Global Economic Crisis

The International Monetary Fund is projecting a continuing contraction of the Eurozone during 2013. According to the IMF’s most current projection, overall the Euro area will see an economic contraction of 0.2 percent, with global growth overall of 3.5 percent due primarily to China and India.

The austerity measures that are being undertaken by the weakest Eurozone nations have led to historically high levels of unemployment and depression-level economic contraction. The weak economic dynamics within the Eurozone periphery have also taken a toll on economic performance among the strongest Eurozone members, including Germany.

With anti-growth austerity measures being ruthlessly imposed by several Eurozone nations most vulnerable to the sovereign debt crisis, including Spain and Greece, it is hard to see how a significant level of real economic growth will be achieved-and without that growth, there is no resolution to the European debt crisis, no matter how many more austerity measures are  imposed on a skeptical public by the policymakers.

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At their most recent meeting, the finance ministers representing the 17 countries that comprise the Eurozone, along with the IMF (International Monetary Fund) and ECB (European Central Bank), have thus far failed to decide on releasing the next tranche of bailout funds to insolvent Greece. Without the bailout money being released, Athens is fiscally up the creek, without a paddle.

“Greece has done what it had to and what it had committed to doing. Our partners, along with the IMF, also must do what they have undertaken.” an increasingly desperate Greek Prime Minister Antonis Samaras pleaded.

The austerity measures enacted by Greece have imploded the economy, now entrapped in a frightful economic depression. The debris of the Greek economy has smashed social cohesion and political stability, witnessed by the sharp rise in popularity of the Fascist and neo-Nazi Golden Dawn party, which has promised economic salvation through bashing the immigrants they claim are the cause of the economic woes in Greece.

It is looking increasingly likely that the repeated bailouts at the expense of Eurozone taxpayers, especially from Germany, of the insolvent Greek state will run their course sometime in 2013. The odds that Greece will default on its vast and unsustainable public debt, prompting it to leave or be expelled from the Eurozone, are growing.

As the U.S. political establishment confronts its own self-made fiscal cliff, it should view what is transpiring in Greece as an ill omen and not a situation to gloat over. It is only because of the sovereign debt crisis ravaging Europe’s economies that has enabled a reality whereby the U.S. government can borrow more than a trillion dollars a year, accounting for about thirty percent of all federal government expenditures, at record low interest rates. This situation cannot endure indefinitely. If American politicians fail to craft a sensible, sustainable, long-term fiscal consolidation, America will end up in the economic wasteland that is contemporary Greece. As we can all currently observe, such a draconian reality would present the U.S. with the choice of either  crippling austerity measures imposed by the nation’s creditors, or some form of debt default ( including the option that the Federal Reserve engineers massive inflation).

Greece is not only suffering appalling economic devastation. It is also presenting to the world a modern-day national Cassandra, with a prophetic warning that is especially relevant for American policymakers.

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The chief economist for the International Monetary fund, Olivier Blanchard,  relayed the annual World Economic Outlook from the global organization at its meeting in Tokyo, which was somber in tone, and dire in its implications. All earlier growth forecast across the board were reduced, including emerging markets as well as developed economies. The current global growth forecast is 3.3 percent in 2013, down from an earlier projection of 3.5 percent.

The most alarming forecast by the IMF is for the Eurozone, which overall will experience zero growth. The major factor for the Eurozone’s flat growth projection is the fiscal consolidation occurring in many Eurozone economies, made essential by the acute sovereign debt crisis afflicting the monetary union, according to the IMF.

The transcending implication from the IMF’s latest forecast: the artificial “recovery” from the global economic crisis, which originated in 2008, is faltering. Furthermore, the supposed recovery was entirely dependent on massive sovereign debt financing, and with the inevitable fiscal consolidation now occurring, those economies are now at stall speed, and ripe for a double-dip recession, which is already occurring in many Eurozone economies.

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The latest report from the World Economic Outlook, released by the International Monetary Fund, cuts its forecast on global GDP growth. Of greater importance is the focus the IMF placed on the Eurozone debt crisis.  According to the IMF report, “The utmost priority is to resolve the crisis in the euro area.”

