Apocalypse Now: Has The Next Giant Financial Crash Already Begun?
For anyone thinking all is well now that October 1st has come and gone without incident, and that we are out of the economic collapse woods. You might want to read this important article.
Global finance is suffering, and many of the indicators are pointing downward, and some believe the collapse is already underway.
Here is the report from The Guardian.
Let’s assemble the evidence. First, the unsustainable debt. Since 2007, the pile of debt in the world has grown by $57tn (£37tn). That’s a compound annual growth rate of 5.3%, significantly beating GDP. Debts have doubled in the so-called emerging markets, while rising by just over a third in the developed world.
John Maynard Keynes once wrote that money is a “link to the future” – meaning that what we do with money is a signal of what we think is going to happen in the future. What we’ve done with credit since the global crisis of 2008 is expand it faster than the economy – which can only be done rationally if we think the future is going to be much richer than the present.
This summer, the Bank for International Settlements (BIS) pointed out that certain major economies were seeing a sharp rise in debt-to-GDP ratios, which were well outside historic norms. In China, the rest of Asia and Brazil, private-sector borrowing has risen so quickly that BIS’s dashboard of risk is flashing red. In two thirds of all cases, red warnings such as this are followed by a major banking crisis within three years.
The underlying cause of this debt glut is the $12tn of free or cheap money created by central banks since 2009, combined with near-zero interest rates. When the real price of money is close to zero, people borrow and worry about the consequences later.membership
Next, let’s look at the price of real things. Oil collapsed first, in mid 2014, falling from $110 a barrel to $49 now, despite a slight rebound in the interim. Next came commodities. Copper cost $4.50 a pound in 2011, but was half that in September. Inflation across the entire G7 is barely above zero, and deflation stalks the southern eurozone. World trade volumes have contracted tangibly since December 2014, according to theDutch government index, while the value of global trade in primary commodities, which scored 150 on the same index a year ago, now stands at 114.
In these circumstances, the only way in which the expanding credit mountain can be an accurate signal about the future is if we are about to go through a spectacular productivity boom. The technology is there to do that, but the social arrangements are not. The market rewards companies that create labour exchanges for minicab drivers with multibillion-dollar valuations. Hot money chases after computing graduates with good ideas, but that is – at this phase of the cycle – as much an indicator of the stupidity of the money as the brightness of the ideas.
China – the engine of the post-2009 global recovery – is slowing markedly. Japan just revised its growth projections down, despite being in the middle of a massive money-printing programme. The eurozone is stagnant. In the US, growth, which recovered well under QE, has faltered after the withdrawal of QE.
In short, as the BIS economists put it, this is “a world in which debt levels are too high, productivity growth too weak and financial risks too threatening”. It’s impossible to extrapolate from all this the date the crash will happen, or the form it will take. All we know is there is a mismatch between rising credit, falling growth, trade and prices, and a febrile financial market, which, at present, keeps switchback riding as money flows from one sector, or geographic region, to another.
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