Βι¶ΉΤΌΕΔ

Credit crunch? - what credit crunch?

Just heard from a friend in the UK who needed some cash two or three weeks ago (17k no less) and got it from two credit cards (one from RBS) at 0% interest. What IS going on?

Yep - it's all rather boring now isn't it.
Perhaps you should prove that you do indeed have the power some of the contributors here seem to think you have - and make someting up! How about the pending demise of Tescos? Remember the old addage - never let the truth get in the way of a good story! But before you do - just give me time to short some tescos stock.

You mention the interbank rates here in Australia.
A really strange thing happened today.
20th October 2008 a 0.8% rate decrease in the standard variable mortgage offered by the NAB (one of the big 4 banks) kicked in.
Now this was because the central bank (RBA) reduced rates by a 'shock' 1% a couple of weeks ago, and the NAB frightened of tight times ahead and attempting to retain as much in margin and fees as possible, decided to defer its decrease until today.
The really strange thing is, that in this two week rake in period, they announced today a further (immediate) reduction of 0.2% (the total RBA 1% cut all in).
I can only assume from these two events only two weeks appart that the NAB, its' managers and economists, really don't have a clue about what is happening in the local and global economy. Very scary times.

I swa ont he Βι¶ΉΤΌΕΔ news this morning that future loans to banks would be confidential.

I can't believe that the BoE has only just realised that advertising its "lender of last resort" loans is detrimental to the reputation of the bank they've lent money to.

Northern Rock anyone -

So does Gov't help for building firms equal Nationalization as it did with the Banks?

Are we going to see Housing developments bought cheap and firms closed or forcibly merged with massive losses to shareholders and Pension Funds etc?

I remember B and B !

All past crises have been multi-phased - a shock, a breathing space, another shock, and so on. We should expect this to happen this time.

ING was a rather nasty shock. Another concern is likely to be deficits in corporate pension provisions created by sharp falls in investment values.

We should be assuming a lengthy recession, and planning accordingly. I would like to see more government investment to help manufacturing and engineering.

Just one example would be a step-up in defence capital programmes - we should increase investment in shipbuilding by ordering a further six Type 45 destroyers and a further six 'Astute' class submarines, all of which would be useful enhancements to naval capability, and would be major, ongoing contributions to industry.

The Global economy of the 1920's was a tin bath and someone threw a brick in, the economy of the 1980's it was a Jacussi and a brick blasted in, 2008's economy is an olympic size swimming pool and someone has thrown a concrete block in.
The life guards have got out the shocked and one user is injured.
The local press is making out it was a big disaster.
But we are all going to get back in as soon as we realise the water is still nice and warm and the concret block was a freak incident due to a lack of foresight.
Mind I guess the pool could be closed for ever but I think NOT.

Oh the vending machines still work and everone still needs a home to go back to live and sleep in.

Robert Peston's secret source in the treasury must have been on holiday. Without this information Robert Preston has been neutered, and there have been no more panics in the market.

Hooray !! Alex Salmond has just given the Lloyds shareholders the way out. Rescind the takeover and just let HBOS go to the wall !!

I asked your researchers recently to investigate the Stock Exchange postings at the end of September of one of the UK clearers. There is much more to come, per the Βι¶ΉΤΌΕΔ's own File on Four yesterday.
Thinking that the UK is in a median position is nonsense, I'm sorry to have to say. The law-suit File on Four reports against Barclays' Lehman acquisitions is but the first of many, as the boys all blame each other.
As File on Four stated yesterday, the suit alleges deliberate manipulation in London of the contents of SIV-Lites, dumping the worst assets into packages which were sold in an amorphous form. The responsibility appears to originate in the UK, and the buck stops at the FSA.
The FSA was a bankers' poodle before, and its solution to its abject failure now is to recruit yet more bankers as poachers-turned-gamekeepers. Who the hell do they think they're kidding? This is a fresh whitewash of a very corrupt sepulchre, and is likely to result in criminal prosecution in the US.

I don't think it's a case that markets have become "more resilient to all but humungously horrible events". Instead I think markets had previously priced in some of those horrible events (eg collapse of the global financial system), and are now unwinding some of those plays. It is clear that no governement is going to allow the systemic collapse of its banking sector (though Iceland will need some help from IMF etc). Consequently, the wider economic downturn is unlikely to be as bad as is currently priced in to many stock prices. That doesn't mean it won't be painful, probably more painful than anything we've experienced since the 1970s, but it won't be as bad as the 1930s, which is what markets have priced in.

