Sunday, September 04, 2011
Is the world going bankrupt? - Debt crisis and market turmoil
Europe and the US are hopelessly over-indebted. The crisis that started in the US real estate sector in 2007 has devastated state finances on both sides of the Atlantic and is threatening to wreck the euro and trigger a second global downturn. The world lacks the political leadership needed to end the turmoil.
The longer the Western debt crises smolder on, the darker the outlook for the global economy. Because the US economy is collapsing, American consumers are buying fewer goods from China and India. And because investors are piling out of euro and dollar investments, supposed islands of stability are starting to look shaky as well. In recent weeks, the Swiss franc and the Brazilian real have appreciated so strongly that exporters in those countries have been virtually unable to sell their products abroad.
Berlin Officials Say EU Fund Can’t Save Italy — Even if It’s Trebled
Officials in Berlin say the fund could cope with a bailout of Spain but wouldn’t be able to handle Italy even if its resources were trebled. Worse, that assessment also applies to the permanent European Stability Mechanism (ESM) that is due to replace the EFSF in 2013. This admission is unlikely to strengthen confidence in the euro.
“You can’t bail out an economy like Italy,” said one high-ranking government official. The financial requirement would be too huge. Italy’s EU partners couldn’t even provide a guarantee for the country’s government debt, currently totaling €1.8 trillion, as some economists have proposed.
US Heading for ‘Banana-Republic Status’
“Our nation isn’t facing just a debt crisis; it’s facing a democracy crisis,” wrote the New York Times.
Nobel Prize-winning economist Paul Krugman wrote the debt deal “will take America a long way down the road to banana-republic status.”
But the strategy has two dark sides: inflation amounts to a creeping expropriation of ordinary citizens, whose assets gradually lose value. And there is a risk that the US will export inflation to other parts of the world — to China, for example.
The expected slowdown could be interpreted as a sign that China’s economic planners are managing to engineer a “soft landing” for the economy. The central bank has raised interest rates five times since October 2010 and ordered banks to boost their loan loss provisions in a bid to stem price pressures. But a weakening construction sector — a key industry in China — is likely to pull other sectors like cement manufacturers and steel makers down with it.
China is like a junkie being forced into a rehabilitation program. But the government of Prime Minister Wen Jiabao only has itself to blame. When demand from the US and Europe collapsed during the last financial crisis, his government pumped around 4 trillion yuan (about €450 billion) into the economy, the biggest stimulus package in history, to boost the sale of PCs, television sets and cars. New motorways, airports and train lines were planned. China turned into a gigantic building site.
Local authorities ran up massive debts to stimulate the boom. That has lessened the central government’s scope to cool the economy down. If interest rates are raised too sharply, the provinces won’ be able to service their debts.
New York economist Nouriel Roubini, who predicted the 2008 financial crisis, fears that China could offload its surplus cement, steel and aluminium on world markets at dumping prices.
A Choice for Euro Zone — Break Apart or Integrate Much More
And in Europe, governments need to realize that they can’t keep on sitting out the euro crisis. The currency bloc will either break apart or its members will move much closer together on fiscal policy. The latter move offers the chance to move ahead with European integration. Here too, the necessary plans are all there — they just require a plethora of unpopular decisions.
If the euro is to survive, the donor countries will have to shoulder even greater financial risks than they have already. And the debtor nations will have to surrender their sovereignty in budget matters to Brussels bureaucrats for years to come.
It has become evident that debt-to-GDP ratios of 80, 90 or 100 percent will sooner or later cast doubt on a country’s creditworthiness. Even supposed paragons of fiscal virtue such as Germany must be careful. The German debt ratio of 83 percent is too high, given the ageing population. Who is supposed to pay down that debt in the future?
Scaling down debt isn’t easy, as can be seen in Britain. The government of Prime Minister David Cameron has imposed more rigorous spending cuts than any other traditional industrial nation. The austerity program is coming at a high price. The cuts are hitting domestic demand and have all but wiped out economic growth. Every country that embarks on fiscal cuts faces a similar fate, and it takes years for the measures to bear fruit. States that have restored their budgets to health tend to grow faster than profligate ones.
So the economic prosperity of the West hinges on whether governments are capable of thinking in new dimensions of time. They finally need to start thinking further ahead than the next election.
and debt produces only spiral debt now
you can not bet on an expansion market
because we are in the down of the curves
at least for another 50 years
the only "sovereign" solution would be changing "the nature" of currency
but surely is not the status quo interested, it would take more than that
yes, we are going into DE-globalization
everybody sells its production at home or around there
printing money, and thus increasing internal debt
obviously it can only go so long
"especially" without a change "in the nature of currency"
so countries with immense resources, like CSI and Brazil will decline slow
China and India may regress back to the populist system of the 70s
"especially" because are giving up enforcing "strict" population reduction
and Europe is doomed, because with the same decrease rate of de-consumption of the US
has virtually no prime materials, obsolete technology, and lousy agriculture capacity
"and" is not serious about a "drastic" reduction of births and population control
it is true
the only "sovereign" solution would be changing "the nature" of currency in the EU
there is no solution with BAU
it is true
the pyramidal nature of motion of profits on markets
"usury and currency speculation"
leave the last banana republic simply to fall last
but at this point all the west is in the bananas business
just that Europe will fail in the third world 20-30 years before the US
but the western "standard of life" is due to fail
is inevitable with peak everything and the end of the oil age
there are a lot of furry tales
but reality is "nothing can replace cheap oil"
yes, but there is no alternative
except collapse or change of the "nature" of currency
the first nobody wants
surely the Jekyll island holy mafia would not want the second
they are trying to unload internally
with inflation and increased debt
but if things turn sour
they will dump the world market
and take down commodity prices
and is just a matter of time
yes, integrate more eliminates potential internal euro wars
but only defers the problem
what would be important is cross elimination of debt by compensation
and a common centralized control of currency
refusing to acknowledge the need of devaluation in a contracting system
is surely a recipe for disaster
trying to hold on to exchange rates
has "never" worked in history
if the top of the hills devalue currency, everybody else of common sense should do the same
it is impossible in a contraction market
the only ones that can save themselves are country with around 10% debt
only the ones that "extinguish" debt completely can survive
otherwise the godly pigs money changers market has already a destiny for "all countries"
is just a matter of how long and how high rates they are permitted to push the skim
because the longer they push it
the more the pigs get in usury and rights
so technically would make more sense to default immediately
instead than prolonging the agony
and would make it cheaper too probably
an example, Iceland
this does not protect however
from ending like Iraq and Libya
the bloodsuckers of Jekyll island
would most likely figure out a way to create a genocide and a civil war
in each defaulting country
over the models they specialized on
Bolshevist and Nazi
both genocides branded "christos leeches of wall street"
so the "not negotiable" Zimbabwe "standard of living"
will be in Europe around 2025-2030
in the CSI, China, India and Brazil around 2040
in the emirates around 2045
and finally in the US from 2050 to 2060
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