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GFC II GFC2 New Global Financial Crisis Mark 2 Alert; Almost half of Australians believe world is on cusp of another financial crisis
Topic Started: 27 Jun 2011, 01:21 PM (14,290 Views)
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SMH Poll Results: http://www.smh.com.au/polls/business/crisis-view-20110819-1j1dj.html

What's your view of the economy?

A crisis is coming - and not much we can do
44%


A crisis is coming - but Australia will be shielded by Asia
18%


A crisis is coming only if we talk our way into one
19%


No real dangers - the threats are overstated
5%


Australia's economy is in good shape and growth will accelerate
4%


Too hard to say
10%


Total votes: 7974.
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http://www.smh.com.au/business/world-business/us-aims-to-twist-world-out-of-economic-mess-20110917-1key2.html

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US aims to twist world out of economic mess

Richard Webb

September 18, 2011

SHARES are expected to open in positive territory tomorrow as investors await the outcome on Thursday of a critical two-day US Federal Reserve meeting expected to deliver fresh initiatives to kick-start the US economy.

But with the financial position of the European Union still in the balance and likely to remain so for months to come, and the potential for the Fed to disappoint this week, the wild ride for shares is likely to continue, experts say.

In the latest news, the euro zone finance ministers increased the pressure on Greece to get its economy in shape by pushing back from next week to early October an assessment on whether it is meeting its obligations to receive the next tranche of bailout money.

This stunned Greece on Friday night, as it has already stated it will be out of money by mid-October and desperately needs the next €8 billion ($A10.7 billion) tranche.

The problem, according to AMP Capital Investors chief economist Shane Oliver, appears to be Finland's desire for collateral from Greece for its participation in the plan - a position other European countries will also want should it be accepted.

This is potentially a major stumbling block for markets because should Greece fail to get the money and soon - and it is also getting harder and harder for Greece to meet its obligations as its economy contracts by 7 per cent - it will go into default on its €330 billion of sovereign debt.

Looming European financial meltdown was partially averted a few days ago after the European Central Bank, the US Federal Reserve, the Bank of Japan and the central banks of Switzerland and England agreed to inject serious US-dollar liquidity into the European banking system.

But this, according to Dr Oliver, was another Band-Aid rather than a real solution.

Australian shares gained about 3.5 per cent on Thursday and Friday - although they still finished the week 1.1 per cent lower - and Wall Street completed its best week since July, with the S&P 500 up 5.4 per cent for the week.

Confirmation that Germany and France continue to officially support Greece's position in the EU helped, while in other positives on Friday night, Spain, another euro struggler, reinstated taxes on the rich.

The finance ministers of the 17 countries that comprise the euro zone made their decision on Greece at a meeting on Friday night in Poland, and as an indication of how important matters now are in the region, it was attended for the first time by a member of the US Treasury - Secretary Timothy Geithner.

Yet there was little else resolved. It was agreed to tighten the sanctions on governments that failed to meet their EU debt and deficit limits (something that might have helped if it had been in place over the past decade) but issues such as the US's call for Europe to leverage its bailout fund to increase its size and Finland's request for collateral were left unanswered.

''It's nice to see a bit of backbone coming out of there,'' Austock senior client adviser Michael Heffernan said. ''It means one way or another the catastrophe scenario isn't going to happen - if Greece does default, which I don't think it will, the banks have still got the dough.''

So with Europe expected to continue to muddle along, all eyes will fall back to the two-day Federal Reserve meeting. With US inflation running much higher than a year ago, most expect the Fed will perform something called Operation Twist, which attempts to reduce the US mortgage rate by lowering long-term bond yields.

Mr Heffernan said local shares were undoubtedly exceptionally cheap right now but he also warned that you would need to be brave to see out the next period.
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Bloodbath in European markets tonight, UK and France down 5%, sea of red everywhere.

http://finance.yahoo.com/intlindices?e=europe

It's not looking good.

Predictions for tomorrows ASX open anyone?
Edited by mugshot, 23 Sep 2011, 12:19 AM.
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mugshot
23 Sep 2011, 12:18 AM
Bloodbath in European markets tonight, UK and France down 5%, sea of red everywhere.

http://finance.yahoo.com/intlindices?e=europe

It's not looking good.

Predictions for tomorrows ASX open anyone?
Depends on the dow my boy. Footsie seems to be bouncing, but it all depends on whether the dow can find a support level.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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http://www.smh.com.au/business/plunge-scary-but-recession-is-the-real-worry-20110923-1koc9.html

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Plunge scary but recession is the real worry

September 23, 2011 - 11:49AM

Earlier this week I wrote that the markets appeared to be at another crash through or crash moment, and that is still the case.

