Sunday, October 12, 2008

Chronicles Of Depression 2.0: #328: Endgame

It's about frikkin time!

Exploring the worst-case scenario
WASHINGTON (Reuters) - The global economy is drawing closer to a dangerous downward spiral and time may be running out for world leaders to find a way to stop it before it inflicts lasting damage.

Economists are beginning to warn of a depression-like cycle where an inability to obtain credit stalls growth, triggering more defaults and still tighter lending terms. Governments have unveiled one unprecedented move after another in the past three weeks to boost confidence and get banks back in business, yet so far nothing has been able to arrest the fall.

"There's no hyperbole that can describe it," said Kenneth Rogoff, a Harvard University professor and former chief economist of the International Monetary Fund. "It's very, very unlikely (that the world economy will fall into a depression) but we've taken five of the 10 steps we need to get there. Hopefully we won't take the other five."

Emphasis added by me.

Hey, five out of ten steps ain't good. And what he's not been paying attention to is that those final five steps are already slathered in grease so the fall will be fast.

This should wake you up:
In a sign of how worried companies have become about getting credit, General Electric Co considered seeking a bank charter that would give it access to government lending channels, sources familiar with the company's thinking told Reuters last week.

Emphasis added by me.

And yet something changed, because on Friday, CNBC was trumpeting news from GE that the commercial paper market was beginning to thaw.

Let this sink in. Read it a few times:
Citigroup economist Steven Wieting said it was particularly worrisome that banks were still hoarding cash even after the U.S. Federal Reserve flooded markets with emergency money and lowered its benchmark interest rate by 3.75 percentage points in the span of 13 months.

You're a banker. You know you're sitting on pile of decaying, worthless shit. So you want to borrow money overnight. But everybody else is sitting on their own piles of putrefying worthless shit and have no money to loan.

There's the wisdom of the market right there.

More, and pay attention:
"With no desire to exaggerate, this might be considered the financial pre-conditions of a depression," Citigroup economist Steven Wieting wrote in a note to clients.

"Evidence suggests credit rationing is inhibiting day-to-day activities for many firms, with a harsh and worsening backdrop for consumers," he said. "Sadly, some risk exists that financial events could still unfold like a proverbial 'dam break.' This might leave policy-makers treating very serious and lasting damage to the financial system, rather than preventing further erosion."

Emphasis added by me.

When a dam breaks, there's no warning and the damage is fast and unstoppable. Let me repeat what I stated at the outset of this post: And what he's not been paying attention to is that those final five steps are already slathered in grease so the fall will be fast.

A history lesson:
Michael Feroli, an economist with JPMorgan in New York, said he now expects the Fed to lower its benchmark federal funds rate by another three-quarters of a percentage point to 0.75 percent by December, and it could hit zero.

If that happens, it would leave the U.S. economy vulnerable to another shock that would increase borrowing costs, weaken growth, and potentially create a "Depression-like outcome."

Emphasis added by me.

In Japan, the Central Bank dropped the cost of money to zero. It didn't help.

And here's the trap:
Lena Komileva, head of G7 market economics at Tullett Prebon in London, said there was a risk policy-makers would have to "start again from scratch" if they cannot quickly turn investor sentiment around.

"If this scenario were to unfold, governments would have to effectively nationalize the entire flow of funds in G7 economies and start lending directly to businesses and consumers. Surely, they can do better than this," she said.

Emphasis added by me.

Have any one of you yet thought ahead to what that really means?

When the government owns the banks, they don't need a warrant to go through the books.

Your financial privacy is erased. And you'll never know if they're looking at you, have looked at you, or are going to look at you.

This is the beginning of a worldwide police state.

And the death of the Constitution of the United States of America.

You doubt. I have now over ten months of being right about this. Go back and see the evidence.

Now what do you have other than your baseless doubt?

All Chronicles of Depression 2.0 posts. Read them now.

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