Sunday, October 7, 2018

WILLIAM WHITE - Bad Financial Moon Rising

More doom and gloomgloom; along with worries about WW3, the economy could soon be in meltdown too. And according to William White, Trump's policies are just making things worse.

It's time for some Corbynomics, I think. There is an alternative. 

A decade after the collapse of Lehman Brothers, global debt levels are higher than in 2008, lending has moved into the opaque realm of asset management and private equity, and the dollar is surging. Given the proliferating risks, another financial crisis and downturn could be in store.

ASEL – No one should overestimate economists’ powers of understanding. Just as the magnitude of the global downturn that began in mid-2008 took most economists completely by surprise, so did the sclerotic nature of the recovery. Similarly, economic forecasts today appear to be nothing more than hopeful extrapolations of recent growth.

Perhaps most important, ultra-easy monetary policies have encouraged precisely the risky financial behavior that regulations were supposed to limit. With monetary policy firmly on the accelerator, and regulatory policies firmly on the brake, the likeliest result is heightened instability.
The most worrisome side effect of recent monetary policies has been a continuous increase in the ratio of non-financial debt to global GDP. Though the 2008 crisis offered an opportunity for deleveraging, the opposite has happened. Debt has piled up worldwide, with the biggest increases found in emerging-market private sectors.
The recovery in emerging-market economies was supposed to be part of the post-crisis solution. Now, these economies are part of the problem. The fact that much of this dollar-denominated debt has been issued by non-US residents means that another costly currency-mismatch crisis could be in store.
In addition to ballooning global debt levels, sky-high property prices seem to be heading for a turn, and “risk-free” long-term rates remain unusually low in many countries. Very low credit risk and term spreads, along with record-low measures of volatility, have invited still more risky behavior. Should these spreads normalize, the risks would come home to roost.
More here at your peril!
Project Syndicate

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