Nouriel Roubini has been too right, for too long, for this not to be a clear warning. He taps 9 points to think about in Roubini Sees Yellow Weeds, Not Green Shoots but this one does it for me
Second, this is a crisis of solvency, not just liquidity, but true deleveraging has not really started, because private losses and debts of households, financial institutions, and even corporations are not being reduced, but rather socialized and put on government balance sheets. Lack of deleveraging will limit the ability of banks to lend, households to spend, and firms to invest.We have a public reserve at the end of the street which is a reserve because it is essentially a watercourse and in winter it gets sodden for weeks on end. Like now.
The grass is starting to turn yellow because there is just too much water and it is drowning. To me its the perfect symbol for what is happening in the global economy, as governments try desperately to pump some life into it with massive injections of adrenaline.
But it doesn't make any difference when the size of the global economy is only X, giving it enough food for 2X is not only meaningless, it could be drowning it.
And if, as Roubini says, the deleveraging has not, in fact, begun but the leverage has just been moved to the whole economy, we have not moved an inch beyond the original problem. There is a huge amount of theoretical value that has to be extinguished and until it is we will have no valid way to set real prices in the economy. Until we can set reral prices we have no way of knowing whether we can pay them.
We haven't started the work yet. Meanwhile, get a look at the latest from Dmitry Orlov