The IMF appears to be standing with those who are calling for the European Central Bank to replicate the loose monetary policies and money printing of the U.S. Federal Reserve and its chairman, Ben Bernanke.  The report virtually pleads for the ECB president, Mario Draghi, to place his printing presses in overdrive.

 “The ECB should ensure that its monetary support is transmitted effectively across the region and should continue to provide ample liquidity support to banks under sufficiently lenient conditions,” so says the International Monetary Fund in its report. It appears that the IMF is seeking Weimar style solutions to the European debt crisis, obviously forgetful of what those policies did for Germany  in the 1920s and early 1930s.

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The director of the International Monetary Fund, Christine Lagarde, sounds very worried, while engaging in contradictory messaging in her speech before the Brookings Institution. On the one hand, she mimics what Fed Chairman Ben Bernanke did two years ago with his talk of “green shoots.” Lagarde speaks of the U.S. economy showing glimmers of positive data, while acknowledging, in her own words, that,  “Only a few months ago, we seemed to be staring into the abyss.” She urges the advanced economies to take advantage of the glimmer of “good news” to invest in growth and more bailouts for the financial sector, while also warning about the sovereign debt crisis afflicting the Eurozone.

“Clearly, the risk that looms largest is that sovereign and financial stresses return with renewed force in Europe,” Christine Lagarde told the Brookings Institution. But what solutions does the IMF have to offer? Borrow more to recapitalize banks that made the wrong bet on risky loans while simultaneously boosting government deficit spending to “stimulate growth?” Or, cutting back on government spending, thus creating a fiscal drag that leads to negative growth without reducing deficits? The IMF and its leader, just like the politicians of the advanced economies, have run out of solutions, other than meaningless cliches.

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The International Monetary Fund has another revised global forecast that reflects growing pessimism. In the debt-crisis ravaged Eurozone, the IMF now projects negative growth of minus .5 percent, in effect a double-dip recession. A recession means plummeting tax revenue, rendering the sovereign debt crisis even more  virulent.

While the IMF still projects overall global growth, though at a lower projected 3.3 percent, its latest report states that this strangely optimistic projection is “predicated on the assumption that in the euro area, policymakers intensify efforts to address the crisis.” In other words, the Eurozone must reverse its fiscal austerity, and once again engage in deficit stimulus spending.

What the IMF seems to ignore is that the bond market is increasingly unlikely to lend money to debt-strapped European economies at interest rates that are sustainable. Or, perhaps, the IMF is hoping it will gain a massive cash infusion so it can bail out Eurozone economies, or the European Central Bank will get the hint, and start running its printing press at maximum velocity. But not even the ECB’s printing machine, along with the IMF, can easily sort out this economic and fiscal crisis.

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The International Monetary Fund’s boss, Christine Lagarde, has issued another warning regarding the global economic crisis. This time, she spoke in Washington DC about  the danger of another Great Depression unless all countries work together to resolve the Eurozone sovereign debt crisis. If they don’t act in unison and effectively, Lagarde said the consequences would be, “Protectionism, isolation, and other elements reminiscent of the 1930s Depression.”

The grim outlook from the IMF is in sequence with cascading warnings from France and Germany that unless fiscal policy in the Eurozone becomes “harmonized” (e.g. more erosion of national sovereignty) and other countries outside the Eurozone (especially China) provide funding for the “big bazooka” to backstop the danger of sovereigns becoming insolvent, the global economy will implode. What the IMF and the politicians have not said is that it is politically impossible for them to obtain all the scenarios they claim are needed to prevent outright catastrophe.

WALL STREET POLICE: GLOBAL ECONOMIC CRISIS

Officer Larry of the NYPD is on his way to Zuccotti Park in lower Manhattan to arrest peaceful protesters involved with the Occupy Wall Street movement. Being a public spirited member of the New York Police Department, Officer Larry does remind us that there is a global economic crisis underway that rivals the Great Depression of the 1930s.

