Best of the Week
Most Popular
1.War on Cash, Bank of England Planning Hyper QE, Scrapping Cash for Digital Currency - Nadeem_Walayat
2.Stock Market End Run Smash Crash Looks Imminent... - Clive_Maund
3.Europe Refugee Crisis, UK to Repatriate 120,000 Hungarian Economic Migrants Back to Hungary - Nadeem_Walayat
4.The Great Deflation Will Destroy All Bubbles – These Too - Harry_Dent
5.Deflation Signals Abound for U.S. Dollar, Forex Markets and Commodities - Rambus_Chartology
6.U.S. Housing Market Two Outs in The Bottom of The Ninth - James_Quinn
7.Poland, Czech, Slovakia and Hungary Refugee Hypocrisy After Flooding UK with 4 Million Economic Migrants - Nadeem_Walayat
8.The Two Real Reasons Crude Oil Prices Are Currently Slipping - Dr. Kent Moors
9.R.I.P. Interest Rates - Andrew Snyder
10.Steps from a Deep October Stock Market Selloff - Bob_Loukas
Last 5 days
Gold, Silver Precious Metals: a Critical Week Ahead - 5th Oct 15
Stock Market Correction Still in Force - 5th Oct 15
Gold Price Change in Character - 5th Oct 15
Putin’s Blitz Leaves Washington Rankled and Confused - 4th Oct 15
More Selling for Stock Market, Gold? - 4th Oct 15
Gold And Silver – A Reality Check - 3rd Oct 15
Stock Market Primary IV Still, or Primary V Underway? - 3rd Oct 15
The Oil Industry’s Day of Reckoning - 3rd Oct 15
U.S. Interest Rate Hikes Keep On Slippin' Into the Future; Treasury Yields Sink Again - 3rd Oct 15
China's Stock Market Crashing; Time for Panic or Restraint - 3rd Oct 15
SPX Stocks Bulls Struggle to Regain the Upper hand... - 2nd Oct 15
The Two Faces of Stock Market Volatility - 2nd Oct 15
Money Supply and the Fed’s Serious Inflation Risks - 2nd Oct 15
Stock Market How Bad Can This Get, And How Fast? - 2nd Oct 15
A Worrying Set Of Recession Signals - 2nd Oct 15
Negative Jobs Report Sents SPX, TNX Lower - 2nd Oct 15
Don't be Fooled by the Recent Equity market Rallies. Its a Bear Market, Stupid! - 2nd Oct 15
US Bond Market - How to Fix This - 2nd Oct 15
Survival Secrets from Colorado Resource Investing Front Lines - 2nd Oct 15
What Two Risks From Rising Interest-Rates Could Each Trigger A New Global Crisis? - 1st Oct 15
Stock Market S&P 500 Volatility-Based Price Probability Range - 1st Oct 15
Dow Stock Market About To Crash Like October 1929? Get Your Physical Silver - 1st Oct 15
Stock Market Negative Expectations Once Again - Will It Break Down? - 1st Oct 15
Advice for Biotech Investors: 'Hold Your Powder' 'til Winter - 1st Oct 15
Best Short-Term Commodity Market Opportunities - Video - 1st Oct 15
The Coming Corporate "Crime Wave" - 30th Sept 15
Stock Market Retracement May Have Run Its Course - 30th Sept 15
A Stocks Bear Market Is Now More Likely Than Not - 30th Sept 15
The Killer Ape, Human Evolution, Artificial Intelligence and Extinction End Game - 30th Sept 15
Junk Bond Market Imminent Collapse Threatens (Unwelcome) BIG Rate Rises - 30th Sept 15
Stocks: Why Following the Crowd is Usually a Big Mistake - 29th Sept 15
This Stocks Bear is Just Waking from Hibernation - 29th Sept 15
Interest Rates All Bad at 0%? - 29th Sept 15
If Stocks Can't Hold These Levels, We'll Have a Bear Market - 29th Sept 15
7 Bullish Gold Price Indicators - 29th Sept 15
Crude Oil Price Is Going to Fall by 50%… Again - 29th Sept 15
SPX Triggers a Amall Head & Shoulders Formation - 28th Sept 15
Stock Market Bubble Balloons in Search of Needles - 28th Sept 15
Gold and Silver, Precious Metals Complex Getting Interesting - 28th Sept 15
Economic Channels of Distress - Fourth Turning Crisis of Trust - 28th Sept 15
Stock Market Testing Important Levels - 28th Sept 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

