Dismal future: Greek unemployment is the highest in Europe, again

Greek Unemployment
July 2015 GREECE Greece unemployment was the highest in Europe for the month of June with 25.6% of its potential workforce unemployed, showed the latest figures released by Eurostat. The total number of unemployed people in Europe reached 23.3 million, with 17.8 million of them belonging to Eurozone countries. More than 4.7 million are young under 25 years old, with 3.2 million of them residing in Eurozone member-states. Germany enjoys the highest employment rate with an unemployment of just 4.7%. The Czech Republic ranks second with 4.9% unemployment and Malta third with 5.5%.
Greece is first from the bottom with 25.6% unemployment, followed by Spain with 22.5% and Cyprus with 16.2%. The average Eurozone unemployment rate remained the same as in the previous study, at 11.1%. Compared to June 2014, Eurostat found that unemployment dropped in 21 countries, increased in five and remained the same in France and Cyprus. –Greek Reporter
Posted in Austerity, Bank Run, Banking Crisis, Bankruptcy, Boom and Bust Cycles, Civil Unrest, Currency - Economic warfare, Economic Collapse, Economic Hardship or Loss, Financial Market plung, Geopolitical Crisis, Hierarchal Control, Hoarding Resources, Infrastructure collapse, New World Order, Protests, Struggle for Survival, The Pyramid Model, Troubled Banks, Unemployment rising, Unsustainable Debt Burden | Leave a comment

Disaster looming: Banks down to about $550 million dollars – enough cash on hand to last 1 hour

A Banks
July 2015GREECEGreek bank reserves are being rapidly depleted, which could plunge the over-indebted country into economic collapse. As creditors stopped funding the Greek banks, the country’s banking system has been facing a severe liquidity crisis. Even with the 60 euro (USD$66.00) daily withdrawal limit, bank machines are running dry. “We are reliably informed that the cash reserves of the banks are down to 500 million euros (USD$550 million),” said Constantine Michalos, head of the Hellenic Chambers of Commerce. “Anybody who thinks they are going to open again on Tuesday is day-dreaming. The cash would not last an hour.” (Source: The Telegraph, July 2, 2015.)
People in Greece have been struggling over the week after banks shut their doors on Sunday. With a daily withdrawal limit of 60 euros (USD$66.00) at bank machines, individuals are having a hard time getting by. If banks do not open, analysts believe economic activity will come to a halt. People will not have enough money for daily activities such as rent, utilities, or groceries. Businesses will not be able to pay for their supplies or their employees.
If you think what’s happening in Greece could never happen in America, think again. Only a few years ago, we came within hours of a full-blown stock market crash. In fact, it’s starting to happen again. –Profit Confidential
Finance Minister resigns: Greece’s outspoken finance minister has resigned, hours after voters backed his call to reject creditors’ demands for more austerity in a referendum. Yanis Varoufakis said it was felt his departure would be helpful in finding a solution to the country’s debt crisis. Eurozone finance ministers, with whom he repeatedly clashed, had wanted him removed, Mr Varoufakis explained. Meanwhile, global financial markets have fallen over fears that Greece is heading for an exit from the euro. The European Central Bank (ECB) is to discuss whether to raise its emergency cash support for Greek banks, which are running out of funds and close to collapse.
Greece’s Economy Minister, Georgios Stathakis, told the BBC the ECB had to keep Greek banks alive for seven to 10 days so that negotiations could take place. But even if the ECB continued to freeze the Emergency Liquidity Assistance (ELA) at €89bn (£63bn; $98bn), the current cash withdrawal and transfer restrictions on banks could stay in place until Friday, without any of them collapsing, he said. –BBC
Posted in Age of Decadence, Apathy, Anger, Mistrust, Disillusionment, Austerity, Bank Run, Banking Crisis, Bankruptcy, Boom and Bust Cycles, Civil Unrest, Currency - Economic warfare, Economic Collapse, Economic Hardship or Loss, Fiat Money Printing Fiasco, Financial Market plung, Financial market turmoil, Geopolitical Crisis, Greed and Corruption, Hierarchal Control, Hoarding Resources, Infrastructure collapse, New World Order, Political Corruption, Political turmoil, Protests, Social Meltdown, Squandered Resources, Struggle for Survival, The Pyramid Model, Troubled Banks, Unemployment rising, Unsustainable Debt Burden, Widening gap between rich and poor | 2 Comments

