Tuesday, January 26, 2016

Former Chief Economist (BIS) Talks about Coming Debt Problems - Also New IMF Warning

We have noted here on the blog that global debt is an ongoing and unresovled problem. It appears a former BIS Chief economist agrees. The Telegraph (UK) runs this article that quotes former BIS Chief Economist William White as saying that in the next recession "many of these debts will never  be serviced or repaid and this will be uncomfortable for a lot of people who think they own assets that are worth something." 

Pretty powerful stuff. Below are some quotes from the Telegraph article and then some added comments. Also please see the twitter exchange between Jim Rickards and one of his twitter followers at the end of this article.


"The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, a leading monetary theorist has warned.
"The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up," said William White, the Swiss-based chairman of the OECD's review committee and former chief economist of the Bank for International Settlements (BIS)."

. . . . 

"It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something," he told The Telegraph on the eve of the World Economic Forum in Davos.
"The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians."

"The next task awaiting the global authorities is how to manage debt write-offs - and therefore a massive reordering of winners and losers in society - without setting off a political storm."
Added note:  Is this a crisis watch from IMF?    Need to add this to our list as well.

Some quotes from this article:

"The International Monetary Fund is increasingly alarmed by signs that market liquidity is drying up and may trigger an even more violent global sell-off if investors rush for the exits at the same time.
Zhu Min, the IMF's deputy director, said the stock market rout of the last three weeks is just a foretaste of what may happen as the US Federal Reserve continues to raise interest rates this year, pushing up borrowing costs across the planet.
"The key issue is that liquidity could drop dramatically, and that scares everyone," he told a panel at the World Economic Forum in Davos.
"If everybody is moving together we don't have any liquidity at all. We have to be ready to act very fast," he said.
My added comments: While Mr. White is not currently with the BIS (Bank for International Settlements) I am going to add his warnings to our blog page 'List of BIS and IMF Warnings' given the source of these comments. 
Please note his reference to "debt jubilees." Those who have any background in the OT regulations in the Bible will recognize this term. Under this arrangement, every 50 years slaves were freed and debts were forgiven. Lands were returned to families forced to sell them during the 50 year time period. I have seem this term a lot used by many outside the system doing research for the blog. This is the first time I have seen someone like a former chief economist at the BIS use such a term.
What could a modern day "jubilee" include? Perhaps some kind of global conference to deal with unsustainable debts. It might be just sovereign debt or could also include private debt. Unsustainable debt might be written often and sustainable debt might be restructured (given more time and easier payment terms). It could very well include bail-ins for private debt as well since provisions for this have been enacted around the world. (see what tools exist to deal with a crisis in this recent blog article)
All of this would certainly be part of the major monetary system change we watch for here. If it did happen, we could see a major "modern jubilee" conference that combines with a new global reserve currency setup as we have talked about here on the blog. 
A word of caution to consider. Mr. White also makes this comment in the article linked above:
"The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly." (see what if tools to deal with crisis don't work in this article)

In the IMF article, the language used by Deputy Director Min Zhu is more serious than I normally see. A "violent global sell-off" that would force the IMF to "act very fast" has to be noted. The also says that money moves very quickly around the world which just further emphasizes that it is important to stay alert and informed on a daily basis.
We live in interesting times for sure.

Added note 2-11-16: See followup articles on William White here and here.

Added note related to IMF Deputy Director Min Zhu: Jim Rickards posts the tweet just below on his twitter feed in answer to this tweet from a follower:

, if Zhu Min stating not enough liquidity, can IMF and print enough SDR to prop central banks and forego loss in confidence.

Here is Jim's reply tweet:

. Yes, but only in more extreme circumstances than we are seeing. See, my private conversation with Zhu Min in .

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