Is World Recession Coming?

Global economic indicators are taking yet another serious nosedive. The May jobs report in the United States is just another symptom.

The world is still reeling from the aftereffects of the Great Recession that emerged in the United States in 2008. The world has never fully recovered from that. Today, it appears poised at another tipping point back down into relapse.

Election year politics keeps the Obama Administration in denial that its economic policies are not working, thus it and Congress will not take decisive action. U.S. action is needed. It is needed not just to save the U.S. economy, but to help prevent a global economic downturn.

Is a double dip global recession inevitable?

Bad News is Everywhere

World economic news in the last couple weeks…

U.S. economic news:

  • Unemployment rate for May rose from 8.1% to 8.2%
  • 150,000 new jobs were expected but only 69,000 jobs created
  • March job creation revised downward from 115,000 jobs to 77,000
  • April job creation revised downward from 154,000 jobs to 143,000
  • DOW closes down 275 points Friday to go negative for 2012
  • The S&P and NASDAQ  are both off 10% for the year and into “correction” territory
  • U.S. Treasury 10-year bond yields dipped to 1.47%, lowest ever recorded

The U.S. needs to create about 150,000 jobs/month just to keep up with working population growth.

Global economic news:

  • Eurozone unemployment remains at 11%
  • At least 8 of 17 eurozone countries are already in recession, including Spain and Italy
  • England, not part of the eurozone, is in recession
  • Spain bailout of Bankia is at €19 billion euros and climbing
  • ECB rejects Spain plan for further Bankia bailouts using EU backed funds
  • On Thursday it was revealed €100 billion euros in Spanish bank assets were withdrawn
  • Spain bond yields rose to 6.58% Friday, another record high against Germany
  • Italy’s deficit is at 8.9% of GDP when required by the EU to be 3%
  • Italy’s debt-to-GDP ratio remains close to 120%
  • A Greek sovereign debt default depends on an upcoming June 17th election
  • The future of the eurozone as it exists today depends largely on that election
  • In the meantime, billions of euros are taken out of Greek banks because of its debt crisis
  • Dragged down by global conditions, Chinese and Asian economic growth continues to slow
  • German 2-year bonds sold at 0% yield
  • German and United Kingdom 10-year bond yields at lowest levels ever recorded

Italy and Spain are the 8th and 12th largest economies in the world. They are the 3rd and 4th largest economies in the eurozone. They overshadow economic events in Greece.

Conclusions

The eurozone (EU) is the largest economy in the world… bigger than the United States.

In turmoil understates the eurozone economy. It is much worse than that.

Franςois Hollande was elected as President of France last month. He philosophically disagrees with Germany’s Angela Merkel how to solve the eurozone economic crisis.

The breakup of the German/French alliance has thrown the eurozone into total economic chaos. The EC, ECB and lack of a true fiscal union in the eurozone has greatly fractured policy and put the euro and the EU itself into serious jeopardy.

Given it is a major trading partner to both, the eurozone is dragging down both the U.S. and Asian emerging economies… like China’s.

How Europe gets resolved will determine if the world falls into recession or not.

The United State can help prevent world recession.

But that requires the vision to look beyond petty US-centric, self-centered political interests. It also requires the United States to put money where its mouth is to support Europe. That will require extraordinary statesmanship, bravery and a political will that is unlikely in a presidential election year.

Therein lies the conundrum. If nations remain divided and things remain as they are right now then world recession is inevitable.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Jun 2, 2012, in Business, capitalism, culture, economics, Global Economy, Jobs, Life, news, Opinion, Politics. Bookmark the permalink. 7 Comments.

  1. Well said. The world is heading to crisis. The best way through is through global (or at least Western) cooperation. The world is becoming increasingly globalized and interconnected. Pursuing national economic policies will no longer be adequate. Leaders need to use a larger perspective when making policy. However, the likelihood that this will happen is small.

    • Agreed…
      I watched a Bill O’Reilly point-counterpoint interview he did with Ben Stein and another person last night. O’Reilly marginalized and dismissed the idea of the U.S. contributing to saving the EU when Stein suggested it. (twice)

      Both times O’Reilly gave the same answer… we can’t afford it. If something is not done soon to boost demand then no economy will survive intact. Despite our huge debt, the U.S. is still in the best position to help and will be helping ourselves in the process.

  2. Okay! I give up. How is the US to save Europe and the world economies? We are broke! The BRICS could possibly do it; but they won’t. The US would have to either borrow the money from Japan and China or print it. Neither is a good option. I would tell you my tin-hat prognosis, but you wouldn’t like it.

    • Great question!
      You won’t like the answer. I don’t either, but I can’t think of another.

      As of the last reporting day, 5/31/2012, U.S. sovereign debt crossed the $11 trillion level for the first time in U.S. history. The rest of the national debt is money owed internally as “intragovernmental holdings”.

      That puts the U.S. sovereign debt-to-GDP ratio right about 71% right now. Economists generally suggest that 85% is the threshhold of concern. Greece’s ratio is around 120% and a lot of other countries have debt-to-GDP ratios over 100%.

      Debt-wise the U.S. is in a better position economically than the entire eurozone.

      The United States should do three things:
      1 – Seriously tighten its own belt to reduce our foolish deficit spending
      2 – Deal with Taxmageddon 2013
      3 – Use Friday’s incredibly low 1.47% borrowing rate to borrow big time and use that money to back European debt recovery

      The reason the U.S. has that exceptionally low borrowing cost is because the rest of the world is fast becoming an economic basket case.

      It is our responsibility to use that advantage to help Europe. Ben Stein suggests backing eurobonds as a solution. A stronger Europe helps our own recovery as much as it does theirs.

      The caveat, of course, is that we MUST pay off any actual debt expenditures we acquire in the process. As recovery takes hold more revenues will come in to do that. That is the hard part. That is the part big government always forgets.

      The U.S. is no longer an economic island that can afford to ignore the rest of the world.

  3. We in this world are in a globalization pickle, a spot never before witnessed in history, and now with massive financial repression where interest rates adjusted for inflation are negative. This is the sign of deflation and deleveraging. We have few choices: print money digitally forever, massively borrow and spend on something that actually works to do something productive and I do not mean solar panels, or go the austerity route lower the debt by cutting spending. I do not trust the spending Democrat or austerity Republican ways because they will not be done with true understanding of investment principles or safety and soundness. The Democrats will go after bullet trains and solar panels. The Republicans will cut government just for the sake of cutting even if it hurts police, teaching, fire, civil procedure. That leaves print like there is no tomorrow. That will corrode our purchasing power and living standard drop by drop till we are near comatose, and then something marvelous will happen our cars, applicances, houses etc. will just wear out and need repairing and fixing. This pent up demand is years away I am afraid, and until then they will print and print, we will lose our living standard piece by piece, and then a new dawn will occur. Of course the most horrible of horrible solutions is the war solution that was used in 1939-1945–and it is not good to see France and Germany at odds these days. Too eerie.

    • Things could be much, much worse…
      We could be forced to watch The Kardashians on reality TV every day.

      That would plunge the global economy into certain, irrecoverable depression! 😉

      It would be worse than Germany and France going to war. 10s of millions of unemployed men would start wondering if Angela Merkel looks good in a bikini.

  4. Lastly, you are a master of great graphics. Keep up the good work.

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