Daily updates on climate change and the global economy.

Economy 6 Dec 2018 Stage Set for Global Financial Crisis 2.0

“They hope for a global economy poised for many years of growth, increasing personal wealth and prosperity, and political stability.

“Sadly, hope is never a strategy.

“Realists, on the other hand, fear that unstable and troubled bond and stock markets won’t abate anytime soon, and that the unintended consequences of solving the 2008 financial crisis could ensure that the next one is even worse…

“…new draconian capital rules have encouraged banks to exit high-risk lending, transferring risk from banks to non-banks – including pension funds, insurance companies, hedge funds, and other investors, where the skills and expertise to manage complex risks don’t necessarily reside.

“Risk has not gone away – it’s just no longer sitting with the banks.

“Then we come to quantitative easing (QE). The key policy of central banks post-2008 was to pump-prime economies through zero interest rates. The unintended consequences of these monetary experimentation policies has been to trigger enormous pricing distortions that are only now beginning to make themselves clear.

“As central banks hoovered up bond markets, savvy investors simply arbitraged their activities.

“Rather than zero-rates causing companies to build new factories and infrastructure to drive activity and create jobs, most simply borrowed more from bond markets and spent it buying back their own stock – pushing up the value to owners, while rewarding executives with higher bonuses as stock prices soared.

“Now that rates are rising again, corporates find themselves over-levered and less credit-worthy.

“Finally, there’s the politics element.

“Alongside QE came austerity, as countries were forced to bail out bankers, rescue failing lenders, and cut social spending. An immediate result was unemployment and recession. The long-term effect has been a voter shift towards populism, based on the perception that QE made the rich richer while austerity made the poor poorer.

“It is no surprise voters that across the developed world have sought someone to blame and embraced populist politicians promising better conditions as conventional politics failed.

“…risks are escalating in Europe too, as Italy squares off against the European Central Bank, Germany faces a populist right-wing revolt causing it to pull back on further integration, while Brexit has become a matter of “being seen to win” rather than doing the right thing on both sides of the divorce.

“You can’t fault voters for wanting better and falling for the appeal of populism. But the stakes are high.

“Markets are about politics and sentiment. And that is what the realists under stand, watching with concern to see how financial difficulties and declining sentiment (exacerbated by a trifecta of rising interest rates, declining stock markets, and political upheaval) could magnify into a serious financial crisis.”


“The richest 1,000 families resident in Britain – bankers and financiers among them – have more than doubled their net worth during an era of austerity and stagnating living standards.

“Instead, the crisis would be paid for with the future of an entire generation, not least youngsters from working-class backgrounds.”


“Activity in the UK services sector, the dominant part of the economy, in November slumped to its lowest level since the wake of the 2016 EU referendum, with firms blaming Brexit uncertainty.”


“Britain will struggle to achieve even modest economic growth next year unless the government secures an orderly Brexit in March, the Confederation of British Industry said on Thursday.”


“Italy’s populist government has a new problem brewing as it faces the risk that it could soon be dealing with the country’s first recession in five years. The economy unexpectedly shrank in the three months through September and surveys suggest the weakness is persisting. Manufacturing contracted at the fastest pace in four years in November and services companies have seen export demand fall for five straight months.”


“China’s leadership has prioritized employment as the country prepares to enter a period of prolonged economic difficulty. On Dec. 5, the country’s top economic planner, the State Council, unveiled a slew of policies designed to support employment in a paper that includes a plan to refund 50 percent of unemployment insurance premiums — which currently account for 2 percent of total payroll — to companies that forgo layoffs or keep them to a minimum.”


Car sales contracting in Canada, Mexico, the US (although SUV sales rose there), the UK and EU, China and many emerging markets.

“A total of 1.28mn passenger vehicles were sold in Mexico from January-November, down 6.63% year-over-year, according to data from national statistics and geography institute Inegi in cooperation with local automotive industry association AMIA.”


