Thread: Is the world heading into recession?

200 billion dollars was printed to bail out carlyle capital

My email this morning had three separate emails from three finacial websites about America being three months into a recession now.

Originally Posted by baldrick

200 billion dollars was printed to bail out carlyle capital

If you're referring to the 200 billion I think you are it is not for bailing out any particular lending institution. The fund is not only for US banks but also for European banks. US Fed, Bank of England and Bank of Switzerland all contributed to the fund.

Originally Posted by mrsquirrel

My email this morning had three separate emails from three finacial websites about America being three months into a recession now.

Well it's about time they finally are using that unspeakable "r" word.

Originally Posted by Norton

Well it's about time they finally are using that unspeakable "r" word.

A recession would be nice. But I am afraid it is not only a slowing/contracting of the economy - it is more a crash of the financial system caused by the FED. And the crash might even get worse and worse.

Bloomberg.com: Currencies

It gets worse:

US mortgage implosion set to blow Darling's Budget to pieces - Telegraph

Not since Labour's Philip Snowden delivered the Budget in 1930 has any Chancellor offered an accounting more certain to be swept away by hurricane forces of global finance.

Even as Alistair Darling promised 2pc growth this year, the US authorities were battling to head off the implosion of America's $11 trillion (£5.44 trillion) mortgage finance industry and a pair of big-name banks.

In the words of former US Treasury Secretary Lawrence Summers, we are facing "the most serious combination of macro-economic and financial stresses in a generation, and possibly, much longer than that."

The emergency action by the US Federal Reserve this week amounts to a back-door nationalisation of the housing loan system. The Fed will now accept $200bn of mortgage debt as collateral. The Rubicon has been crossed. If the rescue fails, the markets know that Fed chief Ben Bernanke will raise the ante to $500bn, or $1 trillion, until the job is done. "The determination of the Fed to fend off financial armageddon cannot be doubted," said Société Générale.

Washington is exploring - and now invoking - measures that have not been on the agenda since the Great Depression, and for a good reason. House prices fell 9.1pc last year. Goldman Sachs fears a 25pc fall from peak to trough, others go as far as 40pc. Some 8.8m US homeowners already face negative equity on their houses, yet the crash is still gathering pace.

This is why the top AAA-rated tier of 2007 sub-prime debt is trading at just 53pc of face value. It is why the two pillars of US mortgage finance - Fannie Mae and Freddie Mac - faced insolvency rumours on Monday.

"We're in a vicious downward spiral," said Prof Peter Spencer of York University. "The initiatives are doing little to stop the crisis spreading. Banks are running out of capital. They may have to start shrinking lending by $12bn for every $1bn in losses, so the risk of a credit contraction is incalculable," he said.

The global contagion from America has been fitful so far, with lethal bursts followed by bouts of eerie calm, just like 1930. Canada has stalled. Japan is teetering on the edge of recession. Tokyo's stock market has suffered the worst New Year slide since World War Two, led by Honda, Sony and the export giants that live off the US market. The Nikkei index is down a third since July. The Shanghai bourse has dropped even harder. China is having to jam on the brakes to curb inflation.

Italy has buckled. The economy contracted in the last quarter. The housing bubbles have burst in Spain and Ireland. Unemployment is now jumping across most of the Club Med bloc.

This then is the darkening world closing in on Mr Darling. He has few defences. The Brown spending spree over the last five years has led to the worst deterioration in public finances of any major country, according to Standard & Poor's.

The budget deficit is above 3pc of GDP at the top of the cycle - or 2.9pc on Mr Darling's friendly calculator. Germany is in balance. Mr Darling cannot begin to offer the sort of fiscal relief under way in America. Any such move would breach EU deficit limits and push Britain beyond the point of economic respectability, in company with Hungary.

This may happen anyway once the storm hits. Capital Economics says a hard landing will have a "catastrophic impact on UK public finances. A recession as deep as that in the early 1990s could push borrowing up to £150bn per annum." The bond vigilantes are not captive Britons. Foreigners have doubled their share of the UK national debt to 33pc under Labour, and now hold £148bn of gilts. They can be quick to punish.

