Category Archives: Financial Crisis

Deutsche CEO: Negative rates have ‘fatal consequences’

While intended to spur growth by directing money away from safe-haven investments, negative rates instead have spurred higher savings rates and economic unease among Europeans — essentially the opposite of their intended purpose. Japanese government debt up to 10 years in duration also carries negative yields.

Cryan said the ECB deserved praise for rescuing the economy during the financial crisis, but it has gone too far.

Deutsche CEO: Negative rates have ‘fatal consequences’

People must save even more money because they aren’t earning anything at the bank. Also, insurance companies are in trouble because they can’t earn much either. Negative interest rates will eventually cause a crisis.

Savers hit by negative rates are starting to store their cash in safes: S&P

“In Japan, we have got anecdotes that safes are actually being purchased for the storage of cash, much more so, because in Japan, there is a high propensity of the net households having a greater degree of savings and so instead of putting it in a bank deposit, they are keeping it under the mattress or basically in a safe,” Andrew Paranthoiene, director at S&P Global Ratings, told CNBC in London on Friday.

Media reports suggest sales of mini-vaults to Japanese consumers have risen since the Bank of Japan introduced negative rates earlier this year.

Commerzbank and Munich Re in Germany have also considered stashing physical cash, according to media reports.

Savers hit by negative rates are starting to store their cash in safes: S&P

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Global interest rates lowest in 5,000 years – SmartCompany

Yes, you read that headline right and, no, it’s not a typo!

Global interest rates are now, rather stupendously, at their lowest level in 5,000 years.

Bank of America Merrill Lynch came to this conclusion as it compiled some very impressive research for the latest edition of its Longest Pictures report, which included more than 100 charts tracking such things as ownership of financial assets, returns, volatility and valuation since 3,000 BC.

Global interest rates lowest in 5,000 years – SmartCompany

The extremely low interest rates should tell you that something is seriously wrong with the world today. And what is wrong today is likely to get worse before it gets better.

Why negative interest rates are mad, bad – and dangerous

The biggest problem with negative rates, though, is that the policy is so weird and unnerving that it could actively discourage the very private-sector investment we need to get the big western economies back on track. Bemused by negative rates, many business bosses will be spooked completely if we venture even further down the monetary rabbit hole, and use so-called ‘helicopter money’ — with the authorities putting new money directly into every citizen’s bank account. Yet, incredibly, such measures are on the cards.

‘It would be so nice if something made sense for a change,’ says Alice, in Lewis Carroll’s classic. She could have been talking about 21st-century central banking.

Why negative interest rates are mad, bad – and dangerous

Student Loans And The Coming Financial Crisis – Forbes

Two points here, one relating to colleges, the other to the broader economy. First, there is overwhelming evidence that the main beneficiaries of the student loan programs are not students, but rather university bureaucrats, professors, and others who have captured the loan money via higher tuition fees that are then dispersed within the university community. While the programs have expanded college enrollment somewhat from what would exist otherwise, that has simply added to the massive underemployment problem – college graduates doing jobs requiring few skills. We are sending kids to colleges in massive numbers to enrich some adults (college administrators and senior professors), only to be consigned to a future with big debt burdens. The solution isn’t ending the burden through de facto forgiveness of loans, but rather to stop the loan programs in the first place. Reverse our overinvestment in higher education.  In terms of financing students, it is time to initiate Income Share Agreements (students selling equity, not debt, in themselves), or at the very least force colleges to have skin in the game where loans are made.

Student Loans And The Coming Financial Crisis – Forbes

As China prepares to host the G20 economic summit, fears for its own economy grow

Oppressive heat and humidity in my part of the country finally broke this week in a giant storm that, despite its destructive power, came as a relief. In some ways, the global economy feels as if it’s waiting, too.

Climbing stock markets notwithstanding, many have recognized an ominous feeling of escalating pressure that may need a crisis to bring things back into balance. Some commentators, including billionaire investor George Soros, have hinted that China is ready for a storm.

“I think there’s an eerie resemblance of what’s happening in China to what happened here leading up to the financial crisis, 2007-2008,” Soros said during an Asia Society event in New York earlier this year. “It’s similarly fuelled by credit growth and an eventually unsustainable expansion of credit.”

