Best of the Week
Most Popular
1.U.S. Inner City Turmoil and Other Crises: Ron Pauls Predictions for 2015 - Dr_Ron_Paul
2. What’s In Store For Gold Price in 2015? - Ben Kramer-Miller
3.Crude Oil Price Ten Year Forecast to 2025: Importers Set to Receive a $600 Billion Refund - Andrew_Butter
4.Je ne suis pas Charlie - I am not Charlie - Nadeem_Walayat
5.The New Normal for Oil? - Marin_Katusa
6.Will Collapse in Oil Price Cause a Stock Market Crash? - OilPrice.com
7.UK CPI Inflation Smoke and Mirrors Deflation Warning, Inflation Mega-trend is Exponential - Nadeem_Walayat
8.Winter Storms Snow and Wind Tree Damage Dangers, DIY Pruning - Nadeem_Walayat
9.Oil Price Crash and SNP Independent Scotland Economic Collapse Bankruptcy - Nadeem_Walayat
10.U.S. Housing Market Bubble 2.0 Meet the Pin - James_Quinn
Last 5 days
Silver and Other Precious Metals To Manipulate - 30th Jan 15
Socialism Is Like a Nude Beach - Sounds Like a Great Idea Until You Get There - 30th Jan 15
To Create Unlimited Market Liquidity or Not; That Is the Question - 30th Jan 15
Seen the Energy Downturn Movie Before, and Not Worried - 30th Jan 15
It’s Not Time to Sell Everything – Yet - 30th Jan 15
13 Investment Themes for 2015 - 29th Jan 15
The Raging Currency Wars Across Europe - 29th Jan 15
The End of Currency 'Safe-Havens' - 29th Jan 15
Ron Paul on U.S. Fed, Central Bankers Monetary Psychopaths - 29th Jan 15
Why Microsoft Stock Will Provide Major Investing Returns - 29th Jan 15
Exploring the Clash Within Civilizations - Mind the Gap - 29th Jan 15
Saudi Arabia Changes Kings, But Not its Oil Policy - 29th Jan 15
Crude Oil Price Bulls vs. Resistance Zone - 28th Jan 15
Acceleration Of Events With Rising Chaos – US Dollar Death Foretold - 28th Jan 15
The Fed and ECB Take the West back to when the Rich Owned Everything - 28th Jan 15
Washington's War on Russia - 28th Jan 15
Cyber War Poses Risks To Banks and Deposits - 28th Jan 15
Lies And Deception In Ukraine's Energy Sector - 28th Jan 15
EUR, AUD, GBP USD – Invalidation of Breakdown - 28th Jan 15
“Backup-Camera Envy” Is Driving This Unstoppaple Investment Trend - 28th Jan 15
The Great "inflated" Expectations for Gold, Oil, Commodities -- and Now Stocks - 28th Jan 15
How to Find the Best Offshore Banks - 28th Jan 15
There’s More to the Gold Price Rally Than European Market Fears - 28th Jan 15
Bitcoin Price Tense Days Ahead - 27th Jan 15
The Most Overlooked “Buy” Signal in the Stock Market - 27th Jan 15
Gold's Time Has Come - 27th Jan 15
France America And Religious Terror War - 27th Jan 15
The New Drivers of Europe's Geopolitics - 27th Jan 15
Gold And Silver - Around The FX World In Charts - 27th Jan 15
It’s Not The Greeks Who Failed, It’s The EU - 27th Jan 15
Gold and Silver Stocks Investing Basics - 27th Jan 15
Stock Market Test of Strength - 26th Jan 15
Is the Gold Price Rally Over? - 26th Jan 15
ECB QE Action - Canary’s Alive & Well - 26th Jan 15
Possible Stock Market Pop-n-drop in Store For SPX - 26th Jan 15
Risk of New Debt Crisis After Syriza Victory In Greece - 26th Jan 15
How Eurozone QE Works: A Guide to Draghi's News - 26th Jan 15
Comprehensive Silver Price Chart Analysis - 26th Jan 15
Stock Market More Retracement Expected - 26th Jan 15
Decoding the Gold COTs: Myth vs Reality - 26th Jan 15
Greece Votes for Syriza Hyperinflation - Threatening Euro-zone Collapse or Perpetual Free Lunch - 26th Jan 15
Draghi's "No-growth" QE Money for Stocks, Zilch for the Economy - 25th Jan 15
Unjust and Undeclared Wars - 25th Jan 15
The European Central Bank Commits Monetary Suicide - 25th Jan 15
Stock Market ECB EQE week - 25th Jan 15
Gold And Silver Timing Is Most Important Element - 25th Jan 15
The Best Way to Invest in the Next Alibaba Internet Stock IPO - 25th Jan 15
The Outpatient Surgery Business Rains Cash into Healthcare Stocks - 25th Jan 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Learn to Trade

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.


© 2005-2014 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

Free Report - Financial Markets 2014