Oil prices and debt derivatives It is good to be British or to - TopicsExpress



          

Oil prices and debt derivatives It is good to be British or to be in Britain. If only French and Italian papers could publish letters without sermons from editors... See the letter published by the FT below. Financial Times. Letters. December 23, 2014. Sir, “A falling oil price is good for the world economy”, proclaims your editorial (December 20); though it is “not a good thing for Vladimir Putin”; fears that it poses a danger to “the rest of us”, in the form of deflation, are “misplaced”. You then proceed to outline a neat and tidy microeconomic tale of supply and demand which, for all the macroeconomic veneer (the role of monetary policy, and so on), addresses the issue in much the same way as archaeologists might discuss the supply and demand for flint among our prehistoric toolmaking ancestors. The fall in the oil price, you conclude, gives policy makers a “helping hand”. It appears that one eye can ignore what the other can read very plainly: for only the previous day, we had been warned in the most explicit way, with all the facts and figures we could desire, that there is a “real danger to the global financial system from oil price collapse” (Peter Lewis, Letters); and, in particular, that “Russia sounds a warning on the frailties of global debt” (Gillian Tett, Comment). What these commentators take account of, and you ignore, is a danger that our prehistoric ancestors did not face — the risks lying within today’s world of finance: the $236.8tn world of derivatives, the massive currency mismatches threatening the structure of global sovereign and corporate debt, not least from within the Russian energy sector, and all the other factors, whether known or more often unknown which, like the subprime mortgages of a previous episode, are potential triggers for financial implosion. Events will tell whether the fall in oil prices will prove, as you optimistically predict, a “helping hand” to monetary policy or, as these commentators warn, a hand that gives a fatal jolt to one of these ready-cocked triggers. Hugh Goodacre University College London and University of Westminster, UK
Posted on: Tue, 23 Dec 2014 20:39:25 +0000

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