2016 Economic Crisis Thread - Duck and Cover?

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Will the global economy implode in 2016?
	We're hosed - I have stocked up on canned goods
	My private security guards will shoot the paupers
	We'll be good or at least coast along
	I have no earthly clue

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Junior G-man: Sep 15, 2004; Wrapped in a mystery, inside an enigma

Since this will probably keep the news busy for the coming few weeks, I thought it might be useful to have a central overview and discussion place, otherwise there's 4-6 megathreads to keep on reading:

General

Welp, 2016 started hasn't so much started with a bang as with an (awaited) implosion:

The Chinese economy is hitting the skids, and only state trickery and massive injections of capital reserves are keeping the ship upright.
The American economy is doing better, but it remains a hideously unequal society - is the Fed ready for another round bank failures, if they come? Also US Presidential elections and a completely hosed political system.
The European economy is still tottering and reeling from many rounds of self-inflicted monetary sadism (also known as austerity)
The BRIC economies - Once upon a time though to be the new engines of global prosperity and profit:
- Brazil: Stuck in the mud with parliamentary and business scandals too numerous to count.
- Russia: Autocratic basket case dependent on the price of oil and gas
- India: Seems to be holding steady
- China: Oh, dear.
The Middle East: Oil is tanking, things are blowing up and lots and lots and lots of young people are unemployed.

NON-EXHAUSTIVE List of Issues and/or problems:

:siren:

OIL

Oil has been skidding downwards for a long while now, at first fueled by the growth of shale gas/fracking and then by the Saudis et al. opening the pump as fast and hard as they can. The Saudis are flooding the market in order to drown the shale gas industry. This appears to be working as US fracking etc needs very high initial investment to get the wells going, which means borrowing lots of money from commercial banks. Currently, the oil price (at 28$ per barrel) is too low to support the investment and US fracking companies have been going bust at a fairly impressive rate, with estimates of one half to to one third in danger of fading before 2017.

The problem for the US is that all the fracking financing, which seemed like a dream-come-true a few years ago, may now turn sour in a big way. The default risk in the US energy sector is the highest since the Great Depression. Already banks are putting money aside to deal with collapsing investments. Depending on how big they are, those banks may be in trouble.

In the Middle east meanwhile, the collapsing oil prices mean that IMF has estimated that state could go bankrupt by 2020 if oil prices do not recover. Right now, the riyal is pegged to the dollar, but that might not last. In order to plug the current gap, the Saudi's are even considering selling shares in Aramco, the state oil company, which is their equivalent to selling the family silver on the cheap.

Not to mention that the Iranians, fresh from getting out from a lot of sanctions, are back in the global oil market in a big way. This could, of course, see oil prices go even lower as they join a massive global oversupply.

The upside of all of this is that consumers will see lower prices at the pump, leaving them with more disposable income etc. which can increase consumption in the West - the 'traditional' motor of global of economic growth.

The downside is that the collapse in price of commodities like oil, gas , iron and copper ore are no good at all for developing countries and others (looking at you, Canada and Australia) who depend on bulk commodities in order to make their budgets and economies move.

:siren:

EUROPE :siren:

Austerity is bad, and Europe continues to prove it.

If you thought that Greece was settled, think again:

quote:

Farmers� roadblocks, ferries immobilised in ports, pensioners taking to the streets: protest has returned to Greece in what many fear could be the beginning of the crisis-plagued country�s most confrontational winter yet.

From the Greek-Bulgarian frontier to the southern island of Crete, farmers are up in arms over the spectre of more internationally mandated austerity.

�It�s war,� says Dimitris Vergos, a corn grower speaking from the northern town of Naoussa. �If they [politicians] go on pushing us to the edge, if they want to dehumanise us further, we will come to Athens and burn them all.�

With the rhetoric at such levels, prime minister Alexis Tsipras�s leftist-led administration has suddenly found itself on the defensive. Faced with a series of demonstrations � fishermen and stockbreeders will join blockades on Thursday when public and private sector workers also take to the streets � analysts say any honeymoon period Tsipras may once have enjoyed is over.

