The  core supporters of President Donald Trump maintain that despite the at times troublesome tweets and verbal coarseness, this is trivial compared to the tangible economic results achieved during the first year-and-a-half of his administration. The relatively high GDP growth rates and low official unemployment rates are heralded by his adherents as signposts on the road of making America “great again.”

I am not as sanguine. In  the first place, based on the pattern of economic cycles in the last hundred years, the American economy is overdue for a severe  recession. It has not happened yet due to the monetary alchemy of the U.S. Federal Reserve, in lockstep with other central banks across the globe.

Secondly, and more importantly, Trump has now unleashed a trade war. It is the economic equivalent of an economic world war, as President Trump is targeting friend and foe alike;   China, Canada   and the European Union have been hit with sizeable tariffs; these countries have responded with retaliatory tariffs, matching America’s in scope and severity.

Many scholars of the Great Depression have argued that this worldwide economic calamity was not driven by the Wall Street crash of 1929, buy by a massive wave of protectionism in the early 1930s, characterized by a wave of tariffs and quotas.

Has President Donald Trump opened a Pandora’s box that may unleash a massive global economic crisis?

Italy, which has the 4th largest economy in the European Union,  is technically back in recession. According to official economic  data, the Italian economy in Q2 of 2014 contracted by 0.2 percent. This marks the second consecutive quarter of negative economic growth, thus meeting the technical definition of an economic recession.

Italy’s politics are a mess. Its judiciary is a mess.  It has a large untaxed underground economy, contributing to massive fiscal deficits. Despite some highly skilled entrepreneurs and impressive industrial sectors, the Italian economy is uncompetitive on the global market, particularly in comparison with its northern neighbor, Germany. Then again, Italy’s economic woes are no worse, and in many cases better, than other European economic basket cases, including Spain and Greece.

If Hillary Clinton runs for President of the United States  in 2016, see the video about the book that warned back in 2008 what a second Clinton presidency would mean for the USA:

CLICK ON IMAGE TO VIEW VIDEO Hillary Clinton Nude

Despite the massive public deficits and loose monetary policies maintained throughout Europe, without interruption, since the onset of the global economic crisis in 2008, the latest data released by Eurostat  indicates that in Q3 of 2013 the EU had overall GDP growth in that quarter of a mere 0.2 percent.  Within the 17-nation bloc that forms the Eurozone, the Q3 growth figure was an even more dismal 0.1 percent.

The latest  economic data  from Europe contradicts the most recent claims made by many European politicians that their economies are no longer in recession, and the fiscal crises are well on the way to being resolved. In reality, we again see that mountains of debt and artificially created liquidity can only by the barest margins produce a GDP growth figure that is so anemic ( and probably required a dose of data manipulation to boot) as to be statistically insignificant. Score another one for the political geniuses who are running the economies in the EU.

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.

Having published numerous blogs over the past year on the evolving  sovereign debt crisis with the EU, I want to put these events into perspective. First point, the crisis continues to escalate, despite the several supposedly decisive (and costly ) measures enacted by European policymakers. Witness the bailout of Greece, and now the bailout of Ireland, along with the countless statements from EU political actors that these massive bailouts will prevent this crisis from getting worse. The reaction of the bond markets to the Irish bailout deal is a clear wet blanket being thrown at the EU.

Next point, given the disastrous track record of the European political class, it is highly unlikely they will prevent the next debt domino from falling, namely Portugal. After that, Spain, with a vastly larger economy  than Greece, Ireland or Portugal is almost certain to be the next country in need of a bailout. However, it is unlikely that  Europe will be able to cobble up the resources required for a bailout of Spain.

I therefore believe that the European debt crisis is now irreversible, and the only question is how severe the consequences will be. And a final point; the United States, which has only remained afloat due to its ability to borrow cheaply, has virtually all the same vulnerabilities as the struggling countries within the EU. Once the sovereign debt crisis strikes the U.S. with full fury, all bets are off.

With Greek long term bonds generating a spread in excess of 400 basis points above German sovereign debt, it is no surprise that  ratings agency Fitch has again downgraded Athens, posting a miserable BBB minus. This comes after weeks of verbal gymnastics by the European Union, attempting to fool the markets into believing in its ambiguous, meaningless assurance of a bailout for Greece.

