Economic dominos falling
Some recent market events of concern:
Osaka (Japan) markets just halted after going lock limit (10%) down.
Iceland defaults on debts, currency devalued, trade halted. UK freezes Icelandic assets in UK.
Hungary's bond market collapses on rumors the country's biggest bank, OTP was about to be taken over by the government.
TED spread is at an all-time high, indicating that credit markets are frozen.
LIBOR spread is at an all-time high.
FED - FOMC delays its release of H.4.1. balance sheet
U.S. 10 year bond futures are up over 1 basis point tonight, which is an incredible move indicating a reluctance from foreign banks to buy our treasuries. We need to sell $2B/day of treasuries to finance our government.
The most immediate threat is if the credit markets don't unfreeze, businesses that rely on credit will halt. Think of trucking companies that need to buy fuel on credit to deliver food to the groceries. This could happen within days if something is not done.
The second, less immediate, but probably worse threat is purchases of U.S. Treasuries halt, and our government defaults on its debt. This would probably be more of a WWIII type scenario I'm guessing.
A lot of folks much smarter than I am are now (as in *tonight*) preparing for TSHTF. I'm not making any predictions or trying to scare anyone. This is the Internet, take everything with a grain of salt, and feel free to use the info as you see fit. I have a hard time taking some of this stuff in myself.
Hopefully things will quickly turn around, but right now things seem to be unraveling at an accelerating pace.
Hang Seng (China) drops 1200pts / 8% in opening minutes
Bush plans statement tomorrow to reassure nation
RGE Monitor's Newsletter
October 9, 2008 / 10:11 PM
On Thursday, October 09, 2008, Nouriel Roubini – Chairman of RGE Monitor and Professor of Economics at the NYU Stern School of Business – lays out his latest views on the global economic and financial crisis and the urgent necessary actions that need to be undertaken globally.
Nouriel Roubini: The world is at severe risk of a global systemic financial meltdown and a severe global depression
The U.S. and advanced economies’ financial systems are now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system, i.e. those non-banks (broker dealers, non-bank mortgage lenders, SIV and conduits, hedge funds, money market funds, private equity firms) that, like banks, borrow short and liquid, are highly leveraged and lend and invest long and illiquid, and are thus at risk of a run on their short-term liabilities; and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms.
On the real economic side, all the advanced economies representing 55% of global GDP (U.S., Eurozone, UK, other smaller European countries, Canada, Japan, Australia, New Zealand, Japan) entered a recession even before the massive financial shocks that started in the late summer made the liquidity and credit crunch even more virulent and will thus cause an even more severe recession than the one that started in the spring. So we have a severe recession, a severe financial crisis and a severe banking crisis in advanced economies.
There was no decoupling among advanced economies and there is no decoupling but rather recoupling of the emerging market economies with the severe crisis of the advanced economies. By the third quarter of this year global economic growth will be in negative territory signaling a global recession. The recoupling of emerging markets was initially limited to stock markets that fell even more than those of advanced economies as foreign investors pulled out of these markets; but then it spread to credit markets and money markets and currency markets bringing to the surface the vulnerabilities of many financial systems and corporate sectors that had experienced credit booms and that had borrowed short and in foreign currencies. Countries with large current account deficits and/or large fiscal deficits and with large short-term foreign currency liabilities and borrowings have been the most fragile. But even the better performing ones – like the BRICs club of Brazil, Russia, India and China – are now at risk of a hard landing. Trade and financial and currency and confidence channels are now leading to a massive slowdown of growth in emerging markets with many of them now at risk not only of a recession but also of a severe financial crisis.
The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity where excessive leveraging and bubbles were not limited to housing in the U.S. but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.
At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the U.S. and advanced economies contraction would be short and shallow – a V-shaped six month recession – has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the U.S. and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown, the probability that the outcome could become a decade long L-shaped recession – like the one experienced by Japan after the bursting of its real estate and equity bubble – cannot be ruled out.