On Wednesday, convoys of tractors in Thessaly, the nation�s breadbasket, blocked the road at Tempi, effectively cutting the country�s main north-south highway. Hundreds more lined the seafront in Thessaloniki while, further north, police were forced to fire rounds of tear gas at protestors barricading Evangelos Apostolou, the agriculture minister, in an administrative building as fierce clashes erupted in Komotini.

Their fury is focused on proposed pension and tax measures, the latest in a battery of reforms set as the price of the debt-stricken nation receiving a third, �86bn, bailout last summer.

While it's no longer the threat it posed in 2010, a collapse in Greece would still be very nasty for the EU economy, the Euro project and the EU as a political/civic union, especially if you look at how many refugees they are processing.

The Italian banking system is still in a bad way and any bail-in or out will be very expensive indeed if it goes on the slide. There are rumours that the 3rd largest bank is suffering from a bank run, and its shares are taking a nosedive.

In Portugal meanwhile, there is a new left-wing coalition and the Presidential elections are expected to be won by the right. Austerity is the name of the game here and more uncertainty, in possible combination with Greece, could make things interesting again.

New election results in Spain meanwhile mean that their Parliament will be in a jam for a while to come, with reversal of austerity rules possible, depending on the outcome.

France, with only 0.3% growth in Q3 2015 is saddled with persistent high unemployment at 10.6% and 25.7% youth unemployment and is currently led by the go-nowhere government of Francois Hollande, who is still stuck at 30% approval ratings even after the Paris attacks. The Front National, under Marine le Pen, is a serious contender now, and they are no good news for anyone.

Germany is still doing well. with higher wages, economic output and all kinds of indicators doing well. However, 1.7% GDP growth isn't exactly a star.. What happens to Volkswagen (either the largest or second-largest company in Germany) after their revolting cheating is still to be seen. Plus, with the current migrant crisis, their politics could take a large wobble, especially if another Cologne-like event takes place.

In short, Europe's definitely not out of the weeds yet, may be pulled back into them, and what happens when they are is anyone's guess.

Plus, the current EU refugee crisis continues to roil the continent, costing much more than expected, the Schengen common border area may collapse, and it's causing more problems everywhere. The joint EU-Turkey solution is a joke.

Also, Brexit.

:siren:

CHINA

https://www.youtube.com/watch?v=rPILhiTJv7E

Hurling down the economic cliff as we speak,, the once-great hope of the global economy is cracking very badly. A hugely inflated market, with over 28 TRILLION $ in debt, with probably even more in the super opaque shadow banking system, and literal ghost cities full of empty buildings could be on the edge of some pretty horrid shocks.

With so much (western) capital now inside the Chinese market (due to lack of returns anywhere else), a collapse in China would be very bad for the global banking system. Plus, who would be left to export to? Mars?

Improving / making matters much worse is the Chinese state, which does everything from forcing shareholders to buy in a crashing market to injecting capital to fluffing numbers. The official growth figures for the last quarter are 6.7%, but who really knows at this point.

:siren:

THE STOCK MARKET :siren:

https://twitter.com/Schuldensuehner/status/690062595668209669/photo/1?ref_src=twsrc%5Etfw

Global markets have been taking a bath for the last few days due to the abovementioned reasons and more.

quote:

Shares in Asia experienced further turmoil after an earlier rally petered out, extending the rout on global stock markets prompted by growing fears over the global economy.

European stock markets turned negative after a small rebound earlier on, as oil prices continued their slide. Similarly in Asia Pacific, modest early gains were soon wiped out as gloom took hold in late afternoon trading, led by heavy selling in Japan, Hong Kong, mainland China and South Korea.

On Wednesday, London�s leading index followed other major stock markets including the Dax, CAC and Nikkei into bear market territory. On Wall Street, Standard & Poor�s 500 index closed at its lowest level in more than a year, adding to fears that the global economy could be heading for a repeat of the 2008 financial crisis.

The FTSE 100 in London initially rose more than 50 points to 5725.23 in early trading on Thursday, up 0.9%, but the gains swiftly evaporated. It slipped 0.2%, a fall of nearly 9 points, to 5661.81, hovering around a three-year low.

