America’s economy risks the mother of all meltdowns
From Nouriel Roubini of New York University’s Stern School of Business, founder of RGE monitor. His 12 steps to financial disaster.
Yahoo: Step one is the worst housing recession in US history. House prices will, he says, fall by 20 to 30 per cent from their peak, which would wipe out between $4,000bn and $6,000bn in household wealth. Ten million households will end up with negative equity and so with a huge incentive to put the house keys in the post and depart for greener fields. Many more home-builders will be bankrupted.
Step two would be further losses, beyond the $250bn-$300bn now estimated, for subprime mortgages. About 60 per cent of all mortgage origination between 2005 and 2007 had “reckless or toxic features”, argues Prof Roubini. Goldman Sachs estimates mortgage losses at $400bn. But if home prices fell by more than 20 per cent, losses would be bigger. That would further impair the banks’ ability to offer credit.
Step three would be big losses on unsecured consumer debt: credit cards, auto loans, student loans and so forth. The “credit crunch” would then spread from mortgages to a wide range of consumer credit.
Step four would be the downgrading of the monoline insurers, which do not deserve the AAA rating on which their business depends. A further $150bn writedown of asset-backed securities would then ensue.
Step five would be the meltdown of the commercial property market, while step six would be bankruptcy of a large regional or national bank.
Step seven would be big losses on reckless leveraged buy-outs. Hundreds of billions of dollars of such loans are now stuck on the balance sheets of financial institutions.
Step eight would be a wave of corporate defaults. On average, US companies are in decent shape, but a “fat tail” of companies has low profitability and heavy debt. Such defaults would spread losses in “credit default swaps”, which insure such debt. The losses could be $250bn. Some insurers might go bankrupt.
Step nine would be a meltdown in the “shadow financial system”. Dealing with the distress of hedge funds, special investment vehicles and so forth will be made more difficult by the fact that they have no direct access to lending from central banks.
Step 10 would be a further collapse in stock prices. Failures of hedge funds, margin calls and shorting could lead to cascading falls in prices.
Step 11 would be a drying-up of liquidity in a range of financial markets, including interbank and money markets. Behind this would be a jump in concerns about solvency.
Step 12 would be “a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices”.
These, then, are 12 steps to meltdown. In all, argues Prof Roubini: “Total losses in the financial system will add up to more than $1,000bn and the economic recession will become deeper more protracted and severe.” This, he suggests, is the “nightmare scenario” keeping Ben Bernanke and colleagues at the US Federal Reserve awake. It explains why, having failed to appreciate the dangers for so long, the Fed has lowered rates by 200 basis points this year. This is insurance against a financial meltdown.
The Bush Depression will now extend into economics.
We have to remember that this trend has slowly been taking place for a long time. It’s roots are before Bush. The “economic advisers” in the Fed and Treasury felt this was good for growth. Congress has had the Fed tesify for years on this and they have told Congress “it is good.”
quote:
“… the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences.”
– Prof. Carroll Quigley
(1910-1977) Professor of History at Georgetown University, member of the Council on Foreign Relations (CFR), mentor to Bill Clinton
1966
Liberty Quotes
The seeds for this, were actually set in place in 1913 but, the progress had to be slow or the people would have realized what was being done to them. But, never, was there any goal but centralized power in the hands of the Central Banks of the world. They would not seek elected offices but would provide the appointees for those elected and would advise those elected on “good economic policy.” They would not seek to end governments, just control them.
quote:
“The power to determine the quantity of money…is too important, too pervasive, to be exercised by a few people, however public-spirited, if there is any feasible alternative. There is no need for such arbitrary power…Any system which gives so much power and so much discretion to a few men, [so] that mistakes – excusable or not – can have such far reaching effects, is a bad system. It is a bad system to believers in freedom just because it gives a few men such power without any effective check by the body politic – this is the key political argument against an independent central bank.”
Milton Friedman
(1912-2006) Nobel Prize-winning economist,
For 70 years we have been warned about the Central Banking power and yet, we have never seriously demanded any reform and over time, it has gotten worse, not better. The problems we now face is due to our willing acceptance of their propaganda that “debt is a tool” for growth, high standard of living, and having “all your wants met, now,” without having to save for them.
Thus, each decade, recently, we have seen citizens pay more and more and more in interest on cars, homes, boats, clothes, TVs, etc. Often we go to a “sale” and get 10% off and then pay 100% more over time in interest if we were using credit cards or home equity loans that lasted for years.
Think about that. You worked twice the hours for something you bought with debt. 1/2 for the item and 1/2 for a lender someplace that used your labor to buy what he wanted. While we need loans, we also need education on what those loans cost us in labor for labor is what money represents for you and me.
quote:
WASHINGTON (MarketWatch) — The Federal Reserve confirmed that it is willing to do more to help the economy find its footing, but warned that nagging inflation worries may necessitate swift rate hikes once growth resumes, minutes of the latest meetings released Wednesday show.
http://tinyurl.com/2thw83
They made that announcement and the market started moving up. Bad news is good news?
quote:
So, I would have to conclude that at least in the eyes of the mainstream media, the US will avoid a recession not least due to all the help being provided by the officials.
Given the crazy monetary inflation and subsequent debasement of currencies taking place today, I suspect commodities (metals, food and energy) will continue to power ahead.
Financial Sense: INFLATING A NEW BUBBLE?
by Puru Saxena
If they get by this month and next, I think this guy may be on target and then in 2010 or 11 we have the real “bump in the night.”
Here is another interesting article on how complex this problem is
quote:
Numerous major employers in the USA hire exclusively through agencies that refuse to serve Americans; if you tried to apply you would be told that they are for the “special needs of recent immigrants” and you would be sent away. This is apparently not considered a violation of US equal opportunity employment laws.
“And our goal is clearly not to find a qualified and interested U.S. worker. And you know in a sense that sounds funny, but it’s what we’re trying to do here. We are complying with the law fully, but ah, our objective is to get this person a green card, and get through the labor certification process. So certainly we are not going to try to find a place where the applicants are the most numerous. We’re going to try to find a place where we can comply with the law, and hoping, and likely, not to find qualified and interested worker applicants.” Lawrence M. Leibowitz, Cohen and Grigsby seminar on how not to hire Americans
Financial Sense: Trapped
by Atash Hagmahani
There are some “tips” on how to prepare for what is going on, at the end of the article.