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Crisis may make 1929 look a 'walk in the park'
Telegraph UK ^ | 23/12/2007 | Ambrose Evans-Pritchard

Posted on 12/26/2007 8:00:01 AM PST by Sonora

As central banks continue to splash their cash over the system, so far to little effect, Ambrose Evans-Pritchard argues things are rapidly spiralling out of their control

Twenty billion dollars here, $20bn there, and a lush half-trillion from the European Central Bank at give-away rates for Christmas. Buckets of liquidity are being splashed over the North Atlantic banking system, so far with meagre or fleeting effects.

As the credit paralysis stretches through its fifth month, a chorus of economists has begun to warn that the world's central banks are fighting the wrong war, and perhaps risk a policy error of epochal proportions.

"Liquidity doesn't do anything in this situation," says Anna Schwartz, the doyenne of US monetarism and life-time student (with Milton Friedman) of the Great Depression.

"It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue," she adds.

Lenders are hoarding the cash, shunning peers as if all were sub-prime lepers. Spreads on three-month Euribor and Libor - the interbank rates used to price contracts and Club Med mortgages - are stuck at 80 basis points even after the latest blitz. The monetary screw has tightened by default.

York professor Peter Spencer, chief economist for the ITEM Club, says the global authorities have just weeks to get this right, or trigger disaster.

"The central banks are rapidly losing control. By not cutting interest rates nearly far enough or fast enough, they are allowing the money markets to dictate policy. We are long past worrying about moral hazard," he says.

"They still have another couple of months before this starts imploding. Things are very unstable and can move incredibly fast. I don't think the central banks are going to make a major policy error, but if they do, this could make 1929 look like a walk in the park," he adds.

The Bank of England knows the risk. Markets director Paul Tucker says the crisis has moved beyond the collapse of mortgage securities, and is now eating into the bedrock of banking capital. "We must try to avoid the vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other," he says.

Snip........ Telegraph UK ______


TOPICS: Government; News/Current Events
KEYWORDS: centralbanks; credit; crisis; markets; money
Hmmmmmmm......yes, Christmas is over.

I hope someone at the central bank level knows what they are doing.

1 posted on 12/26/2007 8:00:02 AM PST by Sonora
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To: Sonora
Doomed. Also, Bush's fault.

If you ask 2 economists what their outlook is, you'll get 3 opinions.

2 posted on 12/26/2007 8:02:38 AM PST by wbill
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To: wbill

Beware of anyone with a hyphenated name...


3 posted on 12/26/2007 8:04:43 AM PST by Eric in the Ozarks (ENERGY CRISIS made in Washington D. C.)
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To: Sonora

“Twenty billion dollars here, $20bn there, and a lush half-trillion from the European Central Bank at give-away rates for Christmas. Buckets of liquidity are being splashed over the North Atlantic banking system, so far with meagre or fleeting effects.”

These pundits do not know how to analyze the effect. They apparently judge by whether real estate prices have been stabilized, yet, the US economy was growing at 3.9% during the last quarter, irrespective what real estate prices are doing. Subprime lending amounts to only about 6% of the home mortgage loan inventory. We are not on the verge of a depression, and probably not even a recession.


4 posted on 12/26/2007 8:06:50 AM PST by Brilliant
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To: Sonora
If you read Ludwig Von Mises you'll know that they CAN'T know what they are doing. It's called the Information Question. In economics, no central organization can get the dispersed information inorder to make correct economic decisions. If the implosion happens, my only surprise will be that things have lasted this long. Central Banks have been flooding the world with fiat money, based on nothing but promises, for decades.

But hey, look on the bright side, you'll be able to pay off your mortgage with money that would buy an English Muffin.

5 posted on 12/26/2007 8:11:00 AM PST by Jabba the Nutt (Just laugh at them!)
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To: wbill
"If you ask 2 economists what their outlook is, you'll get 3 opinions."

Yeah.....

The Economics trivia quizz has 400 questions and 1000 answers.

6 posted on 12/26/2007 8:14:34 AM PST by spokeshave (Hey GOP...NO money till border closed and criminal illegals deported)
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To: Sonora

This was already posted:

http://www.freerepublic.com/focus/f-news/1943531/posts

And I am not one of the self-appointed posting police. In all my years of posting here I don’t recall more than once or twice commenting on a double posting.

