Global Crisis

Week of December 1

[edit] Reports of economic activity, week of December 1
On December 1, the National Bureau of Economic Research officially declared that the U.S. economy had entered recession in December, 2007.[219]
The Labor Department said that the US lost 533,000 jobs in November, 2008, the biggest monthly loss since 1974. This raised the unemployment rate from 6.5% to 6.7%.

[edit] Events in the week of December 1
After 5 positive days the previous week, the S&P 500 fell 80 points to 816, down 9%. Financial stocks in the S&P 500 fell 17%. The Dow Jones Industrial Average closed at 8149 with a drop of 679 points 7.7% down. Oil fell below $50 a barrel in New York Trading.[220] The General Accounting Office released a report that claims that the Oversight of the Troubled Assets Relief Program requires additional actions to ensure "integrity, accountability, and transparency". (Washington Post) (bloomberg.com) (Wall Street Journal) (CNN Money)

[edit] Week of December 8

[edit] Reports of economic activity, week of December 8
On December 9, the Bank of Canada lowered its key interest rate by 0.75% to 1.5%, the lowest it had been since 1958; at the same time the Bank officially announced that Canada's economy was in recession.[221] This move came after the news that Canada lost 70,600 jobs in the month of November, the most since 1982.[222] The official Bank of Canada press release stated that "[the] outlook for the world economy has deteriorated significantly and the global recession will be broader and deeper than previously anticipated."[223]

[edit] Week of December 15

[edit] US government gives automakers $17.4 billion in bail-out loans
The United States government has announced that it will give US$17.4 billion in loans to help three of the nation's automobile makers - Chrysler, General Motors, and Ford - avoid bankruptcy. [224]
The money will be taken from the $700 billion bailout package originally intended to rescue US banks. General Motors will get $9.4 billion and Chrysler $4 billion before next year. Ford stated that it wants to get by without government aid. [225]
President George Bush said that it would not be "a responsible course of action" to allow the companies to collapse.

[edit] Week of December 22
This week is cut short by the Christmas holiday.
US industry leaders ask the Federal Reserve for assistance un-freezing the commercial real estate market, which has not securitized any loans in the last six months of 2008.[226]

[edit] Global responses

Responses by the UK and US in proportion to their GDPs

[edit] Responses in Asia/Pacific
On September 15, 2008 China cut its interest rate for the first time since 2002. Indonesia reduced its overnight repo rate, at which commercial banks can borrow overnight funds from the central bank, by two percentage points to 10.25 percent. The Reserve Bank of Australia injected nearly $1.5 billion into the banking system, nearly three times as much as the market's estimated requirement. The Reserve Bank of India added almost $1.32 billion, through a refinance operation, its biggest in at least a month.[227] On November 9, 2008 the 2008 Chinese economic stimulus plan is a RMB¥ 4 trillion ($586 billion) stimulus package announced by the central government of the People's Republic of China in its biggest move to stop the global financial crisis from hitting the world's fourth largest economy. A statement on the government's website said the State Council had approved a plan to invest 4 trillion yuan ($586 billion) in infrastructure and social welfare by the end of 2010. The stimulus package will be invested in key areas such as housing, rural infrastructure, transportation, health and education, environment, industry, disaster rebuilding, income-building, tax cuts, and finance.
China's export driven economy is starting to feel the impact of the economic slowdown in the United States and Europe, and the government has already cut key interest rates three times in less than two months in a bid to spur economic expansion. On the 28th of November, China Ministry of Finance and the State Administration of Taxation jointly announced a rise in export tax rebate rates on some labor-intensive goods. These additional tax rebates will take place on December, 1st 2008 [228].
The stimulus package was welcomed by world leaders and analysts as larger than expected and a sign that by boosting its own economy, China is helping to stabilize the global economy. News of the announcement of the stimulus package sent markets up across the world
In Taiwan, the central bank on September 16, 2008 said it would cut its required reserve ratios for the first time in eight years. The central bank added $3.59 billion into the foreign-currency interbank market the same day. Bank of Japan pumped $29.3 billion into the financial system on September 17, 2008 and the Reserve Bank of Australia added $3.45 billion the same day.[229]

[edit] U.S. responses
The Federal Reserve, Treasury, and Securities and Exchange Commission took several steps on September 19 to intervene in the crisis. To stop the potential run on money market mutual funds, the Treasury also announced on September 19 a new $50 billion program to insure the investments, similar to the Federal Deposit Insurance Corporation (FDIC) program.[73] Part of the announcements included temporary exceptions to section 23A and 23B (Regulation W), allowing financial groups to more easily share funds within their group. The exceptions would expire on January 30, 2009, unless extended by the Federal Reserve Board.[230] The Securities and Exchange Commission announced termination of short-selling of 799 financial stocks, as well as action against naked short selling, as part of its reaction to the mortgage crisis.[231]

[edit] Loans to banks for asset-backed commercial paper

During the week ending September 19, 2008, money market mutual funds had begun to experience significant withdrawals of funds by investors. This created a significant risk because money market funds are integral to the ongoing financing of corporations of all types. Individual investors lend money to money market funds, which then provide the funds to corporations in exchange for corporate short-term securities called asset-backed commercial paper (ABCP). However, a potential bank run had begun on certain money market funds. If this situation had worsened, the ability of major corporations to secure needed short-term financing through ABCP issuance would have been significantly affected. To assist with liquidity throughout the system, the Treasury and Federal Reserve Bank announced that banks could obtain funds via the Federal Reserve's Discount Window using ABCP as collateral.[232][73]