“The financial crisis of 2008 was no ordinary crisis. It brought the U.S. banking system to its knees, destroyed millions of jobs, and nearly caused the break-up of the Eurozone. And this is just a short list of the damage it caused. Given how bad it was, it may have been reasonable to expect that we would now have a system in place to prevent another debacle. But ten years have passed and the idea that we have learned our lessons seems at best quaint and at worst laughable.
“One of the most basic lessons not learned is that a massive buildup of debt tends to end in a serious financial crisis. Even a small liquidity event that gets in the way of rolling over higher and higher amounts of debt eventually brings down the whole edifice.
“In the aftermath of the 2008 crisis, a river of ink was spilled to condemn the runaway debt spiral that led to it. It is remarkably ironic, then, that as we crawl out of ten painful years of struggle and recovery, even the most outspoken fiscal hawks of that time now seem unconcerned that debt is growing apace once more.
“Corporations everywhere took advantage of interest rates at all-time lows, borrowing as much as they could in the last few years. Many companies in the U.S. used the proceeds to buy back their own stocks.”
“What 2008 should teach us, if anything, is that we could all show a little more humility.”
“…financial globalisation makes the world vulnerable to U.S. monetary and fiscal policy. From time to time, the U.S. unleashes a flood of dollars at low rates. The world laps up the cheap finance. Then, the U.S. raises interest rates. Other economies find themselves staring at huge debt repayments… The present crisis in emerging economies highlights how vulnerable emerging markets are to the vagaries of American economic policy.”
“…the yield this year made it to a higher level than at any point in the last 6 years… These charts seem to offer technical analysis confirmation for those economists who are predicting that further rate hikes are in store just ahead and perhaps again later in the year.”
“Frustrated by the government’s recent arbitrary interventions in the markets, many businesspeople have taken their wealth and investments to other countries. Similarly, many of the highly skilled and educated people the Turkish economy depends on are leaving Turkey in droves.”
“South African policy makers may be about to consider whether to follow counterparts from Russia to Turkey and raise interest rates — even when the country is battling a recession… The South African Reserve Bank is contending with a currency that’s lost 17% to the dollar this year…”
“U.S. President Donald Trump’s trade battles and the accumulation of global debt to pre-financial crisis levels are among factors that will drive a major reset of the world economy in the next two to three years, according to the head of the world’s biggest long-haul airline.“We have some extraordinary geopolitical forces at play,” Emirates President Tim Clark told attendees at an aviation event in the Indian Ocean nation of Mauritius…”
“There are only two times in the history of this century where we had debt crises in which interest rates hit zero. And in both of those times, the Central Bank had to print money and go to a different type of monetary policy, which we call quantitative easing, and to buy financial assets. And that drives up, in both of those cases, the value of those financial assets and produces a recovery, but it drives interest rates down to zero or near zero, where they are around the world.
“And that buying, in this case $15 trillion of financial assets, has pushed up financial assets and driven the interest rates down to zero, so it’s caused asset prices to rise. It’s also caused populism, more populism. Because that process creates a gap between the rich and the poor. Those that have more financial assets see those asset prices go up… If you look at, right now, the top 10%, the top one tenth of 1% of the population’s net worth is equal, about, to the bottom 90% combined. That’s very similar to the late ’30s when we had that stimulation and so on.”
“The trade war between the United States and China just got a lot bigger after both sides announced their broadest waves of tariffs yet. The latest exchange of fire means the two economic superpowers will soon have imposed tariffs on more than $360 billion of goods. And analysts say the battle is likely to get worse, even as China starts to run low on ways to retaliate.”
“According to McKinsey world debt increased by $72trn during 2007-17 and one-third of that increase was in China. Much of that extra Chinese debt was in local government and in businesses. One-third of the Chinese corporate debt relates to the construction and real estate sectors. That in itself might cause warning signals: economic convergence between East and West could imply China is now imitating some of the features of the western economies prior to the crash of 2007-9… Contagion could also occur through the banking sector – some UK banks have made large loans in China.”
“Recently, though, there has been a big spike of failures in two areas. One is “wealth management companies,” or WMCs. These are unofficial-sector lenders who promise savers a rate of return much greater than that provided by official banks… As the defaults spiked this year, popular anger rose, and the government quickly shut down and dispersed protests in major cities… So rather than let this surge of defaults continue and let the chips fall where they may (and let public anger keep rising), the government has asked its four big “distressed asset managers” to step in and shore up the WMC and P2P sectors.”
“Former White House economic advisor Gary Cohn said President Donald Trump will work with Congress to pass a massive debt-fueled infrastructure bill if Democrats take control of the House of Representatives in November.”
“Ten years after the financial crisis, the Pew Research Center has asked people in 27 countries—representing two-thirds of global GDP—how they feel about their home economies and the future. The results are distressingly bleak.”
“As the trade war between China and the U.S. hits a boiling point, investors are taking their dimmest view of the global economy since the height of the European debt crisis. The tariff tensions aren’t the only thing bothering market pros: They also see rising risks from both a general slowdown in China as well as central banks finally shutting off the monetary spigots after years of ultra-accommodative policy.”