The U.S. Financial System Is Effectively Insolvent

Forbes ^ | 03/05/09 | Nouriel Roubini

[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.

[Little Ray]

Only if your money is in precious metals... Otherwise inflation will destroy it.

[houeto]

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.

You are so right. I wrote myself a note many months ago to get that done but haven't. Thanks for the reminder.

[dennisw]

De nada!

[Gothael]

Ok I’ll bite, why would a passport be important now?

[1rudeboy]

For the false sense of security, I gather.

[dennisw]

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.

That's my guess too. The 0bammy people seem very very concerned about an AIG default. They keep feeding it to keep very toxic credit default swaps afloat. Keeps delaying the grim reaper, the day of reckoning. That's my take

[pierrem15]

Just look on the bright side: with a zero value, you’ve eliminated all your downside risk!

[GOPJ]

Thanks for the ping.

[Evil Slayer]

Things to do: go to post office and fill out forms for pass ports for wife and me as well as call up kids and make sure they do same. Also, make a big decision on whether to cash in my CDs prior to Sept ‘09 maturity. Store it in safe I’m getting per my post #23 in $1 - $5 and $10 denominations instead of $100s. Might need a bigger safe if do that. Consider Federal Reserve Notes. Gosh, going to be busy. Any other suggestions?

[Petronski]

Obama is pushing the market down to scare people.

Uh....it's working.

[houeto]

Any other suggestions?

Water, MREs, first aid and medicine.

[Tempest]

Well I’m glad that all those bankbailouts have really worked....

[dennisw]

$1 - $5 and $10 denominations instead of $100s........

100s and 50s are OK too
Your bank just might report a withdrawal above $10,000
If you plan to get say $9000 in $10 bills then call them in advance and tell them you want the teller to count them out with you in a private room. You can do that for any large withdrawal. Who wants snoops

Banks don’t like large cash withdrawals. It’s a hassle

If you live near Canada I would consider a bank account there. Best banks in the world

[An Old Man]

will be cashing all my certificate of deposits soon in $100 denominations. Obama can just go ahead and let the banks tank

I like your new safe, but; what are you planning to do with the $100 Federal Reserve Notes whan the currency goes to hell and they are worth no value?

Not picking on you. I just need to know what to do with that stack of $100's that are making a lump in my mattress.

[CottonBall]

There was a run at our local gun safe store when we were buying our new safe. Unfortunately, we’ve filled the thing up and need another!

[dfwgator]

They were only off by 11 years.

[CottonBall]

Classically, "second derivative" is "acceleration (or deceleration)", and seems to fit in the context here.

NOW I finally get it. I've heard the term applied to finances and never really paid attention. But now it makes sense if it's related to calculus.

[CottonBall]

Gold, foreign currencies spread/diversified over a number of them, e.g. long-term prospect countries with good economic fundamentals (i.e. they still MANUFACTURE and have or will have healthy internal demand and burgeoning middle classes),

Which countries do you think fit this description? While nobody is buying, being able to manufacture things may not be that beneficial. But it's likely better than a country that has no capability. What do you think of Switzerland?

[Evil Slayer]

Not picking on you. I just need to know what to do with that stack of $100's that are making a lump in my mattress.

Good question. I can only do so much. Got Water, MREs, first aid and medicine like others suggested. Got guns and ammo. Getting passports. Cashing in CDs for small denomination currency and doing it discretely with the banks. Checking into other things as well.

Wife says "she's worried about me posting on open threads like this" so will be replying via private mail from now on. Wife rules. :-)

I'm outta here.....

[CottonBall]

I also need to do the passport bit.

Store some basic necessities - food, water, toiletries. Some of these items can be more useful as barter than silver or gold.