solarbird | Jul. 29th, 2008

Remember all the way back in May, when $120/barrel oil was a disaster? Now, though - happy days are here again, oil's at $122! Or something. Demand destruction has kicked in pretty noticeably, at 3.7% fewer miles driven vs. a year ago, and that was in May. That'd be an overall drop of around 2.2% in oil use from that alone, so that's significant. But it's also cutting into roads maintenance funding, which the US sucks at already.

Here, look at this graph of total market debt as percentage of GDP. (Note: graph is not zero-based. Add another, oh, 30% of whitespace to the bottom in your mind to adjust for that.) That'll ruin your whole damn day. It's from the Naked Capitalism blog, which asks whether deleveraging has actually even really begun yet. Minyanville explains the nature of a credit crunch, and how one goes from record expansion to contraction. Mish talks about "self-induced balance-sheet destruction" caused by credit tightening.

Dr. Roubini says the sovereign wealth funds that've been bailing the US out won't keep it up without a lot more in return, like actual voting shares of large corporations and board seats and all that. But protectionism will interfere with that process. Note that Russia has been cutting its exposure to US housing bonds significantly.

Dr. Roubini also thinks that the bear market is only about half over. And London Banker wonders whether the big covered-bonds push is part of a way to improve the credit and banking situation - or whether it's just a way to loot a little more on the way down. He outlines how the latter scenario would work. (Mish thinks they're a fine idea but won't make much difference.)

In credit crisis direct impacts news, the Massachusetts Educational Financing Authority will not offer student loans for the coming year. Last year, US$500M across 40,000 loans; next year, zippo. This is the latest in a series of failures of such agencies.

Finally, the latest round of WTO trade talks appear to have reached an impasse, with China and India both backing away, and Mike Moffatt asks whether New Brunswick could become Canada's "Celtic Tiger" economy with its proposed tax structure reforms. The latter doesn't have much to do with the former, I just like the phrase "Celtic Tiger."

eta: Merrill's CDO "sale" today setting a valuation of 22¢ on the dollar is actually lamer than it looks and the true value is much less, most importantly because they provided the financing for the sale themselves. This is less "raising capital" and more accountancy games, since Merrill is on the hook for losses past 25%.