Last night's plunge was scary, but it was on the back of indecision about what is happening to the world's economy, rather than a definite view that the battle to pull the global economy out of hole it dug for itself in the 2007-2009 financial crisis has been lost. From here the markets could bounce or fall a lot further, depending on what the verdict is.

There's certainly a lot to worry about, and the market dive that has in the last five trading days seen Wall Street shares lose about about 6 per cent of their value, European shares lose about 5 per cent and Australia's market fall by more than 3 per cent to be around 10 per cent, 25 per cent and 16 per cent down respectively, so far this year comes amid a welter of gloomy news.

It includes Italy's sovereign debt downgrade, downgrades for the big US commercial banks, Bank of America, Wells Fargo and Citigroup, reduced IMF world growth estimates, an attempt by the US Federal Reserve to stimulate the American economy by pushing down longer-term rates that really only serves to show how weak its remaining levers are, and some signs that growth could be slowing in China (the last remaining global growth engine that is firing on all cylinders).

Also, continuing indecision in Europe, firstly about whether or not to formally recognise that Greece is insolvent and what the consequences of Greek sovereign bond default would be, and Italy's vulnerable economy and a $1.8 trillion debt funding burden in particular.

There's some mystification here that our market and our our currency should slavishly follow the rest of the world down, but the local share sell-off and the descent of the Australian dollar to below parity with the US Dollar reflects the inescapable fact that the event that the markets are worrying about is a global recession, and a global recession would not pass Australia by.

Our economy is one of the most open in the world, and that means we will always import overseas conditions, through our commodity trading channels primarily. And commodity prices are falling because traders figure that slower world growth means lower demand for commodities.

Where to from here?

Bad economic news and more ratings agency downgrades (a 50-50 chance), would prompt more selling but the markets should not collapse: something very close to recession is now priced in.

If Greece's bale out funding is extended, the markets could bounce, but only by a few per cent, because Greece will still be insolvent, and the the markets will know the existential question will return in the New Year, perhaps earlier.

And if the European Union, The IMF and the European Central Bank take a deep breath and allow Greece to default, the big moment will have arrived. The markets would plunge on the day it occurred.

But if in a few days the Italian and Spanish bond markets had not collapsed - central bank buying would be needed to prevent it, almost certainly - the circumstances for a major rally would exist because the threat of a return to global crisis mayhem would be removed (the longer term problem of rebuilding western world economic growth to a point where the west can began paying down its maxed-out sovereign debt credit card would remain, however, so pre-global financial crisis prices would not return).

The nightmare scenario is that Greece is allowed to default, and European lawmakers and regulators then lose control of the situation.

This market is still 25 per cent above its March 2009 global crisis low. An uncontrolled European bond market selloff on top of the all the other negative indicators would retest that crisis nadir.
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an interesting thread, with some good points raised by both the bulls and bears comparing a second GFC and double dip.

going in this time we have:
- a different leader
- a whole bunch of independents and greens to deal with
- far lower confidence in everything
- higher underemployment.
- a negative balance, rather positive on the national credit card, with extreme political pressure to stop spending, but no where near maxing the card out
- people saving, rather than spending
- lower interest rates
- sovereign, rather than commercial bank defaults?
- austerity rather than fiscal stimulus

all of these differences could mean a different outcome.








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http://www.bloomberg.com/news/2011-09-22/el-erian-says-world-is-on-eve-of-next-financial-crisis-over-sovereign-debt.html

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El-Erian Says World Is on Eve of Next Financial Crisis Over Sovereign Debt

By Shamim Adam - Sep 23, 2011 2:52 AM ET

The world is on the eve of the next financial crisis, with sovereign debt its epicenter, said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., which runs the biggest bond fund.

The European Central Bank hasn’t put in place a “circuit breaker” to contain the region’s debt crisis, El-Erian, who is also Pimco’s co-chief investment officer, said at an event in Washington today.

Finance ministers and central bankers from the Group of 20 are meeting in Washington this weekend as markets tumble on concern the world economy is slowing and Europe’s sovereign debt crisis threatens to spread beyond Greece. The Stoxx Europe 600 Index sank 4.6 percent to 214.89 at the 4:30 p.m. close in London, the lowest since July 2009.

“There has been a significant increase in the financial requirements of international intervention,” El-Erian said. “You need a lot more firepower in order to be a circuit breaker. Look at how much the ECB has put in and ask yourself the question: has it created a circuit breaker? The answer is no, even though the amounts involved have been massive.”

