How close is the new financial Armageddon? IMF gives some hints

Against the backdrop of a fragile and uneven global recovery, the IMF's policy-steering body—the International Monetary and Financial Committee—met on Saturday 11 October to discuss ways to boost growth and to foster a sustainable, balanced, and job-generating global economy. The Thirtieth Meeting of the IMFC was Chaired by Mr. Tharman Shanmugaratnam, Deputy Prime Minister of Singapore and Minister for Finance (second from right in the front-line of the circle), next to him Christine Lagarde, Managing Director of IMF addresses the meeting. (IMF Audiovisual Services, 11/10/2014).

Against the backdrop of a fragile and uneven global recovery, the IMF’s policy-steering body—the International Monetary and Financial Committee—met on Saturday 11 October to discuss ways to boost growth and to foster a sustainable, balanced, and job-generating global economy. The Thirtieth Meeting of the IMFC was Chaired by Tharman Shanmugaratnam, Deputy Prime Minister of Singapore and Minister for Finance (second from right in the front-line of the circle). Next to him Christine Lagarde, Managing Director of IMF addresses the meeting. (IMF Audiovisual Services, 11/10/2014).

Six years after the Western financial system collapsed under its immeasurable greed for easy money expressed as an insatiable thirst for risk, the American and European banks and governments are 30% deeper in debt. Few of them can duly repay without major problems of the most dangerous political kind. It is even more alarming that every agent within the advanced world’s financial system increasingly depends on central bank zero cost financing. At the same time the small and medium enterprises in large parts of Europe and the US are suffocated from the lack of bank loans, the only form of credit they know. That’s why the real economy in both shores of the North Atlantic struggles to gain a sustainable growth path.

This is directly related to the fact that the major western banks are diverting the largest part of the money they get for free from central banks to their ‘shadow banking’ activities. Of course, the reason is that in this way they escape any kind of financial rules and controls. As the IMF’s Global Financial Stability Report which appeared on 8 October states it, “Although shadow banking takes vastly different forms within and across countries, some of its key drivers tend to be common to all: search for yield, regulatory circumvention, and demand by institutional investors. The contribution of shadow banks to systemic risks in the financial system is much larger in the United States than in Europe”.

How dangerous is the path?

Reality is much more dreadful than the diplomatic language that IMF puts it in. The Presidents of the US and the Eurozone central banks Janet Yellen and Mario Draghi are virtually blackmailed by major American and European banks to keep feeding them with fresh and free of charge cash, otherwise they will unleash the Armageddon they hide in their balance sheets.

Every time the Fed raises the issue of ending the stimulus of quantitative easing and start charging an interest rate, major US banks and financial firms issue direct threats that such an eventuality will have major side effects. They say that even benchmark American treasury bonds will be in danger. Bankers demand larger yields to continue investing in them. It is as if the universe has promised them easy money ‘ad perpetuam’.

Sending the market down when they want

During last week all the Atlantic stock exchanges kept falling in view of the American central bank’s difficult decision on the burning issue of whether and when to start charging an interest rate for its ample financing of the American banks. At the end Yellen didn’t dare to fix a time for this to happen. Still all financial markets kept crumbling because the IMF published its Global Financial Stability Report which focused on those issues.

The report stresses “that although economic benefits of monetary ease are becoming more evident in some economies, market and liquidity risks have increased to levels that could compromise financial stability if left unaddressed”. Translation: things have come exactly at the same point when the 2008 credit crunch broke out and nobody knows which market bubble is about to burst. According to Wall Street Journal “…top U.S. and British regulators will conduct “war games” to rehearse how they would handle the failure of a huge financial firm with operations in both countries”.

Accustomed to usurp other people’s money

The slightest reference to the possibility that the US central bank should or could start charging anything on the loans it has amply offered to the banks under its QE policy, drives the bankers mad. In reality they demand that the US central bank, the Fed, must continue supplying them with trillions without any cost being charged. To this day and after the 2008 credit crunch, the Fed has advanced to banks around $4 trillion. Fed’s balance sheet has being inflated to around $4.6tn today from $800 billion in 2008. All that money has been handed to the American banks at zero interest rate cost and the account still swells by tens of dollar billions every month. Thank God this unholy practice is supposed to stop this month.

Central bank financing has directly helped the banks to create new bubbles. In many markets – New York and London real estate skyrocketing prices are witnesses to that – investors appear ready to buy overpriced assets. The same is true for some Asian securities and other fancy financial goodies. On top of that Greece is again becoming a financial time-bomb due to the country’s climaxing political instability. In view of all that, during the past months, when the risks of a new financial crisis have become apparent, regulators and bankers are watching each other in the eyes. Until now authorities blink first.

What are the real stakes?

There are other readings of this situation though. Some analysts insist that the central banks and financial watchdogs in the West are on the same side with the major US and a few European banks. In this line of thinking, both sides aim, by using the West’s financial supremacy, at extracting an ever-increasing part of the value produced by the real economy in the rest of the world. In this logic, the West aims at controlling and absorbing an increasing part of the wealth produced by manufacturing and the exploitation of natural resources in the rest of the world.

