If someone were to have said, say a year ago, that there would be a crisis in the subprime mortgage market that would lead to world-wide economic chaos, that person would no doubt have been laughed at.
Sadly, though, that is exactly what has happened and the evidence just this week is overwhelming.
But, before the depressing news, how about a little uplifting news? You know you want it!
The Fed To The Rescue: Too Little Too Late?
The Federal Reserve has come up with a “rescue” plan that, as the Associated Press put it, “would pour as much as $200 billion into banks and investment houses and allow them to put up risky home-loan packages as collateral.”
Why does this matter?
Because the mortgage crisis induced credit collapse has made banks and other lending institutions not want to lend money to one another. And, in the end, that means they don’t want to lend money to you.
Under this plan, financial institutions can borrow from the Fed, and, in effect, exchange their questionable mortgage-backed securities for a sure thing: U.S. Treasury securities.
In theory, this should trickle down and make banks and others more likely to extend credit to all of us…and that includes new mortgages, which could help take some of those now empty foreclosed houses off the market.
Is this enough?
Says Ian Shepherdson, chief economist at High Frequency Economics, “This will not turn the economy around or fix all the problems in the markets but it should reduce the liquidity issue, at least for now,” according to the A.P.
Hold On. Here Comes The Promised Depressing News
Told you we’d get to this. If you are the weak knee type, you may want to stop reading right here and make yourself a cup of coffee…even though world coffee prices have jumped more than 20 percent in the past year.
But, if you are strong, read on and keep a tissue nearby. Better yet, keep a box of tissues nearby . . . although paper prices, too, have risen.
$6.1 billion dollars is how much Fannie Mae and Freddie Mac lost in the fourth quarter and they think they will suffer billions of dollars more in loses as we crawl through 2008.
The price of gas has gone up as of this writing to a new national record–$3.2272 a gallon, on average. And, in places such as Southern California, it costs even more. We’ve already seen some service stations charging $4 a gallon for regular gasoline.
In large measure, gas prices are now rising–they did lag a bit–because the price of light sweet crude oil keeps setting new records just about every day. It was trading at $109.72 at one point today (Tuesday) in the New York Mercantile Exchange.
120? Did I Hear 120? 120, Going Once, Going Twice, Sold To The Suckers Around the world.
That’s right, there are now serious projections that oil could rise to $120 a barrel.
And, ready for this? Maybe even higher??
Because U.S. dollars are so much cheaper now against many currencies, partly because of what began as a subprime mortgage crisis, and partly because of the ever expanding economies of China and India, the U.S. trade deficit in January rocketed to $58.2 billion from $57.9 billion the month before–this according to a Commerce Department report issued today.
Talking about China, and I was, our trade deficit with that country also got a lot bigger and is now $20.3 billion as of January. It was $18.8 billion in December 2007.
Yes, even Google, which pretty much owns the entire planet by now, is talking about possible layoffs soon! I mean, Google? You’d think they’d be able to Google for a solution to their problem, right?
I know what you are thinking. You’re thinking, yeah, this is pretty depressing stuff, but, boy, what about that stock market Tuesday which had its biggest one day rally in some six years, the Dow Jones industrials up 416.66 points!
Come on. We’re all adults here, right? Nice that the market went up so much on one day, but does anyone really think this will start a trend, what with all the bad and uncertain economic news out there? Shame on you if your answer is yes. Hate to introduce some more doom and gloom to this otherwise upbeat last few paragraphs, but you know the market is going to plunge again and probably lose whatever it gained in trading today. Of course you know it!
Like I said, if someone would have said a year ago that a subprime mortgage crisis would ignite all of this—-well, come to think of it, if someone had, that someone should have been made Secretary of the Treasury or even President. But, that’s a whole other story.