French Finance Minister Francois Baroin said the G-20 nations will coordinate a response to the European sovereign debt crisis. Baroin, speaking to reporters today in Washington, said European nations must approve a July 21 accord on further financial aid to Greece.

Greek Budget Cuts

The Greek government said today it will accelerate budget cuts to keep emergency loans flowing, extending austerity measures that have deepened a recession and failed to ease doubts that it can avoid default. The latest round of deficit fighting was demanded by international lenders to ensure Greece reaches targets in a 110 billion-euro ($151 billion) bailout and receive a payment due next month.

World Bank President Robert Zoellick said the global economy is “in a danger zone,” and his counterpart at the International Monetary Fund, Christine Lagarde, said “downside risks” are high.

“We’re in it together and we will be able to solve it together,” Lagarde, a former French finance minister, said in an interview on Bloomberg Television. U.S. Treasury Secretary Timothy F. Geithner said Europe will act “with more force” to combat its debt crisis.

In the U.S., stocks tumbled on concern central banks are running out of tools to prevent another recession and after the Federal Reserve said yesterday it saw “significant downside risks” to the economy. The Standard & Poor’s 500 Index fell 2.9 percent to 1,133.09 at 12:51 p.m. on New York.
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Nasty virus never really went away

September 24, 2011

IT IS one of the most oft-repeated phrases in the halls of power across Europe and North America. ''This is not a repeat of 2008. I repeat, this is not a repeat of 2008.''

They've got that one right because this is a continuation, rather than a repeat. The global financial crisis, to which acronym-loving Australians refer as the GFC, never really went away. It was just covered up for a while.

While the threat of a complete meltdown in the financial system - where banks refused to lend money - certainly dissipated in late 2008, the debt problem that caused that initial crisis has never been properly resolved. Instead, when US and European governments picked up the tab three years ago, when they deemed their banks were ''too big to fail'', they merely transferred a private sector debt crisis to an already overstretched public sector. And then they borrowed even more in a futile bid to spend their way back to economic health.

As panic gripped Wall Street on Thursday night and global markets tanked - for everything from stocks and metals to wheat - we passed yet another milestone in China's relentless march towards global economic dominance. It was China that helped save the capitalist system three years ago. Now it is poised to take control, proving once and for all that money is a far more lethal weapon than guns when it comes to invasions.

Read more: http://www.smh.com.au/business/nasty-virus-never-really-went-away-20110923-1kpe7.html
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http://www.switzer.com.au/business-news/news-stories/rba-keeps-open-mind-on-gfc-mark-ii/

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RBA keeps open mind on GFC Mark II

by Craig James (CommSec)

Reserve Bank Financial Stability Review

A new financial crisis? The Reserve Bank hasn’t ruled out the prospect of a new global financial crisis (GFC). The Australian banking system is more vulnerable due to a “somewhat weaker starting position on asset quality than had been the case at the beginning of the crisis”.

Clean bill of health: The Reserve Bank seems relaxed about the current state of household and business balance sheets and about the health of the financial system.

Mortgage arrears have increased: Mortgage arrears have increased over the past six months, but the RBA says that the position is low by international standards.

Business borrowings at 30-year lows: Listed company gearing levels are the lowest since the early 1980s.

What does it all mean?

Contrary to recent upbeat commentary from the Reserve Bank, the latest Financial Stability Review is a more even-handed document, highlighting weakness in global financial markets, super-conservative financial practices by consumers and businesses and rising mortgage arrears at home.

Housing loan arrears rates have increased, but the Reserve Bank says that they are still far lower than other countries. Perhaps. But there is no room for complacency. If the Reserve Bank was to lift interest rates in the near term, many homebuyers would face significant stress. If anything, the latest evidence on mortgage arrears shows that financial conditions remain tight, suggesting that many mortgage holders would be secretly hoping for a new financial crisis so that the Reserve Bank could deliver some interest rate relief.

That old chestnut – that is, the perception that housing affordability is weak – has again been dispelled by the Reserve Bank. Rather than weak, housing affordability is close to decade averages.

The super-cautious attitude of Australian consumers and businesses has been highlighted in the latest assessment of financial stability. According to the Reserve Bank, homebuyers are continuing to pump extra amounts into their mortgage while gearing levels of businesses are close to 30-year lows.

Selected comments from Financial Stability Review
A New Global Financial Crisis?

“While the latest market strains have not been on the same scale as 2008–09, it is difficult to tell at this stage whether this will be another temporary bout of market uncertainty, of the kind seen several times in the past few years, or the beginning of a more serious market dislocation. Much will depend on the ability of governments, especially in Europe, to resolve the sovereign debt problems affecting some countries.”
Household sector

“Around half of mortgage borrowers are continuing to make substantial excess principal repayments, which is improving their resilience to any change in financial conditions. Even so, household indebtedness remains quite high, as does the aggregate debt-servicing ratio, though both are below their recent peaks.”