“Global stocks fell on Wednesday, plagued by a flattening yield curve that sparked concerns about an economic slowdown in the United States and weakening expectations of a lasting US-China trade truce… US markets were closed to mark former President George H.W. Bush’s death, but the effect of Wall Street’s turmoil in the previous session, when New York-listed shares tumbled more than 3 percent, was felt in Asia and Europe.”


“Not only is overall global trade growth slowing, but in many areas it is actively shrinking. “In ocean freight, measured by the live throughput of ports, the unit volume declined slightly in November,” down 0.3% month-over-month, Kuehne + Nagel said in the release.

“On top of that, every region of the globe saw its foreign trade growth drop in November.”


“…the warning quotient has been rising in recent weeks. Should we be genuinely anxious, and begin battening down the hatches to prepare for a coming storm?

“It is hard to be sure, of course, but reasons to stay awake at night are multiplying.”


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Economy 5 Dec 2018 Dow Tanks 799 Points on Growth Fears

“That was fast. Wall Street’s enthusiasm for the US-China trade truce has completely vanished. The Dow dropped 799 points, or 3.1%, on Tuesday. At one point, the index was down 818 points. The S&P 500 declined 3.2%, while the Nasdaq tumbled 3.8%.

“Big tech stocks fell sharply. Apple (AAPL) and Alphabet (GOOGL) lost more than 4% apiece. Amazon (AMZN) and Netflix plunged more than 5%.

“…investors are quickly realizing that the US-China trade war is not over. The tariffs already put in place remain. And new tariffs could be implemented if the two sides fail to make progress.”


“The sharp fall witnessed in the U.S. T-bond yields this week caused a yield curve inversion for the first time since the financial crisis presented by the yield on the 5-year note dropping below the yield on the 2-year note. Commenting on this development, Jeffrey Gundlach, chief executive officer of DoubleLine Capital, said that the yield curve inversion on short end maturities was a signal that the economy was poised to weaken.”


“Stocks in Asia declined on Wednesday after an overnight plunge on Wall Street as investors worried about a potential economic slowdown and the state of the U.S.-China trade war.

“The mainland Chinese markets, closely watched in relation to Beijing’s ongoing dispute with Washington, slipped by the end of their trading day.”


“European stocks were lower Wednesday morning, as resurgent trade worries worsened investor fears about global economic growth. The pan-European Stoxx 600 slipped 1.2 percent during early morning deals, with all sectors and major bourses in negative territory.”


““Unless government were to do something completely different to change tack, or indeed to pass this deal, then we will be leaving the EU on 29 March next year without a deal, so it defaults to no deal,” Andrea Leadsom told the BBC’s Today programme this morning.

“Lawmakers have come out heavily against Theresa May’s proposed withdrawal agreement, which would tie the UK into a temporary customs union with the EU that it cannot leave of its own accord.”


“Activity in Germany’s services sector eased in November due to rising cost pressures and waning business optimism, slowing growth in the private sector of Europe’s largest economy to a near four-year low, a survey showed on Wednesday.”


“The European Union and Italy have been in a standoff over the Italian government’s debt for weeks. Brussels — supported by the rest of the governments of Europe — seems to believe that Rome will soon back down, delivering another victory for European Union discipline. But that’s far from certain.

“Moreover, even if the Italian government does fall into line, the political consequences may prove disastrous for Europe.”


“The [US] housing market recession is coming. In recent months, we’ve seen shares of homebuilder stocks get hammered. Existing and new home sales have declined sharply. And the pace of home price appreciation has now declined for six straight months.

“The factors weighing on housing are not particularly new or novel — a lack of affordable housing supply and the rise in mortgage rates to seven-year highs are pressuring the market.”


“Plunging automobile sales add to evidence that higher borrowing costs are beginning to eat into Canadian economic growth, possibly faster than the central bank expected.