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The global economic crisis that erupted in 2008, and was supposedly “cured” by the massive public debts incurred by the policymakers, is apparently evolving into a terminal tailspin. A growing number of reputable economists, including Nouriel Roubini, are frankly stating that advanced economies, in particular the United States, the Eurozone countries and the United Kingdom, have entered a double-dip recession. The economic outlook is so bleak that even establishment institutions such as the International Monetary Fund, and to a lesser extent the U.S. Federal Reserve, are candidly acknowledging the dire state of the global economy and the precariousness of its financial architecture. Fed Chairman Ben Bernanke was forced prematurely to hint at some level of policy intervention; the result, the so-called “Operation Twist,” a macabre arrangement whereby the Federal Reserve’s short-term purchases of U.S. Treasuries are swapped for long-term government debt instruments. The resulting plunge in equity values demonstrates that the market is no longer easily fooled by Bernanke and his clowns.

In a starkly candid statement, the new managing director of the IMF said that the world’s economy was entering a “dangerous place.” Given that the leaders of major global economic bodies do not seek to erode market confidence during turbulent economic times, it must be surmised that Christine Lagarde would not have issued such a pronouncement as the leader of the IMF unless the data she is privy to shows that things are actually much worse than what is being publicly discussed.

Will my prediction of economic catastrophe in 2012 hold true? Based on current developments and increasingly grim talk by economists and policymakers such as the IMF’s managing director, I think the chances that I am wrong are weaker than the likelihood that my forecast is correct.

 

                 

 

 

 

 

 

 

 

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Just when things appeared they could not be more strange with the Dominique Strauss-Kahn case, they in fact get a lot stranger. First the managing director of the International Monetary Fund, one of the most powerful men in the world, is arrested for allegedly sexually assaulting a hotel maid. He is in fact indicted by a grand jury. But now, after the Manhattan district attorney previously boasted about his “solid” case against the recently disgraced and resigned head of the IMF, he is forced to inform the presiding judge and defense  counsel that the supposed victim and only witness against Dominique Strauss-Kahn  has, in fact, repeatedly told lies to the prosecution.

The tough bail conditions imposed on Strauss-Kahn have already been lifted. While the charges have not been withdrawn, the consensus of legal opinion is that the case against the former head of the IMF has been fatally tarred by the revelation  of lying by the hotel maid, and in all probability the charges will either be withdrawn or dismissed.

The rumors are already rife as to the possibility that the whole affair was a set-up to  destroy Strauss-Kahn. If this in fact was what occurred, was it to remove a potent opponent to French president Sarkozy in the upcoming national elections in France? Or, was the goal to bring about a change at the top of the IMF? And, was it only a coincidence that while this affair was raging, an unnamed nation-state hacked into the confidential data bases of the International Monetary Fund?

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Just when things couldn’t get more bizarre for the International Monetary Fund, a leaked internal memo from the powerful global financial entity indicates it was the target of a highly sophisticated “spear-phishing” hacker attack. The BBC indicated that security expert Tom Kellerman told the Reuters news agency, “that it was ‘a targeted attack’ with code written specifically to give a nation state a ‘digital insider presence’ on the IMF network.”

Other views by computer security experts add to the picture that the IMF was targeted by a state actor wanting a presence inside the databases of the organization. While not enough information has been leaked to identify the likely nation-state or its objectives, I will inject my own speculation.

My view is that such an extreme measure targeting the IMF would likely be initiated by a large economy and global creditor that is vulnerable to massive write-downs of its overseas sovereign debt purchases, especially within the Eurozone, UK and USA. Such an actor might decide that the strategy it must implement to safeguard its investments and long-term fiscal equilibrium requires an extraordinary degree of access  to highly confidential IMF data and policy assessments. Furthermore, such an actor would have already established its interest in cyber-warfare, and has an advanced computer infrastructure of sufficient level to design the highly sophisticated software utilized in the IMF hacking operation.

When it comes to the culprit, I don’t think we are talking about Zimbabwe.

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