“The average excess repayment (on home loans) is currently equivalent to around three-quarters of the scheduled total (principal plus interest) repayment.”

“Households that make excess repayments on their home loans generally build up buffers that they can draw down in the future if required. This should be regarded as a positive development for the resilience of the sector.”
Mortgage arrears and financial stress

“While the mortgage arrears rate drifted up over the first half of the year, it nonetheless remains at a low level by international standards and in absolute terms.”

“Financial stress indicators continue to show that the household sector in aggregate is coping reasonably well with its debt level and higher interest rates, although mortgage arrears rates have increased recently. After broadly levelling out in 2010, mortgage arrears rates resumed their upward drift over the first half of 2011.”

“As for arrears rates, other indicators of financial stress do not suggest that household financial circumstances have deteriorated markedly.”
Wealth levels have eased

“Household net worth is estimated to have declined slightly over the first half of 2011, compared with annual average growth of almost nine per cent over the past decade. A further decline is likely in the September quarter, given that share prices have fallen.”
Housing affordability is ‘normal’

“The ratio of dwelling prices to income has declined over the past year to around the average level of the past decade.”
Business sector

“The business sector is also experiencing mixed conditions: mining and related sectors continue to benefit from the resources boom, while other sectors, including retail, are facing pressures from subdued domestic household spending and the high exchange rate.”

“Having deleveraged considerably, the business sector is in a stronger financial position overall than it was several years ago.”
Low gearing levels

“Listed corporates’ gearing remains at low levels not seen since the early 1980s. Book value gearing of listed non-financial companies was around 45 per cent at June 2011, down from a pre-crisis peak of about 85 per cent and below the long-run average of 65 per cent.”
Banking sector

“The Australian banking system remains in a relatively strong condition compared with some overseas.”

“The Australian banking system is considerably better placed to cope with periods of market strain than it was before the crisis, having substantially strengthened its liquidity, funding and capital positions in recent years.”
Banking sector lending

“The ratio of Australian banks’ non-performing assets to total assets remains close to its recent peak, though it is well below the levels seen in the early 1990s and those currently experienced in many other developed countries.”

“… the non-performing share of banks’ housing loans has drifted higher since late 2010. The bulk of nonperforming housing loans are well collateralised and therefore not likely to lead to material losses”.

Banking sector in weaker growth environment

“…the scope for banks’ domestic balance sheets to expand is likely to be more limited than in the years preceding the crisis, given the more cautious approach of the household and business sectors towards leverage. Banks and their shareholders may therefore need to adjust their return expectations to be consistent with an environment of slower credit growth.”

What is the importance of the economic data?

The Reserve Bank releases its Financial Stability Review twice a year. The FSR is an assessment on financial conditions and a check on the health of the financial sector.

What are the implications for interest rates and investors?

The Reserve Bank hasn’t totally shut the door on a rate cut. Domestic financial conditions are tight, and if a deterioration of the global economy necessitated a domestic rate cut, it would be appreciated by many consumers and businesses.

Retailers will continue to experience tough times until there is a clear weakening in the super-conservatism of consumers and businesses.

Reflecting the greater difficulty to expand balance sheets, CBA’s equity analysts largely maintain HOLD ratings on Australia’s major banks.

Published on: Monday, September 26, 2011
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Global Financial Crisis II: maybe it's not coming to an economy near you after all

October 12, 2011

Wall Street shares have risen by between 7 per cent and 10 per cent in five trading days, depending on which share index you follow. Europe's main market index is up 8.5 per cent in the same time. Our market has rallied 9 per cent, or by 15 per cent if you swapped unhedged from US dollars into Australian dollars to get on board: the Aussie dollar is back to parity and up about 6 per cent in a week.

This is all about psychology. The market's hive mind is suddenly hopeful that this year's crisis will not have a second leg. But if the hive mind proves right, the rally will accelerate sharply.

The 2008-09 global crisis is a guide to where we are at now. Until September 15, 2008, it was a market event. Asset prices were falling as write-offs proliferated, but the impact on the real economy was still being debated. But the collapse of Lehman Brothers on September 15 and the rescue of many other massive financial institutions that followed generated a second, concussive wave.

Read more: http://www.smh.com.au/business/global-financial-crisis-ii-maybe-its-not-coming-to-an-economy-near-you-after-all-20111011-1lj5h.html
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