Another credit crunch looms

geneer

http://www.moneyweek.com/news-and-charts/economics/europe/another-crunch-looms-55106

:eek: uh oh. what happened to all the free money?

“There’s a remorseless... circularity about it all,” says Jeremy Warner on Telegraph.co.uk. “By causing a deep recession and spiralling public debts, the original banking crisis transmogrified into a sovereign debt crisis, which, because sovereign bonds are a core asset for all large banks, now threatens to transmogrify back into a second banking crisis and another deep recession.” And this time governments can’t afford massive bailouts.

There have recently been “some alarming moves in [eurozone] indicators that flashed red during the credit crunch”, says Nikhil Kuma in The Independent. The gap between overnight rates set by central banks and interbank rates has widened, showing that banks are increasingly reluctant to lend to each other. The gap between the three-month Euribor rate and the overnight rate, for instance, has more than tripled to its highest level since the spring of 2009. However, it remains a long way off 2008 panic levels.
Credit default swaps measuring the cost of insurance for five-year bank debt have jumped for Italian and French banks. More and more banks are relying on European Central Bank (ECB) funding. According to Morgan Stanley’s Huw van Steenis, Italian banks’ usage of ECB facilities is at a four-year high. He also notes that eurozone banks have struggled to raise long-term funds of late. European banking stocks, as measured by the FTSE Eurofirst Banks index, have lost 25% since early July.

Banking jitters have intensified of late because the EU’s recent decision to restructure Greek debt has raised the prospect of bank losses on other countries’ bonds, says Walter Molano of BCP Securities. A 50% write-off of the value of Italian and Spanish bonds “would wipe out the European banking sector”. French banks’ exposure to peripheral debt, along with their reliance on short-term funding and the focus on France’s public finances, has dragged Soci!t! G!n!rale and other French banks into the maelstrom. With the mood increasingly febrile of late, the markets have been “reacting to any little rumour”, says David Thebault of Global Equities.
As it becomes harder for banks to fund themselves in the markets, lending to households and businesses will be undermined, says Creditsights. That “could derail an already weak recovery in Italy and France”. So unless policymakers can stop this crisis of confidence from spreading with a “comprehensive, co-ordinated and credible plan”, as UBS’s Philip Finch puts it, another European credit crunch could be looming.

[Deleted User]

I think there could well be another credit crunch, probably causing a reduction in inflation in the short term, but as the base rate will probably have to be kept low for sometime until stable growth appears, which will be a much longer period, resulting in an extended period of significant inflation overall.

Back to houses, if the above is true, surely this, for many, is the time to buy. The mortgage market is probably as good as its going to be for sometime and rates are likely to be low for a lengthy period and higher inflation through most of it. Less mortgages being available = less building=higher rents. Higher inflation = faster reducing value of mortgage and higher rents. In time the inflation will feed into wages and current house prices will probably look like a bit of a bargain.

Blacklight

moneyweek lol

Thrugelmir

geneer wrote: »

:eek: uh oh. what happened to all the free money?

What free money?

The Greek crisis just cost every single person in this country £10 when RBS wrote off debt in its half year accounts.

There's more to come.........

Loughton_Monkey

The article has certainly aroused huge interest.....

Comments (0)

pqrdef

Sovereign debt crisis? What sovereign debt crisis?

The Americans did their best to manufacture one, but their bond yields just kept falling, in spite of the dire state of the economy.

The UK government is hell-bent on finishing off the work of previous governments in wrecking the UK economy, its debts are too scary to contemplate, but its bond yields are in free-fall.

The Swiss and the Japanese make no secret of how keen they are to devalue their currencies. The Japanese economy is stagnant and their debt is inconceivable. No problem.

It takes real skill to create a sovereign debt crisis. Why don't we just call it what it is, the Angela Merkel crisis?

It makes me laugh when Eurosceptics worry about loss of sovereignty. If Germany had a bit less sovereignty, we wouldn't be in this mess.

robmatic

Oh dear, that's pretty rubbish news for first time buyers.

nembot

Oh no not that !!!!!ies knob again...

macaque_2

REWIRED_GHUOL wrote: »

Maybe this one will allow you to celebrate with glee at good honest hard-working families being made homeless just so you can buy someone elses home on the cheap. Eh?

Hang on a minute. For the past 5 years, this website has been mobbed by 'would be' Gordon Ghekkos telling us how much they are making on property and how brilliant low interest rates are. At the same time people under 40 have been locked out of the property market and pensioners are getting a pittance on their savings.

House sales have now dissapeared down a black hole because no one under 40 can afford the stellar prices you have suddenly discovered a social consience. You can be Gordon Ghekko or Mother Teresa, but you can't be both. Which one is it?

ukcarper

Under 30 yes but under 40 come on.

Loughton_Monkey

macaque wrote: »

Hang on a minute. For the past 5 years, this website has been mobbed by 'would be' Gordon Ghekkos telling us how much they are making on property and how brilliant low interest rates are. At the same time people under 40 have been locked out of the property market and pensioners are getting a pittance on their savings.

House sales have now dissapeared down a black hole because no one under 40 can afford the stellar prices you have suddenly discovered a social consience. You can be Gordon Ghekko or Mother Teresa, but you can't be both. Which one is it?

Gordon Ghekko is a saint. "The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works."

Mother Teresa is for wimps. I believe her rent was subsidised and she is not known for doing much work to help house owners.