Willem Buiter: It is time for the monetary authorities to jump into the liquidity trap

Willem Buiter: It is time for the monetary authorities to jump into the liquidity trap
December 2, 2008

The (formerly) advanced industrial countries are all in or headed for the liquidity trap ‘lite’. This is the situation where the short-term risk-free nominal interest rate cannot fall any further. A ‘heavy’ or ‘deep’ liquidity trap occurs when nominal risk-free rates at all maturities are at their lower bound(s).

A liquidity trap ‘lite’ may occur even when short-term rates are above zero. It will certainly occur when the short-term nominal interest rate falls to zero. Unless the monetary authorities are willing and able to tax currency holdings, the zero nominal interest rate rate on bank notes sets a floor for all short-term nominal interest rates. I have not seen too many central bankers perusing the works of Silvio Gesell, so for the time being, I will treat a zero short risk-free nominal interest rate as the effective floor for the risk-free nominal interest rate.

If zero is the floor, there is no reason not to go there immediately. The recession in the US, the UK, the Eurozone, Japan and the rest of Europe is, with probability verging on certainty, going to be so deep and so prolonged, that the zero lower bound will be reached even by the most anal-retentive gradualist central bank before the middle of 2009. So why not get it over with in December 2008 and possibly do some good in the mean time? The required cuts in the official policy rate would be trivial in Japan (30 basis points) and in the US (100 basis points - assuming the 35 basis points penalty on bank reserves is abolished). For the UK, a mere 300 basis points cut and for the Euro Area a 325 basis points cut would anchor the official policy rate at the floor (again assuming the 25, respectively 50, basis points reserve penalties of the Bank of England and the ECB are eliminated).

In all likelihood, cutting the central banks’ official policy rates to zero will not provide a major stimulus to financial intermediation and thus to aggregate demand. But even if it doesn’t help, it certainly won’t hurt.

Dr. Lorenzo Bini Smaghi, Executive Board member of the ECB disagrees. He wants to keep some of the ECB’s interest rate powder dry. He obviously has watched “They died with their boots on”, or some other movie of the battle of Little Big Horn in which George Armstrong Custer and his command were outgunned by the Cheyenne, the Lakota and the Arapaho.

The analogy with not firing your last bullet except in extremis is, however, not convincing (I used to believe a version of it, but have changed my mind). A cut in interest rates does not exhaust its effect on economic activity as soon as the cut is implemented. A short-term, temporary cut has a smaller effect than a long-term, more permanent cut. Cutting earlier means that the cumulative effect on activity at any given future date is likely to be larger. In George Armstrong Custer terms, once you pull the trigger, the gun keeps in firing.

It is possible that there are complex psychological mechanisms (of the kind most economists and central bankers don’t understand) that may cause an interest rate cut of a given magnitude to produce a greater cumulative effect if it is administered at just the right moment - say when an inflationary or deflationary bubble is most likely to be punctured or when fears, phobias and bandwagon effects can be influenced by some highly visible, even if largely symbolic, policy action.

While I recognise the theoretical possibility that there could be something to the ‘keeping (some of) your power dry’ argument, I have never seen any empirical evidence that supports it, or a rigorous analytical model that lays out the precise mechanism. The argument should therefore be dismissed as a constraint on actual planned rate cuts.

Once the zero lower bound on the short nominal interest rate is reached, the arsenal of the central banks is restricted to quantitative easing - the purchase by the central bank of private and public sector securities, financed by the issuance of base money. Such expansions of the balance sheet of the central bank can occur as a result of the collateralised lending that central banks traditionally engage in at the discount window and in repos. It can occur through the collateralised loans extended through the ever-expanding range of special facilities created by the Fed, the Bank of England and other central banks. Or it can occur through unsecured central bank lending or through outright purchases of private or public securities.

This process of quantitative easing can, effectively, go on forever. It only stops when the central bank has monetised all private and public securities. Even if the risk-free nominal interest rates at all maturities are reduced to zero (the deep liquidity trap), the scope for quantitative easing is not exhausted, because the central bank has the option of acquiring risky private securities of any and all kinds, up to and including ordinary equity.

Cutting nominal rates to zero and quantitative easing will not be inflationary as long as the virtually unbounded liquidity preference of the private sector persists. These measures will become inflationary as soon as normalcy returns and liquidity is, once again, just viewed as food for the faint-hearted. At that point, there has to be a swift reversal of the quantitative easing and an increase in short nominal interest rates, sufficient to reduce the real demand for base money to a level consistent with the remaining outstanding nominal stock at the prevailing price level. That will be a fun exercise.

My first-best scenario would be for the Fed, the ECB, the Bank of Japan and the Bank of England all to set their official policy rates at zero forthwith. They won’t do this, regrettably. The Bank of Japan’s interest decision really does not matter - what is 30 basis points among friends? The Fed might as well blow what little interest rate elbow room it has left in one fell swoop. Keeping 50 basis points in reserve for a rainy day will not impress the Cheyenne, Lakota or Arapaho.

