The economic downturn is forcing a return to a culture of thrift that many economists say could last well beyond the inevitable recovery.
This is not because Americans have suddenly become more financially virtuous or have learned the error of their free-spending ways. Instead, these experts say, Americans may have no choice but to continue pinching pennies.
This shift back to thrift may seem to be a healthy change for a consumer class known for spending more than it earns, but there is a downside: American businesses have become so dependent on consumer spending that any pullback sends ripples through the economy.
Fearful of job losses and anxious over housing and stock declines, Americans are squirreling away more of their paychecks than they were before the recession. In the last year, the savings rate — the percentage of after-tax income that people do not spend — has risen to above 4 percent, from virtually zero.
This happens in nearly every recession, and the effect is usually fleeting. Once the economy recovers, Americans revert to more spending and less saving. Over the last 30 years, the savings rate has fluctuated from over 14 percent in the 1970s to negative 2.7 percent in 2005, meaning Americans were spending more than they made.
This time is expected to be different, because the forces that enabled and even egged on consumers to save less and spend more — easy credit and skyrocketing asset values — could be permanently altered by the financial crisis that spun the economy into recession.
“I expect that the savings rate will end up at the end of this recession higher than it was going into it,” said Jonathan A. Parker, a finance professor at the Kellogg School of Management at Northwestern University. “It’s hard to see how it wouldn’t.”
Sustained increases in household saving would cause a difficult period of restructuring for the American economy, which has become increasingly driven by consumer spending. Such spending makes up about 70 percent of the nation’s gross domestic product.
Add the decline in consumer spending to the planned expiration of government stimulus spending, and a painful readjustment in demand for goods and services could occur, economists say. The effect would be felt here and abroad, as many developing economies also depend on America’s big-spending ways.
“If Americans cut back, as they almost have to do, what will replace that source of demand?” asked William G. Gale, director of the economic studies program at the Brookings Institution, a liberal-centrist policy research group.
“The easy answer is the Chinese consumer,” he said, but unlike their more prodigal American counterparts, the Chinese save about a quarter of what they earn. “We may cut back faster than they expand into that space, so there might be a lull.”
Why might the higher savings rate outlast the recession?
Social critics like David Blankenhorn, president of the Institute for American Values, hope that introspection about America’s “culture of consumption” will awaken Americans to the virtues of thrift, just as the Great Depression reset American financial values for a generation.
But many economists believe consumers will change their habits for more pragmatic reasons.
Consumers have lost a huge chunk of their net worth, in the housing bust and the stock market, and to resuscitate their retirement accounts or children’s college funds they will have to channel more of their paychecks toward saving — unless those asset markets soar again.
Forms of easy credit that were once prevalent, like mortgages with no down payments, also may not return, either because the government regulates them out of existence or because banks dare not venture back into such risky lending. That means if Americans want to buy a house, they will have to save more and borrow less.
Whether for reasons moral or otherwise, consumers are already thinking a bit differently about their long-term budgets. A recent Pew Research Center survey found that many more Americans had begun regarding products like microwave ovens as luxuries rather than necessities.
Such attitudes suggest that retailers will have to change their marketing strategies, said J. Walker Smith, executive vice chairman of the Futures Company, a marketing and research consultancy.
“People are realizing they can’t accumulate everything they want anymore, and they’ll have to prioritize more,” he said. “That may be hard for a lot of brands — figuring out not only how to get considered by consumers, but put at the top of their list.”
Consumers planning big purchases are also anticipating that their borrowing options will remain limited.
Last year, Aryn Kennedy and her husband, Brian Ewing, who live in Los Angeles, spent “every dollar” they earned on debt repayment and living expenses. When local housing prices began to fall, Mr. Ewing toyed with the idea of a low-down-payment mortgage.
“By the time we really started looking at buying, I knew from reading blogs that most loans like that were not really available anymore, since lenders didn’t want to take risks,” said Ms. Kennedy, who said she was suspicious of such offers anyhow.
Since then, through “windfalls” like a salary increase for Mr. Ewing, and by cutting expenses for clothing, entertainment and other items, Ms. Kennedy says the couple has begun saving about 25 percent of their take-home pay in anticipation of making a traditional down payment of 20 percent on a house.
Even after they buy, Ms. Kennedy said, the couple plans to keep saving 25 percent of their pay. A recent Gallup poll found that most Americans who have recently increased their savings believe their budget adjustments represent a “new, normal pattern for years ahead.”
Despite the immediate jolt to the economy, more personal saving would be a positive step in the long run, analysts say. More saving leads to more investment, which promotes economic growth, which leads to better living standards.
At the family level, social critics, economists and even many consumers seem to agree that a forced financial conservatism may be for the better.
Kenny Tran of Santa Ana, Calif., for example, said he had been nervous about saving enough to buy his first house — he and his fiancé have been setting aside about $800 a month for the last year and a half — but he has no regrets about not buying a home when credit was looser and saving was less of a priority.
“A couple years ago it would have been easier for us to get a loan,” despite the fact that the couple’s combined income was lower, Mr. Tran said. “But if we would have gotten a loan, and a house, a couple years ago, we’d probably have ended up in foreclosure now.”
Tuesday, 12 May 2009
Jacqui Smith's secret plan to carry on snooping
The home secretary has vowed to scrap a ‘big brother’ database, but a bid to spy on us all continues
David Leppard and Chris Williams
SPY chiefs are pressing ahead with secret plans to monitor all internet use and telephone calls in Britain despite an announcement by Jacqui Smith, the home secretary, of a ministerial climbdown over public surveillance.
GCHQ, the government’s eavesdropping centre, is developing classified technology to intercept and monitor all e-mails, website visits and social networking sessions in Britain. The agency will also be able to track telephone calls made over the internet, as well as all phone calls to land lines and mobiles.
