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GFC seer Raghuram Rajan foresees new crash
Topic Started: 8 Aug 2014, 05:51 PM (1,646 Views)
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http://blogs.wsj.com/economics/2014/08/06/rbis-rajan-sees-risk-of-financial-markets-crash/

Reserve Bank of India Governor Raghuram Rajan warned Wednesday that the global economy bears an increasing resemblance to its condition in the 1930s, with advanced economies trying to pull out of the Great Recession at each other’s expense.

The difference: competitive monetary policy easing has now taken the place of competitive currency devaluations as the favored tool for playing a zero-sum game that is bound to end in disaster. Now, as then, “demand shifting” has taken the place of “demand creation,” the Indian policymaker said.

As was the case in the 1930s, the lack of coordination between policymakers is producing spillovers that may be difficult to control, and the world’s financial system may soon face fresh turbulence at a time when central banks have yet to repair the damage that the 2008 financial crisis caused to developed economies.

“We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost,” said Mr. Rajan in an interview with the Central Banking Journal.
In 2005, Raghuram Rajan warned:
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Developments in the financial sector have led to an expansion in its ability to spread risks. The increase in the risk bearing capacity of economies, as well as in actual risk taking, has led to a range of financial transactions that hitherto were not possible, and has created much greater access to finance for firms and households. On net, this has made the world much better off. Concurrently, however, we have also seen the emergence of a whole range of intermediaries, whose size and appetite for risk may expand over the cycle. Not only can these intermediaries accentuate real fluctuations, they can also leave themselves exposed to certain small probability risks that their own collective behavior makes more likely. As a result, under some conditions, economies may be more exposed to financial-sector-induced turmoil than in the past. The paper discusses the implications for monetary policy and prudential supervision. In particular, it suggests market-friendly policies that would reduce the incentive of intermediary managers to take excessive risk.
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Jimbo
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Without a doubt the world is facing a giant financial shitstorm. The main problem being the amount of unfunded promises that have been made on future healthcare and pensions (AKA government debt).

The world has been kept under the illusion that we are in a post GFC recovery when all we have done is got ourselves a third credit card to make the minimum payments on the first two cards and spent the balance keeping afloat.

The USA, Britain, Japan and Europe are not in recovery at all. They are just blowing bubbles with money borrowed from you and me.



Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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peter fraser
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Jimbo
8 Aug 2014, 07:51 PM
Without a doubt the world is facing a giant financial shitstorm. The main problem being the amount of unfunded promises that have been made on future healthcare and pensions (AKA government debt).

The world has been kept under the illusion that we are in a post GFC recovery when all we have done is got ourselves a third credit card to make the minimum payments on the first two cards and spent the balance keeping afloat.

The USA, Britain, Japan and Europe are not in recovery at all. They are just blowing bubbles with money borrowed from you and me.



Future healthcare etc is always unfunded until it is.

I didn't lend anything to the governments of the USA, Japan and Europe. When the central banks in Europe become centralised none of this will matter.

Any expressed market opinion is my own and is not to be taken as financial advice
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Jimbo
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peter fraser
10 Aug 2014, 09:24 AM
Future healthcare etc is always unfunded until it is.


Who by and with what?
peter fraser
10 Aug 2014, 09:24 AM
I didn't lend anything to the governments of the USA, Japan and Europe. When the central banks in Europe become centralised none of this will matter.
Are you sure about that?
Edited by Jimbo, 10 Aug 2014, 09:44 AM.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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peter fraser
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Jimbo
10 Aug 2014, 09:42 AM
Who by and with what?

Are you sure about that?
We have only ever funded immediate expenditure. No government has ever funded expenditure 50 years in advance.

and yep I'm sure about that. that's why the European central banks have been moving in that direction and the only obstacle is political, which I accept can be a very large obstacle.
Any expressed market opinion is my own and is not to be taken as financial advice
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Jimbo
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peter fraser
10 Aug 2014, 09:51 AM
We have only ever funded immediate expenditure. No government has ever funded expenditure 50 years in advance.

Governments fund today with a mixture of tax income and deficits. As our population balance swings towards higher numbers of elderly residents and fewer of working age (taxpayers) deficits will either increase or the unfunded promises will have to be reduced.

Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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peter fraser
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Jimbo
10 Aug 2014, 10:24 AM
Governments fund today with a mixture of tax income and deficits. As our population balance swings towards higher numbers of elderly residents and fewer of working age (taxpayers) deficits will either increase or the unfunded promises will have to be reduced.

I agree with that although I don't believe that governments are under pressure to have budgets in surplus, but I believe they are under pressure to contain deficits to a debt/gdp level that is not too high unless they want the value of their currency unit to fall.