Financial markets rattled: Euro falls as Greece votes ‘No’ to bailout package

G Collapse
July 2015 GREECE The euro fell sharply on Monday (local time) in Asia-Pacific trading after Greeks overwhelmingly rejected austerity measures demanded in return for bailout money. The euro initially fell about 1.4 percent against its U.S. counterpart but trimmed its losses slightly to last trade at $1.0992. The Greek government said 61.3 percent of those voting in the referendum had backed the government and rejected the bailout conditions. “This does two things: it legitimizes the stance of the Greek government and it leaves the ball in Europe’s court,” ANZ Bank analysts said in a note. “Europe either folds or Greece goes bankrupt; over to you Merkel.” The next step was unclear, with Greek Prime Minister Alexis Tsipras saying his government had a mandate to reach a viable solution and was ready to resume talks, while Germany and France were seeking a euro zone summit on Tuesday.
The first test looked to be whether the European Central Bank (ECB) would maintain emergency funding for Greek banks at the current restricted level. “The ECB will likely keep this open until it gets clarity from political leaders. In any case, markets are in for a period of uncertainty and protracted negotiation,” said Bank of New Zealand currency strategist Raiko Shareef. The “no” vote triggered a rush to safety with the yen being the main beneficiary, with the euro down 1.6 percent against the yen to 134.24 yen, while the U.S. dollar traded at 121.94 yen from 122.80 on Friday.  The New Zealand and Australian dollars, often taken as a proxy for risk appetite, also trimmed early losses, but the kiwi was down 0.5 percent, just above a five-year low at $0.6645, while the Aussie was down 0.5 percent at $0.7473, just above a six-year low. –CNBC
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Everything counts in large amounts: Greek banks prepare plan to raid deposits to avert collapse

Bank Greece
July 2015ATHENS, GreeceGreek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, according to bankers and businesspeople with knowledge of the measures. The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000 (Dh32,633), sketch out an increasingly likely scenario for at least one bank, the sources said. A Greek bail-in could resemble the rescue plan agreed by Cyprus in 2013, when customers’ funds were seized to shore up the banks, with a haircut imposed on uninsured deposits over €100,000. It would be implemented as part of a recapitalization of Greek banks that would be agreed with the country’s creditors — the European Commission, International Monetary Fund and European Central Bank. “It [the haircut] would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout program,” said one person following the issue. “This is not something that is going to happen immediately.”
Eurozone officials said no decision had been taken to wind up any Greek banks or initiate a bail-in of depositors, a process that would be started by the ECB declaring the banks insolvent or pulling emergency loans. Andrea Erri, chair of the European Banking Authority, said on Saturday he was not aware of any plans to introduce haircuts to retail depositors of Greek banks. Greece’s banks have been closed since Monday, when capital controls were imposed to prevent a bank run following the left-wing Syriza-led government’s call for a referendum on a bailout plan it had earlier rejected. Greece’s highest court rejected an appeal by two citizens on Friday who had asked for the referendum to be declared unconstitutional. Depositors can withdraw only €60 a day from bank ATM cash machines, while requests to transfer funds abroad have to be approved by a special finance ministry committee in co-operation with the Greek central bank.

