Category Archives: Doomsday scenarios

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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The Argentina Debt Case

Almost everyone now knows that the world of international finance is not a particularly robust one, nor is it particularly just or fair. But it has just got even weirder and more fragile, if this can be imagined. A recent ruling of the U.S. Supreme Court, refusing to hear an appeal by the government of Argentine against a decision of a lower court on a case relating to its debt restructuring agreement with creditors over a decade ago, is not just a blow against the state and people of Argentina. It has the potential to undermine the entire system of cross-border debt that underlies global capitalism today.

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Six Years After the Global Financial Crisis, What Have We Learned?

Yves here. This post looks at how little has been done in the wake of the global financial crisis is instructive because it takes an international view. The Australian writer, Catherine Cashmore, is particularly anxious about the failure to address the usually lucky country’s ginormous property bubble, and its not alone in having this problem (cue the UK, China, and Canada). It the US, although we’ve had a housing “recovery” and some markets are looking frothy, the bigger issues are the squeeze on renters as former homeowners are now leasing and the stock of rentals is tight in some markets (in part due to destruction of homes that would have been rentable in the foreclosure process due to servicer mismanagement and in some markets, due to properties being held off the market, both by servicers and by landlords who are either in the process of rehabbing them or have otherwise not leased them up). And it focuses on the elephant in the room: lousy worker wage growth.

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TBTF Strike Back! SEC Commissioner Calls FSOC “Vast Left Wing Conspiracy”

One of the favored practices of the banking industry in recent years has been to engage in not merely shameless, but truly deranged hyperbole when anyone dares voice so much as an itty bitty threat against their prerogatives. For instance, venture capitalist Tom Perkins had a meltdown in the op-ed section of the Wall Street Journal, conflating criticism of rentier behavior among the 0.1% as an incipient Kristallnacht. Jamie Dimon in March 2009 (yes, you have the date right) had the temerity to complain about the “vilification” of Corporate America over the financial crisis. Even the weak restrictions on executive pay in the TARP produced outcries and desperate efforts to repay the TARP quickly (and the cronyistic Treasury acceded, rather than requiring banks get their capital levels higher first).

We witnessed a new outburst of Banking Industry Persecution Complex yesterday from SEC Commissioner Michael Piwowar, who was speaking before an assembly of fellow inmates at the American Enterprise Institute.

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US Port Strike Threat Highlights Supply Chain Risk

One issue we’ve raise over the year is the ways that the corporate fetish for offshoring and outsourcing greatly increases business risk. Even when savings are realized (and as we’ve discussed, in many cases, the main result is a transfer from factory/lower level workers to managers and executives), they are seldom weighed properly against the increased fragility of the operation, and the resulting exposure to big losses. For instance, extended supply chains entail more communications across the chain, longer production cycles, more shipping, all of which increase the odds of writeoffs via having too much inventory or inventory in the wrong place, and those occasional losses can swamp the savings over time.

Those supply chain risks have come into focus, as the Financial Times reminds us, as the possibility of West Coast port strikes looms.

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Financial Interconnectedness and Systemic Risk: New Fed Report Flags 7 Behemoths

Yves here. This post addresses a topic near and dear to my heart: the importance of financial interconnectedness, or what Richard Bookstaber called “tight coupling” in his book A Demon of Our Own Design. Tight coupling occurs when the processes in a system are so closely linked that when certain types of activities begin, they propagate through the system and cannot be halted. Or as Bookstaber put it in 2011:

Non-linear systems are complex because a change in one component can propagate through the system to lead to surprising and apparently disproportionate effect elsewhere, e.g. the famous “butterfly effect”….

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Will Fossil Fuel Be the Subprime of This Cycle?

Ambrose Evans-Pritchard makes a compelling argument in his latest article: that the $5.4 trillion of investment poured into fossil fuel exploration and development projects over the last six years includes quite a lot of investments that will never show an adequate return. He argues that when that sorry fact starts to be recognized, the losses could be the wake-up call to investors who have shrugged off risk as financial assets climb to ever-more-implausible valuations.

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Gaius Publius: IPCC’s “Carbon Budget” Gives One-in-Three Chance of Failure

All of the talk in the lead-up to this year’s meeting in Paris of the United Nations Framework Convention on Climate Change will be about how much “burnable carbon” we can still emit. In other words, what’s our remaining “carbon budget”? Or more to the point, how much more money can Exxon make and still be one of the good guys?

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Ilargi: Overshoot Loop and Evolution

Yves here. As Ilargi himself acknowledges, even by the standards of his fare, this post on “overshoot” is plenty sobering. We do seem to be on our way to precipitating a mass species die off (as in it’s underway already and humans seem remarkably unwilling to take sufficiently stern measures to stop it). The end of civilization as we know it seems almost inevitable, given that most “advanced” economies are seeing serious erosion of their social fabric, as reflected in falling social well-being measures.

However, the provocative point that Jay Hanson argues is that our hard-wired political habits guarantee our undoing.

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Why Europe Needs Two Euros, Not One

Yves here. We remarked recently how the readings we’ve been getting from people who have senior contacts in Europe are increasingly of the view that the economic crisis in Europe is morphing into a sufficiently severe political crisis that the unthinkable – a breakup of the eurozone – is looking like a serious possibility.

One indicator is the article featured below. VoxEU has policy reach in Europe, and this post represents an effort to come up with better economic arrangements within Europe while preserving at least some of the benefits of monetary union. And it is hardly the first to recognize that one of the big problems with the Eurozone is that it put together too many disparate economies without enough in the way of fiscal transfers to buffer the differences. If the Eurozone can’t move towards more economic integration, the next-best remedy might be a structure where more homogenous countries each had their own currency.

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Gaius Publius: Arctic Seafloor Methane Release is Double Earlier Estimates

one of the cornerstones of the idea that mankind still has a “carbon budget” — that we can still release even more CO2 and other greenhouse gases like methane, though a “limited” amount — is the idea that we can do a good job of modeling climate-changing feedbacks. We can do a good job of modeling some feedbacks, but we’re very bad at modeling others, and some feedbacks have so much randomness about them that modeling them becomes next to impossible.

The release of frozen methane is one of the biggest uncertainties in climate modeling. Results so far are much worse than forecasted.

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Ignacio Portes: Paul Singer v. Argentina – A Thriller Reaches Its Climax

The protracted legal saga between Argentina and NML Capital, Paul Singer’s hedge fund, owner of a fraction of Argentina’s non-restructured, pre-2001’s default debt, went through a decisive moment last week, when the Supreme Court of the United States declined to hear Argentina’s appeal. With the “stay” order lifted after the Supremes Court’s decision, Argentina faced a huge conundrum that needs solving before June 30th, when an interest payment on its restructured debt is due.

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GDP Hits Air Pocket: Recession Warning or False Alarm?

In case you managed to miss it, the GDP revision yesterday morning was stunningly bad.

But after getting rattled, Mr. Market shrugged off the report. So what if we opened Schrodinger’s box and found out the cat was dead? That was first quarter’s cat. That cat might as well be dead for all we care now. Plus the weather was bad, so we’ll make all that up, and anyway, the Fed has our back, so if there really is something to worry about here, they’ll fix it, as least as far as security-owners are concerned. Right?

In addition to looking at the main elements of the GDP report, we’ve asked readers to report on what they see in their economy.

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