Highly leveraged growth is not true growth. Our ‘recovery’ is borrowed from a fantastical future of bountiful prosperity.
“As a profession, economists are absolutely hopeless at forecasting recessions… When a weather forecaster says a hurricane is imminent, the public does well to take notice. When an economic forecaster gives a similar warning, the chances are that it is already too late…
“Put simply, the cure for the Great Recession was for central banks to slash interest rates and to increase the supply of money by buying bonds from the private sector in the process known as quantitative easing. Debt levels in the private sector fell for a while as households and companies retrenched but have subsequently started rising again. Low interest rates were designed to provide incentives for investors to seek out riskier assets, which is what they have done.
“Money has flooded into emerging markets, where yields are juicier because the risks are higher. Turkey, where the central bank raised interest rates to 24% last week, is one example of what can happen in a world of footloose capital. Speculative money comes in from abroad. It finances a construction boom and drives up the exchange rate.
“Eventually, the trade deficit starts to balloon and inflation starts to rise. At that point, the speculators take fright and the exodus of capital triggers a fall in the exchange rate. At that point, the central bank has to raise interest rates to punitive levels to defend the currency and recession becomes inevitable.”
“Ten years after the financial crash that hit Western countries 10 years ago, triggering recessions, many of the scars on Britain’s economy have yet to heal – despite more than eight years of growth… Wages in inflation-adjusted terms are no higher today than they were in 2005.”
“The International Monetary Fund has warned that a “no-deal” Brexit on World Trade Organization terms would entail substantial costs for the UK economy… It said challenges in getting a deal done were “daunting” and warned against further UK interest rate rises.”
“The UK housing market is grinding to a halt as sales last month fell to their weakest August level in five years. Just 79,000 sales were completed in the month, down by 4pc on the year according to data from LSL Property Services and Your Move. Prices eked out a 0.1pc increase on the month, the first rise since March… This means house prices are rising more slowly than the cost of living, which rose 2.5pc in the 12 months to July.”
“Europe’s biggest debt collector says an increase in volumes in Sweden and Norway could be an early indication that households are starting to struggle paying off their consumer loans after debt burdens swelled to records. Volumes under Intrum AB’s existing credit-management services contracts in the two countries, in which it collects money from non-paying clients of financial institutions, grew by more than 15 per cent in the first half of the year.”
“A bird’s-eye view of Italian banking problems shows that most of them were direct consequences of the government debt crisis, the supply-side credit crunch that followed, and the downturn in the economy. A negative loop further depressed the performance of the economy and, in turn, affected the quality of the credit portfolio of banks… The next recession may hit before Italy adequately addresses remaining vulnerabilities.”
“Sudan’s President Omar al-Bashir on Sunday appointed a former finance official as central bank governor, a day after a new cabinet was sworn in and tasked with curbing soaring inflation and a shortage of foreign currency… The central bank has been grappling with an acute shortage of foreign currency at a time of hyper-inflation that touched almost 68 percent in August. The Sudanese currency has plunged, trading on Sunday at 42 pounds to the US dollar on the black market, compared with the official rate of 28.”
“Nigeria’s National Bureau of Statistics (NBS) says that the country’s inflation rate for the month of August rose to 11.23 percent,The NBS said in the report for the CPI for the month of August, released on Friday in Abuja that the figure represented a 0.09 percent point higher than the 11.14 percent inflation rate recorded in July 2018.”
“Argentina is struggling to shore up its peso, which has more than halved in value despite punitive interest rate rises to 60%. Other currencies have been caught in the slipstream, with India’s rupee plumbing record lows and South Africa’s rand, Russia’s rouble and Brazil’s real losing 15-20% this year so far. Signs are appearing that months of market turmoil are starting to take the toll on real economies…”
“South Korean households saw their debts increase sharply with per-person debt expected to top 30 million won ($26,700) this year, data showed Sunday… Bank of Korea Gov. Lee Jue-yeol has said the total amount of household credit is still at a high level and is expanding at a faster pace than that of household income. “It is hard to deny that the financial imbalance is getting wider and wider due to a lower interest rate,” he said earlier. “It is necessary to prevent a further imbalance and make efforts to ease it.””
“Economic troubles in emerging markets and the ongoing trade war between the United States and China could potentially increase the risk of the next financial crisis, according to the chief executive officer at South Korea’s sovereign wealth fund.”
“China will not be content to only play defense in an escalating trade war with the United States, a widely read Chinese tabloid warned, as President Donald Trump was expected to announce new tariffs on $200 billion in Chinese goods as early as Monday. Beijing may also decline to participate in proposed trade talks with Washington later this month if the Trump administration goes ahead with the additional tariffs…”
“Dozens of officials in central China’s Hunan province have been punished for illegal debt accumulation for their local government, the Ministry of Finance (MOF) has revealed. The punishments come amid rising concern over the deteriorating finances of some areas in the province that have caused breakdowns in local government operations, including, in one case, the failure to pay civil servants’ salaries.”
“China’s main Shanghai Composite index fell to its lowest close in nearly four years on Monday as reports said U.S. President Donald Trump would unveil new tariffs on $200 billion of imported Chinese goods this week. The Shanghai Composite index dropped 1.1 per cent to 2,651.79 points, its worst close since Nov. 27, 2014.”
“Ten years after Lehman Brothers collapsed, high-octane products like those which led to the destruction of the American banking giant are making a comeback… Those linked to this effort have included former bosses from failed bank Northern Rock, Adam Applegarth, and Lesley Sewell. Guy Batchelor, former senior vice president at Lehman’s european mortgage division…
“Some 80pc of the junk-rated, or below investment grade loans, are regarded as having light touch conditions, more than triple the level seen in 2006-2007, according to Moody’s. Meanwhile experts have warned that the financial sector remains “brittle”.”