The Global Financial Crisis

Uncle Festivus · 24 February 2009

SAN FRANCISCO (MarketWatch) -- Secretary of State Hillary Clinton wrapped up a state visit to China Sunday by urging her hosts to continue to invest in U.S. Treasury instruments and underscoring the two countries' interdependence, according to published reports.

"It would not be in China's interest if we were unable to get our economy moving again," Clinton said in an interview with a Chinese television journalist, according to reports.
"So by continuing to support American Treasury instruments, the Chinese are recognizing our interconnection. We are truly going to rise or fall together," she said.

Well there we have it - translation "Please buy our bonds & debt instruments because if you don't we are all stuffed". How deep are the Chinese pockets?

After months of speculation about a sharp oil-driven rise in prices hitting the world's second largest economy, the rapid global economic downturn has rekindled fears that Japan may be slipping back into a deflationary cycle.

Such a cycle is likely to have negative implications for the broader economy in that it would lead to lower corporate profits, prompting firms to continue downsizing their operations and cutting their payrolls.

No kidding Sherlock? Turning Japanese? Global deflation here we come, for a decade or 2? What do you expect when you give the world money at zero interest for 10 years, sowing the seeds of the GFC.

“Should these conditions continue, we could say that the Japanese economy is at risk of falling apart,” Finance Minister Kaoru Yosano said in the Diet in Tokyo on Feb. 18.

The deal will likely serve as a blueprint for rivals General Motors Corp. and Chrysler LLC as both companies work to secure further federal funding and stay out of bankruptcy. The two domestic automakers, which already have received $17.4 billion, asked the Treasury last week for a total of up to $39 billion in low-cost loans.
GM and Chrysler, as part of their loan agreements, are required to get the union to accept equity payments in lieu of cash to fund the health-care trust. GM owes about $20 billion to its VEBA.

Companies making things that nobody wants, or can afford. So the negative contagion cycle continues. GM filing bankruptcy could be the beginning of the end?

Bushman · 24 February 2009

Uncle Festivus said:
Companies making things that nobody wants, or can afford. So the negative contagion cycle continues. GM filing bankruptcy could be the beginning of the end?

I am watching the action over at General Electric. Could be a real doozy if GE falls into further trouble.

Should have stuck to white goods!

nunthewiser · 24 February 2009

Bushman said:
I am watching the action over at General Electric. Could be a real doozy if GE falls into further trouble.

Should have stuck to white goods!

she, ll be right ... wazza bought some

Bushman · 24 February 2009

Good old Wazza - didn't he pick up some Goldman Sachs too?

Anyway you know the GFC has gone Main Street when you start reading stories likes this one about Amex and the general state of consumer finance. Guess I wont be getting any of those 'you have automatically been approved for a $20,000 loan' credit card offers this year.

Amex and GE - surely they wont bail-out the trinket financiers as well? Ouch its gonna hurt!

Marketwatch:
American Express offers some holders $300 incentive to cancel accounts

By Lauren Pollock
Last update: 1:59 p.m. EST Feb. 23, American Express is offering a $300 incentive for customers to cancel their accounts as the card issuer grapples with surging loan delinquencies and soft card-member spending.
The company is offering a $300 prepaid card, which can be used anywhere American Express is accepted, to certain customers who pay off their entire balance between March 1 and the end of April. Enrolling in the deal automatically cancels the customer's account, regardless of whether he successfully pays off the balance.

GumbyLearner · 24 February 2009

Bushman said:
I am watching the action over at General Electric. Could be a real doozy if GE falls into further trouble.

Should have stuck to white goods!

GE and Hilary look to China.

China Hands: U.S. Charts New, Greener Course on China Relations

http://blogs.wsj.com/environmentalc...charts-new-greener-course-on-china-relations/

record, lower per-capita emissions of greenhouse gases: “But this year the Chinese surpassed us. And we can’t look at per capita basis, we have to look at absolute emissions, and how we reverse that.”

She also threw down the gauntlet on the role developing countries will have to play in crafting a successor to the Kyoto climate protocol: “It is also clear that it is not only the developed countries, it is economies like China and India that have to become full partners.”

But China has reason to be pleased with the new approach, too. Ms. Clinton specifically defended China’s right to economic development, which is part and parcel of the administration’s environmental approach to China, as outlined by Mr. Stern, the climate envoy. “The people in China deserve to have a rising standard of living,” Ms. Clinton said””they just shouldn’t repeat the mistakes made in the West.

And what was the backdrop to it all? A new, hyper-efficient gas-fired power plant outside Beijing that heats one million homes (and the U.S. embassy) with half the emissions of China’s regular power plants. That plant was a joint project using General Electric’s technology and Chinese-built turbines””further evidence that companies like GE that straddle the old- and new-energy landscapes are well-positioned to benefit from the new approach.

