Monday, June 4, 2012

Its Gotta End Sometime


The number of credible financial analysts, those with track records of accuracy and integrity, predicting a near future global economic collapse is growing exponentially. The outlook for late 2012 into 2013 is bleak indeed if these experts are to be believed. I, for one, find most of their predictions credible. In my recent article, ‘And So It Goes’ I wrote about the devaluation of the dollar and the likely crash of the global economy. Today, I add to that gloomy outlook with a summary of indications I, from my layman’s perspective, feel indicate an inevitable and almost immediate catastrophic meltdown. Consider the following:

Most of the G20 countries are experiencing deep economic recession simultaneously.

For the first time since the 1930’s we are facing a recession before Production, Orders for Durable Goods, Employment or Private Sector GDP have attained their previous highs. This is true for most of the G20.

For the G7, this will be the lowest cyclical peak in GDP growth in history.

This is no foundation on which to face a recession! And, it all comes down to DEBT.

The ten largest debtor nations have debts totaling over 300% of WORLD GDP.

Understand this: Without radical changes in economic policy and spending default is INEVITABLE! As soon as one country defaults on it’s debt that will begin a domino effect of default that will result in a global financial meltdown.

Recently, Greece came very near defaulting on its debt. Only a tremendous effort by Germany and other EU countries was a major default prevented. For now. The EU is still sliding unimpeded towards economic disaster. Without significant increases in taxes and cuts in services the 'Greece crisis' will be revisited in a matter of months. Other EU countries such as Spain and Italy are equally bad off. Japan is on the verge of economic collapse. And what about China? Most people are unaware that China bet the farm on its economic growth. By financing its enormous construction with bonds tied to property value China put its economic stability at the mercy of the global economy. Since then property transactions fell 39% year on year. Chinese economic growth has stalled with the rest of the world.

With the global economy in freefall there is no more room for gigantic bailouts. The first major bank closure will be all it takes to start the dominos falling.

That’s not all. Compounding the problem is the fact that $70 trillion in G10 debt is the collateral for $700 trillion in derivatives. That equates to 1200% of global GDP!

The system is so close to meltdown. A single EU crisis will be all it takes to throw the UK into crisis as well. Analysts agree that when that happens Japan, China and The United States will follow in short order. Probably in a matter of months.

That will spell the end of the reserve banking system and fiat money. A global financial collapse and defaults of that magnitude would bring a collapse unlike any the world has ever seen. There would be no more trade finance, no leasing, no bond market, no shipping finance, no finance for farmers. No manner of Quantitative Easing will offset what is coming. Once Spain and Italy go we will see nationalization of banking and all bank debt on government balance sheets. Total meltdown.

This seems impossible I know, nevertheless a number of analysts such as Raoul Pal, Co-Manager of GLG Global Macro Fund and Goldman Sachs alumnus, think that this scenario is all but inevitable. The number of voices crying out in warning about the dire economic storm on our horizon is growing daily. If leaders don’t listen and the populace continues burying its head in the sand there will be no way to change course. In fact, even now it may be too late.

Like the man said, “Its gotta end sometime.”


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