Britain had a surplus of 2pc of GDP before the last bust. It starts this crunch 5pc of GDP worse off. Hence the spectacle of Mr Darling having to tighten into the downturn with net tax rises of £2.5bn this year. No government lasts long doing this.

For the first time since Callaghan, the state share of the UK economy is now greater than that of Germany. It has risen from 37pc to 45pc in eight years. The competitive margin bequeathed by Margaret Thatcher has vanished. We are back to the 1970s, in the top third of the high-tax league.

No open economy can avoid the ugly fall-out of an American slump. Yet Britain is doubly at risk. It duplicated the errors of the US bubble, and must suffer the same fate. The UK is merely nine months behind. America tipped last autumn. We tip this summer.

British household debt is 103pc of GDP, surpassing the highs seen in America at the peak of the credit boom.

We have been withdrawing £50bn a year in home equity, spending our paper profits at a rate of 4pc of GDP. Yes, we avoided the worst of the sub-prime follies, but matched with our own uniquely British buy-to-let excesses. Our current account deficit reached 5.7pc of GDP in the third quarter, mimicking the final phase of the US boom. Unlike the US, this country has become overly dependent on a single industry - finance - the one at the epicentre of this crisis.
At the end of the day, this country retains the Bank of England, the pound, and the tools of economic self-government (unlike some). We can slash rates to stop a slump.

But one can only blush at Mr Darling's claim that Britain has the "most stable" economy among the big powers.

Oh dear, oh dear...

Americas $3 Trillion+ war.

Well worth a read.

Aida Edemariam talks to author Joseph Stiglitz about the true cost of the Iraq war | World news | The Guardian

"The true cost of war

In 2005, a Nobel prize-winning economist began the painstaking process of calculating the true cost of the Iraq war. In his new book, he reveals how short-sighted budget decisions, cover-ups and a war fought in bad faith will affect us all for decades to come. Aida Edemariam meets Joseph Stiglitz....."

Even Murdoch's poodle, Irwin Steltzer gives up hope that the financial system won't collapse:

Ben Bernanke in dilemma over bank bail-out - Times Online

“INDICATIONS of contagion have started to appear in other credit markets . . . defaults in the US markets are spreading to higher quality segments of the US mortgage market and to credit-card debt and automobile loans . . . balance sheets remain vulnerable to a further deterioration in the credit quality of assets .

” There’s more, but you get the drift of the draft report put before EU heads of government last week by the European Council on Financial Market Stability.
Across the ocean the US Federal Reserve Board’s monetary policy committee needed no such briefing. Fed chairman Ben Bernanke had been cutting short-term interest rates in an attempt to ease the credit log-jam, to no effect. Longer-term rates remained stuck on high. So the Fed laid down its blunderbuss – rate cuts – and took aim at a specific target: the credit markets. Come to us with your AAA-rated mortgages, Bernanke told strapped financial institutions, and we will lend you in exchange $200 billion of the risk-free Treasury securities that we hold on our own balance sheet. And for 28 days, rather than the few hours, as is our usual custom.

<snip>

There are four problems with all of this. The first is that bad news overwhelms good. The collapse of one of the Carlyle Group’s funds, and rumours of the impending demise of Bear Stearns, trumped Bernanke’s announcement.
The second problem is that the Fed is a tiny player in the mortgage market. The $200 billion of mortgages Bernanke will be taking on are a drop in the ocean that is the $11 trillion mortgage market. And he has only another $400 billion in Treasurynotes to play with - if he is willing to have these mortgages make up his entire stock of assets.

Third, so long as house prices continue falling, the value of mortgages will continue falling. The Fed can’t do much to stop that decline, and we seem to have a long way to go before house prices reach some bottom, unsold houses are absorbed, and the market turns up.

Finally, the Fed might be fighting yesterday’s war, when the problem seemed to be a liquidity crisis. The Fed first lowered interest rates to facilitate borrowing. No luck; long-term rates were immovable. It then made funds available to credit markets for very short periods on attractive terms. No luck; credit markets remained frozen. So now we have the offer of $200 billion of high-quality assets to replace those of lesser quality. Tune in after a few weeks to find out if this has significantly eased credit markets, or merely created a bit of euphoria in stock markets.