Germany�s Dax fell 0.4%, France�s CAC slipped 0.2%, Italy�s FTSE MiB lost 0.6% and Spain�s Ibex was flat.

After hitting fresh 13-year lows on Wednesday, oil prices fell further. Brent crude was down 1.3% at $27.52 a barrel while US crude shed 1.4% to $27.95, after crashing 6.6% on Wednesday.
With the Russian economy heavily reliant on oil exports, the rouble hit a record low against the dollar for the second day running.

After a wild day of trading, Japan�s Nikkei benchmark closed down 2.4% as hopes faded of a recovery from Wednesday�s losses when it plunged 3.7% to its lowest point since October 2014. The Hang Seng in Hong Kong was down 1.8%.

Australia�s stock market was the only major index left in positive territory, closing 0.5% higher.

INEQUALITY :siren:

Richest 62 people as wealthy as half of world's population, says Oxfam

quote:

The vast and growing gap between rich and poor has been laid bare in a new Oxfam report showing that the 62 richest billionaires own as much wealth as the poorer half of the world�s population.

Timed to coincide with this week�s gathering of many of the super-rich at the annual World Economic Forum in Davos, the report calls for urgent action to deal with a trend showing that 1% of people own more wealth than the other 99% combined.

Oxfam said that the wealth of the poorest 50% dropped by 41% between 2010 and 2015, despite an increase in the global population of 400m. In the same period, the wealth of the richest 62 people increased by $500bn (�350bn) to $1.76tn.

The charity said that, in 2010, the 388 richest people owned the same wealth as the poorest 50%. This dropped to 80 in 2014 before falling again in 2015.

One address in the Cayman Islands houses 20.000 companies

quote:

When Barack Obama criticised tax havens, he singled out one building on Cayman, Ugland House, which he claimed housed �12,000 corporations. Now, that�s either the biggest building or the biggest tax scam on record.� But Obama got it wrong � there are closer to 20,000 companies registered there, and 100,000 companies in Cayman as a whole. They include ones linked � or that have been linked in the past � to a bewildering array of British household names: Tesco, Sainsbury�s, BP, Manchester United � even the National Grid. In total, Cayman is home to nearly twice as many companies as people. Which is odd, because when I went to find them, there wasn�t much physical evidence of their presence. But they�re here all right, on paper.

There might be as much as 21 Trillion Dollar hidden offshore

quote:

A global super-rich elite has exploited gaps in cross-border tax rules to hide an extraordinary �13 trillion ($21tn) of wealth offshore � as much as the American and Japanese GDPs put together � according to research commissioned by the campaign group Tax Justice Network.

James Henry, former chief economist at consultancy McKinsey and an expert on tax havens, has compiled the most detailed estimates yet of the size of the offshore economy in a new report, The Price of Offshore Revisited, released exclusively to the Observer.

He shows that at least �13tn � perhaps up to �20tn � has leaked out of scores of countries into secretive jurisdictions such as Switzerland and the Cayman Islands with the help of private banks, which vie to attract the assets of so-called high net-worth individuals. Their wealth is, as Henry puts it, "protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy". According to Henry's research, the top 10 private banks, which include UBS and Credit Suisse in Switzerland, as well as the US investment bank Goldman Sachs, managed more than �4tn in 2010, a sharp rise from �1.5tn five years earlier.

The burden of bailing out the last crisis has already fallen on the poorest, both globally and in western societies. How much more do they have to give? Or are willing to take it up the rear end? Their lack of consumption isn't doing the global economy any good and another hammer blow could see significant numbers of people pushed out of the middle class.

:siren:

So what now? :siren:

Is this a crisis? Are we hosed?

The consensus seems to be that it's not one .... yet .... but all the ingredients for a second Great Blowout are in place.

However, the Royal Bank of Scotland gives the following advice

quote:

Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.

.

