“If there’s a serious recession on the horizon, the world’s central banks may have trouble fighting it.
“Central banks took dramatic and unorthodox steps to prevent economic collapse during the financial crisis. They slashed interest rates, and in the years that followed spent trillions on bonds as part of an effort to spur growth.
“One decade later, global central banks are only starting to reverse those moves.
“Interest rates in developed economies remain incredibly low; in some places, they’re even negative. The Federal Reserve is unloading some of the bonds it bought, but central banks in Europe and Japan have not yet done so.
“The question now is whether central banks waited too long to raise rates to more normal levels, leaving them unprepared for the next crisis.
“”If we have a recession, I think it’s going to be worse than normal,” said Kenneth Rogoff, a professor at Harvard University and former chief economist at the International Monetary Fund. “It will be more difficult to respond.”
Politics is also making life more complicated for central banks. In countries like India and Turkey, they’ve faced threats of political interference, while President Donald Trump has repeatedly criticized the Federal Reserve…
“Questions over political independence of central banks, combined with their relative lack of horsepower, means they might not be able to come to the rescue in a recession…
“Put simply, the central banking system is “running out of ammo,” according to Ed Yardeni, president of investment advisory firm Yardeni Research.
“There may very well be limits to what monetary policy can accomplish,” Yardeni said. “And it may be a mistake to tell the public they can fix all of our problems.””
“The European Central Bank is expected to wait until the fourth quarter to raise its deposit rate, later than thought just a month ago, according to economists in a Reuters poll, who also said the chances of a euro zone recession have grown…
“The ECB is now expected to raise its deposit rate, currently at -0.40 percent, to -0.20 percent in the fourth quarter and wait until early 2020 to raise its refinancing rate from zero to 0.20 percent.”
“British manufacturers are being forced to build up financial buffers in preparation for a no-deal Brexit as the cost of stockpiling goods and materials puts companies under strain.
“Measures taken by manufacturers to prepare for a disorderly exit include creating cash cushions and taking out working capital loans to cover the costs of stockpiling.”
“Borrowing on credit cards is expected to plunge to the lowest levels since 2007 in the three months before Brexit, according to the Bank of England, in another indication of stresses facing the UK economy.
“According to the latest quarterly health check on credit conditions from Threadneedle Street, high street banks forecast borrowing on plastic will decline in the first quarter by the most since records began 12 years ago.
“It comes amid growing concern over consumer spending… Its gauge for mortgage lending also dropped to -17.5 in the final quarter of 2018.”
“Nearly half of UK consumers expect 2019 to bring a financial crash that is worse than 2008, according to wealth management firm Spearvest.
The survey of 1,000 people on their economic views for 2019 found that 44 per cent foresee a financial crisis that is worse than that experienced almost a decade ago.”
“Germany is examining whether it can fix its two largest lenders — Deutsche Bank AG and Commerzbank AG — by combining them into a national champion that’s once again able to challenge foreign rivals. History suggests it’s a recipe for more trouble.
“Spain encouraged the merger of seven failed savings banks into Bankia SA in 2010, only to bail out the combined entity two years later when it collapsed…”
“What goes widely unnoticed is that China is already in crisis. No, it’s not the sort of hold-on-for-dear-life collapse the US had in 2008 or the surprising, ferocious meltdowns the Asian Tiger economies experienced in 1997.
“Nonetheless, it’s a crisis, complete with gutted banks, bankrupt companies, and state bailouts. Since the Chinese distinguish their model of state capitalism as “socialism with Chinese characteristics,” let’s call this a “financial crisis with Chinese attributes.”
“The Reserve Bank [of Australia] could be cutting interest rates within months amid new warnings house prices in Sydney and Melbourne could fall by more than 20 per cent and pull down the national economy…
“Capital Economics economists Marcel Thieliant and Ben Udy said they expect prices to fall by an average of 15 per cent across the nation’s capital cities, making it the deepest and longest fall in prices on record.”
“The number of residential properties sold in December was the lowest for that month in seven years, figures from the Real Estate of Institute of New Zealand show. The number of houses sold in New Zealand fell 12.9% year on year…”
“Security forces patrolling American waters and safeguarding American ports of entry are now working without paychecks…”
“Corporations globally will increasingly default on debt as economies slow while borrowing costs and political strife escalate, according to a quarterly survey by the International Association of Credit Portfolio Managers.
“The group’s credit default index sank in the fourth quarter to the most negative reading in more than nine years, worsening sharply from the prior quarter and indicating a broad-based call for rising debt defaults over the next 12 months.”
“If the chart below from Westpac Bank is any guide, the positive momentum the global economy enjoyed over the past couple years looks set to come to an end in 2019… “As things currently stand, the global economy is looking a bit sick, especially Europe.”
“Two million people are internally displaced, corruption is widespread and mismanagement rife.
“Sudan is in the grip of a long-running economic crisis that has its roots in the secession of South Sudan in 2011 and the loss of oil reserves to the new and troubled southern state. Spiralling inflation has hit Sudan’s embattled middle-classes. A cut in the subsidy for bread – the proximate cause of protests in place like El-Gadarif – was merely the spark that ignited deep-seated anger and desperation.”
“Obtaining information about this week’s crackdown in Zimbabwe has been greatly complicated by the internet shutdown imposed by the government on Tuesday…
“But Isaac’s eyewitness account has been echoed by other witnesses, activists, doctors and lawyers contacted by the Mail & Guardian.
“Most would not speak on record, expressing fears of arrest or worse. They described a nationwide pattern of executions, indiscriminate assaults and home invasions, committed either by state security forces or by armed, plainclothes militia supervised by security forces.”