20 Early Warning Signs That We Are Approaching A Global Economic Meltdown

Have you been paying attention to what has been happening in Argentina, Venezuela, Brazil, Ukraine, Turkey and China?  If you are like most Americans, you have not been.  Most Americans don't seem to really care too much about what is happening in the rest of the world, but they should.  In major cities all over the globe right now, there is looting, violence, shortages of basic supplies, and runs on the banks.  We are not at a "global crisis" stage yet, but things are getting worse with each passing day.  For a while, I have felt that 2014 would turn out to be a major "turning point" for the global economy, and so far that is exactly what it is turning out to be.  The following are 20 early warning signs that we are rapidly approaching a global economic meltdown...

Forget BRICs & PIIGS; Meet The Fragile 5 Emerging Markets

Despite an apparent belief among the US mainstream media that 'taper' is priced in, Saxo Capital Markets warns that Emerging Market countries with large current account deficits like Brazil, India, South Africa, Indonesia, and Turkey face increasing problems. As the following chart shows (and highlghted most recently by Brazil's highest FX outflows since 2002!) could see their currencies weaken even further if the Fed's taper plans result in a deterioration of global risk appetite.

If You're Waiting For An "Economic Collapse", Just Look At What Is Happening To Europe

 If you are anxiously awaiting the arrival of the "economic collapse", just open up your eyes and look at what is happening in Europe.  The entire continent is a giant economic mess right now.  

The 25 companies with the largest corporate profits: The Green Giants

What’s going to kick-start economic growth in the US & Eurozone?

Takeshita Street, Tokyo 

Should developed states duplicate the PC-16’s strategies and try and kick-start economic growth with high-wage reindustrialization? Not according to Dean Baker. He thinks that the West should take a page out of Japan’s playbook if it wants to recover from its collective economic malaise.

Wall Streeters Are Starting To Pass Around This Chart Showing The Market On The Cusp Of A Big Crash

Dan Greenhaus of BTIG (@danBTIG) includes this chart in his latest nightly email. It shows the current market aligned with the market in the days before the Depression.

Dan Greenhaus

What does the chart mean?

We May Be In The Early Stages Of The Next Global Economic Crisis

Legacy NEW HAVEN – The global economy could be in the early stages of another crisis. Once again, the US Federal Reserve is in the eye of the storm.

As the Fed attempts to exit from so-called quantitative easing (QE) – its unprecedented policy of massive purchases of long-term assets – many high-flying emerging economies suddenly find themselves in a vise. Currency and stock markets in India and Indonesia are plunging, with collateral damage evident in Brazil, South Africa, and Turkey.

Hinde Capital On China, Gold, AndThe Continuing Unravelling Of Our Monetary Order

The global crisis is a financial crisis driven primarily by global trade and capital imbalances; and Hinde Capital believes the crisis is in full swing again and asset prices are in danger of falling globally. Money is less effective at catching the falling knife. Investors and policymakers do not believe this is the beginning of a major EM contagion crisis. They are lulling themselves into a false sense of security. They see the EM market tremors, and do not fear a re-run of the EM crises of old. They are right. This is not (just) going to be an EM crisis. The disproportionate reaction of central bankers and policymakers alike has merely succeeded in compounding and exacerbating the error of this highly imbalanced monetary system. Recent events in emerging countries are a manifestation of the continuing unravelling of our monetary order.

Via Hinde Capital,

The European-American Dream

Today, three European countries are among the world’s seven largest economies. Ten years from now, only two will remain. By 2030, only Germany will still be on the list, and by 2050, none will remain. Indeed, by then, the United States will be the only representative of the West in the top seven.

Illustration by Dean Rohrer

What this means is that the European states are too small to compete separately in the world of the twenty-first century. It’s as simple as that. By 2030, according to the World Bank, there will be two billion more people, mainly Asians, in the middle class. The pressure on the planet’s resources, commodities, water, and food will be huge, making a global rebalancing practically inevitable. And in a world marked by interdependence and constant change, Europe will find that unity is strength.