IMF rings the bells

Indeed IMF’s latest Global Financial Stability Report is ringing the bells of escalating risks in financial markets. Printing trillions of new dollars, and to a lesser extent of euros, in the US and the Eurozone during the past six years, has hardly helped the Atlantic economy gain a sustainable growth path. Stopping the printing machines though may trigger a new and devastating recession, but again continue running them may lead directly to a new credit crunch, with new and old markets bubbles start bursting again one after the other. In conclusion, investments on overpriced assets in many global markets and the Greek question may again release the new financial Armageddon.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

Basel III rules relaxed: Banks got it all but become more prone to crisis

Gender Equality as a platform to improve Medicine

Why Eurozone’s problems may end in a few months

European Youth Forum welcomes the European Commission’s proposed revision of the Union Code on Visas, however it does not go far enough

A Valentine’s Special: heart has nothing to do with it, it’s all Brain

Brexit Update: EU endorses unprecedented compromise to help Cameron out of the referendum mess he got himself into

“The markets have moved on renewables, policy makers must keep up”, A Sting Exclusive by Erik Solheim, Head of UN Environment

The G7 adopted dangerous views about Ukraine and Greece

More unemployment and lower wages to make European workers competitive?

Ukraine-EU deal sees the light but there’s no defeat for Russia

EU and African leaders to jointly tackle the migration crisis across the Mediterranean

EU to spend €6 billion on youth employment and training futile schemes

ECB to buy corporate bonds: Will government financing be the next step?

Economic recovery won’t tackle youth unemployment problem

Post-Brexit muddled times: the resignation of UK’s top ambassador and Theresa May’s vague plans

Fair completion rules and the law of gravity don’t apply to banks

Italy can stand the US rating agencies’ meaningless degrading

The European giant tourism sector in constant growth

A Sting Exclusive: “Our ambition is by 2020 Indonesia to become an emerging power of World’s Maritime Access”, reveals the Chargé d’Affaires at the Embassy of Indonesia in Brussels, treating WEF, ASEAN and EU-Indonesia relations on the eve of the World Economic Forum East Asia 2015 in Jakarta

Why lay people don’t expect anything good from G20

Why is Merkel’s Germany so liberal with the refugees? Did the last elections change that?

Russia won’t let Ukraine drift westwards in one piece

Eurozone: Negative statistics bring deflation and recession closer

No tears for Cyprus in Brussels and Moscow

Climate change and health: creating global awareness and using earth resources wisely

Global Citizen – Volunteer Internships

The EU stops being soft with 10 Downing Street about Brexit

Court of Auditors: EU spending infested with errors well above the materiality threshold of 2%

The three sins the EU committed in 2015

G20 LIVE: G20 Leaders’ Communiqué Antalya Summit, 15-16 November 2015

The European Parliament rewrites the EU budget in a bright day for the Union

EU members commit to build an integrated gas market and finally cut dependency on Russia

European Junior Enterprises to address the significant skills mismatch in the EU between school and employment

The Eurogroup offered a cold reception to IMF’s director for Europe

EU budget: Will Germany alone manage Britain’s gap?

From inconvenience to opportunity: the importance of international medical exchanges

Turkey presents a new strategy for EU accession but foreign policy could be the lucky card

The EU cuts roaming charges further while the UK weighs Brexit impact

How will EU look after French, Dutch and German Elections and what will be the implications for Youth Entrepreneurship?

IMF’s Lagarde to Peoples of the world: You have to work more for the banks!

Mental Health: starting with myself

IMF: How can Eurozone avoid stagnation

Progress in medical research: leading or lagging behind?

iSting: Change Europe with your Writing

19th EU-China Summit: A historical advance in the Chino-European rapprochement

EU-India summit: Will the EU manage to sign a free trade agreement with India before Britain?

Environmental labelling, information and management schemes are central to the circular economy

The ECB still protects the banks at the expense of the EU taxpayers

IMF: Sorry Greece, Ireland, Portugal we were wrong!

How wealthy people transmit this advantage to their children and grand children

European Youth Forum demands immediate action & binding agreement on climate change

Doctors vs. Industry 4.0: who will win?

Draghi will not hesitate to zero ECB’s basic interest rate

EU Commission – US hasten talks to avoid NGO reactions on free trade agreement

China’s New Normal and Its Relevance to the EU

SPB TV @ MWC14: The TV of the Future

Eurostat: Real unemployment double than the official rate

Creating shared value: an opportunity and challenge for entrepreneurship

WEF Davos 2016 LIVE: “We need more Schengen but reinforce control!”, France’s Minister of Economy Emmanuel Macron emphasises from Davos

EU is now giving Google new monopolies to the detriment of European citizens and Internet companies

More Stings?

Trackbacks

  1. GTA V Online Hack

    How close is the new financial Armageddon? IMF gives some hints – The European Sting – Critical News & Insights on European Politics, Economy, Foreign Affairs, Business & Technology – europeansting.com

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s