Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20
China Recovered in Q2. Will the Red Dragon Sink Gold? - 23rd Jul 20
UK Covid19 MOT 6 Month Extensions Still Working Late July 2020? - 23rd Jul 20
How Did the Takeaway Apps Stocks Perform During the Lockdown? - 23rd Jul 20
US Stock Market Stalls Near A Double Peak - 23rd Jul 20
Parking at Lands End Car Park Cornwall - UK Holidays 2020 - 23rd Jul 20
Translating the Gold Index Signal into Gold Target - 23rd Jul 20
Weakness in commodity prices suggests a slowing economy - 23rd Jul 20
This Stock Market Stinks - But Not Why You May Think - 22nd Jul 20
Protracted G7 Economic Contraction – or Multiyear Global Depression - 22nd Jul 20
Gold and Oil: Be Aware of the "Spike" - 22nd Jul 20
US Online Casino Demographics: Who Plays Online For Money? - 22nd Jul 20
Machine Intelligence Quantum AI Stocks Mega-Trend Forecast 2020 to 2035! - 21st Jul 20
How to benefit from the big US Infrastructure push - 21st Jul 20
Gold and gold mining stocks are entering a strong seasonal phase - 21st Jul 20
Silver Eyes Key Breakout Levels as Inflation Heats Up - 21st Jul 20
Gold During Coronavirus Recession and Beyond - 21st Jul 20
US Election 2020: ‘A Major Bear Market of Political Decency’ - 21st Jul 20
Summertime Sizzle for Gold and Silver - 21st Jul 20
Overclockers UK Custom Built PC Review - Delivery and Unboxing (3) - 21st Jul 20
Will Coronavirus Vaccines Become a Bridge to Nowhere? - 20th Jul 20
Stock Market Time for Caution?  - 20th Jul 20
ClickTrades Review - The Importance of Dynamic Analysis and Educational Tools in Online Trading - 20th Jul 20
US Housing Market Collapse Second Phase Pending - 20th Jul 20
Capitalising on the AI Mega-trend - 20th Jul 20
Getting Started with Machine Learning - 20th Jul 20
Why Moores Law is NOT Dead! - 20th Jul 20
Help the Economy by Going Outside - 19th Jul 20
Stock Market Fantasy Finance: Follow the Money - 19th Jul 20
Did the Stock Market Bubble Just Pop? - 19th Jul 20
Quick Souring of the S&P 500 Stock Market Mood - 19th Jul 20
The Six-Year Jobs Recession - 19th Jul 20
Silver Demand Exploding! - 18th Jul 20
Tesco Scraps Covid Safe One Way Arrow Supermarket Shopping System - 18th Jul 20
The Rise of Online Pawnbroking - 17th Jul 20
Gold Rallies Together With U.S. Covid-19 Cases - 17th Jul 20
Gold & Silver Measured Moves - 17th Jul 20
The Bizarre Mathematics Of How Negative Interest Rates Create Stratospheric Profits - 17th Jul 20
From a Stocks Bull Market Far, Far Away, Virus Doomsday Scenerio! - 16th Jul 20
Fiscal Cliffs and the Self-destructing Treasury - 16th Jul 20
Dow Stock Market Crash Watch - Update - 16th Jul 20
Gold & Silver Gaining on US Dollar Weakness - 16th Jul 20
How to Find the Best Stocks to Invest In - 16th Jul 20
Overclockers UK Custom Build PC Review - 2. System Build Changes Communications - 16th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Just A Cyclic Economic Ripple Or Structural Long Term Recession ?

