The Problem With "Green" Monetary Policy

As an alarming new United Nations report shows, climate change is probably the biggest challenge of our time. But should central banks also be worrying about the issue? If so, what should they be doing about it?

Central-bank representatives who do decide to make public speeches about climate change cannot deny the scale and scope of the problem; to do so would be to risk their own credibility. But the same is true when central bankers feel obliged to discuss the distribution of income and wealth, rising crime rates, or any other newsworthy topic. The more that central banks’ communications strategy focuses on trying to make themselves “popular” in the public’s eyes, the greater the temptation to address topics outside their primary remit.

Beyond communicating with the public, the question, of course, is whether central banks should try to account for environmental considerations when shaping monetary policy. Obviously, climate change and corresponding government policies in response to it can have powerful effects on economic development. These consequences are reflected in all kinds of variables – growth, inflation, employment levels – that will in turn affect central-bank forecasts and influence monetary-policy decisions.

Likewise, natural disasters and other environmental events – actual or potential – can pose implicit risks to entire classes of financial assets. Regulators and supervisors charged with assessing risk and associated capital needs must take this environmental dimension into account. At a minimum, the high uncertainty stemming from these risks implies a huge challenge for assessing the stability of the financial system and corresponding macroprudential measures. And these risk factors are also increasingly relevant for monetary-policy decisions, such as when central banks should buy bonds or (in some cases) equities.

But the growing public demand that central banks contribute more actively to the fight against climate change leads to a different dimension. In theory, central banks could introduce preferential interest rates for “green” activities – thus driving up the prices of “green bonds” – while adopting a more negative attitude toward noxious assets, such as those tied to fossil fuels. And yet, assessing whether and to what extent an asset is environmentally harmful or helpful would be extremely difficult.

Putting aside these more technical issues, the broader question remains: Should central banks assume responsibility for implementing policies to combat climate change? A number of prominent central bankers have already argued that they should. And current proposals for extending central banks’ mandate have come on top of growing concerns about income distribution and other issues tangentially related to monetary policy.

One is reminded of an ironic comment by the great Chicago School economist Jacob Viner.

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Global Auto Sales Expected To Crash More Than After The Financial Crisis

The global auto industry continues to deteriorate, namely due to broke consumers after a decade of low-interest rates and endless incentives. 

The auto slowdown has sparked manufacturing recessions across the world, including manufacturing hubs in the US, Germany, India, and China. A prolonged downturn will likely result in stagnate global growth as world trade continues to decelerate into 2020. 

The Fitch Ratings economics team published a new report earlier this week, first reported by CNBC, outlining how global auto sales are expected to crash at a rate not seen since the last financial crisis. 

Global auto sales fell to 80.6 million in 2018 from 81.8 million in 2017, which was the first annual decline in nearly a decade. 2019 sales are likely to fall by 3.1 million, or 4%, to 77.5 million, the most significant drop since 2008. The slowdown in auto sales has been one of the largest contributors to the global manufacturing recession. 

"The downturn in the global car market since the middle of 2018 has been a key force behind the slump in global manufacturing, and the car sales picture is turning out a lot worse than we expected back in May," Brian Coulton, Fitch Chief Economist, said in a statement. 

China has been labeled as the primary source of falling demand. YTD auto sales in the country are down 11% versus the first ten months of 2018. There are no signs that a recovery in the industry will be seen in 2020. The US and Western Europe are expected to see declines of 2% this year. Brazil, Russia, and India are expected to record a drop of at least 5.5% YTD. 

"Structurally, environmental concerns about diesel cars — and anticipated regulatory responses — and the growth of ride-hailing and car-sharing schemes are weighing on auto demand," Coulton told CNBC.

Fitch also warned that the global auto industry won't rebound in 2020, and it's also likely the industry has entered a low growth period. 

"While we don't see a further sharp decline in global manufacturing in 2020, the auto outlook is pointing to stabilization at best rather than any sharp rebound," Coulton said.

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Whistleblower Alleges GE Commits Almost $40 Billion In Accounting Fraud

General Electric (GE) shares fell Thursday following Bernard Madoff whistleblower, Harry Markopolos, targeting the company in a report alleging the corporation covered up a massive amount of losses in financial documents, according to the Washington Post.

A forensic accountant, Markopolos posted a 175-page report, which is being circulated on a website called GEFraud.com. The reporting alleges that GE is committing $38 billion in accounting fraud. He calls this a “bigger fraud than Enron,” and declares GE is using similar fraud tactics. After the release of the report, GE stock dropped 4.3% in premarket trading, according to Reuters. 

