This item has just been posted around the world by Reuters. Here is another warning about financial collapse in the United States. One fear is that in the process of trying to bail out Freddie and Fannie the value of common shares in these mega-mortgage holders will be diluted by any flood of state money. Similar things could also happen in China as former state assets are brought into the market .
(Reuters) - The worst of the global financial crisis is yet to come and a large U.S. bank will fail in the next few months as the world's biggest economy hits further troubles, former IMF chief economist Kenneth Rogoff said on Tuesday. "The U.S. is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say 'the worst is to come'," he told a financial conference.
"We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks," said Rogoff, who is an economics professor at Harvard University and was the International Monetary Fund's chief economist from 2001 to 2004.
"We have to see more consolidation in the financial sector before this is over," he said, when asked for early signs of an end to the crisis.
"Probably Fannie Mae and Freddie Mac -- despite what U.S. Treasury Secretary Hank Paulson said -- these giant mortgage guarantee agencies are not going to exist in their present form in a few years."
Rogoff's comments come as investors dumped shares of the largest U.S. home funding companies Fannie Mae and Freddie Mac on Monday after a newspaper report said government officials may have no choice but to effectively nationalize the U.S. housing finance titans.
The New York Times made this pithy observation. Raise the central bank rate and risk a further economic downturn or lower the rates and add to inflation? Could there possibly be a problem with their models ie. is any kind of economic determinism suspect?
Wholesale prices rose at a higher annual rate last month than they had in 27 years, making it more difficult for businesses to maintain profit margins as consumer spending declines. The combination of trends also underscored the pressures on the Federal Reserve as it considers whether to raise interest rates to fight inflation or lower them to stimulate growth.
“Hot inflation and cool housing leaves the F.O.M.C. stuck in neutral for now,” said Stuart Hoffman, chief economist at PNC Bank, in a note, referring to the Federal Open Market Committee, the central bank’s policy-making body.
The 1.2 percent rise in wholesale prices, reported on Tuesday by the Labor Department, was well above economists’ expectations and the latest report showing a sharp rise in inflation in July. Some of the higher prices have tapered off because of the recent decline in crude oil prices.
But American businesses and consumers, along with central bankers, are facing an increasingly difficult situation. Businesses can raise retail prices and risk losing customers who are already squeezed by the downturn. Or they can eat the cost of more expensive goods and lose profits.
Massachusetts man says neigh to high gas prices
