Daily updates on climate change and the global economy.

Economy 20 Aug 2018 crisis of 2008 never really ended

“Ten years later, the crisis still essentially determines how the financial system works, thanks to the political decisions and interventions by central banks in response to it. There has been no “return” to normal…

“The supply of US dollars funneled into the global finance system in response to the crisis partly ended up in emerging markets. In recent years, many developing countries used the low rates that followed the crisis to gorge on dollar-denominated debt. The impact of that can be seen today as the US dollar rises and investors wonder if these countries will be able to repay all the debt they’ve accrued. It’s bringing down currencies as far flung from each other as Turkey and Indonesia.”


“Although there has been a lot of recovery from the 2008 financial crisis there are still many countries with fragile economies. Argentina has 29% inflation and 9.1% unemployment. South Africa has 27% unemployment and there were predictions that some cities were on the brink of collapse. Turkey’s currency has lost nearly 40% of its value against the dollar this year. Turkey has 9.6% unemployment and 12.8% inflation.”


“S&P reduced Turkey’s foreign-currency rating to four notches below investment grade at B+ from BB-, on par with Argentina, Greece as well as Fiji. Moody’s lowered its grade to Ba3 from Ba2, three notches below investment grade. The ratings companies said the weak currency, runaway inflation and current-account deficit are Turkey’s key vulnerabilities.”


“Turkey’s numerous large companies and even the Ankara government are struggling to service their overseas debts. While corporate and government revenues are denominated in fast-depreciating lira, a high share of debt interest payments must be made in rapidly rising dollars – the currency movements sending the real cost of such payments spiralling upward.”


“With interest rates sky-high and the economy heading for recession, Argentina’s President Mauricio Macri is running short of options to stem a slide in the peso, economists say, leaving the battered currency at the mercy of volatility in emerging markets.”


“The rupee’s plunge to a record low has worried a wide cross-section of India’s society… The 9.3 per cent fall in the rupee this year has already led to a surge in local prices of goods with an imported component.”


“In a televised speech Sunday, Khan mentioned that he ‘feels ashamed begging for loans and funds from foreign institutions’. Pakistan’s Prime Minister Imran Khan asked overseas citizens to invest and increase remittances to the South Asian country to help boost its foreign-exchange reserves and overcome an economic crisis.”


“For more than two decades, OPEC has tried to avoid repeating a mistake that cost it dearly. In November 1997, at a meeting in Jakarta, Saudi Arabia convinced fellow oil producers to boost output, ignoring a crisis brewing in emerging markets.

“The output increase came at the worst possible time. What in November 1997 looked like a hiccup, by mid-1998 was a full emerging-markets crisis spreading to Russia and Brazil. Global oil demand growth slowed, in part because of an unusually warm winter in the northern hemisphere. Benchmark oil prices fell below $10 a barrel, the lowest since the 1973-74 oil embargo.”


“Oil prices fell on Monday as concerns over slowing economic growth weighed on markets.”


Nations like Venezuela, Iran, Libya and Nigeria need lower oil prices like they need a hole in the head.

“Brazil is sending troops and extra police to the border town of Pacaraima where Venezuelan migrant camps were attacked and set ablaze.”


“The Statistician-General of the Federation, Yemi Kale, has said Nigeria’s economy has not recovered from the 2016 recession.”


The trade war, as it progresses, is also likely to hurt demand thence oil prices:

It’s been step, by step, by step. And it’s been getting more and more expensive to produce products in China,” said Sloven, president of Capstone International HK Ltd, a division of Capstone Companies, from Deerfield Beach, Florida, a maker of consumer electronics goods.”


“The problems facing Sweden after a wave of shootings and arson attacks are every bit as serious as the country’s 1990s financial crisis, according to the favourite to become prime minister in next month’s elections… Sweden, held up in international surveys as one of the world’s happiest and most successful countries, has been jolted by frequent shootings, grenade attacks and arson attacks on cars in suburbs with a heavy immigrant population in Stockholm, Malmo and Gothenburg.”