“[I]t’s the biggest, bigger than Enron and WorldCom combined,” the report goes on to say. “In fact, GE’s $38 Billion in accounting fraud amounts to over 40% of GE’s market capitalization, making it far more serious than either the Enron or WorldCom accounting frauds.”

Markopolos and his team published the allegations after a year’s worth of research.

“My team has spent the past 7 months analyzing GE’s accounting and we believe the $38 Billion in fraud we’ve come across is merely the tip of the iceberg,” Markopolos stated in the 175-page report.

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The latest sign that absolutely nothing makes sense

In the latest sign that absolutely nothing makes sense anymore, WeWork filed formal regulatory paperwork with the Securities and Exchange Commission last week, officially notifying the world that it will soon be going public.

If you haven’t heard of WeWork (or it’s parent– ‘The We Company’), it’s a real estate company that owns practically zero real estate.

Instead, they lease vast amounts of office space in commercial buildings on long-term contracts, and then sub-lease that space to individual tenants– often small businesses– with short-term contracts.

It’s essentially the same business model as Regus– which provides virtual office services, business addresses, and short-term office space, in pretty much every major city around the world.

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12 Reasons Why Negative Rates Will Devastate The World

It has been a thesis over 20 years in the making, but with every passing day, SocGen's Albert Edwards - who first coined the term "Ice Age" to describe the state of the world in which every debt issue ends up with a negative yield as capital markets and economies collapse into a deflationary singularity - is that much closer to having the victory lap of a lifetime. Although, we doubt he is happy about it.

Commenting on the interest rate collapse he has been (correctly) predicting ever since he first observed Japan's great bubble bust of the 1980s and which resulted in both NIRP and QE, and which he (correctly) expected would spread across the rest of the world, leading to a "Japanification" of every major bond market...

... Edwards said that what bond markets are telling us is "that the cycle is ending with the central banks having failed to drive core CPI inflation higher. So Japanese-style outright deflation lies ahead at a time when western economies have piled debt sky high."

Needless to say that's not good, not least of all because we now live in a world in which the bond universe with negative yields continues to grow at an exponential pace, rising rapidly over the past two weeks and reaching a record $16.4 trillion...

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“The Stock Market Started To Fall In July…”

Will we look back on the month of July as a critical turning point for the stock market?  During the first half of 2019, stock prices soared to record high after record high even though we just kept getting one number after another that indicated that a new economic slowdown was starting.  Because of the disappointing performance of the U.S. economy, it was believed that we would see a rate cut from the Federal Reserve on Wednesday, and that is precisely what happened.  But instead of rejoicing, investors started to panic a bit, and the Dow Jones Industrial Average ended the day down 333 points.  We will get into why that happened in just a little bit.  But without a doubt it seems quite odd that the Fed’s very first rate cut since December 2008 actually caused stocks to go down.  On a historical basis, interest rates are already very low right now, and so this greatly limits what the Fed will be able to do once the next recession officially begins.  Of course most investors are not concerned with such considerations.  What they really want is for interest rates to be pushed all the way to the floor as quickly as possible, and so they were quite disappointed with what they heard from Fed Chairman Jay Powell on Wednesday.

But considering the fact that we haven’t seen a rate cut in more than a decade, the truth is that investors should have been thrilled by what happened.  When interest rates go down, that tends to promote more economic activity…

As expected, the Fed lowered its federal funds rate by a quarter-percentage point to a range of 2% to 2.25%. The move is likely to ripple through the economy and financial system, nudging down rates for credit cards, home equity lines and auto loans and theoretically sparking more economic activity. While the rate cut should aid borrowers, it will frustrate savers who were just starting to benefit from higher bank account yields.

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"The Deutsche Bank As You Know It Is No More": DB Exits Equities In $8.4 Billion Overhaul, To Fire Thousands

The bank which only a decade ago dominated equity and fixed income and sales trading and investment banking across the globe, and was Europe's banking behemoth, is no more.

On Sunday afternoon, in a widely telegraphed move, Deutsche Bank announced that it was exiting its equity sales and trading operation, resizing its once legendary Fixed Income and Rates operations and reducing risk-weighted assets currently allocated to these business by 40%, slashing as many as 20,000 jobs including many top officials, and creating a €74 billion "bad bank" as part of a reorganization which will cost up to €7.4 billion by the end of 2022 and which will result in another massive Q2 loss of €2.8 billion, as the bank hopes to slash costs by €17 billion in 2022, while ending dividends for 2019 and 2020 even as it hopes to achieve all this without new outside capital.