Meanwhile, the Fed’s critics are saying that the enemy is no longer liquidity, but the threat of insolvency. We have already had billions in write-offs, and hundreds of billions more of such “marking to market” is coming. So steep will these write-downs be that the banks will find they are bust - what they owe to depositors and creditors exceeds the value of their shrivelled assets. Unless they can get more capital, say the doom-mongers, they will have to shut their tellers’ windows.

So far, sovereign wealth funds have put up that capital, but even they do not have deep enough pockets to shore up the entire American banking system. Faced with a systemic collapse of the banking system, the government can do one of two things. It can flood the economy with cash, driving up inflation and the nominal value of the assets underlying bank loans. Lenders would get repaid, but in depreciated dollars. Fear of just such a devaluation has driven up gold to $1,000 an ounce, and the dollar down to record lows.

... I like the bit about having to shut the teller's windows. Sort of sums up a bank failure, doesn't it?

Just a link this time, but wow, the UK housing market is truely f*cked...

http://ukhousebubble.blogspot.com/

Originally Posted by bkkandrew

Just a link this time, but wow, the UK housing market is truely f*cked...
http://ukhousebubble.blogspot.com/

Now let's not exxagerate.

Soros: U.S. Facing Depression, Bush Clueless


http://www.newsmax.com/insidecover/Soros_Depression_book/2008/04/04/85514.html

A new book by billionaire investor George Soros warns that the U.S. is suffering the worst financial crisis since the Great Depression — and the Bush administration is in the dark about how to deal with it.

In “The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means,” Soros — a major contributor to liberal causes — observes:

“The United States is facing both a recession and a flight from the dollar. The decline in housing prices, the weight of accumulated household debt, and the losses and uncertainties in the banking system threaten to push the economy into a self-reinforcing decline…

“We are in the midst of the worst financial crisis since the 1930s.”

Measures to combat the financial decline increase the supply of dollars, while “at the same time, the flight from the dollar has set up inflationary pressures through higher energy, commodity, and food prices,” Soros writes.

Soros also notes that the European Central Bank’s reluctance to lower interest rates is putting upward pressure on the euro, and changes in the economy in China will “increase prices at Wal-Mart and put additional pressure on the already beleaguered U.S. consumer.

“Unfortunately this administration shows no understanding of the predicament in which it finds itself.”

Soros’ book is available only as an e-book, but a print edition published by PublicAffairs will go on sale on May 19.

I've always thought things were getting worse. I was in with the recession people back last fall but I always have felt what do I know maybe I am totally wrong. At this point, I am confused. I see a lot of investors saying its buying time. I feel like I am hearing more buy guys than I am hearing the negatives. But there are a few people like Soros who are making news now. It would be nice to know exactly where Soros has his money and of course where all the other market shakers have theirs. This bigwigs have the power to influence a lot of people and to make money off their own words of doom or boom.

It seems that whatever happens from here on some people are going to suffer big time. It could be the people who are buying in will see great losses. Or the gloomy people who didn't get in will ahve lost if things go up. The worst thing about the Finance experts is that their words aren't registered somewhere for later review. They don't have to be accountable for what they say. Today they might go on the air saying don't buy and tomorrow they'll chaneg everything and throw all their money in. You never know what they are really doing.

As for the e-book of Soros, we'll he must have been writing it over some time. It's making news today but who knows what Soros will think next month possible months after he wrote it.

I guess my view of things is still a bit pessimistic at the moment at least for the little people who actually work. I don't know if I believe in a depression coming but the recession which I believe the US is in will go on throughout this year.

I think it is all still fcuked

the sh1t has yet to really hit the fan , the only thing holding it back is all the investors trying to get everyone to believe the house of cards is stable.

^ Agree with that. The markets continue to rally even with awful news like yesterdays jobs numbers. Earnings season is a few days away and my prediction is for the Dow to drop about 1500 from where it is now.

^Its called denial...

Buffett sees "long, deep" U.S. recession

BERLIN (Reuters) - The United States is already in a recession and it will be longer as well as deeper than many people expect, U.S. investor Warren Buffett said in an interview published in German magazine Der Spiegel on Saturday.

He said the United States was "already in recession" and added: "Perhaps not in the sense that economists would define it" with two consecutive quarters of negative growth.

