Coming Soon --Europe Risks Another Global Depression LINK

[Blackhatjack]

http://baselinescenario.com/2010/02/07/europe-risks-another-global-depression/

Europe Risks Another Global Depression

"The financial markets know all this and last week sharpened their swords. As we move into this week, expect more selling pressure across a wide range of European assets.

As this pressure mounts, we’ll see cracks appear also in the private sector. Significant banks and large hedge funds have been selling insurance against default by European sovereigns. As countries lose creditworthiness – and, under sufficient pressure, very few government credit ratings will hold up – these financial institutions will need to come up with cash to post increasing amounts of collateral against their derivative obligations (yes, the same credit default swaps that triggered the collapse last time).

Remember that none of the opaqueness of the credit default swap market has been addressed since the crisis of September 2008. And generalized counter-party risk – the fear that your insurer will fail and this will bring down all connected banks – raises its ugly head again.

In such a situation, investors scramble for the safest assets available – “cash”, which actually (and ironically, given our budget woes) means short-term US government securities. It’s not that the US is in good shape or even has anything approaching a credible medium-term fiscal framework, it’s just that everyone else is in much worse shape.

Another Lehman/AIG-type situation lurks somewhere on the European continent, and again our purported G7 (or even G20) leaders are slow to see the risk. And this time, given that they already used almost all their fiscal bullets, it will be considerably more difficult for governments to respond effectively when they do wake up."

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[Blackhatjack]

1. IF the IMF gets involved, that will mean the US will have to ante up to help financially...

There is no firewall between a European financial crisis(as in Portugal, Ireland, Italy, Greece and Spain) and the United States.

And this time the subjects of a financial bailout would be COUNTRIES.

An underreported story ..... and one that Americans do not appreciate as possibly affecting them.

[On the Road]

2. I've Been Skeptical of a Double-Dip Recession

because it seemed mostly driven by sentiment over the first dip, but a default by Greece could be the tipping point. This is indeed scary.

If it weren't for the stupid Reagan-GWB deficits, the US would be in a much greater position to help avoid a European collapse or help in the event in does happen.

[Blackhatjack]

3. Before the 2008 Financial Crisis Hit I Recall Ireland Was Praised As A Model For The Future....

In fact, I would bet there is a ton of videotape of Repub candidates pointing out how Ireland was the prototypical economy that we need to be emulating in the United States.

I guess derivatives and risky borrowing were the flavor of the day, with no concern about the lessons learned from the US Great Depression.

You only get to play with House Money so long before the odds catch up with you!

[pa28]

6. A major source of irritation for me.

During the good times you should be retiring debt and we did the opposite. Now, at the moment when spending in support of our own economy is most needed our capacity to borrow is on very thin ice.

[Blackhatjack]

4. And This Next Week May Bring Worse News For Financial Markets

The reaction of the financial markets this week will be watched closely, as pointed out in the LINKED article.

http://news.bbc.co.uk/2/hi/business/8503090.stm

UK economy 'faces crisis' warns former IMF economist

The UK must be more convincing about its prospects, Mr Johnson says.
The UK should be seen in the same category of countries as Greece and Spain, who are facing severe debt problems, a leading economist has said.

SKIP

"The pressure on the EU to act will be brought into sharp focus this week when the new President of the European Council Herman von Rompuy chairs a special economic summit in Brussels at which the public finances of Greece, Spain and Portugal will be discussed."

[Odin2005]

5. Keep your eyes on Greece.

This ain't gonna be good.

[Blackhatjack]

7. Watch what happens when an official default by Greece, Italy, Ireland, Spain or Portugal occurs

That is going to be the litmus test as to whether we plunge into a deep global depression.

[David Zephyr]

8. Thanks for the article and the link, Blackhatjack

We are all in such unchartered waters now.