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Page added on October 9, 2015
Why Are The IMF, The UN, The BIS And Citibank All Warning That An Economic Crisis Could Be Imminent?
The warnings are getting louder. Is anybody listening?
For months, I have been documenting on my website how the global financial system is absolutely primed for a crisis, and now some of the most important financial institutions in the entire world are warning about the exact same thing. For example, this week I was stunned to see that the Telegraph had published an article with the following ominous headline: “$3 trillion corporate credit crunch looms as debtors face day of reckoning, says IMF“. And actually what we are heading for would more accurately be described as a “credit freeze” or a “credit panic”, but a “credit crunch” will definitely work for now. The IMF is warning that the “dangerous over-leveraging” that we have been witnessing “threatens to unleash a wave of defaults” all across the globe…
Governments and central banks risk tipping the world into a fresh financial crisis, the International Monetary Fund has warned, as it called time on a corporate debt binge in the developing world.
Emerging market companies have “over-borrowed” by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014, found the IMF’s Global Financial Stability Report.
This dangerous over-leveraging now threatens to unleash a wave of defaults that will imperil an already weak global economy, said stark findings from the IMF’s twice yearly report.
The IMF is actually telling the truth in this instance. We are in the midst of the greatest debt bubble the world has ever seen, and it is a monumental threat to the global financial system.
But even though we know about this threat, that doesn’t mean that we can do anything about it at this point or stop what is about to happen.
The Bank of England, the UN and the Bank for International Settlements have all issued similar ominous warnings. The following is an excerpt from a recent article in the Guardian…
The IMF’s warning echoes a chorus of others. The Bank of England’s chief economist, Andy Haldane, has argued that the world is entering the latest episode of a “three-part crisis trilogy”. Unctad, the UN’s trade and development arm, would like to see advanced economies boost public spending to offset the downturn in emerging economies. The Bank for International Settlements believes interest rates have been too low for too long, encouraging too much risk-taking in financial markets. All of them fear that the global financial system is primed for a crisis.
I particularly like Andy Haldane’s likening our current situation to a “three-part crisis trilogy”. I think that is perfect. And if you are familiar with movie trilogies, then you know that the last episode is usually the biggest and the baddest.
Citigroup economist Willem Buiter also believes that big trouble is on the horizon. In fact, he is publicly warning of a “global recession” in 2016…
Citigroup economist Willem Buiter looks at the world landscape and sees an economy performing substantially below potential output, which he uses as the general benchmark for the idea of a global recession. With that in mind, he said the chances of a global recession in 2016 are growing.
“We think that the evidence suggests that the global output gap is negative and that the global economy is currently growing at a rate below global potential growth. The (negative) output gap is therefore widening,” Buiter said in a note to clients. He added, “from an output gap that was probably quite close to zero fairly recently, continued sub-par global growth is likely to put the global economy back into recession, if indeed the world ever fully emerged of the recession caused by the global financial crisis.”
Usually when we are plunged into a new crisis there is some sort of “trigger event” that creates widespread panic. Yesterday, I wrote about the ongoing problems at commodity giants such as Glencore, Trafigura and The Noble Group. The collapse of any of them could potentially be a new “Lehman Brothers moment”.
But something else happened just yesterday that is also extremely concerning. Just a couple of weeks ago, I warned that the biggest bank in Germany, Deutsche Bank,was on the verge of massive trouble. Well, on Wednesday the bank announced a loss of more than 6 billion dollars for the third quarter of 2015…
Deutsche Bank’s new boss John Cryan set about cleaning up Germany’s biggest bank on Thursday, revealing a record pre-tax loss of 6 billion euros ($6.7 billion) in the third quarter and warning investors of a possible dividend cut.
Write downs, impairments and litigation costs all contributed to the loss, the bank said.
Cryan became chief executive in July with a promise to cut costs. The Briton is accelerating plans to shed assets and exit countries to shrink the bank and is preparing to ax about 23,000 jobs, or a quarter of the bank’s staff, sources told Reuters last month.
Keep an eye on Germany – the problems there are just beginning.
