"We live in a world where there is still a huge amount of economic and financial fragility." - Dr Nouriel Roubini.
Economist
Nouriel Roubini, nicknamed 'Dr. Doom' for his gloomy predictions in the run-up to the financial meltdown four years ago, says the fallout from that crisis could last the rest of this decade. Dr Roubini, widely acknowledged to have predicted the crash of 2008, sees tough times ahead for the global economy and is warning that without major policy changes things can still get much worse. He said the biggest uncertainty is the possibility of a conflict with Iran over its nuclear program that involves Israel, the United States, or both.
That could lead oil prices now hovering around $100 a barrel to spike to $150 per barrel, he said, and lead to a global recession. 'There are lots of sources of uncertainty from the Eurozone, from the Middle East, from the fact that the U.S. is not tackling its own fiscal problem, from the fact that Chinese growth is unbalanced and unsustainable, relying too much on exports and fixed investments and high savings, and not enough on consumption. 'So it's a very delicate global economy,' Dr Roubini said. Until Europe radically reforms itself and the U.S. gets serious about its own debt mountain, the world economy will continue to stumble along to the detriment of large chunks of the world's population who will continue to see their living standards under pressure, even if they have a job. Dr Roubini, a professor of economics and international business at New York University, spoke in an interview this week at a dinner on the side-lines of the World Economic Forum, where he is one of the hotly pursued stars. Looking at economic prospects this year, he agreed with the International Monetary Fund's latest forecast that the global economy is weakening and said he might be 'even slightly more bearish' on its prediction of 3.3 per cent growth in 2012.
He painted a grim picture of the Eurozone in recession and key emerging markets in China, India, Brazil and South Africa slowing down, partly related to weakness in the Eurozone. He predicted that the U.S. economy, the world's largest, will grow by just 1.7-1.8 per cent this year, with unemployment remaining high. The government, he added, was 'kicking the can down the road' and not taking measures to increase productivity and competitiveness. 'We live in a world where there is still a huge amount of economic and financial fragility,' he said. 'There is a huge amount of uncertainty -- macro, financial, fiscal, sovereign, banking, regulatory, taxation -- and there is also geopolitical and political and policy uncertainty.' Unemployment and economic insecurity have become big issues from the Mideast to the Occupy Wall Street movement in the U.S., and protests from Israel and India to Chile and Russia -- and at the same time there is rising inequality between rich and poor.
'All these things lead to political and social instability,' he said. 'So we have to reduce inequality. We have to give growth to jobs, skills, education, and increase human capital so workers can compete.' Dr Roubini called for a major change in policy priorities. 'We have to shift our investment from things that are less productive like the financial sector and housing and real estate to things that are more productive like our people, our human capital, our structure, our technology, our innovation,' he said. Dr Roubini said slow growth in advanced economies will likely lead to 'a U-shaped recovery rather than a typical V,' and it may last for another three to five years because of high debt. 'Once you have too much debt in the public and private sector, the painful process could last up to a decade, where economic growth remains weak and anaemic and sub-par until we have cleaned up the balance sheet and invested in the things that make us more productive for the future,' he said. - Daily Mail.
Meanwhile,
Ilargi, from the popular financial blog
The Automatic Earth, cites a report that "will blow up the Euro Zone". This is a very long read, but I assure you, it is worth it.
No, I’m not talking about the fact that Germany and Holland want to take
over as the de facto government in Greece, as Noah Barkin writes for Reuters (that they want to do it through Brussels is a mere technicality).
Germany is pushing for Greece to
relinquish control over its budget policy to European institutions as
part of discussions over a second rescue package, a European source told
Reuters on Friday.
"There are internal discussions within the
Euro group and proposals, one of which comes from Germany, on how to
constructively treat country aid programs that are continuously off
track, whether this can simply be ignored or whether we say that's
enough," the source said.
The source added that under the
proposals European institutions already operating in Greece should be
given "certain decision-making powers" over fiscal policy. "This could
be carried out even more stringently through external expertise," the
source said.