Despite the pontificating of reassurance being offered by a legion of European politicos, it is becoming increasingly evident that Greece is heading towards sovereign debt default at warp speed.  In my view, either sooner or later (and much more likely sooner) Greece is fiscally doomed…and that is only the beginning of an irreversible sovereign debt chain reaction that will strike virtually all advanced and major economies, and plunge our planet into a synchronized global depression.

In my book, “Global Economic Forecast 2010-2015: Recession Into Depression,” I project that a growing sovereign fiscal crisis will transform the current Great Recession into a synchronized global depression. The events currently transpiring in the Eurozone are early indicators that my forecast is on track.
 
At the recent summit of European Union leaders in Brussels, which included the head of the European Central Bank, the PR spin doctors released what can best be described as ambiguity in the form of a communiqué, offering unspecified assurances that the Eurozone’s major actors will not permit Greece to succumb to its current sovereign debt crisis. The hope was that the markets would buy this assurance, thus preventing a further slide in the euro.

Not only are the markets, at least terms of the euro’s relative value, not being reassured by the happy talk that emanated out of Brussels; upon his return to Athens, Greek Prime Minister George Papandreou  was harshly critical at the lukewarm words of EU reassurance. He said, “in the battle against the impressions and the psychology of the market, it was at the very least timid, ” in referring to the EU communiqué.

The bottom line is that without a massive bailout by the big guns in the Eurozone, in particular Germany and France, Greece faces fiscal collapse, which in turn will prove destructive to the whole Eurozone. However, if indeed Greece is bailed out, a host of other insolvent EU members using the euro will be lining up for their bailouts. Even ignoring the feelings of the German and French taxpayers (which is not politically tenable) there simply is not fiscal capacity within the Eurozone to backstop the other potential sovereign basket cases.

I foresee no possible scenario that allows for a soft landing from this escalating sovereign fiscal and debt crisis.

The European Commission is the executive branch, based in Brussels, that rules over the 27 nations that constitute the European Union. In the confidential EC document perused by The Daily Telegraph, its authors revealed that European banks may be holding as much as 18.6 trillion euros in toxic assets, roughly equivalent to $24 trillion dollars. The secret document issues the stark though not surprising warning to the political leaders of the member states of the EU that the amount of money required to salvage the European banking system, which had only months ago received its own version of a TARP-style bailout, would defy the financial and political capabilities of those countries.

The language in the EC document states the cold facts with harsh simplicity: “estimates of total expected asset write-downs suggest that the budgetary costs-actual and contingent-of asset relief could be very large both in absolute terms and relative to GDP in member states.” This assessment recognizes that whatever portion of the $24 trillion dollars of toxic assets European banks have on their balance sheets that will need to be written off, and that proportion is clearly substantial, cannot be made good by the European Union. To put that $24 trillion figure in perspective, it exceeds by at least six trillion dollars the combined GDP of the entire EU, and dwarfs the GDP figure for the United States, which stands at $14 trillion.

With the growing recognition that the U.S. and U.K. banking systems are effectively insolvent, the secret report issued by the European Commission reveals that the Global Economic Crisis has metastasized to the point where the damage to the world’s financial system is even more egregious than earlier bleak estimates. As the costs to the public purse, meaning the taxpayers, multiplies exponentially, some policymakers are beginning to understand that infinite bailouts of insolvent banks are an unsustainable model for resolving the crisis. As the EC reports puts it, “it is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems…such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance.”

Alas, here is the contradiction. The degree of recapitalization essential for restoring a solvent and functional banking system far exceeds what policymakers in the U.S., U.K. and remainder of the EU have committed thus far. Yet, as the EC report makes clear, providing the required injection of new capital into the banking systems is not feasible for practical and political reasons. So what we are left with are still more costly bailouts that will overwhelm with debt generations of Americans and Europeans, while mummifying essentially moribund banks in a state of dysfunctional preservation.

Now that the banking collapse that has ensued during the Global Economic Crisis has spread from America to the European continent, are Asian banks immune to this contagion? Even if they have so far been spared the worst ravages, they should not feel overly secure. The rampant demand destruction sweeping the globalized economy will inevitably transform collateral held by Asian financial institutions into under-performing assets on their balance sheets. Once that happens, will any part of the globe retain a solvent, functional banking system?

As the news gets more bleak and dire, the time remaining for an effective policy response to the global banking collapse is rapidly approaching zero.