Wall Street fears for next Great Depression

Aurora · Post by **Aurora** » 16 Mar 2008, 05:33

The Independent - 16/03/08

Wall Street is bracing itself for another week of roller-coaster trading after more than $300bn (?150m) was wiped off the US equity markets on Friday following the emergency funding package put together by the Federal Reserve and JPMorgan Chase to rescue Bear Stearns.

One UK economist warned that the world is now close to a 1930s-like Great Depression, while New York traders said they had never experienced such fear. The Fed's emergency funding procedure was first used in the Depression and has rarely been used since.

A Goldman Sachs trader in New York said: "Everyone is in a total state of shock, aghast at what is happening. No one wants to talk, let alone deal; we're just standing by waiting. Everyone is nervous about what is going to emerge when trading starts tomorrow."

In the UK, Michael Taylor, a senior market strategist at Lombard, the economics consultancy, said on Friday night: "We have all been talking about a 1970s-style crisis but as each day goes by this looks more like the 1930s. No one has any clue as to where this is going to end; it's a self-feeding disaster." Mr Taylor, who had been relatively optimistic, has turned bearish: "It really does look as though the UK is now heading for a recession. The credit-crunch means that even if the Bank of England cuts rates again, the banks are in such a bad way they are unlikely to pass cuts on."

Mr Taylor added that he expects a sharp downturn in the real UK economy as the public and companies stop borrowing. "We have never seen anything like this before. This is new territory for us. Liquidity is being pumped into the system but the banks are not taking any notice. This is all about confidence. The more the central banks do, the more the banks seem to ignore what's going on."

Article continues ...

Papillon · Post by **Papillon** » 16 Mar 2008, 06:53

What, already? This is rather quicker than I anticipated. PO has hardly even started! I mean, we're still on that fecking plateau, aren't we?

Anyhows, if it starts now, then I'd like to wish everyone on these forums a Happy Great Depression, may we all meet on the other side of it alive and well, good luck with those tomatoes and potatoes in the garden, and take it easy on the moonshine

biffvernon · Post by **biffvernon** » 16 Mar 2008, 07:36

Maybe the economy detected PO a while ago.

May 2005 saw a peak of conventional crude, the easy oil, and the rise in total liquids since then has been made up by expensive to produce oil and biofuels, which involves a bit of double counting as gas is used to extract oil from tar sands and diesel drives the tractors in the biofuel fields. Maybe there will be a higher peak when Kazachstan, etc. produce more but that in the future.

For now the economy is feeling a post Peak Oil situation. Since May 2005 there has been a lot of demand growth from China and India and Brazil and elsewhere, so there must have been demand destruction elsewhere. So long as this was restricted to Africa, the global economy didn't show it.

But now, economic growth can only be maintained at the rate that energy efficiency gains can be made and renewables can be built. And that appears to be far too slow for comfort.

Vortex · Post by **Vortex** » 16 Mar 2008, 09:29

I'm getting a bit nervous.

For example, I am thinking of taking our a chunk of my business current account balance as cash and sticking it in a strong safe in my office.

Now my behaviour is neither here nor there ... BUT .. for every one of 'me' there will be many others taking 'precautions'.

This could lead to a run of the banks or other weirdnesses VERY quickly ...

The whole edifice could be broken simply through lack of confidence.

MacG · Post by **MacG** » 16 Mar 2008, 10:09

Vortex wrote:I'm getting a bit nervous.

<snip>

The whole edifice could be broken simply through lack of confidence.

I think it's a bit of a character flaw of many of us on this site, that we have a slight tendency to get nervous. Most people are not like that - they cling on to a sense of normality for dear life.

There are numerous stories from around the world about how people in collapsed economies stick to everyday tasks, and even show up on the job every day even if they are not paid for several months.

Vortex · Post by **Vortex** » 16 Mar 2008, 10:38

and even show up on the job every day even if they are not paid for several months.

Do they live in countries which have the Poll Tax - sorry, Council tax?

In the West we need to pay Council Tax, and all sorts of other outgoings just to stay still!

How many people here could live on ?0 per month?

