A revised construction spending forecast will be posted today at: http://www.reedconstructiondata.com/market-insights/

The initial impact of the credit shortage on the economy includes this week’s reports of a jump in unemployment insurance claims, a sharp drop in manufacturing orders and auto sales and about a 300 basis point rise in the credit rates asked of marginal corporate, financial and sovereign borrowers. Reports of job cuts, falling retail sales and declining construction contracts will come soon.  Many state and local governments will experience an abrupt drop in tax receipts this fall.

The timeline above assumes that the efforts to restore lenders’ capital are implemented quickly and effectively. Otherwise the recession will be longer and deeper. Efforts to relieve the capital shortage took a big step forward on Wednesday.

The senate passed the Treasury plan, along with some “goodies”, so House approval now appears more certain.  European governments provided several hundred billion dollars of emergency capital to their banks.  Yes, that helps the capital shortage here since all banks are closely linked.

The Securities and Exchange Commission (SEC) partially relaxed its mark to market rules permitting banks and other firms to raise the value on their books of distressed financial assets no longer reasonably priced in markets.  Do not underestimate the significance of this.  The change came on the last day of the fiscal quarter.  It allowed some banks and other firms to improve their balance sheets enough to prevent a run on their assets by bargain hunters.  It allowed a few banks to avoid technical insolvency which might have forced the FDIC to close the bank and create even more bad assets in other balance sheets.

The $2 billion Berkshire Hathaway (Warren Buffett) investment in GE signals that private equity capital senses that asset values are near bottom.  This could bring over $100 billion of capital out of Treasury Bills and into the balance sheets of banks and other financially wounded firms.  This reduces the scale of the recapitalization task that the Treasury plan has to accomplish.

» View all comments (0 total comments)

Post Your Own Comments 

» Not a member? Register now to become one. Otherwise, login to post your comments on this article.

11/14 - Even uglier economic reports coming soon

11/10 - Short Term Credit Being Fixed; Long Term Credit Still a Problem

11/07 - Contractors drop 99,000 jobs in October jobs report

11/06 - Plunging tax receipts threaten public construction funding

11/03 - Obamanomics

10/30 - Recession will cut construction demand relatively modestly

10/28 - Financial fix still working

10/21 - Credit fix beginning to restore loan access to borrowers

10/13 - How did $600-800 billion of US mortgage defaults cause a worldwide economic crisis?

10/09 - Credit crunch damage to nonresidential construction still uncertain

» View Jim Haughey's Blog Archive