"Today we have announced the most fundamental transformation of Deutsche Bank in decades. We are tackling what is necessary to unleash our true potential: our business model, costs, capital and the management team. We are building on our strengths. This is a restart for Deutsche Bank – for the long-term benefit of our clients, employees, investors and society", CEO Christian Sewing said in a statement.

“In refocusing the bank around our clients, we are returning to our roots and to what once made us one of the leading banks in the world. We remain committed to our global network and will help companies to grow and provide private and institutional clients with the best solutions and advice for their respective needs – in Germany, Europe and around the globe. We are determined to generate long-term, sustainable returns for shareholders and restore the reputation of Deutsche Bank.”

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The Fed Has No Choice But To Return To Ultra-Low Interest Rates

The current boom is heavily built on credit. This is because in today’s fiat money regime central banks, in close cooperation with commercial banks, increase the quantity of money by extending loans – loans that are not backed by ‘real savings’. The artificial increase in the supply of credit pushes market interest rates downwards – that is, below the levels that would prevail had there been no artificial increase in bank credit supply.

As a result, savings decline, consumption increases and, investment takes off, and a “boom” gets going. However, such a boom can only last so long. Its continuation rests on more and more credit being fed into the system, provided at ever lower interest rates. The last ten years provide a good illustration: The Fed’s lowering of interest rates and monetary expansion in the financial and economic crisis 2008/2009 has helped the banking industry to get back to its business of churning out more and more credit (see chart a).

As credit recovered, and stock and housing prices began to rise again (see chart b). The Fed succeeded in re-establishing the ‘asset price inflation regime’. In December 2015, however, the monetary policy makers in Washington D. C. decided to take away the punch bowl by beginning to raise interest rates. Until December 2018, the Fed had brought back the Federal Funds Rate to a band of between 2.25 to 2.5 per cent. Where to go from here?

The Fed has signaled recently that it wants to take a break as far as any further interest rate decisions are concerned. Financial markets have their own view, though: They seem to expect that the Fed’s hiking cycle is already over, and that the central bank will sooner or later lower interest rates again. The likelihood that this expectation will turn out to be correct is quite high: As the Fed wishes to keep the boom going, it has no choice but to return to the policy of suppressing interest rates.

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Nearly Everyone Is A Socialist Now - Just The Way The Elites Want It

The expansionary phase of the global economy is almost certainly ending. A combination of excessive debt and trade protectionism is likely to become economically and politically destabilising. If, as seems increasingly likely, the world is destined for another credit and economic crisis, the colour of the political establishment will shape outcomes. This article examines the political scene and concludes that socialist puppet-masters will use the opportunity in an attempt to crush capitalism.

In 1975, I watched from the Strangers’ Gallery the debate in the House of Commons when the Referendum Act for membership of the Common Market was in its second reading. It was to be the first referendum ever held in the UK, and as one would imagine was contentious for that reason. The Labour government of the day had laid an act before Parliament for a referendum to ratify the European Communities Act of 1972, in other words, the UK’s membership of the Common Market.

The debate was not about membership, but the precedent of holding a referendum and its potential to undermine parliament’s sole right to take decisions on behalf of the people. In those days, MPs made proper speeches, not the time-limited five or so minutes permitted by Mr Speaker. A debate of this sort was worth listening to.

I was struck by the similarities of argument put forward by the two greatest parliamentary orators of the day. Michael Foot was the doyen of the extreme left in the Labour Party, and Enoch Powell was said to be on the extreme right (he wasn’t – he was a staunch free marketeer: more on this to follow). From their different perspectives their arguments were almost identical, and both spoke eloquently without notes.

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Wall Street Seems To Believe That Endless Gridlock And Political Turmoil Will Be Good For America

It is difficult not to admire the relentless optimism on Wall Street.  A divided Congress is going to guarantee two years of gridlock and political turmoil in Washington, but many in the financial community are choosing to interpret the election results as a positive sign.  They remember the “gridlock” during the Obama years, and they are hopeful that the next couple of years will be at least somewhat similar.  The Dow Jones Industrial Average shot up 545 points on Wednesday, and that was the largest post-midterm rally that we have seen in 36 years.  Stock prices normally go up the day after midterm elections, but Wednesday’s rally was definitely unusual…

Wednesday’s post-midterms rally was larger than the average gain that follows the contests. Goldman Sachs noted the S&P 500 has averaged a gain of 0.7 percent from the day before the elections to the day after midterms. Wednesday marked the biggest post-midterms gain for both the Dow and S&P 500 since the day after the 1982 contests, when the indexes surged 4.3 percent and 3.9 percent, respectively.

