The “majority” of the world does not have to own high yield bonds for the world to turn upside down. It doesn’t take much to get the ball rolling.
The drop in oil will cause the Russians to pull some junk in Europe with gas.
Its the folks who took their margins to the limits to invest in oil, thats who is going to get hurt. They will dump their assets to cover their debt. That will cause more deflation. And it starts a horrible spin out of control.
Too many people took out too much risk. For the average Joe on the street....they will not know what hit them when their jobs disappear and their 401ks are cut by 80%.
And yes, it could get that bad, that fast.
I am not saying it will, but consider if we have another Lehman situation...what will the Fed do? All of their ammo has been shot without great results. Are they going to drop their rates under zero? Or are they going to print more money?
Exactly. And you are right, it could easily get that bad that fast.
“I am not saying it will, but consider if we have another Lehman situation.”
Lehman went under because they had held on to some of the crappy mortgage paper that they had been cranking out. Poetic justice. No one writes that paper anymore because no one will buy it. We won’t have “another Lehman” for 70 years, the same amount of time it took for everyone to forget what Glass and Steagall knew.
“what will the Fed do? All of their ammo has been shot without great results.”
They prevented a banking collapse like we experienced over 1930-33. That time we had a 30% collapse of the money supply.
“Are they going to drop their rates under zero? Or are they going to print more money?”
If it’s a systemic problem they will buy bad assets to keep the banking system alive. If it’s not they let banks fail and roll the remaining assets into a healthy bank.
“Too many people took out too much risk. For the average Joe on the street....they will not know what hit them when their jobs disappear and their 401ks are cut by 80%.”
Risk got wrung out of the economy with the collapse of the housing bubble. There’s nothing close to that going on right now.
“Its the folks who took their margins to the limits to invest in oil, thats who is going to get hurt. “
Happens all the time in the commodities market. People who need to hedge their product have a reason to be there, everyone else is gambling. Anyone who does it on margin is a fool. Fools like that are a minute fraction of the number of homebuyers, which is why the housing bubble was a far greater problem.
“They will dump their assets to cover their debt. That will cause more deflation. And it starts a horrible spin out of control.”
They already had to put up collateral to cover their position. They will lose those assets. That’s not deflation. Deflation is a banking phenomenon where the money supply contracts because the assets underlying the banks’ loans disappear. Like when millions of mortgages default.
“The drop in oil will cause the Russians to pull some junk in Europe with gas.”
I have no idea what “pull some junk” is supposed to mean.
“The “majority” of the world does not have to own high yield bonds for the world to turn upside down.”
Actually they do. There was something on the order of $62 trillion floating around the world in credit default swaps alone at the top of the housing bubble.