Events related to the Crash

• Germany's unemployment attained record levels (over 5 million, correponding to slightly over 10% unemployment).

• Average U.S. job growth, per month, in 2004 was about 185,000. This is far worse than what the Bush administration predicted in July 2003: without tax cuts, the forecast job creation was 228,000/month for 2004. With tax cuts, the forecast job creation was 306,000/month for 2004

• Total U.S. physical retail sales the Saturday before Christmas were down 7% to U.S.$6.7 billion, compared with the same Saturday in 2003. Luxury stores were less affected than stores targeting middle-to-low income shoppers. This is attributed to a combination of: no non-electronic "must-have" item, an increase in gift cards (which are not sales until they are spent), and online sales growth.

• Earlier this week, the U.S. SEC ruled that Fannie Mae must restate its earnings. The worst case scenario for the restated earnings is thought to be an after-tax loss of U.S.$9 billion loss for 2001-2004. In reaction, Fannie Mae's board of directors is expected to meet this weekend to decide whether Fannie Mae's Chairman Franklin Raines and Chief Financial Officer Timothy Howard, should retain their jobs.

• The U.S. current account deficit was reported as widening to U.S.$164.71 billion for July-September 2004, compared to a revised figure of U.S.$164.39 billion for April-June 2004. The projected value was about U.S.$170 billion for July-September 2004.

• While U.S. unemployment dropped from 5.6% to 5.5% for July 2004, the U.S. non-farms payroll grew by only 32,000 jobs. This was just over one-quarter of the lowest forecast, 125,000 jobs. Meanwhile, June 2004's payroll growth was revised to 78,000 from 112,000; May 2004's payroll growth was revised to 208,000 from 235,000. U.S. BLS Commissioner Kathleen Utgoff reiterated that the focus of G.W.Bush's administration on the highly volatile household survey employment figure (a gain of 629,000). Note that the household survey is based on ~60,000 households, while the payroll count samples about one-third of all U.S. employers. Also, the household survey includes the following as employed that the non-farms payroll doesn't: farm workers, self-employed, unpaid family workers, private household workers, and people on unpaid leave.

• Brazil's Central Bank President Henrique Meirelles has stated that he will not resign, even though his former top aide, Central Bank Monetary Policy Director Luiz Candiota, had done so for a common pretext: being investigated for financial irregularities. Mr. Meirelles has named Rodrigo Azevedo as the new monetary policy director for the Central Bank.

• Japan's Ministry of Economy, Trade, and Industry reported that retail sales fell 2.9% from June 2003 to June 2004, and also had fallen 0.6% from May 2004. The week before, Japan had almost doubled its annual GDP growth forecast for fiscal 2004 (April 2004-March 2005) from 1.8% to 3.5%.

• The Tokyo consumer price index was down 0.3% year-on-year in May 2004, and preliminary indications were that the price index was even lower in June 2004.

• The U.S. Pension Benefit Guaranty Corporation reported a midyear deficit (March 31, 2004) of U.S.$9.7 billion for its single-employer pensions program, compared to a U.S.$11.2 billion for fiscal 2003 [ending September 30, 2003]. The multi-employer deficit was U.S.$150 million for March 31, 2004, compared to U.S.$261 million for fiscal 2003. It insures ~34.5 million Americans in ~29,500 single-employer plans, and ~9.7 million Americans in over 1,600 multi-employer plans.

• Japan's GDP grew by a real 1.4% for January-March 2004, compared to October-December 2003. The median forecast was 0.9%. This appears to be export-driven, although imports have also grown; domestic demand alone would have given a 1.1% real growth in GDP. Unemployment reached a three-year low of 4.7%. However, the deflation rate was 2.6%.

• Germany's seasonally adjusted unemployment rose to 4.367 million for April 2004, an increase of 23,000 from March 2004. The corresponding unemployment rate was 10.5% for April 2004, in contrast to 10.4% for March 2004. After corrections to make the figures comparable with other EU nations, the unemployment rate increase was from 9.7% in March 2004 to 9.8% in April 2004.

• The U.S. House approved a temporary pension contribution formula for the U.S. Pension Benefit Guaranty Corporation — that reduces total contributions over the next two years by about U.S.$80 million. Part of these reductions are from reducing the catch-up funding requirements for airlines and steel companies.

• South Korea's LG Card Co. reported a net loss of 5.6 trillion won for 2003, reversing a net profit of 350.4 billion won for 2002 via massive delinquent payments from credit card users. Full year revenue for 2003 was 4.39 trillion won, vs. 6.06 trillion won for 2002. 2003 Q4 alone saw a net loss of 4.58 trillion won, compared with a loss of 196 billion won for 2002 Q4.

• Red China's audit of 130,000 state businesses and offices in 2003 turned up U.S.$8 billion in misused or embezzled funds. This included larger-than-reported losses in the national power monopoly State Power Corp. (dismantled in 2003). U.S.$2.9 billion has been recovered, and 749 officials have been subject to criminal investigations. The Beijing-financed Hong Kong paper Wen Wei Po reported (without attribution) that:
  • 8,370 mainland officials were believed to have fled the country in the first half of 2003.
  • 6,528 mainland officials have "disappeared" in the first half of 2003.
  • 1,252 such officials committed suicide in the first half of 2003.

• The World Economic Forum announced, at its annual meeting in Davos, Switzerland (January 21-25), that:
  • In Italy, retirees will outnumber active workers by 2030. Italy's total national debt already exceeds 105% of its GDP.
  • Japan, in order to prevent its workforce from declining, would have to increase immigration by a factor of eleven from current levels.
  • Assuming current demographic and economic trends, the EU's share of global domestic product will fall from 18% today to 10% in 2050. Japan's share would decline from 8% today to 4% in 2050.
  • The U.S. workforce is expected to increase by 31 million workers from today to 2030. In contrast, the EU is expected to have 24 million fewer workers in 2030 than today. Japan is expected to have 14 million fewer workers in 2030 than today. India is expected to add 335 million workers to its workforce -- more than the total working-age population of the EU and U.S. combined.

• The U.S. Pension Benefit Guaranty Corp. had a cumulative deficit of U.S.$11.2 billion at the end of its financial year in Sept. 2003. It had a net loss of U.S.$7.6 billion for fiscal 2003, added to a cumulative shortfall of U.S.$3.6 billion at the end of fiscal 2002. About 44 million American workers and retirees currently have pensions under the control of the Pension Benefit Guaranty Corp.

• Fitch ICBA commented that South Korea's bailout plan for LG Card Co left LG Card just solvent. The plan would benefit from a new credible shareholder.

• Red China is preparing to bail out Industrial and Commercial Bank of China with about U.S.$40 billion of foreign exchange reserves. This follows on the recapitalization (Jan. 6, 2004) of Bank of China and China Construction Bank with U.S.$22.5 billion for each bank (U.S.$45 billion total) from foreign exchange reserves. On Jan. 6, Red China's foreign exchange reserves were reported as U.S.$403.25 billion. (Red China's Big Four state banks are: Bank of China, China Construction Bank, Industrial and Commercial Bank of China, and Agricultural Bank of China.) The total cost of recapitalizing the Big Four banks is expected to be bounded above by U.S.$120 billion. This is on top of U.S.$33 billion in recapitalization in 1998, followed by shifting U.S.$170 billion in bad loans to four debt-clearing firms in 1999. (Observe that the bad debt ratio for the Big Four is officially over 20%, but Western analysts think the correct figure is closer to 40%.) The Industrial and Commercial Bank of China reported its non-performing loan ratio at the end of 2003 as 21.3%. In 2003, the Bank of China wrote off 72,437 billion yuan in bad loans.