The Financial Times said it had obtained a copy of
the proposal showing Germany wants a new euro zone "budget commissioner"
to have the power to veto budget decisions taken by the Greek
government if they are not in line with targets set by international
lenders.
"Given the disappointing compliance so far, Greece has
to accept shifting budgetary sovereignty to the European level for a
certain period of time," the document said. Under the German plan,
Athens would only be allowed to carry out normal state spending after
servicing its debt, the FT said.
Ilargi:
Nor do I mean the report from the Kiel Institute for the World Economy
that Ambrose Evans-Pritchard cites for the Telegraph, and which implies a
second bailout for Portugal is looming near:
Portugal is fighting a losing battle
to contain its public debt and may be forced to impose haircuts of up to
50pc on private creditors, according to a top German institute.
A
report for the Kiel Institute for the World Economy said Portugal would
have to run a primary budget surplus of over 11pc of GDP a year to
prevent debt dynamics spiralling out of control, even in a benign
scenario of 2pc annual growth.
"Portugal's debt is unsustainable.
That is the only possible conclusion," said David Bencek, the
co-author, warning that no country can achieve a primary budget surplus
above 5pc for long. "We won't know what the trigger will be but once
there is a decision on Greece people are going to start looking closely
and realise that Portugal is the same position as Greece was a year
ago."
Yields on Portugal's five-year bonds surged on Thursday to a
record 18.9pc, reflecting fears that the country will need a second
rescue from the EU-ECB-IMF Troika. Three-year yields hit 21pc.
Ilargi: Or even the true meaning behind the steep drop in the Baltic Dry Index, on which Sebastian Walsh reports for Financial News:
Statistics from the Office of
National Statistics this morning showed that the UK went into reverse in
the last quarter of 2011, when the economy shrank by 0.2% – but as the
Baltic Dry Index shows, the global economy is looking even more
worrying.
The index – often used as a proxy for the health of
the global economy as it reflects the prices charged for shipping
commodities such as metals, coal or grain around the world – has fallen
by 61% since October. The index was at 842 at yesterday’s close – down
from its 12-month high of 2173 last October.
Nick Bullman,
managing partner at risk consultant Check Risks, said the index is a
good way of looking at the risks to the global economy, "as it tends to
be where they hit first".
According to Bullman, its initial
collapse in October was driven primarily by a fall-off in demand from
China, where declining housing prices pushed purchasing managers to cut
back on orders for the raw materials whose transport the Baltic Dry
Index reflects.
He said: "This collapse looks similar to the
falls we saw in the Baltic Dry ahead of the recessions of the late 1970s
and early 1990s – but this drop is actually steeper."
Bullman
added that it was also a more direct indicator of global economic health
than government-produced statistics. "Personally, I’m not interested in
employment data and GDP figures because they’re manipulated," he said.
[..]
Bullman said that shipping companies have also been deliberately slowing down their journeys to save fuel, with trips from China to the US going now taking around 50% longer than they were early in 2011.
Instead,
he said he was surprised by how long the Baltic Dry took to fall. The
NewContex index – an indicator of prices for transporting products in
container ships – started falling in April last year. Bullman said:
"When we saw that happening in April, we realised that risks had
returned to pre-2008 levels. We thought the Baltic Dry would start
falling too, but it was actually relatively resilient."
"What this is signalling is that the world economy is slowing down much more quickly than people have been thinking."
Ilargi: The report I refer to in the title requires a little background info:
In
Holland, where I'll be for a few more days, there's a "rogue"
right-wing party named PVV (Party for Freedom). It has no cabinet
ministers, but the minority moderate right-wing government needs its
support to stay in the saddle. The PVV, like other European
right-wingers, is, among many other things, against much of what the
European Union stands for. It's certainly against the Euro, and the
bailouts with Dutch taxpayer money of countries like Greece and
Portugal.
A few months ago, the PVV announced they had
commissioned a report from British financial consultancy firm Lombard
Street Research on the economic consequences of staying in the Eurozone
versus returning to the guilder.
That report is about to be
published "within days". It will prove to be highly explosive material.