The only thing that we can already say is that the tools to get out of the next crisis will need to be invented, probably by our paralysed political systems (with US elections on the horizon). Any further crisis could put a whole host of unpleasant people (Le Pen, Trump, Wilders et al) in power and essentially turn the page towards nationalism and economic competition through tariffs and whatnot. Even without them, the Western Central Banks have very little ammunition left, with interest rates already through the floor.

:siren:

Resources :siren:

Austerity is entirely self-defeating and cannot work

https://www.youtube.com/watch?v=JQuHSQXxsjM

Why the American Housing Bubble led to the Eurocrisis led to the China Crisis:

https://www.youtube.com/watch?v=V3FPmu2_J_0

(Yes, I happen to like Mark Blyth)

If you need one, this site doesn't do a terrible job at providing a daily smorgasbord of economic news links. Don't read their opinion pieces as they are often vague.

Junior G-man fucked around with this message at 16:13 on Jan 21, 2016

# ¿ Jan 21, 2016 16:09

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# ¿ Apr 27, 2024 07:38

Junior G-man: Sep 15, 2004; Wrapped in a mystery, inside an enigma

7c Nickel posted:

I would like to add the caveat that my "We'll Coast Along" vote is very America centric. Other sections of the world may be hosed.

This is very true, but I'm assuming that whoever reads 'we' in that sentence will apply that to his/her own country/region.

# ¿ Jan 21, 2016 16:37

Junior G-man: Sep 15, 2004; Wrapped in a mystery, inside an enigma

Shao821 posted:

A lot of large corporations are starting layoff proceedings - I think they've already seen where this road leads and are dropping excess weight Transporter style.

Of course if anyone had any money to drive demand in this economy all this could be avoided...

Well, we can create more debt-driven demand, but uhhhh .... even that's now reaching its limits. Household debt is still ballooning everywhere, and especially the UK is trying to cover it by inflating another housing bubble (can't go wrong, that!).

# ¿ Jan 21, 2016 17:30

Junior G-man: Sep 15, 2004; Wrapped in a mystery, inside an enigma

Dead Cosmonaut posted:

Cohan wrote this piece back in 2012 on why the Dodd Frank and the Volcker Rule couldn't theoretically protect us from another banking crisis:

Yeah, I don't entirely disagree with that reading about incentives vs. leverage, but my answer to this would be that even if you got incentives under (better) control, allowing leverage of 30-35 to one would still be irresponsible (and should be illegal) for systematically important (i.e. too-big-to-fail) banks; even when the incentives are right even a small black swan event can crash such a bank, needing bailouts.

He's wrong to pose it as an either-or proposition; it should certainly be both. Or you know, we need to unwind all banks that are capable of causing systemic risk. That would be the real answer.

# ¿ Jan 21, 2016 17:41

Junior G-man: Sep 15, 2004; Wrapped in a mystery, inside an enigma

LeoMarr posted:

So Recession and fascism is on the rise throughout europe and most of the west. Welp

Woah can you resize that?

And it's not necessarily fascism that follows recession. Although traditionally speaking, closed borders and pointing fingers at 'other' people has been really popular.

To be frank, I don't even know what would happen to the European social democratic model; it could go hard left, hard right, or mutate into something else entirely.

# ¿ Jan 21, 2016 17:47

Junior G-man: Sep 15, 2004; Wrapped in a mystery, inside an enigma

Good piece by Ha-Joong Chang this morning in the paper about China.

quote:

Don�t blame China for these global economic jitters

The US stock market has just had the worst start to a year in its history. At the same time, European and Japanese stock markets have lost around 10% and 15% of their values respectively; the Chinese stock market has resumed its headlong dash downward; and the oil price has fallen to the lowest level in 12 years, reflecting (and anticipating) worldwide economic slowdown.

According to the dominant economic narrative of recent times, 2016 was the year when the world economy would recover fully from the 2008 crash. The US would lead this recovery by generating growth and jobs via fiscal conservatism and pro-business policies. Reflecting the economy�s robust growth, the US stock market reached new heights in 2015, although disrupted by the mess in the Chinese stock market over the summer. By last October, US unemployment had fallen from the post-crisis peak of 10% to 5%, bringing it back close to the pre-crisis low. In a show of confidence, last month the US Federal Reserve finally raised its interest rate for the first time in nine years.

