Two CNBC Interviews: $2 Trillion of Credit Losses, a Severe Banking and Financial Crisis, a Severe US Recession and a Broader G7 Recession
See attached links to two video interviews that I had this week with CNBC Europe and CNBC.
http://www.cnbc.com/id/15840232?video=812261135
http://www.cnbc.com/id/15840232?video=812506348
It is now clear that all G7 economies are headed towards a recession; the US is in a recession; the UK is headed towards one with the bust of their housing; Japan – as recognized today by its government is entering a recession; Italy’s economy is comatose and borderline in recession; Canada had negative growth in Q1 and its economy is tied to the US; while Germany and France (as well as Ireland and Spain and Portugal especially but also the rest of the Eurozone are headed towards a recession.
So all of the G7 economies are now in a recession or headed in the short run towards a recessionary hard landing. Add to these G7 the recession in the rest of the Eurozone (starting with Spain Ireland and Portugal but by now all of the Eurozone as industrial production, sales and business confidence are plunging in all of the Eurozone). Add also the recession in Estonia, Latvia, the risk of hard landing in South East Europe (Bulgaria Romania Hungary and Turkey) and the recession in New Zealand
These generalized recession in the advanced economies will soon lead to a sharp growth slowdown in the BRICs (Brazil Russia India and China) that is already evident in the data and a significant growth slowdown in the rest of emerging market economies.
A sharply slower global growth starting with the G7 recession, falling commodity prices, an increase in global investors’ risk aversion, falling equity markets in emerging markets (EM), the weakness of the US dollar and the rise of EM currencies both in nominal and real terms, a tightening of monetary policies in emerging markets to control inflation, the effect of the global liquidity and credit crunch, the risk of a sudden stop and reversal of capital inflows in those EMs with large current account deficits) (the 20 countries in Europe from the Baltics to Turkey as well as India, South Africa and other capital importing EMs) are the factors that will lead to a sharp growth slowdown in the EMs as well as downward pressures on their equity and other financial markets
While the world will technically avoid a global recession (defined by the IMF as global growth below 2.5 percent) it will get quite close to it by mid 2009 as global growth will slow down to a near recessionary 3 percent”
40 Responses to “Two CNBC Interviews: $2 Trillion of Credit Losses, a Severe Banking and Financial Crisis, a Severe US Recession and a Broader G7 Recession”
Guest • August 6th, 2008 at 4:07 pm
First? Anyone wants to buy ad space up here?
Alessandro • August 6th, 2008 at 4:18 pm
Nouriel, webmasterthe box on the right has a different (unpublished) article as latest post (?). Very confusing
Guest • August 6th, 2008 at 4:18 pm
Second! Yes!
Alessandro • August 6th, 2008 at 4:20 pm
OK. Looks like it is fixed now.
Guest • August 6th, 2008 at 4:33 pm
Really being a little morose aren’t we? I usually use the equity and bond market to gauge real financial stresses and they tell me it’s business as usual. And your government is sworn to protect and defend, and act with integrity, etc., etc. Well welcome to lies revealed. Just a nails scratch below the surface yet, and we see all this. 911 lies, 2 wars without merit, FED and Treasury allocating lifeboats only to first class WS, collusion to overlook multi-layered lies, taxpayer monies used to actively war against them, manipulation of all markets, currencies, international trade. Secret police force distributed throughout nation to monitor the population. Laws and courts corrupted. Legislatures at standstill except to vote taxpayer money to fill gaps. Executive in hiding, playing bridge or golf. Military for sale as mercenary force in gulf or whatever. MSM leading public by nose as they run about carefree in borrowed Land Rovers to buy crap for hawked-to-the-nose homes, preparing meals in microwaves. Money becoming just digits and dots to throw at the ever escalating waves of bills and deficits. Stock markets bouncing in weekly moves over 10% without relation to earnings releases or daily news. No worries, people. Although it sounds like an army about to be routed. Lack of leadership, hasty plugging of weak points, spent reserves, ranks filled with confidence men while leaders onload their valuables to rail, ship, motorcade for full retreat. Rape of Nanking occurred just like that.
Anonymous ibid. • August 6th, 2008 at 4:33 pm
It’s interesting that you didn’t mention Mexico, Nouriel. I am predicting that that economy will be one of the hardest hit, partly because of its ties to the US, partly because of political risk factors.Any thoughts on that?
