Morgan Stanley has issued a full recession alert for the US economy, warning of a sharp slowdown in business investment and a "perfect storm" for consumers as the housing slump spreads.
In a report "Recession Coming" released today, the bank's US team said the credit crunch had started to inflict serious damage on US companies.
"Slipping sales and tightening credit are pushing companies into liquidation mode, especially in motor vehicles," it said.
"Three-month dollar Libor spreads have jumped by 60 to 80 basis points over the last month. High yield spreads have widened even more significantly. The absolute cost of borrowing is higher than in June."
"As delinquencies and defaults soar, lenders are tightening credit for commercial, credit card and auto lending, as well as for all mortgage borrowers," said the report, written by the bank's chief US economist Dick Berner. He said the foreclosure rate on residential mortgages had reached a 19-year high of 5.59pc in the third quarter while the glut of unsold properties would lead to a 40pc crash in housing construction.
"We think overall housing starts will run below one million units in each of the next two years -- a level not seen in the history of the modern data since 1959," he said.
Although the US job market has apparently held up well, an average monthly fall of 138,000 in the number of self-employed workers over the last quarter suggests it may now be buckling. "Consumers face what could be a perfect storm," said Mr Berner.
The partial freeze on subprime mortgage rates announced last week by US treasury secretary Hank Paulson may help cushion the blow for some banks, but it could equally backfire by adding a "risk premium" that drives even more lenders out of the mortgage market.
Like Goldman Sachs, and Lehman Brothers, the bank no longer believes Asia and Europe will come to the rescue as America slows.
It has slashed its 2008 growth forecast for Japan from 1.9pc to 0.9pc, and warned that credit stress will weigh heavily on the eurozone.
Mr Berner said US demand is likely to contract by 1pc each quarter for the first nine months of 2008, but the picture could be far worse if the Federal Reserve fails to slash rates fast enough. It is betting on a quarter point cut this week, with three more cuts by the middle of next year. "We expect the Fed to insure against the worst outcome," he said.
Morgan Stanley is the first major Wall Street bank to warn that it is may now be too late to stop a recession, though most have shifted to an ultra-cautious stance in recent weeks.
The bank at first treated the August crunch as a "mid-cycle correction", much like the financial storm after Russia's default in 1998. But the collapse of the US commercial paper market has now continued for seventeen weeks, suggesting a "fundamental deleveraging of the banking system."
Mr Berner - known at Morgan Stanley as the "resident bull"- is one of the most closely watched analysts on Wall Street. While he began to turn bearish last April as the credit markets turned nasty, the latest report is written in tones that may is rattle the fast-diminishing band of optimists.
http://www.telegraph.co.uk/money/main.j ... usa111.xml
Paul Craig Roberts:Impending Destruction of the US Economy
The US dollar has lost 60% of its value during the current administration.
If foreigners were to reduce their existing holdings of dollars, superpower America would instantly disappear
We have arrived at the point where it is no longer bold to say that nothing now can be done. Unless the rest of the world decides to underwrite our economic rescue, the chips will fall where they may.
Moscow Times:Rosneft Considers The Ruble
Rosneft said it might switch crude sales to rubles from dollars as the U.S. currency weakens, following similar statements by domestic rivals Gazprom and Lukoil.
ISNA:Iran stops selling oil in U.S. dollars
Iran has completely stopped selling oil in U.S. dollars.
And some good news written ten years ago:
Bernard Lietaer:Beyond Greed and Scarcity
Money is like an iron ring we've put through our noses. We've forgotten that we designed it, and it's now leading us around. I think it's time to figure out where we want to go - in my opinion toward sustainability and community - and then design a money system that gets us there.
I have come to the conclusion that greed and fear of scarcity are in fact being continuously created and amplified as a direct result of the kind of money we are using.
A study done by The International Metalworkers Federation in Geneva predicts that within the next 30 years, 2 or 3 percent of the world's population will be able to produce everything we need on the planet. Even if they're off by a factor of 10, we'd still have a question of what 80 percent of humanity will do.
My forecast is that local currencies will be a major tool for social design in the 21st century, if for no other reasons than employment.
A key concept Jung uses is the archetype, which can be described as an emotional field that mobilizes people, individually or collectively, in a particular direction. Jung showed that whenever a particular archetype is repressed, two types of shadows emerge, which are polarities of each other.
If there is a repression of an archetype on this scale and for this length of time, the shadows manifest in a powerful way in society. After 5,000 years, people will consider the corresponding shadow behaviors as "normal".
The question I have been asking is very simple: What are the shadows of the Great Mother archetype? I'm proposing that these shadows are greed and fear of scarcity.
In 1929, the stock market crashed, but the gold standard held. The monetary system held. Here, we are dealing with something that's more fundamental. The only precedent I know of is the Roman Empire collapse, which ended Roman currency. That was, of course, at a time when it took about a century and a half for the breakdown to spread through the empire; now it would take a few hours.
The biggest issues that I believe humanity faces today are sustainability and the inequalities and breakdown in community, which create tensions that result in violence and wars. We can address both these issues with the same tool, by consciously creating currency systems that will enhance community and sustainability.