“Forget about China’s so-called “debt trap diplomacy” – it’s a mere mousetrap compared to the jaws of two more vicious traps that are waiting to close on the global economy. One is the generalised (public and private sector) debt trap and the other is the more insidious “QE (quantitative easing) trap”.
“Both have been masked by the high-profile threat of trade and economic wars between the world’s two biggest economies – the United States and China. For all the hundreds or even thousands of headlines that trade wars have grabbed, the QE and debt traps have been lucky to get even a handful.
“But things are about to change, and growing awareness of this fact meant that “Davos Man” was a more worried man this year as the world’s wealthiest tried to drown their fears in champagne at the Swiss resort. The spectre of an impending debt crisis was invoked far more frequently than in past years…
“The debt and QE “traps” are intimately connected. Waves of quantitative monetary easing in the US, Japan and Europe may have saved the world from systemic financial collapse and economic depression after 2008, but the historically low interest rates they engendered has led to universal over-borrowing.
“There was no master plan to deal with this problem. Policymakers were too panicked as US and other mega banks lurched on the brink of collapse and the engines of the global economy began to flame out. They flew on a “wing and prayer”, hoping that growth,or even inflation, would somehow take care of things.
“It hasn’t and now the lack of an exit strategy from unconventional monetary policy or monetary excess is catching up with the world. The Fed has tried exiting by stealth but has been forced to back track as Wall Street slumped, while Japan is so far sunk in QE as to have no obvious way out.
“Meanwhile, the vice is tightening.”
“Millennials who entered the job market during the financial crisis are still suffering “scarring” effects on their earnings as they enter their mid-30s, making it even harder for them to cope with the economic pressures of having a family, a leading thinktank has warned.
“Their pay has suffered by far the biggest squeeze of any age group since the 2008 crash…”
“Greece’s decade-long economic crisis has taken a heavy toll: Hundreds of thousands of jobs were lost, incomes were slashed and taxes were raised. Hopes for the future were dashed.
“For Anna, 68, the crisis had particularly devastating consequences. Her husband, a retired bus driver, killed himself in a park two years ago at age 66 after a series of pension cuts deepened his despair.”
“Last week’s data showing a drop in Italian GDP in Q4 of last year confirmed what many observers had already suspected:
“Italy is in recession. Or rather, in another recession, for this follows similar phases in 2008, 2011 and 2012.
“Where is this going to end?”
“Macron’s handling of the wave of discontent demonstrated by the Yellow Vest movement has been particularly ill-received by the French and badly damaged his popularity ratings.
“Although the 40-year-old centre-right leader has managed to recover some support after backpedaling on the proposed fuel tax hike and launching a national debate on the grievances fuelling the Yellow Vest movement (the so-called “great national debate”), the support for Macron has plummeted from 47 percent to just 27.7 percent in the past 12 months.”
“Demonstrators in yellow vests are taking to the streets of Argentina in growing numbers, banging pots and pans in a distinctively South American brand of the French protest movement.
“Tens of thousands of Argentines have taken part in marches over the past month alone, sparked by rising discontent with the government over its handling of an economic crisis.”
“Turkish inflation rate inched up in January as skyrocketing food prices offset the impact from tax breaks on utilities and key goods.
“Consumer prices rose 20.4 percent in January from a year earlier, compared with an increase of 20.3 percent in December, Turkstat said on Monday.”
“China’s much-feared economic slowdown is bound to have a particularly graver impact on Korea whose small, open and export-reliant economy is far more vulnerable to external shocks, according to a noted U.S.-based economist…
“He stressed that Korea should brace for a “hard hit” given that China’s sketchy economic statistics makes it hard for Korea to make a data-backed response strategies.”
“Australian building approvals suffered the biggest annual back-to-back drop in almost a decade as a housing slump deepens. Building permits fell 22.5 percent in December from a year earlier after plunging 33.5 percent in November, Australian Bureau of Statistics data showed in Sydney Monday. That’s the worst two-month result since January-February 2009, during the depths of the global financial crisis.”
“The challenge today, Gave said, “is that part of the massive growth we’ve seen in the U.S. corporate bond market has really taken place in the BBB space. And so, if you start seeing an economic downturn (and the usual type of downgrades that occur in a downturn), then all of a sudden you have investment grade that becomes non-investment grade.”
“Gave worries this could send shock waves through the financial markets since U.S. corporate debt is widely held by pension funds, investment banks, and large institutions all around the globe.”
“The global credit impulse is falling again, mainly in developed-market economies and due largely to the normalisation of monetary policy.
“The message from the slower credit impulse is that growth and domestic demand are headed for a slowdown, unless the world’s largest economies launch a massive co-ordinated intervention in 2019.”
Read the previous thread here and visit my Patreon page here.