During rush hour on one of London’s most affluent streets, amid the bustle of the Strand, an orderly queue is forming. Dozens of people stand patiently, and hungrily, waiting for their dinner… “We find that people are not homeless as we know it. A lot of people are homeless and working. We get Deliveroo drivers quite a lot. There’s a road sweeper who picks up the rubbish who comes along sometimes. He’s not homeless, but I wouldn’t imagine he’s earning a great amount of money.””


“The exit [of Greece from its bail-out programme] is a welcome milestone. But it offers little assurance that the 19-country euro currency union has left behind its problems with debt. The huge debt pile in Greece and an even bigger one in Italy will remain a lurking financial threat to Europe that could take a generation to defuse. Europe’s debt problems have repeatedly raised fears over the past decade of a break-up in the euro, a worst-case scenario that would cause severe economic damage in the region and shake world financial markets and trade.”


Read the previous ‘Economy’ thread here.

Economy 17 Aug 2018 Turks smash iphones

“Turks are taking sledgehammers, handguns and fire to iPhones in a symbolic backing of their government as it clashes with the Trump administration over a jailed American pastor.

“Videos showing Turkish citizens stomping on or otherwise destroying iPhones have proliferated online in recent days, following President Recep Tayyip Erdogan’s call for Turks to boycott U.S. products…”


“Secretary of the Treasury Steven Mnuchin said Thursday the United States is prepared to put additional sanctions in place against Turkey if the government of President Recep Tayyip Erdogan does not release American pastor Andrew Brunson, who has been held since 2016.”


“The feud between President Tayyip Erdogan and U.S. President Donald Trump over steel tariffs threatens to turn other emerging markets cold.”


“Turkey is just a drill. A push by major central banks to reverse crisis-era policies is primed to accelerate into 2019 amid plans for higher interest rates and smaller balance sheets. So-called quantitative tightening then risks sucking dollars and euros from nations whose governments and companies binged on cheap debt without improving the fundamentals of their economies.”


“Russia will lose investors and face higher borrowing costs if the United States imposes a ban on investors buying new Russian government bonds, the Kremlin-backed Analytical Credit Ratings Agency (ACRA) said in a report on Friday.”


“The Iranian Minister of Industry, Mines and Business has said that fluctuations in the local forex market over the past four months has tripled the number of applications for import licenses, which have now risen to $250 billion… The $250 billion figure is also triple that of Iran’s annual oil income.

“These remarks have come at a time when the Islamic Republic’s Police and repeatedly reporting arrests of scores of individuals for “disrupting [the] forex market” and benefitting from subsidized dollars by importing good and selling them based on the global exchange rate, rather than the fixed Iranian one. General Gholamhossein Gheibparvar, a commander in the Basij militia, reported that his forces have discovered warehouses full of cars, rice, and construction materials across the country and arrested a number of people who intended to sell them on.”


“Lebanese banks are pulling out the stops to bring in dollars as the country strives to preserve a two-decade old currency peg… But the central bank’s high interest rates that keep money flowing into banks are increasing risk within the financial system and strangling an already depressed economy. That all comes at a time of renewed political uncertainty as Lebanon nears three months without a government.”


“The next government in Pakistan, saddled with mounting debts and a severe foreign currency shortage, is facing a dilemma over whom to turn to for critical financial assistance. Both the main options could undermine some of Prime Minister-elect Imran Khan’s social and economic goals.”


“Indonesia’s government has made a fresh appeal to the country’s exporters to exchange their holdings of foreign currencies to help support the tumbling rupiah, as Turkey’s financial crisis sparks fears of emerging market contagion.”


“”Public hospitals have no medicines and there are no gloves in the maternity wards. The situation is getting more and more serious,” said Eufrigínia dos Reis from the Mozambique Debt Group (Grupo Moçambicano da Dívida), a civil society organization fighting for debt reform. The country’s economic woes were brought on by secret loans that were backed by Mozambique’s financial minister without parliamentary approval – as is required by the constitution… some $500 million can’t be traced.”


“The five-digit inflation has earned Venezuela comparisons to the hyperinflation of Zimbabwe and Weimar Republic (Germany) from the International Monetary Fund. The newly minted currency, which will be known as the “sovereign bolivar,” will be rolled out on Monday.”


