26 December 2007

Making 1929 Look Like a Walk in the Park

Interesting article in the Daily Telegraph, Crisis may make 1929 look a 'walk in the park'.

Bullet point summary:
  • Liquidity doesn't do anything in this situation," says Anna Schwartz, the doyenne of US monetarism and life-time student (with Milton Friedman) of the Great Depression, "It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue," she adds.
  • Spreads on three-month Euribor and Libor - the interbank rates used to price contracts - are stuck at 80 basis points even after the latest blitz.
  • That an implosion of the credit markets is months away.
  • The 4% inflation mirrors what happened in Japan just before their meltdown.
  • When the Japanese discount rate was lowered to 0%, it did no good.
  • Not a single junk bond has been issued in Europe since August. Every attempt failed.
  • Increase sentiments for restoring national currencies in the EU. (Interestingly enough, this would provide a potential boost to the dollar, as it would make the Euro less attractive as a reserve currency)
As I've said, we are seeing a breakdown of the Ango-Saxon model of capitalism, where minimal regulation is really an excuse for klepto-capitalism.

I do not see a solution to this except through a devaluation of currencies, particularly the $US.


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