Sunday, March 15, 2009
Executive Summary
- Hang on, the bottom isn’t here yet…
- China voices concern over dollar holdings
- Slump in global trade most severe ever recorded
- When is a reduced trade deficit a bad thing?
- US government fiscal deficit explodes
- Tax receipts at an all time low
- Print, print, print (Switzerland and the UK)
Hang on, the bottom isn’t here yet…
As I see it, my work in preparing and sending these reports is to provide a different view from the mainstream press outlets, which I frequently regard as being overly optimistic or pessimistic, often at the same time. For now, there is a lot of talk that "the bottom is in," and I wish to illustrate why I am convinced that the risk for additional downside is much higher than the chance that we’ve bottomed and are now on the road to recovery. In this report, I will the case that the bottom is not in on the economy, recent stock market action notwithstanding.
Over the next few years, whether or not the economy finally responds to the massive stimulus being applied, we will experience a challenging, if not disruptive, economic climate.
In the worst case scenario, the economy will not respond to the bailout and stimulus money. The recession will continue to deepen, and the next few years will look and feel remarkably like the Great Depression – only much worse, as measured by joblessness and supply disruptions. Such will be the legacy of the bursting of the greatest credit bubble in all of history.
In the "best" case scenario, the trillions upon trillions of dollars in stimulus and bailout money will re-create a burst of economic activity, but rampant inflation will ensue, due to an exceptionally hazardous combination of diminished supplies of goods and too many dollars (or euros or francs or pounds or….).
For now, even with the slight recovery in the stock market over the past week, indications from the real economy, in the form of job losses, tax receipts, budget deficits, and trade figures, reveal a steadily worsening global economic landscape.
China voices concern over dollar holdings
The big news this week, especially considering the extent to which the US hopes to fund its federal bailouts and stimulus spending with borrowed money, was that the Premier of China publicly expressed concern over China’s current dollar-based investments.