The drop in prices comes as stock and bond markets fell because of fears about the health of the financial system, and a flurry of new indicators showed how badly the economy was faring.

Just as a booming global economy had steadily driven up commodity prices for six years, the current meltdown means the world needs less oil, and is sharply driving down prices.

It is a stunning — and sudden — reversal that has taken aback many experts. Oil futures on the New York Mercantile Exchange fell $3.04 to $50.58 a barrel in morning trading. At one point, crude oil was down $3.71, to $49.91 a barrel. Oil futures have lost more than two-thirds of their value after settling at a peak of about $145 a barrel in July.

Some analysts predict oil could fall to $30 to 40 a barrel as the world economy worsens.

Also, the dollar is for the moment strengthening in international markets.
Another sign of the strength of the oncoming depression?

See also: Times: Shares fall as US jobless adds another 542,000

©2008 from the hip. All Rights Reserved.

Later I admit to liking to read historical novels with fights with pirates, like for instance Dewey Lambdin’s books about the fictional naval hero Alan Lewrie or Steve Brennan’s The Gigantic Book of Pirate Stories. But until recently I have considered piracy something remote, something belonging to ancient times, even though I knew that the practice has persisted in the Malacca straits and a few other places.

However. I can’t say that I find the surge in piracy that we have witnessed recently very romantic. Piracy seems, oddly, to have become a booming business in some parts of the world. Sea borne piracy against transport vessels is a significant issue (with estimated worldwide losses of US $13 to $16 billion per year), particularly in the waters between the Pacific and Indian Oceans, off the Somali coast, and also in the Strait of Malacca and Singapore, which are used by over 50,000 commercial ships a year. You can see a list of the pirate prone areas at the ICC web site.

The business model employed by some of the modern pirates, most notably the pirates in Somalia, is fairly straight forward. They hijack ships, take over control, bring them into harbor some place along the coast, and then negotiate a price for freeing the ship, including, usually, its crew and cargo. The modern pirates favor small, fast boats and take advantage of the small number of crew members on modern cargo vessels. They also use large vessels to supply the smaller attack/boarding vessels.

Modern piracy thrive on conditions of political unrest. Thus, countries with limited territorial control provide good bases for modern piracy. You can see a movie of pirates taking a capture super tanker into a little fishing village in Somalia on Guardians web site! (See also New York Times on this).

It is to some extent odd that this practice can exist today. The Romans fought piracy, and at one point largely wiped it out in the Mediterranean. But today, with modern fighter planes, modern navies, efficient guns and rockets, as well as electronic surveillance, that fight should be much easier, even though the seas are still huge. As it is, we don’t really fight them, even though the West sometimes gets into the occasional little fight and some of them are killed or captured.

I think they survive because of leniency from the West. As long as they don’t expand their business too much, and don’t really do too much damage to international shipping, and especially the oil trade, they are more or less ignored - at least in the sense that the West is unwilling to use the level of force necessary to remove the problem completely. Also, who is to pay for it? The pirates to some extent get away with it because the patrols and military actions required to take them out is a collective good nobody at present is willing to pay for.

So, modern piracy is bad, but I think it is bad because we permit it to happen.

©2008 from the hip. All Rights Reserved.

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

©2008 from the hip. All Rights Reserved.

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.

©2008 from the hip. All Rights Reserved.

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

©2008 from the hip. All Rights Reserved.

I am astonished by the lack of efficiency and the poor customer service of American banks. Here are some real life stories that really shock me, from banks that are all among the top 5 US banks. Here are the cases:

1. Electronic transfer between two customers in the same bank

A friend transferred 1200 dollar to my account. In Scandinavia, the money would have been on my account instantly, as it is a within-bank transaction. Here the bank took 24 to take the money out of my friends’ account, then printed a check and mailed it to me. So, 3 days instead of instantaneously. And unnecessary paper and mail service and postage, all of which, I am sure, customers pay for.

2. Electronic transfer between banks

I paid for something using Paypal. And there wasn’t enough money in my Paypal account, so Paypal withdrew money from my banking account, as they should. However, it took 4 days for this to be processed by the bank. Again, I guess, a check. In Scandinavia this would have taken 1-4 hours, as it is an interbank transfer.

3. Deposit lost by the bank

A friend of mine deposited 800 dollars in her bank. She got a receipt. After a few days she noticed the money weren’t there. She calls the bank. They could not find the deposit, but would investigate. Six weeks 5 long calls, talking usually to two or more people each time, she finally gets the 800 into her account. Now she finds that in two separate cases the bank had given her overdraft fees of 35 dollars that she would not have gotten had the money been where they should. Again she calls. Two calls later the fees are dropped. During this ordeal, the bank never contacted her - she always had to initiate contact.

Now - how it is possible to lose a deposit? How is it possible to not honor a customer’s receipt immediately? Why didn’t be bank get back to her quickly and fix it all? Who made the mistake here - the bank or the customer? It is simply the worst customer service I have ever heard about!

These tales, and others, are so shocking that I wonder how US banks can get away with it? Are American banking customers totally undemanding? Or are they ignorant - don’t know how things are done outside the US and what they should rightfully demand from a modern bank? Do regulatory agencies and consumer organizations not care? Are American businesses unconcerned with banking efficiency? And especially about the banks - do they not care about efficiency? Do they not care about customer service?