Economics / Recession Jun 25, 2012 - 10:35 AM GMT

By: Andrew_McKillop

Economics


Best Financial Markets Analysis ArticleFor global media, the 2008 crisis was signalled by the so-called "near collapse" of banks, insurers and mortgage lenders like the UK's RBS and Northern Rock, the USA's JP Morgan, AIG and a string of smaller players like Bear Stearns, but was above all symbolized by the outright collapse of Lehman Brothers in the autumn of 2008. Since the start of 2012, revealing the supposed "surprising weakness" of the OECD economies, and the more (or really) surprising weakness of the Chinese and Indian economies, the events of recent months ram home the basic facts. Emerging from what in 2008 was a finance-sector crisis in the OECD, easily explained by the perils of casino capitalism operating on debt to get and then lose its betting chips, the subsequent and present financial collapse: 1) is systemic not temporary; and 2) is global, affecting every country in the world. Through globalization of the economy, and supposed "global integrated capitalism" we now have a globally integrated catastrophe.


This "perfect storm" is of course grist to the mill of conspiracy theorists. How could the global economy fall apart, after the OECD economies fell apart, without this being planned at Davos or by the Trilateral Commission, the Rothschilds and George Soros ? Equally revealing of the way that idiot friendly sweeps away any other explanation, the European debt-and-deficit crisis, week after week, is hailed by commentators in government-friendly media as being on the point of final settlement. Happy times will soon be here again - because Germany will pay ! First of all, however, Germany has to be able to pay before we can even try the question of do Germans want to pay. The other storyline of the Happy Henries - that China will pay by operating its own type of QE, which in turn will magically aid the western economies it runs vast trade surpluses with - has already slipped off the front pages, as both China and India report increasingly weak data.

In fact, and very easily verified, industrial production in both Germany and China is contracting, for the most simple and basic reason: mostly because of falling exports. Major indices like purchasing managers and production indices in Germany, China, India, Brazil, Turkey and other supposed "unaffected fast growing Emerging economies" are all softening, sometimes for more than 6 months in a row. Commodity price indices, especially led by global oil prices, tell the same story: growth is in retreat, debt is still growing, exports are falling.

In the majority of European countries, including Germany, the reality of accelerating contraction of the economy - exactly as in the US - draws heroic covering action in the shape of honeyed words, but above all no more QE, because the tills are empty. The most classic-possible signal of economic recession - mass unemployment - is the reality in most EU27 countries and the US, where the Labor Department reports that recent falls in the number of available jobs include the 1-month hit of 325,000 in April, the single biggest monthly decline since September 2008. Several European countries, despite the most heroic possible doctoring of the figures, are forced to report unemployment at 15% - 25% of their adult populations and 30% - 45% of their younger workers.

THE BANK BAILOUTS RESUME

Also similar to the sequence of 1929-1933 during which the firstly US, and then European economic recession switched leading roles on a regular basis, but always intensified, Europe's debt-and-deficit crisis has seamlessly morphed into a continent-wide economic crisis. This has left the continent's so-called deciders, who prefer not to decide because that reveals their incompetence more starkly then when they do nothing, in a Russian doll system of crises where they reel from one to the next. Their always preposterous claims of being on the point of sealing yet another 1-trillion-euro bailout pact are ritually welcomed by stock market operators, with highly predictable and organized surges, following each claimed bailout. The most recent was the Spanish Bankia bailout, and like previous surges lasted a day or so before the bears returned and the selling pressure restarted. Exactly like the recent and totally failed Rio + 20 conference, the preceding G20 summit in Mexico, which was supposed to conclude with a common agreement on Europe, in fact ended in complete discord and refusal to act among the major powers.

My argument is clear: there is nobody in the driver's seat or cockpit. The supposed "classic bourgeois reaction", of racking the working classes for more work at lower wages has already morphed into the 1930s recession mould of all out austerity. The bourgeois survival instinct, of siphoning more of the declining wealth pile into their coffers, is already contradicted by the fragile and sinking fortunes of the bank-insurance-finance sector, declining major stock market indices, an unsure rebound in gold and silver prices, the retreat of commodities - and a flight from money itself. The example for Marxists, of Greece being racked into penury by global capitalism, is but a low budget version of what happened to dozens of "Third World" developing countries in the 1980s and 1990s, and to Argentina and Russia itself - the home of Marxism ! Each time, the process aborted. Each time, global capitalism was weakened, not invigorated and triumphant. Each time, globalization rolled on like a bulldozer.

