A Minsky moment's come again
Instead of only now and then,
As history sings in the rondo form
And one-off events become the norm.
The credit boom has turned to bust;
The worm has turned, there's now no trust.
Many lenders have been burned
'Cause simple lessons were not learned.
The world's investors, in search of yield
Averted their eyes to credit risk,
But now risk's off and money is fleeing
Countries where there is no skiing.
(And even some where there is, my Canadian friends remind me.)
The Loonie and the Renminbi,
Once ascendant, see money flee
And Ruble by ruble, Russia absconds
To havens safer like Treasury bonds.
Owing dollars to Brits and Yanks
Everyone rues when their currency tanks.
Mexicans, Thais and others had tried it,
That's how it works, but many denied it.
Don't blame China, it's not their fault,
They're only part of the global gestalt
Of credit creation that went ballistic,
Exceeding every past statistic.
Loan Loss Provisions
Banks are taking preemptive reserves
That frankly are less than prudence deserves.
Stress tests will show something closer to truth
About a boom that's long in the tooth.
After reserving, the banks will shrink,
Or else their capital plans will stink.
And shrinking banks will make few loans,
That's only prudent, please cast no stones.
That's the case for banks worldwide,
As credit quality takes a slide
And central banks enforce new rules
That counteract their policy tools.
With loan loss provisions on the rise,
Repayment, not credit, will be the prize,
Causing business all over to slow,
And even America will not grow.
(At least for a while.)
Supply and Demand
In the teens, I'll share my thoughts,
Just as in the boom of the aughts,
Central banks promoted debt
In search of demand for supply unmet.
However supply still bounded ahead
Leaving meager demand for dead,
And a shell-shocked, anxious world still faces
Supply too great in too many places.
Thus the price of oil has sunk
And with it drillers' debt is junk,
Woe to Brazil-and even Australia-
Sorry, Mate, nature's failed 'ya.
Many have big debts to pay
To people in countries far away.
Private debt just falls on investors
But public debt bleeds and festers,
Making populists attractive
To a world that's interactive.
Jingoism in the West is rife
Brandishing its no-nothing knife.
Recession this year, though it may be mild,
Will help politicians whose inner child
Cries out for protection from the world's woes
And whose sight ends at their nose.
Well folks, for that, I truly am sorry,
But better to say it than to be starry
And to pretend that all is well
When we are under the credit bust's spell.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.