“Light vehicle sales dropped 8.2 percent November from a year earlier, according to the Automotive News Data Center in Detroit. It was the largest decline since 2009…”


“Australia’s economy slowed more than expected last quarter as consumers reacted to tepid wage growth by shutting their wallets, a disappointing outcome that sent the local dollar sliding as investors pushed out the chance of any rate hike.

“The news came as fears of a possible slowdown in the U.S. economy and the Sino-U.S. tariff slugged world shares and threatened future business investment.”


“Japan’s economy is expected to have contracted more sharply initially estimated in the third quarter, with analysts in a Reuters poll forecasting a steep drop in capital spending in a sign of rising headwinds in 2019 as global demand ebbs. The poll of 16 economists predicted the world’s third-biggest economy to have shrunk an annualized 1.9 percent in July-September, worse than the preliminary reading of a 1.2 percent contraction.”


“Oil fell on Wednesday as a swelling supply glut and signs of an economic slowdown weighed on crude prices a day ahead of an OPEC meeting at which the producer club is expected to decide supply cuts.”


“…the world economy may be facing grimmer prospects in 2019.

“In a fresh sign of mounting growth woes, Federal Reserve Chair Jerome Powell said last week that interest rates are “just below” neutral, a distinct change from his remarks in early October that the Fed was “a long way” from neutral.

“The change in phrasing by Powell, who has been under fire from US President Donald Trump about rate hikes, is considered a hint that Fed rate hikes may slow.

“The significant change in the Fed’s rate path apparently points to concerns that US economic growth might not hold up if the current monetary policy continues into the new year.

“The news follows General Motors’ recent announcement that it will lay off 14,000 workers and close five facilities in North America, which the car company said would prepare it for the future world of autonomous and electric vehicles. This move inevitably deepened global recession fears.

“Also, the recent slump in crude oil prices indicates slowing demand growth, a portent of sluggish global GDP expansion.”


^^^Lots of harbingers of our deflationary collapse here, as maxed-out consumers struggle to afford the output of the system in sufficient quantities for it to fulfil its growth mandate.

And of course if it cannot grow, the financial system will find itself in a situation of cascading defaults.

Read the previous ‘Economy’ thread here and visit my Patreon page here.

Economy 4 Dec 2018 Economic Troubles Brewing Around the World

All sorts of economic troubles are brewing, perhaps not so much in the US but in pretty much any other part of the world:

“It was just a few days ago when the market was panicking again, as it has done so periodically since early February. This has usually been a characteristic of market tops, but it is also another characteristic of market tops to ignore the past and find all kinds of excuses that “this time is different.”

“I wrote in early February about my pessimistic views for 2018, and one thing that few looked at back then – real estate – has already entered the early stages of panic in some markets. A recent WSJ article documents the panicky high-end New York housing market, but the situation is similar in many other frothy markets all around the world. Back in February I had written about falling rents, because of oversupply in major US cities, which were the earliest signs of a weakening housing market. Weakness in the housing market has accelerated and it is spreading.

“But it is not just the housing market. All sorts of economic troubles are brewing, perhaps not so much in the US but in pretty much any other part of the world. These troubles do not seem to be catching up to the US just yet, but they are strengthening the US dollar (I have written about this in more detail) and a too powerful dollar is not, fundamentally, good for most US stocks. Almost half of S&P 500 sales come from overseas. The strength of the dollar is not critical yet, but… China and Europe continue to weaken while the Fed is bent on raising their benchmark rates again in December…”


“We haven’t had ruinous levels of inflation since the early 1980s… We have, however, had a severe recession and a weak recovery, beginning a decade ago, and it is not at all clear the Fed is well-equipped to prevent a recurrence. There are several reasons for concern about how the Fed will respond to the next downturn. Because it targets inflation, it may be tempted to tighten money inappropriately after a negative supply shock.”


“Liquidity is like good health. You don’t really appreciate it until you lose it. Investors are starting to appreciate it. As volatility has surged, first in the stock market and now in credit markets, liquidity is starting to dry up across segments of the corporate bond markets.

