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Bonds Are a 'Safe' Investment: A Big Lie Gets Even Bigger"We are on 'a great, long, slow journey' to use a Chinese saying," economist David H. Wang told BloggingStocks. "We have to be prepared for more bumps in the road ahead in 2009. We must be both proactive and also take corrective action in the credit markets."
Short-term interests have fallen considerably in the past three months, with the London rate for three-month loans in dollars (LIBOR) declining Friday to 1.50% from 4.82% earlier this fall, Bloomberg News reported, primarily on the strength of $8.4 trillion in liquidity-oriented interventions by the U.S. Federal Reserve and the other, major central banks.
The LIBOR is particularly important because it determines rates for $360 trillion of financial products worldwide, from home loans to derivatives.
Central banks: on the watch for credit stress signs
What could represent one of those 'bumps,' i.e. a re-igniting of short-term rates, in Wang's view? Another wave of home mortgage foreclosures, which would lead to another batch of toxic-bonds, write-offs, and financial institution stress, he said. The aforementioned "underscores the urgency of the Obama Administration and Congress passing a major home mortgage refinance plan for preventable foreclosures," Wang said. "If we stem the rise in mortgage foreclosures, we will make progress on the road leading to economic recovery."
Another potential bump: distress in major institutions, globally, including key American multinational corporations, Wang said.
"The initial phase of the auto rescue package has passed, and thank goodness for that. I know it may be against American business tradition, but the U.S. government may have to intervene again if another major corporation has a credit or a related problem. One example would be General Electric (NYSE: GE), or another American industrial giant," Wang said. "The ripple affects would be too much for the weak U.S. economy to bear. Again, intervention is something that's not easy for Americans to accept, but they may have to, for the good of the U.S. economy."
Credit Market / Economic Analysis: Indeed, as economist Wang noted, the credit cure will not occur in a week, nor in a month, nor in a quarter. Monetary-based liquidity injections must be continual, with proactive measures, and with the U.S., E.U., and Japan at the ready to intervene if / when a major institution's hiccup poses systemic risk. That's not the most pleasant news heading into 2009, but in this market and economy, as Wang observed, one should expect slow, incremental progress - - small victories - - in the arduous effort to restore U.S. and global economic health.
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Reader Comments (Page 1 of 1)
12-19-2008 @ 8:05PM
bill said...
once again the public gets fucked by it's government. fuck u uncle sam and all u mother fucking crooks in office who voted for this bailout. i'm done paying my bills u can all go fuck urselves .
12-19-2008 @ 8:10PM
bill said...
this government is only interested in saving the asses of their buddys. everyone stop spending for everything but food and then watch the fucking politicians decide its time to help the little guy. after 6 months they'll come begging us.