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These Four Predicted The Global Financial Crisis; Here’s What They Think Causes The Next One

September 16, 2018

These Four Predicted The Global Financial Crisis; Here’s What They Think Causes The Next One

A different kind of hurricane slammed into the American East coast, the nation and ultimately the world ten years ago today.

Amidst the multiple introspective columns and soul searching that naturally occurred this week, which looked back on the missed warning signs behind the 2008 financial collapse exactly a decade ago this weekend, there is a small group of people whose opinions are actually worth paying attention to.

Though arguably no single individual accurately called all aspects of the crisis in its entirety, precipitated by the implosion of Lehman Brothers, some did very publicly predict key facets with prophetic clarity. As Market Watch’s Howard Gold explains in his profile of four analysts the world should have been listening to: “People warned about subprime mortgage loans, derivatives, and too much leverage, but nobody, to my knowledge, said a bursting housing bubble would cause a global crisis that would lead to the demise of venerable financial firms, require trillion-dollar taxpayer bailouts, and cause a recession that rivaled only the Great Depression in its magnitude.”

Trouble is like many religious prophets of ancient history, they were rejected at the time, cast as dour harbingers of gloom and doom.

Clockwise from upper left: Gary Shilling, Jim Stack, Raghuram Rajan and John Mauldin. Via MarketWatch

Here are four names and their very public warnings that attempted to jolt the financial and banking sectors out of their sleepy stroll toward the abyss before 2008, as well as their predictions for the next big one, and what to look out for.

Howard Gold interviewed each, and laid out the key quotes summarizing then and now…

…click on the above link to read the rest of the article…

Mutiny Among The “Magic People” – India Central Banker Admits “The Ammo Is Almost Gone”

May 16, 2016

Mutiny Among The “Magic People” – India Central Banker Admits “The Ammo Is Almost Gone”

The self-described “magic people” who “give to the markets” are facing a mutiny this morning as Raghuram Rajan, the head of the Indian central bank, admits central banks and governments of rich countries are running out of ammunition for stimulating their economies… but they can never admit as much. Crushing the dreams of “extreme monetary policy”-setters, Rajan goes on to discuss the sanity of ‘helicopter money’ warning that people will not be ‘stimulated’ to spend but will question: “What kind of world are we in when the central bank prints money and throws it out of the window?”

Blasphemy!!

Mr. Rajan – an outspoke critic of low interest rates in rich countries that can drive hot-money flows to poorer parts of the world – criticised efforts to use fiscal and monetary policy and infrastructure programmes to boost growth rates in advanced economies. As The FT reports,

Although Mr Rajan said there were limits on stimulus, he said central banks “cannot claim to be out of ammunition because immediately that would create the wrong kind of expectations, so there’s always something up their sleeves”.

Mr Rajan said he was a supporter of stimulus policies to “balance things out” over short periods when households or companies were proving excessively cautious with their spending. But eight years after the financial crisis, we “have to ask ourselves is that the real problem?”.

“I have this image of stimulus as a bridge,” he said. “As the economy goes down, there is an expectation it will come up. Stimulus is a bridge which smoothes over the growth rate of the economy and prevents damaging expectations from building up.”

If stimulus went on for a long time, if it did not work, he said, the adjustment would be sharp, indicating there was little room for further stimulus.

…click on the above link to read the rest of the article…

New Rules for the Monetary Game

March 21, 2016

New Rules for the Monetary Game

NEW DELHI – Our world is facing an increasingly dangerous situation. Both advanced and emerging economies need to grow in order to ease domestic political tensions. And yet few are. If governments respond by enacting policies that divert growth from other countries, this “beggar my neighbor” tactic will simply foster instability elsewhere. What we need, therefore, are new rules of the game.

Why is it proving to be so hard to restore pre-Great Recession growth rates? The immediate answer is that the boom preceding the global financial crisis of 2008 left advanced economies with an overhang of growth-inhibiting debt. While the remedy may be to write down debt to revive demand, it is uncertain whether write-downs are politically feasible or the resulting demand sustainable. Moreover, structural factors like population aging and low productivity growth – which were previously masked by debt-fueled demand – may be hampering the recovery.

Politicians know that structural reforms – to increase competition, foster innovation, and drive institutional change – are the way to tackle structural impediments to growth. But they know that, while the pain from reform is immediate, gains are typically delayed and their beneficiaries uncertain. As Jean-Claude Juncker, then Luxembourg’s prime minister, said at the height of the euro crisis, “We all know what to do; we just don’t know how to get re-elected after we’ve done it!”

Central bankers face a different problem: inflation that is flirting with the lower bound of their mandate. With interest rates already very low, advanced economies’ central bankers know that they must go beyond ordinary monetary policy – or lose credibility on inflation. They feel that they cannot claim to be out of tools.

…click on the above link to read the rest of the article…

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