Sarge Posted March 17, 2008 Share Posted March 17, 2008 Now we're hosed http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/17/ccview117.xml As feared, foreign bond holders have begun to exercise a collective vote of no confidence in the devaluation policies of the US government. The Federal Reserve faces a potential veto of its rescue measures. Desperate measures: Bernanke and the Federal Reserve need to keep on top of the crisis and continue to intervene if needed Asian, Mid East and European investors stood aside at last week's auction of 10-year US Treasury notes. "It was a disaster," said Ray Attrill from 4castweb. "We may be close to the point where the uglier consequences of benign neglect towards the currency are revealed." The share of foreign buyers ("indirect bidders") plummeted to 5.8pc, from an average 25pc over the last eight weeks. On the Richter Scale of unfolding dramas, this matches the death of Bear Stearns. Rightly or wrongly, a view has taken hold that Washington is cynically debasing the coinage, hoping to export its day of reckoning through beggar-thy-neighbour policies. It is not my view. I believe the forces of debt deflation now engulfing America - and soon half the world - are so powerful that nobody will be worrying about inflation a year hence. Yes, the Fed caused this mess by setting the price of credit too low for too long, feeding the cancer of debt dependency. But we are in the eye of the storm now. This is not a time for priggery. The Fed's emergency actions are imperative. Last week's collapse of confidence in the creditworthiness of Fannie Mae and Freddie Mac was life-threatening. These agencies underpin 60pc of the $11,000bn market for US home loans. With the "financial accelerator" kicking into top gear - downwards - we may need everything that Ben Bernanke can offer. Bear Stearns may be worse than LTCM collapse Jeff Randall: A world addicted to easy credit must go cold turkey How Bear Stearns ran out of the necessities "The situation is getting worse, and the risks are that it could get very bad," said Martin Feldstein, head of the National Bureau of Economic Research. "There's no doubt that this year and next year are going to be very difficult." Even monetary policy à l'outrance may not be enough to halt the spiral. Former US Treasury secretary Lawrence Summers says the Fed's shower of liquidity cannot cure a bankruptcy crisis caused by a tidal wave of property defaults. "It is like fighting a virus with antibiotics," he said. We can no longer exclude a partial nationalisation of the American banking system, modelled on the Nordic rescue in the early 1990s. But even if you think the Fed has no choice other than to take dramatic action, the critics are also right in warning that this comes at a serious cost and it may backfire. The imminent risk is that global flight from US Treasury and agency debt drives up long-term rates, the key funding instrument for mortgages and corporations. The effect could outweigh Fed easing. Overall credit conditions could tighten into a slump (like 1930). It's the stuff of bad dreams. Is this the moment when America finally discovers the meaning of the Faustian pact it signed so blithely with Asian creditors? As the Wall Street Journal wrote this weekend, the entire country is facing a "margin call". The US has come to depend on $800bn inflows of cheap foreign capital each year to cover shopping bills. They may have to pay a much stiffer rent. As of June 2007, foreigners owned $6,007bn of long-term US debt. (Equal to 66pc of the entire US federal debt). The biggest holdings by country are, in billions: Japan (901), China (870), UK (475), Luxembourg (424), Cayman Islands (422), Belgium (369), Ireland (176), Germany (155), Switzerland (140), Bermuda (133), Netherlands (123), Korea (118), Russia (109), Taiwan (107), Canada (106), Brazil (103). Who is jumping ship? The Chinese have quickened the pace of yuan appreciation to choke off 8.7pc inflation, slowing US bond purchases. Petrodollar funds, working through UK off-shore accounts, are clearly dumping dollars amid rumours that Gulf states - overheating wildly - are about to break their dollar pegs. But mostly likely, the twin crash in the dollar and US agency debt reflects a broad exodus by global wealth managers, afraid that America is spinning out of control. Sauve qui peut. The bond debacle last week tallies with the crash in the dollar index to an all-time low of 71.58, down 14.6pc in a year. The greenback is nearing parity with the Swiss franc - shocking for those who remember when it was 4.375 francs in 1970. Against the euro it has hit $1.57, from $0.82 in 2000. Against the yen it has smashed through Y100. Spare a thought for Toyota. It loses $350m in revenues for every one yen move. That is an $8.75bn hit since June. Tokyo's Nikkei index is crumbling. Less understood, it is also causing a self-reinforcing spiral of credit shrinkage throughout the global system. Japanese investors and foreign funds are having to close their yen "carry trade" positions. A chunk of the $1,400bn trade built up over six years has been viciously unwound in weeks. The harder the dollar falls, the further this must go. It is unsettling to watch the world's reserve currency disintegrate. Commodities from gold to oil and wheat are taking on the role of safe-haven "currencies". The monetary order is becoming unhinged. I doubt the dollar can fall much further. What is it to fall against? The spreading credit contagion will cause large parts of the globe to downgrade in hot pursuit - starting with Europe. Few noticed last week that the Italian treasury auction was also a flop. The bids collapsed. For the first time since the launch of EMU, Italy failed to sell a full batch of state bonds. The euro blasted higher anyway, driven by hot money flows. The funds are beguiled by Germany's "Exportwunder", for now. It cannot last. The demented level of $1.57 will not be tolerated by French, Italian and Spanish politicians. The Latin property bubbles are deflating fast. The race to the bottom must soon begin. Half the world will be slashing rates this year to stave off credit contraction. The dollar will have a lot of company. Small comfort. Link to comment Share on other sites More sharing options...
