Is the global economy out of bullets?


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The following is an article by Karen Maley published in this mornings Business Spectator and online business mag/news service which I find is one of the best in the world.

Thhere are plenty more detailed articles with graphs, figure analysis etc but I thing that she has nailed the global situation well.

In summary.

  1. The world got itself into a debt boom.
  2. (Plan A) The world tried to get out of it by spending more (Plan A).
  3. Plan A didn't work.
  4. The world has run out of money to consider extending Plan A
  5. Plan B (budget cuts/austerity measures/living within means) will lead to wiping out any minimal gains from Plan A
  6. The world is out of ideas.

note: This is not a political post. The world is in the same boat. Some countries (Nordic Countries/Germany/Australia/China) are doing beter than others but cracks are beginning to appear in those (at differing levels) as well.

A US recovery is imperative (23% of global GDP) but isn't gong to happen anytime soon. Maybe 5 years, maybe a decade. EU has a star player (Germany) trying to carry a team of recalcitrant bankrupts. Political imperatives (democratic elections in various countries and a backlash against austerity) is likely for the Germans to throw the towel in. Eu is 19% of global GDP.

So back to Asia and China is the big dog in the room but with balancing acts of its own particularly Internal inflationary pressures. It needs a economically stable US and EU.

Interesting times.

Time for a cigar :cigar:

______________________________________________________________________________________________________________

Is the global economy out of bullets?

By Karen Maley

Business Spectator 5/8/11

http://www.businessspectator.com.au/bs.nsf/Article/stocks-debt-austerity-US-economy-budget-Wall-Stree-pd20110805-KETQG?OpenDocument&src=sph

Sharemarkets plunged wildly overnight as investors worried that central banks in the major developed countries would not be able to prevent the outbreak of a new global recession.

Financial markets have realised that the major political achievements of the past three weeks – the eurozone’s latest bailout of Greece, and Washington’s debt ceiling deal – have done nothing to improve the bleak global economic outlook.

The US economy is faltering, as existing government stimulus programs taper off and the payroll tax break comes to an end. If anything, Washington’s debt deal has worsened the outlook. Some economists estimate that fiscal tightening is likely to shave about 1 percentage point off already stagnant US economic activity next year.

The eurozone, which is advocating a vigorous dose of austerity for its debt-laden members, is likely to see an even harsher decline in activity. The two largest eurozone countries, Germany and France, will both tighten fiscal policy in 2012, while harsh austerity programs will tip some of the southern eurozone countries into recession next year.

And even the Chinese growth engine is slowing slightly, as authorities battle with rising inflationary pressures which threaten to ignite social unrest.

The problem is that governments in most developed countries have little option but to start embarking on a process of fiscal cut-backs. Years of deficit spending have left them with hugely bloated budgets, and soaring debt levels. As a result, they are under pressure to rein in their budget deficits, at a time when their economies are in desperate need of further stimulus.

Increasingly, investors are wondering if the central banks in the developed countries will be able to provide sufficient monetary stimulus to boost demand. But with interest rates already close to zero in most developed countries, the options for monetary stimulus are limited.

Overnight, European Central Bank boss Jean-Claude Trichet said the bank would again start buying government bonds. But markets were immediately discouraged because the central bank signalled that it only intended to buy Greek, Portuguese and Irish debt – countries that had already received bailouts. Investors, who are desperately worried about this week’s sharp rise in Spanish and Italian bond yields, were hoping the ECB would step in and aggressively buy Spanish and Italian bonds in order to stop yields from climbing even higher.

Meanwhile, hope is waning that the US central bank will commit to a new bond-buying program at next week’s meeting, because of fears that further monetary stimulus will fuel inflation.

When the US Federal Reserve launched its controversial $US600 billion bond-buying program last year, inflationary pressures were muted. Since then, inflationary pressures have built up, with consumer prices rising at 3.1 per cent in the second quarter.

