morbius glass

Reviews – Comics, DVD’s, Books. Finance – FX markets, Stocks, Economics. Culture

World Crisis scenarios for the 21st century – Worldwide economic depression – (update 16)

Posted by Adrian on January 26, 2009

World Crisis scenarios for the 21st century – Worldwide economic depression – (update 16)

2009 could possibly the start of a global economic depression. As governments all over the world scramble to support collapsing asset prices, via stimulus packages and company bailouts, a massive bout of deflation is looming.

In one day (26th Monday 2009) 70,000 jobs were lost from Caterpillar, General Motors, Sprint Nextel, Home Depot and Pfizer

The jobs losses into 2009 will quicken as momentum builds on the economic downturn, what will make the economic situation worst is the government spending programs. Developed countries such as the UK and some European countries may go bankrupt in 2009. UK in particular becoming vulnerable by it’s government spending huge amounts of money to secure banks and the amount of risk it now carries at defaulting on foreign liabilities. This was evident in the dramatic sell off of the GBP (against the Japanese Yen), please refer to graph:
gbp_jpy3

The fear on top of a severe L-shaped recession is now a capital flight of investors pulling funds out of countries, this is a real possibility and an alarming one especially when countries like the UK, America and European countries relay on capital inflows into their markets. The US is another country in a extraordinary risky situation, depending on how deep the recession is in America, and for arguments sake the economy stabilises in 2010; by that stage America could have defaulted on it’s debt and will have little chance of raising capital via oversea investors. Why? If Obama ignites a trade war based on protectionism, this might be cascading effect as economies start to retract from each other. The flow of capital ceases, trade diminished and money is no longer injected into an economy. Instead they (Governments) rev up the money printers for capital, but this also is detrimental as it combines a collapsing economy with inflation. Which ever way it’s look at, a depressed global economic situation appears eminent. Whether a deflation, stagflation orientated depression in 2009, so far it is not looking good.

If the UK goes into a very steep recession and at some point struggles to raise capital and becomes an insolvent country. This will put pressure on the EURO and other countries that have not benefit from a shielded aspect of the EU (which could turn out to be an illusion). Spain, Ireland are at risk of going bankrupt. Iceland would be the bellwether, even though they weren’t in the EU or had the EURO as support. Iceland was still an open economy, as the whole Europe union is, if one country goes down in the EU, then it is without doubt others will follow and the EURO could be sold off dramatically, please refer to graph (EUR and GBP against the YEN) – note the downward pressure on the EUR with the GBP.

eur_jpy_gbp_jpy

Worst still for the EU is some sort of protectionism takes place in Europe, this could essentially be the beginning of the end of the Europe Union.

Advertisements

One Response to “World Crisis scenarios for the 21st century – Worldwide economic depression – (update 16)”

  1. […] by Adrian on January 28, 2009 As discussed in World Crisis scenarios for the 21st century – Worldwide economic depression – (update 16), Financial Times online have published an article entitled “Capital flows to developing world […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: