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Bretton Woods II - time to re-organise the financial systems


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Been a long time since I last posted.

However it's time to re-organise the corrupt and bankrupt financial system which has been driven by ever increasing financialization since the end of Bretton Woods when Nixon ended the last link to gold.  Perhaps it's time to revisit what Keynes proposed, which was to try and create a more balanced financial system.  A system built on ever expanding debt was never going to cope with a crisis like this.

We have been told that this is a "booming economy", lets be honest the issues which led up to the 2008 financial crisis where never addressed.  The banks too big to fail became too big to bail and the debt has increased.  The Fed is already pumping hundreds of billions into the economy, but the reality is the Fed was pumping billions into the financial system since Sept last year.  Problems where already bubbling in the system before this virus appeared.

What happens now?  Who knows as Injin would constantly put it's printy printy, given what the Fed is doing it's certainly printy printy to try and prop up dollar system.  Whether this does trigger hyperinflation is an open question as on the opposite spectrum is debt deflation which is looming as well.  The other scenario is that everyone just pretends everything is fine and we just carry on.

This is certainly the greatest crisis for generations.

At least we have calamity Boris in charge.  At least Corbyn should be happy as Boris appears busy renationalising everything the Tories privatised.

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The world Hegemon is no longer capable of maintaining control but its successor is not yet in a position to take over ala 1914. So we are going to see a scramble for positioning. Russia toe to toe with Turkey, Iran and KSA, China USA, BREXIT. In 1914 Bretton woods was 30 yrs away so don't hold your breath.

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I was explaining to the other half earlier that this time it's 5 to 10 times worse that 2008 and that the world won't be returning to the way it was.

No idea what the new world will look like? I'm not sure if China really needs the west?  They can now rely on internal consumption and growth.

Things will be different here, like returning to the 90's or is that wishful thinking?

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53 minutes ago, Wurzel Of Highbridge said:

I was explaining to the other half earlier that this time it's 5 to 10 times worse that 2008 and that the world won't be returning to the way it was.

No idea what the new world will look like? I'm not sure if China really needs the west?  They can now rely on internal consumption and growth.

Things will be different here, like returning to the 90's or is that wishful thinking?

I agree the world will be changed by this.

But I also don't think it's 5 to 10 times worse than 2008.  Or at least it's worse - but for a shorter period.  I'm expecting economic activity to roar back in 2021, whereas 2008 we were still not truly over in 2019 when this kicked off, hence why interest rates were still pitiful.

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38 minutes ago, scottbeard said:

I agree the world will be changed by this.

But I also don't think it's 5 to 10 times worse than 2008.  Or at least it's worse - but for a shorter period.  I'm expecting economic activity to roar back in 2021, whereas 2008 we were still not truly over in 2019 when this kicked off, hence why interest rates were still pitiful.

That doesn`t really make sense though, things were on life support and stalling before this kicked off, can`t see things suddenly getting better just because they are money printing on speed again?

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1 hour ago, dances with sheeple said:

That doesn`t really make sense though, things were on life support and stalling before this kicked off, can`t see things suddenly getting better just because they are money printing on speed again?

Because the fall in economic activity in 2020 isn't financial in nature.  It's due to the virus.  Once the virus is gone people will go back to work.

The money printing is irrelevant - neither good nor bad - at the moment.  In the long run it may even be harmful.  That's not why things will spring back.

However of course they will only spring back to pre-virus, not pre-2008.

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3 hours ago, scottbeard said:

Because the fall in economic activity in 2020 isn't financial in nature.  It's due to the virus.  Once the virus is gone people will go back to work.

The money printing is irrelevant - neither good nor bad - at the moment.  In the long run it may even be harmful.  That's not why things will spring back.

However of course they will only spring back to pre-virus, not pre-2008.

But the virus will have an economic impact due to the months of slashed cash flow. If Coronavirus magically disappeared in 2 months, it would be straight back to BAU.

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5 hours ago, scottbeard said:

Once the virus is gone people will go back to work.

But I can't see how that is possible, there are already massive job losses despite the payment guarantee from the government. The US jobless figures are expected to be as high as 30%, that is depression territory, no economy will bounce back from that kind of hit in the timescales you have suggested?

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6 hours ago, scottbeard said:

Because the fall in economic activity in 2020 isn't financial in nature.  It's due to the virus.  Once the virus is gone people will go back to work.

The money printing is irrelevant - neither good nor bad - at the moment.  In the long run it may even be harmful.  That's not why things will spring back.

However of course they will only spring back to pre-virus, not pre-2008.

Although the Govt policy (which wasnt a policy but actually was a policy), has been rubbished of late...there are only 2 ways back to "normality" from this virus pandemic.

  1. Herd immunity,
  2. Vaccination.

Until we achieve some resilience to this virus as a species it will not go away. It will fade after periods of lock down only to return a few weeks later. See the reports of the virus' return to China in the last day or so.

A safe vaccination is 12 - 18 months away...and that is assuming that mass vaccinations can be facilitated. We have seen peoples reticence to take a vaccine with Measles.

So the measures we are seeing now will be repeated again and again until there is herd immunity established or a credible vaccination emerges.

