Tuesday, July 7, 2015

Jim Rickards: China and Greece - What Comes Next?

Jim Rickards weighs in on the recent happenings in both China and Greece in a new article for West Shore Funds. This article is not available for public release unless you provide an email to gain access. So here is a link to do that for those interested. Jim graciously gave permission to use a few brief quotes from this article for this blog post. The quotes are just below followed by some added comments.


"Two stories dominate financial headlines as we enter a new week. The first is the meltdown of the Chinese stock market and efforts to organize a bailout fund to prop up the Shanghai Composite stock index. The other is the Greek referendum in which 60% of voters rejected the financial rescue terms offered by the so-called “institutions” – the IMF, ECB and European Union. The financial world today is a tale of two crises."

. . . . .

"Yet, what sets these crises apart is almost irrelevant compared to what unites them. Both have the potential to ignite a global systemic meltdown. The world is a more fragile place even than it was in 2007. The big banks are bigger. Aggregate bank assets are concentrated in fewer hands. The bank derivatives books are much larger. Market liquidity is worse.
None of this is secret. Global financial elites have practically been shouting it from the rooftops. Warnings have poured in from the IMF, G20, World Bank, BIS, and private think thanks. The warnings have mostly been ignored."   . . . . . . .
"This is not to say that it’s “all good.” It’s not. The makings of a massive global meltdown are still in place. The official warnings are correct. The crack-up will not come from the things we can see – like Chinese stock bubbles, and Greek debt defaults – but from something none of us has factored in. That’s the essence of complex systems. They are characterized by “emergent properties.” That means system behavior that cannot be inferred from perfect knowledge of all the parts of the system. The event that causes the crack-up will come like a thief in the night. Yet, it will come."


My added comments:

I felt readers needed to be aware of this latest article by Jim Rickards because it supports some points we have tried to make here on the blog recently. Here is a quick bullet point list:

- Multiple warnings about systemic risk have been issued by the global financial institutions like the IMF, the BIS, the G20 and the World Bank. We have documented many here on the blog (see list below *)

- These warnings are public, but mostly being ignored.

- Recent events in both Greece and China illustrate why the warnings should not be ignored.

- In a complex system, "behavior cannot be inferred from perfect knowledge of all the parts of the system".  

My Translation:  How people react to things in a complex system is unpredictable by economic models that are commonly used for forecasting. The No vote in Greece is a clear recent example.

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