“Banks were at the centre of the 2008 crisis because of their excess liquidity and their consequent involvement with dicey debt obligations such as subprime mortgages and other collateralised debt obligations. They have since been brought under control but the big risks have migrated to…
“…nonbank financial institutions, [which] have increasingly replaced banks by lending to businesses via the leveraged loan market and by buying corporate bonds. (A leveraged loan is one that is extended to companies or individuals that already have considerable amounts of debt or a poor credit history.)
“Since the 2008 crisis, the global non-financial corporate sector has stepped up its borrowing sharply, boosting outstanding debt to US$73 trillion (or 92 per cent of world gross domestic product), according to the Institute of International Finance. At the same time, the quality of the corporate bond market has deteriorated.
“If a recession comes or when interest rates rise, a multitude of such companies will be severely distressed and face bankruptcy. If enough fail, that will constitute a major shock to the financial system… It may be much more difficult to stabilise the next global liquidity crisis.”
“The Euro zone economy has been spluttering during September following a sharp decline in global trade and the threat of a “no-deal” Brexit still looms large.
“It is not a good signal as the data for Q3 2019 will probably not improve from the May through June period.”
“In a speech, Michael Saunders, an external member of the Bank’s Monetary Policy Committee, said that UK interest rates may need to fall further regardless of what happens over Brexit, such is the likely seemingly never-ending uncertainty created by its political fallout.
“This runs contrary to the official line, which is that even in the event of a no deal Brexit, interest rates may have to rise to deal with the inflationary consequences of any shock to output capacity.”
“Protesters blocked roads across Lebanon’s capital city in demonstrations against deteriorating conditions as the country grapples with an economic and financial crisis that has stoked fears of currency devaluation…
“…protesters set tyres ablaze on several major roads, paralysing the city.”
“Saudi Crown Prince Mohammed Bin Salman warned that war between his country and Iran would lead to a “total collapse of the global economy” and said
“…he prefers non-military pressure to stymie Iranian ambitions.”
“China’s manufacturing sector shrank for a fifth month in September, government data showed on Monday, amid the effects of the ongoing China-US trade war.
“China’s official manufacturing purchasing managers’ index nudged higher to 49.8 during the month, according to the National Bureau of Statistics…”
“China’s central bank said it will work to produce a “noticeable decline” in market interest rates to support growth, as pressure on the economy mounts amid the trade war with the United States.
“At its third-quarter conference, chaired by governor Yi Gang on Wednesday, the monetary policy committee of the People’s Bank of China said the international economic and financial environment remained complex as uncertainty and instability had increased.”
“South Korean consumer prices likely dropped for the first time in September, raising the spectre of deflation for a nation struggling with falling exports and cooling household demand.”
“Japan’s industrial output shrank more than expected in August in the latest warning that the economy and its manufacturers are facing intensifying pressure from a bitter Sino-U.S. trade war.”
“Interest rates are widely expected to be cut to a new record-low tomorrow as the experts worry about Australia falling into a recession for the first time since 1991. Financial markets see an October rate cut on Tuesday as a 76 per cent chance.
“Should the Reserve Bank of Australia do the expected, the cash rate would fall by a quarter of a percentage point to just 0.75 per cent.”
“Recession fears are mounting but central banks have very little firepower remaining with traditional monetary policy – the control of the money supply and interest rates – blunted.
“Helicopter money to stimulate the economy therefore “seems inevitable over the medium to longer term”, said Jim Reid, a Deutsche analyst.”