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Biggest ever €$ crash due any time: CFR + Ex BoE Mervyn King

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PostPosted: Tue Feb 13, 2018 10:51 am    Post subject: Biggest ever €$ crash due any time: CFR + Ex BoE Mervyn King Reply with quote

The £166 trillion timebomb: Former Bank governor King warns debt will trigger the next financial meltdown

Lord Mervyn King was governor of the Bank of England as crisis hit
He warnsit is essential to tackle global debt pile which stands at £166 trillion
King says private sector debt to GDP is now hiigher than before crash

By James Burton For The Daily Mail

Published: 08:50 AEDT, 8 February 2018 | Updated: 19:57 AEDT, 8 February 2018

A worldwide debt binge could trigger the next financial crisis and tip Britain back into recession, former Bank of England governor Lord King has warned.

Households, companies and governments have borrowed ever-greater amounts of money since the Great Recession, egged on by central bankers who cut interest rates to record lows.

But with inflation returning as growth picks up a decade on from the crash, investors are braced for steep rises in interest rates.

Fears over higher rates have sent financial markets into a tailspin in recent days – leading to the biggest one-day points fall of all time on Wall Street.

Former Bank of England governor Lord King said it was essential to tackle the global debt pile, which stands at £166trillion

And experts are now warning that higher rates will push up the cost of servicing the world's mammoth debts, with potentially devastating consequences.

King said it was essential to tackle the global debt pile, which stands at £166trillion, according to the Washington-based Institute of International Finance.

'The areas of weakness in the current system are really focused on the amount of debt that exists, not just in the US and UK but across the world,' King said.

'Debt in the private sector relative to GDP is higher now than it was in 2007, and of course public debt is even higher still.'

Although European and US banks have far larger reserves to draw on today, he warned banking disasters in less tightly regulated countries could create a global shock causing panic.

International Monetary Fund chief Christine Lagarde also sounded the alarm last month and researchers believe China is a danger.

Benn Steil and Benjamin Della Rocca of the Council on Foreign Relations said a meltdown is rapidly approaching, saying: 'Given our evidence that China is shovelling new loans to companies with the least ability to pay them back, we think China is heading towards a debt crisis.'

Markets have swung wildly as investors grapple with the return of inflation as the global economy takes off and normality returns in the West after sluggish growth.

The recovery has been welcomed, but it is expected to spark a jump in wages and rising prices.

To keep this under control, banks will have to hike interest rates and Peter Tutton of Stepchange Debt Charity warned: 'Even a modest rise in interest rates could tip people who are just about managing into difficulties with mortgage payments and unsecured credit commitments.'

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PostPosted: Thu May 31, 2018 1:20 pm    Post subject: Reply with quote

RBA lays out the risks of China's debt bomb
SAM JACOBS MAY 24, 2018, 8:30 AM

RBA Governor Phil Lowe outlined the risks facing China’s financial system from rapid buildup of debt since 2009.
In a speech last night, he said Chinese policy makers are responding to the risks, but significant challenges remains.
Given the importance of China to Australia’s economy, Lowe said the RBA is watching these developments closely.
RBA Governor Phil Lowe has outlined the debt risks faced by China, highlighting the rapid buildup in debt since 2009 and its opaque financial system.

In a speech last night discussing the breadth and depth of the Chinese-Australian relationship, Lowe also pointed out that a stable China is crucial to Australia’s future prosperity.

Lowe noted that in its attempts to boost domestic demand following the global financial crisis, China’s total non-financial sector debt has risen dramatically since 2009:

Lowe said the specific challenge faced by China is how to reduce overall debt levels, while also servicing the needs of its developing economy by providing finance to more small and medium size enterprises.

Noting the experience of Australia and other developed economies, Lowe said such a transition can often be a bumpy one, and there is still a lot of work to be done.

And he said Australia will be watching the developments closely. Here’s Lowe on the importance of Australia’s economic ties to China:

A stable and robust financial system in China is clearly in Australia’s interest. So too is a prosperous China as part of a rules-based international system.

As the economic relationship between our two countries broadens and deepens, developments in China are having a material impact on more and more Australian industries: it is more than just about resources.

It is therefore important that we have a thorough understanding of one another. We all have a role to play in helping build that understanding.

In view of the importance of that relationship, Lowe said the RBA now has three staff based in Beijing who work with the bank’s Asian research unit in Sydney.

His speech followed political developments yesterday which appeared to demonstrate a recent deterioration in Australian-Chinese relations.

And that raises the risk of a potential shock to the local economy, given China remains by far Australia’s largest trading partner.

Lowe highlighted that in addition to commodity exports, Australia’s service exports to China have also grown at an average annual rate of 15%.

There’s gains have been led by a rapid increase in Chinese students studying in Australia, and the continued inflow of Chinese tourists:

While China’s direct investment in Australia remains relatively low (3%, compared to 30% for the US), Lowe said the RBA sees “first-hand” how Australia’s financial relationship with China has developed.

The RBA now holds 5% of its foreign currency reserves in Chinese renminbi, and has currency swap arrangement with the People’s Bank of China to help facilitate cross-border transactions.

So Lowe’s analysis of debt risk in China remains of central relevance to Australia’s economic and financial ties.

He said that while China has opened up part of its economy to capital markets, risks from its highly centralised structure still remain.

“The influence of the state and the incentives within financial institutions have almost surely distorted credit allocation and led to some poor lending decisions,” Lowe said.

That means large state-owned enterprises are likely to have been propped up, while provincial governments raise funds via opaque finance structures to meet growth targets.

