Nouriel Roubini Sees Sino-American Tension Driving Risk of Global Recession in 2020

June 22nd, 2019 Comments off

 

He was dubbed “Dr. Doom”  for his uncanny and highly accurate prediction of the 2008 global financial crisis and global recession. Now, Roubini is again making dire predictions of a catastrophic global economic recession. This time, however, the decisive driver of the meltdown won’t be subprime mortgages but rather the increasingly tense relationship between the two largest economies in the world – America and China.

In an article for Project Syndicate entitled, ” The Coming Sino-American Bust Up,” the noted economist  writes,  “Whether or not US President Donald Trump and his Chinese counterpart, Xi Jinping, agree to another truce at the upcoming G20 summit in Osaka, the Sino-American conflict has already entered a dangerous new phase. Though a negotiated settlement or a managed continuation of the status quo are possible, a sharp escalation is now the most likely scenario.

Roubini sees a global recession occurring as soon as 2020, a predictions that other economists have also prognosticated on. With the previous global economic crisis of 2008 having consumed all the policy perceptions that central  banks and sovereign fiscal stimulus had available for decision makers, the coming global economic recession will find policy makers with  few silver billets remaining. In the meantime, nationalism may replace rational economics in determining the course of the next recession, which Nouriel Roubini believes will be largely determined by the increasingly strife-ridden relationship between the United States and China.

Sheldon Filger-blogger for GlobalEconomicCrisis.com

Zombie Apartments: Manifestation of China Economy in Deep Trouble

May 7th, 2019 Comments off

The trade war between Washington and Beijing tends to obscure the darkest manifestation of a looming economic danger for China. Though in past years much commentary has been offered on China’s “ghost cities,” the implications been largely glossed over. But they shouldn’t be.

In China’s major urban centers there are currently 65 million unoccupied apartments. This reflects more than 20 percent of all homes in China.  Taking into account that housing construction and its related industrial activity are responsible for one third of all recent GDP growth in China, building zombie residential apartments are not only a non-viable long-term economic  policy; this unsustainable development model will eventually have to come to an end.

When that occurs, the ramifications for President Xi Jinping and the leadership in Beijing will be inevitably dire.

IMF Cuts Global Growth Projection Amid Growing Fears of Worldwide Recession

January 23rd, 2019 Comments off

Sheldon Filger-blogger for GlobalEconomicCrisis.com

Christine Lagarde, chair of the International Monetary Fund- – IMF- – added to the anxieties of the rich and powerful gathered for the annual pilgrimage to Davos , Switzerland for the World Economic Forum. Cutting the IMF forecast for 2019 from 3.7 % to 3.5 %, she was acknowledging what is already widely known; there are a growing number of indicators that the global economy is headed for a hard landing.

There is growing instability in major economies, for example the Brexit snafu afflicting the UK and the European Union. There is political gridlock in the USA. And then there is China, the economic gorilla in the room,

The trade wars initiated by the Trump  administration  have harmed both American and Chinese economies. But China is facing other forces; a growing level of indebtedness afflicting both public and private companies. The recent data reflecting the sharp drop in official Chinese GDP growth statistics reflect a major slowing down of the Chinese economy.

Unlike the economic crisis of 2008. when the United Sates was the primary trigger, the next major global recession will most likely be unleashed by events in China, now the world’s second largest economy. 

 

China Has Fifty Million Empty Apartments

November 9th, 2018 Comments off

While economists have been focusing on signs that GDP growth in the Chinese economy is slowing, and the escalating  trade war with President Trump’s America, Bloomberg has reported on another potential  pitfall in the world’s second largest economy.

According to Bloomberg, China has fifty million unoccupied apartments. This represent 22 percent  – more than a fifth – of the nation’s housing stock. This clearly reflects the speculative character of much of China’s housing  construction, and in both raw numbers  and percentage terms is the highest vacancy rate in the world.

As noted in Bloomberg, should  any  negative economic development precipitate a massive sell-off of these fifty million unoccupied apartments homes,  the result would be a catastrophic deflationary spiral in the Chinese real estate market. As with the U.S. subprime crisis of 2007, such a scenario would have global economic consequences of the most dire character.

 

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Nouriel Roubini – “Dr. Doom” – Predicts Major Financial Crisis In 2020

September 17th, 2018 Comments off

Economist  Nouriel Roubini famously predicted the Global Financial Crisis of 2008. His forecast was so accurate, he was dubbed “Dr. Doom” by pundits, though Roubini rejects that term, preferring he be dubbed “Dr. Realist.” And it is that sense of realism, and his track record as a highly professional economist analysts, that  led him to predict, in an article published by Project Syndicate,  that a major financial crisis will arise in 202o, leading to a severe global recession.

