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9/11-15/08 
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THE GREAT DEPRESSION OF 2009
OpEdNews
Original Content click here: The Great Depression of 2009
May 13, 2008 The Great Depression of 2009 A crashing housing market appeared to be something that could be weathered by other growing sectors of the US/Western economies. Then, the inevitable credit dominoes started to fall, after the mortgage delinquencies fell. Next we entered a scary August and September world credit crisis, as huge forms of liquidity, formerly seeming in endless supply, rapidly dropped to nothing. That would be the securitized credit markets. Rapidly, the emerging losses in securitized credit, from CDOs, MBS and such (packages of loans such as mortgages sold off as securities and derivatives) caused a cascade of falling confidence in our banking sectors. All of a sudden, the credit crisis spread from the mortgage derivatives markets to the commercial paper markets in an almost instantaneous fashion. BNP Paribas, France's largest bank, had to freeze redemptions on two hedge funds that had losses in mortgage derivatives. In about a week from that announcement, the entire European commercial paper market froze, as banks were afraid to roll over each other's commercial paper, not knowing who else had $billions worth of exposure to the huge mortgage derivatives market. This was in August of 2007.
The credit market damage is so severe that the largest banks in the US are at risk of losing much of their capital. Citibank alone said it needs to raise $30 billion in capital. If the 5 largest banks in the US are already in crisis mode, and other major banks in the EU too, and don't forget Canada, England and so on, things look incredibly negative. And the losses have only just begun to pile up. There are many more to come. Federal Reserve Chairman BenBernanke stated that 450,000 mortgages reset each quarter in the US in the coming year. But this is not all about just mortgage resets and the housing market. This is about the spreading damage to other key sectors of the credit markets.
Since July, the West's commercial paper markets (CP) have contracted by hundreds of $billions worth, as banks and investors refused to roll over CP of 270 days or less maturity. The ECB (European Central Bank), and US Fed, and other western central banks had to step in and offer short term money to cover the shortfalls, or else a massive world banking liquidity crisis would have emerged.
As it is, interbank lending is quite bad, and Central banks have not been able to stop either the continued shrinking of the CP markets, nor the ever increasing losses stemming from a collapse of the securitized debt markets. Central banks have had to step in as lenders of last resort to keep the banking and financial system from imploding, and there is little progress on this front to date. The $75 billion SIV bailouts arranged by the US Treasury department is on and off again. The key banks involved may not be able or wish to complete it. Citi, for example has to raise $30 billion in capital to cover the mess that has emerged since July. Next big credit dominoNow, other huge credit markets are about to fall in turn. The next one is the credit insurance market. Credit insurance is an essential part of any credit market. Lenders can buy credit insurance to help cover the risk of loss when they lend. Credit insurance is a key component rating agencies use to asses credit risk of bonds and such, and assume that if any of the bonds that have credit insurance default, the credit insurers will pay off.
But, the amount of securitized credit loss is so huge at this time, losses on CDOs, MBS, and other securitized credit vehicles, that the viability of credit insurers is now in question. Credit insurers will have to start paying off in the next several months. They will be reporting big losses. That will affect the credit ratings of every security they insure.
This means that all the securities these credit insurers insure will be downgraded by rating agencies – if the credit insurer becomes insolvent.
This crisis has spread to Money Market funds for various reasons. First, many money market funds have a large part of their capital invested in short term commercial paper that provides a slight yield bonus. Since much CP is not rolling over, MMFs are having trouble rolling forward those maturities. Also, MMFs have invested heavily in the securitized debt (mortgage derivatives like MBS and SIVs and CDOs) all of which are in deep trouble.
I have had readers email me stories of being put off from redemptions from many money market funds since August. These are from major name institutions. I have been told of games like telling people to fill out forms and not executing what people wanted to do in their fund. Those stories still come in as I write this. It is very important that you read the disclosures about your MMFs, and know that these are generally not FDIC insured. The same goes for other nations MMFs and their deposit insurance.