Alessandro • August 6th, 2008 at 4:37 pm
As user Default over at CR said "someone had to buy all those AAA":5:32 p.m. [AIG] AIG to update on progress of review in September5:32 p.m. [AIG] AIG to consider all options during review of businesses5:32 p.m. [AIG] AIG reviews ops. to reduce risk profile, protect cap base5:31 p.m. [AIG] AIG Q2 adjusted net loss $1.32 bln vs $4.63 bln profit
Alessandro • August 6th, 2008 at 4:40 pm
AIG story looks quite bad, I read $11bn between write-dons and realized losses,"AIG reports $5.36 billion quarterly net lossBy Alistair Barr – Last update: 5:37 p.m. EDT Aug. 6, 2008SAN FRANCISCO (MarketWatch) — American International Group reported a $5.36 billion second-quarter net loss late Wednesday as the insurance giant was hit again by write-downs and impairments on mortgage-related exposures. The net loss was $2.06 per common share. A year ago, AIG reported net income of $4.28 billion, or $1.64 a share. The quarterly net loss included $5.57 billion of unrealized market valuation losses on AIG’s super senior credit default swap portfolio. It also included $6.08 billion of net realized capital losses, the company disclosed."
Guest • August 6th, 2008 at 4:43 pm
Love is gonna save us. Or maybe not.
Guest • August 6th, 2008 at 5:02 pm
Dissect Financial Meltdown.http://dealbook.blogs.nytimes.com/2008/08/06/wall-street-report-tries-to-dissect-financial-meltdown/
MASHIACH BEN CHANA • August 6th, 2008 at 5:35 pm
LOOK AT THIS LINK BELOW A CLIP FROM DISCOVERY CHANNEL.IRAN WILL USE EMP WEAPON ON USA THE SECOND THE WAR STARTS BETWEEN IRAN AND U.S.A.http://www.youtube.com/watch?v=48lsiZR9TZs&eurl=http://lazerbrody.typepad.com/
Markar • August 6th, 2008 at 6:23 pm
Bob Chapman tells it like it is today and it ain’t prettyhttp://www.theinternationalforecaster.com/International_Forecaster_Weekly/Trillions_Lost_in_Recent_Economic_Failures
Gloomy • August 6th, 2008 at 6:51 pm
Nouriel,Great work as always. Aren’t high interest rates and a dollar meltdown inevitable due to:1. As US purchases of foreign goods and commodities decline, foreign purchases of US debt will necessarily plummet.2. US issuance of debt will dramatically increase due to slowing tax receipts and massive corporate bailouts.Won’t these alterations in the supply and demand of treasuries overwhelm the effects of “flight to quality” and lead to a dollar meltdown and higher interest rates? How about giving us your view of the dollar and US interest rates?
Gloomy • August 6th, 2008 at 6:58 pm
THE US GOVERNMENT MUST BAILOUT ALL LARGE CORPORATIONS FACING BANKRUPTCYThe US government is now forced to bailout all large corporations facing bankruptcy because of the credit default swap nightmare. Any failure of any type of large corporation would be catastrophic because of financial institution CDS holdings. Therefore expect that any S&P 500 corporation, in any industry group, will get a bailout. In the coming depression, such corporate failures will be widespread. The bailouts will leave the dollar in ashes and a hyperinflationary storm is inevitable, but only after a preliminary bout of deflation.
Erik T • August 6th, 2008 at 7:06 pm
Fantastic stuff, Nouriel!I heard another guy on Bloomberg today say “By the time this is over, Main Street Americans will have to adjust to a change in standard of living that will last 20 years”. He went on to cite figures relating to both the enormous toxic debt in the system and the enormous national debt.I’d love to see you write about this claim (that the American standard of living will have to be reduced for a period of many years after the credit crisis). Do you agree with this? If so, I think these are extremely strong words when getting the attention of the average citizen.Also, have you seen Chris Martenson’s work (at http://www.ChrisMartenson.com)? His “crash course” on the american economy is the best job I’ve ever seen of someone explaining what is going on in this country in layman’s terms that the average American citizen can understand. Not nearly as technical or advanced as your writing, but he does a hell of a job of making it simple for the common man.Thanks, and keep up the fantastic writing!Erik
Guest • August 6th, 2008 at 7:08 pm
@MarkarI used to think Bob Chapman was a nut. Now I read his columns and see that he is just reporting the news.
Guest • August 6th, 2008 at 9:25 pm
“THE US GOVERNMENT MUST BAILOUT ALL LARGE CORPORATIONS FACING BANKRUPTCY”so true, looking to their record with Bear Stern, they will not just bailout debt holders, but also equity holders.
