Graphic Depiction of Finance Crisis
Nice collection of charts and graphics over at the BBC. These two are my favorite:
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Source:
Finance crisis: in graphics
BBC, Friday, 3 October 2008
http://news.bbc.co.uk/2/hi/business/7644238.stm
Sunday, October 05, 2008 | 07:11 AM | Permalink
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Barry, I love your blog--please carry on with your own stance and don't let the MSM idiots get you down. I just wanted to throw out one theme for ending the crisis (although perhaps the settlement of the Frannie CDS's tomorrow will not be as traumatic as many suppose and that will ameliorate some of the short-term cash flow issues.) The quote is attributed to the prime minister of Portugal after the traumatic Lisbon Earthquake in the eighteenth century. When asked how to respond to the apocalyptic destruction, the Marquis of Pombal supposedly said, "Bury the dead and feed the living." Triage is never a first choice, but sometimes necessary for the greater good.
Anyway, I thought you might like the quotation, and thanks again for being one of the good guys.
Posted by: ButwhatdoIknow | Oct 5, 2008 7:31:40 AM
dont forget Hypo Real Estate from Germany on Monday ;-)
Best regards
snobtrader
Posted by: snobtrader | Oct 5, 2008 7:43:13 AM
Snob, does that mean your shorting the FXE? What, in your opinion is the best way to play it?
Posted by: JustinTheSkeptic | Oct 5, 2008 8:55:11 AM
My favorite comment, that I saw when taking high school geometry, was by Rene Descartes, who noted Cogito Erto Sum, or I think, therefore I am. Actually, it gives a reason for blog sites, and especially economic blog sites in times like these. People who think about where we are headed, and make their plans accordingly, should love old Rene. He may have been reasoning why he exists, but he could just as well have been talking about The Big Picture....
Posted by: Bruce in Tennessee | Oct 5, 2008 8:58:44 AM
ergo..sorry.
Posted by: Bruce in Tennessee | Oct 5, 2008 9:01:02 AM
BR: Your graphic gave me an idea...we can perhaps calculate when the credit morass will end, if we assume total credit as a % of GDP must revert back to 160% or so. The latest chart from Ned Davis as of 3/31/08 showed the percentage had not fallen one iota and hit 350%, with Debt at 49.614 Trillion and GDP at 14.190 T. Good news...I have just spent an hour or so surfing Federal Reserve and BEA sites and I can now update the chart myself...at end of 2Q, total credit stood at 51 T and GDP at 14.3 T, for a debt/GDP of 356%. It still rose in 2Q!!!! The next release of total credit is 12/11/08. So using the latest available data, despite all the writedowns, debt is still expanding???? Can anyone shed any light on that? Can we not trust these numbers? Here is the raw credit data from the Fed. It is crucial to understand this...who is familiar with these stats?
Posted by: Steve Barry | Oct 5, 2008 9:16:15 AM
Bruce,
I thought that that had been new&improved to: Vendito Ergo Sum (?)
But, regardless of Fashions, right you are.
Posted by: Mark E Hoffer | Oct 5, 2008 9:37:11 AM
I rather suspect that with debt being 350% of GDP and an average interest rate of, oh say 5%, giving total interest payments of 17.5% of GDP we have reached the point that we are increasing debt just to fund the interest. You know, like taking money from the HELOC to pay the mortgage. Yikes, this could end badly.
Posted by: pclema | Oct 5, 2008 9:41:09 AM
I think the problem is that as the Fed intervenes to avoid meltdown, with all their new credit facilities and the 700B bailout, THEY ARE CREATING MORE DEBT EVEN THOUGH THE ONLY WAY OUT IS TO REDUCE OUR DEBT!!! So those that say you can't solve a debt problem by creating more debt are 100% right. Debt/GDP would be contacting, if not for the adding of government debt to keep the total debt level flat or even higher. By far the largest category of debt is MORTGAGES...46% of nonfinancial debt. We cannot get out of this mess until that is allowed to contract through free market forces.
Posted by: Steve Barry | Oct 5, 2008 9:58:42 AM
Mark and Steve,
Will Hypo Real Estate affect markets next week...?
Posted by: Bruce in Tennessee | Oct 5, 2008 10:03:56 AM
Steve,
I think you're right. The FED is trying to delay the inevitable. Inflation or default, the only two solutions to insolvency. Debt that cannot be repaid will not be. The scales are falling from peoples eyes, that is why the markets are seizing up.
Posted by: pclema | Oct 5, 2008 10:13:54 AM
Bruce,
As you know, Of Course, it will. How? I know enough, to know what I don't know.
