“The world economy remains on shaky ground a decade after the 2008 financial crisis, with trade wars a symptom of a deeper malaise, according to UNCTAD’s Trade and Development Report 2018: Power, Platforms and the Free Trade Delusion.
“While the economy has picked up since early 2017, growth remains spasmodic, and many countries are operating below potential, states the report. This year is unlikely to see a change of gear.
“The world economy is again under stress,” UNCTAD Secretary-General Mukhisa Kituyi said. “The immediate pressures are building around escalating tariffs and volatile financial flows but behind these threats to global stability is a wider failure – since 2008 – to address the inequities and imbalances of our hyperglobalized world…”
“With downside risks increasing and financial fault lines widening in several countries, the report sees economic storm clouds gathering.
“Today’s $250 trillion debt stock – 50% higher than at the time of the crisis – is three times the size of the global economy. Private debt, particularly corporate debt, has been behind this surge in borrowing but without stimulating business investment – a disconnect that spells trouble ahead.
“Even as advanced economies have not done enough to rebalance the global economy, there are concerns that their “normalizing” monetary policies could send new shock waves through capital and currency markets, with a vicious economic spiral in more vulnerable economies already looking possible…”
“An “explosion” in corporate and household debt across the developing world since the financial crisis has left some of the world’s poorest countries with little protection against Donald Trump’s trade wars and a slowdown in global growth.”
“The report [showing that China’s household debt has reached a record high] comes amid rising concerns over China’s debt-fuelled spending in the wake of the global financial crisis…”
“Despite direct orders from Beijing to cut leverage, China’s local governments continued to create illegal debt this year in part to offset the impact of the trade war with the United States, according to the National Audit Office… However, any attempt to clamp down on local government debt could also adversely affect financing for local infrastructure projects, a key part of the central government’s plan to stabilise the economy amid the trade war with the United States.”
“Congress spokesperson Manish Tewari claimed the company was on the verge of bankruptcy and warned if that happened it would have a domino effect and “far reaching consequences” oon the country’s economy. “This could be termed as the ‘Lehman Brothers moment of India’, as the collapse of Lehman Brothers in United States led to the ‘great economic meltdown’ of 2008…Something similar is happening in India today,” he said, warning that “the Indian economy may plunge into a very deep crises”.”
“…a raft of reports of firms like Commonwealth Bank, NAB, ANZ and Westpac issuing dodgy financial advice, life insurance and fraudulent mortgages forced a reluctant business-friendly government to call for a Royal Commission late last year. Since then, a series of hearings involving almost 10 000 submissions and more than 100 witnesses has stunned even hardened observers. They included accounts of NAB staff accepting cash-stuffed envelopes… while staff at Commonwealth Bank —Australia’s largest firm —charged fees to customers who had died up to a decade before.”
“Expanding what was already the largest bailout in its history, the International Monetary Fund said it will raise Argentina’s $50 billion credit line to $57 billion in an attempt to stem a crisis that has roiled Latin America’s third-largest economy. The revised standby agreement, which still needs approval from the executive board, is “aimed at bolstering confidence and stabilizing the economy,” IMF Managing Director Christine Lagarde said Wednesday in a joint statement with Argentine Economy Minister Nicolas Dujovne.”
“There are several reasons why the [UK] housing market is slowing down, particularly in the capital. Extra taxes on landlords, tighter lending restrictions and high prices have put off would-buyers in recent years, while last month’s rise in interest rates must also be factored in by buyers.”
[Brexit anxiety not helping either]
“EU leaders last week rejected British Prime Minister Theresa May’s proposals for post-Brexit trade, standing firm on their position that the plan would undermine their cherished single market. “The British made their choice, that’s fine. Excuse me to say so brutally, but there are more important things for us than the future of the United Kingdom. It’s the future of the European Union,” Le Maire told a small group of foreign journalists on Tuesday.”
“Rents in Spain are soaring post-crisis, fuelling concerns of a new “bubble” in a country still traumatised by the collapse of its housing sector….
“…more and more Spaniards are having trouble paying their rising rents, with many forced to move, particularly in Madrid and Barcelona, as they struggle on low salaries or benefits.”
“Contemporary Italian society is awash in resentment and fear, and this mindset is an obstacle to economic growth, Italy’s Center for Social Investments Studies said in a statement on Wednesday… The think tank attributed this mindset to the poverty of young families headed by individuals under 35, whose average income is 15 percent lower and whose personal wealth is 41 percent lower than the national average.”
“The Federal Reserve raised U.S. interest rates for the third time this year, in a bid to prevent inflation from surging as President Donald Trump’s tax cuts fuel economic growth. The central bank’s monetary-policy committee, led by Chairman Jerome Powell, raised rates by 0.25 percentage point to a range between 2% and 2.25%, according to a statement Wednesday.”
Possible causes of the next crash:
1.) Interest Rates Jump – “Risk-taking and leveraging have exploded. Interest rate increases that are faster than expected could push down stocks and commodities and trigger a domino effect.”
2.) Certifiably Crazy World Leaders with Their Finger on the Trigger – “The threats posed by countries like North Korea and Iran are very real… and very unpredictable.”
3.) Cyber Attacks and Disruptions to the Power Grid – Attacks by countries like China, North Korea, Russia, and Iran are becoming more common and more debilitating.
4.) Emerging Markets in Distress or Chaos – “Countries from Turkey to Argentina and South Africa are experiencing market and currency plunges, along with interest rate and recession woes which could spread to other countries.”
5.) China Could Crack – China has so far weathered the threats of a trade war and a rising But a real-estate crash or defaults of local government-owned financing vehicles could be the breaking point and would impact our economy.
6.) Trump Might Be Impeached – Although he would likely stay in office, confidence in the bull market that really took off when Trump got elected could be undermined.
7.) Very Tight Labor Market – An incredibly tight labor market has resulted in 911 emergency call centers not being able to get enough people to answer the phones. And prisons are now training inmates to be coders. What could possibly go wrong with that?
“Climate change could punch huge holes in bank balance sheets and trigger panic on a scale similar to the 2008 crisis, the Bank of England has warned… Thirty per cent of banks dismiss climate change as a corporate social responsibility issue rather than treat it as a financial risk and only 11 per cent are taking action in the long-term interests of the firm. The findings came from a survey of 90 per cent of the British banking sector, representing £11 trillion of assets.”
Read yesterday’s ‘Economy’ thread here and, if you’ve just backed a winning horse or perhaps cleverly invested in the US stock market thereby indirectly benefiting from a decade of central bank stimulus, why not show me a little love via my Patreon account?