And now...let me take you inside, the much talked about...the great 'credit crunch'. Credit had dried up even though property prices were falling. Since the US and UK economies had been essentially based upon the property market, it was inevitable that the banking and property collapse would encroach upon, very directly on the real economy.
As of today, unemployment has been rising very sharply, and deflation with falling (or static) prices and wages. Retailers were under the cudgel with falling sales, and bankruptcies and boarded up shops are an increasingly common sight. We have been already, in a recession, if not at the beginnings of a longer-term depression.
Moreover, there are likely to be further eruptions to come in the murky world of Credit Default Swaps and Derivatives. These are totally unregulated and highly leveraged markets, involving literally tens of trillions of dollars traded over the counter (OTC). The only question remaining is how long and how deep this financial/economic downturn, had been in making the impact? More important, still and perhaps, were the possible political consequences of this situation.
Such was the shameful end to the absurd claim of 'no more boom and bust'. The shame had only lay in the fact that it was all, so predictable. And the shaming part was the extent that the government of the day had colluded -in terms of bank deregulation, and ease of credit creation -and something that made possible, this bubble creation by the financial and banking sector. This indeed had been a joint failure of market forces and the government!
Fast forward, ten years from the nadir of the 2008 bust and the 'omens' are manifest and alarming. Global debt levels are unprecedented. In mid-2018 Global debt had hit another high, climbing to $247 trillion in the first quarter of 2018, according to a report published recently. Of that figure, the non-financial sector had only accounted for $186 trillion.Therefore, the debt-to-GDP ratio has alarmingly exceeded 318 percent, marking its first quarterly rise in two years.
As far as individual countries are counted, the US total debt is now 202% for private debt, (2017 figures), public debt has increased by 105%, so that total debt-to-GDP is in the range of 300% plus....or around, three times as large as GDP. China also has had their problems, which include mostly private debt, but total debt, when public is added to private, it is a cool $34 trillion.
I suppose one consolation is that the debt is nominated in Yuan, but maybe that is like just 'clutching at straws'. Let me be clear, China does hold large volumes of US dollar denominated assets, and Treasuries, which it can dump any time!
Now if the two major global economies have big problems, one can only shudder for everyone else and think what might happen if both US and China hit the buffers, at the exact, same time!In terms of vulnerability Europe and the EU seem prime candidates for the debt shock-waves, now emanating from both east and west. GDP growth in Euroland is stuttering between 1.5 and zero. These numbers are depicting, a 'near depression' stage.
Interestingly enough the 'big 4' euro economies have experienced the following increases in most recent annual real output figures, to be as follows: UK 1.5%, France 0.9%, Germany 0.6% and Italy at 0.1%.For Euroland as a whole the figure stands at 1.2% (Source: Trading Economics). It is also worth noting that the UK Remainers might have a difficult time explaining why their dire predictions about the UK is somehow worse than the even more calamitous figures, from the mainland Europe?
Another important indicator of what is to come is the P/E ratio. Price to earnings ratio - as reported in the financial press - is the prices of equities compared to their earnings. According to the Standard and Poor (S&P) composite index, the average P/E ratio (market valuation) since 1871 has been 16.9, at the present time it is 28.5, that is to say well above the average. On only two occasions during the twentieth century has this figure been exceeded: 32.6 in 1929, and 44.2 in 2000.
This certainly indicates that the US stock-market is overvalued. Nothing can stay overvalued indefinitely, even if central banks and Treasury departments want it to. Their Herculean efforts, notwithstanding, they have not been able to, and cannot invent a perpetual motion machine.
Additionally, there is the flattening of the long-term bond yield curve. Government bonds and notes are sold for different durations, from overnight to 50 years. In normal times the rate of interest on these securities varies with the length of their maturity. However, when investment in long-term bonds would increasingly align with shorter term notes and bonds the long-term yield carves begins to flatten and even dip below short-term debt instruments.
This is usually a sign of a coming recession, since investment in short term notes and bonds are exposed for shorter redemption dates in an unpredictable economic/financial environment. All of which makes jumpy investors wary about committing themselves to long-term bets. The flattest 'yield curve' observed served since before financial crisis, was at 3:48 PM ET Tue, 4 Dec 2018 | 02:35.
