12 2 mins 10 yrs

Is the US sinking into recession? The money markets think so;

The FTSE 100 took another battering today, opening 2.4% down and slipping below 5,00 points, after a disastrous day yesterday which saw £62bn wiped off the value of leading shares. The tumbling figures were mirrored by European markets, with Paris, Frankfurt, Madrid and Milan stock markets falling by 3% in early trading. And Asian markets took a beating with Japan’s Nikkei 225 index dropping 2.5% to 8,719.24 and Hong Kong’s Hang Seng sliding 3.1% to 19,399.92. World stock markets plummeted Friday amid signs of a possible U.S. recession and renewed worries over the health of Europe’s banks. Banking stocks were again the major casualties as the FTSE 100 Index slipped down again to below  the 5,000 barrier, tumbling to 4,935 points.

I’m afraid that things can only get worse.

In Brussels and in Washington, denial is the order of the day. Rather than DEAL with the reality that they cannot spend what they do not have, instead they look to print more money, issue pointless Eurobonds, do everything possible to confront reality.  There is every reason for investors to be concerned about Banks and the exposures they have taken and then hidden. There is every reason for investors to reflect on Obama’s total failure to get to grips with excessive Government borrowing.

The markets behave rationally – unlike the politicians. So what looks like a collapse isn’t – it is simply reality asserting itself.

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12 thoughts on “GOING DOWN…

  1. It’s not a recession. A recession would be a relative pleasure. What is happening is a total collapse of the economy of the US under the burdens of debt, greed, huge corruption, and the loss of industry means that the structure can no longer support this combined load. The UK is in similar straits.

    By comparison, Germany is sound and Italy still has its industry. We (the US and UK) produce nothing because our corporates have offshored real wealth-creation.

  2. We (the US and UK) produce nothing because our corporates have offshored real wealth-creation.

    Look, in the sky! See all those Boeings! Made in USA.

    Look, in the medicine cabinet! That high tech new drug? Very likely invented and made in the USA.

    Look at the computer you are on! Using an internet and PC and search technology very substantially developed in the USA.

    There are problems, but we we still make lots of things, including Mercedes Benzes, Toyotas, etc from huge, thriving onshored factories in the American South.

    Don’t exaggerate, Allan my lad.

  3. Phantom – what are the US’s trade figures and what is the trend? How much steel does the US produce as compared with China? Such is the reality.

    David – Italy has retained its industry and much of the steel products which I procure for projects in the UK comes from their factories. It means therefore that no matter what Italy’s debts may be, it has the means to earn the money to pay off or at least manage such debts. The US and UK, on the other hand, have lost so much of our industry that any decrease in the value of currency actually increases the cost of the few products made here because of the consequent cost of raw materials and imported sub-components.

  4. I am well aware of the trends.

    But note that Chinese steel is being made by Chinese companies. It’s not US companies outsourcing.

    Even if US and European companies shut down all their facilities in China, you’d still have free trade, and would still face the same challenges.

    Unless you want to limit or stop free trade? ( Which one can make the case for, btw. Though that horse has long left the barn 0

  5. “The problems in Europe have an endgame of essentially 2 things: monetary printing or default/restructuring. Printing is not an option as the Bundesbank, I mean ECB, given their disastrous history with (hyper)inflation, will be loathe to go the helicopter money drop route. Any defaults/haircuts will likely topple the big banks in Europe as their leverage levels are simply unsustainable. US seems destined to double-dip which will pressure our own banks and real estate and muni spreads, etc, etc, etc… And some people think QE3 will never happen, PUH-LEASE!”

    Link here

  6. The great recession has moved into depression territory.

    However, the economy can – on the face of it – move out of recession and I think it will. US money supply is very erratic, moving wildly up and down from quarter to quarter. Last year and going into this year money supply was tightened, which accounts partly for market fluctuations now. They’re attempting price discovery while these tsunamis of money keep washing in and out and no-one has any idea what represents value anywhere.

    Well money supply was let loose a few months ago and it sky high at the moment. The result will be another economic sugar rush, probably kicking in by the end of the year. As usual the friends of government will get the money first, they’ll benefit from it before price inflation increases and hurts everyone, and the outcome will be just more debt and a greater hangover. Along the way stock prices will be inflated as they always are by loose money.