Something else that I am closely watching is the fact that major exporting nations such as China that used to buy up lots of U.S. government debt are now dumping that debt at an unprecedented pace. The following comes from Wolf Richter…
Five large purchasers of US Treasuries – China, Russia, Norway, Brazil, and Taiwan – have changed their minds. They’re dumping Treasuries, each for their own reasons that are now coinciding. And at the fastest rate on record.
For the 12-month period ended July, sales of Treasuries by central banks around the world reached a net of $123 billion, “the biggest decline since data started to be collected in 1978,” the Wall Street Journal reported.
China, the largest foreign owner of Treasuries – its hoard peaking at $1.317 trillion in November 2013 – has been unloading with particular passion. By July, the latest data available from the US Treasury Department, China’s pile was down to $1.241 trillion.
Yes, I know, the stock market went up once again on Thursday, and all of the irrational optimists are once again telling us that everything is going to be just fine.
The truth, of course, is that everything is not going to be just fine. Ever since I started the Economic Collapse Blog, I have never wavered in my belief that the greatest economic crisis that the United States has ever seen is coming, and I have written well over 1000 articles setting forth the case for the coming collapse in excruciating detail. Nobody is going to be able to say that I didn’t try to warn them.
Those that have blind faith in Barack Obama, Wall Street, the Federal Reserve and the other major central banks around the planet will continue to mock the idea that a major collapse is coming for as long as they can.
But when the day of reckoning does arrive and crisis coming knocking at their doors, what will they do then?
31 Comments on "Why Are The IMF, The UN, The BIS And Citibank All Warning That An Economic Crisis Could Be Imminent?"
makati1 on Fri, 9th Oct 2015 6:37 am
This could lead to this:
“Syria and the drumbeat of world war”
http://www.wsws.org/en/articles/2015/10/08/pers-o08.html
Listen to the insane comments of the Western leaders and you will soon understand that a recession is the least of our worries. When an idiot says to take out the Russians in Syria, while Putin has nukes pointed at all of the West, THAT is insanity or suicide, but the old fart is 87 and looks like the Sith Lord on Star Wars so I’m sure he would love tot take the world down before he dies. Throw in Soros, 85, and you can see why they don’t give a damn about us just their hate. Both should have died long ago.
shortonoil on Fri, 9th Oct 2015 7:00 am
“Emerging market companies have “over-borrowed” by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014, found the IMF’s Global Financial Stability Report.”
It will require an additional $39 trillion above what it will be sold for to keep the world’s oil supply flowing over the next decade. The IMF report is the good news!
http://www.thehillsgroup.org/
BobInget on Fri, 9th Oct 2015 9:14 am
Currencies are all racing each other to the bottom. Exceptions, oil exporting nations.
ww.livecharts.co.uk/ForexCharts/usdcad.php
Advancing oil prices (over $100) will supply funding, (maybe not quite 39 trillion, maybe one
trillion) to get oil producers cranked up once again.
All this free floating fear we see is justified.
1) Intervention by Western powers into religious and political differences in Islamic countries, isn’t working. With no apparent solutions, no ‘end game, super powers blunder blindly ahead .
2) Demand for petroleum products has, for a dozen reasons, become inelastic. That demand no longer matches supply but exceeds supply.
3) No government(s) have drastic measures in place to mitigate imminent effects of climate changes.
4) A single MERVED missile directed at Saudi Arabian oil distribution choke points can destroy
many western economies, possibly worse.
makati1 on Fri, 9th Oct 2015 9:27 am
Bob, $100 oil is over. A few weeks of anywhere near that and the whole economy will collapse and never rise again. Too much debt.
Demand exceeds supply? Where? When China stops filling it’s storage tanks, the demand will fade fast. Not going to be America. They will soon be worried about eating, heating and shelter, not road trips. Not going to be Europe. They are already in recession. Who?
But then, I guess you were being facetious.
joe on Fri, 9th Oct 2015 9:34 am
There’s no escape from this. Ever since we heard that China tanked, the stock market has flown up. Oil is increasing as there will be more demand in winter and continued free FED money will ensure another bumper Christmas!
