Friday, January 13, 2012

The latest on the financial crisis

I've no desire to write another long gloom-and-doom article - most of my regular readers already know what's coming down the pike. Nevertheless, I thought it worthwhile to point out that nothing's changed: the light at the end of the tunnel is still an oncoming train. Consider what's gone down in recent days:

  • Standard & Poor's has just cut the credit ratings of no less than nine European nations.
  • The Greek government has halted talks with creditor banks, after failing to persuade them (surprise, surprise!) to accept no less than a 50% "haircut" on what Greece owes them (i.e. voluntarily take a 50% loss on their investments). This makes a Greek default on its sovereign debt a virtual certainty in coming months.
  • An Italian bank, Unicredit SpA, had the temerity to publicly admit that its balance sheet wasn't as good as it had previously indicated, and began to take steps to rectify the situation. It was promptly punished by an almost 40% drop in its stock price. Other European banks, which haven't yet owned up to the same problem (even though it's a universal reality there), must surely see the writing on the wall for themselves as well.
  • Retail sales in the USA posted a gain of a mere 0.1% (yes, that's one-tenth of one per cent) during December, traditionally the busiest shopping month of the year. However, as Rico points out, "We are being lied to (again). In the last 20 years, the US population has grown by 23% while the Dollar has 'lost' 39% of its purchasing power to inflation. The retail 'consumer' economy, adjusted for population growth and inflation, is thus about 7% below Jan 2006 levels." (Bold print is my emphasis.) Rico speaks truth. The consumer economy in the USA is still way below what it was prior to the current recession.
  • The World Economic Forum has warned in its 'Global Risks 2012' report (which is well worth reading in full) that "The financial crisis threatens to drag the world back to the dark days of the 1930's" (the last link is to a report in the Daily Mail, which is also worth reading in full).
  • Attempts to ease a serious 'credit crunch' in Europe have not met with very much success. As the Economist puts it, "When economists think of the financial system, it is usually as a frictionless conduit through which money flows to areas of the economy where it is most needed. A better analogy right now might be of a hosepipe with a knot tied in it. The European Central Bank (ECB) is pumping unprecedented amounts of money into one end of the pipe, but how much of that will find its way to the parched real economy is another question entirely." Despite European denials, it's basically the ECB's version of the Fed's 'Quantitative Easing' programs . . . and such policies are having no greater success there than they did here.
  • Forbes makes no bones about blaming President Obama's (mal)administration for what it calls "The Worst Economic Recovery Since The Great Depression". It points out: "Supposedly a forward looking progressive, Obama proved to be America’s first backward looking regressive." Zing!

We'll let Karl Denninger sum it all up in his usual inimitable fashion.

Europe's mess is hardly "contained" or "controlled" and threatens to break out into a full-on conflagration. Our debt ceiling fun is about to come back into the news, and while it's a near-certainty that the final "slice" of authority will be granted to Treasury without a single pair of balls being displayed in Congress, that will not, as I noted at the time in August of last year, get us to the election, which means that the debate is going to be front and center unless there is a monstrous ramp in economic activity (and thus taxes paid) between now and then. That seems about as likely as it would be for me to get hit by an asteroid this morning while sitting in front of my computer screen.

. . .

Reality is coming to a market -- and an economy -- near you.

You betcha.


No comments: