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XMFSinchiruna (27.49)

The 'D-Word' Uttered by the Fed's Fed.... Oops!

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June 13, 2008 – Comments (4)

Well... this has to be rather embarrassing for Paulson and Bernanke... The BIS is the central bank to the central banks, and this is a straight-up slap in the face to Bernanke for his 'loose monetary policy'.  You reap what you sow, Ben!  While I do admit to taking pleasure in imagining Ben squirming as reality bursts the balloons of his pro-dollar hocus-pocus verbiage, I am always careful to state clearly that I am deeply disturbed by the underlying reality that Americans are facing.  This begins as a financial meltdown, but could well become a humanitarian nightmare. 

Central bank body warns of Great Depression

by Gill Montia

Story link: Central bank body warns of Great Depression

The Bank for International Settlements (BIS), the organisation that fosters cooperation between central banks, has warned that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s.

In its latest quarterly report, the body points out that the Great Depression of the 1930s was not foreseen and that commentators on the financial turmoil, instigated by the US sub-prime mortgage crisis, may not have grasped the level of exposure that lies at its heart.

According to the BIS, complex credit instruments, a strong appetite for risk, rising levels of household debt and long-term imbalances in the world currency system, all form part of the loose monetarist policy that could result in another Great Depression.

The report points out that between March and May of this year, interbank lending continued to show signs of extreme stress and that this could be set to continue well into the future.

It also raises concerns about the Chinese economy and questions whether China may be repeating mistakes made by Japan, with its so called bubble economy of the late 1980s.

http://www.bankingtimes.co.uk/090620...at-depression/

4 Comments – Post Your Own

#1) On June 13, 2008 at 11:43 AM, alstry (35.40) wrote:

Good Point!!!!

I really don't think people understand the problem.  The fact that asset values are imploding means that bank lending capabilities are constrained.  As banks pull back from lending business slows further.

Since it is a solvency issue, namely revenues are now too low to meet debt obligations, many no longer qualify to borrow money and those that do qualify don't want to borrow.

Basically, we probably have about $50 to $100 trillion dollars of debt that needs to be restructured and everyone has their head in the sand.

Quite frankly, short of mass bankruptcies....I am not sure how this resolves.

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#2) On June 13, 2008 at 11:52 AM, abitare (34.56) wrote:

 

 

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#3) On June 17, 2008 at 3:47 PM, BigFatBEAR (29.16) wrote:

Hey, kinda cool to see Paul take on Bernanke, thanks for the youtube vids. While I agree with his thoughts on transparency and a stronger dollar, I don't think that a gold standard is necessary or appropriate.

Based on my macroeconomics classes from college, I think we have enough safeguards in place to prevent a great depression type scenario.

However, I DO think that Bernanke has cut the interest rate more than what is in the long-term interest for our economy. I think low interest rates + high oil = high inflation or even stagflation. This scenario is harmful for years afterward, even if the inflation is stabilized or reduced.

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#4) On June 27, 2008 at 6:01 AM, diligentdave (< 20) wrote:

It is interesting (though extremely frightening) to me what appears to be happening. Around a month or more ago, NPR ran a story that claimed to explain the sub-prime mortgage mess. In a nutshell, worldwide money for investing worldwide basically doubled, due to emerging markets, largely, between 2000 and 2006, from $35 trillion (US) to about $70 trillion (US).

Because the Feds were paying a low rate on debt they sold, investors turned to the next best thing they could find—mortgage-backed US securities. Trouble is, the demand for these ran so extremely high, the temptation became so strong to satisfy this demand, it led to more and more relaxing of lending standards until there were practically none.

Naturally, sooner or later, the fundamentals would and did start to catch up with the credit markets. Now, though, the fact that millions of investors worldwide only own shares of big bundles of mortgages, means, that it is extremely difficult to bargain with any one entity between borrowers and lenders.

This growth in big money liquidity, I assert, is likely the same thing that has driven and is keeping up basic commodity prices, on oil and other "necessities".

The irony is becoming, I believe, that there will likely be, at some point, a huge collapse of these pricing bubbles worldwide. And then, the "haves" will lose all of their (excessive) capital, and many will join the rest of the "have nots" and/or, at least, the "have less(es)".

Of course, the effects on this bubble will be felt by most everyone, unfortunately, worldwide.

I foresee major trading interruptions, more provincialization of world markets, and likely, war among nations. I can see China doing this, especially, in a "wag the dog" scenario, to try to focus attention away from internal woes in China to new problems created by war externally.

 

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