William White (ex-BIS): This could end in hyperinflation
There are very few economists I trust will speak the truth. But Mr. White, a former chief economist to the Bank for International Settlements (BIS) – the bank of central banks – and an advisor to Angela Merkel, has shown over the years he is still a honest guy.
The Telegraph called him “The economic prophet who foresaw the Lehman crisis ” and published an article about White’s worries about the world’s financial system. According to him, ‘the global elastic has been stretched even further than it was in 2008’
Here some of his comments in the Telegraph interview;
- “We are in a world that is dangerously unanchored [..] We’re seeing true currency wars and everybody is doing it, and I have no idea where this is going to end.”
- “Sovereign bond yields haven’t been so low since the ‘Black Plague’: how much more bang can you get for your buck?”
- “QE is not going to help at all. Europe has far greater reliance than the US on small and medium-sized companies (SMEs) and they get their money from banks, not from the bond market.”
- “Even after the stress tests the banks are still in ‘hunkering down mode’. They are not lending to small firms for a variety of reasons. The interest rate differential is still going up.”
- “QE is a disguised form of competitive devaluation. The Japanese are now doing it as well but nobody can complain because the US started it.”
- “There is a significant risk that this is going to end badly because the Bank of Japan is funding 40pc of all government spending. This could end in high inflation, perhaps even hyperinflation.
- “The emerging markets got on the bandwagon by resisting upward pressure on their currencies and building up enormous foreign exchange reserves. The wrinkle this time is that corporations in these countries – especially in Asia and Latin America – have borrowed $6 trillion in US dollars, often through offshore centres. That is going to create a huge currency mismatch problem as US rates rise and the dollar goes back up.”
The Telegraph reminds us it was White who ‘openly discussed whether the world was on the cusp of events that might prove as dangerous and intractable as the Great Depression’, in the BIS annual report in June 2008.
He is even honest enough to explain even central bankers don’t know what will happen next;
- “It ain’t over until the fat lady sings. There are serious side-effects building up and we don’t know what will happen when they try to reverse what they have done.”
- “They have created so much debt that they may have turned a good deflation into a bad deflation after all.’
Comforting isn’t it?