The Slog has been pretty universally lambasted over the last five years for saying that ‘permanently low interest rates’ are an arrogant myth put about by a bloc of the World (‘the West’). I’ve posted more than a dozen times to say other economies in other theatres have little or no advantage in playing that game…and someday, someone would break ranks.

Not every economy on the planet is growth-free; many in Asia may be slowing, but they still deliver growth rates at which the West would salivate. When there’s money pushing an economy forward – and it’s virtually free to borrow – the only results possible are overheating in the economy, wage-inflation and (above all) enormous asset bubbles. Look around most of the Asian economies at the minute, and this is what you’ll see.

All this is merely another dogs-bollocks of a flaw in the globalist drivel peddled by Ted Levitt and his multinational followers some forty years ago. There is no way, in a world where the daily rate for labour ranges from a bowl of soya beans to $15m, a ‘globalised’ system can ever have the balance to work. It will be, by definition, a dysfunctional system: a series of crises waiting to happen.

The fastest ways to damp down overheating and deflate asset bubbles are to restrict credit by raising interest rates. That in turn slows growth, and of course also restricts the West’s already feeble ability to export to the East (and south). All Zirp will do in the end is exacerbate the natural slowdown in emerging markets, and cause a rebound via interest rates and production outputs in the mature (aka knackered) Western economies.

This piece at Forbes yesterday sums up my fears very well:

‘As the world’s most important benchmark interest rate, approximately $10 trillion worth of loans and $350 trillion worth of derivatives use the Libor as a reference rate. Libor-based corporate loans are very prevalent in emerging economies, which is helping to inflate the emerging markets bubble…. Libor is used as the reference rate for nearly two-thirds of all large-scale corporate borrowings. Considering this fact, it is no surprise that credit and asset bubbles are ballooning throughout Asia.’

Several events more recently have made interest rate pressures more likely. The Russian Trial by Oil fiasco orchestrated by the US and the Saudis showed how quickly a market’s rates can go through the roof…..but that was based on a need to support a currency (the Rouble) under attack. Since then, the Asia International (AIB) has began to attract members in droves – and whatever it morphs into in the end, it is bound to be an influential player in all decisions relating to Asian asset bubbles and realistic interest rates.

This is bad news for all of those still actively engaged in real-economy western business. In the eurozone, it could be the straw that breaks the 17-humped camel’s back. Yet more ‘surprisingly weak’ figures have emerged this morning (although whoTF is surprised any more is very hard to glean) and they once more spell out what a con-merchant Mario Draghi is: the new figures suggest that the European Central Bank’s €1.1 trillion bond-buying programme, which has helped to weaken the euro, has so far failed to lift France out of its chronic malaise.

French manufacturing activity contracted for the 11th consecutive month in April, with the rate of decline the fastest so far this year…..and employment levels fell for a thirteenth successive month in April. (The Slog has been posting on this trend for nearly two years).


  1. Because of credit-risk weighted equity requirements for banks, all those perceived “risky”, like SMEs, entrepreneurs and start-ups, do not have fair access to bank credit.

    Since bank credit to those entities represents the oxygen our economies need, in order to move forward, in order to not stall and fall, we can conclude that the Basel Committee for Banking Supervision doomed our economies to suffer from hypoxemia.


  2. Per, is this conspiracy on BiS’ part (on behalf of international corporations) or…stupidity (which I can’t believe)? If neither, please could you attempt to explain WHY BiS is doing this. I follow your blog religiously and yet I still can’t understand why Basel is making these decisions.


  3. 3Α-debt after 2008 concerns only debts tightly adhered to governability. Everybody with no direct role in governability is doomed to asphyxiation. Banks are now obliged to squeze their margins in order to relieve governments. Which, of course, is a near-sighted strategy at best, but TINA.


  4. In the mid eighties when the mainstream press was all agog about the “opportunities” that the new unrestricted trade with Mainline China would bring about. I was dubious. My own experience with China had cost me a Job. The small company to which i was employed at the time had made its mark designing the best RF sputtering machines in the semiconductor industry. The Chinese had come calling to buy but it was not a chip manufacturer but two scientists from a university. Our boss very unwisely gave them full access to our facility. He was convinced that this sale of two machines was only the first of hundreds that he would be selling as mainland China started up its own semiconductor industry. He was partly right as those machines have now become numerous through out China. With one small exception They were produced in China completely cloned and our company never made a sale to anywhere in Asia since then. Needless to say that company is no more.
    There are two groups of people who propound free un-tariffed trade between the first world and the rest of the planet; the Banksters, and the Idiots who style themselves Libertarians. The banksters are like sharks, They will feed on anything with no regards to what they are destroying. However in some nations like Japan, and as you noted China, the power structure is not controlled by these rapacious killers and it takes measures neccesary to keep them in control, like a bullet in the back of the head.
    Here in the west we have let them take complete control of our nations, with the results you have been so ably chronicling. So while I do not currently advocate trussing up these parasites, Chinese style, complete with the sign board and the trip in the back of the open truck to the stadium where they can provide the Roman circus like entertainment. I do think that it behooves any person who deems himself educated to give some sincere thought to revamping our own power structure while we still have some sort of civilization left.


  5. Likewise the mass outsourcing especially of IT support to the east…. Awful service unless its something simple and pretty much no chance of a personal visit to sort you out…. A fob off when they fail and strangely enough the phone cuts off for some unknown reason…. Meanwhile huge corporate profits and little in the way of local (social responsibility) jobs…. Partly what JW is regularly posting about I suggest.


  6. I personally think the most simple and effective way to show the “elites”, loath to call them that but I’m sure there shit still stinks, is to spend the money we have strategically, without our consumer wants they’re knackered.


  7. The odd thing about France flatlining is that it doesn’t actually look to be. I was over there for a couple of (separate) weeks this spring and on casual appearances the place looks good. Compared to (say) 10 years ago, when I started to go there frequently, houses are better maintained, there are loads of new cars on the road (and new roads), every town has new commercial zones filling up with commercial businesses in new buildings. Rural house price falls seem to indicate a problem but everything else looks to be thriving – considerably better than the UK to be honest. So what’s really going on?


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