I don’t know about you, but I don’t think were done yet. If you watch the talking heads on TV it seems the US Government is riding in on a white horse to save the economy. It sounds like the bank rescue package – all $700 Billion of it – will save the day. I’m certain it’ll help a little. But what if it doesn’t? What if this is just the beginning of something much bigger?
Let me explain.
Right now credit markets are seizing up. You don’t need me to tell you this. Just open any major newspaper in the country. Over the last 2 weeks they’ve done nothing but report on the dire situation companies and individuals are facing.
The best example is recent spikes in LIBOR rates.
LIBOR is the rate that banks charge each other to borrow money. The cost of borrowing money spiked up because banks are desperate for financing. But there’s a problem. Many banks are looking at other institutions with a suspicious eye.
They don’t know who’s going to survive the week, let alone the night.
If you run a bank, you know being able to borrow money is central to your business. What’s happening is just like the great depression. Banks will stop lending to each other. More banks will fail, and that will cause lending to tighten even more.
It’s a vicious cycle.
These banking problems are starting to spread all over the world. Right now Europe is witnessing the greatest collapse of their financial system in the last century.
Remember Northern Rock? The Bank of England was forced to nationalize that institution after it experienced a run on the bank. Recently Ireland did something unprecedented. Irish citizens were questioning the stability of their banks. As a result, massive …Continue reading