Category Archives: Financial Crisis

Russia is closer to crisis than the West or Vladimir Putin realise

In fact, a crisis could happen a lot sooner. Russia’s defences are weaker than they first appear and they could be tested by any one of a succession of possibilities—another dip in the oil price, a bungled debt rescheduling by Russian firms, further Western sanctions. When economies are on an unsustainable course, international finance often acts as a fast-forward button, pushing countries over the edge more quickly than politicians or investors expect.

Russia’s biggest recent economic crisis, in 1998, led to a government default. This time a string of bank failures, corporate defaults and a deep recession look likelier. Even so the pain from these could spread abroad quickly, both to countries that rely on Russian trade (exports to Russia account for fully 5% of GDP in the Baltics and Belarus) and through financial ripple effects. Banks in both Austria and Sweden are exposed. And if firms in one badly run commodity-driven country start to default on their dollar debts, then investors will worry about others—such as Brazil.

Russia: A wounded economy | The Economist

Spreading deflation across East Asia threatens fresh debt crisis – Telegraph

“Deflation is becoming lodged in all the economic strongholds of East Asia. It is happening faster and going deeper than almost anybody expected just months ago, and is likely to find its way to Europe through currency warfare in short order.”

Asia’s currency skirmishes are happening in a region of festering grievances and territorial disputes, with no Nato-style security structure to dampen down fires

Factory gate prices are falling in China, Korea, Thailand, the Philippines, Taiwan and Singapore. Some 82pc of the items in the producer price basket are deflating in China. The figures is 90pc in Thailand, and 97pc in Singapore. These include machinery, telecommunications, and electrical equipment, as well as commodities.

Chetan Ahya from Morgan Stanley says deflationary forces are “getting entrenched” across much of Asia. This risks a “rapid worsening of the debt dynamic” for a string of countries that allowed their debt ratios to reach record highs during the era of Fed largesse. Debt levels for the region as a whole (ex-Japan) have jumped from 147pc to 207pc of GDP in six years.

Spreading deflation across East Asia threatens fresh debt crisis – Telegraph

Putin’s created an economic crisis and left Moscow no easy way out

Western sanctions have left Russia in dire financial circumstances — stuck somewhere between recession and stagnation. Though proven solutions exist for what now ails Russia, President Vladimir Putin’s geo-strategic and political choices have rendered these traditional economic approaches unworkable.

Under normal market conditions, for example, the recent collapse of the Russian ruble should have spurred exports, domestic manufacturing and foreign investment because a weaker currency makes Russian business more competitive both domestically and internationally. Yet a dramatic rebound in any of those economic arenas remains unlikely not just due to sanctions but also because of the entrenched structural weaknesses of Putin’s system.

In particular, Russia lacks a diversified economy, a vibrant entrepreneurial class, the rule of law and a stable business environment that can support a fast economic turnaround. In addition, this crisis has sparked Russian anti-Western and isolationist rhetoric that makes Moscow’s road to recovery significantly more difficult.

Putin’s created an economic crisis and left Moscow no easy way out

Wharton’s Allen: Why the Next Financial Crisis Will Be Different

Governments and central banks may be ill-prepared for the next financial crisis, warns a Wharton finance professor.

Predicting what will cause a financial crisis is extremely difficult. Because systemic risk is complex and can come from many sources, the next crisis will be different, predicts Wharton finance professor Franklin Allen.

“As we saw in the financial crisis, most governments, most central banks, just missed it,” Allen tells Knowledge@Wharton, the school’s online publication. “One of the big worries that I think many people have is whether they’ll miss the next one, too, or whether now everything is under control.”

Governments and central banks typically conduct fiscal and monetary policies separately. However, the crisis showed that system didn’t work properly.

Wharton’s Allen: Why the Next Financial Crisis Will Be Different

Capitalism in Crisis Amid Slow Growth and Growing Inequality – SPIEGEL ONLINE

“Today Mayo writes his analyses for the Asian brokerage group CLSA and they still read like reports from a crisis zone.” Mayo, a lending expert, is writing about today. Before the big crash in 2008 he was writing about it too. Only then he got fired a couple of times for doing it. How was the CEO going to make that summer home payment if Mayo screwed up his bonus.

Six years after the Lehman disaster, the industrialized world is suffering from Japan Syndrome. Growth is minimal, another crash may be brewing and the gulf between rich and poor continues to widen. Can the global economy reinvent itself?

Today, no one talks anymore about the beneficial effects of unimpeded capital movement. Today’s issue is “secular stagnation,” as former US Treasury Secretary Larry Summers puts it. The American economy isn’t growing even half as quickly as did in the 1990s. Japan has become the sick man of Asia. And Europe is sinking into a recession that has begun to slow down the German export machine and threaten prosperity.

Only when the real estate bubble burst did the industry remember the defiant banking analyst, who already saw the approaching disaster even as then-Deutsche Bank CEO Josef Ackermann issued a yield projection of 25 percent. Fortune called him “one of eight people who saw the crisis coming.” The US Congress called on him to testify about the crisis.