How this crisis develops
First, US mortgages default, Jan to June 07. Then, the credit securities back of them collapse in value July 07 to present. Then the banks and others holding these have to take huge losses/writedowns. Then those institutions have to raise capital. Then credit insurers have to pay off (coming in the next several months). Then as they go bankrupt, all the rated securities they insure will be downgraded, as the supposed insurance that was purchased is now worthless, as the insurer is insolvent. Then a new cycle of losses as the newly downgraded credit securities have to be marked down. Then - here is the rub – banks and such have to stop lending, and you get a system wide freeze of new credit. We are right in the middle of this part. HSBC, for example, has stated they are going to pull back lending in the US, as they have been badly hit in the mortgage markets. Consider this, and see credit contraction in the US increasing across lenders. As I said, Citi stated they need to raise $30 billion of capital.Main source of credit now totally dead
What's more, the source of most of the credit in the last 5 years, securitized credit, is literally disappearing. As that entire sector becomes discredited, the source of most of the money coming into the world's bubble economies, securitized debt, is drying up. As banks are forced to raise capital and stop lending, consumers find new credit hard to get or not available at all. The same goes for businesses. You then get system wide credit collapse, and the resultant collapse in economic growth. And if no recovery is made quickly, you get a depression. Not a recession, a depression, due to collapsing economic demand.New Chinese Foreign investment restrictions
Just consider that many Chinese economic sectors have huge overinvestment, and that China just instituted economic restrictions on new foreign investment in many sectors they consider over invested. That being the case, they would not do well if a large part of their export markets contracted, should the west (EU, US, etc.) have a severe economic contraction.
The Facts Are Undeniable
Congress & the President scrambled to sign in a multi-billion dollar stimilus package. But where does the money come from? The government will borrow the money from China & Saudi Arabia to pay for the rebate, which is projected to cost $117 billion over the next two years, adding to the federal deficit.
The Federal government owes $53.3 trillion in future obligations that it has no ability to pay. The Government Accountability Office has sounded the alarm, but neither the politicians nor the American people are listening.
What Have We Been Told To Do With Our Tax Rebates
Save the new world order.
How Else Might We Use This Information?
SHUT 'EM DOWN!
No school, no work, no shopping, no life as usual....Not for today. Not this week. Not until we've won!
Get On Board
There is no reason to wait 'till Sept. to strike & every reason to strike now!When Bush says to shop, WE MUST STOP!
Congress has borrowed trillions of dollars on top of our outrageous debt to hand out tax rebates to folks that don't even pay taxes. Why? To save the New World Order. This is our time to STRIKE BACK!
I've been told that people won't take a day off during an economic downturn BUT that is when you strike. When the BEAST is weak. Now is the time, the only time that a few days of empty Wal Marts & theatres will send the economy reeling & give this strike the bite that it needs to succeed.
Bring them to their knees. STRIKE today, strike everyday. Buy nothing you don't absolutely need.
In order to get involved, here are the five best steps to take now: |
RBS issues global stock and credit crash alert
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 7:40am BST 18/06/2008The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.
"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.
A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.
Such a slide on world bourses would amount to one of the worst bear markets over the last century.
RBS said the iTraxx index of high-grade corporate bonds could soar to 130/150 while the "Crossover" index of lower grade corporate bonds could reach 650/700 in a renewed bout of panic on the debt markets."I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names."Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.RBS expects Wall Street to rally a little further into early July before short-lived momentum from America's fiscal boost begins to fizzle out, and the delayed effects of the oil spike inflict their damage."Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point," he said.US Federal Reserve and the European Central Bank both face a Hobson's choice as workers start to lose their jobs in earnest and lenders cut off credit.The authorities cannot respond with easy money because oil and food costs continue to push headline inflation to levels that are unsettling the markets. "The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation," he said."The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets," he said.Kit Jukes, RBS's head of debt markets, said Europe would not be immune. "Economic weakness is spreading and the latest data on consumer demand and confidence are dire. The ECB is hell-bent on raising rates."The political fall-out could be substantial as finance ministers from the weaker economies rail at the ECB. Wider spreads between the German Bunds and peripheral markets seem assured," he said.Ultimately, the bank expects the oil price spike to subside as the more powerful force of debt deflation takes hold next year.
