The Guardian has reported that:
The storm clouds of the next global financial crisis are gathering despite the world financial system being unprepared for the next downturn, the deputy head of the International Monetary Fund has warned.
I won't say I got in on this warning before the IMF did. I will simply note that the report added:
David Lipton, the first deputy managing director of the IMF, said that “crisis prevention is incomplete” more than a decade on from the last meltdown in the global banking system.
“As we have put it, ‘fix the roof while the sun shines.' But like many of you, I see storm clouds building, and fear the work on crisis prevention is incomplete.”
That's true.
But there's a big difference this time. On 2008 no one really believed how bad it could be. This time we know. And that will make it worse because now most people will have no hope of it getting better. Not, at least, without really radical change.
And the IMF is, amongst many, not ready for that.
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“…….But like many of you, I see storm clouds building, and fear the work on crisis prevention is incomplete.”…..”
Incomplete ???
I’m afraid it is complete. What we’ve seen is all we are going to get. The economy is thriving didn’t you know ? Austerity is finished and we are en route to the sunny uplands.
Expect no more roof repairs. There are none planned.
Any planning there is is intended to deal with the next crash. Which it won’t. Because preparations where they exist at all are designed to prevent the 2008 crash; the next one will be subtly, or quite distinctly, different. There is no plan whatsoever to prevent it.
It’s like proposing to enter WW2 relying on the same cavalry tactics which were ineffective in WW1. Which is precisely what we did. Because the military elite ‘didn’t like’ tanks.
The Poles did use cavalry charges in WW2 Andy. About 80% of Wehrmacht transport involved horses too. Never underestimate the loons mate.
archytas says:
“The Poles did use cavalry charges in WW2 Andy. About 80% of Wehrmacht transport involved horses too. Never underestimate the loons mate.”
Yes, and how long did it take the Panzer divisions to destroy the Polish cavalry ? Not much use against J87 Stukas either were they ?
There is a great deal of difference between using horses for transport and using them as a fighting vehicle. Although admittedly when dead, they roast better than tanks and are substantially more nutritious.
The Germans didn’t need Panzers. Two VW Beetles and a washing line between them would have dealt effectively with a cavalry charge. !!
Only one luminous spot on the horizon was in yesterday’s Guardian.
https://www.theguardian.com/science/2018/dec/10/tread-softly-because-you-tread-on-23bn-tonnes-of-micro-organisms
Thermophiles, deep in the earth’s crust, will ensure that life continues, even as mankind rushes this planet into its sixth mass extinction.
Oh yes….we’re only blowing higher states of life apart
And that will happen sometime
It just need not be now
Jennifer (aka jeni, havantaclu) Parsons says:
December 11 2018 at 2:45 pm
“…. one luminous spot ….[…] Thermophiles, deep in the earth’s crust, will ensure that life continues, even as mankind rushes this planet into its sixth mass extinction.”
A generation ago the Green clarion call was to ‘Save the Planet’ and some still see the challenge in this light particularly as it applies to the extinction of some of our favourite zoo species. WWF chose well when they picked the giant Panda to be their poster boy.
The planet is not in danger. Life on the planet is not in danger in the long term. What our great and good fail to recognise is that humanity is perilously close to joining the dinosaurs as a very short term dominant species. The difference is that the dinosaurs after their 150 million year dominance were knocked off their perch by external factors, we, on the other hand after a fraction of that time maybe only a couple of million years, are committing suicide. Or perhaps killing our host (?)
But there will be enough life left for the planet to start again. With luck ‘intelligence’ won’t re-emerge for a very long time. It was an interesting experiment but doomed to fail. (A parallel with neoliberal economics, I suppose)
If you doubt this, I recommend Stephen J Gould’s book “Wonderful Life” about the pre-Cambrian life forms found fossilised in the Burgess Shales in Canada. We don’t know which way up some of them lived they are so unlike the life forms we know.
We need not worry about our planet. Just ourselves. Bye Bye, Jennifer. It was a lovely brief encounter. A pleasure to make your acquaintance. Be of good cheer. 🙂
How’s the knee coming on ? Well I hope. Cader beckons, but I’d wait ’til it gets a bit warmer if I were you. (Actually if you don’t mind I’ll just watch 🙂 )
Go on – start training now
I’ve just taken the dog for a walk…..it keeps me sane (maybe)
Hmmm…. But I’d like a greyhound and they don’t do walking.
They do running very fast for ten minutes maximum; and lying about on the sofa 23 hrs a day minimum. I know a soul mate when I see one 🙂
🙂
Reply to Andy Crow-Why waste an hour a day?
Trog says:
“Reply to Andy Crow-Why waste an hour a day?”
Easy question.
A greyhound needs to eat, shit and scratch. So do I. 🙂
Hi Andy
Yes, I was feeling a little bit depressed yesterday about humanity in general!
As to climbing Cadair – well, the new knee’s being exercised, but progress is slower than I’d like – still a lot of swelling and pain 3 weeks after the operation. The fact that I’m my mother’s daughter as far as physical type goes – robust, not gracile! – doesn’t help, especially if, as I did last night, you fall out of bed! Strained my knee getting up and back into bed – so am seeing the practice nurse – and probably a doctor – this afternoon.
