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Former BIS Advisor And Central Banker Warns Entire World Is On Verge Of Another Bubble That "Could Burst With Disastrous Consequences"

Tyler Durden's picture




 

In an interview with Dow Jones, William White, who previously was an economic adviser to the Bank of International Settlements, and prior to that spent 22 years at the Bank of Canada, warned that the "massive infusion of credit" accompanying the sudden and dramatic ramp up in the printing of new money as a policy response to all problems, both within the developed and developing worlds, is now "manifesting itself in the sharp rise of asset prices in large developing economies, which could potentially become another bubble that will burst with disastrous consequences for the global economy." He added that the global economy is in a 'particularly dangerous' position that can only be corrected if the currencies of developing countries strengthen relative  to those of developed countries, according to William White, one of the few policy makers to correctly predict the onset of the financial crisis. Of course for that to happen, the much fabled decoupling needs to finally manifest itself, and for Jim O'Neill to be finally proven right. Of course, that won't happen. Which is why we ask, the next time there is a systemic wipe out, in addition to naturally eliminating the Fed, can the term BRIC, N-11, and all other such ridiculous acronyms, please be banned from usage in perpetuity?

More from Dow Jones:

In an interview with Dow Jones Newswires, White said that a new round of quantitative easing in the U.S. would carry big risks as long as there is no accompanying plan to cut the budget deficit.

Until June 2008, White was economic adviser to the Bank of International Settlements, and prior to that spent 22 years at the Bank of Canada. In the years leading up to the crisis, he repeatedly warned of the dangers of allowing rapid credit growth driven by widening global trade imbalances, and criticized central bankers who argued they were powerless to address the problem.

White is now chairman of the Economic and Development Review Committee, which advises the Organization for Economic Cooperation and Development. And he is also a member of the Issing Committee, which advises German Chancellor Angela Merkel on international financial stability.

Speaking Wednesday on the sidelines of a conference at Chatham House on the new global economic order, White said global imbalances persist, and are contributing to a continued buildup in credit that is now driving up asset prices in developing economies, and threatens to fuel high rates of inflation.

The underlying problem is that foreign-exchange rates haven't adjusted to the easing in monetary policy in most developed economies.

"All of that easing should have led to a general decline in their exchange rates relative to the exchange rates of the emerging markets," White said. "The emerging-markets response was essentially: if you can print the money to get your currencies down, we can print the money to prevent our currencies from going up."

"Equity prices are going through the roof, house prices are going through the roof, there's a lot of concern that the thing might just collapse," White said.

"In effect, if one characterizes the last 20 years as being a whole series of credit bubbles...the real fear would be that this is...another one, but it's not showing up in the countries that did the initial easing, it's showing up in the emerging markets and we have to wait and see how that whole thing will play out," White said. "We are at a particularly dangerous moment."

In other words, the developing world bubble, best manifested by China, and discussed extensively by such visionaries as Hugh Hendry (yet ridiculed by the like of Stpehen Roach) will need to find a way to sustain itself without the contribution of the US consumer. Can it do that? That's the $64x1012 question.

Is there a way to avoid a collapse, absent a reigning in of various central bank printers (a convenient question 45 minutes ahead of the FOMC decision). White thinks there may yet be hope. But it is tenuous:

But White said the realignment of foreign-exchange rates is needed to prevent a fresh crisis.

"By way of solutions, the first thing...would be that the exchange rates of emerging-markets economies ought to be allowed to move more freely upwards," he said.

There are risks for developing economies such as China in allowing their currencies to strengthen, in particular that even a modest appreciation would make those currencies more attractive to foreign investors, with the result that the appreciation would go further than intended.

"One of the worries they have is that once they start to let things move up in a relatively moderate way then you get the carry trade and momentum and the rest of it, and they end up making heir own internal situations worse," White said.

Needless to say, White does not think much of the imminent QE2 announcement:

White said that may be an unwise move, and contrasted the U.S. position unfavorably with that of the U.K. There is speculation among investors that the Bank of England will also restart its quantitative-easing program, but that is in the context of a government plan to eliminate the structural budget deficit over the next five years.

There isn't any such plan in the U.S.

"The arguments for continuing to do this are much stronger in the U.K. than they are in the U.S.," White said. "If you are going to have fiscal consolidation, which in the end everybody is going to have to have, then the argument for monetary easing of this nature is clearly much stronger than in a country where the deficit and debt structure seem out of control."

And White said that given the dispersal of fiscal powers in the U.S., it is unlikely that the government will soon develop a credible plan to cut its budget deficit.

