Home » Posts tagged 'minsky moment' (Page 2)
Tag Archives: minsky moment
China’s Minsky Moment
CHINA’S MINSKY MOMENT
Sometimes you have to love the naivety of the markets. At this week’s Communist Party Congress meeting in Beijing, the governor of the PBoC (People’s Bank of China) said the following;
“If we are too optimistic when things go smoothly, tensions build up, which could lead to a sharp correction, what we call a ‘Minsky moment’. That’s what we should particularly defend against.”
Yet instead of focusing on this dire warning, markets are busy trying to discount the chance of a Powell Fed or a Republican tax cut. Although both of these developments would be important, China is the tail that wags the dog. Full stop. Figure out China, and all the other financial market forecasts become that much easier.
Aren’t Central Bank warnings cheap?
Some might argue this “Minsky moment” warning is nothing more than a Central Bank whistling in the wind. Didn’t Greenspan caution about a similar concern with his “irrational exuberance” speech? And didn’t that end up being a complete non-event?
Yet I would argue that China is not the same as other countries. Although there are market elements to their economy, to a large degree, China is still a command economy. If Chinese leadership wants a particular outcome, they can just demand it, and it will happen.
So when the head of the PBoC warns about a “Minsky moment”, it’s probably not a good idea to load up on financial assets. For the longest time, China exported goods and imported developed nation debt and other financial assets. They had already started down the road of re-balancing their economy away from this export driven model, but this recent development confirms that the old playbook should be thrown out the window. The global financial system is changing, and China is leading the way.
…click on the above link to read the rest of the article…
The Return Of The “Minsky Moment”
The Return Of The “Minsky Moment”
“The emergence of money manager capitalism means that the financing of the capital development of the economy has taken a back seat to the quest for short-run total returns.” – Circa 1992.
Wall Street has forgotten the great financial crisis.
A sense of relief has settled firmly on the legendary asphalt artery between Trinity and the FDR Drive.
Looks like they got away with another one.
Nobody else will, so let me say it (at least mean it): Thank you, Mr. & Mrs. Taxpayer.
Again. Sincerely. Thank you. Now, let’s get on with blowing your wealth out of the water again, just as portfolios have made it back to even. Older, a bit pudgier, more forehead than before.
Oh wait, that’s me.
As the Great Recession gets pulled into the mist, obfuscated by the misleading but comforting math of market return averages and a bull that has rarely stumbled, Wall Street is more defiant than ever to broadcast:
“See? We told you so! The markets always rebound in time!”
Time. That precious commodity you’d pay more than you’re worth, for.
The concept of time holds little relevance to Wall Street. After all, its life expectancy may be considered perpetual. Eight years, seventeen years, whatever time it takes to recover from a poor cycle is irrelevant and may be celebrated. A human life is different. We die. We can’t be so flippant over lost time.
You know all too well about how painful it is to recover from losses.
Understandable why it makes sense that Main Street, or why Americans vividly recall the Great Recession. They’re older and unless in the top 1%, not much richer. They’re also skeptical of the so-called economic recovery as inflation-adjusted median incomes have remained stagnant for close to a decade. Read: The Illusion of Declining Debt-To-Income Ratios.
…click on the above link to read the rest of the article…
Even The Average Joe Gets It: “They’re Winding Us All Up For A Minsky Moment”
Even The Average Joe Gets It: “They’re Winding Us All Up For A Minsky Moment”
With global central bank policy in disarray following the Fed’s now admitted “policy error” of tightening just as the US and global economy are heading for recession, while the rest of the world desperate to cut to ever more negative rates, not to mention Japan’s abysmal foray into NIRP, there was hope that this weekend in Shanghai the G-20 would “bail us out” and unveil some miraculous rescue for risk takers at least one more time.
However, as Jack Lew explained earlier today, this won’t happen, leaving traders in a state of limbo and cognitive shock – after all if not even the central banks have your back, then who does?
Still something has to happen, or otherwise the world will careen into a deflationary, NIRP collapse and the Fed’s 25bps “recession buffer” will have absolutely no impact before the US itself plunged into economic contraction.
