There's lots of food for thought this morning.
The Bank for International Settlements has released its annual report. It warns bluntly that things are out of balance. (Bold, underlined text is my emphasis.)
Investors, desperate to earn returns when official interest rates are at or near record lows, have been driving up the prices of stocks and other assets with little regard for risk, the Bank for International Settlements in Basel, Switzerland, said in its annual report published on Sunday.
. . .
The organization, which reflects a widespread view among central bankers that they are bearing more than their share of the burden of fixing the global economy, often uses its annual reports to send a message to political leaders, commercial bankers and investors. But the B.I.S.’s language in the 2014 edition was unusually direct, as was its warning that the world could be hurtling toward a new crisis.
. . .
The B.I.S. report said debt levels in many emerging markets, as well as Switzerland, “are well above the threshold that indicates potential trouble.”
. . .
The overall, somewhat gloomy message from the central bankers was that the world is drunk on easy money and has already forgotten the lessons of recent years.
“The temptation to postpone adjustment can prove irresistible, especially when times are good and financial booms sprinkle the fairy dust of illusory riches,” the report said. “The consequence is a growth model that relies too much on debt, both private and public, and which over time sows the seeds of its own demise.”
There's more at the link. Highly recommended reading. (For those with the time and the interest to read it in full, the BIS's report may be found here.)
Zero Hedge has a very useful selection of quotes from the report, which I also highly recommend reading in full. Here are a few to whet your appetite.
- Overall, it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally.
- Instead of adding to productive capacity, large firms prefer to buy back shares or engage in mergers and acquisitions. And despite lacklustre long-term growth prospects, debt continues to rise. There is even talk of secular stagnation.
- In no small measure, the causes of the post-crisis malaise are those of the crisis itself – they lie in a collective failure to get to grips with the financial cycle. Addressing this failure calls for adjustments to policy frameworks – fiscal, monetary and prudential – to ensure a more symmetrical response across booms and busts. And it calls for moving away from debt as the main engine of growth. Otherwise, the risk is that instability will entrench itself in the global economy and room for policy manoeuvre will run out.
Again, more at the link - and well worth your time. I note with a certain grim sense of vindication - but no pleasure at all - that the BIS is echoing what some economists, commenters and market watchers (including yours truly) have been saying for years.
On a somewhat puzzling note, self-styled 'plutocrat' Nick Hanauer warns his fellow super-rich that "The Pitchforks Are Coming" for people like them. Here's an excerpt.
At the same time that people like you and me are thriving beyond the dreams of any plutocrats in history, the rest of the country—the 99.99 percent—is lagging far behind. The divide between the haves and have-nots is getting worse really, really fast. In 1980, the top 1 percent controlled about 8 percent of U.S. national income. The bottom 50 percent shared about 18 percent. Today the top 1 percent share about 20 percent; the bottom 50 percent, just 12 percent.
But the problem isn’t that we have inequality. Some inequality is intrinsic to any high-functioning capitalist economy. The problem is that inequality is at historically high levels and getting worse every day. Our country is rapidly becoming less a capitalist society and more a feudal society. Unless our policies change dramatically, the middle class will disappear, and we will be back to late 18th-century France. Before the revolution.
And so I have a message for my fellow filthy rich, for all of us who live in our gated bubble worlds: Wake up, people. It won’t last.
If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It’s not if, it’s when.
More at the link. I suspect his trade union links and progressive views indicate someone far to my left on the political and economic spectrum, so I'm hesitant to accept his views unconditionally. Also, I'm not sure about pitchforks, or even bullets. In the event of a serious economic and political crisis, I suspect most of us will be too busy trying to keep our own bodies and souls together to worry about plutocrats . . . unless they try to get in our way. That would be unwise. (Besides, in a serious crisis it probably won't matter how much money you have. You can't eat it, you can't defend yourself with it, and you can't run carrying enough of it. If you try to hire others to do those things for you and get you what you need, you're going to find them competing with those who need such things for simple survival - a much stronger motivation than money.)