Category Archives: Financial Crisis

Italy, Germany, And The Euro-Zone Are On The Brink Of A Conflict

As a new year begins, we look at a key forecast that will bridge 2016 and 2017: the Italian banking crisis. In Geopolitical Futures’ 2016 forecast, we said that the focal point of Europe’s financial crisis would shift from Greece to the Italian banking system. For 2017, we forecast that the evolution of this crisis will eventually force a confrontation between Italy, Germany, and the European Union. Here, we establish a starting point for the looming Italian banking crisis in 2017, which will unfold over many months and have a range of consequences.

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Italy, Germany, And The Euro-Zone Are On The Brink Of A Conflict

I was one of the only economists who predicted the financial crash of 2008 – in 2017 we need to make urgent changes | The Independent

Economics is driven by ideology – it is ideology, not science, which drives them to assert that bank bailouts are tolerable but policies that protect the poor aren’t. Unsurprisingly, these flawed theories and models are a great comfort to financial elites – which is why so many economists are hired and funded by big banks, corporations and the wealthy

I was one of the only economists who predicted the financial crash of 2008 – in 2017 we need to make urgent changes | The Independent

The Bank of Canada just laid out how the economy could tank – Macleans.ca

In a video posted Monday on YouTube, in conjunction with the release of the Bank’s semi-annual financial system review last Thursday*, Bank of Canada senior policy adviser Joshua Slive sketches out how Canada’s dangerous brew of debt and inflated house prices could combine to devastate the economy.

Here’s the scenario that worries the Bank.

1. As the Bank has pointed out already, households are highly indebted and house prices are rising at an unsustainable rate, though as Slive observes, people can often cope with these vulnerabilities for an extended period.

The Bank of Canada just laid out how the economy could tank – Macleans.ca

Cracks in the Chinese Powerhouse | The Cipher Brief

First, mounting public and private debt has raised the risk of a financial crisis and of dramatically slower growth rates. Chinese debt has accumulated a dizzying 465 percent over the past decade, and totaled nearly 250% of GDP in 2015. Servicing the debt will consume a growing part of the country’s resources and is already exacerbating financial volatility. Worried about the size and pace of credit expansion, the IMF has called the resolution of Chinese debt an urgent task.

Second, the country’s adherence to an increasingly inefficient mode of economic growth threatens long-term growth. China powered its phenomenal rise on the backs of exports and investment. But this approach has grown less effective as world demand has fallen and capacity grown redundant. More debt is now required to generate less and less growth. According to economist Ruchir Sharma, China now borrows six dollars to generate one dollar in GDP growth.

Cracks in the Chinese Powerhouse | The Cipher Brief

The Big Short: is the next financial crisis on its way? | Money | The Guardian

In the Oscar-winning The Big Short, Steve Carell plays the angry Wall Street outsider who predicts (and hugely profits from) the great financial crash of 2007-08. He sees sub-prime mortgages rated triple-A but which, in reality, are junk – and bets billions against the banks holding them. In real life he is Steve Eisman, he is still on Wall Street, and he is still shorting stocks he thinks are going to plummet. And while he’s tight-lipped about which ones (unless you have $1m to spare for him to manage) it is evident he has one major target in mind: continental Europe’s banks – and Italy’s are probably the worst.

Why Italy? Because, he says, the banks there are stuffed with “non-performing loans” (NPLs). That’s jargon for loans handed out to companies and households where the borrower has fallen behind with repayments, or is barely paying at all. But the Italian banks have not written off these loans as duds, he says. Instead, billions upon billions are still on the books, written down as worth about 45% to 50% of their original value.

The Big Short: is the next financial crisis on its way? | Money | The Guardian

China’s Debt Addiction Could Lead to a Financial Crisis – Barron’s

China’s borrowing spree could end badly, with dangerous repercussions for the rest of the world.

These days, however, China has lost much of its economic luster. GDP, or gross domestic product growth has slowed dramatically; the economy expanded by only 6.7% in the first three quarters of this year, according to government reports that most deem wildly inflated. Even so, that’s the slowest growth rate in 25 years. The nation is likewise afflicted with unhealthy asset bubbles that come and go with worrisome rapidity, most recently, last year’s stock market boom and bust.

Spates of asset atrial fibrillation are often precursors of economic trouble, especially in developing economies like China’s. The root problem is that China has relied on mindless monetary stimulus since 2008 to muscle its way to continued output growth. As a consequence, debt levels, mainly corporate borrowings, have surged. According to China finance expert Victor Shih, an associate professor of political economy at the University of California, San Diego, and founder of China Query, the country’s debt load has expanded from 150% of GDP before the onset of the 2008 global credit crisis to about 300%.

China’s Debt Addiction Could Lead to a Financial Crisis – Barron’s

Why a Chinese Real Estate Bubble Could Bring Down the Global Economy

While U.S. GDP grew by 2.9% this quarter, trouble is brewing on the other side of the Pacific.

Analysts are sounding the alarm about growing Chinese debt loads and a potential real estate bubble that threatens to dramatically slow growth in Asia, and which could be a drag on the entire global economy if it bursts.

Why a Chinese Real Estate Bubble Could Bring Down the Global Economy

The eurozone is turning into a poverty machine

There are constant bank runs. The bond markets panic, and governments along its southern perimeter need bail-outs every few years. Unemployment has sky-rocketed and growth remains sluggish, no matter how many hundreds of billions of printed money the European Central Bank throws at the economy.

We are all tediously aware of how the euro-zone has been a financial disaster. But it is now starting to become clear that it is a social disaster as well. What often gets lost in the discussion of growth rates, bail-outs and banking harmonisation is that the eurozone is turning into a poverty machine.

The eurozone is turning into a poverty machine

Euro ‘house of cards’ to collapse, warns ECB prophet

“Realistically, it will be a case of muddling through, struggling from one crisis to the next. It is difficult to forecast how long this will continue for, but it cannot go on endlessly,” he told the journal Central Banking in a remarkable deconstruction of the project.

The regime is almost certain to be tested again in the next global downturn, this time starting with higher levels of debt and unemployment, and greater political fatigue.

Prof Issing lambasted the European Commission as a creature of political forces that has given up trying to enforce the rules in any meaningful way. “The moral hazard is overwhelming,” he said.

Euro ‘house of cards’ to collapse, warns ECB prophet

Future of Banking Looks Dark—Why That’s a Problem – WSJ

Institutions’ sagging profitability poses wider threats to economic growth

They discovered that markets think banks are much more likely now to lose half their market value than before the crisis. They interpret this as a “decline in the franchise value of major financial institutions, caused at least in part by new regulations.” The counterintuitive implication: The bevy of rules designed to make banking safer may, by endangering their long-term viability, ultimately achieve the opposite.

Future of Banking Looks Dark—Why That’s a Problem – WSJ