The £1 billion snooping project — called Mastering the Internet (MTI) — will rely on thousands of “black box” probes being covertly inserted across online infrastructure.
The top-secret programme began to be implemented last year, but its existence has been inadvertently disclosed through a GCHQ job advertisement carried in the computer trade press.
Last week, in what appeared to be a concession to privacy campaigners, Smith announced that she was ditching controversial plans for a single “big brother” database to store centrally all communications data in Britain.
“The government recognised the privacy implications of the move [and] therefore does not propose to pursue this move,” she said.
Grabbing favourable headlines, Smith announced that up to £2 billion of public money would instead be spent helping private internet and telephone companies to retain information for up to 12 months in separate databases.
However, she failed to mention that substantial additional sums — amounting to more than £1 billion over three years — had already been allocated to GCHQ for its MTI programme.
Shami Chakrabarti, director of Liberty, said Smith’s announcement appeared to be a “smokescreen”.
“We opposed the big brother database because it gave the state direct access to everybody’s communications. But this network of black boxes achieves the same thing via the back door,” Chakrabarti said.
Informed sources have revealed that a £200m contract has been awarded to Lockheed Martin, the American defence giant.
A second contract has been given to Detica, the British IT firm which has close ties to the intelligence agencies.
The sources said Iain Lobban, the GCHQ director, is overseeing the construction of a massive new complex inside the agency’s “doughnut” headquarters on the outskirts of Cheltenham, Gloucestershire.
A huge room of super-computers will help the agency to monitor — and record — data passing through black-box probes placed at critical traffic junctions with internet service providers and telephone companies, allowing GCHQ to spy at will.
An industry insider, who has been briefed on GCHQ’s plans, said he could not discuss the programme because he had signed the Official Secrets Act. However, he admitted that the project would mark a step change in the agency’s powers of surveillance.
At the moment the agency is able to use probes to monitor the content of calls and e-mails sent by specific individuals who are the subject of police or security service investigations.
Every interception must be authorised by a warrant signed by the home secretary or a minister of equivalent rank.
The new GCHQ internet-monitoring network will shift the focus of the surveillance state away from a few hundred targeted people to everyone in the UK.
“Although the paper [work] does not say it, its clear implication is that those kinds of probes should be extended to cover the entire population for the purposes of monitoring communications data,” said the industry source.
GCHQ placed an advertisement in the specialist IT press for a head of major contracts to be given “operational responsibility for the ‘Mastering the Internet’ (MTI) contract”. The senior official, to be paid an annual salary of up to £100,000, would lead the procurement of the hardware and the analysis tools needed to build and run the system.
Ministers have said they do not intend to snoop on the actual content of e-mails or telephone calls. The monitoring will instead focus on who an individual is communicating with or which websites and chat rooms they are visiting.
Advocates of the black-box system say it is essential if the authorities are to keep pace with the communications revolution. They say terrorists are stateless, highly mobile and their communications are difficult to detect among the billions of pieces of data passing through the internet.
Last year about 14% of telephone calls were made using voice over internet protocol (Voip) systems such as Skype. A report by a group of privy counsellors predicts that most calls will be made via the internet within five years. GCHQ said it did not want to discuss how the data it gathered would be used.
David Leppard and Chris Williams
SPY chiefs are pressing ahead with secret plans to monitor all internet use and telephone calls in Britain despite an announcement by Jacqui Smith, the home secretary, of a ministerial climbdown over public surveillance.
GCHQ, the government’s eavesdropping centre, is developing classified technology to intercept and monitor all e-mails, website visits and social networking sessions in Britain. The agency will also be able to track telephone calls made over the internet, as well as all phone calls to land lines and mobiles.
The £1 billion snooping project — called Mastering the Internet (MTI) — will rely on thousands of “black box” probes being covertly inserted across online infrastructure.
The top-secret programme began to be implemented last year, but its existence has been inadvertently disclosed through a GCHQ job advertisement carried in the computer trade press.
Last week, in what appeared to be a concession to privacy campaigners, Smith announced that she was ditching controversial plans for a single “big brother” database to store centrally all communications data in Britain.
“The government recognised the privacy implications of the move [and] therefore does not propose to pursue this move,” she said.
Grabbing favourable headlines, Smith announced that up to £2 billion of public money would instead be spent helping private internet and telephone companies to retain information for up to 12 months in separate databases.
However, she failed to mention that substantial additional sums — amounting to more than £1 billion over three years — had already been allocated to GCHQ for its MTI programme.
Shami Chakrabarti, director of Liberty, said Smith’s announcement appeared to be a “smokescreen”.
“We opposed the big brother database because it gave the state direct access to everybody’s communications. But this network of black boxes achieves the same thing via the back door,” Chakrabarti said.
Informed sources have revealed that a £200m contract has been awarded to Lockheed Martin, the American defence giant.
A second contract has been given to Detica, the British IT firm which has close ties to the intelligence agencies.
The sources said Iain Lobban, the GCHQ director, is overseeing the construction of a massive new complex inside the agency’s “doughnut” headquarters on the outskirts of Cheltenham, Gloucestershire.
A huge room of super-computers will help the agency to monitor — and record — data passing through black-box probes placed at critical traffic junctions with internet service providers and telephone companies, allowing GCHQ to spy at will.
An industry insider, who has been briefed on GCHQ’s plans, said he could not discuss the programme because he had signed the Official Secrets Act. However, he admitted that the project would mark a step change in the agency’s powers of surveillance.
At the moment the agency is able to use probes to monitor the content of calls and e-mails sent by specific individuals who are the subject of police or security service investigations.
Every interception must be authorised by a warrant signed by the home secretary or a minister of equivalent rank.
