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.

WALL STREET KILLS--A CHILLING NOVEL ABOUT WALL STREET GREED GONE MAD

 To view the official trailer YouTube video for “Wall Street Kills,” click image below:

Wall Street Kills-Official Trailer

In a world dominated by high finance, how far would Wall Street go in search of profits? In Sheldon Filger’s terrifying novel about money, sex and murder, Wall Street has no limits. “Wall Street Kills” is the ultimate thriller about greed gone mad. Read “Wall Street Kills” and blow your mind.

 

Note that Wen Jiabao’s assessment is that the Eurozone debt crisis continues to get worse. Obviously, the world’s second largest economy has no confidence in the numerous measures and bailouts enacted to date by the Eurozone’s coterie of inept politicians. That Beijing has arrived at such a conclusion regarding economic and fiscal policymaking in Europe is as clear a sign as any that the political class in the European monetary union has failed abjectly in restoring market confidence amongst those actors most critical for Europe, namely China’s ruling elites.

Wen Jiabao goes on to say, “The main worries are two-fold; first is whether Greece will leave the Eurozone. The second is whether Italy and Spain will take comprehensive rescue measures. Resolving these two problems rests with whether Greece, Spain, Italy and other countries have the determination for reform.”

Reading between the lines, it would appear that China’s ruling circles are terrified at what is unfolding in Europe, and are as uncertain as everybody else regarding their future trajectory. They have good reasons for worrying. The Eurozone is a critical trade destination for China’s exports. At a time when artificially stimulated growth is beginning to wane in China, a sharp drop in exports to Europe would have disastrous consequences, economically and politically, for Beijing. It would appear that China’s leadership is hoping, perhaps even praying, that the core economies in the Eurozone, especially Germany, will undertake far more radical measures than implemented to date, in the hope that the entire monetary union will not unwind.

What must be going through the collective minds of China’s ruling Communist Party is that if the Eurozone comes apart, resulting in the spread of financial and economic chaos across the globe, the chickens will come home to roost on China’s shores, leading to political instability and unrest that threatens the Chinese Communist Party’s monopoly on political power. Indeed, Premier Wen Jiabao has a great deal to worry about, and so do his colleagues in China’s ruling Politburo.

 

WALL STREET KILLS--A CHILLING NOVEL ABOUT WALL STREET GREED GONE MAD

 To view the official trailer YouTube video for “Wall Street Kills,” click image below:

Wall Street Kills-Official Trailer

In a world dominated by high finance, how far would Wall Street go in search of profits? In Sheldon Filger’s terrifying novel about money, sex and murder, Wall Street has no limits. “Wall Street Kills” is the ultimate thriller about greed gone mad. Read “Wall Street Kills” and blow your mind.

 

 

 

All signs point to 2012 witnessing an acceleration of the negative economic and fiscal metrics that plagued advanced and major emerging economies in 2011. In particular, the Eurozone debt crisis, which dramatically worsened in 2011, shows no sign of abating in 2012. A clear indication of this is that Eurozone cheerleaders President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany, in New Year’s messages, warned that things with respect to the Eurozone crisis will be even more dire in 2012.

A sign of how  bad things look in Europe is the latest PMI data on European manufacturing, which was continuing to contract towards the tail end of 2011. This all points to a recession. In fact, there is now a clear consensus among economists that the Eurozone will enter a double-dip recession in 2012, if it in fact has not already done so. Clearly, nations such as Greece, Ireland and Portugal are currently in a recession so deep, it meets the definition of a full-blown economic depression.

And what about the United States? With 2012 a presidential election year in America, expect the Obama administration to spin economic data seven ways to Sunday in an effort to make things look more rosy. Thus, an unprecedented reduction in the total size of the American work force is twisted into a lowering of the unemployment rate.  But such gimmicks will probably become totally inoperative, once the impact of the looming Eurozone recession and banking crisis migrates to American shores.