“The ominous widening of spreads in the high-yield bond market — from 322 basis points on Oct. 2 to 422 points on Nov. 20 — could be a sign of trouble to come.”


“Automakers sold slightly fewer vehicles overall in November, compared with last year, according to analysts’ forecasts, including one from Edmunds. com, which projected auto sales fell 1.3 percent last month…

“Part of the decline may be due to rising interest rates, which are making car payments more expensive.”


“There are fears a sharp drop in house prices could result in an Australian retail slump as struggling homeowners slash spending. Economists have warned of a $800billion wipeout in consumer spending after Australian of Bureau of Statistics data released on Monday revealed retailers are struggling to shift stock…

“Sydney was hit the hardest, where the housing market is down 9.5 per cent and on track to eclipse the previous record peak-to-trough decline set during the last recession when values fell 9.6 per cent between 1989 and 1991.”


“More than a quarter of all retail floor space in England and Wales disappeared in the aftermath of the 2008 financial crisis… The analysis covers the period before the latest crisis to hit the UK retail sector, which has led to the collapse of high street brands including Toys R Us and Maplin. Many others including Marks & Spencer and Debenhams are closing stores and cutting staff…

“Alongside the rapid rise of online shopping, retailers have been affected by consumers’ weak income growth.”


“France’s prime minister met with opposition leaders on Monday as President Emmanuel Macron sought a way to defuse nationwide protests over high living costs that led to widespread rioting in Paris at the weekend and are hurting the economy.

“The “yellow vest” revolt caught Mr Macron unawares when it erupted on Nov 17 and poses a formidable challenge to the 40-year-old as he tries to counter a plunge in popularity over his economic reforms, which are seen as favouring the wealthy.”


“Will Sweden’s central bank raise interest rates in December or February? The answer, much to the chagrin of those who have been calling for an end to negative rates, may be neither. Headwinds are mounting for the central bank, with economic growth slowing both at home and abroad…

“Sweden’s economy unexpectedly shrank in the third quarter.”


“Italian manufacturing shrank for a second straight month in November, further bad news for the economy amid a budget battle that’s undermining confidence. In its monthly report, IHS Markit said an index of factory activity fell to 48.6 from 49.2 in October. That’s a sharper fall than economists forecast and takes the gauge to its lowest in four years.”


“Euro zone finance ministers said on Tuesday Italy’s draft 2019 budget was breaking European Union rules and they agreed with the European Commission that Rome should amend it. Italy, which already has the second highest debt in Europe at 133 percent of GDP, wants to borrow and spend more to deliver on election promises, breaking EU rules that say debt has to fall every year until it is below 60 percent.”


““But look underneath the surface and we are not looking at an economy on the same scale as before 2008. Perhaps we never will.”

“…Mari Carmen Rodríguez, 63, a divorcee who lives alone in Barcelona, says it “makes her stomach turn” when she hears people talk about the crisis ending. “The recession never ended. I have not noticed life getting any better. Life is just the same for me,” she said.”


“Stocks in Asia mostly slipped on Tuesday amid uncertainty about the future of U.S.-China trade relations.

“Japan’s Nikkei 225 fell by 2.39 percent to close at 22,036.05 while the Topix index shed 2.36 percent to 1,649.20 by the end of the trading day.”


“Analysts at Standard Chartered note that China’s official manufacturing PMI registered the lowest reading since July 2016 in November, staying on the dividing line between expansion and contraction.”


“Premiums for imports of copper into China, the world’s biggest copper consumer, sank to an 18-month low on Monday in a sign that demand for physical metal is waning.”


“Japan’s leaders have their work cut out for them as they attempt not only to lead their nation to a brighter future, but also to convince the public that better days are ahead, not behind, for Japan, say two Pew Research Center experts.

“…a majority of Japanese (55 per cent) still describe the current economic situation as bad. Moreover, there are doubts about whether everyone is better off: Only about a quarter of Japanese (26 per cent) believe that the financial situation of the average Japanese is better today than it was two decades ago.”