• California's Governor Arnold Schwarzenegger unveiled a U.S.$76 billion budget plan relying on deep program cuts and fee increases, that avoids tax hikes. It will require drastic rewriting if voters fail to approve a U.S.$15 billion bond issue in March 2004. (This covers U.S.$15 billion of bonds that come due in June 2004). It also assumes that a recovering macroeconomy will boost tax revenues by 4%/U.S.$2.9 billion.

• U.S. non-farm payrolls grew by just 1,000 jobs in December 2003. The U.S. unemployment rate fell to 5.7% in December 2003, from 5.9% in November 2003. The forecast was for 148,000 new jobs and 5.9% unemployment. (Note that the payroll survey is from businesses, while the unemployment survey is from households.) The U.S. labor force decreased by 309,000.

• South Korea's Korea Development Bank yielded to creditor demands to cover any additional losses at LG Card Co. This brings a 5.3 trillion won plan (including 1.65 trillion won in fresh loans) to bail out LG Card Co much closer to realization. LG Card's cash advance services were shut down on Jan. 8, 2004 due to a liquidity crunch; cascade effects weakened South Korean government bond prices.

• South Korea's Korea Development Bank is trying to coordinate a U.S.$4.2 billion rescue of LG Card. One in seven of LG Card's credit card holders are at least a month behind in payments at the end of November 2003. LG Card's debts total 20 trillion won, 3.24 trillion won more than its assets.

• Investigators have raised questions about how the Italian affiliate of Grant Thornton could have missed at least 15 years of falsified accounts at Parmalat SpA.

• Moody's Investors Service reported that twenty-seven U.S. life insurers held about U.S.$1.6 billion in investments related to Parmalat SpA on Dec. 31, 2002. AFLAC Inc. was hardest hit, having 17% of its statutory capital (U.S.$384 million) in Parmalat. The other 26 are not expected to experience a significant ratings effect from their exposure to Parmalat. Other life insurers with notably large exposure were: American International Group (U.S.$162 million), John Hancock (U.S.$117 million), Prudential (U.S.$105 million), and Pacific Life (U.S.$99 million).

• Parmalat has filed for "extraordinary administration" bankruptcy protection. The rules for this mode have been revised to allow the immediate appointment of Enrico Bondi, a corporate turnaround specialist chosen to replace Calisto Tanzi, as administrator.

• The Italian cabinet has amended its laws to make it easier to rescue Parmalat. The Italian government has also asked the EU to grant crisis status to the dairy sector, which suspends EU prohibitions of providing state aid to firms in crisis.

• After peaking in August 2003, U.S. M2 fell at an annualized 4.8% rate through November 2003; U.S. M3 fell at a 4.3% annualized rate through November 2003.

• Parmalat, Italy's biggest food company, was forced to expose 3.95 billion Euros of assets at Cayman Islands-based Bonlat Financing Corp as fraudulent. Bank of America informed Bonlat's auditor Grant Thornton that it did not have an account with Bonlat, and that the March 6, 2003 document claiming €3.95 billion of assets at Bonlat was forged.

• So far, California Governor Arnold Schwarzenegger's reverting the car tax to its former level has cost more than U.S.$300 million in dedicated funds to civil services, especially police and fire. Arnold invoked emergency powers by declaring that California was in fiscal crisis, and ordered U.S.$150 million in unilateral budget cuts to cover U.S.$150 million in payments to said counties and cities. It is currently unclear what will be cut, but public health and welfare measures are very high on the speculative list.

• The EU deliberately failed to enforce the Maastrict pact on Nov. 25, 2003 by failing to administer penalties for France and Germany (4.2% GDP deficit) grossly exceeding 3% of GDP in deficit financing.

• Japan's population is expected to peak at 127 million in a few years, and then decline to below 100 million in about five decades. Even now, the United Nations estimates that Japan needs about 600,000 new foreign workers every year to maintain minimal macroeconomic growth...which is not happening. In 2010, almost 40% of the population is expected to be over 55.

• Kenya reported that donors have pledged about U.S.$4.1 billion towards projects to alleviate poverty over 2004-2006. (About 50% of Kenya's population is below the poverty line....). The anti-corruption conditions are expected to reduce civil servant jobs, however.

• Japanese inspectors have declared Ashikaga Bank insolvent, with a negative net worth of about U.S.$850 million.

• The Euro briefly cleared 1 Euro/U.S.$1.20.

• Excluding Resona Bank, (bailed out by the government in June 2003), the top six Japanese banks reported a combined net profit of ¥944 billion for April 2003-September 2003. Their combined profits for October 2003-March 2003 was ¥38 billion. However, the resolution of a tax dispute with Tokyo resulted in a ¥193 billion refund among the top seven Japanese banks. Mizuho Financial Group, UFJ Holdings, Sumitomo Mitsui Financial Group and Mitsubishi Tokyo Financial Group all reported stronger interim results.

• South Korea's largest credit card issuer, LG Card Co, obtained emergency loans in order to resume providing cash advances for its credit cards. LG Card Co had not been able to provide cash advances over the weekend (Nov. 22-23, 2003) because of a cash crunch. LG Card Co's 14 million customers (almost one-third of South Korea's population) owe U.S.$22.7 billion (at the exchange rate on Nov. 24, 2003). Payments on about ten percent of this debt are overdue. For perspective, total credit card debt at the end of August 2003 was 78.43 trillion won (U.S.$66 billion), and about 11% of that debt was overdue on payments.

• The IMF resumed lending to Kenya two days ago. Today, Kenya started a two-day review of its "Economic Recovery Strategy for Wealth and Employment Creation" paper with donor nations.

• The U.S. Pension Benefit Guaranty Corp. (PBGC) had a deficit of U.S.$5.7 billion through July 2003. This increased to U.S.$8.8 billion as of August 31, 2003. This change in deficit is more than the entire payments collected by the PBGC for the fiscal year ending Sept. 30, 2003: U.S.$2.5 billion.

• The decision (by the U.S.) to "talk down the U.S.$" in response to high trade and government deficits has caused the Euro to reach U.S.$1.18/Euro. There are concerns that if this exceeds U.S.$1.20/Euro, EU exports to the U.S. could subtstantially fall (preventing EU macroeconomic growth).

• Dick Grasso has resigned as head of the New York Stock Exchange. As a result of a new policy of increased transparency, his compensation package was discovered to be larger than that of some corporate CEOs. This proved politically untenable.

• The U.S. Congress heard, in testimony today, that the quasi-governmental Pension Benefit Guaranty Corporation needed Congressional action to avoid choosing between bankruptcy and a government bailout. At the moment, this corporation insures benefits worth U.S.$1.5 trillion (on what time scale?), and covers payments for 783,000 workers whose corporations no longer provide for their pension plans. These corporations include Bradlees, Polaroid, TWA Airlines, and a host of steel manufacturers.

