This is the macro situation as seen world-wide today. It points up once again the fact that the sunlit uplands are NOT 'just around the corner' but elusive.
There is much about America here and some may wonder what that has got to do with us. The short answer is that in the Global economy the USA’s financial health is vital for all of us. It is especially vital for Britain for the USA is our biggest single market
Included here is the EU commission’s up-beat outlook. It is, in my view, a blinkered view ignoring the oh-so-obvious elephant in the room. The EU, apart from Poland, has the same bank debts but they have been swept well under the carpet and the tightening of credit is getting more ssrious by the dahy. This foolish optimism is striictlystirred up for the headlines it generates in the hope that it be self-fulfilling!
This gets a big ‘techie’ at times but the general sitruation is not too hard to grasp
Christina
TELEGRAPH 15.9.09
1. UK lenders face £130bn more losses from financial crisis
Britain's lenders are less than half way through the total losses they will take as a result of the financial crisis and subsequent recession, according to credit ratings agency Moody's.
By Philip Aldrick, Banking Editor
Moody's, which last week reconfirmed the UK's AAA credit rating, expects losses at banks and building societies to reach £240bn. Lenders have taken £110bn of losses so far and face another £130bn over the next few years.
The agency explained that it "expects the sustained weakness of the UK macroeconomic environment to feed through into higher loan arrears with ensuing pressure on profitability and capital".
Moody's report came as research from FTI Consulting found that a majority of leading global fund managers do not believe the financial crisis is over. Of 153 fund managers interviewed in 15 countries with €2.8 trillion (£2.5 trillion) of funds under management, 64pc said there was worse to come for the banks.
According to Moody's, lenders face pressure on capital, due to pressure on revenue and profits from the higher costs of attracting deposits and wholesale funding. Further ratings downgrades are unlikely because the risks have already been incorporated in Moody's modelling. It maintained its "negative" outlook for British lenders.
Moody's "base case scenario" anticipates a 40pc peak-to-trough decline in UK house prices and a 60pc drop in commercial property, the report said. The highest losses will come from commercial real estate lending, where values have fallen 26pc in the past 12 months. RBS and Lloyds are the most "exposed" to the construction and property sector, it added.
Lloyds and RBS, have agreed to insure about £585bn of toxic and other risky assets with the Government. UK taxpayers have already provided £1.2 trillion of support for the financial system and UK banks have raised about £120bn of capital since the beginning of the credit crisis, Moody's said.
"Moody's current rating levels incorporate its estimates of further losses of around £130bn from the loan books and securities portfolios of rated UK financial institutions, on the basis of its assumptions about the performance of key asset classes, earnings and available capital," Elisabeth Rudman, Moody's lead analyst for the British banking system, said.
Government support has resulted in little change to senior debt and deposit ratings, which are expected to remain stable, the report added
2. US credit shrinks at Great Depression rate prompting fears of double-dip recession
Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation.
By Ambrose Evans-Pritchard, International Business Editor
Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).
"There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness."
The M3 "broad" money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate.
Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an "epic" 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc.
"For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said.
It is unclear why the US Federal Reserve has allowed this to occur.
Chairman Ben Bernanke is an expert on the "credit channel" causes of depressions and has given eloquent speeches about the risks of deflation in the past.
He is not a monetary economist, however, and there are indications that the Fed has had to pare back its policy of quantitative easing (buying bonds) in order to reassure China and other foreign creditors that the US is not trying to devalue its debts by stealth monetisation.
Mr Congdon said a key reason for credit contraction is pressure on banks to raise their capital ratios. While this is well-advised in boom times, it makes matters worse in a downturn.
"The current drive to make banks less leveraged and safer is having the perverse consequence of destroying money balances," he said. "It strengthens the deflationary forces in the world economy. That increases the risks of a double-dip recession in 2010."
Referring to the debt-purge policy of US Treasury Secretary Andrew Mellon in the early 1930s, he added: "The pressure on banks to de-risk and to de-leverage is the modern version of liquidationism: it is potentially just as dangerous."
US banks are cutting lending by around 1pc a month. A similar process is occurring in the eurozone, where private sector credit has been contracting and M3 has been flat for almost a year.
Mr Congdon said IMF chief Dominique Strauss-Kahn is wrong to argue that the history of financial crises shows that "speedy recovery" depends on "cleansing banks' balance sheets of toxic assets". "The message of all financial crises is that policy-makers' priority must be to stop the quantity of money falling and, ideally, to get it rising again," he said.
He predicted that the Federal Reserve and other central banks will be forced to engage in outright monetisation of government debt by next year, whatever they say now [Ehm! --- ‘Monetization is the process of converting or establishing something into legal tender. It usually refers to the printing of banknotes by central banks ‘ -cs]
3. Europe pulling out of recession
Europe is emerging from recession, the European Commission said on Monday, as it predicted growth in Britain throughout the second half of 2009.
By Angela Monaghan, Economics Reporter
Publishing interim forecasts, the Commission said the European Union's economy "appears to be at a turning point", and predicted the UK would grow by 0.2pc in the third quarter and 0.5pc in the fourth.
However, it downgraded its growth forecasts for the UK in 2009 as a whole to -4.3pc from -3.8pc in its spring forecast in May, after gross domestic product (GDP) in the first quarter proved weaker than initial estimates.
The EC is predicting 0.2pc growth for the euro area in the third quarter, and 0.1pc growth in the fourth, while its predictions for the full year were unchanged at -4pc. "The Commission sees signs of an imminent economic recovery and fears of a prolonged and deep recession are fading," the report said.
However, it said uncertainty was rife, and warned there was no guarantee recovery would be sustainable. "Looking into next year, uncertainty is rife... due to the influence of temporary factors. The full impact of the economic crisis on labour markets and public finances is, at least partly, still to be faced," the report said.
"Risks to the outlook appear broadly balanced. While the strength of the recovery could surprise on the upside in the near term, its sustainability is yet to be tested," it added.
The outlook for Spain throughout 2009 remained negative according to the EC. It predicted a 0.4pc fall in GDP in the third quarter, then a 0.2pc drop in the fourth. It downgraded Spain for 2009 overall to -3.7pc from -3.2pc.
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