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" Us Could Be Heading For Recession" Telegraph

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http://www.telegraph.co.uk/money/main.jhtm...C-mostviewedbox

US could be heading for recession

Last Updated: 12:05am BST 28/08/2007

Ex-Treasury Secretary Summers warns of risks 'greater than any since aftermath of 9/11', reports Ambrose Evans-Pritchard
Larry Summers: 'It would be far too premature to judge this crisis over'
Former US Treasury Secretary Larry Summers warned that the United States may be heading into recession as the biggest victim to date of the sub-prime mortgage debacle was humiliatingly sold for a token sum in Germany.
Traders are braced for another week of turmoil after the near breakdown of America's $2,200bn (£1,100bn) market for commercial paper.
"It would be far too premature to judge this crisis over," Mr Summers said.
"I would say the risks of recession are now greater than they've been any time since the period in the aftermath of 9/11."
In Germany, it emerged that the state-bank SachsenLB may have accumulated $80bn of exposure to risky assets through a set of Irish funds kept off balance sheet.

The recent bounce back in the SMs may just be fund managers trying to instill a little confidence. However, IMO, nothing has changed and 90% of the poisons lurking in the mud have yet to hatch out. Recession means job losses on a massive scale, flight to safety out of stocks, collapse of confidence in all bubble assetts and acceleration in the downward trend in house prices that will make our toes curl.

That the "R" word is being used more and more is enough to change sentiment and accelerate the process leaving little or no time to take up defensive positions (such as selling stocks and moving into cash--preferably not in currencies that have ridden the bubble wave in recent years).

We are in the calm before the storm stage. I don't think we will see another relatively minor 10% "correction" before the real thing hits.

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Is it possible to pull a country out of recession without slashing rates?

The availability of credit will be the problem, not IR. When the banks have to say no it makes no difference what the rates are. Mervyn lost control years ago when he and the other central bankers kept rates accomodative too long and ignored the abuses going on in the credit markets. Japan cut rates to almost zero and they still had 20 years of stagnation--and all of that after their HPI bubble burst. A generation later and they are still paying the price of that irraional exuberance.

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Is it possible to pull a country out of recession without slashing rates?

Is it possible to pull a country out of recession BY slashing rates? I think not.

We have a solvency crisis and it will lead to the D word.

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They're dropping hints on the news and in the papers like crazy bout recession here. That was not happening 2 weeks ago.

Another interesting development just the past few days is that they are starting to talk about the *benefits* of lower home prices on the TV news. For the past year or two the standard line has been "Prices won't go down! They can't go down! It's the biggest asset most Americans have!!" Ergo all those politicians thinking they'll gain points talking about bailouts to keep prices high.

Three days ago I heard the first news program broaching the obvious: The middle class has bee completely and utterly stressed out by nosebleed prices. Yesterday again and today again.

They're getting Americans prepared for what's coming (those who don't already know). Finally.

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Seems like now is not a good time to fix the mortgage? Just wondering what people think because I need to remortgage soon and I'm thinking of getting a boe base rate tracker.

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Seems like now is not a good time to fix the mortgage? Just wondering what people think because I need to remortgage soon and I'm thinking of getting a boe base rate tracker.

Now is the time to be thinking: how do I get rid of debt and go to cash. No point "investing" in anything that is about to decline in value. We are still close to the top of the cycle and the old rule of buy low sell high hasn't gone away. If you can, STR and ride this one out as it is going to be a long ride to the bottom.

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Guest vicmac64
Is it possible to pull a country out of recession without slashing rates?

No - not at this point in the cycle - at least not without devaluing the currency and causing hyper inflation. At some point the debt bubble will burst - people are maxed out on debt further debt without the total bankruptcy of the US or UK is now not possible without the total collapse of their economies.

Even more worrying is our ability to manufacture our way of the dire situation we are now in - our treasonable government and globalist businessmen and manufacturers have ensured we do not even have that capability.

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Now is the time to be thinking: how do I get rid of debt and go to cash. No point "investing" in anything that is about to decline in value. We are still close to the top of the cycle and the old rule of buy low sell high hasn't gone away. If you can, STR and ride this one out as it is going to be a long ride to the bottom.

