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Imf Warns Of New Threats To Global Economy Due To Excessive Risk Taking

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http://www.theguardian.com/business/2014/sep/17/imf-new-threats-global-economy

Excessive risk taking and geopolitical hazards pose new threats to a global economy already experiencing an uneven and weaker than expected recovery, the International Monetary Fund has warned.

In an assessment prepared for finance ministers and central bank governors of the G20 countries, the Washington-based fund said problems in the US, the eurozone, China, Japan, Russia and Latin America meant growth would not meet the 3.6% pencilled in for 2014 in April.

The IMF said it expected the world economy to pick up speed during 2015 because long-term interest rates were low, central banks were supporting activity and share prices were rising. But it issued a warning that new threats could be building even before the global economy had recovered fully from its biggest downturn since the Great Depression of the 1930s.

"New downside risks associated with geopolitical tensions and increasing risk taking are arising," the IMF said. It said other risks stemmed from low inflation, a permanent slowdown in growth rates in the west, lower growth in emerging economies and the possible disruption to financial markets that might be caused when the US Federal Reserve starts to raise interest rates.

"Despite setbacks this year, global recovery is proceeding but remains unbalanced," the paper on global prospects and challenges said. "In many advanced economies legacies of the boom and subsequent crisis – including high private and public debt – still weigh on the recovery despite relaxed financial conditions."

With ZIRP the financial system has created risk.

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So they print billions to create a 'wealth effect' then seem surprised when complacency and overconfidence is the outcome?

Surely the whole point of QE was to generate the confidence they now identify as a threat- for the blindingly obvious reason that the confidence has no basis in reality, being only the outcome of their own interventions that were designed to create that very confidence.

Both the original bail outs and subsequent QE suffer from the same flaw- a total inability to control where all that gifted money ended up- but to act surprised when speculators take the money you gifted them and use it for speculation seems beyond naive- more like idiotic.

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Back in July at Camp Alphaville there was a panel discussion entitled 'Is This Nuts?'

From the growing perception that there is no such thing as a free market, to
Libor and FX scandals and HFT, who really influences market prices in the era of
extreme central bank intervention? What are the unintended consequences of
all this liquidity? And what will life be like, post QE?



The BoE's Andy Haldane was on the panel, and although there is no official record of his remarks that I'm aware of, this is how his views were reported on the Guardian Live Business Blog at the time (bold is not mine):

Andy Haldane: Financial markets are nuts, and that's better than the alternative

Now Andy Haldane speaks at Camp Alphaville.

Is the situation in the financial market nuts today?

Indeed, Haldane replies. "It would be extraordinary if it wasn't nuts".

We have had a global ecoomy that has done the most amazing things for 80 years and gone though a phase shift.

Have a financial system that has gone through several phase shifts.

I would be extraordinary if markets, that are pricing in all those things, are not nuts.

Has monetary policy aided and abetted risk-taking? I hope so, Haldane says, that's why we did it.

Had we not done it, the UK economy would be 6% smaller, losing at least £80bn to £100bn.

Stock market prices are up, asset prices are up -- and that has turned a headwind into something of tail wind, Haldane says.

But yes,"there is a risk of the economy becoming over egged", even if the money isn't leveraged, Haldane cautions.

[Haldane] explains that central banks have "grown a new arm, macro-prudential regulation" to prevent the markets becoming over-egged with risk.

He cites the BoE announcing measures to prevent the housing market overheating, last week.

So in conclusion, Haldane says, the financial markets today are nutty, but they'd be nuttier if central bankers hadn't acted in the way they did since the collapse of Lehman Brothers.

And later (again, bold is the Guardian's):

Andy Haldane: there will be more volatility than in the past

Back to Andy Haldane, who explains to the financial pro's in the audience at Camp Alphaville that the "shape of risk" is being altered, by the changes in financial regulation.

In the past we had periods of time when there was stability, and good availability of capital at reasonable prices, punctuated by the complete reverse - which we call banking crises, Haldane says.

No, instead of risks being hidden inside banks, it shows up each week in the "mark-to-market balance sheets of asset management firms."

That means there will be, on average, more volatility than in the past, Haldane says.

The fear and greed cycles in the financial markets will be more obvious than in the past.


But that's the price of avoiding a repeat of 2008.

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In the past we had periods of time when there was stability, and good availability of capital at reasonable prices, punctuated by the complete reverse - which we call banking crises, Haldane says.

No, instead of risks being hidden inside banks, it shows up each week in the "mark-to-market balance sheets of asset management firms."

That means there will be, on average, more volatility than in the past, Haldane says.

Policies to keep VI in position, preventing healthy correction, change, renewal.

At least is sounds like bank balance sheets are improved, with others carrying the risks. I guess the banks are going to... well what are they going to do for future business?

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Back in July at Camp Alphaville there was a panel discussion entitled 'Is This Nuts?'

From the growing perception that there is no such thing as a free market, to

Libor and FX scandals and HFT, who really influences market prices in the era of

extreme central bank intervention? What are the unintended consequences of

all this liquidity? And what will life be like, post QE?

The BoE's Andy Haldane was on the panel, and although there is no official record of his remarks that I'm aware of, this is how his views were reported on the Guardian Live Business Blog at the time (bold is not mine):

And later (again, bold is the Guardian's):

Haldane is completely wrong about volatility. The VIX hit an all-time low in July and has barely budged since. Same with every other volatility measure I've seen. There's no volatility because the central bankers have crowded everybody on to the same side of the boat with their endless QE & ZIRP. At the same time risk has soared because yields have been compressed to nothing; you need to put down a billion just to earn yourself a penny.

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yields have been compressed to nothing; you need to put down a billion just to earn yourself a penny.

Yep, just what we expected. Endgame.

Ironic this was in the Guardian, home of those with a hard on for command economy, state controll and well totalitarianism basically. Smug gits think they have tamed capitalism.

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