Does A Global Recession Loom In 2012?

This is the burning question for economists worldwide on the Eve of the New Year. This article is a compilation of many erudite sources and opinions copied from the Internet....plus my own thoughts.

Economists: Another Global Recession Looms

Most economists now expect another global recession in 2012 because the world economic outlook is much darker today than it appeared in the early autumn.

In fact, from policymakers such as International Monetary Fund head Christine Lagarde to Goldman Sachs chief economist Jan Hatzius, a mood of skepticism and apprehension prevails, CNBC reports.

Lagarde warned in September that the world economy had entered a "dangerous phase," and this month told journalists "the global economic outlook will be lower, and in certain parts much lower than what we had initially envisaged."

Hatzius says growth in many developed economies is being suppressed by higher taxes and efforts to pay back household and corporate debt. "That combination is likely to see another two years of sub-par growth in the major advanced economies, extending into 2013," he says.

Lagarde's concern is echoed by Pier Carlo Padoan, chief economist for the Organization for Economic Cooperation and Development. "We are concerned that policymakers fail to see the urgency of taking decisive action to tackle the real and growing risks to the global economy," he said.

The Brookings Institution's Eswar Prasad points out that things seemed very bleak in early 2009. "Here we are again," says Prasad. "But what is different now is that the crisis of 2008 has created a huge debt burden, so constraints on policy are much tighter now."

Of major concern is the possibility that a further economic downturn will greatly increase the stresses in the sovereign debt and bank funding market, creating a vicious downward spiral akin to 2008 and the potential collapse of the euro.

With the money supply contracting at the fastest rate since early 2009, Neville Hill, of Credit Suisse, observes, that "for institutions that set great store by monetary indicators - the European Central Bank and the Bundesbank, for example - that should be an alarming signal."

www.newsmax.com/InvestingAnalysis/Economists-Global-Recession/2011/12/15/id/421054

Global Recession Looms as Euro Crisis Deepens (VIDEO)

www.youtube.com/watch?v=R5Ep5rf14oA

Most Economists Expect Another Global Recession

2So acute are the risks that few economists are now willing to bet heavily against another global recession in 2012. By common consent, the world economic outlook is much darker today than it appeared in the early autumn.

The eurozone crisis has worsened with contagion spreading through Italy and Spain and now lapping at the door of France. Recoveries remain feeble in other advanced economies. And emerging markets are beginning to feel the pressure.

And that grim assessment is shared by economists in the private sector. As Goldman Sachs marked down its latest forecasts, Jan Hatzius, its chief U.S. economist, said that growth was being held back in many developed economies by higher taxes and efforts to pay back household and corporate debt. "That combination is likely to see another two years of sub-par growth in the major advanced economies, extending into 2013," he argued.

The verdict of Eswar Prasad, of the Brookings Institution, was even bleaker. "In early 2009, it was difficult to come up with a glimmer of hope. Here we are again. But what is different now is that the crisis of 2008 has created a huge debt burden, so constraints on policy are much tighter now."

With the money supply contracting at the fastest rate since early 2009, Neville Hill, of Credit Suisse, observes, that "for institutions that set great store by monetary indicators - the European Central Bank and the Bundesbank, for example - that should be an alarming signal".

www.cnbc.com/id/45662343/Most_Economists_Expect_Another_Global_Recession

Global 2012 Outlook

Policy make or break: We expect upcoming policy decisions in the US and Europe to hold the key to the global growth outlook. With a recession in Europe, anemic growth in the US and a further dimming of emerging market economies' growth prospects as our base case, we see global growth falling below its long-term average.

Our bear case is a full-blown recession, and it won't take much to tip the balance. Our base case assumes that European governments make a big step towards fiscal integration soon that stabilises confidence, and that US Congress extends most of this year's stimulus. Against the backdrop of recent policy mistakes, these assumptions may seem heroic. Failure on these fronts would risk a full-blown recession in the US and Europe, with global GDP growth falling below the 2.5% recession threshold.

