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It’s Time to Sound the Alarm on Growing Fiscal and Financial Risk (FT, Wolf)www.ft.com/content/fd094d3e-01b4-4f1c-838c-bc1ffb493a02
1677 sats \ 6 comments \ @denlillaapan 2h econ
Mr. Wolf at FT is generally not worth your attention.
This one, though, is an exception.
Just like before the GFC, the BIS has now "sounded the alarm" on fiscal debt and risks in the financial system.
Once again, the BIS is sounding the alarm. It has expressed concern over fiscal and financial risks for some time. But only last week, its general manager, Pablo Hernández de Cos, former governor of the Bank of Spain, delivered a sobering account of “fiscal threats in a changing global financial system”.
It's a little rich that the one institution that has done perhaps more than any other to extend gov debt and shove it into every nook and cranny of the financial system now worries about the sustainability of that debt. Yea, go figure.
"ratios of sovereign debt to GDP in many advanced economies are at post-second world war highs."
...even though there's no war going on. Plus, some random assortment of all-encompassing reasons that debts and deficits will keep piling up
  • new econ shocks (AI?!)
  • higher yields
  • ageing populations
  • hostility to immigrants
  • political pain of closing deficits too high
  • "other pressures" like spending on defence
Add to that the impossibility of Retirement Home Europe to generate any growth, and no obvious economy-wide productivity boosts available, and you're screwed. Game over. If your "best-case, everything is bloomy" scenario is continuously worse then yeah, we are sooo fucked:
Rising public debt is one concern. Another is how it is being financed. This is part of a bigger change, which is the relative decline of banks and rise of non-bank financial intermediaries within global holdings of financial assets. Thus, the ratio of NBFI holdings of financial assets to global GDP rose 74 percentage points between 2008 and 2023, while that of banks rose by only 17 percentage points.
in theory, government bonds should still be the safest financial assets. But as the debt mountains rise, they must become less safe.
Nice to hear a public confession. ...and how do you like this observation?

"The point is that the instability caused by leverage and maturity mismatches has not disappeared just because banks are less important than they were"

Another round of financial crises would be a nightmare. But it would be worse still if states had ceased to be creditworthy and their money to be sound. Some suggest, wrongly, that the answer is to let banks replace NBFIs yet again. A far better solution is to make government finances safer.​
Not sure what that means. Any takers?
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54 sats \ 1 reply \ @Undisciplined 1h
We might be in the part of The Boy Who Cried Wolf where the wolf actually shows up
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0 sats \ 0 replies \ @Solomonsatoshi 1h
Yes but most of you are still ignorant or in denial of the fact the wolf is your own financialisation and loss of productive competitiveness where China now makes most things more competitively.
There is no financial solution to such a challenge- it requires a different mindset to the neoliberal ideology that has clouded the wests economic thinking for decades and left it incapable of making things of any practical utility.
It requires massive long term state investment in strategic tech and infrastructure and while Trump is now doing this with AI and rare earths its probably too little too late.
It will be 10 years at least, (maybe never) before USA can again source its own refined rare earths and so be able to wage a major war without Chinas consent.
Your sense of entitlement and exceptional privilege blinded you. Anyone who tried to tell you, you dismissed as a CCP bot.
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43 sats \ 2 replies \ @Scoresby 1h
But as the debt mountains rise, they must become less safe.
That must is a bitch of a word. Bad things happen to those who believe in must.
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0 sats \ 0 replies \ @Solomonsatoshi 7m
There's this thing called insolvency and there's this thing called a tipping point.
Bad things happen to people who do not understand these basic, econ 101 principles.
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0 sats \ 0 replies \ @denlillaapan OP 1h
true dat
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0 sats \ 0 replies \ @Solomonsatoshi 1h
The formerly wealthy western industrial economies cannot compete with Chinas deliberately structured highly competitive mixed economy model. Use all the financial engineering you like, lowering the cost of fiat debt capital since 1990...the structure of your neoliberalised economies is inherently not as competitive as Chinas.
The neoliberalised west has squandered its legacy financial advantage by allowing vast sums of fiat debt capital to be issued toward inflating the price of existing assets- mostly real estate- which only created a short term illusion of wealth while depriving the productive sectors of the economy of much needed investment and maintenance.
The problem became chronic and self fulfilling because Chinas mixed economy could already demonstrably make things more efficiently and so all the investment in making things went to China.
China has deliberately provided state investment in core supply chains that will drive and incentivise the competitive sectors. China directed most fiat debt capital toward productive infrastructure. Electricity drives the modern industrial and post industrial economy and China produces much more of it far cheaper than any other industrialised economy.
This makes Chinas manufacturers more competitive than the wests and so the wests industrial base has been shrinking for several decades.
The west cannot now make most things - certainly not at a competitive price.
The USA cannot now fight a war of any size without the supply of rare earths that China controls. The west has lost the trade war and has now lost its military advantage. Game over western civilisation.
The Libertarian neoliberals will be determined in their denial of reality...but they cannot credibly refute it.
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