The new GCHQ internet-monitoring network will shift the focus of the surveillance state away from a few hundred targeted people to everyone in the UK.
“Although the paper [work] does not say it, its clear implication is that those kinds of probes should be extended to cover the entire population for the purposes of monitoring communications data,” said the industry source.
GCHQ placed an advertisement in the specialist IT press for a head of major contracts to be given “operational responsibility for the ‘Mastering the Internet’ (MTI) contract”. The senior official, to be paid an annual salary of up to £100,000, would lead the procurement of the hardware and the analysis tools needed to build and run the system.
Ministers have said they do not intend to snoop on the actual content of e-mails or telephone calls. The monitoring will instead focus on who an individual is communicating with or which websites and chat rooms they are visiting.
Advocates of the black-box system say it is essential if the authorities are to keep pace with the communications revolution. They say terrorists are stateless, highly mobile and their communications are difficult to detect among the billions of pieces of data passing through the internet.
Last year about 14% of telephone calls were made using voice over internet protocol (Voip) systems such as Skype. A report by a group of privy counsellors predicts that most calls will be made via the internet within five years. GCHQ said it did not want to discuss how the data it gathered would be used.
US soldier shoots dead five comrades in Iraq
A US soldier has shot dead five of his comrades at a military base in Baghdad today.
At least two others were wounded when the soldier opened fire at around 2pm local time at Camp Liberty, a sprawling installation next to the airport.
The CNN and MSNBC television networks reported that the soldier turned his gun on himself, but apparently he did not die.
“The shooter is a US soldier and he is in custody,” said Marine Corps Lieutenant Tom Garnett, a US military spokesman.
Related Links
* US soldier who raped Iraqi girl faces death
* Iraq security at risk in militia crackdown
* Mixed emotions as British end Iraq mission
A Pentagon official said that the incident was under investigation.
Earlier this month, two US soldiers were killed by a man wearing an Iraqi Army uniform at an Iraqi military training centre in northern Iraq.
Violence had dropped sharply in Iraq, but insurgent attacks continue. Last month 13 US troops died, including five who were killed in a suicide blast by a truck driver near the police headquarters in Mosul.
The US is due to withdraw combat troops from urban bases in less than two months' time. British forces withdrew from Basra in April, handing over to the US.
Today a senior Iraqi traffic police officer was killed on his way to work by gunmen with silenced pistols in two cars, who blocked off his route then pulled up alongside, riddling his car with bullets.
At least two others were wounded when the soldier opened fire at around 2pm local time at Camp Liberty, a sprawling installation next to the airport.
The CNN and MSNBC television networks reported that the soldier turned his gun on himself, but apparently he did not die.
“The shooter is a US soldier and he is in custody,” said Marine Corps Lieutenant Tom Garnett, a US military spokesman.
Related Links
* US soldier who raped Iraqi girl faces death
* Iraq security at risk in militia crackdown
* Mixed emotions as British end Iraq mission
A Pentagon official said that the incident was under investigation.
Earlier this month, two US soldiers were killed by a man wearing an Iraqi Army uniform at an Iraqi military training centre in northern Iraq.
Violence had dropped sharply in Iraq, but insurgent attacks continue. Last month 13 US troops died, including five who were killed in a suicide blast by a truck driver near the police headquarters in Mosul.
The US is due to withdraw combat troops from urban bases in less than two months' time. British forces withdrew from Basra in April, handing over to the US.
Today a senior Iraqi traffic police officer was killed on his way to work by gunmen with silenced pistols in two cars, who blocked off his route then pulled up alongside, riddling his car with bullets.
The Next Detainee Photo Scandal: Get Ready for Abu Ghraib, Act II
Are you ready for Abu Ghraib, Act II?
Five years ago, people around the world were sickened by photographs that surfaced showing U.S. troops abusing Iraqi inmates at Abu Ghraib prison in Baghdad. Act I resulted in an avalanche of congressional hearings, 15 Pentagon probes and courts-martial. More than 400 U.S. troops - but no senior officials - went to jail or were otherwise punished. Congress passed the Detainee Treatment Act to try to prevent future atrocities.
But now a new batch of photographs, perhaps hundreds of images, of prisoners being abused is about to be made public. It comes at a time when the debate over prisoner mistreatment is still roiling America's political and public conscience. The new photographs are being made public in a victory for the American Civil Liberties Union. And the Pentagon, after fighting, and losing, three federal court reviews of the matter, has waved the white flag and is now preparing to release the pictures. Some of the photographs are official; some, like the original Abu Ghraib collection, taken informally by soldiers. "We know this could make things tougher for our troops," a senior Pentagon official says, "but the court decisions really don't leave us with any other option." (See pictures of the aftershocks from the Abu Ghraib scandal.)
Two senior Senators on the Armed Services Committee beg to differ. Democrat Joe Lieberman of Connecticut and Republican Lindsey Graham of South Carolina have written to President Obama, urging him to fight the release. "We know that many terrorists captured in Iraq have told American interrogators that one of the reasons they decided to join the violent jihadist war against America was what they saw on al-Qaeda videos of abuse of detainees at Abu Ghraib," the pair wrote Obama May 6. "The release of these old photographs of past behavior that has now been clearly prohibited can serve no public good, but will empower al-Qaeda propaganda operations, hurt our country's image, and endanger our men and women in uniform." They have urged him to reverse the Pentagon's decision, which was made with the backing of the Justice Department, and, if necessary, appeal the case to the Supreme Court. (Read about the Army Field Manual.)
The ACLU maintains that only by releasing the photographs - collected during the Pentagon's various investigations and involving a half-dozen sites - can Americans determine for themselves how widespread, and sanctioned, such abuse was. "These photographs provide visual proof that prisoner abuse by U.S. personnel was not aberrational but widespread, reaching far beyond the walls of Abu Ghraib," said Amrit Singh, an ACLU lawyer.