Monday June 25, Spain's banks will probably receive about 100 billion euros, based on ratings agency Fitch's estimate of what it calls its worst case scenario, not the "only" 60 billion that hopefuls claimed is needed, because Spain's banks will need a higher level of capital reserves to ensure that markets will resume large-scale lending after the banks' massive losses. Media reports suggest the bailout will be set as loans for at least 15 years with interest rates of at most 3.5pc: this is far from total triumph for global capitalism, and much closer to total loss.

Marxists will pump up their music saying how capitalism's mobility will shift any remaining "real riches" to the sweat shops of Asia and restart the process of spoliation, but a systemic and global financial crisis interlocked with a global economic crisis is bad news for old style capitalism. After Spain's banking sector crumbles, cascade bank collapse threatens Italy and France, next, because the bad and bankrupt banks now include the central banks of an always increasing number of so-called, or formerly rich countries. In a context of multi-crisis, that is balance of payments crisis, bank and finance sector crisis, monetary crisis, liquidity crisis and economic crisis the only possible way to "save the system" is a sharp rise of interest rates. If that happens, all out and total economic recession is not just possible, but 100% sure and certain.

THE NATURE OF THE CRISIS

Panic is the real nature of the present crisis. This can easily be seen as the flipside of know nothing-care nothing laisser faire style "management" of the economy, which has been the collective disease of political and economic deciders for 30 years. At one and the same time, today, saving the system needs a massive deleveraging or debt reduction of the economy - which is deflationary - and a large (or even massive) increase in real liquidity - which is inflationary. The probable already set medium term trend for a decrease in world trade and falling exports, can in theory only cause declining capital transfers and investment flows, unless expansionary action is taken. In fundamentally weakened economies, this can only be inflationary.

This no-win readout is already far too complex for average Liberal deciders of today's capitalism or neo-capitalism to understand. This is shown by the European debt-and-deficit charade, stumbling forward every day to further and higher extremes of panic, increasingly likely to result in a pure and simple refusal to accept reality, therefore refusal to act. Options seemingly abound: the euro could be devalued close to 1 USD, aiding Europe's failing export industries including those of Germany, some form of debt pooling or Federal Debt Union could be thrown together, probably with (rather than without) the expulsion of the lamest ducks from the Eurozone; a weak or symbolic 1% of European GDP, about 125 bn euros could be injected into various make-work programmes, as the "Hollandistes" want, and things could seem a little less abnormal for a certain period of time, if only for a few weeks: in panic mode, each day counts.

The impact of this on the global economy will of course be massively exaggerated. Europe is already in recession and will stay in recession; the US can only stay in low growth mode; the Japanese and South Korean economies are in slow growth mode, oil prices will stay low - reducing Arab and Russian spending power - therefore China and India will go on recording ever slower growth. The increment of de-growth or increase in global recession due to Europe will be minor, until and unless the European economy literally implodes, which is in no way excluded.

Under panic mode, global capitalists can be expected to try out a series of tried-and-failed recipes for "crisis management", the most courageous or radical of which is global QE, hinted at by the highest level European bailout plans targeting the mobilization of about 2 trillion euros. This would signal a breaking of ranks between Europeans and The Rest, a global monetary challenge comparable with the US Marshall Plan under which the global economy (of the time) was inundated with dollars, providing the US with monetary hegemony for decades ahead. The basic problem with this European panic move of today is that when or if there is a huge printing fest by the ECB this can only, and would only bring down the dollar with the euro.

At this time in late June it is not possible to say which strategy will play. Accumulated layers of political and economic dysfunctionality have created a perfect no-win context, explaining the panic. The race is on between "purely political" solutions, and supposedly economic solutions all of which imagine the global economy can be saved and should be saved.

This at present is about the only outcome we can be sure is not going to happen.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2012 Copyright Andrew McKillop - 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.


© 2005-2019 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

6 Critical Money Making Rules