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Business News/ Opinion / The four horsemen of the financial apocalypse
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The four horsemen of the financial apocalypse

The Bible's Book of Revelation talks of four horsemen who will rampage across the world, bringing war, pestilence, famine, death. What's their financial equivalent?

A file photo of a trader on the floor of a US stock market. Photo: Getty ImagesPremium
A file photo of a trader on the floor of a US stock market. Photo: Getty Images

Doomsday prophets are back in business. George Soros has warned of another 2008. Economists at the Royal Bank of Scotland say 2016 will be a “cataclysmic year". Albert Edwards, perma bear at Société Générale SA, says the S&P 500 could fall below the 666 level it hit during the 2008 crisis—666 is the mark of the devil. There’s a whiff of sulphur and brimstone in the air.

Talking of catastrophes, nothing can beat the Book of Revelation in the Bible, which tells of horrors that will be unleashed as the Last Judgment is upon us. That is when the Four Horsemen of the Apocalypse will rampage across the world, bringing with them war, pestilence, famine and death, according to Biblical tradition. What would be their financial equivalent? Here are the four horsemen of the financial apocalypse:

The white horse of deflation

From Revelation, Chapter 6: “And I saw, and behold a white horse: and he that sat on him had a bow; and a crown was given unto him: and he went forth conquering, and to conquer".

Deflation is conquering the world economy. Lo and behold, oil and commodity prices have crashed.

Commodity producers are cutting back spending and selling investments as they desperately try to cope with falling revenues. Bankruptcies loom on the horizon. Commodity importers too are affected, through devilish spillover effects. A slowdown in the oil-producing Middle East could throw thousands of migrant workers out of jobs and remittances may plummet. Sovereign wealth funds are selling, cracking open emerging markets.

Deflation hits firms and economies as the value of their debt rises. People start hoarding money rather than spending— slowing demand and growth.

Evil negative interest rates, financial products from Hell, have been sighted in Europe.

Falling oil prices will also destabilise the Middle East, a geopolitical witches’ cauldron. The Saudi-Iran rivalry and sectarian wars in the region could lead to a surge in global terrorism.

The red horse of China

Book of Revelation, Chapter 6: “And there went out another horse that was red: and power was given to him that sat thereon to take peace from the earth, and that they should kill one another: and there was given unto him a great sword."

China, the world’s second largest economy, is red. It is slowing down at an alarming pace. Its old export and investment-oriented model is dead, and its attempt to move towards a more consumption-based economy is fraught with peril, bringing woe and affliction not only to itself but to the world economy.

There has been massive over-investment and ghost cities, the abode of the Undead, proliferate. Banks that have lent for all this mal-investment are sick. It is a zombie economy.

What’s worse is the country is governed by a godless dictatorship that lies through its teeth about everything, including its economy. The tension between its model of one-party control and market forces has come out in the open and the Communist Party could soon see blood on the streets.

The black horse of currency wars

Revelation, Chapter 6: “And I beheld, and lo a black horse; and he that sat on him had a pair of balances in his hand."

The balances, of course, are to determine the foreign exchange rates. As countries face faltering domestic demand, the Devil has tempted them to go in for ultra-loose monetary policy in a frantic attempt to export their way out of a slowdown.

The stronger dollar has led to US growth faltering and the Federal Reserve Bank of Atlanta now believes GDP growth will be a mere 0.6% in the December 2015 quarter.

The euro zone and Japan have depreciated their way to fragile recoveries, as they go in for round after round of monetary easing. The stronger dollar has already destabilised the yuan, and the Chinese have gone in for two rounds of depreciation, with more to follow. Other emerging markets have been dragged along in this lemming-like rush to the bottomless pit.

The pale horse of debt

Revelation, Chapter 6: “And I looked, and behold a pale horse: and his name that sat on him was Death, and Hell followed with him".

“Death" is a misprint and should be read as “Debt"instead.

Despite the 2008 financial crisis being the result of too much borrowing, the stock of debt has kept on going up. The Bank for International Settlements says the debt of the non-financial sector, as a percentage of gross domestic product (GDP), has increased 36 percentage points since end-2007 to 265% of GDP in 2014 for the advanced economies. China, Hong Kong and South Korea have non-financial sector debt to GDP ratios of 235%, 287% and 228%, respectively. This yardstick has gone up by 82 percentage points for China and 103 percentage points for Hong Kong since end-2007. Most of the addition has been in corporate debt.

A stronger dollar will weigh on the balance sheets of firms that have borrowed in foreign currency. Low nominal growth will result in rising debt-to-GDP ratios for countries. But the thing that causes the Devil to rub his hands with glee is the notion that a debt crisis can be solved by taking on even more debt. The Day of Reckoning is nigh.

To be sure, we have defences. Against these horsemen are ranged the world’s central banks and policymakers and the Chinese Communist Party, all doughty defenders of the markets’ faith. They have assiduously fanned asset bubbles and are likely to fight tooth and nail to protect them.

But after more than eight years of fighting the aftermath of the financial crisis, during which the plague has spread to all corners of the world, is it any wonder the markets worry whether policymakers are running out of ammunition? Is it any wonder they occasionally have nightmares about these four horsemen of the financial apocalypse?

Manas Chakravarty looks at trends and issues in the financial markets.

Your comments are welcome at capitalaccount@livemint.com

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Published: 18 Jan 2016, 12:18 AM IST
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