It’s easy to fix! Send some guys on a plane to study how it’s done overseas. Buy the software. Do the changes. Get with it! You are lagging by at least a decade!

Or do you just not give a shit?

©2008 from the hip. All Rights Reserved.

Today, I believe, is the day when the most important event of this decade is taking place. Today is the day of the election of the next American president.

At this juncture, with the financial crisis, the American depression, and all the challenges facing the US and the rest of the world, the choice of the new American president is far more important than in any normal election year. Not only to America and the Americans, but to peoples and nations all over the world. The choice will determine how the current crisis will be handled, how America will face the challenges of becoming again a modern nation, with modern welfare, educational and health systems, as well as the future position and role of America on the larger international scene.

I am not an American. I am not able to do much to influence the outcome of this election. I can not vote. So, today, I sit, wait, watch, and hope. And I feel strongly the powerlessness associated with the role of the spectator.

©2008 from the hip. All Rights Reserved.

Since 2005, the Danish state has monitored everything everybody has been doing on the Internet. The Danish newspaper Politiken writes:

According to metroxpress, the state is monitoring everyone’s behaviour on the internet as a result of legislation that requires all user names and passwords to be lodged with the State and University Library and the Royal Library. The libraries file everything from children’s scribblings on Arto.dk to love letters and profile pictures on Dating.dk.
The technology is known as Internet Harvesting and the Net Archive currently harvests all Danish sites four times per year.
However, some news, dating and other social network sites are harvested daily, according to Eva Fønns-Jørgensen of the Net Archive at the State and University Library in Århus.

Code release
“Danish sites have a legal duty to provide access codes and we have been harvesting text, pictures and audio since 2005,” she says.
At the moment, researchers are the only ones allowed to see the extensive personal material grabbed through Internet Harvesting. But 70 years after the death of, for example, a person with a dating profile, all information comes into the public domain.

The thinking behind this is that people themselves have chosen to place materials on the Internet, and that once it is one the net it is publicly available.

So there we go. Public nudity and liberal rules about pornography. But Big Brother is watching. And letting others watch as well!

1984 has come and gone.

See also: Inventor of the Internet warns against ‘Big Brother’ systems that track the sites you visit

©2008 from the hip. All Rights Reserved.

There is much talk about the rich, both from Barack Obama and from John McCain. Their viewpoints differ considerably. But they do talk about the rich.

And both candidates talk about the middle class. A lot. About how the solution to the current crisis in the US resides with the well being of the American middle class. About how the middle class must be strong enough economically to be able to afford to give their children education. And so on and so forth.

But neither of the candidates spends much time discussing the poor in the US. They don’t talk about their numbers. They don’t discuss their living conditions. The houses they loose in foreclosures. They don’t discuss what they will do for them. They don’t even disagree about them - because they simply don’t discuss them.

And this is what I think is sad. Very sad.

I have discussed this with people. The most rational explanation I am able to get is that the poor don’t count in the election. So the candidates don’t bother spending time discussing them. And then, when I hear that, it is easy to think that they probably will not count in the next election either, so there is no reason to do anything for them between elections or talk about them in the next campaign either. I guess.

So, effectively, half or so (we can always fight over the exact percentage, but that is not my point here) of the population in the US don’t count, from a political perspective. They don’t matter, because they hardly ever vote. The don’t get to be visible. They don’t get to be the target of reforms aimed to improve their conditions. Indeed, it is easy to think that to the extent their chances,  as opposed to the chances of the middle class, improves, it is simply a result of a drip down or spillover effect of changes instituted for the benefit of others.

What a terrible waste of human resources this is! What a waste of talent! What a waste of happiness! How sad. For the United States of America.

How long can the United States continue like this in a knowledge and competence economy? Why the concern with energy saving and recycling of resources when such a large proportion of the greatest resource of all is hardly maintained and definitely not used efficiently?

©2008 from the hip. All Rights Reserved.

When I first read the story of exactly how the US injected 250 billion dollars into the biggest American banks, I was stunned. Then, when I reread the story I started to laugh. I found it hilarious! What a move by the government. From one perspective a much needed infusion of capital, yet from another a highway robbery!

So here is the story, simply to good not to be distributed, courtesy of The New York Times:

Drama Behind a $250 Billion Banking Deal

The chief executives of the nine largest banks in the United States trooped into a gilded conference room at the Treasury Department at 3 p.m. Monday. To their astonishment, they were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry M. Paulson Jr. said they must sign it before they left.

The chairman of JPMorgan Chase, Jamie Dimon, was receptive, saying he thought the deal looked pretty good once he ran the numbers through his head. The chairman of Wells Fargo, Richard M. Kovacevich, protested strongly that, unlike his New York rivals, his bank was not in trouble because of investments in exotic mortgages, and did not need a bailout, according to people briefed on the meeting.

But by 6:30, all nine chief executives had signed — setting in motion the largest government intervention in the American banking system since the Depression and retreating from the rescue plan Mr. Paulson had fought so hard to get through Congress only two weeks earlier.

What happened during those three and a half hours is a story of high drama and brief conflict, followed by acquiescence by the bankers, who felt they had little choice but to go along with the Treasury plan to inject $250 billion of capital into thousands of banks — starting with theirs.

What a story! Has anything like this ever happened before? This must be the biggest tale in the modern history of banking!

©2008 from the hip. All Rights Reserved.