Davos: Black Swan Lake?
Summary
Discussion of the potential effects on equity, bond, commodity, capital and asset markets regarding:
William White OECD Davos interview; QE taps out; economic side effects.
Central bank transparency; mixed economic signalling.
Inter temporal smoothing; Eurodollar rehypothecated irony; the singularity.
Discussion of the potential effects on equity, bond, commodity, capital and asset markets regarding:
William White OECD Davos interview; QE taps out; economic side effects.
Central bank transparency; mixed economic signalling.
Inter temporal smoothing; Eurodollar rehypothecated irony; the singularity.
From Davos With Love?
Debt/Asset Valuation: It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something.
Eurobank Liquidity/Solvency: European banks have already admitted to $1 trillion of non-performing loans: they are heavily exposed to emerging markets and are almost certainly rolling over further bad debts that have never been disclosed. The European banking system may have to be recapitalized on a scale yet unimagined, and new "bail-in" rules mean that any deposit holder above the guarantee of €100,000 will have to help pay for it.
FED Monetary Policy: Money policies by the US Federal Reserve and its peers have had the effect of bringing spending forward from the future in what is known as "inter-temporal smoothing". It becomes a toxic addiction over time and ultimately loses traction. In the end, the future catches up with you. "By definition, this means you cannot spend the money tomorrow."
The Effects of Central Bank Intervention: In retrospect, central banks should have let the benign deflation of this (temporary) phase of globalisation run its course. By stoking debt bubbles, they have instead incubated what may prove to be a more malign variant, a classic 1930s-style "Fisherite" debt-deflation.
This missive was published as an exclusive to Seeking Alpha. To access the ENTIRE text for FREE on Seeking Alpha, please click here. The Nattering One does not receive remuneration if you register, only satisfaction.Debt/Asset Valuation: It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something.Eurobank Liquidity/Solvency: European banks have already admitted to $1 trillion of non-performing loans: they are heavily exposed to emerging markets and are almost certainly rolling over further bad debts that have never been disclosed. The European banking system may have to be recapitalized on a scale yet unimagined, and new "bail-in" rules mean that any deposit holder above the guarantee of €100,000 will have to help pay for it.FED Monetary Policy: Money policies by the US Federal Reserve and its peers have had the effect of bringing spending forward from the future in what is known as "inter-temporal smoothing". It becomes a toxic addiction over time and ultimately loses traction. In the end, the future catches up with you. "By definition, this means you cannot spend the money tomorrow."The Effects of Central Bank Intervention: In retrospect, central banks should have let the benign deflation of this (temporary) phase of globalisation run its course. By stoking debt bubbles, they have instead incubated what may prove to be a more malign variant, a classic 1930s-style "Fisherite" debt-deflation.
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