What was that? The only reason we are not in recession is the FED? Yeah. In a real free market economy the dollar should have disappeared, the US can’t afford 18trln to repay it’s national debt! So instead the US has exported it’s deflation to China and that has knocked on to other currencies, the reason is that oil is priced in dollars, so while demand for dollars keeps up even in recessions, other currencies are not wanted to swap for dollars due to low economic activity, but the twist now is that we are entering the new beginning of another 20 – 30yr long business supercycle where young people will be offered 30-35 yr mortgages as wages rise and more US jobs go to Asia to ensure these homes can be built and serviced most profitably. Peak oil and climate change will gum up the works a bit though.
penury on Fri, 9th Oct 2015 9:35 am
IMHO the days of reckoning are here. 90 per cent of the people have no resources. Money is simply invented and added to the debt pile. Of course THEY want war it destroys infra structure and eliminates the useless eaters.But as usual everyone is fighting the last war. This one will be different. MAD should have changed everything but did not. The military leaders are certain that the U.S is impregnable and all powerful. Hubris will be the destroyer of mankind.
BC on Fri, 9th Oct 2015 10:34 am
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=25Xp
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=25Xi
At the links above are “Freddie fluff” charts (FFCs) of Austrian Total Money Supply (TMS) velocity and acceleration to private GDP vs. the change rate of real final sales.
The implication is that the US economy fell into recession late in 2014 or earlier this year (as in 2008, 2001, and the early 1980s) and the Fed will have to print, and the US gov’t borrow and incrementally spend, at least an additional $2.5-$3 trillion during the next recessionary cycle to prevent nominal GDP from contracting.
The additional suggestion is that we are seeing another episode of incipient deflation and that there is a zero probability that the Fed can increase the reserve rate and restrain, or reduce, bank reserves; even the suggestion is silly.
GS, JPM, MS, C, BAC, WFC, BCS, DB, HSBC, and Auntie Janet won’t tell us this, gents. Prepare accordingly.
BobInget on Fri, 9th Oct 2015 10:35 am
I’ll stand by that $100 and raise you another hundred, Makati.
My understanding of the term ‘inelastic’ is obviously flawed.
DEFINITION of ‘Inelastic’ An economic term used to describe the situation in which the supply and demand for a good or service are unaffected when the price of that good or service changes.
Can anyone offer another term to fit the following?
“The International Energy Agency (IEA) projects that oil will provide 30% of the world’s energy mix in 2030. In the United States and Canada about 2/3 of oil is used for transportation. In most of the rest of the world, oil is more commonly used for space heating and power generation than for transportation5. Oil is a key product for the world’s agriculture industry, which helps feed the world’s population of more than seven billion”.
Davy on Fri, 9th Oct 2015 10:55 am
Fantasy, Bob. You can’t accurately forecast out that far in an environment like we are in today.
Davy on Fri, 9th Oct 2015 10:59 am
BC, I coined “Freddy fluff charts” for when Fed charts are misused. When used within context I respect them. Mad marm usually exceeds proper application of Fred charts.
Dredd on Fri, 9th Oct 2015 11:00 am
“Why Are The IMF, The UN, The BIS And Citibank All Warning That An Economic Crisis Could Be Imminent?”
Because that is what they always do.
Scare folks with what they can control.
While suppressing news of what they cannot control (Blind Willie McTell News – 6).
BC on Fri, 9th Oct 2015 11:12 am
Bob, rate of change of growth of supply and demand, brother.
If not for auto sales and surging “health” care spending (growing more than TWICE the rate of GDP, as occurs during the onset of recessions), the US economy would be well below stall speed and decelerating into recession.
Subprime auto loan- and lease-induced US auto sales have decelerated from 10-11% YoY in 2014 to 2% today, whereas retail sales ex autos and parts have decelerated since early 2015 to an historically recessionary rate.
See my post above for total money supply’s velocity and acceleration to private GDP, suggesting historically recessionary conditions since late 2014 or early this year.
