Key News

• Ukraine's Currency Plunges as Debt Concern Grows Despite Yushchenko Pledge (Bloomberg)

• ECB May Cut Deposit Rate to Jolt Banks Into Lending More to Revive Growth (Bloomberg)

• German Business Confidence Drops More Than Estimated to Lowest Since 1982 (Bloomberg)

• Germany is fighting with Europe. Can China be far behind? (China Financial Markets, Michael Pettis)

Quotable

I Want to Be a Consumer

"And what do you mean to be?"

The kind old Bishop said

As he took the boy on his ample knee

And patted his curly head.

"We should all of us choose a calling

To help Society’s plan;

Then what do you mean to be, my boy,

When you grow up to be a man?"

"I want to be a Consumer,"

The bright‐haired lad replied

As he gazed up into the Bishop’s face

In innocence open‐eyed.

"I’ve never had aims of a selfish sort,

For that, as I know, is wrong.

I want to be a consumer, Sir,

And help the world along.

"I want to be a Consumer

And work both night and day,

For that is the thing that’s needed most,

I’ve heard economists say,

I won’t just be a Producer,

Like Bobby and James and John;

I want to be a Consumer, Sir,

And help this nation on."

"But what do you want to be?"

The Bishop said again,

"For we all of us have to work," said he,

"As must I think be plain.

Are you thinking of studying medicine

Or taking a Bar exam?"

"Why, no!" the bright‐haired lad replied

As he helped himself to jam.

"I want to be a Consumer

And live in a useful way;

For that is the thing that’s needed most,

I’ve heard economists say.

There are too many people working

And too many things are made.

I want to be a Consumer, Sir,

And help to further trade.

"I want to be a Consumer,

And do my duty well;

For that is the thing that’s needed most,

I’ve heard Economists tell.

I’ve made up my mind," the lad was heard

As he lit a cigar, to say;

"I want to be a Consumer, sir,

And I want to begin today."

Patrick Barrington

FX Trading – Consuming Forces Shaking Ukraine, Germany ... and China

You’re probably kicking yourself for holding on to those hryvnia for a couple days too many.

If you don’t know what I’m talking about, I’ll tell you: Ukraine’s currency – hryvnia – took a nosedive. In the last two days its value has plunged 17%. And even though Ukraine’s President pledged to support the currency, it fell to an all‐time lows versus the US dollar.

You can check out the Bloomberg story at the top of today’s issue if you want to read more on how the IMF tried bailing out Ukraine, or that Ukrainian credit is currently the third most risky in the world behind Argentina and Ecuador, or that the President is forcing the central bank to crack down on fx speculators ...

But what is most important to get from the article is that Ukrainian credit is hugely at risk of default. And a swooning currency makes domestic loans denominated in other currencies that much more expensive to afford.

As was the case with Ecuador’s recent admission of its inability to come even on large amounts of debt, Ukraine is walking a similarly ominous line. These two examples highlight a good part of what’s shifting in this global economy. In emerging economies things will probably still get worse before they get better. On the flip side, a much larger country and economy is dishing out disappointment too.

A steady stream of weak data continues to flow from Germany. And while their

downturn has seem to come more slowly than other countries in the Eurozone and around the world, concern is growing that Germany isn’t taking sufficient precautions to help bring about a more timely recovery.

Many have lost confidence that Germany’s fiscal policy will do what it takes to stop the bleeding until it’s too late.

We discussed a very important point in Currency Currents last week regarding the dynamic between deficit countries and surplus countries in times of economic contraction. As was the case during the great depression, the United States was a surplus country.

The change in landscape after the stock market crash required the US to make

considerable adjustments. As it was, they bore the brunt of the depression where deficit countries skirted by less battered.

Now we’re at a point where the US is the deficit country. The surplus country that stands out in the current environment is China. They over‐produced throughout the recent boom, but now have no over‐consuming buyers in the face of the ongoing bust. Their excess capacity is now a considerable drag and needs dramatic adjustment.

Germany is in a similar boat. And with global trade on the fritz with no certainty of when the bottom might arrive, Germany will struggle and the rest of the Eurozone will feel the fallout.