When the stakes are so high and that debts must be paid, the first reaction is protectionism. Alas this is a wrong attitude that ends generally with a self-fulfilling prophecy. The pundits know that very well but cannot do much against it because the pressure always comes from the lobbies protecting consumers and workers. Unfortunately debt liquidation is always linked to joblessness and inflation.
However, last January 25, one could read on CBSmarket watch that the banks may need $143 billion in fresh capital to rescue the junk-bond market. On the telegraph.uk online, there was a headline saying that Banks ‘face a further $300bn sub-prime hit‘ … Let’s do not forget that the estimates are about $1,300bn worth for sub-prime mortgages industry. How far and low can it go?

Lenders are so hungry for cash that they are contemplating to raise the ATM fees up to 3 dollars. Late credit card fees are likely to increase next. It is going to backfire.

But for today the most frightening news was most likely the following headline: S&P Lowers or May Cut $534 Billion of Subprime Debt.

Jan. 30 (Bloomberg) — Standard & Poor’s said it cut or may reduce ratings of $534 billion of subprime-mortgage securities and collateralized debt obligations, as home loan defaults rise… The downgrades may increase losses at European, Asian and U.S. regional banks, credit unions and the 12 Federal Home Loan Banks, S&P said. Many of those institutions haven’t written down their subprime holdings to reflect their market values and these downgrades may force their hands, S&P said…

Yes, dear readers, all this leads to wonder as if our banking institutions are still solvent.

In the UK this week, Chancellor Alistair Darling has proposed that failing banks should be able to receive help from the Bank of England in secret. No joke. On the top of that, Dominique Strauss-Kahn at IMF called for more government spending worldwide to reverse our current credit crunch that is is so severe that lower interest rates alone will not be enough “to get out of the turmoil we are in”. it will go worse before it gets better. Really: In Europe, ECB secretly rescued Spanish banking system.

David Owen, Europe of Dresdner Kleinwort, said Spain could face serious difficulties this year as the excesses of a decade-long boom finally catch up with the country…. “The size of the Spanish corporate sectors financial deficit is truly is really scary. It rose to 14.5pc of GDP in the third quarter of 2007 from 10pc in the first quarter. This must be a record for a relatively large economy. Clearly this is not sustainable. Cost imbalances have a nasty habit of unwinding, quickly and very painfully,” he said.

The credit deterioration going on right now worldwide is so monstrous that there are almost no words to describe the horror we are in.
In America now every household owes the government more than $400,000. And this doesn’t include mortgages, student loans, credit card debts and other leases. If it is too hard to swallow, please watch this YouTube video with the anchor Glenn Beck interviewing the head of the GAO. This is The Real Story, Touching the Third Rail.

http://www.youtube.com/watch?v=I-16u9×3tfE