“So these are reasons to be concerned about future problem loans,” Lowe said.

Lowe said such opaque finance structures — also known as China’s “shadow banking” industry — stems from the fact that centralised lending controls mean many entities have restricted access to credit issued by the large state-owned banks.

As a result, companies seek funding outside of the main financial system, via riskier business-to-business loans at higher interest rates which don’t show up on bank balance sheets.

There’s also been a proliferation of wealth management products which offer higher returns, and are implicitly guaranteed by banks but used as a way to sidestep official regulations.

At the same time, Lowe multiple responses in recent months by Chinese policy makers to address risks in the financial system.

“These various measures provide a strong signal that the Chinese authorities are serious about addressing the vulnerabilities,” Lowe said.

“Consistent with this, the lower economic growth target for 2018 of 6.5% suggests some tolerance for a gradual slowing in growth.”

However, “it is too early to tell whether the authorities will be successful in managing the transition from a growth model heavily dependent upon the accumulation of debt to one where credit is less central. It is a very significant task,” Lowe said.

“China’s challenge is made more complicated by the dual nature of the task to bring down debt levels while also reconfiguring the financial system so as to better meet the needs of the people.”

“So there is still a lot to be done. At the RBA we are watching this process carefully.”

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PostPosted: Thu Aug 09, 2018 5:58 pm    Post subject: Reply with quote

RIT Capital Partners (RCP) chairman Lord Jacob Rothschild has warned investors the global unity that helped propel stock markets over the past decade is fracturing, putting economic security at risk.

Although the economic picture looked good with up to 120 countries seeing growth accelerate last year, Rothschild used his commentary in the investment trust's half-year results to stress that this was ‘not an appropriate time to add to risk’ as stock market valuations were high and growth flagging.

‘The cycle is in its tenth positive year, the longest on record,’ he said. ‘We are now seeing some areas of weaker growth emerge.’

Rothschild – who has chaired the £3.3 billion listed global fund that holds much of his family's wealth since launch in 1998 - noted the eurozone was a particular concern both politically and economically ‘given the potentially destructive levels of debt in a number of countries’, and the ongoing trade tensions with the US.

‘Problems are likely to continue in emerging markets, compounded by rising interest rates and the US Federal Reserve’s monetary policy, which has drained global dollar liquidity,’ said Rothschild.

Unfortunately, he said, the lack of a co-ordinated, international response to global challenges was unlikely in an era of populist and protectionist leaders such as US president Donald Trump, he suggested.

‘The resolution of these problems in this unpredictable era will surely be difficult,’ said Rothschild.

‘In 9/11 and in the 2008 financial crisis, the powers of the world worked together with a common approach. Co-operation today is proving much more difficult. This puts at risk the post-war economic and security order.’
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PostPosted: Wed Sep 12, 2018 3:26 pm    Post subject: Reply with quote

QE stands at £100 billion a year, £20 billion to big business, £80 billion to banks!

Bank of England pumps £5bn into firms and £20bn into banks to keep interest rates down

Mark Carney is expected to upgrade the Bank of England's inflation forecasts this week, which reduces the chance of more QE
Mark Carney is expected to upgrade the Bank of England's inflation forecasts this week, which reduces the chance of more QE CREDIT: STEFAN WERMUTH/PA WIRE

Tim Wallace
30 JANUARY 2017 • 3:52PM
Banks and businesses have taken full advantage of the Bank of England’s quantitative easing scheme rolled out last year, borrowing far more than anticipated from the central bank.

The Bank of England bought £4.9bn of corporate bonds in just three months, when the scheme intended to buy £10bn over 18 months.

At the same time the Term Funding Scheme (TFS) which gives cheap funds to banks has injected £20.7bn into lenders. The aim of both policies, alongside a plan to buy £60bn of government bonds, was to keep interest rates down.

Economists welcomed the swift progress as an important boost to the economy, but as growth is currently relatively strong, they do not expect the Bank of England to extend the schemes when officials announce their next decision this Thursday.

Bond issuance spiked as more businesses borrowed money immediately after the Bank of England said it would buy £10bn of corporate debt CREDIT: UBS, BANK OF ENGLAND
“Corporate investment is a source of economic growth, and that borrowing costs came down can be seen as good thing because it boosted the probability of firms investing more,” said John Wraith, head of UK rates strategy at UBS.

The policy also helped mortgage interest rates fall further.

“If you think a robust housing market is part of the equation keeping consumers upbeat, then the Bank of England has to be thanked for that, they made sure the market was performing relatively well even in uncertain times,” said Mr Wraith.

The Bank of England anticipated a sharp slowdown in the economy but that did not materialise - something its chief economist Andy Haldane referred to as the Bank’s “Michael Fish moment”.

But economists argue that the QE programme has still helped cut borrowing costs and boost the economy, without doing much harm.

The MPC opted for more QE in August, before discovering the economy was continuing to grow unexpectedly quickly CREDIT: BANK OF ENGLAND
Overall around the rich world, however, interest rates are rising in bond markets, making it hard to see the overall effect of the policy.

At the same time inflation is picking up, in part because the pound has fallen, pushing up the cost of imports.

“The question really is if rates need to rise over the next year to cool inflation which now seems to be picking up faster than they had expected,” said Samuel Tombs, chief economist at Pantheon Macroeconomics.

“I think this week we will see slightly higher forecasts for inflation from the Bank of England, at least in the near term. It is even possible that one or two members of the Monetary Policy Committee may vote for a rate hike at this meeting. It is not my main expectation, but given the fact that growth and inflation have surprised to the upside over the past three months, then it cannot be ruled out.”
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