Read the previous ‘Economy’ thread here and visit my Patreon page here.

Economy 3 Dec 2018 Global Economy Palpably Weakening

“Only a few months ago, the world’s fortunes appeared increasingly robust. For the first time since the wealth-destroying agony of the global financial crisis, every major economy was growing in unison.

“So much for all that.

“The global economy is now palpably weakening, even as most countries are still grappling with the damage from that last downturn. Many nations are mired in stagnation or sliding that way. Oil prices are falling and factory orders are diminishing, reflecting slackening demand for goods. Companies are warning of disappointing profits, sending stock markets into a frenetic bout of selling that reinforces the slowdown.

“Germany and Japan have both contracted in recent months. China is slowing more than experts anticipated. Even the United States, the world’s largest economy, and oft-trumpeted standout performer, is expected to decelerate next year as the stimulative effects of President Trump’s $1.5 trillion tax cut wear off, leaving huge public debts.

“The reasons for this turn run from rising interest rates delivered by the Federal Reserve and other central banks to the unfolding trade war unleashed by the Trump administration. The likelihood that Britain’s torturous exit from the European Union will damage trade across the English Channel has discouraged investment.

“… in declaring that “the global expansion has peaked,” the brains at the O.E.C.D. effectively concluded that the current situation is as good as it gets before the next pause or downturn. If this is indeed the high-water mark of global prosperity, that is likely to come as a shock to the tens of millions of people who have yet to recover from the devastation of the Great Recession.”


“Asia’s economic prospects looked gloomy as factory activity and export orders weakened across the region in November with analysts expecting no quick rebound amid simmering global trade frictions.

“Asian shares rallied on Monday after U.S. and Chinese leaders meeting at the G20 summit in Argentina agreed on a truce in their trade conflict… But analysts said the 90-day deadline the two sides agreed upon to reach a deal meant a conclusive resolution of the row remained distant.”


“Moody’s Investors Service said on Monday its outlook for China’s regional and local governments is negative due to high debt levels of local state-owned enterprises… Beijing has pledged to expand investment in infrastructure such as railways, highways and airports to help shore up growth in the world’s second-largest economy. That places pressure on local governments to secure the funding that they need to launch infrastructure projects.”


“Economists said that the GDP deflator for agriculture [in India] is negative for the first time in many years. In other words, farmers are earning less than what they were before. Indeed, if the recent marches to New Delhi by thousands of farmers are any indication, the farm sector has already sent up emergency flares. What is notable is that even allied activities are growing slower. This doesn’t bode well for rural demand in the coming months.”


“[Pakistan’s] capital market witnessed a bloodbath on Monday and plunged to its lowest level in five weeks after the central bank raised its policy rate by 1.5%, which was higher than what most analysts had expected… Market analysts say a higher than expected increase in the State Bank of Pakistan’s monetary policy rate and a bleak economic forecast dented investors’ sentiments and drove the index down.”


“On November 7, in response to ballooning public debt, the Egyptian government announced a new package of austerity measures, including liberalising the price of bread flour as of January 1, 2019, and raising the price of Cairo metro tickets as of December 2019 following a similar fare hike in May.

This is the latest in a series of ineffectual policies that aim to tackle the growing debt crisis…”


“The next meeting of the ECB governing council will most likely mark the end of quantitative easing as we know it.

“As of January, the ECB is expected to stop adding to the 2.6 trillion euros ($2.95 trillion) of assets bought since March 2015, and only reinvest the money from the bonds that come due.”


“UK manufacturers are stockpiling goods ahead of March’s Brexit date as the prospect of queues at Britain’s ports grows more likely.

“Production remained strong across the manufacturing sector in recent months, with firms fearful that imports of raw materials will dry up in the event of a no-deal Brexit or go up in price should a deal go ahead. In response, they are making as many goods as possible and piling them up in storage, according to a quarterly survey from the EEF, the manufacturers’ trade body.”