The UK real economy is contracting quite spectacularly across the board. The (from a parochial national British perspective) hitherto most welcome weakening of sterling is close to the point at which it ceases to be the correction of a long-standing overvaluation anomaly and begins to smell of a rout. The most recent weakening is quite likely a reflection of the anticipation of sharp rate cuts in the near future. That expectation can therefore be validated without risking a collapse of sterling. I would therefore recommend a 150 basis points cut on Thursday. This is also my expectation. The last 150 basis points cut can, if sterling does not collapse in the mean time, be saved for January 2009.

The ECB is behind the curve and in denial about the absence of a liquidity crunch in the Euro Area. The Euro Area economy is, however, less vulnerable than the UK, because of the uniquely high indebtedness of the UK household sector and the huge size of the UK banking sector’s dodgy balance sheet relative to the size of the UK economy. I would recommend a 125 basis points cut by the ECB next Thursday, but anticipate a mere 75.

Who said central banking was boring?

---------------------------
Short View: Sterling outlook

Published: December 3 2008 22:02 | Last updated: December 3 2008 22:02

Barring a big surprise, the Bank of England will on Thursday join other central banks in cutting rates by a full percentage point (while the European Central Bank will probably cut half as much).

The most urgent question arising from the Bank’s meeting concerns sterling. The pound is at a new low for the decade against the Japanese yen, down 45 per cent since last summer.

Against the dollar, the pound has shed 30 per cent from its peak but is still about 8 per cent above $1.365, its lowest level since sterling left the European exchange rate mechanism in 1992. Forex traders use charts extensively, so there is a good chance that sterling’s vertical decline will at least stop for a while before going through that level.

On a purchasing power parity basis, taking into account the differing inflation rates on either side of the Atlantic, the pound is maybe now slightly cheap against the dollar, having been ridiculously overvalued at $2.10. According to the IMF, at the beginning of this year, purchasing power would have been equalised at $1.53 to the pound – almost exactly the same as it had been 10 years earlier.

Exchange rates tend to overshoot but this suggests that sterling could come to a halt above the $1.37 low.

Two key factors might drive the pound through that barrier. One is housing. UK house prices were more overblown than US prices at the peak. There was a sliver of light for the US on Wednesday with news that mortgage applications had suddenly increased sharply. In the UK, mortgage applications suggest house prices have much further to fall; that would damage the pound.

The second factor is interest rates. UK rates, at 3 per cent, remain 2 percentage points higher than in the US. Sterling’s fall reflects the market’s belief that this gap will narrow. Will it vanish as central banks converge on zero?

-----------------------------
Sweden slashes rates to 2%

By David Ibison in Stockhol

Published: December 4 2008 08:57 | Last updated: December 4 2008 08:57

Sweden’s central bank cut interest rates by an unprecedented 175 basis points to 2 per cent on Thursday, underlining the dramatic impact of the global economic downturn on the country’s export-based economy.

The steep cut was almost twice the 100 basis points the market had expected and started what is expected to be a co-ordinated round of rate reductions in Europe with the European Central Bank and the Bank of England also expected to cut rates later on Thursday.

The decision comes as Sweden’s economic performance worsens rapidly. Manufacturing contracted in November at its fastest pace since calculations began in 1994 and the sharp slowdown in the country’s core industrial base came days after the Sweden officially went into recession.

Gross domestic product shrank 0.1 per cent in the third quarter of the year compared with the previous quarter, having already contracted by 0.1 per cent in the second quarter, said Statistics Sweden. Sweden’s economy is highly dependent on trade with exports generating over 50 per cent of GDP.

The Riksbank said: “The repo rate is expected to remain at this level over the coming year. A large reduction in the interest rate and the interest rate path is necessary to dampen the fall in production and employment and to attain the inflation target of 2 per cent.”

It added: “A much lower repo rate and repo rate path are needed to counteract economic developments being too weak and inflation being too low. The fact that the interest rate needs to be cut substantially is also due to monetary policy not having such a large impact recently as it normally does.”

“A lower interest rate path will dampen the fall in resource utilisation, which is expected to rise again at the end of the forecast period. Important components in the recovery include increased demand from abroad, improved functioning in the financial system and a general reduction in uncertainty. The weakening of the krona will also damp the fall in growth. Inflation will fall rapidly next year and be below target over the coming two years. Inflation will then approach the target of 2 per cent a couple of years ahead.

Sweden entered the downturn in a relatively sound position with a respected macroeconomic policy framework and substantial surpluses and low government debt, but sentiment is now starting to change rapidly.

“Initially, consumers were concerned mainly about the general state of the economy rather than their own finances, but conditions gradually deteriorated and sentiment is now well below the historic norm and down below the levels seen in the trough of the 2001-03 slowdown,” said the OECD.

