cardboardbox?Youwerelucky
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Grim Reading - IMF Report on Global EconomyDon't read if you prefer to keep you head in the sand 
| Quote: | Quite simply devastating.
The latest report from the IMF is grim reading. You know that sometimes economists and bankers – and technically the people at the IMF are bankers, of sorts – couch their words in sentences full of ambiguity. Imagine a banker describing the danger of the beheading of Charles I and he would say something like: “The Royal’s higher appendage could, under continuing circumstances, become separated from the links interconnecting the torso, via the mechanism implicit in the exercising of the executioner’s axe.”
But the IMF didn’t do that. Instead, it just said it like it is, and it is a tale of woe. The IMF provided warning on the prospects of European house prices, it revised its projections for 2009 and 2010 downwards, and while the UK came out badly, it is by no means expected to be the worst afflicted of the developed world.
But the real bombshell relates to expected future bank losses – it seems we may not even be a third of the way there yet. The expected fate of the property market and the continuing misfortune of Germany will be covered in the article below.
But first, let us take a closer look at the big firework.
The IMF reckons total losses Stateside, relating to all losses suffered by all financial institutions over 2007–10 will amount to $2.7 trillion. Back in January, it had predicted $2.2 trillion. But globally, it is estimated total losses will now come in at $4 trillion.
But the key sentence from the IMF is this one: “So far, banks have recognized less than one-third of estimated losses, and substantial amounts of new capital are needed.”
The IMF says additional capital would be required (measured as tangible common equity) amounting to $275 billion–$500 billion in the United States, $475 billion–$950 billion for European banks (excluding those in the United Kingdom), and $125 billion–$250 billion for UK banks.
The problem is that the crisis has migrated from the subprime debacle that kicked things off. To begin with, a financial meltdown caused an economic crisis. But now the economic crisis has led to more defaults, it is leading to business failures, and a crisis in emerging economies, especially in Eastern Europe.
Usually, financial crises are limited to one region, or sector. So while the Asian crisis of 1997 and the Russian crisis of 1998 were serious – and for the countries concerned catastrophic – the global financial system was largely able to shake off the effects.
But this time around, everything seems to be failing in synchronization.
Mind you, it could be argued that it was the bailout of the financial system in 1997/98 that in part caused this crisis in the first place. Because banks got away with their reckless lending of the mid 1980s so lightly, they promptly repeated their errors.
This is why it is so tempting to conclude that we should just let banks go bust, and make them pay the price for their errors. It is the only way the financial sector will learn.
It is just that it is possible such a collapse will send us all back to the Stone Age – but as that would be a Stone Age with nuclear weapons, it may not be such a good idea.
So, nationalizing banks may be the only alternative. Well, in the UK we have already gone down that road, but in the US there is massive resistance to this.
Shareholders don’t like it, of course, but then again, they were complicit in the build up to the crisis. It was shareholders who enforced a short-termist outlook among banks, who expected the banks to grow year in, year out, and slated the more prudent and risk averse institutions and management.
Until the US banks which are most in trouble are nationalized, the banking crisis will just keep plunging deeper into the mire. |
Oh cock!
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ArmleyWhite
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This is a very carefully engineered method of changing the structure we have at present to one of control. Senior world leaders are now OPENLY talking of the new world order. It WILL happen, maybe not overnight, but it is coming and the present situation is the road down which we are presently travelling!!
This present situation IS not accidental.
The first bricks in a New World Order
Published: April 2 2009 19:31 | Last updated: April 2 2009 22:44
Some useful progress, but still a way to go. That must be the conclusion of the Group of 20 summit in London. Gordon Brown, UK prime minister and chairman of the meeting, set out a six-point plan to save the world. This reflected some real achievements: a generous increase in funding for the International Monetary Fund, a new issuance of special drawing rights and a boost for trade finance. He sounded disappointingly thin on other key areas – notably cleaning up banks and future fiscal stimulus. More detail would have been reassuring.
Mr Brown cast the G20 meeting as part of a co-ordinated “fight back against the global recession” and said the “global crisis requires a global solution”. We may doubt aspects of the solution, but the crisis is undeniable. World growth is expected to decline this year for the first time since the second world war. The World Trade Organisation expects that trade will fall by 9 per cent – a worrying prospect.
It has also become clear that this crisis will not soon burn itself out. An important part of John Maynard Keynes’ works was his explanation of how economies could be caught in low growth traps. The longer the recession, the greater the destruction of happiness. An extended downturn will also increase the risk of the crisis expanding and deepening far beyond its current spread. In new democracies, whether in Africa or central and eastern Europe, this is a moment of genuine peril. In some poorer countries, it could even lead to war and famine.
One particular risk is a potential financial crisis in emerging markets, which could spread rapidly through a region. The prospect of this is stronger the longer recovery is delayed. Countries have already sought help from the IMF recently. More could follow. It is essential that the Fund has the resources to prevent local problems becoming international. A financial crisis in eastern Europe, for example, would be miserable enough. But it would transmit losses through banks across Europe. The world does not need another subprime crisis.
The G20 pledge to increase the IMF’s resources by $500bn, therefore, is extremely cheering. Some of the money had been allocated already. Nonetheless, it is an important achievement and a welcome sign that national governments see the role that such international institutions can play.
The proposed new issuance of $250bn of special drawing rights by the IMF would increase the world’s pool of reserve assets, freeing the hands of emerging and developing economies. It, too, is an excellent idea which will increase global liquidity.
The plan for $250bn over the next two years for trade finance is also welcome. The proposal is larger than expected, but is mostly drawing together existing programmes. It will be delivered through export credit agencies, investment agencies and development banks.
There is little to report on fiscal policy. No one country’s stimulus can rescue the world from the mire; the US is not in a position to revive world demand on its own – again. While deficit countries, such as the US and UK, must expand demand, the surplus countries must do their part and expand domestic consumption by more. The world needs to increase demand without increasing its imbalances.
The communiqué offers little credible commitment to this end. Perhaps it was unrealistic to expect much more. Arguments about stimulus generate much more heat than light; even apparently miserly Germany has committed to a large stimulus programme. The IMF has been invited to “assess regularly the global actions required” to “accelerate the return to growth”. If the IMF is robust, this might prove a useful mechanism for asserting accountability.
The weakest part of the package is the financial element. Banks are still gravely wounded. The financial crisis lit the fuse for this recession. It may also prolong the fire; the crisis will last much longer if major countries refuse to clean up their banks. Given the range of countries at the G20, a one-size-fits-all bank rescue policy was never feasible. But the absence of detail about a common approach to cleansing the banks of their toxic assets is extremely disconcerting. Stating vague commitments only serves to create fears that little substance lies behind the words.
The world is better for having held this summit. The possibility of dangerous contagion is lower and useful progress has been made across a range of issues, from the need to keep trade free to IMF quota reform. But leaders must remember that the crisis, which started in the banking system, will not be resolved until the banking system itself is fixed. That is where they must turn their attention now.
Source - Financial Times!!
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cardboardbox?Youwerelucky
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I find it hard to disagree AW
The 30's depression brought in many things that up to that point had been opposed
Wouldn't surprise me if this one does the same
Makes the zeitgeist movie a little bit more believable doesn't it 
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ArmleyWhite
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I allus thought that certain things mentioned on internet message boards was bollox. Over the last year or so, so many things that certain folk were preaching about have come true, EXACTLY how and when they said it would!!
Been looking into the Bilderberg group recently. Do some research yersen. It's very scary.
Just check out who the main members are and what they all have in common. They aint all American either!!!!!
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