Waiting for a China crisis to reset the global economy: Don Pittis – Business – CBC News

America’s Brewing Debt Crisis | Foreign Affairs

Both criticisms distract from the real problem with the act, which is that it left some key problems unaddressed. In dealing with reckless lending and excess leverage, it misses one of the most important causes of the crisis: “runnable liabilities,” or short-term debt that the govern­ment does not insure. The U.S. financial sector holds trillions of dollars of such debt, including uninsured bank deposits and the short-term liabilities of other financial institutions, such as overnight loans. What makes this kind of debt so dangerous is that during a crisis, short-term lenders, unlike long-term ones, can demand their money back imme­diately, leaving borrowers unable to pay all their creditors quickly. The financial sector stops lending money, credit dries up for consumers and businesses, and the economy grinds to a halt. This is what happened in 2007 and 2008, when massive runs on short-term debt spread panic throughout the financial sector and helped trigger the Great Recession.

America’s Brewing Debt Crisis | Foreign Affairs

A year after the crisis was declared over, Greece is still spiralling down | Business | The Guardian

Against a backdrop of monumental debt – €320bn, or 180% of GDP, the accumulation of decades of profligacy – fatalism is fast replacing pessimism on the streets. “Our country is doomed,” sighs Savvas Tzironis, summing up the mood. “Everything goes from bad to worse.”

Close to half a million Greeks are believed to have migrated since the crisis begun, thanks to the searing effect of persistent unemployment (at just under 24%, the highest in Europe) and an economy that has shed more than a third of its total output over the past six years. The nation has been assigned some €326bn in bailout loans since May 2010 – the biggest rescue programme in global financial history. Yet the fear that it is locked in an economic death spiral was given further credence last week when Eurobank analysts announced that consumption and exports had also fallen, by 6.4% and 7.2%, in the second quarter of the year.

A year after the crisis was declared over, Greece is still spiralling down | Business | The Guardian

Asia could be barreling toward a financial crisis

Asia could be walking into a financial disaster.

Rising debt, real estate getting bubbly, and threats to growth all threaten the possibility of a credit crunch, leading to a financial crisis throughout the region.

Private credit has exploded across the region and has reached nearly 140% of GDP, according to the latest presentation by Rob Subbaraman, chief economist at Nomura. That compares with an average of 77.2% for emerging markets.

It’s especially worrisome in China, where the level of private debt exceeded 200% of GDP in the fourth quarter of 2015.

Asia could be barreling toward a financial crisis

Another financial crisis? Soaring global debt since 2008 raises risk as world economy sputters – LA Times

Ancient Babylonian kings had a special tool at their disposal when economic or social conditions turned dicey: They would declare a “debt jubilee” and instantly wipe out borrowers’ loans, allowing average people deep in hock to start over with a clean slate.

It says something about the global economy in 2016 that the concept of a modern debt jubilee has been finding its way into some mainstream financial market discussions.

Eight years ago, unsustainably high debt was the root cause of the worst recession since the Great Depression. Yet world debt overall now is far above 2008 levels. And as with millions of American home buyers back then, many of today’s borrowers owe amounts that could become crushing burdens if the global economy should careen into a new recession.

Another financial crisis? Soaring global debt since 2008 raises risk as world economy sputters – LA Times

Chill winds of the global financial crisis are back | The New Daily

Fear and loathing has been let loose in the finance markets following Britain’s vote to leave the European Union.

There was initial panic following the unexpected Brexit vote, with European share markets losing nearly 10 per cent in the first two days after the June 23 vote.

British markets were more sanguine about the country’s decision, falling less than half that amount.

For the average punter, post-Brexit panic could have seemed like a beat-up. After all, markets had regained much of their lost ground a few days on.

But don’t be fooled: there are some nasty things stewing in the finance world in Europe.

And the smart money people are hunkering down for a financial storm.

Chill winds of the global financial crisis are back | The New Daily

Why Italy could be the next European country to face an economic crisis – Vox

In the United States, we view the economic crisis that started in 2008 as something that ended years ago; the story now is the slow pace of recovery. But in Europe, the crisis genuinely hasn’t ended. Greece had a major debt crisis as recently as last year, and Spain is still suffering from an unemployment rate above 20 percent.

