Posted on 03/05/2009 1:38:55 AM PST by TigerLikesRooster
The U.S. Financial System Is Effectively Insolvent
Nouriel Roubini 03.05.09, 12:01 AM ET
For those who argue that the rate of growth of economic activity is turning positive--that economies are contracting but at a slower rate than in the fourth quarter of 2008--the latest data don't confirm this relative optimism. In 2008's fourth quarter, gross domestic product fell by about 6% in the U.S., 6% in the euro zone, 8% in Germany, 12% in Japan, 16% in Singapore and 20% in South Korea. So things are even more awful in Europe and Asia than in the U.S.
There is, in fact, a rising risk of a global L-shaped depression that would be even worse than the current, painful U-shaped global recession. Here's why:
First, note that most indicators suggest that the second derivative of economic activity is still sharply negative in Europe and Japan and close to negative in the U.S. and China. Some signals that the second derivative was turning positive for the U.S. and China turned out to be fake starts. For the U.S., the Empire State and Philly Fed indexes of manufacturing are still in free fall; initial claims for unemployment benefits are up to scary levels, suggesting accelerating job losses; and January's sales increase is a fluke--more of a rebound from a very depressed December, after aggressive post-holiday sales, than a sustainable recovery.
For China, the growth of credit is only driven by firms borrowing cheap to invest in higher-returning deposits, not to invest, and steel prices in China have resumed their sharp fall. The more scary data are those for trade flows in Asia, with exports falling by about 40% to 50% in Japan, Taiwan and Korea.
(Excerpt) Read more at forbes.com ...
you are correct it is a farther out border thought, however a failure of the FDIC where the reserves of families are wipped out does provide an unfettered opportunity for obama.
Ah but by that point, maybe he's done what he was supposed to do. More like retiring than being fired.
There we go, who says we never see the silver lining!
Probably the most prudent use of capital in a period of unstable secondary markets where mark to market is being used.
I’m not really worried about someone finding this safe or having to surrender the contents of it by force. I have certain security devices in place outside as well as inside the safe that will render the intruder helpless if they tried to take it by force or otherwise. But AmericanIn Tokyo has a point about the currency. I am well aware of what happened to the Confederate currency after the Civil War. I guess you can’t win them all if it gets bad enough. Hopefully, Gold will be enough to keep me afloat. That and my faith that, no matter what, God will win in the end. There is NOTHING that will defeat that kind of security.
Invest in precious metals, like gold, and lead wrapped in brass.
One thing that many are forgetting are pharmaceuticals. Are they going to be able to synthesize the meds that are needed?
We might see a bunch of dead patriots, each with crates of ammo surrounding their body and an empty heart medication bottle.
The $162 billion bailout of AIG is a nontransparent, opaque and shady bailout of the AIG counter-parties: Goldman Sachs, Merrill Lynch and other domestic and foreign financial institutions. So for the Treasury to hide behind the "systemic risk" excuse to fork out another $30 billion to AIG is a polite way to say that without such a bailout, Goldman Sachs and every other broker-dealer and major U.S. bank would already be fully insolvent today. And even with the $2 trillion of government support, most of these financial institutions are insolvent, as delinquency and charge-off rates are now rising at a rate--given the macro outlook--that means expected credit losses for U.S. financial firms will peak at $3.6 trillion. So, in simple words, the U.S. financial system is effectively insolvent.
There's going to be no recovery in 2009, or 2010. The US has changed for the foreseeable future. Maybe forever.
The Wall Street "masters of the universe" have taken care of that for us.
The AIG Financial Services unit has completely screwed the pooch. Thanks, Joe Cassano, Hank Greenberg.
That's a "Sunday-go-to meetin'" barrel.
Hyper inflation will wipe out your cash at hand plus people rightfully panic into gold and silver during a hyper inflation. But thankfully hyper inflations are very rare in history. One of Glenn Beck's guests made that point
Believe it or not the US Treasury has always delivered on T Bills...even during the Civil War. If for no other reason that screwing T Bill holders makes it more difficult to borrow in the future
Your green cash Federal Reserve Notes (FRNs) are also jealousy guarded as far as their integrity. They are legal tender "to settle all debts both public and private" and the USG will make sure it stays this way
We have deflation now same as in the 1930's and green cash under your mattress did great back then compared to being victimized by a bank failure, bank runs etc. Any inflation we get a few years from now will be tolerable--less that 10% and you can deal with your green cash then because it will indeed be losing value
But right now any green cash FRNs you have are gaining in value day by day due to the unusual deflation we have right now so no sweat. The biggest threat to FRNs is a new currency. There might be limits on how much old money you can exchange for new money. But the USA is so anarchic these days I don't think the USG can make such limits stick. A black market will arise among immigrants and others
Gold can be very hard to sell during "the chaos". Home invasion men will be scoping out gold exchanges and looking for you and me. Silver is better and gold wedding rings too. You don't look like a big shot with these items
Gold is what you want to preserve until after "the chaos" and the rebuilding phase starts with more law and order in place
You were previously posting that credit default swaps could be resolved without much impact. Thta's what happened when Lehman accounts were settled at total cost of three-four billion or so
Joe Cassano headed AIG's London office and took home 28 million in his best year. Earned by concocting credit default swaps. There should be claw back to get back money from this pirate, this traitor, this enemy of the people
Given the state of things, I’m surprised anyone making a living in or regulating finance has even heard of a second derviative, much less understand the concept.
Well it aint the first time I've been wrong and it probably won't be the last........ :-)
I think Lehman both bought and sold the swaps so things balanced out a little better.
AIG appears to have a huge exposure, by comparison.
Who's going to be able to break a $100 bill for some milk and bread? If deflation occurs, cash will be scarce.
What if banks came up with a new loan - one that compensates for drops in value. Rather than adjusted for inflation it would be adjusted for depression?
Not in my opinion. The financial disaster is much worse in Europe than here with several eastern European on the cusp of financial collapse. Western European countries are leveraged to the hilt with eastern European debt. IMO, if eastern countries start melting down financially, they will start a domino effect that will take western countries down with them, and the western European countries may very likely take us down with them. We are not only at risk of something happening in our country that could cause it all to come down around our ears, but an event somewhere else in the world could too.
If I did US cash, I would have a lot of it in $1s and $5s and $10s for precisely that reason. One thing is for sure. I might add....and I dont mean to alarm Freepers but if you ain’t marched down to the US post office and gotten yourself a U.S. PASSPORT you are WAY behind the curve here.
Excellent advice. Thanks.
You may wish to take an hour or so (it’s conveniently broken up into bite-sized segments) to view this truly excellent presentation about some of the challenges we face. There is 2-3% global warming BS, but the rest of it is superbly done. I highly reco it.
http://www.chrismartenson.com/crashcourse/chapter-16-fuzzy-numbers
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