Posted on 09/06/2007 12:03:01 PM PDT by SierraWasp
Global credit crunch batters Venezuela
Overnight lending rate climbs as high as 90% after central bank suspends open market operations
By Polya Lesova, MarketWatch
NEW YORK (MarketWatch) -- In a fresh example of how the global credit crunch is hitting emerging markets, Venezuela's overnight lending rate climbed to as high as 90% Thursday after the central bank said it has suspended open market operations meant for pumping liquidity into the market.
(snip)
"This story is not an isolated Venezuela story, but rather a developing trend," he said, adding that money markets in both developed and emerging markets aren't functioning well at the moment.
(snip)
Russia is another example of an emerging market that's suffering from the global credit crunch, Christensen said. "There's no or very little liquidity in the market. That has led smaller banks to halt their lending activity."
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More trouble ahead for Venezuela
Venezuela, a founding member of the Organization of Petroleum Exporting Countries, was the world's eighth-largest oil exporter in 2005. The huge oil revenues have fueled the country's rapid economic growth.
Venezuelan President Hugo Chavez, a vocal critic of the U.S., has pledged to nationalize assets in important industries such as electricity, oil and mining. Chavez has consolidated his power over the country, controlling Congress, the judiciary and the army.
"The squeeze in the Venezuelan money market also has to be seen in the light of investors reducing exposure to high-risk markets," Christensen said. "Despite increasing political and economic problems in Venezuela, money has been pouring into the Venezuelan markets. This might very well be coming to an end."
Christensen said he has a bearish view of the Venezuelan economy and markets for several reasons, including Chavez's authoritarian regime, reckless and pro-cyclical fiscal policies, very high inflationary pressures and a rapidly shrinking current account surplus.
(Excerpt) Read more at marketwatch.com ...
Yeah. High-risk markets like ... Venezuela. I hear Zimbabwe has a credit squeeze too.
(grin)
People forget, just why the spigot was turned on, in the first place. 9/11, on top of the dot.com bust, threatened to throw our country, and the world, into a severe recession. So, the easy money began to flow. Was this merely delaying the inevitable, or are we going to be able to muddle through without major economic distress? Up until the past month or two, I leaned to muddling through. But, with lenders in a panic and liquidity all but seized up, despite major infusions by the US, EU, Japan and others, I just don’t know. This has all the hallmarks of a classic bank run, but it’s outside of the traditional banking sector.
How can you leave out the economic damage caused by Greenspan's interest rate hikes in 1999/2000?
Interest rates weren't all that "high," historically speaking, at that time, nor are they high at all at the present time. And, even if I accepted the notion that they were, there is more to the interest equation than lending. Savings produce a much higher level of return, so it's not even close to being a universally bad thing.
Do you honestly believe that the US economy would have slid into a technical recession in late 1999, if it were not for the tech "bubble" bursting?
By the time Chavez gets his 20+ year death grip on the “Presidency” it will no longer matter what the Venezuelan economy looks like. Chavez will have his palaces and a large military loyal to him and his people will just be grist for the mill.
And they will deserve every miserable moment of it.
while money may be running away from Venezuela banks, pretty sure ‘the credit crunch’ ain’t the reason! Chavez hyperinflation along with all his other ‘new ideas’ more likely to blame!
Chavez is like a poster child for our Congress....lotsa new ideas and taxes! The results will be similar if either are successful!
Possibly but not in the league with major depressions of the past. The one factor that stands out is that developing, emerging, and former communist countries will be hit harder. The stable developed countries will muddle through.
Over what time period, because I can find time periods where rates were much lower? All that matters is that rates are high enough to slow down the economy in the current time period.
A big factor in the slowdown, especially for tech was the end of Y2K remediation. What Greenspan did with interest rates was overkill. It should be clear from statements from the Federal Reserve, both now and in the past, that their intention by raising interest rates is to slow the economy down, or as I like to put it, do economic damage.
ouch, how’s that feel Chavez??? The Great Satan of South America can’t be too happy today - makes me shout with glee.
