My favourite (and one of the very few sane) economist working today is Nouriel Roubini whose twelve waypoints on the path to financial collapse have just been meticulously executed, step-by-step by the thankfully outgoing Bush Administration.
“Conditions will apply” to the wreckage the Bush adinistration has left behind, although I continue to maintain that the South African economy (where I live - keep an eye on this neck of the woods) has the economic wherewithal if not yet the political acuity to keep a cool head in the coming critical eight quarters.
I’m listing Roubini’s ‘Twelve Steps’ again just to acknowledge one of my prime sources of insight over the last two years, followed by a wry comparison with the economic meltdown of the USSR seventeen years ago and today’s by a Russian engineer who closely observed the economic, political and social collapse of his Republic and who should know what he is talking about.
These are the twelve points of particular and predictable interest that clearly indicate the economic position most of the west finds itself in as of now, near the end of the fourth quarter, 2008: a global financial straightjacket, not just a simple ‘credit crunch’, which we can neither lightly ignore nor quite frankly ‘bail out’ of.
Okay, we all acknowledge the current situation as listed by Roubini:
(1) the worst ever US housing recession with prices falling up to 30% from their peak and matching their Great Depression decline; most recently Roubini thinks a 40% drop is likely with a market bottom still way off;
(2) the sub prime disaster causing hundreds of billions in losses and throwing millions of homeowners into foreclosure;
(3) a sharp increase in other defaults - credit cards, auto and student loans, and other borrowing; add bank losses to the mix (including from their securitized assets), and we've got a severe credit crunch;
(4) monoline losses will mount more severely than expected and other write downs will follow;
(5) commercial real estate will be impacted; the housing crisis will cause a bust in non-residential construction;
(6) large regional or national banks may go bankrupt and worsen the already severe credit crunch;
(7) losses from large leveraged loans will impair banks' ability to syndicate and securitize them; today the market is dead; earlier losses froze it up; these assets were then stuck on bank balance sheets at well below par values and are headed lower; they're still there at undisclosed valuations most likely scraping bottom because no buyer will touch them above fire sale prices and most often not even those;
(8) a massive wave of corporate defaults will accompany a severe recession;
(9) the shadow banking system (hedge funds and the like) is heading for serious trouble;
(10) world stock markets will price in a severe recession; at the time (the list was compiled, about eighteen months ago, Roubini saw the S & P 500 falling about 28% or around the average decline for US recessions; it fared much worse, and he now sees a far lower valuation ahead;