2008/09/27-2 Ask the Experts with Doug Noland 09/27/2008
Submitted by Liberty Valley on Fri, 2008-09-26 19:50.
2nd Hour Guest Expert:Doug NolandMarket Strategist, David Tice & AssociatesTopic: Update on the current credit crisis - worse than expected
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Our comment:
Doug Noland is certainly a guy who saw this coming and has rung the alarm bells for a long time. So his interview is worth listening to. He paints an ugly picture of what is yet to come. He makes a strong case for further deleveraging, and credit contraction, leading to more extended deflationary forces. He seems to make the point that government would have to inject money not equal to the base capital, but in amount of the leveraged balance, since the "effective" reserve multiplier is rapidly shrinking due to people not lending.
The truth is probably somewhere in between, because government will make sure that there is always a "multiplier" available, by forcing Fannie, Freddie, etc. to lend.
Also, on the derivatives I am less pessimistic, since these are more symmetric contracts between various players. I don't think a notional value of $50, $100, or $200 trillion matters much, since an unwind will make one counter party lose and another win. And if the loser can't pay, then he sort of wins and the winner loses. Any of this probably wouldn't affect price levels much, that is of stocks, real estate, commodities, and consumer goods.