WAWAWA • August 6th, 2008 at 9:37 pm
I can not play the 2nd video, it says I need some special registration or some shit like that. How can I watch it?
WAWAWA • August 6th, 2008 at 9:41 pm
I truly believe that Fed Gov. is going to monetize debt eventually, and we will have high inflation.Can someone tell me why I may be wrong!Thanks
Markar • August 6th, 2008 at 11:08 pm
“VI used to think Bob Chapman was a nut. Now I read his columns and see that he is just reporting the news.”Unfortunately news the vast majority will never get to read before it’s too late thanks to the corporate media.The guy has an impressive CV and was once one of the biggest gold traders in the world.
AfA • August 6th, 2008 at 11:25 pm
Two C what?@ WAWAWA”I truly believe that Fed Gov. is going to monetize debt eventually, and we will have high inflation. Can someone tell me why I may be wrong!”Th short answer is that they can and might default on the debt (directly or indirecly). I think. The long answer is coming soon.@ Gloomy” Any failure of any type of large corporation would be catastrophic because of financial institution CDS holdings.”The more frightening news is that they don’t even need to actually fail (or risk to fail) for that to happen. Simple defaults are enough (default is not the same as bankruptcy, a company may default on one or many of its issues but not automatically face bankruptcy. The question is whether the CDS’s protect against default on a specific bond or the bankruptcy of the company)@ MASHIACHI clearly fail to see what does Iran has to do with the EMP threat. However, the video reminds us how that humans are the most dangerous and frightening species (or maybe second to Centipedes)
Guest • August 6th, 2008 at 11:46 pm
Written by Gloomy on 2008-08-06 18:51:49As far as I know, this is the closest the professor has come to answering your question since I found this site. Thought I would bring it back up for your opinion. Please see full articleWill the Bretton Woods 2 (BW2) Regime Collapse Like the Original Bretton Woods Regime Did? The Coming End Game of BW2Nouriel Roubini | Jul 6, 2008Thus, like the rise of commodity and goods inflation led to the demise of BW1 the current rise in commodity and goods inflation in emerging market economies may be the trigger that will lead – as argued in my 2005 BW2 paper with Brad Setser and a more recent 2007 paper of mine – to the demise of BW2. It is true that BW2 is still alive as the massive ongoing reserve accumulation by BRICs, GCC and other emerging markets suggests. But the rise in inflation that these exchange rate policies are causing may soon lead to its demise: abandoning pegs and/or letting currencies appreciate at a faster rate will be the necessary step to control inflation in such emerging market economies.Thus, even if the BW2 economies were to resist further their currency appreciation and desperately hold on BW2 – as the rate of accelerated forex accumulation in 2008 so far suggests – the result, like the demise of BW1 shows, would be a rise in global inflation that would – at some point – destroy BW2 as rising inflation would erode the competitiveness of the BW2 club. Thus, either way we are now closer to the end game of BW2: formally BW2 is still alive and well as the reserve accumulation is as aggressive as ever or even more aggressive than in 2006-2007 among many – but not all – members of the BW2 club. But continuing with BW2 is leading now – with certainty – to inflation becoming so unhinged in the BW2 club that the basis of undervalued currencies and export-led growth will be destroyed by the real appreciation that a rise in inflation induces. So the delusion – exposed by the proponents of BW2 – that this regime would last for 20 years or more is rapidly being challenged. Either way, we are now much closer to the end game of BW2.Then the Professor wrote this on Jul 30, 2008Global Recession Watch: Recoupling rather than DecouplingThis is happening now, hence the rise in dollar at present. To me, this means a good buying (gold) opportunity.Let me know if you think I’m wrong.hlowe
JLC • August 7th, 2008 at 12:56 am
hlowe,I’ve been watching the dollar index closely lately. In the medium term, the dollar has been trading in a slightly bullish channel since its March lows. It is fluctuating but stuck in a range, gradually making higher lows and higher highs.In the longer term, it is approaching its long term bearish trendline going back to 2006. Every time it has touched this trend line it has sold off, sometimes sharply.In my armchair technical analysis, I’d say we are approaching 2 important technical levels.The first is the top of the bullish channel it has been in since March. It is almost there, and if it makes a convincing break above 74.5, it could signal a breakout to the upside.The second is it is approaching that long term bearish trendline, which it will hit a little above 75 (don’t have my charts handy). I expect that it will sell off sharply once it hits it, in which case I will increase my short dollar, long gold and forex positions. But if the dollar breaks that trendline, I will take profits on most of my positions (as well as some losses), take a neutral stance and see what develops.Several currencies have broken (AUD) or are close to breaking (JPY) medium term trends of strength vs. the dollar.Simply put, while I believe the fundamentals behind the dollar are unsound, the price action could be setting up for a real dollar bounce.I don’t understand all this dollar strength lately with all the bailouts and stuff, but I bet many of the big traders are just happily playing in the channel and making money on the volatility. It seems like when we get a big risk event (BSC or Fan and Fred) the dollar sells off, then rebounds when TPTB step in to plug the leaks. We’ll see how the dollar does shortly – major tests are approaching.
