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The global economy is at the point of maximum danger
Ambrose Evans- Pritchard
London Telegraph
Monday, July 21, 2008
It feels like the summer of 1931. The world’s two biggest financial institutions have had a heart attack. The global currency system is breaking down. The policy doctrines that got us into this mess are bankrupt. No world leader seems able to discern the problem, let alone forge a solution.
The International Monetary Fund has abdicated into schizophrenia. It has upgraded its 2008 world forecast from 3.7pc to 4.1pc growth, whilst warning of a “chance of a global recession”. Plainly, the IMF cannot or will not offer any useful insights.
Its “mean-reversion” model misses the entire point of this crisis, which is that central banks have pushed debt to fatal levels by holding interest too low for a generation, and now the chickens have come home to roost. True “mean-reversion” would imply debt deflation on such a scale that would, if abrupt, threaten democracy.
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The risk is that these same central banks will commit a fresh error, this time overreacting to the oil spike. The European Central Bank has raised rates, warning of a 1970s wage-price spiral. Fixated on the rear-view mirror, it is not looking through the windscreen.
The eurozone is falling into recession before the US itself. Its level of credit stress is worse, if measured by Euribor or the iTraxx bond indexes. Core inflation has fallen over the last year from 1.9pc to 1.8pc.
The US may soon tip into a second leg of this crisis as the fiscal package runs out and Americans lose jobs in earnest. US bank credit has contracted for three months. Real US wages fell at almost 10pc (annualised) over May and June. This is a ferocious squeeze for an economy already in the grip of the property and debt crunch.
No doubt the rescue of Fannie Mae and Freddie Mac – $5.3 trillion pillars of America’s mortgage market – stinks of moral hazard. The Treasury is to buy shares: the Fed has opened its window yet wider. Risks have been socialised. Any rewards will go to capitalists.
Alas, no Scandinavian discipline for Wall Street. When Norway’s banks fell below critical capital levels in the early 1990s, the Storting authorised seizure. Shareholders were stiffed.
But Nordic purism in the vast universe of US credit would court fate. The Californian lender IndyMac was indeed seized after depositors panicked on the streets of Encino. The police had to restore order. This was America’s Northern Rock moment.
IndyMac will deplete a tenth of the $53bn reserve of the Federal Deposit Insurance Corporation. The FDIC has some 90 “troubled” lenders on watch. IndyMac was not one of them.
The awful reality is that Washington has its back to the wall. Fed chief Ben Bernanke thought the US could always get out of trouble by monetary stimulus “à l’outrance”, and letting the dollar slide. He has learned that the world is a more complicated place.
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18 Responses to “The global economy is at the point of maximum danger”
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July 21st, 2008 at 12:23 pm
One can only wonder at the trillions spent on an illegal war what that could have done if spent in education or back into infrastructure that is completely deteriorating such as highways and bridges.
July 21st, 2008 at 12:27 pm
What is strange about this global slowdown is that many other countries had the opportunity to try to stop the US from this catastrophe and now it seems like europe will fall down just as hard for sitting on the sidelines and letting the US drag it all down. The blind leading the blind. The best government is the one that governs least.
July 21st, 2008 at 12:30 pm
ok what does this mean for people in Texas. It doesn’t seem that anyone around Bryan/college station are changing thier ways. I haven’t seen any job losses or businesses shutting down. I haven’t seen homeless people around here on the street. I haven’t seen people panicking. Most people that I ask about the subject don’t know didly squat. If this thing is going to hit, I want to see something. So far, I have seen nothing other than it costing $100 for me to fill up my ride while the whole time I am either strategically unemployed or in this case after being strategically unemployed for 6 years, I just said the hell with it. I am tired of working for 6.75-$7.25 an hour tops while having 2 bachelors degrees, and an associates degree. Heck I even have deans list, honors, magna cum laude and I still can’t get a decent job because of “ya gotta know someone to get a decent job”. Heck I could even get 6 more bachelors degrees in a year but I stopped at 3 degrees because if 3 won’t get you a decent job, you know its all rigged!!!!
If something is going to happen, I want to see it because I am tired of being fu**ed while I am an educated person and deserve better than what I have went through. I would like the whole system to crash and then, maybe, jobs will be fair to get and not “you gotta know someone”!!!!!!!!!!!
July 21st, 2008 at 2:11 pm
Who will pay for our government to opperate in its current obese state when the bottom falls out of the economy?…Thats our real obesety epidemic.Our government is obese.Lets make them spend $500 dollars on a diet instead of a ball point pen.
July 21st, 2008 at 2:23 pm
…There comes a time when you have to pay the fiddler….
That time is upon us.
July 21st, 2008 at 2:29 pm
Emule: I just wanted to comment, you settle for less in life. There are ways of making good money without having degrees. All you had to do was become a good typist and know MS Office and you would have made $60k a year as a legal word processor. There were plenty of temp to perm jobs in the 90’s to get into this market. Then you could have become a legal secretary after a few years and make $70k up. You’ve chosen to starve yourself of a living and apparently like to harp about it. All you had to do was move to a major city with major law firms and you would have had it made. You could have worked all the o/t you ever wanted in the 90’s! I know one WP who made $100,000/year as a legal word processor in the 80’s! C’mon stop limiting yourself.
July 21st, 2008 at 3:32 pm
Bhaaa that emule guys is funny as hell. 3 BAs and a masters and making 10 an hour… maybe he should move out of hickville station and come to where the jobs are.
July 21st, 2008 at 5:06 pm
Dan Murial no pun intended but in the 90’s I would have been in Intermediate, Middle, and then high school lol, but how does one do this when they have no money?
July 21st, 2008 at 5:59 pm
People often blame politicians for this, and while that is true to a large extent, I think the TV-addicted, distraction-obsessed masses are equally to blame (if not more so).
