“Nobody really knew it at the time but 10 years ago the world was sitting on the edge of the precipice. It seemed like a normal sleepy August but the calm was illusory. The global financial system was seizing up. The collapse of Lehman Brothers was but a month away.
“Eventually policy makers finally understood the enormity of what was happening. They responded swiftly and decisively as the crisis spread from the banks to the rest of the economy. They needed to. During the winter of 2008-09, trade and industrial production were collapsing more quickly than they had during the Great Depression.
“Now imagine if something similar were to happen again… China’s debt; Brexit; a global trade conflict: any of them could blow up into something serious. These sort of events form the basis of the war games that policy makers play from time to time.
“In the winter of 2008-09 action was taken to prevent a deep recession turning into a 1930s-style slump. What’s worrying is that it might not be possible to do the same again, at least not by the means used last time…
“There are at least four ways in which policy is more constrained than it was a decade ago. First, and most obviously, there is monetary policy; the options available to central banks…
“One of the small comforts from the crisis of 2008-09 was that it generated a sense of international solidarity because the world’s biggest economies quickly realised they need to help each other… As Adam Tooze notes in his new book about the crisis, Crashed, the US Federal Reserve quietly acted as the lender of last resort to Europe’s troubled banks…
“Feast has been replaced by famine. Wage rises have turned into pay freezes; living standards have stagnated and the public sector bears the scars of a decade of cuts. Austerity fatigue has set in, making it nigh on impossible for governments to insist that voters endure a new round of sacrifices. The public mood is already sour.
“To summarise, the scope for monetary policy is limited, finance ministries are wary of borrowing more, the international community is riven and populism is on the rise almost everywhere…
“So what options are there? Initially, the response will be more of the same: monetary and fiscal policy will be eased to the extent that it can be. But if that does not work, more radical ideas will be canvassed, including reducing the size of the state; negative interest rates; a more targeted form of QE to fund infrastructure; and tax cuts financed by the printing of money.”
“The [UK] services sector contracted for the first time in eight years last month amid growing fears about a possible no-deal exit from the European Union. The BDO Output Index recorded a drop of more than two points in services output in July, pushing the survey into negative territory for the first time since early 2010.”
“The UK appears set to crash out of the EU without a Brexit deal due to the “intransigence” of the Brussels machine, Liam Fox has claimed. The international trade secretary put the chances of a no-deal Brexit at “60-40”.”
“German factory new orders fell dramatically in June slumping -4.0% over the month in June compared to -0.2% monthly decline expected.”
“As the world’s major central banks seem anxious to normalize monetary policy, there is one important factor that they are overlooking. It is that well before year-end, their plans to raise interest rates and to temper their asset-buying programs could be upended by an economic and financial market crisis in Italy, the eurozone’s third-largest economy… That in turn could shake the global economy to its foundations. Unlike Greece, Italy is too big to fail for the euro to survive in its present form, yet it could also prove to be too big for Europe to save it.”
“Greece tops all countries in the developed world in unemployment according to the Organization for Economic Cooperation and Development’s (OECD) Employment Outlook 2018. Greece has suffered a dramatic spike in unemployment, with the 2017 total climbing to 21.7% of the working population, more than double the 2006 figure.”
“The 2008 “Lehman shock” is finally catching up with China. Beijing beat the odds for a decade, with the Chinese economy growing at above 6.5% year after year. It managed that feat with an epic explosion of credit and debt at government and corporate levels… That bill is now coming due. This year marks one of the busiest redemption periods for yuan and offshore debt since the post-Lehman Brothers collapse. Between now and Dec. 31, companies face $365 billion of bond payments… There are two reasons to think things will get worse — a sliding Chinese currency and Donald Trump’s escalating trade war.”
“Outstanding consumer loans — used for vehicle purchases, holidays, household renovations and buying expensive household goods — in China grew nearly 40 per cent last year to reach Rmb6.8tn, according to Chinese investment bank CICC.”
“President Donald Trump’s trade war with China is entering its sixth month, and there are no signs it will end anytime soon. Both Trump and China continue to issue new threats of tariffs. And negotiations have been scarce, increasing the possibility of a drawn-out fight. Ed Mills, a policy analyst at Raymond James, said in a note to clients that while the possibility of a breakthrough deal remains, it is unlikely to come without increased trade restrictions.”
“The mood in America is arguably as dark as it has ever been in the modern era. The birthrate is at a record low, and the suicide rate is at a 30-year high; mass shootings and opioid overdoses are ubiquitous. In the aftermath of 9/11, the initial shock and horror soon gave way to a semblance of national unity in support of a president whose electoral legitimacy had been bitterly contested only a year earlier. Today’s America is instead marked by fear and despair more akin to what followed the crash of 1929…”
“These days, though, most workers don’t receive their fair share of economic output. An outsize share instead flows to corporate profits and the rich… Add it all up — faster inflation plus mediocre nominal-wage growth — and you get a stagnation in real wages. Welcome to the Trump wage slump.”
“If inflation accelerates as I expect, the Fed is likely to dial up interest rates rapidly. I have recently bumped up my interest rate forecast, predicting that the Fed Funds rate rises by 1.5 percentage points a year, rather than the one point per year they currently expect.”
“Venezuelan authorities said Sunday they arrested six suspects tied to an alleged plan to assassinate President Nicolás Maduro using a pair of drones armed with explosives, showing the leader’s fragile hold on power amid a crippling economic crisis. Critics warned that Maduro could use the purported plot, which injured seven soldiers and interrupted him as he addressed a military parade Saturday in downtown Caracas, as a pretext to intensify a crackdown on dissidents.”