Editor’s note: This was originally published by Absolute Return Partners in late August. So we are a little late in releasing it. Apologies. It is still good reading. The Absolute Return Letter, August/September 2015: Doodles from an eventful summer “There is something deeply troubling when the unthinkable threatens to become routine.” Bank for International Settlements Incidents of the summer 2015 […]
These debt-related shocks will occur regularly for many more years, and each shock will advance or retard the rebalancing process so that it affects the way future shocks occur. There are only a few broad paths along which the Chinese economy can rebalance, and if we can get some sense of the China’s institutional constraints and balance sheet structures, we can figure what these paths are and how likely we are to slip from one to another. In order to get Chinas right I would argue that above all we must understand the dynamics of debt, and of balance sheet structures more generally.
Major advanced economies have made mixed progress in repairing the private sector’s balance sheets. This column explores private sector deleveraging trends and calls for a set of policies that will return debt to safer levels. Monetary policies should support private sector deleveraging and policymakers should not ignore the positive impact of debt restructuring and write-offs on non-performing loans.
Tiger 5 – Grexit is inevitable
The following is an abbreviated excerpt of a post from 16 Oct from Credit Writedowns Pro The nexus of zero rates, resource misallocation, and risk on has favoured shale oil. But the drop in oil prices will call many of these projects into question precipitating a high yield energy funding crisis and a panic dash for the exits. There will […]
The Absolute Return Letter, November 2014 “The single most robust and striking fact about cross-national growth is regression to the mean.” -Lawrence Summers and Lant Pritchett Low growth is printed on the wall When financial markets capitulate, many investors lose the ability to keep things in perspective. That is a fact of life. Instead the little things take over and […]
The world has not yet begun to deleverage its crisis-linked borrowing. Global debt-to-GDP is breaking new highs in ways that hinder recovery in mature economies and threaten new crisis in emerging nations – especially China. This column introduces the latest Geneva Report on the World Economy. It argues that the policy path to less volatile debt dynamics is a narrow one, and it is already clear that developed economies must expect prolonged low growth or another crisis along the way.
The conclusion of the recently released Geneva report is that debt is the Achilles heel of this cyclical recovery. The Geneva economists warn that, despite the widespread belief that a general deleveraging has occurred due to the Great Financial crisis, in reality debt levels are higher today on a global basis than they were when the crisis began. They, rightly, worry that this debt will precipitate another global economic crisis. Some thoughts below
This is an abbreviated post from our subscription series at Credit Writedowns Pro. Yesterday, I did a broad overview of four markets of interest to global investors. And I wanted to continue my thoughts on this here with a few more markets and with a deeper dive into some of my thinking about the UK. Britain, Part 2 In the […]
By Edward Hugh There has been lot’s of debate in the press and in academic circles over the last week or so about whether Italy’s latest contraction constitutes a triple dip recession or simply a continuation of what’s been going on over many many years. This is an interesting theoretical nicety, but in fact what is happening in Italy at […]
This is an abbreviated post from our subscription series at Credit Writedowns Pro. Michael Pettis has a good piece on debt and credit that I ran on the blog this morning. His thoughts on loss socialization are important not just in the context of China but also of other markets like Europe, the US, Canada and Australia where private debt […]
Burgeoning debt was not an unlucky accident. It is fundamental to the way the growth model works, and we have arrived at the stage, probably described most imaginatively by Hyman Minsky in his work on balance sheets, in which the system requires an acceleration in credit growth simply to maintain existing levels of economic activity. China’s debt problems, in other words, cannot be resolved administratively, by fixing the shadow banking system, by imposing discipline on borrowers, or indeed by eliminating financial repression (much of which, by the way, has already been squeezed out of the system by lower nominal GDP growth). Without a massive transfer of wealth from the state sector to the household sector it will be impossible, I would argue, for GDP growth rates of anything above 3-4% – and perhaps even less – to occur without a further unsustainable increase in debt, whether that increase occurs inside or outside the formal banking system and whether or not discipline has been imposed on borrowers.