To understand what I mean, imagine that you’re on the Titanic, knowing for a fact that you’re going to be fighting for your life in freezing water within an hour, and that every time you try to warn somebody about the situation, you get the same glassy-eyed, semi-conscious response: “Huh? Titanic? Iceberg? Lifeboats? Oh, uh, well, I’m just not interested in Oceanography.”
Sound familiar?
That’s the average American (or so it seems). Most are hellbent on waiting until THEY THEMSELVES are submerged in water before FINALLY getting that “look” in their face.
The compulsory government school system has served its “six basic functions” all too well: http://www.johntaylorgatto.com/hp/frames.htm
July 21st, 2008 at 7:00 pm
The desired effect you are experiencing has been systematically contrived….
This is not a game of chance.
The end in nigh….Who watches the watchers?
July 21st, 2008 at 7:08 pm
http://www.themoneymasters.com/ has a good plan for the federal reserve.
also, we should support fair trade…tariffs.
i also propose the fair tax, but maintain a 10% corporate tax, which is still extremely low, to pay for higher monthly prebates to make it more attractive to progressives.
July 21st, 2008 at 7:10 pm
Who watches the watchers? WE THE PEOPLE should, but unfortunately, my country has been replaced with sheeple. My fellow Americans have their heads so far up their asses, all they care about is what’s on TV.
If this shit went on 20 years ago, there would already be riots in the streets, but today….Americans are a bunch of cowards, afraid of their government.
July 21st, 2008 at 7:54 pm
New World Liberty writes: “http://www.themoneymasters.com has a good plan for the federal reserve.”
Indeed it does, but if we are to have any hope of getting *any* meaningful reform — whether having to do with economics, civil liberties or foreign policy — implemented properly (or even at all), we must demand — not request, DEMAND — that certain key election reforms be implemented simultaneously.
The election reform measures that I advocate are:
1. ballot access reform
– http://www.ballot-access.org/winger/iba.html
– http://www.govtrack.us/congres.....=h110-3600
2. instant runoff voting for Presidential elections
– http://instantrunoff.com
3. proportional representation for Congressional elections
– http://www.mtholyoke.edu/acad/polit/damy/prlib.htm
4. hand-counted paper ballots for ALL elections
– http://hcpbnow.org
– http://www.ballotintegrity.org
5. the repeal of both the Federal Election Campaign Act and Bipartisan Campaign “Reform” Act
– http://www.realcampaignreform......d_know.htm
– http://www.aclu.org/freespeech.....20212.html
6. a binding NOTA (”none of the above”) option on all election ballots
– http://www.nota.org
7. weekend voting
– http://www.whytuesday.org/about/
July 22nd, 2008 at 11:04 am
For those who say it is already over… Do you long for the days when Bush’s approval ratings were 90 percent? Keep digging you will eventually make your way to China.
July 22nd, 2008 at 11:53 am
Maybe a depression is what we need. The people of the world need to wake up to themselves and realize that they don’t need fashion, fancy cars and a cupboard full of doritoes to be happy. All they really need is basic living standards and a non ego-tistical attitude to life. A return to the good old days before everything became ball-games and mindless fluff! Bring it on, their plan is sure to backfire as the people are about to wake up and realize they wont play this “global economy” crap any longer! It’s time to unite! Let the crisis happen!
July 22nd, 2008 at 9:19 pm
Rob, I partly agree with you but I would point out that it is unwise to blatantly call out a crisis that no one including yourself is actually prepared to take on. The future we are facing was created by silly people who turned a blind eye while they continued livin’ large beyond their means. None of their acquisitions (be it extravagant cars, homes, tech gadgets, or even doritos) will mean a thing to them when they finally have to look this new beast in the eyes. The reason I point this out is because whether you want to admit it or not, these are the exact same silly people (the majority) who will continue their silly actions regardless of the economic terror (which it most definitely will be for many) and as a majority, they will be the ones you will have to rely upon for solutions to exterminate this threat that you entice so bravely. I would hate to see ALL of the foundations we have taken for granted in the country be tossed aside in the name of security (be it from terrorism or even economics) due to some hasty solutions that will be left for an equally hasty public to decide. After all if most people weren’t downright stupid and could see beyond their own little worlds, perhaps much of this mess could or would have been avoided.
July 22nd, 2008 at 9:34 pm
I really wish people would just wake up and realize we don’t
need money. Money is the reason the nwo even exists. Its a thing
of the past. Ya sure we can destroy the nwo. but eventually someone will scratch there way to the top, people will forget
about this time, and BAM!!! here we are again. 99.9% of people
will say that the world can’t exist without money. And they are
right to a degree, the way we think now, ther right it is not possible.
But if we do change our way of thinking and use our intellegence, we are capable of making the world a better place for everyone, not just America. I realize to do that is far from easy. but if we are to survive as a species than we need to
change our way of thinking in great lengths or we are going to
see a non stop vicious cycle of violence, greed, crime, starvation, and expliotian of the lower class world wide until
ultimatley we are all gone, period.
July 22nd, 2008 at 9:41 pm
Silent Minority wrote on
July 21,2008
Who watches the watchers? WE THE PEOPLE should, but unfortunately, my country has been replaced with sheeple. My fellow Americans have their heads so far up their asses, all they care about is what’s on TV.
If this shit went on 20 years ago, there would already be riots in the streets, but today….Americans are a bunch of cowards, afraid of their government.
My reply,
it was going on 20 years ago,but there was only a hand-full of people saying anything about it then,and we were told we were nuts,or were called druggies,or unpatriotic,this country needed a coup to overthrow these fools when Johnson and his gang along with ghw bush killed Kennedy.