This morning’s key headlines from GenerationalDynamics.com
- Nigeria’s Boko Haram attacks a Church, but flees from bees and snakes
- Bank of International Settlements warns of ‘euphoric markets’ and high debt
Nigeria’s Boko Haram attacks a Church, but flees from bees and snakes
Terrorists, assumed to be Boko Haram, killed dozens of people onSunday in an attack on three villages in northeast Nigeria, includingone targeting worshippers at a church. That attacks took place only afew miles from Chibok, where Boko Haram abducted over 200 schoolgirlsseveral weeks ago.
There are new terrorist attacks every few days in Nigeria, includinggunfights, suicide and car bombs, and abductions of young girls andboys. The Nigerian army and government is viewed as helpless againstthe crimes of Boko Haram.
However, Boko Haram may be facing a new enemy, which they themselvesfear may be supernatural. Some members of Boko Haram have beenarrested while fleeing a forest hideout because of what they believeare spiritual attacks from mysterious snakes and bees, which hadkilled many of their leaders. According to one of the fleeingterrorists:
Most of us are fleeing because there are too manysnakes and bees now in the forest. Once they bite, they disappearand the victims do not last for 24 hours.
We were told that the aggrieved people who had suffered from ourdeadly mission, including the ghosts of some of those we killed,are the ones turning into the snake and bees. Our leaders fled,too.
Bank of International Settlements warns of ‘euphoric markets’ and high debt
The Bank of International Settlements (BIS), which is theinternational institution that was created during the GreatDepression to coordinate individual countries’ central banks, issuedits 2014 annual reports with warnings that the financial markets aretoo “euphoric” and have become detached from reality, particularly asregards the use of debt and quantitative easing.
According to the report:
The global economy continues to face seriouschallenges. Despite a pickup in growth, it has not shaken off itsdependence on monetary stimulus. Monetary policy is stillstruggling to normalize after so many years of extraordinaryaccommodation. Despite the euphoria in financial markets,investment remains weak. Instead of adding to productive capacity,large firms prefer to buy back shares or engage in mergers andacquisitions. And despite lackluster long-term growth prospects,debt continues to rise. There is even talk of secularstagnation.
According to the report, “Financial markets have been exuberant overthe past year, at least in AEs, dancing mainly to the tune of centralbank decisions. Volatility in equity, fixed income and foreignexchange markets has sagged to historical lows. Obviously, marketparticipants are pricing in hardly any risks.” This means that it’squantitative easing and “money printing” by the Fed and other centralbanks have fed into financial markets, removing any risks andcreating imbalances, as long as the money printing continues.
The BIS attributes these problems to the fact that the world economyhas been in a “balance sheet recession,” a term that we discussed atlength in 2009 in “Fiscal stimulus programs in 1930s and today,” about the findings ofRichard C. Koo, Chief Economist at Nomura Research Institute.
The report notes that public debt worldwide is now considerably higherthan it was in 2007, before the current financial crisis began.According to the BIS, balance sheet recessions have two key features.
First, they are very costly (Chapter III). They tendto be deeper, give way to weaker recoveries, and result inpermanent output losses: output may return to its previouslong-term growth rate but hardly to its previous growth path. Nodoubt, several factors are at work. Booms make it all too easy tooverestimate potential output and growth as well as to misallocatecapital and labour. And during the bust, the overhangs of debt andcapital stock weigh on demand while an impaired financial systemstruggles to oil the economic engine, damaging productivity andfurther eroding long-term prospects.
Second, as growing evidence suggests, balance sheet recessions areless responsive to traditional demand management measures (ChapterV). One reason is that banks need to repair their balance sheets.As long as asset quality is poor and capital meagre, banks willtend to restrict overall credit supply and, more importantly,misallocate it. As they lick their wounds, they will naturallyretrench. But they will keep on lending to derelict borrowers (toavoid recognizing losses) while cutting back on credit or makingit dearer for those in better shape. A second, even moreimportant, reason is that overly indebted agents will wish to paydown debt and save more. Give them an additional unit of income,as fiscal policy would do, and they will save it, not spendit. Encourage them to borrow more by reducing interest rates, asmonetary policy would do, and they will refuse to oblige. During abalance sheet recession, the demand for credit is necessarilyfeeble. The third reason relates to the large sectoral andaggregate imbalances in the real sector that build up during thepreceding financial boom – in construction, for instance. Boostingaggregate demand indiscriminately does little to address them. Itmay actually make matters worse if, for example, very low interestrates favor sectors where too much capital is already inplace.
Generational Dynamics predicts that the global financial crisis is farfrom over, and that there is much worse to come. Bank of International Settlements
KEYS: Generational Dynamics, Nigeria, Boko Haram, Chibok,Bank of International Settlements, BIS,balance sheet recessions, Richard C Koo