York Times:

“It now looks likely that the euro zone will be the first major economy to fall into recession,” Jonathan Loynes, the chief European economist for Capital Economics, wrote after the report of sagging orders in Germany.

Great Britain

Royal Bank of Scotland, Britain’s second-largest bank, recently posted its first loss in 40 years after taking a £5.9bn hit from the credit crunch. And Barclays, the third-biggest bank, took a fresh £2.8bn write-down. Also, the price of houses are dropping rapidly, according to Guardian

the Halifax said house prices last month were 11% down on a year earlier - the first double-digit decline since its monthly healthcheck of the market was first published 25 years ago.

House prices back to 2006 and still falling, says Times. And new housing orders are down 33%. And, of course, home repossessions surge.

Business groups and City analysts warned that deep and rapid cuts in the cost of borrowing would be needed next year to pull Britain out of its first recession in more than 15 years. House prices are falling more rapidly than they were in the property crash of the late 1980s and early 1990s

It would seem a possible recovery in Britain will not be aided by increased consumer spending in the short term!

Recession in Germany?

Spiegel online writes that the German economy may have shrunk in the second quarter, according to early reports, and that the outlook for industrial production isn’t lively. Germany could slide into recession, and the German economy may have shrunk by around one percent. They also note that:

German factory orders were down by 2.9 percent in June from May, and orders from abroad for German goods plunged by 5.1 percent. Production at German factories rose by 0.2 percent in June — less than expected

Spain in deep trouble

Portugal, Italy, Greece, and Spain all face severe challenges. In Spain, the imploding domestic housing market has pushed the unemployment rate to 10.7 percent. The number of bankruptcies in the building sector is exploding, and one third of the job losses stems from the construction sector. As well, the housing market is stalling. The inflation is about 5 per cent.

The US

The credit cruch is still being felt, and so is the reversal of the wealth effect and high oil prices. In addition to bad news from the banking sector, Fannie Mae, Freddie Mac, Indy Mac, and so, in the latest sign of the deepening troubles, G.M. recently reported a second-quarter loss of $15.5 billionfollowing a loss of $8.7 billion reported earlier by Ford. Car sales are dropping, especially sales of American cars.

Guardian notes that:

The US mortgage finance empire Freddie Mac yesterday predicted the worst housing slump since the Great Depression as it set aside $2.5bn (£1.28bn) to cover credit liabilities caused by delinquent loans and foreclosures.

And in New York Times, Peter S. Goodman recently wrote (August 1) that “More Arrows Seen Pointing to a Recession”.

Overall

Pretty gloomy still. The most positive piece of news is the slight drop in oil prices. But still serious signals of a slowdown of growth and possibly recession both in Europe and the US.

Telegraph (newspaper, UK) reports that increasing numbers of middle-aged men are going off sex, according to relationship experts. They report it is an universal trend, but I suspect it may only be a British trend:

Counselling and sex therapy charity Relate says it has seen a 40 per cent increase in men who simply cannot be bothered to make love to their wives and partners.

The findings are a world away from just ten years ago, when hardly any men contacted them with a loss of libido. The main sufferers who call its helpline with the problem are generally aged between 30 and 50 and are married.

Peter Bell, Relate’s head of practice, said: “Men used to come to us with impotence – now known as erectile insufficiency – but Viagra has sorted some of that problem. What we have is a lot of men who say, as women did in the 1950s: ‘I can have sex but I do not want to. It’s not rewarding’.

An English professor thinks he has the explanation:

Professor Michael King, of the Royal Free and University College Medical School in London, has completed a study into mental illness across six countries which found that the rate of major depression and panic syndrome was highest among men in the UK.

I am not able to question his conclusion. But I do feel sorry for all those beautiful, attractive, suffering English ladies out there. And I feel confident that there must be men, somewhere within the common labor market of the EU, who may be convinced to move to the UK to help them out.

After all, there must be lots of fun to be had in the once Great Britain these days. And if the natives are not willing to do it, somebody has to…

Awaiting your mail, ladies!

I always get very suspicious when governments, at whichever level, are eager to block, halt or close down fraud investigations. Now Gordon Brown is eager to close down the fraud investigation against BAE Systems.

It is a strange case. Tony Blair pressed Robert Wardle, the director of the Serious Fraud Office, to drop the investigation into secret payments by the arms company to Saudi Arabia. Then the case was brought before the high court. On Thursday, the high court, according to Guardian, 

rejected claims that the inquiry had had to be closed down for security reasons because “lives were at risk” if Britain no longer received intelligence on national security from Saudi Arabia.
…  Lord Justice Moses, .. with Lord Justice Sullivan attacked the government’s interference as unlawful.
In their ruling, the judges said: “We fear for the reputation of the administration of justice if it can be perverted by a threat … No one, whether within this country or outside, is entitled to interfere with the course of our justice. The rule of law is nothing if it fails to constrain overweening power.”

Gordon Brown and the Conservatives in England are trying to hide something. For the moment it is difficult to know exactly what. But that it is something that would be hard to defend publicly is clear.

I don’t think Gordon Brown will be able to stop the investigation. I don’t like it when politicians place themselves above the law and above the high court.

