You Think Our Credit Crisis is Bad?
Tags: Asia, Europe.
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You ain’t seen nothing, yet – as Roger Kimball notes and quotes:
For the last few decades, the West has been pumping money into economic backwaters, taking care first to assure everyone that they were “emerging” markets. But what if it turns out that they only seemed to be emerging when propped up by easy capital, in the absence of which some or all of them reverted to being what they always had been, i.e., submerging markets? What then?
“Europe,” Evans-Pritchard observes, has already had its first foretaste of what this may mean. Iceland’s demise has left them nursing likely losses of $74bn (£47bn). The Germans have lost $22bn.” Demise? Iceland? Well, economically, it pretty much amounts to that: as a professor at the university of Iceland put it earlier this month, “Iceland is bankrupt. . . . . The IMF has to come and rescue us.”
But what happened in Iceland was only the beginning. The crash of so-called “emerging markets” is sending shock waves throughout Europe and parts of Asia. Evans-Pritchard sketches the dismal picture:
Austria’s bank exposure to emerging markets is equal to 85pc of GDP – with a heavy concentration in Hungary, Ukraine, and Serbia – all now queuing up (with Belarus) for rescue packages from the International Monetary Fund.
Exposure is 50pc of GDP for Switzerland, 25pc for Sweden, 24pc for the UK, and 23pc for Spain. The US figure is just 4pc. America is the staid old lady in this drama.
Amazingly, Spanish banks alone have lent $316bn to Latin America, almost twice the lending by all US banks combined ($172bn) to what was once the US backyard. Hence the growing doubts about the health of Spain’s financial system – already under stress from its own property crash – as Argentina spirals towards another default, and Brazil’s currency, bonds and stocks all go into freefall.
Broadly speaking, the US and Japan sat out the emerging market credit boom. The lending spree has been a European play – often using dollar balance sheets, adding another ugly twist as global “deleveraging” causes the dollar to rocket. Nowhere has this been more extreme than in the ex-Soviet bloc.
The region has borrowed $1.6 trillion in dollars, euros, and Swiss francs. A few dare-devil homeowners in Hungary and Latvia took out mortgages in Japanese yen. They have just suffered a 40pc rise in their debt since July. Nobody warned them what happens when the Japanese carry trade goes into brutal reverse, as it does when the cycle turns. . . .
Russia too is in the eye of the storm, despite its energy wealth – or because of it. The cost of insuring Russian sovereign debt through credit default swaps (CDS) surged to 1,200 basis points last week, higher than Iceland’s debt before Götterdammerung struck Reykjavik.
The markets no longer believe that the spending structure of the Russian state is viable as oil threatens to plunge below $60 a barrel. The foreign debt of the oligarchs ($530bn) has surpassed the country’s foreign reserves. Some $47bn has to be repaid over the next two months.
And this leaves out China – which must export massive amounts of cheap consumer goods in order to keep its financial system afloat; cut those exports just a bit – as will certainly happen in the current downturn – and we mat see a Chinese economic meltdown as they are unable to pay their debts, bribe their oligarchs and pay for their military buildup all at once. Something will have to give. Why worry? Because China’s government made a deal with China’s people after Tienamen Square – “leave us in charge, and we’ll shepherd you to economic prosperity”. China falls into economic depression and all bets are off.
Now more than ever we need to elect John McCain – with this economic tsunami raging around the world, we need a President who understands that taxes have to be kept low, that business have to be free to innovate, that the American worker has to be free to compete, that regulations have to protect the public while not straightjacketing business. McCain will be that sort of President – Obama, on the other hand, is already wedded to the Euro-trash socialist model which has placed Europe’s economic head on the chopping block.
Thank you for visiting Blogs For Victory. If you enjoy our content, please consider making a donation to help us cover the costs of our servers.Mark Noonan is co-author (with Matt Margolis) of Caucus of Corruption: The Truth About The New Democratic Majority. He also blogs at Nevada News and Views. Follow Mark on Twitter.
14 Responses to “You Think Our Credit Crisis is Bad?”
Caucus of Corruption
“Euro-trash”. Do you advocate quitting NATO? Severing diplomatic relations with Great Britain? France? Germany?
It is exactly this sort of gratuitous insult that should have no place in our relations with our allies.
Shame on you.
I know it is European and therefore suspect, but the Financial Times just endorsed Obama.
Maybe he isn’t that terrible on finances? I am beginning to doubt that the world will end when he is elected President.
Noonan:
No offence meant but you’ve got to be a moron to put up this post.
First of all, you’ve forgotten to mention the billions of loans China has made to America.
Second you’ve forgotten to mention the billions that the middle east has invested in American financial instruments – yep the massive losses they have had to endure in this financial crisis.
You’ve forgotten to mention the billions and billions of dollars held in European, Asian, Middle Eastern central banks that help to keep the dollar afloat.
When it comes to investment, the American relationship with the world is mutually beneficial. You tell these countries to got screw themselves then just watch how much the dollar will crumble in value.
I am not sure how you think it is possible for China to export huge amounts of consumer goods. China’s economy is run by government bureaucrats, which means the people in charge are in incapable of doing anything right. Therefore, no entrepreneur in the west is going to buy their products.