I really don't wall to sell so that's not an option. I'm more intersted in buying another property if the market crashes but in the meantime I just want to keep my repayments as low as possible so do you think base rate tracker or fix?

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I really don't wall to sell so that's not an option. I'm more intersted in buying another property if the market crashes but in the meantime I just want to keep my repayments as low as possible so do you think base rate tracker or fix?

I am betting on lower IR after the credit crunch picks up speed. If (if) I was going to buy right now I would go with a tracker I suppose. Just can't see IR headed up in the short or medium term.

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I am betting on lower IR after the credit crunch picks up speed. If (if) I was going to buy right now I would go with a tracker I suppose. Just can't see IR headed up in the short or medium term.

So a credit crunch could be very good news for some people who have a lot of equity and will always be able to get credit even in a credit crunch.

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So a credit crunch could be very good news for some people who have a lot of equity and will always be able to get credit even in a credit crunch.

I guess that will depend how much of their notional equity gets eaten up by any HPC and how eye watering interest rates become. It's no good having a theoretical shed load of equity if you can't afford the monthly repayments on the principle. People sitting on a property owned outright should be ok though.

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So a credit crunch could be very good news for some people who have a lot of equity and will always be able to get credit even in a credit crunch.

Well, for me a credit crunch is the best news I have had for a few years. I am sitting on a cash pile ready to invest and have no need for credit. The competition for the same product I am interested in relies on credit so the restrictions in that sector is a positive for me.

Those who own their own homes and are not overgeared are less at risk (unless they lose their job) in a crash than the vast majority who are overgeared and at risk to a recession led market collapse. In our highly geared and debt laden miracle economny "credit" didn't used to matter as lenders didn't care if there was a risk in lending money as it was all illusion anyway. In the future the lenders will be concerned about the ability of their borrowers to repay and these tend to be few and far between in a recessionary cycle, unless, of course, prices drop to the point where people earning an average salary can afford them.

You could say that a recession is a great leveller. IMO, we need one to clear out the speculation and to deflate the bubble. I have a sense the central bankers are thinking along the same lines.

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US could be heading for recession!!!!

But may not be; according to someone who refuses to get it wrong.

The US IS heading for a recession. I suspect if someone were to get a little more rigorous with Summers' language he would be saying that the US is heading for it but he doesn't know if it will happen because he was as useless as any of the rest of them when it came to predicting future trends based on current policy.

It matters not a jot whether the the technical definition of a recession is reached or not, or reached earlier or later.

The massive US housing inventory tells us all we need to know. These guys are watching the wrong indicicators. They're getting it from the book and the current chapter has not yet been written so they're looking in the wrong place for clues.

A meteor may be heading for the earth right now but it's not the point.

It's all going to happen then these guys are going to explain it to us cause we're to thick to understand it.

The main thing is that they're all doing their best.

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Guest An Bearin Bui

RealistBear: it's interesting that you see central banks as coming to the conclusion that speculation needs to be cleared out of the market: I hope you're right as I would agree that a recession of some kind is needed. I'm actually quite worried though that Bernanke, Mervyn King et al will just cut interest rates again to re-inflate the bubble as that's what the market is pressuring them to do. As economists (apparently), they should know that rate-cutting won't work this time around (or at least not for more than a year or two) but given the market pressures from the indebted masses and debt junkies in the finance world, do you think they'll cave in?

I would see them caving in to cut rates by up to 1% - that won't rescue the housing market though as debt will probably get more expensive anyway for the kinds of people who've been propping up the market recently i.e. clueless FTBs with dodgy mortgages from Northern Rock, amateur BTL-ers and those "withdrawing equity" to buy other properties. Greenspan's trick worked in 2001 but it went on for far too long and has a debt-deflation crisis hidden inside it. I really hope Bernanke, Mervyn King etc see that but I do remember reading an economist (Austrian school) a couple of years ago who believed that the world economy was heading for either hyperinflation or debt deflation due to the credit binge. He reckoned that the US and UK would opt for hyperinflation to get themselves out of the mess i.e. let interest rates stay too low for too long and inflation will eventually take care of all that debt.

