The FT has an article this morning with the subheading:
Companies from Brazil to China are finding it harder to repay loans and raise fresh cash, hampering growth
Why is that?
The Fed has called an end to ultra-loose money, pushing companies into a credit crunch and forcing them to postpone or cancel investments.
What't the consequence?
The result is a world economy dicing with deflation and recession.
And the scale of the problem?
Some estimate that $7tn of QE has flowed to emerging markets since the Fed began buying bonds
Any chance of a happy ending?
No: the party is over.
That's a view I agree with. Conventional QE is not working (the EU please note) and unless a lot of debt is going to be turned into equity, soon these debts are going to drag these companies down. But nothing in accounting standards encourages lenders to do that: the banks are encouraged to hand onto debts still, zombie like (although this will be changing).
I'm not sure why but this came to mind as a result:
Sometime we are going to have to face the morning after.
And we won't get there without People's Quantitative Easing, which is a very different beast indeed, largely because it works like equity.
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you make sense on the PPL’s QE but has it been adopted as policy by McDonnell and his advisory council including Blanchflower.
can you tweet details of their reaction?
They have adopted nothing as yet
And nor would they: they are advisers
It’s not their job to make policy
“Conventional QE is not working (the EU please note)”
Didn’t I read that the ECB was going to buy municipal bonds? If so that would certainly be an improvement.
But not much
I would have preferred Talking Head’s ‘We’re On the Road to Nowhere’ myself but I get it.
Your economic point is however sound IMHO.
Has anyone else got suggestions for songs that resonate with the times we currently live in?
Happy to share them…
Marvin Gaye’s Inner City Blues…sadly.
On the blog
“Breadline Britain” by the Communards.
“…democracy and freedom are a far-off foreign land…”
On the blog now
Thanks
“Conventional QE is not working”
I’m never quite sure why anyone would expect it to work. If the central bank buys up government bonds, which is just a swap of one type of govt IOU for another, effectively, why would it? People who hold bonds do so because they don’t want to spend. So they’ll just end up saving their money some other way. All QE can do is reduce longer term interest rates but as they are already low in the EU there’s no reduction needed anyway.
But, if at the same time as the central bank is buying bonds from the private sector, the government are selling new bonds to the private sector then it is a different story. Then “QE”, if we can still call it that, is just a work-around of the usual prohibition of the central bank buying up bonds directly from the Treasury to provide the Govt with extra spending money.
This has to work. It’s the extra spending that creates the stimulus. Not the asset swap part of QE which is almost totally benign.
We now have news that the Economic Affairs Commissioner in Brussels will take into account France’s position that the “security pact” will take precedence over the Euro “stability pact” which will now be substantially exceeded. (They’ve missed their deficit targets for the last 7 years).
http://www.lemonde.fr/attaques-a-paris/article/2015/11/17/francois-hollande-se-delivre-du-pacte-de-stabilite_4811769_4809495.html
The French Prime Minister saying that the security effort, where France is employing 5000 extra police, 2500 extra in judges and justice, 1000 extra customs officers and planned military cuts suspended, concerns not only France but Europe has a certain truth. But it is mighty unfortunate message that the ECB seems to be happy that what democracy could not achieve for Greece, terrorism has achieved for France…
Staggering, isn’t it?
This put me in mind of a famous poem by the Egyptian poet Cavafy which opens with:
“What are we waiting for, assembled in the forum?
The barbarians are due here today.
Why isn’t anything happening in the senate?
Why do the senators sit there without legislating?
Because the barbarians are coming today.
What laws can the senators make now?
Once the barbarians are here, they’ll do the legislating.”
The poem ends with:
“Because night has fallen and the barbarians have not come.
And some who have just returned from the border say
there are no barbarians any longer.
And now, what’s going to happen to us without barbarians?
They were, those people, a kind of solution. ”
It’s all about the creation of external enemies (and there is plenty of evidence the West has colluded in the creation of terror organisations).