Unemployment has also started to move back up, companies are cutting back hiring and vacancy rates have fallen.

The authorities have introduced a number of measures to sustain the functioning of financial markets, but spreads between interbank rates and interest rates on short-term government securities are above normal levels and equity prices have fallen considerably.

UBS, the bank, argues “Sweden has been unduly penalised in terms of its risk rating, as measured by sovereign credit default swap levels”.

“The government has a good fiscal record of late, government debt to GDP is relatively low, and although there are risks to the Swedish banking system from the Baltic nations, we believe the potential cost is manageable for the government.”

The OECD is calling for short term additional fiscal spending measures to be put in place to “bridge the gap between the situation now and when monetary stimulus kicks in”, which will be sometime in 2010.

The OECD forecasts Swedish GDP will 0.8 per cent in 2008, not grow at all in 2009, but then recover quite strongly in 2010 with growth of 2.2 per cent.

There are signs that the Swedish government is considering a SEK15bn additional fiscal spending plan, some of which might be allocated to support research and development spending at the countries struggling car makers, but other parts of which could be allocated to areas such as infrastructure spending.

------------------------
Insight: Post-bubble realities

By Stephen Roach

Published: December 2 2008 16:29 | Last updated: December 2 2008 16:29

The textbooks have little to say about post-bubble economies. That makes the current prognosis all the more problematic. A profusion of asset bubbles has burst around the world – from property and credit to commodities and emerging market equities. That’s an especially rude awakening for a global economy that has become dependent on the very bubbles that are now imploding. It is as if the world has suddenly been turned inside out.

The American consumer is a case in point. Real personal consumption expenditures are on track for rare back-to-back quarterly declines in the second half of 2008, at roughly a 3.5 per cent average annual rate. Since 1950 there have been only four instances when real consumer demand fell for two consecutive quarters. Declines will exceed 3 per cent in both quarters for the first time. Never before has there been such an extraordinary capitulation of the American consumer.

Similar extremes are evident elsewhere. Europe and Japan have joined the US in the first synchronous G3 recession of the post-second-world-war era. Nor has the developing world been spared. While most big developing economies should avoid outright contractions in overall output, sharp deceleration is evident in China, India and Russia. Hong Kong and Singapore – Asia’s two prosperous city states – are both in recession. Moreover, reminiscent of the Asian financial crisis of 1997-98, the currencies of South Korea, Indonesia and India are under severe pressure. As the commodity bubble implodes, a similar boom-bust pattern is unfolding in Australia, New Zealand, Canada and the Middle East.

Crises invariably trigger finger-pointing. This one is no exception. Global observers have been quick to blame the US, arguing that it’s all about the excesses of Wall Street and America’s subprime fiasco. Some would take it even further and condemn the freewheeling model of market-based capitalism. Let the record show, however, that while the US certainly made its fair share of mistakes, the rest of the world was more than happy to go along for the ride.

That’s especially the case in Asia. China and other producers upped the ante on their export-led impetus to economic growth. By 2007, the export share of Developing Asian gross domestic product exceeded 45 per cent – fully 10 percentage points higher than the share prevailing during the Asian crisis of the late 1990s. Moreover, the Chinese led the way in recycling a disproportionate share of their massive reservoir of foreign exchange reserves back into dollar-based assets. That kept the renminbi highly competitive, as any export-led economy likes, but also prevented US interest rates from rising – keeping the magic alive for bubble-dependent American consumers. In effect, the world’s bubbles fed off each other.

Nor did anyone force the German Landesbanks and the Swiss universal banks to invest heavily in toxic assets. And the new mega-cities of the Gulf region – Dubai, Doha, Riyadh, and Abu Dhabi – owe their very existence to the oil bubble. Now all of these bubbles have burst, leaving a bubble- dependent world in the lurch.

A post-bubble shakeout is likely to be the defining feature of the global economic outlook over the next few years. Three conclusions are most apparent:

One, do not analyse a post-bubble recession as a normal business cycle. As economies that levered their asset bubbles to excess – especially the US – come to grips with tough post-bubble realities, a powerful deleveraging will ensue. That could prolong the duration of the downturn, as well as inhibit the vigour of the subsequent recovery.

Two, on the demand side, focus on the American consumer – the biggest and most over-extended consumer in the world. With personal saving rates still close to zero and debt loads remaining at all-time highs, US consumption is heading for a Japanese-style multi-year adjustment. After 14 years of nearly 4 per cent average growth in US real consumer spending, gains could slow to 1-2 per cent over the next 3-5 years. And no other consumer in the world is likely to step up and fill the void.