What’s more, many economists believe that the Fed’s bond-buying program – dubbed QE2 – actually undermined the US economic recovery. They argue that QE2’s only achievement was to spark a rally in risk assets, particularly in equity markets and commodity prices. However, higher commodity prices led to higher inflation. Faced with rising food and petrol prices, consumers had no choice but to cut back spending on other items. Given that the US consumer accounts for 70 per cent of the economy, this quickly translated into a weakening economy.

What’s more, even the rally in equity prices has proved temporary. Some analysts say the current slump in share prices merely reflects the fact that the market has had to wean itself off the liquidity boost provided by QE2. In fact, they say, the market slumped in April 2010, shortly after the first asset-buying program – QE1 – came to an end. As a result, the mood in the markets has become increasingly despondent as investors now fear that efforts by central banks to stimulate the global economy will prove futile. The global economy is in desperate need of increased fiscal stimulus. The tragedy is that no major economy is in a budgetary position to provide such stimulus.

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I see one possible solution to the whole world economic problem... starting selling countries to corporations. Can't be any worse than the shitty goverments we have already.

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Quite true the problem is not specific to any particular country. At the risk of being labelled a *gasp* communist, I'd sum it up this way....

Thanks for sharing that... it is brilliantly illustrated and eloquently exposed. There needs to be a socialist renewal within capitalism for it to recover its balance. And a a hard meditative look at the German model may prove to be valuable in providing innovative answers.

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Yes the US economy is out of bullets, thank God. We need to stop sucking of the Gov't *** (QEx). I missed the day in college when they taught us that is was the gov't/fed responsibility to prop up the stock market.

Don't get me wrong, things may get worse before they get better but all the world economies need to flush out the weakness and get back to sound fundmental princples.

This economy is not in the same situation as 08 or 01.

My 2 cents

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I think many may be missing the years of 20+% stock market returns, illogical housing appreciation and other fantasies where you really didn't need to do a damn thing to "make money". Hardly reality. Now, it's hard reality.

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Quite true the problem is not specific to any particular country. At the risk of being labelled a *gasp* communist, I'd sum it up this way....

Entralling and Brilliant! Cheers for posting!

I agree that capitalism needs to reinvent itself where the human aspect takes a higher weighting.

Still no better way to generate jobs/growth/opportunity (needed), however a tempering of capital excess (banking/govt) is needed just as much.

Germany certainly is the shining light today. Low unemployment, high exports, high savings. 2nd highest personal tax rates in the world may take some getting use to. Corporate tax rates are better but not too sharp either ;)

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I see one possible solution to the whole world economic problem... starting selling countries to corporations. Can't be any worse than the shitty goverments we have already.

Let's make it official, and just sell political offices to the highest bidder, flat out. Then use the proceeds to pay off the debt, or lower taxes.

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To be fair, capitalism and Wall Street greed gets blamed for what happened here in the States, but the U.S. government's tinkering with the credit market by saying they would back high risk mortgages through quasi-government entities like Fannie Mae and Freddie Mac has a role in all of this too, one that I too seldom hear get much attention these days, at least in our media here. I'm afraid if both sides of the issue aren't approached then the waters will only get more muddy. They are intertwined. As Fannie and Freddie loosened their standards on the mortgages they would back in the 90s and 00s so called "exotic" mortgages became more and more common here.

I'm just an arm-chair economist, so I am not going to claim I know all the ins and outs. However, I do know that it took both private business and government backing to allow for the credit climate that existed here up until 2008. It seems to me that they both need serious reform, but I don't think it will work out that way.

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Thanks for sharing that... it is brilliantly illustrated and eloquently exposed. There needs to be a socialist renewal within capitalism for it to recover its balance. And a a hard meditative look at the German model may prove to be valuable in providing innovative answers.

Yep,there is the answer.

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Love the video and the fresh perspective. However, I still think capitalism is the most efficient system. The crisis is as much moral as anything. The stuff they have taught in the elite business schools here in the states shocks me. Screw your neighbor. Its about doing the right thing. I know it is simplistic but, hey, that is my 2 cents.

