2015-03-29

Put Yer Shorts On, It's Gonna Get Hot

I'll be shopping for puts this week.

Fears of a new global crash as debts and dollar’s value rise
Ann Pettifor of Prime Economics, who foreshadowed the credit crunch in her 2003 book The Coming First World Debt Crisis, says: “We’re going to have another financial crisis. Brazil’s already in great trouble with the strength of the dollar; I dread to think what’s happening in South Africa; then there’s Malaysia. We’re back to where we were, and that for me is really frightening.”

...It calls for a once-and-for-all write-off, instead of the piecemeal Greek-style approach involving harsh terms and conditions that knock the economy off course and can ultimately make the debt even harder to repay. The threat of a genuine default of this kind could also help to constrain reckless lending by the private sector in the first place.

However, when these proposals were put to the UN general assembly last September, a number of developed countries, including the UK and the US, voted against it, claiming the UN was the wrong forum to discuss the proposal, which is anathema to powerful financial institutions.

Pettifor shares some of the UK and US’s scepticism. “The problem for me is that the UN has no leverage here,” she says. “It can make these moralistic pronouncements but ultimately it’s the IMF and the governments that make the decisions.”
Additionally, if you're worried about a crisis in the first-world, developing countries will sink or swim on their own capital formation. Whether developing economies declare bankruptcy or not, foreign capital won't be available. What is available is likely to pour into first world countries because post-collapse, the first world economies will be paying high interest rates and growing GDP at rates associated with developing economies today. Developing economies that rely on foreign capital exist as extensions of the first world who provide food, medicine, capital and some legal structure. If the first world is absorbed in an internal crisis, developing countries without internal systems will not sustain development.

Finally The "Very Serious People" Get It: QE Will "Permanently Impair Living Standards For Generations To Come"
Global Nominal GDP Growth, as Measured in Dollars, Is Projected to Decline

With a surging U.S. dollar and growth remaining sluggish in much of the world, Bank of America Merrill Lynch forecasts that world output measured in dollars could fall in 2015 for the first time since the financial crisis. Over the past 34 years, this has happened just five times.

Steve Keen Exclaims "The Fed Has Not Learnt Anything From The Crisis"
So where do we stand today on Fisher’s disequilibrium markers of debt and deflation? In a phrase, on the precipice. As Figure 3 shows, private debt has only been reduced by 25% of GDP, whereas the decline in debt from its peak in 1932 to the end of WWII was almost 100% of GDP (this graph combined Federal Reserve data since 1945 with Census data from 1916 to 1970, and rescales the Census data to match The Fed’s data in 1945). And though we haven’t had deflation as severe as in the Great Depression—when prices fell by more 10% a year—we are back in deflation territory once more.

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