Could this be the start of the big one?

MacMickster

An interesting analysis by Robert Peston which suggests that we could be heading into a perfect financial storm.
http://www.bbc.co.uk/news/business-23000323

To put it another way, what's currently worrying global investors isn't just that the Fed seems poised to stop manufacturing all that almost-free money (see my earlier blog), it is that this could happen at a time when what's happening in China may reinforce a global squeeze rather than counteracting it.

Tumbling share, bond and commodity prices aren't all the Fed's fault, on that view, but are also a manifestation of China nerves.

There is of course a second and much more disturbing possible implication of spiking lending rates in China - which is that the slowdown in credit creation will lead to tumbling asset prices, widespread bankruptcies and the crippling of the banking and wider financial system.

That has been a potential risk for some years, as China embarked on its bold economic experiment of fuelling growth with levels of investment almost beyond comprehension.

Graham_Devon

Think of it as feeding heroin to a junkie: as the addict tolerates bigger and bigger doses for longer and longer, it becomes progressively harder and more dangerous to wean the addict off.

Reminds me of a post I made on here about 3 years ago now, after listening to someone on 5live suggesting we ae playing with fire. He was seen as a "doom monger" because of some other stuff he's said about housing (which, yes, he was proved wrong on looking back over the last 3 years - probably due to more and more "fire" stoking as he would put it - the fire being QE and low interest rates).

However, what he's not been proven wrong on is that by playing with fire we are creating probably the biggest problem of all....that is, being unable to put out the fire.

This could be, and probably is, just another blip in the "recovery". Afterall, every problem so far has been papered over by the creation of more money or more bail outs. Look at the EU for an example! Countries not having just one bailout, but several, sometimes under different guises.

Organic growth is what is required. It seems were engineering something that couldn't be any further from organic growth i they even tried. Every time something is engineered, organic growth seems ever further away.

Edit: Found the post... 2010...

Commentator reported that the BOE was more likely to boost stimulus, via QE, and more likely to reduce rates than increase them in the near term.

However, he also commented that we are now playing with fire. He thinks people now see these rates as normal and a "dangerous sense of apathy" is setting in. He stated that it is now critical that everything that can be done is done to inform people that rates WILL go up. He stated if this doesn't happen, more people will get used to these level of mortgage payments, and in his words, an increase later rather than sooner, would be "catastrophic" as household budgets have now aligned themselves with new lower payments.

On inflation, he reckons it's been left to do pretty much what it wants.

http://forums.moneysavingexpert.com/showpost.php?p=36462591&postcount=16

michaels

Jeesh - I have always seen myself as a bit of an Eeyore seeing doom and gloom everywhere but you guys beat me by far. Lately the signs are that apart from in Europe the global economy is improving and yet some commentators seem to want to cast arround to see exactly where the next bad news might come from.

Personally I am more worried that I may have missed the boat on getting a low long mortgage fix than that the next stage of financial armageddon is going to sweep over us.

pqrdef

The monetary shenanigans by the central bankers was only ever supposed to buy time. Like a tourniquet to stop snakebite venom spreading - you still have to fix the snakebite before the tourniquet kills the arm. But the politicians haven't had a clue what to do with the time.

Cometh the hour, cometh the man, they used to say, but not now. We needed big men, we've got overgrown schoolboys.

wotsthat

Graham_Devon wrote: »

However, he also commented that we are now playing with fire. He thinks people now see these rates as normal and a "dangerous sense of apathy" is setting in. He stated that it is now critical that everything that can be done is done to inform people that rates WILL go up. He stated if this doesn't happen, more people will get used to these level of mortgage payments, and in his words, an increase later rather than sooner, would be "catastrophic" as household budgets have now aligned themselves with new lower payments.

On inflation, he reckons it's been left to do pretty much what it wants.

So your commentator with no name got it wrong on housing (he would've got away with it too if it hadn't been for the pesky 'props').