"But the people are already feeling the effects," said Buffett, the world's richest man. "It will be deeper and last longer than many think."

But he said that won't stop him from investing in selected companies and said he remained interested in well-managed German family-owned companies.

"If the world were falling apart I'd still invest in companies," he said.

Buffett also renewed his criticism of derivatives trading.

"It's not right that hundreds of thousands of jobs are being eliminated, that entire industrial sectors in the real economy are being wiped out by financial bets even though the sectors are actually in good health."

Buffett complained about the lack of effective controls.

"That's the problem," he said. "You can't steer it, you can't regulate it anymore. You can't get the genie back in the bottle."

http://news.yahoo.com/s/nm/20080524/bs_nm/buffett_us_recession_dc;_ylt=AiI0hDU3h.WKs5GhZHq5N amyBhIF

Mr Soros warns Britain is facing its worst economic storm in living memory, dwarfing those of the 1970s and early 1990s, with a housing slump and serious recession.

He said: "The dislocations will be greater [than in the 1970s] because you also have the implications of the house price decline, which you didn't have in the 1970s."

The warning undermines predictions that Britain will suffer only a brief and relatively painless recession, unlike the precipitous dives of previous years.

Mr Soros also warned that the Bank's inflation report represents a "Faustian pact", obliging it to keep interest rates high to control inflation, even as the economy is starting to slump.

"You had the nice decade," he said. "Now that is over and you are in a straitjacket."

From: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/26/cnsoros126.xml

Note that the BIS is known as the Central Bankers' Central Bank, so just a little bit important.

http://www.bankingtimes.co.uk/09062008-central-bank-body-warns-of-great-depression/

Central bank body warns of Great Depression

by Gill Montia

Story link: Central bank body warns of Great Depression

The Bank for International Settlements (BIS), the organisation that fosters cooperation between central banks, has warned that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s.

In its latest quarterly report, the body points out that the Great Depression of the 1930s was not foreseen and that commentators on the financial turmoil, instigated by the US sub-prime mortgage crisis, may not have grasped the level of exposure that lies at its heart.

According to the BIS, complex credit instruments, a strong appetite for risk, rising levels of household debt and long-term imbalances in the world currency system, all form part of the loose monetarist policy that could result in another Great Depression.

The report points out that between March and May of this year, interbank lending continued to show signs of extreme stress and that this could be set to continue well into the future.

It also raises concerns about the Chinese economy and questions whether China may be repeating mistakes made by Japan, with its so called bubble economy of the late 1980s.

Can anyone find positive news in this summary from today?

U.S. Stocks Drop on Oil's Surge, Concern Tech Demand Is Slowing

By Elizabeth Stanton



June 20 (Bloomberg) -- U.S. stocks slid to a three-month low, led by consumer and technology companies, as threats of increased violence in the Middle East pushed oil prices higher and analysts said demand for electronics may weaken.

Benchmark indexes extended declines after Standard & Poor's said it may cut credit ratings on General Motors Corp. and Ford Motor Co. because of higher fuel costs, sending GM to its lowest level since 1982. SanDisk Corp. posted its worst drop in eight months on Citigroup Inc.'s prediction that earnings will be less than estimated because of diminished overseas demand. Citigroup led financial shares to a five-year low as UBS AG said the biggest U.S. bank may post a second-quarter loss.

Shares in Europe and Asia also tumbled and the MSCI Emerging Markets Index fell for a third day as Iran's threat to retaliate against a potential attack by Israel weighed on shares. The slide pushed the S&P 500 Index to its third-straight weekly retreat.

``Investors are continuing to lose confidence in the economy,'' said James W. Gaul, a portfolio manager at Boston Advisors LLC in Boston, which manages $2 billion. ``The idea that we're going to end the year up is probably going out the window now.''

The S&P 500 lost 24.90 points, or 1.9 percent, to 1,317.93. The Dow Jones Industrial Average dropped 220.4, or 1.8 percent, to 11,842.69. The Nasdaq Composite Index slid 55.97, or 2.3 percent, to 2,406.09. Six stocks fell for each that rose on the New York Stock Exchange.