Bank 2

Two senior Athens bankers said the country had only enough cash to keep ATMs supplied until the middle of next week. This followed the ECB’s decision this week not to increase Greece’s allocation of emergency liquidity assistance after the bailout program ended on June 30. The outcome of Sunday’s referendum was to have determined how quickly Greece wraps up a new bailout agreement with creditors, a top Greek banker said. “The solvency of Greek banks is not currently an issue, but obviously the banks will be affected by how soon the country enters a new program,” the same banker said. Greek deposits are guaranteed up to €100,000, in line with EU banking directives, but the country’s deposit insurance fund amounts to only €3 billion, which would not be enough to cover demand in case of a bank collapse.
With few deposits over €100,000 left in the banks after six months of capital flight, “it makes sense for the banks to consider imposing a haircut on small depositors as part of a recapitalization… It could even be flagged as a one-off tax,” said one analyst. Yanis Varoufakis, Greece’s finance minister, on Saturday accused the country’s creditors of trying to “terrorize” Greeks into accepting austerity. “What they’re doing with Greece has a name: terrorism,” he told Spanish newspaper El Mundo. “Why have they forced us to close the banks? To frighten people.” –Gulf News
Posted in Age of Decadence, Apathy, Anger, Mistrust, Disillusionment, Austerity, Bank Run, Banking Crisis, Bankruptcy, Boom and Bust Cycles, Civil Unrest, Currency - Economic warfare, Depression and Anxiety, Economic Collapse, Fiat Money Printing Fiasco, Financial Market plung, Financial market turmoil, Geopolitical Crisis, Hierarchal Control, Hoarding Resources, Infrastructure collapse, New World Order, Political Corruption, Political turmoil, Protests, Resource War, Social Meltdown, Squandered Resources, Struggle for Survival, The Pyramid Model, Troubled Banks, Unemployment rising, Unsustainable Debt Burden, Widening gap between rich and poor | 3 Comments

Contagion fears: Greece poses risk to UK financial system, says Bank of England

Bank Of England Utopa the Collapse
July 2015 LONDONThe precarious position of Greece could pose a risk to the financial system, the Bank of England has warned, as it pledged to intervene to insulate the UK from potential shockwaves caused by any escalation in the eurozone crisis. Setting out its half-yearly assessment of the risks to the UK financial system, the Bank said the outlook remained unchanged over the last six months until the last few days, when Greece closed its banks and then failed to repay a €1.5bn (£1.1bn) loan to the International Monetary Fund. On Wednesday, the Bank said it had been working with the Treasury, the Financial Conduct Authority and European counterparts to put in place contingency plans to tackle the situation in Greece, which has crystallized in recent days but been a focus for policymakers for the last five years.
“The UK authorities will continue to monitor developments closely and will take actions required to safeguard financial stability in the United Kingdom,” the Bank of England governor, Mark Carney, said. He has attended Cobra meetings to discuss the Greek crisis and made prepations for a possible exit of Greece from the euro. The financial stability report was compiled after the latest quarterly meeting of the Bank’s financial policy committee (FPC), set up after the banking crisis to try to look for potential bombshells that could affect the UK’s financial stability. The FPC met last week – before Greece missed its crucial debt repayment – but at the time had regarded the risk from Greece to the financial system as “particularly acute.”
The Bank is concerned that the Greek situation could force investors to reconsider the risks of other investments they hold, which in turn could dry up liquidity in the markets, making it harder to buy and sell financial products. “The situation remains fluid and it is possible that a deepening of the Greek crisis could prompt a broader reassessment of risk in financial markets,” Carney said. With a referendum being called in Greece on Sunday to vote on austerity measures associated with the bailout, Carney said: “It’s important the consequences of the vote are known as much as possible in advance.”
The Bank of England found direct exposures of UK banks to Greece were very small, but exposures to peripheral eurozone economies was more significant, amounting to 60% of the major banks’ crucial capital ratios. Carney said the four Greek banks in the UK were “tiny” and indicated they had taken steps to hold more liquid assets. The Bank said officials were keeping “in close touch” with the Greek banks in the UK as well as HSBC which has operations in the country. In terms of China, Hong Kong and other emerging markets the exposure was even higher, at three and a half times the capital buffer. “A sharp slowdown in China would be likely to have significant spillovers to the global economy,” the Bank said. –The Guardian (excerpt)

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Is China’s stock market bubble bursting? Billions wiped off share values in June – the shock is only just beginning

