Conference Presentation, Fireside Chat, Interview
Between Debt and the Devil: Money, Credit and Fixing Global Finance
- Upcoming logistics include a forum concluding in five to six minutes, with the next session scheduled for Tuesday, December 1st featuring Arthur Brooks discussing The Conservative Heart, followed by an annual California summit on Tuesday, December 8th at the Ritz-Carlton in Marina Del Rey.
- Lord Adair Turner anticipates that the current regulatory framework is insufficient for post-2008 recovery, predicting income per capita in the US remains 15% below pre-crisis trends while European real wages and per capita income stay below 2007 levels.
- Structural economic risks identified include private debt-to-GDP ratios growing from 50% in 1950 to 170% by 2007 in advanced economies, with historical credit growth of 10% to 15% annually outpacing nominal GDP growth of 5%, a dynamic driven by rising inequality and unaddressed real estate cycles.
- Future monetary policy expectations suggest the global economy may face seven years of near-zero interest rates, with the Fed funds rate unlikely to return to 4% or 5%, and US rates capped at 2% by 2018, UK rates at 1.5%, Eurozone rates at zero or negative levels, and Japanese rates remaining at zero or lower.
- Central bank balance sheet strategies may involve permanent elevation similar to the post-WWII period, with the Fed retaining its balance sheet until inflation targets are met and potentially selling bonds later to constrain inflation, though quantitative easing has weak transmission to the real economy.
- Macro-economic outlooks forecast secular stagnation with inflation hovering near zero, severe Eurozone malaise compared to the US, and a prediction that Japan's debt monetization will be recognized within two to three years while overt money finance ideas gain traction over the next five years.
- Regulatory interventions are expected to address credit imbalances through loan-to-value and loan-to-income limits by the UK Financial Policy Committee, alongside calls for major bank leverage ratios of 5 to 1 (20% equity) rather than current 10% capital standards, noting that current risk weights on real estate loans are socially suboptimal.
- Structural critiques highlight that the abolition of Glass-Steagall expanded shadow banking and internal financial complexity, while capital markets fail to provide credit to SMEs, and bank balance sheets are now dominated by inter-bank trading contracts rather than traditional lending.
- Potential social and political consequences include instability in the Eurozone driven by high unemployment and migration if growth does not resume, and a prediction that Japan's corporate debt will fall from 140% to 100% of GDP by 2015 while public debt rises to 250%.
- Specific market predictions include a Chinese lending rate decline from approximately 4.25% to 2%, a current account surplus of 8.5% of GDP for Germany requiring matching borrowing by other nations, and a minor Fed rate increase in December followed by very slow subsequent hikes.