Global financial system implosion begins

[Sunray]

Oil is a commodity and traded as such. Nothing those people can do about the price.

 

[Crispy]

well opec can cut production, which can raise prices

 

[Sunray]

They would like to think that cutting prices could drive the price up, perhaps it might a little but generally its price is entirely down to how much world oil traders think its worth.

I cannot think of a time that their fiddling with the taps has ever really had much of an effect in the price of Oil. Probably some graphs....

http://www.wtrg.com/prices.htm

See, only when they really turned off the taps did they drive the price up a bit then world events ripped the rudder out of their hand.

 

[Crispy]

your graph says 'no hotlinking'

 

[Jessiedog]

When was the last time you paid UK taxes?

Fair point.

I do make a small contribution to the exchequor, but my rant was really aimed at the broader arena of the international political/banking/senior executive cabals, who have spirited-away great gobs of money while maintaining their own lifestyles.




Meanwhile, a wee add on to my earlier diatribe about AIG.

We've looked at how they made money by going to lenders and charging them to go through their portfolios, bundle together various mortgages (including subprime,) and other assets into various "credit vehicles". The service included getting a "AAA" rating from one of the Ratings Agencies. This debt could then be sold on.

The bit I missed out, of course, is that AIG then got paid, once again, on the back-end to "insure" these globs of debt through issuing Credit Default Swaps (they needed the "AAA" ratings to issue the CDS's at acceptable rates). In fact, AIG was one of the larger issuers of CDS's, insuring all manner of debt throughout the world - not just their own bundles.

Now that this whole thing is unravelling, it's easy to see why the US govt. has chucked nearly US$ 200b at AIG. AIG's liabilities under CDS's probably runs into many tens of TRILLIONS of US$ and should it all come unstuck, it would certainly mean the end of the global financial system as we know it.

That may or may not be a "good thing", but it's easy to understand why the US (and UK, ) govt(s). are running around like a headless chicken, desperately trying to keep all the plates in the air and spinning for as long as possible while they try and figure out what to do (if anything can be done,) about the whole fucking mess.


Jail the lot of 'em.





Woof

 

[Barking_Mad]

From Yahoo news

Employers likely slashed a net total of 648,000 jobs last month, according to economists' forecasts. If they are right, it would mark the worst month of job losses since the recession started in December 2007. It also would represent the single biggest month of job reductions since October 1949, when the country was just pulling out of a painful recession, although the labor force has grown significantly since then.

"The pace of layoffs is fast and furious," said Stuart Hoffman, chief economist at PNC Financial Services Group. "We're still in the teeth of this recession and the bite has not let up at all."

With employers slashing payrolls, the nation's unemployment rate is expected to jump to 7.9 percent, from 7.6 percent in January. If that happens, it would mark the highest jobless rate since reaching 8 percent in January 1984, a time when the unemployment rate was still slowly moving down after having topped 10 percent during the early 1980s recession.

http://news.yahoo.com/s/ap/20090306/ap_on_bi_ge/economy

 

[Jessiedog]

With employers slashing payrolls, the nation's unemployment rate is expected to jump to 7.9 percent, from 7.6 percent in January. If that happens, it would mark the highest jobless rate since reaching 8 percent in January 1984, a time when the unemployment rate was still slowly moving down after having topped 10 percent during the early 1980s recession.

So, it comes in at 8.1% unemployment - the highest in the US in 25 years. And that was when unemployement was on the way down and the economy on the way up.

This time, unemployment is on the up-and-up. And we've not even really got started yet on this downturn.






Yummy!





Woof

 

[goebfwai]

Recession to deepen as US jobs crisis hits new high
http://thescotsman.scotsman.com/latestnews/Recession-to-deepen-as-US.5048987.jp

'Worst economic collapse ever'

Jim Rogers "you better start a Farming Business"

Taleb and Mandelbroit discuss future of credit crunch
http://www.pbs.org/newshour/video/module.html?mod=0&pkg=21102008&seg=5

 

[Barking_Mad]

...

"These capitalists generally act harmoniously and in concert to fleece the people, and now that they have got into a quarrel with themselves, we are called upon to appropriate the people's money to settle the quarrel."

Lincoln : speech to Illinois legislature, Jan. 1837.

 

[slaar]

Wonderful piece by Martin Wolf in the FT:

http://www.ft.com/cms/s/0/c6c5bd36-0c0c-11de-b87d-0000779fd2ac.html

I’ve a feeling we’re not in Kansas any more,” said Dorothy after a tornado dropped her, her house and dog in the land of Oz. The world of the past three decades has gone. Where we end up, after this financial tornado, is for us to seek to determine.