“German Finance Minister Olaf Scholz on Saturday urged continued vigilance and increased transparency a decade after the global financial crisis, citing the risks posed by continued high government debt levels and steep unemployment in some countries. Scholz, speaking to reporters at the summit of the Group of 20 industrialized countries in Buenos Aires, noted that global economic growth was not as dynamic as in the past.”


“The Italian economy could tumble into recession in the fourth quarter of this year, the chief economist of the country’s powerful employers’ federation has said.

“Andrea Montanino, of Confindustria, issued the warning after statistics released last week showed that falling domestic demand resulted in Italy’s economy contracting for the first time in four years during the third quarter.”


“…this looming [US] budget calamity will be a severe threat to our future at every level and for almost every household in the nation.

“Where are the news reports and opinion pieces like the ones we see about climate change or the government darkness that threatens to kill democracy?”


“You rarely see [shipping] hog the headlines, but with something like 90% of global trade borne aboard the world’s fleets, it matters. And the fate of the Baltic Dry Index in recent months doesn’t paint a pretty picture at all. As a bellwether for the global economy, there are not many as reliable…

“…is it just a trade war issue? Or is there more to the slide in the BDI? Nordea’s chief analyst for Asia, Amy Zhuang, certainly sees it as more nuanced.

““The trade war reduces demand for shipping activity, so it explains at least partly the collapse of the BDI,” says Singapore-based Zhuang. “However, the general slowdown in global manufacturing is also highly correlated to the BDI, so the fall could indicate that the upturn in the global economy has come to an end this year.””



Read the previous ‘Economy’ thread here and visit my Patreon page here.

Economy 30 Nov 2018 Global Slowdown Worsens, says IMF

“Global economic growth may be slowing more than forecast only a month ago, underscoring the urgency for countries to pull back from a damaging trade war, the International Monetary Fund warned.

“The IMF downgraded its forecast for world growth last month, and recent data suggest the outlook has gotten worse since then, the fund said Wednesday in report ahead of the Group of 20 leaders’ summit this week in Buenos Aires.

“Financial conditions have tightened, especially in emerging markets, while trade tensions have increased, said the Washington-based fund. Since the IMF’s latest World Economic Update on Oct. 9, global stocks have slumped on concerns that rising interest rates and the U.S.-China trade war could undermine growth.”


“A [Trade War] ceasefire (or at least the indication that one could come) would no doubt buoy global markets and fortify Chinese equities and its currency, the renminbi. But whatever gains Chinese assets garner are likely to be shortlived. Undercutting a more sustained rally and the shoring up of the country’s slowing economy is the persistent weakening of credit growth in recent months.

“Despite a kitchen sink of stimulus this year, which has included four slashes to banks’ reserve requirements, tax cuts and increased construction spending, lending remains tight and money supply now sits near record lows.”


“Growth in China’s vast manufacturing sector stalled for the first time in over two years in November as new orders shrank…

“…adding pressure on Beijing ahead of high-stakes trade talks between presidents Xi Jinping and Donald Trump this weekend.”


China’s record year for bond defaults might feature one more superlative before the calendar turns: the first delinquency on an offshore security sold directly by a Chinese company…”


“The man who led the UK’s post-financial crisis banking reform drive says that UK lenders, ten years after the crash, are still not safe enough.

“Sir John Vickers, who chaired the Independent Commission on Banking which reported in 2011, says the Bank of England is still being too lax on banks’ capital requirements, making lenders overly fragile in the event of another crisis.”


“Detailing a long list of risks in a regular stability review, the ECB warned that Italy’s high spending, the possible end of the U.S. growth cycle and signs of over-valuation in the euro zone’s property market were among its concerns. Critics have long warned the ECB itself has sown the seeds of a new crisis by driving down bond yields, inflating asset bubbles and giving banks cheap and nearly unlimited liquidity.”