Last month’s vote for Brexit has led to a renewed flare-up of anxiety about the European financial system, and it looks like Italy may be the next European country to face a crisis. Italian banks have about $400 billion in bad loans on their balance sheets, and markets have started to panic. One Italian bank has lost 80 percent of its value over the past year, and observers worry that some banks could be on the verge of collapse.

Why Italy could be the next European country to face an economic crisis – Vox

Generational Chaos Ahead | Mauldin Economics

“… fact remains that there are forces in the world today that are aligned to bring about a pretty damned serious global crisis and recession.”

The Worst Yet to Come

So after Neil Howe explained all this at the conference, it was time for questions. Naturally I voiced the question that we all want to know the answer to: “Will the Crisis be over soon?” Neil’s answer was succinct, and not encouraging. He thinks we are only halfway through; and if the next few years play out like past Fourth Turnings, the worst is yet to come.

Why?

Right now we are in a period that roughly parallels the 1930s. Then, Franklin Roosevelt was battling the Great Depression with vast public works and relief programs. Could we do the same now?

We could, yes, but we have a problem. FDR had room for fiscal stimulus because government debt was minimal. That is clearly not the case now. The next recession, which would precipitate the next portion of the Fourth Turning Crisis, will see our national deficit balloon to $1.5 trillion; and with the off-balance-sheet requirements, the national debt will grow by $2 billion a year, quickly bringing us to a $30 billion total debt.

The government is in hock up to its eyeballs, and the Federal Reserve has used up most of its monetary policy tools. There is little room to add public spending in one sector unless we take it away from another.

And the developing Crisis is not just a US problem. Europe is coming to realize that it faces an existential crisis; in Japan Abenomics is losing credibility; and China is well into a period of severe financial and cultural struggle. The emerging markets will be tossed to and fro on the whims of financial flows. Yes, there will be great technological leaps forward, and over the next decade or two we will see three billion people move into the middle class around the world – which will create an even greater potential for cultural change worldwide.

It is important that we understand the times we are in. Is our fate sealed? No, not in the sense that we are all doomed and there is nothing we can do about it. We are going to live through a period of stress and crisis. Coincidence? Some will argue so, and maybe they are right. Some argue that seeing history through a generational lens is shaping the facts to meet your story. Okay, you can have whatever narrative you want, but the fact remains that there are forces in the world today that are aligned to bring about a pretty damned serious global crisis and recession.

Generational Chaos Ahead | Mauldin Economics

Why US financial markets may not be immune to Brexit’s ripple effects | Money | The Guardian

Laurence Wormald, head of research at FIS, a financial technology company, has run a “stress test”, or a hypothetical scenario analysis, and calculated that if Britons vote in favor of Brexit, the S&P 500 would fall 5% and banking stocks would fall 8%, while volatility in the broader stock market would soar 40%.

That’s the simple and straightforward scenario, however. If such a Brexit vote prompts other anti-EU parties in other countries to renegotiate their relationship with the European Union, that would create what FIS refers to as “exit contagion”. That would send British stocks down 20%, European stocks down 15%, and US stocks down 10%; volatility in British and European markets would double, and in the US market it would soar 60%. That would make the stock market a very, very uncomfortable place to be for the remainder of the year.

Why US financial markets may not be immune to Brexit’s ripple effects | Money | The Guardian

We’re headed for 1938 all over again – Business Insider

Sound familiar?

Well it should, says the Morgan Stanley global strategy team of Chetan Ahya, Elga Bartsch, and Jonathan Ashworth. In fact, the team said in a note to clients Wednesday that nearly the same situation that occurred in 1937-38 is currently happening in the US.

“The critical similarity between the 1930s and the 2008 cycle is that the financial shock and the relatively high levels of indebtedness changed the risk attitudes of the private sector and triggered them to repair their balance sheets,” wrote Ahya, Bartsch, and Ashworth.

“During the deleveraging process, the private sector becomes risk-averse and shifts its attention towards restoring health to its balance sheets.”

We’re headed for 1938 all over again – Business Insider