"In 2005, my wife and I retired," Carl says. "We went to a Merrill Lynch financial advisor and had about $200,000 to put away for our retirement. We told them at the time that this was all the money we had for retirement and we wanted it to be secure. We didn't want risk. ... http://www.lawyersandsettlements.com/articles/11343/stock-market-losses-3.html
"Big discounts fail to lure shoppers," reports the Wall Street Journal . Restaurants are empty. Shopping malls are not even attracting strollers and gawkers – let alone people with money to spend. Auto lots are so quiet the salesmen take turns pretending to be customers – just to keep their skills at-the-ready. Even the private jet business is in a tailspin." (The Daily Reckoning) http://www.marketoracle.co.uk/Article6710.html
The US and advanced economies' financial system is 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 (US, 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.
We are in the midst of an unfolding debacle. It is happening about us. I am not sure how or when it ends, but the end, when it arrives, will radically alter the way we live for a long time.
Whoever wins the US election and takes office in January will need prayers and divine intervention. http://www.nakedcapitalism.com/2008/10/dow-tanks-680-to-below-9000-investors.html
This article by Stratfor founder and Chief Intelligence Officer George Friedman accompanies an upcoming series on the geopolitics of the global financial crisis. Here, he discusses Stratfor's geopolitical method for analyzing economic issues, which has a different focus and purpose from the models used by economists. http://www.stratfor.com/analysis/20081009_international_economic_crisis_and_stratfors_method
Canada's Banking System World's Soundest http://www.shortnews.com/start.cfm?id=73925
Roubini: 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 include:
1) another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;
2) 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;
3) a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;
4) massive and unlimited provision of liquidity to solvent financial institutions;
5) 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;
6) 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;
7) 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;
8) 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.
U.S. President George Bush will take the unusual step of meeting at the White House on Oct 11 with G-7 finance ministers and the heads of the International Monetary Fund and the World Bank.
Current EU President Sarkozy: ``Only coordinated action by central banks and governments is able to stop the systemic risk and ensure the financing of economies,'' said Sarkozy, who now holds the EU's rotating presidency.
IMF Global Financial Stability Report, October 2008 (GFSR):
- total U.S.-originated assets loss estimate increased to $1.4 trillion, an increase April number of $945bn;
- over the next few years, five years, around $675 billion of additional capital is needed to keep credit growing, even modestly, in the face of the current shocks [as of October, global bank writedowns have reached $592bn vs. $442bn fresh capital raised of which in the U.S. $340bn ($245bn), and Europe $227bn ($175bn) and Asia $25bn($23bn)]
- the restoration of financial stability requires a decisive and internationally coherent set of policies in 3 areas: 1) strengthening the capital base of viable institutions, 2) buttressing troubled assets by using public sector balance sheets; and 3) improving funding availability, mainly term funding, to stabilize bank balance sheets.
- orderly resolution of nonviable financial institutions;
- reduce counterparty risks through centralized clearing organizations
--> The most significant risk remains a worsening of the adverse feedback loop between the financial system and the real economy.
World Economic Outlook, October 2008:
- global response needed to global problem;
- The IMF now expects the world economy to grow 3.9% pace in 2008, down from the last estimate of 4.1% in July. It also cut expected 2009 growth from 3.9% to 3%, which would be the weakest level since 2002;
- effects of rate cuts are limited in the current crisis (i.e. pushing on a string). Monetary policy needs to be combined with fiscal policy.
- The U.S. 2008 forecast edged up to 1.6% from 1.3% in July. However, the U.S. economy is expected to contract in the fourth quarter of 2008 and early 2009, prompting the fund to downgrade next year's growth estimate to 0.1% from 0.8%. A U.S. recovery is expected to begin in the second half of next year as housing prices bottom out.
- IMF expects a "a significant slowdown in activity across western Europe followed by a very gradual recovery beginning in the second half of 2009.". The 2008 forecast for euro-zone growth was cut to 1.3% from 1.7% in July, and to 0.2% from 1.2% in 2009. Italy's economy is expected to contract this year, and it will be joined by Spain in 2009
- The U.K. economy is also expected to go from 1.0% growth in 2008 to a 0.1% contraction next year.
- the 2008 forecast for Japan was cut to 0.7% from 1.5% in July, with the 2009 estimate lowered to 0.5% from 1.5%. Canada's 2008 estimate was cut to 0.7% from 1.0%, and its 2009 forecast fell to 1.2% from 1.9%.
- Emerging and developing economies as a whole are still expected to expand at a solid 6.9% clip this year, though the IMF trimmed its 2009 forecast to 6.1% from 6.7%.
