by a retired fund manager and For Britain member
Our economy and indeed, the global economy, is in a far more fragile state than we are being told. There is one word for it and that word is debt.
We are drowning in the stuff yet it remains largely invisible until something like Carillion or Thomas Cook happens, when suddenly it becomes all too visible.
Politicians, the media, elements of the financial system and a generational change in attitudes are all responsible. With 11 years of endless money printing and debt creation since the near collapse in 2008, we appear to have been able to change water into wine as if by magic. That wine is about to turn into vinegar because debt never goes away and there are signs that the crunch is creeping upon us.
The roots of what I believe might well will be a financial implosion started many years ago. It is beyond the scope of this blog to go back into the mists of history but it is fair to say that financial discipline started to erode in the seventies. There were some good patches but overall things deteriorated culminating in the near death 2008 financial collapse.
Few lessons were learned from 2008 as politicians took the easy route, merely blowing a gigantic bubble but doing nothing to tackle the underlying problems. The world went on its greedy, short term, have it all now, path. The idea of saving for a rainy day was consigned to the dustbin as debt took the place of saving. Money printing (just pressing a button these days) ever more “liquidity” took centre stage as all the former discipline was progressively discarded in a frantic effort to keep the plates of the global economy spinning.
So where are we now? In the first quarter of 2019 the world global debt was $246.5 trillion and it grew by $3 trillion in that quarter.
Do you know how many zeros there are in a trillion? The answer is 000000000000. It is twelve zeros so to make it easier to grasp the numbers are sometimes spaced out in fours, i.e. 0000 0000 0000.
The debts are so big that there are what is known as debt clocks on Google where, together with the links, you can read endless details for each country and much more. The one that really hits you in the eyes is called the World Debt Clock. It shows you in real time what is happening. It also shows the interest accruing as you watch.
These debts can never be repaid and there is no will to tackle the problem. Some day, and my instinct is that it is not far off, somebody sufficiently important, will not want to buy the debts. Credibility will then be shattered and the cascade will start.
Why do I think we are almost here? The manipulation of stock markets ever upwards, particularly in the U.S. which has a massive global influence, is now getting tired. Even though it is never mentioned in the Main Stream Media, this manipulation is all over the blogosphere, plenty of people know about it and they have a fair idea of how it is done. Even those remote from the scene sense that something is not right.
Here I need to go into an explanation. In October 1987 world stock markets had a sudden and violent flash crash, from which they later recovered. One of the results was “The President’s Working Group on Markets” which was established in March 1988 under Ronald Reagan. Essentially it was a group of luminaries which was to ensure the smooth running of financial markets.
Fast forward to the aftermath of the 2008 debacle and it slowly became obvious to financial people that something strange was happening. Time and again the U.S. stock market would stabilise just when, to seasoned observers, it looked as if a sell a sell off was coming. Also markets would magically rise towards the end of a rough day to hide the earlier day’s goings on. This also influenced markets in the Far East and Europe, including the U.K. The “Working Group” had morphed into what became known as the “Plunge Protection Team”. To this day neither its existence nor its activities have ever been openly admitted.
This so called team is devilishly sophisticated. It knows exactly what it was doing, has a brilliant sense of timing, and as much “press button” new money as it ever needs to achieve its aim.
There are other activities, all aimed at pushing up markets. One of the most notorious is share “buy backs” which take the cash out of companies. They used to illegal as the idea was thought to be a form of manipulation. However they were legalised in the U.S. in 1982 and the U.K. followed later. They raise the share price enabling the bosses to make more on their share options. There are plenty of supporters for this dubious practice but in my view they may look good but lead to long term fragilities. It is raping the past for the present and the complete opposite of saving for a rainy day. Huge amounts of money have been taken out. In the U.S. alone around $800 billion was taken out in 2018 and this year it might even be $1 Trillion.
If we add in the debts and machinations in Japan, China, and the enormous money printing by the European Central Bank over many years it is no surprise that we have ended up with a global financial system as flimsy as one made of Balsa Wood.
We are not there yet but there are increasing signs that a full blown recession might be in the wind. Let us take a look. The global motor industry is in trouble now that the last great market, China, is maturing. One in eight workers in Germany is employed, either directly or indirectly in that business. Manhattan property prices are falling and good luck trying to sell in Miami. The latest industrial output figures for the U.S were the worst since 2009. The start up WeWork’s proposed new issue has had to be abandoned, it is in meltdown and has big operations worldwide including office space in London. Other new issues have had to be cancelled. South Korea is slowing down, Sweden is in trouble. One of the best global indicators is a company like Federal Express (Fedex) whose last numbers were down amid cautious comments for the future.
Finally there are worrying developments in the “plumbing” of the U.S. money markets. That is the market where banks, and some others, lend money to each other. This is a complex area but it is looking as if the U.S. Central Bank (The Federal Reserve) is having to inject more money than expected to keep control of interest rates. It is doing it by issuing “Repos” which are “Securities Repurchase Agreements.” It raises the question of whether there is something nasty under the surface.
These are early days. The authorities have done everything to keep the balls up in the air. They will continue to do so but if, despite their efforts, we are heading for a crash it will have immense political repercussions. It would not just impact the stock market. Money reaches every nook and cranny and even the leafiest of leafy suburbs will start talking. There would be no papering over the cracks a second time.