Today Mayo writes his analyses for the Asian brokerage group CLSA and they still read like reports from a crisis zone. Central banks have kept lenders alive with low interest rates, and governments have forced them to take up additional capital and comply with thousands of pages of new regulations. Nevertheless, Mayo is convinced that “the incentives that drove the problems … are still in place today.”

Top bank executives are once again making as much as they did before the crisis, even though the government had to bail out a large share of banks. The biggest major banks did not shrink, as was intended, but instead have become even larger.

Capitalism in Crisis Amid Slow Growth and Growing Inequality – SPIEGEL ONLINE

People are finally starting to catch on that the West is turning Japanese, at least in an economic sense. But they will never figure out how to solve the problem until the West is pushed over cliff. That may be due to war. Or it may be due to an economic crash that they can´t stop.

How we all missed the current global growth crisis – Telegraph

Since the 2008 financial crisis, economists around the world have been saying that stronger economic growth is just around the corner. As of yet, however, it has failed to materialise.

In August, Stanley Fischer, vice chair of the US Federal Reserve, laid out the predicament that forecasters have faced: “The global recovery has been disappointing”.

Around half way through each year, economists have had to explain why their global growth forecasts were too optimistic, Mr Fischer said, and this has happened “year after year”.

Global growth – both in advanced economies and the Asian Giants of China and India – may now be significantly lower than policymakers had been hoping for.

How we all missed the current global growth crisis – Telegraph

Are We Headed for a Fresh Financial Crisis? EUR, USD Exchange Rates Suggest Yes – Future Currency Forecast | Future Currency Forecast

Recent reports from the International Monetary Fund have shaken the financial world as crisis rhetoric is moving from whispers to shouts. But are we really headed towards a repeat of 2008? Given the lack of understanding as to the true reasoning behind the most recent crash, it is hard to gauge whether we are headed down that path again.

In truth it is incredibly difficult to foresee a financial crisis, and even harder to forestall one. Evidence suggests, however, that global economic growth has cooled considerably and may never return to pre-crisis levels. It is also very likely that the 18-nation currency bloc is headed towards a recession (for more detail read http://www.futurecurrencyforecast.com/eurozone-heading-triple-dip-recession-will-euro-eur-exchange-rate-slide/30648).

What you can be sure of, however, is that the longer the Central Banks opt to hold ultra-low interest rates the greater the chance of encouraging reckless risk taking.

Snail-paced global economic growth is a reality and can be seen in exchange rates. For example, before the crisis the Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the range of 1.45 to 1.60, but in 2014 the exchange rate is trending between 1.15 and 1.30.

Are We Headed for a Fresh Financial Crisis? EUR, USD Exchange Rates Suggest Yes – Future Currency Forecast | Future Currency Forecast

“Evidence suggests, however, that global economic growth has cooled considerably and may never return to pre-crisis levels.”

From this sentence it appears that there is permanent damage to global economic growth. So this time truly is different. The geniuses in the West have seriously screwed up things this time. These are the same guys who, with great authority, told us how things would be if we just listened to them. And we did listen them. Now we´re screwed. We also listened to them concerning trade with China. How´s that working out for us? Not so good either. And it´s about to get worse as China increasingly challenges the US.

 

Financial Globalization: Martin Wolf’s Warning

“And Wolf’s intellectual evolution leaves him deeply concerned about the consequences of financial globalization.”

It is time for the 2014 Globie—a (somewhat fictitious) prize I award once a year to a book that deserves recognition for its treatment of the consequences of globalization. (Previous winners can be found here.) The financial turmoil of the last week makes this year’s award-winner particularly appropriate: Martin Wolf for The Shifts and the Shocks: What We’ve Learned–and Have Still to Learn–from the Financial Crisis. Wolf, a distinguished writer for the Financial Times, once viewed globalization as a positive force that enhanced welfare. But the events of the last few years have changed his views of financial markets and institutions. He now views financial flows as inherently susceptible to the occurrence of crises. And Wolf’s intellectual evolution leaves him deeply concerned about the consequences of financial globalization.

EconoMonitor : EconoMonitor » Martin Wolf’s Warning

Globalization sets up the entire global economy for collapse during a big crisis.

Debt-laden ‘zombie’ firms threaten China’s economy

Economists concerned over rapidly rising corporate debt levels in China are sounding the alarm, warning that major changes are needed to avoid an increase in “zombie” banks and firms.

After expanding at a lightning-fast rate, China’s corporate debt market is now the world’s largest at $14.2 trillion, according to Standard and Poor’s.

Experts worry that too many of the loans have gone to underperforming firms that will never be able to repay — especially in a slowing economy.

Debt-laden ‘zombie’ firms threaten China’s economy – Oct. 19, 2014

IMF warns period of ultra-low interest rates poses fresh financial crisis threat | Business | The Guardian

The Washington-based IMF said that more than half a decade in which official borrowing costs have been close to zero had encouraged speculation rather than the hoped-for pick up in investment.

In its half-yearly global financial stability report, it said the risks to stability no longer came from the traditional banks but from the so-called shadow banking system – institutions such as hedge funds, money market funds and investment banks that do not take deposits from the public.

José Viñals, the IMF’s financial counsellor, said: “Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.”

IMF warns period of ultra-low interest rates poses fresh financial crisis threat | Business | The Guardian