In 2009, in my book , “Global Economic Forecast 2010-2015: Recession Into Depression,” I forecasted that the massive transfer of private debt into public debt by sovereigns as a synchronized response to the global financial and economic crisis unleashed in 2008 by the collapse of Lehman Brothers would fail to resolve the crisis, and would lay the seeds for an even more virulent global economic crisis by 2012. With a global sovereign debt crisis now an established reality, and the Eurozone teetering while America has had its previous AAA credit rating downgraded by at least one major ratings agency, neither a continuation of failed policies  nor gimmickry by politicians and central banks will bring an end to the global economic crisis in 2012. Instead of a return to economic growth, the most optimistic forecast one could make is stagnation which, at a time of structural mega-deficits and ballooning national debts, is a guarantee  of further long-term economic misery for a great many of the planet’s inhabitants.

Once again, as they have already done countless times before since the emergence of the European sovereign debt crisis, the 27 political head honchos of the European Union have once again boasted that they have saved the global economy from collapse with finally, the real definitive cure for the crisis. However, the only thing really distinct with this latest version of the EU cure is that the numbers are much larger. The politicos claim that they have received agreement from impacted banks to  write off 50 percent of the value of outstanding loans to Greece. Banks in turn will receive recapitalization from the EU. And perhaps most striking in terms of attempting to win investor confidence, the value of the EFSF, or Eurozone bailout fund, will expand from just over $400 billion to around $ 1.4 trillion. No wonder the European politicians are patting themselves on the back, while predictably stock exchanges across the globe are rallying to new, dizzying heights.

So, should we believe that this time, after so many failed attempts also advertised as the real solution, the politicians have finally got it right? I don’t think so. The massive write-down of Greek debt will jeopardize the financial solvency of many European banks, requiring massive recapitalization. That is supposedly why the European Financial Stability Facility is being expanded to a level of one trillion euros. But where will the Europeans get this money? From the same banks they will need to bail out? From investors already spooked by a 50 percent write-down on Greek debt? From China?  From already over-leveraged German taxpayers? In the meantime, the other PIIGS nations are on the brink of insolvency (Portugal, Italy, Ireland and Spain), not to mention fragile eastern European economies, which nobody in the EU will even discuss. No wonder the agreement announced in  Brussels is lacking in specific details.

Nouriel Roubini  tweeted this morning, “Little in EZ plan to restore growth/competitiveness. Without it financial schemes (greek haircut, bank recap, levered EFSF) alone will fail.” Professor Roubini has had a far more reliable track record in predicting the trajectory of the global economic crisis then all the 27 EU political leaders and their army of economic and financial advisors combined. The fact that Nouriel Roubini is already predicting that the EU’s latest bailout plan will fail is far more significant, in my view, then all the stock market rallies being fed by the latest self-congratulatory propaganda coming out of Brussels.

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.

What savvy observers have long predicted, a default by Greece on her massive public debt, has  until recently  been refuted by Eurozone politicians as even a possibility. These policymakers have already gone through two massive bailouts, funded by European taxpayers, involving more than 200 billion euros, to keep Greece from tottering over the edge. However, the marketplace, and even below the radar some European politicians, especially in Germany, have now been conceding what is so obvious to almost every other knowledgeable observer. Athens will default on her debt. With an imploding economy, in which ironically the austerity measures imposed on Greece as the price of the bailouts have worsened her public debt to GDP ratio, and no possibility of inflating her way out of default by currency devaluation (the trap of being in a common currency-the euro), mathematical certitude cannot be overcome. Greece is in an unsustainable sovereign debt trajectory.

Two year Greek government bond yields have soared above the 50 percent range. Such yields only exist in a universe where the marketplace prices in the certainty of a sovereign debt default.  And this is only the beginning. There is not only Portugal and Ireland next in line; there is also Italy and Spain. Then there are the French and German banks, highly exposed to a Greek sovereign debt default. In other words, Lehman Brothers on steroids. The doomsday debt crisis scenario I predicted in my book (Global Economic Forecast 2010-2015: Recession Into Depression) is being increasingly vindicated by a fiscal architecture that is unraveling with surreal velocity.

