Telegraph: US interest rate rise could trigger global debt crisis

Between a rock and a hard place.
Between a rock and a hard place.

Could? Well, I suppose so. In the same sense that taking drugs away from an addict is likely to trigger a “drugs crisis.”

If you don’t know, the entire financial world is on tenterhooks right now waiting for the latest declaration from the Federal Reserve, or as David Stockman puts it, the financial politburo. Will they raise rates or won’t they? Look to the skies. Stare into the crystal ball. What will the masters of the universe do? We, those who do not reside on Mount Olympus, can only wait, and fear/hope/whatever. (We are supposed to be a free market economy I thought. Why do we have these guys setting the price of money arbitrarily? I mean I know why. People want to believe in the cult. But seriously, in the 21st Century, why should we?)

If the Fed does raise rates it will be an historic moment for sure. We’ve been at 0% interest rates for almost a decade. It will likely freak world markets out even more than they are already.

On the other hand it could signal strength in the US economy (Signal is the operative word here. It doesn’t reflect fundamental reality.) and that could be seen as a positive I guess. But I doubt it would work out in the short term. My bet would be on serious turbulence. (Though that’s what we need at this point.)

Everyone (central banks and those in the orbit of central banks) is warning the Fed not to raise rates because of global economic weakness, and we bet the Fed will listen to this advice. But if it doesn’t, if Yellen dares to raise, things will get even more interesting than they have been very quickly and will likely impact things beyond just the canyons of Wall Street.

Gotta happen sooner or later though.

(From The Telegraph)

The Bank for International Settlements said the wild market ructions of recent weeks and capital outflows from China are warning signs that the massive build-up in credit is coming back to haunt, compounded by worries that policymakers may be struggling to control events.

“We are not seeing isolated tremors, but the release of pressure that has gradually accumulated over the years along major fault lines,” said Claudio Borio, the bank’s chief economist.

The Swiss-based BIS said total debt ratios are now significantly higher than they were at the peak of the last credit cycle in 2007, just before the onset of global financial crisis.