Debt mountain to crush major economies in ‘Minsky moment’ warns Saxo Bank

Posted on 28 September 2014 with no comments from readers

The world’s three economic superpowers are heading for a major collapse in asset values because their economic models favor consumption instead of productivity, warns Steen Jakobsen, a chief economist at Danish investment bank Saxo Bank.

‘We’re still not wise enough to realize that our current model is a ‘Ponzi’ scheme rushing toward its inevitable ‘Minsky moment’, he said in a research note. The term ‘Minsky moment’ refers to a phrase coined for the Asian debt crisis of the late 1990s by Pimco’s Paul McCulley.

Debt mountain

Unsustainable debt will be the cause of the crash, according to Mr. Jakobsen, and will occur when the cash returns on assets become insufficient to service the debt taken on to acquire those assets in the first place.

How would your approach be to the next trade? Will it be conservative and would you reduce the size of your bet?

This is again gamblers fallacy where you do not want to give back to the market what you have earned.  But at the same time you do not want to stop betting because today is your lucky day. This is again a case where you are influenced by the outcome of your previous trades. In reality what happens in the last trade has no impact on what will happen in the future trade.

You meet three kinds of people in the market, see here now.  They are the speculator, trader and the investor. You can choose to be one of them based on how you wish to be a part of the market. That is whether your main aim is to speculate, trade or invest in the market. All the three kinds of players work differently. Whatever kind of participant you are you need to take a decision on what you want to do and be clear on that. This will impact your profit and loss to a great extent.

Each of them would react to the market differently. Suppose for example the central bank has an announcement to make on say the monetary policy. It had increased in the interest rates in its last few announcements because of inflation.

He gives no timeframe for his thesis but says that the problem of huge debts has been swept under the carpet by central bankers and policymakers and will come back as low inflation or even deflation…

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