“Many of China’s ordinary citizens are just barely making ends meet, because of debt concerns and income disparities, according to an now-deleted article published by a researcher at the China-based think tank Suning Institute of Finance… Fu Yifu, who does macroeconomics research… found that disposable income was far lower than GDP. In 2017, in the countryside, a person’s disposable income was less than a quarter of the nation’s overall per capita GDP. In terms of wages, the numbers were also not optimistic.”


“Crashing out of the EU without a deal would be a “mistake we would regret for generations”, Jeremy Hunt [the UK Foreign Secretary] has said.”


“Snaking through the verdant flat lands of north-eastern Germany, the A20 runs through Chancellor Angela Merkel’s election district. She opened the key artery for the former communist region at a ceremony not far from the Zur Kastanie in December 2005, less than a month after she was first sworn in as the country’s leader. Twelve years later, the four-lane highway caved in after the foundations gave way in the marshy landscape, marking the clearest sign of a growing infrastructure crisis.”


“Thanks to political risks and regulatory changes, Italian lenders may be reluctant to snap up domestic government bonds during market stresses — a potentially huge structural shift in demand in the euro area’s second-most indebted nation.”


“Distillate markets are sending the same signal as a range of other indicators: the rate of global output growth has decelerated in recent months…”


“Short-cycle U.S. shale production is growing and will grow next year too, albeit at a slower pace. Yet, it may not be enough to plug the gap in just a couple of years, when the slump in investments in conventional fields around the world—the result of the oil price crash—will start to show up in the global oil supply.”


“Companies with speculative-grade credit ratings are spending a growing portion of their profits on interest payments as debt costs rise, causing concern as investors and economists debate the durability of the US expansion… as the Federal Reserve has tightened policy, the market has reached a tipping point, raising concern that further increases in interest rates could spark trouble for the market.”


“US companies have been particularly hyperactive buyers of their own stock, thanks to the earnings boost delivered by tax cuts and the robust economy. Goldman Sachs forecasts that the overall volume of US buybacks will reach a record-breaking $1tn in 2018. But companies in the UK, Europe and Japan are also aggressively repurchasing their shares, at a faster pace than new companies are going public or older ones are raising fresh capital through secondary share issues…

““The boom in US buybacks this year is widely known and commonly reported. Less well known, however, is the elevated net purchases by corporates occurring in developed markets outside of the US,” Inigo Fraser-Jenkins, a senior analyst at Bernstein, wrote in a report. At the same time, “the increase in stock buyback activity globally has coincided with subdued equity issuance activity,” he noted. “This explains why net issuance is at historic low levels across most of the developed world.””


“Come on – who are we kidding, $247.2 trillion in debt? There is no economic miracle that will save us from this system. It would require infinite growth over a period of time exceeding the lifespan of this planet.”


Read yesterday’s ‘Economy’ thread here.

Economy 16 Aug 2018 Dr. Copper hits bear market

coppper hits bear market“Copper… is trading more than 20 percent below its 52-week high, officially entering bear market territory… potentially signalling an economic slowdown is happening around the world.”

“”Dr. Copper,” as it is sometimes referred to by economists and finance experts, is often seen as a leading indicator of future economic trends since it is utilized in a number of different sectors. Copper is used in home construction and consumer products, as well as manufacturing.

“Ryan McKay, commodities analyst at TD Securities, said copper’s decline is the combination of several factors. “People are seeing weaker data in China, and trade wars are hurting demand,” McKay said. “It’s also dollar strength weighing on commodities as well.””


“A leading emerging market stock index extended its slump since January to 20 percent on Wednesday in a fresh wave of selling which took it into territory commonly regarded as a bear market. The scale of the fall in MSCI’s widely tracked 24-country emerging market index .MSCIEF is likely to be painful for many investors, given the index compiler estimates that more than $1.9 trillion of assets globally are benchmarked to the measure.”


“Brazil’s economy contracted 0.99 percent in the second quarter of this year, Brazil’s Central Bank said on Wednesday, citing the Economic Activity Index (IBC-Br).”


“Struggling to staunch a run on the peso that has helped drive the economy to the brink of recession, Argentina is aggressively pushing investors out of some of the local debt notes they hold.”