• The European Central Bank has indicated that most countries in the Eurozone will miss their budgetary targets for 2003. This is not news for France and Germany, which are on course to break the budget deficit limit of 3% of GDP for the third consecutive year. Also, the EU parliament voted for France's Jean-Claude Trichet to lead the European Central Bank in place of Wim Duisenburg: 2 votes against, 4 abstentions, 20 votes for. The handover is expected to be on November 1, 2003.

• India dismissed a World Bank report that suggested that India's macroeconomic growth was slowing to the point where fiscal reform was required to maintain targets. It is uncertain whether the effects of the drought are sufficient to invalidate the forecasts.

• Japan's top banks mostly posted losses for the April 2002-March 2003 fiscal year.
  • Shinsei Bank (Japan's first overseas owned bank, and reputed for contravening Japan's traditional bank-client relationships) made a parent-only profit of ¥59.09 billion and attained only 5.7% of its loans as bad.
  • The leading regional bank, Bank of Yokohama, had a group net profit of ¥16.90 billion, down from ¥19.85 billion for April 2001-March 2002.
  • Resona Holdings reported a loss of ¥838 trillion. Resona's core capital was reported as ¥525 billion, which was almost entirely deferred tax assets. Auditors reduced this figure by about 40%, provoking the bailout.
  • UFJ Holdings reported a loss of ¥608 billion, compared with ¥1.22 trillion for April 2001-March 2002.
  • Mizuho Financial Group's reported loss is expected to be over ¥2 trillion.
  • Mitsubishi Tokyo Financial Group reported a group net loss of ¥161 billion, compared with ¥152 billion for April 2001-March 2002.
  • Sumitomo Mitsui Financial Group reported a net loss of ¥465 billion.
  • Mitsui Trust Holdings reported a loss of ¥96.7 billion, including a reduction of about ¥44 billion in deferred tax assets. Mitsui's core capital was reported as ¥344.9 billion, which was almost entirely deferred tax assets.
  • Sumitomo Trust & Banking Co Ltd reported a loss of ¥73 billion, with a core capital of ¥706.1 billion, including ¥279.4 billion in deferred tax assets.

• Japan's Financial Services Minister Heizo Takenaka said Japan would give Resona Holdings, Japan's fifth largest bank, a capital infusion to bring its capital adequacy ratio from below 4% to above 10%. This is suspected to be as much as ¥2 trillion. This follows a tripling of predicted losses for April 2002-March 2003 to ¥838 trillion. Apparently, the auditors refused to sign off on Resona's key operating units -- Asahi and Daiwa -- using deferred tax assets for 40% of their capital. ["Deferred tax assets" are tax credits that can be taken only when a borrower goes bankrupt, and the bank has a taxable profit.] Japan's four megabanks use deferred tax assets for anywhere from 18% to 30% of their capital.

• The following officials were charged with illegally depositing a total of about 1.1 billion Kenyan shillings of public funds into Euro Bank:
  • Julius Meme, a top Health Ministry official and former chief executive at the state-run Kenyatta National Hospital: 51 million shillings deposited in February 1998.
  • Augustine Muita, Julius' successor at Kenyatta National Hospital.
  • Ibrahim Hussein, head of Kenya's National Hospital Insurance Fund.
  • Francis Chahonyo, who at separate times headed both the Kenya Sugar Authority and the Postal Corporation of Kenya.
  • Austin Amulyoto, an official of the Kenya Sugar Authority.
  All five denied the charges and were released on bail.
  • Kenya's Euro Bank was found to be insolvent on the order of one billion Kenyan shillings. on February 21, 2003. At the time of its closure, it held 1.4 billion shillings in deposits from several state-owned corporations. Euro Bank's collapse has already prompted the resignation of Kenya's central bank governor Nahashon Nyagah, and tax authority chief John Munge. John Munge is also a former Euro Bank director, and under investigation at this time [April 10, 2003].

• The system of currency controls that Venezuela's President Hugo Chavez imposed on Jan. 21, 2003, has yet to sell a single legal dollar to the public at the official rate of 1,598 bolivars/U.S.$1. The currency committee chariman, Edgar Hernandez, expects to start selling dollars this week (on or before Mar. 22, 2003?). The black market exchange rate has reached 2,800 bolivars/U.S.$.

• There are concerns that Europe could be experiencing a corporate bond bubble. For the past three years, European bonds have outperformed European stocks. It is unclear whether the EU macroeconomy will improve fast enough to head off an expected excess of bond rating reductions over bond rating increases for 2003. That would signal a currently unexpected high risk of corporate bond defaults.

• Germany's unemployment rate has reached 11.1%. This is on top of a decline in retail sales for 2002 compared to 2001.

• The Pension Benefit Guaranty Corp. [PBGC], a government program protecting workers' retirement income earned in private employer-sponsored pension plans posted a record U.S.$3.6 billion shortfall in 2002. It completely used up its U.S.$7.7 billion surplus in 2002 as well, for a net loss of U.S.$11.4 billion -- the largest in the agency's 28-year history (dating back to 1974). However, it did secure a record number of underfunded pension plans at bankrupt and financially troubled companies. [Almost 80% of the underfunded plans were from the steel industry.] The PBGC's executive director, Steven A. Kandarian, noted that while the program still has enough assets to pay benefits to retirees "for a number of years", it must be strengthened to meet future obligations. $9.3 billion of the net loss was attributable to underfunded single-employer plans. Declining interest rates accounted for another $1.7 billion of the loss. The PBGC's last deficit was in 1995, at U.S.$315 million; the only surpluses it has recorded were in 1996 through 2001. The 2003 figures will include National Steel and Bethlehem Steel, which together account for U.S.$5.16 billion. 144 pension plans covering 187,000 people were taken over by the PBGC in 2002, in contrast to 104 plans with 89,000 participates in 2001. The PBGC's multi-employer program remained financially strong in 2002, with a surplus of $158 million (in contrast to a $116 million surplus in 2001).

• Japan's overnight call rate fell to -0.01% for U.S.$123 million of funds traded between three foreign banks.

• Kim Jung-tae, Kookmin Bank's CEO, said that the only visible growth engine for South Korea's macroeconomy in 2003 was exports. With 71 trillion won of household loans, Kookmin (the largest lender in South Korea) is particularly exposed to the increasing level of bad debt. 11.18% of Kookmin's credit card loans were overdue, compared with a "local industry average" of 9.30%.
• Thailand's Finance Minister Somkid Jatusripitak announced that the roughly U.S.$4.8 billion owed by Thailand to the IMF would be repaid on an accelerated schedule over the next six months. Three installments of approximately U.S.$1.6 billion are planned.

• Japan's minister for economic policy and financial services, Heizo Takenaka, welcomed cleanup plans announced by two of Japan's four megabanks. UFJ announced that it would set up a new firm, backed by ¥100 billion of U.S. investment bank Merrill Lynch's money. The intent is to enhance handling of problem loans, relocate staff, closing branches, and cut equity holdings. Sumitomo Mitsui Banking Corp. announced that it would merge two of its groub banks into one.

• The Australian Securities and Investment Commission (ASIC) ordered a comprehensive audit of all listed companies after Enron's collapse. Out of 1,000 listed companies, 166 had reasons to be concerned about their solvency. 49 other companies only got qualified approval from their auditors.
• The United Kingdom's FSA leveled a record fine of U.K.£4 million against Credit Suisse First Boston International for trying to mislead Japanese regulators between 1995 and 1998.