In my way of thinking... This is clearly because Bill Clinton and the Democrats, especially in the Senate, deliberately tore down all the walls between banks, insurance companies and big brokerage firms erected immediately after this country's last big run on banks that required a "bank holiday," we've been as exposed to this "crisis" as we were to 9-11-01 because of the walls Gorelick erected between the FBI and foreign intelligence agencies!!!
Just like Carter raising the FDIC insurance just before the S&L crisis and a whole bunch of other DEMOCRAT induced BS like Chris Dodd changing the auditing requirements just before ENRON and Arthur Anderson crashing and burning!!!
Just about every "crisis" has been DEMOCRAT INDUCED!!! Think about it...
I completely agree with your Y2K remediation. I was working in Silly Valley at the time and my #1 fear was that the “stunning growth” of 1999 was merely a lot of replacement of non-compliant equipment/software being pushed into 1999 as a rapid remediation of Y2K problems.
It turned out that my fears were 100% right as the first quarter sales numbers started coming in all over the industry — the spending had been pushed into 1999 and by March of 2000, we were seeing the sales numbers drop off a cliff.
All through March to December of 2000, analysts kept on pimping stocks of companies saying that sales were going to be coming back. Uh, no, they weren’t. The amount of spending pushed into 1999 basically consumed the IT budgets of corporate customers for the next *three* years.
Greenspan was deliberately targeting the dot-bomb equity bubble. He kept raising rates and raising rates and raising rates until he broke the bubble. The thing is, he *caused* the bubble by injecting far too much liquidity bailing out banks and investors in LTCM, then waited far too long to reel that liquidity back in.
We’re seeing this replayed now, as the Fed targeted housing price appreciation instead of tech stocks. Greenspan himself said in the Jackson, WY conference of 2005 that “recently, central banks have found that they’re too often having to target asset class valuations rather than economic activity” (or words close to that) and that was a tip-off for me: he was admitting that he was playing games that central banks should not do: determining what is a “correct” valuation for an asset class, rather than allowing the market to do it.
That quote is exhibit #1 in my list of reasons to eliminate the Fed.
It happened during the Clinton era, yes, but I don't recall many Republicans being dragged, kicking and screaming, into agreeing with it, outside of Ron Paul. Tough to make this a partisan issue. Clinton signed NAFTA into law, too, but who sent it to him for signing? A Republican majority.
They targeted the rate of economic expansion in order to prevent "overheating," with a goal of around 2%, and still do. This has since been perverted into overt wage suppression in recent years, though. That's why we get all the song and dance about illegal labor being good for the economy. Something is seriously adrift, that much you and I appear to agree upon. I'm just not too certain that we agree upon the actual source or sources of the problem. Bernanke has made a few statements that lead me to believe he's quite the socialist fan of wealth redistribution, and that disturbs me to no end. Greenspan was put on a pedestal, and began to believe his own press, imho. But, is the Federal Reserve System, in and of itself, such a bad thing that it needs to be ditched? I'm none too sure about that.
It’s not a credit crunch, to be precise. A credit crunch is when NO lending happens. The last credit crunch was in 1966, when the statutory rate of interest banks were allowed to pay was less than the Fed Funds rate. So people put their money into t-bills instead of banks, and banks thus had no money to lend.
We are seeing a credit squeeze...
Your summary of the last 10 years of economic history is spot on.
Republicans disappoint me constantly, but Liberaltarians in many major ways scare the (bleep) out of me!!! I like their smaller government ideas and a lot of their "live and let live" philosophy, except where controlled substances are concerned because of youthful ignorance being involved.
Yes. You are right! Republicans should have spoken up loudly. The only trouble was... So danged much stuff jumped out at them every danged day from the Clinton White House and CONgressional Democrat idiots that desecrated all out historical reasons for things and our great American traditions that nobody even had time to listen, let alone hear what a Republican here and there would happen to say right out loud!!!
Remember... Republicans have ZERO clout with the MSM, or DBM, if you prefer!!! The Media think the Repellicans should just stifle! Be seen and not heard, like children!!! Only DEMOCRATS rule by divine right in this country because they like government by whim!!! (that's way more exciting and newsworthy, don'tcha know?)
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