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can jointly sustain a relatively sound fiscal policy with broadly economic health not only is the default of a number of european countries inevitable it is necessary and desirable including all the concomitant ramifications of bank collapses for those that have not practiced risk adverse policies only when fictitious global capital has been erased can we start to rebuild the global economy on a sound basis so as europe continues its slow grind towards the end of the euro the united states is playing its own version of russian roulette with its debt ceiling again the issue is not as simple as it appears yes the us should not continue to raise its debt ceiling and yes and measures to this effect should have commenced a long time ago however that fantasy argument that you can cut spending alone without addressing taxation suggests the naivety of the political establishment in the united states read tea party if these two events occur simultaneously the impact on the global economy is likely to be extremely severe it won t look like a day at the beach and if it did i wouldn t go swimming in it no link to a specific article today as this post has been informed by several posted by peter at 12 17 pm 1 comments tuesday may 17 2011 interest rates headed north please explore the link above from karen maley s article in business spectator the article refers to dominque strauss khan adventures in a us hotel and its potential impact on greece in particular the arrest of dsk may impair any misguided support for further greek bailouts and precipitae a greek debt restructure of default the final line is the takeout and a heads up to any reader if investors ultimately lose confidence we could be in for a complete re rating of risk around the world which would spark a huge sell off in markets the huge sell off in equities would be accompanied by a rapid rise in global interest rates leading to further defaults and plummeting asset prices globally posted by peter at 12 25 pm 0 comments tuesday april 12 2011 us debt default enters mainstream media it seems that the unthinkable and yet inevitable is now finding its way into mainstream press see the link above if default by stealth through continued debt monitisation inflation and dollar depreciation fails the us may be forced into a de jure default on its debts the constant bailouts of the european defaulters have simply delayed the inevitable i greatly doubt for example greece s ability to reform its economy and service its debts post bailout the cleanest and less damaging approach would have been to let greece default withdraw from the euro and have economic restructuring forced upon it political debate in the united states to the extent it legitimately exists which i question alternates between two partisan extremes only the left are the quacks who apparently don t realise or care that there is a debt problem and would happily let the us spend itself into default on the right are another bunch of quacks who apparently realise the existence of a debt problem but in reality are just as predisposed to let the us default by cutting spending and taxes simultaneously with this level of puerile discourse in the united states void of any mainstream meaningful economic debate the us truly appears in a period of extended decline first economically and then shortly thereafter socially the political aspect of its decline commenced decades ago with the counter intellectualism of the conservative movement posted by peter at 6 03 pm 0 comments wednesday february 16 2011 checkmate please follow the link to karen maley s article in business spectator today this is the most articulate and focussed article on the global economy put to press for sometime particularly the conclusion that we have simply prolonged the hangover from the gfc rather than have begun to deleverage and rebuild by transferring private debt to public debt we have greatly exascerbated the problem and created the real possibility of a string of sovereign defaults over the next decade unfortunately it remains my firm view that we are far from recovery or any semblance of the pre gfc status quo there remains a severe economic reckoning still to unfold posted by peter at 2 43 pm 0 comments thursday february 10 2011 consequences of mis diagnosis ignoring how low rates created the crisis is like blaming the crash of the hindenburg on bad weather poor piloting lazy ground crews and overly emotional broadcast journalists while ignoring the 200 000 cubic meters of flammable hydrogen gas that the airship held in its structure please find the link above to peter schiff at his best clear evidence again that the decision makers in the u s remain oblivious to the courses of the great recession and will continue to exascerbate rather than treat the problem given the vast monetisation of the us dollar currently underway the tide has definitely gone out of that inflation tsunami posted by peter at 5 20 pm 0 comments wednesday december 01 2010 the fourteen speed economy in recent press over the last year australia was described as being a two speed economy the bouyant mining driven economies of western australia and queensland contrasted against the more subdued if not stagnant economies of the eastern seaboard states at the time is was speculated that the reserve bank s monetary policy was struggling to contain these two diverging economic zones what we are seeing in europe at the moment is in effect the fourteen speed economy and it may well tear the euro apart please find attached a link to business spectator with an article from martin wolf at the financial times here martin provides a pre emptory autopsy of the euro the euro was always an ambitous idea indeed it may have worked where it formed the common currency for a number of like economies operating in broad concert with each other however as martin outlines the euro has in effect contributed to if not facilitated many of the economic adjustments that are taking place in the piigs economies at the moment these weaker member economies of the euro need to devalue their currencies increase there competitiveness and restart their economies this clear is something they cannot do whilst they remain members of the euro stapling the struggling economies of the piigs to the economic powerhouses of western europe via the euro has now been seen to be a misconceived idea the euro may survive or survive is a different form perhaps within a smaller better vetted club then again this decade may also see the return of some familar names drachma franc and deutsche mark posted by peter at 2 05 pm 0 comments tuesday september 28 2010 currency wars this blog first alluded to the coming currency wars in 2004 global economies are actively competing to debase their currencies in an attempt to maintain their export competitiveness as national treasuries open up their printing presses the expansion in the money supply will have a number of effects initially it will cause their currencies to fall relative to stronger economies in australia the aussie dollar is now on a ballistic trajectory that will bring it far beyond parity with the usd latter consequences will be even more severe gold is on an even more pronouced trajectory than the aud and likely to go into orbit as fiat money is aggressively debased no doubt in the end it will morph from a legitimate store of wealth and hedge against inflation into a bubble in its own right