Oil price slump to trigger new US debt default crisis as Opec waits

Remember the global financial crisis, triggered six years ago when billions of dollars of dodgy loans - doled out by banks to subprime borrowers and then resold numerous times on international debt markets - began to unravel and default?

Stock markets plunged, banks collapsed and the entire global financial system teetered on the brink of catastrophe. Well a similarly chilling economic scenario could be set off by the current collapse in oil prices.

Based on recent stress tests of subprime borrowers in the energy sector in the US produced by Deutsche Bank, should the price of US crude fall by a further 20pc to $60 per barrel, it could result in up to a 30pc default rate among B and CCC rated high-yield US borrowers in the industry. West Texas Intermediate crude is currently trading at multi-year lows of around $75 per barrel, down from $107 per barrel in June.

“A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle, if materialised,” warn Deutsche strategists Oleg Melentyev and Daniel Sorid in their report.

. The Long Depression happened pre-Fed.

Let me know if your understanding is different, but what I got is that when I described deflation affects to goldstategop, you raised the question of past history and I said the "last two times that we had deflation was early '09 and the early '1930's" and they were rough. What I'm getting here in post # 96 and #100 is that the hard times occurring with the last two deflation periods was because the Fed made the deflation bad when it would have been OK otherwise. I get you're offering the "pre-Fed" Long Depression as an example of how w/o the Fed wide spread deflation can be a good thing.

If that's what we got then off hand we were saying here that the 1873 - 1879 contraction was falling real wages w/ slower econ growth, but we don't want to run off on a Fed-bashing tangent. Policy matters and names don't. Fiscal irresponsibility and monetary blunders are bad no matter who's blamed and if we get market freedom and stable predictable prices I won't care what the name is of the office that's setting policy.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.