There has been plenty of chatter recently over a Goldman Sachs report. Here’s one example summary:
GOLDMAN SACHS: The GFC is back
Remember the 2008 financial crisis? Well, it’s back.
The financial disaster, which started seven years ago with the US real estate and investment banking collapse, has entered its third phase according to a team of Goldman Sachs analysts.
This wave is characterised by rock bottom commodities prices, stalling growth in China and other emerging markets economies and low global inflation … This triple-whammy has its roots in the response to the first two waves of crisis — the banking collapse and European sovereign debt crisis — and its all part of the so-called debt supercycle of the last few decades. … Here’s the breakdown from Goldman Sachs (emphasis ours):
But with bond yields in real terms close to zero, and policy rates at historical lows, this extraordinary combination of events has raised concerns about the sustainability of the financial returns on a forward-looking basis, particularly if deflationary forces continue to develop.
And here’s what that looks like:
Not sure if this is the same or related research, but anyway The IMF seems to have reached very similar conclusions:
IMF: Beware third storm brewing
At the International Monetary Fund’s annual meeting, experts agree developing economies must face harsh new realities, writes Szu Ping Chan in Lima. … Last week, the fund said global growth this year would be the slowest since the Great Recession.
A separate report by the fund warned that the world faced a “triad” of challenges that meant policy missteps could wipe a massive 3pc off global growth. Corporate borrowers in emerging markets could default en masse when the US raised interest rates, it said. A new credit crunch, a fresh financial crisis: these were the risks facing the global economy.
…
As China’s three-decade growth miracle comes to an end, the “Anglo-Saxon” crisis of 2008, which was followed by the eurozone’s meltdown in 2011, now threatens to metastasise in emerging markets. But while it’s clear that China’s double-digit growth rates have come to an end, how low can growth go?
…
[One] thing that everyone accepts is that lower growth is on the way. Jose Uribe, Colombia’s central bank governor, says it is time to face facts: “We cannot keep trying to grow at the rates of the past.”Mauricio Cardenas, the country’s finance minister, describes the situation facing Latin America and other emerging market economies as a simple one: accept reality or deny it. “We’re in a new world,” he says. “The new world is lower commodity prices which are going to stay low for the foreseeable future. At the same time there is going to be less global liquidity.
…
The dilemma now facing emerging markets has posed a bigger question: where is growth going to come from now that the emerging market engine is stalling?
Popular financial blog The Automatic Earth has an interesting collection of graphs, and a depressing analysis (which is apparently their style).
All in all there are a lot of canaries giving warning in the world’s economic coal mine just now. If and when it does all turn to custard again, NZ will not be as well placed as last time. The Clark / Cullen government left us with zero net government debt going in to the 2008 GFC – Bill English praised them for this. But then in his turn Key / English have run up record debt that is pushing $99 Billion. The next crisis will hit us much harder.
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