Posted 8th August 2015
David Stockman explains why “the top is in,” and warned that the world is overdue for an “epochal deflation, like nothing it has ever seen.”
The “debt supernova” of the last decade or two has created massive over-capacity and this commodity deflation “is not temporary, it’s the end of the central bank bubble.”
The catalyst has already happened -“It’s China,” Stockman exclaims, “China is the most lunatic pyramid of credit and speculation.. and capital is now fleeing the swaying towers of the China ponzi.”
Okay – link to the video is here – http://www.cnbc.com/2015/08/07/stocks-are-a-disaster-waiting-to-happen-stockman.html
I tend to disagree with Stockman on China – in as much as China is self contained – it is the middle class Chinese that suffer the most (and American hedge funds) due to greed – a necessary rebalancing.
I agree wholeheartedly with his statement that this will be an epochal deflation – worldwide.
The biggest problem that one can see in plain sight is the commodity prices – affect on countries that relied on China and borrowed indiscreetly at low interest rates – and last but not least the United Kingdom.
This IS the problem of gorging oneself on low interest rates – any increase in the interest rate itself will be a huge economic shock to ALL indebted countries.
United Kingdom relies heavily on consumer spending to cover shortfalls in GDP – since 2008 financial crisis – thereafter service sector.
The problem is debt – government and consumer debt – as in the 1920-1930’s the United Kingdoms value of the pound is totally out of whack with reality – that said – manufacturing exports dropped to 10 percent – consumer spending came in at 0.02 percent increase instead of expectations of 0.03 percent.
No longer can the UK rely on consumer spending, or proceeds from North Sea oil – as the writing is on the wall – any increase in rates will wipe out their false recovery since 2008 – as consumer spending / borrowing supported the UK GDP ( and tax revenues VAT etal) – the consumers non performing loans will increase exponentially – banks will have problems as too the Government’s ability to borrow monies – the GBP will be devalued whether they like it or not…
If one looks at UK in an economic historical sense then it is the 1920-1930’s repeating itself – the fall from grace will be just as bad – as a devaluation of the GBP will be a ‘bond default’ – they cannot reduce interest rates any further than at the 0.5 percent currently.
Their deficit spending is off the charts and whilst loans to GDP was at 190 percent to GDP in the 1930’s today it is different – at 97 percent of GDP this socialist government has to spend more to maintain their social net – therefore it HAS TO BORROW MORE – please look at the chart below which is self explanatory (remember please include £74.5 billion for 2015).
Germany has had surpluses – UK has had biggest deficits of all the European countries.
Any devaluation of the GBP and the continued austerity will impact Germany – that is the problem – Germany will be the poorer for this action. Butterfly affect will be catastrophic for German industries and the Government – Banks and exports.