Maybe this is more of a debate for the Economics theme than the main forum but it'd be interesting to hear what people think

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Well, for me a credit crunch is the best news I have had for a few years. I am sitting on a cash pile ready to invest and have no need for credit. The competition for the same product I am interested in relies on credit so the restrictions in that sector is a positive for me.

Those who own their own homes and are not overgeared are less at risk (unless they lose their job) in a crash than the vast majority who are overgeared and at risk to a recession led market collapse. In our highly geared and debt laden miracle economny "credit" didn't used to matter as lenders didn't care if there was a risk in lending money as it was all illusion anyway. In the future the lenders will be concerned about the ability of their borrowers to repay and these tend to be few and far between in a recessionary cycle, unless, of course, prices drop to the point where people earning an average salary can afford them.

You could say that a recession is a great leveller. IMO, we need one to clear out the speculation and to deflate the bubble. I have a sense the central bankers are thinking along the same lines.

Perhaps here but not in the US.

I have some respect for Mervyn King, not just because he was my lecturer at college, but because the BoE has so far refused to bail out bank's liquidity problems with cheap money. He let Barclays have £300 odd million, but at a 1% cost over the base rate. Also, there's no real indication that he might cut the repo rate. Looks like he might actually care about not igniting further inflation here.

In contrast, in the US, the Fed lowered its discount rate by a whopping 0.5% and looks like they will lower the Fed Funds rate as well. They will be fighting to avoid recession, inflation be damned.

Edited by visaria

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Perhaps here but not in the US.

I have some respect for Mervyn King, not just because he was my lecturer at college, but because the BoE has so far refused to bail out bank's liquidity problems with cheap money. He let Barclays have £300 odd million, but at a 1% cost over the base rate. Also, there's no real indication that he might cut the repo rate. Looks like he might actually care about not igniting further inflation here.

In contrast, in the US, the Fed lowered its discount rate by a whopping 0.5% and looks like they will lower the Fed Funds rate as well. They will be fighting to avoid recession, inflation be damned.

And will be forced to raise interest rates above trend to support their currency, the same for the EU and UK. Rates will need be high enough to attract capital from the carry trade that will be slowly ebbing away.

Japan could well raise rates next month and it is more than likely by year end. China will need to keep increasing rates.

What will rates be like in Iceland, New Zealand, Australia? they will have to raise even higher to attract finance.

Without this finance countries will go into recession and with less and less available and with western countries having currencies devalued rates will have to raise.

Rates could only have been so low for so long because of this unpresidented era of cheap money, do'nt you know.

I think we are in the worst possible senario.

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I have some respect for Mervyn King, not just because he was my lecturer at college, but because the BoE has so far refused to bail out bank's liquidity problems with cheap money. He let Barclays have £300 odd million, but at a 1% cost over the base rate.

And he (and cohorts) ran M4 at around 12-14% for 6 years. Where did he think that money was going? Why did he think, up until about a month ago, that everything was fine and dandy?

Why was he not warning of impending disaster if the MPC did not plug up the supply, either by raising rates or by slowing the presses?

He helped to cause the mess the rest of us are about to be in.

Can I have $300m at 1% above base please? I know plenty of people I could lend that to at way above that level?

I have little respect for him, not because he wasn't my lecturer at college but because he was in large part responsible for turning the housing market into a money-creation and -laundering scheme. His repentance, such as it was or will be, is too late.

(Edited for anger)

Edited by dstars

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And will be forced to raise interest rates above trend to support their currency, the same for the EU and UK. Rates will need be high enough to attract capital from the carry trade that will be slowly ebbing away.

Japan could well raise rates next month and it is more than likely by year end. China will need to keep increasing rates.

What will rates be like in Iceland, New Zealand, Australia? they will have to raise even higher to attract finance.

Without this finance countries will go into recession and with less and less available and with western countries having currencies devalued rates will have to raise.

Rates could only have been so low for so long because of this unpresidented era of cheap money, do'nt you know.

I think we are in the worst possible senario.

Australia should be ok as their economy is going fantastically well due to increasing commodity prices. They have a budget surplus (unlike UK). On that basis they are raising rates to cool their economy, not to attract cash.

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