A New Banking Crisis?

A New Banking Crisis?

Bad Numbers Today, there are over $3 trillion in stressed loan assets, compared to around $1 trillion of US sub-prime loans which was the catalyst for the 2008/2009 crisis. The World Bank estimates the ratio of non-performing loans (“NPLs”) to total gross loans is comparable the 2009 levels of 4.2% in 2009. Several loci of […]

Negative Rates – Part 2: A Policy Too Far?

Negative Rates – Part 2: A Policy Too Far?

Negative Reality Debt can only be reduced by strong growth, inflation, currency devaluation (where the borrowing is from foreigners) or default. All the strategies other than growth involve some level of transfer of value from savers either by reduction in the nominal value returned or decreased purchasing power. Growth and inflation are low. Devaluation is […]

Negative Rates Part 1: Beyond the Zero Bound

Negative Rates Part 1: Beyond the Zero Bound

  Interest in negative rates, at least as can be judged from hyper activity from commentators, has diminished. But a number of European central banks still have negative official rates. The European Central Bank (“ECB”) deposit rate is minus 0.30%. Switzerland’s policy rate is minus 0.75%. Sweden’s policy rate is minus 0.35%. The Bank of […]

The Coming Italian or French Phases of Europe’s Economic Crisis

The Coming Italian or French Phases of Europe’s Economic Crisis

Low interest rates, continuing injections of liquidity by the European Central Bank (“ECB”), fiscal stimulus to varying degrees assisted by low government borrowing costs, a fall in the Euro and sharply lower energy prices are hiding deep-seated and unresolved problems in Europe. Despite the ongoing Greek drama which is incapable of resolution, the European crisis […]

Crash Course Part 3: The Age of Stagnation?

Crash Course Part 3: The Age of Stagnation?

photo: Ken Teegardin There are now three possible scenarios for the global economy and financial markets. The first is the Lazarus economy, where the strategies in place lead to a strong recovery. The US leads the way. Europe improves as the required internal transfers and rebalancing takes place with Germany accepting debt mutualisation to preserve the […]

Crash Course Part 2: Crisis Triggers

Crash Course Part 2: Crisis Triggers

photo: Flood G. Triggers There are a number of potential triggers to a new crisis. The first potential trigger may be equity prices. The US stock market runs into trouble. A stronger dollar affects US exports and foreign earnings. Emerging market weakness affects businesses in the technology, aerospace, automobile, consumer products and luxury product industries. Currency […]

Crash Course Part 1: The Problems of Overvalued Assets & High Debt

Crash Course Part 1: The Problems of Overvalued Assets & High Debt

photo: pixabay In economics and finance, over-valued assets and excessive debt levels generally do not lead to happy endings Nutty Shares… Over the last 5 to 6 years, mispricing of assets has reached epidemic proportions. Global equities prices have increased strongly. Sell side analysts anticipate further gains, arguing that the falls of August 2015 and […]

Part 3: Reforming China – Changing the Software

Part 3: Reforming China – Changing the Software

Beyond purely economic and financial objectives, the reform process in China must meet welfare, demographic, environmental and governance challenges.  The People’s Welfare… Increasing consumption requires increases in household income, reduced savings or a combination. This requires increasing wage levels and employment levels.  Increasing consumption will require reform of the welfare system, especially health, education and […]

Part 2: Financial Reform in China – Don’t Bank It!

Part 2: Financial Reform in China – Don’t Bank It!

photo: David Dennis The Chinese brand of state corporatist model based on credit driven investment is designed to deliver growth. The strategy requires the government to exert significant power over the economy, with the ability to intervene in economic activity and allocate resources. In practice, this is done through the SOEs and especially control of the […]

Part 1: Reforming China – Rebooting the Economic Engine

Part 1: Reforming China – Rebooting the Economic Engine

photo: tammy c. Over the last 35 years, China has emerged as a major global economy, with average annual growth rates of 9.7% which have been pivotal in helping raise between 400 and 600 million Chinese out of poverty. Commentators have run out of hyperbole to describe the development. Justin Lin Yifu, a former chief economist […]

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