So the debate boils down to what's worse: the outrageous behavior by some American troops, or the prospect of angering Muslims that could endanger U.S. troops in southwest Asia. The question is especially pointed just as U.S. troop reinforcements, ordered up by President Obama, are now beginning to arrive in Afghanistan to battle Islamic Taliban forces. At the same time, his Administration is trying to keep neighboring Pakistan, and its nuclear weapons, from falling under the control of Muslim militants.
If Obama accedes to the Senators' request, he'll be accused of covering up war crimes by the Bush Administration. If he allows the photographs to be released, he'll be "needlessly endangering the lives of our brave troops," as David Rehbein, national commander of the American Legion, put it in Friday's Wall Street Journal. Pentagon officials expect Obama will allow the pictures' release. According to the deal struck between the Pentagon and the ACLU, that should happen by May 28, just in time for Memorial Day.
Five years ago, people around the world were sickened by photographs that surfaced showing U.S. troops abusing Iraqi inmates at Abu Ghraib prison in Baghdad. Act I resulted in an avalanche of congressional hearings, 15 Pentagon probes and courts-martial. More than 400 U.S. troops - but no senior officials - went to jail or were otherwise punished. Congress passed the Detainee Treatment Act to try to prevent future atrocities.
But now a new batch of photographs, perhaps hundreds of images, of prisoners being abused is about to be made public. It comes at a time when the debate over prisoner mistreatment is still roiling America's political and public conscience. The new photographs are being made public in a victory for the American Civil Liberties Union. And the Pentagon, after fighting, and losing, three federal court reviews of the matter, has waved the white flag and is now preparing to release the pictures. Some of the photographs are official; some, like the original Abu Ghraib collection, taken informally by soldiers. "We know this could make things tougher for our troops," a senior Pentagon official says, "but the court decisions really don't leave us with any other option." (See pictures of the aftershocks from the Abu Ghraib scandal.)
Two senior Senators on the Armed Services Committee beg to differ. Democrat Joe Lieberman of Connecticut and Republican Lindsey Graham of South Carolina have written to President Obama, urging him to fight the release. "We know that many terrorists captured in Iraq have told American interrogators that one of the reasons they decided to join the violent jihadist war against America was what they saw on al-Qaeda videos of abuse of detainees at Abu Ghraib," the pair wrote Obama May 6. "The release of these old photographs of past behavior that has now been clearly prohibited can serve no public good, but will empower al-Qaeda propaganda operations, hurt our country's image, and endanger our men and women in uniform." They have urged him to reverse the Pentagon's decision, which was made with the backing of the Justice Department, and, if necessary, appeal the case to the Supreme Court. (Read about the Army Field Manual.)
The ACLU maintains that only by releasing the photographs - collected during the Pentagon's various investigations and involving a half-dozen sites - can Americans determine for themselves how widespread, and sanctioned, such abuse was. "These photographs provide visual proof that prisoner abuse by U.S. personnel was not aberrational but widespread, reaching far beyond the walls of Abu Ghraib," said Amrit Singh, an ACLU lawyer.
So the debate boils down to what's worse: the outrageous behavior by some American troops, or the prospect of angering Muslims that could endanger U.S. troops in southwest Asia. The question is especially pointed just as U.S. troop reinforcements, ordered up by President Obama, are now beginning to arrive in Afghanistan to battle Islamic Taliban forces. At the same time, his Administration is trying to keep neighboring Pakistan, and its nuclear weapons, from falling under the control of Muslim militants.
If Obama accedes to the Senators' request, he'll be accused of covering up war crimes by the Bush Administration. If he allows the photographs to be released, he'll be "needlessly endangering the lives of our brave troops," as David Rehbein, national commander of the American Legion, put it in Friday's Wall Street Journal. Pentagon officials expect Obama will allow the pictures' release. According to the deal struck between the Pentagon and the ACLU, that should happen by May 28, just in time for Memorial Day.
Spanish discontent as soup kitchens spring up
Hundreds of thousands of Spaniards are facing ruin as bankruptcies and unemployment rise and the economy heads for meltdown
Graham Keeley in Madrid
Faced with losing his home if he cannot find €6,000 (£5,350) by the end of this week, Javier Martínez has resorted to desperate measures: the unemployed father-of-four is selling his own flat and throwing in another, free.
The three-bedroom apartment in Tarazona, near Zaragoza in eastern Spain, is on the market for only €57,000. The former construction project manager is including a one-bedroom flat that he had been letting in an attempt to entice a buyer.
“I need to find the cash by May 15 or I may be declared bankrupt. I must provide for my children,” Mr Martínez said. He is one of hundreds of thousands of Spaniards facing ruin as Spain's economy heads for meltdown.
The number of Spaniards unable to pay their debts has risen by 26 per cent to 2.7million in 2009, compared with the first four months of last year. During the same period 232,000 companies joined the list of bad debtors, a 67 per cent rise, according to AsNef-Equifax, a Spanish credit agency.
Related Links
* Economic clouds gather as Spain faces recession
* Travel crisis: Britons abandon Spanish costas
Bankruptcies are up 44 per cent in the first quarter this year against the final quarter of 2008, with the worst-hit sectors being services and construction.
Unemployment is running at 17.4 per cent, the highest in Europe, with more than four million on the dole. The European Union predicts that this figure will rise to 20 per cent by next year. Some Spaniards have to accept soup-kitchen meals to feed their families.
Spain, after a decade of continuous growth, is now the sick man of Europe - and discontent is growing.
As 40,000 people took to the streets across the country for May Day demonstrations, Ignacio Fernández Toxo, leader of the CCOO union, threatened a general strike if the Government accepted demands from business to make it cheaper for companies to hire and fire workers.
