The Black Swans are not only circling the global economy, they are in the uber on their way to your home…
- Markets entered a perilous new phase in the past week, one in which statistically unusual moves across asset classes are becoming commonplace.
- Surging volatility in what are supposed to be among the safest fixed income instruments in the world could disrupt the financial system’s plumbing, according to Mark Connors, former Credit Suisse global head of risk advisory.
- That could force the Fed to prop up the Treasury market, he said. Doing so will likely force the Fed to put a halt to its quantitative tightening program ahead of schedule.
- The other worry is that the whipsawing markets will expose the weak hands among asset managers, hedge funds and other players who may have been overleveraged or took on unwise risks. Margin calls and forced liquidations could further roil markets.
In his must read book ‘Crisis’ former Reserve Bank Governor Alan Bollard recounts a meeting at Davos where a very smart financial expert was asking all the Reserve Bank Governors in the room who owned the debt in a credit default swap.
When everyone in the room realised they had no idea who owns the debt, they all gulped.
Shortly after that, credit default swaps crashed the entire global economy.
No one knew what these complex financial instruments were actually doing or how hollow and corrupt they had become until they melted down.
Since then we have printed $25Trillion in quantitive easing artificially creating the lowest interest rates in 5000 years. The global supply chains pushing deep into the must de-unionised parts of China subdued all the inflation, but Covid, the massive drought impacting agricultural calendar and the war in Ukraine has caused supply side shocks that are causing hyper inflationary pressures Reserve Banks can’t contain.
The danger is the the size of the debt has become so destabilisingly huge that any attempt to increase interest rates will create an event horizon of a black hole of debt that the entire global economy could be dragged into.
The insane decision by the UK Government to implement borrowed tax cuts spooked the market so much so that the BoE had to restart their quantitive easing program by buying the 30 year Gilt to stop a cascading financial disaster from unfolding.
The fear is that some of the ‘plumbing’ of global finance between banks won’t cope if there is some massive tension in the system that ruptures.
The geopolitical tensions alongside climate change damaging crop yields are making us poorer, more hungry and angry.
The nervousness in that room at Davos when Allan Bollard first heard about credit default swaps hangs over the entire global markets as reserve banks desperately attempt to jam the inflation Genie back into its bottle.
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Under Bidenomics a soft landing no longer possible
That sounds like it’s written by the Tea Party.
Blame is also on:
Russia war in Ukraine
PRC leaking covid19
PRC zero covid policy lockdowns
The previous potus’s $7.8T debt increase (could’ve been any US potus)
Boomer whining, My retirement is wrecked. Retirement? Gen-Z can never retire.:)
The whole system is creaking and wobbling at the moment ,,, https://youtu.be/1JmevmE6AnI?list=TLPQMDcxMDIwMjIJAY0pEEdKIA
If a collapse starts in Europe the intertwined connections of the financial system will not see it contained there.,,,
With the force multiplier of stupidity,,, by our western leaders/govt ,,, things are looking very bad.
We’re looking at the end of the Bretton Woods system and globalisation 1.0 this decade.
Debt, demographics, food and fertilisers, access to resources, stability of supply chains and climate change. The dominant economic models are predicated on more and on growth. We’re going to have to figure out, in real time, how to deal with sustainability and less. AFAIK there isn’t an economic model for that yet.
Black swans are out there, credit default swaps were like Coyote running in the air till it noticed the absence of ground underfoot. However IMO it’s mostly Grey Rhino’s, many problems have been flagged, noticed and ignored for years.
The response to the GFC with the possible exception of Iceland, was to kick the can down the road. The same can be said about demographics, climate change, etc, etc. On the flip side the impracticality of some solutions as currently imagined, for example supply chains required for the green revolution and green energy policies in general (such as Germany). Humans are the only creature on earth with the ability to shape it’s destiny. IMO It’s an open question if we do or instead follow the boom-bust cycle like any other animal population.
Geopolitics is going to get even more ‘interesting’.
‘The response to the GFC with the possible exception of Iceland, was to kick the can down the road’=absolutely,now the…consequences.
‘Kick the can dtr is the political template employed by Key,Ardern in fact most politicians these days.Let someone later worry about the big issues….long gone.
Too right Tui. Following energy politics shows where the money goes… This is a classic example as Saudi flex their muscle against the USA
https://www.indianpunchline.com/opecs-body-blow-to-biden-presidency/
We’ve been here before. It was called the GFC.
Austerity MKII is on thee way!
Be worse and longer than GFC, they can’t print there way out of this one, US debt is to big , plus inflation would rise .So yes, guess austerity and inflation.
Inflate away the National debt, plus your savings, if you have any.