The Mother of All Dreads, Global Economy on the Brink

Interest-Rates / Global Debt Crisis Nov 18, 2011 - 11:22 AM GMT

By: Submissions


Best Financial Markets Analysis ArticleRamy Saadeh writes: The World is on the brink of a cataclysmic spiral that could make the Greek crisis look like a walk in the park. Interestingly, markets still seem very hushed about the emerging risks ahead; the final bell hasn’t rung yet, can this be it?

The trigger of the dreadful events could come as soon as the 23rd of November 2011, as the “Super Committee”, who is expected to set forth a long awaited plan to cut spending by $1.2 Trillion over 10 years. The “Super Deal” is that no agreement has been reached yet, and consequently no plan will be delivered by the deadline. Well, quoting Jon Stewart in his show, the “Super Committee” did act on one thing “pushing forward with a bill to allow the sauce on pizza to be considered a vegetable in school lunches”; this is the closest thing to an agreement.

The amount of the US total public debt outstanding has breached the $15 Trillions, to be more specific it reached $15,033,607,255,920.32. The height of a stack of 1,000,000,000,000 (one trillion) one dollar bills measures 67,866 miles. The US debt is actually a two time back and forth trip to the moon.

The US Debt to GDP ratio hit 98.9% and still on its way up, a study lead by Carmen Reinhart and Kenneth Rogoff reviewing 200 years of economic data from 44 nations has reached a warning conclusion for the US: “Almost without exception, countries that are as highly indebted as the United States grow at sub-par rates”. When that ratio exceeds 90 percent, the nations' economies barely grow, and can even contract (for an average of -0.1%). Briefly, the US has reached a level where they have limited their ability to grow their way out of the debt problem, and could no longer continue debt-financing their growth.

With limited ability for the US to further boost growth, a failure of the “Super Committee” will only exacerbate the situation since the White House has agreed at the start of August to forgo an automatic tax increase and spending cuts if no debt-reduction law is enacted, very likely the tax cuts enacted under George W. Bush will be allowed to expire. The consequences of those cuts and tax hikes would result in contraction of the GDP by 1.7 percent in 2012, according to JPMorgan chief U.S. economist Michael Feroli, razing the US growth into downturn.

A slump in the US is the last thing needed in today’s markets; the Euro-zone is already flirting with recession and, quoting the new head of the ECB Mario Draghi, “Europe might be entering Mild recession by year end”. We are witnessing a meltdown in Europe, and as long as no treaty changes for the role of the ECB comes to light, things will not get any better. The previous nibbling of the ECB to purchase the troubled countries debt has shown that the central bank’s action were more toxic than tonic for the markets.

A deeper look in the Euro zone will only signal more alarms. Italy is struggling under a serious yoke of external debt without the ability of rolling it over in the private market. The EFSF had spent more than
€ 100Million buying up its own debt. Interestingly, until lately, an increase in Spanish and Italian yields coupled a decrease in German yields; but currently the couple broke up to have a surge in the distressed countries yields, while bunds yields remained stagnant at their lows signaling a complete avoidance of EUR-denominated assets. In addition, European banks (mainly the French ones) are becoming more hesitant to lend each other forcing the ECB to announce additional US dollar liquidity; this is quietly developing a liquidity crisis that could blow at any time. If French bank took a hit, the rating of France will not be spared, as a result the whole EFSF and rescue efforts will be served as Turkey for thanksgiving.

Conclusion: We have an environment of panic and fear, if the prevailing problems came to light, things would change quickly. It would be good not to forget the big sell off which happened in August due to a political impasse that triggered market turmoil. In this respect, we find ourselves at a crossroads; either US congress reach an agreement and EU nations agree upon an alternative treaty that gives the ECB more autonomy and power, which in my view could be promising, or we delve back into another financial abyss, only this time deeper.


Best regards
Ramy Saadeh
Financial Avisor

© 2011 Copyright Ramy Saadeh - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2015 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History