The uncertainty that this has created means that this is far worse than 2008, where although the insolvency of the banks was a big problem...at least it was known as was the "solution".

 

 

Herd imunity to the

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1 hour ago, crazypabs said:

But I can't see how that is possible, there are already massive job losses despite the payment guarantee from the government. The US jobless figures are expected to be as high as 30%, that is depression territory, no economy will bounce back from that kind of hit in the timescales you have suggested?

I guess we will just have to see - my current expectation is that the short term challenges are being underestimated and the long term ones overestimated (by stock markets etc) and that actually by the end of 2021 things will be back to kind of where they were at the end of 2019.

Perhaps I’m underestimating the bounce back, but I thought the whole purpose of all this government loan structure was to try and make sure business is mothballed rather than bust, to allow that bounce back?

My comments are about the UK - I have no knowledge of, or opinion on, the US.

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15 hours ago, scottbeard said:

Because the fall in economic activity in 2020 isn't financial in nature.  It's due to the virus.  Once the virus is gone people will go back to work.

The money printing is irrelevant - neither good nor bad - at the moment.  In the long run it may even be harmful.  That's not why things will spring back.

However of course they will only spring back to pre-virus, not pre-2008.

But things were on the way down before the virus, and the ECB had started up QE again...before the virus? So you mean that the virus meltdown if prolonged is a depression, the other option is a hefty recession, is that what you mean?

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1 hour ago, dances with sheeple said:

But things were on the way down before the virus, and the ECB had started up QE again...before the virus? So you mean that the virus meltdown if prolonged is a depression, the other option is a hefty recession, is that what you mean?

Not really, no.

I mean that the FTSE 100 fell 35% and I don’t think that genuinely the long term value of those companies really is at that level. It was an overreaction

 However the fundamental issues of 2008 still remain - interest rates haven’t normalised. 

I have no views on recessions vs depressions etc. nor on European countries economies and the actions of the ECB

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1 hour ago, scottbeard said:

Not really, no.

I mean that the FTSE 100 fell 35% and I don’t think that genuinely the long term value of those companies really is at that level. It was an overreaction

 However the fundamental issues of 2008 still remain - interest rates haven’t normalised. 

I have no views on recessions vs depressions etc. nor on European countries economies and the actions of the ECB

IMO it was all pumped up with central bank back door money, and investors being addicted to the CB teat for their sugar rush, but we shall see how it all shakes out at some point no doubt, when major economies are literally having to shut down the tools they used in 2008 are not going to cut it?

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14 hours ago, reddog said:

I recon we will limp on for a while longer.

 

The problem I have with Bretton Woods 2 is, who is going to define it?  Certainly not anyone on HPC.

It's already been done. Satoshi Nakamoto. 

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4 hours ago, dances with sheeple said:

IMO it was all pumped up with central bank back door money, and investors being addicted to the CB teat for their sugar rush, but we shall see how it all shakes out at some point no doubt, when major economies are literally having to shut down the tools they used in 2008 are not going to cut it?

There's really no precedent for this situation in modern, globally-interconnected economy times.

Really all we can do is speculate.

My thoughts are based upon:

- The *US* came into this crisis with a stockmarket pumped up by hot air.  The *UK* had a stockmarket at reasonable valuation.

- Both countries have seen 30-35% stockmarket falls (although after today's 10% rise, maybe less).

- Both countries have now have unsustainably low interest rates.

- Both countries will see a huge drop in economic activity in 2020, taking well into 2021 (and some people believe beyond) to get back to normal.

The coronavirus will go away.  When it does economies will gradually return to normal.  I know it doesn't seem like it right now, but they will, just as they returned to normal after WW2 and Spanish Flu and every other crisis of history.

Because markets fell the same amount but the US started from a hot air position, that's why I (personally) still favour the UK stockmarket.

HOWEVER the fact that we haven't globally solved the 2008 problem is still an issue.  Interest rates need to get back to normal levels.  I don't, however, have any idea how to solve this, whether it will be solved, or when.

All I believe is that coronavirus will be DISASTEROUS for 2020 economic output, and will have a lasting financial effect as governments need to sort out the crisis debts they are running up.

But after a year of being kept indoors consumers will be consuming like never seen before in history the moment they can do so.  They  will be like kids running out of the school gates for the summer holidays.  That's why I say the economy will come roaring back.

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7 hours ago, scottbeard said:

HOWEVER the fact that we haven't globally solved the 2008 problem is still an issue.  Interest rates need to get back to normal levels.  I don't, however, have any idea how to solve this, whether it will be solved, or when.

What are normal levels? There have been various arguments on this forum that the long term correct value for interest rates is approaching zero.

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1 hour ago, dugsbody said:

What are normal levels? There have been various arguments on this forum that the long term correct value for interest rates is approaching zero.

Given that the only way to sustain the debt with low growth is with zero rates this is logical.  I'm currently looking at updating the interest rate chart I posted about 5 years ago to see what's been happening, this is somewhere in the chart thread.  That may take me a couple of weeks to update.

Interest rates are now the lowest in history and wasn't there a paper from the BoE indicating that rates have been declining constantly for around a 1000 years?

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  • 419 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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