“South Africa’s retail sales figures for June surprised on the downside further raising the possibility of the economy has entered a technical recession last quarter.”


“The Turkish lira rallied from record lows on Wednesday after Emir Sheikh Tamim bin Hamad Al Thani said Qatar was standing by its “brothers in Turkey” as he announced a $15bn investment into the country’s financial markets and banks.”


“As the Trump administration continues to ramp up economic pressure on Turkey, the U.S. President signed a policy bill which will restrict the delivery of F-35’s to the beleaguered NATO member.”


“The Indian rupee fell 0.6 percent to hit a new record low of 70.32 against the U.S. dollar as the country’s trade deficit in July widened the most in five years, adding to the currency’s woes.”


“”The [South Korean] job market is the worst since financial crisis. The government’s big challenge is how to support the job market through fiscal policies,” Finance Minister Kim Dong Yeon said in a speech.”


“In the escalating trade war with President Donald Trump, China might be digging in its heels. According to a new report, China now appears willing to undertake a major currency devaluation – similar to the policy changes that roiled global markets in late 2015 and early 2016… In the past three months, China’s government has allowed its tightly-controlled currency, the yuan, to weaken by about 9%…”


“According to shipping data quoted by Reuters, the combined oil imports of China and India—the countries solely responsible for buying 12 percent of the world’s oil—were 500,000 bpd lower in July compared to the average combined imports of 12.4 million bpd in January to June this year.”


“The escalating trade war with China is leading U.S. retailers to speed up the import of goods from Asia’s largest economy to avoid new tariffs and ensure they have adequate supplies for the winter holidays.”


“The pound has endured its longest losing streak against the dollar since the financial crisis a decade ago because of mounting fears that the UK will crash out of the European Union in March and amid signs that the economy is struggling to gather momentum.”


“Fears are growing that Britain’s property bubble is about to burst. A string of indicators last night triggered concerns that the market is running out of steam – and could be heading for a correction or even a crash. Prices in London are falling at the fastest pace since the financial crisis – but the declines are not limited to the capital.”


“The price of Italian government bonds dropped sharply on Wednesday afternoon in a renewed bout of selling amid wider woes for risk assets… Jitters have repeatedly hit the €2tn market in Italian government bonds after the country’s populist Eurosceptic coalition government began negotiations on its debut budget earlier this month, something investors had previously not expected until the autumn.”


Read the previous ‘Economy’ thread here.

Economy 15 Aug 2018 US household debt hits new record

“Gradually rising interest rates have yet to dent Americans’ appetite for borrowing, with the total stock of new debt climbing to $13.3 trillion in the second quarter, continuing a gradual rise in household borrowing over the past four years.

“Debts rose by $82 billion in the second quarter, driven by rising mortgage, credit-card and auto-loan balances, according to the Federal Reserve Bank of New York’s quarterly report on household debt and credit.”


What could possibly go wrong?

“The U.S. stock market could soon lay claim to being in the longest bull run in modern history, and it is more likely to power on than fizzle as it heads toward its golden years.”


“…the biggest concern is that aggregate debt levels in relation to global GDP have continued to grow… Because that was the problem that ignited the 2008 financial crisis, and the scope to respond is much more limited now than it was then. From both the monetary policy and the fiscal perspective, the room for manoeuvre is much smaller… Compared with a year ago, the situation, looking ahead, is more worrisome.”


“The escalating political dispute between the United States and Turkey, along with the sharp drop in the value of the Turkish currency, the lira, have captured front-page headlines in recent days. The political dispute threatens to realign major alliances while the drop in the lira threatens to undermine the global economy if it continues.”


“Sharp declines in the Turkish lira, Indian rupee and other currencies have raised the prospect of a self-reinforcing flight from riskier emerging markets.”


“Turkey has sharply raised tariffs on US imports, including passenger cars, alcohol and tobacco. A decree signed by President Recep Tayyip Erdogan raised the tariffs on cars to 120%, on alcoholic drinks to 140% and on leaf tobacco to 60%. Tariffs were also increased on cosmetics, rice and coal. Turkey had previously said it would boycott US electronic products. It comes after Washington imposed punitive sanctions on Ankara.”


