2008 Global Banking System Crisis

Get ready for a global banking system crisis in 2008. The central bankers of the world are busy even through this holiday period injecting tremendous amounts of cash into the banking system in an effort to prop the heavily interrelated worldwide banking system up.

But how do you correct problems caused by the over extension of credit by injecting even more credit into the system? The short answer? You do not. The problem will be even more difficult to deal with in the near future.

Americans are already overextended to the breaking point. The rate of credit card default is surging as fallout from the subprime meltdown is spreading. “Debt eventually leaks into other areas, whether it starts with the mortgage and goes to the credit card or vice versa,” said Cliff Tan, a visiting scholar at Stanford University and an expert on credit risk. “We’re starting to see leaks now.”

“The worst is yet to come for the global banking system, which faces potential losses of more than half-trillion dollars from investments in toxic sub-prime US mortgage debt. “The problems in the financial sector remain with us,” said Bank of England chief Mervyn King on Nov 19th. “A painful adjustment faces the global banking sector over the next few months as losses are revealed and new capital is raised to repair bank balance sheets,” he said.

“To defuse the crisis, the Fed, the European Central Bank, and the Bank of England are pumping enormous sums of money into the banking system, at below market interest rates, to prevent a “credit crunch” from triggering a global stock market meltdown. “Central banks are working together to forestall any sharp tightening in credit conditions that might lead to a downturn around the world,” King declared.

My advice is to enjoy the holidays as much as you can but get ready for a difficult year in 2008. Probably serious troubles will develop as early as the first quarter.

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