China End
July 2015CHINA “Before leaving the world, I wish to say I concede defeat. With capital of 1.7 million yuan and four-times margin, I bet the entirety on China Railway Rolling Stock Corp (CRRC). I have only myself to blame, nobody else.” So reads the suicide note left by a 32-year-old stock market speculator from Hunan who jumped to his death in early June after losing his life savings within two days. The man took out a huge loan worth four times his own capital from a ‘grey market’ lender. Believing the government’s gargantuan ‘One Belt, One Road’ plan was a sure fire bet, he staked everything on the state-owned railway carriage builder and lost.
So-called margin debt has exploded in the past year, fuelled by China’s major banks that have all rolled out ‘products’ to feed this monster. This has been an important factor driving the unprecedented stock market boom of the past 12 months which long ago assumed bubble proportions. Recently, the Chinese regime has become nervous about the extent of margin debt and its potential to cause an even bigger market meltdown. The brokers and loan sharks that finance margin trading can call in the loans when borrowers incur losses, forcing them to sell more shares which acts to magnify a selloff in the market.
China’s share prices have begun to recoil on the growing realization they have hit extreme levels and this turnaround has been reinforced by the government’s crackdown on margin trading in recent weeks, which by reducing liquidity in the market has punctured the bubble. The collapse in share values since the middle of June – falling almost 19 percent in two weeks – was the worst since 1996. Only the Greek stock market was more volatile in this period. According to the Wall Street Journal China’s market correction “has wiped away US$1.25 trillion in market capitalization, an amount roughly equal to the size of Mexico’s economy.”

The bubble waiting to burst

In early June, China’s stock markets hit a 7-year high with the Shanghai Composite Index passing the 5,000-level for the first time since January 2008. This was applauded as the biggest ‘bull run’ in the history of any stock market with the larger Shanghai stock market rising 150 percent in one year and Shenzhen almost tripling. The combined value of the companies listed in Shanghai and Shenzhen soared to over US$10 trillion – second only to Wall Street. “No other stock market has ever grown this much in dollar terms over a 12-month period,” declared the Washington Post.
Many commentators, including Socialist magazine, predicted that this was a bubble waiting to burst. The performance of the stock market is completely at odds with the real economy – of production, foreign trade, investment and consumption – which continues to slow rapidly. The National Academy of Economic Strategy (NAES), a government think tank, is forecasting second quarter GDP growth of 6.9 percent – below the government’s 7 percent target. Many independent forecasters believe the real level of growth is lower still. –China Worker
C Market Crash
Suicidal tendencies and market crashes
The important question to be answered is whether a depression of the magnitude of 1930s is inevitable, or rather if the global economy can afford one of those severities. The Great Depression resulted in massive levels of poverty, hunger, unemployment and political unrest. With the October 1929 stock market crash thousands of investors lost nearly the entire value of their investments. In just a year after the crash, 23,000 people committed suicide in the US. More recently, about 5,000 suicides in the U.S. were reportedly attributed to the Great Recession of 2009.  –Indian Express
July 2, 2015 – A woman jumped to her death inside Shanghai’s IAPM mall this morning, and while the case is still under investigation, it’s been speculated that the apparent suicide was related to China’s volatile stock market taking another dive. Shanghai Composite, China’s biggest stock, dropped five percent within just an hour and reached a three month low earlier today. Another suicide believed to be related to the stock market crash was reported in Shenzhen yesterday. –Shanghaiist
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Hopelessness and despair, as Greece slides into a black hole: nearly 50% of Greeks already living below poverty level

 G T
June 2015GREECE By scale alone, the financial crises rattling Greece and Puerto Rico seemingly have little in common. Greece, which late Tuesday defaulted on its loan to the International Monetary Fund, has about $263 billion in outstanding debt, while the Commonwealth of Puerto Rico has just $72 billion on the books. Yet their plights reveal striking parallels both in what led to the present turmoil and in the debilitating effects. Certainly the two are united in one way: The slow-burning decline in their respective economic well-being has long been readily apparent to anyone paying attention. Similarly, the powers that be worsened the slide by continuing to pile on more debt even as conditions in Greece and Puerto Rico deteriorated, while legal restraints narrowed the range of possible remedies.
The outcomes, too, show a remarkable — and devastating — similarity. Some 44 percent of Greeks live below the poverty line today; in Puerto Rico the figure is 45 percent. In both bases, the backdrop is a battered labor market that leaves little opportunity for younger people. Labor force participation — the share of the working-age population either in a job or looking for work — in both regions is alarmingly low, with the World Bank reporting just 53 percent of Greece’s potential workforce on the job, while in Puerto Rico is only 43 percent. That compares with just under 63 percent in the U.S., where economists express concern about the sharply lower participation rate since the Great Recession. For broader geopolitical context, consider that workforce participation in war-torn Afghanistan is 48 percent.