And the PVV will do all it possibly can to make sure it receives a lot
of media attention. It may tear down the incumbent government, which is a
heavy advocate of all things Europe, and which will have to quit once
the PVV support dies, but for that party that's not the no. 1 concern.
And
if and when Holland has a large scale discussion on the report and the
issues it raises, Germany won't be able to ignore it and stay behind.
And then, neither will France.
Max Julius of Citywire.uk did a piece on the report, without mentioning it directly, 10 days ago:
Germany and the Netherlands are
likely to quit the eurozone rather than swallow an indefinite number of
'unrequited transfers' to the union’s crisis-stricken nations, according
to Charles Dumas, chief economist at Lombard Street Research.
Speaking
at an event in central London, he said that before joining the single
currency, German incomes had stayed level but their purchasing power had
increased as the Deutschmark appreciated. With the weaker euro, the
economist said, they have seen 'tremendous' wage restraint, leading to
huge growth in German firms’ market share but ‘no serious growth of the
economy’ and a squeeze on disposable incomes. Meanwhile, consumption
rose elsewhere in the eurozone, he said.
'So what you’re actually
dealing with here... is a German population which has had a rotten deal
– and that’s why they’re all so angry' noted Dumas, who is also
chairman of the macroeconomic forecasting consultancy. Branding the
monetary union a 'suicide pact', he continued: 'So what this exercise in uniting Europe has achieved is to divide Europe.'
Dumas [noted that] the 'Club Med' nations needed about 5% of gross domestic product in annual debt refinancing 'more or less indefinitely'.
This
would amount to €150 billion a year, of which Germany would have to
stump up just over €60 billion, France a little under €50 billion and
€15 billion from the Netherlands, he said. And this would be on top of
the shortfall in consumer spending, in addition to the fact that wages
and consumption may have to be held down in the future, Dumas warned.
Ilargi: This morning, Dutch daily Algemeen Dagblad
cited Dumas as saying these numbers are "cautious estimates". They are
valid only if Greece and Portugal would leave the Eurozone in 2012 -
which Dumas expects will happen -. If they don't, the payments will be
even higher.
He predicts the costs of a return to the guilder
will be much less than for instance the Dutch government's Central
Planning Bureau claims, which warns of huge losses if Holland were to
leave the Euro.
Dumas: "It's just like in a religion: first they promise you heaven, and if that doesn't work out, they threaten you with hell."
The economist dismissed the notion
that the region would be able to turn itself around so as to make such
support from its 'core' unnecessary. Citing the example of the
persisting transfers from west to east Germany, he pointed out: 'The
ones that need the money to flow in carry on needing the money to flow
in, or just stay poor.'
Dumas also warned that austerity was only
worsening Greece’s budget deficit, and that it was 'difficult to
imagine' the deeply indebted state receiving the four quarterly batches
of financing it is due this year. ‘It’s almost impossible to imagine
people continuing to stump up the money, because they simply have not
actually gone into this thing with the intention of unrequited transfers
to Greece ad infinitum,’ he said as the country resumed talks with its
creditors over a planned debt swap.
Calling the one-off damage of
splitting up the eurozone 'seriously exaggerated', Dumas warned that as
the crisis deepens, he believes 'Germany and the Netherlands will
actually realise that they had better call it a day and jump out.'
Ilargi: Sure,
the Dutch government, and certainly the EU and the banking system, have
formidable PR machineries at their disposal. We’ll see a lot of numbers
being floated that contradict Lombard's report. And we'll have to wait a
few days to see exactly what numbers Dumas et al. come up with.
But
the people of Germany and Holland are already very nervous about the
fact that they face austerity and budget cuts while billions of euros
are transferred to southern Europe. Up until now, the fear of economic
disaster predicted in unison by government leaders have kept them quiet.
Now that a reputable economic research firm flatly contradicts these
predictions, and states that, instead, it's staying within the Eurozone
that will be the far more costly option, the people will grow
increasingly restless.
Charles Dumas again, from Algemeen Dagblad:
"The Dutch people have lost thousands of euros in purchasing power per year since the currency was introduced."
