Sweden cut its key lending rate by a half-point for the second time in two weeks and forecast another similar reduction within six months to cushion the economic slowdown. It also lowered forecasts for growth and inflation.
The Riksbank cut the repo rate to 3.75 percent, according to a statement today on its Web site in Stockholm. The cut was forecast by two of 21 economists surveyed by Bloomberg. Twelve forecast a quarter-point cut and seven no change.
“The central bank is bracing itself for significantly worse economic development,'' said Cecilia Skingsley, an economist at Swedbank AB. The bank expects the global financial turmoil to have “large and serious consequences for the Swedish economy.''
The Riksbank, which raised rates as recently as last month, has switched direction after the financial turmoil damped demand for exports that make up half the economy. The bank has cut rates more than any other central bank in Europe outside Iceland, while the government has pledged 1.5 trillion kronor ($192 billion) to guarantee loans as part of a global effort to revive lending.
The Swedish krona was largely unchanged at 10.0615 against the euro by 1:56 p.m. in Stockholm. The yield on the 5.25 percent government bond due March 2011 fell 21 basis points to 2.97 percent. A basis point is 0.01 of a percentage point.
The krona has fallen 9 percent in the last year as demand for Sweden's exports slows and since investors pull money out of smaller, less liquid currencies.
“Our assessment is that the krona will strengthen again once conditions on the financial markets improve,'' First Deputy Governor Irma Rosenberg said.
Preventing a Slump
The Riksbank lowered its growth forecasts to 0.9 percent for this year and 0.2 percent for 2009, compared with September estimates of 1.1 percent and 0.9 percent respectively. The jobless rate will rise to 6.2 percent this year, 6.9 percent in 2009 and 7.6 percent in 2010 percent from 6.1 percent in 2007, it added.
“Demand in the global economy is falling with great force,'' Governor Stefan Ingves said at a press conference. “We forecast a 2009 with quite weak economic growth.''
As growth slows, headline inflation will ease to 1.6 percent next year from 3 percent in 2008. The bank had previously forecast prices would rise 3.9 percent in 2008 and 2.3 percent in 2009.
The scale of the global financial crisis may push rates lower than the central bank has estimate guaranteed cash advance.
“We think that the Riksbank will deliver a lot more than it forecasts,'' Nicola Mai, an economist at JP Morgan Chase Bank, said in a client note. “We expect a 25 basis point cut in December and another 100 basis points of easing next year.''
New Found Unity
Growth slowed to an annual 0.6 percent in the second quarter, matching the slowest pace in more than 11 years.
The Riksbank unanimously cut the key rate for the first time in more than three years on Oct. 8 as part of a coordinated effort with five other banks including the U.S. Federal Reserve and the European Central Bank. Board members had previously disagreed over the outlook for rates as opinions differed on growth and inflation prospects.
The Riksbank has made available 280 billion kronor of three- and six-month Swedish currency loans and 27 billion of U.S. dollar loans to banks to ease borrowing costs.
In addition to its loan guarantees, the government this week created a fund that may buy shares in banks. The National Debt Office has also issued about 100 billion kronor of treasury bills to meet demand for low-risk government paper.
“This is a very unusual situation when financial stability and monetary policy go hand in hand,'' said Ingves said.
Banks
While the U.S., the ECB and Sweden are cutting rates, emerging markets are under pressure to raise borrowing costs to halt a slump in their currencies. Hungary lifted its key rate by 3 percentage points to 11.5 percent yesterday, while Turkey kept its benchmark at 16.75 percent.
Swedish banks have managed to avoid the worst of the credit crisis, though SEB AB today reported a 51 percent slump in net income as loan losses jumped almost fourfold. The bank said it will now accelerate its cost-cutting program by lowering its employee base by 500 people, or 5 percent of its Swedish workforce.
Svenska Handelsbanken AB yesterday said third-quarter profit rose an unexpected 6.2 percent, driven by higher lending income from Sweden, Finland and the U.K. Nordea Bank AB, the Nordic region's largest lender, and Swedbank AB, the largest bank in the Baltics, both said today profit declined 14 percent because of higher loan losses and lower commission income.
Former U.S. Federal Reserve Chairman Alan Greenspan wrote in an article for Emerging Markets newspaper that the U.S. housing market will recover in the first half of 2009.
