The following is our translation of an analysis by Ivan Danilov from RIA Novosti with commentary by Vince Dhimos.
Some readers may wonder what Danilov means by this:
“...fortunately, this time Russia is much less vulnerable to external shocks.”
He no doubt is referring to the fact that Russia is much less exposed to the dollar, having sold off most of its Treasuries and bought up tons of gold. The dollar has been losing its value at breakneck speed while gold prices keep rising. China has also been buying huge amounts of gold (although, due to its exports to the West, it has not been prudent for it to ditch its dollar reserves to the extent that Russia has).
US headed for "financial Armageddon"
October 24, 2019
Over the past few months, London has become not only the capital of a fun-filled political carnival called Brexit and street clashes between environmental radicals and the working class, whom the radicals denied access to commuter trains in the name of combating global warming.
Quite unexpectedly, London has become the capital of a negative attitude toward the future of the global financial system – and the proposition of its urgent reform. Even more unexpected is that the ideological epicentre of this nascent “movement to save the global financial system” was the Bank of England - one of the oldest central banks on the planet and the pillar of the current financial system, which representatives of this respectable organization now propose either reforming or dismantling.
The former head of the Bank of England, Baron Mervyn King, speaking at the IMF symposium, announced that the United States will face a “financial Armageddon” if the Federal Reserve does not have enough capacity to cope with a situation similar to the “toxic mortgage debt crisis” of 2008-2009.
Moreover, Her Majesty’s ex-banker described in the harshest terms the prospects of Western democracies if the financial system cannot cope with another global crisis. The British Guardian quotes the most striking passages from the "apocalypse from King": "Another economic and financial crisis could destroy the legitimacy of the democratic market system," he said. "By adhering to the new officially approved theory of monetary policy and pretending that we made the banking system safe, we are sleepwalking into this crisis."
It is significant that the current head of the Bank of England, Mark Carney, is not far behind his predecessor and is also trying to prove to his financial establishment colleagues that their actions will lead to disastrous consequences.
It seems that upon taking office, the head of the main financial structure of the United Kingdom either is suddenly gaining access to some information that’s turning him into a consistent pessimist and terrifying him, or, conversely, the position itself gives him the right and tribune to start telling the unpleasant truth.
Just two months ago, Carney was included in all the reports of Western news agencies for his statements about the risks of war and the global crisis caused by the global policy of low interest rates, as well as the need to dismantle the dollar financial system in order to save the world economy.
Reuters then wrote: “Carney warned that very low equilibrium interest rates have in the past coincided with wars, financial crises and dramatic changes in the banking system. As a first step in rebuilding the global financial system, IMF members could triple the Fund’s resources to three trillion dollars. The United States is the best alternative for countries that protect themselves (from economic difficulties. – author’s note) by accumulating huge amounts of debt. "Although such concerted efforts can improve the functioning of the current system’s threads, eventually a multipolar global economy will require a new IMS (international monetary system) to realize their full potential,” said Carney."
The statements of the leading British bankers can be attributed to the specific psychological atmosphere of London, which is really toxically affected by the massive political insanity associated with Brexit and the street fighting against global warming. However, voices that warn of the risks of the global economy are being heard not only from London. Well-known American consulting company McKinsey & Co previously “sent to the cemetery” 35% of the world's banks, saying that they will not be able to survive the next global recession.
At the same time, the chief economist of the analytical service of the Moody's rating agency just points out that the risks of the global crisis are now very high: "According to Mark Zandi, chief economist of Moody's Analytics, in the near future there is an extremely high probability that a recession could hit the global economy and politicians probably won’t be able to change this scenario."
However, a global recession may seem too abstract a risk. Meanwhile, the IMF and Bloomberg business news agency journalists found a specific risk that painfully resembles the “toxic bomb” that exploded under the global financial system in 2008-2009. The situation is so serious that the right-wing, politically correct and progressive columnist of the American agency Bloomberg wondered: “What's worse: climate change or securities secured by corporate loans (CLOs)?” The answer is disappointing: "With all due respect to Greta Thunberg, the corporate debt time bomb looks like a more inevitable threat. ... Of particular concern is the lending market for high-debt companies, which has already exceeded $ 1.2 trillion, and there are signs that that investors are becoming anxious."
To put it as crudely and simplistically as possible, it turns out that the last time loans were issued to American unemployed, beggars and speculators who had little chance of repaying them, the banks earned money by bundling these toxic loans into derivative financial instruments with increased profitability and selling them to investors around the world. The inevitable upshot of this story led to holes in the balance sheet of many banks (which did not manage to sell everything), as well as a chain reaction of defaults and bankruptcies and a reduction in economic activity, which, in turn, caused a global recession that affected China, Russia and other exporting countries.
Now history is repeating itself in much the same way. Only loans are no longer issued to hopeless individuals, but to the same hopeless corporate borrowers. If this financial bomb detonates, the effect will be either the same as in 2008, or worse, since the world economy has not fully recovered from the previous crisis. Mervyn King is right: the Western world is sleep walking toward a recurrence of the crisis.
Unfortunately, there is practically no chance that British bankers will be heeded in the high offices of Washington and Brussels, but, fortunately, this time Russia is much less vulnerable to external shocks. However, whether the American economy can withstand such a shock is a big question.