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Posted on 11/18/2011 6:58:12 PM PST by blam
The Mother Of All Dreads, Global Economy On The Brink
Interest-Rates / Global Debt Crisis
Nov 18, 2011 - 11:22 AM
By: Ramy Saadeh
Ramy 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.
A 1.2 trillion spending cut (If it's actually a cut) over ten years is peanuts and will only have a depressing effect on the economy.
That's the problem for Republicans...cuts of any significance will crater what's left of the economy and inaction will lead to hyperinflation.
IMO, we are at the point of no return.
I still think we'll end up inflating, inflating......
Deutsche Bank Has A Super-Bullish Take On The Latest Economic Data
There are no non-painful solutions. Either we accecpt austerity now, try inflation and end up defaulting, or just party on and hyperinflate till we collapse. I think austerity now is best, not because it is without pain, but because I think it will be less pain, and will get the problems over with faster. It also focues the pain on the generation that caused the problems, rather than dumping it on our kids.
The problem is that we will handle that exactly as the Greeks have handled it.
We have too much debt. We spend too much. We need austerity. What would that mean? Well, pretty much inevitably it would mean rethinking entitlements -- medicare, social security, that sort of stuff.
And Americans would take to the streets, riot, and burn buildings:
"You can't take my Social Security!"
"That's my money!"
"I've paid into that my whole life!"
That's exactly how the Greeks reacted. We will be no different.
Austerity is the irresistible force. The folks who like entitlements are the immovable object. The collision will NOT be pretty.
Like a balloon - to the point that it goes BANG!
This 'big bang' won't create anything but major world-wide pain.
I think austerity now is best, not because it is without pain, but because I think it will be less pain, and will get the problems over with faster.
You've reached the same conclusion as me.
When is the only question left.
Now:
Austerity is the irresistible force. The folks who like entitlements are the immovable object. The collision will NOT be pretty.
Damn.
DB is in such high spirits because they are counting on more of Uncle Ben's Magic Unicorn money - QE3.
It's actually taking place now, with the FDIC back-door funding the banks as they collapse and change names.
Game on!
A smelly mohamed goat-humper predicting the demise of western civilization.
Let’s count how many FR clods fall for this BS.
I count five so far.
I don’t mind working until I’m 80 years old. The immediate problem is that I’m 59 and unemployed. I’ve been looking for work now for, oh, 11 months with no interviews.
The past three months I’ve been selling items on Ebay. Two weeks ago people stopped buying. Even the folks in Ebay’s various chatrooms have noticed the drop-off in traffic to their sites.
This is getting closer and closer to the SHTF time.
Well stated. Do you think we will make it through 2012 without a SHTF event playing out?
“I don’t mind working until I’m 80 years old.”
Nobody is going to hire a person who is in his 70’s.
My observation lately is that NPR has been thrilled by the US economy -- it's doing great, have you heard? Today they stated that we've been in recovery all year long. Who knew? They did point out that we did hit a stumbling block last spring when Japan was hit by the tsunami, but other than that Obama's policies have worked out well.
NPR has been shoveling this BS for several weeks lately. And they always follow it up with a key point -- "The only thing that could hurt us now is if Europe implodes."
What this tells me is that the folks who run the leftwing media have been passed the word: Europe will implode soon. Nothing is going to stop it. The EU is guaranteed toast. Obama will run on a campaign of: "Things were going great, then Europe flushed all my glorious economic gains down the toilet."
There will be worldwide economic collapse, and a domestic push for massive increase in government control. And, yes, there will be blood in the streets.
direst dire.
Interesting about the sales dropping off.
A little prayer you find work.
I agree that no one will hire a person in their 70’s.
Instead our society will see the suicide rate skyrocket, as there will be no alternative during a depression if you’re all alone, as I am, or you face starvation and deprivation when no one will hire you no matter how qualified or how experienced.
I’m now down to selling my furniture and stalling the execution of my two dogs.
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