It always starts with a change of tone. Somewhere a guilty admission creeps in as the creeps creep out.
Then: “Things are great! Never better.”
Next: “Recovery in full swing. Economy strong. Never stronger.”
And: “Strong enough to weather another recession.”
Finally: “Global recession coming with a vengeance.”
A new financial crisis is brewing in the emerging economies and it could hit “with a vengeance”, an influential group of central bankers has warned.
Emerging markets such as China are showing the same signs that their economies are overheating as the US and the UK demonstrated before the financial crisis of 2007-08, according to the annual report of the Bank for International Settlements (BIS).
Claudio Borio, the head of the BIS monetary and economic department, said a new recession could come “with a vengeance” and “the end may come to resemble more closely a financial boom gone wrong”.
China sees surprise boost to exports but concerns remain over economy
The BIS, which is sometimes known as the central bank for central banks and counts Bank of England Governor Mark Carney among its members, warned of trouble ahead for the world economy.
It predicted that central banks would be forced to raise interest rates after years of record lows in order to combat inflation which will “smother” growth.
If things are so great, better, and strong, why the vengeance? And, no, it won’t be limited to China and developing nations; the “global” part means everyone.
People from CNBC to the layman on the street conflate the stock market with the economy. It’s a part but not the whole – more of a barometer. Sensing the storm, Charles Hugh Smith proposes a crash scenario (with possible profit opportunities):
After 8+ years of phenomenal gains, it’s pretty obvious the global stock market rally is overdue for a credit-cycle downturn, and many research services of Wall Street heavyweights are sounding the alarm about the auto industry’s slump, the slowing of new credit and other fundamental indicators that a recession is becoming more likely.
Few have taken the risk of projecting a date for the crash, this gent being a gutsy outlier: Hedge Fund CIO Sets The Day When The Next Crash Begins.
Next February is a good guess, as recessions and market downturns tend to lag the credit market by about 9 months.
My own scenario is based not on cycles or technicals or fundamentals, but on the psychology of the topping process, which tends to follow this basic script:
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All economies move in cycles. They always have and always will. Any period of growth or stability, real or imagined, is always followed by a period of correction, sometimes painful. We’re now due, statistically. Maybe overdue.
This time around may be different, of a rarer breed. Like economies, societies move in cycles. See Plato’s essays. America and most of the West have undergone a sea change the past generation. They’re far less Western than they were. And that is brewing some major systemic problems, problems that are likely to be displayed prominently during the coming downturn.
Today Pat Buchanan offers a preview of what we may all look forward to: the examples of Puerto Rico and Illinois.
Across the West, social welfare states are threatened by falling revenues, taxpayer flight, rising debt as a share of GDP, sinking bond ratings and proliferating defaults.
Record high social welfare spending is among the reasons that Western nations skimp on defense. Even the Americans, who spent 9 percent of GDP on defense under President Kennedy and 6 percent under President Reagan, are now well below that, though U.S. security commitments are as great as they were in the Cold War.
Among NATO nations, the U.S. is among the least socialist, with less than 40 percent of GDP consumed by government at all levels. France, with 57 percent of GDP siphoned off, is at the opposite pole.
Yet even here in America we no longer grow at 4 percent a year, or even 3 percent. We seem to be nearing a point of government consumption beyond the capacity of the private sector to provide the necessary funds.
Some Democrats are discovering there are limits to how much the government can consume of the nation’s wealth without adversely affecting their own fortunes. And in the Obamacare debate this week, Republicans are running head-on into the reality that clawing back social welfare benefits already voted may be political suicide.
Patrick BuchananHas democratic socialism passed its apogee?
Native-born populations in the West are aging, shrinking and dying, not reproducing themselves. The cost of pensions and health care for the elderly is inexorably going up. Immigration into the West, almost entirely from the Third World, is bringing in peoples who, on balance, take more in social welfare than they pay in taxes.
Deficits and national debts as a share of GDP are rising. Almost nowhere does one see the old robust growth rates returning. And the infrastructure of the West – roads, bridges, tunnels, ports, airports, subways, train tracks – continues to crumble for lack of investment.
The days of interstate highway systems and moon shots seem to be behind us. Are Puerto Rico and Illinois the harbingers of what is to come?
Probably. Washington can bail out Illinois today. Tomorrow, who will bail out Washington? And/or Beijing? London?
On the football field, quarters of poor execution and foolish play have a consequence: the game is lost. A similar phenomenon happens with cultures and economies.
Look at the rats and see them preparing to flee. Take a wider look at the ship and see it listing. Look at nothing, to include that damned glowing screen on the wall, and go under.
Might be time to make some plans.
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