And, in conclusion, White, fittingly, ties in monetary policy and total political chaos:

"The question when you start talking about fiscal policy in the States, is who are you negotiating with?" he said. "Are you negotiating with Barney Frank, are you negotiating with the head of what committee? The whole thing is worrisome, the apparent dysfunctionality of the U.S. government."

Our advice: buy a lot of popcorn, get an easy chair, pull your money from the market right now, and enjoy the show.

h/t London Dude Trader

 

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Wed, 11/03/2010 - 13:38 | 696341 hedgeless_horseman
hedgeless_horseman's picture

The waiting is the hardest part.

http://www.youtube.com/watch?v=uMyCa35_mOg

Wed, 11/03/2010 - 13:39 | 696345 SheepDog-One
SheepDog-One's picture

Yep, could be waiting for weeks, or only hours.

Wed, 11/03/2010 - 14:00 | 696405 No Mas
No Mas's picture

Yet another "verge"; yet another "edge".  Same thing I've been reading for the last year.

You will most likely be waiting for decades, one week at a time.

As for me, after the action at 1415 EST has abated, I will be heading out to run my '80 CBX around the mountains to enjoy the crisp fall air and the beautiful foliage.

Life is good Sheep-Dog.  Enjoy!

Wed, 11/03/2010 - 14:09 | 696425 More Critical T...
More Critical Thinking Wanted's picture
Former BIS Advisor And Central Banker Warns Entire World Is On Verge Of Another Bubble That "Could Burst With Disastrous Consequences" [...]

 

A bubble could burst - like gold's price dropping 2% today within 10 minutes?

How come that this protection against fiat currencies is dropping in price while the Fed is preparing to print another trillion dollars? Shouldn't gold's price rise massively, in reaction to coming hyperinflation, according to austrian economics forecasts?

Wed, 11/03/2010 - 14:10 | 696436 Herd Redirectio...
Herd Redirection Committee's picture

Gold competes against fiat, so of course some of the freshly printed fiat has to be used to short gold, don't you know?  Lets hope gold goes on a "20% off" sale!

Wed, 11/03/2010 - 15:24 | 696827 Foonatic
Foonatic's picture

Thank you for asking what was already on my mind.

Wed, 11/03/2010 - 14:07 | 696427 Herd Redirectio...
Herd Redirection Committee's picture

"if you can print the money to get your currencies down, we can print the money to prevent our currencies from going up."

I love how he makes it sound like a big surprise that all countries are devaluing their currencies together.  Hello!  What did you think all those meetings civilians aren't privy to are for?  This is a coordinated action. 

The US said it was going to devalue its currency drastically (in private, of course) and the obvious solution is for everyone else to follow suit.  All the repercussions can be kicked down the road until the US dollar finally gives up the ghost as world reserve currency.

When the collapse comes, we need to make sure WHATEVER the BIS and IMF and other central banks recommend, we do the opposite.  Do NOT let them bring in a fiat replacement as reserve currency!  Sound money!  That will be our chance.

http://psychonews.site90.net

Wed, 11/03/2010 - 13:41 | 696342 SheepDog-One
SheepDog-One's picture

WOW everything looks so full of bullishness! Oh wait, I meant bullshit.

Those on Wall St and DC know its very late in the 4th quarter, end games are being played right now.

Wed, 11/03/2010 - 14:05 | 696414 El Hosel
El Hosel's picture

    "Bubbles?"

 Cotton... has the Wood

 Waiting for the Meat to ....Wood

http://finviz.com/futures_charts.ashx?t=MEATS&p=w1

http://finviz.com/futures_charts.ashx?t=CT&p=w1

 

 

Wed, 11/03/2010 - 14:14 | 696453 hedgeless_horseman
hedgeless_horseman's picture

Rice and hogs are even harder today: http://finviz.com/futures_performance.ashx

Wed, 11/03/2010 - 13:38 | 696343 goldmiddelfinger
goldmiddelfinger's picture

SEnd the popcorn, easy chair analogy the way of "bitchez" BITCHEZ!

Wed, 11/03/2010 - 13:40 | 696347 SheepDog-One
SheepDog-One's picture

Whoa! Look at popcorn and recliner stocks just soared!

Wed, 11/03/2010 - 13:53 | 696354 dehdhed
dehdhed's picture

comment deleted

Wed, 11/03/2010 - 13:45 | 696355 Mongo
Mongo's picture

Where are those ninjas from japan that were suppose to exterminate all the elites... eh?

Wed, 11/03/2010 - 13:46 | 696357 Comrade de Chaos
Comrade de Chaos's picture

TD,

Breaking news and the QE number...please..

