Global Economic News

Will City of London Go Out of Business?

Dec. 9 (EIRNS)—One might well conclude that the City of London, which has been the British Empire's principal financial center for centuries, is about to go out of business, if one reads the report of City of London mouthpiece Ambrose Evans-Pritchard in the Dec. 9 Daily Telegraph. Cross-border loans worldwide have fallen by $1.1 trillion, and 81% of the fall, or $884 billion, is from British banks. Worldwide issuance of bonds and securities has declined by 77%, from over $1 trillion to $247 billion. Bonds issued in euros have declined by 94%, from the equivalent of $466 billion to just $28 billion.

Pritchard points out that the City of London is the global center of this activity, not only for British banks but for non-British banks, noting that the collapse of this type of lending will be very nasty for the City.

Economic Devolution: Transportation, Raw Materials

Dec. 11 (EIRNS)—The global contraction in economic activity involves sweeping cutbacks and shutdowns in transportation, energy, mining, and other essentials. A few updates:

* Freight service: In North America, the consolidated few major rail carriers are implementing major reductions in service. E.g., Norfolk Southern Railroad will impose large cuts in trainmen and trains. In 2009, delivery of new rail cars in the United States could fall below 40,000, from a projected 58,000 this year. Car-load volume in the U.S. dropped 10% in October, over same-time in 2007. This is the biggest drop since 1997, when the Association of American Railroads began keeping such data.

World shipping volume in all modes is in rapid decline. The world's largest sea freight company by volume, Maersk Lines, based in Denmark, will lay up eight large vessels because of the drop in ocean cargo.

* Oil-pumping: Saudi Arabia, the largest oil producer in OPEC, announced on Dec. 10 that in November it pumped 8.493 million barrels a day, which was below what the International Energy Agency (IEA) had estimated. OPEC member nations will meet next week to confer on reducing rates of extraction still more. On Dec. 17, Russia may announce reduced pumping rates. These announcements were accompanied by a short-term frenzy of oil speculation, in which the price rose over 10% in New York, and also the limit in the London exchange.

The IEA said in its latest monthly report that "global oil demand is now expected to contract in 2008 for the first time since 1983, shrinking by 0.2 million barrels a day, with the total (daily demand) this year revised down by 350,000 bpd to 85.8 million bpd."

* Mining: On Dec. 10, Rio Tinto, one of the world's largest mining concerns and a Brutish Empire asset, announced its intent to drastically downscale operations, to meet debt obligations. CEO Tom Albanese said that Rio Tinto would cut its global workforce by 13%, eliminating 8,500 jobs; put many of its mines up for sale; and slash its capital spending in 2009. Rio Tinto's operations range from aluminum in Canada (after its 2007 buyout of Alcan) to iron ore in Australia, and copper in South Africa.

FAO Lists 40 Million More People Going Hungry in 2008; Food Prices Up 28% Over 2006

Dec. 11 (EIRNS)—The UN Food and Agriculture Organization (FAO) on Dec. 9 released its latest issue of the periodical, "The State of Food Insecurity in the World 2008," giving its estimate that 40 million more people were added to the ranks of the hungry in 2008. This brings the 2008 world total of malnourished up to 963 million—14% of the world's population; this is up from 923 million in 2007, and 848 million in 2003-05 period.

"High food prices have had a devastating effect on the most vulnerable part of the world's population," stated Kostas Stamoulis, the head of the FAO Agricultural and Development Economics Division, who gave a press conference in Rome to release the report. The FAO calculates that people are paying 28% more for food as of October 2008, than at that time in 2006, the recent drop in oil and commodities prices notwithstanding.

New Round of German Auto Industry Collapse

Dec. 9 (EIRNS)—The biggest German auto supplier, TMD Friction (Leverkusen), filed for insolvency, with 4,500 workers in 12 different production sites, 2,000 workers of those in Germany. The firm had been bought in 2001 by British private equity fund Montagu, and then, after having been emptied for cash and overindebted, was sold to hedge funds Davidson Kempner, Clearwater, and Eos in 2006. It can be expected that more such cases will pop up now, since many small and medium-sized firms were taken over, especially in Germany, during the last couple of years, by the private equity funds, with disastrous results.

Signifying a new discontinuity for Germany's downward-spiralling economy, auto producer Daimler for the first time in 15 years had to announce short work. Almost 20,000 workers at one plant, from January to the end of March, will work only 3 or 4 days per week. Other Daimler sites in Germany are expected to follow. Altogether, 150,000 people are employed with Daimler at 14 sites in Germany; on Dec. 12, all of them will begin their already prolonged four-week Christmas vacation. While workers in the case of "shortened work period" do not have significant wage losses compared to a reduced 30 hours week, something like this cannot be extended for long. Moreover, everybody is very shaken by this development, since working for Daimler previously almost amounted to "life insurance," and this is clearly no longer the case.