 

[goebfwai]

Warren Buffet was on CNBC this morning. He is still very wedded to free-market ideals, despite what has happened. He observed that people get fearful quickly, but it takes longer for them to feel confident again. Says the economy has fallen off a cliff, it is like an economic Pearl Harbour but things will improve. In the live blog part when you read some of the questions viewers emailed in, you get an idea how much confidence has fallen.
http://www.cnbc.com/id/19206666/

Incidentally, if you get a chance, the film below is worth watching. Very topical.
http://www.imdb.com/video/screenplay/vi3049193753/

Great film. Set in the USA in last century's depression, all about how the performing and visual arts - particularly government funded arts - saw people through and gave them hope.

 

[Jessiedog]

"These capitalists generally act harmoniously and in concert to fleece the people, and now that they have got into a quarrel with themselves, we are called upon to appropriate the people's money to settle the quarrel."

Lincoln : speech to Illinois legislature, Jan. 1837.

Heh!


Class.







Woof

 

[gorski]

 

[david dissadent]

$50 trillion has probibly been lost so far

Falls in the value of financial assets worldwide might have reached more than $50,000bn, equivalent to a year’s global economic output, the Asian Development Bank will warn on Monday.

Asia has been hit disproportionately hard, the bank will say, in a report that warns of many Asian stimulus plans lagging behind those of the leading global economies.

ADB’s estimates take into account falling stock market valuations and losses in the value of bonds supported by mortgages and other assets, though not financial derivatives. About a fifth of the losses in dollar terms arise from the depreciation of many currencies against the US dollar.

Link

From the FT by the Asia Development Bank. Last year people were laughing and scoffing at all this.

 

[A Dashing Blade]

"Falls in the value " <> crystallised loss

 

[goebfwai]

The Re-Emergence of Global Protectionism: A Newer Version of Smoot-Hawley?
Arpitha Bykere and Rachel Ziemba | Mar 9, 2009

"But given the increased capital flows and labor migration in recent years and dependence on external capital in developed and developing countries to drive domestic demand, asset markets and growth, rising financial and labor protectionism pose an even greater risk of exacerbating the current global recession as trade protectionism did in the recession of 1930s. Increased global integration since the 1930s also indicates the consequences of protectionism will also be larger."

http://www.rgemonitor.com/roubini-m...protectionism_a_newer_version_of_smoot-hawley

 

[david dissadent]

"Falls in the value " <> crystallised loss

Good point but it will reflect on a great many peoples pensions. This will make people more cautious and increase their savings. This though is a good thing.

I have one question for people here. Everyone is saying that inflation and even hyperinflation is on the way. But inflation is defined by the velocity of money * the amount. As banks take huge losses and need to be recapitalised, the highly leveraged (35:1) hedge fund and invesment banking industry takes losses and loses risk apatite, and there is less money to invest and to borrow...... the baby boomers also need to look to there pensions now the insta-cashmachine-in-the-house-value is no longer working and there 401Ks drop in value like a stone.... does this not mean that less money is being eased quantatively into the money flow than is being destroyed from loss of credit and just plain losses and its velocity of exchange will slow as people save?


Is their really inflation in that?


All opinions welcome Im open to ideas.

 

[Wolveryeti]

If you believe that inflation is always a monetary phenomenon, then IMO it depends on your attitude to the wealth that has been wiped out and where we are now. Is the deflation we are currently experiencing a continuation of the correction process which sees nominal values converge to levels consistent with their long-term real values, or have we overshot that point? If the former is true, QE will be pointless and inflationary. If the latter is true, QE will likely promote speedier recovery.

 

[gorski]

If you follow the monetarist view P, = (M * V)/Q

where

P is the general price level;
V is the velocity of money in final expenditures;
Q is an index of the real value of final expenditures;
M is the quantity of money

So, what's the "," for?

 

[A Dashing Blade]

The velocity of circulation has plumetted for sure ("creadit crunch"), hence, at the moment, and assuming the equation holds good, it is posible to increase the quantity of money ("Quantitative Easing").
Problem is, what happens when velocity increases?

 

[gorski]

http://uk.news.yahoo.com/4/20090311/tuk-bank-begins-new-money-injection-dba1618.html

75 bill of new cash...

The Bank's Monetary Policy Committee has opted for quantitative easing - the process of printing money - in the hopes this will boost credit supply and encourage greater lending again.