BRAVEONAWARPATH Posted March 17, 2008 Share Posted March 17, 2008 In all honesty,are we headed for a second "Great Depression?' Link to comment Share on other sites More sharing options...
Fergasun Posted March 17, 2008 Share Posted March 17, 2008 In all honesty, ALL SIGNS POINT TO YES! But no one will really admit it... Link to comment Share on other sites More sharing options...
GibbsFactor Posted March 17, 2008 Share Posted March 17, 2008 In all honesty,are we headed for a second "Great Depression?' It could very well be worse or it might be nothing. The problem is that our money is valuable and worth something only because of our credit, the US Government's ability to tax it's citizens. When the dollar starts to drop from its AAA credit rating, the most secure and risk free investment in the world is no more. Oil and other commodities begin to trade in other currencies and the dollar is no longer needed. Our bonds are cashed in, our loans demanded, we can't pay it, we declare bankruptcy, the dollar crashes... all loans, credit, savings, investments become null. We end up having value in only assets. We have stretched ourselves too thin too quick. Link to comment Share on other sites More sharing options...
Sarge Posted March 17, 2008 Author Share Posted March 17, 2008 Part of Bush's One World Order plan Link to comment Share on other sites More sharing options...
JohnLockesGhost Posted March 17, 2008 Share Posted March 17, 2008 Is it too late to nominate Ron? We really need sober leadership, not the mindless cheerleading of the Bush administration? Link to comment Share on other sites More sharing options...
33 Posted March 17, 2008 Share Posted March 17, 2008 Doesn't anyone think the worst has already happened. How often do you have time to plan for the crash? I just feel like the dollar may drop, but it will be much more incremental than we've already seen. Otherwise, I better get a Euro account opened quick. :paranoid: Link to comment Share on other sites More sharing options...
SnyderShrugged Posted March 17, 2008 Share Posted March 17, 2008 Is it too late to nominate Ron? We really need sober leadership, not the mindless cheerleading of the Bush administration? No, that would only make sense. Elect the one man with the deep knowledge of the economy in a time of potential crisis. Why would the Voters do that? But hey, MCain has Jack Kemp, and a few other names to drop, so no worries. Link to comment Share on other sites More sharing options...
GibbsFactor Posted March 17, 2008 Share Posted March 17, 2008 Doesn't anyone think the worst has already happened. How often do you have time to plan for the crash? I just feel like the dollar may drop, but it will be much more incremental than we've already seen. Otherwise, I better get a Euro account opened quick. :paranoid: How do you figure the worst has happened? Link to comment Share on other sites More sharing options...
JMS Posted March 17, 2008 Share Posted March 17, 2008 In all honesty, ALL SIGNS POINT TO YES! But no one will really admit it... GREENSPAN: FINANCIAL MESS WORST SINCE WWII... I don't think it will be as bad as the Great Depression. That issue was made worse by stupid government policies during Hoover. I think we're a lot smarter today. The big problem is a credit cruch, where nobody will lend money... I think it's reasonable for the owners of Bear Sterns to be upset and veto the bail out. I mean this stock was considered undervalued four month ago at 90 dollars a share. It traded a week ago at 40 dollars a share.... Seems alarming that JP Morgan purchased them for 2$ a share and even that was under written by the federal government loans... I mean I wish I could get that kind of deal. Link to comment Share on other sites More sharing options...
Hooper Posted March 17, 2008 Share Posted March 17, 2008 This is scary stuff. What a mess. Link to comment Share on other sites More sharing options...
