Economy

The global credit crisis may be affecting the access of developing countries to financing of imports and exports, leading the WTO to convene a meeting to counter this threat to international commerce

Finance ministers and central bankers from the group of seven leading economies were agreed to coordinated action in an effort to stabilise the global financial system as they started their meeting in Washington

By Bill Bonner. "When investors had the wind at the backs, they were ready to believe the most outrageous things - that the financial sector could get rich by lending money to people who couldn't pay it back..."

Dominique Strauss-Kahn announced this week that he was readying emergency procedures that allow the fund to lend rapidly to countries in crisis, arrangements used during the 1997-8 Asian financial crisis

By Bill Bonner. "And so...the reckoning falls on The Daily Reckoning too...and everyone looks to his own: 'How will I afford to pay for the vacation home we bought last year?' 'What if I lose my job?' 'Well, at least I'm not the only one!'"

By John Muellbauer

Fed minutes released on October 7 disclosed that as recently as Sept 16, Fed officials thought risks to growth and inflation were roughly equally balanced. And Federal Reserve Chairman Ben Bernanke acknowledged on the same day that though the inflation outlook had improved somewhat, it remained uncertain. The market may have taken these views as representative of central banks round the world, particularly given the ECB decision of October 2 not to reduce rates. Following these releases, the Dow Jones index fell by about 6.5 percent as the market thought the internationally co-ordinated interest rate cut it had been expecting had become less likely. This and the knock-on effects on world markets then helped to force central banks to make the cut the market had expected, but on October 8.

Central banks’ caution about inflation risks is understandable given the experiences of 2008. Forecasting inflation is notoriously difficult. There have been big structural shifts in the world economy such as trade and financial globalisation and in individual economies, such as the decline in trade union power. Monetary policy itself has shifted to a far greater focus on inflation. Energy and food price shocks can be large and very hard to predict. Indeed, the speed of price changes tends to increase with big shocks. Most forecasting models used by central banks therefore put a large weight on recent inflation. This tracks inflation quite well except at turning points because the models miss key underlying influences.

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Describing a world in which wholesale money markets were now refusing to lend to banks, even overnight, UK authorities warned that the world was on the edge of a collapse of the financial system

By Chuck Butler. "Banks are hoarding cash in expectation of payouts on up to $400 billion of defaulted credit derivatives linked to Lehman Brothers and other institutions, according to analysts and dealers."

By Graham Turner

The markets have given their emphatic response to the banking bailouts put forward in the UK and US. Both rescue packages are flawed and will fail to stem the slide into not just recession, but possibly a global depression.

These bailouts were aimed at the symptoms, rather than the cause. Money markets are frozen because nobody knows how far property prices will slide, or the scale of losses banks will suffer. Banks are deemed insufficiently capitalised for the same reason.

The policy response of Western governments has, therefore, been back to front. If they solved the underlying problem – chronic property deflation on a scale not seen since the 1930s – liquidity will eventually return.

There is only one conventional policy that will work: deep interest rate cuts followed by a shift to quantitative easing.

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Global oil demand will grow far less than forecast this year and in 2009 as the financial crisis risks tipping rich countries 'into outright recession', the International Energy Agency, the western countries' energy watchdog, said

by Mike Shedlock. "The global economic dam has now cracked wide open. Water is pouring everywhere. The bursting of the dam is a fitting tribute to Paulson's and Bush's $700 billion boondoggle to add liquidity to banks. The public was overwhelmingly against the plan (and rightly so) as were close to 200 economists. Paulson, Bush, Trichet, and Brown all goaded Congress to waste $700 billion of taxpayer money on grounds there would be a global meltdown if the plan was not passed. Congress had it right the first time. The $700 billion bailout helped bust the dam."

by F. William Engdahl. "What’s clear from the behavior of European financial markets over the past two weeks is that the dramatic stories of financial meltdown and panic are deliberately being used by certain influential factions..."

by Chris Ciovacco. "I bring it up because the two charts below look so bad you have to conclude we still face serious fundamental problems in the months ahead. The chart below paints a disturbing picture for U.S. stocks"

by Shelby Moore. "Three weeks ago, just a few days after I was quoted, Canadian Silver Maples dipped briefly at apmex.com to $13.41. Today I see Maples at apmex are $16.79, a +25% gain in 3 weeks."

by Mike Stathis. "Most of us have played Blind Man’s Bluff as children. It’s such a popular game among kids that several versions now exist. In case you don’t remember, here’s the original version. A person is blindfolded and referred to as “it."

by Joseph Dancy. "In what will rank as the largest regulatory failure in modern history last month was the worst month for the financial sector since the Great Depression. Even Warren Buffett admitted he had problems figuring out the value to place on credit default swaps"

by Joseph Dancy. "Energy use correlates closely with global economic activity. If the U.S. and global economies slow due to the ongoing credit crisis the growth in demand for crude oil and natural gas will be impacted."

by Christopher Quigley. "The bear has returned with a vengeance. It looks like the Paulson bailout package is ill conceived and too little too late. The lines in all the major averages, that were consolidating since June, have now been crashed through to the downside."

by Janice Dorn, MD, Ph.D. "These are unprecedented times. The markets are showing their true animal nature because they are trading on emotions, rather than on technicals or fundamentals. Even the most seasoned market veterans are scratching their heads. Where is the rally? What are people waiting for?"

by Charles Young. "Keeping up with recent events has been an exhausting task. The days of holding stocks in short or long term trades, with your only worry being Google’s earnings report, or worrying about the impact of a surprise “earnings miss” on your favorite stock, are gone."