Pray this never happens to your country

The diminished opportunity in Greece and Puerto Rico is causing an exodus of young people, with hundreds of thousands moving abroad in hopes of finding work so they can send money home to their families. That has further eroded the tax base of both jurisdictions, undermining economic growth and making it harder to service government debt. The mass departure of young Greeks and Puerto Ricans also has left a greater percentage of older residents more likely to require public assistance, swelling the debt load. But economic misery is not all that Greece and Puerto Rico share. Possible ways to alleviate that misery are also similarly limited. Unlike a municipality like Detroit, neither government can take refuge in bankruptcy protection to help stop the downward spiral.
James Henry, a senior fellow at Columbia University’s Center on Sustainable Investment, said that bankruptcy could help get Greece and Puerto Rico off the debt treadmill and on the path to recovery. “We have bankruptcy proceedings for people and corporations, but not for sovereign nations like Greece or territories like Puerto Rico,” he said. “The eye of the bankruptcy court is on what works. If we put people in debtors’ prison, they can’t pay off their debts. We give them a clean slate so they can become productive again.” Henry thinks European central bankers and officials, who have offered only minor concessions in the months-long bailout talks with Athens, are determined to make an example of Prime Minister Alexis Tspiras. –CBS News
collapseSeven years of an economic crisis has left debt-stricken Greece with the highest level of unemployment of any developed economy. Homelessness is rampant. The suicide rate increased by 40 percent in the first half of 2011 alone. Many Greeks are living below the poverty line, and children and families make up a significant proportion of those most vulnerable as a result of brutal austerity measures. This is well-known and well-documented. Yet one fallout of Greece’s mass unemployment is largely concealed – the rising rate of women turning to sex work to make ends meet. There are reportedly around 18,000 sex workers in Greece, up from the estimated 17,000 in 2012. According to the Greek Centre for Social Sciences and Panteion University, the number of people selling sexual services in Greece has soared by 150% during the crisis – driven by those desperate to put food on the table after the nation’s financial meltdown.
“Over the last few years, Athens has struggled with an increasing number of people who have lost their jobs, been evicted from their homes, and affected by poverty and social exclusion,” says Eva Cossé, senior research assistant for the organization Human Rights Watch. “As austerity measures have been carried out, HIV, suicide, and depression have increased and hundreds of thousands of people have been locked out of the health system altogether,” Cossé says. “Some live on the streets and others go there to find drugs or to find clients for sex work.” Although unemployment rates edged down from 27.2% to 25.4% in February, many women have been left with no other choice than sex work. Many ask for just a few euros in exchange for services, having been forced to drive down their prices because of competition. Others offer unprotected sex to boost their income. –IB Times
Posted in Austerity, Bank Run, Banking Crisis, Bankruptcy, Boom and Bust Cycles, Civil Unrest, Currency - Economic warfare, Depression and Anxiety, Economic Collapse, Economic Hardship or Loss, Fiat Money Printing Fiasco, Financial Market plung, Financial market turmoil, Geopolitical Crisis, Greed and Corruption, Hierarchal Control, Hoarding Resources, Infrastructure collapse, New World Order, Political Corruption, Protests, Resource War, Social Meltdown, Squandered Resources, Struggle for Survival, The Pyramid Model, Troubled Banks, Unemployment rising, Unsustainable Debt Burden, Widening gap between rich and poor | 3 Comments