Also, these Chinese bureaucrats are Marxists, which means they are incapable of even understanding how free enterprise works. It is simply not possible for a Marxist country to operate effectively in the global market. Moreover, the workers in Chian’s factories grew up under the suffocating embrace of a communist nanny state, so they lack the work ethic and the innovative instincts of those who grew up in a capitalist environment.
So, self-evidently it is IMPOSSIBLE for China to support itself by selling consumer goods to the Wsest.
I agree with you. I´m a Spaniard, I live in Spain and I have to put up with that socialist (expletive deleted) everyday. Our idiot socialist president STATED in March, in the re-election debate (i did not vote for him) that there was no crisis (idiot spaniards voted for him).
Now he says there is a crisis, a crisis he did not expect. He says the Spanish financial sector was the strongest in the world, and look at whats happening with our banks being dragged down by Latin America. Not to mention his desperation to “look good” by trying to get in the G-8 or any kind of G as he said himself.
Fellow Americans, the President of Spain, Zapatero, the one who dishonored the US Flag several times (google: “Zapatero US Flag”), the one who being President of Spain said Kerry would beat Bush, Royal would beat Sarkozy, Schroeder would beat Merkel. Yes that man is close to becoming Barack Obama´s role model. The only difference is that you Americans are veterans in democracy and think before voting, whereas here in Spain we have only had 30 years and our country is full of ignorant potheads.
Ten years of conservative rule creates worldwide financial chaos and disaster, and the answer is to elect ANOTHER conservative who has admitted his ignorance of economics?
Greenspan, the king of deregulation, now says he was wrong and doesn’t understand what’s happening. Bush’s “free markets” are dead. They have failed. Milton Friedman and his followers are both retarded AND suicidal.
zoohan
Two years of libtards in congress, creates worldwide financial chaos and disaster, and the answer is to elect ANOTHER marxist who has admitted his ignorance of economics?
a friggin community organizer from the MOST corrupt city and county in America…….great!
FmrMarine:
No offense but that is soooo stupid. Bush makes policies, Congress can agree or reject them.
Bush has implemented policies that have damaged the markets not congress so blame the corprate which completely lies with the Bush Administration.
Moron…
sorry for calling you a moron, just got angry with how irrational I felt your comment was
“Bush makes policies, Congress can agree or reject them.”lilly06
Huh??? And all along we thought that Congress made laws and controlled the purse. Your lack of understanding of our government reflects your public school education.
Okay, mistake on my part, and a bit of a silly one too.
Fact is, Bush has been president for the past 8 years and his incompetence has lead to all the problems we see today.
lilly06,
Uh, the moron is YOU! The President proposes policies and Congress accepts or rejects it?
Well, your half right. Uh, it has been proven that the President and Republicans had proposed legislation to create an agency to oversee and regulate Fannie Mae and Freddie Mac back in 2001. THIS WAS WHOLEHARTEDLY REJECTED BY THE DEMOCRATS!!! The President and Republicans not having a super majority to override the Democrats could not sway to opposition. The legislation failed to get out of committee.
A few years later John McCain proposed legislation to again oversee and regulate Fannie Mae and Freddie Mac after it was revealed of irregular accounting reporting. AGAIN, THE DEMOCRATS MANAGED TO KILL THE BILL!!!!!
Fannie Mae and Freddie Mac essentially failed the backing they were giving mortgages that were sold to other institutions was gone. They started the whole cascade of failure. This failure could have been averted had the Democrats allowed regulation and oversight of their agencies that pushed their loan programs for those who were at high risk of default.
Thanks to the Democrats those government backed institutions failed and those failure are cascading on down to the international and national markets. Could it be that private national institutions were propping up those international institutions in socialist markets. Now that those socialist markets have lost their backing where do they go from there?
This is just like Cuba when the evil empire of the USSR failed.
I on the other hand will not apologize for calling you a moron. I get angry at the liberal stupidity and the regurgitation of unfounded and debunked talking points. The only way to redeem yourself it to think and post for yourself.
The problem wasn’t mortgages. It was the unregulated casino market called Credit Default Swaps. This is the 60 TRILLION market where people made bets about other people defaulting on their debt.
Lots of people made tons of money.
The party ended. When mortgages started to go bad, there were so many “winners” that the underwriters of this casino, like AIG, like Lehmann couldn’t pay.
Why not? Well, they weren’t required to reserve against the possibility that they would have to pay, because this casino was unregulated.
This bettor’s paradise was a Ponzi scheme where the impact of mortgage defaults was magnified by a factor of more than ten. We do not know the true extent of the betting.
Wake up and study the disaster instead of mindlessly repeating talking points.
It was deregulation that created a huge casino used with complete irresponsibility by Wall Street giants to manufacture money until the party ended. Deregulation is a REPUBLICAN faith article.
Companies good, government bad.
Right. Corporate greed and stupidity on an unparalleled scale brought this disaster, aided and abetted by Republican values.
That is a big reason why Republicans will lose this election in a landslide and spend the next 20 years hunting for a reason to exist.
Remember The Great Depression?
Under Obama’s plan he will raise taxes by over 800 billion dollars in an economy that may be on the verge of going into a recession while the Stock market seems to teeter on the brink. Does he not know enough about history that he does not remember Herbert Hoover?
In 1929 an Herbert Hoover raised taxes in the midst of an economic and Wall Street crisis. Economists will tell you that that piece of genius made a bad recession roll over into the Great Depression. Here we are a mere 80 years later and Obama has forgotten this devastating lesson from history.