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Growing Concern Among Veteran Investors At Stock Market Bubble That Will Burst With Catastrophic Effect

January 25th, 2021 No comments

Sheldon Filger-blogger for GlobalEconomicCrisis.com

When Covid-19 first impacted major economies last Spring, stock markets throughout the world plunged  by double-digits in a period of only 3-weeks. Yet, not only have these losses all been recouped; less than a year later equities have reached record levels, led by the Dow Jones index. In addition, other speculative investments such as the cyber currency Bitcoin have soared to dizzying highs. Yet, amid this financial exuberance veteran investors are displaying growing concern for the future. The  Financial Times has characterized their concern as seeing  “a bubble to rival anything  seen in the past century.”

Simply put , there is a disconnect between the equity markets and  the real economy, which is in dire straits in virtually every country. The sole reason for the escalation in equity prices is the unprecedented money printing by central banks, combined with equally unparalleled deficit spending by sovereigns. It is only this monetary and financial sugar high which is driving soaring equity prices.

When the first hint occurs that the pump-priming may be receding, however, the investors will run for the exists. What is likely to occur is a global stock market crash of calamitous proportions which, like the 1929   crash on Wall Street, will usher in a period of deep economic depression.

U.S. Economy: Job Losses Amid Growing Political Instability

January 9th, 2021 Comments off

Sheldon Filger-blogger for GlobalEconomicCrisis.com

The Labor Department released its jobs reports for December 2020. It is dismal yet not surprising. In the past month the U.S. shed 140,00 jobs. This is the first monthly contraction  in  employment numbers  since April 2020, and the destruction of millions of jobs in the early stages of the Covid-19  pandemic. Though vaccines are slowly being distributed in the United States, having been developed in record time, the nation is currently experiencing the most severe spread of coronavirus, with states responding with further lockdowns and restrictions on economic activity. This portends to further job losses as the Biden administration takes over the White House in a matter of days.

It is not only the Covid-19 contagion that is damaging  the American economy. The risk assessment consultancy Eurasia Group lists political division in the United States as the number one global risk, ahead of the Covid pandemic. As if on cue, 48 hours after the release of Eurasia Group’s, report  on top global risks, riots erupted within  the Capitol building in Washington DC.  The growing political stratification within American society, combined with the continuing damaging impact of Covid on economic  activity, points to a very negative economic outlook for the United States and inevitably for the entire global economy.

 

China To Become World’s Largest Economy by 2028 According To Leading Economic Forecasting Firm

December 27th, 2020 Comments off

Sheldon Filger-blogger for GlobalEconomicCrisis.com

The  Center For Economics  and Business Research (CEBR), a UK based consultancy firm, has issued a new forecast that projects China’s GDP will surpass that of the United States by 2028, making China the largest economy in the world. This  projection is five years earlier than an earlier forecast, pointing to an  accelerating decline in U.S. economic strength relative to that of the People’s Republic of China.

According to the CEBR, the primary driver in the imminent surpassing of America’s GDP by China is the impact of Covid-19. The coronavirus pandemic has impacted the U.S. more than any other national economy,  creating massive financial losses, major economic dislocation  and political instability that also retards future economic growth. In contrast, though the pandemic originated in the Chinese city of Wuhan, the draconian measures adopted by Beijing led in the long-term to less economic damage. The relatively low rate of Covid infections in China over the past several months has enabled America’s primary economic competitor to return to growth, while the United States in mired in a patchwork of intermittent and inconsistent lockdowns, while infection rates and  mortality are at a peak.

The fact that China is now projected to have the largest GDP in the world by 2028 will have significant geopolitical consequences, as well  as determine which country will have the most impact on the global economy. Thus far, there are no signs that political leaders in either the U.S., Europe or Russia have fully comprehend the seismic shift in economic power that is occurring virtually in real time, largely enabled by a global pandemic that ironically originated  in China.

