Busch: Official Wrong Thing At the Wrong Time

It seems there is a global effort to exacerbate the problems and worries of the world. Let's start in Japan where Prime Minister Taro Aso said today that people should not be over-concerned about daily movements in Japanese share prices, after the benchmark Nikkei average fell to a 5-year low.

"Stock prices in New York fell yesterday, but they rose the day before. We should not fret over stock moves," Aso told reporters according to MNI. Which begs the question, when's the next election in Japan? I'm thinking they are closer to Italy than we know....BTW, Japanese exports to the US fell 10% and Japan's trade surplus shrunk 94% as a wonderful indication of why stocks in Japan are under pressure.

Next up fresh after being forced to testify on Capitol Hill, the ratings agencies are out and about focusing on emerging markets. Standard & Poor's Ratings Services today said it had revised its outlook on the long-term sovereign credit ratings on The Russian Federation to negative from stable according to Reuters. "The outlook revision reflects the likelihood of a downgrade if costs to the Russian government of the bank rescue operations continue to increase, amid rising capital outflows as confidence in the financial system and the monetary regime declines," Standard & Poor's credit analyst Frank Gill said. "It is difficult at present to determine the ultimate impact on the public sector balance sheet of the banking system bail-out, not least due to the uncertain outlook on asset quality." How about looking at lower oil prices as an indication of their problems along with that little foray into a neighboring country? Just for fun, put up a chart of crude vs the Russian Ruble.

    • Jobless Claims Rise More Than Expected

Yesterday, United States Sen. Charles Schumer, Sen. Jack Reed, and Sen. Robert Menendez asked the US Treasury department to establish guidelines saying that banks receiving government capital injections should use the funds to restore their lending practices to levels prior to the onset of the credit crisis. "Although we are supportive of your efforts to restore stability to the financial system through direct capital injections into financial institutions, we are concerned that if the program is not implemented correctly, it's effectiveness will be limited." According to CNBC's website, the letter tells Treasury officials that they should issue guidelines that specify the type of lending allowed, encourage loan modifications, and provide more oversight of executive legislation. In this same vein, the Michigan congressional delegation has drafted a letter it intends to send to Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson later this week, urging the two officials to use their "broad regulatory authority" to "promote liquidity in the U.S. auto industry." (WSJ)

This type of government micromanaging of the financial system and government reach into the private sector takes us full circle back to the 1930s. This will accelerate with a potentially strongly Democratic legislative and executive branches next year. Globally, the theme of governments aggressively stepping into the private sector is the short term cure for all that ails from credit crisis. Longer term for the developed countries, it will create sclerotic economies unable to grow faster than 2% due to regulation and programs designed to effect social goals instead of profit targets. For now, all that matters is survival and socialism is embraced.



Andrew Busch

Andrew B. Busch here