 

or a QE number poll, below 100, below 500, below 1000, below  10000 (ml) of one day worthless bubbles.

blowing, blowing, blowing - bubbles ! bubbles! bubbles!

Yo betcha we CAN !

Wed, 11/03/2010 - 14:07 | 696426 traderjoe
traderjoe's picture

$100 billion per month, with an unlimited commitment until the economy 'improves'. That's my GUESS. 

Wed, 11/03/2010 - 13:48 | 696359 plocequ1
plocequ1's picture

Come on Bitchez, Im sitting here waiting. I already started my survivor hybrid Garden. The tomatoes are almost ripe.

Wed, 11/03/2010 - 13:46 | 696360 John McCloy
John McCloy's picture

Fighting bubbles with bigger bubbles and as the entire sysytem begins to collapse once again they will ramp up the efforts even further. Destined to fail by design. The days of 10% interest rate and 80k dollar homes are long gone are the only thing that will cure this because everything since than has been false asset pricing using to debt and leverage to achieve those values.

Wed, 11/03/2010 - 13:52 | 696379 Manipulism
Manipulism's picture

This is from The TBAC (Treasury Borrowing Advisory Report)-via Denninger:

 

The presenting member stated that the market expects the Federal Reserve to purchase $100 billion per month, as well as $30 billion per month in MBS reinvestments.  This will total $1,560 billion in Treasury purchases over the next year.  The member stated, however, that market participants believe the Fed will leave the status of QE2 open ended, with purchases ultimately dependent on economic conditions.  The presenter also noted that the program should last six months to two years. 

Wed, 11/03/2010 - 13:53 | 696386 Tyler Durden
Tyler Durden's picture

We described all of this and more in great detail on September 26. Link

Wed, 11/03/2010 - 14:02 | 696412 Manipulism
Manipulism's picture

Okay. I missed that.

Wed, 11/03/2010 - 14:15 | 696462 hedgeless_horseman
hedgeless_horseman's picture

Please, try to stay caught up.

Wed, 11/03/2010 - 13:59 | 696398 Gimp
Gimp's picture

Problem is quite simple:

If US Government tax revenues are less than the monthly interest payments on all the funny money/paper being floated we are F**ked!

Wed, 11/03/2010 - 13:59 | 696399 EllisWyattOTC
EllisWyattOTC's picture

Ron Paul to Chair Monetary Policy Subcommittee

Wed, 11/03/2010 - 14:09 | 696433 cougar_w
cougar_w's picture

The problem with blowing bubbles is you don't provide people with a sense that they need to change their life styles or moderate their expectations for the future. We now have a full generation of Americans (maybe two generations) weened on 4%-GDP-growth-forever who have no mental concept of contraction. To them, the universe does not work that way. Of course, it does. When gravity reasserts itself these people are going to be out with ropes looking for someone to hang, someone who must have made a terrible mistake or deliberately undermined the Sacred American Way of Life (tm).

They will have our spineless politicians at their back goading them on, hoping to deflect all that anger away from themselves and onto some other hapless segment of society.

Very simply, this entire episode is an ongoing act of treason. The lies, untruths, misdirection and finally the baseless scapegoating will bring down America as a land of liberty and opportunity. Neighbors will turn against each other as everyone tries to deflect blame onto someone else. There will be no place to hide, then.

It isn't always about making money. Sometimes you want to save your country and preserve some kind of future for your children. We expect our leadership to demonstrate that kind of resolve. But the US Congress is filled with self-serving apparatchik gutting the dreams of the middle-class to line their pockets with gold. I hope their crimes find them ere the end. Regardless, history will be most unkind.

Wed, 11/03/2010 - 14:18 | 696488 Herd Redirectio...
Herd Redirection Committee's picture

Yep, it is much easier for people to go on believing that politicians are looking out for them, they are just not good at what they do.  Their heart is in the right place,  according to the man on the street.

Well, that little bit of faith will soon disappear, and hopefully people will come to realize they were being preyed on by these predators. 

Tell you what, the first 5 insiders that sell out the rest of them we will let them off with only 2 years hard labor.  The insiders that get fingered, they won't be nearly that lucky.

Wed, 11/03/2010 - 14:15 | 696463 breezer1
breezer1's picture

the only way out is for everybody to dance to the same tune. if we can't do that then we all collapse . what we will need ( beg for ) then is some white knight to ride in with a global plan promising fried chicken in every garage and a full cable package.

Wed, 11/03/2010 - 14:28 | 696541 Eternal Student
Eternal Student's picture

From TFA: "House prices are going through the roof".

Is this guy on crack or something? Where are housing prices going through the roof? It sure isn't in the U.S.