No, Bob, you’re missing the cyclical signals, brother, as are the overwhelming majority of eCONomists (at least publicly), which is what they’re paid to do, of course.
shortonoil on Fri, 9th Oct 2015 11:15 am
“I’ll stand by that $100 and raise you another hundred, Makati.
My understanding of the term ‘inelastic’ is obviously flawed.”
Can you pay $1,000,000 for a Big Mac? It’s called affordability, and all products face that barrier. Petroleum is no different, and because it is an energy commodity with fairly consistent values calculating that limit is fairly straight forward:
http://www.thehillsgroup.org/depletion2_022.htm
Petroleum has a specific (per unit) $ value to the economy. The graph above gives those limits. $100/ barrel is not there, and never will be again. Depletion is a hard task mistress, and the world of oil is in for one big wake-up call. You can fool credulous investors; Mother Nature is not so easily deceived!
http://www.thehillsgroup.org/
peakyeast on Fri, 9th Oct 2015 11:27 am
MAD could have been good….
MAD without population control and resource control will lead to total MADness.
But we did the worst possible:
Using MAD to get everything really MAD.
Rodster on Fri, 9th Oct 2015 11:38 am
makati1: “and you can see why they don’t give a damn about us just their hate.”
This is why humanity and civilization is headed for the shitter. The Elite aka TPTB don’t give two shits about anyone on the planet besides themselves and their families.
As George Carlin used to say: “pack your shit folks, you’re going away” because “it’s a BIG CLUB and we AIN’T in it”.
With the way we are destroying Planet Earth thru resource depletion, pollution, climate cjange and geoengineering, I seriously doubt anyone will be on this planet besides insects by 2100.
BC on Fri, 9th Oct 2015 11:53 am
@short: Petroleum has a specific (per unit) $ value to the economy. The graph above gives those limits. $100/ barrel is not there, and never will be again. Depletion is a hard task mistress, and the world of oil is in for one big wake-up call. You can fool credulous investors; Mother Nature is not so easily deceived!
Right, short.
https://app.box.com/s/ys8ijadj4b57nb95ka0b3ilph38ga7fm
https://app.box.com/s/x61sqtg4c3vp1ubo67k8715ulapw35me
https://app.box.com/s/894h3w9iool3d07cnadqa21tmg89xu8n
https://app.box.com/s/bn1bvtbt7mk4hcv6jdl5734cmyiauetv
Above are links to charts that illustrate your point, albeit differently.
Oil at $45-$50 is still expensive to the capacity of the economy to grow anywhere near the historical average for real GDP per capita at 2-2.25% (currently at, or below, 1% since 2000 and 2010, and ~0% since 2007), if at all given the amount of debt, regressive taxes on labor, low labor share, and extreme inequality.
Increasing debt-money to the debt-money-adjusted value of US oil production/consumption per capita is not resulting in increasing affordable supply be capita; in fact, it’s the opposite, implying that we are growing ever less capable over time of sustaining the oil-based, mass-consumer economy while piling up a larger mountain of unpayable private and public debt.
GregT on Fri, 9th Oct 2015 12:01 pm
“The greatest shortcoming of the human race is our inability to understand the exponential function.” – Albert Bartlett (RIP)
“Infinite exponential growth in a finite environment is a physical and mathematical impossibility.” – Me
Yet here we are still clinging to a system that requires growth, and growth is what the eCONomists around to globe continue to demand.
Growth is the problem, not the solution. This will not end well.
Rodster on Fri, 9th Oct 2015 1:35 pm
“Yet here we are still clinging to a system that requires growth, and growth is what the eCONomists around to globe continue to demand.
Growth is the problem, not the solution. This will not end well.”
Of course and the ELEPHANT in the room is that infinite growth is a MUST and is baked into the cake. And what makes it all worse is that every Nation and eCONomy have joined hands and are racing towards the bottom at breakneck speed.
onlooker on Fri, 9th Oct 2015 7:10 pm
Bulls eyes guys! At breakneck speed straight ahead it seems to oblivion.