“The currency crisis in Turkey is being exacerbated by a skyrocketing annual inflation rate, which by some estimates, exceeds 100 percent.”


“After 40 years of economic reforms, Chinese society has amassed too many contradictions. Public dissatisfaction with the authorities is well known… the economic impact of the trade war with the United States is likely to exacerbate the crisis in Chinese society. So far, the tariffs imposed on Chinese goods have caused China’s stock and currency markets to fluctuate and public pessimism to spread… Depending on how the conflict develops, we may see large-scale business closures, a rise in unemployment and serious inflation. If the economy sinks into a recession, living standards may fall sharply.”


“China’s state planner pledged on Wednesday to keep debt levels under control even as Beijing rolls out fresh stimulus to support the stumbling economy as a trade war with the U.S. deepens.”


“A company controlled by an economic and paramilitary organisation in China’s Xinjiang region has missed the interest and principal repayment on an onshore debt market note, in the latest sign of the stresses in China’s financial system.”


“The [Iranian] regime is attempting to hold onto its power, even as the economic turmoil continues to rise. There are calls to replace members of Rouhani’s administration, especially those involved in economic issues. Others are calling for a new election or the replacement of Rouhani’s civilian-led government with a military-led one.”


“President Nicolas Maduro said Monday that some of the world’s cheapest petrol that Venezuelan drivers enjoy will soon be sold at world market prices to combat rampant smuggling. [Currently] for the price of a cup of coffee, a driver can fill the tank of a small SUV nearly 9,000 times.”


“Nicaragua’s National Assembly on Tuesday, August 14, approved a drastic cut to the national budget because of the economic impact of months of anti-government unrest.”


And some ominous signs of an overall slowdown in the global economy:

“Oil prices ended lower Tuesday for the fourth time in five sessions as investors worried that growth in global demand may soon weaken.”


“”We’re not earning anything from it any more, we have nothing,” says a rubber farmer in Ivory Coast, Africa’s top producer, where revenues from natural rubber have been slashed by global oversupply… Rubber prices are linked to that of crude because of the tyre industry, which uses a mix of natural and synthetic petroleum-based products.”


“Copper sank below $6,000, while the dollar climbed and stocks fell, as investors fret that the Turkish crisis will spill over into emerging markets, hurting demand already threatened by a U.S.-China trade war. Other metals, crude oil and gold declined too.”


Read yesterday’s ‘Economy’ thread here.

Economy 14 Aug 2018 Turkey a harbinger of EM chaos

“As European stock markets bounced from their lows late on Monday, it was tempting to write off the global ramifications of Turkey’s currency crisis… investors and analysts are starting to see the country’s crisis as a harbinger of things to come in an era in which central banks are rolling back a decade of monetary stimulus.

“As the plentiful liquidity of quantitative easing begins to fade and access to the dollar tightens, investors will be less forgiving of policy mistakes by governments, shine a harsher light on borrowers who have racked up debts in the US currency and used the era of easy money to put off difficult decisions.

After ten years of monetary policy anaesthetic, the number of sceptics is growing,” said Alberto Gallo at Algebris Investments…

“With an estimated $40tn added to the debts of emerging markets in the decade since the global financial crisis, according to the Institute of International Finance (IIF), parts of EM look most vulnerable.

“Indeed in June, Argentina was forced to seek a bailout from the IMF after its economy ran aground just a year after it sold a 100-year bond. The size of their debts leave both South Africa and Brazil vulnerable, analysts say. In a day of volatile trading for EMs on Monday, the South African rand at one point plunged about 10 per cent and Brazil’s real has endured a 4 per cent drop over the past four days.

Traders are picking off nations exposed to dollar obligations,” said Peter Rosenstreich, a currency analyst at the online bank Swissquote, pointing to Chile, Mexico, Indonesia, Russia and Malaysia among those countries with high non-bank dollar debt as a percentage of GDP.

