Archive

Archive for the ‘global economic crisis’ Category

Inflation On Steroids

October 15th, 2021 Comments off

Sheldon Filger-blogger for GlobalEconomicCrisis.com

 

 

 

For the past several months my blog has warned about the growing inflation threat to the global economy. That, and other economic distortions of a massive character, have made stagflation-inflation plus low or negative economic growth-an increasingly likely trend. Over that same period, central banks have nourished the flames of inflation, especially in the U.S.,  where theFederal Reserve has preached the erroneous gospel that inflation was only transitory, and therefore not a trend that should be of concern.

Reality has now caught up with the Fed.  At least some of the key players on the Federal Reserve have reluctantly agreed that inflationary pressures are real, and likely to be  a trend and not transitory. And then there is Larry Summers, former U.S. Treasury Secretary. He recently told Bloomberg News that the Federal Reserve’s policy errors are stoking inflation, making 1970s style stagflation inevitable. He told Bloomberg News, “we have a generation of central bankers who are defining themselves by their ‘wokeness.’…they’re defining themselves by how socially concerned they are.”

The causal factors for this surge of inflation are due to reactions by both sovereigns and their central banks to the Covid pandemic. Poorly conceived policy decisions have disrupted supply chains and labor markets. For example, in February of 2020 the percentage of eligible Americans in the active labor pool was 63.3%. By September of 2021 the labor participation rate had declined to 61.6%. With millions of workers absent from the labor pool and production and shipping of commodities and finished goods globally impeded, the resulting shortages have spiked prices of essential products, including food and energy.

As though government policy was not enough, central banks through profligate monetary policies have flooded a constricted global economy with unprecedented levels of liquidity. The result was fully predictable; turbocharged inflation. That is why housing prices in the U.S. have risen by more than 20% in the past year. They are projected to increase another 20% in the coming year, despite a weak economy. Simply put, the Federal Reserve, through artificially low interest rates and an out-of-control printing press, has encouraged speculators to buy up housing stock as investment properties, taking advantage of cheap money.

A stagflationary calamity looms just over the horizon. Unfortunately, policymakers and central bankers, especially in the United States, seem totally out of touch with reality, residing in a parallel universe while the global economy is on the edge of a cliff.

China’s Second Largest Property Developer, Evergrande, On Verge of Collapse

September 26th, 2021 Comments off

Sheldon Filger-blogger for GlobalEconomicCrisis.com

 

 

With 1,300 projects across 280 Chinese cities, Evergrande  currently ranks as the second largest property developer in China and one of the major builders of apartments in the world’s second largest economy. But not for long.

As a result of Chinese government measures that were meant to put a brake on rising housing prices by restricting riskier mortgages, but had the unintended consequence of curtailing  credit to an extent that had not been foreseen, Evergrande is now starving for cash. It has  $300 billion USD in debt, and is increasingly struggling g to meet  interest payments. The likelihood is that Evergrande will default on its outstanding loans.

There are already predictions that Evergrande will become the Lehman Brothers moment for China. Despite the nation being an authoritarian police state, there have been angry demonstrations  throughout China, bordering on riots. The reason is that large numbers of investors, and well as a multitude who have placed large down payments on apartments that may never be built, are angry at the prospect of finding themselves suffering massive and possibly irrecoverable financial losses. It should be recalled that the bulk of Chinese citizens’ wealth is the equity in their apartments.

Though the bulk of those directly exposed to the risk of an Evergrande collapse are Chinese citizens, the repercussions  cannot be contained within China. The size of the Chinese economy and its global interconnectedness mean that there will be collateral damage and contagion impacting the entire global economy. Just as the implosion of the U.S. subprime housing market set off the global financial crisis of 2007-09, the impending demise of Evergrande may very well be the final nail in the coffin of the post-pandemic world economy, ushering in the global economic crisis of the 21st century.

Evergrande may become the epicenter of global financial contagion, just as Wuhan was for the Covid pandemic. What happens to this very large but increasingly insolvent company will be highly consequential for the global economy.