“This is the kind of thing that we need to do more of. It is creative, it is effective, and it is rofitable,” said Mr. Stern.

gfresh · 24 February 2009

Interesting perspective on the UK middle class being walloped.

http://www.telegraph.co.uk/news/4788246/UK-recession-how-are-the-Coping-Classes-faring-now.html

Excerpt.. how many in Australia are at the moment believing the same down the bottom?

Lorraine Smallwood, a solicitor from Solihull, was shocked to the core when she was made redundant last summer. Smallwood, 43, who is single, specialised in conveyancing and had made partner in a local law firm. But when the bottom fell out of the property market, she found herself laid off, and hasn’t worked since.

“I was absolutely devastated,” she says. “I’ve always put my career first and given my all to work, and becoming partner had always been my ambition.

“I thought I was in a stable profession and that I would be with the firm for the rest of my working life, but now I’m left scouring the internet every day, looking for job vacancies and wondering how I’m going to pay my huge mortgage.”

Smallwood admits she didn’t see the recession coming. When work started drying up in early summer, she assumed the market would right itself, and, with a few adjustments, the sector would continue to thrive.

“I thought that people would always buy houses, regardless of what was going on in the wider economy, but things didn’t pick up and the situation is dire. I’ve never known anything like it in 25 years.”

Aussiejeff · 24 February 2009

My impression of where the world is at right now is "an awful lot of politicians & treasury officials making an awful lot of vague speeches in trembling voices, to try and instill confidence".

Frankly, I don't think their game is working to plan. The jig might almost be up....

MrBurns · 24 February 2009

Aussiejeff said:
My impression of where the world is at right now is "an awful lot of politicians & treasury officials making an awful lot of vague speeches in trembling voices, to try and instill confidence".

Frankly, I don't think their game is working to plan. The jig might almost be up....

It could go either way, we dont know who owes how much to who. I really think we are on a precipice and the object now is to protect capital, you can move it to gold to cash to shares but you dont know what will happen if there is a major collapse of the system.

I just moved a lot of cash to the Commonwealth Bank to split it up to protect the Govt Guarantee entitlement , beyond that I'll buy property but not at the KRudd bribe and zip interest rate, artificially inflated prices.

Glen48 · 24 February 2009

Maybe some more facts might help the experts to decide:
from Money & markets
Indeed, just in his first month in office, President Obama has quickly earned the distinction of becoming the single biggest spender in history.

First, he got Congress to pass a $787 billion stimulus package ...

Next, Treasury Secretary Timothy Geithner unveiled the administration's bank bailout plan, which could cost up to $3 trillion.

And last week, Mr. Obama rolled out his $275 billion anti-foreclosure plan.

Add it all up, and it comes to more than $4 trillion, an amount nearly ten times larger than the budget deficit for all of 2008. All in just 32, short days!

Four trillion is such an immense number that few people can grasp how massive the implications really are ”” both in terms of the great magnitude of disease and the massive unintended consequences of any cure.

Look at it this way: If you were a very rich man living at the time of Christ ... and you could have started saving $1 billion per year every year thereafter, you'd still be only half way there! You'd need still another 2000 years to finance what Obama has committed to spending in just the one month since he began his presidency.

If you could borrow $4 trillion at 6% interest, your interest payments alone would be $240 billion per year, $548 million per day, $761,000 per second.

Julia · 24 February 2009

Is anyone prepared to paint the scenario of just what would happen if world political leaders, in conjunction with central banks, all just decided to cease their current bail out stimulus actions and just allow the GFC to take its course?

i.e. what would happen with banks?

with property?

with shares?

with employment?

Bushman · 25 February 2009

Glen48 said:
Add it all up, and it comes to more than $4 trillion, an amount nearly ten times larger than the budget deficit for all of 2008. All in just 32, short days!

Four trillion is such an immense number that few people can grasp how massive the implications really are ”” both in terms of the great magnitude of disease and the massive unintended consequences of any cure.

The Chinese stimulus package is around the $4 trillion mark as well and no one bats an eye lid

Couple of facts for ya:
1. The erosion of wealth across the globe brought to you by our friend the GFC (sounds like the BFG, just not so friendly) is estimated by the World Bank to be A$92trillion. Obama's stimulus package is just a drop in the ocean when compared to that bad boy.
2. Current capital in the US banking system is $1.4 trillion versus $2 trillion in total estimated loan losses. They are insolvent friends and should be nationalised - but they wont be due to a 'head in the sand' irrational adherence to free market principles at all cost.

This is big baby, real big, and it needs a big response if we want to return to 'normal' service. Now if it is the right thing to do in the long-term, well history shows that government intervention just shifts the problem to another generation. The thing to watch here and judge OB on will be in a few years to see if he has the will to wean US privates off the hand-out trough.