To a certain extent, it is likely that investors were greatly relieved that the worst case scenario did not play out.  As I noted on Monday, a blue wave that would have resulted in Democrats taking control of both houses of Congress would have meant big trouble for Wall Street, and many are very thankful that we were able to avoid that outcome…

Investors also avoided the most-feared Wall Street outcome, a so-called “blue wave,” or Democratic sweep of both chambers of Congress. That could have put the president’s economic policies under assault and boosted the odds of a Democratic House pushing for Trump’s impeachment.

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The One Election Scenario That Would Be A “Disaster” For The Financial Markets

On Tuesday night all of the speculation about the midterm elections will mercifully be over, and there is one potential outcome that is being called a “disaster” for the financial markets.  Over the past couple of years, stock prices have soared to unprecedented levels, and Wall Street has seemed to greatly appreciate the pro-business environment that President Trump has attempted to cultivate.  Regulations have been rolled back, corporate taxes have been reduced significantly, and many corporate executives no longer fear that the federal government is out to get them.  But after Tuesday, everything could be different.

The most likely outcome appears to be that the Democrats will take control of the House of Representatives and the Republicans will remain in control of the Senate.  For what it is worth, Nate Silver is currently projecting that the Democrats have an 88 percent chance of winning the House and only a 19 percent chance of winning the Senate.

But of course he was also projecting a huge landslide victory for Hillary Clinton in 2016.

In any event, a divided Congress would create gridlock in Washington, and according to Wedbush Securities managing director Steve Massocca that would produce “some negative fallout” for the financial markets…

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Stock Market Crash! The Dow Has Now Plunged 2,368 Points From The Peak Of The Market Share

The level of panic that we witnessed on Wall Street on Wednesday was breathtaking.  After a promising start to the day, the Dow Jones Industrial Average started plunging, and at the close it was down another 608 points.  Since peaking at 26,951.81 on October 3rd, the Dow has now fallen 2,368 points, and all of the gains for 2018 have been completely wiped out.  But things are even worse when we look at the Nasdaq.  The percentage decline for the Nasdaq almost doubled the Dow’s stunning plunge on Wednesday, and it has now officially entered correction territory.  To say that it was a “bloodbath” for tech stocks on Wednesday would be a major understatement.  Several big name tech stocks were in free fall mode as panic swept through the marketplace like wildfire.  As I noted the other day, October 2018 looks a whole lot like October 2008, and many believe that the worst is yet to come.

But in the short-term we should see some sort of bounce once the current wave of panic selling is exhausted.  During every major stock market crash in our history there have been days when the stock market has absolutely soared, and this crash will not be any exception.

If we do see a bounce on either Thursday or Friday, please don’t assume that the crash is over.  Most key technical levels have already been breached, and even a small piece of bad news can send stocks plunging once again.

On Wednesday there really wasn’t anything too unusual that happened, but stocks cratered anyway.  Here is a summary of the carnage…

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Global Banking Stocks Are Crashing Hard – Just Like They Did In 2008 Share

Global stocks are falling precipitously once again, and banking stocks are leading the way.  If this reminds you of 2008, it should, because that is precisely what we witnessed back then.  Banking stocks collapsed as fear gripped the marketplace, and ultimately many large global banks had to be bailed out either directly or indirectly by their national governments as they failed one after another.  The health of the banking system is absolutely paramount, because the flow of money is our economic lifeblood.  When the flow of money tightens up during a credit crunch, the consequences can be rapid and dramatic just like we witnessed in 2008.

So let’s keep a very close eye on banking stocks.  Global systemically important bank stocks surged in the aftermath of Trump’s victory in 2016, but now they are absolutely plunging.  They are now down a whopping 27 percent from the peak, and that puts them solidly in bear market territory.

U.S. banking stocks are not officially in bear market territory yet, but they are getting close.  At this point, they are now down 17 percent from the peak…

Of course European banking stocks are doing much worse.  Right now they are down 27 percent from the peak and 23 percent from a year ago.  The following comes from Wolf Richter…

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China Crashes As Flood Of Margin Calls Sparks "Liquidity Crisis", Panic Selling

The Treasury's latest semiannual FX report may have spared China the designation of currency manipulator (for now... in a new twist, there was a section dedicated exclusively to China in the Executive Summary, a clear signal from the Treasury that China is the disproportionate focus of the report stating that 'it is is clear that China is not resisting depreciation through intervention as it had in the recent past'), but the market was not as forgiving.