I draw your attention to the fact that the article was already posted (with around 135 comments) because the title of the article is very much misleading. The economy is certainly not firing on all pistons, but do we really need to hype the problem?

Glenn Reynolds has a nice item on how the press is misrepresenting the economic news in order to influence the upcoming election.

http://instapundit.com/archives2/013355.php

I think we should be careful to recognize the facts, but not give too much emphasis to one sided or obviously slanted reporting. Referring directly to this being much worse than the Great Depression is bit over the top, don’t you think so?


7 posted on 12/26/2007 8:15:04 AM PST by Cap Huff
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To: Sonora

Does the author forget the role the US Congress played in triggering the Great Depression by bringing world trade almost to a halt with a high tariff?

This article appears to be more wishful thinking than an honest attempt to warn about financial issues. When the ECB borrows $1/2 Trillion into circulation and the US Fed borrows a few hundred billion into circulation, the problem isn’t that world trade will be throttled, what we are seeing is the competitive debasing of the two major world fiat currencies.

If you don’t confuse money with wealth, you can understand why oil and gold have high nominal (numeric) money prices.

Watch the flow of wealth, not the flow of money. If wealth stops flowing, then look out.


8 posted on 12/26/2007 8:44:55 AM PST by theBuckwheat
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To: Jabba the Nutt
But hey, look on the bright side, you'll be able to pay off your mortgage with money that would buy an English Muffin.

Sweet!

9 posted on 12/26/2007 8:54:36 AM PST by Greg F (Duncan Hunter is a good man.)
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To: Jabba the Nutt

And thanks to the generosity of the folks at the Mises Institute, copies of many of Mises’ books in PDF are available for free download from www.mises.org.

In particular, I would recommend that every Freeper read Mises’ book Human Action:

http://www.mises.org/resources/3250

Free book download:
http://www.mises.org/humanaction/pdf/humanaction.pdf

Another great book is Money, Bank Credit, and Economic Cycles by Jesus Huerta de Soto. He goes through the fiat money cycle step by step and proves that fractional reserve banks, when operating in a central bank community with other fractional reserve banks actually create money from nothing. He also works through a viable system of money and credit based on hard currency.

see:
http://www.mises.org/studyguide.aspx?action=author&Id=210

Free book download:
http://www.mises.org/books/desoto.pdf

Or look up either on Amazon and buy a used copy of the dead tree edition.


10 posted on 12/26/2007 8:55:44 AM PST by theBuckwheat
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To: Sonora; Toddsterpatriot; Petronski

We just had this crap last week. Same title, everything.

Self-fulfilling spamecy?


11 posted on 12/26/2007 8:57:15 AM PST by Larry Lucido (Hunter 2008)
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To: wbill

A lot of these guys remind me of Hank Kimble of Green Acres.


12 posted on 12/26/2007 9:13:08 AM PST by Farmer Dean (168 grains of instant conflict resolution)
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To: wbill

I agree and this time I’d say that it is partly Bush’s fault, actually some of those working for him. The regulators have been asleep at the switch for a long time.


13 posted on 12/26/2007 9:23:53 AM PST by Sonora
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To: Cap Huff

Thanks for pointing out the double post and the link!


14 posted on 12/26/2007 9:25:56 AM PST by Sonora
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To: Sonora

Gee, What did FDR say about fear?


15 posted on 12/26/2007 9:28:47 AM PST by Doc91678 (Doc91678)
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To: Larry Lucido

Doom & Gloom has evolved. The articles are now polymorphic, self-replicating internet bots.


16 posted on 12/26/2007 9:32:38 AM PST by Justa (Politically Correct is morally wrong.)
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To: Sonora

Sorry if I came across as bit cranky, particularly at this season when we should be mindful of grace. I am hoping that people will be realistic, rational, but predisposed to optimism. Pessimism doesn’t really solve problems -— it exacerbates them. (Come to think of it, cranky posts don’t help much either!)

We’d all do well to face our challenges with optimism and not panic or doom and gloom.


17 posted on 12/26/2007 9:52:48 AM PST by Cap Huff
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To: Sonora
The regulators have been asleep at the switch for a long time.

Of course, because regulation, and more regulation (with wide-awake regulators) is the answer.

Every so often the doomers become cadid: Bigger government is their answer.

