When the markets keep going up and to the right, it is easy to forget that most of the momentum in the markets is built on quicksand, or so says Ambrose Evans-Pritchard:
Interest rates are already near zero across the developed world, public debts are much higher than in 2007, unemployment is already at a post-EMU high in Europe and 27% in Spain. And HSBC says that they “see building evidence of a cyclical downturn.”
The last time, the BRICS were in the mid stages of a roaring boom, strong enough to weather the Lehman shock. China responded with what is probably the greatest loan spree in history – $14 trillion of extra credit in four years. None of this can be done again. The BRICS are now nursing post-bubble hangovers as well, and China’s Politburo has no intention of repeating what it deems to have been a serious error.
So if this is right and if OECD economies are headed for a cyclical downturn, then all this talk about “tapering” by the US Fed is just that – talk. The Fed is unlikely to risk premature tightening that might plunge the US economy back into a recession. And if reduced Chinese demand for commodities keep raw material prices down, then as Jefferies’ strategists said recently, its almost a global “goldilocks” from the Indian viewpoint.
Source: No saviour in sight as world credit cycle rolls over
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