The Unsustainable has Run Its Course

News Type: Event — Seeded on Tue Jul 1, 2008 11:29 AM EDT

Article Source: bis.org

world-news, credit, inflation, financial-stability

After a number of years of strong global growth, low inflation and stable financial markets, the situation deteriorated rapidly in the period under review. Most notable was the onset of turmoil in the US market for subprime mortgages, which rapidly affected many other financial markets and eventually called into question the adequacy of capital at a number of large US and European banks. At the same time, US growth slowed markedly, reflecting setbacks in the housing market, while global inflation rose significantly under the particular influence of higher commodity prices.

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{"commentId":2093983,"authorDomain":"redruby"}

Redruby

From 'Crooked Timber" Unlike national central banks, the Bank for International Settlements doesn't have to worry too much about the effect of its statements on business and consumer confidence or on the possibility of political flak. Hence, it has usually tended to give a less rosy view of the economic outlook than other official and quasi-official institutions. The latest assessment is particularly gloomy .

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2 votes

#1 - Tue Jul 1, 2008 11:30 AM EDT

{"commentId":2094101,"authorDomain":"PamelaDrew"}

Pamela Drew

Great link and nice summary RedRuby; thanks for adding the link. This part was a key summary.

The financial market turmoil unfolded in six stages, starting in mid-June 2007: (i) a dramatic widening of spreads on subprime mortgage products following large-scale rating downgrades on mortgage-backed securities and the closure of a number of hedge funds with subprime exposure;

(ii) the extension of the sell-off to a wide variety of credit and other markets from mid-July, including structured products more generally;

(iii) the expansion of the turmoil into short-term credit and, particularly, interbank money markets from end-July;

(iv) broader problems for the financial sector from mid-October, including for companies acting as financial guarantors;

(v) increasingly dysfunctional markets, against the backdrop of a marked worsening of the US macroeconomic outlook from early 2008, accompanied by rising fears about systemic risks which caused spreads of even the highest-quality assets to move out to unusually wide levels;

(vi) recovery, except in the interbank term market, in the wake of the Federal Reserve-facilitated takeover of a troubled US investment bank in March 2008

It does omit the manipulation of the elements, focusing on the effects. but it is helpful for people to get the basic framework of what's going on since sooo much of the financial news is just gobblty gook to people who don't track it on a fairly consistent basis!! This is a big help in translation.

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2 votes

#2 - Tue Jul 1, 2008 11:45 AM EDT

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	Bank for International Settlements Sees Economy Near 'Tipping Point' - WSJ.com	Wall Street Journal	Mon Jun 30	0
	ALL BUSINESS: Job cut surge keeps wage growth low	Associated Press	Sat Jun 28	0

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