Global Inflation Rising At Double Digits As House Prices In U.S. Skyrocket

September 13th, 2021 Comments off

Sheldon Filger-blogger for GlobalEconomicCrisis.com

 

 

There is increasingly worrying data emerging from the largest developed economies, revealing rapidly rising levels of inflation. Despite the veil of silence being maintained by sovereigns, and the claims by central banks such as the U.S. Federal Reserve that inflationary spikes are but a temporary phenomenon, the data tells a different story.

 

Germany released a report  indicating that in  August, year to year inflation was 12.3 % versus  11.3 % in June. This shows that Germany being in double digit inflation territory is no flash in the pan, but a lasting and accelerating trend. This is also the highest rate of wholesale price inflation in the German economy since 1974

In the United Sates, housing prices year on year have risen by almost 20%. This is a staggering number, made more inexplicable in the wake of a still weak and Covid ravaged economy being propped up by both government deficit spending and Fed monetary loosening. And those policies lie at the heart of the problem.

Covid has afflicted global supply chains, leading to shortages of key commodities and industrial parts such as computer chips for automobile manufacturers. That in itself is a major driver of price inflation. However, central banks engaging in unprecedented money printing has , in effect, turbocharged inflation.  The artificially low mortgage rates  that have resulted from Fed policy decisions have not only provided new home buyers with easy credit; in the United States speculators and investors have been seizing the cheap money now available to buyers of homers  for purposes of flipping them for quick profits or, increasingly , converting them into rental properties.

As I have warned previously,  the indicators of stagflation-high inflation and low or negative economic growth- are increasing, pointing to a dismal long-term economic  future characterized by a severe recession or depression with high inflation in the near or medium term.

Economic Consequences Of America’s Strategic Defeat In Afghanistan

August 14th, 2021 Comments off

Sheldon Filger-blogger for GlobalEconomicCrisis.com

 

 

 

 

As the world watches  the total and unmitigated defeat of the United States in Afghanistan, pundits will no doubt offer their multitude of post mortems. Historical reflection is a long process, and decades into the future historians and political scientists will still be offering their explanations. However, in this piece  I want to focus on the economic consequences of the Taliban triumph, a topic that has not received much commentary.

1.Instability in South Asia. The renewal of an extremist, uncompromising Islamist emirate will greatly exacerbate external and internal tensions with-and within-the countries bordering Afghanistan. Iran, though also governed by an Islamist theocracy,  is viewed as  a Shiite heresy by the Taliban . China is seen as an oppressor of Sunni Muslims , in particular the Uighurs. Then there is Pakistan, a longtime supporter of the Taliban, especially stemming from its intelligence services, the ISI. It has its own domestic divisions. and the Taliban victory will embolden its Islamist extremist elements. As Pakistan is a nuclear-armed state, this does not bold well for global stability. Instability  in this region will disrupt the already fragile economic recovery from the global impact of the Covid pandemic. Expect to see major price fluctuations in many key commodities and within the global supply chain as a direct consequence of the Taliban victory, further exacerbating already deepening inflationary trends.

