According to an article by Harry Wilson and Philip Aldrick in the British newspaper the Independent, the cost of insurance, in the form of credit default swaps, on the debt held by European banks has risen to the point where warning signals about an impending crash are flashing.
A senior banker unwilling to be identified said:
I think we are heading for a market shock in September or October that will match anything we have ever seen before.”
Will the Europeans be willing or able to throw enough money at the problem to prevent a full-blown catastrophe? Stay tuned.
Meanwhile Federal Reserve Chairman Ben Bernanke will give his annual speech at Jackson Hole on Friday (August 26), which could mean an implosion could come before September. Many risk being disappointed if he doesn’t announce QE3 (a third round of quantitative easing).
Yet the editorial in the Financial Times argues the trick might not work anyhow. According to FT, while politicians keep talking about how business wants certainty, what they are really asking for is clarification from Bernanke about what he will and won’t do and what signals he will rely upon to act.
The hurricane blowing in might not be Irene.