Weekly Drop

The S&P 500 tumbled 3.1 percent this week, extending its 2008 slump to more than 10 percent. Financial shares have led the market's retreat this year, dropping 24 percent as a group, as credit-related losses approach $400 billion globally. The Dow declined 3.8 percent this week, and the Nasdaq retreated 2 percent.

More than 2 billion shares changed hands on the NYSE, the most since March 20, as today's expiration of futures and options on indexes and individual stocks spurred trading. So-called quadruple witching occurs once every three months.
The quarterly rebalancing of the S&P 500 after the close of exchanges also boosted volume as investors whose funds mimic the index buy and sell shares to reflect expected adjustments.

GM, Ford Tumble

GM, the biggest automaker, fell the most in the Dow average as 29 of the gauge's 30 stocks retreated. GM slid 6.8 percent to $13.79 and Ford, the second-largest U.S. automaker, lost 8.1 percent to $5.81. Standard & Poor's placed their credit ratings, and those of Chrysler LLC, on CreditWatch with negative implications, citing ``financial damage'' resulting from elevated gas prices. Moody's Investors Service changed Ford's outlook to negative from stable.

Ford said today that automotive losses will worsen as demand for pickups and sport-utility vehicles is ``at one of the lowest levels in decades.'' The finance units of GM and Ford may each have to write down the value of used trucks on lease by more than $1 billion, Lehman Brothers Holdings Inc. analyst Brian Johnson said in a report.

SanDisk tumbled 9.7 percent to $21.16 for the third-biggest drop in the S&P 500. Citigroup analyst Craig Ellis lowered his rating on the largest maker of flash-memory cards to ``hold'' from ``buy.'' He cut his 2008 profit estimate by 12 percent to $1.23 a share and reduced his 2009 estimate by 25 percent to $1.29.

`Demand Erosion'

``Recent card and drive end-demand erosion in Asia, and still-modest embedded handset orders from European companies have gone against our call,'' Ellis wrote in a research note dated yesterday. ``The body of evidence we see no longer argues for putting new money to work in the name and thus we move to the sidelines.''

Technology companies in the S&P 500 retreated 2.5 percent as a group and contributed the most to the index's retreat.

Citigroup, which yesterday said it will post more writedowns from subprime-infected investments, lost 4.3 percent to $19.30. The biggest U.S. bank will probably report a loss in the second quarter, UBS analyst Glenn Schorr said. Schorr reduced his second-quarter estimate to a loss of 40 cents a share from a previous prediction of 37 cents in profit.

Wachovia Corp., the fourth-biggest U.S. bank, fell 1.9 percent to $17.43 after Merrill Lynch & Co. slashed its share- price forecast by 21 percent to $15.
Merrill cut its earnings-per-share estimates for ``large cap regional'' U.S. banks by an average of 22 percent for 2008 and 19 percent for next year.

``Bank stocks now appear to be in capitulation mode,'' New York-based analyst Edward Najarian wrote in a note today.

No Relief

``You don't get relief till you start seeing earnings estimate revisions on the positive side,'' said Michael Mullaney, portfolio manager at Fiduciary Trust Co. in Boston, which manages $10 billion. ``There is no glimpse of any improvement.''

MBIA Inc., the world's largest bond insurer, fell 13 percent to $5.59 for the biggest drop in the S&P 500 after Moody's stripped it and rival Ambac Financial Group Inc. of their Aaa credit ratings. The downgrades followed cuts by Fitch Ratings and S&P, and reduce the value of the more than $2 trillion of debt securities insured by the firms. The cuts may necessitate additional writedowns by the banks that hold the securities, Oppenheimer & Co. analyst Meredith Whitney wrote in a June 9 report.

Fannie Mae lost 4.8 percent to $23.81. Lehman said the biggest U.S. mortgage company may post a second-quarter operating loss of $1.20 per share, wider than the loss of 68 cents a share that Lehman had previously predicted. Its smaller rival Freddie Mac may post a loss of 55 cents a share, wider than the 40 cents previously forecast, Lehman said. Freddie's shares fell 7.7 percent to $21.82.

`Accelerating Pace'

``The housing market continues to deteriorate at an accelerating pace,'' New York-based analysts Bruce W. Harting and Mark C. DeVries wrote in a note to clients today. We expect house prices ``to fall even farther than we believed to 20 percent from the peak,'' they added.