Biden Administration Faced With Looming Sovereign Debt Trap

December 13th, 2020 Comments off

In the 2-year period between 2008 and 2010 something peculiar happened to the U.S. Federal Budget. In 2008 the Federal Government in the United States spent $253 billion on interest  incurred by the national debt, representing  8.5 % of all federal outlays. Over the next two years federal budget deficits skyrocketed due to stimulus  and other fiscal programs undertaken in the wake of the Global Financial Crisis. Obviously, massive deficit spending  greatly increased the national debt. However, instead of the expected increase in annual interest payments, the amount allocated for debt interest payments by the Federal Government actually declined to $196 billion, representing  only 5.7% of the Federal budget, a sharp decline from only two years previously.

How was this seemingly impossible mathematical trick accomplished? The answer is surreal in its simplicity. The Federal Reserve, by monetizing the debt and exercising other monetary levers at  its disposals, sharply reduced interest rates across the board. In the case of short term interest rates, they were in some cases reduced to virtually zero ; in essence, free money.  It is only for that reason that interest paid on the national debt plunged while the overall debt ballooned due to continuous  and massive deficit spending.

Will the incoming Biden administration be so lucky? Unlikely. After massive deficit spending in President Trump’s final year in office, primarily due to a Coronavirus relief bill  that increased borrowing by more than $2 trillion dollars on top of the already large structural deficit, a President Biden is set to add a new and even larger Covid stimulus  relief package during his first year in office. So clearly, the national debt will continue to grow at a rapid rate.

What about interest rates? If it could, the Fed would keep interest rates at zero almost forever. But it  can’t. On the horizon are warning signs of high inflation. In the period after the Global Financial Crisis low inflation enabled central banks worldwide to prime the pump and run the printing presses. This time there is decoupling of major trading relationships: U.S. and China; U.K. and Eurozone. As  supply chains fragment, costs will be driven  upwards. Furthermore, there exist geopolitical tensions that threaten to drive up commodity prices, should they worsen. Political instability within  the United States itself creates elevated risks, which in turn stimulate inflationary pressures.

Any meaningful uptick in the  rate of inflation will compel central banks, including the Federal Reserve, to begin raising interest  rates. Once that happens, the massive deficit spending of the Biden administration that is now projected will unleash a sovereign debt trap, condemning the American and other economies, large and small, to stagflation, meaning higher inflation and a highly depressed economy. The handwriting is on the wall. In a worst case scenario, the U.S. government will default on its national debt, with seismic repercussions. Alternatively, the Biden administration could attempt to reduce the national debt through hyperinflation, which will  induce it s own calamitous impact on the nation’s social stability.

Sheldon Filger-blogger for GlobalEconomicCrisis.com

Double Dip Recession Forecast For Eurozone

November 26th, 2020 Comments off

A growing consensus  among economists is that the second wave of Covid-19 has induced a repeat of the lockdowns  of economic activity that sent Q2 metrics into a tailspin. Though the lockdowns currently underway may not exactly match the draconian character of the earlier  shutdowns, they are becoming increasingly severe as the coronavirus infection rate in many European countries threatens to overwhelm their medical systems.

Though several  viable vaccines are on the horizon, it will likely not be until mid to late 2021 that they succeed in terminating the current pandemic. The current reality in terms of economic activity and Covid-19 makes it increasingly clear that the Eurozone, for the most part, will return to recession after the recovery in Q3. This means at least 2 consecutive quarters of negative growth from the Eurozone, in Q4 2020 and Q1 2021.

Inevitably, a double dip recession throughout the Eurozone will  have a significant negative impact on the region’s primary trading and economic partners, notably China and the United States. In addition, the projected double dip recession will further strain sovereign balance sheets, already burdened with unprecedented levels of debt for addressing the recession that occurred in Q2. Adding trillions of euros in public debt, and trillions more, to the balance sheet of the European Central  Bank, points to a growing sovereign debt crisis likely to impact just as the pandemic has receded.

