Money down the drain


Crunch the numbers to see a likely cause of the recession
Two pieces have an interesting juxtaposition.

The first is from Cato @ Liberty, The U.S. Didn't cause the World Recession. Emphasis in original.

Unlike the U.S., real GDP began falling in the second quarter of 2008 in Germany, France, Italy, Japan, Singapore and Hong Kong.  By no coincidence, that was when the price of oil rose as high as $145 a barrel.  Soaring oil prices raise the cost of production and distribution for many industries, and reduce real household incomes and therefore consumption.   Nine of the ten postwar U.S. recessions were preceded by a major spike in the price of oil.

The second is more telling, but the source may not be reliable. Here's a snippet from The Looming Collapse of European Banking.

The original February 11 story was a shocker. The author claims to have seen a secret European Commission report. The report estimates that losses (write-downs) by European banks will be in the range of $25 trillion.

If true, then to save the banking system, European governments will have to find an extra $25 trillion, fast. There is only one source of such funding: the central banks, mainly the European Central Bank (ECB).

For comparison's sake, consider the $700 billion banking bailout in the United States last fall. Of this, only about half has been spent. That was sufficient bailing wire and chewing gum to keep the American banking system going. More will be needed, but so far, this has sufficed. The Federal Reserve did a lot of asset swaps in 2008 – Treasury debt for toxic assets – and pumped in an extra trillion dollars or so. But the system has held.

Adding these together – the increase in the monetary base and $350 billion in bailout money – the total is around $1.5 trillion. Then think "$25 trillion." This is a sobering thought for some, and a reason to get unsober, fast, for others. (NeoWayland adds: The $1.5 trillion is definitely low-ball, my own estimates place it closer to around $2.7 trillion)

The European Central Bank will have to serve as the lender of last resort. There are over a dozen national EC governments. How will they coordinate their respective bailouts? Think of a dozen Barney Franks and a dozen Nancy Pelosis. Think of a dozen Henry Paulsons. Think of a dozen Gordon Browns. Terrifying, isn't it?

Meanwhile, no one is talking about Russia. And they should be.

— NeoWayland

Posted: Mon - February 23, 2009 at 01:21 PM  Tag


 ◊  ◊   ◊  ◊ 

Random selections from NeoWayland's library


Pagan Vigil "Because LIBERTY demands more than just black or white"
© 2005 - 2009 All Rights Reserved