In the latest shock to Chinese confidence and stability, overnight Chinese shares extended the world’s worst slump as the yuan touched its weakest level in almost two years, testing the government’s ability to maintain market stability and calm as risks continued to mount for Asia’s largest economy.

Two days after we reported that concerns about pledged shares, in which major investors put up stock as collateral for personal loans - a disastrous practice when stock prices are dropping, emerged as a key pressure point for China's market, overnight Bloomberg reported that "rising fears of widespread margin calls fueled a 3 percent tumble in the Shanghai Composite Index, which sank to a nearly four-year low as more than 13 stocks fell for each that rose."

The concentrated selloff, sent the Shanghai Composite down 2.9%, closing at session lows of 2,486, the lowest level since November 2014, as China's plunge-protecting "National Team" was nowhere to be seen.

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"The World Is Sleepwalking Into A Financial Crisis": Former UK PM Gordon Brown

"We are in danger of sleepwalking into a future crisis," Brown told The Guardian in a recent interview at his estate in Scotland. "There is going to have to be a severe awakening to the escalation of risks, but we are in a leaderless world."

The former prime minister, who lost the 2010 election following Britain’s deepest recession on a post-war basis, said that countercyclical measures by governments and central banks have become widely exhausted. He warned the ability for global central banks to drop interest rates is not as readily possible today as it was a decade ago, while finance ministries would also have difficulty injecting fiscal stimulus, and here is the surprise: there is no guarantee that China would bail out the world, again.

"The cooperation that was seen in 2008 would not be possible in a post-2018 crisis both in terms of central banks and governments working together. We would have a blame-sharing exercise rather than solving the problem."

Brown had its doubts that China would be as cooperative for the second time to provide a global stimulus, primarily due to the Trump administration's trade war launched squarely at Beijing. "Trump’s protectionism is the biggest barrier to building international cooperation," he said.

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5 Signs That Global Financial Markets Are Entering A Bear Market, And 11 Ways That You Can Get Prepared For The Chaos That Is Coming…

We haven’t seen carnage like this in the global financial marketplace in quite some time.  On Wednesday, U.S. stocks were down some, but things were much, much worse around the rest of the world.  Global banking stocks are plunging, emerging market stocks are cratering, and emerging market currencies continue their stunning decline.  This represents a dramatic change from the relative stability that we have seen throughout most of 2018.  It is almost as if someone flipped a switch once the month of August began, and the shakiness of global financial markets has many investors wondering what trouble fall will bring.  What we are witnessing right now is not a full-blown panic yet, but it definitely has the potential to turn into one.

The term “bear market” is being thrown around a lot lately, but a lot of people don’t understand what a “bear market” actually is.

A bear market is generally considered to be when we see a decline of 20 percent or more from the 52-week high, and after the carnage of this past week a lot of those thresholds are now being crossed.

It would probably be too early to call this a “global stock market crash”, but we are well on the way to getting there.  The following are 5 signs that global financial markets are entering a bear market…

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Tech Investors Start To Panic As Facebook’s Stock Price Plunges More Than 20 Percent

Is this the beginning of the fall of Facebook?  After announcing disappointing numbers for the second quarter on Wednesday, Facebook’s stock price plunged more than 20 percent in after-hours trading.  If that decline holds on Thursday, it will be the biggest stock price drop in Facebook’s entire history.  But the truth is that we will probably see the stock price bounce back a bit, because Wednesday’s crash was almost certainly an overreaction.  Unlike many other tech companies, Facebook is still making lots of money, and the number of users globally is still growing.  However, there are definitely some huge red flags.  In the U.S. and Canada the number of users is stagnant, and in Europe the number of users is actually declining.  Facebook’s user base is aging as many young people abandon the platform for trendier alternatives, and there is a growing backlash among conservatives against the tremendous censorship that we have seen in recent months.  People are hungry for an alternative, and if something more appealing comes along Facebook could ultimately suffer the same fate as MySpace very rapidly.

Stock prices tend to fall a lot faster than they go up, but what happened to Facebook on Wednesday was truly breathtaking…

Facebook lost about $130 billion in market value in just two hours, its steepest stock decline ever, after warning of slowing sales growth.