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Love the video and the fresh perspective. However, I still think capitalism is the most efficient system. The crisis is as much moral as anything. The stuff they have taught in the elite business schools here in the states shocks me. Screw your neighbor. Its about doing the right thing. I know it is simplistic but, hey, that is my 2 cents.

I don't know what the "most efficient" system is either, but I think one of the fundamental elements of capitalism that needs to be confronted is that there is no room for doing the "right thing", there is only a profit motive. Because after all, perpetual (4) growth is what the whole system is predicated on, no?

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I don't know what the "most efficient" system is either, but I think one of the fundamental elements of capitalism that needs to be confronted is that there is no room for doing the "right thing", there is only a profit motive. Because after all, perpetual (4) growth is what the whole system is predicated on, no?

Exactly. Perpetual growth is the myth that the American businesses and people have been swallowing for too long. No such thing as perpetual ANYTHING. Weird how we keep having bigger bubbles. Continually clinging to an illusion.

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I think that it has been proven that all markets are subject to bubbles, well except that of strict communist governments, ones that just plain don't work. With that said, we have been experiencing a socialist bubble.

All markets run their course and this one has run its course. We paid for everything from education for illegals, to free cell phones! We study why Eskimos wear animal skins and why flies that buzz around an orange are called fruit flies, all with the taxpayers coin. We have finally run out of the taxpayers money and we are running out of taxpayer money worldwide. There are runs on everything. There have been tulip bulb bubbles, gold bubbles, real estate bubbles, stock bubbles, bond bubbles (one that is gonna' burst big time pretty soon)... etcetera, etcetera! This was the "other peoples' money" bubble and the sooner it bursts the better!

-Piggy

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Hmmm... As academics we need to change the worlds mode of thinking!!! Where has this guy been? This is precisely what has been done the past 40 years and it is exactly how we got here.

Lets take a guy who upfront admits he has no solution and let him talk about why he thinks a Marxist perspective works. Never mind the fact that Marxism is based in the belief the human individual has no value, except that to the State. Never mind the fact that those that believe as he appears to believe, have killed in excess of 100 million people trying to form the utopia that is just around the next corner. If we can simply kill enough people this time we might get there! Now that is a system to try! Never mind the violence, the destruction, the demoralization, the chaos that is caused by those that believe similarly!

My money is on the belief this guy has likely never built anything, other that a good case of hemorrhoids, never worked and created a product, never put another man to work, except to please himself. I'll take a pass on his ideas. His world is that of tenure. One where he is supported by an institution where much of its money may very likely come from tax subsidy from the taxpayers that make far less than he does. That is equity in his mind. The labor supports the academic that tells the labor what to do! Great narrative, fancy words and cute drawings... Same old ****!

When he is willing to be subject to the rule of law that he professes and becomes a baker by fiat, or a person who plants rice in a paddy; then I will take his thinking seriously. -Piggy

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I am not pretending to be an economist or anything close to it. It seems to me that somewhere along the line, some pretty manipulative and creative financial people made the decision to package those CDO's (referencing Niall Ferguson Here) and package them off to be traded on the markets. Again, very simplistic view here. Well, that screwed alot of people all over the world when the housing bubble burst here in the U.S. Now was that morally the right decision?

Likewise, there have been plenty of despots who, in the name of social justice and equality, slaughtered millions. True, the capitalist system can and often does perpetuate insane growth, however, that is not always the moral, nor the wise thing to do. Fire, Ready, Aim. Prudent and moral growth yes.

I just do not have any confidence in centralised planning for the economy. Let the markets decide. People can do the right things and often do. I also need to look at the German model.

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Hmmm... As academics we need to change the worlds mode of thinking!!! Where has this guy been? This is precisely what has been done the past 40 years and it is exactly how we got here.

