Friday, January 25, 2008

A Good Overview

It's rough out there

The financial storm that blew up in America's subprime mortgage market last year has become a hurricane. The ill wind from reckless property lending blasted first the market in asset-backed securities, then banks' balance sheets and, most recently, stockmarkets.

Posted by submedia @ 04:50 PM (1177 views)
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10 thoughts on “A Good Overview

  • A sound article, as we have come to expect, from The Economist…..

    “Taken together, the signs from the world economy are troubling. The credit binge will not unwind quickly or gently. Asset prices will fall. But central bankers and regulators have the tools to stop a downturn from becoming a slump, so long as they use them sensibly. Reacting to market panic with panicky rate cuts is likely to make things worse rather than better. The Fed should always be the calm centre of a financial storm”.

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  • Executive Summary:

    The tried and tested formula of “QUICK, PRINT MORE MONEY!” won’t work any more – get used to it.

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  • “QUICK, PRINT MORE MONEY!” won’t work any more – get used to it.

    Infact, it’ll make the situation much, much worse. You don’t give an addict more drugs in order to cure him. The FED are just hoping to buy time so their friends on Wall Street can get out of the market with their shirts on.

    Gold = ?.

    BTW, gold is at $/£/€ record highs – but no mention of it on the BBC. Little odd, me thinks.

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  • The Economist for years (since 2003) has been warning of the bubble popping and cheap credit. They were laughed at (like us) for all this time by the other less learned papers.

    Vindicated.

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  • Rate cuts are good, but panicky rate cuts are bad. How does he/she distinguish between the two? Also, how can loosening monetary policy be a solution when it was a large part of the cause of the problem? Anyway the Fed has no firepower, so all that’s left is tax breaks via an increased budget deficit.

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  • Gold – what a pity that GB sold off ours at a bargain basement price.
    If the general public found out that there was another ‘sure thing’ to buy, gold would go through the roof as everyone tried to buy in. It’s happened before!!

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  • stillthinking says:

    Isn’t gold already in the sure thing to buy scam already? If anybody really expected with certainty that the price of gold would be 1200 dollars in a few months that would be the price now.

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  • japanese uncle says:

    The only reason Crash G sold the gold seems that the buyer was totally aware what should be in store for the global econom.

    It’s just one of those things.

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  • @stillthinking My thoughts on this are that gold is no longer viewed as money by the general populace, and that much of the investment community views it as a commodity. I’m not sure that this is the view in Asia. Moreover, the markets still seem to be in denial about future earnings per share etc., so I don’t think that the brown stuff has hit the fan hard enough yet. What is clear is that after each wobble gold ratchets up. Some people view it as a safe haven…just wait until lots of people view it as a safe haven, then we will have a real bubble in gold. That will be the time to get out in my opinion. There is a lot of gold talk on this site now and I think this sometimes skews site regulars’ perceptions about what stage gold is in. I don’t think it has really begun to hit public consciousness properly as yet.

    Having said that, I found out recently that a cousin of mine, left school at 15 to become a builder etc, now approaching 40 and retired, has been burying buckets of silver on his property for years. He also got in on the bottom of the Australian housing bubble and exited at the top. No flies on him. Haven’t seen him in years, but would like to have a chat with him at some stage to see what started him buying silver.

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  • Back to the “panicky rate cuts “.

    Bernanke will not want to be holding the financial reign when the US goes into recession. Therefore he will slash and keep slashing, Greenspan did it why can’t he?

    Greenspan knew a credit bubble would emerge when rates were slashed in the US after 911, he needed the credit bubble to make him look good. Lloyd George has admitted the housing bubble and credit bubble in the UK was engineered by him (& Blair/Brown). The majority were happy in their bank owned 5 bedroom houses and X5’s.

    Even though Greenspan and George are essentially the culprits that have created this mess, we look to Bernanke and King when talk of a slowdown/recession is mentioned.

    If Bernanke can steer around the looming recession in the US for the time being, his low IR’s will be a problem that he will pass on for future Fed chiefs to deal with in years to come, much I the same way Greenspan has done for Bernanke.

    Just like politicians, self interest is the name of the game.

    I believe King has just renewed his contract, let’s hope he is in it for the long run then.

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