Jump to content
House Price Crash Forum
Sign in to follow this  
interestrateripoff

Bis Worldwide Debt Surge Threatens Crisis

Recommended Posts

BIS chief fears fresh Lehman crisis from worldwide debt surge

The problem is the only way to have growth is with an increase in debt as that's the current system. Bad news for Georgie as his plan is to increase personal debt to get UK growth...

Share this post


Link to post
Share on other sites

The key for me is the lender of last resort the public sector is broke, unlike 2007.

There was a report on the Today programme this morning that the ECB promise to secure member state's debt issues (ie. step in when yields hit an unacceptable level) is a promise it cannot possibly fulfil with a mere Euro five billion of fire power.

It seems all central banks are trying to avert catastrophe with words alone.

Edited by crashmonitor

Share this post


Link to post
Share on other sites

Silly questions..

If the entire world is in debt, who is this debt owed to?

Is it even possible for the world to 'borrow consumption from the future'?

Share this post


Link to post
Share on other sites

Silly questions..

If the entire world is in debt, who is this debt owed to?

Is it even possible for the world to 'borrow consumption from the future'?

Still in balance, just a highly leveraged balance sheet particularly in the case of the public sector holding the liabilities and the older generation owning the debt in the form of bonds. not sure how sustainable this position is...not helped Japan.

Share this post


Link to post
Share on other sites

The key for me is the lender of last resort the public sector is broke, unlike 2007.

It's able to borrow at negative real rates same as (for example) Germany.

In what sense it is 'broke'?

Share this post


Link to post
Share on other sites

Still in balance, just a highly leveraged balance sheet particularly in the case of the public sector holding the liabilities and the older generation owning the debt in the form of bonds. not sure how sustainable this position is...not helped Japan.

So in 2 posts you've shifted from the Govt being broke to the pensioners holding the bonds being broke?

1 party has an asset - the other party has a liability. Why is either party 'broke'?

Share this post


Link to post
Share on other sites

So in 2 posts you've shifted from the Govt being broke to the pensioners holding the bonds being broke?

1 party has an asset - the other party has a liability. Why is either party 'broke'?

Well indeed Governments can't really go broke, the paper they issue just becomes worth less....like holders of Greek debt. Ultimately the holders of the debt will take the hit.

Edited by crashmonitor

Share this post


Link to post
Share on other sites

Silly questions..

If the entire world is in debt, who is this debt owed to?

Is it even possible for the world to 'borrow consumption from the future'?

1) Debt is owed by banks, individuals, businesses, governments all to each other. Ones mans debt is another mans asset i.e. a mortgage is a debt to a household but an asset to a bank.The problem is that the values of assets and liabilities are linked and the problem is that these asset prices are expensive because leverage is used to purchase them. So at the moment we are in some kind of equilibrium where the is generally solvency in the system. However, if something changes the current balance of assets and liabilities and asset prices go down then we are going to have more leverage (debt) than we thought!!

2) By definition any borrowing you do that isn't going into investment in productive capital is borrowing from future consumption. If you borrow money to build a well to get water then you no longer have to buy water. If you borrow money to buy water then when the money runs out you have to borrow more. In the sense that governments are borrowing money to run budget deficits to pay for services/pensions etc in the here and now, that budget deficit is here to stay unless they cut service quality and expenditure. Any money they borrow today will have to be paid back by future tax revenues. For some reason this is a societal norm but is actually criminal.

Share this post


Link to post
Share on other sites

So in 2 posts you've shifted from the Govt being broke to the pensioners holding the bonds being broke?

1 party has an asset - the other party has a liability. Why is either party 'broke'?

Yes; there's no limit to debt or solvent creditors' tolerance to keep extending it, asset valuations can only go up and up to ever more euphoric peaks - and little savers can get HTB for newbuilds at quarter of a million pounds for a 2 bed maisonette with a lounge/kitchen room.

More money printing to again, to bail out the complacent, and deny those of us who had positioned ourselves years ago in cash, and outside of massively overvalued assets. Think of the victims won't you. They know what their homes are worth at each new peak, and to them it's all about not enough supply of houses that makes houses go up, and the debtors who keep recklessly buying into it all ("They just wanted a home.")

Elliottwave: A similar dynamic holds in the creation and destruction of credit. Let’s suppose that a lender starts with a million dollars and the borrower starts with zero. Upon extending the loan, the borrower possesses the million dollars, yet the lender feels that he still owns the million dollars that he lent out. If anyone asks the lender what he is worth, he says, “a million dollars,” and shows the note to prove it. Because of this conviction, there is, in the minds of the debtor and the creditor combined, two million dollars worth of value where before there was only one. When the lender calls in the debt and the borrower pays it, he gets back his million dollars. If the borrower can’t pay it, the value of the note goes to zero. Either way, the extra value disappears. If the original lender sold his note for cash, then someone else down the line loses.