From freeinternetpress.com:

The court said that the Saudis should have been made to understand “the enormity of the interference with the U.K.’s sovereignty, when a foreign power seeks to interfere with the internal administration of the criminal law. It is not difficult to imagine what they would think if we attempted to interfere with their criminal justice system”.

The high court will reconvene in a fortnight to decide what remedy to award the two groups of anti-corruption activists who brought the judicial review of the Serious Fraud Office (SFO) decision to end the inquiry.

The UK activist groups Campaign Against Arms Trade (CAAT) and The Corner House have done a great job in bringing this before the high court and winning. They deserve support in the continuation of this story as well.

I certainly will support them!

_____________________________

Here is a little background on the case:

The arms company BAE secretly paid Prince Bandar of Saudi Arabia more than £1bn in connection with Britain’s biggest ever weapons contract, it is alleged today.

A series of payments from the British firm was allegedly channelled through a US bank in Washington to an account controlled by one of the most colourful members of the Saudi ruling clan, who spent 20 years as their ambassador in the US.

It is claimed that payments of £30m were paid to Prince Bandar every quarter for at least 10 years.

No, even that doesn’t bother me very much. Until recently, under UK law, even this was legal. Indeed, it was tax deductible, so legal was it.

This is the bit that does worry me though:

It is alleged by insider legal sources that the money was paid to Prince Bandar with the knowledge and authorisation of Ministry of Defence officials under the Blair government and its predecessors. For more than 20 years, ministers have claimed they knew nothing of secret commissions, which were outlawed by Britain in 2002.

See also: BAE corruption investigation switches to Tanzania

Princess Diana is one of the biggest mythical figures of recent times. From the day it became public knowledge that she was dating Charles, Prince of Wales, everything she did or said was major news more or less all over the world.

People loved her. She was royal, she was a kind person, she was engaged in social problems and health problems, and she was beautiful. So, of course, the media loved her as well. Hardly anything or anybody sold stories like Princess Diana. Nothing or nobody could outshine her as a media story seller.

And the paparazzi loved her as well. A picture of Diana, at just the right time and from the right angle, was literally gold. It could be sold all over the world in no time. And so they followed her. Everywhere, always. In huge packs, like hungry wolves chasing for food.

There was a whole industry around Diana. Paparazzi, journalists, newspapers, magazines, radio stations, TV-stations, journals, charities, celebrities - they all wanted her and fed off her immense popularity. Naturally. That’s how the world works in our day and age. And all because people all over the world were interested in her, liked her, sympathized with her, wanted to learn more and more about her.

Any problem she had - in the relationship to Charles, with the emergence of Camilla, with men she met, lovers - also fed into the media madness that was the modern myth of Diana. And made it grow even bigger.

She was a myth. She to some extent became the myth. She was consumed by the myth, in the end. That’s what the jury in London, and the judge, really said.

And now the new inquest about how Princess Diana died is over. It has been huge. Here are some figures highlighting the scale of the Diana inquest:

2,931,300 - estimated number of words spoken in open court during the inquest - almost four times as many as there are in the Bible.

£10 million - the likely combined cost to the taxpayer of the inquest and the preceding Scotland Yard investigation.

20,000 to 66,000 - the number of landmines which could potentially have been cleared for £10 million. (Based on an estimate of between 300 US dollars and 1,000 US dollars per device used by the Mines Advisory Group).

This whole thing reminds me a lot about another powerful myth, that of President John F. Kennedy. That too is a myth still alive and going strong.

As with John F. Kennedy, I suspect Princess Diana will be a mythical figure for a long time to come. It doesn’t really matter what the inquiry concluded. There are still more conspiracy theories to be constructed, I am sure. More elements in the myth to be spun. More articles that will be written, about her, her relationships, what she did, and so on. And more books, more TV-shows, more movies.

Princess Diana is, for good or bad, a powerful modern myth that will be with us for a long, long time to come.

I think.

More stuff about Princess Diana:
An article from The Guardian on the multiple conspiracy theories.

Naomi Campbell is wickedly beautiful, extremely sexy, moves like a gazelle, has had a marvelous career as a model, but what a temper the lady has! One of the top babes of all times, and one of the wildest ones as well.

As the picture shows, she is quite a looker. But she has had several unfortunate tantrums over the years, some of which have brought her into contact with the legal system. The last one, on Heathrow, is said to involve some spitting. On a police officer. Previously there’s been throwing of a cell phone, some beating, some pretty verbal stuff, and such.

The last episode I can sympathize with. Many of us, and I count myself as one, have been angry, outraged, and harassed at airports around the world. By arrogant, not so service minded airport or airline employees and security guards. At least a dozen times I have been at my wits end and so angry I have wanted to hit somebody or something. But doing it is different, though.

The part I do not understand about this, is when she later has claimed that she was arrested because she is black. That part I do not believe. Spitting on a policeman would get anybody arrested, is my thinking. But I may be wrong.

Naomi Campbell has previously been taking anger management classes. They didn’t to all that much good, it would seem. Maybe it’s back to school for Naomi now?