Message: World Banking & Dollar Crisis
** On Dec 27th, Hu Xiaolian, director of China’s Foreign Exchange wrote, “If the US federal funds rate continues to fall, this will certainly have a harmful effect on the US dollar exchange rate and the international currency system,”
** WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke is telling Congress the nation's country's economic outlook has deteriorated and is signaling that the Fed is ready to again lower interest rates to steady things.
** FDIC Chairman Bair, recently testified at the U.S. Senate and said: In 2009, more than 1.7 million adjustable subprime mortgages (ARMs) are scheduled to be reset upwards.
The future for the American economy looks very uncertain. One bank failure could cause a domino effect across the entire economy that would result in a cataclysmic vortex of wealth destruction.
** WASHINGTON (Thomson Financial) - The growing financial problems of major banks are raising the risk of a worldwide credit crunch, the Managing Director of the International Monetary Fund (IMF) warned today. FEB-13
** (Bloomberg) -- UBS AG said the world's banks may have to write down an additional $203 billion. Feb. 15
** “The auction-rate securities market is unwinding and most of the market will enter a failed state,” said Alex Roever, fixed-income strategist at JPMorgan. “The lack of confidence is the contributing factor and there is a risk this type of structure will go away.”
“With a total size of $330bn and roughly half of that held by individuals, a significant, albeit likely short-lived, liquidity crunch is again emanating out of the credit markets,” said Jeffrey Rosenberg, head of credit strategy at Banc of America Securities. He estimated 80 per cent of auctions held on Wednesday had failed. This is in the region of $29bn, traders said.
Other banks to have withdrawn support for recent auctions include Goldman Sachs and Lehman Brothers. “This is not a credit issue, but one of liquidity,” said Mr Roever. “Dealers hold more paper than they wish . . . The investor base has backed away and . . . these auctions cannot clear.”
** The G-10 central banks will tolerate an upward creep in global inflation, “Downside risks to the US economy are the most important factor for Federal Reserve interest rate policy for the time being,” said Chicago Fed chief Charles Evans on Feb 14th. “The Fed’s focus needs to be on those risks, even though inflation has been running a bit higher than we would like.”
** The Bank of England( BoE) projected an economic slowdown to zero percent in the first two quarters of 2008, with a high probability that the UK economy will contract in at least one quarter. BoE chief Mervyn King’s message was blunt. “Tighter credit conditions will bear down on demand, while rising energy, food and import prices will push up on inflation. Both developments are now more acute than in November,” he warned. FEB-13
Mr King says the BoE is powerless to counter surging commodity prices, which he believes “will result in a genuine reduction in our standard of living. However, there is no point in us going mad and pretending it is sensible to double interest rates in order to bring inflation back to target in the next six months,” he argued. Instead, King thinks that slower growth over the coming year will “reduce pressures on capacity” and bring inflation down to target towards the beginning of 2009.
** OPEC may abandon the US dollar for pricing oil and adopt the Euro, said OPEC Secretary-General Abdullah al-Badri on Feb 8th. “Maybe we can price the oil in the Euro. It can be done, but it will take time. It took two world wars and more than 50 years for the dollar to become the dominant currency. Now we are seeing another strong currency coming into the frame, which is the Euro,” said Badri.
"If we are wise, let us prepare for the worst."
(President George Washington, 1732-1799)
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