Skip to comments.The Mother Of All Dreads, Global Economy On The Brink
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 hasnt 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 todays 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 banks 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.
I never pray for myself but only to help others. This whole situation really peeves me, for I saw Obama as the harbinger of evil, and it has become true.
Excellent and dead on. That's tagline material.
From NASDAQ.com. Think Tank Exclusive Analysis just released a grim set of predictions in which they believe there is a 65% chance of a banking crisis between November 23-26 that involves a Greek default and Euro exit, as well as a run on the Italian banking system. Under their most likely outcome (via CNBC), the governments of Greece and Portugal will both soon collapse because of inability to handle the debt crisis. Germany will become opposed to handing out more funds to the EFSF and parliament will actually reduce the money available to the fund.
As a result, China and the other BRICs will signal that they wont support the bailout fund. The US and the UK will refuse to provide funding via the IMF. The EFSF will then turn to the ECB to print the necessary bailout money, which theyll refuse to do. This failure will cause European banks to refuse the 50% haircut on Greek debt. The IMF and ECB will suspend payments to Greece.
Depositors in Spain and Italy will create bank runs in fear of banking crises in their own countries, causing a collapse of the interbank credit market as banks know that most of their counterparts are at risk. At which point Greece defaults.
If those are real cuts, which we know they are not. Merely reductions in massive increases in spending.
Cavuto used the analogy of dieting.
You tell me how fat I am and I tell you watch and wait 10 years from now because I`m going on a massive diet. 10 years past and you see me fatter than before and point the finger at me and tell me I lied. I say to you that I was on a diet. Instead of eating a whole gallon of ice cream I ate only half. Whole pizza was reduced to only 8 slices. See? Normally I would have eaten the whole thing and I would be even fatter today.
The diet was only a reduction in the increased amount I would have eaten. Ditto for Govt.
I wonder what we'll be talking about at the Thanksgiving meal?
Wonder what will happen with our banks?
The stock market?
It'll take a revolution to correct the deception/deceit in every thing that is government.
No-one in office can be allowed to survive...they're polluted and don't even know it...even the ones who seem decent.
Why do you think Congress panicked and passed the TARP bailout bill in 2008?
the initial euro bailout.
“Im 59 and unemployed. “
I’m 56. I have a job for the time being, no gauruntees for the future. More and more work being dumped on me. I know I won’t be able to retire from this company.
Thank God I have almost no debt, house and car paid off.
Hang in there God, is still sovereign!