To give some context to the above, one stock I own is a large mining company, which generates almost half its profit from copper. It is now trading on just over 2x future earnings, suggesting we won't need any of its copper reserves after 2010. It's trading at 75% of its tangible asset value (as at end-2007, ie not including 2008's earnings), and only 125% of asset value including intangible such as valuation of its mineral reserves. Again, that suggests they won't be needed for much longer. Consensus earnings forecasts have already been significantly reduced (by about 15% for next year), so the valuations reflect the slowdown we've seen developing over recent months. Keep in mind that China now accounts for 28% of copper demand, and is still growing at 9%. Incidentally, the 3Q growth numbers for China are distorted by the fact that so much capacity was closed for 2 weeks to keep Beijing unpolluted over the Olympics. Barclays Wealth is forecasting a rebound in the copper price for various reasons during 2009. So, overall, a valuation of 2x forward earnings looks pessimistic in the extreme for a copper miner. There are plenty more stocks that can be analysed the same way.

So why have stocks been hammered so much, and are clearly oversold? Simple. Like many things, there's been a degree of leverage in investing in them over recent years, and leveraged funds are now having to unwind positions. Also, we're still seeing panic redemptions from mutual funds, especailly in the US. take a look at the number of days recently where the US market has plunged in the last hour, indicative of mutual funds selling stock to fund redemptions. They tend to do it late in the day, as prices for valuation purposes are struck at close of market, hence they trade close to this time.

I guess this is a long comment on a fairly simple topic. Most financial markets are leading indicators. Just as the initial collapse indicated a concern that the financial system would collapse, so the current apparent improvement is down to a re-evaluation of this possibility. The fact that the Dutch stepped in to recapitalise ING confirms the markets' current expectation that no systemically important bank will be allowed to fail. As such it reinforces confidence, and ought to encourage a rise in markets, rather than the need for recapitalisation causing a fall. It's basically a confidence thing. There's more of that about (though still fragile), which indicates we ought to be at the bottom of the market, provided no further cataclysmic shocks occur, of course.

Don't ING pump big money into Formula One? And I assume Manchester United is now a wholly owned subsidiary of the US Treasury (AIG). I am just waiting for the call - come back Marlboro and Benson and Hedges, all is forgiven. Maybe Tony was right about something.

Accepted that ING is too big to fail, but I had worries them a few weeks ago and checked its credit rating - AA. A matter of days later it needs a huge government bailout.

If confidence is the key to banking then the credit rating agencies need to be reformed to provide accurate information.

The quietness is the calm before the Storm.

Brown and Darling have been like rabbits in the headlights and in the rush to save their skins at our expense they have squandered our resources for little gain
I said on this site months ago that we are in for catastrophic melt down in smaller companies (unless they are Government funded non buinesses like "Training" shams) and we will now see melt down in real jobs. Soon we will have everyone in enforcer roles for the Government and local Councils but no one in dececent wealth creation and nothing Brown or Darling are doing will reverse that trend.
Brown claims the problems all started in America ? where was our regulation when Northern Rock were offering 125% loans. Brown loved it and thought it would last forever. It never occured to him that in the real world, sometimes, the music stops.

Re 6... and in general to comments/opinions from many sources. Many people seem to think that some variation on the theme of spending our way out of trouble is the answer. Increase govt spending to "boost" the economy. Prop up house prices artificially to stem losses. Bail out failed banks rather than let them go bust. What does this all say? That people remember the "good times", built on inflated asset prices as a result of easy money, see the impending "bad times", with asset prices coming back to to earth, and draw the conclusion that the answer is to re-inflate those prices, so we can go back to cuckoo land and wait for it all to happen again. The answer is to rein in a bit of ego and reduce the size of bloated parts of our financial system - bloated asset prices like UK houses, and bloated institutions like many of the banks. High leverage is dead, so there's no real support left for the kind of high valuations we've seen in recent times. True, govts can try to prop things up, but with what money? The money they expect from future tax revenues? Or money they print? I don't know what sort of tax revenue increase people expect to see out of a broken and propped-up economy, but I doubt it will be very much. So we're left with destroying the value of currency in order to maintain a nominal, of not real, valuation of assets. If e'er hubris were needed...

