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News Items covers four subjects: (1) World in Disarray, (2) Financialization of Everything, (3) Advances in Science and Technology, and (4) Electoral politics, foreign and domestic. Six days a week, not Sundays. Weekdays by ~6:45am ET. Saturdays, sometime in the morning, usually.
(T)rue cataclysmic financial debacles tend to involve investment strategies and financial securities that everyone thought were boring. For example, triple-A rated bonds that turn out to be backed by financial junk, or bets that centuries-old relationships between two securities will always remain constant.
What else like this may be lurking out there? What is the next debacle lurking within some unlikely corner of the global financial system? We are likely going to find out soon.
The overarching theme at the moment is that the US Federal Reserve is tightening monetary policy remarkably aggressively to quell inflation. Other central banks are influential in their own countries, and in some cases internationally, and are also raising interest rates.
But none come close to the Fed in sheer global power. It is the US central bank’s interest rate hikes that have supercharged the dollar and led the greenback to swat aside most other major currencies, like sterling, the euro, the yen and the renminbi. It is the US central bank’s interest rate hikes that are starting to reveal myriad little cracks in the financial system.
The UK’s wounds are to a large extent self-inflicted, from longtime issues like the yawning current account and budget deficit, to recent “own goals” like last week’s “fiscal event”. But it was unquestionably more vulnerable because of the Fed — the entire world’s de facto central bank — ratcheting monetary policy tighter and tighter. (Source: ft.com)
2. The Economist:
The world’s financial markets are going through their most painful adjustment since the global financial crisis. Adapting to the prospect of higher American interest rates, the ten-year Treasury yield briefly hit 4% this week, its highest level since 2010. Global stock markets have sold off sharply, and bond portfolios have lost an astonishing 21% this year.
The dollar is crushing all comers. The greenback is up by 5.5% since mid-August on a trade-weighted basis, partly because the Fed is raising rates but also because investors are backing away from risk. Across Asia, governments are intervening to resist the depreciation of their currencies. In Europe Britain has poured the fuel of reckless fiscal policy on the fire, causing it to lose the confidence of investors. And as bond yields surge, the euro zone’s indebted economies are looking their most fragile since the sovereign-debt crisis a decade ago. (Source: economist.com)
3. Former US Treasury Secretary Lawrence Summers likened the array of risks confronting the global economy to the pre-crisis summer of 2007, with the UK’s current troubles just one example of potential breakdowns. “We’re living through a period of elevated risk,” Summers said. “In the same way that people became anxious in August of 2007, I think this is a moment when there should be increased anxiety.” The summer of 2007 saw the first signs of strains over a collapsing US housing market, eventually morphing the following year into the worst financial crisis since the Great Depression. (Source: bloomberg.com)
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