“We are in the end time of an unprecedented era of financial expansion – the greatest expansion of the world’s money supply ever attempted, expansion of the Federal Reserve’s vast and unchecked powers far beyond what the Fed could do before the financial crisis, and super-sizing expansion of banks that were already way too big to fail.
“I am calling this time in which we are now unwinding this monetary expansion the Great Recovery Rewind because I believe this attempt by the Federal Reserve and other central banks of the world to move us away from crisis banking is taking us right back into economic crisis…
“I think the Fed actually sees the recession coming but can never say so because its mere change of a pronoun reverberates throughout markets. What would happen if it ever said it sees a recession developing? Why else would the Fed start easing if it didn’t see trouble coming?
“…it is obvious… that the monetary is tightening up in direct correspondence with the termination of QE and its unwinding. We know banks are approving a smaller percentage of a smaller pile of loan applications, and we know their reserves have plummeted, which means they have less money to loan against and could easily explain why they are approving far fewer loans.
“We are seeing declines in housing prices, declines in the auto industry leading to closing factories, increases in the government debt due to rising interest (in addition to the increases that happened due to declining revenue and the increases that are due to rising spending).
“The rise in interest that is happening due the Fed’s Great Recovery Rewind will also mean a decrease in stock buybacks just as the extra cash from the Trump-Tax-Cuts repatriation (a one-time occurrence in 2018) is used up so that corporations have to return funding buybacks with credit if they’re going to do them. Stock buybacks have been one of the leading drivers in the stock market’s climb over the past decade. So, all of this is a complex and toxic brew of chemical reactions…
“The Fed is also tightening as global trade is tightening and as tariffs are going up, making things more expensive to consumers.”
“Perhaps the highest-profile pullback last week came from the Bank of England, which used its quarterly Inflation Report to cut its economic growth forecast to the lowest point in 10 years.
“…But it is not only the BoE that has caught a dose of the collywobbles.”
“Businesses cut investment in the U.K. for a fourth straight quarter at the end of 2018, depressing economic growth, figures Monday are expected to confirm. It would mark the longest continuous decline since the financial crisis a decade ago.
“The Bank of England sees even sharper cutbacks this year amid fears that Britain is heading for a damaging no-deal split from the European Union in just 46 days.”
“Record levels of stockpiling goods was not enough to mask the decline [BDO’s manufacturing index for the UK], but researchers at the accountancy firm said the activity may mean prospects for manufacturers are even worse than the numbers suggest, presenting a “real risk” of economic contraction in the first three months of 2019.”
“An amateur photographer lost much of his hand when a stun grenade exploded during clashes between police and yellow-vest protesters yesterday.
“The man, 30, was treated in hospital after a French police grenade exploded as he tried to bat it away with his hand while rioters attempted to storm the national assembly in Paris. Protests descended into violence for the 13th consecutive weekend.”
“This is not really just about Italy and France. It is about the failure, real or perceived, of the European economy to deliver higher living standards for many of its people. Italy has been particularly hard hit, with 20 years of barely any increase in living standards, but many people in France, witness the appeal of the gilets jaunes, feel similarly disadvantaged…
“Unless Europe can demonstrate greater economic vibrancy, the protests will escalate. And this is why the new evidence of stagnation is so alarming to the European high command.”
“More than 10 years after the global financial crisis, the Arab world has yet to recover from that meltdown, with economic growth in the region still below pre-crisis levels and the outlook “uncertain”.
“…Adding further challenges to the Arab world’s economic growth is the weakening expansion globally as risks rise.”
“China’s Lunar New Year holidays through Sunday saw single-digit consumption growth for the first time on record, as an economic slump dampened one of the year’s biggest shopping seasons.”
“Either China stimulates its economy and lets provincial level creditors go hog wild in the Year of the Pig, or the trade war sends China’s outperforming stock market back into negative territory.”
“South Korea’s manufacturing inventory levels last December have piled up to their highest since the 1998 Asian financial crisis due to slow sales, in an another alarming sign of a lengthy slump in the economy…
“The inventory ratio is calculated by dividing the amount of unsold goods at the month-end by its monthly shipments. It has been on an upward curve since late last year.”
“Lagarde cited what she called “four clouds” as the main factors undermining the global economy and warned that a “storm” might strike.
“The risks include “trade tensions and tariff escalations, financial tightening, uncertainty related to (the) Brexit outcome and spillover impact and an accelerated slowdown of the Chinese economy”, she said.”
“”It is entirely logical central bankers should panic at the first whiff of market trouble,” Mr Mangan said.
“Mr Mangan argues the world is so loaded up with debt — and in particular corporate, bank and government debt — any market correction risks spiralling out of control into global financial crisis-type abyss, or worse.”
“For the coming 2020, the stage will be set for the next downturn, and policymakers will be unable to act freely with their hands tied while overall debt levels are more significant than the previous crisis.
“Unlike in 2008, governments will lack the needed policy tools to manage it and avoid a free fall. When it happens, the next economic crisis and recession might be even more rigorous and might last longer than the previous one.”