• South Korea's bank loans and credit card debts were reported, by the Bank of Korea, as growing by 34.1% to 424.3 trillion won at the end of September 2002, year-on-year. This comes as one in ten South Koreans(??) are thought to be behind in payments on credit card debt. Government orders to credit card lenders (non-bank, and bank) include setting aside 8% loss reserves, and writing off debts "older than 6 months".

• Hong Kong has announced that its latest attempt to stabilize the local property market is to completely leave it. (This may be due to a number of recent attempts backfiring...for instance, subsidized housing (1997) is thought to have merely aggravated a huge decline in property values.

• Philippine Budget Secretary Emilia Boncodin announced that the Phillipines' 2002 and 2003 deficit targets would be revised again. The deficit from Jan. 2002 through Sept. 2002 inclusive, 166.47 billion pesos, has already exceeded both the initial forecast (130 billion pesos) and the revised target of 4% of GDP, i.e. around 155 billion peso.

• A potential ¥2.8 trillion shortfall has resulted in the plausible speculation that a supplementary budget will be introduced in Japan. This is on top of extant debt approaching 140% of GDP.

• The U.S. Federal Reserve Bank has cut the overnight lending rate by 0.50% to a 40-year low of 1.25%. There are some speculations that the Fed is drawing analogies between the current U.S. situation, and Japan's situation in 1991-1995.

• Sri Lanka has raised taxes in an effort to keep debt servicing costs less than total government revenues. (This was not true for 2001.)

• National Century Financial Enterprises missed about U.S.$30 million in payments to approximately 60 health-care providers. Apparently, its 2001 books were so flaky that Deloitte & Touche LLP has refused to approve them...preventing the issuing of new bonds. Bank One Corp., which administers National Century Finance's bond trust, announced that the bonds were in default after the reserves had been drained from 17% to 0.06%.

• Japan announced a proposal for fixing the huge debts at Japanese banks and reviving the Japanese macroeconomy. Unfortunately, in spite of its relatively radical nature, Western analysts suspect that key provisions were already annihilated by political infighting.

• Standard & Poors has estimated Hong Kong's budget deficit to be about U.S.$8 billion for 2002. This is much higher than Hong Kong's estimate. Based on this, Standard & Poor's has changed its rating on the HK$ from stable to negative. If Hong Kong's reserves fall too low, there are concerns that Hong Kong would be forced to break its peg of HK$10/U.S.$1. The immediate devaluation is thought to be about 20%.

• A number of South African financial analysts see a significant risk of a 1929-style meltdown. Deflation has already started in Germany and France, and has been a chronic issue for Japan for the past decade. The concern is that the U.S. has built up a severe overcapacity in manufacturing, and the resulting relative oversupply of surplus assets will eventually induce deflation. In this scenario, the eventually resulting sudden decline in U.S. imports would induce depression in all of the Western macroeconomies at once.

• The U.S. inflation rate stayed close to zero in September 2002: 0.2% month-on-month. This in conjunction with a rise in the U.S. trade deficit of almost 10% in August 2002 to U.S.$38.5 billion from July 2002's level of U.S.$35.1 billion. This was attributed to the conjunction of the highest import levels since March 2001, with a decline of 1.3% in exports. The expected trade deficit was U.S.$35.6 billion.

• The Financial Action Task Force concluded that Russia now was taking significant legal action to prevent money laundering. Russia has been removed from their list of countries that tolerate money laundering. However, Nigeria and the Ukraine are under consideration to be added to that list.

• Among loans of over U.S.$20 million held by U.S. banks, problem and potential problem loans combined grew year-on-year by 34% to U.S.$236.1 billion in 2002 -- 23% of the total of U.S.$1.9 trillion in loan commitments. This growth rate is slower than the 86% rate reported for 2001. Of these, $19.6 billion in credits were classified as losses, up 145% from the 2001's figure of U.S.$8 billion. 39% of these losses were associated with the telecommunications sector, which contributed 75% of the increase in adversely affected loans.

• Warren Buffet announced that the "mass hallucination" that affected the world stock markets during the tech boom is ending. He said that this had also influenced accounting firms, resulting in scandals like Enron and WorldCom.

• Standard & Poors has downgraded long-term Indian bonds from BB+ to BBB-. Fortunately, the impact should be limited by most of the bonds being denominated in rupees, and being sold to the domestic market. This downgrade to "almost not investment grade" was motivated by the inability of India's 18-party coalition government to coordinate effective federal budget control. In particular, India's budget deficit is expected to reach 6% of GDP this year, with overall public debt either approaching or exceeding 80% of GDP. Governmental credibility has collapsed with political infighting aimed at preventing priorly-agreed to privatization plans from being enacted.

• Korea's Delphi Automotive Systems has stopped its boycott of supplies to Daewoo Motors a day early. (Then again, it started two days early). Daewoo did agree to return to paying bills within two weeks.

• Uruguay's total banks deposits increased by U.S.$212 million in August 2002. This is the first increase in seven months. Uruguay's Central Bank estimates it will take about four years to attain the U.S.$3.1 billion in reserves that it had early in 2002.

• The IMF has granted Brazil a U.S.$30.4 billion loan, in exchange for a 3.75% budget surplus. However, the loan is spread out over six installments, of which U.S.$3 billion is immediately available, and U.S.$3 billion is scheduled to be available by the end of 2002. The other four are spread out over 2003.

• The current supply disruption by Daewoo's parts suppliers does not appear to be enough to derail the September launch of GM Daewoo Auto and Technology (the new joint venture).

• Daewoo spokesman Kim Sung-soo said that all four of Daewoo's Korean plants were shut down today. Apparently, the suppliers are demanding payment of bills in two weeks (as usual) rather than four to five weeks (as the creditors changed it to). [augmented by MoneyCNN, Sept. 2 2002.] Also, the suppliers want the full 850 billion won, while the creditors want to pay only about 420 billion won.

• Delphi Automotive Systems stopped shipments to Daewoo Motors on Tuesday, August 27th. This has caused three of Daewoo Motors' plants to run out of parts today, preventing the production of about 2000 cars/day.

• Daewoo Motors' 191 parts suppliers have collectively decided to shut down shipments to Daewoo Motors on Thursday, August 29th 2002, if Daewoo does start significant payments on 850 billion won owed them. Admittedly, any payment of the supplies is dependent on creditors' approval.

• Thailand's Prime Minister Thaksin Shinawatra announced that the remaining U.S.1.2 billion in IMF debt can be paid back by January 2003. [Thailand drew a U.S.$17 billion loan from the IMF to deal with the mass devaluation of the Thai baht, in 1997.]

• Daewoo Motors posted record profits in its second quarter and first half. Second quarter net profit rose 273.8% year-on-year to 28.1 billion won. First half net profit rose 272.5% year-on-year to 53.2 billion won. Currently, General Motors Corp has a 42.1% ownership stake in Daewoo Motors. GM's business partners hold a 24.9% ownership stake. Suzuki Motor Corp plans to acquire a 14.9% ownership stake in Daewoo Motors.
• Japan's June 2002 current account surplus rose 90.3% year-on-year to ¥1.5072 trillon. The June 2002 trade surplus was up 59.0% year-on-year, reaching ¥1.448 trillion. The June 2002 income account surplus rose to ¥504.6 billion, compared to ¥407.8 billion for June 2001. The June 2002 services account deficit was ¥386.8 billion, compared to a June 2001 services account deficit of ¥434.3 billion.