In this market, I think anyone who is saying: action X (e.g. Hypo) will lead to this play Y, is a candidate for some serious pyschotropics..
past that, y OT:
IRS undercover operations: Privacy invasion?
The bailout bill also gives the Internal Revenue Service new authority to conduct undercover operations. It would immunize the IRS from a passel of federal laws, including permitting IRS agents to run businesses for an extended sting operation, to open their own personal bank accounts with U.S. tax dollars, and so on. (Think IRS agents posing as accountants or tax preparers and saying, "I'm not sure if that deduction is entirely legal, but it'll save you $1,000. Want to take it?") That section had expired as of January 1, 2008, and would now be renewed.
Starting with the so-called Anti-Drug Abuse Act in 1988, the IRS has possessed this authority temporarily, with occasional multiple-year lapses. A 1999 internal report said the IRS had 126 "trained undercover agents" working in field offices at the time. This is the first time that such undercover authority would be made permanent.
Sens. Max Baucus (D) and Chuck Grassley (R) have been pushing to make it permanent for a while, claiming (PDF) in April that: "Undercover operations are an integral part of IRS efforts to detect and prove noncompliance. The temporary status of this provision creates uncertainty, as the IRS plans its undercover efforts from year to year."
There's another section of the bailout bill worth noting. It lets the IRS give information from individual tax returns to any federal law enforcement agency investigating suspected "terrorist" activity, which can, in turn, share it with local and state police. Intelligence agencies such as the CIA and the National Security Agency can also receive that information.
The information that can be shared includes "a taxpayer's identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, whether the taxpayer's return was, is being, or will be examined or subject to other investigation or processing, or any other data received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return."
That provision had already existed in federal law and automatically expired on January 1, 2008.
What's a little odd is that there's been little to no discussion of the IRS sections of the bailout bill, even though they raise privacy concerns. Treasury Secretary Henry Paulson said this week: "I will continue to work with congressional leaders to find a way forward to pass a comprehensive plan to stabilize our financial system and protect the American people by limiting the prospects of further deterioration in our economy." He never mentioned the necessity of additional IRS undercover operations.
http://news.cnet.com/8301-13578_3-10057618-38.html
Posted by: Mark E Hoffer | Oct 5, 2008 10:17:59 AM
I heard that China, Japan, and the OPEC countries were planning an LBO of the United States.
Posted by: D.L. | Oct 5, 2008 12:17:53 PM
Steve Barry wrote | Oct 5, 2008 9:58:42 AM
“think the problem is that as the Fed intervenes to avoid meltdown, with all their new credit facilities and the 700B bailout, THEY ARE CREATING MORE DEBT EVEN THOUGH THE ONLY WAY OUT IS TO REDUCE OUR DEBT!!!”
To avoid economic meltdown, “they”, in effect, are moving (bad) debt from the private to the public sector. And they are adding new public debt as well. So the question then becomes, can the US government itself avoid collapsing under the weight of such a huge surge in its debt?
The TPTB are probably hoping to avoid depression, muddle through the recession, and then reduce the debt later in better times. But the risk is that the necessary government injections, that can only be funded by more debt, become so great that default on some guarantees become unavoidable. We cannot guarantee / insure / bailout the entire economy, PLUS provide more stimulus to consumers. Well, we CAN make the promises, of course, but can the government actually payoff all those obligations should the worst come to pass?
And if they don’t payoff on some of them, what happens to the USD? It crashes. And what happens to long-term interest rates? They skyrocket. Then, in that case, without the ability to borrow additional funds from abroad at tolerable interest rates, bankruptcy of the US government could happen. Of course they are not going to allow bankruptcy or even default to occur, if at all possible. So the only alternative would be simply printing money to cover any shortfalls in outlays, and to prevent interest rates from reaching intolerable levels through excessive Treasury borrowing. And in a deflationary period, like we will be experiencing in the coming months or even years, printing money could work for a while. Although eventually it would, obviously, become very inflationary, and if things got bad enough, hyperinflationary.
Bottom line: borrow all you can now and buy gold, interest rates will go much higher in such a situation. Conversely, if you think the economy and the US Treasury will muddle through until better times, then you have no worries: just hold on to your job and save all the cash you can.
GLTA
Posted by: KJ Foehr | Oct 5, 2008 12:46:00 PM
A pity that the last chart didn't take one more step back and include the $60T CDS exposure ...
Posted by: constantnormal | Oct 5, 2008 10:05:20 PM
Posted by: constantnormal | Oct 5, 2008 10:05:20 PM
cn,
at the behest of their 'Green' Masters, they had to exclude that nugget of Reality for concern of Ink & Paper 'Waste'..according to the Memo from PR, anyways..
Posted by: Mark E Hoffer | Oct 6, 2008 6:07:17 AM