Among smaller financial companies, MF Global Ltd. lost 20 percent to $6.86. Deutsche Bank AG lowered its share-price target for the largest broker of exchange-traded futures contracts 35 percent to $11. MF Global fell 41 percent on June 18 after saying lower interest income and higher expenses will reduce revenue this quarter.

Crude Jumps

Crude oil for July delivery rose $2.69, or 2 percent, to $134.62 a barrel in New York as the weakening dollar enhanced the appeal of commodities as a currency hedge and the New York Times reported that Israel held a rehearsal for a potential bombing attack on nuclear targets in Iran.

Marriott International Inc., the world's largest lodging chain, and Brunswick Corp., which makes recreational boats, led the drop in consumer discretionary companies. The national average price of a gallon of regular unleaded gasoline, derived from crude oil, rose to a record $4.08 this week, according to AAA, the country's largest motoring club.

Marriott sank 5.1 percent to $27.45. Brunswick fell 58 cents, or 4.7 percent, to $11.87. Consumer discretionary companies are the second-worst performing group in the S&P 500 over the past year after financials, with a 24 percent loss.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a4dDU_40l7cI&refer=home

Comment:

I have put in bold the part of this article that I believe has the most serious reprocussions. This is going to be really bad people. Prepare for the worst.

Checking stocks I've noticed that many of the small stocks I follow which had failed to break new lows have dropped Friday to new lows. Things look terrrible in the US with housing and stocks tanking. Where in the world is the world heading? (Can I say that?) Will the west pull down the rest? It all looks miserable. Mother nature even seems to be against us lately with all the floods etc.

Originally Posted by bkkandrew

Oppenheimer & Co. analyst Meredith Whitney

Big fan of Meredith Whitney, never far off in her predictions.

U.S. Stocks Tumble, Sending Dow to Worst June Since Depression

By Michael Patterson

June 26 (Bloomberg) -- U.S. stocks tumbled, sending the Dow Jones Industrial Average to its worst June since the Great Depression, as record oil prices, credit-market writedowns and a slowing economy threatened to extend a yearlong profit slump.

General Motors Corp., the largest U.S. automaker, plunged the most in three years as Goldman Sachs Group Inc. advised selling the stock and crude rose by $5 a barrel. Citigroup Inc. led the KBW Bank Index to an almost 10-year low as Goldman said the lender may report an $8.9 billion second-quarter charge and cut its dividend. Research In Motion Ltd., maker of the BlackBerry, posted its biggest drop since 2001 on concern competition with Apple Inc.'s iPhone is reducing earnings.

The Standard & Poor's 500 Index plunged 38.82, or 2.9 percent, to 1,283.15, its biggest drop in three weeks. The Dow decreased 358.41, or 3 percent, to 11,453.42, its lowest since September 2006. The Nasdaq Composite Index sank 79.89, or 3.3 percent, to 2,321.37, its worst loss since January. Almost nine stocks fell for each that rose on the New York Stock Exchange.

``Most investors are going to sit on the sidelines until they're more certain the sharks have left the waters and it's safe to go back in,'' said Bruce McCain, the Cleveland-based head of investment strategy at Key Private Bank, which oversees about $30 billion. ``The write-offs have been far worse than anyone would have imagined.''

Nike Earnings

All 10 industry groups in the S&P 500 retreated at least 1 percent as Nike Inc. said U.S. earnings dropped and Oracle Corp. predicted the slowest sales growth since 2006, adding to concern that consumers and businesses are cutting back as the economy expands at the slowest pace in five years.

Earnings at companies in the S&P 500 slid 18 percent on average in the first quarter, the third straight retreat, according to data compiled by Bloomberg. Analysts project profits will drop 8.9 percent this quarter, according to a Bloomberg survey last week.

The Dow has slumped 9.4 percent this month, its worst June since an 18 percent tumble in 1930 during the Great Depression. All 30 companies have posted losses in the month as oil surged, the unemployment rate jumped to the highest since 2004 and concern grew that global financial firms will add to $400 billion of subprime-related writedowns.