Btw, http://uk.news.yahoo.com/4/20090311/twl-madoff-set-to-plead-guilty-41f21e0.html

Madoff's legal representative Ira Sorkin said it was "a fair expectation" that Madoff, who is accused of a masterminding a massive Ponzi scheme, would plead guilty at a New York court on Thursday.The 11 charges laid against Madoff carry a maximum sentence of 150 years behind bars.
Madoff is alleged to have been behind a $50 billion (£35.7bn) fraud that took in investors from across the world.
The 70-year-old has been under house arrest in his luxury penthouse on Manhattan in New York since his arrest on December 11.
A Ponzi scheme pays returns to investors from money paid by other investors rather than from profit.

He figured out a side to the system almost to perfection...

 

[Barking_Mad]

How will, if at all, the system of fractional reserve banking affect that quantitive easing total?

 

[david dissadent]

Link

China's exports fell much more sharply than expected in February, data showed on Wednesday, as the economy finally felt the full force of the global financial crisis.

Exports in February dropped 25.7 percent from a year earlier, compared to a forecast of a 5 percent decline. Imports fell 24.1 percent, against a forecast of a 25.0 percent drop.

The country's trade surplus shriveled to $4.84 billion last month, a three-year low, from $39.1 billion in January. Economists had expected a surplus of $27.3 billion.

"I would expect some improvement in the trade surplus in the next couple of months. Import demand has picked up because of this restocking that's occurred in China; that looks like it's losing some momentum right now. So import demand should begin to deteriorate again over the next couple of months, giving some relief to the trade surplus."

Ive said it before Ill say it again, China is going to get totally slamed by this. I expect there banking system to really suffer badly. Id not be suprised if their banking system ends up in more trouble than Americas.

Compair and contrast with the Hong Kong banking sector.

 

[david dissadent]

The velocity of circulation has plumetted for sure ("creadit crunch"), hence, at the moment, and assuming the equation holds good, it is posible to increase the quantity of money ("Quantitative Easing").
Problem is, what happens when velocity increases?

I think that the quantity of money has fallen quite sharply as well as the velocity (although I have no stats to back this up atm.) I know the fed stopped reporting M3 money supply a couple of years ago, and I dont have the M2 figures on hand at the minute but people have less capacity to raise credit through their houses, banks are less willing to lend money, the non banking lending sector has virtualy vanished (the likes of Ocean finance) and so on. I could be wrong but I think that the quantity has fallen considerably.

The velocity of money, the rate people spend will also be much lower that in 2007 for a long time to come as people need to save for deposits, save for retirement, make up for holes in personal pension plans from falling stocks, lose jobs and have generaly lower confidence.

Japan managed quantative easing without sparking hyperinflation. I am just really curious why so many people are saying that hyperinflation is inevitable.....

 

[david dissadent]

So, it comes in at 8.1% unemployment - the highest in the US in 25 years. And that was when unemployement was on the way down and the economy on the way up.

US unemployment estimates are always quite off as they tend to focus on those claiming benefit not those who have been kicked of off the system. I read an NYT article last year puting the figure about 3-5% higher (IIRC).

German exports fall by 20%.

The one minor bright spot for the UK is that the weak pound makes our manufacturing (and IT ) indsutries competative against Euro and Dollar priced competators. It also means we now get 1.5% more pounds for a dollar price than we were getting at the pounds peak of $2.10. Good for my continued employment prospects.

Germany will feel the Euro like an albatross round its neck.

 

[Barking_Mad]

Run on UK Banks

A silent $1 trillion "Run on Britain" by foreign investors was revealed yesterday in the latest statistical releases from the Bank of England. The external liabilities of banks operating in the UK – that is monies held in the UK on behalf of foreign investors – fell by $1 trillion (£700bn) between the spring and the end of 2008, representing a huge loss of funds and of confidence in the City of London.

Some $597.5bn was lost to the banks in the last quarter of last year alone, after a modest positive inflow in the summer, but a massive $682.5bn haemorrhaged in the second quarter of 2008 – a record. About 15 per cent of the monies held by foreigners in the UK were withdrawn over the period, leaving about $6 trillion. This is by far the largest withdrawal of foreign funds from the UK in recent decades – about 10 times what might flow out during a "normal" quarter.

