Saturday, February 19, 2011

Financial Stress Index Back to Nov. 2007 Level

The St. Louis Federal Reserve updated its Financial Stress Index on Thursday for the week ending February 11, see chart above (data here).  This index measure of the amount of financial stress affecting the markets (explanation here) based on 18 individual variables including seven different interest rates, six interest rate yield spreads, and five measures of market volatility.  According to the St. Louis Fed, each of the 18 component variables in the Financial Stress Index captures some aspect of financial stress in the markets, and the Financial Stress Index incorporates the 18 variables into a single, composite index measure that tracks the amount of overall financial stress in the markets.   

The chart above shows that the St. Louis Fed Financial Stress Index has now returned to the pre-recession, pre-financial crisis levels that prevailed back in the fall of 2007.  The reading for last week of -0.022 was only the second time since the recession started in December 2007 that the index was below zero (it was -0.003 in April 2010), and the lowest index value since early November 2007.  

5 Comments:

At 2/19/2011 10:30 AM, OpenID murosgroup said...

“The global size of the derivatives bubble which was calculated last year at USD 190k per person-on-planet, has risen to USD 206k per person-on-planet. The ever rising commitment of governments for the repeated bailouts of financial institutions is partially linked to various flavours of derivatives exposure settlements and “black hole” losses emanating from off-balance-sheet vehicles.”

Indeed, the entire GDP of every single country in the world only amounts to around $60 trillion. How can we ever hope to pay off $1,400 trillion dollars?

We can’t and we won’t. The only way that this $1.4 Quadrillion mountain of debt will disappear is a total and complete collapse of the global economy and its replacement with a new financial system.

Whether that also simultaneously brings down the US dollar and the United States itself as a first world country remains to be seen, but anyone who believes that a few years of austerity can redress the balance is living in cloud cuckoo land.

Once the whole charade starts to unravel, the scenes we saw in Cairo over the last few weeks will look like a walk in the park in comparison to the turmoil that awaits as a result of the derivatives bubble.

 
At 2/19/2011 11:09 AM, Blogger Buddy R Pacifico said...

murosgroup, what is the source for the $1.4 Quadrillion worldwide debt claim? Dervitives and high debt are dangerous but I don't think they are the same thing. The U.S. government debt is really high at $14 Trillion but you are claiming a magnitude of 1000 times this amount for the world.

 
At 2/19/2011 1:50 PM, Blogger morganovich said...

and just look at how well we did the last time we were at this level...

what is this indicator supposed to show?

it sure gave us no real warning last time...

 
At 2/19/2011 4:51 PM, Blogger Methinks said...

Morganovich, maybe it's supposed to show that we have another financial tsunami building.

I don't know what you've observed in the industry since 2007, but I've seen increased moral hazard and further perversions of markets.

 
At 2/20/2011 11:26 AM, Blogger VangelV said...

Once the whole charade starts to unravel, the scenes we saw in Cairo over the last few weeks will look like a walk in the park in comparison to the turmoil that awaits as a result of the derivatives bubble.

I could not agree more. I have no clue why Mark puts so much faith in manipulated statistical numbers that are released by government bureaucrats who have an incentive to always look at the bright side, or to make one up when it does not exist.

 

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