Saturday, Nov 17, 2007
Sell US shares short on Monday
Bloomberg: Goldman Sees Subprime Cutting $2 Trillion in Lending
The slump in global credit markets may force banks, brokerages and hedge funds to cut lending by $2 trillion and trigger a ``substantial recession'' in the U.S., according to Goldman Sachs. Goldman's forecast reduction in lending is equivalent to 7 percent of total U.S. household, corporate and government debt, hurting an economy already beset by the slowing housing market."What it all comes down to is that Joe Six-Pack has been taking equity out of his house and supporting the U.S. economy,''
Posted by alan @ 05:35 PM (397 views) Add Comment
1 Comment
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1. _woody said...
Crunch…the era of cheap money now over, and the effects are becoming increasingly apparent. Maintaining capital ratios will force banks to dramatically curb their lending. Warnings in the US, suggest sub-prime losses will see lending cuts in the region of £980 bn.
The growth in money supply (running at above 10%) in recent years is clearly one of the main factors fuelling house price growth. Ambitious and reckless lending practices have continued to create an ever more dangerous bubble. Ironic to think, that American senators are now rushing around introducing new lending laws looking to prevent the house price fluctuations that they have seen. Even the capitalist Kings of China, concerned over rising house prices, have put quotas on mortgage lending.
Though at home we have watched asset price inflation grow unchecked. Worse than that, we have actively encouraged an expansion of money to create an illusionary economy (built on debt not earnings and increased government spending). Slow economic growth held at bay through a series of measures, has certainly left an unbalanced and more exposed economy.
Now with the money drying up (and the end of HP inflation), I wonder what further avoidance techniques we have left to prevent a crash?
The BOE may stimulate the economy through cuts. Though a strong pound, acting as a buffer against rising inflation, means their room for movement is slight. The pressures on the economy continue to build. The party is firmly over.