One proposal comes from BBG trader Richard Breslow, who like most others, is sick and tired of the constant market manipulation, endless central bank jawboning, and who like us, is hoping that one day markets will once again be free and efficient, not for any other reason but because as Breslow notes, even the average Joe gets it: “if you really want to see people spend and invest there has to be some belief this won’t all end in tears.”
His full note:
Parole For Prisoners With A Dilemma
If the U.S. wants to really do some good at the G-20, they should try to get their heads around the concept of embracing a stronger U.S. dollar. That would be showing a commitment to global leadership, both economic and moral, which has been long absent. It’s a bet on a stronger global economic tide raising all boats.
…click on the above link to read the rest of the article…
The Paris Gravity Well, Part II: Trillionization
The Paris Gravity Well, Part II: Trillionization
Charlie said, “That’s the trouble. You see it the way the banking industry sees it and they make money by manipulating money irrespective of effects in the real world. You’ve spent a trillion dollars of American taxpayers’ money over the lifetime of the bank and there’s nothing to show for it. You go into poor countries and force them to sell their assets to foreign investors and to switch from subsistence agriculture to cash crops. Then, when the prices of those crops collapse, you call this “nicely competitive” on the world market. The local populations starve and you then insist on austerity measures even though your actions have shattered their economy….
“You were intended to be the Marshall Plan, and instead you’ve been carpetbaggers.”
— Kim Stanley Robinson, Sixty Days and Counting: Science in the Capitol (2007).
“With fundamentals changing slowly and risk appetite falling rapidly, the stage is set for a longer period of risk asset underperformance,” Jabaz Mathai, a strategist at Citigroup Inc., said. “There is no quick fix to the headwinds facing global growth.”
“Similar periods of weakness have occurred in only five other instances since 1985: (1) the majority of 1988, (2) the first half of 1991, (3) several weeks in early 1996, (4) late 2000 and early 2001, and (5) late 2008 and the majority of 2009 … all either overlapped with a recession, or preceded a recession by a few quarters.” There has been a storm brewing since the last trifle with full-on collapse in 2008-2009. The extend-and-pretend debt balloon was reinflated and stretched to new enormities as Keynesian cash infusions fueled a Minsky Moment, if not a Korowicz Crunch.
…click on the above link to read the rest of the article…
Oil and Real Estate Bubbles in Canada: What Goes up Won’t so Smoothly Come Down
Oil and Real Estate Bubbles in Canada: What Goes up Won’t so Smoothly Come Down
Five years ago, I noted how unsustainable Canadian economic growth is fuelled by debt, which is leveraged to increase the prices–and ‘profitability’–of assets like oil holdings and real estate. It might as well be called “phantom growth,” because it’s bound to disappear in due course. When prices are high, the debt-based Ponzi scheme functions; when prices sustain lows, the scheme unravels. With Canada’s oil and real estate sectors both apparently slowing down, will it lead to a ‘Minsky moment?’
Economist Hyman Minsky studied financial instability as a result of debt accumulation, and his work was largely ignored by mainstream economists. He noted that debt-heavy capitalist economies exhibit inflations and deflations that tend to spin out of control–inflation feeds inflation and deflation feeds deflation. The ‘Minsky moment’ is the moment where our financial system begins to experience deflationary stress due to price shifts. Historically, government interventions to contain debt spirals were not terribly competent, and–other factors notwithstanding–the sheer volume of debt that has been leveraged makes the global economy poised for contraction. Canada’s recent dependence upon asset inflation makes it particularly vulnerable.
Where has all the Money Come From?
Debt has been leveraged in several investment streams, including derivatives, securities, and ordinary debt. After 2008, international quantitative easing–essentially the creation of money from nothing–has partly facilitated further investment in unconventional and costly oil production methods. As long as international prices and investment levels remain high, it is feasible for unconventional oil to achieve a return on the huge amounts of money and energy required to get it out of the ground. But the longer oil prices remain low, the longer investors will be exposed to defaults.
Investors include ordinary folks by virtue of our holdings in pension funds and RRSPs. Laricina Energyhas defaulted on financing extended by Canada’s largest pension fund, the public Canadian Pension Plan Investment Board. We can likely expect defaults to international investors as well, which should create upward pressure on interest rates as investors try to cover exposure to losses.
…click on the above link to read the rest of the article…