“The recent slowing in the rate of decline in U.S. home prices is the first positive note in this now yearlong trauma,'' Greenspan wrote in the article for Emerging Markets, a publication issued for this weekend's Group of Seven and International Monetary Fund meetings in Washington.
“More conclusive signs of pending home price stability are likely to become visible in the first half of 2009,'' he wrote.
The credit-market freeze will eventually thaw as “frightened investors take tentative steps towards reengagement with risk,'' the former Fed chairman said, without specifying a time frame instant cash advance. He praised the actions of governments in buying up toxic assets and recapitalizing banks.
Treasury Secretary Henry Paulson is pursuing a Congress- approved $700 billion rescue plan and the government may buy stakes in several banks within weeks. Iceland's government seized the island's top three banks this week after the banking system imploded. The U.K. government agreed to invest 50 billion pounds ($87 billion) Oct. 8 to boost capital in the nation's banks to unlock credit markets.
European finance ministers failed to agree on steps to shore up the banking system hours after their countries' leaders pledged to do whatever was needed to restore confidence as the continent's stocks fell the most since 1987.
There appeared to be little support for suggestions from France and Italy that Europe create a U.S.-style bank rescue fund at yesterday's monthly meeting of euro-area finance ministers in Luxembourg.
Italian Prime Minister Silvio Berlusconi and French Finance Minister Christine Lagarde both have suggested a plan modeled after the $700 billion U.S. fund approved by Congress last week. The meeting ended yesterday without consensus on anything beyond a reiteration of a promise by heads of state to protect deposits.
“We all agreed that we want to do all we can to avoid financial institutions of systemic importance failing,'' Luxembourg Finance Minister Jean-Claude Juncker said after leading the meeting. “We reinforced arrangements concerning deposit protection.''
Officials in countries across Europe, mostly acting unilaterally, are rushing to rescue banks on the brink of collapse as the global credit squeeze bears down on the continent. Europe's Dow Jones Stoxx 600 Index had its steepest decline in two decades yesterday and the euro fell below $1.35 against the dollar for the first time in more than a year.
`Going Their Own Way'
“As far as I can tell, everyone's going their own way,'' said Peter Dixon, an economist at Commerzbank AG in London. “They can give blanket guarantees. They're almost meaningless, because depositors weren't going to lose money anyway. But it does take some of the heat out of the system.''
Before yesterday's meeting, European Union leaders pledged to protect depositors from losing their savings to bolster confidence as share prices tumbled.
EU countries “will take whatever measures are necessary to maintain the stability of the financial system,'' the 27 EU member countries said in a joint statement that was released by Berlusconi's office. “We will continue to take the necessary measures to protect the system so that individual depositors in our countries' banks do not suffer any loss of money.''
That statement followed earlier pledges by German Chancellor Angela Merkel and French President Nicolas Sarkozy to guarantee savings accounts.
Bailout Fund
Berlusconi two days ago said Italy would propose that EU governments contribute 3 percent of gross domestic product to a bailout fund to guarantee deposits at European banks. He said that other leaders were warming up to the idea. Italy didn't present the proposal at yesterday's meeting.
France's Lagarde floated a similar proposal last week, telling the German newspaper Handelsblatt that a “rescue package'' was needed to help “smaller'' European states “threatened with a banking failure (cash loans).''
Germany shot down that idea, and Henri Guaino, a special adviser to Sarkozy, later distanced the president from Lagarde's proposal, saying in a telephone interview that “France has neither studied nor proposed a plan of that type.''
Differences between Germany and France were apparent again yesterday.
“Coordination between all of us is very important,'' said Lagarde said at yesterday's Luxembourg meeting. In Berlin, Merkel stressed that “each member country must tackle its own problems and we can't risk creating new dangers to the banking system.''
Limiting Fallout
The finance ministers yesterday achieved little beyond what the leaders of Europe's four biggest economies did this past weekend. At that summit, Germany, the U.K., France and Italy also failed to agree on a unified response, pledging instead to work together to limit the economic fallout, ease accounting rules and seek tougher financial regulations.
“We have discussed recapitalization, liquidity, also minimum deposits,'' Luxembourg Economy Minister Jeannot Krecke said in an interview with Bloomberg Television. “We have some kind of agreement on the deposits.''
