TDB Late Stage Capitalism Report: 3 more warnings of the economic crash coming centred on the US economy
From Seattle to Sydney to Stockholm and Auckland, homebuyers are getting squashed by financial pressures as the world’s hottest housing markets face a painful rest.
- Losing its froth: Buyers are pulling back as central banks raise interest rates, pushing down house prices. Property markets like Australia and Canada face double-digit declines and economists believe the global downswing is only getting started.
- Variable risk: In the US most buyers rely on fixed-rate loans for as long as 30 years. Other nations commonly have variable-rate mortgages that move closely in line with official interest rates.
- Economic threat: If the paper losses whacking homebuyers turn into real-money declines for households, banks and developers, that may hit a world economy that’s already slowing and that the IMF has warned is teetering on the edge of a recession.
The World’s Hottest Housing Markets Are Facing a Painful Reset
Markets Insider September 14, 2022, headlines: “Bridgewater’s co-chief investor says the US is at the center of a global financial bubble – and warns a crushing recession is on the cards.”
US asset prices won’t rebound to pre-pandemic highs, and investors face the prospect of a massive market crash and a severe recession, Greg Jensen warned at the SALT conference in New York on Monday.
“The biggest mistake right now is the belief we’re going to return to essentially prices similar to the pre-COVID [period],” the co-chief investor of Bridgewater Associates said, according to Reuters.
The hedge fund boss warned that investors are overestimating the Federal Reserve’s ability to curb inflation, meaning current market prices understate the risk of a deep, broad, and lengthy recession, Reuters said.
Jensen also asserted that the US is at the center of a global financial bubble, and therefore it’s the country most at risk of massive fallout when it inevitably bursts.
The Federal Reserve has two big levers to pull in its bid to influence the economy and tame inflation, and while most investors are fixated on interest rate policy, the Fed’s balance sheet plans can have an even bigger impact.
The Fed has committed to reducing its $9 trillion balance sheet, which mostly consists of US Treasury bonds and mortgage backed securities.
Of course, such a reduction would have a big impact on both stock and bond markets – and in fact, it already is.
Trading liquidity in government bonds has declined significantly since the Fed unveiled its balance sheet reduction guidance in minutes released in April, as measured by the Bloomberg US Government Securities Liquidity index.
The index is currently showing “stressed liquidity conditions” and is already sitting at levels seen during the height of the COVID-19 pandemic in March 2020. What’s worse is the liquidity deterioration in Treasurys is starting to spill over into the corporate bond market.
“The Fed may be creating different problems this time. Trading liquidity has been steadily getting worse all year and rivals the worst of the March 2020 period. Corporate distress has also risen,” NDR said.
A big crash has been defferred since 2008 via ‘modern monetary theory’=too big to fail banks.
‘Systemic risk’ and ‘moral hazard’,the catch phrases of the GFC have worn thin.
Economys based on property and stocks inflation over manufacturing and real productivity have reached their zenith.
I think the U.S has had trade deficits every year since around 1975…(a few years after ditching the Gold/$U.S std)
Defending U.S hegemony and the petro dollar has created trillions of unpayable,interest bearing debt.
The only problem is, so much is owned by international creditors ,a crash is not beneficial to them…either.
All those points you mentioned showed that the market is operating as it should – punishing people who gamble with debt.
They were warned.
Yes but it will hit here as well and if it gets into our banks, all the Ma and Pa investors will be effed as we are only one of 2 countries that are not covered by a bank guarantee scheme. The Reserve bank will run what it calls a haircut scheme where depositors will lose a large chunk of their money in the first instance before the Govt will then consider a bail out.
Many of us have taken our pension investments out and put them in banks this year despite losses due to inflation. If all those people took a haircut along with actual retirees, they would be in a lot of trouble for decades to come.
Yep they are facing a major liquidity problem with the dollar going (and likely to stay) sky-high which for them is not the good news it would be seen as if the NZ $ were to strengthen.