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We Need a Bigger Boat

Posted by Larry Doyle on March 23, 2009 6:05 AM |

"We need a BIGGER boat!"

"We need a BIGGER boat!"

The movie Jaws struck fear into the souls of beachgoers in the mid-70s. If our current economy were only a scary movie. A classic scene in Jaws occurred when the salty mariner Quint eyed the shark and informed his sidekicks, “we need a bigger boat.”

 In similar fashion, the size of the losses embedded in our banking, insurance, automotive, and states and municipalities will similarly require “a bigger boat!!”

Capital needs in the banking industry are projected from at least $500 billion to $1.5 trillion. Bloomberg reports former Fed chair Greenspan Says Banks Need $750 Billion More Capital. Nouriel Roubini puts the needs at upwards of $1.5 trillion.

Last night in my weekly Sunday evening radio show, NQR’s Sense on Cents with Larry Doyle, I highlighted how the insurance industry will very likely need anywhere from $100-500 billion in capital. (You can listen to an archived recording of last night’s show by clicking on the audio player I provided in my previous post.)

The advisor to the automotive industry, Steven Rattner, has informed the administration that GM, Chrysler May Need More Aid Than Requested. Long term capital needs could run as high as $100 billion.

States and local municipalities? Who knows how great the needs may run, but they will have to be funded either in the form of higher taxes, fewer services, federal injections of capital, or all of the above.

Add it all up and these capital injections are probably at least $1 trillion over and above the federal capital outlays for budgetary demands and fiscal stimulus.

The crowding out effect will not go away anytime soon. I can’t begin to get constructive on the equity market in the face of these capital shortcomings.

LD

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  • Matt Hooper

    First of all, it was Chief Brody who said, “You’re gonna need a bigger boat.” And not sure if it was intentional, but the shark analogy is all too apt. The U.S. economy, like the Great White, will die if it doesn’t move forward. So while Trichet and the ECB can drag their feet on Quantitaive Easing because core Europe has never been overly reliant on debt financing, the good ol’ USA is another kettle of fish. The social safety net in Europe has meant that while growth may glide below full potential, being out of work is not nearly as painful there it is here. Why do you think OB is engaged in the largest wealth transfer the world has ever seen? Welcome to the the new reality; Paris on the Potomac. Of course, the problem with the transfer is that while the States are still haunted by The Great Depression, what we have stewing here is a recipe for the hyper-inflation of Weimar Germany. Wheel barrows of notes to buy bread? Fishes and loaves. And as I told the coroner back in Amity in ’75: That was no (boating) accident.

    • TeakWoodKite

      And a bigger wheel barrel for the fish.

  • Larry Doyle

    Matt….great color and thanks for sharing. Nice job on pointing out that it was not Quint but Brody with the quote.

    Visit and comment often.

  • lizzy

    Great post LD. Overwhelming, but important to disgest. The combination of such levels of capital need and an economy that has been striped of productive jobs for thirty years is awful.






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