Yesterday I outlined how the next Crash will play out. Today we’ll assess why this Crisis will be worse than the 2008 Crisis. By way of explanation, let’s consider how the current monetary system works…
The 2008 Crisis was not THE Crisis. The 2008 Crisis was largely a banking crisis focused on securities. The REAL Crisis will hit when the bond bubble collapses. The current global monetary system is based on debt. Governments issue sovereign bonds, which a select group of large banks and financial institutions (e.g. Primary Dealers in the US) buy/sell/ and control via auctions.
As the readers of this blog would know, I have been advocating more symmetric tax treatment of equity and debt, both in terms of public and private bonds and lending taxation. Here's a recent IMF paper on the topic that provides evidence that asymmetric taxation of debt and equity, with preferential treatment of debt over equity, generated internal instability in the system, making it more prone to crises.
OTTAWA — The risk of a major crisis in Canada’s financial system, and the impact of it would have on all aspects of our economy, doesn’t appear to be getting any bigger — but it’s not getting much better ether.
The Bank of Canada, in what it hails as “an enhanced framework” for gauging the stability of the banking sector, said Thursday that Canada remains robust but still faces “significant vulnerabilities.”
Tim Iacono submits: In this New York Times commentary, Paul Krugman leads what will soon be a veritable gaggle of economists in lamenting the coming lost decade, one that could have been avoided if the government and central bank had only borrowed and pri
By Brian Rezny: It was Christmas Day, 1989, when the Bank of Japan raised the benchmark interest rate to 4.25%. The move was supposed to prevent an asset bubble and curb inflation. The result: the market crashed, the economy stagnated, and a debt crisis ensued. And in the more than 20 years since then, little has changed. Japan has struggled through over two decades of weak growth and deflation. And the Nikkei index is still down something like 80% from its peak in 1989.
For First Asset Funds and Hamilton Capital Partners, July 29 was a significant day.
On that day the two entities teamed up to launch First Asset Hamilton Capital European Bank ETF, the first time they’ve worked together. The ETF marks the first time First Asset has created a product based on a financial sector recovery in Europe and the first time that Hamilton Capital has been the portfolio manager on a publicly available product.
China is similar to Japan in the 1980s in terms of financial imbalances and challenges for the real economy, but, as JPMorgan notes, China differs in terms of its stage of economic development. Turning possibility into reality is not an easy task, especially as China’s structural slowdown is accompanied by mounting financial imbalances.
MANY commentators, including this newspaper, like to compare China’s economy with America’s, the world’s biggest, which it is on course to rival in size if not in sophistication. Recently, however, parallels between the two economies have started to look more ominous. China suddenly seems to be exactly five years behind America. After several years of excessive credit, much of it in the shadows of the banking system, China’s financial institutions stopped lending to each other this month; on June 20th interbank interest rates briefly soared to 25%.