He thought there should be a big campaign to tell people that rates will rise one day (but 3 years later fixed rates are at all time lows).

He thought inflation had been left to it's own devices (but has averaged c3% since).

Is 5live the poor man's Radio 4?

I've just fixed at 2.99% (no fee) for 5 years; by September 2018 I'll have averaged c2.6% for more than nine years. I'm so worried that I've become addicted to low rates that I'm considering a Wonga loan.

Conrad

michaels wrote: »

Jeesh - I have always seen myself as a bit of an Eeyore seeing doom and gloom everywhere but you guys beat me by far. Lately the signs are that apart from in Europe the global economy is improving and yet some commentators seem to want to cast arround to see exactly where the next bad news might come from.

Personally I am more worried that I may have missed the boat on getting a low long mortgage fix than that the next stage of financial armageddon is going to sweep over us.

I find that people that just plough on with life and do their thing as best they can, ignoring the ever present Armageddon scenarios, tend on balance to make a pretty good fist of things.

Not so long back it was the Yen carry trade I was told I needed to be worrying about. In the end do your thang, do it locally and do it well. Let the gloomers mount their boxes ad-infinitum.

Graham_Devon

wotsthat wrote: »

So your commentator with no name got it wrong on housing (he would've got away with it too if it hadn't been for the pesky 'props').

He thought there should be a big campaign to tell people that rates will rise one day (but 3 years later fixed rates are at all time lows).

He thought inflation had been left to it's own devices (but has averaged c3% since).

Is 5live the poor man's Radio 4?

I've just fixed at 2.99% (no fee) for 5 years; by September 2018 I'll have averaged c2.6% for more than nine years. I'm so worried that I've become addicted to low rates that I'm considering a Wonga loan.

To be fair, I think he was looking a bit further than 3 years ahead. He was looking at the point at which we have to reverse the stimulus. That point hasn't yet happened....though it seems were at a turning point, which may just end up to be another juncture in the road.

wotsthat

Graham_Devon wrote: »

To be fair, I think he was looking a bit further than 3 years ahead. He was looking at the point at which we have to reverse the stimulus. That point hasn't yet happened....though it seems were at a turning point, which may just end up to be another juncture in the road.

Who was it? Just a random call-in or someone who we can actually find out what they were saying in 2010?

I find the whole idea of worrying about people getting used to low rates a little silly. I just wonder why your caller thought he was getting the message out when everyone knows rates can rise. Just how many people think rates can never rise?

Graham_Devon

wotsthat wrote: »

Who was it? Just a random call-in or someone who we can actually find out what they were saying in 2010?

I dunno - it was 3 years ago. Why the third degree?

I find the whole idea of worrying about people getting used to low rates a little silly. I just wonder why your caller thought he was getting the message out when everyone knows rates can rise. Just how many people think rates can never rise?

Well you may call it silly, but it seems theres a real issue going on right now with gilts, which, if not controlled, could effect the world economy greatly.

The reason I bought it up is because I remember the "playing with fire" analogy, and 3 years later, it appears were at the stage at the moment whereby the unprecedented amounts of money pumped into the system is starting to cause a headache and it seems there is little scope to exit these programmes without causing massive economic fallout.

Hence the playing with fire comment from 3 years ago now seems quite apt.

I'm not sure why it's relevant who this commentator was? I didn't know then and I certainly don't know now. I don't see how that effects the point raised?

Generali

Nobody sells to China on a net basis other than Germany AIUI. If China goes to hell then I can't imagine there being a massive impact elsewhere. Unless they decide to invade or blow up somewhere of course.

wotsthat

Graham_Devon wrote: »

I dunno - it was 3 years ago. Why the third degree?

Just seems to be a little odd that you'd dig out the comments of a random on 5live when, from 2013, he appears to have got it wrong about house prices, rising rates and inflation.

In his defence you've said he's wrong how but might be right in the future. Just wondered if he had a track record of being correct.