U.S. Commercial Debt Meltdown
Now the credit derivative implosion problem has worked its way into the commercial paper market which since last week has declined by $90 billion. The word is that the commercial paper market for all purposes is closed down, yet Professor Bernanke sleeps on. No one can say with a straight face that a shut down commercial paper market will fail to shut down the US Economy. It will.
The Dow was down 300 points until rumors of a secret meeting being held at the Fed made their rounds. When that one ran out of steam the next rumor was a major injection of cash was going to be made into Bear Stearns. That has to give you an idea what people think about Bear Stearns’s financial condition and therefore most other major investment banking firms with prime names.
This is the real thing. The Fed better damn well wake up or the implosion in the credit derivatives will work itself through the entire derivative market on all items via the fact that every derivative has an interest rate component.
I would certainly suggest your funds be in T bills according to your preference of Cando, Swiss or USD. I feel it is a great time to buy Swiss and/or Canadian Federal Treasury Bills.
This is a time to be careful of all financial houses because the Fed could remain asleep at the switch.
If you want a comparison of the last time commercial paper dropped by a number like $90 billion, in 2001 the Fed promptly dropped the discount rate by one full point.
The system financially is hanging by a thread. Of the total $2.2 trillion, $1.2 of the commercial paper market is mortgage backed. Action is either taken by Professor Bernanke immediately, or Bernanke is a reincarnation of Nero and the US is standing on the “Burning Platform” as the Financial Times said last week. No action and very soon you can kiss the US economy goodbye for at least a generation, maybe longer.
What has occurred here is just what has been anticipated that completes the foundation of gold at $1650 or better. At this point actions to hold the financial system together is bullish for gold and to leave the problem alone as Bernanke and Poole rhetoric implies is the blast that will launch gold higher.
The sins of the Father is visited today upon the Son who has done more sinning than the Father ever even considered. What then comes next?
Subprime Problems Spread Into Commercial Loans
By GRETCHEN MORGENSON and JENNY ANDERSON
Published: August 15, 2007
Turmoil in the subprime mortgage market spread again yesterday — this time to a type of short-term security held by money market mutual funds. These funds have become the investment of choice for many people seeking a safe haven.
Standard & Poor’s, the ratings agency, warned yesterday that it might downgrade several issuers of commercial paper, a short-term I.O.U. by companies that promise to repay loans typically within a few weeks to a year.
In these cases, S.& P. said, the commercial paper was backed by residential mortgages.
The amount of commercial paper in the United States has grown to $2.2 trillion, according to Lehman Brothers, with about $1.2 trillion backed by residential mortgages, credit card receivables, car loans and other bonds. The major buyers include pension funds, insurance companies, hedge funds and short-term money market funds.