Fiscal dominance and monetary easing: Central banks in much of the developed world now operate under a new regime of fiscal dominance, in which monetary policy is dominated by governments' inability to stabilise the debt or even fund themselves at reasonable interest rates. In such a regime, inflation targeting becomes irrelevant because debt concerns take the upper hand. It also means that central bank independence has been just a historical episode: Central banks will be forced to solve the problem of unsustainable public debt by pushing real interest rates as far as possible into negative territory through conventional and unconventional ways of reducing nominal interest rates across the yield curve, and through orchestrating inflation. While we see further monetary easing in the base case from the U.S. Fed, ECB and the Bank of England, we do not expect Emerging Markets (specifically China) to be the knights in shining armour, as they were in 2009, when they eased monetary and fiscal policy to historical levels. Having said that, to the extent that Developing Nations policy help isn't immediate or aggressive, we believe that Emerging Markets' policy-makers are better off buying insurance via pre-emptive easing.

www.morganstanley.com/views/gef/

President Barack Obama held a summit with European Union officials at the White House recently, calling for action on the eurozone debt crisis before it spirals out of control and causes another worldwide economic recession.

According to White House spokesman Jay Carney, the president believes that "Europe needs to take decisive action, conclusive action, and it has the capacity to do so."

Earlier this month, Fitch reported that U.S. banks have direct exposures to stressed European markets (PIIGS: Greece, Ireland, Italy, Portugal and Spain), and added that further contagion puts them at serious risk. The rating agency said that unless the debt crisis is resolved, the credit outlook for the U.S. banking industry is in jeopardy. The current outlook is stable, but "risks of a negative shock" are increasing and could change this projection. However, Fitch noted that U.S. banks have reduced their exposures to stressed European markets considerably.

Moody's issued its own recent report, stating that the longer the crisis is allowed to go, the higher the probability of multiple sovereign defaults. If sovereign defaults occur, there also is the chance that those countries will leave the euro area. "Moody's believes that any multiple-exit scenario-in other words, a fragmentation of the euro-would have negative repercussions for the credit standing of all euro area and EU sovereigns," the rating agency said. IN CONSEQUENCE THE EURO CURRENCY MIGHT CRASH.

With Europe slipping into a recession, the United States experiencing only a modest recovery, and Japan seeing a minor surge due to reconstruction efforts that will eventually taper off, the OECD sees the potential for economic disruption on a massive scale. Pressures on bank funding and balance sheets increase the chances of another credit crunch. Additionally, in the U.S., there is the distinct possibility that no action will be agreed upon to counter fiscal tightening, which could tip the economy into a recession that monetary policy would have little ability to correct.

"If there is a sovereign debt default in the euro area, the contagion spreads," said Pier Carlo Padoan, chief economist at OECD. "And if there is no effective policy response, both at the country level and at the European level, we might have a very serious downside scenario with prolonged recession and rising unemployment.

www.afponline.org/Article_Detail.aspx?id=10737419466

The solvency of the European sovereign debt market and its banks is tenuous at best, but near the brink of collapse at worst.

If and until ECB prints near the magnitude of trillions to support the EU's 'house of cards,' the shadow of insolvency looms. HOWEVER, most likely the EU in desperation will try frantically pump Quantitative Easing to avoid dissolution. Consequently the euro currency will take a hit, thus easing it toward parity with the US$. In this case US stocks will inevitably fall toward its March 2009 low of 6500 (now support).

IN SUMMARY, the EU reprieve fuelled by massively printing euros will eventually pave the way for another 2008 plunge in US stocks.

In fact we might see a replication of the June 2008 to March 2009 scenario, where the euro currency plunged -19%, causing the US$ to soar +21%, while the US DOW Stock Index plummeted no less than -48%. See chart:

http://stockcharts.com/h-sc/ui?s=$XEU&p=D&st=2008-06-01&en=2009-03-06&id=p35467313767

Ergo, a 2008 déjà vu might see the DOW plunge (not surprisingly) to about 6400 in 2012.

The above scenario would be consistent with US recession conditions forecasted by some economists and market pundits.

Euro Union UNEMPLOYMENT's Travesty of Justice

One of the objectives of the Euro Union was to produce "full-employment" amongst its members. Unfortunately, it hasn't worked out that way. In deed and fact GERMANY has obscenely reaped the largest harvest of jobs at the expense of the hapless PIIGS.

Here are the UNEMPLOYMENT RATES as of October 2011 -

COUNTRY............UNEMPLOYMENT RATE

Germany..........................6.3%

Portugal.........................13.0%

Italy.................................8.4%

Ireland............................14.1%

Greece............................18.2%

Spain...............................22.5%

Average Unemployment Rate amongst the PIIGS.......15.3%

Sadly, the Unemployment Rate suffered by the PIIGS is almost 3 TIMES THAT OF GERMANY -- and take note German Unemployment Rate is falling, while that of the poor PIIGS is rising.

