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Is 2016 The Year When The World Tumbles Back Into Economic Crisis?

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http://www.theguardian.com/business/2016/jan/09/2016-world-tumbles-back-economic-crisis

Rarely have financial markets had a more traumatic start to the year. Shares plunged, the price of oil clattered to its lowest level in 11 years, trading on the Chinese stock market was halted twice, and the World Bank warned that a “perfect storm” might be brewing.

George Osborne chose his moment well to go public with his concern that the UK faces a “cocktail of threats”. In addition to the $2tn wiped off global stock markets, the North Koreans claimed they had exploded a hydrogen bomb and relations between Saudi Arabia and Iran worsened markedly.

On the face of it, there seems no reason why the global markets should remain depressed. Rising oil prices have traditionally been associated with recessions, so a drop of more than two-thirds in the cost of a barrel of crude should, logically, be good for growth. Cheaper energy means lower costs for businesses and additional spending power for consumers. There are winners and losers from a falling oil price but on balance the impact should be positive.

What’s more, it could be that the gloom about China is overdone. The slowdown in the rate of growth is not just intentional but desirable. Should the economy cool more quickly than planned, Beijing has plenty of power to ensure there is no hard landing: it can boost public spending; it can push the currency lower to boost exports; it can cut interest rates.

Trading on the Chinese stock market was a farce. “Circuit breakers” were introduced at the start of the year to prevent turbulence, used twice to stop investors selling shares, and then abruptly dumped at the end of last week. But the chaos needs to be put into perspective. Only the rich play on the Chinese stock market and their activities have little bearing on corporate investment. Share prices rose by 150% between June 2014 and May 2015: events since have seen the froth blown off the market, but the wider implications for China, let alone the rest of the world, are negligible.

The US-based fund manager Blackrock remains sanguine about the prospects for 2016, seeing events of the past week as akin to the brief period of turmoil last August rather than the start of a bear market. “On balance, the US economy is in decent shape (outside of manufacturing) and economic conditions in Europe are improving as well. The declines in these markets may have more to do with sentiment than substance,” it said.

There is, though, an alternative – and much darker – interpretation of the events of the past week, which begins and ends with China.

Rapid growth in what is now the world’s second-biggest economy helped prevent a second Great Depression in 2008-09, but there was a heavy price to pay. China spent public money lavishly – often on pointless projects – and by making credit cheap and abundant it set off a property boom. There has been misallocation of capital on a colossal scale, resulting in empty office blocks and unproductive factories.

So will 2016 be the year of another major crisis?

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Wk1 2016 was WORST stocks performance EVER.

Bodes ill.

For months 2016 has been shaping up to be 2001 or 2008mark2. Either or both were Recessions. The difference, once again, is they can't slash rates.

Recession likely turning Depressionary. #turningjapanese tho Japan missed out on Depression but had HPC and stocks crash over c 20 years. And zero inflation for some 15 years.

We're doing exactly the same as Japanese did in 1990s

Edited by Killer Bunny

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Well, I was in Japan from 1989 until 2004.

The wife and I struggled through recession and always thought that it would come right after a couple of years.. It didn't come right, in fact it got worse.

Naturally I expect things will get worse here too, I`m just surprised it`s taking so long.

What to do?

As in the 30`s try `dog and stick farming` or live a very simple life.

Really you`ve just got to be a little smarter than the pack....no big deal.

Edit...don't start from here.

Edited by council dweller

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Well, I was in Japan from 1989 until 2004.

The wife and I struggled through recession and always thought that it would come right after a couple of years.. It didn't come right, in fact it got worse.

Naturally I expect things will get worse here too, I`m just surprised it`s taking so long.

What to do?

As in the 30`s try `dog and stick farming` or live a very simple life.

Really you`ve just got to be a little smarter than the pack....no big deal.

Edit...don't start from here.

Was the 4 good years worth the move :D two and a half decades living in recession and heading into a possible depression ....is your middle name Jona

Edited by long time lurking

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Well , I had 2 unbelievably good years to start off with...wall to wall money and sex ! I`ve got some great stories !

When I say it was bad I don't mean Russian front bad.....my eyelids didn't drop off or stuff like that !

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At one stage 12 months ago I thought I was going mad.

The economy was apparently booming.

The housing market was booming.

New shops/pubs/restaurants were opening.

Everyone was driving around in their new BMW/VW/AUDI/RANGE ROVER.

Now it seems,. we were right after all. This was a a false recovery based on money printing and (more) debt.

Now people finances must be pretty precarious again and people are sitting on MORE debt.

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At one stage 12 months ago I thought I was going mad.

The economy was apparently booming.

The housing market was booming.

New shops/pubs/restaurants were opening.

Everyone was driving around in their new BMW/VW/AUDI/RANGE ROVER.

Now it seems,. we were right after all. This was a a false recovery based on money printing and (more) debt.

Now people finances must be pretty precarious again and people are sitting on MORE debt.

It's still BMW/VW/RangeRover land out there, booming shops, but you know it's difficult market full of opposing views when you're being told you are mad, to go and have a discrete word to a doctor about your paranoia, by those in late 2014 were convinced of a massive HPI ripple to come from London to all over the UK; and that these prices were as good as it was going to get, for buying.

