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World Crisis scenarios for the 21st century – Worldwide economic depression. (update 11)

Posted by Adrian on February 11, 2008

World Crisis scenarios for the 21st century – Worldwide economic depression. (update 11)

A global ‘depression’ is a 21st century crisis scenario, part of the ongoing crisis scenarios for the 21st century on morbius glass. At best, in my opinion we are entering a global recession (with a significant slow down in Asia); which in all retrospect will be a harsh recession. Will it lead to a global depression? A possibility – if we are to learn from history; note 1929.

Our ‘leaders’ are doing a terrible job at lying, reassuring calm and generally acting like fools (doing a good job). The G7 in it’s entirety is a waste of time, with a consensus of, ‘yes there are downside’ risks to the global economy (why the talk about the global economy, like it’s option trading desk, is anyones guess?); the nervy, smiley economic boffins at the G7 don’t fill me with confidence. But rather a sort of curiosity at the arrogance of the ‘select’ few that represent a rapidly decaying global financial system. The same people that in someways allowed a global financial error too occur; which is runaway credit expansion, underestimation of high inflation and a shocking assumption on the constant value of assets (especially housing, as we know has gone bust in most European countries, and is completely depressed (housing) in the US) .

With America in a recession, even with Hank Paulson, US Treasury secretary making this comment at the G7, “I believe that we are going to keep growing. If you are growing, you are not in recession, right?”

The final general comment from the G7, “Although “long-term fundamentals remain sound” and recession in the US and elsewhere could be avoided, according to the final communiqué, the world’s richest nations said they stood ready to “take appropriate actions, individually and collectively, in order to secure stability and growth”.

Alright lets forget about these guys.

The Subprime disaster won’t go away anytime soon, the structured investment vehicles namely CDO’S sitting in conduits in every banking system in the world – and that is decay, or ‘toxic waste’ on a large scale.

With global retail banks juggling their own shaky internal markets, the financiers of the global credit boom are now tightening and contracting their accounts. As they have ‘toxic waste’ CDO’s and have disclosed some losses, but have possibly hidden other losses. Or haven’t disclosed at all. This has caused the market too look upon the financial sector as unstable and risky.

Japan is a country that is on the verge of a recession, if not possibly in one. The world second largest economy may hold vast amounts of subprime CDO’s in their banking system and has yet to reveal the scale of losses (estimation in the $400 billion range), from telegraph online article ‘ Japan is the next sub-prime flashpoint ‘,

“Somebody, somewhere, must be sitting on a vast nexus of undisclosed losses. We may find out soon enough whether the hold-outs are in Japan. The banks have to come clean under the country’s strict new audit codes by the end of the tax year in March.

“We think this is where the next big problem is going to pop up,” said Hans Redeker, currency chief at BNP Paribas.

“We know from Bank of Japan’s lending survey that the banks are already tightening hard, so something is brewing. Right now, we are in the lull before the second storm in global markets, and Asia is going to be the source of the nasty surprises,” he said.”

and in regards to the iTraxx (Japan) index,

“The iTraxx Japan index measuring default risk of 50 Japanese companies saw its biggest one-day jump ever on Thursday to 77.5. Rightly or wrongly, it is flashing a serious distress signal.”

With possible huge losses from toxic CDO’s in the Japanese banking system, the yen carry trade seems to be faltering. I have noticed this with FX trading – I have seen a decline in the flight to quality into higher yield currencies, from telegraph online article ‘ Japan is the next sub-prime flashpoint’,

“The yen “carry trade” – borrowing cheap in Tokyo to chase yields from New Zealand, to Brazil, Iceland, and above all Britain – has juiced the global asset boom this decade by $1,000bn. It is perhaps the biggest liquidity pump of them all, yet it stopped pumping in August. Indeed, it is sucking the money back out again. The yen is soaring.”

in regards to the decoupling myth,

“What we know is that Japan’s economy – still the second biggest in the world by far – has fallen over a cliff since October. It remains joined to America’s hip after all. The decoupling theory has failed its first test.

Japan’s machine orders dropped 2.8 per cent in November and a further 3.2 per cent in December. January housing starts fell to the lowest in 40 years, down 18 per cent on the year. Tokyo property was off 22 per cent. Can this still be blamed purely on a change in building rules?

“Recession is a clear and present danger in Japan,” said Tetsufumi Yamakawa, chief Japan economist for Goldman Sachs. “The leading indicators are deteriorating very sharply. Inventory is piling up at a rapid pace. There are clear signs of deceleration in exports of steel and semi-conductors to China,” he said.

Yes, China. It turns out that the intra-Asia trade that was supposed to immunise the region against a slump is a disguised supply-chain ending up in the US market. American shoppers still make 30 per cent of global demand, just as it did a decade ago. Nothing has really changed.”




One Response to “World Crisis scenarios for the 21st century – Worldwide economic depression. (update 11)”

  1. […] Original post by Adrian […]

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