In an actively traded bond market, the result of a sudden default is like a game of “hot potato”: whoever holds it last loses. When the volume of credit is large, investors can perceive vast sums of money and value where in fact there are only repayment contracts, which are financial assets dependent upon consensus valuation and the ability of debtors to pay. IOUs can be issued indefinitely, but they have value only as long as their debtors can live up to them and only to the extent that people believe that they will.
The dynamics of value expansion and contraction explain why a bear market can bankrupt millions of people. At the peak of a credit expansion or a bull market, assets have been valued upward, and all participants are wealthy — both the people who sold the assets and the people who hold the assets. The latter group is far larger than the former, because the total supply of money has been relatively stable while the total value of financial assets has ballooned. When the market turns down, the dynamic goes into reverse. Only a very few owners of a collapsing financial asset trade it for money at 90 percent of peak value. Some others may get out at 80 percent, 50 percent or 30 percent of peak value. In each case, sellers are simply transforming the remaining future value losses to someone else.
BIS has often talked sense, but they've been warning for years, into the boom proper, whilst the main govs just ignored them. I'd like to be positioned to ride down the euphoric markets, but how much more euphoric could they still get?

Share this post


Link to post
Share on other sites

The BIS is almost always ignored by the global elite. They are the bureaucrats and pen pushers of the banking system. Of course valuations are higher and assets bubbles exist but without people feeling like they can make a profit why would they work towards anything? Its the natural cycle of human greed and desires.

Assets will go up and they will go down but can you lead your life waiting one way or the other or should you use your 75 years of life to do what you want with hand you have been dealt?

Edited by katchytitle

Share this post


Link to post
Share on other sites

The BIS is almost always ignored by the global elite. They are the bureaucrats and pen pushers of the banking system. Of course valuations are higher and assets bubbles exist but without people feeling like they can make a profit why would they work towards anything? Its the natural cycle of human greed and desires.

Assets will go up and they will go down but can you life your life waiting one way or the other or should you use your 75 years of life to do what you want with hand you have been dealt?

We can't work to much advantage and profit now, without accounting for QE in the financial system and markets. Unless you have a quality business, or mostly some other positional advantage for global QE supported income - even top flight lawyers can't afford to buy in London. Perhaps that explains why productivity is slipping, when people feel they can't work towards getting anywhere with life goals.

These are critical decisions, we hold off from which is using the hand we've been dealt. We can't also "do what we want" when VIs have been so fully supported and there needs to be a correction.

Just buy a home "get on with your life" - keep pumping your money into stock-markets. Alternatively we can work and wait and hope for correction in house prices, and short other euphoric markets, although short-sellers have mainly been punished for years now.

Senior partners at major London law firms can’t afford to live! Twenty years ago, the senior partners at most big law firms lived in London. But today, unless you have inherited wealth or bought your home long ago, most senior partners at London firms can’t afford to live anywhere near the City. Partner pay just won’t cover the cost.”
...from an American’s perspective, everything in London is nauseatingly expensive (or “quite dear,” as the locals so quaintly put it). But the cost of housing goes far beyond “nauseatingly expensive”; it’s eye-poppingly, grab-your-chest-and-drop-to-the-ground, out of sight. It leaves partner pay in the dust.
2012; pre a new round of QE global euphoria zirpy chase yield 'think of the victims anti-crash': http://abovethelaw.com/2012/10/inside-straight-london-partners-cant-afford-homes/

Share this post


Link to post
Share on other sites

Yes; there's no limit to debt or solvent creditors' tolerance to keep extending it, asset valuations can only go up and up to ever more euphoric peaks - and little savers can get HTB for newbuilds at quarter of a million pounds for a 2 bed maisonette with a lounge/kitchen room.

Nominal debt has been rising since 1694.

Betting on it reverting to some arbitrary moment in history looks like a mug's game.

Share this post


Link to post
Share on other sites

Non market exposed Mugs vs investment asset holding Complacent

It's not an arbitrary moment - 2007 occurred. $Trillions in global stimulus, but now being wound down. Bis are not the only ones warning about euphoric markets.

Perhaps this time there will be fewer bail outs.