Last week, unemployed protesters tried to storm the Madrid regional assembly, while jobless pickets closed a shipyard in the Basque Country in a protest at “cheap” Romanian and Portuguese workers - an echo of similar demonstrations in Britain against foreign workers in February.
Spain's Socialist Government, aware that its popularity is falling before European parliamentary elections next month, argues that unemployment is reaching a plateau, pointing out that the number out of work in April rose by 39,478, the smallest increase in nine months.
José Luis Rodríguez Zapatero, the Spanish Prime Minister, has attempted to blunt the impact of the recession with a €33 billion stimulus. It is being spent partly on public works projects, to give temporary work to cut dole queues - but some dismiss these as “sticking plaster” jobs that do not address the problems at the heart of the Spanish economy.
Others defend them, saying that they keep many homeowners from defaulting on mortgages.
Graham Keeley in Madrid
Faced with losing his home if he cannot find €6,000 (£5,350) by the end of this week, Javier Martínez has resorted to desperate measures: the unemployed father-of-four is selling his own flat and throwing in another, free.
The three-bedroom apartment in Tarazona, near Zaragoza in eastern Spain, is on the market for only €57,000. The former construction project manager is including a one-bedroom flat that he had been letting in an attempt to entice a buyer.
“I need to find the cash by May 15 or I may be declared bankrupt. I must provide for my children,” Mr Martínez said. He is one of hundreds of thousands of Spaniards facing ruin as Spain's economy heads for meltdown.
The number of Spaniards unable to pay their debts has risen by 26 per cent to 2.7million in 2009, compared with the first four months of last year. During the same period 232,000 companies joined the list of bad debtors, a 67 per cent rise, according to AsNef-Equifax, a Spanish credit agency.
Related Links
* Economic clouds gather as Spain faces recession
* Travel crisis: Britons abandon Spanish costas
Bankruptcies are up 44 per cent in the first quarter this year against the final quarter of 2008, with the worst-hit sectors being services and construction.
Unemployment is running at 17.4 per cent, the highest in Europe, with more than four million on the dole. The European Union predicts that this figure will rise to 20 per cent by next year. Some Spaniards have to accept soup-kitchen meals to feed their families.
Spain, after a decade of continuous growth, is now the sick man of Europe - and discontent is growing.
As 40,000 people took to the streets across the country for May Day demonstrations, Ignacio Fernández Toxo, leader of the CCOO union, threatened a general strike if the Government accepted demands from business to make it cheaper for companies to hire and fire workers.
Last week, unemployed protesters tried to storm the Madrid regional assembly, while jobless pickets closed a shipyard in the Basque Country in a protest at “cheap” Romanian and Portuguese workers - an echo of similar demonstrations in Britain against foreign workers in February.
Spain's Socialist Government, aware that its popularity is falling before European parliamentary elections next month, argues that unemployment is reaching a plateau, pointing out that the number out of work in April rose by 39,478, the smallest increase in nine months.
José Luis Rodríguez Zapatero, the Spanish Prime Minister, has attempted to blunt the impact of the recession with a €33 billion stimulus. It is being spent partly on public works projects, to give temporary work to cut dole queues - but some dismiss these as “sticking plaster” jobs that do not address the problems at the heart of the Spanish economy.
Others defend them, saying that they keep many homeowners from defaulting on mortgages.
The Freighter Graveyards of South Asia
When times were good, shipping companies ordered huge numbers of new steel behemoths to ply the oceans. Now though, many of those same container lines are eager to get rid of their ships. The scrapping business in South Asia is booming.
The sandy beaches north of Chittagong in Bangladesh look like giant steel graveyards. Ships line the banks ready for dismantling. Others are so far disassembled that their hulls are all that is left protuding morosely from the water, according to shipping industry journal Lloyd's List. All kinds of vessels get broken down here: bulk carriers, container ships, vehicle transporters and oil tankers.)
The wrecks are remnants of a disappearing world. Once they sailed the oceans as flagships of globalization. Now they're symbols of an order that threatens to sink with them.
The global economic and trade crisis is so severe that a growing number of ships, some larger than the Titanic, are being pulled from their routes and sent to scrap yards to be sold for parts. Freight and charter rates have fallen and regularly scheduled passenger lines are being cancelled. Those container ships that are still sailing can barely cover their costs. Over-capacity created in recent boom times has accelerated the trend toward scrapping ships.
Yet one boom replaces another. With shipping down, shipbreaking is the business of the hour. The shift began late last year and initially targeted ships with a combined load-carrying capacity of 10 million tons. Now the heavy rigs are being lined up too as they sit idly anchored in harbors around the world. Much of the scrapping happens in South Asia and with little regulation in place.
As the economy worsens the shipbreaking business improves. The best place to beach large ships is near Alang, in the southern part of the Indian state of Gujarat. Tides are high here, allowing the ships to run ashore under their own power. Once the tide is low and the hulls are out of the water, work begins of gutting and cutting up the ships.
It's a "non-stop boom," the Hindustan Times writes. Blowtorches hiss, steel windlasses screech, and sledgehammers pound along the 11 kilometer beach. Cranes remove the superstructures from the deck. A bulk freighter that until recently might have carried bauxite or grain disappears within 40 days.
A few years ago, when globalization was in full swing, few ships came near Alang. Many of the slots -- as the dismantling sites are now known -- were closed due to a lack of demand. Now millions of dollars are being earned from the scrap metal.
Nobody knows this better than Indian-born Anil Sharma, a cash-buyer who promotes the bizarre boom all the way from Maryland in the US. In the jargon of the industry, a cash-buyer acquires ships from the shipping companies who want to get rid of their burdensome vessels. He then sells them to the scrappers. The scrap metal lands in small mills in places such as Chittagong or Karatchi to be turned into steel for the construction industry. Some parts may reemerge as hinges for shipping containers whose own demand is falling in the global downturn.