One key recession indicator is flashing a warning signal to investors. The yield curve has flattened to its lowest level since June 2007 with the yen-year Treasury note yield, only around 10 basis points above the 2-year note.Joseph LaVorgna, chief economist of the Americas at Natixis, has said that the move had him 'very worried' about what followed next.
'The yield curve has almost always forecasted the direction of trend growth, meaning when the curve flattens, growth with a lag tends to slow and vice versa when the curve steepens', LaVorgna told CNBC's Trading Nation on a fortnight ago.The yield curve inverts when shorter-term Treasuries yield more than longer-term Treasury yields. The relationship between the 2-year and 10-year yields is often used as a barometer of investor expectations for economic growth
One of the consequences of the 2008 debacle and the great bank bailout, was what followed in terms of income inequality and austerity. The banks were partially bailed out (there are still a number of basically insolvent banks out there - Deutsche Bank being number One).
But what followed was a secondary corresponding bail-out of national economies by the imposition of austerity. Social welfare programs were cut, as were wages, pensions, health and education, transport, interest rates on small savers, with other miscellaneous parts of government expenditure. This resulted in an upwards income re-distribution of the economy.
In short, the rich 1% got richer whilst most other either got poorer or trod water. So much is common knowledge. But the effects of a small group appropriating an increasingly large portion of national income mean that their savings had increased at a faster rate than their expenditures. This resulted in low growth or no growth, and stagnation.
In economist's jargon the rich have a greater marginal propensity to save rather than marginal propensity to consume expressed as MPS>MPC, and the lower deciles have a greater marginal propensity to consume than to save, MPC>MPS.
Huge clusters of capital were therefore being effectively idled since the rich could not spend their fortunes quickly or exhaustively enough, whereas the other deciles of more modest means also could not effectively consume because they did not have sufficient incomes, or, worse still, they were sinking into debt peonage...which added an additional impediment to growth.
We can say with some certainty that these austerity policies were not going to work, and I had reasons to believe that the elites knew this, very well.There can be no catching up by the dispossessed; this rising tide is not going to float all boats. On the contrary, it will continue to sink many.
Yet the great bull**it mega-show, that has continued to pour out from the university academic economics departments, the financial press, the global institutions - IMF, WTO, WB, OECD, BIS - Treasury departments, Central Banks and Finance Ministries of governments around the world must go on. TINA (There Is No Alternative) the great courtesan of economic theory and policy, is back in town. In fact, she had never left.
Remembering the axioms of my youth I recall one in particular. 'You don't need a weatherman to see which way the wind blows.'The canaries in the coal-mine are Brexit, Trump, the Yellow Vests, the rise and awakening of Europe, east and west, and the emergence neo-nationalist and populist movements, in the struggle against globalization...
Other economic policies and possibilities have always existed and these, still do. But let us not count on any policy other than the one already foisted on us. The cases of economic fallout are guided by a learned ignorance. In a more profound sense, the question is not an inability to learn by our 'betters' but a determination not to. We don't want and will not and cannot learn, from what happened in a decade.
In the 1700s, the British Empire had spanned the entire globe. So, the South Sea Company had no problem attracting investors when, with an IOU to the government worth £10,000,000.00, the company had purchased the 'rights' to all trade in the South Seas.
The first issue of stock didn't even satiate the voracious appetite of the hardcore speculators, let alone the average investors, who were assured of this company's coming dominance. Eventually the management team had taken a step back and realized that the value of their personal shares, in no way had reflected the actual value of the company or its dismal earnings.
So, they sold their stocks in the summer of 1720 and had hoped no one would leak the failure, of the company to the other shareholders. Like all bad news, however, the knowledge of the actions of security management spread, and the panic selling of worthless certificates had ensued.
A complete crash, which would be heralded by the folding of banks, was avoided due to the prominent economic position of the British Empire and the government's help in stabilizing the banking industry. The British government outlawed the issuing of stock certificates, a law that was not repealed until 1825.
Finally, the unifying element of the European nations is their ability to implicitly or explicitly accept the New World Order (NWO) of globalization. If not in their official ideology, at least in their practices! Good luck!
The writer is a former educator based in Chicago
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