COUNTING YOUR CHICKENS BEFORE THEY"RE HATCHED AS AN ANTI-CRISIS STRATEGY Crisis fantasies

The economic and financial circumstances in the United States show that optimism and positive attitude are not enough to turn a crisis into a new success story. No one can accuse Americans of not being optimistic enough. They desperately clung to the message of the new president, who promised them a new beginning.

The current offer of President Obama, only includes slight variations of the prior administration"s plans. In a recent interview with the New York Times, Barack Obama said that an additional 750 billion dollars will be needed for supporting the financial system. Meanwhile, the official unemployment rate in the United States reached 8.1% in February, and the unofficial one, also published by the BLS (Bureau of Labor Statistics), is 14.8%.

Will the 750 billion dollars be enough, after the first 700 billion installment evaporated? Very unlikely. Annual reports of the major American banks show we are nowhere near the end of the credit crisis. Bank of America"s loan portfolio, for instance, shows a market value USD 44 billion below its book value. Under these circumstances, the bank"s capital is USD -1.7 billion, meaning shares of BAC are still overvalued, even after the 77% drop since the beginning of the year, down to 3.14 dollars/share.

The acceleration of bank bankruptcies in the United States has also determined the drastic shrinking of the FDIC"s (Federal Deposit Insurance Corporation) funds available for insuring bank deposits. Right now, the Senate is trying to find a way to allow the FDIC to borrow 500 billion dollars from the Treasury until the end of next year, according to Wall Street Journal.

However there are players on the market that are looking to the future with optimism. The New-Zealand manager of some hedge funds, 36 South Investment Managers Ltd., announced that he would shut down the Black Swan hedge fund, after it earned 236% (!!) during these last 12 months, according to a report by Bloomberg. This performance was possible because of the short positions it took on the main international stock markets, but especially on the emerging ones. In other words, the Black Swan Fund took a rational stance, instead of a sentimental one, on the ability of the authorities to contain the effects of the economic crisis. The new fund of the New-Zealand managers will bet on the increase of inflation, meaning it will go long on the incompetence of Central Banks. The Bank of England has already done just what the New Zealanders were expecting, by announcing a program for buying the state bonds by issuing money.

Romania squandered all the opportunities its was given these last 20 years, and now it is trying all kinds of improvised ad-hoc "strategies", hoping that something will work. Unfortunately, these last few years authorities have encouraged the exuberance of debt-backed consumption, hiding behind the justification of the population"s prior deprivation. History is giving us another lesson here. After being freed from the Nazi concentration camps, many prisoners died from overfeeding, because people in charge of their liberators did not take into account the consequences of chronic starvation.

The accelerated drop in revenues and the government"s inability to adopt urgent plans for cutting expenses has led them to look for vagarious solutions to overcome the crisis.

NBR officials estimate that the money that the state can borrow from the European Commission for overcoming the crisis could be considered as a down payment for the European funds that Romania is entitled to receive from the European budget between 2007 and 2014. That money, however, should be used for other purposes: economic and institutional restructuring, in order to accelerate the European convergence process. If that money will only be used for paying off older debts, there can be no question of convergence for the foreseeable future.

Apart from these aspects, Romanian authorities seem to be forgetting that the revenue sources of the EU budget will continue to shrink, as the economic crisis deepens. Even Jose Manuel Barroso, the president of the European Commission, said that the European Union is facing an unprecedented situation because of the crisis, according to news by Reuters. An unprecedented situation that will also have a comparable effect on the European budget, and Eastern Europe will probably not make the priorities list.

Estimates presented in the international financial press show that developed European countries will issue bonds worth 2 trillion Euros in 2009, in order to finance their budget deficits and the anti-crisis programs. Will Western European citizens agree to their governments borrowing money which will be used to also help their Eastern little brothers?

Given these circumstances, counting one"s chickens before they"ve hatched, seems like a better anti-crisis strategy than all our government"s proposals so far.

If loans from the European Commission aren"t a solution, what about the IMF? Hungary"s example is relevant in this case. Its rating was cut by Fitch in November 2008, but the outlook remained stable, following the loan from the IMF. At the beginning of March 2009, the ratings agency changed its mind and changed its outlook from stable to negative. "Contrary to our expectations at the time, the support package from the IMF has not yet cemented the macroeconomic and financial stability, the press release posted on the website of Fitch Ratings says. If IMF support didn"t work in the case of Hungary, why would it work for us?

Data on the structure of Romania"s GDP for 2008 recently published by the Romanian National Statistics Institute, shows the massive imbalances of an economy whose growth was only fueled by constructions and services. The slowdown of the rate of growth for lending was enough to stop the economic miracle. What will happen if lending contracts?

The number of unemployed people has already exceeded by far the government"s November estimates, but the layoffs are just beginning. Why? Because data from the National Statistics Bulletin for December 2008 shows that labor productivity in the industry tumbled, with an annual rate of 12,2%. This means that companies in that sector did not adjust their workforce according to the new market conditions, and the outlook for unemployment overturn all of the government"s budget estimates for 2009.

So far, the Government is only busy coming up with new taxes, and by the time it finds the taxpayer base is gone, it will be too late.