Eurozone sovereign debt crisis
Global Economics Weekly Brief
The Eurozone sovereign debt crisis did the unthinkable last week and knocked on Berlin’s door. A German government bond auction failed to attract buyers for 35% of the offering.
Alongside this scare, further evidence that the debt crisis is damaging growth emerged from the Eurozone purchasing managers indices (PMI) which point to a contraction in private sector activity. China, a usually reliable source of healthy looking data, saw its PMI fall to the lowest level since March 2009. UK GDP figures for the last quarter revealed a struggling economy while US growth over the same period was revised down. There appears little for anyone to be thankful for this advent. Plus, the UK is in recession again!
Germany’s disappointing bond auction. Markets were spooked by investors beginning to question Germany’s status as the financial pillar of Europe. Indeed, Germany’s borrowing costs briefly rose above the UK’s, a remarkable development given Germany’s more favourable debt outlook. It increasingly appears that the European Central Bank will need to be allowed to expand its role of lender of last resort to backstop Eurozone sovereign debt. Germany has, up until now, been firmly opposed to such a measure but the past week’s development may soften its stance. Although this would help prevent funding pressures becoming defaults, it remains a short-term fix that will not solve the underlying economic problems.
Inching toward closer Eurozone fiscal integration. Fiscal union is a key element of a longer-term solution to the ongoing crisis. Some progress was made on this issue with Chancellor Merkel raising the possibility of rewriting European treaties to begin this process. This could pave the way for Eurozone governments to collectively issue debt – ‘Eurobonds’ – but this will take time. However, there are reports that accelerating fiscal integration without treaty changes may be considered.
Eurozone sovereign debt crisis weighs on the private sector. The flash estimate of the combined manufacturing and services PMI for November improved slightly from 46.5 to 47.2 but remains firmly in contraction territory. Germany continues to be a better performer. A 4-month high reading of 51.4 in Germany’s services sector PMI was supported by a small but surprising rise in business confidence. However, with continued austerity across Europe and no clear solution to the crisis in sight, the risks to Eurozone growth remain firmly to the downside.
UK GDP – steady on the surface, weak underneath. The headline economic growth reading was unrevised at 0.5% q/q for Q3 but the negative contributions from investment and exports were disappointing, especially as UK growth hopes are pinned on rebalancing towards these sectors. Despite evidence of a narrowing budget deficit, government spending continues to make a positive contribution to growth. This is unlikely to be sustained. The household sector could not come up with a donation to GDP growth as low income growth and high inflation left pockets with little money to spare. Yes, the UK is in recession again!
Spending cuts visible as UK budget deficit narrows. The last borrowing figures released before the Autumn statement will have cheered the Chancellor up a bit. Net borrowing excluding support for banks slipped to £6.5 billion from £13 billion in September and £7.7 billion a year earlier. However, the weakening growth outlook for the UK economy only adds to what was an already formidable challenge to mending the public finances. More unemployment on its way!
No 'fine tuning' from the Monetary Policy Committee (MPC). Minutes to the MPC's meeting in November undermined expectations that quantitative easing might be extended in December. Members noted that market capacity made it difficult to substantially increase the monthly rate of purchases. And, given that members think there is "little merit in fine tuning" it would seem that - barring any really nasty surprises - we are unlikely to see further stimulus before February.
US GDP – weaker on the surface, better underneath, unlike the UK. The headline GDP figure for the last quarter was revised down from 2.5% at an annualised pace to 2% due to inventories being drawn down instead of built-up as previously thought. The US managed to get a boost from net exports during the quarter (i.e. the trade gap narrowed). Additionally, consumer spending made a positive contribution to growth during the quarter, rising 2.3% on an annualised basis. Unfortunately, more unemployment on its way!
China PMI moves below 50. At 48, the reading in China’s PMI was the lowest since March 2009. Surprisingly, there was no Europe-induced collapse in new export orders. Domestic orders were the culprit. The softening in the growth outlook and waning inflation will support continued small doses of monetary easing by the authorities. This should ensure China’s growth remains robust enough to continue to drive global GDP. Perhaps there is something to be thankful for after all. Global recession impacts on China.
Public Protests Around The World
The global financial crisis has spawned a global protest movement campaigning against things like inequality, corporate greed, lack of jobs, etc.
Although these protests have occurred for decades, they have typically been in the developing countries, or about the situation in developing countries.
As such, many Western nations, who have strongly influenced the conditions in developing countries, have typically not paid much attention to such protests, no matter how large (even the famous Battle for Seattle was more about violence than the underlying issues, for example). However, this time, the global financial crisis has hit the ordinary citizens of Western nations quite hard, and inspired by the Arab Spring and protests in Spain, a global movement seems to have sprung up. With more global protests to come in 2012.For the full story click on the header above the graphic.
