Sunday, January 26, 2014

Is the World Economy Melting Down?

Every Cassandra has her day. Some of us believed, wrongly, that 2013 would not be a very good year. We imagined that the American economy would run out of fumes and that the bear market would reemerge.

As everyone  knows, we were wrong.

The question now is: were we just plain wrong or was our timing off, by a year or so?

Obviously, the stock markets had a bad time of it last week, but, just as the weather is not the climate, one week does not a market trend make. By all accounts America is not really doing that badly.

But now, Michael Snyder looks at the world scene and sees signs of major trouble, especially in emerging markets:

Have you been paying attention to what has been happening in Argentina, Venezuela, Brazil, Ukraine, Turkey and China?  If you are like most Americans, you have not been.  Most Americans don't seem to really care too much about what is happening in the rest of the world, but they should.  In major cities all over the globe right now, there is looting, violence, shortages of basic supplies, and runs on the banks.  We are not at a "global crisis" stage yet, but things are getting worse with each passing day.  For a while, I have felt that 2014 would turn out to be a major "turning point" for the global economy, and so far that is exactly what it is turning out to be.  The following are 20 early warning signs that we are rapidly approaching a global economic meltdown...

I will not list all of the calamities that are befalling these countries. Snyder’s list is very sobering indeed.

He concludes:

And I have not even mentioned the extreme drought that has caused the U.S. cattle herd to drop to a 61 year low or the nuclear radiation from Fukushima that is washing up on the west coast.

In light of everything above, is there anyone out there that still wants to claim that "everything is going to be okay" for the global economy?

Sadly, most Americans are not even aware of most of these things.

All over the country today, the number one news headline is about Justin Bieber.  The mainstream media is absolutely obsessed with celebrity scandals, and so is a very large percentage of the U.S. population.

A great economic storm is rapidly approaching, and most people don't even seem to notice the storm clouds that are gathering on the horizon.

In the end, perhaps we will get what we deserve as a nation.

Of course, Michael Snyder runs a blog called: Economic Collapse. Since he is a chronic Cassandra, he tends to be a glass-half-empty guy.

What then to make of this editorial from Bloomberg View, a more sober news source:

Emerging-market economies had a brutal week. For years, during the crash and its aftermath, they did well as the advanced economies slumped. Recently, not so much. Many developing countries are seeing their currencies drop and their bonds and equities hammered. Just as the global recovery appeared to be strengthening, a fresh source of instability has presented itself.

Not to put too fine a point on it, but Bloomberg View believes that what with the Fed taper and the promise of higher interest rates in the United States, capital no longer needs to seek out better returns in the higher risk developing world.

Bloomberg explains:

 In a way, this was not an unexpected development: The recession in the advanced economies caused central banks to push short-term interest rates to zero and buy assets to drive long-term rates down as well. Capital flowed to the developing world in search of better returns. As investors prepare for a resumption of normal monetary policy, demand for emerging-market assets is bound to fall. The question has always been whether this adjustment would be smooth or abrupt.

The Bloomberg solution: the Fed should print more money and stop the taper that it had begun prematurely.

If Bloomberg is right, the fate of the world economy is now in Janet Yellen’s hands. Don’t you feel better already?

Of course, this assumes that Wonder Woman can continue to keep the bond market under control. If not, all bets are off.

Bloomberg adds that it’s not just a matter of monetary policy. Some emerging economies are suffering from horrendous fiscal mismanagement.

Take Argentina, a test case for Michael Snyder. The Bloomberg view:

 Argentina, which felt the full force of the storm with collapsing bond and equity prices and a steeply devalued peso, is a textbook case of economic mismanagement. No mistake has been left unmade -- including cooking the books about the true rate of inflation.

There you have it, from one Cassandra and from one more sober source.


Unknown said...

If you have an hour and a half free, you may want to watch the documentary The Four Horsemen on Youtube.

It presents a case for Classical Economics over the current Neoclassical Economics. It stresses that the current policy is to keep the lower segments of the economy in severe debt, while the richer segments of the economy pocket profits from interest on money made from nothing.

The result is an ever increasing disparity between the rich and poor. The rich (bankers) have the power to create money from nothing and keep the wealth for themselves, while everyone else is drowning in debt and unemployment.

It's like people living in a mansion, and refusing to notice that the foundation is eroding. Over time, the mansion eventually falls.

Leo G said...

Snyder is a fool and can be dismissed easily. He should learn about a website called Snopes -

This is an illustration of WAVE HEIGHT from the earthquake.

Christ these people really piss me off!

Leo G said...

Try talking to real scientists Mr. Snyder!

Anonymous said...

My life hinges on everything Justin Bieber says. I celebrate his entire catalog, and his lifestyle. Justin Bieber moves currency markets, so I follow his every word. You would be wise to do so also.