Crisis "could make 1929 look like a walk in the park"

[TrooperBari]

I know this shouldn't be a day for fretting over money and the uncertainty of the future, but ... holy crap? Hopefully it's just a bit of holiday hyperbole.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/23/cccrisis123.xml
http://www.washingtonpost.com/wp-dyn/content/article/2007/12/23/AR2007122302441.html?hpid%3Dtopnews&sub=AR

The money (sorry) quote from the Telegraph:

York professor Peter Spencer, chief economist for the ITEM Club, says the global authorities have just weeks to get this right, or trigger disaster.

"The central banks are rapidly losing control. By not cutting interest rates nearly far enough or fast enough, they are allowing the money markets to dictate policy. We are long past worrying about moral hazard," he says.

"They still have another couple of months before this starts imploding. Things are very unstable and can move incredibly fast. I don't think the central banks are going to make a major policy error, but if they do, this could make 1929 look like a walk in the park," he adds.

Interesting bit from the tail end of the story:

Quietly, insiders are perusing an obscure paper by Fed staffers David Small and Jim Clouse. It explores what can be done under the Federal Reserve Act when all else fails.

Section 13 (3) allows the Fed to take emergency action when banks become "unwilling or very reluctant to provide credit". A vote by five governors can - in "exigent circumstances" - authorise the bank to lend money to anybody, and take upon itself the credit risk. This clause has not been evoked since the Slump.

Yet still the central banks shrink from seriously grasping the rate-cut nettle. Understandably so. They are caught between the Scylla of the debt crunch and the Charybdis of inflation. It is not yet certain which is the more powerful force.

Leave it to the WaPo to put things in perspective:

It has left many wondering whether the dollar has lost its bling for good. Even rapper Jay-Z dissed the dollar in his recent video, "Blue Magic." In scenes celebrating the excess of wealth in Manhattan's shimmering glass canyons, the cameras cut repeatedly not to images of $100 bills -- but of crisp, 500 euro notes.

 

[dooley_womack1]

Don't you hate it when you get caught between the Scylla of one thing and the Charybdis of another?

 

[slappy4428]

Don't you hate it when you get caught between the Scylla of one thing and the Charybdis of another?

I had to have surgery the last time that happened...

 

[steveu]

Don't you hate it when you get caught between the Scylla of one thing and the Charybdis of another?

Ladies and gentlemen, dooley wrote "Wrapped Around Your Finger" for The Police.

 

[Guy_Incognito]

And Peter Spencer could be a serial killer. And "could" could be the biggest weael word in prognostication - "could" means never having to say your sorry.

 

[Birdscribe]

And you know something, the Fed and the rest of the world's central banks can cut interest rates two more points -- or 200 basis points for the economic literati -- and it won't do a damn bit of good until those lending money actually resume lending money.

Therein lies the problem. While the Fed's belated 1 1/4-point cut since September is needed, it's not freeing up credit. Companies still aren't lending money and Wall Street investment banks -- with Merrill Lynch and Citigroup leading the way -- are writing down billions in subprime mortgage backed securities. On top of nobody lending money, the uncertainty of how many more shoes will drop is continuing to seize up lending because there's no outlet for the securitization (the bundling and selling of paper) of the debt.

 

[king cranium maximus IV]

Already, however, the impact of the weaker dollar is growing. Rolls-Royce has proposed moving some operations from Liverpool to its factory in Mount Vernon, Ohio. Airbus has said it will shift more of its production to the United States, home turf of rival Boeing, to offset the cost of the stronger euro.

so basically, shiatty dollar = staving off the death of american manufacturing. hm..

 

[sportschick]

Lucky you. Guess you've never had a major expense come up or had to move cross country without the company paying your moving expenses.

 

[Football_Bat]

Already, however, the impact of the weaker dollar is growing. Rolls-Royce has proposed moving some operations from Liverpool to its factory in Mount Vernon, Ohio. Airbus has said it will shift more of its production to the United States, home turf of rival Boeing, to offset the cost of the stronger euro.

so basically, shiatty dollar = staving off the death of american manufacturing. hm..

As long as the dollar doesn't go like the Weimar mark ... it's a push.

U.S. goods become cheaper overseas and Euro goods become more expensive here, thus bringing in money. At the same time, U.S. stocks, bonds and money market funds are very unattractive to the Euro.

But that's only a small part of the big picture and does not include Asia.

I think there are way too many redundant economic structures in place to offset a 1929-like meltdown triggered by something as singular as a stock market crash.

But hey, a perfect storm ...

 

[Ben_Hecht]

Already, however, the impact of the weaker dollar is growing. Rolls-Royce has proposed moving some operations from Liverpool to its factory in Mount Vernon, Ohio. Airbus has said it will shift more of its production to the United States, home turf of rival Boeing, to offset the cost of the stronger euro.

so basically, shiatty dollar = staving off the death of american manufacturing. hm..

Sure, if you think selling huge slices of the country's major corporations to the Saudis is a groovy idea.