Eric: Change comes from who you see in the mirror

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THIS SECTION IS NOW DEVOTED TO THE NEWS ABOUT THE ONCOMING FINANCIAL CRISIS AND ANYTHING THAT IS OR MAY BE RELATED TO IT.FORTIS BANK PREDICTS US MARKET MELTDONW. American 'meltdown' reason for money injection Fortis. 28th of June, 9:10 BRUSSELS/AMSTERDAM - Fortis expects a complete collapse of the US financial markets within a few days to weeks. That explains, according to Fortis, the series of interventions of last Thursday to retrieve € 8 billion. "We have been saved just in time. The situation in the US is much worse than we thought", says Fortis chairman Maurice Lippens. Fortis expects bankruptcies amongst 6000 American banks which have a small coverage currently. But also Citigroup, General Motors, there is starting a complete meltdown in the US"ROYAL BANK OF SCOTLAND. RBS issues global stock and credit crash alert By Ambrose Evans-Pritchard, International Business Editor Last Updated: 12:19am BST 19/06/2008Have your say Read commentsThe Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks."A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets. RBS warning: Be prepared for a 'nasty' period Such a slide on world bourses would amount to one of the worst bear markets over the last century.RBS alert: Quotes from the report Fund managers react to RBS alert Support for the euro is in doubt RBS said the iTraxx index of high-grade corporate bonds could soar to 130/150 while the "Crossover" index of lower grade corporate bonds could reach 650/700 in a renewed bout of panic on the debt markets."I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names.advertisement "Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.RBS expects Wall Street to rally a little further into early July before short-lived momentum from America's fiscal boost begins to fizzle out, and the delayed effects of the oil spike inflict their damage."Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point," he said.US Federal Reserve and the European Central Bank both face a Hobson's choice as workers start to lose their jobs in earnest and lenders cut off credit.The authorities cannot respond with easy money because oil and food costs continue to push headline inflation to levels that are unsettling the markets. "The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation," he said.Morgan Stanley warns of catastrophe More comment and analysis from the Telegraph "The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets," he said.Kit Jukes, RBS's head of debt markets, said Europe would not be immune. "Economic weakness is spreading and the latest data on consumer demand and confidence are dire. The ECB is hell-bent on raising rates."The political fall-out could be substantial as finance ministers from the weaker economies rail at the ECB. Wider spreads between the German Bunds and peripheral markets seem assured," he said.Ultimately, the bank expects the oil price spike to subside as the more powerful force of debt deflation takes hold next year.MORGAN STANLEY. Morgan Stanley warns of 'catastrophic event' as ECB fights Federal Reserve By Ambrose Evans-Pritchard, International Business Editor Last Updated: 1:29am BST 17/06/2008Have your say Read commentsThe clash between the European Central Bank and the US Federal Reserve over monetary strategy is causing serious strains in the global financial system and could lead to a replay of Europe's exchange rate crisis in the 1990s, a team of bankers has warned."We see striking similarities between the transatlantic tensions that built up in the early 1990s and those that are accumulating again today. The outcome of the 1992 deadlock was a major currency crisis and a recession in Europe," said a report by Morgan Stanley's European experts. Jean-Claude Trichet is taking a hard line on rates Just as then, Washington has slashed rates to bail out the banks and prevent an economic hard-landing, while Frankfurt has stuck to its hawkish line - ignoring angry protests from politicians and squeals of pain from Europe's export industry.Indeed, the ECB has let the de facto interest rate - Euribor - rise by over 100 basis points since the credit crisis began.Just as then, the dollar has plummeted far enough to cause worldwide alarm. In August 1992 it fell to 1.35 against the Deutsche Mark: this time it has fallen even further to the equivalent of 1.25. It is potentially worse for Europe this time because the yen and yuan have also fallen to near record lows. So has sterling.More Ambrose Evans-Pritchard ECB in no mood to rescue us from debtadvertisement Morgan Stanley doubts that Europe's monetary union will break up under pressure, but it warns that corked pressures will have to find release one way or another.This will most likely occur through property slumps and banking purges in the vulnerable countries of the Club Med region and the euro-satellite states of Eastern Europe."The tensions will not disappear into thin air. They will find fault lines on the periphery of Europe. Painful macro adjustments are likely to take place. Pegs to the euro could be questioned," said the report, written by Eric Chaney, Carlos Caceres, and Pasquale Diana.The point of maximum stress could occur in coming months if the ECB carries out the threat this month by Jean-Claude Trichet to raise rates. It will be worse yet - for Europe - if the Fed backs away from expected tightening. "This could trigger another 'catastrophic' event," warned Morgan Stanley.The markets have priced in two US rates rises later this year following a series of "hawkish" comments by Fed chief Ben Bernanke and other US officials, but this may have been a misjudgment.An article in the Washington Post by veteran columnist Robert Novak suggested that Mr Bernanke is concerned that runaway oil costs will cause a slump in growth, viewing inflation as the lesser threat. He is irked by the ECB's talk of further monetary tightening at such a dangerous juncture. Ben Bernanke is reported to be irked by the ECB's approach The contrasting approaches in Washington and Frankfurt make some