So are we at the beginning of the end or in the eye of the storm?

I notice Mr.Salmond wants to top the Lloyds TSB-HBOS deal. He should check his country's register of companies. Lloyds TSB is registered in Scotland and has been since they took on Scottish Widows. It is not an English company.

So Robert is finished with bankers (who according to post 10 are now going to enrich the lawyers), perhaps we can turn to the issue of credit in the real economy or are all businesses expected to apply for interest free credit cards (post 1) Will the cameroon's proposals help?

Incidentally under the present arrangements why can't HBOS be refloated. Alex and Gord ought to have a chat. (post 9)

The *South* Korean economy had and has been a cosy relationship of governments, banks and conglomerates !! There is no true free market in South Korea !!

Much of the Korean debts now is like that before the Asian Currency Crisis - conglomerates that borrowed short term in foreign currencies and used it in long term local projects; depending heavily on their ability to quickly turn over those debts in the money markets !! Now the money markets have dried up, they are in trouble.

The Korean banks that are deposit-takers like our big 4 will still on reasonable footing if they haven't lent foolishly to the conglomerates whilst under pressure from their peers !!

And as Robert Peston has just said, we could do with a recession, Chinese-style, over here !! A "mere" 9% growth will have all our politicians and financial industry salivating like Pavlov's dogs !!

However, one thing that puzzles me is the incessant reporting about the doom and gloom of the Chinese property price falls.

It is the actively targeted *AIM* of the Chinese government to FORCE the property prices down. For too long their property prices have gone just like in the West and speculators have gained in it but the mass of people have been hurt by it. Now that the prices are down, it is not the unpropertied masses who are hurt !!

And as have been said by various commenters here, spending on infrastructure is essential for the economic well being of a nation. However, the nation must have the money to spend in the first case. In the good times, the Chinese spent heavily on improving their railways and roads. They will soon have the most high speed rail kilometers in the world. France has particularly benefited from this but others like Germany and their maglev trains have too !! What's the betting that business class flights from Europe to Beijing will soon be over booked, if it isn't already !!

And many of the countries and territories in South East Asia are suffering from recessions, Chinese style, too !! Singaporeans are known to complain that it's getting very cold if the temperature drops from the accustomed 30 C to 28 C !! All of Britain will rejoice if it ever reaches 28 C one day in a tear !!

The tremendous shocks to the financial system were self inflicted in a way by the removal of any normal ethical value system from the way the Financial community chose to attempt to view itself and manage itself.

The 'lack of confidence' has been managed by Governments to the extent that markets can now try and imagine no further Lehman, NR, Iceland type shocks will happen.

But underlying this financial credit crunch meltdown there is a real economy which everyone I know feels will prove much less tractable and simple to manage

The announcements this morning about, amongst other things, lowering the National Insurance Rate and also postponing "Family friendly " legislation; point up the Governments problem.

Of course 'every little helps' and one can't deny that ...but the totality of the 'help' being proffered seems little more than that offered by idle bystanders at a house fire whose efforts at help are restricted to not throwing petrol onto the flames ....

And thirty years of large industrial shut-downs of Pits, Shipyards, Engineering work, mills and other old fashioned large concerns means that the costs and job losses in this downturn won't be marked by "2,000 lose jobs as firm shuts" headlines ...it will be more like Bob and Jim have had to let Anne and Fred go.... multiplied by tens of thousands.

Nice to have had a weekend without another bank going under, although ING tried hard to make that not happen.

The markets will be quiet today, everyone is waiting to see what happens tomorrow

#6

re increasing defence sector spending

With respect to all who work within the defence sector but it really is a 'closed shop' procurement and labour sector - what is needed is public works that allow anyone and everyone to either supply directly or via what capitalists call 'trickle down', for example house building is one such industry.

This comment was removed because the moderators found it broke the house rules. Explain.

> In other words, global economic slowdown
> and banking crises are the new norm. Markets
> have perhaps become a bit more resilient to all
> but humungously horrible events.