The first cause of the 2020 crisis, according to Roubini, is “the fiscal-stimulus policies that are currently pushing the annual U.S. growth rate above its 2% potential are unsustainable. By 2020, the stimulus will run out, and a modest fiscal drag will pull growth from 3% to slightly below 2%.”

The poor timing of U.S. stimulus spending will contribute to inflation, compelling the Federal Reserve to continue increasing its interest rates. These inflationary trends will occur in other major economies, with other central banks accordingly replicating the actions of the U.S. Federal Reserve.

Additional factors adding to the toxic fiscal and economic mix are the policies of the Trump administration leading to a major global trades war,  interdiction of global supply chains and immigration policies that restrict growth and investment.  Parallel to this, fiscal and monetary policies in Europe will slow down European economies.

Roubini adds that leverage in emerging markets and several advanced economies is overly excessive, real estate too expensive, leading to a major correction if over-valued equities. In particular, fixed income assets will be highly vulnerable, and the correction, exacerbated by high frequency/algorithmic trading, will create flash crashes.   In this scenario, a backstop by central banks will not be accessible, as these institutions pursue normalized interest rates  and policies in an environment of rising inflation.

With a presidential election looming in 2020, Roubini believes the Trump administration may pursue  a “wag the dog” scenario, such as a military conflict with Iran, as a distraction in the face of a deteriorating economy,  triggering “a stagflationary geopolitical shock not unlike the oil-price spikes of 1973, 1979, and 1990. Needless to say, that would make the oncoming global recession even more severe.”

The global economic crisis  Nouriel Roubini believes will occur in 2020 will like be more severe than 2008. The noted economist write in his article, ” once the perfect storm outlined above occurs, the policy tools for addressing it will be sorely lacking. The space for fiscal stimulus is already limited by massive public debt. The possibility for more unconventional monetary policies will be limited by bloated balance sheets and the lack of headroom to cut policy rates. And financial-sector bailouts will be intolerable in countries with resurgent populist movements and near-insolvent governments…when it comes, the next crisis and recession could be even more severe and prolonged than the last.”

The dark economic forecast offered by Nouriel Roubini  may revive the earlier moniker of “Dr. Doom.” however, as with his prediction made prior to the 2008 Global Financial Crisis, it has the ring of analytical realism and unassailable logic. On that basis, 2008 may very well bring the onset of a global economic crisis so severe it may lead, unlike the crisis of 2008, into a prolonged economic depression that threatens geopolitical stability as well and economic and financial equilibrium.

 

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Turkish Lira Is Imploding – – Economy Of Erdogan About To Go Cold Turkey

August 13th, 2018 Comments off

When the aspiring Sultan of neo-Ottoman Turkey, Erdogan, called early presidential elections, nuanced observers pointed out he probably knew in advance that the Turkish economy was about to enter a severe recession, and he wanted to secure his near-dictatorial presidential  powers before the deluge set it. It is now setting in , with a vengeance. The country’s  fragile currency, the Lira, continues to erode at breakneck speed. On August 12, it plummeted to just above 7 to one U.S.  dollar.

Turkey’s high growth rates under Erdogan were illusory; they were fed by massive borrowing from foreign banks, the  loans denominated in dollars and euros. The collapse of the Turkish Lira leaves open the probability that foreign credit  will disappear, battering the Turkish economy with severity.

Turkey’s looming economic and financial collapse cannot be easily contained. Many banks, especially in Europe, hold Turkish debt in large quantities. An economic collapse in Turkey will have highly negative ramification in Europe, and   likely globally.

Trump Global Trade War Could Bring Economic Catastrophe

July 10th, 2018 Comments off

The  core supporters of President Donald Trump maintain that despite the at times troublesome tweets and verbal coarseness, this is trivial compared to the tangible economic results achieved during the first year-and-a-half of his administration. The relatively high GDP growth rates and low official unemployment rates are heralded by his adherents as signposts on the road of making America “great again.”

I am not as sanguine. In  the first place, based on the pattern of economic cycles in the last hundred years, the American economy is overdue for a severe  recession. It has not happened yet due to the monetary alchemy of the U.S. Federal Reserve, in lockstep with other central banks across the globe.

Secondly, and more importantly, Trump has now unleashed a trade war. It is the economic equivalent of an economic world war, as President Trump is targeting friend and foe alike;   China, Canada   and the European Union have been hit with sizeable tariffs; these countries have responded with retaliatory tariffs, matching America’s in scope and severity.

Many scholars of the Great Depression have argued that this worldwide economic calamity was not driven by the Wall Street crash of 1929, buy by a massive wave of protectionism in the early 1930s, characterized by a wave of tariffs and quotas.

Has President Donald Trump opened a Pandora’s box that may unleash a massive global economic crisis?