Lets take a guy who upfront admits he has no solution and let him talk about why he thinks a Marxist perspective works. Never mind the fact that Marxism is based in the belief the human individual has no value, except that to the State. Never mind the fact that those that believe as he appears to believe, have killed in excess of 100 million people trying to form the utopia that is just around the next corner. If we can simply kill enough people this time we might get there! Now that is a system to try! Never mind the violence, the destruction, the demoralization, the chaos that is caused by those that believe similarly!

My money is on the belief this guy has likely never built anything, other that a good case of hemorrhoids, never worked and created a product, never put another man to work, except to please himself. I'll take a pass on his ideas. His world is that of tenure. One where he is supported by an institution where much of its money may very likely come from tax subsidy from the taxpayers that make far less than he does. That is equity in his mind. The labor supports the academic that tells the labor what to do! Great narrative, fancy words and cute drawings... Same old ****!

When he is willing to be subject to the rule of law that he professes and becomes a baker by fiat, or a person who plants rice in a paddy; then I will take his thinking seriously. -Piggy

Since I'm sure there are rules on the forum about getting too poltical or argumentative I won't take the time to deconstruct this tyraid. wow

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That video was I'm just going to say it a pile of garbage. This guy was expressing his belief and doing a poor job at trying to make an illustration that has a neutral fact based feeling.

It's like watching a group of tuna fighting about how to control and kill all the sharks in the ocean. Big business are not all greedy criminals. That's like saying everyone who gets a welfare check buys crack with it. People ***** about paying a few thousand a year to taxes but those sharks are bleeding out millions hell billions a year. Where does that money go?

This is all UNcontrolled chaos. That is just nature. You can't control it. you will cause more harm than good, it's just like the ecosystem in the ocean, it will play a way out from the bacteria up.

We all have a time and if this is the time to go broke then do it with dignity, let go of the past, embrace failure because there will be nowhere to go at that point but up.

Our egos will destroy us all in the end

R

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Hmmm... As academics we need to change the worlds mode of thinking!!! Where has this guy been? This is precisely what has been done the past 40 years and it is exactly how we got here.

Lets take a guy who upfront admits he has no solution and let him talk about why he thinks a Marxist perspective works. Never mind the fact that Marxism is based in the belief the human individual has no value, except that to the State. Never mind the fact that those that believe as he appears to believe, have killed in excess of 100 million people trying to form the utopia that is just around the next corner. If we can simply kill enough people this time we might get there! Now that is a system to try! Never mind the violence, the destruction, the demoralization, the chaos that is caused by those that believe similarly!

My money is on the belief this guy has likely never built anything, other that a good case of hemorrhoids, never worked and created a product, never put another man to work, except to please himself. I'll take a pass on his ideas. His world is that of tenure. One where he is supported by an institution where much of its money may very likely come from tax subsidy from the taxpayers that make far less than he does. That is equity in his mind. The labor supports the academic that tells the labor what to do! Great narrative, fancy words and cute drawings... Same old ****!

en he is willing to be subject to the rule of law that he professes and becomes a baker by fiat, or a person who plants rice in a paddy; then I will take his thinking seriously. -Piggy

Dunno how long Fox news will last by the way,looks like Murdochs' chickens are coming home to roost.

Is it all the fault of "illegals" is it?

Rubbish,and that's from a working man.

How does a healthcare system equate to Stalinist mass murder.

So that means conservatism is the same as Hitler?

If you think we are living in socialist times,you are mistaken.

1% of humanity has the same wealth as 95% of the rest,sounds like an extreme form of capitalism to me.

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To the question: Yes it is.

Since I left high school (-89) I've always thought that economists will destroy the world. I haven't changed my opinion. It doesn't matter if you are a capitalist or a communist, it's all the same - it just doesn't work. We are closing the visions of Mad Max. I'm lucky to have a boat.

This is enough of politics for me, thanks. We are human beings, think human!

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Yes, it's not political....... :rolleyes:

But of course it is political, because it is based on political decisions. (Or I didn't get the comment quite well.)

I think it's time to go to bed at 2:30am after drinking a big bottle of port and leftovers of zacapa. :innocent:

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