I read most of your stuff, and that's the closest you've come to calling the bottom. Hm.. and Warren Buffet is busy over there doing the same thing.

Yes, it's starting to feel like "mid-crisis", like Wednesday is mid-week. So I'm assuming things should start to get better from Wednesday on. Perhaps we should call it slump-day, not hump-day!

Rober, off the point of the day but why are the govt pursuing nationalising B&B when they have gauranteed all the banks wouldn't it be better for them and shareholders for it to be a going concern with govt funding than govt owned? and as a former shareholder don't we have a case against the govt. bearing in mind they nationalised it a week or so before then bailing out most banks in a non fully nationalised way? now liquidity is improving couldn't they survive alone?

No.11- Good analysis. Probably because I totally agree with it.

I would add that due to $2trillion sloshing around the system, digestion is now taking place, which means that after such a large meal nature will take its course. A little nap (the next 7 days) followed by large fans needing to be strengthened for the coming onslaught.

#7

"The life guards have got out the shocked and one user is injured.
The local press is making out it was a big disaster."

Remind me of how many banks and other financial sector companies have either died outright, been resuscitated or have needed sugary to major organs just to survive (and it's still not certain that many will indeed survive)...

#9

Indeed, Salmond is really smarting from all this (he didn't like the home truth spoken by the UK Govt on this issue), only a month before he was extolling the virtues of the 'Icelandic dream' and that if ever Scotland gained Independence that would be the model he would adopt - just think, the EU could at this very moment be bailing out the 'Republic of Scotland', probably be arranging a shot-gun reconciliation and re-marriage with the remaining countries within the UK!

Please, I would love to know why Mr Peston, along with lots of otherwise intelligent people, seem to think that economic growth is a good thing?

If all our planning was based on the idea that we could prolong our lives indefinitely, we would be thought absolutely crazy.

Aren't we all supposed to believe in sustainability now? How can you have both?

Explain please.

15, 22:

Good comments. I'm not suggesting that defence capital procurement is the only, or even necessarily the best, form of investment to ameliorate the current crisis, but I think it has considerable merits.

If government were to announce extension of the T45 and Astute programmes by six units each, it would not involve immediate expenditure - the suppliers are already fully engaged with existing orders. But it would provide vital continuity, not just for the prime contractors but also for the very many suppliers involved as sub-contractors.

This proposal would be an investment in, and a commitment to, manufacturing, engineering and high technology. I think it should be generally recognised that we need to re-emphasise manufacturing after decades of neglect.

I'm also influenced here by two further factors. First, building only 6 T45s and 4 Astutes is too few in terms not only of naval requirements but also of spreading front-end design costs across more units. Our recent naval programmes have contained too few units for cost-effectiveness of procurement and operation.

Second, capital spending in defence was a critical component of recovery in the 1930s.

House building would indeed be highly desirable, and it is a social and economic tragedy that the proceeds of council house sales were not reinvested in public housing stock.

But the problem here is the planning system - a commitment to house-building would take a very long time to translate into actual building activity.

We need to find a way of fast-tracking the approval and building of social housing.

#20

In a nutshell:

THE HOUSING MARKET IS THE ECONONY.

THERE IS NO HOUSING MARKET........

SOON THERE WILL BE NO ECONOMY.

Sorry.....bleak but true - even more so if the Govt. try nationalising sections of the housebuilding industry!

Credit Default Swaps - Settlement?

Can anyone offer some facts as to when this timebomb is set to explode?

Lehmans USD400m contracts were settled for cents/dollar, but correct me if I'm wrong this is just the tip of a very large iceberg!

Some reports say there are USD 54 trillion ... yes trillion ... of CDS contracts out there somewhere!

Since the music's stopped who is left holding the CDS parcel and will there be a small or rather large bang when the counter-parties can't/won't pay up?

Ear plugs anyone?

Increasing public spending and lowering interest rates further will appear to help in the short term, but just store up even worse problems later on.

Both are highly inflationary and could set us on a course for a Weimar Republic type of hyperinflation.

Even in the short term these measures will have the effect of wiping out the value of personal savings and encouraging people to get even further into debt.

The only long-term solution to our problems is for our debt to be paid off, and for our economy to go back to making things which we can sell abroad. If we cannot do these we are ultimately doomed.

so we have all become immune to the violent gyrations of the markets? As global recession hits, the majority of people will be more concerned about keeping their jobs and the roof over their heads, not whether shares go up or down.