Even that agreement was undermined by discord over a plan by Ireland to protect not only deposits in six local banks but also loans they have taken. The German government criticized the Irish measure as distorting the European market, with Deputy Finance Minister Joerg Asmussen calling it “a rescue umbrella that discriminates in the internal market.''
Discrimination
The European Central Bank said the Irish government should have “properly'' informed the EU before announcing the bank- guarantee plan. And EU Competition Commissioner Neelie Kroes asked Ireland to expand the measure to include non-Irish banks to comply with EU rules that prohibit discriminating in favor of domestic institutions.
“We've seen negative consequences if a country goes off on its own with unilateral action,'' EU Commissioner for Economic and Monetary Affairs Joaquin Almunia said in Luxembourg. “We need a clear, coordinated, European approach.''
The debate followed rescues of major European institutions in recent days. Amsterdam- and Brussels-based Fortis, Dexia SA, which is based in Brussels and Paris, and Hypo Real Estate Holding AG of Germany required lifelines to avoid collapse.
The Stoxx 600 sank 7.6 percent to 241.6 yesterday, the steepest retreat since October 1987. Europe's plunge helped erase about $2.5 trillion from global equities as investors disregarded the U.S. Treasury plan to revive credit markets with a $700 billion bank bailout.
The Federal Reserve and Treasury began a series of emergency measures to prop up the mortgage and money markets ahead of congressional action on a broader lifeline for the U.S. financial system.
The Treasury plans to double its purchases of mortgage- backed debt to $10 billion and use a $50 billion fund to insure against losses on money-market funds. The Fed plans to extend emergency loans to banks to purchase asset-backed commercial paper from money funds, and to buy short-term debt from Fannie Mae, Freddie Mac and other agencies.
Today's announcements are aimed at combating a record exodus of investors from money-market funds, long considered to be among the safest investments. The actions come before an expected congressional passage of a new entity that would remove illiquid mortgage securities from companies' balance sheets.
“This is a situation where they could not be reactive because a run on money markets would have material consequences for investor sentiment,'' said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co. LLC.
The U.S. Treasury said it will use funds from the government's Exchange Stabilization Fund to insure for a year holdings of publicly offered money-market funds that pay a fee to participate in the program. Retail and institutional funds are eligible, the department said today in a statement.
Government Takeover
Treasury Secretary Henry Paulson said Fannie Mae and Freddie Mac, the mortgage-finance firms that government took over last week, will increase their purchases of mortgage-backed securities and the Treasury will “expand'' its own mortgage buying program.
Treasury spokeswoman Brookly McLaughlin said the department will buy $10 billion of mortgage securities, up from an initial $5 billion plan for the first month of the program. Any purchases after that remain to be determined, she said.
Mortgage assets that aren't trading and difficult to value are “choking off'' credit that the economy needs, Paulson said today.
The Fed will extend loans to banks to purchase “high- quality'' asset-backed commercial paper from money market funds, the central bank said. The Fed will also buy short-term discount notes issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks from Wall Street dealers. Neither program has a set limit.
Investor Shift
“The market for agency discount notes has been disrupted particularly by the shift of some investors to Treasury-only money market mutual funds, which do not invest in agency discount notes,'' New York Fed spokesman Andrew Williams said in an e-mail message. “As a result of this shift, other money market mutual funds have apparently attempted to sell large volumes of agency discount notes, further reducing liquidity in this market.''
The Fed purchased $8 billion of short-term federal agency debt under the new program today instant cash advance cash advance usa.
Yields on the debt relative to U.S. Treasury bills tumbled the most in at least 10 years today. The spread for 90-day agency notes dropped 96 basis points to 122.6 basis points at 5:15 p.m. in New York, according to data compiled by Bloomberg. The spread had jumped from 78 basis points at the end of last week.
The actions came a day after Paulson and Fed Chairman Ben S. Bernanke met with congressional leaders to urge moving troubled assets from the balance sheets of U.S. financial companies into a new institution, the most sweeping action aimed at ending the crisis.
Investors pulled a record $89.2 billion from money-market funds on Sept. 17, according to data compiled by the Money Fund Report, a newsletter based in Westborough, Massachusetts.
