Epic Global Debt Defaults are Inevitable
Financial Apocalypse inevitable ! ?
Here’s a well summed up scenario by William White, the Swiss-based chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements (BIS).
Extract ~The stimulus from quantitative easing and zero rates by the big central banks after the Lehman crisis leaked out across east Asia and emerging markets, stoking credit bubbles and a surge in dollar borrowing that was hard to control in a world of free capital flows.
The result is that these countries have now been drawn into the morass as well. Combined public and private debt has surged to all-time highs to 185pc of GDP in emerging markets and to 265pc of GDP in the OECD club, both up by 35 percentage points since the top of the last credit cycle in 2007
Hitting Ten Quotes by White :
“The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability”
“The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up”
“Emerging markets were part of the solution after the Lehman crisis. Now they are part of the problem too”
“it is impossible know what the trigger will be for the next crisis since the global system has lost its anchor and is inherently prone to breakdown”
“A Chinese devaluation clearly has the potential to metastasize. Every major country is engaged in currency wars even though they insist that QE has nothing to do with competitive depreciation. They have all been playing the game except for China – so far – and it is a zero-sum game. China could really up the ante”
“In the end, the future catches up with you.By definition, this means you cannot spend the money tomorrow”
“Falling prices of manufactured goods masked the rampant asset inflation that was building up. Policy makers were seduced into inaction by a set of comforting beliefs, all of which we now see were false. They believed that if inflation was under control, all was well”
“In retrospect, central banks should have let the benign deflation of this (temporary) phase of globalisation run its course. By stoking debt bubbles, they have instead incubated what may prove to be a more malign variant, a classic 1930s-style “Fisherite” debt-deflation”
“the Fed is now in a horrible quandary as it tries to extract itself from QE and right the ship again. “It is a debt trap. Things are so bad that there is no right answer. If they raise rates it’ll be nasty. If they don’t raise rates, it just makes matters worse”
“There is no easy way out of this tangle.It would be a good start for governments to stop depending on central banks to do their dirty work. They should return to fiscal primacy – call it Keynesian, if you wish – and launch an investment blitz on infrastructure that pays for itself through higher growth.It was always dangerous to rely on central banks to sort out a solvency problem when all they can do is tackle liquidity problems. It is a recipe for disorder, and now we are hitting the limit”