“Sweden’s economy contracted for the first time in half a decade in the last quarter, data published on Thursday showed. The 0.2 percent contraction in seasonally adjusted terms from the second quarter came as a surprise for analysts…”


“Pakistan’s currency has plunged further as the country is mired in a financial crisis and seeking an $8 billion bailout package from the International Monetary Fund. The Pakistani rupee was trading at 142 to the dollar on Friday, a decline from 133.90 rupees to $1 at close of business the previous day. Analyst Mohammad Suhail says it’s a clear indication the government has no option but to accept IMF conditions for the bailout.”


“Concerned over Zimbabwe’s economic collapse, people are taking the matter to the street.

“Thousands of anti-government protesters marched through the capital city, Harare, on Thursday under close surveillance by armed police in the first rally since a deadly crackdown on an election protest in August.”


“One of Saudi Arabia’s major contractors defaulted on almost $2 billion after a falling out among its owners and delays in payments from the government, according to people with knowledge of the matter…

“The defaults are largely the result of problems getting paid by the Ministry of Interior, the people said.”


“Oil fell on Thursday, bringing losses for the month so far to 23 per cent, marking its largest one-month fall since the depths of the financial crisis in 2008.

“A seemingly relentless rise in US crude supply, together with Saudi Arabia’s insistence that it will not cut output on its own to stabilise the market, wiped out overnight gains in oil futures.”


“Falling grain prices (as the charts below show) since their peak in 2012/2013 caused farm revenues to drop by approximately 50%, making it harder for farmers to cover their debt payments.

“The situation was exacerbated by the recent trade war that led to China slashing their imports of American soybeans, which has resulted in a soybean glut.”


“Investors, financial regulators, and now the Federal Reserve are voicing concerns about the U.S. corporate bond market.

“Recalling the 2008 crisis, worriers say excessive leverage is building among U.S. firms, many of whom took advantage of low interest rates after the financial crisis to load up on cheap debt. But with the Federal Reserve still forecast to raise rates three times next year, according to central bank’s so-called dot-plot forecast, and the global economy showing signs of losing steam, there are fears the once-favorable forces propping up corporate balance sheets are now on the wane.”


“At some point global government debt grows so large that merely rolling it over becomes a problem. The government will hit a debt wall and probably drag private debt down, too. That will lead to what I think of as a worldwide debt default I call The Great Reset…

“I will admit that I have trouble imagining that whatever happens will be less than painful, no matter which theory you adhere to.

“Dealing with too much debt, even debt of the “merely” promised kind, always involves some kind of pain to someone, and more likely to everyone, leaving nobody happy.”


“If you thought that 2008 was a bad year for finance, that’s nothing compared to what’s coming next. A team of Polish researchers have performed a statistical analysis on the S&P 500 stock market index and their conclusions are – well – not good. They believe we’ve got about 12 years or so before a cataclysmic financial meltdown will crash all markets around the globe.”

[We don’t have nearly that long IMO].


Read the previous ‘Economy’ thread here and visit my Patreon page here.

Economy 29 Nov 2018 No-Deal Brexit Worse than GFC

“Britain crashing out of the European Union without a deal could trigger a deep and damaging recession with worse consequences for the UK economy than the 2008 financial crisis, the Bank of England has warned.

“Raising the stakes as Theresa May battles to win support in parliament for her Brexit deal, the central bank said that failure to reach a deal with Brussels – with no transition period to a new trading relationship – could spark an immediate economic crash.

“GDP could fall by as much as 8% next year, exceeding the depth of the recession that followed the financial crisis in one of the worst-ever peacetime capitulations for the economy…

“According to the Bank’s analysis, house prices could fall by 30% and the unemployment rate could increase from its current level of 4.1% to about 7.5%, while interest rates could be forced to rise as inflation increased to 6.5%.”


“Households are still sitting on historically large piles of debt, the Bank of England has warned.

“Although people’s debt is lower than it was during the financial crisis a decade ago, falling from 144 per cent of incomes to 125 per cent today, the central bank said that consumers could stop spending abruptly if they came under more financial strain. This, in turn, would amplify an economic downturn.”