The stock, which plunged as much as 24% in after-hours trading Wednesday, had a cascading effect on competitors Snap and Twitter, which dropped, too. Traders are bracing for a decline in tech stocks when the markets open Thursday.

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Lynn: "There Will Be A Financial Crash... And Trump Will Be Blamed"

I’m of the opinion that many today are throwing the “baby out with the bathwater” when they claim the conservative versus liberal (right vs. left) construct is phony, or bogus.

Conservatives have lost political ground because they have accepted the moral premises of the Political Left. However, liberals use deception to hide their real motives while, simultaneously, blackmailing conservatives by means of conservative values.

How typical was the mainstream media’s “poor immigrant children” narrative that played the emotional heartstrings of dummies everywhere, like violins.

In the immigration debate, as in the gun control polemic, liberals don’t actually care for the children; at least not in the ways they profess.  They instead callously use the “children” as a means to consolidate their political power.

This explains why liberals never rejoiced for the offspring of lawless invaders when Trump signed the executive order to keep illegal immigrant families together. Instead, they claimed Trump “caved” before the [manufactured] “humanitarian and political crisis”. It’s also why children still attend schools in gun-free zones, while anti-gun protester David Hogg is protected by armed guards; because he’s more important than the other children now.

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The Fed Is "Living Dangerously" - The Great Financial Crisis "Will Be Eclipsed"

Since Hayek’s time, monetary policy, particularly in America, has evolved away from targeting production and discouraging savings by suppressing interest rates, towards encouraging consumption through expanding consumer finance. American consumers are living beyond their means and have commonly depleted all their liquid savings. But given the variations in the cost of consumer finance (between 0% car loans and 20% credit card and overdraft rates), consumers are generally insensitive to changes in interest rates.

Therefore, despite the rise of consumer finance, we can still regard Hayek’s triangle as illustrating the driving force behind the credit cycle, and the unsustainable excesses of unprofitable debt created by suppressing interest rates as the reason monetary policy always leads to an economic crisis. The chart below shows we could be living dangerously close to another tipping point, whereby the rises in the Fed Funds Rate (FFR) might be about to trigger a new credit and economic crisis.

Previous peaks in the FFR coincided with the onset of economic downturns, because they exposed unsustainable business models. On the basis of simple extrapolation, the area between the two dotted lines, which roughly join these peaks, is where the current FFR cycle can be expected to peak. It is currently standing at about 2% after yesterday’s increase, and the Fed expects the FFR to average 3.1% in 2019. The chart tells us the Fed is already living dangerously with yesterday’s hike, and further rises will all but guarantee a credit crisis.

The reason successive interest rate peaks have been on a declining trend is bound up in the rising level of outstanding debt and loans, shown by the red line on the chart. Besides a temporary slowdown during the last credit crisis, debt has been increasing over every cycle. Instead of sequential credit crises eliminating malinvestments, it is clear the Fed has prevented debt liquidation for at least the last forty years. The accumulation of debt since the 1980s is behind the reason for the decline in interest rate peaks over time.

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Morgan Stanley Is Wrong: Goldman Warns China's Credit Impulse Collapse Will "Drag On Growth" This Year

Just over a month ago - in what seemed to be an effort to keep the dream of a global synchronous recovery narrative alive - Morgan Stanley attempted to show that the link between China's (declining) credit impulse and the global economy (which we are constantly told is ebullient) has now been severed and all is well in the world.

Their Chief Asia Economist Chetan Ahya began by confirming that "if you had been able to reliably pick the key global macro variable over 2012-16, China’s credit impulse would have been your choice" and explains why (this should be obvious to regular readers): 

The incredibly tight link between the credit impulse and China’s growth cycle, emerging markets (EMs) exports, global growth and commodity prices meant that it would have accurately predicted the direction of almost all other global macro variables that mattered, with about six months’ lead time.

He further explains the "simple" - in retrospect of course - reason behind this observation:

China’s credit impulse – or its leverage cycle – was the only game in town back then. With global aggregate demand weak as developed markets (DMs) were deleveraging and EMs were adjusting, the change in China’s credit impulse was the most significant driver of the global economy

However, in a striking claim which breaks with precedent and which, if correct suggests a historic change in the relationship between China's credit creation and its impact on global markets and economies, the Morgan Stanley economist then writes that the link between China's credit impulse and the global economy "has now been broken" and justifies his answer as follows: 

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