Why One Bank Sees A Global “Minsky Moment On The Horizon”

Monday, September 17, 2018
By Paul Martin

by Tyler Durden
Mon, 09/17/2018

In a time when every strategist has put together a “hot take” on the causes of the financial crisis and its aftermath, with BCA going so far as to suggest that some $400 trillion in assets are at risk should the Fed tighten too hard, many have missed the core culprits for the series of rolling bubble that emerged in the aftermath of “The Great Moderation” and which resulted in the dot com bubble first in 2000, the bigger housing bubble in 2007 – of which Lehman was just a symptom – and the “everything bubble” that was formed in its aftermath, and which is where we find ourselves now. These, of course, as the unholy trinity of debt, interest rates and the dollar.

And while much of the financial commentariat celebrates the passage of the decade that marked the fallout of the Global Financial Crisis, suggesting that the coast is finally clear – which judging by the sheer euphoria with which retail investors have been buying up stocks in recent years, mostly in the form of ETFs is probably accurate – one bank writes that even though policy makers have averted the economic downturn in the immediate aftermath of the GFC from spiralling into a debt-deflation collapse last seen since the 1930s’ Great Depression, they do not believe the ‘coast is clear’ as many proclaim.

IUn a report by Neels Heyneke and Mehul Daya of Nedbank, the analyst duo warns that the world remains vulnerable because of soaring debt levels, growing imbalances, protectionist policies and overvalued asset prices. In short, “the shadow cast by the GFC has not gone away.”

Echoing a comment we noted earlier today, namely that “An Economic Recovery Based Around High Debt Is Really No Recovery At All”, Nedbank notes that since 2008, global debt levels have soared, but economic growth of many countries remains lower than post-GFC levels; it is this growth in debt that is masking and hiding balance sheet problems and has fuelled asset prices at the expense of the real economy.

As key signposts of the crisis aftermath, Nedbank first highlights the global velocity of money (the number of times a US dollar is used to purchase goods or services) which is currently at or near an all-time low, and certainly less than one.

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