The Arms Trade is Big Business
Each year, around $45-60 billion worth of arms sales are agreed. Most of these sales (something like 75%) are to developing countries.
The 5 permanent members of the UN Security Council (US, Russia, France, United Kingdom and China), together with Germany and Italy account for around 85% of the arms sold between 2002 and 2009.
Some of the arms sold go to regimes where human rights violations will occur. Corruption often accompanies arms sales due to the large sums of money involved. More arms will be sold in 2012 due to global protests and civil unrest. For the full story click on the header above the graphic.
Congress creates a bureaucratic nightmare for fund managers - click below for full details -
Story Time: Is this possible - USD collapse 2012 and the end of the world as we know it!
Devolution of the USD 2012?
It seems appropriate for me to comment on one of the biggest stories we will be all facing – that is an end game of events leading to the end of the USD. The implications for the world are no less than Armageddon – like. I mean it.
Before we get into some details of the USD situation and how much time it has left. The US debt is $14.5 trillion and growing each day.
Wait, that coincides with 2012!
It then occurred to me, as an afterthought, wait a minute – that takes us right to 2012!…That has some real significance for many reasons. It was an accident my analysis led to that date, I did not ask ‘Will the USD collapse in 2012?’ and then do the analysis, it was the other way around. I did the analysis first and then was impressed that the date actually came to that fateful date all the prophecies are going crazy about – 2012.
I find this coincidence remarkable. I think we all are aware of many economic and political disasters that will unfold if the USD were to actually collapse. The US economy would stop dead for a period of time. And, the rest of the world, hitherto dependent on the old industrial/consumer economic model will have to find a new economic paradigm to plan their economies…
Let me interpret that last paragraph for you – The USD collapse means the entire structure of the world economy will collapse for a period of time, with a collapsed supply chain, among other things. The world will also go through cataclysms politically during that period. That usually leads to massive wars… starvation and mass homelessness – around the world…
If it fits, then it fits.
That sounds familiar, wait, it’s the same stuff being prophesied in many of the numerous 2012 prophecies of various major religions! Hm, that is quite the coincidence. The demise of the USD will collapse the entire world economy and lead to collapsed polities, and then a massive world war. Yep, it fits like a glove. And try this on for size - I do not believe in coincidence.
Of course, some people cringe at such talk about ‘religious bunkum prophecies’ or so it goes. But consider that if this was an analyst who is a mathematician and also a Economics' professor, the person is not exactly some dreamer. I certainly know the analytical methods do ...…!
So, why are people saying this stuff then? How can you combine prophecies with analytical methods? Well, for one thing, I have a thinking paradigm where ‘if it works, it must be true, do not leave out weird things in analysis, insisting only on some calculation based prediction’. That’s what for example chartists do. Everything must be analytical to lots of people, and that is totally wrong often! (How do you think I have been able to make major predictions months ahead of others???)
The trouble with being analytical all the time is that there are times, and this is proven, where chaos enters the picture and everything changes. Chaos is not predictable, by definition. But let’s not digress too much.
There are various metrics that are being used to come to this ‘USD` proposition. By the way, `nobody` is saying definitively, yet, that the USD in 2012 will be...... This is a proposition we are discussing here, not yet a certainty.
What would happen in a USD collapse?
•The US and Western economies will all face insolvency simultaneously, with the US first in line.
•The entire Western industrial/consumer/credit economy will fall apart so fast it will make your head spin. The supply chain will stop and stores will empty in less than 3 days.
•The USD will fall over 50% in one week’s time, till it temporarily stabilizes before its final last gasp. Remember the Lehman panic over those several weeks? You have seen nothing yet.
•Worldwide currency panic will set in paralyzing what’s left of the world economy, that means the ‘emerging markets’ stop dead too.
•China has a revolution, or goes into military mode, which is worse?
•A one world currency will be demanded and implemented, and it better be fast too since the cities only have 3 days food on average…(by the way I know for a fact that a one world currency can be implemented electronically and turned on in one hour, if they wanted!)
And so on. How will Asia fare? Horribly. Look, if you based your entire economic plan on Western consumerism, and that goes away, so does your plan. It’s dead. If Western consumerism goes away, then the entire foundation of the Asia macro economy instantly crashes and stops cold. Do you remember what happened that fateful last quarter of 2008, after the Lehman debacle, and the world banking system almost collapsed en masse? Exports from China and Japan for example collapsed over 30%!
Do not think economic demand cannot stop on a dime, because we already had one very scary case of this last year.
So, all the pundits aside, Asia gets killed too economically. The big question is, can they successfully adapt to a new economic paradigm before they have their own revolutions? I do not think so.
It will be a dark time worldwide.
What do you think will happen?
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Eurozone sovereign debt crisis