“The biggest debt mountain belongs to China. It stood at 300 per cent of GDP in the first quarter, up from 171 per cent at the end of 2008, according to the IIF, although most of that debt is held inside the country…

“As the European Central Bank reins in its bond-buying programme, investors say the confidence factor will also be critical as Italy’s populist coalition prepares to unveil a budget that some expect to be fiscally aggressive. Italian government debt was a notable laggard on Monday, with the yield on the ten-year benchmark rising 11 basis points to 3.09 per cent.

“Mr Gallo said he expected investors to view Italy by the same yardstick that the market had judged Argentina and Turkey, questioning governments that “sell people a dream, create an enemy, and pursue unsustainable policies in the process”. Italy’s deputy prime minister Luigi Di Maio told Corriere della Sera that the government “cannot be threatened” by the markets.

“Trinh Nguyen, senior economist for emerging Asia at Natixis in Hong Kong, said: “Contagion on financial markets has to do with risk-on, risk-off sentiment and it impacts the countries that depend on [foreign finance].”

“…China remains vulnerable to the escalating trade war with the US, as shown in a 16 per cent drop in its stock markets this year, and other EM are vulnerable to a slowdown in China. But even this is a secondary consideration against a background of rising US rates and a stronger dollar.

““What is really driving emerging markets is the tightening of dollar liquidity,” Ms Nguyen said.”


“A fresh plunge in the Turkish lira sent tremors through global currency markets on Monday, amid fears that the failure of Recep Tayyip Erdogan’s government to tackle its worsening financial crisis would have a domino effect on other vulnerable countries.”


“…the collapse of confidence in the lira spread to the South African rand, which fell by as much as 7 per cent against the dollar, while the Indian rupee sank to a record low against the greenback, dipping close to 70 per dollar.”


“It isn’t just sovereigns. Argentine and Turkish corporate bonds are also racing each other to the bottom. Of the 10 worst-returning dollar-denominated, emerging market corporate bonds this month, six are Turkish and four are Argentine.”


“Because the [Turkish] crisis involves private rather than public debt, the IMF could find it harder to justify a bailout. The moral hazard of using IMF funds for corporate debt issues would be substantial.”


“This turmoil is about far more than the price of onions in Istanbul. Turkey’s many troubles have wide geopolitical and strategic ramifications.”


“From a strategic or military point of view, Erdogan “looking for new friends” is even more worrying. Turkey suddenly has a lot in common with Iran, Syria, and, across the Black Sea, Russia: They are all the targets of US sanctions… The worst-case scenario is a Turkish government that cannot pay the army that controls its borders, in search of “new friends” to bail it out.”


“In response to the U.S. sanctions that came into effect last week, Iran has threatened to block access to the world’s busiest oil shipping route. There has been no indication that Iran is prepared to go through with its threats, but if it did, it would likely be catastrophic for the region, and for global energy prices.”


“Argentina took emergency steps to stabilize its currency in the wake of an emerging-market rout caused by Turkey’s crisis, jacking up its already highest-in-the-world interest rate by 5 percentage points and announcing it will sell $500 million to support the peso. Policy makers set the rate for seven-day notes at a record 45 percent and pledged to keep it at that level at least until October.”


“In normal times you would expect such an economic signal would drive the loonie higher. Instead, a few hours after the jobs results the Canadian dollar was down nearly half a cent.”


“America never made up the growth it lost in the 2008 global financial crisis and the recession it triggered. A decade later, U.S. households are still counting the cost. GDP remains well below what its 2007 trend would have implied and it’s unlikely the economy will ever make up that lost ground, according to research from the Federal Reserve Bank of San Francisco published Monday. The hit will cost the average American $70,000 in lifetime income, they estimate.”


“More than 1 million student loan borrowers each year go into default. Outstanding education debt in the U.S. has tripled over the last decade and now exceeds $1.5 trillion, posing a greater burden to Americans than auto or credit card debt. For many, the payments are proving unmanageable.”


“Italian Minister Claudio Borghi called for capped yield spreads on Eurozone bonds – “The situation can’t be resolved and it is going to explode” he… said, referring to the shared euro currency. His suggested remedy was a 150 basis point limit on the spread between Eurozone country’s bonds. “Either the ECB offers a guarantee or the euro will be dismantled,” he concluded.”