Share this post


Link to post
Share on other sites

House asset/ prices are supporting a large chunk of debt.....savers and printers are supporting debt......no further growth without further debt...who now respects money/debt?....who would happily obtain it with no intention of repaying it, only ever servicing it, adding to it, and rolling it over? ;)

Share this post


Link to post
Share on other sites

It's not an arbitrary moment - 2007 occurred. $Trillions in global stimulus, but now being wound down. Bis are not the only ones warning about euphoric markets.

Perhaps this time there will be fewer bail outs.

Stimulus being "wound down".....I'll believe the end of Fed QE when I see it. Don't forget Japan has gone into QE overdrive since last year, the ECB won't be far behind looking at recent misses to EU IP numbers & deflationary conditions and recent Chinese stimulus running at 50Bn USD/month is offsetting the "taper" from the fed perfectly.

The notion of "wound down" is a misnomer, don't believe the hype. Central bankers will love telling you how great everything is and how things are being wound down because then it looks like they are winning.

Don't forget how fragile the UK economy feels from the inside yet how amazing it looks to outsiders? Just think how bad economic conditions must be in the other parts of the world. And we all know the only think that is keeping the UK economy wheezing along is consumption derived from asset/housing wealth from inflated asset prices. The incremental impact of this is already wearing out as the housing market takes a breath this summer as prices are just too high.

As for fewer bailouts this time round, the corporate sector is more leveraged, banking sectors are more leveraged, governments are more leveraged. The only group that is less leveraged is households. But again strip out the inequality effect and you will see that the asset owners have never been richer and the debt slaves has never been poorer so this will have a profound impact on consumption levels in consumption driven western economies. Systemic risk is as high or higher than it was in 2007.

Share this post


Link to post
Share on other sites

Silly questions..

Always the most interesting sort. Trying to work out what actually is happening in the real world, rather than lokking at data or spreadsheets tends to cause my brain to stall at some point, but I'll try and get the ball rolling

If the entire world is in debt, who is this debt owed to?

Possibly from banks, although in theory they are supposed to be reconstructing their balance sheets, but mainly from governments. UK debt has increased by 50% over the last few years. I guess USA is much the same. And "governments" means "taxpayers".

Is it even possible for the world to 'borrow consumption from the future'?

I guess it's ok to say an individual "borrows consumption from the future", just like one can "save for the future". Overall, consumption now is higher than it would/should be. In the future, it wil be lower that it otherwise would (partly because we already have all the crap we need, partly because we will have to repay the debts.)

Share this post


Link to post
Share on other sites
BIS has often talked sense, but they've been warning for years, into the boom proper, whilst the main govs just ignored them. I'd like to be positioned to ride down the euphoric markets, but how much more euphoric could they still get?

If only the worlds central bankers where involved in the BIS....

Share this post


Link to post
Share on other sites

Is it even possible for the world to 'borrow consumption from the future'?

No and that is a key thing to remember. The economy is just a black box that distributes wealth between those currently alive. The dead and how much debt they left is irrelevant.

Share this post


Link to post
Share on other sites

No and that is a key thing to remember. The economy is just a black box that distributes wealth between those currently alive. The dead and how much debt they left is irrelevant.

until it isn't

that's when the creditors will ask for human collateral to pay the debts.(ie slavery all over again)

that is why we, as a small nation with limited resources ABSOLUTELY MUST make a commitment to doing far more in-house than we presently do.

selling off the family silver to all and sundry because it's "social justice" and "fairness" is stupidity.there are other toddlers in the playpen who don't want to share the toys.

having said that, the captains at the helm do need to read up on how to run a tight ship, and that means divvying up the spoils properly between the crew members.

failure to do so leads to mutiny, and there's only so far you can go with press-gangs.

Edited by oracle

Share this post


Link to post
Share on other sites
10.58am BST

The Committee now asks about the Bank for International Settlement's warning that the international financial system is now dangerously fragile, and that central banks should rein in their ultra-loose policies.

Mark Carney looks unimpressed by BIS's intervention, saying its views are "interesting", but made in a vacuum.

BIS has no mandate, and isn't responsible to parliament, he point out. They are "outside the political reality".

Carney also suggests it would be "dangerous" to start aggressively tightening monetary policy now, at a time when global investors are already searching desperately for 'yield' (as the rates of returns from many safe-haven assets have fallen sharply).

Maybe he should wait until it's twice as dangerous as investors double down paying £80m for a terrace house in London, instead of just £40m.

http://www.theguardian.com/business/2014/jul/15/uk-inflation-data-mark-carney-janet-yellen-business-live?view=desktop#block-53c4f5e4e4b02e55432d0978

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   224 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.