Federal insurance may distort the market if left in place for a long period, Crescenzi said. “It will be very hard for the Treasury to strip the guarantee if investors get used to it.''
The Fed loans, with terms up to 270 days, will be at the discount rate, the Fed said. The rate is currently 2.25 percent.
`Competitive Auctions'
The New York Fed will conduct the purchases of debt through “competitive auctions'' over the “next several weeks,'' the Fed district bank said in a statement.
Prime money-market funds hold about $230 billion in asset- backed commercial paper that banks can buy with Fed funds and $69 billion of the agency debt, senior Fed staff officials told reporters on a conference call. The staffers spoke on condition of anonymity.
The Fed said it allowed banks to buy commercial paper from affiliated money market funds and exempted banks from capital requirements related to holding the paper.
The loan program will run through Jan. 30, the officials said. There is no end date for the agency debt purchases, they said.
The Fed officials said they believe the central bank and taxpayers are protected because the commercial paper is backed by assets. The loans are non-recourse, meaning the Fed doesn't have additional rights to banks' assets should the collateral's value decline, the officials said.
The Fed invoked emergency lending authority to aid the mutual funds through banks, the officials said.
Japan and Australia pumped cash into their financial systems as Asian central banks attempted to calm markets after Lehman Brothers Holdings Inc. filed for bankruptcy.
The Bank of Japan added 2.5 trillion yen ($24 billion) into the financial system, its biggest money-market operation since March, and the Reserve Bank of Australia injected A$1.85 billion ($1.5 billion), for a two-day total of nearly A$4 billion. South Korea said it's ready to provide liquidity if needed.
Japanese bonds jumped, sending the yield on the benchmark 10-year bond to the lowest in more than a week on concern the credit crisis will worsen. Financial institutions worldwide have reported more than $510 billion in losses and writedowns and the credit-market collapse has erased $11 trillion from global stocks in the past year.
“Central banks have to show they are ready to take action to ensure stability,'' said Thomas Lam, an economist at United Overseas Bank Ltd. in Singapore. “Precautionary steps are high on their list to prevent any significant impact and support their markets.''
The Federal Reserve yesterday added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks, and may cut its benchmark lending rate today. China lowered its key rate for the first time in six years late yesterday.
Bank of Japan
Japan's overnight call loan rates was at 0.545 percent at 3.35 p.m. in Tokyo after the Bank of Japan made two injections of cash. It rose as high as 0.57 percent, according to Tokyo Tanshi Co. The central bank's target rate is 0.5 percent.
Today's increase in funds was the first since June 30 and the biggest since March 31, when the central bank added 3 trillion yen.
Australian one-month money market rates dropped 3 basis points to 7.21 percent today, the first decline in five days.
The European Central Bank, the Bank of England and the Swiss central bank also added liquidity yesterday. Three-month money market rates in Europe fell 4 basis points to 4.25 percent yesterday, the lowest level since Aug. 27.
Yesterday, the federal funds rate soared as high as 6 percent, triple the Fed's target, as banks hoarded cash. That spurred the Fed to pump $70 billion into money markets through repurchase operations, the most since September 2001.
Financial-Market Stability
“The Bank of Japan will carefully monitor the recent developments among U.S. financial institutions and continue to try to secure smooth fund settlements and financial-market stability by implementing appropriate money-market operations,'' Governor Masaaki Shirakawa said. The central bank started a two- day policy meeting in Tokyo today cash advance guaranteed approval cash advance loans.
South Korea will provide liquidity “through open-market operations,'' Vice Finance Minister Kim Dong Soo said. He held an emergency meeting today with his counterparts from the central bank and the financial regulator in Seoul.
“The government and the Bank of Korea expect local and overseas financial markets will recover their stability considering key nations' efforts to stabilize the markets,'' Kim said after the meeting.
The Bank of Korea said in a separate statement today it will provide foreign currency liquidity through the swap market when necessary to “help calm market players.''
Indonesian Liquidity
Bank Indonesia cut its overnight rate, used to lend to commercial banks, by 2 percentage points and raised the rate on deposits placed by the lenders to ensure liquidity. The benchmark BI Rate was kept unchanged at 9.25 percent.