• The Central Bank of Uruguay announced that the following banks would have their accounts unfrozen on Wednesday, August 14th 2002: Commercial Bank, Credit Bank, Montevideo Bank and Workers Bank.

• Uruguay has repaid its emergency loan from the U.S., upon the approval of the IMF loan. The emergency loan was for U.S.$1.466 billion on August 5, 2002. It was repaid, with U.S.$271,351 in interest, on August 9, 2002.

• Uruguay's banks are reopening, with extended hours.

• Uruguay's economy minister Alejandro Atchugarry has asked Uruguay's Congress to pass a suite of emergency banking measures [Xinhua, August 7 2002: Banking Stability Law] to protect Uruguay's banks from cash flight. He also mentioned that Uruguay had requested a U.S.$1.5 billion short-term loan to help ride out the crisis.

• Uruguay has decided to shut down its banking system for the rest of the week, to get time to decide how to deal with the ongoing Argentina-induced crisis. However, ATMs were to be turned on later today to permit access to salaries.

• Japanese Prime Minister Junichiro Koizumi has asked for a ¥10 million limit on insurance of liquid bank savings (checking accounts, savings accounts, etc.) effective April 1, 2003 (fiscal 2003). This matches a ¥10 million limit on insurance for time deposits at banks that collapse.
• Uruguay cancelled banking activity for 24 hours today, to control massive deposit flight from the banking system: U.S.$52 million was withdrawn on July 29, 2002 (Monday), reducing the total deposits to U.S.$725 million. The Uruguayan peso fell to 35 pesos/U.S.$1 from 27 pesos/U.S.$1. ATMs were also shut down.

• The Brazilian real fell 5.3% to 3.18 real/U.S.$1 . This was attributed to the imminent IMF negotiations with Brazil regarding aid to deal with Argentina's side effects.

• Uruguay's macroeconomic forecast for 2002 has been invalidated by Argentina's problems. Uruguay's Republic University Institute of Economics said that GDP was expected to contract by 8% (rather than 3.5%), due to reductions in both internal and external demand. Unemployment is expected to rise slightly, to 16%. Inflation is expected to reach 16% to 20%, rather than the prior estimate of 13% to 15%. Uruguay's peso is at risk of devaluing by 50% to 60%. Uruguay's deficit is expected to be 3.5% of GDP.

• Moody's Investors service downgraded six major Japanese banks in response to their weak and low-quality loan portfolio, and large deferred tax credits. The Bank of Tokyo-Mitsubishi was downgraded from D to D-. The following were lowered from E+ to E: Sumitomo Mitsui Banking Corporation, Mizuho Bank, Mizuho Corporate Bank, UFJ Bank and UFJ Trust Bank.

• George Soros has concerns that the U.S.$ could lose one-third of its value over the next few years. Further significant falls in the U.S.$, which is currently near parity with the Euro, would pose severe risks to almost all national economies on Earth.

• Shinsei Bank has requested Daiei, Japan's third-largest retailing group, to pay back about 30% to 40% of the approximately ¥100 billion in loans Daiei has outstanding with Shinsei Bank. This is about the same percentage as Daiei's main creditors -- UFJ Bank Ltd, Sumitomo Mitsui Banking Corp and Fuji Bank Ltd (part of Mizuho Holdings) -- wanted in February, when they executed an approximately U.S.$4 billion bailout. Shinsei bank did not agree, unlike ten other financial institutions (including Bank of Tokyo-Mitsubishi and Norinchukin Bank), on June 24, 2002 (Monday) to maintain their current balance of outstanding loans and lower their short-term lending rate to 1.375%. Apparently foreign ownership makes a difference: Shinsei Bank was launched from the failed Long-Term Credit Bank in March 2000 by a U.S. consortium led by investment fund Ripplewood holdings.

• The Brazilian real equalled its low immediately after the September 11 attack by Al Queda on the World Trade Center in New York City: 2.840 real/U.S.$1. A number of political considerations prompted a sovereign debt downgrade by Fitch IBCA, and a revision of ratings outlook to negative by Moody's Investors Service.

• Argentina's currency collapse has made it pragmatic for Uruguay to let its peso float, rather than maintain a trading band with width 12% against the U.S.$. It immediately fell 11.9% to 19.5 pesos/U.S.$.

• Moody's Investors Service downgraded Brazil's credit rating outlook to negative from stable. In response, the risk premium on Brazilian government bonds soared to 1,595 basis points, putting Brazil second only to Argentina (and riskier than Nigeria). Fitch IBCA also downgraded its rating of the Brazilian real to B+ from BB-. The extra risk is attributed to the relative ascendancy of left-wing populist presidential candidates, who would most likely deliberately default on Brazilian government bonds if they were elected.

• Hiromitsu Ishi, chief of a Japanese government tax panel, noted that the tax cuts implemented between 1988 and 2000 were unsustainable. Apparently, they must be reversed somewhen before 2010 in order to "prevent bankruptcy" [In practice, national governments do not go bankrupt: they hyperinflate first.] This deadline will undoubtedly be even earlier, since the ruling LDP coalition is shifting further tax cuts towards this year from later.
• Privatization plans have been formed for the Tokyo [Narita], Osaka [Kansai International], and Nagoya [Chubu International] airports. It is unclear whether this is a scheme to save Kansai International airport. The government would like to execute these plans in 2004.

• Spain's Banco Bilbao Vizcaya Argentaria has, so far, had 26 current and former board members named on criminal charges by using offshore tax havens to enhance pensions and bribe Latin American officials.

• Moody's has downgraded Japan's government bonds to A2, the same status as Latvia and Poland. Adam Posen of the Institute for International Economics noted that there was a significant plausibility of financial crisis in Japan before Sept. 2002.

• The Euro hit a 15-month high of 1 Euro/U.S.$0.9393.

• The Nihon Keizai Shimbun noticed that, in aggregate, the top seven banking groups in Japan would lose more than ¥10 trillion from their shareholder equity if U.S. accounting rules were applied, rather than the Japanese standards used in reporting. The resulting reduction in equity-to-capital ratios leaves both Sumitomo Trust & Banking Co. and Mitsubishi Tokyo Financial Group above the 8% minimum equity-to-capital ratio required by the Bank for International Settlements for doing business overseas. The other five, including Mitsui Trust and Mizuho Holdings, require Japanese accounting in order to stay above that minumum.

• A number of large Japanese banks reported losses for the fiscal year ending March 31, 2002. UFJ Holdings reported a loss of ¥1.23 trillion, and projects a profit of ¥130 billion for the next fiscal year. Mizuho Holdings reported a loss of ¥976 billion, and projects a profit of ¥210 billion for the next fiscal year. Sumitomo Mitsui Banking Corp reported a loss of ¥322.85 billion, and projects a profit of ¥80 billion for the next fiscal year. Mitsubishi Tokyo Financial Group reported a loss of ¥152.32 billion, and projects a profit of ¥55 billion for the next fiscal year. Daiwa Bank Holdings reported a loss of ¥931.88 billion, and projects a profit of ¥50 billion for the next fiscal year.