I think that we need to acknowledge that the age issues doesn't begin and end with the boomers, it will be an ongoing problem as the following generations are much the same size on an annual basis, and people are living increasingly longer lifespans whilst the cost of medical treatment is rising due to the often technical expertise required to save/maintain lives. Perhaps the debate of what is an aged person worth has to be had, but remember we will all have to comply with the consensus at a future moment in our lives.

Gen X and Gen Y will present larger fiscal issues, and the generations following them will just get worse.

Whilst this is painted as a generational issue it's really not, it's a permanent change to the landscape, and every intelligent human knows that they will age, so whilst it's seen as popular for some to stand on their soapbox on this issue, a vote will bring a different result. Not many people actually support a change that reduces their own future living standards. The issue won't be solved by this government with their current policies. It will take a government with a much greater vision.
Edited by peter fraser, 10 Aug 2014, 11:30 AM.
Any expressed market opinion is my own and is not to be taken as financial advice
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ThePauk
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peter fraser
10 Aug 2014, 11:27 AM
I agree with that although I don't believe that governments are under pressure to have budgets in surplus, but I believe they are under pressure to contain deficits to a debt/gdp level that is not too high unless they want the value of their currency unit to fall.

I think that we need to acknowledge that the age issues doesn't begin and end with the boomers, it will be an ongoing problem as the following generations are much the same size on an annual basis, and people are living increasingly longer lifespans whilst the cost of medical treatment is rising due to the often technical expertise required to save/maintain lives. Perhaps the debate of what is an aged person worth has to be had, but remember we will all have to comply with the consensus at a future moment in our lives.

Gen X and Gen Y will present larger fiscal issues, and the generations following them will just get worse.

Whilst this is painted as a generational issue it's really not, it's a permanent change to the landscape, and every intelligent human knows that they will age, so whilst it's seen as popular for some to stand on their soapbox on this issue, a vote will bring a different result. Not many people actually support a change that reduces their own future living standards. The issue won't be solved by this government with their current policies. It will take a government with a much greater vision.
Peter
1. Increased lonjevity is here to stay.
2. The baby boomers 5.2 million, are far from ordinary. This is the first wave in history to push into old age in great numbers. Unprecendented.

It just happens that 1 and 2 are happening in parallel. They are different issues.

The following generations have mostly been paying Super all their working lives, so no, the ageing fiscal challenges do not continue on forever.

Global population growth peaked in 1965 and has been decreasing since. Sure, we are still growing and 1 is creating a 'demographic momentum' that is 30% of our actual numbers growth.

Like any animal that overpopulated, nature has a way of controlling things. I think the fact that OZ has been below replacement fertility now for 40 years is somewhat proof of nature doing its thing. Half the countries on the home planet are now below replacement fertility.


Jimbo
Deficits can grow with the baby boomers in the bowel as they eventually get shat out. Note our actual deaths double over the next few decades. The baby boom turns into a death bust 80 years on. The boom is unprecendented in history and was not followed by high fertility as Peter suggests. The fiscal challenges need to be looked at from both 1 and 2 and since the boomers are temporary and so to would be the deficits.
Edited by ThePauk, 10 Aug 2014, 11:49 AM.
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Chris
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But Peter it is not a matter of losing a living standard but for Gen X and Y it's a matter of realigning a fair and equitable standard that boomers enjoyed.

I do not prescribed to the logic that we are in a capitalist trajectory that cannot be reversed, modified or stopped. I think we are stuck in this 'the only way us up' mentality and that we will do so at any cost , health, education, infrastructure etc. the world we are in is unsustainable in many ways but it is mainly because we all have this idea that we can all have it all.

The fact is we can't, but it's what we're choosing to prioritise that is the concern.
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Jimbo
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peter fraser
10 Aug 2014, 11:27 AM
Whilst this is painted as a generational issue it's really not, it's a permanent change to the landscape, and every intelligent human knows that they will age, so whilst it's seen as popular for some to stand on their soapbox on this issue, a vote will bring a different result. Not many people actually support a change that reduces their own future living standards. The issue won't be solved by this government with their current policies. It will take a government with a much greater vision.
No doubt, certain generations have benefited greatly from the current paradigm. My dad retired at 55, house paid for and big final salary related pension. I should retire in relative comfort but not as well off as my dad. My kids may never be able to retire.

I am not a Tony Abbott supporter and I think some of the budget measures are incredibly unfair, but I take my hat off to the Liberals for actually recognising that controlling future deficits is the responsibility of the government of today.

I can't remember a government willing to risk its popularity to balance the budget of a government 20 years in the future?

SOP for governments is to throw money around to garner popularity and then let the other lot sort out the mess when they get in.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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