And in a world where there is a glut and excess capacity of goods while aggregate demand is falling, soon enough we will start to worry about deflation, debt deflation, liquidity traps and what monetary policy makers should do to fight deflation when policy rates get dangerously close to zero.
At this point the risk of an imminent stock market crash – like the one-day collapse of 20% plus in U.S. stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.
This disconnect between more and more aggressive policy actions and easings, and greater and greater strains in the financial market is scary. When Bear Stearns’ creditors were bailed out to the tune of $30 bn in March, the rally in equity, money and credit markets lasted eight weeks; when in July the U.S. Treasury announced legislation to bail out the mortgage giants Fannie and Freddie, the rally lasted four weeks; when the actual $200 billion rescue of these firms was undertaken and their $6 trillion liabilities taken over by the U.S. government, the rally lasted one day, and by the next day the panic had moved to Lehman’s collapse; when AIG was bailed out to the tune of $85 billion, the market did not even rally for a day and instead fell 5%. Next when the $700 billion U.S. rescue package was passed by the U.S. Senate and House, markets fell another 7% in two days as there was no confidence in this flawed plan and the authorities. Next, as authorities in the U.S. and abroad took even more radical policy actions between October 6th and October 9th (payment of interest on reserves, doubling of the liquidity support of banks, extension of credit to the seized corporate sector, guarantees of bank deposits, plans to recapitalize banks, coordinated monetary policy easing, etc.), the stock markets and the credit markets and the money markets fell further and further and at accelerated rates day after day all week, including another 7% fall in U.S. equities today.
When in markets that are clearly way oversold, even the most radical policy actions don’t provide rallies or relief to market participants. You know that you are one step away from a market crash and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls, and cascading falls in asset prices well below falling fundamentals, and panic is now underway.
At this point severe damage is done and one cannot rule out a systemic collapse and a global depression. It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster. Urgent and immediate necessary actions that need to be done globally (with some variants across countries depending on the severity of the problem and the overall resources available to the sovereigns) include:
another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;
a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made;
a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;
massive and unlimited provision of liquidity to solvent financial institutions;
public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;
a massive direct government fiscal stimulus packages that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government;
a rapid resolution of the banking problems via triage, public recapitalization of financial institutions and reduction of the debt burden of distressed households and borrowers;
an agreement between lender and creditor countries running current account surpluses and borrowing, and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances.
At this point anything short of these radical and coordinated actions may lead to a market crash, a global systemic financial meltdown and to a global depression. The time to act is now as all the policy officials of the world are meeting this weekend in Washington at the IMF and World Bank annual meetings.
Thank the Elitists both past and present and the Mighty Federal Reserve!
We've been warning people now for over 9 years but ..............
It's all going as planned! And we all gotta deal with it now!
BUT... I'm filthy rich cause my money is unstoppable. I've been hoarding canned food and LEAD.
I see the DOW fell another 600 some points today. I hope we can save Christmas this year. The way I see it, investors are also worried about an Obamanation. Take their money and run. It's a sign....a bad sign.
BTW, thanks for this thread, Quasi. Good info.
Quasi, thanks for the great thread and the information. And now, *JUNK PUNCH* for scaring the hell out of me this morning. :eek:
So Quasi - a 700 plus point fall, but a rebound of 600 before the closing bell on a Friday.
How bad is it now?
The stock market action felt like capitulation. We *may* be near an intermediate term bottom (and I placed a bet on this).
G7 is meeting this weekend to come up with some new stick-save plans.
Long-term treasury rates came back in from overnight.
Forced liquidations (due to Lehman defaults) caused major selling in gold, silver, and oil today
LIBOR and TED spread are at extreme levels = credit markets still in very bad shape.
More rumors of bank holidays / simultaneous closing of all world markets
So things are still pretty dicey, but I wouldn't let it ruin your weekend. I'm sure our elected officials have things well in hand. ;)
Thanks Quasi - It's not ruining my weekend, I still have plenty of food and drink.... for the time being. But I might be doing some ammo inventory over the weekend and see where the good books lie.... :rolleyes:
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