MidnightWatcher – Prophecy in Motion

By Larry Elliott, Heather Stewart and Nicholas Watt – “The world risks sliding into a 1930s-style slump unless countries settle their differences and work together to tackle Europe’s deepening debt crisis, the head of the International Monetary Fund has warned.

On a day that saw an escalation in the tit-for-tat trade battle between China and the United States and a deepening of the diplomatic rift between Britain and France, Christine Lagarde issued her strongest warning yet about the health of the global economy and said if the international community failed to co-operate the risk was of ‘retraction, rising protectionism, isolation’.

She added: ‘This is exactly the description of what happened in the 1930s, and what followed is not something we are looking forward to.’

The IMF managing director’s call came amid growing concern that 2012 will see Europe slide into a double-dip recession, with knock-on effects for the rest of the global economy. ‘The world economic outlook at the moment is not particularly rosy. It is quite gloomy,’ she said.

Since arriving in Washington in the summer, Lagarde has been forced to cut her organisation’s forecasts for global growth next year and is now putting pressure on countries outside the eurozone – including Britain – to play their part in containing Europe’s sovereign debt crisis.” Read more.

The Fed’s Intervention Didn’t Solve Anything – It Just Pushed the Collapse Back a Few Weeks – “It’s now been two weeks since the Federal Reserve lead a coordinated effort to lower the cost of borrowing Dollars worldwide. While the markets initially hailed this move as a ‘solution’ we’ve since seen that it was in fact an act of desperation/ cushioning of the coming European banking collapse. The REAL implications of the Fed’s move are: 1) Europe was/is on the verge of its Lehman moment. 2) The ECB/ Germany/ IMF/ EFSF bailout options have all failed. 3) The Central Banks are growing truly desperate to prop up the system. Europe was on the verge of its Lehman moment. I do not think that the coordinated Fed move has stopped this from happening… rather it’s merely pushed back Europe’s Crisis by a few weeks.” Read more.

Debt crisis: Brussels accord on the verge of collapse, major global banks downgraded – “The banks that were downgraded last night include US banks Bank of America and Goldman Sachs, Barclays and France’s BNP Paribas. Switzerland’s Credit Suisse and Germany’s Deutsche Bank were also cut. The downgrade could raise the cost of borrowing for these banks. Fitch cut the ‘issuer default ratings’ at the banks to ‘reflect challenges faced by the sector as a whole’. The ratings agency said: ‘These challenges result from both economic developments as well as a myriad of regulatory changes’… Long-term issuer default ratings for Bank of America, Citigroup and Goldman Sachs were cut to A from A+. Barclays, Deutsche Bank and Credit Suisse were downgraded to A from AA- while BNP Paribas fell to A+ from AA-.” Read more.