Stophovr6 Posted March 17, 2008 Share Posted March 17, 2008 Somebody hold me. Link to comment Share on other sites More sharing options...
JMS Posted March 17, 2008 Share Posted March 17, 2008 Doesn't anyone think the worst has already happened. How often do you have time to plan for the crash? I just feel like the dollar may drop, but it will be much more incremental than we've already seen. Otherwise, I better get a Euro account opened quick. :paranoid: No the worst isn't even yet apparent. We're in the first stages of a four of five stage issue. The realistate market is in troubles.. that's hurting the banks, and bond companies. Next what is going to happen is folks aren't going to be able to pay their bills and will start defaulting on non realistate loans like auto's and credit cards.. ( this is because home equity loans is how the country has been paying it's bills under Bush )... Then the coup de grace... lenders after seeing red ink everywhere; start to stop loaning money. That's when one could say we are on the precipice of the worst. That is what the Fed is trying to avoid. Link to comment Share on other sites More sharing options...
33 Posted March 17, 2008 Share Posted March 17, 2008 How do you figure the worst has happened? Bear with me, because I know very little about economics so this is theoretical. I have the opportunity to open an account in Euros down here if I choose. But my feeling is, that rarely do people see when it's about to get much worse. Usually in a case like this everyone screams that it's going to keep dropping and the sky is going to fall. But in actuality we've already seen the dollar massively devalued over the past 7 months (I've watched the CR currency go from 520 to 496 in that time period, unheard of for a Latin American country to gain on the dollar). I feel like chances are we'll see some small drops but nothing as large as we have. If so, then the Euro which is currently at 1.57/$ is going to be towards 1.75/$ or higher is what I'm gathering from people on here. As I said, I know nothing about economics and it's not like I enjoy Bush (as President ) or anything, but common sense tells me if I open an account in Euros right now that I will end up losing money because how low can we really go? I wish I did it 4 months ago. Link to comment Share on other sites More sharing options...
Mass_SkinsFan Posted March 17, 2008 Share Posted March 17, 2008 First off I'm GLAD to see foreign investors staying out of America's economy. We don't need any more money from outside this country, thank you very much. Yes, we're headed for a recession. Mostly because stupid people like to go out and spend money that not only don't they have, but they're never going to have. In which case they (and the institutions that loaned them the money) are getting exactly what they deserve. Link to comment Share on other sites More sharing options...
A Walton Posted March 17, 2008 Share Posted March 17, 2008 Financial reporting by these big companies will be the next nasty fall out. How on earth can a company produce numbers that give them an $80.00 book value, where 4 days later it sells for $2.00 Link to comment Share on other sites More sharing options...
GibbsFactor Posted March 17, 2008 Share Posted March 17, 2008 No the worst isn't even yet apparent. We're in the first stages of a four of five stage issue. The realistate market is in troubles.. that's hurting the banks, and bond companies. Next what is going to happen is folks aren't going to be able to pay their bills and will start defaulting on non realistate loans like auto's and credit cards.. ( this is because home equity loans is how the country has been paying it's bills under Bush )...Then the coup de grace... lenders after seeing red ink everywhere; start to stop loaning money. That's when one could say we are on the precipice of the worst. That is what the Fed is trying to avoid. See, that's just thinking domestically. Apply our debt to that equation as well as the money we rely on coming in to the country (what we export). Then look at why the dollar is so big internationally and how that helps it. What happens when you no longer trade oil with dollars? No longer needed. Countries cash it in, then it will be the worst. Link to comment Share on other sites More sharing options...
zoony Posted March 17, 2008 Share Posted March 17, 2008 I would be curious to see some reporting on what the currency devaluation is doing to help the economy, specifically exports and foreign investment. While I'm no expert, I think that is one thing that most are drastically overlooking. This is not 1978. This is a global economy. There is more at play here than just US institutions. I think where we are really going to see our economy hurt is with inflation. Consumers will be spending a lot less as their $$$ is tied up almost entirely in things like grocery and gas. I would hate to be in the boating/timeshare/vacation business right now. .... Link to comment Share on other sites More sharing options...
