The central bankers' bank renews fear of second depression

BIS slams central banks, warns of worse crunch to come
UK Telegraph 6/30/08

"The current market turmoil is without precedent in the postwar period. With a significant risk of recession in the US, compounded by sharply rising inflation in many countries, fears are building that the global economy might be at some kind of tipping point," it said.

"These fears are not groundless. The magnitude of the problems yet to be faced could be much greater than many now perceive," it said. "It is not impossible that the unwinding of the credit bubble could, after a temporary period of higher inflation, culminate in a deflation that might be hard to manage, all the more so given the high debt levels."

European banks have suffered worse losses on US property than American banks. Their net dollar liabilities are $900bn, mostly short-term loans that have to be rolled over, a costly business with spreads still near panic levels. Mortgage and consumer credit has "demonstrably worsened".

The BIS cautions the ECB to handle its lending data with great care. "The statistics may understate the contraction in the supply of credit," it said.

More Here

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/30/ccbis130.xml

Joe Sixpack is finding himself with a mountain of debt from four main sources: mortgage, car loan, student loan and credit card, and is finding out his credit card limit has been reduced for the first time in his life just when prices are shooting upward and he's under pressure to charge more just to maintain his lifestyle, including that sixpack every night. He's being expected to start paying down his debt just when he's least able to do so. His wages, of course, are going nowhere, and even a parsimonious 2% "cost of living" raise is being eaten up immediately by increased health care "contribution."

People are just about to learn all over again why debt is poison. They're about to learn that when servicing debt cuts into subsistence, the game is largely over, the jaws of the trap snap shut, and they lose everything.

I saw that particular article and posted it to my site this morning. I hate to start of the week on a bad note like that, but they really talk sense at the BIS.

Ambrose Pritchard-Evans is a reporter hat really gets what is happening here and has been reporting on this for some time. The blog entry is here with a link to a few other related telegraph articles and brief commentary as well as a link to the BIS annual report. Have a go at the annual report. It's good.

http://www.creditwritedowns.com/2008/06/bis-warns-of-worsening-credit-crisis.html

Also, on a related post, check out my chart of the day which shows the Dow Jones stock price index as it went up to 1929 and then fell to 1932 during the Great Depression. What I wanted to point out is that there were many false dawns from 1929-1932 when the Dow hit rock bottom.

What we need to see is a sweeping away of all the bad debt, the bankrupt zombie banks and an end to the slide in home prices. I suspect the US economy will be weak until all of the above occur. Policies that get us there sooner rather than later (and without systemic risk and undue hardship) are what we need. This isn't what we're getting.

http://www.creditwritedowns.com/2008/06/chart-of-day-dow-1928-1932.html

Edward

Interesting info to read on your blog

Thanks!