The U.S. financial crisis is spreading now. 

“There is a growing recognition that not only has the credit crunch refused to be contained, it continues to spread,” said Ed Yardeni, an investment strategist. “It’s gone truly global.”

It is not good.  Trade deficits and reliance on foreign investment seem to be a major factor in what country goes down first.  But all countries are getting hit.  Stock markets in Russia, Indonesia, Brazil and the Middle East are all going down.

Even China is at risk:

But with global growth slowing sharply, the problems could spread to larger emerging markets, even China, which has a hefty current account surplus and immense foreign reserves.

“Where is China going to sell its exports?” Mr. Johnson of M.I.T. said. “Everyone is going into recession at the same time.”

But the front line countries have trade deficits and debt.

The immediate danger, economists say, are countries in Eastern and Central Europe, like Bulgaria and Estonia, which run steep trade deficits and are vulnerable to a sudden flight of foreign capital.

Iceland could go bankrupt. 

Iceland, with an overheated economy and suffocating foreign debt, may prove to be the first national casualty of the crisis. On Monday, threatened by a wholesale financial collapse, the government in Reykjavik assumed sweeping powers to intervene in its banking industry.

“We were faced with the real possibility that the national economy would be sucked into the global banking swell and end in national bankruptcy,” Prime Minister Geir H. Haarde said on Monday.

The Fed is getting very imaginative.  Looking to measures with dubious legality such as:

Under a proposal being discussed with the Treasury Department, the Fed could buy vast amounts of the unsecured short-term debt that companies rely on to finance their day-to-day activities, according to officials familiar with the discussions. If this were to happen, the central bank would come closer than ever to lending directly to businesses.

But will even that work?  The situation is a globe sweeping blizzard right now.

“People are slowly but surely coming to the realization that playing ‘Whack-a-Mole’ with each of these issues as they arise, on an ad hoc basis, doesn’t get the job done,” said Max Bublitz, chief strategist at SCM Advisors, an investment firm in San Francisco.

TrackBack URI for this entry

Comments (0)

Subscribe to this comment's feed

Write comment

Name

Title

Comment

smaller | bigger

Subscribe via email (Registered users only)

I have read and agree to the Terms of Usage.

Add Comment