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Posts Tagged ‘economy’

Oil Price In Free Fall Collapse As Energy Sector Implodes

April 23rd, 2020 Comments off

The demand destruction created by policy responses to the Covid-19 pandemic has led to the collapse of oil prices, and the decimation of the energy industry. No better example illustrates this than the April 20 data for next month’s delivery, in which prices went to zero per barrel and even negative, with WTI (West Texas Intermediate) going to minus $30 per barrel. This surreal price discovery was brought about by a combination of demand destruction in the economy, combined with a lack of storage capacity for oil, leading to producers paying consumers to take their oil.

The implosion in oil prices has occurred in spite of the truce in the oil price war recklessly unleashed by Russia and Saudi Arabia right at the beginning of major global recession. The cut in production by three million barrels a day by OPEC and Russia is statistically insignificant, given that the coronavirus has shuttered much of the world’s economy, leading to a fall in consumption of more than 20 million barrels per day.

The hope that  oil prices may recover latter this years is based on a flimsy premise that there will be an economic recovery by year’s end. This looks increasingly unlikely, and the probability of a second wave of Covid-19 will continue to depress industrial and transportation activity that typically consume most oil production. Short of a war in the Middle East that would shut down the Strait of Hormuz, oil prices are likely to remain depressed for the foreseeable future, crippling much of the energy industry and confronting a multitude of oil producers, especially shale oil companies in the United States, with increasingly inevitable bankruptcy.

What is occurring in the  energy sector is a reflection and indication that the Global Economic Crisis unleashed by Covid-19 will not only exceed the financial crisis of 2007-09 in its severity; it is increasingly likely to rival the Great Depression of the 1930s in its ruinous impact.

 

Coronavirus Threatens To Unleash Next Global Economic Crisis

March 6th, 2020 Comments off

 

In 2007,just before the last great worldwide financial and economic crisis was unleashed, a book by Nassim Nicholas Taleb was published entitled The Black Swan. It explored how unpredictable and outlier can events can unleash extreme impacts of greave consequence. Though Taleb’s book foretold of the Global Financial Crisis that was about to occur, it is just as prescient regarding the unleashing of the Corona virus and its increasingly devastating impact on the global economy.

Seemingly out of nowhere, Corona virus, specifically the strain identified as Covid-19, began spreading like wildfire towards the end of 2019 in Wuhan, China. Since then, it has been occurring in dozens of countries, leading health authorities worldwide to label Covid-19 a pandemic. And though we are only in the early stages of the outbreak, the global economy is already in dire straits.

Stock markets are plummeting, global supply chains are being disrupted, the travel and tourism and related industries are being devastated, and economic fear is becoming as contagious as Covid-19 spread with virulence.

The economist noted for predicting  the 2007-2008 financial collapse, Nouriel Roubini, otherwise known as “Dr. Doom,” is now predicting massive economic collapse as the Corona virus spreads and intensifies. In his views, any equity recoveries are only temporary and the worst is ahead of us, with stock markets possibly contracting by 40 percent or more. Other elements, which Roubini describes as Whites Swans, such as tension with Iran and the China-U.S. trade war, will further exacerbate the economic consequences of Covid-19.

This is not a mere correction or cyclical recession that is being discussed, but a global economic depression of massive proportions. Central banks are already slashing interest rates to near zero, and other signs of panic are setting in. The next Global Economic Crisis appears to be just ahead, with the world geopolitically far more divided and conflicted than was the case back in 2008.

 

Global Economy Increasingly Vulnerable To Another Financial Shock

October 4th, 2015 Comments off

Seven years after the outbreak of the global economic and financial crisis, there are growing indications that the temporary solutions that were largely imposed through monetary policy by central banks are becoming increasingly ineffective. In all likelihood, a new global downturn in economic growth is in the cards.

The weakening economic data from China, slowdown in the U.S. economy’s job growth, worsening data in emerging economies and the Eurozone, not to mention Russia, collapse of commodity prices and volatility in the equity markets are all indicators of distress. Furthermore, the continuation of near-zero interest rates by major central banks many years after the “Great Recession” supposedly ended means that there are no more arrows in their quiver when the next major global recession strikes.

One other factor to be assessed are the fantasy employment numbers in the United States. While the official unemployment rate has supposedly been cut in half since the darkest days in 2009, in reality labor force participation is at historic lows (http://www.ibtimes.com/us-labor-force-participation-drops-absence-paid-parental-leave-keeps-women-out-jobs-2124175), revealing that the American economy is functioning well below its potential. In addition wage stagnation, and the latest revelation from the Bureau of Labor Statistics that earlier job creation figures were highly exaggerated (http://www.npr.org/sections/thetwo-way/2015/10/02/445244030/economy-adds-142-000-jobs-unemployment-steady-at-5-1-percent), demonstrates that even the U.S. economy, supposedly the healthiest on the planet, is manifesting growing signs of structural weakness.

In the wake of the global economic and financial crisis of 2008, policymakers in major economies made a bet on the same financial sector that unleashed the worldwide systemic disaster. Their decision was to engage in massive, unprecedented fiscal indebtedness and monetary loosening to prop up the investment and commercial banks, in the hope that this would stimulate reinvestment in the general economy (“main street”) and revive sustainable economic growth. There is growing evidence that this gamble made by decision makers in the world’s major economies is faltering. With staggering levels of sovereign debt, and central banks across the developed world having expanded their balance sheets almost to the point of infinity, the policymakers are left only with hopes and prayers that another massive crisis does not strike on their watch.

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Global Economic Crisis

November 28th, 2008 Comments off

What began as a global financial crisis has truly become a virulent global economic crisis. The credit crunch that has clogged the arteries of the world financial system has now caused an economic meltdown of global proportions. No economy, big or small, developed or undeveloped is being spread.

The danger confronting policy makers and citizens as the international community and individual sovereign nations are passing through uncharted but stormy waters. Parallels are already being drawn to the Great Depression of the 1930s. More dire, several very learned financial experts and economists have warned that what the world confronts is a mega-economic crisis that may even dwarf the Great Depression.

Recently, even China’s high growth rate has receded. It was hoped at one time that the Chinese economy could rescue the planet from a worldwide recession. scenario is no longer operative. The Eurozone, the U.K. and the U.S. are now experiencing negative growth in their GDP. A terrifying global economic crisis is about to inflict staggering pain throughout the globalized, interconnected planet.