The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective today. It lowered the reserve-requirement ratio for smaller banks to 16.5 percent from 17.5 percent.
“The authorities are afraid of a chain reaction and a further tightening of financial conditions, which would ultimately have a negative impact on the economy,'' said Tomoko Fujii, head of economics and strategy at Bank of America Corp. in Tokyo. “They have no choice but to try to calm the markets.''
Borrowing costs may be reduced further as Chinese officials seek to spur economic growth, analysts say.
“Policy makers will consider further interest-rate cuts in the coming month, in conjunction with a more proactive fiscal policy,'' said Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co. in Hong Kong.
Taiwan's government instructed its four major funds and state-owned banks to buy shares to help reverse the stock market's slump. The Taiex index, which fell as much as 5.4 percent today, closed 4.9 percent lower.
Fed Meeting
Fed policy makers will meet today to decide on its key interest rate. The central bank hasn't reduced rates since April 30, when it made the seventh cut since September 2007, bringing the target rate for overnight loans between banks to 2 percent.
Futures show traders boosted odds to 68 percent that the Fed will cut rates at the meeting.
“Cutting interest rates may not be the most appropriate way to solve the crisis,'' said Lam. “It's better for them to continue or enlarge their liquidity and collateral program.''
The number of newly-laid off workers seeking unemployment benefits jumped unexpectedly last week, the government said Thursday, reversing three weeks of declines.
The Labor Department reported that new applications for unemployment insurance rose to a seasonally adjusted 444,000, up 15,000 from the previous week. Economists had expected claims to drop to 420,000.
The increase indicates that the slowing economy is taking its toll on the job market. Many economists consider claims above 400,000 to be a sign of a weak economy. Initial claims stood at 320,000 in the same week last year.
The four-week moving average fell slightly to 438,000, down 3,250 from the previous week.
The number of people continuing to receive unemployment benefits also rose slightly to 3.44 million for the week ending Aug. 23, up 6,000 from the previous week. That number doesn’t include people who have exhausted their regular benefits and have requested extended assistance under an emergency program.
While Thursday’s figure is below the six-year high of 457,000 reached in late July, economists attributed some of that increase to an outreach program by the Labor Department to notify individuals about the availability of extended benefits. Congress approved the extra benefits in June.
But several economists have said the distortions from that program have likely faded. A Labor Department analyst also said the figures don’t include any impact from Hurricane Gustav.
The unexpected jump could foreshadow more bad news Friday, when the Labor Department reports monthly unemployment numbers. Economists expect the department to say that employers eliminated 75,000 jobs in August, which would be the eighth straight month of job cuts.
The department is also expected to report that the unemployment rate rose to 5.8% from 5.7% in July.
Increased unemployment can crimp consumer spending as laid off workers and those who fear for their jobs cut back on their purchases paydayloan free credit report.com. That, in turn, can further weaken the economy.
Concerns about that spread to the stock market Thursday. Wall Street headed for a lower open after the jobless claims data. Oil prices advanced for the first time this week, which also weighed on investors.
While the U.S. gross domestic product grew at a healthy 3.3% clip in the April to June quarter, many analysts expect the economy to slow and possibly contract later this year, due to rising unemployment and slowing economies overseas.
Separately, this summer saw the highest level of job cuts in six years, according to a report released Wednesday by job placement consultancy Challenger, Gray & Christmas.
Employers eliminated 377,325 jobs in the May to August period, the firm said, up from 249,197 in the summer of 2007.
GMAC Financial Services (GMA) said Wednesday it will lay off 5,000 workers as part of a plan to scale back its mortgage lending. GMAC is majority owned by private equity firm Cerberus Capital Management LP while General Motors Corp (GM, Fortune 500). holds a large stake.
Meanwhile, Freightliner LLC, a heavy truck subsidiary of German automaker Daimler AG, said last week it would cut 100 jobs.
U.K. inflation accelerated to more than double the central bank's 2 percent target in July, making it harder for policy makers to cut interest rates as the threat of a recession looms.
Consumer prices rose 4.4 percent from a year earlier, breaching the government's 3 percent upper limit for a third month and the most since comparable records began in 1997, the Office for National Statistics said today. That exceeds the 4.2 percent median forecast of 38 economists in a Bloomberg News survey.
