Many people are starting to think wholesale system change when it comes to the western economy and not just treating the symptoms and it's back to business as usual. Here are some of my thoughts using China as the most current example of a potential boom and bust cycle (N.B. China is still in the pre-peak boom stage.)
Rethinking and redesigning and more Robust or Resilient Economy.
|
Current Fragility Model |
New Robustness or Resilience Model |
1.0 |
Great Hype- investment debacles generally start out with a compelling growth story- (The China Dream, Dot.com, Green tech, Clean tech) |
Modest growth projections close to historic norms or fundamentals; aim for robustness and resilience |
2.0 |
Blind faith in the competence of the authorities (The Communist Party of China We Trust. Mother Russia knows best, The Federal Reserve will protect us) |
Non partisan Watchdog institutions in place |
3.0 |
General increase in investment (Chinese investment Boom) CDS, options, derivatives |
Decouple risk and banks (separate risky investment vehicles i.e hedge funds and banks who are caretakers of public money) |
4.0 |
Corruption (rampant in |
Oversight, transparency, watchdogs |
5.0 |
Easy money (Money supply grew by nearly 30%, interest rates maintained well below nominal growth rates). |
Tight capital |
6.0 |
Rampant credit growth (new bank lending increased by nearly RMB 10 trillion, a sum equivalent to 29% of GDP) |
Stricter lending guidelines |
7.0 |
Fixed currency regimes (Chinese currency, the renminbi, is pegged to the U.S. dollar) |
Floating currency, or a new single international trading currency for everyone |
8.0 |
Private Banking System taking hidden risks; Precarious financial structures (Chinese banks are particularly reluctant to report problematic loans |
Nationalized Transparent Banks |
9.0 |
Bank bonuses tied to profits |
Bank bonuses linked to resilience |
10.0 |
Moral hazard (China’s leading banks, among the world’s largest by market value, are seen as too big and too complex to fail) |
No bailouts for anyone, swim or sink |
11.0 |
Strong credit growth and rapidly rising property prices (a widespread belief that the property prices can only go up) |
All assets can go through boom and bust cycles. Early warning systems to reduce volatility from norm or fundamentals i.e. An early warning system for asset bubbles> https://www.mckinseyquarterly.com/ Financial_Services/Banking/An_early _warning_system_for_asset_ bubbles_2518 |
12.0 |
Anti-regulation, off-the-balance sheet accounts, Invisible market hand controls the market, government secret Comprehnsive Annual Finacial Reports (CAFR) accounts |
Oversight, Viable System Modeling |
13.0 |
Same people who said they didn’t see the crash coming still in charge of banks |
Automatic turnover clauses in governance statutes |
14.0 |
Same politicians and regulators who didn’t see the crash coming are still in government |
Dismissal, remove from office |
Comments