Not far behind the US, the story goes, have been Britain and Ireland. Hit harder than the US by the financial crisis, they have, however, recovered handsomely because they kept their nerve and stuck to the right, if unpopular, policies. Spending cuts, focused on wasteful welfare spending, accelerated job creation by making it more difficult for people to live off the taxpayer. They sensibly didn�t give in to the banker-bashers and chose not to over-regulate the financial sector.

Even the continental European economies have been finally picking up, it was said, having accepted the need for fiscal discipline, labour market reform and cutting business regulations. The world � at least the rich world � was finally set for a full recovery. So what has gone wrong?

Those who put forward the narrative are now trying to blame China in advance for the coming economic woes. George Osborne has been at the forefront, warning this month of a �dangerous cocktail of new threats� in which the devaluation of the Chinese currency and the fall in oil prices (both in large part due to China�s economic slowdown) figured most prominently. If our recovery was to be blown off course, he implied, it would be because China had mismanaged its economy.

China is, of course, an important factor in the global economy. Only 2.5% of the world economy in 1978, on the eve of its economic reform, it now accounts for around 13%. However, its importance should not be exaggerated. As of 2014, the US (22.5%) the eurozone (17%) and Japan (7%) together accounted for nearly half of the world economy. The rich world vastly overshadows China. Unless you are a developing economy whose export basket is mainly made up of primary commodities destined for China, you cannot blame your economic ills on its slowdown.

The truth is that there has never been a real recovery from the 2008 crisis in North America and western Europe. According to the IMF, at the end of 2015, inflation-adjusted income per head (in national currency) was lower than the pre-crisis peak in 11 out of 20 of those countries. In five (Austria, Iceland, Ireland, Switzerland and the UK), it was only just higher � by between 0.05% (Austria) and 0.3% (Ireland). Only in four countries � Germany, Canada, the US and Sweden � was per-capita income materially higher than the pre-crisis peak.

Even in Germany, the best performing of those four countries, per capita income growth rate was just 0.8% a year between its last peak (2008) and 2015. The US growth rate, at 0.4% per year, was half that. Compare that with the 1% annual growth rate that Japan notched up during its so-called �lost two decades� between 1990 and 2010.

To make things worse, much of the recovery has been driven by asset market bubbles, blown up by the injection of cash into the financial market through quantitative easing. These asset bubbles have been most dramatic in the US and UK. They were already at an unprecedented level in 2013 and 2014, but scaled new heights in 2015. The US stock market reached the highest ever level in May 2015 and, after the dip over the summer, more or less came back to that level in December. Having come down by nearly a quarter from its April 2015 peak, Britain�s stock market is currently not quite so inflated, but the UK has another bubble to reckon with, in the housing market, where prices are 7% higher than the pre-crisis peak of 2007.

Thus seen, the main causes of the current economic turmoil lie firmly in the rich nations � especially in the finance-driven US and UK. Having refused to fundamentally restructure their economies after 2008, the only way they could generate any sort of recovery was with another set of asset bubbles. Their governments and financial sectors talked up anaemic recovery as an impressive comeback, propagating the myth that huge bubbles are a measure of economic health.

Whether or not the recent market turmoil leads to a protracted slide or a violent crash, it is proof that we have wasted the past seven years propping up a bankrupt economic model. Before things get any worse, we need to replace it with one in which the financial sector is made less complex and more patient, investment in the real economy is encouraged by fiscal and technological incentives, and measures are brought in to reduce inequality so that demand can be maintained without creating more debts.

None of these will be easy to implement, but we know what the alternative is � a permanent state of low growth, instability, and depressed living standards for the vast majority.

http://www.theguardian.com/commentisfree/2016/jan/21/dont-blame-china-global-west-economic-recovery-asset-bubbles

# ¿ Jan 22, 2016 10:07

Junior G-man: Sep 15, 2004; Wrapped in a mystery, inside an enigma

European banks are taking another massive hit today:

And oil prices just keep on keepin' on:

Another good day on the stock market. Everybody's running for the hills (i.e. gilts, treasuries, yen and gold).

