Robert W.Colby Asset Mgt….some of their thoughts…Daunting!
Adam Posen, president of the Peterson Institute for International Economics in Washington, contends that the U.S. institutional framework for preventing crises is “likely to fail.” Posen said discretion within individual financial institutions was “huge,” forming a “recipe for creating uncertainty.” Posen is skeptical of the council of financial regulators created by the Dodd-Frank Act of 2010, known as the Financial Stability Oversight Council, which he calls “a mess”, due to Washington’s difficulties in coordinating between multiple agencies.
The shaky global economic recovery and the threat of extreme market volatility leave the world’s central banks with little or no margin for error, Bank of England Governor Mark Carney said at a joint meeting of the International Monetary Fund and the World Bank. “This is a pretty unforgiving environment” and “not a type of economy in which one can make mistakes,” he said.
The world is faced with “massive” challenges, according to IMF Managing Director Christine Lagarde. The outlook for global economic growth has deteriorated, with growth likely to be disappointing and uneven in 2016. Low productivity, ageing populations, and the effects of the global financial crisis dampen prospects. Rising interest rates in the United States and an economic slowdown in China are contributing to uncertainty and a higher risk of economic vulnerability worldwide. Growth in global trade has slowed considerably. Declining prices are posing problems for economies based on raw materials.
The financial sectors in many countries Colby Global Markets Report A Publication of Robert W. Colby Asset Management, Inc. 63 are weak. Financial risks are rising in emerging markets. The U.S. Federal Reserve hiked interest rates for the first time in nearly a decade on December 16, 2015, and made clear that was a tentative beginning to a “gradual” tightening cycle. That hike already is contributing to higher financing costs for some borrowers, including those in emerging and developing markets, thereby lessening their ability to absorb shocks.
Emerging market companies with debt in dollars and revenue in sinking local currencies could struggle as the Fed begins what is expected to be a series of interest rate increases. Rising U.S. interest rates and a stronger dollar could lead to companies defaulting on their payments, and that could “infect” banks and states.
When the authorities, who almost always express optimism in order to bolster public confidence, admit to this much concern, it should be taken for what it obviously is, a clear warning. The global debt load surges higher and higher, adding to risks to the global financial system.
In the next recession, overextended borrowers (whose numbers are large and growing) may be unable to pay on their loans, and debt defaults could mushroom, leading to general systemic financial distress. The total of all forms of U.S. debt, including government debt, business debt, mortgage debt, and consumer debt, is now more than $59 trillion.
The great majority of this debt has accumulated in recent decades–and at an accelerating pace–with the exception of the financial crisis of 2008, when lenders were afraid to lend. This unsustainable growth in debt has blown the greatest debt bubble of all time and has put the economy and financial system at risk. And it is not just the U.S.: the total amount of debt in the world has risen to a record high of $223 trillion.
When people and governments spend more than they earn, debt grows faster than the economy, and the mountain of debt keeps rising higher and higher. When the next recession arrives (and there is always another recession), incomes may decline and some borrowers may not be able to pay on their debts.
Some lenders then may be shown to be insolvent, interconnected financial intuitions may fail in a chain reaction, and the global financial system may freeze up again, like it did in 2008. It could be like deja vu all over again, or worse, because the debt load is much larger now. Stay safe.
Thanks to decades of fiscal and monetary malpractice leading to excessive spending, speculation, and misallocation of economic resources, the global financial system has been loaded up with excessive debt, leverage, bad “assets”, and hidden insolvency. U.S. cities (Detroit, Stockton) and sovereign nations (Greece, Cyprus, Argentina) have had to admit they are bankrupt and can’t pay their debts–and there appear to be other major entities who are trying to cover up their financial weakness.
Although central banks print trillions of units of fiat currency (which they pass off as “money”) out of thin air and backed by nothing at all in an effort to keep the global financial system from collapsing, their inflation of the currencies not only has not fixed the underlying problems, but actually exacerbated the imbalances in the real global economy and, thereby, escalated risks. Debasing the currency is only the first step, which then can be followed by suspending pension payments, imposing capital controls, raising taxes, and bailing in banks by seizing part or all of customers’ bank deposits.