Incoming Biden Administration: A President Biden Makes Global Economic Depression A Greater Short Term Risk

November 8th, 2020 Comments off

The corporate media and social media complex, America’s new power center, has declared that former Vice President Biden is now President-elect Biden. Though Trump is pursuing a last ditch, scorched-earth policy of legal challenges, with no concession in sight, the odds are virtually certain that Biden will be inaugurated as the 46th president of the United States. What are the global economic implications  of this?

The Covid-19 pandemic has unshed in the worst economic downturn since the Great Depression of the 1930s.The  Q3 uptick is now likely to be followed by a double dip recession, as a second wave of coronavirus ravages a advanced economies, including the United States. Though the Biden policy team is committed to a more aggressive stance on combating Covid-19 and offering large fiscal stimulus packages. the economic prognosis is not bright.

Biden will enter the presidency with a divided electorate, including 70 million Trump voters, who are largely convinced that the election was a fraud, meaning the incoming presidency is illegitimate. Instead of the expected Blue Wave, the Democratic majority in the House of Representatives is reduced, and the GOP may very well retain control of the Senate. Divided government, and a divided people  will create instability in what is still the world’s largest economy,  possessing the strongest military power.  That does not portend well towards an economic recovery.

Continued economic shutdowns due to the pandemic, ineffective fiscal stimulus programs combined with growing sovereign debt along with the political and social instability in the U.S. lead to the conclusion that the trajectory towards an economic depression, already baked into the cake, will accelerate. It is likely to happen during the incoming administration’s four-year term.

 

 

Double Dip Recession Imminent As Covid-19 Induced Economic Lockdowns Reintroduced

October 26th, 2020 Comments off

With Europe and North America experiencing a virulent second wave of the coronavirus pandemic, lockdowns of the economy are being reintroduced by sovereigns on  an increasingly stringent basis. As an example, many regions in Spain are imposing enforced curfews.

The first wave of economic shutdowns  sparked the worst economic contraction in many developed countries since the Great Depression of the 1930s, greatly surpassing the Global Financial Crisis of 2007-2009 in severity. A return to at least semi-normal economic activity facilitated a sharp statistical bump in economic growth. Now, another major contraction looms on the horizon.

Depending on the duration of the current wave of Covid-19 induced shutdowns, a double dip recession  looks increasingly likely for many economies, both advanced and developing. A double-dip recession also raises the possibility that a global economic depression, already a strong possibility, becomes a virtual certainty.

 

Coronavirus (Covid-19 ) Second Wave Inflicts Further Destruction on the Global Economy

October 5th, 2020 Comments off

A resurgence, in effect the predicted second wave of the Covid-19 pandemic, is in full motion, striking at both advanced economies as well as large developed economies, such as India and Brazil. The confirmed worldwide death toll has now passed one million, a number both large and yet most probably a severe undercount of the actual number of fatalities generated by the coronavirus pandemic.

The toll in human misery is staggering. More than 35 million persons have been infected with Covid-19. It spares no one; the commoner and the elite are all at risk, as the recent news of President Trump contracting coronavirus  indicates. However, the damage inflicted on the world’s economy  is as severe as that incurred on public health.

The enforced lockdowns imposed by sovereigns as the only currently available means of halting the spread of coronavirus resulted in unprecedented demand destruction in Q2 of 2020. Optimists predicted a V-shaped recovery as a quick end to lockdowns would lead to a rapid “snap-back” in economic demand. That, and unprecedented deficit spending by governments and money-printing by central banks, temporarily reversed the massive fall in equity prices  and induced unwarranted optimism. Now that governments are again imposing draconian lockdowns throughout the world, the evidence mounts that the severe recession created by the pandemic will eventually morph into a full-blown economic depression.