Three, on the supply side, focus on China. Industrial production growth has been cut in half in China – rising at just 8 per cent year on year in October following five years of average gains of about 16.5 per cent. With the global economy in recession, this outcome should hardly come as a surprise for a Chinese economy that has seen its export share of total gross domestic product rise from about 20 per cent to nearly 40 per cent over the past seven years. China is paying a price for its own imbalances – especially a lack of support from internal private consumption.

In short, look for a post-bubble world to remain in recession throughout 2009, followed by an anaemic recovery, at best, in 2010. In an era of globalisation, we became intoxicated with what cross-border linkages were able to deliver on the upside of a boom. But as that boom went to excess and spawned a lethal globalisation of asset bubbles, the inevitable bust now poses an exceedingly tough hangover.

The writer is chairman of Morgan Stanley Asia

-------------------------
Lebanese Christian leader courts Assad

By Anna Fifield in Beirut

Published: December 3 2008 18:59 | Last updated: December 3 2008 18:59

Michel Aoun, a Christian Lebanese politician who once personified opposition to Syria, completed an astounding about-face on Wednesday by meeting Bashar al-Assad, the Syrian president, in Damascus.

Although a slew of Lebanese political leaders have been travelling the road to Damascus since the neighbours agreed in August to establish diplomatic relations, Mr Aoun’s trip is different because he holds no official position.

Analysts see this is a sign of Syria’s continuing influence in Lebanese politics, as candidates, including Mr Aoun, seek Mr Assad’s support ahead of parliamentary elections due to be held before June.

“I don’t think this is a vote-winner at a popular level – in fact, it’s a bit of a risk, as the general Christian attitude towards Syria is not favourable,” said Paul Salem, head of the Carnegie Middle East Centre.

“But Syria is still very influential in Lebanon and if he can use that influence, it could help him.”

Among Syria’s opponents in Beirut, the visit by Mr Aoun possibly the country’s most popular Christian leader, underlines the extent to which Damascus continues to have a hand in Lebanese politics and raises fears over the return of Syrian hegemony.

Mr Aoun, a former army chief and one-time presidential hopeful, was prime minister of an interim government until he was forced into exile in 1990 after being defeated in a Syrian offensive at the end of Lebanon’s civil war. He spent the next 15 years in Paris campaigning against Damascus. But he returned to Lebanon in 2005, shortly after Syria withdrew its troops following the assassination of Rafiq Hariri, the former prime minister, in which Dam­ascus was implicated, although it denies any involvement.

His alliance with other anti-Syrian figures, however, soon turned to hostility and he later aligned himself instead with the pro-Syrian opposition led by Hizbollah, the Shia movement backed by both Damascus and Tehran.

Given Mr Aoun’s popularity among Christians in Lebanon, the alliance has been a boon to Hizbollah, allowing the party to highlight an anti-sectarian position.

Although Hizbollah did not succeed in winning for Mr Aoun the prize he coveted – the presidency – the alliance has been maintained. In October, Mr Aoun went to Tehran for the first time and held talks with Mahmoud Ahmadi-Nejad, the Iranian president.

“We want to build the future, not dwell on the past,” Mr Aoun, 73, said after “frank and clear” talks with Mr Assad on Wednesday, according to the official Sana news agency.

Fears that Damascus was re-asserting itself mounted in September, when 10,000 Syrian troops massed on the border, ostensibly to stop smuggling. The troop build- up was expanded in October, according to local reports.

---------------------------
Russia claims victory in Nato’s Georgia climbdown

By James Blitz in Brussels and agencies

Published: December 3 2008 02:00 | Last updated: December 3 2008 12:16

Russia said on Wednesday that a Nato decision to rule out near-term membership for Ukraine and Georgia showed that the US-led military alliance is shying away from interfering with the Russian sphere of influence.

“There is an open split within Nato and it will widen if it tries to expand further”, Dmitry Rogozin, Russian ambassador to Nato, said on the website of state broadcaster Vesti-24. “The schemes of those who adopted a frozen approach to Russia have been destroyed.”

On Tuesday night Nato agreed to a “conditional and gradual” resumption of dialogue with Russia, seeking to end divisions between the US and its main European allies on what stance the defence organisation should adopt towards the Kremlin.

On the same day the European Union resumed talks on an economic co-operation agreement with Russia, the 26-member Nato alliance made a similar attempt to renew relations with Moscow, which were badly undermined by the Russian invasion of Georgia.

At a meeting of alliance foreign ministers, Nato agreed to start informal sessions of the Nato-Russia Council, set up to manage security ties between Moscow and the west. It also mandated Jaap De Hoop Scheffer, Nato's secretary-general, to explore the scope to resume the political relationship. But Mr De Hoop Scheffer made clear Nato's move did not mean the alliance accepted Russia's takeover of Abkhazia and South Ossetia or its threat to site short-range missiles in the Kaliningrad enclave.

“It certainly does not mean that we consider it acceptable to hear voices from Moscow we thought we would not hear any more on a possible siting of Iskander missiles near Lithuania or threatening our staunch ally Poland,” he said.