sense. America's flexible structure allows it to adjust quickly to shocks. Europe's more rigid system leaves it with "sticky" prices that take longer to fall back as growth slows.Morgan Stanley says the current account deficits of Spain (10.5pc of GDP), Portugal (10.5pc), and Greece (14pc) would never have been able to reach such extreme levels before the launch of the euro.EMU has shielded them from punishment by the markets, but this has allowed them to store up serious trouble. By contrast, Germany now has a huge surplus of 7.7pc of GDP.The imbalances appear to be getting worse. The latest food and oil spike has pushed eurozone inflation to a record 3.7pc, with big variations by country. Spanish inflation is rising at 4.7pc even though the country is now in the grip of a full-blown property crash. It is still falling further behind Germany. The squeeze required to claw back lost competitiveness will be "politically unpalatable".Morgan Stanley said the biggest risk lies in the arc of countries from the Baltics to the Black Sea where credit growth has been roaring at 40pc to 50pc a year. Current account deficits have reached 23pc of GDP in Latvia, and 22pc in Bulgaria. In Hungary and Romania, over 55pc of household debt is in euros or Swiss francs.Swedish, Austrian, Greek and Italian banks have provided much of the funding for the credit booms. A crunch is looming in 2009 when a wave of maturities fall due. "Could the funding dry up? We think it could," said the bank.BARCLAYS.Barclays warns of disaster as Fed loses all credibility Submitted by cpowell on Fri, 2008-06-27 02:02. Section: Daily Dispatches By Ambrose Evans-Pritchard The Telegraph, London Friday, June 27, 2008http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2 008/06/27/cnbarc...Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero.""We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock under way. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth."Barclays Capital said in its closely-watched Global Outlook that US headline inflation would hit 5.5pc by August and the Fed will have to raise interest rates six times by the end of next year to prevent a wage-spiral. If it hesitates, the bond markets will take matters into their own hands. "This is the first test for central banks in 30 years and they have fluffed it. They have zero credibility, and the Fed is negative if that's possible. It has lost all credibility," said Mr Bond.The grim verdict on Ben Bernanke's Fed was underscored by the markets yesterday as the dollar fell against the euro following the bank's dovish policy statement on Wednesday. Traders said the Fed seemed to be rowing back from rate rises. The effect was to propel oil to $138 a barrel, confirming its role as a sort of "anti-dollar" and as a market reproach to Washington's easy-money policies.The Fed's stimulus is being transmitted to the 45-odd countries linked to the dollar around world. The result is surging commodity prices. Global inflation has jumped from 3.2 to 5pc over the last year. Mr Bond said the emerging world is now on the cusp of a serious crisis. "Inflation is out of control in Asia. Vietnam has already blown up. The policy response is to shoot the messenger, like the developed central banks in the late 1960s and 1970s," he said."They will have to slam on the brakes. There is going to be a deep global recession over the next three years as policy-makers try to get inflation back in the box."Barclays Capital recommends outright "short" positions on Asian bonds, warning that yields could jump 200 to 300 basis points. The currencies of trade-deficit states like India should be sold. The US yield curve is likely to "steepen" with a vengeance, causing a bloodbath for bondholders.David Woo, the bank's currency chief, said the Fed's policy of benign neglect toward the dollar had been stymied by oil, which is now eating deep into the country's standard of living. "The world has changed all of a sudden. The market is going to push the Fed into a tightening stance," he said.The bank said the full damage from the global banking crisis would take another year to unfold. Rob McAdie, Barclays' credit strategist, said: "The core issues have not been addressed. We're still in a very large deleveraging cycle and we're seeing losses continue to mount. We think smaller banks will struggle to raise capital. We're very bearish -- in the long-term -- on high-yield debt. The default rate will reach 8 to 9pc next year."He said investors had taken their eye off the slow-motion disaster engulfing the US bond insurers or "monolines." Together these firms guarantee $170 billion of structured credit and $1,000 billion of US municipal bonds.The two leaders -- MBIA and Ambac -- have already been downgraded as the rating agencies belatedly turn stringent. The risk is further downgrades could set off a fresh wave of bank troubles. "The creditworthiness of many US financial institutions will decline in coming months," he said.The bank warned that engineering and auto firms we're likely to face a crunch as steel and oil costs surge. "Their business models will have to be substantially altered if they are going to survive," said Mr McAdie.A small chorus of City bankers dissent from the view that inflation is the chief danger in the US and other rich OECD countries. The teams at Societe Generale, Dresdner Kleinwort, and Banque AIG all warn that deflation may loom as housing markets crumble under record levels of household debt.Bernard Connolly, global startegist at Banque AIG, said inflation targeting by central banks had become a "totemism that threatens to crush the world economy."He said it would be madness to throw millions out of work by deflating part of the economy to offset a rise in imported fuel and food prices. Real wages are being squeezed by oil, come what may. It may be healthier for society to let it happen gently.OH IF ONLY EVERYONE TOOK RON PAUL SERIOUSLY IN THE DEBATES. HE SOMEHOW KNEW THIS WAS COMING AND THAT IT IS MUCH MORE OF A THREAT THAN TERRORISM. BUT, IF YOU DIDN'T VOTE FOR HIM AND LAUGHED OFF HIS POSITIONS, YOU ARE PART OF THE PROBLEM NOW.