BC on Fri, 9th Oct 2015 7:31 pm
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=26d8
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=26dl
Davy, right. I knew that. 🙂
Above are charts of Austrian Total Money Supply (TMS) acceleration and real final sales and the price of oil (US$ adjusted).
By this metric, “money” is “tight”, i.e., recessionary as in 2008, 2001, and the early 1980s.
Only very recently has a growing minority share of eCONomists begun to consider the likelihood of recession, which is rather reminiscent of the period leading up to 9/11 and the Lehman take down.
The vast majority of eCONomists, analysts, CEOs, and financial media pundits reading from the Establishment script have internalized that no recession is possible until a year or more after the Fed begins raising the reserve rate and the yield curve flattens and inverts.
But that does not occur prior to recessions during debt-deflationary regimes of the Long Wave, which began in Japan in the late 1990s and in the US and EZ in 2008.
So, we probably decelerated to “stall speed” in late 2014 and into recession YTD, only the real-time date that will be heavily revised later has yet to detect (purposefully or otherwise) the cyclical downturn.
At a minimum, anyone with considerable assets in equities and corporate bonds as a share of net wealth should be reducing risk in the most convenient, efficient manner possible at this point (should have started late last year optimally), so as to mitigate cyclical drawdown risk of 35-50%+ to equities and to anticipate breaking even in no more than 2-3 years.
Otherwise, the risk is a bear market like 2000-02 and 2007-09 and 5-6 or more years to break even, and the next time around there won’t be much assistance from fixed income at yields of 0% to 2% or lower.
Same for (un)real estate, which has been in a bubble since 2012-13 and is likely to fall 20-25% average nationwide and 30-40% again in the bubbliest areas of the country. This time around, the high-end, buy-up properties will be hit disproportionately harder. Canada and Oz risk a decline of 40-50%, and perhaps more in Toronto and BC.
FWIW.
Davy on Fri, 9th Oct 2015 8:48 pm
Here are some depression pics worth looking at:
http://photogrammar.yale.edu/map/
apneaman on Fri, 9th Oct 2015 9:30 pm
How can you tell were near collapse?
Alex Jones And Matt Drudge: The Most Bizarre Interview You Will Ever Imagine You Witnessed
http://www.newscorpse.com/ncWP/?p=29831
apneaman on Fri, 9th Oct 2015 9:38 pm
Banks are ‘locked in’ to Glencore’s $100 billion debt mountain
“Glencore is proving to be a real puzzle for banking analysts.
The question is about debt. Glencore says the net debt it needs to worry about is around $50 billion (£32 billion). Analysts at Bank of America Merrill Lynch, led by Alastair Ryan, aren’t so sure.
They put the total banking exposure to Glencore’s debt at around $103 billion (£67 billion). It’s all down to opaque guarantees that Glencore can access a pool of money, known as letters of credit, at any time to finance deals.
Here’s how that total debt breaks down; the kicker is the last bullet point:
$35 billion (£23 billion) in bonds
$9 billion (£5.9 billion) in bank loans
$8 billion (£5.2 billion) in available revolving borrowing
$1 billion (£670 million) secured borrowing
$50 billion (£32 billion) in committed letters of credit locked in until 2017
The letters of credit are a type of guarantee from the banks to finance Glencore’s commodities trading deals. The important point, Bank of America says, is that Glencore doesn’t have to put up any collateral for these guarantees, making the banks that backed the deals more sensitive to risk.
The credit lines don’t really show up in normal corporate measures of debt, which is why the total debt mountain is so much bigger than what you see on Glencore’s balance sheet.
It’s not a new point, already noticed by Business Insider’s Jim Edwards last month, but it’s worth emphasising because of how much it resembles the events leading up to the 2008 financial crisis.