  1. Loss of confidence in America’s ruling elites. After the attacks on the United States by Al-Qaeda on September 11, 2001 the U.S. had one legitimate and essential strategic objective in Afghanistan: ensure that this country would never again serve as a launching pad for an attack on the United States by Islamist extremist non-state actors. Not nation-building, or transforming cultural and tribal behaviors in Afghanistan that have existed for a millennium. Yet, that is what America’s ruling elites tried to do. Rather than focus on the one essential goal of protecting American national security, they decided to remake this feudal land into a Westernized, pluralist democracy. What was worse, they made this effort on the cheap. The collective military deployments by the U.S. and its NATO allies were a fraction of the minimum required to achieve this elusive and ill-conceived objective for even a short-term  period. The failure of this ill-defined mission  is a shattering, unmitigated defeat for the elites that rule the United States. It is a staggering reverse, far worse than the Vietnam experience, for America’s defeat in 1975 did not have long-term negative strategic  consequences.  This will be viewed by the world, correctly, as not only a national humiliation, but also a clear indicator of decline, rooted in the ineptitude of America’s ruling class. The loss of global confidence in America’s political leadership will have long-term effects on collective  trust in the United States as a stable economic power. The benefits of previous confidence in American stability-access to cheap loans through foreign purchases of U.S. government debt instruments-will diminish, leading to higher borrowing costs at a time of unprecedented annual government deficits and an overall national debt that is spiraling out of control.
  2. New phase in “War on Terror.” The intellectual bankruptcy that characterizes the political rulers of the U.S. has been on full display as the Afghanistan debacle unfolds. Reacting in stunned fashioned, the American political elites give one the impression of being pathologically disconnected from reality. For example, with the Taliban at the very gates of Kabul, the spokesperson for President Biden and others in his administration have urged this Islamist extremist movement to think of their “international reputation,” and have warned that economic aid to Afghanistan would be “reduced.” Anyone who knows anything about the Taliban understands that this movement does not do international reputation building or economic development. It has one agenda only: to establish the strictest interpretation of Sharia law , not only in Afghanistan but in any other land it can impact. This means that Al-Qaeda will once again  have complete access to Afghanistan to launch its global assault on the infidel powers, especially the United States. Al-Qaeda’s rival in the Islamist radical world, ISIS, may also be permitted safe space in Afghanistan by a resurgent  Taliban. All these forces, operating within  an Islamist mindset, will view  the defeat of the U.S. as a sure sign from divine providence that their global jihad must be renewed and intensified. Inevitably this will result, at some point , in another severe attack on the American homeland. As with 9/11, this will lead to a substantial increase in  defense spending and collateral damage to the American economy. There will  be one important difference this time. Twenty years ago, in relative terms,  the American economy was much stronger, and government finances were vastly healthier, with much lower deficits and an overall national debt far lower than at present, even factoring in the effects of inflation. This means that the anti-American  global jihadists, already invigorated by the U.S. defeat in Afghanistan, will conduct their new attacks on the U.S. at a time of great economic instability. Any new Al-Qaeda or ISIS attack on the American homeland will likely trigger severe negative economic  aftershocks, which, in the context of already deeply negative trends created by the Covid  pandemic, could lead to a long-term recession or even an economic depression. In other words, the next stage of the “War on Terror” must be factored in as a consequential  economic event.

 

Economic Doomsday Coming For U.S. And Other Major Economies? Deficit Spending As Far As The Eye Can See

July 28th, 2021 Comments off

Canada’s Budgetary Officer, known as the PBO, recently  released a report that stated that unless major fiscal consolidation occurs in government spending, deficits at a high level are projected to continue until at least 2070. That is, high deficit spending is baked into the cake for the next half-century. That projection excluded likely future scenarios such as more pandemics, natural disasters and military conflict, not to mention internal issues. It is a dystopian prediction for government spending, and it is unsustainable.

The PBO projection for government spending is a mirror image that can be applied to every economy on the glove, in particular all the G7 countries.

No nation is as entrapped in high deficit spending to as a high degree as the United States. When the U.S. briefly went into budgetary surpluses in the latter years of the Clinton administration, the incoming George W. Bush presidency swiftly headed back into deficit spending due to the enactment of major tax reductions , particularly those affecting higher income earners. The rationale? The Vice President , Dick Cheney, told the GOP, supposedly the party of fiscal conservatism, that former president Ronald Reagan had “proved” that fiscal deficits “don’t matter.”

However, the low to mid single digit proportion of GDP reflected by the size of deficits has now morphed into  high single digits and even double digit fractions of national GDP since politicians throughout the world opened the spigot of sovereign debt spending, abetted by the near-zero interest policies of central banks, such as the U.S. Federal Reserve.

In the current fiscal year, the United States  federal government has generated  $3.1 trillion dollars in revenue and $5.3 trillion in spending, resulting in  a deficit of $2.2 trillion.  The current national debt has skyrocketed past $28 trillion. This figure represents  130 % of America’s GDP. By way of comparison, in 2001, only twenty years ago, the U.S. national debt was $5.8 trillion, and represented 55 % of GDP.

The trajectory regarding America’s-and many other nation’s-government spending  patterns are clearly and inalterably headed in the wrong direction. This cannot be sustained indefinitely. Already, inflation is raising its ugly head as a form of stealth taxation. At some point, probably when central bank are compelled by inflationary pressures to significantly raise interest rates, the whole illusory edifice will implode.

