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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.

Massive Distortion In Global Economy and Rise of Bitcoin Valuation: Signs of Impending Economic Disaster?

February 16th, 2021 Comments off

Sheldon Filger-blogger for GlobalEconomicCrisis.com

An unprecedented wave of policy measures has enabled distortions that  are wreaking havoc in the global economy, creating accelerating dangers of a cataclysmic event. This can be in the form of a market crash, contagion from imploding asset bubbles or rise in fears of inflation leading to irrational money flows. A combination of all these forces in synchronicity can be the single event leading to a global depression.

The major factor in the global economy at present is the unprecedented wave of liquidity being unleashed by policy makers. That fact alone is what has driven the sharp rise in equity prices since the initial collapse in the wake of Covid-induced economic shutdowns. There is no other explanation for the massive rise in equity prices, even while the real economy is stagnant after a sharp decline  in the wake of the coronavirus pandemic. The divide between Main Street and Wall Street alongside the sharp rise in equities has never been wider. It is only due to the money printing of central banks and record levels of public debt caused by the fiscal policies of sovereigns that has brought about this phenomenon.

Alongside the sharp rise in equity prices has been the explosive price rise in Bitcoin. The emergence of crypto or digital currencies in general, and Bitcoin in particular, has brought about the most expansive speculative bubble in the modern financial era. Bitcoin is completely opaque; nobody even knows the true identity of the person who created this cyber currency. Yet, even Tesla among other companies has begun to invest substantially in this digital currency as a means of mitigating risk factors.

Meanwhile, bond yields have begun to rise, an indication of growing fears of inflation. That, and the continuing deluge of liquidity from the policymakers, has created perhaps the most distorted and unstable financial environments since the  period that preceded the Great Depression of the 1930s.

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.

 

Asia Economy Contracting for the First Time According to IMF

July 2nd, 2020 Comments off

For the first time in “living memory,” Asia’s economy overall will shrink by at least  1.6% this year, according to the International Monetary Fund. The last projection from the IMF  had a forecast of flat growth. The update shows that the IMF sees worsening data impacting all of Asia in the wake of the Covid-19 pandemic.

The IMF concedes that no region, including Asia, will be immune from the ruinous impact of the Coronavirus on the global economy.  Yet, though the IMF is predicting a global economic contraction of almost five percent in 2020, it is still forecasting  a V-shape recovery in 2021 in excess of positive five percent.

With Covid-19 running an unpredictable course, with signs of a second-wave already present, it is being excessively optimistic to hope for a speedy economic recovery. In fact, even the IMF states it will take years for the economies of Asia and other regions to fully  recover, in spite of rosy forecasts for 2021.

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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