These same people will become even more angry as they start to feel the financial implications of the bailout -a hike in taxes or various other 'stealth' taxes, cuts in tax credits etc.

Come Christmas, we will see a rise in redundancies and lay offs.When I was a child there was something called a 3 day week-is this going to happen again?

And still, no balance sheets, legal actions or apologies ( save one!). The USA have begun fraud investigations on a massive scale-why not here? Oh wait, police funding isn't very good, and some have their money frozen in Iceland!

Society as we know it has crashed and burned. Instead of sticking plaster remedies, we, the people need the government to put a workable plan in place to help us keep ourjobs and homes. They've saved the banks, time to help the people who have been polite and accepting of their taxes helping the wolves!

#32 queens_subject

See the following link...

and is all this woffle about money and stocksshares recessions etc really an attempt to hide the fact that UL plc is bankrupt?

"Chinese consumers"

Whoops!

Those are the fateful words. They mean, China no longer really needs customers outwith the country, they have a billion of their own.

That trillion in US debt which they hold therefore isn't the asset it once was.

I think we are witnessing the fall of the US dollar, and therefore the USA.

So we're back to fundamentals like we should be?

No bad thing.

There will doubtless be intermittent showers of panic as the cold fronts preceding the depression move in.

Fundamentals that I find disturbing are :

1) The likely (temporary) extinction of inflationary pressure by end Q2 2009, with deflation a possible follow on.

2) The likelihood that the US will not see quarterly growth until 2010.

3) The continuing wealth destruction in the property markets - noticeably in the US and UK with the destabilisation of the financial sector (again) and the knock-on effects to the wider economy and possibly to social cohesion as well.

4) The recent dive in Baltic freight futures. Often considered an indicator of global economic health.
Whether caused by bank unwillingness to lend credit for shipping goods or due to lack of demand at wholesale level as stocks are drawn down doesn't seem completely clear.

Either seems to point to much faster contraction for China in the future.
Perhaps someone could remind me what US growth rates were prior to Q4 1929?

Doesn't look good for China - they're geared for growth - not contraction.

#31

"THE HOUSING MARKET IS THE ECONONY."

House buying/owning/selling is no such thing, a countries economy can survive quite well without any private property, Singapore anyone...

The problem in the UK economy is that the financial sector has become far to top heavy in relation to our GDP, if countries like France and Germany can have both a mixed economy (in both senses of the meaning, public/private and fiscal/industrial) why not the UK - it's got nothing to do with the Unions as both the two mentioned countries have strong union bases.

PS, there is no need to SHOUT!

Tsunamis, hurricanes, eye of the storm, sorry fellow humans its something far worst than that. somehow a massive black hole as appeared in the world financial systems. like a vortex sucking the money out of worlds economies. thats why the banks are toppling, one falls another jumps into help like ING bank did this morning then that needs help, and so and so on. so how big dose this black hole need to be? well i would say aleast 50% of the world money. take a look ftse down by 40% and mortgages are at least 40% higher than there real value when at there height. oil down 50% who would think oil after rising so high would of thought it would be half the price just a few weeks later. because were not going to need it.

well the western world as most of the money or should i say did have. so at least 40% as got to come of the 77% of our wealth. And 10 % from the rest of the world which means them who already have nothing now will have even less.

its looking much worst than they say, or maybe they not realized yet

would it be so bad if the worlds ecconomy colapsed?
is it not time these companies that made massive profits be urged to return the majority of there profits back into the system, stocks and shares have for too long help sway over global ecconomics its time to take back the high ground and reduce the stock markets influence.
during this period i assume stress related deaths are up, i have not seen any figures.
the whole human race needs to take stock and rethink this money problem out or become slaves to it.

This is the dawning of the Age of Aquarius....the great leveller!

@32 queens_subject

Trillions?

The Global Derivatives Market is now valued at $1.14 Quadrillion!

Ref posting no. 13, I've been wondering about credit rating agencies too. From what I can gather about CDOs and the other "cunning" financial instruments nobody really understood and which appear to be the root of our current dire economic situation, the credit ratings agencies seemed to follow this line of reasoning:

"Item A is a CDO which contains all kinds of debt, good and bad.