    Of course, the real economy will not improve, in fact it will be left worse off. However the artificial boost given the the data points will allow statists that the economy has moved out of recession.

  7. http://www.globalresearch.ca/index.php?context=va&aid=26076

    – Spain was the first global Superpower…With Spain as its political base, and gold and silver flowing in from its American colonies, the Hapsburg dynasty became the dominant power in Europe. It controlled rich parts of Italy through Naples and Milan, and Central Europe from the Netherlands through the Holy Roman Empire to Austria. In the 16th century it added the far distant Philippine islands to its empire. The Hapsburgs held off the Ottoman Turks, whose resurgent wave of Islamic conquest in the 16th century swept across the Balkans and nearly captured Vienna.

    – Yet, Spanish leaders were deluded by a sense of false prosperity. This is testified by the statement of a prominent official, Alfonso Nunez de Castro in 1675: “Let London manufacture those fine fabrics of hers to her heart’s content; let Holland her chambrays; Florence her cloth; the Indies their beaver and vicuna; Milan her brocade, Italy and Flanders their linens…so long as our capital can enjoy them; the only thing it proves is that all nations train their journeymen for Madrid, and that Madrid is the queen of Parliaments, for all the world serves her and she serves nobody.” A few years later, the Madrid government was bankrupt. The Spanish nobleman had foolishly elevated consumption, a use for wealth, above production, the creation of wealth.

    – Today, the American “empire” is also trying to consume more than it produces. The U.S. trade deficit is nearing Spain’s nadir of imports being double exports. Both government spending and private consumption are financed heavily by debt. Washington is printing money, the modern equivalent of digging gold out of the ground, rather than earning the means to pay its bills. And the political and military elites are apparently indifferent to the fate of domestic business and industry. Americans must learn … from the Spanish experience … and take corrective action while they still can. –

  8. Allan@Aberdeen –

    Yes, yes, yes. One sentence captures what it comes down to:

    The Spanish nobleman had foolishly elevated consumption, a use for wealth, above production, the creation of wealth.

    Production is everything. Production allows, leads to and creates consumption, but production comes first. Those who talk of boosting demand (as if anyone can know where it needs boosting) put the cart before the horse.

    Demand never needs boosting. Human demands are endless. What we lack now here and in the US is the production to honestly pay for what we consume. In fact we’ve consumed the future already. We now need years of under-consumption to pay for it.

  9. We now need years of under-consumption to pay for it.

    Indeed. A new “age of austerity” is upon us. Best to get used to the idea. At least the politicians will be forced to admit that the vast welfare-warfare state is history.

    I see at least a decade of stagnation ahead for the west. Unless there is a breakthrough on energy production. Cold fusion (or something similar that frees us from our addiction to fossil fuels) would be a game-changer.

  10. PM, Peter – agreed with both but the problem resides with the Phantoms of our countries. His comments above are typical of too many in the US and UK whose heads are buried in sand, the same sand (quicksand) on which our economies are based. What a dreadful situation for our countries to be in.

  11. Allan

    Please, for the first time, make some attempt to think any issue through.

    Outsourcing is a problem for workers in Europe and in America.

    But, as I’ve said, even if all outsourcing by GE, Siemens and every other corporation was banned tomorrow morning at 915 Eastern Standard Time, nothing fundamental would change.

    Why?

    – Because for some things, there is no sufficient production base left in Europe and America for certain products

    – More importantly, because Chinese and other countries have their own exporters that make many things and which will retain a compelling cost advantage.

    – Because other advanced countries ( Japan, Korea ) are deep into China and into sourcing manufacturing there and this will not change.

    – Because while your youth are burning cars and buildings in London and Manchester, the Chinese youth are staying calculus until 11pm.

    Your fevered conspiracy theories don’t address any of these issues.

    The only way to stop competition from low cost countries is to restrict foreign trade. And that’s a cure that would be worse than the disease, though intellectually you can make a case for it, if you set the clock back 35 years, which you cannot do.

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