You know it's a real financial crisis when capitalists are being told what to do by a bunch of socialists and communists. But these are the times we live in. Ironic and moronic.
The price of money is fixed by central banks via interest rates. For years, everyone followed the Fed's lead in the U.S. and set the price of money below rate of consumer price inflation. Australian mined. China produced. Europe traded. OPEC pumped. The U.S. spent.
Global bubbles in all asset classes ensued. That is a failure of the highest order by the regulators of global interest rates. Now politicians see massive wealth destruction and blame free markets for screwing things up when it was the non-market price of money that touched off the crisis to begin with.
The International Monetary Fund will probably enjoy some enhanced status. The IMF is already bailing out a bankrupt Iceland. It will loan US$16.5 billion to Ukraine. Before it's all over, we reckon Japan and China might even consent to loaning some of their huge dollar reserves to the IMF in exchange...for something
We all know how that's working out. Median U.S. house prices continue to fall. The loans made to finance those homes are going bad. The securities made up of bundles of those mortgages are rotting, taking bank capital with them. And insurance sold against default in them is putting the sellers of that insurance into great difficulty.
Europe, for its part, has a brewing problem in emerging market debt:
-Austrian banks are exposed to sovereign emerging market debt to the tune of 85% of GDP.
-Swiss banks have emerging market debt equivalent to 50% of GDP.
-It's 25% in Sweden,
-25% in the U.K., and 23% in Spain.
If more emerging markets go the way of Iceland and default on debt or go bankrupt, Europe's banking system faces major trouble. Just what we needed. MORE TROUBLE.
With thanks
Be and make
No comments:
Post a Comment