• Uruguay's president Jorge Batlle has outlined a series of emergency measures intended to fight the Argentine crisis -- the biggest financial attack on Uruguay in the country's history. These measures include tax increases to enable reduction of Uruguay's budget deficit.

• General Motors [GM] has signed the official agreement to purchase parts of Daewoo Motor: U.S.$251 million for a 42.1% stake in a new company (yet to be named). Daewoo creditors will get a 33% stake, while GM's business partners will get a 24.9% stake. The new company's annual revenue is expected to be around U.S.$5 billion. This is not thought to pose an immediate threat to market leaders Hyundai Motor Co. and Kia Motor Corp. (together, these are 75% of South Korea's 1.5 million vehicle auto market -- the world's sixth largest [which year? 2001 or 2002?]). GM is buying two South Korean plants in Changwon and Gunsan with a production capacity of over 500,000 per year, and a plant in Hanoi, Vietnam. GM also bought seven sales units in Europe, one sales unit in Puerto Rico, and a parts unit in the Netherlands. The new company inherits all parts and warranty obligiations for current Daewoo vehicles. Daewoo's market share had declined to 10% in March 2002 from 20% in 1998; the new company is expected to start recovering this market share.The remainder of Daewoo's 16 plants in Korea (Bupyong, in particular), Poland, Uzbekistan, India, and elsewhere are still the property of the creditors.

• Japan's Ministry of Finance reported that Japan's current account surplus widened year-on-year for the fifth month in a row Feb. 2002. The goods and services surplus was 583.2 billion yen in February, with income of 896.1 billion yen helping offset a negative services balance of minus 324.5 billion yen.
  • Feb. 2002: Overall surplus: up 3.9% year-on-year to ¥1414 billion, from ¥1361.4 billion in Feb. 2001.
  • Feb. 2002: Trade surplus: down 11.4% year-on-year to ¥907.7 billion, from ¥1024.3 billion in Feb. 2001.
  • Feb. 2002: Goods and services surplus: ¥583.2 billion, with goods income of ¥896.1 billion offsetting a services balance of -¥324.5 billion..
  • Jan. 2002: Overall surplus ¥709 billion
  • Jan. 2002: Trade surplus ¥336.8 billion

• Japan's Financial Supervisory Agency reported that Japan's thirteen largest banks had bad loan losses totalling ¥8.4 trillion, substantially higher than an initial estimate of ¥6.5 trillion. However, all these banks' capital adequacy ratios are expected to be above 10%, [the limit for international business is 8%], so they are not expected to require cash infusions.
• South Korean unions have apparently obtained suitable terms from GM [General Motors] regarding a potential GM buyout of Daewoo Motors. They have officially declared that they no longer oppose the buyout.

• Bolivia has been forced to partially devalue its currency, the boliviano, to avoid drastic imbalances in foreign exchange rates with Argentina. This has caused a noticeable rise in prices for imports.

• Japan was reported recently as having ¥24 trillion in explicitly bad loans, and ¥109 trillion in loans on the "watch list". The plausibility of a firm directly moving from the "watch list" to bankruptcy is high enough for some experts to consider "watch list" loans explicitly bad, regardless of official classification.

• Japan's trade surplus for Jan. 2002 was ¥188.1 billion, which compares favorably to a trade deficit of ¥95.7 billion for Jan. 2001. This constitutes the first time in 19 months that Japan's trade surplus has improved year-on-year.

• Low oil prices have made a controlled devaulation of Venezuela's bolivar very costly in central bank reserves. [The prior week, it cost U.S.$500 million.] Due to this, Venezuela's President Hugo Chavez announced that the bolivar would be allowed to free-float today.

• Japan's trade surplus was down 38% in 2001 compared to 2000, to ¥6.6 trillion. The yen traded at 39-month lows, at around ¥134/U.S.$ 1 .

• Japan's Sanwa Bank, Fuji Bank, Tokai Bank and Sumitomo Mitsui Banking Corp., plan a bailout package of ¥300 billion to ¥400 billion for the supermarket chain Daiei Inc. Reported components include debt forgivements and a debt-for-equity swap.

• General Motors is still expected to complete its purchase of select Daewoo assets (two South Korean plants, one Egyptian plant, and one Vietnamese plant), in spite of accounting holes on the order of U.S.$1.5 billion.

• The second-tier regional bank Ishikawa filed bankruptcy, provoking a policy statement from Japan's Finance Minister Masajuro Shiokawa that bank collapses would not be allowed to spread. In billions of ¥, some large banks had the following amounts of bad loans and core bad loans at the end of Sept. 2001:
  • Mizuho: 5,580/3,060
  • Yasuda Trust: 547.05/329.12
  • Sumitomo Mitsui: 3,330/2,220
  • Mizuho: 5,580/3,060
  • Mitsubishi Tokyo: 4,640/2,580
  • UFJ Group: 2,890/1,860
  • Asahi: 1,290/810.4
  • Daiwa: 898.79/439.09
  • Sumitomo Trust: 604.03/455.71
  • Chuo Mitsui: 925.8/413.5
  [A core bad loan is to an entity in bankruptcy or at risk of bankruptcy.]

• Japan's Cabinet has approved a draft budget of ¥81.230 trillion for fiscal 2002. This is the smallest proposed budget in four years, and is a 1.7% reduction from the initial budget for fiscal 2001. Public works spending was cut by 10%, and state corporations are receiving ¥1 trillion less. There are also reports that foreign aid programmes have been trimmed, and social security costs capped.

• The Japanese yen is testing three-year lows of ¥130/U.S.$1 . Other local currencies (including South Korea's won, Taiwan dollar, Singapore dollar, and Thai baht have been weakened in order to compete with Japanese exports.

• South Africa's rand has started to fall precipitously, having weakened about 16% in the past three weeks [since Nov. 28, 2001] to around 16.75 rand/1£

• Euro zone production fell 1.4% from Sept. 2001 to Oct. 2001; this was also a fall of 2.7% from Oct. 2000 to Oct. 2001. The average annualized inflation from Oct. 2000 to Oct. 2001 was 2.1%, with a deflation of 0.1% from Sept. 2001 to Oct. 2001. For the nations with available data: industrial production rose from Sept. 2001 to Oct. 2001 only in Luxembourg, Spain, and Denmark. The largest decreases from Sept. 2001 to Oct. 2001 were in Ireland, the Netherlands, Portugal, and Germany. The annual core inflation rate was reported to be 2.2% for both Oct. 2001 and November 2001.

• Venezuelan President Hugo Chavez has threatened to nationalise banks which resist a number of reforms (out of 49) passed in November 2001 under a fast-track legislative powers provision. The most distasteful one is a provision requiring at least 15% of their new loan portfolio to be made to small farmers. Apparently, mere fines are more profitable than complying with these laws, requiring more draconian measures (e.g., jailing bankers and nationalizing banks) to induce compliance. [Perhaps they fear too similar a resemblance to Turkey...before said restriction was relaxed (after Turkey's currency collapsed)?] Other laws had effects ranging from increasing state control of the oil industry to redistribution of "idle land". These laws have been appealed to Venezuela's Supreme Court.

