The madness of chancellor George? The UK’s current account deficit is leading us into a debt trap In economics there are few unrelated events, so Britain’s whopping current account deficit (seven per cent of GDP) for the final months of 2015 is the latest wake-up call for bigger future problems. Deficits of this size warn of trade uncompetitiveness, but more worryingly the latest jump underscores the sharper on-going deterioration in overall UK private [...]
Gold bullion is soaring as the US dollar weakens – could the dollar’s best days be behind us? Many would agree that strong monetary expansions often lead to weak paper currencies, but the evidence is mixed. The reason may be because money supply is usually treated as a generic concept, from base money, notes and coin, gold and other commodity monies. To really understand modern financial systems, we must acknowledge that they are [...]
The 21st century liquidity trap: Our only way out is for policy-makers to end their austerity policies and restart QE policies The 2008 crisis started with a solvency problem that led on to a liquidity problem, which resulted in an economic slump. Today, we start from a liquidity problem that is causing an economic problem, which may ultimately lead on to a solvency problem. Global liquidity is becoming ‘trapped’, an idea first popularised by John Maynard [...]
Why bank share prices are falling: Liquidity levels are borderline economic recession – and the world is facing another funding crisis February 11, 2016 Global investors are rushing to ‘safe’ assets. Many government bond yields have turned negative and gold, so long out of fashion, is spurting higher. Financial markets are cyclical and typically suffer sell-offs every 8/9 years: 1966, 1974, 1981, 1990, 1998, 2007/08 and now 2015/16. Yet, there is a smell of panic across the trading floors [...]
Is China the new Japan? Why markets are testing whether China will permanently slow to growth of two or three per cent February 3, 2016 Some 25 years ago the world’s then largest ever credit bubble burst, sending the Tokyo stock market index tumbling and Japanese real estate prices into freefall. Now it’s the turn of China to deflate as it surpasses Japan as the world’s biggest credit bubble. The cost for Japan can be measured in terms of its long-period of slow GDP [...]
From every angle, the outlook for global liquidity looks bleak: Policy makers must adopt “QE4” or risk officers must plan for low liquidity future January 21, 2016 Recent investor concerns over decreasing market depth across many fixed income segments reflect more serious downstream problems in funding markets. These problems are now coming to a head, have four components which taken together combine to undermine the long-term supply of global liquidity. They explain why our monthly GLI index measure is declining. Looking ahead, they [...]
The yuan and dollar currency cross must devalue significantly January 8, 2016 At least two large and previously successful hedge funds have recently closed, citing as reasons the breakdown of their crystal balls and interestingly blamed on the growth of algorithmic trading. We argue differently. What is making investing hard is that global flows are increasingly dominated by the two major economies: the US and China. The [...]
Is Labour leader Jeremy Corbyn right – when it comes to kickstarting the economy, is it time for a people’s QE? December 14, 2015 This is a big week for capitalism. In the next few days, the US Federal Reserve will finally start to remove its accommodative post-2008 crisis policy by pulling money out of markets. With asset markets buoyant and the American jobs market seemingly strong, policy-makers should be surely saying ‘job well done’? But, on the ground, [...]
“Whatever It Takes”: Act II :Scene I: Next ECB Meeting December 3, 2015 2015 has been such a busy year for Europe’s politicians, what with Ukraine, Syria and Paris, that her Central Bankers have enjoyed a well-deserved break from the spotlight. But don’t bet on the same for 2016. Perhaps in the intermission between economic crises, some policy-makers may have browsed the predictions of the most important book [...]
Predictions for 2016: There have already been big changes between the yuan and the dollar – 2016 will bring even greater movements December 1, 2015 In the next decade, America and China, will be going head-to-head. The relative value of their monies – the yuan/ US dollar cross-rate – stands as the prize in the global economy. For years the Chinese yuan was tied umbilically to the USD in a near-fixed ratio. But 2015 has already seen big changes, 2016 will see even [...]