The guarantees are opaque, and it’s difficult for investors to judge which bank is on the hook for how much of this type of Glencore debt at any particular time. Sounds a little like that toxic mortgage-backed debt from 2008.”
http://www.businessinsider.com/bank-of-america-glencores-debt-mountain-is-way-bigger-than-it-looks-and-the-banks-are-locked-in-2015-10?r=UK&IR=T&utm_content=buffercc340&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer
apneaman on Sat, 10th Oct 2015 1:50 am
UCLA faculty voice: Low interest rates are bad for your brain
Neuroscientist Peter Whybrow explains the human penchant for instant gratification (hint: evolution plays a significant part)
http://newsroom.ucla.edu/stories/ucla-faculty-voice-low-interest-rates-are-bad-for-your-brain
bug on Sat, 10th Oct 2015 6:40 am
Davy, thanks for the photogrammar website link. Many good photos, I have found some pics from Delaware where I can actually do a then and now photo.
Stephen on Sat, 10th Oct 2015 12:07 pm
Is it time for a debt jubilee?
Otherwise if this continues, I think we will have a situation so massive that we will have to allow life to go on without every debt paid. There will be no other alternative if the crisis leads to very high unemployment. Personally I think in many cases the debts owed exceed the assets of most people now.
I even see the voters enacting laws limiting debt collectors powers (such as banning wage garnishment, bank levy, and property levy) as a solution if the situation gets severe as a backlash against the rich getting everything.
Imagine what would happen if:
* The voters raised the property exemption from judgment and bankruptcy to $1,000,000,000,000, banned wage garnishment, and banned property levies when debts aren’t paid.
* Made the SOL on judgments and debts to one millionth of a second, and disallowed default judgment if the SOL has expired.
* Prohibited denial of jobs, apartments, or new credit because of a judgment or previously defaulted credit account.
* Made bankruptcies, foreclosures, and defaults the option of sealed private record and not reported to Experian, Equifax, Trans Union, FICO, et al.
What do you think would happen if legislation like this passed in all 50 states simulateonsly and a masive campaign was done to educate the public on their new rights?
ghung on Sat, 10th Oct 2015 12:15 pm
Stephen: “I even see the voters enacting laws limiting debt collectors powers…”
Unfortunately, historically we often see the opposite; seizure of all assets and/or debtors prisons.
Davy on Sat, 10th Oct 2015 12:43 pm
A debt jubilee will likely come but how is unclear. Eventually there is just too much bad debt and no way to deal with it. The courts and the agencies will be overwhelmed. I might add many of those in the courts and in the agencies doing the debt collecting will also be collected upon until we have a hilarious absurdity of maintaining something that cannot be maintained.
onlooker on Sat, 10th Oct 2015 12:51 pm
In the end this debt and debt based system is a sideshow that has been postponing the day of reckoning. Who has true assets and their “own” money not many if any. So as the stream from the faucet of lending trickles to a halt so will whole economies around the world. Remember lending is predicated on growth no growth, no lending.
Apneaman on Sat, 10th Oct 2015 6:55 pm
MEGACANCER ~ Exploring the pathology of industrial civilization
Megamold
“I could just as well have named this blog “Megamold” or “Megafungus” given my impressions of the patterns of growth of industrial civilization. I settled upon Megacancer because the technological system’s essential ingredient, humans, are a renegade species that have evolved into their own complex adaptive system (CAS II) which has its own growth imperative that will destroy the parent ecosystem from which it was derived. Technological civilization will not supersede the ecosystem, but will rather grow haphazardly for a short period doing significant damage to the ecosystem directly and through release of metabolic by-products.
It is amazing to watch clueless humans, rabid for growth and profit, invest in expansion of the cancer and then congratulate themselves on ownership of some portion of infrastructure that they believe will deliver resources to them in perpetuity, even though most of the resources are non-renewable and have been significantly depleted. At some not too distant future the infrastructure will become so worthless as to only become a liability to which no one will claim ownership. The citizenry that work and pay mortgages to one day assume ownership of this infrastructure for all of the income that it can deliver, will find that there is no longer income to be had and will watch their structures slowly degrade. Our leaders seem mostly interested in using their positions to take ownership of as much infrastructure as possible while cheerleading for even more growth without doing the due diligence to figure out where this leaves us in the not so distant future – dead.”
more
http://megacancer.com/2015/10/10/megamold/
onlooker on Sat, 10th Oct 2015 7:27 pm
As usual AP, great link