Governments in Berlin and The Hague will have a lot of explaining to
do. They have to do so against a backdrop of (near-)failing Greek debt
swap talks, which will at the very least force them to admit that they
have a lost tens of billions in taxpayer money to Club Med countries
already.
With a second Portugal bailout waiting in the wings.
And lots of negative news on Italy and Spain. And more domestic budget
cuts.
They’ll realize that their governments have painted far
too rosy pictures about the issues so far. And they’ll expect them to
deliver more of the same. This is what we call a receding trust horizon.
It's
not the report alone, it's the entire combination of factors. The
report will "merely" serve as the catalyst that blows up the powder keg.
It may take a few months, but it will happen. The publicity hungry
rogue PVV party that commissioned it, followed by anti-Eurozone voices
elsewhere, will make sure of that. - Business Insider.
UPDATE: US Anticipates May As Tentative Date For Clash With Iran?!
A hurried decision not to de-commission the USS Ponce helicopter marine carrier after duty in Libya - but to refit it for deployment by May in the Persian Gulf as a floating base for commando teams - was confirmed by the US Pentagon and Navy Sunday, Dec. 29. This transportable floating base will expand the commandos' range in coastal areas and support counter-measure against mines which Iran has threatened to plant in the Strait of Hormuz in reprisal for the US-EU oil embargo. The SEALs will also take on Iran's menacing fleet of military speedboats.
Debkafile reports Tehran operates four different kinds of these craft in the Persian Gulf: 1. Small, fast vessels, each armed with a small missile for striking tankers and coastal oil targets around the Gulf region, such as export terminals. Earlier this month, Tehran claimed to have developed stealth cruise missiles capable of disabling aircraft carriers with a single shot. 2. Small, extra-fast boats armed with torpedoes. Iranian publications claim several such boats are capable of stealing up on US aircraft carriers and large warships from several directions without being detected and cause serious damage. 3. Floating bombs for kamikaze missions. These fast boats cannot be deflected after locking in on target, whether on sea or shore, and explode on contact. Iran used these floating missiles piloted by suicide squads to attack oil tankers in the Gulf in November 1987. Since then, their naval tacticians have upgraded this fleet with the technology gained from the British Bladerunner 51, a model of which Iran purchased some years ago. Since early January, the Pentagon has reported four cases of harassment by Iranian military boats sailing close to American warships in the Persian Gulf. 4. Boats carrying teams of Iranian marine frogmen trained for secret suicide underwater missions: One member of the boat's three-man crew dives close to the targeted ship and attaches a magnetic bomb to its hull.
Iran has scattered hundreds of speedboats of different types around uninhabited islands off the Iranian mainland, tucking them out of sight in well-hidden inlets and bays. The US commando teams based on the Ponce platform will have the task of ferreting out and destroying this fleet. The US Defense Department aims to get the Ponce ready for its new mission as a floating commando base with all possible speed. To save time, the US military published one no-bid contract for the engineering work, waiving normal procurement rules on the grounds that any delay presented a "national security risk." The contract carries pointers to the timeline expected in Washington for a military confrontation to erupt between the United States and Iran, as well as the form it may take, say debkafile's military sources. The target date for deploying the commando platform in the Persian Gulf in four or five months indicates Washington is preparing for military clashes to blow up with Iran in the late spring or early summer.
But according to debkafile's Iranian and military sources, the Iranian administration has expressed its determination to respond instantly to any diplomatic or military move or action of an offensive nature against the Islamic Republic. And so confrontation may come earlier than anticipated. Sunday, the Iranian parliament was due to vote on a motion to cut off oil supplies to Europe in response to the EU embargo declared last week. Tehran has made it clear it has no intention of standing idle until US and European oil sanctions go fully into effect on July 1 and knows that EU nations are not set up to forego 400,000 barrels of oil a day right now. Saudi Arabia, which pledged to make up the shortfall arising from oil sanctions against Iran, will not have the missing quantities on stream before May – at about the same time as the Ponce and its complement of SEAL commandoes are due to take up position in the Persian Gulf. Tehran may decide not to wait and opt for letting its speedboats loose before then to try and pre-empt American and European plans. - DEBKA.