We have no way of knowing exactly how good an investment this CDO actually is.

How are we going to rate this particular item in terms of the risk taken in buying it?

If we really aren't certain, should we rate it as a high risk or a low risk?

I know! Let's rate it as if it were a solid, super low risk investment."

Since this mad logic stills seems to prevail, I can only assume that there are some major back-handers being passed around to make sure the credit ratings remain artificially inflated.

#37 true-liberal

'I think we are witnessing the fall of the US dollar, and therefore the USA.'

Unfortunately, I think the pound and the UK will quickly follow!

#45

But at least we can jump aboard the strength of the Euro, something the USA can't do...

If this is the beginning of the end, and if we accept that the Government has bought a handle on the lending market, what is the Government vision for the ratio of Loan to Value in say 18 months time?

Surly an answer to this question will allow everyone to see if we are going to learn from the mistakes of the past or just to return to a debt based economy?

Dear Robert
When you now read the reports coming out of this crsis REGARDS ORDINARY INVESTORS,, the individual, and families, tens of thousands of them are being treated by the banks and Government, as those they do not exist.,
It is NOT ALRIGHT just to say you will have to wait for your savings, until the new year, and it is NOT ALRIGHT for the Banks and Government to treat them with the contempt and arrogance they so far have applied.

Re 30; defence spending etc...

The thing with defence spending is it's not investment, unless you think your country's about to be destroyed (in which case it's an insurance premium). The US basically wastes a trillion dollars a year building guns, tanks, missiles etc. and then blowing them up with other missiles, tanks, guns, etc., having first transferred ownership of the former to another state 30 years previously. If that defence spending were used to build the country's infrastructure it could be an investment - money used now to generate greater returns in the future. Education is the usual target here - spend money educating kids and in twenty years time you reap the economic benefits of a world-leading workforce. Hopefully.

We all know where increased defence spending in the 1930s led...

I still think we should be looking to moderate spending. It's all based on an assumption of some future ability to pay for it, which is continually rolled and increased. Like the oft-mentioned fractional reserve system, the underlying idea is that this debt never be called due: as long as there's confidence it can roll along forever and the interest payments are serviced. But if the principal is required, it all breaks. Even now (early in this current crisis), sovereigns are failing (Iceland is bankrupt to all intents and purposes; Pakistan is off to the IMF because they have no foreign currency; the Seychelles has defaulted on some of its government debt). There's a real danger that governments end up getting so entrenched in broken sectors like investment banking that they themselves become over-indebted, and then either they fail or they print money and devalue the currency. To see the real mess this causes, just read the stories coming out of Iceland, with people essentially losing all their assets, with debt borrowed in foreign currency now unpayable as the krona has ceased trading in world markets...

Oh, and one more thing, can people stop confusing the market value of derivatives with the nominal value of derivatives? Let me give an example. A lottery ticket is a sort of derivative on a 20 million pound jackpot, but its market value is one pound (OK, it's not freely traded, but if it were it would tend to the 50p breakeven price). If you add up the total value of lottery tickets (say there are 100 million of them for the next draw) then that value is 100 million pounds, not 2,000 trillion pounds!

Robert, can you please explain why it is that Lloyds TSB share are 171 (about Government Offer Price) RBS are at 77 (above GOP) and HBOS 75 (one third below GOP). As an HBOS shareholder I feel that there are people still with insider information and we poor outsiders can only get any information at all from people like yourself.

A couple of weeks ago you said it was a nobrainer to be in HBOS since then it looks like we are the ones without brains!!!

#35 BankRSlicker; #43 Hodgeey
#50 ChiefWhitehalfoat

Re my earlier post #32
Thanks for the links and feedback.

Obvious question really ...
What exactly is the "nominal value" (re #50) of USD 1.14 Quadrillion of CDS contracts (re #43)?

Any answers!

#37:

As you presumably know, China has been buying huge amounts of US government debt (to hold their currency down) and exporting a great deal.

Think, however, what this represents in the real economy - in terms of physical movements of goods and provision of services. China has been producing more than it has been consuming and sending the remainder overseas. It could have consumed these itself, or demanded in exchange exports of our goods. It didn't (well, it did, but not in full). Instead it's received promises of imports-to-come. If it never spends the money it's owed then it will, in effect, have given us all this stuff for nothing.