House prices fell in July and retail sales dropped as Britain veered closer to a recession, reports showed today. Record oil and food costs have kept inflation above the target for 10 months, prompting Bank of England Governor Mervyn King and his colleagues to refrain from interest-rate reductions since April.
“The risk now is that inflation rises above 5 percent,'' James Knightley, an economist at ING Financial Markets in London, said in an interview on Bloomberg Television. “There is a risk of a rate hike, but the weakness in activity suggests that they're more likely to stay on hold.''
Knightley predicted that the Bank of England will cut the benchmark interest rate “quite aggressively'' next year from the current level of 5 percent as the economy falters.
Brown's Woes
The pound rose as much as 0.2 percent against the dollar after the report before erasing its gains and staying close to a 21-month low. The U.K. currency was at $1.9023 as of 12:01 p.m. in London compared with from $1.9108 yesterday. It was at 78.27 pence per euro compared with 78.03 pence.
Higher living costs have added to the unpopularity of Prime Minister Gordon Brown, whose governing Labour Party trails behind the opposition Conservatives by 20 percentage points, according to a YouGov Plc survey published on Aug. 10.
Today's inflation data “are yet another worrying signal for families desperately trying to make ends meet,'' Conservative leader David Cameron told reporters in London today.
Consumer-price increases are also accelerating in the euro region, where the inflation rate rose to 4.1 percent in July, the highest since April 1992 and more than double the European Central Bank's ceiling of 2 percent.
The U.K. inflation rate jumped from 3.8 percent in June. The 0.6 percentage point increase was the biggest since the series began in 1997. Based on a constructed index using retail-price data, it was the largest gain since 1991, the statistics office said.
Letter of Explanation
King will have to write his third letter of explanation to the government unless inflation slows to 3 percent in August, which would require an unprecedented drop in consumer prices fast cash easy payday loan.
The letter, setting out how he would return inflation to target, is required under rules established when the bank won rate-setting independence in 1997.
Consumer prices stayed unchanged on the month in July. The inflation rate jumped after the cost of food and non-alcoholic drinks rose 12.3 percent from a year earlier, the most on record, and energy prices increased, the statistics office said.
Oil prices have dropped 19 percent since reaching a record above $147 a barrel on July 11. They are still more than 60 percent higher than a year ago. Producer prices increased in July at the fastest pace since records began in 1986, the statistics office said yesterday.
So-called core inflation, which strips out costs of food, energy, tobacco and alcoholic beverages, accelerated to 1.9 percent in July, the most since June 2007.
Pay Pressure
Retail-price inflation, which pay negotiators use as a measure of the cost of living, quickened to 5 percent, the fastest pace since 1991. Excluding mortgage-interest payments, it reached 5.3 percent, the most since 1992, today's report showed.
Faster inflation has yet to stoke pay pressures. Wage data due tomorrow will probably show salaries including bonuses increased 3.6 percent in the second quarter, the weakest pace in almost a year, according to the median of 30 forecasts.
Slowing economic expansion may curb inflation. The International Monetary Fund last week slashed its forecasts for U.K. growth to 1.4 percent this year and 1.1 percent in 2009. The economy expanded 3 percent in 2007.
House prices fell in July as the squeeze on credit locked out buyers and brought the property market to a “virtual standstill,'' the Royal Institution of Chartered Surveyors said today. Sales in shops open at least a year fell an annual 0.9 percent, the British Retail Consortium said in a separate report.
Slowing economic growth has pushed up unemployment. Claims for jobless benefits probably climbed for a sixth month, increasing 17,000 from June, according to the median forecast of 31 economists in a Bloomberg News survey. The Office for National Statistics will publish the figures tomorrow.
The Bank of England predicted on May 14 that growth will slow to a 1 percent annual pace in the first quarter of 2009, the weakest since 1992. King said then that there may be “an odd quarter or two of negative growth,'' while predicting inflation would quicken to more than 4 percent. The bank will release new forecasts tomorrow.
Former Federal Reserve Chairman Alan Greenspan said the worst of the credit crisis will pass once investors “fully'' anticipate the likely losses on securities tied to subprime and other mortgages, where defaults have surged.