Greece defaults on loan obligations – largest national default in history

Greece Defaults
July 2015 GREECE Cash-strapped Greece missed a 1.5 billion euros ($A2.17 billion) payment to the International Monetary Fund as last-ditch efforts to find a compromise with official EU lenders came to naught. The missed payment made Greece the only developed country ever to fall into default with the global crisis lender and underscored the utter failure of more than five months of efforts to reshape the rescue of the country’s economy and prevent it from dropping out of the eurozone. The future of efforts to restore its finances and meet creditor demands for reforms were in question, with fresh proposals from Athens spurned on Tuesday as the country moved toward a referendum Sunday on EU bailout offers. IMF spokesman Gerry Rice confirmed that the payment due in Washington at 2200 GMT on Tuesday (0800 Wednesday AEST) had “not been received.”
“We have informed our Executive Board that Greece is now in arrears and can only receive IMF financing once the arrears are cleared,” he said in a statement. Greece had made a last-minute request for the IMF to extend the payment deadline, something the crisis lender has only done twice before, in 1982 for Nicaragua and Guyana. Rice confirmed the request but the board did not rule on it. The request “will go to the IMF’s Executive Board in due course,” he said. But that would not negate the fact that Greece has pushed into uncharted waters in its five-year-old bailout. As the IMF froze its loan program to the government, the European Commission-European Central Bank assistance also expired on Tuesday. That means the lenders the country has relied on since 2010 to balance its finances have cut it off, heightening expectations that it will also default in July on payments to the EU and possibly make a tumultuous exit from the eurozone.
When EU and Greek officials could not reach agreement over the weekend on an extension, Athens broke off and announced the referendum, asking Greeks to say if they want the EU deal being offered, which includes cuts on pensions and other tough reforms. With the call for the referendum, and Prime Minister Alexis Tsipras urging Greeks to vote “no” on a deal he said would humiliate the country, the ECB froze its essential liquidity lifeline to Greek banks, and Greece implemented capital controls and shut banks for a week to stanch any further gush of money from the country. Rating agencies further downgraded the country’s debt, now worth nearly 180 per cent of its GDP. And they said that after having received two bailouts worth 240 billion euros, the country’s economy is now expected to contract again this year. Unemployment has more than doubled since 2009 to 25.6 per cent and pensions and benefits were roughly halved between 2010 and 2014. –9News
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World slipping into Great Depression-like economic problems warns former IMF Chief Economist

Twilight Zone
You are about to enter a nightmare where something invisible called ‘credit’ runs the world and money is printed out of thin air – where financial markets rise frantically based on a simple whisper or innuendo or plunge on the latest fears – where men manipulate wealth and your perception of it – You are about to enter that gray foreboding unregulated region of space we most commonly refer to as The Twilight Zone.
June 2015ECONOMIC NEWS The global economy is “slowly slipping” into Great Depression-like problems of 1930s, RBI Governor Raghuram Rajan has warned, asking central banks from across the world to define “rules of the game” to find a solution. Rajan, who is among the few to have predicted the 2008 financial crisis, said the problem was a “broader” one and for the entire world — not just for industrial countries or emerging markets. The former IMF Chief Economist, who has earlier warned against competitive monetary policy easing by central banks globally, said the situation is different in India on this front and RBI remains more focused on bringing down the lending rates to spur investments. “We need rules of the game in order to effect a better solution. I think it is time to start debating what should the global rules of the game be on what is allowed in terms of central bank action,” he said at a London Business School (LBS) conference here last evening.
“I am not going to venture a guess as to how we establish new rules of the game. It has to be international discussion, international consensus built over time after much research and action,” the Reserve Bank of India Governor said. “But I do worry that we are slowly slipping into the kind of problems that we had in the thirties in attempts to activate growth. And, I think it’s a problem for the world. It’s not just a problem for the industrial countries or emerging markets, now it’s a broader game,” he observed. The Great Depression refers to a period of severe global economic downturn in the 1930s, which had affected almost all countries across the world. It started in 1929 and continued till late 1930s and still remains the longest and most widespread period of the global economic depression. Asked specifically about interest rate cuts from an Indian perspective, Rajan said: “I try to shut out market reactions as far as I can. We (India) are still in a situation where we have to spur investment and I am worried more about that.
“So I shut out the asset price reaction and think more about — is this going to bring bank lending rates down and therefore channel cheaper credit into firms and then they will invest. However, the issue gets much more complicated for other markets.” The RBI Governor was addressing the ‘Perspectives’ conference organised by AQR Asset Management Institute at the LBS campus on the topic – ‘The Central Banker Perspective.’ Rajan highlighted the tremendous pressure for growth which in turn creates enormous pressure on central banks to take action. He stressed that seven years on from the economic crisis of 2008, the central banks have done a lot during as well as post-crisis. Way back in 2005, Rajan during his tenure at IMF wrote a research paper on “Has Financial Development Made the World Riskier,” where he had warned that the developments in financial sector has made the world “much better off.”
But this development has also led to emergence of a whole range of new kinds of intermediaries and “under some conditions, economies may be more exposed to financial-sector- induced turmoil than in the past,” he wrote. Speaking here at LBS event, Rajan said: “The question is are we now moving into a territory in trying to produce growth out of nowhere or we are in fact shifting growth from each other, rather than creating growth. “Of course, there is past history of this during the Great Depression when we got into competitive devaluation,” he warned. The global GDP is estimated to have fallen by over 15 percent in the first four years of the Great Depression, which is said to have begun in the US with a ‘Black Tuesday’ stock market crash on October 29, 1929. 
The global trade is estimated to have more than halved during that period, while almost all countries had to suffer decline in tax revenues, corporate profits and personal income, while unemployment had hit the roof with widespread impact on industries as well as agriculture. Rajan also highlighted the need for countries to work together on capital flows. “We have to become more aware of the spill-over effects of our actions and the rules of the game that we have — of what is allowed and what is not allowed — needs to be revisited,” he said. –Money Controls
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Out of ammunition: the world is defenseless against the next financial crisis, warns BIS

