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Default Rise to Give Bond Buyers a `Rude Shock,' Fridson Says
``The high-yield market is entering the up-leg of the default rate cycle with a far worse quality mix than the last time around,'' Fridson said. ``It is hard to give much credence to optimists who forecast a substantially lower peak default rate in this cycle than the 10.89 percent rate reported by Moody's Investors Service for January 2002.''
Joke: Optimist and Pessimist
There's got to be a pony in here somewhere!
Yep, we're heading to Candy Mountain for sure!
There's no stopping the vortex.
Sunday Night Futures
-
Weekend:
• Schedule for Week of November 24, 2024
Monday:
• At 8:30 AM ET, *Chicago Fed National Activity Index* for October. This is
a composite index of ...
3 hours ago
5 comments:
Stag,
http://en.wikipedia.org/wiki/Event_horizon
I think Bernanke looked into that place where central bankers face their worst fears and soiled his bloomers.
What did he see? Take your pick: the point of no return, the abyss, the tipping point, cascading defaults, systemic collapse, derivative implosion, the vortex, Zimbabwe, the great depression, Weimar, etc.
Stag,
http://en.wikipedia.org/wiki/Arthur_F._Burns
Interesting and quick read. My main take away is that monetary and fiscal policy makers had no idea wht they were doing in the 1970s. Today is no different.
It really is a faith based system.
MAB,
My main take away is that monetary and fiscal policy makers had no idea wht they were doing in the 1970s. Today is no different.
The Poetry of D.H. Rumsfeld
http://www.slate.com/id/2081042/
As we know,
There are known knowns.
There are things we know we know.
We also know
There are known unknowns.
That is to say
We know there are some things
We do not know.
But there are also unknown unknowns,
The ones we don't know
We don't know.
Ever get the feeling that Bernanke once thought he knew what he was doing but now knows he doesn't?
First there was the deflation speech in 2002 and the inflationary problems we've had since then. Then there was the Great Moderation speech of 2004 and the volatility problems we've had since then.
All we need now is a let's find someone else to blame speech. Oh, here it is.
June 3, 2008
http://www.federalreserve.gov/newsevents/speech/bernanke20080603a.htm
In the financial sphere, the three longer-term developments I have identified are linked by the fact that a substantial increase in the net supply of saving in emerging market economies contributed to both the U.S. housing boom and the broader credit boom.1 The sources of this increase in net saving included rapid growth in high-saving East Asian countries and, outside of China, reduced investment rates in that region; large buildups in foreign exchange reserves in a number of emerging markets; and the enormous increases in the revenues received by exporters of oil and other commodities. The pressure of these net savings flows led to lower long-term real interest rates around the world, stimulated asset prices (including house prices), and pushed current accounts toward deficit in the industrial countries--notably the United States--that received these flows.
Maybe we should stop printing so much of OUR money and sending it to them. They seem to have too much to absorb.
Bernanke's Speech: "It's all China's fault. Really"
http://www.informationclearinghouse.info/article20043.htm
Ask yourself this, dear reader; do "savings" cause massive equity bubbles or are bubbles the result of low interest rates and rotten monetary policy? It is universally agreed that Greenspan created the housing bubble by dropping rates below the rate of inflation for 31 months following the dot.com bust. This sparked a multi-trillion dollar speculative frenzy in real estate. Artificially low interest rates distort the market; bubbles appear. "Savings" had nothing to do with it; Bernanke is just trying to dodge responsibility by blaming the Chinese. It's the old "dog ate my homework" routine.
Hear, hear!
Stag,
From your link: Bernanke again: "The housing and credit booms were driven to some extent by global savings flows, but they also reflected domestic factors, such as weaknesses in risk management and lax standards in subprime lending. Higher commodity prices are for the most part a global phenomenon, but U.S. dependence on oil imports makes this country quite vulnerable on that score."
There it is. The asymetrical response is a killer for the majority - free market booms, socialized busts.
As I see it, we should never have negative real interest rates. I think it's clear that negative real rates do NOT help the economy. Why isn't there a main stream discussion about this? I imagine it would go something like this: the majority of you are about to become poorer so that a minority of reckless lenders, investors and borrowers can be bailed out from their mistakes. If the majority don't want to become poorer, they simply need to spend their money now, before it is devalued. Spending said money on over-valued assets would be greatly appreciated and good for the economy.
A policy of zero inflation seems best.
If memory serves, CPI took 25 years to double from 1947 to 1972. From 1973 to 1982 CPI doubled in only nine years.
An epic swindle.
MAB,
As I see it, we should never have negative real interest rates. I think it's clear that negative real rates do NOT help the economy.
And yet, positive real interest rates allow wealth to be accumulated exponentially and unsustainably. It seems best to have neutral real rates, you know, like a truly "stable" currency would imply. I doubt THAT'S going to happen anytime soon.
Imagine saving a penny and actually having it be worth exactly a penny in fifty years. Wouldn't that be something. Of course, the current system attempts to simulate it by growing the penny through interest as inflation and taxes attempt to shrink it. That simulation is failing lately though, much like it did in the 70s.
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