“U.K. banks are looking to prepare business clients ahead of Brexit in anticipation for tightened access to financing, Reuters reported on Tuesday. Reports said U.K.-based financial institutions (FIs) are growing increasingly concerned that Brexit will lead to an increase in bad loans to corporate borrowers, with possible defaults resulting from delays in cross-border trade shipments or payments. Sterling value volatility could also heighten defaults, according to reports.”


“For Ireland, it has been estimated that a hard-Brexit would cost between 4.5 and 7 per cent of GDP, but over a prolonged period of years.

“What is new about the Bank of England estimate is how quickly it suggests that the economic cost could be paid in a worst-case scenario under which the UK crashes out next March with no withdrawal agreement signed…”


“The Swiss economy unexpectedly shrank in the third quarter, blighted by a drop in exports and weak domestic demand.

“No economists surveyed by Bloomberg had forecast the contraction of 0.2 percent — the median prediction was for an expansion of 0.4 percent.”


“A new study shows that Italy’s long economic crisis is having an impact on nutritional health in the country synonymous with the Mediterranean diet…

“The survey, funded by the Barilla Foundation, said a likely factor in the unexpectedly low ranking was the increase in the percentage of people living in poverty since the 2008-9 financial crisis.”


“Asia has been hit by a slew of weak gross domestic product reports for the third quarter, with global growth also sputtering at a time when rising interest rates and a U.S-China trade war threaten more pain. China’s weaker-than-expected performance kicked off the gloom. Japan then got hit by natural disasters, while growth throughout Southeast Asia faltered as well as in South Korea, Hong Kong and Taiwan. India’s economy also slowed…”


“China is likely to see sales of excavators, loaders and dump trucks — proxies for the country’s infrastructure and building sectors — fall 7-8 percent next year… The expected downturn in demand underscores a major challenge facing Beijing even as it looks to fast-track infrastructure projects to support economic growth, which has cooled to its slowest pace since the global financial crisis and is facing mounting pressure from U.S. tariffs.”


“China’s financing units for local governments, already grappling with bloated debts, now face an even bigger predicament —

“…a build-up of credit guarantees that leave them vulnerable to surging defaults.”


“Home prices in Sydney and Melbourne have dragged the Australian housing market into its biggest slump since the start of the global financial crisis. Preliminary figures from CoreLogic’s Hedonic Home Value Index showed national property prices fell 0.9 per cent over the first 28 days of November. This would push total falls for the year to an estimated 5.6 per cent – the largest national drop in prices since December 2008.”


“Sales of new U.S. houses dropped in October to the weakest pace since March 2016 as rising borrowing costs and elevated prices keep buyers out of the market. Single-family home sales fell 8.9 percent from the previous month, to a 544,000 annualized pace, according to government data Wednesday. That was below all estimates in Bloomberg’s survey of economists…”


“Venezuela has the world’s highest inflation, surging to 1,000,000 percent this year. Economists are drawing comparisons to Germany in 1923 and Zimbabwe in the late 2000s.

“The deepening economic and social crisis has forced 3 million Venezuelans out of the country since 2015. Exact figures are unknown, but that number has been rising steadily in recent months.”


“There’s a cloud hovering over the G-20 meeting of global leaders, which starts in Buenos Aires on Friday. The world economy is slowing, threatening an end to the long recovery from the financial crisis… These concerns raise an important question among aficionados of a multilateral world: If the economy entered a new downturn, would national leaders – in the age of U.S. President Donald Trump – be able to orchestrate a global response?”


“In a cautionary note from the Institute of international Finance, Reuters explains that non-financial corporate debt has hit a new record high as a decade of businesses borrowing their way out of recession continues. Debt among non-financial corporations across the globe rose to a record high of $75 trillion in the second quarter, driven mostly by China and the United States, the Institute of International Finance said in a report.”


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