The Dow's retreat today erased all the gains since mid-March that were spurred by JPMorgan Chase & Co.'s rescue of Bear Stearns Cos., a drop in the Federal Reserve's benchmark interest rate to 2 percent and the central bank's new lending programs for securities firms.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aMiZ9Wer8Wco&refer=home

Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero".

"We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mode and are retreating into our shell. Investors will do well if they can preserve their wealth."

Barclays Capital said in its closely-watched Global Outlook that US headline inflation would hit 5.5pc by August and the Fed will have to raise interest rates six times by the end of next year to prevent a wage-spiral.

Continued at: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/27/cnbarclays127.xml&CMP=ILC-mostviewedbox

So much for that second-half rebound.

Truth be told, that was always more of a wish than a serious forecast, happy talk from the Fed and Wall Street desperate to get things back to normal.

It ain't gonna happen. Not this summer. Not this fall. Not even next winter.

This thing's going down, fast and hard. Corporate bankruptcies, bond defaults, bank failures, hedge fund meltdowns and 6 percent unemployment. We're caught in one of those vicious, downward spirals that, once it gets going, is very hard to pull out of.

Only this will be a different kind of recession -- a recession with an overlay of inflation. That combo puts the Federal Reserve in a Catch-22 -- whatever it does to solve one problem only makes the other worse. Emerging from a two-day meeting this week, Fed officials signaled that further recession-fighting rate cuts are unlikely and that their next move will be to raise rates to contain inflationary expectations...

...It was only in November that the Dow had recovered from the panicked summer sell-off and hit a record, just above 14,000. By March, it had fallen below 12,000. By May, it climbed above 13,000. Now it's heading for a new floor at 11,000. Officially, that's bear market territory. We'll be lucky if that's the floor.

In explaining why that second-half rebound never occurred, the Fed and the Treasury and the Wall Street machers will say that nobody could have foreseen $140 a barrel oil. As excuses go, blaming it on an oil shock is a hardy perennial. That's what Jimmy Carter and Fed Chairman Arthur Burns did in the late '70s, and what George H.W. Bush and Alan Greenspan did in the early '90s. Don't believe it.

Truth is, there are always price or supply shocks of one sort or another. The real problem is that the underlying fundamentals had gotten badly out of whack, making the economy susceptible to a shock. The only way to make things better is to get those fundamentals back in balance. In this case, that means bringing what we consume in line with what we produce, letting the dollar fall to its natural level, wringing the excess capacity out of industries that overexpanded during the credit bubble and allowing real estate prices to fall in line with incomes...

American Express and Discover warn that customers are falling further behind on their debts. UPS and Federal Express report a noticeable slowdown in shipments, while fuel costs are soaring. According to the Case-Shiller index, home prices in the top 20 markets fell 15 percent in April from the year before, and Fannie Mae and Freddie Mac report that mortgage delinquency rates doubled over the same period -- and that's for conventional home loans, not subprime. United Airlines accelerates the race to cut costs and capacity by laying off 950 pilots -- 15 percent of its total -- as a number of airlines retire planes and hint that they may delay delivery or cancel orders of new jets from Boeing and Airbus. Goldman Sachs, which has already had to withdraw its rosy forecast for stocks, now admits it was also too optimistic about junk bond defaults, and analysts warn that Citigroup and Merrill Lynch will also be forced to take additional big write-downs on their mortgage portfolios.

Meanwhile, General Motors, already reeling from a 28 percent plunge in the pace of auto and truck sales, now confronts the fact that it won't get any help this time from GMAC, its once highly profitable finance arm, which is reeling from an increase in delinquencies on home and auto loans. With the carmaker hemorrhaging cash, whispers of a possible default sent the price of insuring GM bonds soaring on the credit default market.

You know things are bad when middle-class Americans have to give up their boats and Brunswick, the nation's biggest maker of powerboats, is forced to close 10 plants and lay off 2,700 workers...

Like the rain-swollen waters of the Mississippi River, this sudden surge of downbeat news has now overflowed the banks of economic policy and broken through the levees of consumer and investor confidence. At this point, there's not much to do but flee to safety, rescue those in trouble and let nature take its course. And don't let anyone fool you: It will be a while before things return to normal.

This Recession, It's Just Beginning