What Is Wrong With Markets? The Former Chief Economist Of The Bank Of International Settlements Knows...

Jan. 22, 2016 7:57 AM ETNEM, AEM, PAAS, GLD, AEM:CA, NGT:CA, PAAS:CA5 Comments
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Hebba Investments
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Summary

  • Former BIS Economist William White, who called the 2007-08 crisis, thinks we are in worse shape today and header for a larger fall.
  • Debts have grown and central bank QE has pulled forward much of the economic activity that it can and is no longer effective.
  • He thinks bondholders should prepare for a massive wave of defaults and there will be a large wealth transfer.
  • This could this be the reason for the markets drop in the beginning of 2016.

A recent interview with William White, the former head economist of the Bank of International Settlements (BIS) and current chairman of the review committee of the OECD (Organization for Economic Cooperation and Development), offers investors a very somber warning about the global economy.

In the interview with Ambrose Evans-Pritchard, he states:

"The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up. Emerging markets were part of the solution after the Lehman crisis. Now they are part of the problem, too.

Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief. 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."

The surprising thing is that this isn't some tinfoil hat wearing gold bug warning of a downturn WORSE than 2007, this is the former head economist of the BIS - the central bank of central banks. As Mr. Evans-Pritchard points out, the warnings have special resonance since Mr White was one of the very few voices in the central banking fraternity who stated loudly and clearly between 2005 and 2008 that Western finance was riding for a fall, and that the global economy was susceptible to a violent crisis.

He was right - and now he is even MORE worried.

Whenever someone calls for a downturn (or upturn) the key isn't the call, but rather, the reasoning behind the call. What is Mr. White's reason for his extreme pessimism? The massive accumulation of global debt as combined public and private debt has surged to all-time highs

This article was written by

Hebba Investments profile picture
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I'm an asset manager at Hebba Alternative Investments with a focus on real assets. In my articles I like to focus on events that affect the macro environment for assets (especially gold and silver), and also introduce readers to different metrics that I believe are under-utilized when assessing investments. On a more personal note, I'm a firm believer that there can be honesty, morality, and integrity in finance (though its rare) and i'd like to believe that I stick to those principles. Thus I never "pump and dump" stocks, I always list the securities we own, and I take it very seriously when I recommend a company - I do not want to see any investors/readers lose money because of my recommendations. I'm not always right with recommendations, but investors and readers can know that I always tell the truth (there is no deception) and I eat my own cooking as recommendations are either always owned OR the reason I dont own them is given (usually related to restrictions on stocks I can buy). Advising people in financial matters is a serious issue and integrity is much more important than money to me, but I do believe both can co-exist. You live with money, but after your death you only have your morality and integrity and thus i've made my choice between the two. A bit philosophical for a bio, but I dont think there's a better way to give investors my background than that. We offer investors a free weekly email list detailing gold, silver, and general economic markets which you can sign up for at: http://www.communitysynergy.com/subscribe/hebbainvestments_subscribe.html

Disclosure: I am/we are long SGOL, PAAS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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