“Russia’s grain exports have started to show the first signs of a slowdown since quality concerns over this year’s crop pushed prices to five-year highs.”


“China’s economy is showing signs of cooling further as the U.S. prepares even tougher trade tariffs, with investment growth slowing to a record low and consumers turning more cautious about spending, data showed on Tuesday… The pace of fixed asset investment was the weakest on record going back to early 1996, according to data on Reuters Eikon… Retail sales also missed expectations.”


Read yesterday’s ‘Economy’ thread here.

Economy 13 Aug 2018 Turkey pops

Turkish lira plunges again, as do Euro and EM currencies“The Turkish lira fell almost 9% in early trading on Monday and the euro hit a one-year low as investors feared that the country’s financial crisis could spread to European markets.

“Despite defiant words by the Turkish president Recep Tayyip Erdoğan over the weekend pledging as yet unspecified action to reverse the slide, the currency slipped alarmingly against the US dollar on Monday.”


“”Just to put it in context: the amount of money borrowed by Turkey is similar to the amount of money that was borrowed by Bear Stearns-it’s about $400 billion. Bear Stearns of course had off-sheet liabilities as well, but on-sheet liabilities of $400 billion. Lehman Brothers was $600 billion, so that puts it in context. This is a big number and it’s lent from outside the system so it does have issues for financial stability, particularly in Europe and we need to make that clear.””


“Italy’s bonds led losses among euro-area sovereign debt markets as the Turkish currency turmoil fueled fears of a contagion effect across riskier assets. Yields on two-year securities climbed to the highest levels in more than a week as stocks worldwide declined following a tumble of more than 28 percent in Turkey’s lira this month. The Italian 10-year spread over German bunds hit the highest since May. Deputy Prime Minister Luigi Di Maio was reported as saying in an interview Monday that his country won’t be subject to an attack by speculators.”


“The plunge in the Turkish lira has set off a wave of selling across emerging market assets, reviving the spectre of contagion that has been the sector’s Achilles heel for decades… the South African rand and Brazilian real tumbled in its wake… “It’s the usual classic emerging markets story where people wake up, see bad news in one country and start selling everywhere,” said Bart Turtelboom, chief executive at APQ Global.”


“The rupee on Monday joined the emerging market currencies rout as the domestic unit opened at a low of 69.47 against the US dollarNSE -0.96 %. The rupee nosedived to its life-time low of 69.62…”


“In spite of President Cyril Ramaphosa’s attempts to revive the country’s struggling [South African] economy, there is a strong possibility it may slip into recession. Economists have predicted negative growth for the second quarter (April to June), which would throw the country into recession. The rand fell to its worst level against the dollar in nearly 18 months this week…”


“The Australian dollar fell to an 18-month low against the US dollar on Monday, as worries about an impending financial crisis in Turkey prompted selling in the currency with strategists warning of more downside ahead.”


“The bid-ask spread or the difference between the price bidders are willing to buy and sell the lira at, has widened beyond the gap seen at the depths of the Global Financial Crisis, following the collapse of Lehman Brothers.”


Meanwhile the trade war rumbles on:

“China is not just another front in President Donald Trump’s war on trade. Unlike Mexico, Canada, Europe and other targets of the president, China will be a source of economic conflict for years to come.”


And the UK continues to fumble the ball on Brexit:

“Sterling’s decline has recently resumed, albeit gently. Perhaps the only surprising thing about that statement is its last word. Seasoned market watchers are surprised that the pound is not a lot lower, such is the utter chaos surrounding the UK’s preparations for its imminent departure from the EU.”


An additional stress for an already struggling economy:

“…the UK has experienced a slump in productivity growth since the financial crisis that shows no sign of coming to an end. The slowdown has been more acute than any other western country.”


 “U.K. house prices fell for a fifth month in a row in July, the longest stretch of declines since the financial crisis.”


“I think we’re bound for something a lot worse than a recession. We’re going to continue what we began in 2008… the central banks around the world are going to have to raise interest rates. And that’s when there’s really a disaster, because we can’t afford the higher interest rates. We can barely afford the higher interest rates we have now.”


Read the previous ‘Economy’ thread here.