So, no, it doesn't NEED our customers, as you say...but it's throwing away a lot of money if never demands the exports we owe it. (It could demand our assets instead by buying, say, banks, but that only lets it get even larger claims on our output in the future).

This is all a very strange thing for a relatively poor country to do. But I suppose that's the magic of government control....and, to make it worse, if the dollar falls the debt they own is suddenly worth a whole lot less in their own currency.

Personally, I can't help wondering what would happen if they started selling their US bonds. Westerners could start buying them to restock their depleted pensions and China could start buying our exports (assuming we can remember how to make anything they need). As you mention, it certainly would do the value of the dollar a lot of good...and we'd all need to work hard to make these exports and get used to receiving fewer cheap Chinese goods.

@50 ChiefWhiteHalfoat

Not a very convincing analogy.

OK if you have the winning ticket, not so good for the millions of punters. Bit like all lotteries though; few winners and many losers.

Surely Robert the issue is that we are now seeing the seesaw tip in favour of the east and the economic driving force for the next period is going to be from the east rather than the west.

Maybe while the confusion reins we ought to make a case for a well managed world economy with unilateral agreement over fiscal management or the west will have to take its turn at the bottom of the leagues before it takes its turn to rise to the top again.

Have we neither the wit nor the will to sort it now, because Bush and Sarkoszy have realised the potential dangers that lurk for us the other side of our current problems or do they just enjoy an excuse for a meeting.

#53

Well said - this is a strange situation. China's large reserves and capital exports are a weakness rather than a strength. Part of the road back to stability must surely include the Yuan appreciating, chinese capital being invested and Chinese savings spent or invested at home rather than exported to US, with wealth and comsumption in China increasing, whilst effectivelydevaluing the Dollar, encouraging increased trade and growth for US, China and the rst of us too.

Re #52: ISDA overlooks the CDS market. According to them there's approximately $60trillion of nominal CDS out there. That doesn't mean $60trillion is going to be won or lost by anyone. That would only happen if every debt issuer went bankrupt. Most of them won't... And because these contracts are swaps, they just involve an exchange of cash flows, so the million lost here is a million won there. Money isn't created or destroyed. The actual impact on the market will be significantly less than $60trillion. The real upshot is that most players will be hedged fairly well (ie. not exposed very much in either direction), but some won't be, and anyone on the wrong side will end up owing a lot of money to their counterparties.

#54 - you're right, it's not a great analogy, but it shows what I'm talking about - simply adding up the gross values of all the nominals just gives you a made-up number -most of the nominals net off against each other. You're better off working with the P/L at a given time - for the lottery, that's the actual cash people have parted with; for CDS, it's the losses or gains on everyone's books.

#53 - Since the yuan isn't convertible, China doesn't have much choice with what it does with all the dollars flooding in as payment for its goods. Of course it could diversify into yen/euros/swiss francs... that would be bad for the dollar, especially at a time when the US Treasury needs to find a buyer for the 12 figures of debt it needs to issue in the near future!

This from the Βι¶ΉΤΌΕΔ

Ministers have been urged to act after it emerged that Northern Rock is repossessing 50% more properties than the industry average.

This is what all defaulters are now facing from the last financial institution to be bailed out.

Isn't that such a good deal for the taxpayer!

Huge tax cuts coming your way, I think not, just more and more theft of real assets as opposed to phoney worthless paper money which the banks have supposedly lost over the last year or so.

Nobody yet has answered this question, not on any blog or news report. Where did all the previous decade long massive profits of these same institutions go?

"#53 - Since the yuan isn't convertible, China doesn't have much choice with what it does with all the dollars flooding in as payment for its goods. "

Isn't this the point - if the chinese Government made the Yuan convertible, it would appreciate against the US Dollar, providing a boost to US exporters and chinese consumers, which is the only real way China could help counter recession in the west

I heard recently that the Amero had been printed secretly in Denver, Colorado and had already been sent to China to replace the useless dollars they'll be left holding in the next few years.

Short selling and Hedge Funds because of their unregulated and vague nature have been used to exploit the Investment Community. Government should impose retrospective punitive Taxes on all whohave gained at everyone elses expense