The revelation will fuel fears that the UK's reputation as a safe place to hold funds is being fatally comp-romised by the acute crisis in the banking system and a general trend to financial protectionism internat- ionally. This week, Lloyds became the latest bank to approach the Government for more assistance. A deal was agreed last night for the Government to insure about £260bn of assets in return for a stake of up to 75 per cent in the bank. The slide in sterling – it has shed a quarter of its value since mid-2007 – has been both cause and effect of the run on London, seemingly becoming a self-fulfilling phenomenon. The danger is that the heavy depreciation of the pound could become a rout if confidence completely evaporates.

Colin Ellis, an economist at Daiwa Securities, commented: "The outflow of overseas banks' UK holdings is not surprising – indeed foreign investors in general will still be smarting from the sharp fall in the exchange rate last year, as many UK liabilities are priced in sterling terms. That raises the question of what could possibly tempt overseas investors to return to the UK. Further heavy outflows of funds are probably a given."

The Bank of England said that there had been a large fall in deposits from the United States, Switzerland, offshore centres such as Jersey and the Cayman Islands, and from Russia.

Paranoia that the UK could follow Iceland into effective national insolvency and jibes about "Reykjavik on Thames" will find an unwelcome substantiation in these statistics – which also show that stricken British banks are having to repatriate similar sums back to Britain. This is scant consolation for the authorities, however, as it means the UK and sterling are, like some emerging markets and currencies, suffering from a flight of capital. By contrast some financial centres and currencies – notably the US dollar and the Swiss franc – are enjoying a boost as "safe havens" in a troubled world.

The sudden international trend towards financial deglobalisation and the flight of money to "home" bases has nonetheless been dramatic. The Prime Minister has already warned about this drift to "financial protectionism" – even though UK banks brought back almost $600bn in the last months of 2008, as they attempted to repair fragile balance sheets. Mr Ellis added: "These data are consistent with UK banks reducing their overseas holdings, at the same time as overseas banks scale back their presence in the UK. That is not surprising, given that governments around the world are having to prop up their banking sectors, and in turn demanding that national institutions focus on domestic markets. But it does run the risk of being financial protectionism by the back door."

Investment from the West into developing countries has fallen from the level of about $1 trillion a year seen earlier this decade to about $150bn last year. Economies in eastern Europe such as Hungary and the Baltic republics, some in Asia such as Pakistan and developed nations such as Iceland have been severely hit by the collapse in foreign investment.

Like Iceland, the UK has an unusually large banking sector in relation to her national income, with liabilities four times GDP. Should the UK taxpayer have to assume these debts it will represent, in relation to GDP, about double the national debt the nation bore at the end of the Second World War, a near unsustainable burden.

 

[gosub]

.....
Japan managed quantative easing without sparking hyperinflation. I am just really curious why so many people are saying that hyperinflation is inevitable.....

coz that's the only way I can see it working. At the start, had bets with a couple of people that housing was overvalued by 30%. So far fallen by 12% but obviously got further to fall as sales only 10% of what they were. A market correction of purely coming down would be crippling for the number of people it will put in negative equity alone. If the price of everything else comes up relative to house prices, will dampen that slump and protect the majority of loans within the banking system. (I'm big enough not to mind losing a couple of pints for the greater good). It sort of helps that we are an importing economy, as these cost of living hikes will cause head aches of their own (food inflation is already at 9%) but there is still some slack on that side of the system, and a brake in terms of raising interest rates to boost the value of the pound. But it is a high wire act.

I don't per say think the inflation will be hyper, but do find it interesting that as we go down the printing money route (I hate the jargonistic QE phrase) papers in Zimbabwe are pointing out they were under pariah state sanctions before they had to go down that route.

 

[kyser_soze]

And yet nowhere in that article is there any kind of global comparison about how wealth is, or isn't, being repatriated. Half an article.

 

[gosub]

US unemployment estimates are always quite off as they tend to focus on those claiming benefit not those who have been kicked of off the system. I read an NYT article last year puting the figure about 3-5% higher (IIRC).

German exports fall by 20%.

The one minor bright spot for the UK is that the weak pound makes our manufacturing (and IT ) indsutries competative against Euro and Dollar priced competators. It also means we now get 1.5% more pounds for a dollar price than we were getting at the pounds peak of $2.10. Good for my continued employment prospects.

Germany will feel the Euro like an albatross round its neck.

I wouldn't pin to much hope on exports

Thats the ONS Manufacturing Index of Production

 

[A Dashing Blade]

I think that the quantity of money has fallen quite sharply as well as the velocity (although I have no stats to back this up atm.) .....

I belive you're confusing the rate of increase in money supply (which may have fallen) rather than the actually "amount" of money in existence

will try & dig out some stats . . .