GibbsFactor Posted March 17, 2008 Share Posted March 17, 2008 Bear with me, because I know very little about economics so this is theoretical. I have the opportunity to open an account in Euros down here if I choose. But my feeling is, that rarely do people see when it's about to get much worse. Usually in a case like this everyone screams that it's going to keep dropping and the sky is going to fall. But in actuality we've already seen the dollar massively devalued over the past 7 months (I've watched the CR currency go from 520 to 496 in that time period, unheard of for a Latin American country to gain on the dollar). I feel like chances are we'll see some small drops but nothing as large as we have. If so, then the Euro which is currently at 1.57/$ is going to be towards 1.75/$ or higher is what I'm gathering from people on here. As I said, I know nothing about economics and it's not like I enjoy Bush (as President ) or anything, but common sense tells me if I open an account in Euros right now that I will end up losing money because how low can we really go? I wish I did it 4 months ago. People have hedged with the euro but that is also a credit based money. The first thing I'd recommend is to stay away from the dollar right now. It's not done. You are talking about playing with the market. The fact is, the dollar is falling and could crash. You don't want it if that happens. However, if it falls some more and rebounds, you'll have a lot of good cash. There's just too many scenerios for the dollar to fall much farther then there are for recovery. I'd go with the Euro and seriously look into some commodities and agriculture investments. Link to comment Share on other sites More sharing options...
Hooper Posted March 17, 2008 Share Posted March 17, 2008 Yes, we're headed for a recession. Mostly because stupid people like to go out and spend money that not only don't they have, but they're never going to have. In which case they (and the institutions that loaned them the money) are getting exactly what they deserve. Though I don't share your glee, I think you're right. Link to comment Share on other sites More sharing options...
Mass_SkinsFan Posted March 17, 2008 Share Posted March 17, 2008 Though I don't share your glee, I think you're right. Don't do the CRIME if you can't do the TIME. These people are getting exactly what they deserve for trying to live well beyond their means without any plan for the proverbial 'rainy day'. Link to comment Share on other sites More sharing options...
Darth Tater Posted March 17, 2008 Share Posted March 17, 2008 GREENSPAN: FINANCIAL MESS WORST SINCE WWII...I don't think it will be as bad as the Great Depression. That issue was made worse by stupid government policies during Hoover. I think we're a lot smarter today. The big problem is a credit cruch, where nobody will lend money... I think it's reasonable for the owners of Bear Sterns to be upset and veto the bail out. I mean this stock was considered undervalued four month ago at 90 dollars a share. It traded a week ago at 40 dollars a share.... Seems alarming that JP Morgan purchased them for 2$ a share and even that was under written by the federal government loans... I mean I wish I could get that kind of deal. Well, the stupid policies you refer to were originated by Hoover but most of those policies were implemented by Roosevelt and did exacerbate the depression. Link to comment Share on other sites More sharing options...
JMS Posted March 17, 2008 Share Posted March 17, 2008 See, that's just thinking domestically. Apply our debt to that equation as well as the money we rely on coming in to the country (what we export). Then look at why the dollar is so big internationally and how that helps it. What happens when you no longer trade oil with dollars? No longer needed. Countries cash it in, then it will be the worst. Well that's a good point. China has about a trillion US dollars in reserves. If they decided merely stop purchasing dollars it would likewise send shock waves through the economy. If they actually started cashing them in... We might get to where Germany was after WWI. Wheel barrows of cash being used to purchase a loaf of bread. The problem with that scenario is China, and the foreign lenders would be cutting their own throats. China's trillion dollars of reserves would be worth about a billion.... How does that help them? The worst thing that's going to happen here is foreign and domestic investers won't want to loan any more money... That's pretty bad for an economy which runs on credit. Link to comment Share on other sites More sharing options...
Darth Tater Posted March 17, 2008 Share Posted March 17, 2008 Don't do the CRIME if you can't do the TIME. These people are getting exactly what they deserve for trying to live well beyond their means without any plan for the proverbial 'rainy day'. Well, our government, if it can do anything, will continue to bail out those stupid people like the execs at Bears and Sterns. Link to comment Share on other sites More sharing options...
33 Posted March 17, 2008 Share Posted March 17, 2008 People have hedged with the euro but that is also a credit based money. The first thing I'd recommend is to stay away from the dollar right now. It's not done. You are talking about playing with the market. The fact is, the dollar is falling and could crash. You don't want it if that happens. However, if it falls some more and rebounds, you'll have a lot of good cash.There's just too many scenerios for the dollar to fall much farther then there are for recovery. I'd go with the Euro and seriously look into some commodities and agriculture investments. Thanks. It looks like I'll head to the bank tomorrow and open a Euro account. It seems like yesterday the Euro was at 1.42/$. I wish I had done as much then. How far can the $ really fall? When Latin American currency are gaining on the $ then clearly we're in the gutter currency-wise. Link to comment Share on other sites More sharing options...
Recommended Posts
Archived
This topic is now archived and is closed to further replies.