Any doubt that the Eurozone debt crisis is no longer contained, but has now metastasized into a full-blown global calamity, is rapidly being erased by fast-moving events.   With the second bailout of insolvent Greece in the works, followed by a ratings downgrade to junk by Standard & Poor’s, Moody’s has now weighed in with a double whammy. Ireland’s sovereign debt has been downgraded to junk status, with a clear signal that the marketplace expects the Irish Republic to require a second bailout package, as was the case with Greece.  Moody’s has now followed up on its action regarding Ireland with a warning that for the first time in its history, the AAA rating on U.S. government debt is under review for a possible downgrade. This inauspicious development is in connection with the political dysfunctionality that has afflicted Washington policymakers in both the executive and legislative branches over extending the national debt limit.

With ratings collapsing and bond spreads widening throughout the developed world, it now appears that another member of the infamous PIIGS nations (Portugal, Ireland, Italy, Greece and Spain) is descending into fiscal anarchy. Italy is on the verge of requiring a  bailout of its own, one which would exceed what has already been allocated to Greece, Ireland and Portugal. In desperation, the Italian senate has voted in favor of austerity measures. Based on the failure of the austerity measures in Greece to prevent a second bailout being required, the desperate action by Italian decision makers is unlikely to work, and has the look of panic rather than thoughtfulness.

Like a tsunami wave that can travel thousands of miles from the epicenter of a major seismic event,  the cascading sovereign debt crisis, which had its origins in policy responses to the global financial implosion of 2008 and Greek debt crisis of 2010, is now ravaging public finances on both sides of the Atlantic. A point may soon be reached where private investors, Eurozone taxpayers and the IMF can no longer cobble together ever-larger “rescue packages,” all of which, with perverse logic, require even larger levels of public debt to construct. A dark truth may soon permeate this ballooning crisis; the policymakers have no real solutions, and have just about run out of gimmicks and short-term fixes. The global economic crisis that began with the financial collapse of 2008, far from being resolved or a clear path to recovery being underway, is entering a more dangerous phase, in which sovereign debt reaches the level of unsustainability. The result could very well be paralyzing insolvency among the advanced economies, which could destroy the economic future of an entire generation.

Following of the wake of S&P’s warning of a default rating for Greece, another ratings agency has weighed in on the cascading European sovereign debt crisis. Moody’s  has lowered its classification of Portugal’s sovereign debt to the level of junk. This comes despite a recent €78billion bailout from the IMF and EU, the equivalent of more than $111 billion in U.S. currency.

The latest ratings moves by Moody’s and S&P illustrate the lack of confidence that private investors have in the machinations of European politicians and their friends at the IMF in resolving the growing European debt crisis. If anything, these bailouts piled on top of bailouts, all requiring vast amounts of borrowed money financed by European taxpayers, assure that the Eurozone debt disaster will only further metastasize. It won’t be long before Portugal,  like Greece, requires a second bailout, and perhaps Ireland will follow soon. Ultimately, who bails out an increasingly indebted EU? 

The International Monetary Fund has released a report that contradicts what the Eurozone politicians have been boasting of for about a year. Despite assurances that vast sums of borrowed money loaned to the even more indebted Eurozone nations of Greece, Ireland and very soon Portugal would contain Europe’s sovereign debt crisis from spreading like a malignant cancer to the more substantial economies in the monetary union, the IMF apparently begs to differ.

According to the most recent IMF report on the European debt crisis, “contagion to the core euro area, and then onwards to emerging Europe, remains a tangible downside risk.” In the meantime, European politicians are already frantically looking at renegotiating their bailout loans to Greece and Ireland, with a reduction of the unbearably high interest rates being incurred by Athens and Dublin. But many savvy economists have already warned that these massive bailouts are an expensive fallacy, and will only delay the inevitable: restructuring loans that can never be repaid, or sovereign default.

The tone of the most recent semi-annual IMF report makes it clear that those who actually look at the numbers know that the European sovereign debt crisis is far from over, and has every possibility of getting much worse.

Ever since the monetary spigots and fiscal deficit pump primers were set on overload in the wake of the global recession that erupted following the Wall Street calamities of 2008, many economists have warned about the danger of a double dip recession. In other words,  the underlying weakness of the advanced economies most impacted by the recession  is so severe, an anaemic recovery may be shortly followed by a quick return to economic contraction. This is in fact what is increasingly likely to occur.