Guest • August 7th, 2008 at 1:16 am
Thanks JLC, tell me when you go long gld.Hubbs on 2008-08-06 15:10:30Keeping in mind I was not the author.As the dollar fallsI believe it will take time before wages escalate up for a wage/price spiral that worries me. At some point this process will bring house prices back up to their bubble level of 2005. How far this will go is what I want to know. The local governments certainly need their real property tax dollars, so we can’t have deflation for long IMO.Unlike those that debate one side or another on inflation or deflation, I seem to be leaning towards an inflationary depression at worst.If indeed the $ goes down or collapses, I expect foreigners to purchase residential properties on the coast, and trophy commercial real estate throughout the U.S.Seems to me that most manufacturing jobs should come back to the states, and Asia starts buying their own goods and services after we fall, as their currency will need to rise instead of following us downward.But I am not an economist.hlowe
Dano • August 7th, 2008 at 1:24 am
a must read:http://www.business-standard.com/india/storypage.php?autono=329075Satyajit Das: Bank earnings – The `V`, `U` or `L` RecoveryNew Delhi July 19, 2008, 0:54 IST
Guest • August 7th, 2008 at 1:41 am
Is recent US dollar appreciation the result of deleveraging debt instruments denominated in dollars?
AfA • August 7th, 2008 at 2:06 am
@ hloweNot that I want to invalidate your arguments and thoughts but here are some ideas to consider (of course we can come up with others that validate yours but I don’t think you will be interested in them)Unlike in the 70′s, there are now no real mechanisms for a wage-spiral.Although I was debating for and against inflation, my personal opinion would be somehow similar to yours (inflation then depression) where the deflation part is by far more destructive and the inflation part is very contained in critical and globally consumed products and commodities.Even if the wage/price spiral takes effect driving house prices to their 2006 peaks in nominal terms, it won’t change anything of the underlying problem: People cannot pay their mortgages (since mortgages should shoot up even more) and the benefit to local governments will be lost since in this scenario their liability and costs sides will rise proportionally (plus it’s not because the government needs prices to stay high that they will)Foreigners or anybody else lost all confidence in the RE market and won’t touch it before long. They are now thinking twice before purchasing income-generating assets (by participating in capital raising rounds …) and they have been seriously burnt. How could they invest in an ongoing imploding market? If the market bottoms and assuming foreigners will start picking some not-so-rotten vintages, there would be no real benefit to Americans (house-mortgage market was supposedly beneficial because people were able to use their houses as ATM by taking 2nds and HELOCs or by flipping them) unless probably paying some of interests on national outstanding debt.Building a production base does not occur overnight. It took America 30 years to destroy its base. And as we know, it is much easier and faster to destroy than to rebuild.Also, and as rightly pointed by Gloomy, a reduction in imports (smaller CA gap) means less lending by China et al to the Treasury which needs every penny to, at least, roll over its bonds (the need for financing is NOW against the potential of future benefits from rebuilding a real economy due to lower dollar is in DECADES, the US will be long gone by then)Written by Guest on 2008-08-07 01:41:40I would think it is a result of anticipations of the next moves by the ECB and BOA as a result of increasing recession risks in Europe, but I could be wrong/
Alessandro • August 7th, 2008 at 3:10 am
@hlowe, AfA and othersforeign central banks do not demand or hold cash, they demand and hold “safe” dollar denominated debt instruments (treasuries and agencies) that have a maturity and earn interests. Printing more dollars does not meet the FCBs demand and it will make them ask for higher interest rates on what they do demand. This is the simple reason Ben didn’t print, up to now, and it is not going to print as long as the demand for US government debt (that Hank is printing like a madman) will remain strong.Now, those who add 10- and 30-year bills to their definition of “money supply” have all the reasons to be worried about inflation.
