Tag Archives: Recession

Is The Monetary System Facing The Risk Of Recession?

By Francesc Raventós – The International Monetary Fund, other economic institutions, politicians, experts, and a good number of indicators predict a new economic downturn. The causes will be diverse but the significant one is that debt worldwide has grown at an exaggerated rate.

According to the report of the International Finance Institute, IIF, global debt is $247-plus trillion, 318% of GDP.

In the 2000s or noughties an expansive fiscal and monetary policy with low interest rates generated significant public deficits, a strong increase in borrowing and created a stock market and real estate bubble that erupted in 2007, forcing central banks to push for a huge monetary expansion – Quantitative Easing – to get out of the crisis eventually.

With a lot of financial liquidity in the market at a cost close to zero, the economy has regained growth and, for now, inflation is under control. But the economic cycle cannot be considered closed until central banks’ debt and interest rates return to normal. Trust in the International Monetary System, and the main currencies remains, but if some day trust in one important currency is lost, the situation would be very delicate.

Now the economic recovery has been achieved, it is time to gradually restore debt and interest rates to reasonable levels (aka tapering). The US Federal Reserve (Fed) has already increased its interest rate and announced that it will continue to do so.

The consequences have been immediate, with the withdrawal of investments from emerging countries, such as Argentina, Brazil, South Africa, India or Turkey, to invest in American bonds. The European Central Bank (ECB) has also announced that by the end of 2018 it will stop buying debt and that interest rates will rise as the economy improves (but not before the summer of 2019).

What will be the consequences of tapering?

Will it destabilize the economy?

What are the risks of entering a new recession?

Will the current monetary system resist?

How will the governments that are highly indebted deal with recession? more>

Market tailspin hastens the economic shock it fears

By Mike Dolan – History suggests governments and central banks would do well to sit up and take notice, but with policy coordination at its lowest ebb in decades, a coherent response is unlikely.

With almost $6 trillion wiped off the value of global stock markets since the start of the year and another 25 percent off already low oil prices, there is a real risk investor anxiety itself will be the catalyst for a world recession.

“When two players sit down at the board, they are unlikely to have a satisfactory game if one of them thinks they are playing checkers and the other thinks they are playing chess,” Jeffrey Frenkel [2] wrote.

By any measure, we are in historic territory. more> http://goo.gl/fnenki

Related>

What Causes Recessions?

By Noah Smith – “So, what really causes recessions?”

We really just don’t know the answer.

Some people — the types who think the market is self-adjusting and wonderful and doesn’t need any government help — believe that recessions are a natural, even healthy process. Maybe recessions are responses to changes in the rate of technological progress, or to news of future progress, or even bursts of creative destruction.

Others — the people who tend to think the market needs a little helping hand — believe that there’s something blocking the market from adjusting to the shocks that buffet it. more> http://tinyurl.com/p4yl25k

Euro zone factory slump deepens but Asia perks up

By Jonathan Cable and Kim Coghill – Euro zone factories sank deeper into recession in December as new orders tumbled, business surveys showed on Wednesday (Jan 2), a sharp contrast to continuing signs of revival in China.

“It’s pretty grim really,” said Jonathan Loynes at Capital Economics. “These surveys are pointing to a pretty deep recession. If the German industrial sector is contracting quite sharply it is pretty hard to see where growth across the euro zone as a whole is going to come from.”

Germany, Europe‘s largest economy, saw its crucial manufacturing sector shrink for the 10th straight month and at a faster pace, while French data showed a decline in all but one of the past 17 months. The slump in Spain deepened, while Italy’s index, although improved, remained below 50 for the 17th month. more> http://tinyurl.com/bkoxzz8

Eurozone Recession Likely Returned As Even Germany Is Hit By Debt Crisis

Reuters – The euro zone is likely to have slipped back into recession in the current quarter, according to a survey published on Wednesday (Sep 5) that showed a seventh month of contraction for the bloc’s private sector as new orders dwindled.

The Purchasing Managers’ Index (PMI), published by Markit, showed the economic rot that began in smaller periphery members of the 17-nation bloc is now taking hold even in Germany, the region’s largest and strongest economy. more> http://tinyurl.com/8mjw3mf

No simple answer to EU growth vs austerity conundrum

By Paul Taylor – Fierce debate is growing in Europe over whether austerity or growth offers the best strategy to overcome the continent’s sovereign debt crisis. As if it were that simple.

The growth camp argues that synchronized austerity across Europe will only aggravate economic contraction, swell the ranks of the unemployed and make it harder for debt-laden countries to reduce their deficits and restore market confidence. more> http://tinyurl.com/7w2h8z6