The Futures of Farming

What the closing of Kansas City’s Mercantile Exchange can teach us about how Wall Street stopped treating food like food.

 by Elizabeth Rush
Just off of Country Road 518 in Hopewell, New Jersey, sits Double Brook Farm. It’s run by a self-exiled New Yorker but it’s not one of those now-standard upstart farms, with roving bands of earnest college kids tending rocket and a hearty couple of ex-Brooklynites overseeing the whole grass-fed operation. Double Brook’s turn-of-the-century-barn, its grazing cattle, and its hundreds of Rhode Island Reds clucking and strutting about all belong to Jon McConaughy, a 46-year-old with an all-American face, a football player’s build, money to blow, and a beautiful wife. Last year, McConaughy exchanged a two-decade long career as a commodities trader on Wall Street for these two hundred acres.

Brussels: Financial sector must pay €30bn in taxes

On Thursday, February 14, the European Commission presented plans for a tax on financial transactions.

On Thursday, February 14, the European Commission presented plans for a tax on financial transactions. Starting in 2014, many of Europe's banks, insurers and pension funds will have to contribute towards "costs incurred by the financial crisis for which they were partly responsible".

Bretton Woods III

SINGAPORE – Many analysts and observers believe that the global imbalances that characterized the world economy in the years before the 2008 crisis have substantially dissipated. But, while it is true that China’s current-account surpluses and America’s deficits have somewhat moderated since then, have the imbalances really been corrected? More important, can the post-crisis global economy enjoy both growth and balance?

To answer these questions, it is important to understand the imbalances’ underlying dynamics. An economy’s current account is the difference between its investment rate and its savings rate. In 2007, the United States had a savings rate of 14.6% of GDP, but an investment rate of 19.6%, generating a current-account deficit. By contrast, China had a fixed investment rate of 41.7% of GDP and a savings rate of 51.9%, reflected in a large surplus.

The Politics of Global Recovery in 2013

OS – Could 2013 be a better year for the global economy than 2012 was? The answer, in principle, is yes. In practice, however, the answer could be more depressing.

 

In the United States, the pieces are in place for stronger growth. The housing market is finally recovering. The Fed has signaled that it is prepared to do more to support growth and bring down unemployment. All that other US policymakers have to do to ensure that 2013 is better than 2012 is avoid shooting themselves in the foot.

Is Growth Over?

The great bulk of the economic commentary you read in the papers is focused on the short run: the effects of the “fiscal cliff” on U.S. recovery, the stresses on the euro, Japan’s latest attempt to break out of deflation. This focus is understandable, since one global depression can ruin your whole day. But our current travails will eventually end. What do we know about the prospects for long-run prosperity?

Fred R. Conrad/The New York Times

Paul Krugman

The answer is: less than we think.

The long-term projections produced by official agencies, like the Congressional Budget Office, generally make two big assumptions. One is that economic growth over the next few decades will resemble growth over the past few decades. In particular, productivity — the key driver of growth — is projected to rise at a rate not too different from its average growth since the 1970s. On the other side, however, these projections generally assume that income inequality, which soared over the past three decades, will increase only modestly looking forward.

It’s not hard to understand why agencies make these assumptions. Given how little we know about long-run growth, simply assuming that the future will resemble the past is a natural guess. On the other hand, if income inequality continues to soar, we’re looking at a dystopian, class-warfare future — not the kind of thing government agencies want to contemplate.

Yet this conventional wisdom is very likely to be wrong on one or both dimensions.

Euro Lessons for East Asia

East Asia could learn two valuable lessons from the eurozone crisis. First, do not rush the process of financial and monetary integration; and, second, develop adequate institutional frameworks before proceeding.