I ran into a friend recently. He leveraged up during 2003 and again in 2007, using the equity in his house to buy some beach front houses that he rents out. At the peak, his house had gone up from $600K to $1.6M, his first beachside house had gone from $1.2M to $1.8M, and he bought the second one at 1.9M.

Prices crashed, and he's now even with his home and the first beach rental. And the second one has dropped to $900K. With kids' college expenses, he's in the hole by over a million dollars. If rental rates drop, I expect him to go bankrupt.

And he's just one of several people I know personally who did this over the past ten years, looking to fund their retirements.

So show me where housing is going up.

Wed, 11/03/2010 - 14:37 | 696609 Canucklehead
Canucklehead's picture

I think what we are seeing is the roll-out of a true one-world-currency, the US dollar.  After being the world's policeman for many years, we are now seeing the world assume the costs of those activities.  Think of the depreciating dollar as a "pension benefit" for the United States economy.  The dominoes are lined up and a couple of geopolitical tipping points will set the game in motion.

Someone needs to pick up the slack and provide global consumption to sop up the global excesses.  No one wants that burden.  Best of luck competing with the United States.  If everyone is unable to cooperate, we end up with a zero sum game.

The emerging enonomies are the canaries in the coal mine.  At some point they will implode and require IMF support... US dollars.

Wed, 11/03/2010 - 14:59 | 696726 Oh regional Indian
Oh regional Indian's picture

It's the anti-gold play. Playn and symple.

Hidden within is the pro-oil play. 

Gold down 2% Oil up 2%.

Plus, they were bald faced enough to say this:

and measures of underlying inflation are somewhat low,

Go figure what their real intent is...

ORI

http://aadivaahan.wordpress.com

Wed, 11/03/2010 - 15:00 | 696736 Pat Hand
Pat Hand's picture

Enjoy the show?!?

it's really not going to be any fun at all, frankly.  It's the morbidly fascinating equivalent of watching a slow motion train wreck.

Wed, 11/03/2010 - 15:33 | 696862 SlorgGamma
SlorgGamma's picture

Emerging market bubbles, my foot.

The BRICs are done with the whole grinding-rural-poverty thing. Done. Finished. Had enough.

Their leaders are smart, motivated, and are investing their wealth in science, education and infrastructure, instead of property bubbles or bankster bailouts or criminal colonial wars.

They have tiny debt levels and massive reserves.

They don't depend on the US or its export markets anymore.

They're going to invest in their regional neighbors, and they (and their neighborhoods) are going to become despicably rich.

Wed, 11/03/2010 - 15:57 | 696953 Oh regional Indian
Oh regional Indian's picture

Au Contraire my friend...

http://aadivaahan.wordpress.com/2010/07/13/whither-india/

Here is how the BRIC's stack up...

Brazil : US Pawn. Politically totally controlled by same Z power. 

Russia: Controlled by the UK. Ever notice how Russian Oilygarchs always choose to go live in London. You think they like the weather, the warm beer perhaps, or a weakness for curry? 

India: Israel controlled. Mossad is everywhere. DeMobbed Israeli's run the drug trade. Also control the arms trade with India to a great extent (maybe be largest "defense" partner)

China: Independent Asian power. Watch her gobble up territory once the US's pretend concern for Taiwan mysteriously evaporates along with the dollar's impending crumble.

ORI

http://aadivaahan.wordpress.com

Wed, 11/03/2010 - 17:10 | 697155 sbenard
sbenard's picture

Dollar broke through and closed below the Bollinger Bands today. This breakout has a historical 86% probability of continuing if confirmed by further erosion tomorrow. Crude broke through the UPPER Boll Bands today, the highest price in six months. So did the Euro. Sugar hit a 30-year high. Cotton hit a new high.

 

Inflation -- BIG inflation -- is coming!

Wed, 11/03/2010 - 18:01 | 697310 Ned Zeppelin
Ned Zeppelin's picture

"....which could potentially become another bubble that will burst with disastrous consequences for the global economy."

Or, the author readily conceded, nothing of the sort will occur, and life will go on pretty much as usual. 

 

Wed, 11/03/2010 - 18:49 | 697415 mogul rider
mogul rider's picture

I like my precious over toilet paper any day.

Down 2% buy and buy every goddamn gold major you can get your hands on.

Up 2% buy and buy every goddamn gold major you can get your hands on.

Down 5% - buy and buy every goddamn gold major you can get your hands on.

Down 20% - back up the truck and buy every goddamn gold major you can get your hands on.

Down 30% - back up the bus and buy every goddamn gold major you can get your hands on.

Down 40% - rent a uhaul and buy every goddamn gold major you can get your hands on.

 

Next question

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