My 2c

MrBurns · 25 February 2009

Julia said:
Is anyone prepared to paint the scenario of just what would happen if world political leaders, in conjunction with central banks, all just decided to cease their current bail out stimulus actions and just allow the GFC to take its course?
i.e. what would happen with banks?
with property?
with shares?
with employment?

Probably what will happen anyway, only faster.

The intervention also creates ongoing problems into the future.

tasmart · 25 February 2009

Julia said:
Is anyone prepared to paint the scenario of just what would happen if world political leaders, in conjunction with central banks, all just decided to cease their current bail out stimulus actions and just allow the GFC to take its course?

i.e. what would happen with banks?

with property?

with shares?

with employment?

I am more worried about the potential outcome if they are wrong and the 'stimulus packages' don't improve the situation. Then we we have very broke governments in enourmous debt who can't cover their interest payments.

The scenario then is massive public sector job losses and potentially massive default of govt debt.

Then the s**t whill really hit the fan!

numbercruncher · 25 February 2009

tasmart said:
I am more worried about the potential outcome if they are wrong and the 'stimulus packages' don't improve the situation. Then we we have very broke governments in enourmous debt who can't cover their interest payments.

The scenario then is massive public sector job losses and potentially massive default of govt debt.

Then the s**t whill really hit the fan!

very possible situation ....

Aussiejeff · 25 February 2009

Miracle worker Benny "Chopper" Bernanke makes uber-optimistic speech that US will recover strongly later this year.

US markets soar. To the extent that he may well have included this subliminal message -

"Believe, oh supplicants, believe! Have faith in us, The Messiahs. And Heaven on US soil shall be yours......"

Glen48 · 25 February 2009

Watching some Dr. from ABN Amro on ABC last night he claims we are in a credit squeeze not a bubble.

Beej · 25 February 2009

Glen48 said:
Four trillion is such an immense number that few people can grasp how massive the implications really are — both in terms of the great magnitude of disease and the massive unintended consequences of any cure.

Look at it this way: If you were a very rich man living at the time of Christ ... and you could have started saving $1 billion per year every year thereafter, you'd still be only half way there! You'd need still another 2000 years to finance what Obama has committed to spending in just the one month since he began his presidency.

LOL - if you ACTUALLY did really "save" $1B per year every year since the time of Christ, you would have a fortune FAR greater than the 4 trillion you are trying to demonstrate the size of.

In fact, even if you only earned 3% compounding interest on the FIRST $1B you saved in that first year, today you would have more than $60 TRILLION TRILLION!! (Yes that trillion is there twice).

Cheers,

Beej

Uncle Festivus · 26 February 2009

Ben "Bullwinkle" Bernanke thinks the worst might be over and all will be rosy in time for Christmas; the annual 'second half recovery' prediction.

If the worlds creditor nations are doing it tough, basically falling of a financial cliff, who's going to finance the US debt?

Feb. 25 (Bloomberg) -- Japan’s exports plunged 45.7 percent in January from a year earlier, resulting in a record trade deficit, as recessions in the U.S. and Europe smothered demand for the country’s cars and electronics.
The shortfall widened to 952.6 billion yen ($9.9 billion), the biggest since 1980, the earliest year for which there is comparable data, the Finance Ministry said today in Tokyo. The drop in shipments abroad eclipsed a record 35 percent decline set the previous month.
Exports to the U.S. tumbled an unprecedented 52.9 percent from a year earlier, and shipments to Asia and Europe also posted the largest-ever declines as the global recession deepened. The collapse is likely to force Japanese companies to keep firing workers and closing factories, worsening an economy that shrank the most in 34 years last quarter.

http://www.bloomberg.com/apps/news?pid=email_en&refer=japan&sid=aLFHweAZae38

MrBurns · 26 February 2009

Uncle Festivus said:
Ben "Bullwinkle" Bernanke thinks the worst might be over and all will be rosy in time for Christmas; the annual 'second half recovery' prediction.
If the worlds creditor nations are doing it tough, basically falling of a financial cliff, who's going to finance the US debt?

No one will finance it, in fact China might start asking for some back it's all about confidence building now they're starting to run out of bullets. Confidence wont pay off the debt or put food on the tables of the unemployed though.

Trembling Hand · 26 February 2009

Uncle Festivus said:
Ben "Bullwinkle" Bernanke thinks the worst might be over and all will be rosy in time for Christmas; the annual 'second half recovery' prediction.

What do you call an economist with a prediction?

Wrong!

The Global Financial Crisis

Uncle Festivus

Bushman

nunthewiser

Bushman

GumbyLearner

gfresh

Aussiejeff

MrBurns

Glen48

Money can't buy Poverty

Julia

In Memoriam

Bushman

MrBurns

tasmart

numbercruncher

Beware of Dropbears

Aussiejeff

Glen48

Money can't buy Poverty

Beej

Uncle Festivus

MrBurns

Trembling Hand

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