Hold to same position now as I did then; the banks are stronger, and what is needed is to let the HPI ripple heads take the HPC. We've already had the fiscal response and the ripple/foreverHPI heads have danced into it.

27 January 2014

UK housing stock value climbs to £5,205,000,000,000 but the gap between the haves and the have nots grows
Total value of UK’s housing stock now £5.2tn, from £3.6tn in 2003
Total value rose £186bn in 2013, of which >£100bn in London
10 wealthiest London boroughs worth 9% more than Scotland, Wales and Northern Ireland combined
Westminster and Kensington & Chelsea are together worth >£200 billion, 15% more than Wales
Since 2008:
Private rented sector has risen £275bn to almost £1 trillion
Wealth of 8.4 billion unmortgaged owner occupiers has risen £86 billion to £1.8 trillion
But mortgaged owner occupied sector down -£172bn, an average fall of £11,000 per mortgaged household
Most indebted owner occupiers are in South are Slough (75% debt) and Newham (76%), but Blackpool (79% debt) and Burnley (80%) top the list of most indebted locations
The total value of the UK’s housing stock has risen from £3.6 trillion to £5.2 trillion over the past ten years, but the balance of housing wealth continues to tilt from North to South and become ever more concentrated in the hands of mortgage free homeowners, according to new data from international real estate adviser, Savills.
Edited by Venger

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Very interesting.

So the have nots - are having to continue paying even more - to the already haves - so the already haves can get even richer - whilst the have nots get even poorer.

Fantastic.

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At one stage 12 months ago I thought I was going mad.

The economy was apparently booming.

The housing market was booming.

New shops/pubs/restaurants were opening.

Everyone was driving around in their new BMW/VW/AUDI/RANGE ROVER.

Now it seems,. we were right after all. This was a a false recovery based on money printing and (more) debt.

Now people finances must be pretty precarious again and people are sitting on MORE debt.

Glad I wasn't the only one :lol: I think the peak was around mid 2014. Should be popcorn time from here. :rolleyes:

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Former IMF Chief Economist Warns "If Stock Slump Lasts Longer, Will Become Self-Fulfilling"

20160118_ammo.jpg

"If, however, the stock market slump lasts longer or gets worse, it can become self-fulfilling," former IMF Chief Economist Olivier Blanchard tells his fellow Elite in Davos this week. Somebody has to do something! However, Blanchard warns, "The ability of the Fed, fresh out of the zero lower bound, to counteract a slowdown in demand remains limited."

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So what can they do to turn things around? Even more massively huger amounts of QE?

Get the Saudis to stop pumping oil? Get the editor of the Express to go knock on every door in the UK and scream "House prices are rising!" when someone answers?

What, if anything, can be done?

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"If, however, the stock market slump lasts longer or gets worse, it can become self-fulfilling," former IMF Chief Economist Olivier Blanchard tells his fellow Elite in Davos this week.

See, this sort of analysis makes me cross. They're not simpletons, they are the people tasked with managing the world economies.

So instead of:

The markets are irrational. We would get very scared if they got out of control and then if there was a crash it would be self fulfilling. Therefore we have to intervene when markets get to bubbly, because there is always a serious risk that the bubble is due to a self-fulfilling bubble, with people chasing momentum. So, sorry, we will have to break up the party just as it gets going.

we get:

Markets are the best mechanism for price discovery. They are nearly perfect. If prices go up it is because of the additional value seen in growth. Anyway, we can't possibly intervene in an asset bubble, no matter what the asset, as that isn't the responsibility of the central banks. Oh, except when prices go down.

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Wk1 2016 was WORST stocks performance EVER.

Bodes ill.

For months 2016 has been shaping up to be 2001 or 2008mark2. Either or both were Recessions. The difference, once again, is they can't slash rates.

Recession likely turning Depressionary. #turningjapanese tho Japan missed out on Depression but had HPC and stocks crash over c 20 years. And zero inflation for some 15 years.

We're doing exactly the same as Japanese did in 1990s

So I can look forward to cheap housing now?

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They can try handing out cash directly to the people. Something like a direct 'tax rebate' or similar. I expect this sort of measure to come at some point.

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See, this sort of analysis makes me cross. They're not simpletons, they are the people tasked with managing the world economies.

So instead of:

The markets are irrational. We would get very scared if they got out of control and then if there was a crash it would be self fulfilling. Therefore we have to intervene when markets get to bubbly, because there is always a serious risk that the bubble is due to a self-fulfilling bubble, with people chasing momentum. So, sorry, we will have to break up the party just as it gets going.

we get:

Markets are the best mechanism for price discovery. They are nearly perfect. If prices go up it is because of the additional value seen in growth. Anyway, we can't possibly intervene in an asset bubble, no matter what the asset, as that isn't the responsibility of the central banks. Oh, except when prices go down.

The markets are not irrational.....

CZJyj7nWIAEHSYb.jpg

Its the people that are irrational.

Edited by TheCountOfNowhere

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