- Apr 1, 2008
- South of the Haggis Munching Line
U.S. lawmakers demanded turnaround plans on Thursday from automakers as a condition of a bailout aimed at halting an economic crisis that prompted a record rate cut in Switzerland and rescue loans to Turkey and Iceland. Skip related content
The number of U.S. workers on jobless rolls surged to the highest in quarter century and oil prices plummeted below $50 a barrel for the first time since 2005 as investors anticipate a long, global recession will slash demand.
Four U.S. senators announced bipartisan deal for automakers, which briefly pushed U.S. markets higher and halted a steep slide that had been touched off a day before on Wall Street and had spread round the globe.
However, Democratic leaders warned the bill would not pass unless it included a plan for the industry to return to profitability and stocks soon sank towards six-year lows.
Democratic leaders said automakers can submit another plan by December 2 which could be considered the week of December 8.
Shares of the two largest automakers were hostage to bailout news, with General Motors swinging between losses of 39 percent and gains of 43 percent, and a similar range for rival Ford Motor Co.
Automakers are battling tumbling sales, sparked by evaporating credit for car buyers and crumbling consumer confidence. GM and Toyota Motor Co both announced production cuts in Thailand as they worked to cut a glut of unsold vehicles.
The rapidly slowing world economy prompted Switzerland's central bank to make a surprise one percentage-point interest rate cut, its third in six weeks and largest since it adopted its current system in 2000.
Analysts said the weak U.S. labour market almost guaranteed a Federal Reserve Board rate cut at its next meeting on December 15-16.
CNBC reported Saudi Prince Alwaleed bin Talal planned to boost his stake in Citigroup back to 5 percent. Despite this move by its largest investor, shares in the U.S. financial giant fell as much as 25 percent to a new 14-year low due to serious concern over its very survival.
"How many times is one going to take a beating before realizing the market isn't going to bounce?" said Andrew Kanaly, chairman of Kanaly Trust Company in Houston, Texas. "The decline in the oil prices is a barometer of more economic sliding globally."
In what would normally be a good sign for consumers but now signals weaker global growth, U.S. crude futures plunged nearly 9 percent to $48.85 a barrel to a 3-1/2 year low on expectations that a stalling economy would mean falling demand.
All three major U.S. stock indices made broad swings, with the Dow Jones industrial average marking its lowest since March 2003 and the Standard & Poor's 500 down more than 2.5 percent, it lowest since October 2002.
World stocks tumbled to 5-1/2-year lows with volatile emerging market equities down 4.71 percent. European shares closed down 3.7 and Japanese stocks plunged nearly 7 percent.
JOB LOSSES, LONG DOWNTURN
A government report showed the number of workers filing new claims for jobless benefits last week surged to the highest in 16 years. President George W. Bush backed an extension of jobless benefits and U.S. Senate Democratic Leader Harry Reid said it may be considered this week.
More than 4 million Americans were receiving jobless benefits in the week ended November 8, the highest since 1982.
Planned layoffs since September at non-financial companies worldwide total at least 172,000, with an additional 89,500 in financial sector losses.
Leading economies will likely be in recession for around a year, a Reuters poll of around 250 economists showed. The survey across the Group of Seven nations showed economies faced recession for as much as five quarters.
"All developed economies will contract in 2009. It's the worst we have had in a century. But to say it's going to look like 1929 again for all these economies is a bit excessive, it's too pessimistic," said Marco Annunziata, chief economist at UniCredit in London.
The Federal Reserve said on Wednesday the U.S. economy would contract through the first half of 2009.
"No end in sight," ING economists said in a note on Thursday, a sentiment widely shared by investors.
Analysts said now the fear may be for a deadly economic problem: deflation, marked by steadily falling prices and economic stagnation.
"Once you get into a period of deflation, it's important to get the economy turned around as soon as possible," said Lyle Gramley, a former Fed governor who is now an analyst with the Stanford Group in Washington.
The Philadelphia Federal Reserve said the prices paid component of its monthly business survey fell to its lowest level since the survey started in 1968. The report also showed factory activity at an 18-year low in the region around Philadelphia.
Japan's exports to Asia fell in October for the first time since 2002, suggesting the fallout from the credit crisis has spread to neighbours such as China.
IMF TO THE RESCUE?
With investors looking increasingly to governments and other authorities to stop the rot, the IMF moved to prop up both Iceland and Turkey. It approved a $2.1 billion (1.4 billion pounds) loan for Iceland, battered by a severe banking crisis, as part of a $10.2 billion package.
The IMF said Iceland's economy would likely shrink 9.6 percent next year and unemployment quadruple to 5.7 percent.
Sources in Turkey told Reuters the IMF was ready to agree a precautionary standby agreement of $20 billion to $40 billion.
Russia's Prime Minister Vladimir Putin said his country would not allow the global financial crisis to capsize its economy and announced a $20 billion stimulus package and help for people who lose out in the downturn.
(Additional reporting by Richard Cowan, Tabassum Zakaria and Reuters bureaux worldwide; Editing by Tom Hals)
As for the car makers they may have a hard time convincing the politicians that the tax payers money is worth spending on their business plans.....will Obama intervene and force a deal through?
Does he want to take office in January facing crisis that affects millions of US car and ancilliary workers?