Best of the Week
Most Popular
1.Trump Delirium Triggers Stock Market Brexit Upwards Crash Towards Dow 20,000! - Nadeem_Walayat
2.The Future Price Of Gold Will Drop Below $1000 In 2017 -InvestingHaven
3.May Never Get Another Opportunity to Buy Gold at this Level Again - Chris_Vermeulen
4.Delirium - The Real Reason Why Donald Trump Won the US Presidential Election - Nadeem_Walayat
5.Why Nate Silver / Fivethirtyeight is one of the Most Reliable Election Forecasting Indicator? - Nadeem_Walayat
6.Gold Price Forecast: Nasty Naughty November Gold Price Trend - I_M_Vronsky
7.Gold Mining Stocks Screaming Buy! Q3’16 Fundamentals - Zeal_LLC
8.Delirium of Trump Mania Win's Mr BrExit US Presidential Election 2016 - Nadeem_Walayat
9.The War On Cash Goes Nuclear In India, Australia and Across The World - Jeff_Berwick
10.Hidden Signs for Gold and Silver - P_Radomski_CFA
Last 7 days
First UK BrExit then Trump, Next BrExit Tsunami Wave to Hit Italy HARD Sunday! - 3rd Dec 16
The 10YR Yield and SPX Stocks Bull Markets - 3rd Dec 16
Gold And Silver – Do Not Expect Much Difference With Trump Compared To Obama - 3rd Dec 16
Gold, Currencies and Markets Critical 61.8% Retracements - 2nd Dec 16
Gold Junior Stocks Q3’16 Fundamentals - 2nd Dec 16
Adventures in Castro’s Cuba - 2nd Dec 16
We Are Putting Off the Inevitable - 2nd Dec 16
Macroeconomic Cycles & Demographics - A Fuse, An Explosive and The Igniting Catalyst - 2nd Dec 16
How Moving Averages Can Identify a Trade - 1st Dec 16
Silver Prices and Interest Rates - 1st Dec 16
America, is it Finally time for us to say Goodbye? - 1st Dec 16
Blockchain Technology – What Is It and How Will It Change Your Life? - 1st Dec 16
Burn the Flags, Can Trump Salvage The Sinking US Economic Ship? - 1st Dec 16
Will US Housing Real Estate Market Tank in 2017? - 1st Dec 16
Referendum Puts Italy's Government to the Test - 30th Nov 16
Why We Haven’t Seen Gold Price Rally after Trump Victory - 30th Nov 16
Breakdown and Slide in Crude Oil Price - 30th Nov 16
A 'Wicked Rally' in Gold Price Predicted - 30th Nov 16
Silver Market Sentiment Looks Golden - 30th Nov 16
Indian Demonetization Denotes Severe Stress in the Global Gold Market - 30th Nov 16
Owning Gold and Silver in Troubling Times - 29th Nov 16
Trump's Presidency - Stock Market Crash or Start of New Mega-Trends - 29th Nov 16
Prime Minister Modi's War Against Corruption, Black Money and Fake Currency Notes in India - 29th Nov 16
Can President Trump Really Drain the Swamp? - 29th Nov 16
President Trump’s Economic Plan Isn’t Going to Work - 29th Nov 16
The US Bond Bear Market Has Begun! - 29th Nov 16
Simple Yet Powerful Technical Trading Tools - 28th Nov 16
Public Infrastructure – Welcome to the World of Waste, Fraud, and Abuse - 28th Nov 16
Fifty Years Later, Moore's Computing Law Holds - 28th Nov 16
An Elusive Stock Market Top - 28th Nov 16
This Past Week in Gold - 27th Nov 16
Italian Bank Collapse European Sovereign Bond Carnage, Criss-Crossed Fuses & Lit Bonfire - 27th Nov 16
How to Beat UK Savings Crisis with Child Junior Cash ISA, Pension's and Life-time ISA - 27th Nov 16
Castro Was Not Who You Thought He Was - 27th Nov 16
Understanding the Trump Presidency , Beyond Merkel - 26th Nov 16
US Stocks Bull Market New All Time Highs - 26th Nov 16
Silver Mining Stocks Q3 2016 Fundamentals - 26th Nov 16
MSM's Stock Market Druck'n Suck-In Continues - 26th Nov 16
Gold Price Down 13.5% In 13 Days - Opportunity For Geometric Price Cost Averaging - 26th Nov 16
Tips for Trading Options with Elliott Waves - 26th Nov 16
Germany Pulls the Plug on Market Oracle site for 24 hours, German Election BrExit GerExit Warning Shot? - 26th Nov 16
New NS&I 2.2% Savings Bond Ahead of 2017 Stealth Inflation Theft of Purchasing Power - 24th Nov 16
Establishment Controlled Mainstream Media Launches War on Alternative 'Fake' News - 24th Nov 16
Black Friday Cheap Christmas Lights, How Long do they Last ? B&M Stores Review Video - 24th Nov 16
War On Cash Goes Global – India and Citibank In Australia - 24th Nov 16
Stocks, the Politically-Driven S.O.D. to Lose Again - 24th Nov 16
One of the best buying opportunities in history? - 24th Nov 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

$10000 Gold

The Mother of All Dreads, Global Economy on the Brink

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

By: Submissions

Interest-Rates

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.

Bibliography
http://www.ehd.org/science_technology_largenumbers.php
http://www.zerohedge.com/news/global-liquidity-bailout-arrives-ecb-announces-emergency-liquidity-providing-operations
http://www.mcclatchydc.com/2010/01/11/v-print/81969/high-us-debt-means-slower-growth.html
http://www.bloomberg.com/news/2011-07-31/white-house-republicans-said-to-reach-tentative-deal-on-u-s-debt-ceiling.html
http://mobile.bloomberg.com/news/2011-09-09/obama-job-plan-would-boost-u-s-gdp-by-up-to-2-next-year-economists-say
http://www.fxstreet.com/fundamental/analysis-reports/top-fundamental-stories/2011/11/03/04/
http://www.nakedcapitalism.com/2011/11/efsf-fail-forced-to-buy-some-of-its-own-bonds-in-auction.html

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.


© 2005-2016 http://www.MarketOracle.co.uk - 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

Catching a Falling Financial Knife