After incurring a flood tide of debt to cover the losses of the private banking sector, many advanced economies doubled down their bets by unleashing another torrent of debt for economic stimulus activity. The Keynesian policymakers assumed that the massive dose of public debt would quickly restore economic growth, thus ending the global economic crisis.

What has in fact  happened is that unprecedented levels of massive growth in the public debt has, at best, bought a feeble, anaemic and jobless “recovery,” with many economists calling for additional deficits for more stimulus spending. However, the bond markets have begun to react to the increasingly unsustainable levels of public debt. Thus, in short order we saw the Greek debt crisis evolve into the European debt crisis. Sovereigns that once boasted of their deficit spending are now in a panic, desperately trying to find ways of shrinking their structural deficits. The UK is joining with major Eurozone countries such as Germany in warning their citizens that austere times lie ahead, as governments reverse direction and begin to cut spending. These sombre voices are being echoed by the International Monetary Fund (IMF) and G20, as those officials, largely American, who are still calling for more deficit spending are now being drowned out by increasingly desperate European sovereigns, who have caught the scent of public default and national insolvency, and the apocalyptic economic repercussions that would ensue.

Now, what happens to a weak and artificial recovery from the worst economic recession since World War II when the fiscal deficits which alone underpin this so-called recovery are sharply curtailed? The answer is clear except to the politicians; double dip recession lies ahead, which will likely transform the global economic crisis into a full-blown synchronized depression.

The proliferation of sombre headlines can no longer be obscured by the proclamations issued from politicians that their unprecedented binge of public borrowing has “saved” us all from a global depression, and paved the way for renewed economic growth of such intensity that it will surely create the new tax revenues required to service the expanded public debt interest payments made necessary by those same policies. The European debt crisis is now a reality, as the contagion  of fiscal insolvency migrates from Greece to Portugal and now Spain, and ultimately through the rest of the Eurozone. The UK, Japan and United States are not far behind, as they have annual deficits and total levels of national debt as bad as the worst of the Eurozone members.

Where will all this lead? If the politician are wrong, and the miraculous and unprecedented rates of economic growth required to pay annual interest payments and convince the global bond markets that providing new financing for structural deficits is a wise investment don’t materialize, what then? History provides a clear answer. When all else fails, the capacity to impose taxation on its citizens is the only recourse left to sovereigns for convincing bankers and investors of their credit worthiness as borrowers.

In the latter period of the Roman Empire, a long succession of bad economic policies had destroyed the basis of  agriculture and industry. To pay for its foreign military outposts and large standing army, not to mention a vast imperial bureaucracy, the authorities debased the currency, which in turn created inflation while furthering undermining the Empire’s economy. Ultimately, and in desperation, the latter Roman emperors vastly increased the rate of taxation, and their ability to squeeze every last denarius out of its increasingly impoverished citizens.

In their epic work on the history of human civilization, the historians Will and Ariel Durant wrote the following to explain the draconian fiscal reality in the latter centuries of the Roman Empire:

“To support the bureaucracy, the court , the army, the building program, and the dole, taxation rose to unprecedented peaks of ubiquitous continuity…Since every taxpayer sought to evade taxes, the state organized a special force of revenue police to examine every man’s property and income; torture was used upon wives , children, and slaves to make them reveal the hidden wealth or earnings of the household; and severe penalties were enacted for evasion. Towards the end  of the third century, and still more in the fourth, flight from taxes became almost epidemic in the Empire. The well to do concealed their riches, local aristocrats had themselves reclassified as humiliores  to escape election to municipal office, artisans deserted their trades, peasantry proprietors left their overtaxed holdings to become hired men, many villages and small towns  were abandoned because of high assessments; at last, in the fourth century, thousands of citizens fled over the border to seek refuge among the barbarians.”

With many leading economists predicting that the vast orgy of public debt created by policymakers in response to the global economic crisis will sooner rather than later require significantly higher levels of  taxation, there is no guarantee that highly indebted countries will escape the painful consequences that appear inevitable. The remaining uncertainty is if we will escape the hellish taxation nightmare that afflicted the citizens of ancient Rome in the period leading to its ultimate decline and fall. Perhaps it is just as well that our policymakers seldom read history, let alone learn from it.