Per the information released this week by the Federal Reserve, there was a lot more scrambling, perhaps panicking, in the financial markets that most even know. And we knew it was bad. Cases in point:
1) The Federal Reserve has released details on the $3.3T (TRILLION) it extended via more than 21,000 transactions during the financial crisis. The extent of the Fed's aid included help to foreign firms
2) The Fed's Primary Dealer Credit Facility was tapped 84 times by Goldman Sachs, 212 times by Morgan Stanley, and almost daily by Citigroup through April 2009. And most of us know about Bear Stearns and Lehman Brothers.
3) The Fed lent cash to more than a thousand companies, including McDonald's, GE, and Harley-Davidson. Those companies are extremely sound financially, or maybe they weren't. All say they have paid-back their loans.
4) UBS, a Swiss bank whose retail brokerage unit is one of the biggest in the US (comparable to Morgan Stanley, Merrill Lynch and SmithBarney), borrowed a total of $74.5B. Barclays borrowed $47.9B.
5) Nine of the ten largest money-market fund companies, including BlackRock, arguably the best in the business for that ultra-conservativ-but-not-government-guaranteed cash management stuff, turned to the Fed for support.
6) Foreign central banks received nearly $600B of credit.
Say what you want about the politics and economics of the rescue and recovery plans, but the whole entire "city" was on fire, and wondering how to pay the water bill was, at the time, a bit beside the point.
WHAT DO WE DO? Live within or even below your means, have an emergency reserve fund, prioritize your priorities (saving for college is great, but are you on-track for at least a half-decent standard of living in retirement, and do you have life and disability insurance policies that will provide enough to your family if you die or can't work?), and invest around the globe in diversified and nimble portfolios.
An investing and financial strategies blog offered by Gary Partoyan, veteran financial advisor and owner of Potomac Wealth Strategies, LLC.
Showing posts with label Crises. Show all posts
Showing posts with label Crises. Show all posts
Thursday, December 2, 2010
Friday, July 2, 2010
Debt-to-GDP Ratio: Great Recession vs. Great Depression
The US government entered the current "Great Recession" with $65 of debt for every $100 of Gross Domestic Product. That ratio has exploded to 90%. Meanwhile, household debt (the sum of the personal debts of all of us individually) hit close to 100% of GDP early on in the Great Recession and has dropped to about 92% as the Great Recession has continued.
At the beginning of the "Great Depression", on the other hand, the debt-to-GDP ratio was 16%, and it was 44% when the Great Depression ended. But while household debt was around 100% at the onset, like it was recently, it went down to about 20% as Americans deleveraged themselves.
In one scenario our government borrowed less than the other scenario. And, respectively, We the People unwound a lot more of our personal household debt then than we have thusfar.
Problem: the measures taken by the government to stimulate the economy have, arguably, the desired result for a period of time, but they then lead to significant economic contraction. When the economy slows, individuals may have the option to leverage-up their personal balance sheets to pick up the slack... if they have room to spare.
At the beginning of the "Great Depression", on the other hand, the debt-to-GDP ratio was 16%, and it was 44% when the Great Depression ended. But while household debt was around 100% at the onset, like it was recently, it went down to about 20% as Americans deleveraged themselves.
In one scenario our government borrowed less than the other scenario. And, respectively, We the People unwound a lot more of our personal household debt then than we have thusfar.
Problem: the measures taken by the government to stimulate the economy have, arguably, the desired result for a period of time, but they then lead to significant economic contraction. When the economy slows, individuals may have the option to leverage-up their personal balance sheets to pick up the slack... if they have room to spare.
Tuesday, June 8, 2010
Predicting Economic Crisis: "What" Is Easy, "When" Is the Trick
Here is outstandingly keen insight from economist Professor Ken Rogoff, from an interview by Ezra Klein:
Start with a really important point: It’s very hard to call the timing of a crisis. You can see that an economy is vulnerable, and maybe even fairly reliably say you’ll have a crisis in 5 to10 years, but until it’s upon you, it’s hard to narrow the window down with any precision. Many of the people who say they predicted the crisis in a precise way had actually been predicting a crisis for years. There’s irreducible uncertainty coming from fragile confidence and political factors. The analogy is someone who’s vulnerable to a heart attack. You can go to the doctor and they can see your cholesterol is high and you have a number of risk factors, but you might go on for 20 years without anything happening. Or it might be 20 hours.
Because the timing is hard to call, policymakers have trouble getting seized by it. Why worry if it is not going to hit on my watch? And if you’re an investor and you’re making great money for five more years and then you have a bad year, you still have a good decade. But policymakers, especially, need to have a longer vision because of the human cost of financial crises, particularly in the hugely elevated level of long-term unemployment.
Start with a really important point: It’s very hard to call the timing of a crisis. You can see that an economy is vulnerable, and maybe even fairly reliably say you’ll have a crisis in 5 to10 years, but until it’s upon you, it’s hard to narrow the window down with any precision. Many of the people who say they predicted the crisis in a precise way had actually been predicting a crisis for years. There’s irreducible uncertainty coming from fragile confidence and political factors. The analogy is someone who’s vulnerable to a heart attack. You can go to the doctor and they can see your cholesterol is high and you have a number of risk factors, but you might go on for 20 years without anything happening. Or it might be 20 hours.
Because the timing is hard to call, policymakers have trouble getting seized by it. Why worry if it is not going to hit on my watch? And if you’re an investor and you’re making great money for five more years and then you have a bad year, you still have a good decade. But policymakers, especially, need to have a longer vision because of the human cost of financial crises, particularly in the hugely elevated level of long-term unemployment.
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