The market remained highly volatile as we wound up last week. But the reason for that chaos seemed to be shifting from U.S. debt concerns back to the condition of credit in Europe.
Debt contagion in Western Europe was the primary reason for last week's market dives. The focus is now the condition of European banks – a disquieting shift when you remember the cause of the market slide beginning in late 2008…
Then, the credit crunch was enveloping economies worldwide. Banks could not get overnight funds from other banks, so access to business loans dried up, and the prospects of deep recession (or worse) led the worries in the United States and Europe.
At least the banking system is much better off this time around (even though financial institutions continue to withhold trillions of dollars from the flow of credit).
Now comes word that French banks may have the same endemic problems already identified in their counterparts elsewhere in Western Europe. If the trouble is real – and last week's actions by Asian banks do render credence to it – that will guarantee further turbulence in trading markets.
So much for Standard & Poor's example of France as the model for setting the U.S. debt house in order.
Actually, why anybody still lends any credence to these fiscal alchemists on sovereign debt matters is beyond me. The sub-prime collateral mortgage obligation catastrophe indicates they are not so hot on the private issuance side, either. Ultimately, whether the debt bubble is buried in commercial bank ledgers or in the public budget does not change the issue. It will have the same net effect when it bursts – disaster.
We should demand some accountability for rating agencies to understand what they are reviewing and forecasting. Otherwise, I would be about as successful with a Ouija Board.
One other matter before I stop kicking this dead horse…
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About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.