Wednesday, 6 July 2011


There are a number of economic analysts who believe that we will be heading toward another recession in inter-mediate future. The following are among the reasons that the world economy will tank probably right after the US presidential election in 2012:

1) asymmetrical relationship between the high stock market levels and the low performance of the real economy in US, EU and Japan;

2) there have been no policy changes to prevent a double-dip recession - no structural changes that politicians once promised and no political oversight of a neo-liberal economy operating amid a debt economy;

3) In 2007 US companies listed on the stock exchange are carrying derivatives 13 times the US GDP; in 2011, the derivatives to GDP ratio is five times higher than it was in 2007;

4) FED policy is trying to boost Wall Street with easy monetary policy, while also boosting exports and discounting debt payments with a cheap dollar; a policy that necessarily entails lower valuations across the board and inflation. By contrast, European Central Bank (ECB) tight monetary policy works against stimulating growth amid a lingering recession, except in Germany and a few other eurozone members that are suffering negative or slow growth;

5) the immense public debt crisis that has plagued EU is a potential ticking bomb. Mainly, a problem for Greece, Portugal, Ireland, Spain, and Italy, the crisis is now European to the degree that German Chancellor Merkel has criticized the rating houses that keep downgrading the EU periphery countries. Without a solution that engenders stability in the political economy, the public debt nightmare will continue to cause problems internationally;

6) China's economic miracle is slowing and it should be to keep inflation in check and to reconsider the degree to which economic development has been asymmetrical with social development. China's central banks raised interest rates in July 2011, thus confirming speculation that the government is interested in checking growth, a move that naturally impacts global markets;

7) Japan's lingering slow growth and massive public debt part of which is unavoidable after the earth quake and tsunami devastated the country.

8) rising prices for basic commodities precipitating inflationary pressures and forcing people to curb discretionary spending;

9) continued high structural unemployment and underemployment in US and EU;

10) massive absorption of capital from the middle class and workers through higher taxes to pay off public debt and stabilize finance capital entails that consumer spending will be less of a factor in stimulating economic growth.


Jai's Page said...

Most Reasons sound logical & relevant..another recession can only trigger social unrest across many developed nations as someone predicted long back..Jai

Hugh Laue said...

Pretty much on track as projected by Jay Forretor's MIT team in their 1972 dyanamic systems model for a "Business as Usual" scenario.
Collapse, not just a recession. Aggravated by climate disruption.
Homo economicus vs homo sapiens and the biosphere.
6th extinction is well under way.
Only real opportunity is to take stock and consciously evolve to homo sapiens sapiens. Unloose creative wisdom, holonic compassion.