Sheldon Filger-blogger for GlobalEconomicCrisis.com

Leading Economist Warns of Hellish Future For Global Economy

July 11th, 2021 Comments off

Sheldon Filger-blogger for GlobalEconomicCrisis.com

 

 

He predicted the 2007-09 Global Financial Crisis with uncanny accuracy, even while experts including then Federal Reserve chairman Ben Bernanke were dismissive of him. He’s Nouriel Roubini, economics professor at NYU and a highly distinguished economist. Though his correct forecast of the 2007-09 financial implosion earned him the nickname of Dr. Doom, he prefers to think of himself as Dr. Realist. His latest exercise in realism makes chilling reading.

As the Covid pandemic erupted, Roubini was already warning that the world faced a global economic depression sometime during the course of the present decade. With unprecedented sovereign debt expansion during the past year  unleashed by governments under the guise of providing Covid relief, Professor Roubini has taken a fresh look at the data, and published his conclusions in a recent article that appeared in The Guardian.

“Conditions are ripe for repeat of 1970s stagflation and 2008 debt crisis,” reads the headline of Roubini’s article.  “Warning signs are there for global economy, and central banks will be left in impossible position,” he writes.
In essence, Roubini points out that current trends, which include not only the massive expansion  of sovereign debt but also contributing  factors such as the loss of independence by central banks coupled with the decoupling between the United States and China, leading to fragmentation of global supply chains, point to an unavoidable train wreck  for the global economy. It is a hellish forecast, which unfortunately has the ring of truth.  If Professor Roubini’s forecast is as accurate as was his previous warning of the impending Global Financial Crisis of 2007-09, the world stands on the verge of the Global Economic Crisis of the 21st century, a Great Depression 2.0 coupled with high inflation. And, as Roubini warns, central banks  will be powerless to stop it.

Global Food Inflation Is Soaring Through The Roof

June 7th, 2021 Comments off

According to the United Nations, its UN Food Price Index indicates, on a year to year basis, a rise of nearly 40 percent. This rate of increase in the price of the single most important basket of commodities critical for sustaining human life clearly contradicts official government statistics throughout the world, seeking to reassure their publics that the unprecedented level of public indebtedness accumulated by sovereigns over the past year has at worst only led to a slight uptick in the inflation rate, and only temporarily.

 

Sheldon Filger-blogger for GlobalEconomicCrisis.com

 

Consumers shopping for food know the truth. A friend residing in the U.S. recently shared with me the dismaying news that the price of watermelon has risen to $12.00, a price point which only a year ago would have seemed imaginary. This dangerous price spiral is an inevitable outcome of the unprecedented government borrowing in the name of fighting a pandemic, coupled with Covid-induced disruptions to the global supply chain.

The noted economic historian Adam Tooze notes that the last time such staggering levels of food price inflation occurred was in 2011. As he observes, this enabled the Arab spring, and all its subsequent geopolitical destabilization.

Inflation Risks Rise Sharply In Latest CPI Data

May 12th, 2021 Comments off

The U.S. Bureau Of Labor Statistics has released its April figures, and they have surprised analysts. They show a CPI rise of 0.8 %, , far higher than expected. In the past twelve months, inflation in the United Sates stood at 4.2%, and is clearly accelerating. As many observers note, even this worrying data understates many price increases more reflective of what is impacting the typical American consumer.

This blog has warned previously of the growing threat of inflation and eventually stagflation-high inflation in conjunction with a severe  recession . At present, inflationary pressure not only in the U.S. but globally are rising. In the case of America, there are a number of volatile factors accelerating inflationary pressure in the U.S. economy. The trillions of dollars in new public debt accumulated in only one year since the outbreak of Covid has overloaded the economy with monetary stimulus, creating a highly inflationary dynamic. The pandemic and public policy responses have

Sheldon Filger-blogger for GlobalEconomicCrisis.com

also added to the inflationary matrix. Then there are the unexpected but increasingly more common cyber attacks, a growing geopolitical reality.