More than 1,000 Ships Face Scrapping
Anil Sharma's company, Global Marketing Systems, has grown into the world's largest buyer of scrap ships. He manages about a third of all ships doomed for scrapping. And new candidates show up almost daily. "I believe there will be more than 1,000 additional ships that will be scrapped," Sharma predicted at a convention in London last February. "The next two years will bring the liveliest business there's been so far," the Onassis of scrap told Lloyd's List.
Sharma's travels of the world's scrapping centers have taken him to the coast west of Karachi in Pakistan, where ships loiter in gigantic, watery parking lots. In some places the ships are stacked three vessels high on top of one another, he says. It sounds improbable but it fits the image of Alang, where more than 125 ships have landed between last December and March -- almost as many as in 2007 and 2008 combined.
The shipping companies must dump their old freighters to tackle a dilemma. During the global economic boom they ordered new vessels non-stop, creating over capacity in much the same way as that troubling the car sector. In cases where orders can't be cancelled, new ships are coming off the conveyer belts just as demand declines. It makes the need for selling old ships as scrap all the more pressing.
Nearly 90 percent of the world's shipbreaking happens in India, Pakistan and Bangladesh. Workers drag at steel plates on long ropes; electric cables, pipes, boilers, hatchways, and generators litter the coast. As does asbestos and poisonous sealing compounds.
Those parts that can't be smelted into steel get hawked along the road to Alang on a new kind of bazaar, Reuters reports. On sale here are doors, tables and sofas, carpeting, dishes, refrigerators, air conditioners and even a captain's bathtub.
Ships have been landing at the Bay of Bengal and in the Arabian Sea for cheap recycling for the past three decades. Shipyards in Korea, Taiwan, Japan and Europe prefer to build or repair ships in their dry docks, leaving the un-glamorous scrapping to others.
"I Live in Fear of Accidents"
A worker at Pakistan's Gadani beach earns 280 rupees -- less than three euros -- a day. Still, the scrapping regions do benefit from the industry. A country with few natural resources such as Bangladesh can make good use of scrap metal, particularly since producing its own steel from iron ore would be costly and time-consuming.
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And ship scrapping in South Asia is about to become more strictly regulated thanks to new guidelines penned by the UN's International Maritime Organization in London. The deal foresees a register of dangerous substances contained in ships and demands that scrappers lay out a recycling plan. It also stipulates that ships be inspected by experts before their final voyage to scrapyards.
The new rules are expected to be approved during a meeting next Monday in Hong Kong. But even if approved, it will take years for the nations involved to ratify and implement the rules, experts warn. One exception could be Bangladesh, where a court recently ruled that shipbreaking must become more environmentally friendly.
Until such changes arrive, Chittagong scrap yard worker Omar Faruq will likely continue cutting up steel plates from the ships as he does every day. He ripped open his shin on a sharp edge of scrap last August and the wound required stitches, he told a reporter from the AFP. Others have been much more seriously injured at the shipbreaking yards -- or even killed. "I live in fear of accidents like that," Faruq said at the time. "But I'm even more afraid of not having any money if I can't get to work."
The sandy beaches north of Chittagong in Bangladesh look like giant steel graveyards. Ships line the banks ready for dismantling. Others are so far disassembled that their hulls are all that is left protuding morosely from the water, according to shipping industry journal Lloyd's List. All kinds of vessels get broken down here: bulk carriers, container ships, vehicle transporters and oil tankers.)
The wrecks are remnants of a disappearing world. Once they sailed the oceans as flagships of globalization. Now they're symbols of an order that threatens to sink with them.
The global economic and trade crisis is so severe that a growing number of ships, some larger than the Titanic, are being pulled from their routes and sent to scrap yards to be sold for parts. Freight and charter rates have fallen and regularly scheduled passenger lines are being cancelled. Those container ships that are still sailing can barely cover their costs. Over-capacity created in recent boom times has accelerated the trend toward scrapping ships.
Yet one boom replaces another. With shipping down, shipbreaking is the business of the hour. The shift began late last year and initially targeted ships with a combined load-carrying capacity of 10 million tons. Now the heavy rigs are being lined up too as they sit idly anchored in harbors around the world. Much of the scrapping happens in South Asia and with little regulation in place.
As the economy worsens the shipbreaking business improves. The best place to beach large ships is near Alang, in the southern part of the Indian state of Gujarat. Tides are high here, allowing the ships to run ashore under their own power. Once the tide is low and the hulls are out of the water, work begins of gutting and cutting up the ships.
It's a "non-stop boom," the Hindustan Times writes. Blowtorches hiss, steel windlasses screech, and sledgehammers pound along the 11 kilometer beach. Cranes remove the superstructures from the deck. A bulk freighter that until recently might have carried bauxite or grain disappears within 40 days.
A few years ago, when globalization was in full swing, few ships came near Alang. Many of the slots -- as the dismantling sites are now known -- were closed due to a lack of demand. Now millions of dollars are being earned from the scrap metal.
Nobody knows this better than Indian-born Anil Sharma, a cash-buyer who promotes the bizarre boom all the way from Maryland in the US. In the jargon of the industry, a cash-buyer acquires ships from the shipping companies who want to get rid of their burdensome vessels. He then sells them to the scrappers. The scrap metal lands in small mills in places such as Chittagong or Karatchi to be turned into steel for the construction industry. Some parts may reemerge as hinges for shipping containers whose own demand is falling in the global downturn.
