The former IMF economist warns that central banks risk a financial earthquake with a steady rise in interest rates

“The Japanese haven’t seen a rise in interest rates in three decades, and no one is in a position to do so,” says Professor Rogoff. “Public debt is 260 percent of GDP and half of that is overnight debt.”

The dam has already begun to collapse. The Bank of Japan raised its long-term ceiling on 10-year bonds from 0.25% to 0.5% last month, seemingly a small adjustment but actually a bombshell for international capital flows. The Bank of Japan had to spend more than $100 billion over the past two weeks to defend the next line against the market attack. The swaps market is already making another jump to 1pc.

The explosion in the Japanese bond market would be a black swan event. The country is the world’s largest creditor with $3.6 trillion in net foreign assets. It owns eight percent of France’s public debt. A sudden repatriation of money would spread contagion through the international system.

Olivier Blanchard, former chief economist of the International Monetary Fund, also warned that Japan’s financial conditions are less stable than they appear. He fears the country will spiral into a debt and financing crisis as it emerges from deflation, leaving Japan’s Ministry of Finance in dire straits.

Professor Rogoff’s central thesis is that global real interest rates “come back” over time. The more suddenly it happened, the greater the financial shock. The current edifice of international borrowing and debt contracts is built on the assumption that real rates will remain constant on the ground.

In September, we had an anticipation of what would happen when UK gold bond yields soared, triggering a self-reinforcing doom loop in the trillion-pound sector of the UK pension industry.

The Bank of England managed to end the crisis with great skill, turning a profit on bond deals. However, this incident ignited an immediate global contagion and alarmed officials at the International Monetary Fund and the Basel Financial Stability Board (FSB).

“If it can happen in the UK, which is very well regulated, it can happen anywhere,” says Professor Rogoff.

Professor Rogoff argues that the liability-driven investments at the heart of this collapse were legitimate hedges, given that pension funds benefit from higher rates. Surprisingly, the ferocity of the global bond sell-off drove the process.

“Liz Truss took the blame, but the underlying reason was Jay Powell’s high rates in the US, which drove up interest rates for everyone,” he says.

The eurozone has its own intractable ills, even if it survived well from Vladimir Putin’s energy war. But the late effects of monetary tightening are just beginning to be seen. The anti-inflation hawks at the ECB are back in charge and determined to push interest rates into “constrained” territory as well as trigger bond sales (quantitative tightening), a process that will likely continue until something breaks.

“The glue that has been holding the eurozone together is the realm of zero real interest rates,” says Professor Rogoff. “As long as they stay at zero, you can use QE as a north-south diversion support, and it doesn’t seem to cost anything. The underlying problem has not been solved.”

Bond purchases by the European Central Bank have absorbed Italian bond issues since 2015, shielding the country from market forces. This stopped in June. The ECB softened the blow for a few months by shifting the conversion of its existing portfolio from German bunds to Italian bunds, but this, too, has reached its limits.

Markets are skeptical that a new ‘anti-spread’ tool (TPI) can be triggered in any circumstances other than an emergency. Doing so early would breach the no-bailout clause in EU treaty law and looks just like financial dominance, leading to legal challenges. But Italy is at least “known”, and Meloni’s government has so far been careful not to stir up trouble.

The global shadow banking system is considered to be “the known and the unknown,” with wide mismatches in maturities. Many borrow from the short-term capital markets to lend long or invest in illiquid assets – more or less the story of Northern Rock or Lehman Brothers before the global financial crisis.

Unlike ordinary banks, they cannot borrow from central banks’ emergency lending window, and they lack a stable base of deposit-insured savers.

Prof Rogoff says private equity groups have borrowed heavily to play property markets, which are in various degrees of distress. Prices in the $21 trillion US commercial real estate market are down 13% from their peak. Average home prices in the United States are falling faster than they were during the subprime mortgage crisis, although they haven’t fallen nearly yet.

“I think the real estate market still has a long way to go. Some private equity firms are going to crash,” he says.

Today, the “non-bank” shadow sector accounts for half of the total $487 trillion in financial assets worldwide, says the FSB. More than $50 trillion of this, he warns, is “subject to outflow” if liquidity dries up or an external shock occurs.

To borrow Warren Buffett’s famous adage, you only find out who’s swimming naked when the tide goes out.

What Are The Main Benefits Of Comparing Car Insurance Quotes Online

LOS ANGELES, CA / ACCESSWIRE / June 24, 2020, / Compare-autoinsurance.Org has launched a new blog post that presents the main benefits of comparing multiple car insurance quotes. For more info and free online quotes, please visit https://compare-autoinsurance.Org/the-advantages-of-comparing-prices-with-car-insurance-quotes-online/ The modern society has numerous technological advantages. One important advantage is the speed at which information is sent and received. With the help of the internet, the shopping habits of many persons have drastically changed. The car insurance industry hasn't remained untouched by these changes. On the internet, drivers can compare insurance prices and find out which sellers have the best offers. View photos The advantages of comparing online car insurance quotes are the following: Online quotes can be obtained from anywhere and at any time. Unlike physical insurance agencies, websites don't have a specific schedule and they are available at any time. Drivers that have busy working schedules, can compare quotes from anywhere and at any time, even at midnight. Multiple choices. Almost all insurance providers, no matter if they are well-known brands or just local insurers, have an online presence. Online quotes will allow policyholders the chance to discover multiple insurance companies and check their prices. Drivers are no longer required to get quotes from just a few known insurance companies. Also, local and regional insurers can provide lower insurance rates for the same services. Accurate insurance estimates. Online quotes can only be accurate if the customers provide accurate and real info about their car models and driving history. Lying about past driving incidents can make the price estimates to be lower, but when dealing with an insurance company lying to them is useless. Usually, insurance companies will do research about a potential customer before granting him coverage. Online quotes can be sorted easily. Although drivers are recommended to not choose a policy just based on its price, drivers can easily sort quotes by insurance price. Using brokerage websites will allow drivers to get quotes from multiple insurers, thus making the comparison faster and easier. For additional info, money-saving tips, and free car insurance quotes, visit https://compare-autoinsurance.Org/ Compare-autoinsurance.Org is an online provider of life, home, health, and auto insurance quotes. This website is unique because it does not simply stick to one kind of insurance provider, but brings the clients the best deals from many different online insurance carriers. In this way, clients have access to offers from multiple carriers all in one place: this website. On this site, customers have access to quotes for insurance plans from various agencies, such as local or nationwide agencies, brand names insurance companies, etc. "Online quotes can easily help drivers obtain better car insurance deals. All they have to do is to complete an online form with accurate and real info, then compare prices", said Russell Rabichev, Marketing Director of Internet Marketing Company. CONTACT: Company Name: Internet Marketing CompanyPerson for contact Name: Gurgu CPhone Number: (818) 359-3898Email: [email protected]: https://compare-autoinsurance.Org/ SOURCE: Compare-autoinsurance.Org View source version on accesswire.Com:https://www.Accesswire.Com/595055/What-Are-The-Main-Benefits-Of-Comparing-Car-Insurance-Quotes-Online View photos