Category Archives: Doomsday scenarios

Blogs Review: The Forever Recession

As the recovery takes hold in the US, Europe appears stuck in a never-ending slump. With the ECB systematically undershooting its inflation target and recent signs that inflation expectations could become de-anchored, the bulk of commentators in the blogosphere are again calling for more monetary actions. Noticeably, some have completely lost hope in the ability of the European institutions to turn this situation around and are now calling for countries to simply break away from the EMU trap.

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Is the West Risking Financial Blowback From Sanctions on Russia?

The spectacle of insanely authoritarian policing in Ferguson, as well as media jitters over ISIS and ongoing reports of action in Gaza and Ukraine, has shifted attention a bit away from simply lousy economic results from Europe. That fragility could play in a nasty way into blowback from sanctions against Russia.

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“A Financial Casino Would Be a Step Up From What We Have”

This is a terrific and very accessible interview with Boston College professor Ed Kane, who is a long-standing critic of the failure to rein in financial firms that feed at the taxpayer trough. At one point in the talk, Kane and his interviewer Marshall Auerback discuss how casinos are well aware of the fact that the house can lose and they monitor gamblers intensively to make sure that no one is engaging is sleight of hand. Thus if we treated our banking system like the financial casino that it has become, we’d be much better off than we are now.

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Ilargi: Follow The Money All The Way To The Next War

The prospect of unnecessary war has focused Ilargi’s mind. He starts with an important article in Handlesblatt that a record number of NC readers flagged, then turns to an issue we’ve focused on: what is the evidence behind US claims of Russian responsibility for the downing of MH17? After Colin Powell’s Iraq WMD canard, it’s remarkable that anyone accepts “trust me” from American officials, but remarkably, that’s where things stand.

One excuse offered for the failure of the US to support its claims is that the military apparatus does not want to expose its information-gathering capabilities. But there’s another, more obvious reason.

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Ilargi: Europe Teeters On The Edge

Yves here. Ilargi is more amped up that usual on the topic of Europe’s self-inflicted wounds resulting from joining the US in imposing so-called Tier Three sanctions against Russia. This own goal results from Europe offering itself as as economic shield, since by virtue of having its nations far more engaged in commerce with Russia than the US, it stood first in line in the event Russia decided to respond in kind. And that’s before you throw in that Europe’e economy and its banking system are in far more fragile shape than America’s.

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GFC Seer Raghuram Rajan Warns of New Crash

Yves here. There has been so much anticipation of the seemingly inevitable next financial markets crash that it’s easy to brush off yet another market call. But given Rajan’s track record, it’s worth at least listening to his reasoning.

It’s noteworthy, however, that post author Llewellyn-Smith sees no crash detonator prior to 2016, which might as well be 2025 as far as most investors are concerned. I have no idea what the timing will be, but the focus on financial/asset markets as the trigger seems unduly narrow. Geopolitics are vastly more fraught than in the runup to the global financial crisis, and we also have more unstable weather, such as the drought in California, which is certain to put pressure on food prices in the US. In other words, it appears that real economy risks, which are often wild cards, are not adequately factored into these “when might the wheels come off” exercises.

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Only Now Does Influential Bank Group Complain That Low Volatility is Producing Too Much Risk-Taking

The spectacle of banks wring their hands about how low volatility is leading them as well as investors to take on too much risk bears an awfully strong resemblance to a child who has killed his parents asking for sympathy for being an orphan.

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Humanity May Face Choice By 2040: Conventional Energy or Drinking Water

Yves here. It is surprising that it is only now that the idea of water as a scarce resource is getting the attention it deserves in advanced economies. It was when I was in Australia, between 2002 and 2004, that I first heard forecasts of resource constraints that depicted potable water as the one at most risk, with global supplies in serious trouble by 2050. A related issue, which this post addresses to a degree, is that dealing with water, energy, and food supply limits are an integrated problem, yet are typically handled as isolated issues.

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Ilargi: Say Bye to the Bubble

Yves here. Only with the fullness of time will we know whether Ilargi’s “the end is nigh” headline will have coincided with the crack that signaled the sell-by date of the officialdom-induced post crisis rally. But Ilargi makes more interesting points than simply, as many done, point out that the bubble party has to end and the unwind is not likely to be pretty.

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Argentina Deadline Day: Punishment for Rejecting the Neoliberal Consensus Nearly Complete

Today is technically the drop-dead date for Argentina to work out an agreement to pay off vulture funds that long ago purchased their distressed debt, or else the country will go into default for the second time in thirteen years. 11th-hour negotiations with a mediator have yielded no results thus far. WSJ divines momentum from the length of the mediation session, which is pretty weak tea.

The default would actually be to the exchange bondholders who already hold agreements with Argentina for restructured debt payments going back to the 2001 default. Judge Thomas Griesa prevented the country from making a scheduled interest payment to the exchange bondholders without the vulture funds getting their $1.5 billion first (the vultures paid roughly $48 million for the distressed debt, so it’s a huge payday).

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More Signs of Doubt in Europe About the Costs of Siding With Ukraine

This week, the US hopes to get the EU to agree to impose so-called tier three sanctions on Russia to punish them for their alleged role in the downing of MH17 and for supporting the rebels in Ukraine. That would include prohibiting investment in Russian equity and debt of Russian banks more than 90 days maturity by European citizens as well as barring EU banks from sourcing funding for them on a regulated market.

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Ukraine Open Thread (and Links)

In theory, I should post about Ukraine, but in practice, the news is thick on speculation and thin on evidence. And the rush to assign blame before all the facts are in*, particularly now that the black boxes from the downed Malaysian Airlines are in the hands of the Malaysian government, is particularly troubling. It’s well documented in research on cognitive biases that once most people have formed a point of view about something, they remain committed to it even in the face of new information. This is why people who recall all too well the full-bore propagandizing before the war in Iraq are so suspicious of the aggressive effort by US officials to pin the destruction of the passenger jet on Putin. This episode feels way too familiar, in a very bad way.

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