Many people have pointed out instabilities in the (financial) system and associated political and international arrangements. Since 2008, lots of money has been spent/printed, and lots of arrangements have been made to keep the system running, but it is doubtful that the instabilities have indeed been dramatically reduced system-wide. If they haven’t, how would we know it was time to worry?
I’ve always liked the sandpile model: As anybody knows who has ever played with the sand on a beach, you can trickle sand grains on a pile until a certain point, when suddenly, some — largely unpredictable — part of the sandpile collapses. Sometimes it’s just a little avalanche that’s localized and stops quickly. Sometimes a big part of the mountain breaks off. When several little avalanches happen in not-too-distant parts of the pile, you know that a big thing is about to happen.
I believe it’s the same thing about financial, political, inter-governmental, international etc. movements (these days they are all so intertwingelt, there is no point in drawing lines). And so when I read the news today, I’m getting an ominous feeling. Here is a selection of headlines from today:
- Spiegel: “Nato-Russia Crisis: The Nuclear Monster Returns.” (original in German: “Nato-Russland-Krise: Das nukleare Gespenst kehrt zurück”) How there are no more Red Phones between Russia and the West, how their planes intercept each other frequently these days, how there is no more trust between the parties.
- Spiegel: Strategy Dispute: Ukraine-Crisis Causes Fall-Out Between USA and Europe (Original in German: “Strategie-Streit: Ukraine-Krise entzweit USA und Europa”) “At the Munich Security Conference on the weekend, there were major collisions/yelling/disagreements” on whether to arm the Ukrainian military. Of course, that’s just the current discussion; it’s really about appeasements vs military confrontation between the major nuclear powers with a civil/war ongoing.
- News in Russia: “Cyprus will offer Russian military bases.” (Google translated) apparently basically right next to a British base.
- BBC Interview with Alan Greenspan, formerly chair of the Federal Reserve: “Greece: Greenspan predicts exit from Euro inevitable”, and to top it, he also said “The problem is that there there is no way that I can conceive of the euro of continuing, unless and until all of the members of eurozone become politically integrated – actually even just fiscally integrated won’t do it.” (and that is of course not happening.)
- From a to-be-aired Italian interview of the Greek Finance Minister:
“Officials of an important Italian institution approached me and told me that they are in solidarity with our country, but they cannot tell the truth as Italy is threatened by bankruptcy and they fear from the German consequences.
In recent years, a cloud of fear has covered throughout Europe. We risk to become worse the the former Soviet Union.“
- Wall Street Journal: U.K. Is Readying Contingency Plans for Possible Greek Eurozone Exit. Remember that Greece owes €240bn, and if they leave, chances are that some other countries — larger ones — are right behind it. All of those debts will end up with a large haircut, which will wreck finances world-wide. And there are only days left to avoid that.
- Neue Zürcher Zeitung has the second mentioning of possible capital controls in Switzerland in a few days.
And that is of course in top of the perennial other crisis favorites, including ISIS, a slowdown in China, and the fact that Japan’s central bank is close to print 100% of its government debt issuance.
Can the world deal with any one of those issues? Probably. But all of them at the same time, so suddenly?
I don’t like that combination at all.