Condoleezza Rice, US secretary of state, reinforced this. “This is not business as usual,” she said. The US still considered Russia's action in Georgia in the summer to be “unacceptable”.

The outgoing Bush administration has been keen to maintain a tough position after the Georgian war but Germany and France - which want to resume ties with a big trading and energy partner - sought a rapprochement. Diplomats said Nato’s move gave Barack Obama, US president-elect, more scope to recast the relationship with Moscow as he wished.

“This will take some of the bad blood out of the relationship,” said a senior diplomat from an EU state. “But the speed with which ties are resumed – especially military ties – will depend on how Moscow acts now.”

Although Nato decided not to grant Georgia and Ukraine immediate admission to the organisation’s membership plan (Map), it agreed to engage with the two former Soviet republics over political and security reforms they must undertake to become Nato members.

But, in deference to Germany and France, Nato agreed not to rule out the possibility that both former Soviet republics might have formally to qualify for Map.

---------------------------
Western banks face snub by China fund

By Raphael Minder in Hong Kong and Geoff Dyer and Jamil Anderlini in Beijing

Published: December 3 2008 19:34 | Last updated: December 3 2008 19:34

China Investment Corp, the country’s sovereign wealth fund, will no longer risk investing in western financial institutions because of concerns about their viability and a lack of consistency in their governments’ policies, according to its chairman.

“Right now we don’t have the courage to invest in financial institutions because we don’t know what problems we will put ourselves into,” Lou Jiwei said on Wednesday.

Mr Lou contrasted recent shifts in US regulatory and government policy and efforts to rescue ailing banks with the “clearer policies” of some developing countries, where he said CIC was still “actively” pursuing investment opportunities.

“My confidence should come from government policies. But if they are changing every week, how can you expect that to make me confident?” he said at a Hong Kong meeting of the Clinton Global Initiative.

Mr Lou’s comments came before talks that are set to start in Beijing on Thursday between Hank Paulson, US Treasury secretary, and Chinese officials.

Mr Paulson is likely to use the summit to renew calls for Beijing to allow an appreciation of its currency. US and European businesses have long argued that the renminbi, which has been allowed by Beijing to trade only in a narrow band, is kept artificially weak, giving Chinese manufacturers an unfair advantage.

China has let the currency appreciate slowly since ending its peg to the dollar in 2005. But Beijing is coming under growing pressure from manufacturers at home to change tack.

Sharp downward moves by the renminbi against the dollar in recent days have been interpreted by some analysts as a sign that China has shifted policy.

The country’s foreign exchange market was dominated again on Wednesday by expectations that Chinese authorities are now eager to see the renminbi depreciate against the US dollar.

Trading in the renminbi almost dried up at one stage on Wednesday, market-makers said, owing to fears that banks would run out of dollars to meet demand from Chinese investors, prompting the central bank to sell dollars into the market.

Economists said that if expectations of a depreciating renminbi gathered pace, the central bank would have to spend part of its foreign exchange reserves to defend the currency, which would mean selling assets such as US Treasuries.

China’s State Council, the country’s cabinet, on Wednesday also announced measures to stimulate lending and mitigate the impact of the global slowdown on China’s slowing economy.

The council said it would work to ensure there was sufficient liquidity in the banking system and allow the country’s three “policy” banks to make a further Rmb100bn ($14.5bn, €11.5bn, £9.9bn) of loans.

---------------------------
Building to halve in England’s key areas

By Chris Tighe

Published: December 4 2008 03:01 | Last updated: December 4 2008 03:01

The credit crunch has derailed government plans to use housebuilding as a means of regenerating some of England’s most vulnerable urban locations.

The government has committed £2.2bn between 2002 and 2011 to England’s 11 Pathfinders, struggling areas of the north and Midlands with some of the country’s oldest terraced housing. But the national decline in mortgage availability and property sales mean housebuilding in these areas looks set to halve for each of the coming two years.

The construction of affordable, attractive homes for sale, in order to make these areas places where people choose to buy, rather than desert, is a key element of the Pathfinders philosophy.

In some areas there has been controversy over the demolition of older properties, mostly terraced housing, to make way for homes expected to be more appealing to owner-occupiers. Critics have voiced concern at the impact on communities and the environment, and the loss of heritage.

Now, however, housebuilders in Pathfinder areas are having drastically to scale back their programmes. Before the downturn, Pathfinders had expected that development would rise to 10,000 homes a year by 2009-10, and that every pound from the public purse would draw in four pounds of private funds. But the new build rate is set to halve, cutting both the inflow of new residents and slashing the capital receipts needed for further land assembly.

Keepmoat, the biggest Pathfinder builder, expects to build only 600 of its projected 1,200 homes in 2009-10. Professor Christopher Bovis, a director, warns: “If we miss that opportunity to restart the momentum of the Pathfinders, the slowdown makes it extremely difficult to build up confidence in the market place.”