And the southern EU is getting hammered again, Greece and Portugal in particular:

quote:

Investors are ditching Portuguese government bonds this morning, as the financial turmoil grows.

The wave of selling has driven up the yield on Portugal�s 10-year bonds to 4.3%, up from 3.5% yesterday. That�s a remarkable surge, meaning that prices have dropped sharply.

It implies that the markets are losing confidence in Portugal again, demanding a higher rate of return for holding its bonds.

Junior G-man fucked around with this message at 13:16 on Feb 11, 2016

# ¿ Feb 11, 2016 13:12

Junior G-man: Sep 15, 2004; Wrapped in a mystery, inside an enigma

ukle posted:

As its probably over the heads of most posters here.

And that was necessary or helpful why?

quote:

Honestly stinks of Lehman all over again, very similar setup as well and exactly the same kind of noises; got another dodgy debt instrument that is slightly related to the issues as well, really is 2008 d�j� vu. Its not just Deutsche in a bad position, its many banks in Europe and the US, just Deutsche were kind of in trouble already with struggling to generate new business weakening their position and with the Asia markets going tits up, which it is very exposed to, and it really doesn't look good.

Assume this time it wont go the way of Lehman's though and the Germans will be forced to bail it out even though it will costs them short term maybe 100 Billion euros.

The dodgy debt instruments are Contingent Controvertible bonds (or CoCo's), and there's a decent writeup of them here.

Besides, I think the bigger problem is that if Deutsche Bank goes it has something like 2 or 3 times the GDP of Germany as its total capital footprint, so Germany couldn't even save it if it wanted to (and even if it wanted to, it's not allowed under EU rules which they strongly supported).

# ¿ Feb 11, 2016 16:00

Junior G-man: Sep 15, 2004; Wrapped in a mystery, inside an enigma

shrike82 posted:

nah CoCos have been actually pushed onto the markets by regulatory bodies as a way of injecting capital during bad times.
there's nothing dodgy about that. the problem is that they've never been tested (triggered).

So that would potentially make them as safe and not-dodgy as all those AAA-rated MBS and derivates of those before 2008 then?

# ¿ Feb 11, 2016 16:06

Junior G-man: Sep 15, 2004; Wrapped in a mystery, inside an enigma

ukle posted:

That wasn't a snipe, it was explaining why there wasn't any discussion on the topic as most people on here wont read the FT, work in finance, etc.

Maybe you mean well, but this sounds incredibly pedantic. As if reading the FT endows you with supreme financial intelligence.

quote:

Deutsche's issue isn't one that's going to cause it to go out of business though its just a liquidity issue worst case its broken up ala Lehmans,

No, I can't imagine a break-up along the line of Lehman's having any terrible knock-on effects on the European/global economy. I mean, Lehman's fall didn't precipitate anything else .

quote:

it only needs a relatively negligible amount to be raised over the year to keep its ratio in legal levels - hence why a German bailout is possible. Would be very similar to what the UK did with RBS, a bank of similar size.

If you don't think a state rescue of Deutsche Bank, of any 'negligible amount', wouldn't lead to a bank run of epic proportions in Europe you need to read the FT more.

# ¿ Feb 11, 2016 16:13

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# ¿ Apr 27, 2024 07:38

Junior G-man: Sep 15, 2004; Wrapped in a mystery, inside an enigma

call to action posted:

The opponents of neoliberalism should probably develop a compelling vision for the future, first, because I haven't seen one.

The compelling vision here is PAY YOUR F*CKING TAXES (both individually and as corporations) and restore a proper tax system with increased marginal rates. With all the wealth sitting in the Cayman Islands alone, you could fund US & EU welfare systems to Scandinavian levels for the next 50 years.

You don't need neo-Trotskyism or Baathism or whatever. You need a population that doesn't accept tax avoidance, evasion or whatever, and a government/global institutions to reinforce that.

# ¿ Mar 2, 2017 14:12

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