“The worst of the credit crisis is over if we assume that current market prices for subprime and Alt-A securities have fully discounted the ultimate losses that will emerge,'' Greenspan said in remarks distributed by his office today.
Delinquencies have climbed among borrowers with subprime or Alt-A mortgages, designed for those with poor or limited credit histories, causing more than $323 billion of writedowns and losses since January 2007. Greenspan said the value of mortgage- backed debt ultimately depends on how much equity homeowners have in their houses, making the outlook for property prices critical.
“House prices still have a long way to fall,'' Greenspan said. “It is possible, but unlikely they will stabilize by year- end.''
Home prices in 20 U.S. cities fell in February by the most on record, the Standard & Poor's/Case-Shiller home price index showed on April 29. The measure dropped 12.7 percent from the same month last year.
New York Conference
Greenspan made the remarks on the credit crisis to the Alternative Public Strategies Conference in New York yesterday, according to Lisa Panasiti, his spokeswoman in Washington cash advance loans quick payday loan. Reporters were allowed to listen to the speech yesterday only on condition the remarks not be reported.
The former Fed chairman's office distributed the remarks today after Reuters reported yesterday that he said the worst of the credit crisis was over, citing unidentified people who attended the New York event.
Greenspan said in an interview last week that the economy is in a “tug-of-war'' between the financial crisis and relative stability among non-financial firms that are flush with cash. He judged that the U.S. has slipped into an “awfully pale recession.''
Economists anticipate the economy will grow at a 0.1 percent annual rate from April to June, the least since the 2001 recession, according to a monthly survey by Bloomberg News published today. Gross domestic product rose at a 0.6 percent pace in both the first quarter and the final three months of 2007.
Greenspan, 82, served as Fed chairman from August 1987 to January 2006. Since then, he has given regular speeches, written a bestselling book and begun advising clients including Deutsche Bank AG. The paperback version of “The Age of Turbulence,'' including a new chapter on the credit crisis, is scheduled for publication in August.
The drop in the U.S. unemployment rate in April partly reflected a jump in part-time workers, raising concern businesses are still scaling back, economists said.
The number of Americans saying they worked part-time last month due to economic reasons — either because their hours were cut or they couldn't find full-time work — jumped to 5.22 million from 4.91 million in March, the Labor Department reported today. That helped the jobless rate unexpectedly fall to 5 percent from 5.1 percent.
The 19 percent increase over the last six months in the number of people not working a full day because of slack business conditions is the biggest in six years. Fewer hours and smaller pay increases, just as food and fuel prices surge, may continue to undermine consumer spending.
“With goods employment still declining sharply, hours worked down, and part-time employment up, this report can't be taken as a signal that the economy is out of the recession woods,'' Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts, said in a note to clients.
Consumer spending advanced at a 1 percent annual pace in the first quarter, the Commerce Department said April 30. That was the smallest gain since the last recession seven years ago.
Along with the drop in the unemployment rate, derived from a survey of households, today's government report also showed payrolls shrank by a smaller than forecast 20,000 workers. The latter is based on the Labor Department's poll of businesses.
Market Reaction
The figures pushed up yields on U.S. Treasury securities as traders bet the Federal Reserve will see less need to lower borrowing costs instant payday loan paydayloan.
Other components from the report were less reassuring. The measure of unemployment that includes those working part-time for economic reasons rose to 9.2 percent in April, a three-year high, from 9.1 percent.
Wage gains were also meager. Average hourly earnings rose just 0.1 percent, pushing the increase in the year ended in April down to 3.4 percent higher, the smallest since January 2006.
“The weak labor income numbers in an environment of rising headline inflation present yet another challenge for the consumer spending outlook and put even more burden on the tax rebates to support outlays,'' Michael Feroli, an economist at JPMorgan Chase & Co. in New York, said in a note to clients.
Rebate Checks
The government started sending out tax rebate checks this week as part of its fiscal stimulus plan. Also this week, Federal Reserve policy makers lowered the benchmark overnight lending rate between banks by a quarter percentage point, to 2 percent, in a bid to revive the economy.
Economists surveyed by Bloomberg News last month forecast consumer spending, which accounts for two-third of the economy, would rise an average 0.5 percent in the first half of the year, the smallest two-quarter gain since the six months that ended March 1991.