• Jung Keun-yong, governor of the Korea Development Bank, reported that the GM buyout of Daewoo is in jeopardy. This is primarily due to a deadlock in talks between Daewoo management and Daewoo labor unions; GM's official opinion is that the debt is not directly GM's problem. GM and Fiat currently are attempting to buy the South Korean plants in Kusan and Changwon, as well as plants in Egypt and Vietnam. The South Korean plant in Bupyong is not on the purchase list, although GM wants a licensing arrangement to use that plant's technology.

• All three South Korean plants owned by Daewoo have been shut down, since local parts suppliers are refusing to extend further credit to Daewoo. Daewoo owes 1.5 trillion won to its part suppliers. The affected capacity is about 1 million vehicles per year.

• Japan reported a 0.5% decline in GDP for its second fiscal quarter (July-Sept. 2001), following a decline of 0.8% in GDP for its first fiscal quarter (April-June 2001). This is with a (current) public debt load of 140% of GDP. Fitch IBCA estimates that if nothing invalidates the current empirical curve, that Japan's public debt will reach 200% of GDP in 2007.

• Japan's life insurance industry suffered an overall decline in outstanding policies, and also took losses from a generally declining stock market. For the ten major Japanese life insurers, combined outstanding contracts fell 1.6% to ¥1,137.41 trillion in value for Sept. 30, 2001 compared to Mar. 31, 2001. Solvency margins ranged from 427.2% for Mitsui Life Insurance Co. to 773% for Taiyo Mutual Life Insurance Co. The largest losses were reported by Sumitomo Life Insurance Co. (¥124.8 billion), Nippon Life Insurance Co. (¥98.2 billion), and Dai-ichi (¥95.5 billion). The insurers with the largest basic profit for April-Sept. 2001 were Nippon Life (¥289.4 billion; down 7.8% year-on-year), and Dai-ichi (¥163.5 billion; down 2.5% year-on-year).

• Standard & Poor's followed Fitch ICBA's lead, downgrading Japan's rating on government bonds from AA+ to AA. This was in response to an insufficient response from Japan's government, combined with a lack of visible urgency with respect to the situation among Japanese leaders.

• Hans-Werner Sinn, president of IFO, reported that Germany's GDP declined by 0.1% for 3Q 2001, and that a further decline in 4Q 2001 is plausible.

• Fitch IBCA reported that Japan's current national debt is 140% of GDP. This is estimated (unless empirical trends are broken) to rise to 150% of GDP for next year [2002], and attain 200% of GDP in 2007. Fitch reduced its estimate of Japan's debt rating from AA+ to AA, and retained a negative outlook.

• Japan's Taisei Fire & Marine Insurance Co. collapsed, filing insolvency in response to ¥39.8 billion of excess debts. This was induced by payouts of ¥74.4 billion related to the Sept. 11, 2001 attack by the Al Queda Islamic sect on the U.S. World Trade Center, with particular emphasis on the hijacked airplanes. This obviously disrupts prior plans to merge (on April 1, 2002) with both Yasuda Fire & Marine Insurance Co. and Nissan Fire & Marine Insurance Co. Taisei's stock is expected to be delisted on February 23, 2002.

• Taiwan reported a quarter-on-quarter decline of 4.21% in GDP for July-Sept. 2001, and is thought to be at risk for a year-on-year decline.

• Japan's current account surplus fell 23.5% to ¥5,192.6 billion in the first half of fiscal 2001, compared to the first half of fiscal 2000. [First half: April-Sept.]

• Teikoku Databank reported that Japan's bankruptcy rate rose 4.4% in September (compared to when?). It is suspected that when the slowdown induced by the Sept. 11 attacks. Japan's current account surplus fell 27.1% in Sept. 2001 compared to Sept. 2000, and 37% compared to August 2001.
• Bethlehem Steel, the third largest U.S.-based steel manufacturing company, has filed Chapter 11 bankruptcy. This is attributed to factory overcapacity (possibly induced by decreased demand) combined with lower-than-expected prices. This filing may affect the investigation by the U.S. government's International Trade Commission on abusive practices by foreign steel manufacturers (e.g., selling below their own manufacturing cost).
• Air Afrique has lost four of its eight leased planes due to inability to pay debts. This directly affects the member nations Benin, Burkina Faso, Central African Republic, Republic of Congo, Ivory Coast, Mali, Chad, Mauritania, Niger, Senegal, and Togo. [This listing is according to the BBC. I do not care to have an opinion about the currently ongoing civil war between the Zaire (legacy) government and the (currently-dominant) Congo government.]

• General Motors has finally signed a non-binding agreement to buy four out of sixteen of Daewoo Motors' plants. In particular, the Pupyong plant is not to be purchased. Twenty-two overseas subsidiaries, and manufacturing facilities in Egypt and Vietnam, are included in the agreement.

• Use of four hijacked airliners by extremist Sunni Muslims to demolish the World Trade Center and severely damage the U.S. Pentagon. The target of the fourth plane is unknown, due to insufficient crowd control measures on the part of the hijackers. (I prefer to think of this as "guerilla war by a militaristic religious sect", rather than "terrorism". The insurance companies are not using their act-of-war waivers, however.) Summary of interesting features as of Oct. 26, 2001:
  • Al Queda is generally thought (by non-Moslems) to be involved. The reported funding cell in Hamburg was promisicuous in its selection of factions to support.
  • The general effects of this have severely impaired my ability to monitor the Crash -- by introducing complicating factors.
  • The airline and reinsurance sectors have been severely impaired. The most credible early lower bound on overall losses to reinsurers is U.S.$40 billion, comparable to Hurricane Andrew (Florida) in 1992. It is unclear whether sufficient government support is being provided to U.S. airlines to prevent massive bankruptcy filings. Airlines with significant exposure to the U.S. are also being affected.
  • Crude oil prices have reacted more to the severe drop in U.S.-influenced air travel (falling tendency), rather than the political issues relating to the current U.S. operations against Al Queda (rising tendency; the operations are entangling the Taleban regime due to failure to enforce their own internationally-mentioned edicts on Bin Laden).
  • Saudi Arabia, Pakistan, Malaysia, and Indonesia have population suppression issues related to the U.S. operations against Al Queda. Pakistan has used the most visible measures so far, extending to charging Islamic imams/clerics/mullahs/etc. with treason. President Bush has been very understanding of the internal complications preventing explicit Saudi cooperation.

• Robert Glenn Hubbard (a U.S. White House economic expert) reported that Japan has severely underestimated Japanese nonperforming loans. However, he considered Japanese Prime Minister Koizumi to be taking the right steps.
• The Nikkei 225 closed at a 17-year low: 10,195.69 .

• Thailand's nonperforming loans rose to 615.1 billion baht for July 2001, an increase of 8.1 billion baht compared to June 2001. This was an increase to 12.69% of the total loans for July 2001, compared to 12.68% of the total loans for June 2001.

• Daewoo Motors Polska (in Poland) has declared bankruptcy for its truck-making plant in Lublin. This has been attributed to its parent company, Daewoo Motors.

• Investec's Global Investment Strategist Chris Carter suggested that the slowdown in the U.S. macroeconomy was due to end of an investment boom (leading to large overcapacity), rather than the more typical consumption boom. While he is convinced that Alan Greenspan is doing the right thing by reducing interest rates, the effects of this move are (in his opinion) likely to be seen in 2002 -- and be relatively weak.

• The Nikkei 225 closed at a 17-year low: 10,409.68 . This is its lowest finish since August 1984.

