January 24th, 2009 | 
Author: In spite of the fact that many supposed financial experts are suggesting that the worst of the current economic crisis is already behind us there is little reason to believe that this is true and many reasons to believe that it isn’t.
We are without doubt in the grips of the worst financial crisis since the ‘Great Depression’ and in many ways the problems are more formidable because they are global and the U.S. banking and financial system has been left virtually insolvent by credit losses amounting to around $3 trillion.
Insolvency problems by their very nature limit the effectiveness of monetary stimulus packages and the risk of rising interest rates erodes the growth effects of fiscal stimulus packages so all the intended ‘policy remedies’ are likely to have only very limited effects.
So what needs to be done!
In my opinion, insolvent banks need to be shut down and the debt level of insolvent households will have be reduced and until that’s done we shouldn’t expect conditions to ease.
U.S. deficits are set to skyrocket over the next few years and perhaps the most worrying aspect of all this is that the countries that are presently supporting America’s deficits are the very ones that are its strategic rivals, such as Russia, China and a number of additional countries that are politically unstable!
New York, which not long ago was the financial capital of the world isn’t even the financial capital of the U.S. anymore and Washington now is!
To make things even worse, many the world’s emerging markets are now facing the threat of a ‘hard landing’ and if that happens there will be a kind of global “stag-deflation” which would mostly likely mean economic stagnation, recession and falling prices.
Meanwhile growing opportunities will exist for those that have money or secure jobs because they will be able to buy houses at fire sale prices and because banks need to lend money to exist they will have to lend it to riskier and riskier applicants.
Related posts:
Posted in bankruptcy, banks, crisis, deficits, financial, insolvency, interest rates, stimulus | 
Tags: bankruptcy, banks, crisis, deficits, financial, insolvency, interest rates, stimulus
