GLOBAL RECESSION: Sudden and Severe
Posted July 24, 2015
The global economy appears to be moving rapidly back into recession. Commodity prices have crashed to a 13-year low, world industrial production has begun to fall and world trade is contracting. In fact, measured in dollar terms, world trade is collapsing! In the latest Macro Watch video, uploaded today, we take a close look at the rapidly deflating global economic bubble and consider how much worse things are likely to become from here.
This worldwide slump should not come as a surprise. Its causes are all well understood:
- The US economy is weak because credit growth remains too depressed to generate economic growth there.
- Consequently, the US current account deficit is no longer acting as a driver of global growth.
- China’s enormous economic bubble is now deflating rapidly.
- There is excess capacity across nearly every industry globally since the growth in effective demand (i.e. wage growth) has lagged far behind the increase in the supply of goods.
- The Fed has tightened monetary policy by ending QE 3, causing the dollar to strengthen. The strong dollar has pushed down global commodity prices and hammered the commodity producing countries.
All of these problems are going to persist. Therefore, the global economic downturn seems very likely to become considerably deeper and more painful. This video describes how this slump is likely to play out from here. It also flags some silver lining, profit-making opportunities that should arise before this cycle is through.
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Is gold going down because of a strengthening dollar or is it reacting as a commodity? When the snap back happens dollar weakens and would gold rise or does it become a safe haven for all and it hits new highs at accelerated speed?
Also as commodity prices collapse and dollars are being used up to pay down debt is it possible for countries like Canada,Brazil and Australia to generate demand internaly or is thier only hope write down of debt which I think will be fought tooth and nail or do we go back to an inflationary environment possibly hyperinflation? is the only solution for inflation more QE or are there other alternatives?