In a recent report, Prof Ian Cole, of Sheffield University, warned that the consequences of the credit crunch for these areas could include “a collapse in new development activity, abandonment of ongoing projects, the risk of increased repossessions and a potential decimation of the buy-to-let sector, culminating in a rapid downward spiral of values”.

One example of the brake on new building is Hibernia Village in Walker, Newcastle, where Bellway has so far built 52 homes out of a projected 143, in a development comprising social housing for rent and homes for sale.

The houses for sale are competitively priced: by signing up for a spacious, four-bedroom home, Billy Johnson, a builder, and his wife have clinched a discount of more than £20,000 ($29,497) off the £170,000 asking price, with legal fees thrown in. But even at these prices Bellway is cautious at sale prospects. “The credit crunch has slowed the pace of development down. The build rate will obviously reflect the market.”

-------------------------
Foreign direct investment faces 15% fall

By Stephen Fidler in London

Published: December 4 2008 02:00 | Last updated: December 4 2008 02:00

Foreign direct investment worldwide is expected to fall about 12-15 per cent next year from this year's record levels, according to the body set up to promote global cross-border investment.

Alessandro Teixeira, president of the World Association of Investment Promotion Agencies, representing entities from 156 countries, said the fall reflected the reduced availability of credit, sharply lower equity prices and a large-scale retreat from risk.

But, although foreign direct investment into emerging economies was also expected to fall, it could still rise as a proportion of the smaller total, said Mr Teixeira, who heads Brazil's investment promotion agency. Figures from Unctad, the United Nations' trade and development arm, calculate total cross-border investment flows last year at $1,833bn, up 30 per cent on the previous year. Mr Teixeira estimated this year's flows would be similar because the international financial crisis had yet to make its effects fully felt but would fall by up to 15 per cent next year.

Speaking before a Waipa conference this week in Rio de Janeiro, Mr Teixeira noted that developing economies' share of foreign direct investment had grown to about 27 per cent from less than 20 per cent a decade ago. At the same time, the share of Europe had fallen from 49 per cent to 43 per cent and that of the US from 17 per cent to 13 per cent.

He said that, in spite of a generalised slowdown, some emerging economies would still be growing at faster rates than developed economies and, therefore, would remain attractive to foreign corporate investors. "The only economies producing over 2-3 per cent growth in terms of private consumption and [gross domestic product] growth are going to be the emerging economies."

However, other estimates suggest a more severe downturn in investment, including for emerging economies.

Alberto Ramos, emerging market economist for Goldman Sachs, said last month he projected a 30 per cent fall into Latin America in 2009, from $100bn this year to $70bn next. Unctad's figures for 2007 show regional economies reported foreign direct investment of $126.2bn. Mr Teixeira said he did not expect governments to raise tariffs as a result of the crisis but thought increasing non-tariff barriers would be imposed in some countries. "That's the scenario for 2009-10."

Non-tariff barriers had a mixed effect on cross-border investors, said Mr Teixeira. While they deterred some cross-border investment, they encouraged other companies to invest in order to gain better access to domestic markets.

-----------------------------
Credit Suisse to cut 5,300 staff jobs

By Haig Simonian in Zurich and Peter Thal Larsen in London

Published: December 4 2008 07:45 | Last updated: December 4 2008 08:23

Credit Suisse on Thursday said it had lost a net SFr3bn (US$2.5bn) in the two months to the end of November and would axe about 11 per cent of its workforce, principally in investment banking.

The lay-offs comprise 5,300 internal positions and a further 1,200 jobs held by contractors in support functions, such as information technology. The “vast majority” of the cuts would be achieved by the end of June, the bank said.

The axe would fall most heavily in investment banking, although the bank gave no precise breakdown.

The cuts come as investment banks around the world are slashing costs in an effort to adjust to falling markets and the gloomy outlook for 2009. Most banks have already scaled back some of the fixed-income businesses most directly affected by the credit crunch. However, they are now cutting more widely as the slump in stock markets erodes equity-trading revenues, while the shrinking economy hits demand for investment banking services.

Earlier this week Credit Suisse said it was cutting 650 jobs in London.

Shares in Credit Suisse, which have lost nearly two-thirds of their value over the past year, fell SFr1.14, or 4.1 per cent, to SFr26.56 in early Zurich trading.

The cuts, and other unspecified “cost efficiency measures”, should lower costs by SFr2bn or 9 per cent of the annualised total, based on the bank’s nine month figures this year.

The Swiss bank said the results reflected a “dreadful” October, while November had been modestly profitable. The group, which will report full-year results in February, gave no indication of its trading performance or expectations for the current month. However, it said a further SFr900m one off charge – mainly to be booked in the fourth quarter – would be taken against the job losses and restructuring measures.

