Quite sometime ago, SocGen's Albert Edwards projected that the S&P 500 could crash 75% from its high and immediately drew the ire from many economists, analysts and "investment gurus", some comments of which were bordering from pure sarcasm to accusing him of sheer lunacy.
Seeing the many distress in EU banks, the impact of the fed's policy of error (by increasing the interest rate in the midst of a global slowdown), the ECB and BOJ's NIRP, China's looming debt crisis, Edwards could be nearer to the truth than many who thought otherwise.
Edwards only mistake was singling out China as the cause of a global collapse. China is not the cause. The cause is the huge monetary base and ZIRP unleashed by the US, followed by the ECB and BOJ's QE. China responded in the only way it could by reducing the interest rates and the reserve ratio, which push the Yuan lower against the US$. These actions by the central bankers have enabled credit growth to increase to dangerous levels, unseen since 2008.
I have mentioned time and again that the best barometer of global trade is none other than the Baltic Index which has just plunged 97% from its highest point and is now loss than 300 points.
And today Maersk reported that its 2015 profit fell a whopping 84% vs 2014! It the economy is on a steady growth path as projected by the Fed and major banks, there should be a vibrant container shipment of goods. Truth is, both imports and exports are falling in the major economies of the world.
To surmise a structural failure in the world's financial system doe snot require rocket science. One only ha sto look at the global debt to GDP level and all will be revealed. How can a global economy of US$70T support a global debt that is more than US$230T. As the global slowdown becomes more prevalent the ratio of global debt to global GDP will increase, putting the world financial system into greater risks.
The EU domino has fallen. Japan is following suit. The next one will be China. With a total debt to GDP of 346% it is a nightmare waiting to happen.
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