What’s happening is a stark reminder of the inter connectedness of marketplaces, and the power of contagion. The evolving markets financial crisis UK of 2015 lastly reached the West. We are at this time living in the 2nd age of globalisation. The 1st age initiated in 1870 and finished in 1914. As is the case at present, it was considered by means of global financial linkages, technological innovation and strong economic growth.
The great indefinite is whether the 2nd age of globalisation will also come to decay in a new disaster equivalent in disruptive power to the 1st World War. Time will say.
Now, my dynamic systems study of globalisation using difficulty theory, and signs and warnings, says a disastrous financial collapse UK is just a problem of time.
Keeping fast of the catastrophe curve
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Simply the particular time and the exact snowflake that starts the avalanche remain to be seen. This type of systemic study is the main tool we use to keep investors in advance of the catastrophe curve.
For the duration of the expansion and growth stage of the 2nd age of globalisation, from 1989 to 2007, analysts never ceased to give importance to the power of interconnectedness and integration.
In Georgia Supply chains from a Wal-Mart to a factory in Guangzhou were constricted as a drum. Banks buy bonds in one market, ETFs and created derivatives in another marketplace, and sold them in a 3rd. The attentiveness of bank assets in fewer and fewer hands has sustained for decades without trouble from the 2007-2008 financial anxiety.
All of this was admired at the time as display how savvy and proficient the world had come to be. Actually, it was just a repeat of those financial and commercial situations important up to the catastrophic financial collapse of 1914.
Start a few months ago, numerous Wall Street analysts guaranteed us that China’s problems were China’s problems, and would not spread outer. They said us progress here was solid, and that emerging marketplace collapses in Brazil, Russia, Turkey, China, and somewhere else were because of local influences and situations that would not influence us.
At the time this Wall Street information was nonsense and that nonsense is at present seen for what it was. How could the world be strictly linked for the duration of the development phase, however somehow de-linked for the period of a contraction? It can’t.
The international slowdown has at present come home to roost in western marketplaces. I’ve reliably said that US growth was also weak to support an interest rate rise, and that Janet Yellen’s repeated threats to increase rates were only adding to the weakness.
The consequence has been a super-strong dollar, emerging marketplaces collapse, and lastly contagion back to the US. The warnings and indications were plain to understand.
And that’s why I’ve now been preparing for what’s playing out around us at present. You can quiet do the similar, there is time.
Recall the Asia crisis
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This is not the 1st time that an emerging markets financial crisis UK has found its method to our shores. In 1997 and 1998 the similar dynamic played out. That Financial crisis initiated in Thailand in June 1997 and very fast spread to its neighbours in Malaysia and Indonesia.
It demonstrated itself in the method of collapsing currencies and capital outflows, local stock markets, and the liquidation of numerous entrepreneurs and depositors who had borrowed in dollars and spent in local currency in the wrong belief that the local money was pegged to the dollar. One by one the dowels were broken and depositors wiped.
By the fall of 1997 that contagion spread to Korea. There were disturbances in Indonesia and Korea and blood in the streets – not the symbolic blood financial forecaster’s talk about, but actual blood as money demonstrators challenged soldiers in the streets.
A quiet period trailed in 1998. It seen as if the panic had been limited, but it had not existed. In August 1998 Economic distress exploded once more in Russia, which led conventional to the collapse of hedge fund Continuing Capital Management.
At the elevation of the LTCM panic, international markets were just hours left from a comprehensive shutdown. Just a last second $4 billion bailout, and 2 interest rates reduced by the Fed saved the day. The fear was over in October.
The fact is that the time measure of international financial contagion is not essentially limited to weeks or days. These panics can show out over years and months. What look like separate distant actions are really indications and advices of something much more unsafe to come?
History’s repeating itself
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Over again we are seeing this procedure. What initiated as a slowdown in China has at present spread to nearly all emerging marketplaces. Again, currency “pegs” are being cracked from China to Kazakhstan. Lastly the US marketplace is being affected as depositors dump unsafe assets such as stocks, and jump into extra liquid assets for example bank deposits, Treasury securities and money market funds.
However there are 3 big differences between today and 1998. The 1st is that markets are much more closely connected. In the globalisation game if 1998 was halftime, we are at present late in the fourth quarter. The 2nd difference is that the Fed has no area to cut interest rates as they prepared in 1998. The Fed floundered by not increasing rates in 2010 and 2011 while they had the chance. At present depositors must pay the price for that important blunder.
Even in the terrible situations, there are methods to profit if depositors understand the active forces and evade biased advice from Wall Street. The financial collapse of evolving marketplaces has just initiated.