“These actions will better position us to weather the continuing challenging market conditions, capture opportunities that arise amid the continuing disruption and prosper when markets improve”, said Brady Dougan, chief executive.

Given the poor profits outlook, Credit Suisse – which in October announced a surprise SFr10bn capital injection from Middle East investors – said its chairman, chief executive and head of investment banking would be paid no bonuses this year. While no commitment was made for other top employees, officials recognised variable compensation in 2008 was likely to be meagre.

The moves involve a sharp shrinkage of the group’s investment bank – notably the former First Boston business in the US – with a much reduced balance sheet and a withdrawal from some areas of proprietary trading, particularly for complex products.

Credit Suisse said it had already taken steps to reduce operations in volatile markets, with the amount of money it was willing to risk on any given day – known as value at risk – slashed by 34 per cent at the end of November, compared with the beginning of the quarter, and by 60 per cent compared with January 1. Risk weighted assets at the end of September had dropped to $193bn, compared with $236bn in January. The plan was for further reductions to $170bn by year-end, and to $136bn by the end of next year.

The bank said its SFr3bn loss to the end of November had partially reflected measures taken to reduce its risk profile, but did not elaborate. Inflows and profitability in private banking had remained good, it said.

Factoring in the profits warning, the bank said it expected its Tier One capital ratio to be about 13 per cent at year-end, compared with the pro forma 13.7 per cent at the end of September.

“Our strategy remains clear and consistent. We will continue to judiciously invest in the growth of private banking globally and our Swiss businesses”, added Mr Dougan.

----------------------------
Nomura to slash 1,000 jobs in London

By Adrian Cox in London

Published: December 4 2008 02:00 | Last updated: December 4 2008 02:00

Nomura is planning to cut about 1,000 jobs in London, or more than 20 per cent of its staff in the City, following its purchase of parts of Lehman Brothers.

The Japanese bank had added about 3,000 employees from Lehman’s equities and investment banking operations to its London workforce of 1,500.

Lehman employees will account for about two-thirds of the cuts, which will mostly be completed by the end of March.

“We clearly had some overlap with our existing operations,” said Paul Abrahams, of Nomura. “Also, given the market conditions, we owe it to our shareholders to ensure we have the right cost base going forward.”

Nomura is aiming to cut UK expenses by about 20 per cent at a time when financial companies are reeling from credit market losses. Citigroup, Credit Suisse, HSBC and Deutsche Bank joined in announcing a wave of redundancies this week after almost $1,000bn of writedowns by the industry.

Nomura has been putting the finishing touches to its leadership team under Sadek Sayeed, chief executive of the combined businesses in Europe, the Middle East and Africa. Former Lehman executives have taken charge of investment banking, equities and fixed income.

The bank was obliged under employment law to take on most of the Lehman staff who worked in or supported the divisions it bought. Nomura executives will account for most of the back office leadership.

The company has not yet said whether it will move staff from Lehman’s headquarters in Canary Wharf to be near Nomura’s base in the City.

Nomura said this week the purchase of Lehman’s operations in Europe and Asia will help it achieve a profit target of Y500bn for fiscal 2010. Analysts have forecast that it will post a second straight loss this year.

---------------------------
Iran to send animals into space
19:28 | 02/ 12/ 2008

TEHRAN, December 2 (RIA Novosti) - Iran plans to send exploratory rockets into space with live animals on board, paving the way for manned space flights, a space research official said on Tuesday.

Mohammad Ebrahimi, deputy head of Iran's Aerospace Research Institute, said Iran plans to send Kavoshgar (Explorer) 3 and 4 rockets into space in the near future.

The Kavoshgar 2 was successfully launched on Wednesday. The rocket consisted of a carrier, space-lab and restoration system.

Ebrahimi said the rocket analyzed air pressure and wind speed, and conducted astronomical tests at altitudes of 50 to 200 km.

The Kavoshgar 2 is a two-stage solid fuel rocket capable of carrying a small payload and reentering the lower atmosphere with a high degree of accuracy. Iran insists that its space program has no military goals.

---------------------------
国籍法きょう成立　取得条件から両親の結婚外す
2008.12.4 21:42

　参院法務委員会は４日、未婚の日本人の父と外国人の母との間に生まれた子の国籍取得要件から両親の結婚を外し、出生後に父親が認知すれば国籍が取れるようにする国籍法改正案を全会一致で可決した。５日の参院本会議で成立する見通しだ。

　改正案は、金銭を支払い、日本人男性に虚偽の認知をしてもらい国籍取得を図るなど「偽装認知」が横行しかねないことから、罰則規定を盛り込んだ。

　しかし、審議の過程で、対応が不十分と指摘する声が出たため、参院法務委は、父親からの聞き取り調査、父子が写った写真の提出など防止措置を講じることや、施行後の状況の「半年ごとの法務委員会への報告」などを政府に求める付帯決議を行った。

