Friday, January 15, 2010

Place your bets

'Significant chance' of second financial crisis, warns World Economic Forum

Where do they get these probabilities from? The way things are going I would have thought that this is odds-on. Also a warning of another asset price collapse and China going the way of Japan.

Posted by letthemfall @ 11:30 AM (1813 views)
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8 thoughts on “Place your bets

  • They didn’t forecast the first one.
    They denied it when it was erupting.
    So why should we trust their outlook for a second?

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  • sneaker said, “They didn’t forecast the first one.”
    – Actually in January 2007 one of the reports “Core Global” risks was a “Blow up in asset prices/excessive indebtedness”.

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  • … they placed a 10-20% chance of an “asset price collapse” with a “severity” of >$1tr.

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  • Here
    “””
    House prices have doubled in most mature markets (and in some emerging markets) in real terms over the last 10 years, putting price-toincome ratios at all-time highs. Many experts fear a major correction, with differential impacts on consumption, economic growth and other asset prices.
    “””

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  • … so as for 2010, read their full report here.

    They put >20% chance of another asset price crash with severity > $1tr, and comment:
    “””
    The last edition of this report discussed the longer term implications of the financial crisis, exploring the tight interconnections among economic and resource related risks. The fact that the risk of an asset price collapse remains the strongest risk on the landscape on the severity and likelihood axes illustrates the continuing uncertainty about the resilience of the global economy and the effectiveness of fiscal and monetary responses, governance and regulation. Concerns abound about the decline in the dollar and low interest rates fuelling another bubble, this time liquidity rather than debt-driven. Experts are also worried about a lag in the impact of the recession in a number of areas. The level of corporate bankruptcies, particularly among small and medium size enterprises remains high. Credit card default rates, which are highly correlated with unemployment, are already at historic levels. The current unemployment rate of more than 10% in the US is considerably higher than the 6.5% unemployment rate that most credit card lending models assume. Finally, though residential house prices have fallen considerably in those markets considered to have been the most overheated, concerns persist about commercial real estate. As illustrated by the events in Dubai in December 2009, debt loads remain high; as refinancing needs arise, which are only expected to peak between 2011 and 2013, further shocks could emerge.
    “””

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  • stillthinking says:

    2010 will be year zero of our troubles, for sure. If they only cut deficit spending by 20 billion a year on the “mummy will let us off” plan to get down to 100 billion deficit in 5 years, that is still around 700,000 jobs @30K vapourised per year. There won’t be enough growth to hide unemployment.
    They should have let the banks go bust and they might have to anyway.

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  • Well it’s not like the first one really went away is it? It just got sort of disguised with creative accounting, low IRs and QE.
    Oh and a whole lot of BS!

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  • a saver – heh… yeah, one just can’t say for sure – let’s just say “a second” is equivalent to “a continuation to the same kind of extent already experienced” and forget that subtle, but correct observation ;p

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