1) Big players—Wachovia—have exited trade finance period

2) Most big players did not actually hold the LC obligations _but resold them in secondary markets_ to smaller banks; now, those buyers are non-existent. Presumably, the former major players don't want to hold the committments on their own rotten books.

3) Most LCs that count are dollar-based, and dollar financing generally is getting pulled from many emerging markets, or marked up so severely—Brazil was mentioned as a country so afflicted—as to wipe out trade contract profit, and so wipes out the deal.

4)Some exporters, notably mentioned in China, are wary of the financial stability of their US counterparties, and so are pressing for tougher guarantees at the same time as dollar-based financing &etc. is vaporizing.

The issue with trade impedence seems to be less that any one large trade-financing bank has pulled credit from Customer(s) X than that _ALL_ of the parameters which affect financing have been ratcheted in a notch simultaneously. But to me, number 2) the vanishing repurchaser market was both new and telling: trade finance seems to have been converted to yet another fee-generation product by the banking majors, and so obviously now that they have to carry the costs and book the risks _themselves_ they want as little to do with it as possible. This will end badly. Or more probably, "Hello, Ex/Im Bank, Savior of Our Prosperity."

All those factories …
i’m a dreamer

How so, glenny

Sichuan earthquake, 2008 Olympic Games, building boom in the coastal
provinces, power plants, Three Gorges etc.

What else can they do? Investment is already over 50% of GDP! With rising unemployment, bankrupt factories etc what is going to induce a $2000/year worker to go on a spending spree?

Furthermore, many services that are supposedly free in China, come only with under the table payments. Such things that require under the table payments in China include medicine, surgery, and good preschools. Another reason why high savings are important to individual and family survival. The Chinese are NOT going to be able to replace export demand with internal consumption without revamping their society in many profound ways.

One more point. While the consensus seems to think that China will eke out positive economic growth in 2009, I think outright recession in China (as some have suggested here) is highly likely. Since, as has been widely reported, Chinese electricity use has been falling, year-on- year, it is hard to believe that the economy is growing much; government doctoring of output statistics is more likely in my opinion. Furthermore, in an economy that recorded breakneck growth for so many years that also contained a very large state-owned sector, there were bound to be huge mistakes in capital allocation that will be revealed as output falls. The large number of Chinese toy factories that have shut down for lack of US demand are an example of this; no doubt more will become obvious. As Warren Buffett says, “When the tide goes out you learn who has been swimming naked.”

This is inversely equivalent to pegging the dollar. No better off.

The current economic global strategy China has been deploying is sound (if a little painful for American eggheads to be comfortable with); it is congruent with a venture capitalist funding a hard working entreprenuer (VC’s are vicious bastards). They are peggy the Dollar at a level below par (global dollar value) to keep exports robust. By keeping it low they are getting the intrinsic value from their laborers back instead of from a financial source to get the new venture off the ground. Brilliant. The labor productivity of its people will be the near term solution for its steady course through this temporary Typhoon that is justing getting ashore.

Modigliani-Miller Theory says it plainly – “work hard and the free cash flows are all that is really important – financial jargon and debt is for bored lazy 1st rate economies”