Illustration by Pedro Molina

In fact, East Asian countries are unlikely to move toward a regional fixed exchange-rate system or a monetary union with a single currency in the immediate future, owing to the region’s great diversity in terms of economic and political conditions. Perhaps, in a few decades, the region’s countries will develop institutions to promote financial integration, such as a single bank supervisory agency of the type that the European Union is now creating.

Nevertheless, Asian policymakers should improve cooperation mechanisms designed to prevent and manage crises. Most promising is the Chiang Mai Initiative Multilateralization (CMIM) of the ASEAN+3 – the 10 members of the Association of Southeast Asian Nations plus China, Japan, and South Korea. This $120 billion regional reserve pool was launched in 2010 to provide short-term liquidity to members in an emergency.

When people don’t behave according to economic models

What falls outside the standard assumptions and models of economics?  How does that matter for development?  Last week, the Africa Chief Economist’s Office and the Development Economics Research Group of the World Bank sponsored a star-studded course exploring exactly this issue.

Nobel Prize winner George Akerlof highlighted how, because of all the advantages of markets, we ignore the traps that come along with them.  Sellers can deceive buyers and prey on their unconscious biases, lack of self-control, and naiveté. 

Using his famous “lemons” market example, Akerlof showed that, instead of there being no equilibrium, naïve buyers will in equilibrium buy poor-quality used cars. He calls this phenomenon “Phishing for Phools”.

Decisions are also consistently affected by beliefs about what is right and what is normal, the “framing” of our choices.  World Bank economist Karla Hoff showed how soap operas have dramatically affected people’s beliefs about reconciliation and a willingness to disagree with leaders in post-genocide Rwanda; they have also positively affected views of women’s roles in India.  Likewise, quotas on women community leaders in India have transformed people’s views on the appropriateness of women in leadership positions.  Not only is framing powerful: Popular media can be used to shape frames and open people to a wider array of choices.

Esther Duflo of MIT showed how a rational decision maker could be affected by hope and hopelessness, often leaving him or her in a poverty trap.  Imagine a business which must cross a certain threshold to reach high profitability.  A small business owner who doesn’t believe she has a chance of ever crossing that line may decide it isn’t worth doing her best on other business decisions.  Likewise, someone who doesn’t believe they’ll ever be truly healthy may not see a point in investing in nutrition.  “A little bit of hope allows people to realize their potential,”  she said.

Innovation Crisis or Financial Crisis?

CAMBRIDGE – As one year of sluggish growth spills into the next, there is growing debate about what to expect over the coming decades. Was the global financial crisis a harsh but transitory setback to advanced-country growth, or did it expose a deeper long-term malaise?

Illustration by Chris Van Es

Recently, a few writers, including internet entrepreneur Peter Thiel and political activist and former world chess champion Garry Kasparov, have espoused a fairly radical interpretation of the slowdown. In a forthcoming book, they argue that the collapse of advanced-country growth is not merely a result of the financial crisis; at its root, they argue, these countries’ weakness reflects secular stagnation in technology and innovation. As such, they are unlikely to see any sustained pickup in productivity growth without radical changes in innovation policy.

Economist Robert Gordon takes this idea even further. He argues that the period of rapid technological progress that followed the Industrial Revolution may prove to be a 250-year exception to the rule of stagnation in human history. Indeed, he suggests that today’s technological innovations pale in significance compared to earlier advances like electricity, running water, the internal combustion engine, and other breakthroughs that are now more than a century old.

Fiscal cliff lessons from the eurozone crisis

Financial Times

As the deadline to avert the fiscal cliff gets closer, US policy makers may want to learn some lessons from the way eurozone authorities managed their crisis. Let’s consider four.

The first is that policy authorities tend to act too late, after financial markets have lost confidence. This is because of a belief among policy makers that the unpopularity of decisions will diminish only when voters understand that the alternative is much worse. Only on the verge of disaster do citizens understand that unpalatable policies are necessary. But by that point, financial markets start questioning the determination and ability of policy makers to face the situation and tend to lose confidence. At that point, even more unpalatable actions may be required.