• Japan's consumer price index declined 0.9% (or 0.6%, under the old rules for computation) [excluding fresh foods] for July 2001 compared to June 2001. This is the 22nd straight month of decline.

• Wilbur Ross, chairman and CEO of W.L. Ross & Co., reported that a deal for W.L. Ross & Co. and American International Group to buy Hyundai Securities (South Korea's third-largest brokerage) and two other companies was about to fall apart over price. Apparently, South Korean regulations prevent stock from being sold at a discount of more than 10%...and the consortium will not go above 7,000 won/share, in contrast to the current tolerated minimum price of 8,940.
• GM is rumored to have submitted an approximately 1 trillion won offer for Daewoo Motor's plants in Kunsan and Changwon. GM apparently is refusing to pay money for the plant in Bupyong, instead demanding considerable subsidies in exchange for acquiring that plant.

• The Nikkei 225 closed at a 17-year low: 10,979.76 . This is its lowest finish since October 1984.

• The Nikkei 225 closed at a 17-year low: 11,126.92 .

• Russian Deputy Prime Minister Alexei Kudrin has said that Russia should be able to make all payments on its debt this year regardless of oil prices.

• Japan revised its GDP change for April-June 2001 from a decline of 0.2% to a growth of 0.1%.

• Russia's Deputy Prime Minister Alexei Kudrin has indicated that no debt rescheduling is anticipated for 2002.

• The Bank of Japan has decided to increase current account deposits from ¥5 trillion to ¥6 trillion. The BoJ also decided to increase orders of long-term Japanese Government Bonds to ¥600 billion from ¥400 billion.

• Japan's current account surplus fell 25.2% in Jan.-June 2001 (compared to Jan.-June 2000) to ¥4,998.6 billion. This was attributed to overall declines in exports and increases in imports. By trade regions, exports to the U.S. rose slightly while exports to Europe and Asia declined.

• Press reports i.e. unofficial information leaks indicate that GM may not finish negotiations to buy Daewoo assets this quarter...apparently, even a rough estimate of the price has not been finalized yet.

• Goldman Sachs reported that total bad loans in Japan could be as high as ¥237 trillion -- approximately half of Japan's GDP.

• Argentina passed an austerity bill aimed at preventing default on U.S.$128 billion of public debt. The Peronists, not wanting to get in the way of a legitimate government even though they opposed the bill, merely sent enough legislators to enable a quorum (while still voting against the bill).

• Sakuya Fujiwara, deputy Governor of the Bank of Japan, commented that with abundant liquidity in the markets now, there is no reason to pursue extreme policy merely to do something.

• Nineteen former officials of Daewoo Corp were sentenced to up to seven years, and a total of U.S.$19 billion in fines. At least two are preparing appeals based on their not being executives at the time of distorting financial records.

• Hakuo Yanagisawa, head of the Financial Services Agency [FSA], reported that FSA inspections had revealed about ¥18 trillion of non-performing loans among the 15 largest banks...which was about 25% larger than what these banks had reported to the FSA.

• Teikoku Databank reported that Japan's corporate bankruptcies rose 1.3% in Jan.-June 2001 compared to Jan.-June 2000, to 9,427. Total bankrupted debt was up 3.7% in Jan.-June 2001 compared to Jan.-June 2000, to ¥7.21 trillion. Tokyo Mutual Life Insurance Co accounted for ¥980.2 billion of this in March 2001, and Phoenix Resort Co Ltd accounted for ¥290 billion in February 2001. There are concerns that the new Prime Minister Koizumi may have to choose between protecting debt-laden industries and rendering banks viable.

• Italy's new Economy Minister Giulio Tremonti reported that Italy's deficit for 2001 could rise up to 2.6% of Italy's GDP, in contrast to a government target of 1.0% and an EU forecast of 1.3%. This was announced on television, catching the Eurogroup of euro-zone finance ministers by surprise. Tremonti did not reveal any estimates whatever on Monday [July 9, 2001] to the above ministers.

• Rumors have circulated that General Motors has bid less than 1 trillion won for the healthy assets of Daewoo Motors. It is unclear whether this includes the Pupyong plant. This bid is about one tenth of what Ford Motors had bid...before pulling out of negotiations.

• South Korea's Korean Confederation of Trade Unions proved unable to coordinate a massive strike yesterday, due to lack of motivation among the unionized members of a number of major companies. In particular, performance bonuses at Hyundai Motors and Kia Motors (in May 2001) correlated with a very low striking percentage involving only union leadership.

• Romano Prodi, President of the EU Commission, was reported as observing that 40% of the German marks circulating outside the EU could be converted to U.S.$ rather than Euros when the EU replaces its eleven national currencies with Euros in paper money. This could cause a temporary Euro weakness against the U.S.$; with current exchange rates around 1 Euro/U.S.$0.85, this could have noticeable effects.

• Fuji Bank Ltd reported that China's Tianjin International Trust and Investment Corp would make a coupon payment on June 27, 2001, thus avoiding defaulting on payments due June 13, 2001.

• Japan's trade surplus for May 2001 [¥80.1 billion] was reported as 86.1% lower than in May 2000 [¥575.0 billion]. Exports were reported as falling 0.9% to ¥3.82 trillion, while imports were reported as rising 14.0% to ¥3.73 trillion.

• 38.2% of South Korea's domestic manufacturing firms could not cover their financial costs with operational profits in Jan-Mar. 2001.

• The Korean Air pilots' union strike has ended; however, other unions were under the general Korean Confederation of Trade Unions' strike, resulting in over 50% of flights cancelled for both Korean Air and Asiana Airlines. It appears that the health-care worker strike was designed not to paralyze hospitals, and explicitly does not include doctors or essential staff.

• About 80% of Korean Air's planes are grounded due to the pilots' union strike. South Korea is planning to get arrest warrants for that union's fourteen leaders, calling both this strike (and the general Korean Confederation of Trade Unions' strike) illegal. There are concerns that health care workers could start striking tomorrow (June 13, 2001).

• Japan's GDP was reported as declining 0.2% for the Jan.-Mar. 2001 quarter, rather than the consensus forecast of 0.2% growth. This made GDP growth for the fiscal year April 2000-March 2001 0.9%, rather than the government forecast of 1.2%. There are concerns that GDP is a lagging indicator of macroeconomic recession; in particular, Japan's diffusion index is well into the recession range.
• The Korean Confederation of Trade Unions' planned strike appears ready to start on June 12th. It is not clear whether several airline unions (including Korean Air Lines' pilots' union) will be able to negotiate successful to avoid striking.

• Several South Korean business organizations, including the Federation of Korean Industries and the Korea Employers Federation, have expressed concerns that if South Korea does not adequately respond to the proposed strike (scheduled for June 12) by the Korean Confederation of Trade Unions, major social unrest could result.
• Eight of the ten largest Japanese life insurers that announced their earnings today saw the total values of their policies decline due to high cancellation rates. Also, new accounting rules that force "mark to market" of unlisted domestic stocks, foreign securities, and domestic bonds reduced calculated solvency ratios compared to the old method of calculating them.

• 10,000 members of the Korean Confederation of Trade Unions rallied in Seoul to protest against police violence in April 2001. No serious injuries were reported in clashes between union members and police. About 700 members of another union (metalworkers?) held a protest against General Motor's takeover of Daewoo Motor at GM's South Korean office.