So it’ll be a while before I sit in the chair of Idris. I don’t think Theresa May woke up dead, or a poet, but certainly mad when she tried the experiment last year, and called a General Election on the strength of it!
I seem to recall that within a couple of years of the crash of 2008 our financial wizards came up with a flashy new derivatives wheeze based on Exchange Traded Funds – in themselves almost a guarantee of the next crash!
On top of that we now live with unpayable student loans, car finance schemes and (please don’t laugh) sub-prime house mortgages in the USA.
There just might be a grain of truth in what the Guardian report has to say…… 🙂
ETFs were around long before 2008. “Flashly new derivatives”.. not really they are a low cost and simple way to gain access to markets..will they cause a crash? How can they?
Opacity
Liquidity
Irrationality
Will those do for starters?
How you can be so naive is staggering
What’s irrational about cutting costs?
They are more liquidity than any other collective investment.
They are highly transparent.
I could make some criticism of ETFs but the ones you make don’t hold up.
I strongly suspect much the same was aid of CDOs etc pre 2008
Laying opacity, complexity and inflexibility (and ETFs do create this) over a market might superficially save cost
But there is always a price, and that will be liquidity
The reality is that under pressure the need to liquidate ETFs will create market stress
And you are ignoring that
So in your world ETFs are irrational, opaque, lack transparency and are akin to CDOs!!!
You might want to put something down on paper to explain all of this. It certainly would be a show stopper.. or you might open yourself to ridicule. Would be interesting either way.
I hardly need to …. it is obviously true
Tim says:
“What’s irrational about cutting costs?”
All manner of things can be irrational about cutting costs, Tim.
There is an old saying that you get what you pay for, for example. It isn’t reliably true, but it can be; though sometimes you can pay a great deal for quality and not get it.
Taking a simple example not directly related to what seems to be your field of financial ‘wizardry’ Henry Ford deliberately increased his production costs in order that his workforce could afford to buy his product.
Placing money into the hands of fund managers who have slavishly tracked the indexes is about the most stupid investment strategy imaginable and hasn’t done a great deal over the past twelvemonths from what I can gather, since indexes are mostly back where they were. Lots of short term traders will have extracted a profit from the intermediate fluctuations but nobody has actually created any new wealth in this way.
An awful lot of people are going to realise too late that they are being taken for a ride. Again.
You guys are playing a game that was sussed six thousand years ago. And has been played, with the same results, repeatedly ever since.
One could despair, but why bother. Enjoy the ride.
I would just mention the paradox of thrift
Let’s understand a simple fact about ETFs.. they are not derivatives. To use flashy derivative speak they are delta 1 and have zero gamma. In layman’s terms they match the underlying index (FTSE100 for e.g) point for point it is that simple.
Also if investors didn’t buy an ETF they would buy similar underlying equities or managed funds. If they choose to sell an ETF they would otherwise be selling the underlying equities or a managed fund. The impact on markets is the same.
They are nothing like CDOs. The tranches from which were complicated derivatives.
I know what an ETF is
And my points stand
I actually think (on this occasion) you are talking a meaningless diatribe to sound sensationalist. You offer no depth to your argument.
I’ve done it all before and cannot be bothered to do so again
I get the same answer from a different route. Full economic costing on almost anything builds up so quickly through overhead and professional fees I have a PHD student at £120,000 pa and single family intervention plans between £180,000 and £360,000 pa. Want to build a bridge at say $1.6 billion in labour and materials with £1.8 billion in 40 year finance? 100 fte students bring in £9,300 times 100 – about a million. Teaching costs plus electronic library at around £200,000. Property inflation so high against wage freeze. Debt of all kinds at massive proportion against median wages. Time for jubilee and reorganization. About the only thing Aristotle got right was that money is a convention potentially gone tomorrow!
Tally and money and credit are obvious approximations. One would expect something closer to a transparent reality planet modelling fince by now.
What I’m wondering re the next financial crisis is whether banks really are ‘too big to fail’.
And if society is not too big to fail what possible use will banks be?
Next time will not necessarily be ‘worse’, but it will sure as hell be different.
I had a discussion with a Washington DC lobbyist last week. The teleconf’ was mostly about the energy transformation in Europe and of course – investment in the energy rennovation of buildings. He made the comment: plenty of money in the USA & much of it is unhappy with T-Bond returns. The idea is/was that such money might find a place funding the energy renovation of buildings.
I thus wonder what will trigger the crash (ETFs?) and what will keep it going? Ihave an idea that it will be loss of confidence in fossil fuel companies & their ability to pay large dividends.
Mike Parr says:
“I thus wonder what will trigger the crash…..”
So called ‘normalisation’ of interest rates will do it.
Jay Powell took fright only last week and indicated the FED may be prepared to ease-off on on interest rate hikes to halt what was shaping-up to be a precipitous drop in stock prices.
FED interest rate policy is not going to change, only slow down. The orthodox view will hold sway and rates will rise until they precipitate the crash which the increased rates will cause in order to be able to reduce rates to save the day.
That’s my guess.
Donald Trump and his advisors may have other ideas that will cause havoc before then so all bets are off. Kidnapping a senior Chinese business leader for example is not going to pass off without some form of retaliatory response.