18 posted on 12/26/2007 9:57:37 AM PST by Larry Lucido (Hunter 2008)
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To: Sonora

bmflr

.

.

.

.

According to Intrade, the winner of the December 12th GOP debate was... Duncan Hunter.
http://www.freerepublic.com/focus/f-news/1938773/posts

Why the smart money is on Duncan Hunter
http://www.freerepublic.com/focus/f-news/1926032/posts

In this poll Hunter is up 3% and even with Paul and Thompson.
http://www.wxyz.com/news/local/story.aspx?content_id=3481ef60-8195-46a9-af04-b87b907bcfdd


19 posted on 12/26/2007 11:55:11 AM PST by Kevmo (We should withdraw from Iraq via Tehran. And Duncan Hunter is just the man to get that job done.)
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To: Sonora

This article didn’t scare anybody the last time it was posted.


20 posted on 12/26/2007 11:56:41 AM PST by RightWhale (Dean Koonz is good, but my favorite authors are Dun and Bradstreet)
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To: Larry Lucido

I don’t totally understand your point - it’s not more regulation that I’m pointed too, it’s regulating within the current guidelines and keeping up with the scammers.


21 posted on 12/26/2007 1:52:14 PM PST by Sonora
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To: Eric in the Ozarks
Beware of anyone with a hyphenated name...

Ambrose Evans-Pritchard was one of the first and best reporters breaking the Clinton Scandals during Clinton's first term. The Dinosaur Media in this country was mum on Clinton's many, many scandals and Evans-Pritchard broke many stories in this country.

I used to go the the Telegraph on-line and read his stories.

22 posted on 12/26/2007 2:29:34 PM PST by A. Patriot (CZ 52's ROCK)
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To: All
Whatsamatter Ambrose? The royalities dropping off from "Blood in the Streets"?

What's that? A little tome written 20+ years ago about the pending financial collapse of the universe.

Not bad work if you can get it; peddling the same used oats that have been through the horse over and over.

23 posted on 12/26/2007 2:40:41 PM PST by Proud_texan
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To: A. Patriot

Thanks for educating the other poster about who Ambrose E-P is.

That being said, he does tend toward apocalyptic rhetoric about this issue.


24 posted on 12/26/2007 2:44:58 PM PST by jaime1959
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To: theBuckwheat
When the ECB borrows $1/2 Trillion into circulation and the US Fed borrows a few hundred billion into circulation, the problem isn’t that world trade will be throttled, what we are seeing is the competitive debasing of the two major world fiat currencies.

Wrong.

Those were all temporary repos meaning that there has been no permanent injection of liquidity. If even there had been, it will do no good. This is an insolvency problem, not a liquidity problem.

The Fed had better get busy dropping the dollars from helicopters because the money supply is deflating and asset values are dropping.

25 posted on 12/26/2007 3:06:59 PM PST by Vet_6780 ("I see debt people")
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To: RightWhale

I think the article was written to justify the British goverment bailout of the Northern Rock bank. Sounds like a lot of payoffs to protect fellow upper class Brits from embarassment, whilst porking it to the Brit taxpayer. Or can I say that? I mean pork barrelling it I think.

It wasn’t intended to scare the U.S. voter, and it’s probably assumed that none of them is educated well enough in government schools to know what 1929 refers to, anyway.


26 posted on 12/26/2007 7:02:00 PM PST by Cincinnatus.45-70 (Patriotism to DemocRats is like sunlight to Dracula.)
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To: Vet_6780
Fans of fiat money never complain, at least as far as I have observed, when the Federal Reserve has a stated, published, policy of deliberate inflation of 2%. In my book, any inflation is theft of wealth from the lender. Now that we are faced with “assets values dropping”, meaning disinflation which is theft of wealth from borrowers). The remedy? To help borrow (print) as many billions as it takes return us to the target rate of theft of wealth from lenders.

Don’t confuse nominal dollars (the numeric quantity of money in wages and prices) with wealth! Indeed that confusion is so universal that it is like the air we breath and is an idea that must never, ever, be challenged lest people get confused by the sad truth of fiat money: anytime the government’s legal money monopoly central bank “borrows money into circulation” it is counterfeiting private wealth and thus stealing money to the advantage of those who create the money and who benefit from a graduated, progressive, tax on incomes.

27 posted on 12/26/2007 7:41:56 PM PST by theBuckwheat
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