MacroScope

If there's one thing you don't want to be, it's the next Iceland.

Since its currency, colossally indebted banking sector and economy collapsed in spectacular fashion in October, the country has become a byword for an economy that has truly hit the rocks.

Within weeks, banking problems and currency falls meant Hungary was being hyped as a "second Iceland", at least until a joint International Monetary Fund and European Union rescue package restored some stability.

Next to win the unwanted comparison was Ukraine.  Having lost at one stage half its value, the currency has somewhat stabilised -- although most foreign investors are very hesitant to hold Ukrainian assets again.  And like Iceland itself, Ukraine is now dependent on an IMF lifeline.

Now, it is Britain in the limelight.  The New York Times as well as Britain's Observer and Daily Telegraph newspapers have all made the comparison in recent days.

For people earning and saving in sterling, it is an uncomfortable place to be and nervousness is to be found in the strangest of places.  During a recent visit to a podiatrist, a Reuters correspondent found the conversation punctuated with speculation about the possibility of an IMF bailout for Britain and angst over cutbacks in the National Health Service footcare budget.

We knew U.S. consumers were retrenching, but today’s December retail sales figures from the Commerce Department show that households were cutting back even more than economists had thought. That suggests no end in sight for a U.S. recession already in its second year.

The headline number was bad enough, down 2.7 percent, which was more than double the decline that economists polled by Reuters had predicted. A lot of that had to do with the well-documented problems with U.S. auto makers, as well as falling oil prices which pushed down sales at gasoline stations.

But even if you strip out autos and gasoline, retail sales were down 1.5 percent last month, the biggest drop since September 2001 — a month when many Americans stayed away from shopping centers for fear of attack in the days after September 11.

George Alogoskoufis is a hardly a household name outside Greece and EU financial circles. But the newly sacked Greek finance minister could yet become a poster child for politicans struggling to fight off economic decline and banking industry collapse. His demise was in large part due to a public perception that he was helping out the banks but ignoring rising joblessness.

Greece, of course, is a special case at the moment, still recovering from riots over the police shooting of a teenager. But finance ministers, central bankers and other responsibles are probably not immune from Alogoskoufis Syndrome. Balancing the need to bail out the finance industry with rising economic misery among everyday people is not easy. Fat cats are not exactly in favour at the moment.

This could, indeed, come to a head later in the year. Investment cycles tend to recover before economic ones. So what happens when Wall Street, the City and the like start bringing in the money again just as unemployment lines start getting even longer?

The U.S. Federal Reserve seems to be growing gloomier each month. Sure, they’re not the only group whose economic forecasts have been a moving target of late, but check out how their staff view of the U.S. economy has changed in the past few months.

Back in 2007, the hope was that the housing market “correction” would taper off and 2008 would bring healthier growth. Then the best guess was that the economy would regain its footing in the second half of 2008. Now, the horizon is moving into 2010.

According to newly released minutes from the central bank’s December meeting, when it pushed short-term interest rates down to a range of zero to 0.25 percent, Fed staff now think the world’s biggest economy may be a year away from returning to normal growth.

Goldman Sachs is previewing the 2009 outlook from a light hearted perspective. “We hope readers take these thoughts in the spirit that they are meant and don’t take any offence at any of the contents,” reads the disclaimer.

The year starts with an interesting twist in the UK, where Chelsea Football Club releases a letter written to incoming US Treasury Secretary, Tim Geithner, asking whether if they signed David Beckham, would it make them eligible for TARP funds?

In February, Russian Prime Minister Putin declares that the American word recession would not be translated into Russian.

There’s never a good time to drop bad news on employees, but Corporate America isn’t exactly kicking off Christmas week in high spirits.

First, let’s hear from the CEO of Manpower, the staffing services company that withdrew is fourth-quarter profit forecast as demand for temporary workers drops:

“What we are hearing and seeing in December is a little bit of a vapor lock as companies are really trying to figure out how to reduce their inventory and at the same time reduce their personnel cost,” said CEO Jeffrey Joerres.

America caught a cold and now China has one too. 

IMF chief Dominique Strauss-Kahn said on Monday that the Fund could cut its forecast for China's economic growth in 2009 to around  5 percent. To think that only last year China was galloping at a double-digit clip. It's staggering, and it's worrying.

Worrying, for one thing, because  - as the Heritage Foundation's Derek Scissors puts it - "the American economic slump is running into the Chinese economic slump, creating the conditions for a face-off between Beijing and the U.S. Congress, possibly leading to destabilization of the world's most important bilateral economic relationship". 

He argues that the new U.S. administration, confronted with a record-breaking bilateral deficit and soaring unemployment, could impose prohibitive tariffs or erect other barriers to Chinese goods. The EU, Japan and others would then be permitted by WTO rules to raise barriers against a diversion of Chinese goods to protect their markets, and "some form of Chinese retaliation is certain".

The dismal scientists are getting downright depressing these days, but at least they haven’t lost their sense of humor.

Research desks are churning out annual outlooks for 2009, and needless to say they’re gloomy. But Wachovia‘s economics team has taken dark to a whole new level with an Alfred Hitchcock-inspired report entitled “When will this horror show come to an end?”

“Watching the developments in financial markets this year was like squinting through closed fingers during the iconic shower scene in Alfred Hitchcock’s 1960 thriller, ‘Psycho’. You could almost hear the soundtrack of screeching violins during televised financial news, and this time it was your assets going down the drain.”

OK, so we’re a little geeky around here, but we just couldn’t resist sharing some of the juicy tidbits in the Federal Reserve’s Beige Book summary of economic activity.

We knew the economy was in bad shape, but thanks to the good people at the regional Fed banks we have now learned:

1. New York’s Broadway theaters saw a drop-off in demand starting in mid-October.

Christmas is much more expensive this year. At least it is if you go the swans-a-swimming and geese-a-laying route.
 
PNC's Christmas Price Index was up 8.1 percent this year, the second biggest leap in the 24-year history of the index, which is based on the holiday classic "The Twelve Days of Christmas."
 
The biggest culprit for the increase? Those darn seven swans-a-swimming, which will costs $5,600 this year, compared with $4,200 in 2007, PNC said.
 
PNC also puts out a core Christmas Price index, which excludes the highly volatile swan sector. That core CPI was up just 1.1 percent.
 
PNC CPI's sources range from retailers to the National Aviary in Pittsburgh and Philadanco, a modern dance company in Philadelphia.
 
Commodities prices, concerns about increased energy and shipping costs, jobs and a second straight minimum wage increase were major factors in the cost of the index, James Dunigan, managing executive of investments for PNC Wealth Management, said.
 
Prices for turtle doves, partridges and pear trees are also all up more than 30 percent, PNC said.
 
But if you want to save some money, see if your true love will let you get away with only the five golden rings -- which are down 11.4 percent this year at $349.95.
 
Hey, there is a recession on, you know.

(Reuters photo)