This should destroy any notion that we’re still just looking at a “financial crisis” not affecting the real economy. Yves Smith over at Naked Capitalism reposts a scary letter from a worried investor involved in shipping:
At the end of the day, if every counterparty is bad then you don’t have a market and you don’t have an economy. I spoke to another friend of mine this afternoon, whose father has been in the shipping business forever. Pristine credit rating, rock solid balance sheet. He says if he takes his BNP Paribas letter of credit to Citi today for short term funding for his vessels, they won’t give it to him. That means he can’t ship goods, which means that within the next 2 weeks, physical shortages of commodities begins to show up. THE CENTRAL BANKS CAN’T LET THAT HAPPEN OR WE HAVE NO ECONOMY, LET ALONE A CREDIT SYSTEM.
Apparently it is already showing up according to Canada’s National Post (which always has top notch goverage of grain news):
“There’s all kinds of stuff stacked up on docks right now that can’t be shipped because people can’t get letters of credit,” said Bill Gary, president of Commodity Information Systems in Oklahoma City. “The problem is not demand, and it’s not supply because we have plenty of supply. It’s finding anyone who can come up with the credit to buy.”
And for another measure of how bad things have gotten, check out the Baltic Dry Index, which simply measures the cost of shipping goods over the seas. The price has dropped about 75 per cent since this spring, a sign of major excess capacity among once-strained shippers.
(Tanks to commenter J. Tang for the pointer)