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Generational Dynamics Web Log for 30-Jun-2014
30-Jun-14 World View -- Nigeria's Boko Haram attacks a Church, but flees from bees and snakes

Web Log - June, 2014

30-Jun-14 World View -- Nigeria's Boko Haram attacks a Church, but flees from bees and snakes

Bank of International Settlements warns of 'euphoric markets' and high debt

This morning's key headlines from GenerationalDynamics.com

Nigeria's Boko Haram attacks a Church, but flees from bees and snakes
Bank of International Settlements warns of 'euphoric markets' and high debt

Nigeria's Boko Haram attacks a Church, but flees from bees and snakes

Terrorists, assumed to be Boko Haram, killed dozens of people on Sunday in an attack on three villages in northeast Nigeria, including one targeting worshippers at a church. That attacks took place only a few miles from Chibok, where Boko Haram abducted over 200 schoolgirls several weeks ago.

There are new terrorist attacks every few days in Nigeria, including gunfights, suicide and car bombs, and abductions of young girls and boys. The Nigerian army and government is viewed as helpless against the crimes of Boko Haram.

However, Boko Haram may be facing a new enemy, which they themselves fear may be supernatural. Some members of Boko Haram have been arrested while fleeing a forest hideout, because of what they believe are spiritual attacks from mysterious snakes and bees, which had killed many of their leaders. According to one of the fleeing terrorists:

"Most of us are fleeing because there are too many snakes and bees now in the forest. Once they bite, they disappear and the victims do not last for 24 hours.
We were told that the aggrieved people who had suffered from our deadly mission, including the ghosts of some of those we killed, are the ones turning into the snake and bees. Our leaders fled, too."

According to another member, "They believe the Chibok people are using juju to pursue us because of their children said to have been taken by our leaders." Reuters and Vanguard (Nigeria)

Bank of International Settlements warns of 'euphoric markets' and high debt

The Bank of International Settlements (BIS), which is the international institution that was created during the 1930s Great Depression to coordinate individual countries' central banks, issued its 2014 annual reports with warnings that the financial markets are too "euphoric" and have become detached from reality, particularly as regards the use of debt and quantitative easing.

According to the report:

"The global economy continues to face serious challenges. Despite a pickup in growth, it has not shaken off its dependence on monetary stimulus. Monetary policy is still struggling to normalize after so many years of extraordinary accommodation. Despite the euphoria in financial markets, investment remains weak. Instead of adding to productive capacity, large firms prefer to buy back shares or engage in mergers and acquisitions. And despite lackluster long-term growth prospects, debt continues to rise. There is even talk of secular stagnation."

According to the report, "Financial markets have been exuberant over the past year, at least in AEs, dancing mainly to the tune of central bank decisions. Volatility in equity, fixed income and foreign exchange markets has sagged to historical lows. Obviously, market participants are pricing in hardly any risks." This means that it's quantitative easing and "money printing" by the Fed and other central banks have fed into financial markets, removing any risks and creating imbalances, as long as the money printing continues.

The BIS attributes these problems to the fact that the world economy has been in a "balance sheet recession," a term that we discussed at length in 2009 in "Fiscal stimulus programs in 1930s and today", about the findings of Richard C. Koo, Chief Economist at Nomura Research Institute.

The report notes that public debt worldwide is now considerably higher than it was in 2007, before the current financial crisis began. According to the BIS, balance sheet recessions have two key features.

"First, they are very costly (Chapter III). They tend to be deeper, give way to weaker recoveries, and result in permanent output losses: output may return to its previous long-term growth rate but hardly to its previous growth path. No doubt, several factors are at work. Booms make it all too easy to overestimate potential output and growth as well as to misallocate capital and labour. And during the bust, the overhangs of debt and capital stock weigh on demand while an impaired financial system struggles to oil the economic engine, damaging productivity and further eroding long-term prospects.
Second, as growing evidence suggests, balance sheet recessions are less responsive to traditional demand management measures (Chapter V). One reason is that banks need to repair their balance sheets. As long as asset quality is poor and capital meagre, banks will tend to restrict overall credit supply and, more importantly, misallocate it. As they lick their wounds, they will naturally retrench. But they will keep on lending to derelict borrowers (to avoid recognizing losses) while cutting back on credit or making it dearer for those in better shape. A second, even more important, reason is that overly indebted agents will wish to pay down debt and save more. Give them an additional unit of income, as fiscal policy would do, and they will save it, not spend it. Encourage them to borrow more by reducing interest rates, as monetary policy would do, and they will refuse to oblige. During a balance sheet recession, the demand for credit is necessarily feeble. The third reason relates to the large sectoral and aggregate imbalances in the real sector that build up during the preceding financial boom - in construction, for instance. Boosting aggregate demand indiscriminately does little to address them. It may actually make matters worse if, for example, very low interest rates favor sectors where too much capital is already in place."

Generational Dynamics predicts that the global financial crisis is far from over, and that there is much worse to come. Bank of International Settlements

(Comments: For reader comments, questions and discussion, see the 30-Jun-14 World View -- Nigeria's Boko Haram attacks a Church, but flees from bees and snakes thread of the Generational Dynamics forum. Comments may be posted anonymously.) (30-Jun-2014) Permanent Link
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Generational Dynamics Web Log for 30-Jun-2014 30-Jun-14 World View -- Nigeria's Boko Haram attacks a Church, but flees from bees and snakes

Nigeria's Boko Haram attacks a Church, but flees from bees and snakes

Bank of International Settlements warns of 'euphoric markets' and high debt

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Generational Dynamics Web Log for 30-Jun-2014
30-Jun-14 World View -- Nigeria's Boko Haram attacks a Church, but flees from bees and snakes