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Evans-Pritchard Says the ‘Everything Bubble’ About To Blow Out

Dec. 16, 2017 (EIRNS)—EIR and experts such as banking historian Nomi Prins have been warning since May 2017 that the Federal Reserve’s slow and fraught raising of interest rates is a ticking time bomb, because of the super-accumulation of unpayable debt in the trans-Atlantic financial systems. The London Daily Telegraph’s International Business Editor Ambrose-Evans Pritchard, in a Dec. 14 piece, "The Everything Bubble Is About To Burst," focuses on the likelihood those rate increases will now speed up, and says it will bring on a general financial crash.

Evans-Pritchard is not the only one now using the term "the everything bubble" for the immense expansion since 2010 of corporate debt used for speculation, "junk" and leveraged-loan debt, auto loan and other "subprime" consumer debt, sovereign debt, and the re-expansion of increasingly exotic derivatives familiar from 2007. Like many British and London-influenced analysts, he wants to focus, above all, on China’s credit expansion.

But in this column he wrote,

"We will learn in 2018 just how much tolerance there is for an aggressive Fed and a dollar squeeze in a global economy where debt ratios have risen to a record 327% of GDP, up from 276% a decade ago."

The debt/GDP ratio is now 295% in the United States economy, the same or perhaps slightly higher than in China, but with vast amounts of that debt growth in the United States having been for stock and bond market speculation and corporate "financial engineering" with their own stocks.

Evans-Pritchard says the U.S. tax cut legislation set to pass this week is disastrously timed. Inflation has already started to rise in the United States; the dollar has been falling significantly.

(This is true. But he also said that "wage inflation is taking off," which is untrue; real wages in the United States have fallen for five months straight through November, both hourly and weekly.)

But he concluded the Fed is going to speed up its rate increases and raise the discount rate four more times in 2018; and this is going to blow out the "everything bubble." He added,

"The Chinese central bank (PBOC) is keenly aware of the danger. It has drawn up a contingency plan, fearing that China may be compelled to ‘shadow’ the rate increases."

The People’s Bank of China did, in fact, raise its discount rate one-quarter on Dec. 14, the day after the Fed’s rise.

Application of the Glass-Steagall Act in the United States—as already exists in China—is urgent.