Friday, March 14, 2008

Friday March 14, 2007...Who's worried?

Friday March 14, 2008

For all of 2007, consumer inflation jumped by 4.1 percent, the biggest increase in 17 years. That big increase has raised concerns about stagflation, the malady that beset the economy in the 1970s when economic growth stagnated at the same time that inflationary pressures increased.

Federal Reserve Chairman Ben Bernanke has said that he does not believe the country is at risk of another bout of stagflation.

Another stunner from Wall Street on Friday sent the dollar to a record low as a major U.S. banker, Bear Stearns Cos., acknowledged it was in dire financial straits.

The U.S. government and JPMorgan Chase & Co. bailed out Bear Stearns Cos. Friday, a last-ditch effort to save the investment bank after a week of denials that it was in trouble.

Bear Stearns lost half of its value within 30 minutes of the market open.

Bear Stearns has assets of 395 billion and liabilities of 383 billion dollars.

This week the dollar has repeatedly hit record lows against the euro, dropped below 100 yen for the first time in 12 years, and on Friday, the dollar fell below the Swiss franc for the first time ever.

The dollar is currently valued at 0.9996 francs on the Zurich exchange. In 1971, the U.S. dollar was worth four francs.

The dollar has been weighed down by worries about the outlook for the U.S. economy, which in turn have fed expectations that the Federal Reserve will continue to lower interest rates.

Lower interest rates can jump-start a nation's economy, but can also weigh on its currency as traders transfer funds to countries where they can earn higher returns.
speculation that the world's major central banks will mount coordinated intervention to stabilize the rout of the dollar.

The global financial-services sector may end up writing down the fair value of such exposures by $285 billion, mainly from residential mortgage-backed securities and more complex vehicles known as collateralized debt obligations (CDOs), S&P estimated.

Earlier this week the Federal Reserve said it would inject $200 billion into the troubled mortgage securities market.

"It is clear that the ultimate credit losses on the more than $1.2 trillion of subprime loans originally granted in the U.S. from 2005 to 2007 will be substantial," S&P said.

Gold futures soared to a record high of $1,009 an ounce Friday, as investors sought a safe haven following news of a bailout of troubled investment bank Bear Stearns.

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