Turkish Economy Under Threat As Currency Plummets

May 27th, 2018 Comments off

The Turkish currency, the Lira, has lost significant value in a only a few months, reflecting the overall vulnerability of Turkey’s economy, which is plagued with corporate debt and a massive current account deficit.

The mercurial and authoritarian president of Turkey, Erdogan, is facing an election in which he hopes to further enhance his already powerful political grip. His strategy  is to play the populism card, and lash out at foreigners, including the United States, European Union and Israel. Part of this approach is blaming the “interest lobby,” and in a shocking display of bad economic sense, Erdogan, while on a visit to London, told foreign investors that after the election, he would subvert the independence of Turkey’s central bank.

The moves by Erdogan spooked global investors, leading to further erosion of the Lira. Reality briefly surfaced in Ankara, with even the Erdogan regime conceding that the central bank had to rush in an emergency interest hike of 300 basis points. This led to a temporary stabilization of the Lira.

After the election  Turkey faces political and economic uncertainty. The growing authoritarianism of Erdogan threatens the  foundation of Turkey’s economy, and there exists a major danger that after the election, the Lira will go into free-fall as foreign and domestic investors flee Turkey’s increasingly fragile currency.

Wall Street Lays A Big Egg – -Dow Jones in Record One-Day Loss – – Down 1175 Points on Black Monday

February 6th, 2018 Comments off

The Dow Jones Industrial Index was the one shining light in President Donald Trump’s unconventional administration. No matter how perplexing his tweets were, there was no denying that Wall Street investors loved his pro-business posture. That is until now.

The massacre that occurred on Wall Street on Black Monday, February 5, 2018 was the largest one -day loss on  the New York Stock exchange. This comes after a bad week on Wall Street, meaning all of the gains trumpeted by Trump have been erased. Of course, there will be pundits claiming that this is just a temporary correction. But is it?

After a decade of money printing and near zero interest rates undertaken by central banks around the world, but especially by America’s Federal Reserve, inflation  fears are returning with a vengeance

It must be recalled that a major reason the world supposedly escaped a massive economic depression following the global economic crisis of 2008 has been  money printing by central banks and massive borrowing by sovereigns. This borrowing binge continues to the present day.  Up till now, zero interest rates have enabled major sovereign borrowers, especially the United States, to service its growing government debt. However, should interest rates return to anything approaching normal historical levels, then many countries, the USA being in the lead, face the prospect of a massive insolvency crisis. Fear of this approaching fiscal Armageddon may be what is animating the growing  fear among Wall Street investors.

Black Monday may very well be  a sign of much worse to come.

Is North Korea Planning A Nuclear Pearl Harbor For America?

September 14th, 2017 Comments off

In response to the new sanctions imposed upon North Korea by the United Nations Security Council, the official  external news agency of the DPRK (Democratic People’s Republic of Korea),  which goes by the surreal  name of “Korea Asia-Pacific Peace Committee,” issued the following statement:

Let’s reduce the U.S. mainland into ashes and darkness. Let’s vent our spite with mobilization of all retaliation means which have been prepared till now.

The implication is clear; Pyongyang is threatening to unleash a salvo of long-range ballistic missiles tipped with thermonuclear warheads at America’s largest cities. This call for nuclear genocide is not only aimed at the United States. The same statement also included this apocalyptic message for Japan:

The four islands of the archipelago should be sunken into the sea by the nuclear bomb of Juche. Japan is no longer needed to exist near us

There is a tendency by foreign observers, including in the U.S., to dismiss North Korean threats to annihilate the United States and its population as typical bellicosity that periodically emanates from Pyongyang, not to be taken seriously. At one time, many American experts also claimed that North Korea’s boasts of nuclear weapons advancement were highly exaggerated. However, the latest nuclear test detonation and ICBM launch proves that the reclusive nation’s ability to launch a nuclear attack on the continental United States has advanced far more rapidly than they had originally forecasted. For that reason alone, a warning by Pyongyang that it seeks the genocidal annihilation of America, along with Japan, should not be frivolously ignored and treated as propaganda.

There is an historical parallel to what is unfolding in North Korea. In 1941 the U.S. sought to pressure Imperial Japan to end its war of conquest in China and expansionism in Southeast Asia through the application of economic sanctions. As the sanctions became increasingly severe, the Japanese press warned through statements by authoritative sources that their nation would be forced to strike back militarily at the U.S. and its allies to break the economic stranglehold being imposed on them.

The reaction of Pyongyang to the most recent U.N. sanctions has disturbing parallels with Japan’s threats in late 1941. However, there is one essential difference. When Japan decided to attack the U.S. it dispatched a naval armada that took eleven days to reach its target, which were battleships and airfields. If North Korea unleashes an attack on America, it will take half an hour for its nuclear-tipped ballistic missiles to reach their targets, which will be the nation’s largest population centers.

 

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