Economic Storm
June 2015ECONOMIC CRISISThe world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crises, the Bank of International Settlements has warned. The so-called central bank of central banks launched a scathing critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies. These low interest rates have in turn fuelled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates. Claudio Borio, head of the organization’s monetary and economic department, said: “Persistent exceptionally low rates reflect the central banks’ and market participants’ response to the unusually weak post-crisis recovery as they fumble in the dark in search of new certainties.
“Rather than just reflecting the current weakness, they may in part have contributed to it by fuelling costly financial booms and busts and delaying adjustment. The result is too much debt, too little growth and too low interest rates. “In short, low rates beget lower rates.” The BIS warned that interest rates have now been so low for so long that central banks are unequipped to fight the next crises. “In some jurisdictions, monetary policy is already testing its outer limits, to the point of stretching the boundaries of the unthinkable,” the BIS said. Policymakers in the eurozone, Denmark, Sweden and Switzerland have taken their interest rates below zero in an attempt to support their economies, contributing to a decline in bond yields.

Bond Yields

The decline of bond yields into negative territory is the “most unusual development” of the last year. Extraordinarily low interest rates are not a “new equilibrium” said Jaime Caruana, general manager of the BIS, rejecting the theory of so-called “secular stagnation” which some economists blame for the continued decline in global lending rates. “True, there may be secular forces that put downward pressure on equilibrium interest rates … [but] we argue that the current configuration of very low rates is neither inevitable, nor does it represent a new equilibrium,” he said. Mr Caruana said that interest rate hikes “should be welcomed”, as global economies have started to grow at close to their historical averages, and a slump in oil prices has provided the global economy with a boost.
The BIS report described the threat of a new bust in advanced economies as a “main risk”, with many reaching the top of the economic cycle.  The economies worst hit by the last crisis are now suffering the costs of persistent ultra-low rates, the organization said, which could “inflict serious damage on the financial system”, sapping banks and weakening their balance sheets and their ability to lend. And the continued misallocation of resources during busts prompted by central banks’ rock-bottom interest rates has also hammered productivity growth, the BIS said, as a prolonged reliance on debt had been used in its place.
This problem is compounded as the world’s populations continue to age, the organization warned, making debt burdens harder to bear. Yet politicians have relied too much on temporary growth boosts by using debt, rather than making painful choices, said the BIS. Mr Caruana said that during booms, workers and capital are shifted to slow-growing sectors, with a “long-lasting negative” impact on productivity growth. “Misallocated labor needs to move from these sectors to other parts of the economy,” he said. The BIS said that the current turmoil in Greece typified the kind of “toxic mix” of private and public debt being used as a solution to economic problems, rather than making the proper commitment “to badly needed” structural reforms. –Telegraph
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