Guest • August 7th, 2008 at 3:24 am
bwahahabwahahaFunny i never knew Frederick the Great was a slimy,backstabbing, poker faced outright liar,well why stop the comparison there, Hank the Great Paulson copies Alexander the Great, Hannibal Barca, Scipio Africanus, Julius Caesar, Napolean, Genghis Khan (OK, maybe he have bit of Genghis Qualities)http://www.bloomberg.com/apps/news?pid=20601068&sid=a1DAILZ6FjFQ&refer=economyHank the Great? Paulson Copies Frederick With Covered-Bond PlanAug. 7 (Bloomberg) — In 1769, short of funds to rebuild Prussia after attacks by Russia, Sweden and Austria, Frederick the Great let aristocrats, churches and monasteries raise money by pledging their estates as security to investors.From those beginnings emerged what today is Europe’s $3 trillion market for covered bonds — securities backed by assets such as mortgages as well as the seller’s promise to pay. Now U.S. Treasury Secretary Henry Paulson, faced with carnage in the housing market that led to $480 billion of losses and writedowns at the world’s top financial institutions, is using a similar strategy to help America’s banks turn assets into cash.
Guest • August 7th, 2008 at 3:42 am
pledging their estates as security to investors.is this the same estates that is depreciating in value (fast)(with no bottom in sight), right now??any stupid Europeans willing to buy these so called estates??how is this gonna solve the solvency problem??
Guest • August 7th, 2008 at 3:47 am
aahhhso this is the Fire sale we have talked aboutAmerica is for Sale, and yeah its cheap
Flanders • August 7th, 2008 at 5:38 am
http://www.comstockfunds.com/files/NLPP00000/292.pdfI guess that everyone by now has seen this graph. In 1929, at the eve of the Great Depression, total debt as % of GDP stood at “only” 170%. Due to the deflationary forces, it increased heavily during the 1929-1933 period. NOW (!), we are at 330% of GDP. Would if deflation takes hold again?!
son of the paul • August 7th, 2008 at 7:41 am
“July sales struggle as tax rebate cash ends”No worry. The printing machine is ready…This is just a matter of money.
Little Saver • August 7th, 2008 at 8:20 am
Aug. 7 (Bloomberg) — The number of Americans filing first- time claims for unemployment benefits unexpectedly rose last week to the highest level in six years, signaling the labor market continues to weaken.Unexpectedly?
Guest • August 7th, 2008 at 8:24 am
Thar she blows!http://onlinejournal.com/artman/publish/article_3559.shtml?ref=patrick.net
Average Jane • August 7th, 2008 at 8:53 am
Just read the above article posted by Guest at 08:24:35. Just FYI, folks, when I went to my CU the other day and tried to withdraw $8,500 they wouldn’t allow me to withdraw more than $3,000.
Guest • August 7th, 2008 at 9:44 am
New Thread
PhilT • August 7th, 2008 at 11:19 am
@ all readers and contributorsThe noted Financial Historian, author and Professor, Niall Ferguson, contributed this piece to the Financial Times in the beginning of 2008. Some of the comments in this forum resemble the well-articulated history lesson at the link below the caption:An Ottoman warning for indebted AmericaBy Niall FergusonPublished: January 1 2008 18:37 | Last updated: January 2 2008 08:07Future historians will look back on the current decade as a turning point comparable with that of the Seventies. No, not the 1970s. This is not going to be another piece pointing out the coincidence of an unpopular Republican president, soaring oil prices, a sagging dollar and an unwinnable faraway war. I am talking about the 1870s.Entire article => http://www.ft.com/cms/s/0/6667a18a-b888-11dc-893b-0000779fd2ac.html
Guest • August 7th, 2008 at 12:31 pm
Citigroup to Unfreeze $19.5 Billion of Auction DebtAug. 7 (Bloomberg) — Citigroup Inc., the largest U.S. bank by assets, agreed to buy back or help clients unload $19.5 billion in auction-rate securities and pay a $100 million fine to settle U.S. regulatory claims it improperly saddled customers with untradeable bonds.http://www.bloomberg.com/apps/news?pid=20601087&sid=aUMayh1jkSBs&refer=home~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Does this buy back signal a trend that other banks will be forced to follow?If so, what would the ramifications be?
Mark • August 7th, 2008 at 3:33 pm
@Guest on 2008-08-07 03:42:19any stupid Europeans willing to buy these so called estates??how is this gonna solve the solvency problem??Might sink more slowly than cash… Something tangible is better than something non-tangible.The casino’s cashing out…Mark
