I couldn't help but notice that my own start to 2016 mirrored the situation in global financial markets. I have visions of hedge fund guys huddled around two space heaters in a single room as markets (my house) crash (freeze).
Is this 2008 all over again? George Soros hinted that it might be, and The Economist took issue with his evaluation. It seems that "investors" have finally woken up to the fact that China's economy is profoundly fucked up.
From The Economist:
But the 2008 parallel can only be sustained if we are talking about a debt bubble bursting, and Mr Soros specifically focused on China.
To the extent there was euphoria and rampant speculation (as there was in 2006-07), we are really talking about China rather than Europe or the US.
As the chart shows, there has been a sharp rise in China's debt-to-GDP ratio, with a 50 percentage point increase in the last four years.
Just as with the sub-prime loan boom in the US, a rapid increase in debt suggests that loans are being made without sufficient attention being made to credit quality and that resources are being misallocated.
The general consensus, however, is that China can handle a debt crisis; state control of the economy is much greater and the government has trillions of dollars of reserves with which to rescue the banks if it needs to. Nor are Chinese banks as tied into the western financial system as Lehman Brothers and Bear Stearns were; the contagion will be limited.
The fear is that the Chinese authorities, desperate to avoid the social unrest that would result from unemployment if businesses fail, will choose instead to devalue their currency. The yuan has weakened at a measured pace already in 2016 and investors have reacted with concern, but the shock would come from a much bigger fall...
If China devalues, then other Asian nations will come under pressure to follow suit, for fear of losing competitive position. That will trigger worries about those Asian companies that have borrowed in dollars. There could be banking issues in Asia.
This is a potentially worrying scenario. Whether 2008 is the right parallel is another matter. If the bearish case does come true, then it sounds more like 1998 when a round of Asian devaluations was triggered by the realisation that growth had been fuelled by speculation. Western economies did manage to overcome that crisis.
The real worry is that emerging countries are a lot more important for the global economy than they were back then.
The semi-official story is that China worries are driving the "correction" in U.S. stocks. On top of that, there was that paltry Fed rate hike in December, with hints of more to come.
With oil prices hovering around 12-year lows, you might think that humans would just throw in the towel and admit that the global economy is in recession.
Instead the World Bank cut their global growth forecast from 3.3 to 2.9%, with China estimated to grow at 6.7 instead of 7%!
Wow.
I see that 2016 will be just like 2015, except even more so. De-nial is not just a river in Egypt.
Postscript
Now, I will make a few remarks as I anticipate reactions to this post. I've had a very rough time lately. And I see that continuing. I am angry and depressed. Freezing my ass off lately just made it worse. I've had some recent experience of "collapse" and it wasn't very pleasant.
Many of my regular readers don't give a shit about the global economy in the medium-term, or have little to say about it, and that's OK with me. Comments from them will be sparse.
And then there will be the usual Doomers predicting that the events of the past week mark the beginning of the end of global civilization. You know, commodity price deflation means we're all going to die real soon. (It actually means that China, which consumed an outsized share of global commodities in recent years, is in deep, deep shit.)
If you've understood what I've written on DOTE, you know that the beginning of the end can be dated to some 200,000 years ago when Homo sapiens sprang into existence.
Having recently experienced a "collapse" and in so far as this is my first real post of 2016, I would like to invite you Doomers to fuck off. I will remind you Doomers to fuck off from time to time as the inevitable opportunities arise. I would also appreciate some help from my regular readers when Doomers pollute the comments section of this blog. Thanks.
First off, glad it's worked out on the heat. Secondly, I'll bite on the last part of your post.
I think a lot of people concerned about these issues struggle with them on a continuous basis. The trends in the environment, government, and the economy all seem to point one way, and the issues get internalized into a giant, "What do I do about it?"
There's great pressure on each of us to find a valve to release this pressure. Most people find it in denial, diversion, or simple ignorance, but another group finds it in future prediction. The uncertainty of the future is frightening, but forming a conviction about the future helps to create order out of disorder and control out of the lack of it. It's a method to give oneself both psychological respite and a plan of action. (The plan of action can take many shapes, but we can all guess what they are.) That respite and plan often hardens into conviction, which the person will then defend, obviating rationality for personal protection. This conviction can also lead one into the path of others with a similar conviction, and the defensive shell becomes more resilient with the added social factors.
It'd be best for each of us to realize that these pressures exist and do influence our thinking. Very, very few do realize it.
We can identify and analyze trends, and some amazing work on that front is done here. On other sites, I do think there's merit to declining net energy as a general principle to help describe SOME (but not all, as if it's the grand unifying theory that explains everything) of what we are facing, but the tendency to make this principle more concrete than it is by adding timelines and exact dimensions is far more likely to be a psychological response than it is to be accurate.
Tverberg basically takes declining net energy as a grand unifying theory, then stirs in debt collapse as the trigger for a sudden, rather than prolonged, (synonym for fall). (At first it was peak oil, of course, but her latest cry is that we lack enough storage capacity and this will be the trigger for the debt default. Why one wouldn't do a double-take on that is concerning, but....)
We don't know the exact dimensions of the future. We could have a widespread market panic. It could trigger major debt defaults in both the private and public sectors. It could happen next week, it could happen next year, it could happen in 2026, it might not happen in many of our lifetimes. We don't know, although a great many trends point to a significant probability of it happening at some point.
But here's something than can be taken to the bank (excuse the play on words) if it does happen - there will be a response to it. Anyone who has been where Dave was last week knows that humans won't sit back in misery while the power is out and just say, oh, that's it, now we (synonym for fall). The elite won't do that, government won't do that, the people won't do that. We'll accept some sheety deals to "fix" it, like we did with Wall Street a few years ago, and potentially much worse, as Germany did less than a century ago.
Money is an illusion. It can be destroyed, but it can also be rebuilt, and it has been rebuilt over and over and over again. There are more tangible things in our economy - labor, technology, and resources - and these will not go away with any market crash. Humans will re-constitute money systems to rework their flows, even if it means ignoring money itself.
Here's my prognostication, for what it's worth: what we are most likely to get is the worst of all worlds - an economy which sputters and stumbles, only to be rebuilt and then fall apart again, with people increasingly desperate for answers and increasingly seeking out destructive solutions in governments, and all the while, we eat away at the biosphere and at our species (and all the other species) future chances for health and happiness. This will almost certainly take many generations to play out, but the exact details are unknown to any of us.
Posted by: Jim | 01/08/2016 at 01:44 PM