THE TELEGRAPH: Corporate America has just lost a chunk of its value the size of the Indian economy
In one fell swoop, the House of Representatives has applied a sledgehammer to the American economy. The staggering plunge in the value of publicly quoted stocks in the US last night - a $1.2 trillion fall - shows more clearly than anything else just how much it had been holding out for a financial bail-out.
Even so, the longer you stare at a screen of the Dow Jones or FTSE 100, the more abstract it seems. So this is what it means:
It means millions more Americans, and hundreds of thousands more Britons, will lose their jobs; it means the recession will be deeper and more protracted than previously feared; it means borrowing costs will increase on both sides of the Atlantic. Companies will cut back on investment. Pension funds will be depleted.
The Western world, in short, will become significantly less wealthy.
There is still time for US policymakers to rescue the deal, but not much. Financial markets are no longer just chaotic, but are close to complete collapse. A number of banks, already on the edge, will be pushed that bit closer to the precipice as a result.
As the past few weeks have shown, companies can go bust very, very quickly. When they collapse they are very difficult, if not impossible, to put back together again.
The free market can be very creative but it can also be immensely destructive. This is one of those points where the scale of destruction is potentially so great that it could set the economy back years.
This is why so many people – and not just the politicians putting the deal together – are warning that if the deal fails entirely we could be facing a second Great Depression.
The big mistake policymakers made in the 1930s was to allow too many banks to fail. This caused such a financial earthquake that it led to a decade of hardship. Financial Crisis: The Western World Will Become Significantly Less Wealthy >>> By Edmund Conway, Economics Editor | September 30, 2008
THE TELEGRAPH:
US Economy: Even Hank Paulson's Bail-out Plan Cannot Detox Global Banking: Can the rescue package really halt our slide into a new Depression, asks Ambrose Evans-Pritchard.
Even if Congress backs the Paulson bail-out, the $700 billion blast cannot save the US, Britain or the world from the deepest economic slump since the Thirties. If Congress balks, God help us. The credit system is suffering a heart attack. Inter-bank lending is paralysed. Funds are accepting zero interest on US Treasury notes for the first time since Pearl Harbour, because no bank account is safe.
Wherever you look – dollar, euro, sterling Libor (the rate at which banks lend to each other), or spreads on credit derivatives – the stress has reached breaking point. If borrowers cannot roll over the three-month loans that are the lifeblood of business, they will default en masse.
“Money markets are imploding. If no action is taken very soon, there is a significant risk that the global economy will collapse,” says BNP Paribas. Almost every trader says much the same thing. So does US treasury secretary Hank Paulson, who as Toby Harnden reports, literally dropped on bended knee to beg help from Democrats on Capitol Hill.
Republican refuseniks – defying their president – have a grim responsibility if they now tip America over the edge, setting off the “adverse feedback loop” that so terrifies the US Federal Reserve. Like players in a Greek tragedy, they seem determined to repeat the “liquidation” policy that led to the Great Depression – and to Democrat ascendancy for years. >>> By Ambrose Evans-Pritchard | September 27, 2008
The Dawning of a New Dark Age – Paperback (US) Barnes & Noble >>>
The Dawning of a New Dark Age – Hardcover (US) Barnes & Noble >>>
