While the world celebrates the political demise of the wicked witch of the west and braces for a Trump-style president, the real crisis is coming, in the form of a financial avalanche that could dump on everyone’s parade.
The warning signs have been up every mile for a long stretch now. The build up of pressure, and the creaking fault lines have been evident. The monetary policy has long been triggering what may prove to be an inevitable collapse…
And it may have been planned for the Donald Trump administration.
via Jim Rickards:
A new global financial panic will be one legacy of the Trump administration. It won’t be Trump’s fault, merely his misfortune.
Since 2008, the largest banks in the world are larger in terms of gross assets, share of total deposits, and notional value of derivatives. Everything that was too-big-to-fail in 2008 is bigger and exponentially more dangerous today.
The 2008 crisis was truncated with tens of trillions of dollars of currency swaps, money printing, and rate cuts coordinated by central banks around the world. The next crisis will be beyond the scope of central banks to contain because they have failed to normalise either interest rates or their balance sheets since 2008. Central banks will be unable to pull another rabbit out of the hat; they are out of rabbits.
In the next crisis, liquidity will come from the IMF, which has the only clean balance sheet remaining. The IMF will print the equivalent of $10 trillion in world money called special drawing rights. China and Russia will acquiesce in this liquidity injection provided it hastens the demise of the dollar as the benchmark global reserve currency.
Trump himself has long been wary of political meddling by the Federal Reserve, who could have used a rate hike or other measure to unleash bad news that could have hurt, or alternately helped, his chances of winning. He accused the Fed of waiting to burst the bubble so that it didn’t happen during Obama’s watch.
In the end, that didn’t happen, but the hot potato of the next financial crisis may still be dumped in Trump’s lap. It may figure into why he has been appointing so many Wall Street cronies in his administration… but it probably won’t mean that America gets to avert the crisis.
There is more potential in how to deal with the crisis after it happens. As Rickards explains:
Can Trump avoid this fate? Possibly.
Descaling finance means reinstating the Glass-Steagall and pre-Big Bang separation of deposit taking and securities underwriting. It means breaking up the big banks… Derivatives should be banned except for exchange-traded futures tied to specific assets used for commercial hedging. It’s time to close the casino.
Will Trump pursue these policies? It’s unlikely. Bank lobbyists rule Washington from the commanding heights; draining the swamp won’t change that.
If the bankers are getting close to Trump and taking over his cabinet and advisors, it is because they wish to benefit from the solution to economic catastrophe.
They have plans.