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G7 meeting and communiques will lead to more market volatility

Posted by Adrian on October 12, 2008

I always thought that the G7 is a big waste of time. For months they would meet come away and say ‘everything is fine, yes growth will slow but be sustainable blah blah blah’. The worst they can do now, which is what they are doing, is panicking. Funny that, they tell the market not to panic, yet their sentiment, confusing and ambiguous dialogue is in a sense a veiled hysteria.

Like the Federal Reserve’s Ben Bernanke and the Treasury’s Henry Paulson, they are essentially adding to market volatility by patching up a collapsing economic situation in a frenetic way. The market shows some reprieve, then goes south again. Why? because the market is struggling to find that bottom, given the opportunity for a proper crash. We could all see it and adjust to it and at least look at the damage and rebuild, portfolios, balance sheets etc. The market NEEDS to see bank failures, so we can see what shouldn’t exist. They (so called financial leaders) talk about ‘restoring confidence’ to the market. The problem is, the idea of market confidence is distorted every time they come up with a ‘hair brained scheme’ to pump liquidity into sections of the markets that should be destroyed; it is a another unsure blanket over the crisis. They are the ones creating volatility and lack of confidence – the markets are unforgiving if reality is covered up constantly. You want to blame who is currently inflicting huge swings (losses) on your portfolios blame them.

The only thing the G7 and others can do is ensure bank deposits. That’s it. Let all the smaller banks disappear, bail out the consumer who will be the one that will add fuel to a downturn in the global economy. The crazy logic here is whilst the G7 and US financial leaders seem obsessed with bailing out a whole financial system, the general market have not stabilized because the world is in recession. The global mortgage markets from Ireland to Spain to Australia and every other country in between could be amidst of an almighty catalyst to absolute market destruction. The private sector is de-leveraging, no matter how much credit will (theory from bank ‘bail out’ fiasco) be offered to them, they are cutting back on debt. Banks (big banks) will horde, the consumer is going to struggle from all sides to stay afloat. Housing sectors (Europe and Asia) that are extremely over leveraged could collapse quite severally.

So, the governments should shut down the pensions funds and payout as many people as possible so they can pay the OWN mortgages with their OWN money as much as they can, try and stabilise the broader mortgage markets. Forget about the US mortgage market now, the European banks that have all sorts of toxic assets (courtesy from the US mortgage based derivatives) will be in meltdown mode unprecedented if Ireland and Spain’s housing markets really go into a severe meltdown.

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