Lights not on yet. The financial crisis is moving into its second year and there are no comforting signs that the hurricane is fading. Over the past year banks have announced writedowns and credit losses of USD510bn, while capital raised runs at USD360bn. This USD150bn gap is taken off the balance sheet and the way banks are run means that credit available is being reduced by more than that. On top of this, it seems that it is becoming increasingly difficult for the financial sector to refinance itself, and the out-standing refunding pipeline through to year-end is likely to make things more, not less, difficult. To make things worse, investors around the world are looking at financial losses on almost all asset classes, in-cluding stocks, riskier bonds, properties and carry trades in currency markets. Because many assets are leveraged, price declines force margin calls, and without additional funding the result is not only as-set liquidation but also debt liquidation. This point in the financial cycle is often referred to as a Minsky moment. The cycle turns when capital raised exceeds capital lost, or when a new group of investors move in to take advantage of rock-bottom prices. In 2007 that investor group was sovereign wealth funds. This year, we seem to have to rely increasingly on central banks and finance ministries as stop-gap investors to prevent a financial meltdown. In short, our well-known theme of financial deleveraging still remains central to our approach to currency markets.
Here are our latest thoughts on the G10 currency markets