this seems inevitable in a civilisation that is addicted to non productive wealth however it is still a very long way from bubble territory yet click on the link that will take you to the article from the globe and mail quoted the brazilian finance minister guido mantega posted by peter at 11 01 am 0 comments wednesday september 08 2010 tail of the dragon the global economy remains firmly on track for a continued deepening of the great recession into a self confessed depression in europe the piigs seem content to splutter along with the heavily indebted economies on a ever more tenuous lifeline from the european central bank and faint hopes of support from germany the united states is an economic disaster zone with real unemployment approaching 20 several states on the verge of tangible insolvency and the us at a federal level in a position of hopeless indebtedness and continuing to support the mercantilist policies of china through protracted inaction australia remains in a state of prosperity apparently unparalled in western economies a factor i confess to never anticipating however i suspect that this merely conceals the extent of our future fall we remain hitched to the tail of the dragon and our economic fate linked to our chinese mineral exports an economy still to pop its numerous bubbles the next stage of the slow motion train wreck we refer to as the global economy remains most likely a sovereign debt default leading to the repricing of sovereign risk and the concommitant currency adjustments that will in evitably follow please click on the link above to karen maley s sombre article from today s business spectator on european debt and rising service costs posted by peter at 12 32 pm 0 comments thursday august 19 2010 savings rates in a world of capital shortage the countries where the shortage is least acute will do best france germany and italy with double digit savings rates will outperform britain the united states canada and australia whose savings rates have consistently lagged finally an article worth posting on this blog an astute assessment of where we have come from where we are heading and why i encourage you to click on the link above and read the article by martin hutchinson posted by peter at 2 02 pm 0 comments friday june 04 2010 frypan to fire an imf sponsored period of 15 per cent unemployment and 15 per cent inflation would allow europe to survive intact and make the adjustments necessary to combine the spendthrift economies with the thrifty in a way that genuinely works it would be a protracted but endurable adjustment period but it would not be a catastrophe please click on the link above to a excellent article in today s business spectator from mark carnegie i would content that mark s best choice plan c will end up being more of a global choice than one confined merely to europe unsustainable global indebtedness is only now finally being brought to account the flight to quality to the us dollar that we have recently seen is truly a frypan to fire scenario global interest rates will soon rise and this will be a phenomenon largely outside the control of individiual reserve banks five years of 15 inflation would indeed be the best outcome for debtor nations by facilitating a structural default on their debts the concept of sovereign risk has even begun to be comprehended by global markets posted by peter at 12 09 pm 0 comments tuesday june 01 2010 three gets you two the link above takes you to a great article from pimco s bill gross in its core this article takes us to the reason why we are not at the end of the great recession the global deleveraging has not yet begun rather than retire and reduce their debt burdens governments around the world have started the morning after the gfc hangover with a couple of bloody mary s how governments approach deleveraging remains to be seen in the context of the current level of global indebtedness in many economies such as greece austerity measures and rebalancing budget may simply not even be practical let alone politically viable that leaves the propects of default of which i believe there are at least three distinct kinds possibly more 1 repudiation i can t repay and even if i could i m not going to try 2 negotiation i can t repay but i would like to if i could how about you take 50 cents in the dollar and we call it quits 3 stealflation actually i will pay you all the money i owe no problems i am however going to run inflation at 15 for 5 years and the 1 00 i owed you is now 0 12 real my money is still on the smart debtor governments running inflation at 15 for five years or something similar i suspect over the next 5 years we will see all three solutions posted by peter at 2 46 pm 2 comments thursday april 08 2010 greenspan and the next five years it has been a while between posts but today s has a worthy link please see the link above to the article from bloomberg which was reposted in today s australian financial review the article discusses dr greenspan s legac y and his view that the consequences of unregulated lending and expansive asset bubbles could not be forseen furthermore dr greenspan a k a the maestro a k a easy al argues that lax monetary policy did not contribute to the great recession sigh fortunately it is no longer the sole duty of this blogger to defend a rational interpretation of economic management the denial of responsibility for the worst economic mismanagement in recent history is perhaps predictable but it is also now futile where we will need magic in the next fives years is in extricating ourselves from the monetary accomodation and concommitant indebtedness that is characteristic of so many major global economies there has been much discussion recently of greece s precarious economic position and that of its fellow pigs portugal ireland and spain much larger economies are also mired in severe indebtedness such as great britain japan and the united states there appears at this stage of the great recession only one path open to work through this situation namely that is to run inflation in the mid to high teens for a period of years to devalue the level of global indebtedness and effectively default on their obligations any talk of green shoots or recovery in this environment is nonsensical the first signs of reflation is asset prices is likely to be driven by a tide of inflation nominal prices may be rising while real prices stagnate or decline there will be no return to the false prosperity of last boom until a decade has past and global economies have deleveraged probably by constructive default sadly the worst of this is still to come posted by peter at 9 08 am 0 comments thursday january 21 2010 global interest rates on the up interest rates are headed up sharply and quite possibly in 2010 those countries that are pursuing responsible monetary policies such as australia will suffer less that those with irresponsible and expansionary policies but the direction of interest rates will still be the same as karen maley s article from today s business spectator see link states the most exposed euro block countries include portugal ireland greece and spain these countries are running unsustainably large deficits that should be causing their creditors in the bond markets much concern these nations and their irresponsible policies may well jeopardise the euro s future even these nations may well be the tips of the iceberg as larger economies such as great britain the united states and japan ...