The recent cyber attack on a critical oil pipeline in the U.S. has generated economic shockwaves, leading to gas shortages, long lines at gasoline stations and double-digit price rises. The response of the Biden administration: It is strictly a private sector decision on whether or not the company pays ransom to the hackers, and the government has no official position on the matter.

The example above does not leave grounds for optimism. The impotence of Washington D.D, is itself a contributing factor to inflation. Investors are already beginning to anticipate an eventual end to the near zero-interest policies of the Federal Reserve.

Three Underreported Trends Pointing To Grave Global Economic Crisis

May 3rd, 2021 Comments off

Pundits are already praising President Biden’s debt-fed economic boom through vast levels of public indebtedness, which add a few temporary percentage points to the U.S. GDP, while the Eurozone has slipped back into recession. Far more telling  are three interconnected economic trends, recognized by economists and sophisticated entrepreneurs, but largely ignored in the popular media. These trends are:

 

  1. Global microchip shortage. The Covid pandemic both increased the demand for high technology cyberspace platforms , while disrupting supply chains on which the worldwide fabrication of computer chips depends. And not only cyber platforms; many manufacturing  processes and end-products, such as the automotive industry, depend on microchips. In the wake of the chip drought, factories across the globe have been forced to close down, adding to the unemployment rolls.

2.Explosive speculation in Bitcoin. Economic history knows many cases of speculative bubbles, such as the tulip bulb craze that occurred several hundred years ago. More recently, financially engineered sub-prime mortgage investment packages brought about the Global Financial Crisis of 2007-09. That most recent episode, however, pales in the speculative hysteria that has been a characteristic of cyber currency  in general, and in particular Bitcoin. The explosive  growth of this cyber “currency,” created out of thin air by an anonymous individual known only by a pseudonym, with archaic blockchain technology and cyber “mining” expending vast amounts of carbon-derived energy for an opaque, semi-mystical process,  confounds all reason. Trillions of dollars appear to be pouring into this speculative investments like sharks drawn by blood to a feeding frenzy.  Unless the global economy has been transformed into a metaphysical realm, this cannot end well. When the bubble pops, the collateral damage to the world’s economy and financial system will be beyond catastrophic.

Sheldon Filger-blogger for GlobalEconomicCrisis.com

 

 3, Increasing tensions both between countries, and within nation-states. This phenomenon afflicts most countries,  large and small, but particularly the U.S. and Russia. In the case of Putin’s Russia, Moscow’s relations with her  neighbors and the United States  are at their worst since the peak of the Cold War, while internally the regime’s suppression of dissent has only further distanced a growing proportion of the citizenry from the government. In particular, anecdotal evidence points to a major proportion of Russia’s youth, especially university students , having lost trust in the government and preferring to emigrate. These trends, however, are not unique to Russia.  What this portends to is the likelihood that countries will actually seek external conflict as a means to facilitate national unity domestically.

The above three trends all point to elevated risks of stagflation; high inflation and recessionary economics.  These in turn are likely to further exacerbate internal and external conflicts across the globe.

Biden Administration Posts Record Deficit of $660 Billion In March

April 13th, 2021 Comments off

 

 

In March 2020 the U.S. Federal Government posted a deficit of $119 billion, reflecting the already profligate spending of Washington pre-pandemic. One year later, with President Biden going literally for broke, Covid related federal spending  pushed government outlays to $927 billion, with receipts of only $268 billion, leaving a record deficit for March 2021 of $ 660 billion.

Not during Franklin Roosevelt’s Great Depression era  New Deal program, or the massive stimulus budget of the Obama administration in the wake of the Global Financial Crisis has there been such dizzying levels of federal spending. The  deficits incurred by Washington are fully matched by state governments, as well as sovereigns throughout the world.

Despite the record  price levels on equity markets and particularly on Wall Street, there are worrying signs of approaching inflation. As this blog has warned before, significantly higher rates of inflation will compel the Federal Reserve to abandon its near-zero interest rate policy. Once interest rates rise to anything approaching normal levels, debt servicing costs for Washington will balloon to an unsustainable level.

Sheldon Filger-blogger for GlobalEconomicCrisis.com