More than 1,000 Ships Face Scrapping
Anil Sharma's company, Global Marketing Systems, has grown into the world's largest buyer of scrap ships. He manages about a third of all ships doomed for scrapping. And new candidates show up almost daily. "I believe there will be more than 1,000 additional ships that will be scrapped," Sharma predicted at a convention in London last February. "The next two years will bring the liveliest business there's been so far," the Onassis of scrap told Lloyd's List.
Sharma's travels of the world's scrapping centers have taken him to the coast west of Karachi in Pakistan, where ships loiter in gigantic, watery parking lots. In some places the ships are stacked three vessels high on top of one another, he says. It sounds improbable but it fits the image of Alang, where more than 125 ships have landed between last December and March -- almost as many as in 2007 and 2008 combined.
The shipping companies must dump their old freighters to tackle a dilemma. During the global economic boom they ordered new vessels non-stop, creating over capacity in much the same way as that troubling the car sector. In cases where orders can't be cancelled, new ships are coming off the conveyer belts just as demand declines. It makes the need for selling old ships as scrap all the more pressing.
Nearly 90 percent of the world's shipbreaking happens in India, Pakistan and Bangladesh. Workers drag at steel plates on long ropes; electric cables, pipes, boilers, hatchways, and generators litter the coast. As does asbestos and poisonous sealing compounds.
Those parts that can't be smelted into steel get hawked along the road to Alang on a new kind of bazaar, Reuters reports. On sale here are doors, tables and sofas, carpeting, dishes, refrigerators, air conditioners and even a captain's bathtub.
Ships have been landing at the Bay of Bengal and in the Arabian Sea for cheap recycling for the past three decades. Shipyards in Korea, Taiwan, Japan and Europe prefer to build or repair ships in their dry docks, leaving the un-glamorous scrapping to others.
"I Live in Fear of Accidents"
A worker at Pakistan's Gadani beach earns 280 rupees -- less than three euros -- a day. Still, the scrapping regions do benefit from the industry. A country with few natural resources such as Bangladesh can make good use of scrap metal, particularly since producing its own steel from iron ore would be costly and time-consuming.
NEWSLETTER
Sign up for Spiegel Online's daily newsletter and get the best of Der Spiegel's and Spiegel Online's international coverage in your In- Box everyday.
And ship scrapping in South Asia is about to become more strictly regulated thanks to new guidelines penned by the UN's International Maritime Organization in London. The deal foresees a register of dangerous substances contained in ships and demands that scrappers lay out a recycling plan. It also stipulates that ships be inspected by experts before their final voyage to scrapyards.
The new rules are expected to be approved during a meeting next Monday in Hong Kong. But even if approved, it will take years for the nations involved to ratify and implement the rules, experts warn. One exception could be Bangladesh, where a court recently ruled that shipbreaking must become more environmentally friendly.
Until such changes arrive, Chittagong scrap yard worker Omar Faruq will likely continue cutting up steel plates from the ships as he does every day. He ripped open his shin on a sharp edge of scrap last August and the wound required stitches, he told a reporter from the AFP. Others have been much more seriously injured at the shipbreaking yards -- or even killed. "I live in fear of accidents like that," Faruq said at the time. "But I'm even more afraid of not having any money if I can't get to work."
Snipping Credit Lines for Small Businesses
JPMorgan Chase and others are shoring up balance sheets by reducing or eliminating these financial lifelines to entrepreneurs
For small business owners, a line of credit can be a lifesaver, giving them a buffer against cash-flow problems and enabling them to handle regular expenses such as payroll. But beginning in March, according to documents obtained by BusinessWeek, JPMorgan Chase (JPM) suspended credit lines for a large number of business owners. According to someone familiar with the matter, the move affected thousands of businesses. They had been clients of Washington Mutual before Chase bought the ailing bank in September 2008. The documents show that Chase tasked a special group inside the bank with responding to inquiries from borrowers.
The bank can expect plenty of those, at least partly because in many cases the businesses whose lines were cut had not missed loan payments. Instead, their credit score or their financials had deteriorated, and credit-line agreements typically give banks the right to change the terms of the line if there is a change in the borrower's financial situation. In this case, the changes in the terms are dramatic. If business owners can't convince Chase of their creditworthiness, they have three options: 1) pay off the balance in full; 2) agree to a conversion of the line of credit into a term loan; or 3) go into default.
Business owners who accept the conversion to a term loan will likely see dramatically higher monthly payments. A business owner may be able to keep a line of credit open with interest-only payments, but term loans typically have to be paid off—interest and principal—within three to five years. Plus, they may carry higher interest rates.
Aggressive Review
Thomas Kelly, a spokesman for Chase, says the bank continually reviews the lines of credit in its portfolio. "We contact customers if we determine there has been an adverse change in their financial condition or credit history. We may eliminate the unused portion of their credit line and set up a standard repayment plan." Kelly says the bank encourages customers to contact Chase if they want the decision reevaluated or if they want to provide information such as their federal tax return. And he says the bank has assigned staff to work with customers who want such decisions reexamined.
Donald Raftery, managing director at Greenwich Associates, a Stamford (Conn.)-based financial-services consulting firm, says the banks, overwhelmed with problem loans, are "trying to take a very active approach on a broad segment of companies. There's no individual type of approach. [Small companies] feel like they're being treated like a number."
Mark Fitchett, the owner of $300,000 music school operator L&M Music in Long Beach, Calif., would certainly agree. He had been a Washington Mutual customer before the bank was acquired by Chase. He had four overdraft lines of credit of $10,000 each, one for each of his schools and one for the parent company, and has been drawing on them at the beginning of each month to help pay the music instructors that contract with his company. In late April, Fitchett was checking his account online and noticed that two of the lines were not showing up. That day a letter arrived saying that, due to an adverse change in his "financial condition and/or credit history," Chase was blocking him from drawing on those two lines. Fitchett said he called Chase, but still doesn't understand what change prompted the move. He's trying to get the lines reinstated, but he's also shopping around for a new line. "I'm thinking now about how I'm going to cover the first week [of paychecks] next month," Fitchett says.