Even once buoyant economists are grasping at straws, praying that quick development and production of an effective vaccine will save the global economy as well as preserve lives. However, even in a best case scenario, a safe and effective vaccine is unlikely to be widely available until the latter half of 2021. The likelihood is that the world will experience, along with the public health consequences, another 6-months of demand destruction and self-imposed economic suicide. Yet, governments, politicians and economists have yet to grasp the full measure of the Global Economic Crisis that is now upon us.

Election 2020 Fallout: Political Disarray in United States Threatens Global Economy

September 21st, 2020 Comments off

A global economy already  in fragile condition  due to  the contraction in  GDP and exploding sovereign debt levels due to the Covid-19 pandemic, is now in  danger of being further weakened by political strife in the United States. With about six-weeks to go before the 2020 presidential election, there are already numerous indicators of looming political and social chaos looming in the USA.

Even before the death of Supreme Court justice Ruth Bader Ginsburg, there were already claims by both the Democratic and Republican parties that their opponent was out to undermine presidential voting. The incumbent, President Donald Trump and his supporters allege that mail-in ballots, favored by Democratic-run states, will unleash massive voter fraud. Trump’s challenger, former vice-president Joe Biden, and his Democratic supporters, have allegations of their own; Russia is supposedly working in tandem with Trump to undermine the true results of the pending election. Either way, both sides have set up voting day, November 3, as not decision-day, but rather the beginning of a bitter fight by armies of lawyers for who will be the legitimate winner of the upcoming presidential election.

Added to the above, there is a ferocious fight looming over the prerogative of the current president to select a replacement for the now-vacant seat on the U.S. Supreme Court. The fact that Trump has the constitutional legality to do this is irrelevant; this all about massively polarizing fault lines within the American body politic, adding to severe social tension and propensity for violence linked to the upcoming election.

All the above factors, occurring in what is still the world’s largest economy (though China is on the verge of overtaking that position) are destabilizing; not only politically but perhaps even more in terms of the global economy. In the post-coronavirus world we all now inhabit, the political storm brewing in the U.S. may be the final element that brings about a total economic depression, thus ensuring that the Global Economic Crisis is deeper and of longer duration than the pundits and analysts are currently predicting.

Fragile Recovery From Coronavirus Induced Economic Crisis As Warning Signs Grow

September 5th, 2020 Comments off

 

Government leaders and financial pundits  continue to trumpet the myth of the V-shaped economic recovery, a leading factor in the ability of Wall Street and other exchanges to recoup virtually all their catastrophic losses inflicted in the early stages of theCovid-19 pandemic. Yet, despite the happy talk, the anemic recovery occurring in many economies during Q3  is already in danger of being premature. Growing headwinds  lie ahead  for the global economy.

The temporary alleviation of the worst affects of the economic lockdowns that occurred throughout the second quarter of the year were purchased with a  staggering and unprecedented level of sovereign debt. To give only one example, Canada is projecting a government deficit for 2020 of $343 billion (Canadian), in USD equaling to about $260 billion USD. In the United Sates, the 2020 fiscal deficit incurred by the federal government t (excluding state, county and local government expenditures) is projected currently at  3.3 trillion dollars; more than 15% of America’s GDP.

Never before in human history have sovereigns incurred such massive debt levels within a very short time interval. This rampant borrowing has not been unleashed to fund major infrastructure projects and other activity aimed at stimulating economic growth. In fact, this massive borrowing binge has been utilized by policymakers  for two purposes: providing a financial lifeline to the vast numbers of newly unemployed, and pump up the equity markets that were on the verge of implosion.

For the short-term, stock prices may have recovered and large numbers of unemployed workers have been rescued from instant insolvency. However, with new pockets of Covid-19 emerging and leading to renewed economic lockdowns, and the threat of a second-wave of the coronavirus looming, economic disaster stands right before us. The possibility of an effective vaccine is the remaining hope  for much of the world to escape a Great Depression of the 21st century. How realistic such a therapeutic creation is for the salvation of the global economy remains to be seen.