UNEMPLOYMENT Rates of major countries

www.bls.gov/fls/chart1.gif

UNEMPLOYMENT Rates of minor Euro Union Countries - including the so-called PIIGS

www.bls.gov/fls/chart2.gif

Source: www.bls.gov/fls/intl_unemployment_rates_monthly.htm

CONCLUSION

The Euro Union is unequivocally biased to enhance the material benefits to the strongest member at the expense of its weakest members. Moreover, the mounting crush of the PIIGS debt can never be repaid. To be sure, deteriorating circumstances dictate an early demise of the ill-conceived Utopian Union, which has relentlessly morphed into Dante Alighieri's Fifth Ring of Hell.

THE ONLY SOLUTION FOR THE EU IS DISSOLUTION.

CHINA MIGHT SPARK A WORLDWIDE RECESSION

The importance of China in global economics cannot be over-stated. Just consider a few factors:

- Relative Populations

- China 1,300,000,000 and counting

- Euro Union 500,000,000

- USA 300,000,000

China has about 500 MIILION more population than the EU and USA combined.

Today, China is the world's largest consumer of many vital commodities: Copper, Palladium, Iron, Rare Earths and Metallurgical Coal. Moreover, China is the world's largest producer of Steel and Cars, etc etc.

Therefore, if China's economy 'catches a cold,' the western world economies might come down with recessionary pneumonia.

China fears lasting worldwide recession

Jamil Anderlini in Beijing

Wang Qishan, the Chinese vice-premier responsible for overseeing the financial sector, has predicted the global economy will slump into long-term recession and warned that China will need to deepen financial reforms to cope with the fallout.

"Right now the global economic situation is extremely serious; and in a time of uncertainty the only thing we can be certain of is that the world economic recession caused by the international crisis will last a long time," state media reported Mr Wang as saying over the weekend.

His unusually bearish comments could set the stage for domestic monetary loosening as Beijing frets about a deflating property bubble at home and chronic economic woes in China's two largest export markets - Europe and the US.

Dire economic conditions also reflect growing concern among policymakers that the Sino nation's underdeveloped financial sector is facing heightened risks from a gathering economic slowdown.

www.ft.com/intl/cms/s/0/e0b044a2-1382-11e1-81dd-00144feabdc0.html

A Second Great Recession in 2012....

CHINA DOWNTURN THREATENS GLOBAL ECONOMY

It's official -- one of the global economy's main engines is revving down, according to the Chinese government:

"We believe China is nearing the end of the period of high economic growth," said Yu Bin, director general for the ruling State Council's research center. "What we need is moderate and reasonable economic growth." "China had been growing at high speed for three decades," Yu said. But now, he said, China's fundamentals are changing, including demography and the demand and supply of labor.

The People's Republic isn't struggling for breath, like the U.S., let alone confronting its economic mortality, like the eurozone. But the seemingly unstoppable run of double-digit growth (propelled in part by Beijing's currency manipulation) is over. Chinese government officials expect GDP, which has been ticking down all year and which in the third quarter declined to 9.1 percent, to fall below 9 percent in 2012. Over the longer term, China forecasts 7-8 percent growth over the next five years.

Signs of a downturn in China have been unmistakable for some time. Manufacturing activity is down, hurt by sagging demand in Europe and the U.S. Local governments are suspending land sales. That reduces municipal tax revenue and public spending, especially in key commercial centers like Guangzhou and Shanghai. As the country's business conditions cool, foreign investment is waning for the first time in more than two years. Chinese stocks are also wobbling.

www.chariweb.com/2011/12/china-to-trigger-second-great-recession.html

CHINA'S SHANGHAI STOCK INDEX IS A GROWLING BEAR MARKET

Since its late 2007 peak, the SHANGHAI INDEX has fallen 68%.

http://stockcharts.com/h-sc/ui?s=$SSEC&p=D&yr=5&mn=5&dy=0&id=p42543559291

Further, YTD 2011 the SHANGHAI INDEX is down a whopping 21%.

http://tinyurl.com/7zl2lbo

And with 2012 Recession looming on the Sino horizon, there very well might be another 2008-like crash (when the SHANGHAI INDEX plunged 68% in only 12 months).

INDEED A GLOBAL RECESSION LOOMS IN 2012