Beyond the Monday headlines

Never mind the morning's headlines.  Yes, the nationwide average gas price has topped $4.00 and the most powerful man in America who no one's ever heard of is floating some sort of global financial regulatory scheme in which the Fed calls most of the shots.  (Evidently Mr. Geithner missed the memo that America is a declining power.)  But I have other things on my mind.

For starters, Meredith Whitney says the credit crisis is nowhere near over.  Big whoop, you and I already know that, but Whitney's words carry weight in the mainstream ever since her right-on-the-money call on Citigroup last fall.

Whitney argues that the worst is still ahead because the financial tools that enabled credit to flow so freely to homeowners and consumers for most of this decade are likely to remain in a prolonged shutdown indefinitely.

"After years of inherently flawed underwriting, banks face the worst yet of the credit crisis — over $170 billion in write-downs and charge-offs from consumer loans," Whitney told McClatchy. The same kind of losses from housing may be ahead for credit extended to consumers, she said.

Bottom line: The whole securitization party is over.  No more writing mortgages, car loans, student loans, new credit-card debt, packaging them up with similar consumer debt instruments and passing them along to the next sucker.  Just imagine what might be around the corner.

If that's not cheery enough, there's Goldman Sachs's forecast of a global water crisis worse than Peak Oil and Peak Food.

Nicholas (Lord) Stern, author of the Government's Stern Review on the economics of climate change, warned that underground aquifers could run dry at the same time as melting glaciers play havoc with fresh supplies of usable water.

"The glaciers on the Himalayas are retreating, and they are the sponge that holds the water back in the rainy season. We're facing the risk of extreme run-off, with water running straight into the Bay of Bengal and taking a lot of topsoil with it," he said.

"A few hundred square miles of the Himalayas are the source for all the major rivers of Asia – the Ganges, the Yellow River, the Yangtze – where 3bn people live. That's almost half the world's population," he said.

Lord Stern, the World Bank's former chief economist, said governments had been slow to accept the awful truth that usable water is running out. Fresh rainfall is not enough to refill the underground water tables.

"Water is not a renewable resource. People have been mining it without restraint because it has not been priced properly," he said.

Farming makes up 70pc of global water demand. Fresh water for irrigation is never returned to underground basins. Most is lost through leaks and evaporation.

A Goldman Sachs report said water was the "petroleum for the next century", offering huge rewards for investors who know how to play the infrastructure boom. The US alone needs up to $1,000bn (£500bn) in new piping and waste water plants by 2020.

Yup.  Our own Chris Mayer's been saying <the same thing for two years now.

Is there anything hopeful in the headlines today?  Well, only 17% of Americans believe the government represents the will of the people.  And 67% believe the government has become its own special interest group primarily concerned with protecting its own hide.

Then there's the debut of the next-generation iPhone set for today.   As lousy as the overall economy is, the iPhone index — which got off to a rocky start — is looking mighty strong now, with iPhones already making up 20% of the U.S. smartphone market.


The Daily Reckoning