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Meredith Whitney Most Pessimistic About Plummeting Credit Card Lines; Fed’s Meddling In MBS And Agency Purchases

Courtesy of Tyler Durden

The full Meredith Whitney Bloomberg radio interview can be found here. Some of the gloomier observations by Meredith:

  • Credit card lines have been cut by a whopping $1.5 trillion since the market peak, and M.W. expects this to go to $2.7 trillion: another $1.2 trillion in purchasing power will be removed from US consumers.
  • Losses of credit access will reaccelerate in 2010
  • Optimistic GDP estimates do not factor in this component: there is no chance to get a meaningful economic recovery in 2010
  • Absent massive government support at the state level, there is no way states can provide their traditional 21% runrate contribution to US GDP
  • The unintended consequence of the administration’s populist approach is the “grinding” of the middle class. The middle class will not survive, while the lower and upper classes continue to benefit

MW is most worried about the termination of MBS purchases by the Fed in March 2010. She notes that the only natural buyer of “GSE” paper is the Fed, as Zero Hedge has been highlighting for months. This is worrisome for good reason: the Fed has skewed the natural market in MBS/agency (and in a parallel dimension, Treasury) paper to such a drastic degree that it is the only major market participant, which is why the Fed has no option but to extand and likely expand QE next year. We anticipate the announcement of QE 2.0 to be announced at some point in January/February 2010.

 

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