A ‘New Wave’ of the Credit Crisis Threatens Banks
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A “new wave” of the credit crisis is now battering banks and lenders that steered clear of toxic subprime-related loans, says The Washington Post.
Late payments on home-equity loans are at a record high, and delinquency rates on loans for cars, small businesses and construction are at levels not seen in a decade or more — all bad news for lenders, regardless of their subprime exposure.
Of course, the bad news isn’t limited to the financial sector. Mike Burnick in the Offshore A-Letter warns of that a triple whammy of deflation, inflation, stagflation is also threatening the global economy…
The “official” inflation rate in the U.S. jumped 4.2% in the 12 months to May. That’s the fastest rate of price increases in more than 10-years - mainly due to… you guessed it: soaring food and fuel prices.
But of course, this isn’t just a U.S. problem. In fact, “official” inflation rates in American look positively tame compared to soaring inflation around the world.
According to a recent Bloomberg story, “The International Monetary Fund predicts the fastest inflation in advanced economies since 1995 this year even as they grow at the slowest pace in seven years.”
That sounds a lot like the definition of stagflation to me.
Around the world inflation is catching hold, which is a whole new challenge for global central bankers to deal with.
The European Central Bank (ECB) has a stated goal of keeping inflation in check at 2% or less. Too bad for them. Eurozone inflation is soaring at a yearly rate of 3.7% — the highest in nearly 20 years. Since prices are rising at nearly twice the ECBs target rate, there’s a growing likelihood of rate increases, perhaps as early as July.
Two of the world’s fastest growing economies — China and India — are struggling to reign-in what looks like runaway inflation - up 7.7% and 8.8% respectively over the last 12 months alone.
Inflation is running at annual rates of: 7.5% in Singapore, 9% in Argentina, 10.4% in Indonesia, 10.5% in Saudi Arabia, and a whopping 15% in Russia! Brazil’s central bank, which has done a great job bringing inflation rates down substantially over the last decade, recently began raising rates again to combat inflation now at 5.4% and rising.
So what’s the solution to high global inflation? A stronger currency might help. That’s what Federal Reserve and Treasury Department officials have been saying lately, talking tough on inflation — by talking UP the dollar. So far, this is just a war of words, but dollar-sentiment is shifting. We’ll see if this “tough talk” actually holds up next week.