Mitch · Post by **Mitch** » 16 Mar 2008, 13:09

I am watching all this with some trepidation, but nothing has affected me directly yet - barring inflation. I was expecting some drivel re: annual bonus, increase etc - but apart from being a month late, all was reasonably normal. Bonus quite acceptable - piss poor increase when taken against inflation, but at least something, and back dated to January. Sure I don't have electric or gas bills, only diesel for energy - but in reality very little has changed for me. I am not overly concerned with losing any money - I live on maxed out credit cards and overdraft, all insured for at least a year, and no secured borrowings, mortgage etc, so I don't have much to lose if the bank goes tit's up. Another surprising thing, and this only happened a few weeks ago. One of my credit card banks, American, decided to get really stupid and, over a year or so, managed to hike the interest rate to 34%!! A phone call, cancellation of the insurance - if you are going to be that daft, then carry your own insurance - and a snotty letter to the bank, elicited quite an apologetic response and an immediate reduction in the interest to 21%! I was qutie surprised given the current economic crises. So, as I say, none of this has had any profound effect on my life as, yet. We wait in anticipation.

danza · Post by **danza** » 16 Mar 2008, 14:28

Seems like Jim Kunstler may not be so much of a nutter after all. If you read his financial commentary, some of it is starting to happen.

The rest may or may not follow.

http://www.kunstler.com/

JohnB · Post by **JohnB** » 16 Mar 2008, 14:34

Vortex wrote:In the West we need to pay Council Tax, and all sorts of other outgoings just to stay still!

How many people here could live on ?0 per month?

I don't pay council tax

. I currently need to pay for camp sites, diesel, van insurance and food. I could cut out the camp sites by WWOOFing, parking up in PowerSwitchers fields(!), and wild camping, and if I can't afford diesel I just don't go anywhere. I could also cut down my expenditure on food and grow a few cut and come again salads in the van. So nowhere near ?0, but not too bad.

Mitch · Post by **Mitch** » 16 Mar 2008, 15:15

Maybe the descent is still relatively slow due to the ingnorance of the vast majority. Once 50% of the population has the "Oh S**t" moment and begins "preparation" - withdrawing money, paying off loans, hoarding etc - the freefall may only last a few weeks, beginning to end. Collapse could be very sudden indeed.

skeptik · Post by **skeptik** » 16 Mar 2008, 16:24

Vortex wrote:I'm getting a bit nervous.

For example, I am thinking of taking our a chunk of my business current account balance as cash and sticking it in a strong safe in my office.

Wise move.Might not be necessary, but in the current circumstances a cheap and useful insurance against the disruption of funds becoming temporarily unavailable. Northern Rock, I think, was really just a warning shot across the bows, not the be all and end all of the problem in the UK

I'm feeling very nervous. This coming week is going to be dramatic. I think the US authorities are going to have to come out with a radical initiative as well as the expected interest rate cut. No idea what that might be. The trouble is that they are working under such time pressure that they wont have thought it through properly. Whatever it is it could make the situation worse, as seems to have been the effect of the FEDs last initiative, the TSLF. (see comments in page linked below)

http://www.nakedcapitalism.com/2008/03/ ... tmare.html

Vortex · Post by **Vortex** » 16 Mar 2008, 16:29

Most people are not like that - they cling on to a sense of normality for dear life.

So where do bank runs come from?

Why are the packs of sugar in every supermarket sold out as soon as a minor 'sugar shortage' rumour starts?

At least if I have a bit of cash stashed away we can survive for the 2 or 3 weeks needed for any random and stupid bank run panic to blow over.

skeptik · Post by **skeptik** » 16 Mar 2008, 16:38

Vortex wrote:
Most people are not like that - they cling on to a sense of normality for dear life.
So where do bank runs come from?

Loss of confidence. Without trust and confidence fractional reserve banking doesn't work.

the only way to totally avoid bank runs is to adopt 100% reserves banking. If Everybody *knew* that there was enough reserves in the bank to cover all depositor accounts, there would be no point in running down to bank to get yours out before the bank runs out of money. Because it wouldn't.

http://www.fee.org/publications/the-fre ... p?aid=1500

biffvernon · Post by **biffvernon** » 16 Mar 2008, 18:42

JohnB wrote:I could cut out the camp sites by WWOOFing, parking up in PowerSwitchers fields(!), and wild camping, and if I can't afford diesel I just don't go anywhere.

We've got a field and plenty of wwoofable work. Passing through Lincolnshire?

JohnB · Post by **JohnB** » 16 Mar 2008, 18:47

biffvernon wrote:
JohnB wrote:I could cut out the camp sites by WWOOFing, parking up in PowerSwitchers fields(!), and wild camping, and if I can't afford diesel I just don't go anywhere.
We've got a field and plenty of wwoofable work. Passing through Lincolnshire?

Don't know. I was there last year and it was rather flat and the roads were a bit scary. But then maybe I should explore it more

.