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Rodney's Ramblings: A Wedge Of Black Swans

Rodney Gascoyne brings a sombre assessment of the World Economy.

A few years ago, Nassim Taleb wrote a great business book and called his events 'Black Swans', being unexpected wide ranging events that could and have had a devastating effect on the World Economy. The Global Financial Crisis (GFC) was one such happening.

Recently, in Asia and elsewhere, it seems that the bottom fell out of everything - in India and Indonesia, with collateral damage evident in Brazil, South Africa, and Turkey. Markets everywhere lost value and the volatility of just about everything took a big leap. Stocks and commodities down, oil still hovering over US$100, exchange rates fluctuating wildly, and gold volatile too. Uncertain times ahead, possibly another global financial crisis.

The news, of course, was driving all this mayhem:
* Political brinksmanship and military issues, between the US and Russia, over Syria and sundry problems;
* Other Middle East disputes with Iran, Lebanon, Iraq, Israel and Arab nationalists in Libya, Yemen, Egypt, Afghanistan and elsewhere, and the old nutmeg of North Korea;
* Monetary Policy shifts coming from the US Federal Reserve, causing chaos in emerging market currencies and economies, on withdrawal and tapering of monetary stimulus (QE), at their expense;
* Further issues over the US debt ceiling and efforts to reduce Government spending;
* EU and Euro uncertainty at possible extra bailouts for Greece and maybe others;
* Political fallout from a German election this autumn and a possible fall of the Italian Government;
* Plus fluctuating market reactions to geopolitical risks, are causing severe volatility in all asset classes, as Wall Street and others are uncertain what is to come, and
* Oil market disruptions from the same sources.

. Add to this, September and October themselves are often the most unpredictable months in markets worldwide.

QE3, or Quantitative Easing, has been an unmitigating disaster all round, started by the US Fed but followed too by major Central Banks, in liquidity wars over recent years, as I reported here, in February this year - http://www.openwriting.com/archives/2013/02/central_bankers.php#more

They have finally seen the errors of their ways, and with Bernanke’s departure early next year, are starting to think how to unwind the mess. This too will cause chaos, not least for emerging markets and countries, their asset values and currencies, as interest rates are forced to start rising, worsening debt repayments, even though unemployment figures have not yet fallen significantly. All this, while their governments stand by, doing nothing on the fiscal front, and now a touch of panic that the recovery may not be imminent as promised. Even the IMF is getting worried, as Managing Director Christine Lagarde has said, “Policies and policy coordination are not yet where they need to be. Failing to act at the global level, with each country playing its part, could put the global recovery at risk”. Its enough to make a grown man weep, when you think of the probability of international co-operation and unity at such a level.

Nassim, in his book was talking about past single events. Most of those we have had, have been solo, but what would happen if a flock (or wedge) of them started to gather and become active in some overlapping way? Some people think we could not adjust or cope with a few let alone a lot, all at once. Given the austerity actions in the EU and similar measures the US have been forced to take, to control and start to reduce their spiralling deficits and debt, how can you reasonably argue that a healthy recovery is around the corning? In the meantime, the flock looks to be heading in circles, maybe to come in to roost. Is this the time to head for the hills ourselves?


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