Collapse of the Global Economy
45 Percent of World's Wealth Destroyed
March 14, 2009Reuters - Private equity company Blackstone Group LP (BX.N) CEO Stephen Schwarzman said on Tuesday that up to 45 percent of the world's wealth has been destroyed by the global credit crisis. "Between 40 and 45 percent of the world's wealth has been destroyed in little less than a year and a half," Schwarzman told an audience at the Japan Society. "This is absolutely unprecedented in our lifetime."
But the U.S. government is committed to the preservation of financial institutions, he said, and will do whatever it takes to restart the economy.
U.S. Treasury Secretary Timothy Geithner plans to unfreeze credit markets through a new program that will combine public and private capital in a fund that would buy bank toxic assets of up to $1 trillion...
The Size of Derivatives Bubble = $190,000 Per Person on Planet
March 17, 2009Silicon Valley Watcher
1. The entire GDP of the US is about USD 14 trillion.
2. The entire US money supply is also about USD 15 trillion.
3. The GDP of the entire world is USD 50 trillion. USD 1,144 trillion is 22 times the GDP of the whole world.
4. The real estate of the entire world is valued at about USD 75 trillion.
5. The world stock and bond markets are valued at about USD 100 trillion.
6. The big banks alone own about USD 140 trillion in derivatives.
7. Bear Stearns had USD 13+ trillion in derivatives and went bankrupt in March. Freddie Mac, Fannie Mae, Lehman Brothers and AIG have all ‘collapsed’ because of complex securities and derivatives exposures in September.
8. The population of the whole planet is about 6 billion people. So the derivatives market alone represents about USD 190,000 per person on the planet.
IMF Chief Warns World Entering 'Great Recession'
March 10, 2009
AFP – The World Bank said Sunday that the global economy will shrink this year for the first time since World War II and that the global financial crisis will make it tougher for poor and developing nations to access needed financing.
Trade is forecast to fall to its lowest point in 80 years in 2009, as economic hardship ripples across the globe, the bank said. The most drastic trade slowdowns are expected in East Asia, where growth had been robust, the bank said in a paper prepared for a meeting of finance ministers and central bank officials this week.
The ramifications of the growing financial crisis on the world's poorest nations will likely remain for some time, the bank said. Because richer nations are borrowing more, developing nations are being squeezed out and many financial organizations that have provided financing to lower-income countries "have virtually disappeared."
In Europe, the European Central Bank has forecast a 2.2-3.2 percent fall and in gross domestic product over 2009 in the 16 countries that share the euro. The euro-zone economy contracted by a record 1.5 percent in the last three months of 2008, dropping even more sharply than in the U.S as collapsing world trade hit the region's export-rich economies, figures showed last month.
The drop in output for the fourth quarter compared to the third was the biggest since the euro was created in 1999 and the third quarterly fall in a row.
Global Financial Assets Lost $50 Trillion Last Year
March 8, 2009Bloomberg - The value of global financial assets including stocks, bonds and currencies probably fell by more than $50 trillion in 2008, equivalent to a year of world gross domestic product...
Canada Falls Hard Into Deep, Widespread Recession in Final Quarter
March 3, 2009The Canadian Press - There’s no sign Canada is close to pulling out of an alarming economic nosedive that began last fall, resulting in the worst quarterly contraction in nearly two decades...
EU Resists Eastern Bailout Pleas
March 2, 2009Spiegel Online - There will be no EU regional bailout for struggling Eastern European economies, leaders decided at a Sunday summit. But neither will the 27-member-bloc succumb to protectionist instincts. Still, fears persist that Western Europe is putting local economic interests ahead of EU unity.
As European Union member states struggle to deal with the impact of the global economic crisis, cracks in the 27-member bloc are beginning to appear. Increasingly that division seems to be between the old Western European nations and the former communist states to the east.
On Sunday the leaders of the EU countries gathered in Brussels for an emergency meeting to address ways to tackle the crisis as Eastern European states voiced fears that moves towards protectionism in the bloc's richer countries would leave poorer countries to struggle on their own.
The crisis has hit Eastern and Central European countries particularly hard because many of their economies are highly reliant on credit from Western sources, and like elsewhere that credit has all but dried up. Hungary and the Baltic States have been particularly badly affected by the downturn and ahead of Sunday's summit the Hungarian Prime Minister Ferenc Gyurcsany had called for a massive bailout for the Eastern European region, recommending a fund of up to €190 billion euros ($240 billion.) He warned that the EU should not allow the recession to cause new divisions in Europe. "We should not allow a new 'Iron Curtain' to ... divide Europe into two parts."
The call, though, fell on deaf ears in Brussels with German Chancellor Angela Merkel leading the rejection of any regional bailout. "I see a very different situation here," she said on her way into the meeting. "You cannot compare Slovenia or Slovakia with Hungary."
There are indeed huge disparities in how the crisis is affecting European countries. While Budapest has been forced to ask for a loan from the International Monetary Fund to prevent a complete collapse of the Hungarian economy, countries like Poland and Slovakia are on a much sounder footing and even expect to see modest growth this year. In contrast, older EU states like Greece, Spain and Ireland are seeing their economies contract considerably. Meanwhile, Germany, the biggest contributor to the EU coffers, is also in recession and Chancellor Merkel is unwillingly to throw an expensive lifeline to all of Eastern Europe in a difficult election year...
East Europe Social Collapse Threatens Rest of Europe
March 1, 2009Times Online - Twenty years after the fall of the Berlin Wall, Western leaders were told yesterday that five million jobs could be lost in the “new” European Union countries of the East unless radical action were taken to bail them out. The spectacular collapse of some of the post-communist tiger economies led to demands at an EU summit in Brussels for a rescue fund of €190 billion (£170 billion) to stop social collapse in the Eastern nations spilling over into the rest of Europe...
International Organizations Pledge €24.5 Billion to Shore Up Eastern Europe
February 27, 2009International Herald Tribune - With the former communist nations of Eastern and Central Europe reeling from the global economic crisis, three major lenders said Friday that they would inject €24.5 billion, or $31 billion, over two years into the region's banks...
Next Wave of Banking Crisis to Come from Eastern Europe
February 19, 2009AP - European banks face an entirely new wave of losses in coming months not yet calculated in any government bank rescue aid to date. Unlike the losses of U.S. banks which derive initially from their exposures to low-quality sub-prime real estate and other securitized lending, the problems of western European banks, most especially in Austria, Sweden and perhaps Switzerland arise from the massive volumes of loans they made during the 2002-2007 period of extreme low international interest rates to clients in eastern European countries.
The problems in Eastern Europe, which are just now emerging with full force are, if you will, an indirect consequence of the libertine monetary policies of the Greenspan Fed from 2002 until 2006, the period where Wall Street’s asset backed securitization Ponzi Scheme took off.
The riskiness of these eastern European loans is now coming to light as the global economic recession in both east and west Europe is forcing western banks to pull back, refusing to renew loans or ‘rollover’ the credits, leaving thousands of borrowers with unpayable loan debts. The dimension of the eastern European emerging loan crisis pales anything yet realized. It will force a radical new look at the entire question of bank nationalizations in coming weeks regardless what nice hopes politicians in any party entertain...
Failure to Save East Europe Will Lead to Worldwide Meltdown
February 16, 2009Telegraph - If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung...
Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region’s GDP. Good luck. The credit window has slammed shut.
"This is the largest run on a currency in history," said Mr Jen. Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble. "This is the largest run on a currency in history," said Mr Jen...
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