Recent reports indicate spending weakened at the start of the second quarter. Cars and light trucks sold at a lower-than- forecast 14.4 million annual pace in April, the fewest since 1998, according to industry figures issued yesterday.
The Bill & Melinda Gates Foundation will increase spending on farming projects by 50 percent this year as surging food prices threaten starvation and social unrest in poor countries.
The world's largest charitable foundation will give grants for agricultural programs totaling about $240 million this year, up from $160 million last year, said Rajiv Shah, the foundation's director of agricultural development and a former adviser to 2000 Democratic presidential candidate Al Gore.
“We are ramping up activity,'' Shah said in a telephone interview yesterday from Seattle, where the foundation is based. “The focus will be on encouraging extra supply, which is one reason global food prices have climbed so high.''
New funding from Gates for agriculture in poverty-stricken countries comes as food prices soar around the world. The Gates programs aim to increase farm productivity, a task that has received less attention from larger aid institutions.
The proportion of global development aid devoted to agriculture is 4 percent, according to figures from the World Bank. The share of World Bank financing devoted to farming dropped to 12 percent in 2007, from 30 percent in 1980.
“The strength of the foundation is that because it is not constrained by politics, it can afford to take a longer view on food supply,'' said Ruth Levine, a senior fellow at the Center for Global Development, an aid research group in Washington. “They are working on research and activities that have been very under-funded'' by other groups, she said.
Boosting Output
The foundation plans to plow the additional funds into existing projects, including developing more resilient crops, training farmers and helping small producers gain greater access to markets for their goods, Shah said.
For the past two years, the group has invested in seeds that better resist disease and drought, particularly in Africa, where productivity lags behind other developing nations. The effort has already led to more disease-resistant maize varieties for East Africa and sweet potatoes fortified with extra vitamin A, Shah said.
As the global economy accelerated in the past five years, the number of people living on $1 or less a day declined by 150 million, according to the World Bank. Those gains may be reversed unless rich countries step up their donations, officials said.
Global food prices surged 57 percent last month from a year earlier, according to the United Nations, and the World Bank warns civil disturbances may be triggered in 33 countries.
Farm Subsidies
Governments from Guatemala to the Philippines to Indonesia are seeking to combat food inflation by curbing exports or removing import duties on basic food staples such as rice payday loans faxless online payday advances. Brazil called for an end to farm subsidies in developed countries that create price distortions and leave millions of agricultural producers in poorer nations unable to compete.
African countries are expected to be among the most vulnerable to rising food prices. About 70 percent of the continent's population works in farming, according to World Bank figures. Even so, Africa is dependent on foreign producers, importing a net $12.7 billion a year in food.
According to the Gates Foundation, 16 of the 18 most undernourished countries are in Africa.
“The challenge is to ensure that they can sell enough of their goods so that they have an economic incentive to use better techniques,'' Shah said. “We are helping them to meet formal food standards demanded by bigger food producing firms and also talking to these companies in order to link them up with smaller farmers.''
He declined to say which food companies the foundation is negotiating with.
Radio Waves
The Gates crop-improvement program encompasses 16 African countries that aim to give farmers access to better-quality seeds through a network of 9,000 seed dealers.
Gates is also funding projects to provide information through radio broadcasts to help train farmers in Mali, Ghana, Malawi, Uganda and Tanzania. The foundation is funding the development of hermetic storage technology to protect cowpea — one of the most important crops in West and Central Africa.
“Almost no country has achieved a rapid ascent from hunger and poverty without raising agricultural productivity,'' the foundation says on its Web site.
The charity, created in 1994 by the founder of Microsoft Corp. and his wife, focused initially on health and education. In May 2006 it created launched a drive for a “Green Revolution'' in Africa, in partnership with the Rockefeller Foundation.
The Gates Foundation's agriculture staff has only about 35 employees, compared with about 250 staff working on agriculture at the World Bank, the Washington-based lender and grant-maker that's owned by its 185 member countries.
Last year the World Bank devoted $3 billion to agriculture projects.
“The sums of money might be small compared to the World Bank but they get a very big bang for their buck because they are focusing on long neglected areas,'' Peter Timmer, a visiting professor at Stanford University's Program on Food Security and the Environment. “They have chosen a perfect time to focus on this area.''
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