---------------------------
東京金融取引所、日経平均型の先物商品　09年度中の上場計画

　東京金融取引所は4日、日経平均株価を対象にした新しい個人投資家向け金融商品を開発し、2009年度中に上場させる計画を発表した。新商品は証拠金を活用して日経平均の値動きに応じて利益や損失を決済する小口取引。知名度の高い日経平均を対象にした金融商品を投入することで、個人マネーを呼び込むのが狙いだ。

　新商品は少額の資金を元手に取引をして、相場変動に応じた価格差を利益や損失として精算する「差金決済取引（ＣＦＤ）」と呼ぶ先物取引。取引単位は日経平均株価に100円をかけた金額にする方針で、現時点では80万円程度。投資家はその一部を証拠金として差し入れ、80万円を取引して得られるはずの差額を利益や損失として受け取る。

　日経平均株価が想定通りに動けば、大きなリターンを得られる半面、裏目に出れば損失も膨らむ。同取引所は外国為替証拠金取引などと並ぶ個人の有力取引商品として育てる方針だ。(20:18)

-----------------------------
新日石と新日鉱の統合計画、公取委が審査へ

　公正取引委員会は新日石と新日鉱の統合計画が独占禁止法に抵触しないかどうか審査に入る。両社が統合すると国内ガソリン販売シェアは33.4％（2007年度、日経推定）に達し、２位のエクソンモービル（17.7％）の２倍近くに達する。公取委は価格交渉力や新規参入の可能性といった観点から統合が競争を阻害しないか慎重に審査する。

　公取委は審査を必要とするかどうかの判断基準として、市場全体の寡占状況を示す寡占度指数（ＨＨＩ）を用いる。業界内のすべての企業のシェアを２乗して足し合わせ、1500を下回る場合などは無審査と判断する。今回、仮にガソリン販売の分野を調査対象にすると、正式審査が必要になる可能性が高い。 (22:16)

--------------------------
ベスト電器、中東進出へＦＣ契約

　ベスト電器は４日、クウェートの大手家電販売会社「アルユースフィ」とフランチャイズ契約を締結した。来年５月にアルユースフィが設立する運営子会社を通じ、「ベスト電器」ブランドでクウェートに中東の第１号店を開業する。ベスト電器は２年以内に中東で５、６店舗を展開し、３年後には約200億円の売り上げを見込む。

---------------------------
事業別に完全統合、新日石と新日鉱が発表　2010年春に

　国内石油元売り最大手の新日本石油と同6位の新日鉱ホールディングス（ＨＤ）は4日、経営統合すると正式に発表した。まず2009年10月に共同持ち株会社を設立して両社を傘下に入れたうえで、10年4月に双方の事業を分野別に完全統合する。国内の石油製品需要が減るなか、合理化によるコスト削減や相乗効果による売り上げ増を通じ、年1000億円以上の統合効果を目指す。年間売上高13兆円強、国内ガソリン販売シェア33％を握る世界8位の石油会社が誕生することで、石油業界の再編・淘汰が一気に加速する。

　新日石の西尾進路社長と新日鉱の高萩光紀社長が同日正午から都内で記者会見した。新日石の西尾社長は「事業環境の構造的変化に先手を打つため、統合で経営基盤を強固にする。日本のエネルギーの安定調達での中核企業を目指す。統合はそのスタートライン」と述べた。新日鉱の高萩社長は「収益力はまだメジャー（国際石油資本）に及ばないが、将来は伍（ご）していきたい」と語った。(14:53)

---------------------------
伊藤ハム、工場用水にシアン化物　消毒剤使用ミスが原因と推定

　伊藤ハム東京工場（千葉県柏市）が基準を超えるシアン化物を含む井戸水を加工食品に使っていた問題で、同社が消毒剤の管理の不備や使用量の誤りが原因と推定していることが4日、わかった。地下水自体が汚染されている可能性は低いという。

　5日に外部識者による調査対策委員会を開き、汚染原因について結論を出す。伊藤ハムは同日、再発防止策とともに公表する予定で、操業を停止している同工場は来年1月をメドに一部再開することを目指す。(17:38)

----------------------------
三浦元社長自殺：ロス郡検視局、「自殺」と断定

　【ロサンゼルス吉富裕倫】米ロサンゼルス郡検視局は３日、ロス市警の留置場で死亡した三浦和義・元輸入雑貨販売会社社長（６１）の死因を首つりによる自殺と断定する最終報告書を発表した。

　報告書によると、元社長は１０月１０日夜、留置場の２段ベッドの手すりにＴシャツを結び首をつった。襲われた際にできる手や腕の防御傷はなかった。絞殺された場合は水平方向にひもの痕跡が残るが、元社長の場合は、ひもの跡がのどの斜め上方向に残されていた。