In issuing fiduciary media, by which I mean bank notes without gold backing or current accounts which are not entirely backed by gold reserves, the banks are in a position to expand credit considerably. The creation of these additional fiduciary media permits them to extend credit well beyond the limit set by their own assets and by the funds entrusted to them by their clients. They intervene on the market in this case as “suppliers” of additional created, created by themselves, and they thus produce a lowering of the rate of interest, which falls below the level at which it would have been without their intervention. The lowering of the rate of interest stimulates economic activity. Projects which would not have been thought “profitable” if the rate of interest had not been influenced by the manipulations of the banks, and which, therefore, would not have been undertaken, are nevertheless found “profitable” and can be initiated. The more active state of business leads to increased demand for production and the wages of labor rise, and the increase in wages leads, in turn, to an increase in prices of consumption goods. If the banks were to refrain from any further extension of credit and limited themselves to what they had already done, the boom wold rapidly halt. But the banks do not deflect from their course of action; they continue to expand credit on a larger and larger scale, and prices and wages correspondingly continue to rise.
 
This upward movement could not, however, continue indefinitely. The material means of production and the labor available have not increased; all that has increased is the quantity of the fiduciary media which can play the same role as money in the circulation of goods. The means of production and labor which have been diverted to the new enterprises have had to be taken away from other enterprises. Society is not sufficiently rich to permit the creation of new enterprises without taking anything away from other enterprises. As long as the expansion of credit is continued this will not be noticed, but this extension cannot be pushed indefinitely. For if an attempt were made to prevent the sudden halt of the upward movement (and the collapse of prices which would result) by creating more and more credit, a continuous and even more rapid increase of prices would result. But the inflation and the boom can continue smoothly only as long as the public thinks that the upward movement of prices will stop in the near future. As soon as public opinion becomes aware that there is no reason to expect an end to the inflation, and that prices will continue to rise, panic sets in. No one wants to keep his money, because its possession implies greater and greater losses from one day to the next; everyone rushes to exchange money for goods, people buy things they have no considerable use for without even considering the price, just in order to get rid of the money. Such is the phenomenon that occurred in Germany and in other countries that followed a policy of prolonged inflation and that was known as the “flight into real values.” Commodity prices rise enormously as do foreign exchange rates, while the price of the domestic money falls almost to zero. The value of the currency collapses, as was the case in Germany in 1923.
 
If, on the contrary, the banks decided to halt the expansion of credit in time to prevent the collapse of the currency and if a brake is thus put on the boom, it will quickly be seen that the false impression of “profitability” created by the credit expansion has led to unjustified investments. Many enterprises or business endeavors which had been launched thanks to artificial lowering of the interest rate, and which had been sustained thanks to the equaly artificial increase in prices, no longer appear profitable.
 
Some enterprises cut back their scale of operation, others close down or fail. Prices collapse;crisis and depression follow the boom. The crisis and ensuing period of depression are the culmination of the period of unjustified investment brought about by the extension of credit. The projects which owe their existence to the fact that they once appeared “profitable” in the artificial conditions created on the market by the extension of credit and the increase in prices which resulted from it, have ceased to be “profitable.” The capital invested in these enterprises is lost to the extent that it is locked in. The economy must adapt itself to these losses and to the situation that they bring about. In is case the thing to do, first of all, is to curtail consumption and, by economizing, to build up new capital funds in order to make the productive apparatus conform to the actual wants a not to artificial wants which could never be manifested and considered real except as a consequence of the false calculation of “profitability” based on the extension of credit.

The rulers of Abu Dhabi are expected to make a statement before the markets open on whether they will bail out Dubai and which businesses and projects will be rescued.
...
Senior analysts in the region expect that projects regarded as folly will not be backed but operations and investments with a strong business model will be.

LEAD1 France-Thomson envisage une procédure de sauvegarde/Presse
lundi 30 novembre 2009 14h06
 
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PARIS, 30 novembre (Reuters) - Le groupe Thomson (TMS.PA: Cotation), dont la cotation en Bourse a été suspendue lundi, envisagerait d'entrer dans une procédure de sauvegarde, selon le site d'informations financières Wansquare.
 
"Compte tenu de l'ensemble des informations recueillies par Wansquare auprès des banquiers et des créanciers, il apparaît que Thomson va annoncer ce soir, à l'issue de la séance de Bourse, qu'il opte pour la procédure de sauvegarde", indique le site.
 
Une porte-parole de Thomson n'a pas souhaité faire de commentaire mais a indiqué que le groupe allait publier un communiqué sur la restructuration de sa dette.
 
Dans un avis, NYSE Euronext Paris a précisé que le titre avait été suspendu de cotation à la demande de Thomson et de l'Autorité des marchés financiers (AMF) dans l'attente d'un communiqué.
 
Selon NYSE Euronext, la cotation doit reprendre mardi.
 
Thomson était parvenu en juillet à un accord avec ses principaux créanciers lui permettant de réduire sa dette senior de 45% au moyen de la conversion d'une partie de cette dette en actions et obligations remboursables en actions.(Plus de détails [nGEE5AM00K])
 
L'entreprise avait donné à ces créanciers jusqu'à fin novembre pour accepter ce plan de restructuration. Ceux-ci avaient accordé un moratoire expirant ce lundi 30 novembre.
 
(Raoul Sachs, Julien Ponthus, Florent Le Quintrec, édité par Dominique Rodriguez)
 
((Service économique. Tel : 01 49 49 52 35. paris.equities@news.reuters.com. Reuters Messaging: raoul.sachs.reuters.com@reuters.net))

Chanos and the other bears point to several key pieces of evidence that China is heading for a crash.
 
First, they point to the enormous Chinese economic stimulus effort — with the government spending $900 billion to prop up a $4.3 trillion economy. “Yet China’s economy, for all the stimulus it has received in 11 months, is underperforming,” Gordon Chang, author of “The Coming Collapse of China,” wrote in Forbes at the end of October. “More important, it is unlikely that [third-quarter] expansion was anywhere near the claimed 8.9 percent.”
 
Chang argues that inconsistencies in Chinese official statistics — like the surging numbers for car sales but flat statistics for gasoline consumption — indicate that the Chinese are simply cooking their books. He speculates that Chinese state-run companies are buying fleets of cars and simply storing them in giant parking lots in order to generate apparent growth.
 
Another data point cited by the bears: overcapacity. For example, the Chinese already consume more cement than the rest of the world combined, at 1.4 billion tons per year. But they have dramatically ramped up their ability to produce even more in recent years, leading to an estimated spare capacity of about 340 million tons, which, according to a report prepared earlier this year by Pivot Capital Management, is more than the consumption in the U.S., India and Japan combined.
 
This, Chanos and others argue, is happening in sector after sector in the Chinese economy. And that means the Chinese are in danger of producing huge quantities of goods and products that they will be unable to sell.
 
The Pivot Capital report was extremely popular in Chanos’s office and concluded, “We believe the coming slowdown in China has the potential to be a similar watershed event for world markets as the reversal of the U.S. subprime and housing boom.
And the bears also keep a close eye on anecdotal reports from the ground level in China, like a recent posting on a blog called The Peking Duck about shopping at Beijing’s “stunningly dysfunctional, catastrophic mall, called The Place.”
 
“I was shocked at what I saw,” the blogger wrote. “Fifty percent of the eateries in the basement were boarded up. The cheap food court, too, was gone, covered up with ugly blue boarding, making the basement especially grim and dreary. ... There is simply too much stuff, too many stores and no buyers.”
 
http://www.politico.com/news/stories/1109/29330.html