Broader Phenomenon
The phenomenon may extend well beyond Chase and its borrowers. "I'm hearing it more and more," says Stacey Sanchez, senior community loan officer with San Diego-based CDC Small Business Finance, a community development corporation, who says entrepreneurs often turn to her institution when their credit lines are pulled. Sanchez says the increased aggressiveness on the part of lenders may be due in part to banks now being in possession of 2008 tax returns for most of their clients, which show the full ugliness of the last quarter of 2008.
And suspending lines of credit is certainly an efficient way to reduce the risk on a bank's balance sheet. According to officials at the Office of the Comptroller of the Currency, bank reserves for bad loans are based on the total exposure to a customer. So if a bank has a $100,000 line of credit with a small firm and only $20,000 is drawn down, the total exposure is still $100,000, and the bank usually will reserve for loan losses based on that amount. But if they convert the $20,000 outstanding to a term loan and cancel the line of credit, or if they simply cut the line to $20,000, the reserves would be based on that $20,000 figure.
Regulatory pressure likely plays a part as well. Bert Ely, an Alexandria (Va.)-based financial-services consultant, says he hears repeatedly from banks around the country that while the White House and Treasury talk about the need for lending to small business, local bank examiners continue to pressure them to upgrade the quality of their loan portfolios. "You have a disconnect between what policymakers are saying and what the rank-and-file bank examiners and supervisors are saying," Ely says. That has painful repercussions for business owners around the country.
For small business owners, a line of credit can be a lifesaver, giving them a buffer against cash-flow problems and enabling them to handle regular expenses such as payroll. But beginning in March, according to documents obtained by BusinessWeek, JPMorgan Chase (JPM) suspended credit lines for a large number of business owners. According to someone familiar with the matter, the move affected thousands of businesses. They had been clients of Washington Mutual before Chase bought the ailing bank in September 2008. The documents show that Chase tasked a special group inside the bank with responding to inquiries from borrowers.
The bank can expect plenty of those, at least partly because in many cases the businesses whose lines were cut had not missed loan payments. Instead, their credit score or their financials had deteriorated, and credit-line agreements typically give banks the right to change the terms of the line if there is a change in the borrower's financial situation. In this case, the changes in the terms are dramatic. If business owners can't convince Chase of their creditworthiness, they have three options: 1) pay off the balance in full; 2) agree to a conversion of the line of credit into a term loan; or 3) go into default.
Business owners who accept the conversion to a term loan will likely see dramatically higher monthly payments. A business owner may be able to keep a line of credit open with interest-only payments, but term loans typically have to be paid off—interest and principal—within three to five years. Plus, they may carry higher interest rates.
Aggressive Review
Thomas Kelly, a spokesman for Chase, says the bank continually reviews the lines of credit in its portfolio. "We contact customers if we determine there has been an adverse change in their financial condition or credit history. We may eliminate the unused portion of their credit line and set up a standard repayment plan." Kelly says the bank encourages customers to contact Chase if they want the decision reevaluated or if they want to provide information such as their federal tax return. And he says the bank has assigned staff to work with customers who want such decisions reexamined.
Donald Raftery, managing director at Greenwich Associates, a Stamford (Conn.)-based financial-services consulting firm, says the banks, overwhelmed with problem loans, are "trying to take a very active approach on a broad segment of companies. There's no individual type of approach. [Small companies] feel like they're being treated like a number."
Mark Fitchett, the owner of $300,000 music school operator L&M Music in Long Beach, Calif., would certainly agree. He had been a Washington Mutual customer before the bank was acquired by Chase. He had four overdraft lines of credit of $10,000 each, one for each of his schools and one for the parent company, and has been drawing on them at the beginning of each month to help pay the music instructors that contract with his company. In late April, Fitchett was checking his account online and noticed that two of the lines were not showing up. That day a letter arrived saying that, due to an adverse change in his "financial condition and/or credit history," Chase was blocking him from drawing on those two lines. Fitchett said he called Chase, but still doesn't understand what change prompted the move. He's trying to get the lines reinstated, but he's also shopping around for a new line. "I'm thinking now about how I'm going to cover the first week [of paychecks] next month," Fitchett says.
Broader Phenomenon
The phenomenon may extend well beyond Chase and its borrowers. "I'm hearing it more and more," says Stacey Sanchez, senior community loan officer with San Diego-based CDC Small Business Finance, a community development corporation, who says entrepreneurs often turn to her institution when their credit lines are pulled. Sanchez says the increased aggressiveness on the part of lenders may be due in part to banks now being in possession of 2008 tax returns for most of their clients, which show the full ugliness of the last quarter of 2008.
And suspending lines of credit is certainly an efficient way to reduce the risk on a bank's balance sheet. According to officials at the Office of the Comptroller of the Currency, bank reserves for bad loans are based on the total exposure to a customer. So if a bank has a $100,000 line of credit with a small firm and only $20,000 is drawn down, the total exposure is still $100,000, and the bank usually will reserve for loan losses based on that amount. But if they convert the $20,000 outstanding to a term loan and cancel the line of credit, or if they simply cut the line to $20,000, the reserves would be based on that $20,000 figure.
Regulatory pressure likely plays a part as well. Bert Ely, an Alexandria (Va.)-based financial-services consultant, says he hears repeatedly from banks around the country that while the White House and Treasury talk about the need for lending to small business, local bank examiners continue to pressure them to upgrade the quality of their loan portfolios. "You have a disconnect between what policymakers are saying and what the rank-and-file bank examiners and supervisors are saying," Ely says. That has painful repercussions for business owners around the country.
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