IMF Nightmare Forecast: Economic Crisis Creates $4 Trillion In Toxic Assets

The International Monetary Fund is set to release an updated report on the scale of toxic assets that are sitting on the balance sheets of financial institutions and banks worldwide. To characterize the IMF revised numbers as jaw dropping would be a severe understatement; the International Monetary Fund will indicate that toxic assets now amount to a staggering $4 trillion. If there are any doubts remaining as to the severity of the global economic crisis, this most current estimate of the rot eating away at the global financial architecture should set them aside.

It was only back in January that the IMF had estimated that toxic assets tied to the United States stood at $2.2 trillion, while NYU professor of economics Nouriel Roubini provided a more sobering analysis that placed a figure of $3.6 trillion regarding toxic garbage sitting on global balance sheets, half that figure being directly tied to U.S. financial institutions. The revised IMF numbers, in my view, tell us two things: 1. The erosion in asset values across the world is accelerating and 2. No one knows for certain how catastrophic this financial cancer is; the only certainty is its virulence.

As expected, the United States is the major component in the IMF scenario of horrors, being the source of three-quarters of the $4 trillion nightmare forecast. However, nearly a trillion dollars of bad assets are, according to the IMF report, tied to Europe and Asia. That latter figure is actually a portent of much worse news, as all the macro-economic indicators from Europe and Asia are deteriorating. The Eurozone is in deep recession, Eastern Europe is defaulting on massive debts and the banking sector in the U.K. is for all intents and purposes insolvent. The world's second largest economy, Japan, is in free fall collapse, with catastrophic contraction of its critical export trade. China's export market is shrinking, in the process shattering Asian economies on her periphery. The OECD (Organization for Economic Cooperation and Development) is projecting that the economies of its thirty member countries will collectively contract by 4.3%, while global trade is reduced by a savage rate of 13%. These numbers suggest that the fundamentals that have facilitated the erosion in global asset values will be even more destructive in the months ahead.

Placed in context, the IMF revised estimate on the meltdown in the global financial architecture is merely a pointer in a very dangerous direction, and not a final estimate on toxic assets. It is likely that the ultimate number goes beyond $4 trillion. How much worse can it get? A secret document leaked from the European Commission suggested that European banks alone hold up to $24 trillion in "troubled" assets. If one quarter of those assets are indeed toxic, it is not beyond the realm of possibility that the actual scope of financial toxicity on global balance sheets may be in the range of $8-9 trillion. However, even worse than any apocalyptic forecast is the realization that no one knows with certainty how massive the financial contagion really is. In the final analysis, it is the uncertainty being wrought by the global economic crisis that is most destructive to the world's financial system, even more than the appalling statistics, as frightening as they are in the abstract.

Comments

[FogBelter]

I think the IMF is low balling the number.

[Javani]

Usually they high-ball the number, because they perpetually ask for money for crises they define and intend to solve.

However, sometimes they might be accurate, as here.

[DavidJames]

KTM,

That is about $45,000 per household. Looks like it is pitchfork time to me!

Regards,

[KillTheMessenger]

Well, if you have a wife and three kids it's $60k... Add to that what we spent on Iraq and the rest and that family owes way over $100k for the sins of the past eight years. Add to that the cost to replace the energy infrastructure of this country with renewables and they will have to cough up well over $200k. Add in social security and health care projections and now our family of five looks at costs of half a million or more.

I would say it's less pitchfork than shovel time. Break out the tools, boys and girls, you are in a mighty deep hole here and if you don't start filling it in, soon, you will never see the light, again.

[vippy]

This was planned. There were warnings all over the place. Where did they take all of the money made off these bets? They did it blatantly and now we are being told it is our fault?

[Sundialsvc4]

"Abstract" is the right word, Sheldon.

Basically, the question now standing before the world financial community is this: "will you let me swindle you? Will you honor my fraudulent securities and thereby drain your national treasury dry?"

I use the word "swindle" quite deliberately, because that's precisely what this thing is. Paper (actually, mere electronic records in a database somewhere) was generated with a "face value" of some arbitrary number of trillions of dollars. This paper ostensibly represents a negotiable promise to collect on someone else's obligation ... or to collect premiums against the default of that obligation. Under proper circumstances, those securities would indeed be useful and legitimate. But these are not proper circumstances. The promises were false, and willfully made with the intent to deceive.

Nothing less than the US Federal Government willingly stepped in to assist in the scam, by repealing laws that were designed to protect against it, AND by passing laws which declared the practices to be "un-regulatable" either as insurance or as gambling. (My, what a peculiar piece of legislation ...!)

And now, the rest of the world is being told to take the bait. . .

I hope that they will recall what a certain Allied commander told a certain German commander during the Battle of the Bulge . . .

[KillTheMessenger]

That's it? Phew... that's not so bad. It's about $15,000 per US citizen. Can someone tell me where I can pay my share? And if you guys need a line of credit to pay yours... I might be able to help for a low interest rate of, say, 16% per year.

:-)